87
=====================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
---------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-8611
U S WEST, Inc.
<TABLE>
<CAPTION>
<S> <C>
A Delaware Corporation IRS Employer No. 84-0926774
</TABLE>
7800 East Orchard Road, Englewood, Colorado 80111-2526
Telephone Number 303-793-6500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X_ No __
The number of shares of U S WEST, Inc.'s common stock outstanding (net of
shares held in treasury), at July 31, 1996, was:
U S WEST Communications Group Common Stock - 477,632,812 shares;
U S WEST Media Group Common Stock - 473,866,707 shares
=====================================================================
<PAGE>
U S WEST, Inc.
Form 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Item Page
- ---- ----
PART I - FINANCIAL INFORMATION
1. U S WEST, Inc. Financial Information
Consolidated Statements of Income -
Three and Six Months Ended June 30, 1996 and 1995 3
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8
2. U S WEST, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
1. U S WEST Communications Group Financial Information
Combined Statements of Income -
Three and Six Months Ended June 30, 1996 and 1995 29
Combined Balance Sheets -
June 30, 1996 and December 31, 1995 30
Combined Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 32
Notes to Combined Financial Statements 33
2. U S WEST Communications Group Management's Discussion and
Analysis of Financial Condition and Results of Operations 36
1. U S WEST Media Group Financial Information
Combined Statements of Operations -
Three and Six Months Ended June 30, 1996 and 1995 46
Combined Balance Sheets -
June 30, 1996 and December 31, 1995 47
Combined Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 49
Notes to Combined Financial Statements 50
2. U S WEST Media Group Management's Discussion and
Analysis of Financial Condition and Results of Operations 55
PART II - OTHER INFORMATION
1. Legal Proceedings 67
4. Submission of Matters to a Vote of Security Holders 68
6. Exhibits and Reports on Form 8-K 69
</TABLE>
<PAGE>
Form 10-Q, Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED STATEMENTS OF INCOME U S WEST, Inc.
(Unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
Dollars in millions 1996 1995 1996 1995
- -------------------------------------------- ----------- ---------- ----------- ----------
Sales and other revenues $ 3,124 $ 2,894 $ 6,174 $ 5,722
Operating expenses:
Employee-related expenses 1,098 997 2,141 1,975
Other operating expenses 609 559 1,200 1,069
Taxes other than income taxes 111 113 218 227
Depreciation and amortization 588 562 1,172 1,122
----------- ---------- ----------- ----------
Total operating expenses 2,406 2,231 4,731 4,393
Income from operations 718 663 1,443 1,329
Interest expense 136 139 271 267
Equity losses in unconsolidated ventures 77 33 143 90
Gains on sales of rural telephone exchanges 49 15 49 78
Guaranteed minority interest expense 12 - 24 -
Other income (expense) - net (23) 8 (46) 2
----------- ---------- ----------- ----------
Income before income taxes and cumulative
effect of change in accounting principle 519 514 1,008 1,052
Provision for income taxes 206 196 398 404
----------- ---------- ----------- ----------
Income before cumulative effect of change in
accounting principle 313 318 610 648
Cumulative effect of change in accounting
principle - net of tax - - 34 -
----------- ---------- ----------- ----------
NET INCOME 313 318 644 648
Dividends on preferred stock 1 1 2 2
----------- ---------- ----------- ----------
EARNINGS AVAILABLE FOR
COMMON STOCK $ 312 $ 317 $ 642 $ 646
=========== ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q, Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED STATEMENTS OF INCOME U S WEST, Inc.
(Unaudited), continued
<CAPTION>
<S> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
In thousands (except per share amounts) 1996 1995 1996 1995
- ----------------------------------------------- ----------- ---------- ---------- ---------
COMMUNICATIONS GROUP EARNINGS
PER COMMON SHARE:
Income before cumulative effect of change in
accounting principle $ 0.68 $ 0.62 $ 1.30 $ 1.29
Cumulative effect of change in accounting
principle - - 0.07 -
----------- ---------- ---------- ---------
COMMUNICATIONS GROUP EARNINGS
PER COMMON SHARE $ 0.68 $ 0.62 $ 1.37 $ 1.29
=========== ========== ========== =========
COMMUNICATIONS GROUP DIVIDENDS
PER COMMON SHARE $ 0.535 $ 0.535 $ 1.07 $ 1.07
=========== ========== ========== =========
COMMUNICATIONS GROUP AVERAGE
COMMON SHARES OUTSTANDING 476,803 470,414 475,929 469,490
=========== ========== ========== =========
MEDIA GROUP EARNINGS (LOSS) PER
COMMON SHARE ($0.03) $ 0.05 ($0.02) $ 0.08
=========== ========== ========== =========
MEDIA GROUP AVERAGE COMMON
SHARES OUTSTANDING 473,593 470,414 473,298 469,490
=========== ========== ========== =========
U S WEST, Inc. EARNINGS PER COMMON
SHARE $ - $ 0.67 $ - $ 1.37
=========== ========== ========== =========
U S WEST, Inc. AVERAGE COMMON
SHARES OUTSTANDING - 470,414 - 469,490
=========== ========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q, Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED BALANCE SHEETS U S WEST, Inc.
(Unaudited)
<CAPTION>
<S> <C> <C>
June 30, December 31,
Dollars in millions 1996 1995
- ---------------------------------------- --------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 127 $ 192
Accounts and notes receivable - net 1,872 1,886
Inventories and supplies 220 227
Deferred tax asset 241 282
Prepaid and other 375 322
--------- -------------
Total current assets 2,835 2,909
--------- -------------
Gross property, plant and equipment 33,622 32,884
Accumulated depreciation 18,633 18,207
--------- -------------
Property, plant and equipment - net 14,989 14,677
Investment in Time Warner Entertainment 2,497 2,483
Intangible assets - net 1,761 1,798
Investments in international ventures 1,365 1,511
Net investment in assets held for sale 407 429
Other assets 1,435 1,264
--------- -------------
Total assets $ 25,289 $ 25,071
========= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED BALANCE SHEETS U S WEST, Inc.
(Unaudited), continued
<CAPTION>
<S> <C> <C>
Dollars in millions June 30, 1996 December 31, 1995
- --------------------------------------------------- --------------- -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,735 $ 1,901
Accounts payable 760 975
Employee compensation 333 385
Dividends payable 256 254
Current portion of restructuring charge 205 282
Other 1,390 1,255
--------------- -------------------
Total current liabilities 4,679 5,052
--------------- -------------------
Long-term debt 7,360 6,954
Postretirement and other postemployment benefit
obligations 2,414 2,433
Deferred taxes, credits and other 1,968 2,033
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely Company-guaranteed debentures 600 600
Preferred stock subject to mandatory redemption 51 51
Common shareowners' equity:
Common shares 8,373 8,228
Cumulative deficit (9) (115)
LESOP guarantee (109) (127)
Foreign currency translation adjustments (38) (38)
--------------- -------------------
Total common shareowners' equity 8,217 7,948
--------------- -------------------
Total liabilities and shareowners' equity $ 25,289 $ 25,071
=============== ===================
</TABLE>
Contingencies (See Note C to the Consolidated Financial Statements)
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS U S WEST, Inc.
(Unaudited) Dollars in millions
<CAPTION>
<S> <C> <C>
Six Months Ended June 30, 1996 1995
- ----------------------------------------------------------- -------- --------
OPERATING ACTIVITIES
Net income $ 644 $ 648
Adjustments to net income:
Depreciation and amortization 1,172 1,122
Equity losses in unconsolidated ventures 143 90
Gains on sales of rural telephone exchanges (49) (78)
Cumulative effect of change in accounting principle (34) -
Deferred income taxes and amortization
of investment tax credits (50) 63
Changes in operating assets and liabilities:
Restructuring payments (82) (180)
Postretirement medical and life costs - net of cash (24) (144)
fundings
Accounts and notes receivable 21 (127)
Inventories, supplies and other (45) (68)
Accounts payable and accrued liabilities (55) 76
Other - net (10) 29
-------- --------
Cash provided by operating activities 1,631 1,431
-------- --------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (1,509) (1,265)
Investment in international ventures (139) (291)
Proceeds from disposals of property, plant and equipment 104 112
Cash (to) from net investment in assets held for sale 93 (37)
Other - net (74) (281)
-------- --------
Cash (used for) investing activities (1,525) (1,762)
-------- --------
FINANCING ACTIVITIES
Net proceeds from issuance of short-term debt 340 1,103
Proceeds from issuance of long-term debt 330 -
Repayments of long-term debt (476) (390)
Dividends paid on common stock and preferred stock (469) (464)
Proceeds from issuance of common stock 104 23
Purchases of treasury stock - (63)
-------- --------
Cash (used for) provided by financing activities (171) 209
-------- --------
CASH AND CASH EQUIVALENTS
Decrease (65) (122)
Beginning balance 192 209
-------- --------
Ending balance $ 127 $ 87
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 1996 and 1995
(Dollars in millions)
(Unaudited)
A. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements have been prepared by U S WEST, Inc. ("U
S WEST" or the "Company") pursuant to the interim reporting rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally accompanying financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. In the opinion of U S WEST's management, the Consolidated
Financial Statements include all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial information
set forth therein. It is suggested that these Consolidated Financial
Statements be read in conjunction with the 1995 U S WEST Consolidated
Financial Statements and notes thereto included in U S WEST's proxy statement
mailed to all shareowners on April 8, 1996.
Earnings Per Common Share
U S WEST Communications Group earnings per common share and dividends per
common share and U S WEST Media Group earnings per common share for 1995 have
been presented on a pro forma basis to reflect the Communications Group's and
the Media Group's stock as if it had been outstanding since January 1, 1995.
For periods prior to the November 1, 1995 recapitalization, the average common
shares outstanding are assumed to be equal to the average common shares
outstanding for U S WEST.
New Accounting Standard
Effective January 1, 1996, U S WEST adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
that long-lived assets and associated intangibles be written down to fair
value whenever an impairment review indicates that the carrying value cannot
be recovered on an undiscounted cash flow basis. SFAS No. 121 also requires
that a company no longer record depreciation expense on assets held for sale.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions, except per share amounts)
(Unaudited)
Adoption of SFAS No. 121 resulted in income of $34 (net of tax of $22) from
the cumulative effect of reversing depreciation expense recorded in prior
years related to rural telephone exchanges held for sale. Depreciation
expense was reversed from the date the Company formally committed to a plan to
dispose of the rural exchange assets through January 1, 1996. The income has
been recorded as a cumulative effect of change in accounting principle in
accordance with SFAS No. 121. The carrying value of the rural exchange assets
was approximately $338 at December 31, 1995. As a result of adopting SFAS No.
121, depreciation expense for the three and six months ended June 30, 1996 was
reduced by $8 ($5 after tax, or $0.01 per Communications Group share) and $16
($10 after tax, or $0.02 per Communications Group share), respectively. In
1996, depreciation expense will decrease approximately $30 as a result of
adopting SFAS No. 121. The combined effects of lower depreciation expense and
the cumulative effect of adoption of the new standard will be directly offset
by lower recognized gains on future rural exchange sales.
B. Investment in Time Warner Entertainment
On September 15, 1993, U S WEST acquired 25.51 percent pro-rata priority
capital and residual equity interests in Time Warner Entertainment Company
L.P. ("TWE"). Summarized operating results for TWE follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues $ 2,608 $ 2,392 $ 5,093 $ 4,438
Operating expenses*<F1> 2,311 2,126 4,528 3,981
Interest and other - net**<F2> 202 185 358 361
--------- --------- --------- ---------
Income before income taxes $ 95 $ 81 $ 207 $ 96
========= ========= ========= =========
Net income $ 74 $ 56 $ 168 $ 60
========= ========= ========= =========
<FN>
<F1>
* Includes depreciation and amortization of $294 and $275, and $582 and
$501 for the three and six months ended June 30, 1996 and 1995, respectively.
<F2>
** Includes corporate services of $18 and $15, and $35 and $30 for the
three and six months ended June 30, 1996 and 1995, respectively.
</FN>
</TABLE>
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions)
(Unaudited)
U S WEST accounts for its investment in TWE under the equity method of
accounting. U S WEST's recorded share of TWE operating results represents
allocated TWE net income or loss adjusted for the amortization of the excess
of the fair market value over the book value of the partnership net assets.
The Company's recorded share of TWE operating results was $5 and $2, and $14
and ($11) for the three and six months ended June 30, 1996 and 1995,
respectively.
C. Contingencies
At U S WEST Communications, Inc. ("U S WEST Communications") there are pending
regulatory actions in local regulatory jurisdictions that call for price
decreases, refunds or both. In one such instance, the Utah Supreme Court has
remanded a Utah Public Service Commission ("PSC") order to the PSC for
reconsideration, thereby establishing two exceptions to the rule against
retroactive ratemaking: 1) unforeseen and extraordinary events, and 2)
misconduct. The PSC's initial order denied a refund request from
interexchange carriers and other parties related to the Tax Reform Act of
1986. This action is still in the discovery process. If a formal filing -
made in accordance with the remand from the Supreme Court - alleges that the
exceptions apply, the range of possible risk is $0 to $155.
On April 11, 1996, the Washington State Utilities and Transportation
Commission ("WUTC" or the "Commission") acted on U S WEST Communications' 1995
rate request. In February 1995, U S WEST Communications sought to increase
revenues by raising rates for basic residential services over a four-year
period. The two major issues in this proceeding involve U S WEST
Communications' requests for improved capital recovery and elimination of the
imputation of Yellow Pages revenue. Instead of granting U S WEST
Communications' request, the Commission ordered approximately $91.5 in annual
revenue reductions, effective May 1, 1996. Based on the above ruling, U S
WEST Communications filed a lawsuit with the King County Superior Court (the
"Court") for an appeal of the order, a temporary stay of the ordered rate
reduction and an authorization to implement a revenue increase.
On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC.
The Court granted the stay for a period of six months or until a decision is
made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST
Communications began collecting revenues subject to refund with interest. U S
WEST Communications expects its appeal to be successful and plans not to
accrue any of the amounts subject to refund. However, an adverse judgment on
the appeal would have a significant impact on U S WEST Communications' future
results of operations.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions, except per share amounts)
(Unaudited)
D. Investment in International Ventures
The Media Group has reviewed the financial and operating performance, market
value and capital requirements of its international investment portfolio and
has identified certain investments it believes are appropriate to sell or
restructure under acceptable terms. As a result, in second-quarter 1996, the
Media Group: 1) recorded a pretax charge of $31 associated with an
international cable television investment to reflect the investment at fair
value; and 2) is pursuing a restructuring whereby the Company increased its
ownership in a cable television joint venture in the Czech Republic to 57.5
percent from 28.6 percent through the conversion of debt to additional equity.
The outcome of this restructuring is uncertain.
E. Debt Exchangeable for Common Stock
On May 13, 1996, U S WEST issued $254 of Debt Exchangeable for Common Stock
("DECS") to Salomon Inc. due May 15, 1999, in the principal amount of $26.63
per note. The notes bear interest at 7.625 percent. Upon maturity, each DECS
will be mandatorily redeemed by U S WEST for shares of Financial Security
Assurance Holdings Ltd. ("FSA") held by U S WEST or the cash equivalent, at U
S WEST's option. The number of shares to be delivered at maturity varies
based on the per share market price of FSA. If the market price is $26.63 per
share or less, one share of FSA will be delivered for each note; if the market
price is between $26.63 and $32.48 per share, a fractional share is delivered
so that the value at maturity is equal to $26.63; if the market value is
greater than $32.48 per share, .8197 shares are delivered. The capital assets
segment currently owns approximately 40 percent of the outstanding FSA common
stock. The shares of FSA to be delivered upon maturity of the DECS, combined
with the exercise of outstanding options held by Fund American Enterprises
Holdings, Inc. to purchase FSA shares would, if consummated, result in a
complete disposition of U S WEST's ownership in FSA.
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions)
(Unaudited)
F. Net Investment in Assets Held for Sale
Effective January 1, 1995, the capital assets segment has been accounted for
in accordance with Staff Accounting Bulletin No. 93, issued by the Securities
Exchange Commission, which requires discontinued operations not disposed of
within one year of the measurement date to be accounted for prospectively in
continuing operations as "net investment in assets held for sale." The net
realizable value of the assets will be reevaluated on an ongoing basis with
adjustments to the existing reserve, if any, being charged to continuing
operations. Prior to January 1, 1995, the entire capital assets segment was
accounted for as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30.
Building sales and operating revenues of the capital assets segment were $21
and $31, and $51 and $107 for the three- and six-month periods ended June 30,
1996 and 1995, respectively.
The components of net investment in assets held for sale follow:
<TABLE>
<CAPTION>
<S> <C> <C>
Dollars in millions June 30, 1996 December 31, 1995
- ------------------------------------------------------ -------------- ------------------
ASSETS
Cash and cash equivalents $ 22 $ 38
Finance receivables - net 941 953
Investment in real estate - net of valuation allowance 357 368
Bonds, at market value 141 149
Investment in FSA 294 384
Other assets 173 177
-------------- ------------------
Total assets $ 1,928 $ 2,069
============== ==================
LIABILITIES
Debt $ 676 $ 796
Deferred income taxes 689 686
Accounts payable, accrued liabilities and other 146 148
Minority interests 10 10
-------------- ------------------
Total liabilities 1,521 1,640
-------------- ------------------
Net investment in assets held for sale $ 407 $ 429
============== ==================
</TABLE>
<PAGE>
Form 10-Q - Part I
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Dollars in millions)
(Unaudited)
During the second quarter of 1996, U S WEST received $98 from the sale of
3,750,000 shares of FSA common stock. These shares were sold to FSA, FSA
management and Fund American Enterprises Holdings, Inc. This sale reduced the
company's ownership in FSA to approximately 40 percent.
Selected financial data for U S WEST Financial Services follows:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 1996 December 31, 1995
-------------- ------------------
Net finance receivables $ 926 $ 931
Total assets 1,076 1,085
Total debt 264 274
Total liabilities 1,015 1,024
Shareowner's equity 61 61
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts)
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH
1995
Comparative details of income (loss) before cumulative effect of change in
accounting principle for the three and six months ended June 30 follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
---------- --------- -------- ---------- --------- --------
Communications Group $ 324 $ 293 10.6 $ 618 $ 608 1.6
Media Group (11) 25 - (8) 40 -
---------- --------- -------- ---------- --------- --------
Income (loss) before cumulative
effect of change in accounting
principle $ 313 $ 318 (1.6) $ 610 $ 648 (5.9)
========== ========= ======== ========== ========= ========
Earnings (loss) per common share
before cumulative effect of change
in accounting principle:
Communications Group $ 0.68 $ 0.62 9.7 $ 1.30 $ 1.29 0.8
Media Group (0.03) 0.05 - (0.02) 0.08 -
- ------------------------------------ ---------- --------- -------- ---------- --------- --------
</TABLE>
Communications Group
Adjusted to exclude certain nonoperating items, the Communications Group's
second-quarter 1996 income before cumulative effect of change in accounting
principle was $289, an increase of $6, or 2.1 percent, compared with second
quarter 1995. Second-quarter 1996 earnings per common share before cumulative
effect of change in accounting principle ("earnings per share"), similarly
adjusted, were $0.61, compared with $0.60 in 1995. The nonoperating
adjustments include the 1996 current quarter, after-tax impact of $5 ($0.01
per share) from adopting SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and after-tax
gains of $30 ($0.06 per share) and $10 ($0.02 per share) on the sales of rural
telephone exchanges during second quarter 1996 and 1995, respectively.
The Communications Group's income before cumulative effect of change in
accounting principle for the six months ended June 30, 1996, adjusted to
exclude certain nonoperating items, was $578, an increase of $19, or 3.4
percent compared with the same period in 1995. Earnings per share for the six
months ended June 30, 1996, similarly adjusted, were $1.22, compared with
$1.19 in the same period in 1995. The nonoperating adjustments include the
1996 current year-to-date after-tax impact of $10 ($0.02 per share) from
adopting SFAS No. 121 and after-tax gains of $30 ($0.06 per share) and $49
($0.10 per share) on the sales of rural telephone exchanges during the first
six months of 1996 and 1995, respectively.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts),
continued
Effective January 1, 1996, the Communications Group adopted SFAS No. 121 (See
Footnote A) which, among other things, requires that companies no longer
record depreciation expense on assets held for sale. Adoption of SFAS No. 121
resulted in a one-time gain of $34, or $0.07 per share, related to the
cumulative effect of change in accounting principle.
Increased income at the Communications Group is attributable to higher demand
for services. Partially offsetting the effects of higher demand was an
increase in costs incurred to address the requirements associated with
accelerating business growth. Further offsetting the effects of higher demand
were costs associated with continuing service-improvement initiatives,
expenditures related to new business initiatives and flood conditions in the
Pacific Northwest during the first quarter of 1996.
Media Group
Net income of the Media Group decreased $36 to a loss of $11 for the quarter
and decreased $48 to a loss of $8 for the first six months of 1996. The
decreases are primarily a result of an after-tax charge of $19 to reflect an
international cable television investment at fair value and increased losses
associated with unconsolidated international ventures. These decreases in net
income were partially offset by improvement in the wireless communications
business.
Sales and Other Revenues
An analysis of the change in U S WEST's consolidated sales and other revenues
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
---------- ---------- -------- ---------- ---------- --------
Communications Group $ 2,500 $ 2,338 6.9 $ 4,965 $ 4,656 6.6
Media Group 658 585 12.5 1,271 1,121 13.4
Intergroup eliminations (34) (29) (17.2) (62) (55) (12.7)
---------- ---------- -------- ---------- ---------- --------
Total $ 3,124 $ 2,894 7.9 $ 6,174 $ 5,722 7.9
======================= ========== ========== ======== ========== ========== ========
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Communications Group Operating Revenues
An analysis of changes in the Communications Group's operating revenues
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Higher (Higher) Increase Increase
(Lower) Lower (Decrease) (Decrease)
1996 1995 Prices Refunds Growth Other Dollars Percentage
------ ------ -------- --------- -------- ------- ----------- -----------
Local service
Second quarter $1,179 $1,076 $ 10 $ (1) $ 97 $ (3) $ 103 9.6
Six months 2,324 2,126 17 (5) 194 (8) 198 9.3
Interstate access
Second quarter 626 591 (17) (7) 59 - 35 5.9
Six months 1,248 1,180 (33) (7) 110 (2) 68 5.8
Intrastate access
Second quarter 189 184 (8) - 13 - 5 2.7
Six months 379 372 (15) - 24 (2) 7 1.9
Long-distance network
Second quarter 278 294 (2) - (10) (4) (16) (5.4)
Six months 568 593 (5) - (15) (5) (25) (4.2)
Other services
Second quarter 228 193 - - - 35 35 18.1
Six months 446 385 - - - 61 61 15.8
------ ------ -------- --------- -------- ------- ----------- -----------
Total revenues
Second quarter 2,500 2,338 (17) (8) 159 28 162 6.9
Six months $4,965 $4,656 $ (36) $ (12) $ 313 $ 44 $ 309 6.6
====== ====== ======== ========= ======== ======= =========== ===========
</TABLE>
Local service revenues increased principally as a result of higher demand for
services. Total reported access lines increased 586,000, or 4.0 percent
during the last 12 months, of which 228,000 is attributed to second lines.
Second line installations increased 32 percent during the past year. Access
line growth was 4.9 percent when adjusted for sales of approximately 124,000
rural telephone access lines during the last 12 months. Also contributing to
the increase in local service revenues was expanded growth in new product and
service offerings such as caller identification and call waiting. Local
service revenues from new product and service offerings were approximately $44
for the second quarter, an increase of over 100 percent as compared to the
same period in 1995. For the six-month period ended June 30, 1996,
approximately $80 of local service revenues were generated from new product
and service offerings, an increase of approximately 120 percent as compared to
1995.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Higher revenues from interstate access services resulted from access line
growth and increases of 9.4 and 9.5 percent in interstate billed access
minutes of use for the three- and six-month periods ended June 30, 1996. The
increased volume of business was partially offset by the effects of price
reductions and refunds.
Intrastate access revenues increased slightly for the three- and six-month
periods ended June 30, 1996, primarily due to higher demand offset largely by
the effects of price reductions.
Long-distance network revenues decreased by 5.4 and 4.2 percent for the three-
and six-month periods ended June 30, 1996, respectively, compared with the
same periods in 1995, primarily due to the effects of competition, rate
reductions and the implementation of a multiple toll carrier plan (MTCP) in
Iowa in May 1996. The MTCP allows independent telephone companies to act as
toll carriers. The impact of the MTCP for the three- and six-month periods
ended June 30, 1996 was long-distance revenue losses of $6, offset by
increases in intrastate access revenues of $1 and decreases in other operating
expenses (i.e. access expense) of $6.
Excluding the effects of the MTCP, long-distance network revenues decreased
3.4 and 3.2 percent for the three- and six-month periods ended June 30, 1996.
Erosion of long-distance revenue will continue due to the loss of exclusivity
of 1+ dialing in Minnesota, which became effective in February 1996, and in
Arizona, effective in April 1996.
Revenues from other services increased for the three- and six-month periods
ended June 30, 1996 primarily as a result of continued market penetration in
voice messaging services, increases in inside wire services and sales of
customer premise equipment.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Media Group Sales and Other Revenues
An analysis of the Media Group's sales and other revenues follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
--------- --------- -------- --------- --------- --------
Directory and information
services:
Domestic $ 279 $ 262 6.5 $ 550 $ 520 5.8
International 25 30 (16.7) 42 44 (4.5)
--------- --------- -------- --------- --------- --------
304 292 4.1 592 564 5.0
Wireless communications:
Cellular service 267 207 29.0 506 393 28.8
Cellular equipment 23 21 9.5 48 37 29.7
--------- --------- -------- --------- --------- --------
290 228 27.2 554 430 28.8
Cable and telecommunications 59 55 7.3 116 109 6.4
Other 5 10 (50.0) 9 18 (50.0)
--------- --------- -------- --------- --------- --------
Sales and other revenues $ 658 $ 585 12.5 $ 1,271 $ 1,121 13.4
============================ ========= ========= ======== ========= ========= ========
</TABLE>
Media Group sales and other revenues increased 12.5 percent to $658 and 13.4
percent to $1,271 for the three- and six-month periods ended June 30, 1996,
respectively. The increases were primarily a result of strong growth in
cellular service revenue.
Directory and Information Services Revenues related to Yellow Pages directory
advertising increased approximately $19, or 7.5 percent, and $34, or 6.7
percent, in the three- and six-month periods ended June 30, 1996,
respectively. The increases are largely a result of a 3.7 percent increase in
revenue per local advertiser (primarily a result of price increases of
approximately 4.0 percent) and a 1.9 percent increase in local advertisers.
International directory publishing revenues decreased $5 and $2 in the three-
and six-month periods ended June 30, 1996, respectively. The decreases are
primarily a result of fewer directories published in 1996 compared with the
same periods in 1995.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Wireless Communications Cellular service revenues increased $60, or 29.0
percent, and $113, or 28.8 percent, in the three- and six-month periods ended
June 30, 1996, respectively. These increases are a result of a 46 percent
increase in subscribers during the last twelve months partially offset by a 12
percent drop (on a same property basis) in average revenue per subscriber to
$54.00 per month. The increase in subscribers relates to continued growth in
demand for wireless services.
Cellular equipment revenues increased $2, or 9.5 percent, and $11, or 29.7
percent, in the three- and six-month periods ended June 30, 1996,
respectively. These increases are primarily a result of an increase in unit
sales associated with a 35 percent increase in gross customer additions in the
first six months of 1996, partially offset by a decrease in selling price per
unit.
In July 1994, U S WEST signed an agreement with AirTouch Communications, Inc.
("AirTouch") to combine their domestic cellular properties into a partnership
in a multi-phased transaction. During Phase I, which commenced on November 1,
1995, the partners are operating their cellular properties separately. A
Wireless Management Company has been formed and is providing centralized
services to both companies on a contract basis. In Phase II, the partners
will combine their domestic properties into a partnership, subject to
obtaining certain authorizations. The parties are seeking to obtain
regulatory and other approvals precedent to entering into Phase II. The
recent passage of the Telecommunications Act of 1996 has removed significant
regulatory barriers to completion of Phase II. Currently management expects
the interests in the partnership will adjust from the previously disclosed 70
percent AirTouch and 30 percent U S WEST, to approximately 74 percent AirTouch
and 26 percent U S WEST (assuming contribution of all domestic cellular
properties). This adjustment reflects the planned acquisition of Cellular
Communications, Inc. ("CCI") by AirTouch. The actual interests in the
partnership at the commencement of Phase II depend, among other things, on the
timing of the Phase II closing and the ability of the partners to combine
their domestic properties. U S WEST's interest in the partnership will further
adjust depending on the timing of the contribution of its PCS investment. The
timing of such contribution is at U S WEST's discretion and will occur either
at the closing of Phase II or a date selected by U S WEST, no later than
mid-1998.
U S WEST has the right to convert its joint venture interest in the domestic
cellular properties into ownership of AirTouch common shares at an appraised
private market value. In the event the value to be received by U S WEST
exceeds 19.9 percent of AirTouch's outstanding common stock, U S WEST will
receive the excess in the form of non-voting preferred stock. This right
becomes exercisable upon the latter of: 1) completion of Phase II of the
merger; 2) completion of the planned acquisition of CCI by AirTouch; and 3)
contribution of both U S WEST's and AirTouch's interests in PrimeCo Personal
Communications LP (formerly PCS PrimeCo) to the joint venture. The Company
expects that these conditions will be met by the end of 1996 or early 1997.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Cable and Telecommunications Cable and telecommunications revenues increased
$6, or 12.1 percent, and $11, or 11.1 percent, in the three- and six-month
periods ended June 30, 1996, respectively. These increases give effect to a
change in the method of recording franchise fees implemented in late 1995 as
if it was in effect throughout 1995. A 5.1 percent increase in revenue per
subscriber (primarily a result of price increases) and a 7.2 percent increase
in subscribers during the last twelve months were the primary factors
underlying the revenue increases.
Costs and Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
---------- --------- -------- ---------- --------- --------
Employee-related expenses $ 1,098 $ 997 10.1 $ 2,141 $ 1,975 8.4
Other operating expenses 609 559 8.9 1,200 1,069 12.3
Taxes other than income taxes 111 113 (1.8) 218 227 (4.0)
Depreciation and amortization 588 562 4.6 1,172 1,122 4.5
Interest expense 136 139 (2.2) 271 267 1.5
Equity losses in unconsolidated
ventures 77 33 - 143 90 58.9
Guaranteed minority interest 12 - - 24 - -
expense
Other income (expense) - net (23) 8 - (46) 2 -
- ------------------------------- ---------- --------- -------- ---------- --------- --------
</TABLE>
Employee-related expenses at the Communications Group increased $90 and $144
for the three- and six-month periods ended June 30, 1996, respectively, as
compared to the same periods in 1995. The increases are primarily attributable
to continued efforts to meet the requirements associated with accelerating
business growth, service-improvement initiatives, and new business
initiatives.
Salaries and wages at the Communications Group increased employee-related
expenses by approximately $34 and $58 for the three- and six-month periods
ended June 30, 1996, respectively, primarily due to inflation-driven wage
increases. Salaries and wages were reduced through restructuring; however,
costs related to workforce additions needed to meet increased business growth
and service-improvement initiatives at the Communications Group offset these
benefits.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Overtime payments and contract labor at the Communications Group increased
approximately $40 and $78 for the three- and six-month periods ended June 30,
1996, respectively, compared with 1995. The increase in contract labor is
primarily due to increased network operations costs incurred to meet
accelerating business growth and marketing organization costs associated with
the implementation of new products and services. Additionally, approximately
$15 of the six-month increase in overtime and contract labor was attributed to
severe flooding in Washington and Oregon in the first quarter of 1996.
Partially offsetting the increases in the Communications Group
employee-related expenses was a reduction in the postretirement benefits
accrual and lower travel and conference expenses.
Employee-related expenses at the Media Group increased $11 and $22 for the
three- and six-month periods ended June 30, 1996, primarily related to
expansion of the domestic cellular subscriber base.
Other operating expenses at the Communications Group increased during the
three- and six-month periods ended June 30, 1996 primarily due to increased
uncollectibles, higher advertising costs and greater materials and supplies
expense. The increase is also attributable to higher costs associated with
increased sales of unregulated customer premise equipment. Offsetting these
increases was the implementation of the MTCP in Iowa in May 1996.
Other operating expenses at the Media Group increased primarily due to the
rapid expansion of the Media Group's domestic cellular subscriber base and
increased costs related to implementing a new brand name.
Taxes other than income taxes decreased primarily as a result of timing.
Increased depreciation and amortization expense was attributable to the
effects of a higher depreciable asset base at the Communications Group and
expansion of the Media Group's domestic cellular network, partially offset by
the effects of 1995 sales of rural telephone exchanges and the adoption of
SFAS No. 121.
Interest expense increased primarily due to higher interest rates associated
with refinancing commercial paper in the latter part of 1995 combined with
slightly higher debt levels. During the three-month period ended June 30,
1996, these increases were more than offset by an increase in the amount of
capitalized interest related to the domestic PCS investment which contributed
to the slight decrease in interest expense.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Equity losses increased $44 and $53 for the three- and six-month periods,
respectively. The increases are predominantly a result of increased financing
costs associated with expansion of the network at TeleWest. Start-up and
other costs associated with new international investments and the domestic
PrimeCo Personal Communications LP ("PrimeCo") investment also contributed to
the increase in losses. The Media Group expects losses related to
international ventures will be significant in 1996. Increased losses related
to international investments were partially offset by increased earnings
related to the investment in TWE due to improved results from the filmed
entertainment, cable and programming-HBO divisions. Cable subscribers served
by TWE increased 4.9 percent compared to a year ago excluding the impact of
1995 cable transactions.
Guaranteed minority interest expense reflects the issuance of Preferred
Securities in the third quarter of 1995.
Other income (expense) decreased $31 and $48 for the three- and six-month
periods, respectively. The decrease is primarily due to a pretax charge of
$31 associated with an international cable television investment to reflect
the investment at fair value. The decrease is also partially the result of
first-quarter 1996 foreign exchange losses of $7.
Liquidity and Capital Resources
Operating Activities
Cash provided by operations increased $200 in the first six months of 1996,
compared with the same period in 1995. Business growth along with a decrease
in the cash funding of postretirement benefits and lower restructuring
expenditures contributed to the increase in cash provided by operations.
Partially offsetting the increase were higher federal income tax payments
associated with the Communications Group and the TWE partnership.
Investing Activities
Investments in international ventures were $139 for the first six months of
1996. Significant 1996 investments include additional capital contributions
to the PCS investment in the United Kingdom, Mercury One 2 One ("One 2 One")
and the purchase of a 23 percent interest in a venture to provide wireless
service in Poland. Domestically, the Media Group invested $74 to fund the
network build activities at PrimeCo.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
The Media Group has reviewed the financial and operating performance, market
value and capital requirements of its international investment portfolio and
has identified certain investments it believes are appropriate to sell or
restructure under acceptable terms and expects that sales proceeds could
approximate $400 in the next two years. The Company is pursuing a
restructuring whereby the Company increased its ownership in a cable
television joint venture in the Czech Republic to 57.5 percent from 28.6
percent through the conversion of debt to additional equity. The outcome of
this restructuring is uncertain.
In the first six months of 1996, the Communications Group received cash
proceeds of $111 from the sale of certain rural telephone exchanges as
compared to proceeds of $114 in the same period last year.
Financing Activities
Debt increased $240 at June 30, 1996, compared with December 31, 1995. The
increases in debt, primarily a result of the domestic PCS investment,
additional international investments and increased capital expenditures at the
Communications Group, were partially offset by a reduction related to an
investment in a cable television venture in the Netherlands. During
second-quarter 1996, U S WEST issued $254 of exchangeable notes, or Debt
Exchangeable for Common Stock ("DECS"), due May 15, 1999. Upon maturity, each
DECS will be mandatorily redeemed by U S WEST for shares of Financial Security
Assurance Holdings Ltd. ("FSA") held by U S WEST or the cash equivalent, at U
S WEST's option. The capital assets segment currently owns approximately 40
percent of the outstanding FSA common stock.
As of June 30, 1996, U S WEST guaranteed debt associated with its
international investments in the principal amount of approximately $115. In
addition, a wholly owned subsidiary of U S WEST has guaranteed debt associated
with its international investment in the principal amount of approximately
$190.
Excluding debt associated with the capital assets segment, the Company's
percentage of debt to total capital at June 30, 1996, was 50.6 percent
compared with 50.7 percent at December 31, 1995. Including debt associated
with the capital assets segment, Preferred Securities and other preferred
stock, the Company's percentage of debt to total capital was 55.9 percent at
June 30, 1996 and 56.4 percent at December 31, 1995.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
On February 27, 1996, U S WEST announced a definitive agreement to merge with
Continental Cablevision, Inc. ("Continental"). Continental is the nation's
third-largest cable operator. U S WEST will purchase all of Continental's
stock for approximately $5.3 billion and will assume Continental's debt and
other obligations, the market value of which amounted to approximately $6.4
billion as of March 31, 1996. Consideration for the $5.3 billion in equity
will consist of approximately $1 billion in U S WEST preferred stock,
convertible to Media Stock; and, at U S WEST's option, between $1 billion and
$1.5 billion in cash, and $2.8 billion to $3.3 billion in shares of Media
Stock. The transaction, which is expected to close by the end of 1996, or
early 1997, is subject to a number of conditions and approvals.
The number of Media shares to be delivered upon closing will be adjusted
subject to a collar 15 percent above and 15 percent below $24.50, the share
price upon which the transaction was based. If the share price of the Media
Stock is trading below the floor price upon closing, management has stated it
does not intend to increase the number of shares of Media Stock to be issued.
In connection with U S WEST's announcement of the planned merger with
Continental, Standard and Poor's lowered its rating on the U S WEST, Inc., U S
WEST Capital Funding, Inc., a wholly owned financing subsidiary, and U S WEST
Financial Services, Inc. a member of the capital assets segment, senior
unsecured debt, commercial paper and Preferred Securities. The senior
unsecured debt and Preferred Securities ratings were lowered to triple-B-plus
from single-A-plus and the commercial paper rating was lowered to A-2 from
A-1. The credit ratings for U S WEST, Inc., U S WEST Capital Funding, Inc.
and U S WEST Financial Services, Inc. are being reviewed by Fitch, Moody's and
Duff & Phelps which may result in a downgrading.
Standard and Poor's also lowered U S WEST Communications' senior unsecured
debt and commercial paper ratings in connection with U S WEST's announcement
of the planned merger with Continental. The senior unsecured debt was lowered
to A-plus from AA-minus and the commercial paper was lowered to A-1 from
A-1-plus. The credit rating of U S WEST Communications' debt securities was
reaffirmed by Moody's and is under review by Fitch. In connection with the
Washington State Utilities and Transportation Commission's $91.5 rate
reduction order (See "Contingencies"), U S WEST Communications' debt
securities have been placed on rating watch by Duff & Phelps.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Restructuring Charge
The Company's 1993 results reflected a $1 billion restructuring charge
(pretax). The related restructuring plan (the "Restructuring Plan") is
designed to provide faster, more responsive customer services while reducing
the costs of providing these services.
Following are schedules of the costs and planned workforce reductions included
in the Restructuring Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Actual Actual Actual Estimate Estimate
Restructuring Plan Costs 1993 1994 1995 1996 1997 Total
- ------------------------------ ------- ------- ------- --------- --------- ------
Cash expenditures:
Employee separation (1)<F1> $ - $ 19 $ 76 $ 36 $ 129 $ 260
Systems development - 127 145 128 - 400
Real estate - 50 66 14 - 130
Relocation - 21 24 20 15 80
Retraining and other - 16 23 22 4 65
------- ------- ------- --------- --------- ------
Total cash expenditures - 233 334 220 148 935
Asset write-down 65 - - - - 65
------- ------- ------- --------- --------- ------
Total 1993 Restructuring Plan 65 233 334 220 148 1,000
Remaining 1991 plan employee
costs (1) - 56 - - - 56
------- ------- ------- --------- --------- ------
Total $ 65 $ 289 $ 334 $ 220 $ 148 $1,056
------- ------- ------- --------- --------- ------
<FN>
<F1>
(1) Employee separation costs, including the balance of the 1991 restructuring reserve
at December 31, 1993, aggregate $316.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Actual Actual Estimate(1) Estimate(1)
------ ------ ----------- -----------
Workforce Reductions 1994 1995 1996 1997 Total
- -------------------- ------ ------ ----------- ----------- ------
Employee separations
Managerial 497 682 202 1,357 2,738
Occupational 1,683 1,643 798 3,138 7,262
------ ------ ----------- ----------- ------
Total 2,180 2,325 1,000 4,495 10,000
- -------------------- ====== ====== =========== =========== ======
<FN>
<F1>
(1) Certain of the workforce reductions scheduled for 1997 may occur in 1996.
The Restructuring Plan is expected to be substantially complete by the end of
1997.
</FN>
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Employee separation costs include severance payments, health-care coverage
and postemployment education benefits associated with the planned reduction of
10,000 employees. System development costs include new systems and the
application of enhanced system functionality to existing single-purpose
systems to provide integrated, end-to-end customer service. Real estate costs
include preparation costs for the new service centers. The Communications
Group has consolidated its 560 customer service centers into 26 centers in 10
cities. The relocation and retraining costs are related to moving employees
to the new service centers and retraining employees on the methods and systems
required in the new, restructured mode of operation.
Progress Under the Restructuring Plan:
Following is a reconciliation of restructuring reserve activity during the
first six months of 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Reserve Balance First-Half Reserve Balance
December 31, 1995 1996 Activity June 30, 1996
------------------ -------------- ----------------
Employee separations
Managerial $ 68 $ 12 $ 56
Occupational 97 9 88
------------------ -------------- ----------------
Total separations 165 21 144
Systems development
Service delivery 44 18 26
Service assurance 26 3 23
Capacity provisioning 42 17 25
All other 16 9 7
------------------ -------------- ----------------
Total systems 128 47 81
Real estate 14 3 11
Relocation 35 2 33
Retraining and other 26 9 17
------------------ -------------- ----------------
Total $ 368 $ 82 $ 286
================== ============== ================
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Cumulative
1994 1995 First-Half Separations At
Separations Separations 1996 Separations June 30, 1996
----------- ----------- ---------------- --------------
Employee separations
Managerial 497 682 190 1,369
Occupational 1,683 1,643 261 3,587
----------- ----------- ---------------- --------------
Total 2,180 2,325 451 4,956
=========== =========== ================ ==============
</TABLE>
Contingencies
At U S WEST Communications, Inc. ("U S WEST Communications") there are pending
regulatory actions in local regulatory jurisdictions that call for price
decreases, refunds or both. In one such instance, the Utah Supreme Court has
remanded a Utah Public Service Commission ("PSC") order to the PSC for
reconsideration, thereby establishing two exceptions to the rule against
retroactive ratemaking: 1) unforeseen and extraordinary events, and 2)
misconduct. The PSC's initial order denied a refund request from
interexchange carriers and other parties related to the Tax Reform Act of
1986. This action is still in the discovery process. If a formal filing -
made in accordance with the remand from the Supreme Court - alleges that the
exceptions apply, the range of possible risk is $0 to $155.
On April 11, 1996, the Washington State Utilities and Transportation
Commission ("WUTC" or the "Commission" ) acted on U S WEST Communications'
1995 rate request. In February 1995, U S WEST Communications sought to
increase revenues by raising rates for basic residential services over a
four-year period. The two major issues in this proceeding involve U S WEST
Communications' requests for improved capital recovery and elimination of the
imputation of Yellow Pages revenue. Instead of granting U S WEST
Communications' request, the Commission ordered approximately $91.5 in annual
revenue reductions, effective May 1, 1996. Based on the above ruling, U S
WEST Communications filed a lawsuit with the King County Superior Court (the
"Court") for an appeal of the order, a temporary stay of the ordered rate
reduction and an authorization to implement a revenue increase.
On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC.
The Court granted the stay for a period of six months or until a decision is
made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST
Communications began collecting revenues subject to refund with interest. U
S WEST Communications expects its appeal to be successful and plans not to
accrue any of the amounts subject to refund. However, an adverse judgment on
the appeal would have a significant impact on U S WEST Communications' future
results of operations.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Regulatory Environment
On August 1, 1996, the Federal Communications Commission ("FCC") established a
framework of minimum national rules that will enable the states and the FCC to
begin implementing the local competition provision of the Telecommunications
Act of 1996. The FCC's order relies heavily on the states to develop specific
rates and procedures consistent with the FCC's general rules. Included in the
order are stipulations that require local exchange carriers ("LECs") to: a)
provide interconnection to any requesting telecommunications carrier at any
technically feasible point, equal in quality to that provided by the incumbent
LEC; b) provide unrestricted access to network services on an unbundled basis;
c) provide physical collocation of equipment necessary for interconnection at
the incumbent LEC's premises, unless physical collocation is not practical for
technical reasons or because of space limitations; and d) offer for resale any
telecommunications services that the LEC provides at retail to subscribers who
are not telecommunications carriers. The order also stipulates that
commercial mobile radio service operators ("CMRS"), which include the
Company's wireless operations, are entitled to reciprocal compensation
arrangements and that a LEC may not charge a CMRS provider for terminating
LEC-originated traffic. The FCC's order continues to provide for access
charge recovery by LECs from interexchange carriers until it further evaluates
the issues of access charge reform and universal service. U S WEST is
evaluating the effects of the order.
Other Items
Some of the information presented in or in connection with this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that
its expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that
actual results will not differ materially from its expectations. Factors that
could cause actual results to differ from expectations include: (I) greater
than anticipated competition from new entrants into the local exchange and
intralata toll markets, (ii) changes in demand for the Company's products and
services, including optional custom calling features, (iii) higher than
anticipated employee levels, capital expenditures, and operating expenses at
the Communications Group as a result of unusually rapid in-region growth, (iv)
the gain or loss of significant customers, (v) regulatory changes affecting
the telecommunications industry, including changes that could have an impact
on the competitive environment in the local exchange market, (vi) a change in
economic conditions in the various markets served by the Company's operations
that could adversely affect the level of demand for cable, wireless or other
services offered by the Company, (vii) greater than anticipated competitive
activity requiring new pricing for services, (viii) higher than anticipated
start-up costs associated with new business opportunities, (ix)
increases in fraudulent activity with respect to wireless services, (x)
unexpected developments that could postpone or otherwise impede the
Continental Cablevision transaction, or (xi) delays in the development of
anticipated technologies, or the failure of such technologies to perform
according to expectations.
<PAGE>
Form 10-Q, Part I
<TABLE>
<CAPTION>
<S> <C>
COMBINED STATEMENTS OF INCOME U S WEST COMMUNICATIONS GROUP
(Unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
--------- ---------- ---------- ----------
Dollars in millions 1996 1995 1996 1995
(except per share amounts)
Operating revenues:
Local service $ 1,179 $ 1,076 $ 2,324 $ 2,126
Interstate access service 626 591 1,248 1,180
Intrastate access service 189 184 379 372
Long-distance network services 278 294 568 593
Other services 228 193 446 385
--------- ---------- ---------- ----------
Total operating revenues 2,500 2,338 4,965 4,656
Operating expenses:
Employee-related expenses 921 831 1,788 1,644
Other operating expenses 387 346 775 695
Taxes other than income taxes 100 105 197 211
Depreciation and amortization 518 502 1,035 1,001
--------- ---------- ---------- ----------
Total operating expenses 1,926 1,784 3,795 3,551
--------- ---------- ---------- ----------
Income from operations 574 554 1,170 1,105
Interest expense 110 106 221 207
Gains on sales of rural telephone 49 15 49 78
exchanges
Other income (expense) - net 4 (3) (12) (16)
--------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of change in 517 460 986 960
accounting principle
Provision for income taxes 193 167 368 352
--------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting principle 324 293 618 608
Cumulative effect of change in
accounting principle - net of tax - - 34 -
--------- ---------- ---------- ----------
NET INCOME $ 324 $ 293 $ 652 $ 608
========= ========== ========== ==========
Earnings per common share:
Income before cumulative effect $ 0.68 $ 0.62 $ 1.30 $ 1.29
of change in accounting principle
Cumulative effect of change in - - 0.07 -
--------- ---------- ---------- ----------
accounting principle
Earnings per common share $ 0.68 $ 0.62 $ 1.37 $ 1.29
========= ========== ========== ==========
DIVIDENDS PER COMMON SHARE $ 0.535 $ 0.535 $ 1.07 $ 1.07
AVERAGE COMMON SHARES 476,803 470,414 475,929 469,490
OUTSTANDING (thousands)
</TABLE>
See Notes to Combined Financial Statements.
<PAGE>
Form 10-Q, Part I
<TABLE>
<CAPTION>
<S> <C>
COMBINED BALANCE SHEETS U S WEST COMMUNICATIONS GROUP
(Unaudited)
<CAPTION>
<S> <C> <C>
June 30, December 31,
Dollars in millions 1996 1995
- ---------------------------------------- --------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 55 $ 172
Accounts and notes receivable - net 1,567 1,617
Inventories and supplies 198 193
Deferred tax asset 221 259
Prepaid and other 83 51
--------- -------------
Total current assets 2,124 2,292
--------- -------------
Gross property, plant and equipment 31,709 31,178
Accumulated depreciation 17,981 17,649
--------- -------------
Property, plant and equipment - net 13,728 13,529
Other assets 870 764
--------- -------------
Total assets $ 16,722 $ 16,585
========= =============
</TABLE>
See Notes to Combined Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
COMBINED BALANCE SHEETS U S WEST COMMUNICATIONS GROUP
(Unaudited), continued
<CAPTION>
<S> <C> <C>
Dollars in millions June 30, 1996 December 31, 1995
- ----------------------------------------------- -------------- ------------------
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 1,160 $ 1,065
Accounts payable 675 851
Employee compensation 270 316
Dividends payable 256 254
Current portion of restructuring charge 202 270
Other 961 851
-------------- ------------------
Total current liabilities 3,524 3,607
-------------- ------------------
Long-term debt 5,671 5,689
Postretirement and other postemployment benefit
obligations 2,328 2,351
Deferred taxes, credits and other 1,464 1,462
Communications Group equity 3,735 3,476
-------------- ------------------
Total liabilities and equity $ 16,722 $ 16,585
============== ==================
</TABLE>
Contingencies (See Note B to the Combined Financial Statements)
See Notes to Combined Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
COMBINED STATEMENTS OF U S WEST COMMUNICATIONS GROUP
CASH FLOWS (Unaudited)
Dollars in millions
<CAPTION>
<S> <C> <C>
Six Months Ended June 30, 1996 1995
- --------------------------------------------------------- -------- --------
OPERATING ACTIVITIES
Net income $ 652 $ 608
Adjustments to net income:
Depreciation and amortization 1,035 1,001
Gains on sales of rural telephone exchanges (49) (78)
Cumulative effect of change in accounting principle (34) -
Deferred income taxes and amortization
of investment tax credits (3) 58
Changes in operating assets and liabilities:
Restructuring payments (74) (172)
Postretirement medical and life costs - net of
cash fundings (30) (211)
Accounts receivable 57 (108)
Inventories, supplies and other (35) (52)
Accounts payable and accrued liabilities (62) 29
Other - net (28) (23)
-------- --------
Cash provided by operating activities 1,429 1,052
-------- --------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (1,266) (1,093)
Proceeds from sales of rural telephone exchanges 111 114
Payments for disposals of property, plant
and equipment (7) (2)
-------- --------
Cash (used for) investing activities (1,162) (981)
-------- --------
FINANCING ACTIVITIES
Net proceeds from issuance of short-term debt 260 589
Repayments of long-term debt (253) (139)
Dividends paid on common stock (467) (462)
Proceeds from issuance of common stock 76 -
Advance to Media Group - (132)
-------- --------
Cash (used for) financing activities (384) (144)
-------- --------
CASH AND CASH EQUIVALENTS
Decrease (117) (73)
Beginning balance 172 116
-------- --------
Ending balance $ 55 $ 43
======== ========
</TABLE>
See Notes to Combined Financial Statements.
<PAGE>
Form 10-Q - Part I
U S WEST COMMUNICATIONS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
For the Three Months and Six Months Ended June 30, 1996 and 1995
(Dollars in millions)
(Unaudited)
A. Summary of Significant Accounting Policies
Basis of Presentation
The Combined Financial Statements have been prepared by U S WEST, Inc. ("U S
WEST" or the "Company") pursuant to the interim reporting rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally accompanying financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. In the opinion of U S WEST's management, the Combined Financial
Statements include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial information set forth
therein. It is suggested that these Combined Financial Statements be read in
conjunction with the 1995 U S WEST Consolidated Financial Statements, the U S
WEST Communications Group Combined Financial Statements and the U S WEST Media
Group Combined Financial Statements and notes thereto included in U S WEST's
proxy statement mailed to all shareowners on April 8, 1996.
Earnings Per Common Share
Earnings per common share and dividends per common share for 1995 have been
presented on a pro forma basis to reflect the Communications Group's stock as
if it had been outstanding since January 1, 1995. For periods prior to the
November 1, 1995 recapitalization, the average common shares outstanding are
assumed to be equal to the average common shares outstanding for U S WEST.
New Accounting Standard
Effective January 1, 1996, U S WEST adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
that long-lived assets and associated intangibles be written down to fair
value whenever an impairment review indicates that the carrying value cannot
be recovered on an undiscounted cash flow basis. SFAS No. 121 also requires
that a company no longer record depreciation expense on assets held for sale.
<PAGE>
Form 10-Q - Part I
U S WEST COMMUNICATIONS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Adoption of SFAS No. 121 resulted in income of $34 (net of tax of $22) from
the cumulative effect of reversing depreciation expense recorded in prior
years related to rural telephone exchanges held for sale. Depreciation
expense was reversed from the date the Company formally committed to a plan to
dispose of the rural exchange assets through January 1, 1996. The income has
been recorded as a cumulative effect of change in accounting principle in
accordance with SFAS No. 121. The carrying value of the rural exchange assets
was approximately $338 at December 31, 1995. As a result of adopting SFAS No.
121, depreciation expense for the three and six months ended June 30, 1996 was
reduced by $8 ($5 after tax, or $0.01 per share) and $16 ($10 after tax, or
$0.02 per share), respectively. In 1996, depreciation expense will decrease
approximately $30 as a result of adopting SFAS No. 121. The combined effects
of lower depreciation expense and the cumulative effect of adoption of the new
standard will be directly offset by lower recognized gains on future rural
exchange sales.
B. Contingencies
At U S WEST Communications, Inc. ("U S WEST Communications") there are pending
regulatory actions in local regulatory jurisdictions that call for price
decreases, refunds or both. In one such instance, the Utah Supreme Court has
remanded a Utah Public Service Commission ("PSC") order to the PSC for
reconsideration, thereby establishing two exceptions to the rule against
retroactive ratemaking: 1) unforeseen and extraordinary events, and 2)
misconduct. The PSC's initial order denied a refund request from
interexchange carriers and other parties related to the Tax Reform Act of
1986. This action is still in the discovery process. If a formal filing -
made in accordance with the remand from the Supreme Court - alleges that the
exceptions apply, the range of possible risk is $0 to $155.
On April 11, 1996, the Washington State Utilities and Transportation
Commission ("WUTC" or the "Commission") acted on U S WEST Communications' 1995
rate request. In February 1995, U S WEST Communications sought to increase
revenues by raising rates for basic residential services over a four-year
period. The two major issues in this proceeding involve U S WEST
Communications' requests for improved capital recovery and elimination of the
imputation of Yellow Pages revenue. Instead of granting U S WEST
Communications' request, the Commission ordered approximately $91.5 in annual
revenue reductions, effective May 1, 1996. Based on the above ruling, U S
WEST Communications filed a lawsuit with the King County Superior Court (the
"Court") for an appeal of the order, a temporary stay of the ordered rate
reduction and an authorization to implement a revenue increase.
Form 10-Q - Part I
U S WEST COMMUNICATIONS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC.
The Court granted the stay for a period of six months or until a decision is
made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST
Communications began collecting revenues subject to refund with interest. U S
WEST Communications expects its appeal to be successful and plans not to
accrue any of the amounts subject to refund. However, an adverse judgment on
the appeal would have a significant impact on U S WEST Communications' future
results of operations.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions, except per share amounts)
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH
1995
Comparative details of income before cumulative effect of change in accounting
principle for the three and six months ended June 30 follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
--------- --------- ------- --------- --------- -------
Income before cumulative
effect of change in $ 324 $ 293 10.6 $ 618 $ 608 1.6
========= ========= ======= ========= ========= =======
accounting principle
Earnings per common
share before cumulative
effect of change in $ 0.68 $ 0.62 9.7 $ 1.30 $ 1.29 0.8
========= ========= ======= ========= ========= =======
accounting principle
</TABLE>
Adjusted to exclude certain nonoperating items, the Communications Group's
second-quarter 1996 income before cumulative effect of change in accounting
principle was $289, an increase of $6, or 2.1 percent, compared with second
quarter 1995. Second-quarter 1996 earnings per common share before cumulative
effect of change in accounting principle ("earnings per share"), similarly
adjusted, were $0.61, compared with $0.60 in 1995. The adjustments include
the 1996 current quarter, after-tax impact of $5 ($0.01 per share) from
adopting SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and after-tax gains of $30 ($0.06
per share) and $10 ($0.02 per share) on the sales of rural telephone exchanges
during second quarter 1996 and 1995, respectively.
The Communications Group's income before cumulative effect of change in
accounting principle for the six months ended June 30, 1996, adjusted to
exclude nonoperating items, was $578, an increase of $19, or 3.4 percent
compared with the same period in 1995. Earnings per share for the six months
ended June 30, 1996, similarly adjusted, were $1.22, compared with $1.19 in
the same period in 1995. The adjustments include the 1996 current
year-to-date after-tax impact of $10 ($0.02 per share) from adopting SFAS No.
121 and after-tax gains of $30 ($0.06 per share) and $49 ($0.10 per share) on
the sales of rural telephone exchanges during the first six months of 1996 and
1995, respectively.
Effective January 1, 1996, the Communications Group adopted SFAS No. 121 (See
Footnote A), which among other things, requires that companies no longer
record depreciation expense on assets held for sale. Adoption of SFAS No. 121
resulted in a one-time gain of $34, or $0.07 per share, related to the
cumulative effect of change in accounting principle.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Increased income at the Communications Group is attributable to higher demand
for services. Partially offsetting the effects of higher demand was an
increase in costs incurred to address the requirements associated with
accelerating business growth. Further offsetting the effects of higher demand
were costs associated with continuing service-improvement initiatives,
expenditures related to new business initiatives and flood conditions in the
Pacific Northwest during the first quarter of 1996.
Increased demand for the Communications Group's services resulted in growth in
earnings before interest, taxes, depreciation, amortization and other
("EBITDA") of 3.4 and 4.7 percent for the three- and six-month periods ended
June 30, 1996 respectively. EBITDA also excludes gains on sales of certain
rural telephone exchanges in 1996 and 1995. The Communications Group believes
EBITDA is an important indicator of the operational strength of the business.
EBITDA, however, should not be considered as an alternative to operating or
net income as an indicator of the performance of the Communications Group's
business or as an alternative to cash flows from operating activities as a
measure of liquidity, in each case determined in accordance with GAAP.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Operating Revenues
An analysis of changes in the Communications Group's operating revenues
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Higher (Higher) Increase Increase
(Lower) Lower (Decrease) (Decrease)
1996 1995 Prices Refunds Growth Other Dollars Percentage
------ -------- --------- --------- -------- ----------- ----------- -----------
Local service
Second quarter $1,179 $ 1,076 $ 10 $ (1) $ 97 $ (3) $ 103 9.6
Six months 2,324 2,126 17 (5) 194 (8) 198 9.3
Interstate access
Second quarter 626 591 (17) (7) 59 - 35 5.9
Six months 1,248 1,180 (33) (7) 110 (2) 68 5.8
Intrastate access
Second quarter 189 184 (8) - 13 - 5 2.7
Six months 379 372 (15) - 24 (2) 7 1.9
Long-distance network
Second quarter 278 294 (2) - (10) (4) (16) (5.4)
Six months 568 593 (5) - (15) (5) (25) (4.2)
Other services
Second quarter 228 193 - - - 35 35 18.1
Six months 446 385 - - - 61 61 15.8
------ -------- --------- --------- -------- ----------- ----------- -----------
Total revenues
Second quarter 2,500 2,338 (17) (8) 159 28 162 6.9
Six months $4,965 $ 4,656 $ (36) $ (12) $ 313 $ 44 $ 309 6.6
====== ======== ========= ========= ======== =========== =========== ===========
</TABLE>
Local service revenues increased principally as a result of higher demand for
services. Total reported access lines increased 586,000, or 4.0 percent
during the last 12 months, of which 228,000 is attributed to second lines.
Second line installations increased 32 percent during the past year. Access
line growth was 4.9 percent when adjusted for sales of approximately 124,000
rural telephone access lines during the last 12 months. Also contributing to
the increase in local service revenues was expanded growth in new product and
service offerings such as caller identification and call waiting. Local
service revenues from new product and service offerings were approximately $44
for the second quarter, an increase of over 100 percent as compared to the
same period in 1995. For the six-month period ended June 30, 1996,
approximately $80 of local service revenues were generated from new product
and service offerings, an increase of approximately 120 percent as compared to
1995.
Higher revenues from interstate access services resulted from access line
growth and increases of 9.4 and 9.5 percent in interstate billed access
minutes of use for the three- and six-month periods ended June 30, 1996. The
increased volume of business was partially offset by the effects of price
reductions and refunds.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Intrastate access revenues increased slightly for the three- and six-month
periods ended June 30, 1996, primarily due to higher demand offset largely by
the effects of price reductions.
Long-distance network revenues decreased by 5.4 and 4.2 percent for the three-
and six-month periods ended June 30, 1996, respectively, compared with the
same periods in 1995, primarily due to the effects of competition, rate
reductions and the implementation of a multiple toll carrier plan (MTCP) in
Iowa in May 1996. The MTCP allows independent telephone companies to act as
toll carriers. The impact of the MTCP for the three- and six-month periods
ended June 30, 1996 was long-distance revenue losses of $6, offset by
increases in intrastate access revenues of $1 and decreases in other operating
expenses (i.e. access expense) of $6.
Excluding the effects of the MTCP, long-distance network revenues decreased
3.4 and 3.2 percent for the three- and six-month periods ended June 30, 1996.
Erosion of long-distance revenue will continue due to the loss of exclusivity
of 1+ dialing in Minnesota, which became effective in February 1996, and in
Arizona, effective in April 1996.
Revenues from other services increased for the three- and six-month periods
ended June 30, 1996 primarily as a result of continued market penetration in
voice messaging services, increases in inside wire services sales of customer
premise equipment.
Costs and Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
--------- ---------- -------- ---------- ---------- --------
Employee-related expenses $ 921 $ 831 10.8 $ 1,788 $ 1,644 8.8
Other operating expenses 387 346 11.8 775 695 11.5
Taxes other than income taxes 100 105 (4.8) 197 211 (6.6)
Depreciation and amortization 518 502 3.2 1,035 1,001 3.4
Interest expense 110 106 3.8 221 207 6.8
Other income (expense) - net 4 (3) - (12) (16) (25.0)
</TABLE>
Employee-related expenses increased $90 and $144 for the three- and six-month
periods ended June 30, 1996, respectively, as compared to the same periods in
1995. The increases are primarily attributable to continued efforts to meet
the requirements associated with accelerating business growth,
service-improvement initiatives and new business initiatives.
<PAGE>
FORM 10-Q - PART I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Salaries and wages increased employee-related expenses by approximately $34
and $58 for the three- and six-month periods ended June 30, 1996,
respectively, primarily due to inflation-driven wage increases. Salaries and
wages were reduced through restructuring; however, costs related to workforce
additions needed to meet increased business growth and service-improvement
initiatives offset these benefits.
Overtime payments and contract labor increased approximately $40 and $78 for
the second quarter and first half of 1996, respectively, compared with 1995.
The increase in contract labor is primarily due to increased network
operations costs incurred to meet accelerating business growth and marketing
organization costs associated with the implementation of new products and
services. Additionally, approximately $15 of the six-month increase in
overtime and contract labor was attributed to severe flooding in Washington
and Oregon in the first quarter of 1996. Partially offsetting the increases in
employee-related expenses was a reduction in the postretirement benefits
accrual and lower travel and conference expenses.
The increase in other operating expenses for the three- and six-month periods
ended June 30, 1996 is primarily due to increased uncollectibles, higher
advertising costs and greater materials and supplies expense. The increase is
also attributable to higher costs associated with increased sales of
unregulated customer premise equipment. Offsetting these increases was the
implementation of the MTCP in Iowa in May 1996. Taxes other than income taxes
decreased primarily as a result of timing.
Increased depreciation and amortization expense was attributable to the
effects of a higher depreciable asset base, partially offset by the effects of
1995 sales of rural telephone exchanges and the adoption of SFAS No. 121.
Interest expense increased due to the equal effects of slightly higher debt
levels, as well as higher interest rates associated with refinancing
commercial paper in the latter part of 1995.
Liquidity and Capital Resources
Cash provided by operations increased $377 to $1,429 in the first half of 1996
compared with 1995. The increase in operating cash flow is primarily due to
growth in EBITDA, a decrease in the cash funding of postretirement benefits
and lower restructuring expenditures partially offset by increased tax
payments.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
During 1996, debt increased by $77 and the percentage of debt to total capital
decreased from 66.0 percent at December 31, 1995, to 64.7 percent at June 30,
1996. The increase in debt is due to increased capital expenditures. The
decrease in the percentage of debt to total capital is primarily attributable
to increased net income and the issuance of equity.
In the first six months of 1996, the Communications Group received cash
proceeds of $111 from the sale of certain rural telephone exchanges as
compared to proceeds of $114 in the same period last year.
In connection with the Washington State Utilities and Transportation
Commission's $91.5 rate reduction order (See "Contingencies"), U S WEST
Communications' debt securities have been placed on rating watch by Duff &
Phelps. U S WEST Communications' senior unsecured debt and commercial paper
ratings have also been lowered by Standard and Poor's in connection with a
February 27, 1996, announcement by U S WEST, Inc. of a planned merger with
Continental Cablevision, Inc. The senior unsecured debt was lowered to A-plus
from AA-minus and the commercial paper was lowered to A-1 from A-1-plus. The
credit rating of U S WEST Communications' debt securities was reaffirmed by
Moody's and is under review by Fitch.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Restructuring Charge
The Communications Group's 1993 results reflected an $880 restructuring charge
(pretax). The related restructuring plan (the "Restructuring Plan") is
designed to provide faster, more responsive customer services while reducing
the costs of providing these services.
Following are schedules of the costs and planned workforce reductions included
in the Restructuring Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Actual Actual Estimate Estimate
Restructuring Plan Costs 1994 1995 1996 1997 Total
- -------------------------------------- ------- ------- --------- --------- ------
Cash expenditures:
Employee separation (1)<F1> $ 19 $ 76 $ 33 $ 127 $ 255
Systems development 118 129 113 - 360
Real estate 50 66 14 - 130
Relocation 21 21 20 13 75
Retraining and other 8 23 22 7 60
------- ------- --------- --------- ------
Total cash expenditures 216 315 202 147 880
Remaining 1991 plan employee costs (1) 56 - - - 56
------- ------- --------- --------- ------
Total $ 272 $ 315 $ 202 $ 147 $ 936
======= ======= ========= ========= ======
<FN>
<F1>
(1) Employee separation costs, including the balance of the 1991 restructuring reserve
at December 31, 1993, aggregate $311.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Actual Actual Estimate (1) Estimate (1)
Workforce Reductions 1994 1995 1996 1997 Total
- -------------------- ------ ------ ------------ ------------ ------
Employee separations
Managerial 497 682 202 1,357 2,738
Occupational 1,683 1,643 798 3,138 7,262
Total 2,180 2,325 1,000 4,495 10,000
==================== ====== ====== ============ ============ ======
<FN>
<F1>
(1) Certain of the workforce reductions scheduled for 1997 may occur in 1996.
The Restructuring Plan is expected to be substantially complete by the end of
1997.
</FN>
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Employee separation costs include severance payments, health-care coverage and
postemployment education benefits associated with the planned reduction of
10,000 employees. System development costs include new systems and the
application of enhanced system functionality to existing single-purpose
systems to provide integrated, end-to-end customer service. Real estate costs
include preparation costs for the new service centers. The Communications
Group has consolidated its 560 customer service centers into 26 centers in 10
cities. The relocation and retraining costs are related to moving employees
to the new service centers and retraining employees on the methods and systems
required in the new, restructured mode of operation.
Progress Under the Restructuring Plan:
Following is a reconciliation of restructuring reserve activity during the
first six months of 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Reserve Balance First-Half Reserve Balance
December 31, 1995 1996 Activity June 30, 1996
------------------ -------------- ----------------
Employee separations
Managerial $ 63 $ 12 $ 51
Occupational 97 9 88
------------------ -------------- ----------------
Total separations 160 21 139
Systems development
Service delivery 44 18 26
Service assurance 26 3 23
Capacity provisioning 42 17 25
All other 1 1 -
------------------ -------------- ----------------
Total systems 113 39 74
Real estate 14 3 11
Relocation 33 2 31
Retraining and other 29 9 20
------------------ -------------- ----------------
Total $ 349 $ 74 $ 275
================== ============== ================
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
First-Half Cumulative
1994 1995 1996 Separations At
Separations Separations Separations June 30, 1996
----------- ----------- ----------- --------------
Employee separations
Managerial 497 682 190 1,369
Occupational 1,683 1,643 261 3,587
----------- ----------- ----------- --------------
Total 2,180 2,325 451 4,956
=========== =========== =========== ==============
</TABLE>
Contingencies
There are pending regulatory actions in local regulatory jurisdictions that
call for price decreases, refunds or both. In one such instance, the Utah
Supreme Court has remanded a Utah Public Service Commission ("PSC") order to
the PSC for reconsideration, thereby establishing certain exceptions to the
rule against retroactive ratemaking: 1) unforeseen and extraordinary events,
and 2) misconduct. The PSC's initial order denied a refund request from
interexchange carriers and other parties related to the Tax Reform Act of
1986. This action is still in the discovery process. If a formal filing -
made in accordance with the remand from the Supreme Court - alleges that the
exceptions apply, the range of possible risk is $0 to $155.
On April 11, 1996, the Washington State Utilities and Transportation
Commission ("WUTC" or the "Commission") acted on U S WEST Communications' 1995
rate request. In February 1995, U S WEST Communications sought to increase
revenues by raising rates for basic residential services over a four-year
period. The two major issues in this proceeding involve U S WEST
Communications' requests for improved capital recovery and elimination of the
imputation of Yellow Pages revenue. Instead of granting U S WEST
Communications' request, the Commission ordered approximately $91.5 in annual
revenue reductions, effective May 1, 1996. Based on the above ruling, U S
WEST Communications filed a lawsuit with the King County Superior Court (the
"Court") for an appeal of the order, a temporary stay of the ordered rate
reduction and an authorization to implement a revenue increase.
On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC.
The Court granted the stay for a period of six months or until a decision is
made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST
Communications began collecting revenues subject to refund with interest. U S
WEST Communications expects its appeal to be successful and plans not to
accrue any of the amounts subject to refund. However, an adverse judgment on
the appeal would have a significant impact on U S WEST Communications' future
results of operations.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Regulatory Environment
On August 1, 1996, the Federal Communications Commission ("FCC") established a
framework of minimum national rules that will enable the states and the FCC to
begin implementing the local competition provision of the Telecommunications
Act of 1996. The FCC's order relies heavily on the states to develop specific
rates and procedures consistent with the FCC's general rules. Included in the
order are stipulations that require local exchange carriers ("LECs") to: a)
provide interconnection to any requesting telecommunications carrier at any
technically feasible point, equal in quality to that provided by the incumbent
LEC; b) provide unrestricted access to network services on an unbundled basis;
c) provide physical collocation of equipment necessary for interconnection at
the incumbent LEC's premises, unless physical collocation is not practical for
technical reasons or because of space limitations; and d) offer for resale any
telecommunications services that the LEC provides at retail to subscribers who
are not telecommunications carriers. The order also stipulates that
commercial mobile radio service operators ("CMRS"), which include the
Company's wireless operations, are entitled to reciprocal compensation
arrangements and that a LEC may not charge a CMRS provider for terminating
LEC-originated traffic. The FCC's order continues to provide for access
charge recovery by LECs from interexchange carriers until it further evaluates
the issues of access charge reform and universal service. U S WEST is
evaluating the effects of the order.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
COMBINED STATEMENTS OF OPERATIONS U S WEST MEDIA GROUP
(Unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
Dollars in millions 1996 1995 1996 1995
- --------------------------------------------- ---------- --------- ---------- ---------
(except per share amounts)
- ---------------------------------------------
Sales and other revenues:
Directory and information services $ 304 $ 292 $ 592 $ 564
Wireless communications 290 228 554 430
Cable and telecommunications 59 55 116 109
Other 5 10 9 18
---------- --------- ---------- ---------
Total sales and other revenues 658 585 1,271 1,121
Operating expenses:
Cost of sales and other revenues 206 183 405 346
Selling, general and administrative 238 233 456 430
expenses
Depreciation and amortization 70 60 137 121
---------- --------- ---------- ---------
Total operating expenses 514 476 998 897
Income from operations 144 109 273 224
Interest expense 26 33 50 60
Equity losses in unconsolidated 77 33 143 90
ventures
Guaranteed minority interest expense 12 - 24 -
Other income (expense) - net (27) 11 (34) 18
---------- --------- ---------- ---------
Income before income taxes 2 54 22 92
Provision for income taxes 13 29 30 52
---------- --------- ---------- ---------
NET INCOME (LOSS) $ (11) $ 25 $ (8) $ 40
========== ========= ========== =========
Dividends on preferred stock 1 1 2 2
---------- --------- ---------- ---------
EARNINGS (LOSS) AVAILABLE
FOR COMMON STOCK $ (12) $ 24 $ (10) $ 38
========== ========= ========== =========
EARNINGS (LOSS) PER COMMON SHARE ($0.03) $ 0.05 ($0.02) $ 0.08
========== ========= ========== =========
AVERAGE COMMON SHARES OUTSTANDING (thousands)
473,593 470,414 473,298 469,490
</TABLE>
See Notes to Combined Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
COMBINED BALANCE SHEETS U S WEST MEDIA GROUP
(Unaudited)
<CAPTION>
<S> <C> <C>
June 30, December 31,
Dollars in millions 1996 1995
- ----------------------------------------- --------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 72 $ 20
Accounts and notes receivable 317 287
Deferred directory costs 254 247
Receivable from Communications Group 94 106
Other 80 81
--------- -------------
Total current assets 817 741
--------- -------------
Gross property, plant and equipment 1,913 1,706
Accumulated depreciation 652 558
--------- -------------
Property, plant and equipment - net 1,261 1,148
Investment in Time Warner Entertainment 2,497 2,483
Intangible assets - net 1,761 1,798
Investment in international ventures 1,365 1,511
Net investment in assets held for sale 407 429
Other assets 574 505
--------- -------------
Total assets $ 8,682 $ 8,615
========= =============
</TABLE>
See Notes to Combined Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
COMBINED BALANCE SHEETS U S WEST MEDIA GROUP
(Unaudited), continued
<CAPTION>
<S> <C> <C>
June 30, December 31,
Dollars in millions 1996 1995
- -------------------------------------------- ---------- --------------
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 575 $ 836
Accounts payable 181 235
Deferred revenue and customer deposits 86 87
Other 419 411
---------- --------------
Total current liabilities 1,261 1,569
---------- --------------
Long-term debt 1,689 1,265
Deferred taxes, credits and other 599 658
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Company-guaranteed 600 600
debentures
Preferred stock subject to mandatory 51 51
redemption
Media Group equity 4,591 4,599
Company LESOP guarantee (109) (127)
---------- --------------
Total equity 4,482 4,472
---------- --------------
Total liabilities and equity $ 8,682 $ 8,615
========== ==============
</TABLE>
See Notes to Combined Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
COMBINED STATEMENTS OF CASH FLOWS U S WEST MEDIA GROUP
(Unaudited)
Dollars in million
<CAPTION>
<S> <C> <C>
Six Months Ended June 30, 1996 1995
- --------------------------------------------------------- ------ ------
OPERATING ACTIVITIES
Net income (loss) $ (8) $ 40
Adjustments to net income (loss):
Depreciation and amortization 137 121
Equity losses in unconsolidated ventures 143 90
Deferred income taxes and amortization
of investment tax credits (47) 5
Provision for uncollectibles 30 25
Changes in operating assets and liabilities:
Accounts and notes receivable (48) (44)
Deferred directory costs, prepaid and other (10) (16)
Accounts payable and accrued liabilities (11) 47
Other adjustments - net 16 50
------ ------
Cash provided by operating activities 202 318
------ ------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (243) (172)
Investment in international ventures (139) (291)
Investment in domestic PCS (74) (254)
Cash (to) from net investment in assets held for sale 93 (37)
Other - net - (27)
------ ------
Cash (used for) investing activities (363) (781)
------ ------
FINANCING ACTIVITIES
Net proceeds from issuance of short-term debt 80 514
Repayments of long-term debt (223) (251)
Proceeds from issuance of long-term debt 330 -
Proceeds from issuance of common stock 28 21
Dividends paid on preferred stock (2) (2)
Advance from Communications Group - 132
------ ------
Cash provided by financing activities 213 414
CASH AND CASH EQUIVALENTS
Increase (decrease) 52 (49)
Beginning balance 20 93
------ ------
Ending balance $ 72 $ 44
====== ======
</TABLE>
See Notes to Combined Financial Statements
<PAGE>
Form 10-Q - Part I
U S WEST MEDIA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
A. Summary of Significant Accounting Policies
Basis of Presentation
The Combined Financial Statements have been prepared by U S WEST, Inc. ("U S
WEST" or the "Company") pursuant to the interim reporting rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally accompanying financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. In the opinion of U S WEST's management, the Combined Financial
Statements include all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial information set forth
therein. It is suggested that these Combined Financial Statements be read in
conjunction with the 1995 U S WEST Consolidated Financial Statements, the U S
WEST Media Group Combined Financial Statements and the U S WEST Communications
Group Combined Financial Statements and notes thereto included in U S WEST's
proxy statement mailed to all shareowners on April 8, 1996.
Earnings Per Common Share
Earnings per common share for 1995 has been presented on a pro forma basis to
reflect the Media Group's stock as if it had been outstanding since January 1,
1995. For periods prior to the November 1, 1995 recapitalization, the average
common shares outstanding are assumed to be equal to the average common shares
outstanding for U S WEST.
<PAGE>
Form 10-Q - Part I
U S WEST MEDIA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
B. Investment in Time Warner Entertainment
On September 15, 1993, U S WEST acquired 25.51 percent pro-rata priority
capital and residual equity interests in Time Warner Entertainment Company
L.P. ("TWE"). Summarized operating results for TWE follow:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues $ 2,608 $ 2,392 $ 5,093 $ 4,438
Operating expenses*<F1> 2,311 2,126 4,528 3,981
Interest and other - net**<F2> 202 185 358 361
--------- --------- --------- ---------
Income before income taxes $ 95 $ 81 $ 207 $ 96
========= ========= ========= =========
Net income $ 74 $ 56 $ 168 $ 60
========= ========= ========= =========
<FN>
<F1>
* Includes depreciation and amortization of $294 and $275, and $582 and
$501 for the three and six months ended June 30, 1996 and 1995, respectively.
<F2>
** Includes corporate services of $18 and $15, and $35 and $30 for the
three and six months ended June 30, 1996 and 1995, respectively.
</FN>
</TABLE>
U S WEST accounts for its investment in TWE under the equity method of
accounting. U S WEST's recorded share of TWE operating results represents
allocated TWE net income or loss adjusted for the amortization of the excess
of the fair market value over the book value of the partnership net assets.
The Company's recorded share of TWE operating results was $5 and $2, and $14
and ($11) for the three and six months ended June 30, 1996 and 1995,
respectively.
<PAGE>
Form 10-Q - Part I
U S WEST MEDIA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
C. Investment in International Ventures
The Media Group has reviewed the financial and operating performance, market
value and capital requirements of its international investment portfolio and
has identified certain investments it believes are appropriate to sell or
restructure under acceptable terms. As a result, in second-quarter 1996, the
Media Group: 1) recorded a pretax charge of $31 associated with an
international cable television investment to reflect the investment at fair
value; and 2) is pursuing a restructuring whereby the Company increased its
ownership in a cable television joint venture in the Czech Republic to 57.5
percent from 28.6 percent through the conversion of debt to additional equity.
The outcome of this restructuring is uncertain.
D. Debt Exchangeable for Common Stock
On May 13, 1996, U S WEST issued $254 of Debt Exchangeable for Common Stock
("DECS") to Salomon Inc. due May 15, 1999, in the principal amount of $26.63
per note. The notes bear interest at 7.625 percent. Upon maturity, each DECS
will be mandatorily redeemed by U S WEST for shares of Financial Security
Assurance Holdings Ltd. ("FSA") held by U S WEST or the cash equivalent, at U
S WEST's option. The number of shares to be delivered at maturity varies
based on the per share market price of FSA. If the market price is $26.63 per
share or less, one share of FSA will be delivered for each note; if the market
price is between $26.63 and $32.48 per share, a fractional share is delivered
so that the value at maturity is equal to $26.63; if the market value is
greater than $32.48 per share, .8197 shares are delivered. The capital assets
segment currently owns approximately 40 percent of the outstanding FSA common
stock. The shares of FSA to be delivered upon maturity of the DECS, combined
with the exercise of outstanding options held by Fund American Enterprises
Holdings, Inc. to purchase FSA shares would, if consummated, result in a
complete disposition of U S WEST's ownership in FSA.
<PAGE>
Form 10-Q - Part I
U S WEST MEDIA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
E. Net Investment in Assets Held for Sale
Effective January 1, 1995, the capital assets segment has been accounted for
in accordance with Staff Accounting Bulletin No. 93, issued by the Securities
Exchange Commission, which requires discontinued operations not disposed of
within one year of the measurement date to be accounted for prospectively in
continuing operations as "net investment in assets held for sale." The net
realizable value of the assets will be reevaluated on an ongoing basis with
adjustments to the existing reserve, if any, being charged to continuing
operations. Prior to January 1, 1995, the entire capital assets segment was
accounted for as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30.
Building sales and operating revenues of the capital assets segment were $21
and $31, and $51 and $107 for the three- and six-month periods ended June 30,
1996 and 1995, respectively.
The components of net investment in assets held for sale follow:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
Dollars in millions 1996 1995
- ------------------------------------------------------ --------- -------------
ASSETS
Cash and cash equivalents $ 22 $ 38
Finance receivables - net 941 953
Investment in real estate - net of valuation allowance 357 368
Bonds, at market value 141 149
Investment in FSA 294 384
Other assets 173 177
--------- -------------
Total assets $ 1,928 $ 2,069
========= =============
LIABILITIES
Debt $ 676 $ 796
Deferred income taxes 689 686
Accounts payable, accrued liabilities and other 146 148
Minority interests 10 10
--------- -------------
Total liabilities 1,521 1,640
--------- -------------
Net investment in assets held for sale $ 407 $ 429
========= =============
</TABLE>
<PAGE>
Form 10-Q - Part I
U S WEST MEDIA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
During the second quarter of 1996, U S WEST received $98 from the sale of
3,750,000 shares of FSA common stock. These shares were sold to FSA, FSA
management and Fund American Enterprises Holdings, Inc. This sale reduced the
Company's ownership in FSA to approximately 40 percent.
Selected financial data for U S WEST Financial Services follows:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1996 1995
--------- -------------
Net finance receivables $ 926 $ 931
Total assets 1,076 1,085
Total debt 264 274
Total liabilities 1,015 1,024
Shareowner's equity 61 61
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions)
The following discussion is based on the U S WEST Media Group Combined
Financial Statements prepared in accordance with GAAP. The discussion should
be read in conjunction with the U S WEST, Inc. Consolidated Financial
Statements. A discussion of the Media Group's operations on a proportionate
basis follows the GAAP discussion.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH
1995
Sales and Other Revenues
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
--------- --------- -------- --------- --------- --------
Directory and information services:
Domestic $ 279 $ 262 6.5 $ 550 $ 520 5.8
International 25 30 (16.7) 42 44 (4.5)
--------- --------- -------- --------- --------- --------
304 292 4.1 592 564 5.0
--------- --------- -------- --------- --------- --------
Wireless communications:
Cellular service 267 207 29.0 506 393 28.8
Cellular equipment 23 21 9.5 48 37 29.7
--------- --------- -------- --------- --------- --------
290 228 27.2 554 430 28.8
--------- --------- -------- --------- --------- --------
Cable and telecommunications 59 55 7.3 116 109 6.4
Other 5 10 (50.0) 9 18 (50.0)
--------- --------- -------- --------- --------- --------
Sales and other revenues $ 658 $ 585 12.5 $ 1,271 $ 1,121 13.4
========= ========= ======== ========= ========= ========
</TABLE>
Media Group sales and other revenues increased 12.5 percent to $658 and 13.4
percent to $1,271 for the three- and six-month periods ended June 30, 1996,
respectively. The increases were primarily a result of strong growth in
cellular service revenue.
Directory and Information Services Revenues related to Yellow Pages directory
advertising increased approximately $19, or 7.5 percent, and $34, or 6.7
percent, in the three- and six-month periods ended June 30, 1996,
respectively. The increases are largely a result of a 3.7 percent increase in
revenue per local advertiser (primarily a result of price increases of
approximately 4.0 percent) and a 1.9 percent increase in local advertisers.
International directory publishing revenues decreased $5 and $2 in the three-
and six-month periods ended June 30, 1996, respectively. The decreases are
primarily a result of fewer directories published in 1996 compared with the
same periods in 1995.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Wireless Communications Cellular service revenues increased $60, or 29.0
percent, and $113, or 28.8 percent, in the three- and six-month periods ended
June 30, 1996, respectively. These increases are a result of a 46 percent
increase in subscribers during the last twelve months, partially offset by a
12 percent drop (on a same property basis) in average revenue per subscriber
to $54.00 per month. The increase in subscribers relates to continued growth
in demand for wireless services.
Cellular equipment revenues increased $2, or 9.5 percent, and $11, or 29.7
percent, in the three- and six-month periods ended June 30, 1996,
respectively. These increases are primarily a result of an increase in unit
sales associated with a 35 percent increase in gross customer additions in the
first six months of 1996, partially offset by a decrease in selling price per
unit.
Cable and Telecommunications Cable and telecommunications revenues increased
$6, or 12.1 percent, and $11, or 11.1 percent, in the three- and six-month
periods ended June 30, 1996, respectively. These increases give effect to a
change in the method of recording franchise fees implemented in late 1995 as
if it was in effect throughout 1995. A 5.1 percent increase in revenue per
subscriber (primarily a result of price increases) and a 7.2 percent increase
in subscribers during the last twelve months were the primary factors
underlying the revenue increases.
Income from Operations
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
---------- ---------- -------- ---------- ---------- --------
Directory and information
services:
Domestic $ 115 $ 94 22.3 $ 225 $ 198 13.6
International (3) (1) - (11) (6) (83.3)
---------- ---------- -------- ---------- ---------- --------
112 93 20.4 214 192 11.5
---------- ---------- -------- ---------- ---------- --------
Wireless communications 59 43 37.2 109 76 43.4
Cable and telecommunications 8 4 100.0 16 8 100.0
Other (35) (31) (12.9) (66) (52) 26.9
---------- ---------- -------- ---------- ---------- --------
Income from operations $ 144 $ 109 32.1 $ 273 $ 224 21.9
========== ========== ======== ========== ========== ========
</TABLE>
During the three- and six-month periods ended June 30, 1996, Media Group
operating income increased 32.1 percent and 21.9 percent, to $144 and $273,
respectively. EBITDA increased 26.6 percent and 18.8 percent, to $214 and
$410, respectively, for the same periods. The increases were primarily a
result of strong growth in wireless communications operations. The
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Media Group considers EBITDA an important indicator of the operational
strength and performance of its businesses. EBITDA, however, should not be
considered as an alternative to operating or net income as an indicator of the
performance of the Media Group's businesses or as an alternative to cash flows
from operating activities as a measure of liquidity, in each case determined
in accordance with GAAP.
Directory and Information Services During the three- and six-month periods
ended June 30, 1996, operating income related to domestic directory and
information services increased $18, or 19 percent, and $22, or 11 percent,
respectively. For the same periods, EBITDA increased 19 percent, to $123, and
12 percent, to $241, respectively. These percent increases give effect to a
1996 change in the amount of Media Group corporate costs allocated to the
domestic directory and information services businesses as if it was in effect
throughout 1995. Improved operating results related to the Yellow Pages
business combined with decreased spending in 1996, primarily related to exited
product lines, and the effect of a charge of $8 and $14 included in the three-
and six-month 1995 results related to the exit of these product lines have
contributed to the increase in operating income and EBITDA. For the same
periods, Yellow Pages revenue increases of $19 and $34 were partially offset
by operating cost increases of $15 and $27, respectively. Operating cost
increases were principally a result of approximately 11 percent and 16 percent
increases in paper, printing, delivery and distribution costs for the three-
and six-months periods, respectively. Increased operating costs led to a
Yellow Pages EBITDA margin of 50 percent in 1996, compared with 52 percent in
1995, on a comparable basis.
Operating income for international directory publishing operations decreased
$2 and $5 during the three and six months ended June 30, 1996, respectively.
The decreases were a result of increased operating expenses.
Wireless Communications Cellular operating income increased 28.3 percent, to
$59, and 32.9 percent, to $109, for the three- and six-month periods ended
June 30, 1996, respectively. Cellular EBITDA increased 28.0 percent to $96
and 30.4 percent to $180 for the same periods. These percent increases give
effect to a 1996 change in the amount of Media Group corporate costs allocated
to the cellular business as if it was in effect throughout 1995. The 1996
second-quarter results include costs related to the anticipated merger with
AirTouch including advertising and signage to implement a new brand name. The
increase in operating income and EBITDA is a result of revenue increases
associated with the rapidly expanding subscriber base combined with efficiency
gains. The 1996 decline in revenue per subscriber of 12 percent, on a
comparable basis, has been more than offset by decreases in the cost incurred
to acquire a customer and the cost to support a customer. Support costs per
subscriber decreased 19 percent and acquisition cost per subscriber added
decreased 3 percent for the six-month period ended June 30, 1996.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
The cellular service EBITDA margins were 35.8 percent and 35.5 percent for the
three- and six-month periods, respectively.
In July 1994, U S WEST signed an agreement with AirTouch Communications, Inc.
("AirTouch") to combine their domestic cellular properties into a partnership
in a multi-phased transaction. During Phase I, which commenced on November 1,
1995, the partners are operating their cellular properties separately. A
Wireless Management Company has been formed and is providing centralized
services to both companies on a contract basis. In Phase II, the partners
will combine their domestic properties into a partnership, subject to
obtaining certain authorizations. The parties are seeking to obtain
regulatory and other approvals precedent to entering into Phase II. The
recent passage of the Telecommunications Act of 1996 has removed significant
regulatory barriers to completion of Phase II. Currently management expects
the interests in the partnership will adjust from the previously disclosed 70
percent AirTouch and 30 percent U S WEST, to approximately 74 percent AirTouch
and 26 percent U S WEST (assuming contribution of all domestic cellular
properties). This adjustment reflects the planned acquisition of Cellular
Communications, Inc. ("CCI") by AirTouch. The actual interests in the
partnership at the commencement of Phase II depend, among other things, on the
timing of the Phase II closing and the ability of the partners to combine
their domestic properties. U S WEST's interest in the partnership will further
adjust depending on the timing of the contribution of its PCS investment. The
timing of such contribution is at U S WEST's discretion and will occur either
at the closing of Phase II or a date selected by U S WEST, no later than
mid-1998.
U S WEST has the right to convert its joint venture interest in the domestic
cellular properties into ownership of AirTouch common shares at an appraised
private market value. In the event the value to be received by U S WEST
exceeds 19.9 percent of AirTouch's outstanding common stock, U S WEST will
receive the excess in the form of non-voting preferred stock. This right
becomes exercisable upon the latter of: 1) completion of Phase II of the
merger; 2) completion of the planned acquisition of CCI by AirTouch; and 3)
contribution of both U S WEST's and AirTouch's interests in PrimeCo Personal
Communications LP (formerly PCS PrimeCo) to the joint venture. The Company
expects that these conditions will be met by the end of 1996 or early 1997.
Cable and Telecommunications Cable and telecommunications operating income
increased $4 and $8 for the three- and six-month periods, respectively. The
increase in operating income is a result of revenue increases associated with
expansion of the subscriber base and price increases.
Other The decrease in other operating income is primarily a result of a
decrease in the amount of Media Group corporate costs allocated to the Yellow
Pages and cellular businesses and an increase in the amount of U S WEST
corporate costs allocated to the Media Group.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Interest Expense and Other
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
---------- --------- -------- ---------- --------- --------
Interest expense $ 26 $ 33 (21.2) $ 50 $ 60 (16.7)
Equity losses in unconsolidated 77 33 - 143 90 58.9
ventures
Guaranteed minority interest 12 - - 24 - -
expense
Other income (expense) - net (27) 11 - (34) 18 -
</TABLE>
Interest expense decreased $7 and $10 for the three- and six-month periods,
respectively, primarily because of an increase in interest capitalized related
to the domestic PCS investment and a refinancing of commercial paper by
issuing Company-obligated mandatorily redeemable preferred securities of a
subsidiary trust holding solely Company-guaranteed debentures ("Preferred
Securities"). U S WEST issued $600 of Preferred Securities in the third
quarter of 1995.
Equity losses increased $44 and $53 for the three- and six-month periods,
respectively. The increases are predominantly a result of increased financing
costs associated with expansion of the network at TeleWest. Start-up and
other costs associated with new international investments and the domestic
PrimeCo Personal Communications LP ("PrimeCo") investment also contributed to
the increase in losses. The Media Group expects losses related to
international ventures will be significant in 1996. Increased losses related
to international investments were partially offset by increased earnings
related to the investment in TWE due to improved results from the filmed
entertainment, cable and programming-HBO divisions. Cable subscribers served
by TWE increased 4.9 percent compared to a year ago excluding the impact of
1995 cable transactions.
Guaranteed minority interest expense reflects the issuance of Preferred
Securities in the third quarter of 1995.
Other income (expense) decreased $38 and $52 for the three- and six-month
periods, respectively. The decrease is primarily due to a pretax charge of
$31 associated with an international cable television investment to reflect
the investment at fair value. The decrease is also partially the result of
first-quarter 1996 foreign exchange losses of $7.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Provision for Income Taxes
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, Percent June 30, June 30, Percent
1996 1995 Change 1996 1995 Change
--------- --------- -------- ---------- ---------- --------
Provision for income taxes $ 13 $ 29 (55.2) $ 30 $ 52 (42.3)
Effective tax rate - - - 136.4% 56.5% -
</TABLE>
The increase in the effective tax rate reflects the impact of lower pretax
income in relationship to goodwill amortization, primarily related to the
acquisition of the Atlanta Systems, and foreign income taxes. These
relationships could vary significantly during the year depending on the level
of pretax income.
Net Income
Net income of the Media Group decreased $36 to a loss of $11 for the quarter
and decreased $48 to a loss of $8 for the first six months of 1996. The
decreases are primarily a result of the after-tax charge of $19 to reflect an
international cable television investment at fair value and increased losses
associated with unconsolidated international ventures. These decreases in net
income were partially offset by improvement in the wireless communications
business.
Liquidity and Capital Resources
Operating Activities
Cash provided by operating activities of the Media Group decreased $116 in the
first six months of 1996, compared with 1995. Higher federal income tax
payments associated with the TWE partnership contributed to the decrease.
Investing Activities
Capital expenditures of the Media Group were $243 for the first six months of
1996. The majority of expenditures in 1996 were devoted to the enhancement
and expansion of the cellular network and upgrade of the Atlanta cable systems
to 750 megahertz capacity.
Investments in international ventures were $139 for the first six months of
1996. Significant 1996 investments include additional capital contributions
to the PCS investment in the United Kingdom, Mercury One 2 One ("One 2 One")
and the purchase of a 23 percent interest in a venture to provide wireless
service in Poland. Domestically, the Media Group invested $74 to fund the
network build activities at PrimeCo.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
The Media Group has reviewed the financial and operating performance, market
value and capital requirements of its international investment portfolio and
has identified certain investments it believes are appropriate to sell or
restructure under acceptable terms and expects that sales proceeds could
approximate $400 in the next two years. The Company is pursuing a
restructuring whereby the Company increased its ownership in a cable
television joint venture in the Czech Republic to 57.5 percent from 28.6
percent through the conversion of debt to additional equity. The outcome of
this restructuring is uncertain.
Financing Activities
Debt increased $163 at June 30, 1996, compared with December 31, 1995.
Increases in debt, primarily a result of the domestic PCS investment and
additional international investments, were partially offset by a reduction
related to an investment in a cable television venture in the Netherlands.
During second-quarter 1996, U S WEST issued $254 of exchangeable notes, or
Debt Exchangeable for Common Stock ("DECS"), due May 15, 1999. Upon maturity,
each DECS will be mandatorily redeemed by U S WEST for shares of Financial
Security Assurance Holdings Ltd. ("FSA") held by U S WEST or the cash
equivalent, at U S WEST's option. The capital assets segment currently owns
approximately 40 percent of the outstanding FSA common stock.
As of June 30, 1996, U S WEST guaranteed debt associated with its
international investments in the principal amount of approximately $115. In
addition, a wholly owned subsidiary of U S WEST has guaranteed debt associated
with its international investment in the principal amount of approximately
$190.
Excluding debt associated with the capital assets segment, the Media Group's
percentage of debt to total capital at June 30, 1996, was 30.6 percent
compared with 29.1 percent at December 31, 1995. Including debt associated
with the capital assets segment, Preferred Securities and other preferred
stock, the Media Group's percentage of debt to total capital was 44.5 percent
at June 30, 1996 and 44.2 percent at December 31, 1995.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
On February 27, 1996, U S WEST announced a definitive agreement to merge with
Continental Cablevision, Inc. ("Continental"). Continental is the nation's
third-largest cable operator. U S WEST will purchase all of Continental's
stock for approximately $5.3 billion and will assume Continental's debt and
other obligations, the market value of which amounted to approximately $6.4
billion as of March 31, 1996. Consideration for the $5.3 billion in equity
will consist of approximately $1 billion in U S WEST preferred stock,
convertible to Media Stock; and, at U S WEST's option, between $1 billion and
$1.5 billion in cash, and $2.8 billion to $3.3 billion in shares of Media
Stock. The transaction, which is expected to close by the end of 1996 or
early 1997, is subject to a number of conditions and approvals.
The number of Media shares to be delivered upon closing will be adjusted
subject to a collar 15 percent above and 15 percent below $24.50, the share
price upon which the transaction was based. If the share price of the Media
Stock is trading below the floor price upon closing, management has stated it
does not intend to increase the number of shares of Media Stock to be issued.
In connection with U S WEST's announcement of the planned merger with
Continental, Standard and Poor's lowered its rating on the U S WEST, Inc., U S
WEST Capital Funding, Inc., a wholly owned financing subsidiary, and U S WEST
Financial Services, Inc. a member of the capital assets segment, senior
unsecured debt, commercial paper and Preferred Securities. The senior
unsecured debt and Preferred Securities ratings were lowered to triple-B-plus
from single-A-plus and the commercial paper rating was lowered to A-2 from
A-1. The credit ratings for U S WEST, Inc., U S WEST Capital Funding, Inc.
and U S WEST Financial Services, Inc. are being reviewed by Fitch, Moody's and
Duff & Phelps which may result in a downgrading.
The Media group expects that cash from operations will not be adequate to fund
expected cash requirements in the foreseeable future. Additional financing
will come primarily from new debt.
Regulatory Environment
On August 1, 1996, the Federal Communications Commission ("FCC") established a
framework of minimum national rules that will enable the states and the FCC to
begin implementing the local competition provision of the Telecommunications
Act of 1996. Among other things, the order stipulates that commercial mobile
radio service operators ("CMRS"), which includes the Media Group's wireless
operations, are entitled to reciprocal compensation arrangements and that a
local exchange carrier ("LEC") may not charge a CMRS provider for terminating
LEC-originated traffic. U S WEST is evaluating the effects of the order.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
SELECTED PROPORTIONATE DATA
The following table is not required by GAAP or intended to replace the
Combined Financial Statements prepared in accordance with GAAP. It is
presented supplementally because the Company believes that proportionate data
facilitates the understanding and assessment of its Combined Financial
Statements. The following table includes allocations of Media Group corporate
activity. The table does not reflect financial data of the capital assets
segment, which had net assets of $407 at June 30, 1996 and $429 at December
31, 1995. The financial information included below departs materially from
GAAP because it aggregates the revenues and operating income of entities not
controlled by the Media Group with those of the consolidated operations of the
Media group.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wireless Wireless Directory & Directory &
Cable & Cable & Communi- Communi- Information Information Corp.
Telecomm. Telecomm. cations cations Services Services and
Dollars in millions Dom. (1) Int'l Dom. Int'l Dom. Int'l Other Total
- ------------------------ ----------- ----------- --------- ---------- ------------ ------------- ------- -------
THREE MONTHS ENDED
JUNE 30, 1996
Revenue $ 724 $ 50 $ 261 $ 99 $ 279 $ 45 $ 3 $1,461
Operating income (loss) 65 (41) 43 (19) 116 - (18) 146
Net income (loss) (5) (69) 25 (18) 68 (5) (7) (11)
EBITDA (2) 175 (11) 78 (1) 124 4 (16) 353
Subscribers/Advertisers
(thousands) 2,944 616 1,557 370 481 274 - 6,242
THREE MONTHS ENDED
JUNE 30, 1995
Revenue $ 665 $ 26 $ 192 $ 65 $ 262 $ 30 $ 8 $1,248
Operating income (loss) 46 (22) 36 (25) 95 (2) (4) 124
Net income (loss) (10) (2) 17 (32) 59 (1) (6) 25
EBITDA (2) 151 (13) 61 (13) 101 - (2) 285
Subscribers/Advertisers
(thousands) 2,808 237 988 241 472 161 - 4,907
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
SELECTED PROPORTIONATE DATA (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Directory Directory
Cable & Cable & Wireless Wireless & Info. & Info. Corp.
Telecomm. Telecomm. Comm. Comm. .Serv. Serv. and
Dollars in millions Dom. (1) Int'l (3) Dom. Int'l Dom. Int'l Other Total
SIX MONTHS ENDED
JUNE 30, 1996
Revenue $ 1,415 $ 100 $ 501 $ 187 $ 550 $ 77 $ 6 $2,836
Operating income (loss) 123 (72) 81 (41) 226 (7) (30) 280
Net income (loss) (8) (106) 42 (42) 134 (12) (16) (8)
EBITDA (2) 340 (20) 147 - 241 - (25) 683
SIX MONTHS ENDED
JUNE 30, 1995
Revenue $ 1,241 $ 50 $ 359 $ 125 $ 520 $ 44 $ 16 $2,355
Operating income (loss) 77 (43) 63 (46) 198 (9) (1) 239
Net income (loss) (28) (13) 32 (60) 121 (5) (7) 40
EBITDA (2) 275 (24) 112 (25) 210 (4) 4 548
- ------------------------ ----------- ----------- --------- ---------- ---------- ----------- ------- -------
<FN>
<F1>
(1) The proportionate results are based on the Media Group's 25.51 percent pro rata priority and residual equity
interests in reported TWE results. The reported TWE results are prepared in accordance with GAAP and have not been
adjusted to report TWE investments accounted for under the equity method on a proportionate basis.
<F2>
(2) Proportionate EBITDA represents the Media Group's equity interest in the entities multiplied by the entity's
EBITDA. As such, proportionate EBITDA does not represent cash available to the Media Group. The Media Group
considers EBITDA an important indicator of the operational strength and performance of its businesses. EBITDA,
however, should not be considered as an alternative to operating or net income, as an indicator of the performance
of the Media Group's businesses, or as an alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with GAAP.
<F3>
(3) Previously reported amounts have been reclassified to conform with the current presentation.
</FN>
</TABLE>
<PAGE>
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
PROPORTIONATE RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996
COMPARED WITH 1995
Proportionate Media Group revenues increased 17 percent, to $1.5 billion, and
20 percent, to $2.8 billion, for the three- and six-month periods ended June
30, 1996, respectively. Proportionate EBITDA increased 24 percent, to $353,
and 25 percent, to $683, for the same periods. Media Group management has
stated its objective is to grow proportionate EBITDA at a rate of 20 percent
annually in the next few years. Strong growth in domestic cable and
telecommunications and wireless communications contributed to the increases.
Subscribers/advertisers increased 27 percent to 6.2 million over the last
twelve months. Strong growth in domestic wireless communications and
international operations contributed to the increase in
subscribers/advertisers.
Cable and Telecommunications Proportionate revenues for the domestic cable and
telecommunications operations increased 18 percent, to $724, and 20 percent,
to $1.4 billion, for the three- and six-month periods, respectively.
Proportionate EBITDA increased 22 percent, to $175, and 18 percent, to $340,
for the same periods. These results reflect a 1996 change in the amount of
Media Group corporate costs allocated to this segment as if it were in effect
throughout 1995 and exclude the one-time impact of certain 1995 TWE
transactions. Proportionate revenue and EBITDA growth is primarily due to
improvements in TWE cable, programming and filmed entertainment operations and
Media Group domestic cable overhead reductions. TWE cable growth is
attributed to subscriber growth of 4.9 percent, on a comparable basis.
International cable and telecommunications proportionate revenues essentially
doubled to $50 and $100 for the three- and six-month periods, respectively.
Proportionate EBITDA increased $1 to ($11), and $2 to ($20), on a comparable
basis, for the same periods. Increases at TeleWest U.K. combined with new
investments in the Netherlands, Czech Republic and Indonesia contributed
significantly to the increase in proportionate revenues.
Proportionate subscribers to the international cable properties grew to
616,000, a 160 percent increase from a year ago. This increase includes the
effect of acquisitions in the Czech Republic and Netherlands.
Second-quarter 1996 proportionate revenues, EBITDA and subscribers for the
Company's cable operations in Norway, Sweden and Hungary have been removed
from the proportionate results in conjunction with an after-tax charge of $19
to reflect the investment at fair value.
Wireless Communications Proportionate revenues for the domestic cellular
operations increased 36 percent, to $261, and 40 percent, to $501 for the
three- and six-month periods, respectively. Proportionate EBITDA increased 34
percent, to $86, and 36 percent, to $161, for the same periods. These results
reflect a 1996 change in the amount of Media Group corporate costs allocated
to this segment as if it were in effect throughout 1995.
Form 10-Q - Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in millions), continued
Proportionate cellular service revenues increased 37 percent, to $239, and 39
percent, to $456, for the three- and six-month periods, respectively. The
increases are due to a 47 percent increase in proportionate subscribers, on a
same property basis, partially offset by a decrease in average revenue per
subscriber.
Proportionate revenues for the international wireless operations increased 52
percent, to $99, and 50 percent, to $187, for the three- and six-month
periods, respectively. Proportionate EBITDA increased $12 to ($1) and $25 to
break even for the same periods. Strong results from One 2 One and Westel
900, a Hungarian cellular operation, contributed to the increases in
proportionate revenues and EBITDA.
Proportionate subscribers to international wireless joint ventures in the
United Kingdom, Hungary, the Czech Republic, Slovakia, Russia and Malaysia
grew to 370,000 at June 30, 1996, a 54 percent increase from a year ago. One
2 One added 74,500 proportionate customers, a 51 percent increase.
Directory and Information Services Proportionate revenues for domestic
directory and information services increased 6 percent, to $279, and 6
percent, to $550 for the three- and six-month periods, respectively.
Proportionate EBITDA increased 19 percent, to $124, and 12 percent, to $241,
for the same periods. These results reflect a 1996 change in the amount of
Media Group corporate costs allocated to this segment as if it were in effect
throughout 1995. The increases are due to price and volume increases and
include the effect of a second-quarter 1995 charge to exit certain product
lines.
Proportionate revenues for international directories businesses increased $15,
to $45, and $33, to $77, for the three- and six-month periods, respectively.
Proportionate EBITDA increased $4 for both the three- and six-month periods
from a year ago. The increase in proportionate revenues and EBITDA is a
result of a new investment in a Brazilian directories operation.
<PAGE>
Form 10-Q - Part II
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
U S WEST and its subsidiaries are subject to claims and proceedings arising in
the ordinary course of business. While complete assurance cannot be given as
to the outcome of any contingent liabilities, in the opinion of U S WEST, any
financial impact to which U S WEST and its subsidiaries are subject is not
expected to be material in amount to U S WEST's operating results or its
financial position.
On April 11, 1996, the Washington State Utilities and Transportation
Commission ("WUTC" or the "Commission" ) acted on U S WEST Communications'
1995 rate request. In February 1995, U S WEST Communications sought to
increase revenues by raising rates for basic residential services over a
four-year period. The two major issues in this proceeding involve U S WEST
Communications' requests for improved capital recovery and elimination of the
imputation of Yellow Pages revenue. Instead of granting U S WEST
Communications' request, the Commission ordered approximately $91.5 in annual
revenue reductions, effective May 1, 1996. Based on the above ruling, U S
WEST Communications filed a lawsuit with the King County Superior Court (the
"Court") for an appeal of the order, a temporary stay of the ordered rate
reduction and an authorization to implement a revenue increase.
On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC.
The Court granted the stay for a period of six months or until a decision is
made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST
Communications began collecting revenues subject to refund with interest. U S
WEST Communications expects its appeal to be successful and plans not to
accrue any of the amounts subject to refund. However, an adverse judgment on
the appeal would have a significant impact on U S WEST Communications' future
results of operations.
On September 22, 1995, U S WEST filed a lawsuit in Delaware Chancery Court to
enjoin the proposed merger of Time Warner and Turner Broadcasting. On June 6,
1996, the Delaware Chancery Court denied U S WEST's petition to enjoin the
proposed merger.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders on June 7, 1996,
shareholders voted as follows for the purpose of electing four individuals as
directors of the Company:
<TABLE>
<CAPTION>
<S> <C> <C>
Directors Votes in Favor Votes Withheld
- ---------------------- -------------- --------------
CLASS I
- ----------------------
Allen F. Jacobson 642,792,089 13,588,536
CLASS II
- ----------------------
Pierson M. Grieve 642,957,370 13,423,255
Richard D. McCormick 642,793,407 13,587,218
Marilyn Carlson Nelson 643,181,665 13,198,960
</TABLE>
Arthur Andersen LLP was confirmed as the Company's independent auditors
with 649,130,095 votes in favor, 3,525,641 votes against and 3,389,360 votes
abstaining.
The shareholders voted as follows to approve the U S WEST Communications
Group Long-Term Incentive Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
In Favor Against Abstained Not Voted
- ----------- ---------- --------- -----------
595,097,159 44,045,788 9,457,159 122,484,471
</TABLE>
The shareholders also considered and rejected the following two
shareholder proposals at the annual meeting:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Proposal In Favor Against Abstained Not Voted
- -------------------------------------- ----------- ----------- ---------- ----------
Elimination of Classified Board 249,077,043 315,603,861 14,847,396 76,852,323
Renegotiation of Change-of-
Conntrol Agreements for Executives
21,919,625 634,461,000 N/A N/A
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
<TABLE>
<CAPTION>
<C> <S>
3.(ii) Bylaws of U S WEST, Inc. as adopted on November 1, 1995
and amended on August 2, 1996.
10 Agreement and Plan of Merger, dated as of February 27, 1996,
and as amended and restated as of June 27, 1996, among
U S WEST, Inc., Continental Merger Corporation, and Continental
Cablevision, Inc.
11 Statement regarding computation of earnings per share of
U S WEST, Inc.
12 Statement regarding computation of earnings to fixed
charges ratio of U S WEST, Inc.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K filed during the second quarter
<TABLE>
<CAPTION>
<C> <S>
(i) Form 8-K report dated April 4, 1996, concerning changes
in the registrant's certifying accountant;
(ii) Form 8-K report dated May 1, 1996, concerning the releases of
earnings issued on April 25, 1996 by U S WEST Communications
Group, and on April 29, 1996 by U S WEST Media Group, for
the first quarter ended March 31, 1996; and
(iii) Form 8-K report dated June 6, 1996, concerning U S WEST's
press release regarding its Time Warner litigation, issued June 6,
1996.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U S WEST, Inc.
By: /S/ Michael P. Glinsky
_________________________________________
Michael P. Glinsky
Executive Vice President and
Chief Financial Officer
August 9, 1996
(..continued)
18
<PAGE>
EXHIBIT 3.(II)
BYLAWS
OF
U S WEST, INC.
AS ADOPTED ON NOVEMBER 1, 1995
AND AMENDED ON AUGUST 2, 1996
<PAGE>
BYLAWS
OF
U S WEST, INC.
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of U S WEST, Inc.
(the "Corporation") in the State of Delaware shall be at 1209 Orange Street,
in the City of Wilmington, County of New Castle, 19801 and its registered
agent at such address shall be The Corporation Trust Company, or such other
office or agent as the Board of Directors of the Corporation (the "Board")
shall from time to time select.
SECTION 2. Other Offices. The Corporation may also have an office or
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meeting. All meetings of the stockholders of the
Corporation shall be held at the office of the Corporation or at such other
places, within or without the State of Delaware, as may from time to time be
fixed by the Board.
SECTION 2. Annual Meetings. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business
as may properly come before the meeting shall be held on the first Friday of
June in each year, at an hour to be named in the notice of the meeting, unless
such day should fall on a legal holiday in the State of Colorado, in which
event the meeting shall be held on the next succeeding business day that is
not a legal holiday, or on such date and at such hour as shall from time to
time be fixed by the Board. Any previously scheduled annual meeting of the
stockholders may be postponed by action of the Board taken prior to the time
previously scheduled for such annual meeting of stockholders.
<PAGE>
SECTION 3. Special Meetings. Except as otherwise required by law or
the Certificate of Incorporation of the Corporation (the "Certificate"),
special meetings of the stockholders for any purpose or purposes may be called
by the Chairman of the Board or a majority of the entire Board. Only such
business as is specified in the notice of any special meeting of the
stockholders shall come before such meeting.
SECTION 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not less than 10 nor
more than 60 days before the date of the meeting to each stockholder of record
entitled to notice of the meeting. If mailed, such notice shall be deemed
given when deposited in the United States mail, postage prepaid, directed to
the stockholder at such stockholder's address as it appears on the records of
the Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice
of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy without
protesting, prior to or at the commencement of the meeting, the lack of proper
notice to such stockholder, or who shall sign a written waiver of notice
thereof, whether before or after such meeting. Notice of adjournment of a
meeting of stockholders need not be given if the time and place to which it is
adjourned are announced at such meeting, unless the adjournment is for more
than 30 days or, after adjournment, a new record date is fixed for the
adjourned meeting.
SECTION 5. Quorum. Except as otherwise provided by law or by the
Certificate, the holders of a majority of the votes entitled to be cast by the
stockholders entitled to vote generally, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders; provided, however, that in the case of any vote to be taken
by classes, the holders of a majority of the votes entitled to be cast by the
stockholders of a particular class shall constitute a quorum for the
transaction of business by such class.
SECTION 6. Adjournments. The chairman of the meeting or the holders
of a majority of the votes entitled to be cast by the stockholders who are
present in person or by proxy may adjourn the meeting from time to time
whether or not a quorum is present. In the event that a quorum does not exist
with respect to any vote to be taken by a particular class, the chairman of
the meeting or the holders of a majority of the votes entitled to be cast by
the stockholders of such class who are present in person or by proxy may
adjourn the meeting with respect to the vote(s) to be taken by such class. At
such adjourned meeting at which a quorum may be present, any business may be
transacted which might have been transacted at the meeting as originally
called.
<PAGE>
SECTION 7. Order of Business. (a) At each meeting of the
stockholders, the Chairman of the Board or, in the absence of the Chairman of
the Board, such person as shall be selected by the Board shall act as chairman
of the meeting. The order of business at each such meeting shall be as
determined by the chairman of the meeting. The chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts and things as are necessary or desirable
for the proper conduct of the meeting, including, without limitation, the
establishment of procedures for the maintenance of order and safety,
limitations on the time allotted to questions or comments on the affairs of
the Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof, and the opening and closing of the
voting polls.
(b) At any annual meeting of stockholders, only such business shall be
conducted as shall have been brought before the annual meeting (i) by or at
the direction of the chairman of the meeting, (ii) pursuant to the notice
provided for in this Section 4 of this Article II or (iii) by any stockholder
who is a holder of record at the time of the giving of such notice provided
for in this Section 7, who is entitled to vote at the meeting and who complies
with the procedures set forth in this Section 7.
(c) For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation (the "Secretary"). To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 90 days prior
to the date of an annual meeting of stockholders. To be in proper written
form, a stockholder's notice to the Secretary shall set forth in writing as to
each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting;
(ii) the name and address of the stockholder proposing such business and all
persons or entities acting in concert with the stockholder; (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder and all persons or entities acting in concert with such
stockholder; and (iv) any material interest of the stockholder in such
business. The foregoing notice requirements shall be deemed satisfied by a
stockholder if the stockholder has notified the Corporation of his or her
intention to present a proposal at an annual meeting and such stockholder's
proposal has been included in a proxy statement that has been prepared by
management of the Corporation to solicit proxies for such annual meeting;
provided, however, that if such stockholder does not appear or send a
qualified representative to present such proposal at such annual meeting, the
Corporation need not present such proposal for a vote at such meeting,
notwithstanding that proxies in respect of such vote may have been received by
the Corporation. Notwithstanding anything in the bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with
the procedures set forth in this Section 7. The chairman of an annual meeting
shall, if the facts warrant, determine that business was not properly brought
before the annual meeting in accordance with the provisions of this Section 7
and, if the chairman should so determine, the chairman shall so declare to the
annual meeting and any such business not properly brought before the annual
meeting shall not be transacted.
<PAGE>
SECTION 8. List of Stockholders. It shall be the duty of the
Secretary or other officer who has charge of the stock ledger to prepare and
make, at least 10 days before each meeting of the stockholders, a complete
list of the stockholders entitled to vote thereat, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in such stockholder's name. Such list shall be produced and kept
available at the times and places required by law.
SECTION 9. Voting. (a) Except as otherwise provided by law or by the
Certificate, each stockholder of record of any class or series of capital
stock of the Corporation shall be entitled at each meeting of stockholders to
such number of votes for each share of such stock as may be fixed in the
Certificate or in the resolution or resolutions adopted by the Board providing
for the issuance of such stock, registered in such stockholder's name on the
books of the Corporation:
(1) on the date fixed pursuant to Section 6 of Article VII of these
bylaws as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting; or
(2) if no such record date shall have been so fixed, then at the close
of business on the day next preceding the day on which notice of such meeting
is given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(b) Each stockholder entitled to vote at any meeting of stockholders may
authorize not in excess of three persons to act for such stockholder by proxy.
Any such proxy shall be delivered to the secretary of such meeting at or
prior to the time designated for holding such meeting. No such proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period.
(c) At each meeting of the stockholders, all corporate actions to be
taken by vote of the stockholders (except as otherwise required by law and
except as otherwise provided in the Certificate or these bylaws) shall be
authorized by a majority of the votes cast by the stockholders entitled to
vote thereon who are present in person or represented by proxy, and where a
separate vote by class is required, a majority of the votes cast by the
stockholders of such class who are present in person or represented by proxy
shall be the act of such class.
(d) Unless required by law or determined by the chairman of the meeting
to be advisable, the vote on any matter, including the election of directors,
need not be by written ballot. In the case of a vote by written ballot, each
ballot shall be signed by the stockholder voting, or by such stockholder's
proxy.
<PAGE>
SECTION 10. Inspectors. The chairman of the meeting shall appoint one
or more inspectors to act at any meeting of stockholders. Such inspectors
shall perform such duties as shall be specified by the chairman of the
meeting. Inspectors need not be stockholders. No director or nominee for the
office of director shall be appointed such inspector.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate directed or required to be
exercised or done by the stockholders.
SECTION 2. Number, Qualification and Election. (a) Except as
otherwise fixed by or pursuant to the provisions of Article V of the
Certificate relating to the rights of the holders of any class or series of
stock having preference over the common stock of the corporation as to
dividends or upon liquidation, the number of directors of the Corporation
shall be determined from time to time by the Board by the affirmative vote of
directors constituting at least a majority of the entire Board; provided that
the number thereof may not be less than six nor more than seventeen.
(b) The directors, other than those who may be elected by the holders of
shares of any class or series of stock having a preference over the common
stock of the Corporation as to dividends or upon liquidation pursuant to the
terms of Article V of the Certificate or any resolution or reso-lutions
providing for the issuance of such stock adopted by the Board, shall be
classified, with respect to the time for which they severally hold office,
into three classes as nearly equal in number as possible, with each class to
hold office until its successors are elected and qualified. Subject to the
rights of the holders of any class or series of stock having a preference over
the common stock of the Corporation as to dividends or upon liquidation, at
each such annual meeting of the stockholders, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third
year following the year of their election.
(c) Each director shall be at least 21 years of age. Directors need not
be stockholders of the Corporation.
(d) In any election of directors held at a meeting of stockholders, the
persons receiving a plurality of the votes cast by the stockholders entitled
to vote thereon at such meeting who are present or represented by proxy, up to
the number of directors to be elected in such election, shall be deemed
elected.
<PAGE>
SECTION 3. Notification of Nomination. Subject to the rights of the
holders of any class or series of stock having a preference over the common
stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board or by any stockholder who is a stockholder
of record at the time of giving of the notice of nomination provided for in
this Section 3 of this Article III and who is entitled to vote for the
election of directors. Any stockholder of record entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if timely written notice of such stockholder's intent to make
such nomination is given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation (i) with respect to an election to be held at an annual
meeting of stockholders, not less than 60 days prior to the date of such
annual meeting and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, not less than 15 days
following the public announcement of the date of such special meeting. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination, of all persons or entities acting in concert
with the stockholder, and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or entities acting in
concert with the stockholder (naming such person or entities) pursuant to
which the nomination or nominations are to be made by the stockholder; (d)
such other information regarding each nominee proposed by the stockholder as
would have been required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had each nominee
been nominated, or intended to be nominated, by the Board; (e) the class and
number of shares of the Corporation that are beneficially owned by the
stockholder and all persons or entities acting in concert with the
stockholder; and (f) the consent of each nominee to being named in a proxy
statement as nominee and to serve as a director of the Corporation if so
elected. The chairman of the meeting may refuse to acknowledge the nomination
of any person not made after compliance with the foregoing procedure. Only
such persons who are nominated in accordance with the procedures set forth in
this Section 3 of this Article III shall be eligible to serve as directors of
the Corporation.
SECTION 4. Quorum and Manner of Acting. Except as otherwise provided
by law, the Certificate or these bylaws, a majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting of the
Board, and, except as so provided, the vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board. The chairman of the meeting or a majority of the directors present may
adjourn the meeting to another time and place whether or not a quorum is
present. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as
originally called.
<PAGE>
SECTION 5. Place of Meeting. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board may from
time to time determine or as shall be specified or fixed in the respective
notice or waivers of notice thereof.
SECTION 6. Regular Meetings. Regular meetings of the Board shall be
held at such times and places as the Chairman of the Board or the Board shall
from time to time by resolution determine. If any day fixed for a regular
meeting shall be a legal holiday under the laws of the place where the meeting
is to be held, the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day.
SECTION 7. Special Meetings. Special meetings of the Board shall be
held whenever called by the Chairman of the Board or by a majority of the
directors.
SECTION 8. Notice of Meetings. Notice of regular meetings of the
Board or of any adjourned meeting thereof need not be given. Notice of each
special meeting of the Board shall be given by overnight delivery service or
mailed to each director, in either case addressed to such director at such
director's residence or usual place of business, at least two days before the
day on which the meeting is to be held or shall be sent to such director at
such place by telegraph or telecopy or be given personally or by telephone,
not later than the day before the meeting is to be held, but notice need not
be given to any director who shall, either before or after the meeting, submit
a signed waiver of such notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to such
director. Every such notice shall state the time and place but need not state
the purpose of the meeting.
SECTION 9. Rules and Regulations. The Board may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate or
these bylaws for the conduct of its meetings and management of the affairs of
the Corporation as the Board may deem proper.
SECTION 10. Participation in Meeting by Means of Communication
Equipment. Any one or more members of the Board or any committee thereof may
participate in any meeting of the Board or of any such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such
meeting.
SECTION 11. Action without Meeting. Any action required or permitted
to be taken at any meeting of the Board or any committee thereof may be taken
without a meeting if all of the members of the Board or of any such committee
consent thereto in writing and the writing or writings are filed with the
minutes or proceedings of the Board or of such committee.
<PAGE>
SECTION 12. Resignations. Any director of the Corporation may at any
time resign by giving written notice to the Board, the Chairman of the Board,
the President or the Secretary. Such resignation shall take effect at the
time specified therein or, if the time be not specified therein, upon receipt
thereof; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 13. Removal of Directors. Directors may be removed only as
provided in Section 5 of Article VI of the Certificate.
SECTION 14. Vacancies. Subject to the rights of the holders of any
class or series of stock having a preference over the common stock of the
Corporation as to dividends or upon liquidation, any vacancies on the Board
resulting from death, resignation, removal or other cause shall only be filled
by the Board by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board, or by a sole
remaining director, and newly created directorships resulting from any
increase in the number of directors shall be filled by the Board, or if not so
filled, by the stockholders at the next annual meeting thereof or at a special
meeting called for that purpose in accordance with Section 3 of Article II of
these bylaws. Any director elected in accordance with the preceding sentence
of this Section 14 of this Article III shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified.
SECTION 15. Compensation. Each director, in consideration of such
person serving as a director, shall be entitled to receive from the
Corporation such amount per annum and such fees for attend-ance at meetings of
the Board or of committees of the Board, or both, as the Board shall from time
to time determine. In addition, each director shall be entitled to receive
from the Corporation reimbursement for the reasonable expenses incurred by
such person in connection with the performance of such person's duties as a
director. Nothing contained in this Section 15 of this Article III shall
preclude any director from serving the Corporation or any of its subsidiaries
in any other capacity and receiving proper compensation therefor.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Establishment of Committees of the Board of Directors;
Election of Members of Committees of the Board of Directors; Functions of
Committees of the Board of Directors. The Board may, in accordance with and
subject to the General Corporation Law of the State of Delaware, from time to
time establish committees of the Board to exercise such powers and authorities
of the Board, and to perform such other functions, as the Board may from time
to time determine.
<PAGE>
SECTION 2. Procedure; Meetings; Quorum. Regular meetings of
committees of the Board, of which no notice shall be necessary, may be held at
such times and places as shall be fixed by resolution adopted by a majority of
the members thereof. Special meetings of any committee of the Board shall be
called at the request of a majority of the members thereof. Notice of each
special meeting of any committee of the Board shall be given by overnight
delivery service or mailed to each member, in either case addressed to such
member at such member's residence or normal place of business, at least two
days before the day on which the meeting is to be held or shall be sent to
such members at such place by telegraph or telecopy or be given personally or
by telephone, not later than the day before the meeting is to be held, but
notice need not be given to any member who shall, either before or after the
meeting, submit a signed waiver of such notice or who shall attend such
meeting without protesting, prior to it or at its commencement, the lack of
such notice to such member. Any special meeting of any committee of the Board
shall be a legal meeting without any notice thereof having been given, if all
the members thereof shall be present thereat. Notice of any adjourned meeting
of any committee of the Board need not be given. Any committee of the Board
may adopt such rules and regulations not inconsistent with the provisions of
law, the Certificate or these bylaws for the conduct of its meetings as such
committee of the Board may deem proper. A majority of the members of any
committee of the Board shall constitute a quorum for the transaction of
business at any meeting, and the vote of a majority of the members thereof
present at any meeting at which a quorum is present shall be the act of such
committee. Each committee of the Board shall keep written minutes of its
proceedings and shall report on such proceedings to the Board.
ARTICLE V
OFFICERS
SECTION 1. Number; Term of Office. The officers of the Corporation
shall be such officers, which may include a Chairman of the Board, Chief
Executive Officer, President, Chief Financial Officer, General Counsel and one
or more Vice Presidents (including, without limitation, Assistant, Executive
and Senior Vice Presidents) and a Treasurer, Secretary and Controller and such
other officers or agents with such titles and such duties as the Board may
from time to time determine, each to have such authority, functions or duties
as provided in these bylaws or as the Board may from time to time determine,
and each to hold office for such term as may be prescribed by the Board and
until such person's successor shall have been chosen and shall qualify, or
until such person's death or resignation, or until such person's removal in
the manner hereinafter provided. One person may hold the offices and perform
the duties of any two or more of said officers; provided, however, that no
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Certificate or these
bylaws to be executed, acknowledged or verified by two or more officers. The
Board may from time to time authorize any officer to appoint and remove any
such other officers and agents and to prescribe their powers and duties. The
Board may require any officer or agent to give security for the faithful
performance of such person's duties.
<PAGE>
SECTION 2. Removal. Any officer may be removed, either with or
without cause, by the Board at any meeting thereof or, except in the case of
any officer elected by the Board, by any superior officer upon whom such power
may be conferred by the Board.
SECTION 3. Resignation. Any officer may resign at any time by giving
notice to the Board, the Chairman of the Board or the Secretary. Any such
resignation shall take effect at the date of receipt of such notice or at any
later date specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired
portion of the term in the manner prescribed in these bylaws for election to
such office.
SECTION 5. Chairman of the Board; Powers and Duties. The Chairman of
the Board shall be the chief exe-cutive officer of the Corporation. Subject
to the control of the Board, the Chairman of the Board shall super-vise and
direct generally all the business and affairs of the Corporation. The
Chairman of the Board shall preside at all meetings of the stockholders and
the Board. Any document may be signed by the Chairman of the Board or any
other person who may be thereunto authorized by the Board or the Chairman of
the Board. The Chairman of the Board may appoint such assistant officers as
are deemed necessary.
SECTION 6. President, Executive Vice Presidents, Senior Vice Presidents
and Vice Presidents; Powers and Duties. The President shall be the chief
operating officer of the Corporation. The President and each Executive Vice
President, each Senior Vice President, and each Vice President shall have such
powers and perform such duties as may be assigned by the Board of Directors or
the Chairman of the Board. In case of the absence or disability of the
Chairman of the Board or a vacancy in the office, the President, an Executive
Vice President, a Senior Vice President, or a Vice President designated by the
Chairman of the Board or the Board shall exercise all the powers and perform
all the duties of the Chairman of the Board.
SECTION 7. Secretary and Assistant Secretaries; Powers and Duties.
The Secretary shall attend all meetings of the stockholders and the Board and
shall keep the minutes for such meetings in one or more books provided for
that purpose. The Secretary shall be custodian of the corporate records,
except those required to be in the custody of the Treasurer or the Controller,
shall keep the seal of the Corporation, and shall execute and affix the seal
of the Corporation to all documents duly authorized for execution under seal
on behalf of the Corporation, and shall perform all of the duties incident to
the office of Secretary, as well as such other duties as may be assigned by
the Chairman of the Board or the Board.
The Assistant Secretaries shall perform such of the Secretary's duties as
the Secretary shall from time to time direct. In case of the absence or
disability of the Secretary or a vacancy in the office, an Assistant Secretary
designated by the Chairman of the Board or by the Secretary, if the office is
not vacant, shall perform the duties of the Secretary.
<PAGE>
SECTION 8. Chief Financial Officer; Powers and Duties. The Chief
Financial Officer shall be responsible for maintaining the financial integrity
of the Corporation, shall prepare the financial plans for the Corporation, and
shall monitor the financial performance of the Corporation and its
subsidiaries, as well as performing such other duties as may be assigned by
the Chairman of the Board or the Board.
SECTION 9. Treasurer and Assistant Treasurers; Powers and Duties. The
Treasurer shall have care and custody of the funds and securities of the
Corporation, shall deposit such funds in the name and to the credit of the
Corporation with such depositories as the Treasurer shall approve, shall
disburse the funds of the Corporation for proper expenses and dividends, and
as may be ordered by the Board, taking proper vouchers for such disbursements.
The Treasurer shall perform all of the duties incident to the office of
Treasurer, as well as such other duties as may be assigned by the Chairman of
the Board or the Board.
The Assistant Treasurers shall perform such of the Treasurer's duties as
the Treasurer shall from time to time direct. In case of the absence or
disability of the Treasurer or a vacancy in the office, an Assistant Treasurer
designated by the Chairman of the Board or by the Treasurer, if the office is
not vacant, shall perform the duties of the Treasurer.
SECTION 10. General Counsel; Powers and Duties. The General Counsel
shall be a licensed attorney at law and shall be the chief legal officer of
the Corporation. The General Counsel shall have such power and exercise such
authority and provide such counsel to the Corporation as deemed necessary or
desirable to enforce the rights and protect the property and integrity of the
Corporation, shall also have the power, authority, and responsibility for
securing for the Corporation all legal advice, service, and counseling, and
shall perform all of the duties incident to the office of General Counsel, as
well as such other duties as may be assigned by the Chairman of the Board or
the Board.
SECTION 11. Controller and Assistant Controllers; Powers and Duties.
The Controller shall be the chief accounting officer of the Corporation and
shall keep and maintain in good and lawful order all accounts required by law
and shall have sole control over, and ultimate responsibility for, the
accounts and accounting methods of the Corporation and the compliance of the
Corporation with all systems of accounts and accounting regulations prescribed
by law. The Controller shall audit, to such extent and at such times as may
be required by law or as the Controller may think necessary, all accounts and
records of corporate funds or property, by whomsoever kept, and for such
purposes shall have access to all such accounts and records. The Controller
shall make and sign all necessary and proper accounting statements and
financial reports of the Corporation, and shall perform all of the duties
incident to the office of Controller, as well as such other duties as may be
assigned by the Chairman of the Board or the Board.
<PAGE>
The Assistant Controllers shall perform such of the Controller's duties
as the Controller shall from time to time direct. In case of the absence or
disability of the Controller or a vacancy in the office, an Assistant
Controller designated by the Chairman of the Board or the Controller, if the
office is not vacant, shall perform the duties of the Controller.
SECTION 12. Salaries. The salaries of all officers of the Corporation
shall be fixed by or in the manner provided by the Board. If authorized by a
resolution of the Board, the salary of any officer other than the Chairman of
the Board may be fixed by the Chairman of the Board or a Committee of the
Board. No officer shall be disqualified from receiving a salary by reason of
also being a director of the Corporation.
ARTICLE VI
INDEMNIFICATION
SECTION 1. Scope of Indemnification1. Scope of Indemnification1.
Scope of Indemnification. (a) The Corporation shall indemnify an
indemnified representative against any liability incurred in connection with
any proceeding in which the indemnified representative may be involved as a
party or otherwise, by reason of the fact that such person is or was serving
in an indemnified capacity, except to the extent that any such indemnification
against a particular liability is expressly prohibited by applicable law or
where a judgment or other final adjudication adverse to the indemnified
representative establishes, or where the Corporation determines, that his or
her acts or omissions (i) were in breach of such person's duty of loyalty to
the Corporation or its stockholders, (ii) were not in good faith or involved
intentional misconduct or a knowing violation of law, or (iii) resulted in
receipt by such person of an improper personal benefit. The rights granted by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification, contribution, or advancement of expenses may be
entitled under any statute, certificate of incorporation, agreement, contract
of insurance, vote of stockholders or disinterested directors, or otherwise.
The rights of indemnification and advancement of expenses provided by or
granted pursuant to this Article shall continue as to a person who has ceased
to be an indemnified representative in respect of matters arising prior to
such time and shall inure to the benefit of the heirs, executors,
administrators and personal representatives of such a person.
(b) If an indemnified representative is not entitled to indemnification
with respect to a portion of any liabilities to which such person may be
subject, the Corporation shall nonetheless indemnify such indemnified
representative to the maximum extent for the remaining portion of the
liabilities.
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the indemnified representative is not
entitled to indemnification.
<PAGE>
(d) To the extent permitted by law, the payment of indemnification
provided for by this Article, including the advancement of expenses pursuant
to Section 2 of this Article VI, with respect to proceedings other than those
brought by or in the right of the Corporation, shall be subject to the
conditions that the indemnified representative shall give the Corporation
prompt notice of any proceeding, that the Corporation shall have complete
charge of the defense of such proceeding and the right to select counsel for
the indemnified representative, and that the indemnified representative shall
assist and cooperate fully in all matters respecting the proceeding and its
defense or settlement. The Corporation may waive any or all of the conditions
set forth in the preceding sentence. Any such waiver shall be applicable only
to the specific payment for which the waiver is made and shall not in any way
obligate the Corporation to grant such waiver at any future time. In the
event of a conflict of interest between the indemnified representative and the
Corporation that would disqualify the Corporation's counsel from representing
the indemnified representative under the rules of professional conduct
applicable to attorneys, it shall be the policy of the Corporation to waive
any or all of the foregoing conditions subject to such limitations or
conditions as the Corporation shall deem to be reasonable in the
circumstances.
(e) For purposes of this Article:
(1) "indemnified capacity" means any and all past, present, or future
services by an indemnified representative in one or more capacities as a
director, officer, employee, or agent of the Corporation or, at the request of
the Corporation, as a director, officer, employee, agent, fiduciary, or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan, or other entity or enterprise; any indemnified representative
serving an affiliate of the Corporation in any capacity shall be deemed to be
doing so at the request of the Corporation;
(2) an "affiliate of the Corporation" means an entity that directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, the Corporation;
(3) "indemnified representative" means any and all directors, officers,
and employees of the Corporation and any other person designated as an
indemnified representative by the Board;
(4) "liability" means any damage, judgment, amount paid in settlement,
fine, penalty, punitive damage, excise tax assessed with respect to an
employee benefit plan, or cost or expense of any nature (including, without
limitation, expert witness fees, costs of investigation, litigation and appeal
costs, attorneys' fees, and disbursements); and
(5) "proceeding" means any threatened, pending, or completed action,
suit, appeal, or other proceeding of any nature, whether civil, criminal,
administrative, or investigative, whether formal or informal, whether external
or internal to the Corporation, and whether brought by or in the right of the
Corporation, a class of its security holders or otherwise.
<PAGE>
SECTION 2. Advancing Expenses. All reasonable expenses incurred in
good faith by an indemnified representative in advance of the final
disposition of a proceeding described in Section 1 of this Article VI shall be
advanced to the indemnified representative by the Corporation. Before making
any such advance payment of expenses, the Corporation shall receive an
undertaking by or on behalf of the indemnified representative to repay such
amount if it shall ultimately be determined that such indemnified
representative is not entitled to be indemnified by the Corporation pursuant
to this Article VI. No advance shall be made by the Corporation if a
determination is reasonably and promptly made by a majority vote of
disinterested directors, even if the disinterested directors constitute less
than a quorum, or (if such a quorum is not obtainable or, even if obtainable,
a quorum of disinterested directors so directs) by independent legal counsel
in a written opinion, that, based upon the facts known to the Board or counsel
at the time such determination is made, the indemnified representative has
acted in such a manner as to permit or require the denial of indemnification
pursuant to the provisions of Section 1 of this Article VI.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Share Ownership. (a) Holders of shares of stock of each
class of the Corporation shall be recorded on the books of the Corporation and
ownership of such stock shall be evidenced by a certificate or other form as
shall be approved by the Board. Certificates representing shares of stock of
each class shall be signed by, or in the name of, the Corporation by the
Chairman of the Board or the President, any Vice President and by the
Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer of the Corporation, and sealed with the seal of the Corporation,
which may be a facsimile thereof. Any or all such signatures may be
facsimiles if countersigned by a transfer agent or registrar. Although any
officer, transfer agent or registrar whose manual or facsimile signature is
affixed to such a certificate ceases to be such officer, transfer agent or
registrar before such certificate has been issued, it may nevertheless be
issued by the Corporation with the same effect as if such officer, transfer
agent or registrar were still such at the date of its issue.
(b) The stock ledger and blank share certificates shall be kept by the
Secretary or by a transfer agent or by a registrar or by any other officer or
agent designated by the Board.
<PAGE>
SECTION 2. Transfer of Shares. Transfers of shares of stock of each
class of the Corporation shall be made only on the books of the Corporation by
the holder thereof, or by such holder's attorney thereunto authorized by a
power of attorney duly executed and filed with the Secretary or a transfer
agent for such stock, if any, and on surrender of the certificate or
certificates, if any, for such shares properly endorsed or accompanied by a
duly executed stock transfer power (or by proper evidence of succession,
assignment or authority to transfer) and the payment of any taxes thereon;
provided, however, that the Corporation shall be entitled to recognize and
enforce any lawful restriction on transfer. The person in whose name shares
are registered on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation; provided, however,
that whenever any transfer of shares shall be made for collateral security and
not absolutely, and written notice thereof shall be given to the Secretary or
to such transfer agent, such fact shall be stated in the entry of the
transfer. No transfer of shares shall be valid as against the Corporation,
its stockholders and creditors for any purpose, except to render the
transferee liable for the debts of the Corporation to the extent provided by
law, until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.
SECTION 3. Registered Stockholders and Addresses of Stockholders. (a)
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its records as the owner of shares of stock to receive
dividends and to vote as such owner, shall be entitled to hold liable for
calls and assessments a person registered on its records as the owner of
shares of stock, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares of stock on the part of any other
person, whether or not it shall have express or other notice thereof, except
as otherwise provided by the laws of Delaware.
(b) Each stockholder shall designate to the Secretary or transfer agent
of the Corporation an address at which notices of meetings and all other
corporate notices may be delivered or mailed to such person, and, if any
stockholder shall fail to designate such address, corporate notices may be
delivered to such person by mail directed to such person at such person's post
office address, if any, as the same appears on the stock record books of the
Corporation or at such person's last known post office address.
SECTION 4. Lost, Destroyed and Mutilated Certificates. The
Corporation may issue to any holder of shares of stock the certificate for
which has been lost, stolen, destroyed or mutilated a new certificate or
certificates for shares, upon the surrender of the mutilated certificate or,
in the case of loss, theft or destruction of the certificate, upon
satisfactory proof of such loss, theft or destruction. The Board, or a
committee designated thereby, or the transfer agents and registrars for the
stock, may, in their discretion, require the owner of the lost, stolen or
destroyed certificate, or such person's legal representative, to give the
Corporation a bond in such sum and with such surety or sureties as they may
direct to indemnify the Corporation and said transfer agents and registrars
against any claim that may be made on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
<PAGE>
SECTION 5. Regulations. The Board may make such additional rules and
regulations as it may deem expedient concerning the issue and transfer of
certificates representing shares of stock of each class of the Corporation and
may make such rules and take such action as it may deem expedient concerning
the issue of certificates in lieu of certificates claimed to have been lost,
destroyed, stolen or mutilated.
SECTION 6. Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution
or allotment or any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board may fix, in advance, a record date, which shall not
be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. A determination of stockholders
entitled to notice of or to vote at a meeting of the stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
SECTION 7. Transfer Agents and Registrars. The Board may appoint, or
authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
ARTICLE VIII
SEAL
The Board shall provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation and the words and
figures of "Corporate Seal Delaware", or such other words or figures as the
Board may approve and adopt. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st day of December
in each year.
<PAGE>
ARTICLE X
AMENDMENTS
Any bylaw may be adopted, repealed, altered or amended by two-thirds of
the entire Board at any meeting thereof. The stockholders of the Corporation
shall have the power to amend, alter or repeal any provision of these bylaws
only to the extent and in the manner provided in the Certificate.
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 27, 1996, and as
amended and restated as of June 27, 1996, among U S WEST, INC., a Delaware
corporation ("Acquiror"), CONTINENTAL MERGER CORPORATION, a Delaware
corporation and direct wholly owned subsidiary of Acquiror ("Company Sub"),
and CONTINENTAL CABLEVISION, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Acquiror and the Company have entered into an Agreement and Plan
of Merger, dated as of February 27, 1996 (the "Original Agreement"), providing
for the merger of the Company with and into Acquiror (the "Direct Merger");
WHEREAS, Acquiror and the Company desire to amend and restate the
Original Agreement in its entirety to permit an alternate merger structure
providing for the merger of the Company into Company Sub (the "Subsidiary
Merger") and to make certain other amendments to the Original Agreement, and
Company Sub desires to become a party thereto;
WHEREAS, the board of directors of the Company has determined that the
Direct Merger and the Subsidiary Merger would be fair to and in the best
interests of its stockholders, and such board of directors has approved this
Agreement and the transactions contemplated hereby and has recommended the
adoption by the stockholders of the Company of this Agreement and the
amendments to Section F of Article FOURTH (the "Conversion Charter Amendment")
and Section H of Article FOURTH (the "Consideration Charter Amendment" and,
together with the Conversion Charter Amendment, the "Charter Amendments"),
substantially in the form contained in Exhibit A hereto, of the Company's
Restated Certificate of Incorporation to be effected prior to the consummation
of the Direct Merger or the Subsidiary Merger;
WHEREAS, the board of directors of Acquiror has determined that the
Direct Merger and the Subsidiary Merger, and the board of directors of Company
Sub has determined that the Subsidiary Merger, would be fair to and in the
best interests of their respective stockholders, and such boards of directors
have approved this Agreement and the transactions con-templated hereby;
<PAGE>
WHEREAS, concurrently with the execution of the Original Agreement and in
order to induce Acquiror to enter into the Original Agreement, certain
stockholders of the Company executed and delivered an agreement pursuant to
which, among other things, such Stockholders granted to Acquiror their proxy
to vote all of the votes entitled to be cast by such stockholders in favor of
the adoption of this Agreement and the Consideration Charter Amendment, which
agreement is being amended in connection with the execution and delivery of
this Agreement (as so amended, the "Stockholders' Agreement");
WHEREAS, for Federal income tax purposes, it is intended that the Direct
Merger and the Subsidiary Merger shall each qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated there-under (the "Code");
and
WHEREAS, Acquiror, Company Sub and the Company desire to make certain
representations, warranties, covenants and agree-ments in connection with the
transactions contemplated hereby and also to prescribe various conditions to
the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agree-ments herein contained, the
parties hereto agree as follows:
DEFINITIONS
Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"Acquiror Region" shall mean Arizona, Colorado, Idaho, Iowa, Minnesota,
Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah,
Washington and Wyoming.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such other Person.
"Basic Cable Service" shall mean as to each System the tier of video
programming service defined in 47 C.F.R. Section 76.901(a).
<PAGE>
"Board of Directors" shall mean the board of directors of the Company.
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by
law to close.
"Cable Act" shall mean the Cable Communications Policy Act of 1984, as
amended by the Cable Television Consumer Protection and Competition Act of
1992 and the Telecommunications Act of 1996.
"Cable Programming Service" shall mean as to each System those video
programming services defined in 47 C.F.R. Section 76.901(b).
"Calculation Price" shall mean the Determination Price, Cap Price or
Floor Price, as applicable, based upon which the Class A Common Conversion
Number and Class B Common Conversion Number is determined in accordance with
Section 3.1(d).
"Cap Price" shall mean $28.175.
"Cash Consideration Amount" shall equal $1 billion; provided,
however, that the board of directors of Acquiror shall have the right, in
its sole discretion, to increase the Cash Consideration Amount to a maximum of
$1.5 billion so long as notice of such change is given to the Company no later
than one Business Day prior to the Effective Time; provided, further, that
the board of directors of Acquiror shall have the right to increase the Cash
Consideration Amount above $1.5 billion in an amount equal to (x) the number
of shares of Company Common Stock issued or to be issued in connection with
any acquisition by the Company approved by Acquiror pursuant to Section 6.1
hereof multiplied by (y) the Share Price; and provided, further, that the
Cash Consideration Amount may be reduced pursuant to Section 7.7(c).
"CATV" shall mean any method, presently existing, for the transmission
and/or exhibition (whether by microwave, fiber optics or coaxial cable) of
broadband video signals other than by means of DBS, MMDS, broadcast television
and in-home video players (and which is based on the expectation of payment by
the recipient), and shall include without limitation cable television (basic
and premium) and pay-per-view television.
<PAGE>
"Charter Amendments" shall have the meaning set forth in the third
recital to this Agreement.
"Class A Preferred Consideration Amount" shall mean the product of (x)
the Class A Preferred Percentage multiplied by (y) the Share Price multiplied
by (z) the number of shares of Class A Common Stock outstanding immediately
prior to the Effective Time on a fully diluted basis.
"Class A Preferred Conversion Number" shall mean the quotient of (x)
the product of (A) the Class A Preferred Percentage multiplied by (B) the
Share Price divided by (y) the Liquidation Value (rounded to the nearest
hundredth, or if there shall not be a nearest hundredth, to the next lowest
hundredth).
"Class A Preferred Percentage" shall mean the difference between (x)
one and (y) the Class A Common Percentage.
"Class B Aggregate Consideration Amount" shall mean the sum of the Cash
Consideration Amount plus the Class B Preferred Consideration Amount plus the
Class B Common Consideration Amount.
"Class B Common Consideration Amount" shall mean the product of (x) the
Class B Percentage multiplied by (y) the Common Consideration Net Amount.
"Class B Common Percentage" shall mean the quotient (rounded to the
nearest hundredth, or if there shall not be a nearest hundredth, to the next
lowest hundredth) of (x) the Class B Common Consideration Amount divided by
(y) the sum of the Class B Common Consideration Amount and the Class B
Preferred Consideration Amount.
"Class B Percentage" shall mean the quotient (rounded to the nearest
hundredth, or if there shall not be a nearest hundredth, to the next lowest
hundredth) of (i) the number of shares of Class B Common Stock outstanding
immediately prior to the Effective Time on a fully diluted basis, including
giving effect to the conversion of all outstanding shares of Company Preferred
Stock but excluding any and all unvested and outstanding shares of Restricted
Company Common Stock, divided by (ii) the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time on a fully diluted
basis, including giving effect to the conversion of all outstanding shares of
<PAGE>
Company Preferred Stock but excluding any and all unvested and outstanding
shares of Restricted Company Common Stock.
"Class B Preferred Consideration Amount" shall mean the difference
between (x) the Preferred Consideration Amount and (y) the Class A Preferred
Consideration Amount.
"Class B Preferred Conversion Number" shall mean the quotient of (x)
the product of (A) the Class B Preferred Percentage multiplied by (B) the
Share Price divided by (y) the Liquidation Value (rounded to the nearest
hundredth, or if there shall not be a nearest hundredth, to the next lowest
hundredth).
"Class B Preferred Percentage" shall mean the quotient (rounded to the
nearest hundredth, or if there shall not be a nearest hundredth, to the next
highest hundredth) of (x) the Class B Preferred Consideration Amount divided
by (y) the sum of the Class B Common Consideration Amount and the Class B
Preferred Consideration Amount.
"Code" shall have the meaning set forth in the sixth recital to this
Agreement.
"Common Consideration Amount" shall equal the excess of (x) the
Transaction Value over (y) the sum of the Preferred Consideration Amount and
the Cash Consideration Amount.
"Common Consideration Net Amount" shall equal the difference between (x) the
Common Consideration Amount and (y) the RSPA Amount.
"Common Percentage" shall mean the quotient (rounded to the nearest
hundredth, or if there shall not be a nearest hundredth, to the next lowest
hundredth) of (x) the Common Consideration Net Amount divided by (y) the
Transaction Value.
"Communications Act" shall mean the Communications Act of 1934, as
amended, 47 U.S.C. Sections 151, et seq., as amended by the Telecommunications
Act of 1996.
"Consideration Charter Amendment" shall have the meaning set forth in
the third recital to this Agreement.
"Conversion Charter Amendment" shall have the meaning set forth in the
third recital to this Agreement.
<PAGE>
"Copyright Office" shall mean the United States Copyright Office of the
Library of Congress or any successor agency that shall hold principal
responsibility for administering the cable television compulsory license for
retransmission of broadcast signals established pursuant to Section 111 of the
Copyright Act, 17 U.S.C. Section 111.
"DBS" shall mean a system providing direct-to-home in the broadcast
satellite services authorized by the FCC.
"Determination Price" shall mean the average of the Intra-Day Closing
Prices for the Random Trading Days.
"DGCL" shall mean the Delaware General Corporation Law.
"Direct Merger" shall have the meaning set forth in the first recital
to this Agreement.
"DOJ" shall mean the Department of Justice.
"Encumbrances" shall mean any and all mortgages, security interests,
liens, claims, pledges, restrictions, leases, title exceptions, charges or
other encumbrances.
"Environmental Claim" means any notice of violation, action, claim,
Environmental Lien, demand, abatement or other Order or direction (conditional
or otherwise) by any Governmental Authority or any other Person for personal
injury (including sickness, disease or death), tangible or intangible property
damage, damage to the environment, pollution, contamination or other adverse
effects on the environment, or for fines, penalties or restrictions resulting
from or based upon (i) the existence of an Environmental Release (including,
without limitation, sudden or non-sudden accidental or non-accidental
Environmental Releases) of, or exposure to, any Hazardous Material, noxious
odor or illegal audible noise in, into or onto the environment (including,
without limitation, the air, soil, surface water or groundwater) at, in, by,
from or related to any property owned, operated or leased by the Company or
its Subsidiaries or any activities or operations thereof; (ii) the
transportation, storage, treatment or disposal of Hazardous Materials in
connection with any property owned, operated or leased by the Company or its
Subsidiaries or their operations or facilities; or (iii) the violation, or
alleged violation, of any Environmental Law or Environmental Permit of or from
any Governmental Authority relating to environmental matters connected with
any
<PAGE>
property owned, leased or operated by the Company or any of its Subsidiaries.
"Environmental Costs and Liabilities" means any and all losses,
liabilities, obligations, damages, fines, penalties, judgments, actions,
claims, costs and expenses (including, without limitation, fees, disbursements
and expenses of legal counsel, experts, engineers and consultants and the
costs of investigation and feasibility studies and Remedial Action) arising
from or under any Environmental Law or contract, agreement or similar
arrangement with any Governmental Authority or other Person required under any
Environmental Law.
"Environmental Law" means any Federal, state, local, or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
legally enforceable requirement relating to the environment, natural
resources, or public or employee health and safety as it relates to exposure
to Hazardous Materials and includes, but is not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et
seq., the Clean Air Act, 33 U.S.C. Section 2601 et seq., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 et seq.,
the Oil Pollution Act of 1990, 33 U.S.C Section 2701 et seq. and the
relevant portions of the Occupational Safety and Health Act, 29 U.S.C. Section
651 et seq., as such laws have been amended or supplemented as of the date
hereof, and the regulations promulgated pursuant thereto, and all analogous
state or local statutes as of the date hereof.
"Environmental Lien" means any lien arising under Environmental Laws.
"Environmental Permit" means any permit, approval, authorization,
license, variance, registration or permission required under any applicable
Environmental Law.
"Environmental Release" means any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching, or migration on or into the indoor or outdoor environment
or into or out of any property not authorized under any Environmental Permit
and requiring notification under any applicable Environmental Law.
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the applicable regulations promulgated thereunder.
"ERISA Affiliate" shall mean any corporation or trade or business
(whether or not incorporated) which are or have ever been treated as a single
employer with or which are or have been under common control with the Company
within the meaning of Section 414(b), (c), (m) or (o) of the Code.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FCC" shall mean the Federal Communications Commission.
"Final Order" shall mean an action or actions by any Governmental
Authority or the FCC which has not been reversed, stayed, enjoined, set aside,
annulled or suspended, and as to the FCC with respect to which the time for
filing any request, petition or appeal of such action has expired and the time
for the FCC to set aside its action on its own motion has passed, and as to
any Franchise Consent, when the Franchise Consent has been or is deemed to be
approved as provided in Section 617 of the Cable Act.
"Floor Price" shall mean $20.825.
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall mean generally accepted accounting principles in effect in
the United States of America as of the date of the applicable determination.
"Governmental Authority" shall mean any foreign, Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality.
"Hazardous Material" means any substance, material or waste which is
regulated by any Governmental Authority in jurisdictions in which the Company
operates, including, without limitation, any material, substance or waste
which is defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any provision of
Environmental Law, which includes, but is not limited to, petroleum, petroleum
products, asbestos, and polychlorinated biphenyls.
<PAGE>
"Homes Passed" shall mean the number of homes to which CATV service is
currently available from the Company or the Subsidiaries, whether or not a
given household subscribes to such service.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Indebtedness" shall mean, with respect to any Person, any
indebtedness, secured or unsecured, (i) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such Person
or only to a portion thereof), and evidenced by bonds, notes, debentures or
similar instruments or letters of credit, to the extent of the face value
thereof (or, in the case of evidence of indebtedness issued at a discount, the
current accredit value thereof) or (ii) representing the balance deferred and
unpaid of the purchase price of property or services (other than accounts
payable in the ordinary course of business) and shall also include, to the
extent not otherwise included, (A) any capitalized lease obligations and (B)
the face value of guaranties of items of other Persons which would be included
within this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor). No item constituting
Indebtedness under any of the definitions set forth above shall be counted
twice by virtue of the fact that it constitutes "Indebtedness" under more than
one of such definitions.
"Intra-Day Closing Prices" shall mean the volume weighted average sale
price of the Media Stock (regular way) as shown on the Composite Tape of the
NYSE.
"IRS" means the United States Internal Revenue Service.
"Knowledge of the Company" and "to the Company's Knowledge" shall
mean the actual knowledge of the executive officers (as identified in the
Company SEC Documents), the Senior Vice President-Corporate & Legal Affairs
and the regional Senior Vice Presidents, in each case of the Company after
reasonable investigation and due inquiry.
"Legal Proceedings" means any judicial, administrative or arbitral
actions, suits, proceedings (public or private) or governmental proceedings.
<PAGE>
"Material Adverse Effect" shall mean, (i) with respect to the Company,
any change or effect that is or is reasonably likely to be materially adverse
to the business, results of operations, properties, assets, liabilities or
condition (financial or otherwise) of the Company and its Subsidiaries taken
as whole and (ii) with respect to Acquiror, any change or effect that is or is
reasonably likely to be materially adverse to the business, results of
operations, properties, assets, liabilities or condition (financial or
otherwise) of either (x) the Media Group or (y) Acquiror and its Subsidiaries
taken as a whole; provided, however, that Material Adverse Effect shall in
each instance exclude any change or effect due to general economic or industry
wide conditions.
"Media Group" shall have the meaning set forth in Section 2.6.15 of
Article V of the Restated Certificate of Incorporation of Acquiror as in
effect as of the date hereof.
"MMDS" shall mean a system operating in the Multichannel Multipoint
Distribution Services authorized by the FCC.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Original Agreement" shall have the meaning set forth in the first
recital to this Agreement.
"Person" shall mean an individual, corporation, partnership, trust or
unincorporated organization or a government or any agency or political
subdivision thereof.
"Preferred Consideration Amount" shall equal $1 billion.
"Random Trading Days" shall mean the 20 Trading Days selected by
Acquiror by lot (through a method reasonably satisfactory to the Company) from
the 30 Trading Days ending on the fourth Trading Day prior to the Closing
Date.
"Recently Acquired Systems" shall mean the Systems acquired by the
Company or its Subsidiaries from Providence Journal Company, Cablevision of
Chicago, Columbia of Michigan, Consolidated Cablevision of California and
N-COM Limited Partnership II since August 1, 1995.
<PAGE>
"Registration Rights Agreement" shall mean the registration rights
agreement, substantially in the form of Exhibit B hereto, to be entered into
by Acquiror, Amos B. Hostetter, Jr. and the Amos B. Hostetter, Jr. 1989 Trust.
"Remedial Action" means all actions required under any applicable
Environmental Law or otherwise undertaken by any Governmental Authority,
including, without limitation, any capital expenditures, required or
undertaken to (i) clean up, remove, treat, or in any other way address any
Hazardous Material; (ii) prevent the Environmental Release or threat of
Environmental Release, or minimize the further Environmental Release of any
Hazardous Material so it does not migrate or endanger or threaten to endanger
public health or welfare or the indoor or outdoor environment; (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care;
or (iv) bring facilities on any property owned, operated or leased by the
Company or its Subsidiaries and the facilities located and operations
conducted thereon into compliance with all applicable Environmental Laws and
Environmental Permits.
"RSPA Amount" shall mean the product of (x) the number of shares of
Restricted Company Common Stock that are unvested and outstanding immediately
prior to the Effective Time multiplied by (y) the Share Price.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Share Price" shall mean $30, decreased by the Per Share Adjustment
Amount, if any, plus the Additional Amount, if any, in accordance with the
terms of Section 3.7.
"Stockholders' Agreement" shall have the meaning set forth in the fifth
recital to this Agreement.
"Subpart N of the FCC Rules" shall refer to the Subpart N of Part 76 of
the FCC's rules (47 C.F.R. Sections 76.900 through 76.985), entitled "Cable
Rate Regulation," added by order in Docket 92-266, adopted by the FCC on April
1, 1993, as such Subpart may be amended from time to time thereafter, as such
rules were in effect on any particular date, and shall include successor
provisions if recodified or otherwise modified.
<PAGE>
"Subscriber" shall mean a member of the general public who receives
video programming services distributed by a System and does not further
distribute it; provided, however, that the number of Subscribers in a
multi-unit dwelling or commercial structure that obtains service on a "bulk
rate" basis shall be determined by dividing the bulk rate charge by the rate
for individual households subscribing to the same level of service as the
multi-unit structure (e.g., if the basic subscription rate for individual
households is $10 and the multi-unit dwelling or commercial structure paid a
bulk fee of $100 for the same level of service, then that multi-unit dwelling
or structure shall be counted as having 10 Subscribers).
"Subsidiary" shall mean, with respect to any Person, (i) each
corporation, partnership, joint venture or other legal entity of which such
Person owns, either directly or indirectly, more than 50% of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or similar governing body of such
corporation, partnership, joint venture or other legal entity, (ii) each
partnership in which such Person or another Subsidiary of such Person is the
sole general partner or sole managing partner and (iii) each limited liability
company in which such Person or another Subsidiary of such Persons is the
managing member or otherwise controls.
"Subsidiary Merger" shall have the meaning set forth in the second
recital to this Agreement.
"Surviving Corporation" shall have the meaning set forth in Section
2.1.
"Systems" shall mean the cable television systems listed in Section
4.12(a) of the Company Disclosure Letter.
"Tax" or "Taxes" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
receipts, capital, sales, use, ad valorem, value added, transfer, franchise,
profits, inventory, capital stock, license, withholding, payroll, employment,
social security, unemployment, excise, severance, stamp, occupation, property
and estimated taxes, customs duties, fees, assessments and charges of any kind
whatsoever, together with any interest and any penalties, fines, additions to
tax or additional amounts imposed by any taxing authority (domestic or
foreign) and shall include any transferee liability in respect of Taxes.
<PAGE>
"Third Party" shall mean a party or parties unaffiliated with either
the Company or Acquiror.
"Trading Day" shall mean a day on which (i) the NYSE is open for the
transaction of business and (ii) there is no suspension of trading of the
Media Stock.
"Transaction Documents" shall mean the Stockholders' Agreement and the
Registration Rights Agreement.
"Transaction Value" shall equal the product of (x) the Share Price
multiplied by (y) the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time on a fully diluted basis, including
giving effect to the conversion of all outstanding shares of Company Preferred
Stock.
"WARN" shall mean the Worker Adjustment and Retraining Notification Act
and any similar state or local "plant closing" law.
I.2 Terms Defined Elsewhere in the Agreement. For purposes of this
Agreement, the following terms have the meanings set forth in the sections
indicated:
<TABLE>
<CAPTION>
<S> <C>
Term Section
- -------------------------------- ----------
Acceleration Event 7.14(c)
Acquiror Certificates 3.2(b)
Acquiror Consents 5.5
Acquiror Disclosure Letter 5.2(b)
Acquiror SEC Documents 5.7(a)
Acquiror Termination Notice 3.1(d)(ii)
Acquisition Proposal 7.10(d)
Additional Amount 3.7
Additional Payment 7.14(c)
Additional Stockholders' Meeting 7.1(d)
Allocation Determination 3.2(d)
Applicable Laws 4.7(a)
Articles 10.7
Benefit Plans 4.11(a)
Cap Top-Up Intent Notice 3.1(d)(ii)
Cash Cap 3.3(a)
Cash Election 3.1(c)(ii)
Certificate of Merger 2.3
Certificates 3.2(b)
<PAGE>
<CAPTION>
<S> <C>
Class A Common Stock 3.1(c)(i)
Class A Merger Consideration 3.1(c)(i)
Class B Common Stock Election
Conversion Number 3.1(d)
Class B Common Stock 3.1(c)(ii)
Class B Cash Consideration 3.1(c)(ii)
Class B Merger Consideration 3.1(c)(ii)
Class B Stock Consideration 3.1(c)(ii)
Class B Stock Election 3.2(a)
Closing 2.2
Closing Date 2.2
Communications Stock 5.2(a)
Company Capital Stock 4.2(a)
Company Certificate 3.1(c)(iii)
Company Common Stock 3.1
Company Consents 4.6
Company Letter of Transmittal 3.2(c)
Company Disclosure Letter 4.1(c)
Company Preferred Stock 4.2(a)
Company Representatives 7.10(a)
Company SEC Documents 4.8(a)
Company Termination Notice 3.1(d)(ii)
Confidentiality Agreements 6.3(c)
Conversion Number 3.1(d)
Copyright Act 4.12(e)
Designated Assets 7.7(b)
Designated Asset Fair Market Value 7.7(c)
Dissenting Shares 3.6
Effective Time 2.3
Election Deadline 3.2(d)
Election Form 3.2(c)
Equity Appreciation Rights Plans 4.11(i)
Excess Cash Amount 3.3(c)
Excise Tax 7.14(c)
Exchange Agent 3.2(b)
Exchange Fund 3.2(b)
Exhibits 10.7
Floor Top-Up Intent Notice 3.1(d)(ii)
Foreign Benefit Plans 4.11(b)
Form S-4 5.5
Fractional Shares 3.4(c)(i)
Franchise Consents 4.6
Franchises 4.12(a)
Gains Taxes 4.6
Incremental Excise Tax 7.14(c)
Indemnified Liabilities 7.11(b)
Indemnified Parties 7.11(b)
<PAGE>
<CAPTION>
<S> <C>
Initial Stockholders' Meeting 7.1(d)
Liquidation Value 3.1(c)(i)
License Consents 4.6
Material Franchises 4.12(c)
Media Stock 3.1(c)(i)
Merger 2.1
Merger Consideration 3.2(b)
Non-Required Franchises 7.5(b)
Non-Required Systems 7.5(b)
Permits 4.7(a)
Per Share Adjustment Amount 7.7(c)
Prorated Cash Amount 3.3(b)
Proxy Statement 4.6
Put Closing Date 9.4(c)
Put Exercise Notice 9.4(b)
Put Right 9.4(a)
Put Shares 9.4(a)
Requested Cash Amount 3.3(a)
Required Franchise Consents 8.2(j)
Restricted Company Common Stock 3.5
Rights Agreement 5.2(a)
RSPA 3.5
Ruling 2.1
Sections 10.7
Series D Preferred Stock 3.1(c)(i)
Social Contract Amendment 4.6
Social Contract Consents 4.6
Social Contract Order 4.6
Standard Election 3.1(c)(ii)
Stock Election 3.1(c)(ii)
Stockholder Approvals 4.1(b)
Stockholders' Meeting 7.1(d)
Tax Returns 4.10(a)
Termination Date 9.1(d)
</TABLE>
I.3 Other Definitional Provisions. (a) The words "hereof", "herein",
and "hereunder" and words of similar import, when used in this Agreement,
shall refer to this Agreement as a whole and not to any particular provision
of this Agreement.
(a) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(b) The terms "dollars" and "$" shall mean United States dollars.
<PAGE>
II
THE MERGER
II.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, the Company shall be
merged with and into Company Sub at the Effective Time (as defined in Section
2.3); provided, however, that if Acquiror, the Company and The Providence
Journal Company shall not have received a ruling from the IRS satisfactory to
each of them (the "Ruling") by the later of (i) the fifth Business Day after
the date on which the last of the conditions set forth in Article VIII is
fulfilled or waived, other than conditions requiring deliveries at the Closing
and the condition set forth in Section 8.1(f) and (ii) November 15, 1996, upon
the terms and subject to the conditions set forth in this Agreement and in
accordance with the DGCL, the Company shall be merged with and into Acquiror
at the Effective Time. As used herein, the "Merger" shall refer to the
Subsidiary Merger or the Direct Merger, as applicable. At the Effective Time,
the separate corporate existence of the Company shall cease, and Company Sub
or Acquiror, as applicable, shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all of the rights,
properties, liabilities and obligations of the Company in accordance with the
DGCL.
II.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 9.1, the closing of the Merger (the "Closing") shall take place at
10:00 a.m., New York City time, the later of (i) the fifth Business Day after
the date on which the last of the conditions set forth in Article VIII is
fulfilled or waived, other than conditions requiring deliveries at the Closing
and (ii) November 15, 1996 (the "Closing Date"), at the offices of Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, unless
another date, time or place is agreed to in writing by the parties hereto.
II.3 Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware, as provided in the DGCL, as soon as
practicable on or after the Closing Date. The Merger shall become effective
upon such filing or at such time thereafter as is provided in the Certificate
of Merger (the "Effective Time").
<PAGE>
II.4 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
II.5 Directors; Certificate of Incorporation; Bylaws. (a) If the
Subsidiary Merger is effected, the directors of Company Sub immediately prior
to the Effective Time shall be the directors of the Surviving Corporation and
the officers of the Company immediately prior to the Effective Time shall be
the officers of the Surviving Corporation, until their successors have been
duly elected or appointed and qualified, or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws. If the Direct Merger is effected,
the directors of Acquiror and the officers of Acquiror immediately prior to
the Effective Time shall be the directors and officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified, or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws.
(a) If the Subsidiary Merger is effected, the Certificate of
Incorporation of Company Sub as in effect immediately prior to the Effective
Time shall be amended at the Effective Time so that Article I thereof reads in
its entirety as follows: "The name of the corporation is Continental
Cablevision, Inc." and, as so amended, such Certificate of Incorporation shall
be the Certificate of Incorporation of the Surviving Corporation until
thereafter duly amended in accordance with the terms thereof and the DGCL. If
the Direct Merger is effected, the Restated Certificate of Incorporation of
Acquiror as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
duly amended in accordance with the terms thereof and the DGCL.
(b) If the Subsidiary Merger is effected, the Bylaws of Company Sub as
in effect immediately prior to the Effective Time shall be the bylaws of the
Surviving Corporation until thereafter amended as provided by Applicable Law,
the Certificate of Incorporation of the Surviving Corporation or such Bylaws.
If the Direct Merger is effected, the Bylaws of Acquiror as in effect
immediately prior to the Effective Time shall be the bylaws of the Surviving
Corporation until thereafter amended as provided by Applicable Law, the
Certificate of Incorporation of the Surviving Corporation or such Bylaws.
<PAGE>
III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
III.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Company Capital Stock (as defined in Section 4.2) or the holder of any shares
of capital stock of Company Sub or Acquiror, as applicable:
(a) Capital Stock of Company Sub or Acquiror. If the Subsidiary
Merger is effected, each share of common stock, par value $.01 per share, of
Company Sub issued and outstanding immediately prior to the Effective Time
shall remain outstanding as one share of common stock, par value $.01 per
share, of the Surviving Corporation. If the Direct Merger is effected, each
share of each class of capital stock of Acquiror issued and outstanding
immediately prior to the Effective Time shall remain an issued and outstanding
share of the same class of capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Acquiror-Owned Stock. Each
share of Company Capital Stock that is owned by the Company or any wholly
owned Subsidiary of the Company and each share of Company Capital Stock that
is owned by Acquiror or any wholly owned Subsidiary of Acquiror shall be
canceled and retired and shall cease to exist and no consideration shall be
delivered or deliverable in exchange therefor.
(c) Conversion of Company Common Stock.
(i) Subject to Sections 3.5 and 3.6, at the Effective Time, each issued
and outstanding share (excluding shares cancelled pursuant to Section 3.1(b))
of Class A Common Stock, par value $.01 per share, of the Company ("Class A
Common Stock") shall be converted into the right to receive (x) a number of
shares of U S WEST Media Group Common Stock, par value $.01 per share, of
Acquiror (the "Media Stock") equal to the Conversion Number (as determined in
accordance with Section 3.1(d)) and (y) a number of shares of Series D
Convertible Preferred Stock, par value $1.00 per share, of Acquiror (the
"Series D Preferred Stock"), having the rights, preferences and terms set
forth in the Certificate of Designation attached as Exhibit C hereto, with a
liquidation value of $50 per share (the "Liquidation Value"), equal to the
Class A Preferred
<PAGE>
Conversion Number (collectively, the "Class A Merger Consideration").
(ii) Subject to Sections 3.5 and 3.6, at the Effective Time each issued
and outstanding share (excluding shares cancelled pursuant to Section 3.1(b))
of Class B Common Stock, par value $.01 per share, of the Company ("Class B
Common Stock" and, together with Class A Common Stock, "Company Common
Stock"), shall be converted into, at the election of the holder thereof, one
of the following (as adjusted pursuant to Section 3.3, the "Class B Merger
Consideration"):
(x) except as otherwise provided in Section 3.3, for each such share of
Class B Common Stock with respect to which an election to receive cash has
been effectively made and not revoked, pursuant to Sections 3.2(c), (d) and
(e) (a "Cash Election"), the right to receive an amount in cash from Acquiror,
without interest, equal to the Share Price (the "Class B Cash Consideration");
(y) except as otherwise provided in Section 3.3, for each such share of
Class B Common Stock with respect to which an election to receive a
combination of Media Stock and Series D Preferred Stock has been effectively
made and not revoked, pursuant to Sections 3.2(c), (d) and (e) (a "Stock
Election"), the right to receive (1) a number of shares of Media Stock equal
to the Class B Common Stock Election Conversion Number (as determined in
accordance with Section 3.1(d)) and (2) a number of shares of Series D
Preferred Stock equal to the Class B Preferred Conversion Number
(collectively, the "Class B Stock Consideration"); or
(z) for each such share of Class B Common Stock with respect to which an
election to receive a combination of cash, Media Stock and Series D Preferred
Stock has been effectively made and not revoked, pursuant to Sections 3.2(c),
(d) and (e) (a "Standard Election"), the right to receive (1) an amount in
cash from Acquiror, without interest, equal to the product of the Share Price
and a fraction, the numerator of which is equal to the Cash Consideration
Amount and the denominator of which is equal to the Class B Aggregate
Consideration Amount, (2) a number of shares of Media Stock equal to the
Conversion Number (as determined in accordance with Section 3.1(d)) and (3) a
number of shares of Series D Preferred Stock equal to the product of (x) the
Share Price multiplied by (y) a fraction, the numerator of which is equal to
the Class B
<PAGE>
Preferred Consideration Amount and the denominator of which is equal to the
product of the Liquidation Value multiplied by the Class B Aggregate
Consideration Amount (collectively, the "Class B Standard Consideration").
Each beneficial holder of shares of Class B Common Stock shall be entitled to
make only one election (either a Cash Election, a Stock Election or a Standard
Election) with respect to all of the shares of Class B Common Stock
beneficially owned by such holder.
(iii) As a result of the Merger and without any action on the part of
the holder thereof, at the Effective Time all shares of Company Common Stock
shall cease to be outstanding and shall be cancelled and retired and shall
cease to exist, and each holder of shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, the Class A
Merger Consideration or Class B Merger Consideration, as applicable, and cash
for fractional shares of Media Stock or Series D Preferred Stock in accordance
with Section 3.6(c) upon the surrender of a certificate representing such
shares of Company Common Stock (a "Company Certificate"). The Media Stock and
Series D Preferred Stock comprising the Class A Merger Consideration and part
of the Class B Merger Consideration, when issued to the holders of Company
Common Stock, will be duly authorized, validly issued, fully paid,
non-assessable and not subject to preemptive rights created by statute,
Acquiror's Restated Certificate of Incorporation or Bylaws or any agreement to
which Acquiror is a party or by which Acquiror is bound.
(d) Certain Adjustments and Determinations. (i) If, between the date
of this Agreement and the Effective Time, the outstanding shares of Media
Stock, Series D Preferred Stock or Company Common Stock shall have been
changed into a different number of shares or a different class, by reason of
any stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Conversion Number, Class B Common Stock
Election Conversion Number, Class A Preferred Conversion Number and the Class
B Preferred Conversion Number correspondingly shall be adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
(i) The Conversion Number and Class B Common Stock Election Conversion
Number shall be determined in the following manner:
<PAGE>
(A) If the Determination Price is greater than or equal to the Floor
Price and less than or equal to the Cap Price, (x) the Conversion Number shall
be equal to the quotient of (1) the product of (I) the Common Percentage
multiplied by (II) the Share Price divided by (2) the Determination Price
(rounded to the nearest hundredth, or if there shall not be a nearest
hundredth, to the next lowest hundredth) and (y) the Class B Common Stock
Election Conversion Number shall be equal to the quotient of (1) the product
of (I) the Class B Common Percentage multiplied by (II) the Share Price
divided by (2) the Determination Price (rounded to the nearest hundredth, or
if there shall not be a nearest hundredth, to the next lowest hundredth).
(B) If the Determination Price is less than the Floor Price, (x) the
Conversion Number shall be equal to the quotient of (1) the product of (I) the
Common Percentage multiplied by (II) the Share Price divided by (2) the Floor
Price (rounded to the nearest hundredth, or if there shall not be a nearest
hundredth, to the next lowest hundredth) and (y) the Class B Common Stock
Election Conversion Number shall be equal to the quotient of (1) the product
of (I) the Class B Common Percentage multiplied by (II) the Share Price
divided by (2) the Floor Price (rounded to the nearest hundredth, or if there
shall not be a nearest hundredth, to the next lowest hundredth); provided,
however, that in such event Acquiror shall have the right to give written
notice to the Company (the "Floor Top-Up Intent Notice") that the board of
directors of Acquiror elects to increase both (x) the Conversion Number to the
quotient of (1) the product of (I) the Common Percentage multiplied by (II)
the Share Price divided by (2) the Determination Price (rounded to the nearest
hundredth, or if there shall not be a nearest hundredth, to the next lowest
hundredth) and (y) the Class B Common Stock Election Conversion Number to the
quotient of (1) the product of (I) the Class B Common Percentage multiplied by
(II) the Share Price divided by (2) the Determination Price (rounded to the
nearest hundredth, or if there shall not be a nearest hundredth, to the next
lowest hundredth). The Floor Top-Up Intent Notice shall be delivered to the
Company no later than 2:00 p.m. on the second Business Day prior to the
Closing Date. If, in such case, Acquiror does not deliver a Floor Top-Up
Intent Notice, the Company shall have the right to give written notice to
Acquiror (the "Company Termination Notice") that the Company elects to
terminate this Agreement. The Company Termination Notice shall be delivered
to Acquiror no later than 2:00 p.m. on the Business Day prior to the Closing
Date.
<PAGE>
(C) If the Determination Price is greater than the Cap Price, (x) the
Conversion Number shall be equal to the quotient of (1) the product of (I) the
Common Percentage multiplied by (II) the Share Price divided by (2) the Cap
Price (rounded to the nearest hundredth, or if there shall not be a nearest
hundredth, to the next lowest hundredth) and (y) the Class B Common Stock
Election Conversion Number shall be equal to the quotient of (1) the product
of (I) the Class B Common Percentage multiplied by (II) the Share Price
divided by (2) the Cap Price (rounded to the nearest hundredth, or if there
shall not be a nearest hundredth, to the next lowest hundredth); provided,
however, that in such event, the Company shall have the right to give
written notice to Acquiror (the "Cap Top-Up Intent Notice") that the Board of
Directors elects to decrease both (x) the Conversion Number to the quotient of
(1) the product of (I) the Common Percentage multiplied by (II) the Share
Price divided by (2) the Determination Price (rounded to the nearest
hundredth, or if there shall not be a nearest hundredth, to the next lowest
hundredth) and (y) the Class B Common Stock Election Conversion Number to the
quotient of (1) the product of (I) the Class B Common Percentage multiplied by
(II) the Share Price divided by (2) the Determination Price (rounded to the
nearest hundredth, or if there shall not be a nearest hundredth, to the next
lowest hundredth). The Cap Top-Up Intent Notice shall be delivered to
Acquiror no later than 2:00 p.m. on the second Business Day prior to the
Closing Date. If, in such case, the Company does not deliver a Cap Top-Up
Intent Notice, Acquiror shall have the right to give written notice to the
Company (the "Acquiror Termination Notice") that Acquiror elects to terminate
this Agreement. The Acquiror Termination Notice shall be delivered to the
Company no later than 2:00 p.m. on the Business Day prior to the Closing Date.
III.2 Company Common Stock Elections; Exchange. (a) Each Person who,
at the Effective Time, is a record holder of shares of Class B Common Stock
(other than holders of shares of Class B Common Stock to be cancelled as set
forth in Section 3.1(b) or subject to Section 3.5 or 3.6) shall have the right
to submit an Election Form (as defined in Section 3.2(c)) specifying whether
such Person desires to have all, but not less than all, of such shares
converted into the right to receive either (i) the Class B Stock Consideration
pursuant to the Stock Election, (ii) the Class B Cash Consideration pursuant
to the Cash Election or (iii) the Class B Standard Consideration pursuant to
the Standard Election. Holders of record of shares of Class B Common Stock
who hold such shares as nominees, trustees or in other
<PAGE>
representative capacities (a "Representative") may submit multiple Election
Forms, provided that such Representative certifies that each such Election
Form covers all the shares of Class B Common Stock held by such Representative
for a particular beneficial owner.
(a) Promptly after the Allocation Determination (as defined in Section
3.2(d)), (i) Acquiror shall deposit (or cause to be deposited) with a bank or
trust company to be designated by Acquiror and reasonably acceptable to the
Company (the "Exchange Agent"), for the benefit of the holders of shares of
Class B Common Stock, for exchange in accordance with this Article III, cash
in the amount sufficient to pay the aggregate Class B Cash Consideration and
(ii) Acquiror shall deposit (or cause to be deposited) with the Exchange
Agent, for the benefit of holders of shares of Company Common Stock,
certificates representing the shares of Media Stock and Series D Preferred
Stock ("Acquiror Certificates") for exchange in accordance with this Article
III (the cash and shares deposited pursuant to clauses (i) and (ii) being
hereinafter referred to as the "Exchange Fund"). The Media Stock and Series D
Preferred Stock into which Company Common Stock shall be converted pursuant to
the Merger shall be deemed to have been issued at the Effective Time.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of Company Common Stock
immediately prior to the Effective Time (excluding any shares of Company
Common Stock which will be cancelled pursuant to Section 3.1(b) or which are
subject to Section 3.5 or 3.6) (A) a letter of trans-mittal (the "Company
Letter of Transmittal") (which shall specify that delivery shall be effected,
and risk of loss and title to the Company Certificates shall pass, only upon
delivery of such Company Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Acquiror shall specify) and (B)
instructions for use in effecting the surrender of the Company Certificates in
exchange for the Class A Merger Considera-tion or Class B Merger
Consideration, as applicable, with respect to the shares of Company Common
Stock formerly represented thereby. The Exchange Agent shall also mail to
holders of Class B Common Stock, together with the items specified in the
preceding sentence, an election form (the "Election Form") providing for such
holders to make, with respect to all, but not less than all, of the shares of
Class B Common Stock held of record by each such holder (subject to the last
sentence of Section 3.2(a)), either a Cash Election, a Stock Election or a
Standard Election. The Election Form shall include information as to the
Share Price, the Class B
<PAGE>
Common Conversion Number, the Class B Preferred Conversion Number, the Class B
Aggregate Consideration Amount and the Cash Consideration Amount and state the
pricing terms of the Series D Preferred Stock. As of the Election Deadline
(as hereinafter defined) all holders of Class B Common Stock immediately prior
to the Effective Time that shall not have submitted to the Exchange Agent or
shall have properly revoked an effective, properly completed Election Form
shall be deemed to have made a Standard Election.
(c) Any Cash Election, Stock Election or Standard Election (other than a
deemed Standard Election) shall have been validly made only if the Exchange
Agent shall have received by 5:00 p.m. New York, New York time on a date (the
"Election Deadline") to be mutually agreed upon by Acquiror and the Company
(which date shall not be later than the twentieth Business Day after the
Effective Time), an Election Form properly completed and executed (with the
signature or signatures thereof guaranteed to the extent required by the
Election Form) by such holder accompanied by such holder's Company
Certificates, or by an appropriate guarantee of delivery of such Company
Certificates from a member of any registered national securities exchange or
of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company in the United States as set forth in such Election Form. Any
holder of Class B Common Stock (other than a holder who has submitted an
irrevocable election) who has made an election by submitting an Election Form
to the Exchange Agent may at any time prior to the Election Deadline change
such holder's election by submitting a revised Election Form, properly
completed and signed that is received by the Exchange Agent prior to the
Election Deadline. Any holder of Class B Common Stock may at any time prior
to the Election Deadline revoke such holder's election by written notice to
the Exchange Agent received by the Close of business on the day prior to the
Election Deadline. As soon as practicable after the Election Deadline, the
Exchange Agent shall determine the allocation of the cash portion of the Class
B Merger Consideration and the stock portion of the Class B Merger
Consideration and shall notify Acquiror of its determination (the "Allocation
Determination").
(d) Upon surrender of a Company Certificate for cancellation to the
Exchange Agent, together with the Company Letter of Transmittal, duly
executed, and such other documents as Acquiror or the Exchange Agent shall
reasonably request, the holder of such Company Certificate shall be entitled
to receive promptly after the Election Deadline in exchange therefor (A) a
certified or bank cashier's check in the amount equal to the cash, if any,
which such holder has
<PAGE>
the right to receive pursuant to the provisions of this Article III (including
any cash in lieu of fractional shares of Media Stock and Series D Preferred
Stock pursuant to Section 3.4(c)), and (B) Acquiror Certificates representing
that number of shares of Media Stock and Series D Preferred Stock, if any,
which such holder has the right to receive pursuant to this Article III (in
each case less the amount of any required withholding taxes, if any,
determined in accordance with Section 3.4(g)), and the Company Certificate so
surrendered shall forthwith be cancelled. Until surrendered as contemplated
by this Section 3.3, each Company Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive the Class A
Merger Consideration or Class B Merger Considera-tion, as applicable, with
respect to the shares of Company Common Stock formerly represented thereby.
(e) Acquiror shall have the right to make reason-able rules, not
inconsistent with the terms of this Agree-ment, governing the validity of the
Election Forms, the manner and extent to which Cash Elections or Stock
Elections are to be taken into account in making the determinations prescribed
by Section 3.3, the issuance and delivery of certificates for Media Stock and
Series D Preferred Stock into which shares of Class B Common Stock are
converted in the Merger, and the payment of cash for shares of Class B Common
Stock converted into the right to receive cash in the Merger.
III.3 Proration. (a) The aggregate amount of cash to be paid to
holders of Class B Common Stock shall not exceed the Cash Consideration
Amount.
(a) In the event that the aggregate amount of cash represented by the
Cash Elections received by the Exchange Agent (the "Requested Cash Amount")
exceeds an amount equal to the excess of the Cash Consideration Amount over
the aggregate amount of cash represented by the Standard Elections (such
difference, the "Cash Cap"), each holder making a Cash Election shall receive,
for each share of Class B Common Stock for which a Cash Election has been
made, (x) cash in an amount equal to the product of the Class B Cash
Consideration and a fraction, the numerator of which is the Cash Cap and the
denominator of which is the Requested Cash Amount (such product, the "Prorated
Cash Amount"), (y) a number of shares of Media Stock equal to the product of
the Class B Common Percentage and a fraction, the numerator of which is equal
to the Share Price minus the Prorated Cash Amount and the denominator of which
is equal to the Calculation Price and (z) a number of shares of Series D
Preferred Stock equal to the product of the Class B
<PAGE>
Preferred Percentage and a fraction, the numerator of which is equal to the
Share Price minus the Prorated Cash Amount and the denominator of which is
equal to the Liquidation Value.
(b) In the event the Requested Cash Amount is less than the Cash Cap,
each holder making a Stock Election (other than as set forth in Section 3.5)
shall receive for each share of Class B Common Stock for which a Stock
Election has been made, (x) cash in an amount equal to the quotient of (1) the
excess of the Cash Cap over the Requested Cash Amount divided by (2) the
number of shares of Class B Common Stock for which such Stock Elections have
been made or have been deemed to have been made (such quotient, the "Excess
Cash Amount"), (y) a number of shares of Media Stock equal to the product of
the Class B Common Percentage and a fraction, the numerator of which is equal
to the difference between the Share Price and the Excess Cash Amount and the
denominator of which is equal to the Calculation Price and (z) a number of
shares of Series D Preferred Stock equal to the product of the Class B
Preferred Percentage and a fraction, the numerator of which is equal to the
difference between the Share Price and the Excess Cash Amount and the
denominator of which is equal to the Liquidation Value.
III.4 Dividends, Fractional Shares, Etc. (a) Notwithstanding any
other provisions of this Agreement, no dividends or other distributions
declared after the Effective Time on Media Stock or Series D Preferred Stock
shall be paid with respect to any whole shares of Media Stock or Series D
Preferred Stock represented by a Company Certificate until such Company
Certificate is surrendered for exchange as provided herein. Subject to the
effect of Applicable Laws, following surrender of any such Company
Certificate, there shall be paid to the holder of the Acquiror Certificates
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of Media Stock and Series D Preferred Stock and not paid, less the amount of
any withholding taxes which may be required thereon, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of
Media Stock and Series D Preferred Stock, less the amount of any withholding
taxes which may be required thereon.
<PAGE>
(a) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates representing any such shares are presented to the
Surviving Corporation, they shall be cancelled and exchanged for certificates
for the considera-tion, if any, deliverable in respect thereof pursuant to
this Agreement in accordance with the procedures set forth in this Article
III. Company Certificates surrendered for exchange by any Person constituting
an "affiliate" of the Company for purposes of Rule 145(c) under the Securities
Act shall not be exchanged until Acquiror has received a written agreement
from such Person as provided in Section 7.13.
(b) (i) No certificates or scrip evidencing fractional shares of Media
Stock or Series D Preferred Stock shall be issued upon the surrender for
exchange of Company Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Acquiror. In lieu of any such fractional shares, the Exchange Agent shall, on
behalf of all holders of fractional shares of Media Stock and Series D
Preferred Stock, as soon as practicable after the Effective Time, aggregate
all such fractional interests (collectively, the "Fractional Shares") and, at
Acquiror's option, such Fractional Shares shall be purchased by Acquiror or
otherwise sold by the Exchange Agent as agent for the holders of such
Fractional Shares, in either case at the then prevailing price on the NYSE,
all in the manner provided hereinafter. Until the net proceeds of such sale
or sales have been distributed to the holders of Fractional Shares, the
Exchange Agent shall retain such proceeds in trust for the benefit of such
holders. Acquiror shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including expenses and compensation of the
Exchange Agent, incurred in connection with such sale of the Fractional
Shares.
(i) To the extent not purchased by Acquiror, the sale of the Fractional
Shares by the Exchange Agent shall be executed on the NYSE or through one or
more member firms of the NYSE and will be executed in round lots to the extent
practicable. In either case, the Exchange Agent will determine the portion,
if any, of the net proceeds of such sale to which each holder of Fractional
Shares is entitled, by multiplying the amount of the aggregate net proceeds of
the sale of the Fractional Shares, by a fraction, the numerator of which is
the amount of Fractional Shares to which such holder is entitled and the
denominator of which
<PAGE>
is the aggregate amount of Fractional Shares to which all holders of
Fractional Shares are entitled.
(ii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Fractional Shares in lieu of such
Fractional Shares, the Exchange Agent shall mail such amounts, without
interest, to such holders; provided, however, that no such amount will be
paid to any holder of such Fractional Shares prior to the surrender by such
holder of the Company Certificates formerly representing such holder's shares
of Company Common Stock.
(c) Any portion of the Exchange Fund that remains undistributed to the
holders of Company Common Stock for six months after the Effective Time shall
be delivered to Acquiror, upon demand, and any holders of Company Common Stock
who have not theretofore complied with this Article III shall thereafter look
only to Acquiror for the Class A Merger Consideration or Class B Merger
Consideration, as applicable, net cash proceeds from the sale of Fractional
Shares and unpaid dividends and distributions on the Media Stock and Series D
Preferred Stock to which they are entitled. All interest accrued in respect
of the Exchange Fund shall inure to the benefit of and be paid to Acquiror.
(d) None of Acquiror, Company Sub, the Company or the Exchange Agent
shall be liable to any holder of shares of Company Common Stock for any cash,
shares of Media Stock or Series D Preferred Stock, net cash proceeds from the
sale of Fractional Shares or unpaid dividends or distributions with respect to
Media Stock or Series D Preferred Stock from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any Company Certificates shall not have been surrendered
prior to seven years after the Effective Time (or immediately prior to such
earlier date on which any cash, shares of Media Stock or Series D Preferred
Stock, net cash proceeds from the sale of Fractional Shares or unpaid
dividends or distributions with respect to Media Stock or Series D Preferred
Stock in respect of such Company Certificates would otherwise escheat to or
become the property of any Governmental Authority), any such cash, shares or
unpaid dividends or distributions in respect of such Company Certificates
shall, to the extent permitted by Applicable Laws, become the property of the
Surviving Corporation; provided, however, that any holder of Company
Common Stock shall thereafter have the right to demand from Acquiror any such
cash, shares or unpaid dividends or distributions.
<PAGE>
(e) In the event that any Company Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Company Certificate to be lost, stolen or destroyed and,
if required by Acquiror, the posting by such Person of a bond in such
reasonable amount as Acquiror may direct as indemnity against any claim that
may be made against it with respect to such Company Certificate, the Exchange
Agent (or Acquiror, as the case may be) will issue in exchange for such lost,
stolen or destroyed Company Certificate the Class A Merger Consideration or
Class B Merger Consideration, as applicable, cash in lieu of fractional
shares, and unpaid dividends and distributions on shares of Media Stock and
Series D Preferred Stock deliverable in respect thereof pursuant to this
Agreement.
(f) Acquiror shall be entitled to, or shall be entitled to cause the
Exchange Agent to, deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as are required to be deducted and withheld with respect to
the making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Acquiror or
the Exchange Agent, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such deduction and
withholding was made by Acquiror.
III.5 Restricted Stock. To the extent any Company Common Stock that
is unvested and outstanding immediately prior to the Effective Time is subject
to the terms and conditions of a Restricted Stock Purchase Agreement ("RSPA")
between the Company and any current or former employee of the Company
("Restricted Company Common Stock"), then (i) notwithstanding Sections 3.1(c)
or 3.3, at the Effective Time all such shares of Restricted Company Common
Stock shall be converted into the right to receive a number of shares of Media
Stock equal to the quotient of (x) the Share Price divided by (y) the
Calculation Price, (ii) the holder of such Restricted Company Common Stock
shall not be entitled to receive any cash or Series D Preferred Stock pursuant
to Section 3.3 and (iii) any Media Stock received with respect to such
Restricted Company Common Stock shall be subject to the terms of such RSPA, as
amended by an Amendment to Restricted Stock Purchase Agreement substantially
in the form set forth in Section 3.5 of the Company Disclosure Letter.
<PAGE>
III.6 Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and that are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing
and who shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the
Class A Merger Consideration or Class B Merger Consideration, as applicable.
Such stockholders shall be entitled to receive payment of the appraised value
of such shares of Company Common Stock held by them in accordance with the
provisions of such Section 262, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares of Company Common
Stock under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable, as of the Effective Time, for the right
to receive, without any interest thereon, the Class A Merger Consideration or
Class B Merger Consideration, as applicable, upon surrender in the manner
provided in this Article III, of the Company Certificate or Company
Certificates that formerly evidenced such shares of Class B Common Stock.
III.7 Share Price Adjustment. If the Closing shall not have occurred
on or prior to January 3, 1997, the Share Price shall be increased at a rate
equal to 8% per annum from and including January 1, 1997 to and excluding the
Closing Date calculated on the basis of the actual number of days in the
period (such amount being the "Additional Amount"); provided, however,
that no such amount shall be added to the Share Price if (i) the Closing has
not occurred on or prior to January 3, 1997 and the last of the conditions set
forth in Article VIII to be fulfilled is the condition set forth in Section
8.2(h) or the condition set forth in Section 8.1(a), other than, in each case
as a result of any action taken or not taken by Acquiror or Company Sub or
(ii) the Company has taken any action that would result in any of the
conditions to the consummation of the Merger set forth herein not being
satisfied at such time; provided, further, that upon satisfaction of the
conditions described in clause (i) above if either such condition is the last
condition to be fulfilled, the Additional Amount shall be added to the Share
Price and shall be calculated commencing five Business Days after the date of
such satisfaction.
<PAGE>
IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror as follows:
IV.1 Organization and Authority of the Company. (a) Each of the
Company and its Subsidiaries is a corporation or partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization with all requisite power to enable it to own,
lease and operate its assets and properties and to conduct its business as
currently being conducted and is qualified and in good standing to do business
in each jurisdiction in which the nature of the business conducted by it or
the character or location of the properties owned or leased by it requires
such qualification, except to the extent the failure so to qualify would not
have a Material Adverse Effect with respect to the Company. Complete and
correct copies of the Restated Certificate of Incorporation and Bylaws, each
as amended to date, of the Company have been delivered to Acquiror. Such
Restated Certificate of Incorporation and Bylaws are in full force and effect.
(a) The Company has all requisite corporate power and authority to
execute and deliver this Agreement and the Transaction Documents to which it
is a party and to perform its obligations hereunder and thereunder and,
subject to (i) the adoption of this Agreement by the holders of a majority of
the voting power of the outstanding shares of Company Capital Stock, voting as
a single class and (ii) the adoption of the Consideration Charter Amendment by
66-2/3% of the voting power of the outstanding shares of Company Capital Stock
voting as a single class and a majority of the voting power of each of the
outstanding shares of the Class A Common Stock and the Class B Common Stock
voting as separate classes (collectively, the "Stockholder Approvals"), to
consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and such Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all requisite corporate action on the part of the Company,
subject, in the case of this Agreement, the Merger and the Consideration
Charter Amendment, to the Stockholder Approvals. This Agreement and each
Transaction Document to which the Company is a party has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the
<PAGE>
Company, enforceable against it in accordance with its terms, except (i) as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (ii) as
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(b) Section 4.1 of the letter from the Company, dated the date hereof,
addressed to Acquiror (the "Company Disclosure Letter") sets forth, as of the
date hereof, a true and complete list of all of the Company's Subsidiaries,
including the jurisdiction of incorporation or organization of each Subsidiary
and the percentage of each Subsidiary's outstanding capital stock or other
ownership interest owned by the Company or another Subsidiary of the Company
or by any other Person. All of the outstanding shares of capital stock of
each Subsidiary have been validly issued and are fully paid and nonassessable
and, except as set forth in Section 4.1 of the Company Disclosure Letter, are
owned by the Company or a Subsidiary, free and clear of all Encumbrances.
Except as set forth in Section 4.1 of the Company Disclosure Letter, the
Company does not, directly or indirectly, own any capital stock of or other
equity interests in any corporation, partnership or other Person and neither
the Company nor any of its Subsidiaries is a member of or participant in a
partnership, joint venture or similar Person.
IV.2 Capitalization. (a) As of the date hereof, the authorized
capital stock of the Company consists of: (i) 425,000,000 shares of Class A
Common Stock, of which (A) 38,885,385 shares are issued and outstanding, all
of which are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights created by statute, the Company's Restated
Certificate of Incorporation or Bylaws or any agreement to which the Company
is a party or by which the Company is bound and (B) no shares are held in the
treasury of the Company; (ii) 200,000,000 shares of Class B Common Stock, of
which (A) 109,349,496 shares are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Company's Restated Certificate of
Incorporation or Bylaws or any agreement to which the Company is a party or by
which the Company is bound, (B) no shares are held in the treasury of the
Company and (C) 28,571,450 shares are issuable upon conversion of Company
Preferred Stock; and (iii) 200,000,000 shares of Preferred Stock, par value
$.01 per share, of the Company,
<PAGE>
of which 1,142,858 shares have been designated Series A Participating
Convertible Preferred Stock (the "Company Preferred Stock" and, together with
the Company Common Stock, the "Company Capital Stock") and are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, the
Company's Certificate of Incorporation or Bylaws or any agreement to which the
Company is a party or by which the Company is bound.
(a) Other than as described in this Section 4.2, or as listed in Section
4.2(b) of the Company Disclosure Letter, no shares of the capital stock of the
Company are authorized, issued or outstanding, or reserved for any other
purpose, and there are no options, warrants or other rights (including
tag-along, right of first refusal, buy-sell, registration or similar rights),
agreements, arrangements or commitments of any character to which the Company,
any of its Subsidiaries or any Person in which the Company or its Subsidiaries
own any interest is a party relating to the issued or unissued capital stock
of the Company, any of its Subsidiaries or any such Person or obligating or
which could obligate the Company or any of its Subsidiaries to grant, issue or
sell any shares of capital stock of the Company, any of its Subsidiaries or
any Person in which the Company or its Subsidiaries own any interest, by sale,
lease, license or otherwise. Except as described in Section 4.2(b) of the
Company Disclosure Letter, the Company has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote or that
are convertible into or exercisable for securities having the right to vote
with the stockholders of the Company on any matter. Except as set forth in
Section 4.2(b) of the Company Disclosure Letter, there are, to the Knowledge
of the Company, no voting trusts or other agreements or understandings with
respect to the voting of Company Capital Stock. Except as set forth on
Section 4.2 of the Company Disclosure Letter, none of the Company, its
Subsidiaries or any Person in which the Company or its Subsidiaries own any
interest is a party to any non-competition agreement or other agreement or
arrangement which restrains, limits or impedes the current or contemplated
business or operations of the Company or any of its Subsidiaries or would
apply to Acquiror or any of its Affiliates following the Effective Time.
IV.3 No Conflicts. Except as set forth in Section 4.3 of the Company
Disclosure Letter, subject to obtaining the Company Consents (as defined in
Section 4.6), the execution and delivery of this Agreement and each of the
<PAGE>
Transaction Documents to which the Company is a party by the Company do not,
and the consummation of the transactions contemplated hereby and thereby and
compliance with the terms hereof and thereof will not, conflict with, or
result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or to
increased, additional, accelerated or guaranteed rights or entitlements of any
Person under, or result in the creation of any Encumbrances upon any of the
properties or assets of the Company or its Subsidiaries under any provision of
(i) the Certificate of Incorporation, Bylaws or other organizational document
of the Company or any Subsidiary, (ii) any note, bond, mortgage, indenture or
deed of trust, deed to secure debt or any license, lease, contract,
commitment, permit, concession, franchise, agreement or other binding
arrangement to which the Company or any of its Subsidiaries is a party or by
which any of them or their respective properties or assets are bound,
including any Franchise, (iii) any judgment, order, writ, injunction or decree
of any court, governmental body, administrative agency or arbitrator
applicable to the Company or any Subsidiary or their respective properties or
assets as of the date hereof or (iv) any law, statute, rule, regulation or
judicial or administrative decision applicable to the Company or any
Subsidiary, except in the case of clauses (ii) and (iv), such conflicts,
violations and defaults, termination, cancellation and acceleration rights and
entitlements and Encumbrances that in the aggregate would not hinder or impair
the consummation of the transactions contemplated hereby or have a Material
Adverse Effect with respect to the Company.
IV.4 Vote Required. The Stockholder Approvals are the only votes of
the holders of any class or series of Company Capital Stock necessary or
required (under Applicable Law or otherwise) to approve this Agreement and the
transactions contemplated hereby.
IV.5 Board Recommendation; Opinion of Financial Advisor. (a) The
Board of Directors, at a meeting duly called and held, has by unanimous vote
of those directors present (who constituted 100% of the directors then in
office) (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger, are fair to and in the best interests of the
stockholders of the Company and has approved the same, and (ii) resolved to
recommend that the holders of the shares of Company Capital Stock adopt this
Agreement and the transactions contemplated hereby, including the Merger.
<PAGE>
(a) The Company has received the opinions of (i) Lazard Freres & Co.
LLC, dated February 27, 1996, to the effect that, as of the date hereof, the
consideration to be received by the holders of shares of Company Capital Stock
in the Merger is fair from a financial point of view to such holders and (ii)
Allen & Company Incorporated, dated February 27, 1996, to the effect that, as
of the date hereof, the consideration to be received by the holders of the
Class A Common Stock in the Merger is fair from a financial point of view to
such holders. A signed, true and complete copy of such opinions has been
delivered to Acquiror.
IV.6 Consents. Not later than 30 days after the date of this
Agreement, the Company shall furnish to Acquiror a list of each Franchise as
to which notice to, or the consent of, a Governmental Authority is required as
a condition to the transfer of control or the right to control the Franchise
in connection with the transactions contemplated hereby (all such notices and
consents being "Franchise Consents"). Section 4.6 of the Company Disclosure
Letter lists each FCC license held by the Company or any Subsidiary, other
than private mobile radio service licenses, as to which FCC consent is
required prior to the assignment or transfer of control of such license in
connection with the transactions contemplated hereby (all such notices and
consents being "License Consents"). Except for (i) the Franchise Consents and
License Consents, (ii) as set forth in Section 4.6 of the Company Disclosure
Letter, (iii) compliance with and filings under the HSR Act, (iv) the filing
with the SEC of (A) a proxy statement under the Exchange Act relating to the
meeting (or meetings) of the Company's stockholders to be held in connection
with the Merger, the Charter Amendments and the other transactions
contemplated by this Agreement (the "Proxy Statement"), (B) any registration
statement required to be filed in connection with any action taken by the
Company pursuant to Section 7.7 and (C) such reports under the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated hereby, (v) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, (vi) such filings and approvals as may be required by any applicable
state securities, "blue sky" or takeover laws, (vii) such filings in
connection with any state or local tax which is attributable to the beneficial
ownership of the Company's or its Subsidiaries' real property, if any
(collectively, "Gains Taxes"), and (viii) such filings as may be required with
the FCC or any
<PAGE>
Governmental Authority to obtain their consent to the assumption by the
Acquiror of the Social Contract (including all Systems and communities
encompassed thereby) between the Company and the FCC, as approved by
Memorandum Opinion and Order released August 3, 1995 (FCC 95-335) (the "Social
Contract Order") and as may be modified thereafter by a proposed Social
Contract Amendment that is substantially similar to that which the Company has
provided to Acquiror (the "Social Contract Amendment") (such notice and
consent being the "Social Contract Consents") (the items in clauses (i)
through (vi) being collectively referred to herein as "Company Consents"), no
consents, approvals, licenses, permits, orders or authorizations of, or
registrations, declarations, notices or filings with, any Governmental
Authority or any Third Party are required to be obtained or made by or with
respect to the Company or any of its Subsidiaries on or prior to the Closing
Date in connection with (A) the execution, delivery and performance of this
Agreement or any of the Transaction Documents to which the Company is a party,
the consummation of the transactions contemplated hereby and thereby or the
taking by the Company of any other action contemplated hereby or thereby, (B)
the continuing validity and effectiveness of (and prevention of any material
default under or violation of the terms of) any Franchise or any other
material, license, permit or authorization or any material contract, agreement
or lease to which the Company or any Subsidiary is a party or (C) the conduct
by the Company or any of its Subsidiaries of their respective businesses
following the Closing as conducted on the date hereof, which, if not obtained
or made in connection with clauses (A), (B) and (C), would have a Material
Adverse Effect with respect to the Company.
IV.7 Compliance; No Defaults. (a) Except as set forth in Section 4.7
of the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries is in violation of, is, to the Knowledge of the Company, under
investigation with respect to any violation of, has been given notice or been
charged with violation of, or failed to comply with any statute, law,
ordinance, rule, order or regulation of any Governmental Authority applicable
to its business or operations ("Applicable Laws") (including but not limited
to the Social Contract Order, as amended), except for violations and failures
to comply that would not have a Material Adverse Effect with respect to the
Company. Except as set forth in Section 4.7 of the Company Disclosure Letter,
the Company and its Subsidiaries have all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Authorities ("Permits")
which are material to the operation of the businesses of the Company and its
Subsidiaries, taken as a whole.
<PAGE>
(a) Neither the Company nor any of its Subsidiaries is in default or
violation (and no event has occurred which, with notice or the lapse of time
or both, would constitute a default or violation) of any term, condition or
provision of (i) its Certificate of Incorporation, as amended, or Bylaws or
other comparable organizational document or (ii) any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which the
Company or any of its Subsidiaries is now a party or by which the Company or
any of its Subsidiaries or any of their respective properties or assets may be
bound, except in the case of clause (ii), for defaults or violations which in
the aggregate would not have a Material Adverse Effect with respect to the
Company.
IV.8 SEC Documents; Undisclosed Liabilities. (a) The Company has
made available to Acquiror a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by the Company
with the SEC since January 1, 1993 (as such documents have since the time of
their filing been amended, the "Company SEC Documents"), which are all the
documents (other than preliminary proxy materials) that the Company was
required to file with the SEC since such date. As of their respective dates,
the Company SEC Documents (including any financial statements filed, to be
filed or required to have been filed as a part thereof) complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as applicable, and the rules and regulations of the SEC thereunder
applicable to such Company SEC Documents, and none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial state-ments of the Company included in the
Company SEC Documents comply as to form in all material respects with
applicable accounting require-ments and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present (subject, in the
case of the unaudited financial statements, to normal, recurring audit
adjustments, which were not individually or in the aggregate material) the
consolidated financial position of the Company and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
<PAGE>
(a) Except as disclosed in the Company SEC Documents or in Section 4.8
or 4.9 of the Company Disclosure Letter, as of the date hereof, the Company
and its Subsidiaries do not have any material indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise,
and whether due or to become due or asserted or unasserted) required by GAAP
to be reflected on a consolidated balance sheet of the Company and its
consolidated Subsidiaries or in the notes, exhibits or schedules thereto.
IV.9 Litigation. Except as set forth in the Company SEC Documents or
in Section 4.9 of the Company Disclosure Letter, there are no Legal
Proceedings against or affecting the Company or any of its Subsidiaries or
their respective properties or assets pending or, to the Knowledge of the
Company, threatened against the Company or any of its Subsidiaries, that
individually or in the aggregate could (i) have a Material Adverse Effect with
respect to the Company or (ii) as of the date hereof, prevent, materially
hinder or delay the consummation of the transactions contemplated by this
Agreement or the Transaction Documents or seek to limit the ownership or
operation of the Company by Acquiror. Except as set forth in Section 4.9 of
the Company Disclosure Letter, neither the Company nor any of its Subsidiaries
is a party or subject to or in default under any judgment, order, injunction
or decree of any Governmental Authority applicable to it or to its respective
properties or assets, which judgment, order, injunction, decree or default
thereunder constitutes a Material Adverse Effect with respect to the Company.
IV.10 Taxes. (a) Except as set forth in Section 4.10(a) of the
Company Disclosure Letter, (i) all Federal, state, local and foreign Tax
returns, declarations and reports ("Tax Returns") required to be filed by or
on behalf of the Company or any of its Subsidiaries have been filed on a
timely basis with the appropriate Governmental Authorities in all
jurisdictions in which such Tax Returns are required to be filed (after giving
effect to any valid extensions of time in which to make such filings), except
for Tax Returns as to which the failure to file would not individually or in
the aggregate have a Material Adverse Effect with respect to the Company, and
all such Tax Returns were true, correct and complete in all material respects;
(ii) all amounts due and payable in respect of such Tax Returns (including
interest and penalties) have been fully and timely paid or are or will be
adequately provided for in the appropriate financial statements of the Company
and its Subsidiaries, except for amounts the failure to pay would not have a
Material Adverse
<PAGE>
Effect with respect to the Company; (iii) no waivers of statutes of
limitations have been given or requested with respect to the Company or any of
its Subsidiaries in connection with any Tax Returns covering the Company or
any of its Subsidiaries with respect to any income or franchise Taxes or other
material Taxes payable by any of them; and (iv) each of the Company and its
Subsidiaries has duly and timely withheld from salaries, wages and other
compensation of its employees and paid over to the appropriate taxing
authorities all amounts required to be so withheld and paid over for all
periods not barred by applicable statutes of limitations under all Applicable
Laws, except for amounts as to which the failure to withhold or pay would not
have a Material Adverse Effect with respect to the Company.
(a) Except as set forth in Section 4.10(b) of the Company Disclosure
Letter, all deficiencies asserted or assessments made in an amount in excess
of $300,000 by the IRS or any other taxing authority of the Tax Returns of or
covering the Company or any of its Subsidiaries have been fully paid or are or
will be adequately provided for in the appropriate financial statements of the
Company and its Subsidiaries.
(b) Except as set forth in Section 4.10(c) of the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries nor any other Person
on behalf of the Company or any of its Subsidiaries: (i) has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or any of its
Subsidiaries; (ii) has executed or entered into a closing agreement pursuant
to Section 7121 of the Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (iii) has agreed to or is
required to make any adjustments pursuant to Section 481(a) of the Code or any
similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or any of its Subsidiaries nor to
the Knowledge of the Company (which for purposes of this Section 4.10 shall
include the tax director) has the IRS proposed any such adjustment or change
in accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company or any of its Subsidiaries.
<PAGE>
(c) Except as set forth in Section 4.10(d) of the Company Disclosure
Letter, none of the assets of the Company and its Subsidiaries is property
required to be treated as being owned by another Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 or is "tax-exempt use property" within the meaning of Section
168(h)(l) of the Code.
(d) The Federal income Tax Returns of the Company and its Subsidiaries,
any of their predecessors or any affiliated group of which the Company or any
of its Subsidiaries is or was a member have been examined by the IRS, or the
periods covered by such Tax Returns have been closed by applicable statute of
limitations, for all periods through December 31, 1991, except to the extent
such Tax Returns may be examined for the purpose of determining loss or credit
carryforwards to a year not so closed. The state income or franchise Tax
Returns of the Company and its Subsidiaries, any of their predecessors or any
affiliated, combined or unitary group of which the Company or any of its
Subsidiaries is or was a member have been examined by the relevant taxing
authorities, or the periods covered by such Tax Returns have been closed by
applicable statute of limitations, in each case through at least December 31,
1991, except to the extent such Tax Returns may be examined for the purpose of
determining loss or credit carryforwards to a year not so closed.
(e) Except as set forth in Section 4.10(f) of the Company Disclosure
Letter, (i) no Tax audits or other administrative proceedings are pending with
regard to any Taxes for which the Company or any of its Subsidiaries may be
liable and (ii) no written notice of any such audit has been received by the
Company or any of its Subsidiaries.
(f) As of December 31, 1995, the Company had net operating loss
carryforwards for Federal income tax purposes of no less than $900 million.
(g) Except as set forth in Section 4.10(h) of the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries is a party to or bound
by any agreement providing for the allocation or sharing of Taxes.
(h) Except as set forth in Section 4.10(i) of the Company Disclosure
Letter, since January 1, 1989 neither the Company nor any of its Subsidiaries
has been a member of, or was acquired from, any "affiliated group" (as defined
in Section 1504 of the Code) other than (i) in a transaction in
<PAGE>
which the common parent of such affiliated group was acquired or (ii) the
affiliated group in which the Company is the common parent.
(i) Except as set forth in Section 4.10(j) of the Company Disclosure
Letter, the performance of the transactions contemplated by this Agreement
will not (either alone or upon the occurrence of any additional or subsequent
event) result in any payment that would constitute an "excess parachute
payment" within the meaning of Section 280G of the Code.
(j) The Company and each of its Subsidiaries is not currently, has not
been within the last five years and does not anticipate becoming a "United
States real property holding corporation" within the meaning of Section 897(c)
of the Code.
IV.11 Employee Benefits. (a) Section 4.11(a) of the Company
Disclosure Letter lists all "employee benefit plans," as defined in Section
3(3) of ERISA, and all other deferred compensation, bonus or other incentive
compensation, stock purchase or other Equity Appreciation Rights Plans,
severance pay, salary continuation for disability or other leave of absence,
supplemental unemployment benefits, lay-off or reduction in force, change in
control or educational assistance arrangements or policies for which the
Company or any of its Subsidiaries has any material obligation or liability
(each a "Benefit Plan" and collectively, the "Benefit Plans"), including, but
not limited to, any individual benefit arrangement, policy or practice with
respect to any current or former officer, employee or director of the Company
or any of its Subsidiaries.
(a) Section 4.11(b) of the Company Disclosure Letter lists, separately
for each foreign country, all Benefit Plans covering employees of the Company
and its Subsidiaries who are employed outside of the United States ("Foreign
Benefit Plans").
(b) The Company and its Subsidiaries have delivered to Acquiror correct
and complete copies of all Benefit Plans, and, where applicable, each of the
following documents with respect to such plans: (i) any amendments, (ii) any
related trust documents, (iii) the two most recently filed IRS Forms 5500 with
all attachments thereto, (iv) the last IRS determination letter, (v) the most
recent summary plan descriptions and summaries of material modifications, (vi)
the last actuarial valuation report and (vii) written communications to
employees to the extent the
<PAGE>
substance of the Benefit Plans described therein differs materially from the
other documentation furnished under this Section.
(c) Except as disclosed in Section 4.11(d) of the Company Disclosure
Letter, none of the Benefit Plans is subject to Title IV of ERISA or Section
412 of the Code, and the Company and its ERISA Affiliates from time to time
have not within the preceding six years had any obligation to make any
contribution to a retirement plan subject to Title IV of ERISA or incurred any
liability (contingent or otherwise) under Title IV of ERISA and neither the
Company, its Subsidiaries nor any of its ERISA Affiliates has any actual or
potential obligation or liability to any multiemployer plan (as defined in
Section 4001(a)(3) of ERISA).
(d) Each Benefit Plan, including any associated trust, intended to
qualify under Section 401 of the Code does so qualify.
(e) Except as disclosed on Section 4.11(f) of the Company Disclosure
Letter and except as would not have a Material Adverse Effect with respect to
the Company, the Benefit Plans have been maintained and administered in
accordance with their terms and with the provisions of ERISA, the Code and
other Applicable Laws.
(f) There are no pending or, to the Company's Knowledge, overtly
threatened actions, claims or lawsuits that have been asserted or instituted
against any of the Benefit Plans, the assets of any of the trusts under such
plans or the plan sponsor, plan administrator or fiduciary of any of the
Benefit Plans with respect to the operation of such plans (other than routine
benefit claims) that individually or in the aggregate could have a Material
Adverse Effect with respect to the Company.
(g) The Company and its Subsidiaries do not provide, and are not
obligated to provide, retiree life insurance or retiree health benefits to any
current or former employee after his or her termination of employment with the
Company or any Subsidiary, except as may be required under Section 4980B of
the Code and Part 6 of Subtitle B of Title I of ERISA or as disclosed in
Section 4.11(h) of the Company Disclosure Letter.
(h) Except as disclosed in Section 4.11(i) of the Company Disclosure
Letter and except with respect to payments under the Equity Appreciation
Rights Plans that will be paid or satisfied by the Company on or prior to
<PAGE>
Closing of all estimated payments, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment becoming due to any employee (current or former) of
the Company or any Subsidiary, (ii) increase any benefits otherwise payable
under any Benefit Plan or (iii) result in the acceleration of the time of
payment or the vesting of any benefits under any Benefit Plan. The Company
has also delivered to Acquiror a schedule of all estimated payments to be made
under each Equity Appreciation Rights Plan on or prior to the Closing.
"Equity Appreciation Rights Plans" are all plans or arrangements maintained by
the Company or any of its Subsidiaries that provide for a benefit based upon
the issuance of stock, restricted stock, stock options, phantom stock or other
equity appreciation rights or incentive awards, determined by the book, fair
market or formula value of a share of stock of the Company.
(i) Except as disclosed in Section 4.11(j) of the Company Disclosure
Letter, (i) no employee of the Company or any Subsidiary will be entitled to
any severance payments upon the sale of the Company or any Subsidiary, or any
divisions or business units thereof, absent an employee's actual loss of
employment and (ii) none of the executives of the Company or any Subsidiary
are eligible to receive any payment under any severance pay, stay bonus or
other retention plan, program or arrangement of the Company or any of its
Subsidiaries.
(j) Except as disclosed in Schedule 4.11(k) of the Company Disclosure
Letter, the projected benefit obligation of the Company or any Subsidiary (as
calculated using actuarial assumptions used to calculate liabilities under FAS
87 with respect to post-employment benefits accrued) under each Benefit Plan
that is a defined benefit pension plan is fully funded by assets of such plan
or by an adequate reserve on the applicable balance sheet of the Company or
any Subsidiary.
IV.12 Cable Television Franchises. (a) Section 4.12 of the Company
Disclosure Letter sets forth a list of the Systems, and as to each such
System, (i) the geographic area and FCC community unit(s) served, (ii) the
name of the legal entity that owns such System and holds the applicable
franchise, as well as the identity, ownership interest and relationship to the
Company, if any, of each owner of any interest in such legal entity, (iii) as
of December 31, 1995, the number of Homes Passed and Subscribers served by
such System, and (iv) the names and addresses of the Governmental Authorities
issuing the franchises and/or implementing such ordinances. By no later than
30 days
<PAGE>
after the date of this Agreement, the Company shall furnish to Acquiror a
complete and accurate list and copy of all of the franchise agreements and
similar governing agreements, instruments, resolutions, statutes and/or
CATV-franchise-related ordinances that are used, necessary or required in
order to operate, or to which the Company or its Subsidiaries are subject by
reason of their operation of, the Systems (individually as to each System, its
"Franchise" and collectively, the "Franchises"), and, as of December 31, 1995,
the number of Homes Passed and Subscribers served by the Systems by Franchise.
The Systems listed in Section 4.12 of the Company Disclosure Letter represent
all of the "cable television systems", as defined in Section 602(7) of the
Cable Act, owned and operated by the Company and its Subsidiaries in the
United States. The Franchises and any related regulatory ordinances contain
all material commitments, obligations and rights of the Company and its
Subsidiaries with respect to each of the Governmental Authorities granting
such Franchises, in connection with the construction, ownership and operation
of the Systems. The Franchises enable the Company and its Subsidiaries to
operate, and, subject to obtaining the Franchise Consents and License
Consents, immediately following the Closing will enable the Surviving
Corporation and its Subsidiaries to continue to operate all of the Systems as
and where they are presently operated. To the Knowledge of the Company, each
Franchise is valid under all Federal, state and local laws and is validly held
by the Company or its Subsidiaries, as the case may be. The Company and its
Subsidiaries have complied with the material terms and conditions of the
Franchises and the same will not be subject to revocation or non-renewal as a
result of the execution and delivery of this Agreement or the Transaction
Documents, or the con-summation of the transactions contemplated hereby and
thereby, subject to obtaining the Franchise Consents and License Consents.
Except as set forth in Section 4.12 of the Company Disclosure Letter, there
are no lawsuits, revocation proceedings or disputes pending with respect to
any of the Franchises or Systems that would material affect the right of the
Company or any Subsidiary to operate a System, and no Governmental Authority
or other Person has notified the Company or any of its Subsidiaries in writing
of its intention to conduct or initiate the same. Neither the Company nor any
of its Subsidiaries has received any written notice that any such Franchise is
under consideration to be revoked nor, except for Franchises that are subject
to renewal negotiations, to be modified in any material respect.
<PAGE>
(a) Except as set forth in Section 4.12 of the Company Disclosure
Letter, no Person other than certain municipalities (a list of which will be
provided no later than 30 days after the date of this Agreement) has any right
to acquire any interest in any of the Systems, or to designate any other
person or entity to acquire any interest in any of the Systems (including,
without limitation, any right of first refusal or similar right to purchase
any interest in the Systems), which right has not been validly, properly and
irrevocably (except for the right to revoke such waiver only if this Agreement
is terminated pursuant to Article IX hereof) waived by the party entitled to
assert such right.
(b) Section 4.12 of the Company Disclosure Letter lists the date on
which each Franchise will expire or has expired. Except as set forth in
Section 4.12 of the Company Disclosure Letter, there are not now pending any
proceedings of any Governmental Authority with respect to any proposal for
renewal of any Franchise. There exists no fact or circumstance that makes it
likely that any Franchise will not be renewed or extended on commercially
reasonable terms. Except where the Company or its Subsidiaries are proceeding
under informal renewal procedures as provided for by the Cable Act, the
Company and its Subsidiaries have timely filed with the appropriate
Governmental Authority all appropriate requests for renewal within 30 to 36
months under the Cable Act. Section 4.12 of the Company Disclosure Letter
sets forth those Franchises serving 25,000 or more Subscribers ("Material
Franchises") where the Company or a Subsidiary has not filed a written renewal
notice pursuant to 626(a)(1) of the Cable Act. Except as set forth in
Section 4.12 of the Company Disclosure Letter, as to any Franchise that has
expired prior to the date hereof, the Company is currently operating such
Franchise under duly authorized extensions, and the Company has no reason to
believe that such extensions will not be renewed until such time as the
Franchise itself has been renewed for an additional term.
(c) To the Company's Knowledge, the Systems and all related businesses
of the Company and its Subsidiaries are, and have been, operated in compliance
with the Communications Act and all regulations of the FCC established
pursuant thereto, and the Company and its Subsidiaries have submitted to the
FCC all filings that are required under the rules, orders and regulations of
the FCC or other Governmental Authorities with juris-diction. Except as set
forth in Section 4.12 of the Company Disclosure Letter, the operation of the
Systems has been, and is, in compliance with the rules and regulations of the
FCC or other Governmental Authorities with jurisdiction and the Company and
its Subsidiaries have not received any written notice from the FCC or other
Governmental Authorities with juris-diction with respect to any material
violation of its rules and regulations or from any other Governmental
Authorities with jurisdiction with respect to any material violation of any
Franchise.
(d) To the Company's Knowledge, for each relevant semi-annual reporting
period, the Company has timely filed with the United States Copyright Office
all required Statements of Account in true and correct form in all material
respects, and has paid when due all required copyright royalty fee payments in
the correct amount, relating to the Systems' carriage of tele-vision broadcast
signals and appropriately classifying the applicable tiers on which the
Systems carry television broadcast signals. To the Company's Knowledge,
carriage of all broadcast signals is in compliance with the Copyright Act of
1976, as amended (the "Copyright Act") and the rules and regulations of the
Copyright Office and is eligible for the compulsory license under Section 111
of the Copyright Act. Except as set forth in Section 4.12 of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries has
received any inquiry from the Copyright Office or any Third Party challenging
or questioning the information submitted in any Statement of Account or the
amount of any royalty payment, for which the Company has not provided adequate
reserves in its reasonable business judgment, nor are the Company or its
Subsidiaries aware of any basis for such inquiry. Except as set forth in
Section 4.12 of the Company Disclosure Letter, to the Company's Knowledge, no
claim or copyright infringement has been made against the Company or any of
its Subsidiaries that has not been settled, nor is any such claim pending or
threatened.
(e) Other than as set forth in Section 4.12 of the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries is subject to any FCC
proceeding challenging the rights of the Company or its Subsidiaries to carry
or not carry any signal, nor has the Company or any of its Subsidiaries
received any written notice or demand to carry or not carry any signal, the
carriage or non-carriage of which could have a material adverse effect on any
System.
(f) The Systems (other than the Recently Acquired Systems) are, and have
been, operated in material compliance with the Social Contract Order and the
Company and its Subsidiaries have submitted to the FCC and any relevant
Governmental Authority all forms, notices and other written
<PAGE>
material required thereunder for implementation of the Social Contract. Each
such filing has been prepared and filed in compliance with the Social Contract
Order and is complete and accurate in all material respects. Neither the
Company nor any Subsidiary has received written notice from the FCC as to any
non-compliance with the Social Contract Order. The Company shall use its
reasonable best efforts to seek amendment of the Social Contract Order to
bring the Recently Acquired Systems under terms substantially the same as
those contained in the proposed Social Contract Amendment.
(g) Section 4.12 of the Company Disclosure Letter lists each of the
Governmental Authorities that (i) has been certified by the FCC pursuant to 47
C.F.R. 76.910 to regulate Basic Cable Service and associated equipment of a
System or (ii) has petitioned the FCC to regulate the rates for Basic Cable
Service and associated equipment pursuant to 47 C.F.R. 76.913; Section 4.12
of the Company Disclosure Letter also lists each complaint filed against Cable
Programming Service rates on FCC Form 329 that has not been settled by the
Social Contract Order. Of those listed, the Form 329 complaints pertaining to
the Recently Acquired Systems would be settled by the proposed Social Contract
Amendment.
(h) To the extent that the Company's and/or its Subsidiaries' rates have
not been settled pursuant to the Social Contract or would not be settled by
the proposed Social Contract Amendment, the Company and/or its Subsidiaries
are in compliance in all material respects with FCC rate requirements.
(i) Except as set forth in Section 4.12 of the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries (x) is under any
investigation by the FCC or any Governmental Authority with respect to any of
its rates for Basic Cable Service or any Cable Programming Service (including
but not limited to rates for associated equipment) or (y) is a party to any
proceeding before the FCC or any other Governmental Authority the collective
outcome of which could result in the Company or any of its Subsidiaries being
ordered to make refunds to Subscribers in excess of $2,000,000 (exclusive of
potential Social Contract Amendment refunds) or reduce the rates currently
charged to Subscribers when netted against any increases to which the Company
is entitled.
(j) Section 4.12 of the Company Disclosure Letter lists each System, and
the Franchise(s) by which it is authorized, that is subject to effective
competition (as
<PAGE>
that term is defined in Section 623(l)(1) of the Cable Act) and the basis for
the Company's determination that the System operating under that Franchise is
subject to effective competition.
IV.13 Environmental Matters. Except as set forth in Section 4.13 of
the Company Disclosure Letter:
(i) the operations of the Company and its Subsidiaries are in material
compliance with all applicable Environmental Laws;
(ii) to the Company's Knowledge, all real property owned, operated or
leased by the Company and its Subsidiaries are free from contamination by any
Hazardous Material that is reasonably likely to result in Environmental Costs
and Liabilities to the Company in excess of $2,000,000;
(iii) to the Knowledge of the Company, the Company and its Subsidiaries
have obtained and currently maintain all material Environmental Permits
necessary for their operations and are in material compliance with such
Environmental Permits;
(iv) except to the extent such matters are the subject matter of other
representations and warranties of the Company contained herein, there are no
Legal Proceedings or Environ-mental Claims pending, or to the Knowledge of the
Company, threatened against the Company or its Subsidiaries alleging the
violation of any Environmental Law or asserting claims regarding Environmental
Costs and Liabilities under any Environmental Law;
(v) neither the Company nor its Subsidiaries nor to the Knowledge of the
Company, any predecessor of the Company or its Subsidiaries or any owner of
premises leased or operated by the Company or its Subsidiaries with respect to
such property, has filed any formal notice under Federal, state, local or
foreign law indicating past or present generation treatment, storage, or
disposal of or reporting a Release of Hazardous Material into the environment;
and
(vi) to the Knowledge of the Company, there is not now, nor has there
been in the past, on, in or under any real property owned, leased or operated
by the Company or its Subsidiaries (A) any under-ground storage tanks,
above-ground storage tanks, dikes or impoundments, (B) any friable
asbestos-containing materials or (C) any polychlorinated biphenyls which, in
each case, is material to the operation of its business at such real property.
<PAGE>
IV.14 Labor. (a) Except as set forth in Section 4.14(a)(1) of the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries is
a party to any labor or collective bargaining agreement and there are no labor
or collective bargaining agreements that govern the terms and conditions of
employment with the Company or its Subsidiaries with respect to employees of
the Company or its Subsidiaries. Section 4.14(a)(2) of the Company Disclosure
Letter lists all employment, management, consulting, management retention or
other personal service, or compensation agreements or arrangements covering
one or more non-employees (including severance, termination or
change-of-control arrangements) and all material employment, management,
consulting, management retention or other personal service, or compensation
agreements or arrangements covering one or more employees (including
severance, termination or change-of-control arrangements) in each case,
entered into by the Company or any of its Subsidiaries and a copy of each such
agreement has been delivered to Acquiror.
(a) Except as set forth in Section 4.14(b) of the Company Disclosure
Letter, no employees of the Company or any of its Subsidiaries are represented
by any labor organization; no labor organization or group of employees of the
Company or any of its Subsidiaries has made a pending demand against the
Company or any Subsidiary for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
against or, to the knowledge of the Company, threatened to be brought or filed
against the Company or any Subsidiary, with the National Labor Relations Board
or other labor relations tribunal; there is no organizing activity involving
the Company or any of the Subsidiaries pending or, to the Knowledge of the
Company, threatened by any labor organization or group of employees of the
Company or any its Subsidiaries.
(b) There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations (in the case of arbitrations which if adversely decided would
reasonably be expected to involve the payment of damages of more than
$500,000) or (ii) material grievances or other material labor disputes pending
or, to the Knowledge of the Company, threatened against or involving the
Company or any of its Subsidiaries. There are no unfair labor practice
charges, grievances or complaints pending or, to the Knowledge of the Company,
threatened by or on behalf of any employee or group of employees of the
Company or any of its Subsidiaries that individually or in the aggregate
involve more than $500,000.
<PAGE>
(c) Except as set forth in Section 4.14(d) of the Company Disclosure
Letter, there are no material complaints, charges or claims against the
Company and its Subsidiaries pending or, to the Knowledge of the Company,
threatened to be brought or filed with any Governmental Authority or in which
an employee or former employee of the Company or any of its Subsidiaries is a
party or a complainant based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by the
Company or a Subsidiary of any individual, including any claim for workers'
compensation or under the Occupational Safety and Health Act of 1970, as
amended. In the aggregate, the complaints and charges set forth in Section
4.14(d) of the Company Disclosure Letter would not have, singly or in the
aggregate, a Material Adverse Effect with respect to the Company even if each
were resolved adversely to the Company and its Subsidiaries.
(d) Hours worked by and payments made to employees of the Company and
its Subsidiaries have not been in material violation of the Federal Fair Labor
Standards Act or any other Applicable Law dealing with such matters.
(e) The Company and its Subsidiaries are in material compliance with all
Applicable Laws relating to the FCC-Equal Employment Opportunity Commission
standards and employment or termination of employment of labor (including, but
not limited to, leased workers and independent contractors), including all
such Applicable Laws and WARN relating to wages, hours, collective bargaining,
employment discrimination, civil rights, safety and health, workers'
compensation, pay equity and the collection and payment of withholding and/or
social security taxes and similar Taxes.
IV.15 Absence of Changes or Events. Except as set forth in Section
4.15 of the Company Disclosure Letter or disclosed in the Company SEC
Documents, since the date of the most recent audited financial statements
included in the Company SEC Documents, the Company and its Subsidiaries have
operated their respective businesses only in the ordinary and usual course and
in substantially the same manner as previously conducted and there has not
been:
(i) any damage, destruction or loss with respect to the properties or
assets of the Company or its Subsidiaries whether covered by insurance or not,
which has had or would have, individually or in the aggregate, a Material
Adverse Effect with respect to the Company;
<PAGE>
(ii) any change, occurrence or circumstance that had a Material Adverse
Effect with respect to the Company;
(iii) any change in the accounting principles, methods, practices or
procedures followed by the Company in connection with the business of the
Company or any change in the depreciation or amortization policies or rates
theretofore adopted by the Company in connection with the business of the
Company and its Subsidiaries;
(iv) any declaration or payment of any dividends, or other distributions
in respect of the outstanding shares of Capital Stock of the Company or any of
its Subsidiaries (other than dividends declared or paid by wholly-owned
Subsidiaries);
(v) any split, combination or reclassification of the Company's capital
stock or any issuance of shares of capital stock of the Company or any
Subsidiary or any other change in the authorized capitalization of the Company
or any Subsidiary, except as contemplated by this Agreement;
(vi) any repurchase or redemption by the Company of shares of its
capital stock or any issuance by the Company of any other securities in
exchange or in substitution for shares of its capital stock except pursuant to
employee benefit plans, programs or arrangements in existence on the date
hereof, in the ordinary course of business consistent with past practice; or
(vii) any grant or award of any options, warrants, conversion rights or
other rights to acquire any shares of capital stock of the Company or any
Subsidiary, except as contemplated by this Agreement or except pursuant to
employee benefit plans, programs or arrangements in existence on the date
hereof, in the ordinary course of business consistent with past practice.
IV.16 Unlawful Payments and Contributions. Neither the Company nor,
to the Knowledge of the Company, any of its directors, officers or any of its
other employees or agents has (a) used any Company funds for any unlawful
contribution, endorsement, gift, entertainment or other unlawful expense
relating to political activity; (b) made any direct or indirect unlawful
payment to any government
<PAGE>
official or employee from Company funds; (c) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended, in
connection with the Company's and its Subsidiaries' business; or (d) made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any Person or entity with respect to matters pertaining to the Company.
IV.17 Brokers and Intermediaries. Neither the Company nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement and the
Transaction Documents, except that the Company has retained Lazard Freres &
Co. LLC and Allen & Company Incorporated as its financial advisors, whose
respective fees and expenses shall be paid by the Company. The Company has
delivered to Acquiror a copy of the retention agreements related thereto.
V
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND COMPANY SUB
Acquiror and Company Sub represent and warrant to the Company that
(provided that the representations and warranties set forth herein with
respect to Company Sub shall be made as of June __, 1996):
V.1 Organization and Authority. (a) Each of Acquiror, Company Sub,
and Acquiror's other Subsidiaries is a corporation or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization with all requisite power to
enable it to own, lease and operate its assets and properties and to conduct
its business as currently being conducted and is qualified and in good
standing to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties owned
or leased by it requires such qualification, except to the extent the failure
so to qualify would not have a Material Adverse Effect with respect to
Acquiror. Complete and correct copies of the Certificates of Incorporation
and Bylaws, each as amended to date, of Acquiror and Company Sub have been
delivered to the Company. Such Certificates of Incorporation and Bylaws are
in full force and effect.
<PAGE>
(a) Acquiror and Company Sub have all requisite corporate power and
authority to execute and deliver this Agreement and the Transaction Documents
to which it is a party and to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and such Transaction Documents and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all requisite corporate action on the part of Acquiror and
Company Sub. This Agreement and each Transaction Document to which it is a
party has been duly executed and delivered by Acquiror and Company Sub and
constitutes the legal, valid and binding obligation of each such party,
enforceable against it in accordance with its terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (ii) as
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
V.2 Capitalization. (a) As of the date hereof, the authorized
capital stock of Acquiror consists of (i) 2,000,000,000 shares of U S WEST
Communications Group Common Stock, par value $.01 per share ("Communications
Stock"), of which 475,604,443 shares were issued and outstanding as of
February 23, 1996, all of which are duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights created by
statute, Acquiror's Restated Certificate of Incorporation or any agreement to
which Acquiror is a party or by which Acquiror is bound, (ii) 2,000,000,000
shares of Media Stock, of which 473,225,728 shares were issued and outstanding
as of February 23, 1996, all of which are duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights created by
statute, Acquiror's Restated Certificate of Incorporation or any agreement to
which Acquiror is a party or by which Acquiror is bound, and (iii) 200,000,000
shares of Preferred Stock, par value $1.00 per share, of which (A) 10,000,000
shares have been designated as Series A Junior Participating Cumulative
Preferred Stock, none of which are issued and outstanding and all of which are
reserved for issuance in connection with rights to purchase Communications
Stock pursuant to the Amended and Restated Rights Agreement, dated as of
October 31, 1995 (the "Rights Agreement"), by and between Acquiror and State
Street Bank and Trust Company, as rights agent, (B) 10,000,000 shares have
been designated as Series B Junior Participating Cumulative Preferred Stock,
none of
<PAGE>
which are issued and outstanding and all of which are reserved for issuance in
connection with rights to purchase Media Stock pursuant to the Rights
Agreement, and (C) 50,000 shares have been designated as Series C Cumulative
Redeemable Preferred Stock and are issued and outstanding, all of which are
duly authorized, validly issued, fully paid and nonassessable and not subject
to preemptive rights created by statute, Acquiror's Restated Certificate of
Incorporation or Bylaws or any agreement to which Acquiror is a party or by
which Acquiror is bound. As of the date hereof, the Number of Shares Issuable
with Respect to the InterGroup Interest (as defined in Section 2.6.19 of
Article V of Acquiror's Restated Certificate of Incorporation) is zero. The
authorized capital stock of Company Sub consists of _____ shares of common
stock, par value $.01 per share, all of which have been validly issued, are
fully paid and nonassessable and are owned by Acquiror, free and clear of any
Encumbrance.
(a) Other than as described in this Section 5.2, in the Acquiror SEC
Documents or in Section 5.2 of the Letter from Acquiror, dated the date
hereof, addressed to the Company (the "Acquiror Disclosure Letter"), no shares
of the capital stock of Acquiror or Company Sub are authorized, issued or
outstanding, or reserved for any other purpose, and there are no options,
warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character to which Acquiror or Company Sub
is a party relating to the issued or unissued capital stock of Acquiror or
Company Sub or any obligation of Acquiror or Company Sub to grant, issue or
sell any shares of capital stock of Acquiror or Company Sub by sale, lease,
license or otherwise. Except as disclosed in the Acquiror SEC Documents or in
Section 5.2 of the Acquiror Disclosure Letter, neither Acquiror nor Company
Sub has any outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote or which are convertible into or
exercisable for securities having the right to vote with the stockholders of
Acquiror or Company Sub on any matter. Except as set forth in Section 5.2 of
the Acquiror Disclosure Letter there are no voting trusts or other agreements
or understandings with respect to the voting of the capital stock of Acquiror
or Company Sub.
V.3 NoConflicts. Subject to obtaining the Acquiror Consents (as
defined in Section 5.5), the execution and delivery by Acquiror and Company
Sub of this Agreement and each of the Transaction Documents to which it is a
party do not, and the consummation of the transactions contemplated hereby and
thereby and compliance with the terms hereof and thereof will not, conflict
with, or result
<PAGE>
in any violation of or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or to
the increased, additional, accelerated or guaranteed rights or entitlements of
any Person under, or result in the creation of any Encumbrances upon any of
the properties or assets of Acquiror or Company Sub under, any provision of
(i) the Certificate of Incorporation and Bylaws of Acquiror or Company Sub,
(ii) any note, bond, mortgage, indenture or deed of trust, deed to secure debt
or any license, lease, contract, commitment, permit, concession, franchise,
agreement or other binding arrangement to which Acquiror or Company Sub is a
party or by which any of their respective properties or assets may be bound or
subject, (iii) any judgment, order, writ, injunction or decree of any court,
governmental body, administrative agency or arbitrator applicable to Acquiror
or Company Sub or their respective properties or assets, or (iv) any law,
statute, rule, regulation or judicial or administrative decision applicable to
Acquiror or Company Sub; except in the case of clauses (ii) and (iv), such
conflicts, violations and defaults, termination, cancellation and acceleration
rights and entitlements and Encumbrances that in the aggregate would not
hinder or impair the consummation of the transactions contemplated hereby or
have a Material Adverse Effect with respect to Acquiror.
V.4 Stockholder Vote. At such time as all conditions to the Merger
have otherwise been satisfied, no vote of the holders of any class or series
of Acquiror's or Company Sub's capital stock not theretofore obtained will be
necessary or required (under Applicable Law or otherwise) to approve this
Agreement and the transactions contemplated hereby.
V.5 Consents. Except for (i) as set forth in Section 5.5 of the
Acquiror Disclosure Letter, (ii) compliance with and filings under the HSR
Act, (iii) the filing with the SEC by Acquiror of a registration statement on
Form S-4 registering under the Securities Act the shares of Media Stock and
Series D Preferred Stock to be issued in the Merger (the "Form S-4"), the
filing with the SEC by Acquiror of a registration statement on Form 8-A
registering under the Exchange Act the Series D Preferred Stock and such
reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby, (iv) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which
the Company is
<PAGE>
qualified to do business, (v) such filings and approvals as may be required by
any applicable state securities, "blue sky" or takeover laws, (vi) such
filings in connection with Gains Taxes, (vii) the filing by Acquiror of a
Certificate of Designation with respect to the Series D Preferred Stock (as
contemplated by Section 7.17) with the Secretary of State of the State of
Delaware immediately prior to the Effective Time (the items in clauses (i)
through (vii) being collectively referred to herein as "Acquiror Consents"),
no consents, approvals, licenses, permits, orders or authorizations of, or
registrations, declarations, notices or filings with, any Governmental
Authority or any Third Party are required to be obtained or made by or with
respect to Acquiror or Company Sub in connection with the execution, delivery
and performance of this Agreement or any of the other agreements contemplated
hereby to which it is a party or the consummation of the transactions
contemplated hereby and thereby or the taking by Acquiror or Company Sub of
any other action contemplated hereby or thereby, which, if not obtained or
made, would have a Material Adverse Effect with respect to Acquiror.
V.6 Compliance; No Defaults. (a) Except as set forth in Section 5.6
of the Acquiror Disclosure Letter, neither Acquiror nor any of its
Subsidiaries is in violation of, is, to the knowledge of Acquiror, under
investigation with respect to any violation of, has been given notice or been
charged with violation of, or failed to comply with any Applicable Laws,
except for violations and failures to comply that would not have a Material
Adverse Effect with respect to Acquiror. Except as set forth in Section 5.6
of the Acquiror Disclosure Letter, Acquiror and its Subsidiaries have all
Permits which are material to the operation of the businesses of Acquiror and
its Subsidiaries.
(a) Neither Acquiror nor any of its Subsidiaries is in default or
violation (and no event has occurred which, with notice or the lapse of time
or both, would constitute a default or violation) of any term, condition or
provision of (i) its Certificate of Incorporation or Bylaws or other
comparable organizational document or (ii) any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which
Acquiror or any of its Subsidiaries is now a party or by which Acquiror or any
of its Subsidiaries or any of their respective properties or assets may be
bound, except in the case of clause (ii), for defaults or violations which in
the aggregate would not have a Material Adverse Effect with respect to
Acquiror.
<PAGE>
V.7 Acquiror SEC Documents; Undisclosed Liabilities. (a) Acquiror
has filed all required reports, schedules, registration statements and
definitive proxy statements with the SEC since January 1, 1993 (as such
documents have since the time of their filing been amended, the "Acquiror SEC
Documents"). As of their respective dates, the Acquiror SEC Documents
(including any financial statements filed, to be filed or required to have
been filed as a part thereof) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the SEC thereunder applicable to such Acquiror SEC
Documents, and none of the Acquiror SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
state-ments of Acquiror included in the Acquiror SEC Documents comply as to
form in all material respects with applicable accounting require-ments and
with the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present (subject, in the case of the unaudited financial statements, to
normal, recurring audit adjustments, which were not individually or in the
aggregate material) the consolidated financial position of Acquiror and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended.
(a) Except as disclosed in the Acquiror SEC Documents or in Section 5.7
of the Acquiror Disclosure Letter, as of the date hereof, Acquiror and its
Subsidiaries do not have any material indebtedness, obligations or liabilities
of any kind (whether accrued, absolute, contingent or otherwise, and whether
due or to become due or asserted or unasserted) required by GAAP to be
reflected on a consolidated balance sheet of Acquiror and its consolidated
Subsidiaries or in the notes, exhibits or schedules thereto.
V.8 Litigation. Except as set forth in the Acquiror SEC Documents or
in Section 5.8 of the Acquiror Disclosure Letter, there are no Legal
Proceedings against or affecting Acquiror or any of its Subsidiaries or their
respective properties or assets pending or, to the knowledge of Acquiror,
threatened, that individually or in the aggregate could (i) have a Material
Adverse Effect with
<PAGE>
respect to Acquiror or (ii) prevent, hinder or materially delay the
consummation of the transactions contemplated by this Agreement or the
Transaction Documents. Except as set forth in Section 5.8 of the Acquiror
Disclosure Letter, neither Acquiror nor any of its Subsidiaries is a party or
subject to or in default under any judgment, order, injunction or decree of
any Governmental Authority applicable to it or to its respective properties or
assets, which judgment, order, injunction, decree or default thereunder
constitutes a Material Adverse Effect with respect to Acquiror.
V.9 Absence of Changes or Events. Except as disclosed in the Acquiror
SEC Documents, since the date of the most recent audited financial statements
included in the Acquiror SEC Documents, Acquiror and its Subsidiaries have
conducted their business operations only in the ordinary course and there has
not occurred (i) any change, occurrence or circumstance that had any Material
Adverse Effect with respect to Acquiror or (ii) other events or conditions of
any character that, individually or in the aggregate, have or would reasonably
be expected to have, a Material Adverse Effect with respect to Acquiror or on
the ability of Acquiror or Company Sub to perform their respective material
obligations under this Agreement and the Transaction Documents to which it is
a party.
V.10 Brokers and Intermediaries. Neither Acquiror or Company Sub nor
any of their respective officers, directors or employees has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated by this
Agreement and the Transaction Documents, except that Acquiror has retained
Lehman Brothers Inc., as its financial advisor, whose fees and expenses shall
be paid by Acquiror.
V.11 Ownership of Company Capital Stock. Neither Acquiror nor any of
its Subsidiaries owns, directly or indirectly, any shares of Company Capital
Stock.
V.12 Operations of Company Sub. Company Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement and
has not engaged in any business activities or conducted any operations other
than in connection with the transactions contemplated by this Agreement.
<PAGE>
VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
VI.1 Conduct of Business of the Company. Except as otherwise
expressly permitted by the terms of this Agreement, from the date hereof to
the Effective Time, the Company shall, and shall cause its Subsidiaries to,
carry on their respective businesses in the ordinary course in substantially
the same manner as presently conducted (including with respect to advertising,
promotions and capital expenditures) and in compliance in all material
respects with Applicable Laws, use their reasonable best efforts consistent
with past practices to keep available the services of the present employees of
the Company and its Subsidiaries and to preserve their relationships with
customers, suppliers and others with whom the Company and its Subsidiaries
deal to the end that their goodwill and ongoing businesses shall not be
materially impaired in any material respect at the Closing Date. The Company
shall not, and shall cause its Subsidiaries not to, take any action that
would, or that is reasonably likely to, result in any of the representations
and warranties of the Company set forth in Article IV being untrue in any
material respect as of the date made or in any of the conditions to the
consummation of the Merger set forth herein not being satisfied. In addition,
and without limiting the generality of the foregoing, except as otherwise
expressly permitted by the terms of this Agreement or as set forth in Section
6.1 of the Company Disclosure Letter, during the period from the date hereof
to the Effective Time, the Company shall not (and shall cause its Subsidiaries
not to), without the written consent of Acquiror, which decision regarding
consents shall be made promptly (in light of its circumstances) after receipt
of notice seeking such consent:
(i) except for the Charter Amendments, amend its Certificate of
Incorporation, Bylaws or other comparable organizational documents;
(ii) subject to Sections 7.7 and 7.14(b), redeem or otherwise acquire
any shares of its capital stock, or issue any capital stock or any option,
warrant or right relating thereto or any securities convertible into or
exchangeable for any shares of its capital stock, or split, combine or
reclassify any of its capital stock or issue any securities in exchange or in
substitution for shares of its capital stock;
<PAGE>
(iii) subject to Section 7.14(b), (A) grant or agree to grant to any
employee any increase in wages or bonus, severance, profit sharing,
retirement, deferred compensation, insurance or other compensation or
benefits, or establish any new compensation or benefit plans or arrangements,
or amend or agree to amend any existing Benefit Plans or Equity Appreciation
Rights Plans, except as may be required under existing agreements or in the
ordinary course of business consistent with past practices or (B) enter into
any new RSPA or amend the terms of any existing RSPA or accelerate the vesting
of any shares of Class B Common Stock issued thereunder;
VI(xxiii) merge, amalgamate or consolidate with any other entity in any
transaction in which the Company is not the surviving corporation (other than
mergers between Subsidiaries of the Company), sell all or substantially all of
its busi-ness or assets, or acquire all or substantially all of the business
or assets of any other Person;
(v) enter into or amend any employment, consulting, severance or similar
agreement with any individual, except with respect to severance gifts or
payments of a nominal nature to persons holding non-officer/executive level
positions in the ordinary course of business consistent with past practice;
(vi) subject to Section 7.7, declare, set aside or make any dividends,
payments or distributions in cash, securities or property to the stockholders
of the Company, whether or not upon or in respect of any share of Company
Capital Stock;
(vii) incur or assume any Indebtedness other than as specifically set
forth in Section 6.1(vii) of the Company Disclosure Letter;
(viii) voluntarily grant any material Encumbrance on any of its material
assets, other than Encumbrances that are incurred in the ordinary course of
business;
(ix) make any change in any method of accounting or accounting practice
or policy, except as required by Applicable Laws or by GAAP;
<PAGE>
(x) make or incur any capital expenditures that are not set forth in
Section 6.1(x) of the Company Disclosure Letter or that, individually, are in
excess of $25 million or, in the aggregate, in excess of $50 million;
(xi) subject to Section 7.7, sell, lease, swap or otherwise dispose of
any assets, other than (A) sales, leases, swaps or other dispositions of such
assets not having a fair market value in excess of $15 million individually or
$30 million in the aggregate (so long as the Company provides notice to
Acquiror of any sale, lease, swap or other disposition of any asset having a
fair market value of greater than $5 million) or (B) swaps of Systems or
assets of Systems in order to facilitate the clustering of Systems or dispose
of Systems located in the Acquiror Region; provided, however, that (1)
such swaps shall not in the aggregate involve more than 500,000 Subscribers of
the Company or its Subsidiaries, (2) any cable television systems acquired by
the Company or any of its Subsidiaries in any such swap shall not be located
in the Acquiror Region, (3) any cable television systems acquired by the
Company in any such swap shall not be in a franchise area where there is a
substantial overbuild with any other CATV system owned by the Company,
Acquiror or any of their respective Affiliates, (4) the aggregate amount of
cash paid by the Company or any of its Subsidiaries in any such swap shall not
exceed $50 million in the aggregate, (5) any such swap shall require the
approval of Acquiror, which approval shall not be unreasonably withheld and
Acquiror shall be reasonably satisfied that the Company has received
substantially equivalent value including cash or other assets and (6) to the
extent that the Company or any Subsidiary must apply for the consent of the
Governmental Authority as a condition to the transfer of control or assignment
of any Franchise associated with any such swap, such application shall include
an application to the Governmental Authority, and relevant information
relating to the proposed transaction, requesting contemporaneous approval for
the anticipated acquisition of the Company or its Subsidiary by Acquiror or
Company Sub as contemplated herein and the transfer of control of said
Franchise to the Surviving Corporation in accordance with the terms hereof;
and provided, further, that any consent required from a Governmental
Authority as a condition to consummating such swap shall be deemed a Required
Franchise Consent;
<PAGE>
(xii) acquire or agree to acquire by merging or consolidating with, or
by purchasing all or a substantial portion of the assets of or equity in, or
by any other manner, any business of any Person or acquire or agree to acquire
any assets (other than supplies, raw materials and inventory in the ordinary
course, capital expenditures permitted by clause (x) above and asset swaps
permitted by clause (xi) above);
(xiii) abandon, avoid, dispose, surrender, fail to file for timely
renewal, terminate or amend in any materially adverse manner the terms of any
material Franchises, any FCC license that would have a material adverse effect
on the operation of a System or the Social Contract Order, except as amended
by virtue of the proposed Social Contract Amendment, or, with respect to any
Material Franchise, fail to file for renewal pursuant to Section 626(a) of the
Cable Act;
(xiv) delete any programming service on the Systems or make material
change in the programming services offered on the Systems other than in the
ordinary course of business or as required by the Cable Act, the Social
Contract Order or any amendments thereto;
(xv) except as otherwise permitted by clauses (xi) and (xii), modify,
amend, terminate, renew or fail to use reasonable efforts to renew any
material contract or agreement necessary to continue the Company's business in
the ordinary course or waive, release or assign any material rights or claims,
other than in the ordinary course of business;
(xvi) offer free or reduced-price service as an inducement to any
Person, except in the ordinary course of business consistent with past
practice;
(xvii) except as permitted by Applicable Law, including the Social
Contract Order and any amendments thereto, (A) except as disclosed to Acquiror
in writing at least 30 days prior to any rate change, implement any rate
change, retiering or repackaging of CATV programming offered by any of the
Company's Subsidiaries, (B) except as disclosed in writing to Acquiror at
least 30 days prior to any cost-of-service rate change, make any
cost-of-service election under the rules and regulations adopted under the
Cable Act, (C) determine a method of refund pursuant to 47 C.F.R. Section
76.942(d) or 76.961(c) or (D) amend any
<PAGE>
Franchise or agree to make any payments or commitments, including commitments
to make future capital improvements or provide future services, in connection
with any renewal of any Franchise other than that which the Company would make
in the ordinary course of business;
(xviii) enter into any agreement, understanding or commitment that
restrains, limits or impedes the ability of the Company or Acquiror to compete
with or conduct any business or line of business;
(xix) invest or enter into any agreement, understanding or commitment,
whether written or oral, by or on behalf of the Company or its Subsidiaries,
to invest or provide additional capital in respect of assets, businesses or
entities; provided, however, that the restrictions contained in this
clause shall not apply to existing commitments as set forth in Section
6.1(xix) of the Company Disclosure Letter or to any investments not in excess
of $10 million individually or $20 million in the aggregate;
(xx) except as otherwise provided in clause (xix) above or Section 7.14,
enter into any material contract or agreement with, or make any loan or
advance to, any Affiliate (other than a wholly owned Subsidiary) of the
Company or any stockholder or Affiliate thereof;
(xxi) enter into, or amend the terms of, any agreement relating to
interest rate swaps, caps or other hedging or derivative instruments relating
to Indebtedness of the Company and its Subsidiaries, except as required under
agreements relating to existing Indebtedness and Indebtedness permitted by
clause (vii) above;
(xxii) conduct its business in a manner or take, or cause to be taken,
any other action (including, without limitation, effecting or agreeing to
effect or announcing an intention or proposal to effect, any acquisition,
business combination, merger, consolidation, restructuring or similar
transaction) that would or might reasonably be expected to prevent Acquiror,
Company Sub or the Company from consummating the transactions contemplated
hereby in accordance with the terms of this Agreement (regardless of whether
such action would otherwise be permitted or not prohibited hereunder),
including, without limitation, any action which may limit the ability of
Acquiror, Company Sub or the Company to consummate the transactions
contemplated
<PAGE>
hereby as a result of antitrust or other regulatory concerns;
(xxiii) purchase, sell or trade (or announce any intention or proposal to
purchase, sell or trade) any shares of Media Stock, or take any other action a
principal purpose of which is to affect the calculation of the Determination
Price; or
(xxiv) agree, whether in writing or otherwise, to do any of the
foregoing.
Prior to the date hereof, Acquiror delivered to the Company a list (which the
Acquiror may update from time to time) designating certain individuals of
Acquiror to whom the Company may direct requests for consents under this
Section 6.1.
VI.2 Conduct of Business of Acquiror and Company Sub. (a) Except as
set forth in Section 6.2 of the Acquiror Disclosure Letter, from the date
hereof to the Effective Time, Acquiror shall not (and shall cause its
Subsidiaries not to):
(i) issue shares of Media Stock or any option, warrant or right relating
thereto or any securities convertible into or exchangeable for any shares of
Media Stock at less than fair market value as determined by the board of
directors of Acquiror (other than pursuant to the terms of existing options or
benefit plans), or split, combine, redeem, convert or reclassify the Media
Stock or issue any securities in exchange or in substitution for shares of
Media Stock;
(ii) amend its Certificate of Incorporation or Bylaws (other than the
filing of a Certificate of Designation for the issuance of any series of
Preferred Stock) in any manner adverse to the holders of Media Stock;
(iii) declare, set aside or make any dividends or distributions in cash,
securities or property to holders of Media Stock;
(iv) conduct its business in a manner or take, or cause to be taken, any
other action (including, without limitation, effecting or agreeing to effect
or announcing an intention or proposal to effect, any acquisition, business
combination, merger, consolida-tion, restructuring or similar transaction)
that would or might reasonably be expected to prevent Acquiror,
<PAGE>
Company Sub or the Company from consummating the transactions contemplated
hereby in accordance with the terms of this Agreement (regardless of whether
such action would otherwise be permitted or not prohibited hereunder),
including, without limitation, any action which may limit the ability of
Acquiror, Company Sub or the Company to consummate the transactions
contemplated hereby as a result of antitrust or other regulatory concerns;
(v) take any action that would, or that is reason-ably likely to, result
in any of the representa-tions and warranties of Acquiror or Company Sub set
forth in Article V being untrue in any material respect as of the date made or
any of the conditions to the Merger set forth herein not being satisfied;
(vi) purchase, sell (other than through primary issuances) or trade (or
announce any intention or proposal to purchase, sell or trade) any shares of
Media Stock, or take any other action a principal purpose of which is to
affect the calculation of the Determination Price, other than pursuant to
benefit plans in the ordinary course of business;
(vii) sell all or substantially all of the properties and assets of the
Media Group (within the meaning of Section 2.4.1(B) of Article V of the
Restated Certificate of Incorporation of Acquiror); or
(viii) acquire, or agree to acquire, any shares of Company Capital Stock
if, after giving effect to such acquisition and the purchase of the Put Shares
pursuant to Section 9.4, Acquiror would beneficially own 10% or more of the
Company Capital Stock.
(b) During the period of time from the date hereof to the Effective
Time, Company Sub shall not engage in any activities of any nature, except as
provided in or contemplated by this Agreement.
VI.3 Access to Information. (a) From the date hereof until the
Closing Date, the Company shall permit Acquiror and its representatives to
have full access to the management, facilities, suppliers, accounts, books,
records (including, without limitation, budgets, forecasts and personnel files
and records), contracts and other materials of the Company and its
Subsidiaries reasonably requested by Acquiror or such representatives and to
make available to Acquiror and its representatives the directors, officers,
employees and independent accountants of the Company for
<PAGE>
interviews for the purpose, among other things, of verifying the information
furnished to Acquiror, developing transition plans and integrating the
operations of the Company and its Subsidiaries with the operations of Acquiror
and its Subsidiaries and Affiliates. Such access shall be subject to existing
confidentiality agreements and shall be conducted by Acquiror and its
representatives during normal business hours, upon reasonable advance notice
and in such a manner as not to interfere unreasonably with the business or
operations of the Company and its Subsidiaries.
(a) From the date hereof until the Closing Date, Acquiror and Company
Sub shall permit the Company and its representatives to have full access to
the management, facilities, suppliers, accounts, books, records (including,
without limitation, budgets and forecasts), contracts and other materials of
the Media Group reasonably requested by the Company or such representatives
and to make available to the Company and its representatives the directors,
officers, employees and independent accountants of the Media Group for
interviews for the purpose, among other things, of verifying the information
furnished to the Company. Such access shall be subject to existing
confidentiality agreements and shall be conducted by the Company and its
representatives during normal business hours, upon reasonable advance notice
and in such a manner as not to interfere unreasonably with the business or
operations of the Media Group.
(b) Each of the Company, Acquiror and Company Sub agrees that it will
not, and will cause each of their respective Affiliates and representatives
not to, use any information obtained pursuant to this Section 6.3 for any
purpose unrelated to the consummation of the transactions contemplated by this
Agreement. The Confidentiality Agreement, dated as of September 26, 1994, as
amended on January 11, 1996, between Acquiror and the Company and the
Confidentiality Agreement, dated as of April 19, 1995, between Acquiror and
the Company (the "Confidentiality Agreements") shall apply with respect to
information furnished thereunder or hereunder and any other activities
contemplated thereby.
<PAGE>
VII
ADDITIONAL AGREEMENTS
VII.1 Preparation of Form S-4 and the Proxy Statement; Stockholders'
Meeting; Charter Amendments. (a) Promptly following the date of this
Agreement, the Company shall prepare and file with the SEC the Proxy Statement
and Acquiror shall prepare and file with the SEC the Form S-4, in which the
Proxy Statement will be included as a prospectus. Each of the Company and
Acquiror shall use its reasonable best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such
filing. The Company shall use its reasonable best efforts to cause the Proxy
Statement to be mailed to the Company's stockholders, as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Acquiror shall also take any action (other than qualifying to do business in
any jurisdiction in which it is not now so qualified or consenting to service
of process in any jurisdiction in which it has not previously so consented in
any action other than one arising out of the offering of the Media Stock and
the Series D Preferred Stock in such jurisdiction) required to be taken to
qualify the Media Stock and Series D Preferred Stock to be issued in the
Merger under any applicable state securities or "blue sky" laws prior to the
Effective Time, and the Company shall furnish all information concerning the
Company and the holders of the Company Capital Stock as may be reasonably
requested in connection with any such action.
(a) None of the information supplied or to be supplied by the Company,
on the one hand, or Acquiror and Company Sub, on the other hand, for
inclusion or incorporation by reference in (i) the Form S-4 will, at the time
the Form S-4 is filed with the SEC, at any time it is amended or supplemented
or at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) the Proxy Statement will, at the date it is first mailed
to the stockholders of the Company or at the time of each Stockholders'
Meeting (as defined in Section 7.1(d)), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
and the Form S-4 will comply as to form in all material respects with the
requirements of the Exchange Act or the
<PAGE>
Securities Act, as the case may be. Notwithstanding the foregoing, (i) no
representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied in writing by
Acquiror and Company Sub specifically for inclusion or incorporation by
reference in the Proxy Statement and (ii) no representation is made by
Acquiror and Company Sub with respect to statements made or incorporated by
reference therein based on information supplied in writing by the Company
specifically for inclusion or incorporation by reference in the Form S-4.
(b) The Company and Acquiror shall cooperate with each other and provide
to each other all information necessary in order to prepare the Proxy
Statement and the Form S-4. The Company and Acquiror shall notify each other
promptly of the receipt of any comments from the SEC or its staff and of any
requests by the SEC or its staff for amendments or supplements to the Form S-4
or the Proxy Statement or for additional information and shall supply the
other parties with copies of all correspondence between the Company or any of
its representatives, or Acquiror or any of its representatives, as the case
may be, on the one hand, and the SEC or its staff, on the other hand, with
respect thereto. The Company and Acquiror shall use their respective
reasonable best efforts to respond to any comments of the SEC with respect to
the Form S-4 and the Proxy Statement as promptly as practicable. If at any
time prior to the Effective Time there shall occur (i) any event with respect
to the Company or any of its Subsidiaries, or with respect to other
information supplied by the Company for inclusion in the Proxy Statement or
(ii) any event with respect to Acquiror or any of its Subsidiaries, or with
respect to other information supplied by Acquiror for inclusion in the Form
S-4, in either case which event is required to be described in an amendment
of, or a supplement to, the Proxy Statement or Form S-4, such event shall be
so described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to the stockholders of the
Company. Acquiror shall notify the Company promptly upon (i) the declaration
by the SEC of the effectiveness of the Form S-4, (ii) the issuance or
threatened issuance of any stop order or other order preventing or suspending
the use of any prospectus relating to the Form S-4, (iii) any suspension or
threatened suspension of the use of any prospectus relating to the Form S-4 in
any state, (iv) any proceedings commenced or threatened to be commenced by the
SEC or any state securities commission that might result in the issuance of a
stop order or other order or suspension of use or (v) any request by the SEC
to supplement or amend any prospectus
<PAGE>
relating to the Form S-4 after the effectiveness thereof. Acquiror and, to
the extent applicable, the Company, shall use its reasonable best efforts to
prevent or promptly remove any stop order or other order preventing or
suspending the use of any prospectus relating to the Form S-4 and to comply
with any such request by the SEC or any state securities commission to amend
or supplement the Form S-4 or the prospectus relating thereto.
(c) The Company shall, as promptly as practicable, duly call, give
notice of, convene and hold a meeting of its stockholders (the "Initial
Stockholders' Meeting") for the purpose of obtaining the Stockholder
Approvals. The Company shall use its reasonable best efforts to hold such
meeting as soon as practicable. In the event the Consideration Charter
Amendment is not adopted at the Initial Stockholders' Meeting, the Company
shall, as promptly as practicable follow-ing the date of the Initial
Stockholders' Meeting, duly call, give notice of, convene and hold another
meeting of its stockholders (the "Additional Stockholders' Meeting" and,
together with the Initial Stockholders' Meeting, collectively, the
"Stockholders' Meetings" and individually, a "Stockholders' Meeting") for the
purpose of obtaining adoption of the Consideration Charter Amendment and any
other Stockholder Approvals not previously obtained. The Company shall, as
promptly as practicable after the date of the Initial Stockholders' Meeting,
hold the Additional Stockholders' Meeting. Subject to the fiduciary duties of
the Board of Directors under Applicable Laws and to Section 9.1(g), the
Company shall, through the Board of Directors, recommend to its stockholders
adoption of this Agreement, the Charter Amendments and the other transactions
contemplated hereby and shall use its best efforts to solicit from
stockholders proxies in favor of adoption of this Agreement and the Charter
Amendments and to take all other action necessary to secure the Stockholder
Approvals at the Initial Stockholders' Meeting or the Additional Stockholders'
Meeting, as the case may be. Without limiting the generality of the
foregoing, the Company agrees that its obligations pursuant to the first and
third sentences of this Section 7.1(d) shall not be altered by the
commence-ment, public proposal or communication to the Company of any
Acquisition Proposal (as defined in Section 7.10).
(d) Subject to receipt of the Stockholder Approvals, the Company shall
take all actions necessary to cause a Certificate of Amendment containing the
Consideration Charter Amendment to be executed, acknowledged and filed and to
become effective no later than immediately prior to the Effective Time in
accordance with the DGCL as
<PAGE>
soon as practicable after the approval thereof at a Stockholders' Meeting.
(e) The Company shall make stock transfer records relating to the
Company available to Acquiror to the extent reasonably necessary to effectuate
the intent of this Agreement.
VII.2 Letter of the Company's Accountants. The Company shall use its
reasonable best efforts to cause to be delivered to Acquiror letters of (i)
Deloitte & Touche LLP, the Company's independent public accountants and (ii)
any other independent public accountants whose reports are included or
incorporated by reference in the Form S-4, each dated a date within two
business days before the date on which the Form S-4 shall become effective and
addressed to Acquiror, in form and substance reasonably satisfactory to
Acquiror and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
VII.3 Letter of Acquiror's Accountants. Acquiror shall use its
reasonable best efforts to cause to be delivered to the Company a letter of
Coopers & Lybrand L.L.P., Acquiror's independent public accountants, dated a
date within two business days before the date on which the Form S-4 shall
become effective and addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
VII.4 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, including, without limitation, Section 7.6, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under Applicable Laws and regulations to consummate and
make effective the transactions contemplated by this Agreement (including the
execution of the Transaction Documents to which they or any of their
Affiliates are a party), subject to the Stockholder Approval, including (a)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Authorities and the making of it all necessary
registrations and filings (including filings with Governmental Authorities, if
any), and the taking of all reasonable steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding by, any
Governmental Authorities, (b) the obtaining of all necessary consents,
approvals or waivers from Third Parties and
<PAGE>
(c) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by this Agreement and the Transaction
Documents. In furtherance of the foregoing, Acquiror and the Company each
shall furnish to the other such necessary information and reasonable
assistance as the other may request in connection with obtaining any consents
required to be obtained by it or its Subsidiaries hereunder.
VII.5 Franchise and License Consents. (a) Without limiting the
generality of Section 7.4, the Company and Acquiror shall each use their
respective reasonable best efforts to obtain all Franchise Consents and
License Consents, including taking the actions specified herein. In order to
secure the Franchise Consents and License Consents from Governmental
Authorities and the FCC, the Company shall proceed immediately in good faith
and using its reasonable best efforts, to prepare, file and prosecute each
Franchise Consent and License Consent from the relevant Governmental Authority
and the FCC, with the full right of participation by Acquiror including,
without limita-tion, the right of prior review and approval of correspondence
or forms of transfer resolutions, applications, ordinances or agreements to be
submitted to Governmental Authorities and the FCC (which approval shall not be
unreasonably withheld or delayed) and to be represented at all meetings or
hearings as may be scheduled to consider such submissions. The Company shall
send notice of the transactions contemplated in this Agreement to all
Governmental Authorities. The Company shall submit to each Governmental
Authority whose consent is required a form of ordinance or resolution, as
appropriate, relating to the transfer of the Franchise, which ordinance or
resolution shall be in a form reasonably acceptable to Acquiror and the
Company. The Company shall consult with Acquiror and promptly and regularly
notify Acquiror with regard to all material developments of the Franchise
Consent and License Consent process, and shall give Acquiror reasonable prior
notice of all meetings scheduled with the Governmental Authorities and the
FCC. Acquiror shall use its reasonable best efforts to promptly assist the
Company and shall take such prompt and affirmative actions as may reasonably
be necessary in obtaining such approvals and shall cooperate with the Company
in the preparation, filing and prosecution of such applications as may
reasonably be necessary, including the preparation, filing and prosecution of
any joint applications required to be filed with the Governmental Authorities
or the FCC, and agrees to use its reasonable best efforts to furnish all
information as is reasonably or as is customarily required by the approving
entity, and, if required by a Governmental Authority or the
<PAGE>
FCC upon reasonable notice, Acquiror shall have the obligation to be
represented at such meetings or hearings as may be scheduled to consider such
applications. Any administrative filing fees imposed or expenses for which
reimbursement is required by the Governmental Authority in connection with
obtaining the Franchise Consents or the License Consents shall be borne by the
Company and each of the parties shall bear its own legal fees or other costs
of professional advisors incurred in the filing and prosection of such
applications. If, in connection with obtaining Franchise Consents or the
License Consents from a Governmental Authority or the FCC, a Governmental
Authority or the FCC impose new, material Franchise or license conditions as a
condition to granting its consent, Acquiror and the Company shall negotiate
jointly with such Governmental Authority or the FCC with respect to such
conditions, with such conditions to be accepted only if consented to by
Acquiror and the Company, which consent shall not be unreasonably withheld.
Acquiror agrees that prior to the Closing Date, it will not, without the prior
written consent of the Company, seek amendments, modifica-tions or other
changes to Franchises and shall not institute any discussions with
Governmental Authorities or the FCC without the prior written consent of the
Company and without offering a representative of the Company an opportunity to
participate or observe such discussions. To the extent such request would
not, in the reasonable judgment of the Company, delay or impair the ability to
obtain any Franchise Consents, any application to any Governmental Authority
for any Franchise Consent necessary for the transfer of control of any
Franchise shall request that the relevant Govern-mental Authority also agree
that no further Franchise Consent shall be required for the subsequent
transfer of control of, or assignment of, such Franchise to a specified Person
identified in such application who is an Affiliate of Acquiror to which
Acquiror intends to transfer or assign the Franchise immediately prior to
Closing. In addition, the Company will use reasonable best efforts to obtain
necessary transfers of all private mobile radio service licenses.
(a) To the extent that any Franchise Consents listed in Section 4.6 of
the Company Disclosure Letter have not been obtained by Final Order prior to
Closing (such Franchises hereinafter referred to as the "Non-Required
Franchises"), Acquiror and the Company shall enter into negotiations to
determine the disposition of the Non-Required Franchises after Closing. In
the event that the parties agree to transfer any part of a System which
includes, in part, areas covered by a Non-Required Franchise (hereinafter the
"Non-Required Systems"), the parties shall continue to be subject to Section
7.5(a) until such time as
<PAGE>
all Franchise Consents are obtained and the Non-Required Franchises are
transferred to Acquiror.
VII.6 Antitrust Notification. (a) The Company and Acquiror shall as
promptly as practicable, but in no event later than 30 Business Days following
the execution and delivery of this Agreement, file with the FTC and the DOJ
the notification and report form required for the transactions contemplated
hereby and any supplemental information requested in connection therewith
pursuant to the HSR Act. Each of Acquiror and the Company shall furnish to
each other's counsel such necessary information and reasonable assistance as
the other may request in connection with its preparation of any filing or
submission that is necessary under the HSR Act. The Company and Acquiror
acknowledge that more than one filing may be required under the HSR Act in
order to consummate the transactions contemplated by this Agreement, and agree
to cooperate and furnish to each other's counsel such necessary information
and reasonable assistance as the other may request in connection with its
preparation of any subsequent filing.
(a) The Company and Acquiror shall keep each other apprised of the
status of any communications with, and any inquiries or requests for
additional information from, the FTC and the DOJ and shall comply promptly
with any such inquiry or request.
(b) Each of the Company and Acquiror shall use its reasonable best
efforts to obtain any clearance required under the HSR Act for the
consummation of the Merger, which efforts, for purposes of this Agreement
shall not, except as provided in Section 7.6(d), require Acquiror in order to
obtain any consent or clearance from the DOJ or any other Governmental
Authority to (i) hold separate, sell or otherwise dispose of any assets,
including assets of the Company, the effect of any of which, in the reasonable
judgment of Acquiror, would be to materially impair the value of the Merger to
Acquiror or (ii) contest any suit brought or threatened by the FTC or DOJ or
attempt to lift or rescind any injunction or restraining order obtained by the
FTC or DOJ adversely affecting the ability of the parties hereto to consummate
the transactions contemplated hereby.
(c) For purposes of Section 7.6(c), "reasonable best efforts" shall
include entry into a consent decree in any action brought by the DOJ or into a
consent order with the FTC where such decree or order requires the divestiture
of the Designated Assets and of the assets set forth in Section 7.6(d) of the
Company Disclosure Letter, if and only
<PAGE>
if, such decree or order does not require, either absolutely or conditionally,
the divestiture of any other assets or of the stock of any other corporation,
or (except for reasonable and customary compliance and other requirements
ancillary to the required divestiture) impose any additional requirement or
limitation on Acquiror, on its ability to operate its current and contemplated
businesses, or on its ability to acquire assets or stock in any corporation;
and only if such decree or order provides that Acquiror shall have a period of
at least 12 months to effect such divestiture itself and an additional 12
months to divest pursuant to a reasonable and customary trusteeship provision.
VII.7 Certain Actions. (a) Except as otherwise specifically limited
by this Agreement, each of the Company and Acquiror agrees to use its
reasonable best efforts and to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable to ensure
that there shall be no regulatory impediments, pursuant to the Communications
Act, the rules and regulations of the FCC, or otherwise, to the closing of the
transactions contemplated hereby and the Company agrees not to acquire any
assets or engage in any activities prior to the Closing of a type which
Acquiror would be precluded from acquiring or engaging in pursuant to the
Communications Act, the rules and regulations of the FCC or otherwise.
(a) On or prior to the Closing Date, the Company shall sell, distribute
to stockholders or otherwise dispose of the properties of the Company and its
Subsidiaries listed in Section 7.7 of the Company Disclosure Letter (the
"Designated Assets") in a manner acceptable to Acquiror, in its sole
discretion.
(b) Not later than one hundred and twenty (120) days following the date
hereof, the Company and Acquiror shall agree to the fair market value of the
Designated Assets (the "Designated Asset Fair Market Value"). In the event of
a sale or other disposition of the Designated Assets for an amount less than
the Designated Asset Fair Market Value, the Share Price shall be reduced by
the quotient of (i) the excess of (x) the Designated Asset Fair Market Value
over (y) the amount of consideration received by the Company in respect of
such sale or disposition divided by (ii) the number of shares of Company
Common Stock outstanding immediately prior to the Effective Time on a fully
diluted basis, including giving effect to the conversion of all outstanding
shares of Company Preferred Stock. In the event of a distribution of the
Designated Assets to the stockholders of the Company, the Share Price
<PAGE>
shall be reduced by an amount equal to the quotient of (i) the Designated
Asset Fair Market Value divided by (ii) the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time on a fully diluted
basis, including giving effect to the conversion of all outstanding shares of
Company Preferred Stock. The amount of any adjustment to the Share Price
pursuant to this Section 7.7(c) shall be referred to as the "Per Share
Adjustment Amount" and the Cash Consideration Amount shall be reduced by the
Per Share Adjustment Amount multiplied by the number of shares of Company
Common Stock outstanding immediately prior to the Effective Time on a fully
diluted basis, including giving effect to the conversion of all outstanding
shares of Company Preferred Stock.
VII.8 Supplemental Disclosure. The Company shall confer on a regular
and frequent basis with Acquiror, report on operational matters and promptly
notify Acquiror of, and furnish Acquiror with, any information it may
reasonably request with respect to, any event or condition or the existence of
any fact that would cause any of the conditions to the obligations of Acquiror
and Company Sub to consummate the Merger not to be completed, and Acquiror
shall promptly notify the Company of, and furnish the Company any information
it may reasonably request with respect to, any event or condition or the
existence of any fact that would cause any of the conditions to the Company's
obligation to consummate the Merger not to be completed.
VII.9 Announcements. Prior to the Closing, none of the Company,
Acquiror or Company Sub shall issue any press release or otherwise make any
public statement with respect to this Agreement and the transactions
contemplated hereby without the prior consent of the other parties (which
consent shall not be unreasonably withheld), except as may be required by
Applicable Law or stock exchange regulations (including, without limitation,
pursuant to the United States Federal securities laws in connection with any
registration statement or report filed thereunder), in which event the party
required to make the release or announcement shall, if possible, allow the
other party reasonable time to comment on such release or announcement in
advance of such issuance.
VII.10 No Solicitation. (a) From the date hereof until the Effective
Time, the Company shall not, nor shall it permit any of its Subsidiaries to,
nor shall it authorize or permit any of its officers, directors, employees,
agents, investment bankers, attorneys, financial advisors or other
representatives or those of any of its
<PAGE>
Subsidiaries (collectively, "Company Representatives") to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information or assistance) or take other action to facilitate any inquiries or
the making of any proposal that constitutes or may reasonably be expected to
lead to, an Acquisition Proposal from any Third Party, or engage in any
discussions or negotiations relating thereto or in furtherance thereof or
accept or enter any agreement with respect to any Acquisition Proposal;
provided, however, that, notwithstanding anything to the contrary in this
Agreement, (i) prior to the approval of this Agreement by the Stockholders of
the Company, the Company may engage in discussions or negotiations with, and
may furnish information concerning the Company and its business, properties
and assets to, a Third Party who, without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, by or with
the Company or any Company Representatives, or in furtherance thereof makes a
written, bona fide Acquisition Proposal that is not subject to any material
contingencies relating to financing and that is reasonably capable of being
financed and is financially superior to the consideration to be received by
the Company's stockholders pursuant to the Merger (as determined in good faith
by the Board of Directors after consultation with the Company's financial
advisors) if (1) the Board of Directors determines in its good faith, after
receipt of written advice of the Company's outside legal counsel, that such
action is advisable for the Board of Directors to act in a manner consistent
with its fiduciary duties under Applicable Law and (2) prior to furnishing
information with respect to the Company and its Subsidiaries to, such Third
Party, the Company shall receive from such Third Party an executed
confidentiality agreement in reasonably customary form on terms not more
favorable to such Person or entity than the terms contained in the
Confidentiality Agreements, or (ii) the Board of Directors may take and
disclose to the Company's stockholders a position with regard to a tender
offer or exchange offer to the extent required by Rule 14e-2(a) under the
Exchange Act. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
investment banker or financial advisor retained by the Company, whether or not
such Person is purporting to act of behalf of the Company of any of its
Subsidiaries or otherwise, shall constitute a breach of this Section 7.10 by
the Company.
(a) The Company shall promptly notify Acquiror orally and in writing of
any Acquisition Proposal or any inquiry with respect to or which could lead to
any
<PAGE>
Acquisition Proposal, within 24 hours of the receipt thereof, including the
identity of the Third Party making any such Acquisition Proposal or inquiry
and the material terms and conditions of any Acquisition Proposal, and if such
Acquisition Proposal or inquiry is in writing, shall deliver to Acquiror a
copy of such Acquisition Proposal or inquiry. The Company shall keep Acquiror
informed of the status and details of any such Acquisition Proposal or
inquiry.
(b) The Company shall immediately cease and cause to be terminated any
existing solicitation, initiation, encouragement, activity, discussion or
negotiation with any parties conducted heretofore by the Company or any
Company Representatives with respect to any of the foregoing.
(c) As used in this Agreement, "Acquisition Proposal" shall mean any
proposal or offer, other than a proposal or offer by Acquiror or any of its
Affiliates, for a tender or exchange offer, merger, consolidation or other
business combination involving the Company or any of its material Subsidiaries
or any proposal to acquire in any manner a substantial equity interest in or a
substantial portion of the assets of the Company or any of its material
Subsidiaries; provided, however, that, the term "Acquisition Proposal"
shall not include any acquisition by the Company or any of its Subsidiaries of
any assets, businesses or entities in any transaction or series of related
transactions in exchange for other assets, businesses or entities of any Third
Party.
VII.11 Indemnification; Directors' and Officers Insurance. (a) If
the Subsidiary Merger is effected, the Certificate of Incorporation and Bylaws
of the Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the Certificate of Incorporation and Bylaws of
the Company on the date hereof, which provisions shall not be amended,
repealed or otherwise modified for a period of six years after the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who at any time prior to the Effective Time were directors or
officers of the Company in respect of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement), unless such modification is required by law.
If the Direct Merger is effected, the Restated Certificate of Incorporation
and Bylaws of the Surviving Corporation at the Effective Time shall not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of
<PAGE>
individuals who at any time prior to the Effective Time were directors or
officers of the Company or its Subsidiaries in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
the transactions contemplated by this Agreement), unless such modification is
required by law.
(a) From and after the Effective Time, Acquiror shall indemnify, defend
and hold harmless each Person who is now, or has been at any time prior to the
date hereof or who becomes prior to the Effective Time, an officer or director
of the Company or any of its Subsidiaries (the "Indemnified Parties") against
all losses, claims, damages, costs, expenses (including attorneys' fees and
expenses), liabilities or judgments or amounts that are paid in settlement
with the approval of the indemnifying party (which approval shall not be
unreasonably withheld) of or in connection with any threatened or actual
claim, action, suit, proceeding or investigation based in whole or in part on
or arising in whole or in part out of the fact that such Person is or was a
director or officer of the Company or any of its Subsidiaries or served as a
director of any Third Party on behalf of the Company or any of its
Subsidiaries whether pertaining to any matter existing or occurring at or
prior to the Effective Time and whether asserted or claimed prior to, or at or
after, the Effective Time ("Indemnified Liabilities"), including, without
limitation, all Indemnified Liabilities based in whole or in part on, or
arising in whole or in part out of, or pertaining to this Agreement or the
transactions contemplated hereby, in each case to the fullest extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers as the case may be (and the Company or the Surviving Corporation, as
the case may be, will pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full extent
permitted by law).
(b) The provisions of this Section 7.11 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of Acquiror.
VII.12 NYSE Listing. Acquiror shall use its best efforts to cause the
shares of Media Stock and Series D Preferred Stock to be issued in the Merger
to be approved for listing on the NYSE, subject only to notice of official
issuance, prior to the Effective Time. If, for any reason, Acquiror shall not
be able to list the shares of the Series D Preferred Stock to be issued in the
Merger on the NYSE, Acquiror shall use its best efforts to, prior to the
<PAGE>
Effective Date, list such shares on such other stock exchange, or cause such
shares to be eligible for trading on such other trading facility, as the
Company may request.
VII.13 Affiliates. Prior to the Closing Date, the Company shall
deliver to Acquiror a letter identifying all Persons who are, at the time this
Agreement is submitted to the stockholders of the Company, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company shall
use its best efforts to cause each such Person to deliver to Acquiror on or
prior to the Closing Date a written agreement substantially in the form
attached as Exhibit D.
VII.14 Employee Benefits. (a) For a period of one year following the
Effective Time, Acquiror shall, or shall cause the Surviving Corporation to,
maintain in effect for employees of the Company and its Subsidiaries benefits
(other than RSPAs or similar benefits) no less favorable in the aggregate than
the benefits offered by the Company immediately prior to the Effective Time.
Acquiror agrees to, or to cause the Surviving Corporation to, honor and
perform all severance, employment and similar agreements of the Company
disclosed in Section 4.11 of the Company Disclosure Letter and each RSPA and
related Tax Liability Financing Agreement.
(a) Following the date hereof, the Company shall, after consultation
with Acquiror, be permitted to (i) forgive up to $35.7 million principal
amount of outstanding loans made by the Company to employees to enable such
employees to pay income Taxes incurred by such employees as a result of the
purchase of shares of Company Common Stock by such employees pursuant to the
RSPAs in accordance with the terms of an amendment to the Tax Liability
Financing Agreement substantially in the form set forth in Section 7.14 of the
Company Disclosure Letter; provided, however, that any loan to an employee
of the Company who is, or reasonably can be expected to become, a "covered
employee" (within the meaning of Section 162(m) of the Code) shall in no event
be forgiven, in whole or in part, prior to the day following the Closing Date,
(ii) issue up to 350,000 shares of Company Common Stock pursuant to RSPAs
substantially in the form heretofore provided to Acquiror to employees of the
Company or any of its Subsidiaries; so long as, in each case, such forgiveness
or issuance acts as incentive for the purpose of retaining and motivating such
employee to continue in the employment of the Company following the Effective
Time and is implemented in a manner consistent with such purpose.
<PAGE>
(b) If, following the Effective Time, the termination of the employee's
employment with the Company or any of its Subsidiaries results in the
acceleration of the vesting of an award under any RSPA or the forgiveness of a
loan related to an RSPA pursuant to a Tax Liability Financing Agreement (other
than as a result of termination of employment by reason of the employee's
death or disability) (an "Acceleration Event") and as a result of such
Acceleration Event, the employee either (i) becomes subject to an excise tax
(the "Excise Tax") under Section 4999 of the Code that such employee would not
have been subject to without the occurrence of such Acceleration Event or (ii)
the amount of the Excise Tax imposed on such employee is greater than the
amount of the Excise Tax that would have been imposed without the occurrence
of such Acceleration Event (the "Incremental Excise Tax"), Acquiror shall pay
or shall cause to be paid to the employee, at the time specified below, an
additional amount (the "Additional Payment") sufficient to (a) in the case of
clause (i) above, reimburse the employee for the Excise Tax and in the case of
clause (ii) above, reimburse the employee for the Incremental Excise Tax and
(b) in either case, reimburse the employee for any federal, state or local
income tax or any additional excise tax under Section 4999 of the Code payable
with respect to any Additional Payment made pursuant to this Section 7.14(c).
The Additional Payment provided for in this Section 7.14(c) shall be made no
later than the due date for the Excise Tax or Incremental Excise Tax (as the
case may be) imposed. In the event of any dispute in the calculations made
pursuant to this Section 7.14(c), an independent big six accounting firm shall
be selected to resolve any such dispute and the decision of such accounting
firm shall be final and binding on the Company and the employee. The fees and
costs of such accounting firm shall be shared equally among the Company and
the employee.
VII.15 Registration Rights Agreement. Acquiror shall execute and
deliver to the other parties thereto the Registration Rights Agreement at or
prior to the Closing.
VII.16 Tax Treatment. Each of Acquiror, Company Sub and the Company
shall use its reasonable best efforts to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code and to
obtain the opinions of counsel referred to in Sections 8.2(c) and 8.3(c).
VII.17 Series D Preferred Stock. Prior to the Effective Time,
Acquiror shall file with the Secretary of State of the State of Delaware a
Certificate of Designation
<PAGE>
in the form of Exhibit C hereto with respect to the shares of Series D
Preferred Stock issuable pursuant to Section 3.1.
VII.18 Company Indebtedness. The Company shall assist Acquiror, and
shall take such actions as Acquiror may reasonably request at Acquiror's sole
expense in order to facilitate the amendment, repayment, redemp-tion,
refinancing or other restructuring of outstand-ing Indebtedness of the Company
on or after the Effective Time.
VII.19 Authorization of Issuance of Merger Consideration. Acquiror
shall obtain any authorizations and consents necessary, and shall take such
further actions as may be required, for the issuance of the Media Stock and
the Series D Preferred Stock to holders of Company Common Stock pursuant to
the terms of this Agreement.
VII.20 Attribution. Following the Effective Time, the board of
directors of Acquiror shall attribute all of the assets and liabilities of the
Company and its Subsidi-aries or, in the case of the Subsidiary Merger, of
Company Sub and its subsidiaries to the Media Group pursuant to Sections 2.5.1
and 2.6.15 of Article V of the Restated Certificate of Incorpo-ration of
Acquiror.
VII.21 Further Assurances. Each of the parties hereto shall execute
such documents and other instruments and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and
consum-mate and evidence the transactions contemplated hereby or, at and after
the Closing Date, to evidence the consumma-tion of the transactions
contemplated by this Agreement. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall take or cause to be taken all actions
and to do or cause to be done all other things necessary, proper or advisable
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings.
VII.22 Internal Revenue Service Ruling. Acquiror, the Company and The
Providence Journal Company submitted to the IRS on June 12, 1996 a request for
the Ruling. Acquiror and the Company shall provide each other and The
Providence Journal Company with copies of all materials subsequently submitted
to the IRS. Acquiror, the Company and The Providence Journal Company shall
have the opportunity to participate in all meetings and conferences with IRS
personnel, whether telephonically or in person.
<PAGE>
Each of Acquiror and the Company shall cooperate in seeking to obtain the
Ruling, subject to Section 2.1.
VIII
CONDITIONS PRECEDENT
VIII.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject
to the satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approvals; Consideration Charter Amendment. The
Company shall have obtained the Stockholder Approvals and a Certificate of
Amendment containing the Consideration Charter Amendment shall have been
executed, acknowledged and filed and shall have become effective in accordance
with the DGCL.
(b) HSR Act. (i) The waiting periods (and any extension thereof)
applicable to the Merger under the HSR Act shall have expired or been
terminated; (ii) neither the FTC nor DOJ shall have authorized the institution
of enforcement proceedings (that have not been dismissed or otherwise disposed
of) to delay, prohibit, or otherwise restrain the transactions contemplated by
the Agreement; (iii) no such proceeding will be pending as of the Closing Date
and (iv) other than as contemplated by Section 7.6(d), no injunction or order
shall have been issued by a court of competent jurisdiction and remain in
effect as of the Closing Date.
(c) No Injunctions or Restraints. No statute, rule, regulation,
injunction, restraining order or decree of any court or Governmental Authority
of competent jurisdiction shall be in effect that restrains or prevents the
transactions contemplated hereby.
(d) Form S-4. The Form S-4 shall have been declared effective under
the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue sky" and other state
securities laws applicable to the issuance of the Media Stock and Series D
Preferred Stock shall have been complied with.
(e) NYSE Listing. The shares of Media Stock issuable to the Company's
stockholders pursuant to this
<PAGE>
Agreement shall have been approved for listing on the NYSE, subject only to
official notice of issuance.
(f) Conversion of Company Preferred Stock; Certain Elections. The
holders of shares of Company Preferred Stock shall have converted such shares
into shares of Class B Common Stock, effective no later than immediately prior
to the Effective Time.
VIII.2 Conditions to Obligations of Acquiror and Company Sub. The
obligations of Acquiror and Company Sub to effect the Merger are subject to
the satisfaction of the following conditions, any or all of which may be
waived in whole or in part by Acquiror:
(a) Representations and Warranties. There shall be no breach of any
representation or warranty of the Company made hereunder that, individually or
together with all other such breaches, results in a Material Adverse Effect
with respect to the Company. Acquiror shall have received a certificate from
the Company dated the Closing Date signed by an authorized officer of the
Company certifying to the fulfillment of this condition.
(b) Agreements. The Company shall have performed and complied in all
material respects with all of its undertakings, covenants, conditions and
agreements required by this Agreement to be performed or complied with by it
prior to or at the Closing. Acquiror shall have received a certificate from
the Company dated the Closing Date signed by an authorized officer of the
Company and certifying to the fulfillment of this condition.
VIII(dd) Tax Opinion. Acquiror shall have received an opinion of
Weil, Gotshal & Manges LLP, dated the Closing Date, to the effect that (i) the
Merger should be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (ii) each of Acquiror, the
Company and, in the case of the Subsidiary Merger, Company Sub should be a
party to the reorganization within the meaning of Section 368(b) of the Code;
and (iii) no gain or loss should be recognized by the Company, Acquiror or, in
the case of the Subsidiary Merger, Company Sub as a result of the Merger. In
rendering such opinion, Weil, Gotshal & Manges LLP may receive and rely upon
representations contained in certificates of the Company, Acquiror, certain
<PAGE>
stockholders of the Company and, in the case of the Subsidiary Merger, Company
Sub.
(d) Letters from Affiliates. Acquiror shall have received from each
Person in the letter referred to in Section 7.13 an executed copy of an
agreement substantially in the form of Exhibit D.
(e) Consents. All Company Consents (other than Franchise Consents)
and Acquiror Consents shall have been obtained, except where the failure to
obtain any such consent would not have a Material Adverse Effect with respect
to the Company or Acquiror, as the case may be.
(f) Transaction Documents. Each of the Transaction Documents which
were not executed on the date hereof shall have been duly authorized and
executed by the parties thereto other than Acquiror.
(g) Dissenting Shares. Acquiror shall have received evidence, in form
and substance reasonably satisfactory to it, that the number of Dissenting
Shares shall constitute no greater than 10% of the total number of shares of
Company Common Stock (assuming conversion of the Company Preferred Stock)
outstanding immediately prior to the Effective Time.
(h) Other Actions. The Company shall have disposed of the Designated
Assets as provided in Section 7.7.
(i) Litigation. Except as described in Section 7.6(c), there shall
not be pending or threatened by any Governmental Authority any suit, action or
proceeding, (i) seeking to restrain or prohibit the Merger or seeking to
obtain from Acquiror or the Company or any of their respective Subsidiaries in
connection with the Merger any material damages, (ii) seeking to prohibit or
limit the ownership or operation by Acquiror, the Company or any of their
respective Subsidiaries of any material portion of the business or assets of
Acquiror and its Subsidiaries taken as a whole or the Company and its
Subsidiaries taken as a whole, or to compel Acquiror, the Company or any of
their respective Subsidiaries to dispose of or hold separate any material
portion of the business or assets of Acquiror and its Subsidiaries taken as a
whole or the Company and its Subsidiaries taken as a whole, in each case as a
result of the Merger or any of the other transactions contemplated by this
Agreement or the Transaction
<PAGE>
Documents, (iii) seeking to impose limitations on the ability of Acquiror to
acquire or hold, or exercise full rights of ownership of, any shares of
capital stock of the Company, including the right to vote such shares on all
matters properly presented to the stockholders of the Company or (iv) seeking
to prohibit Acquiror from effectively controlling in any material respect any
portion of the business or operations of the Company or any of its
Subsidiaries taken as a whole, which, in each case, has a reasonable
likelihood of success and if determined in a manner adverse to the Company or
Acquiror, could reasonably be expected to result in a Material Adverse Effect
with respect to Acquiror or the Company.
(j) Franchise and License Consents. The Company shall have obtained,
in accordance with the terms of Section 7.5, (i) all Franchise Consents
required pursuant to this Section 8.2(j) (the "Required Franchise Consents");
(ii) all License Consents for each FCC license set forth in Section 4.6 of the
Company Disclosure Letter and (iii) to the extent required by the FCC or any
Governmental Authority with jurisdiction, the Social Contract Consent;
provided, however, that each Franchise Consent and License Consent and the
Social Contract Consent required to be obtained hereunder shall be a Final
Order. The aggregate number of Subscribers covered by the Required Franchise
Consents (i) as to which Franchise Consents are obtained in accordance with
the terms of Section 7.5 and (ii) that do not require Franchise Consents,
shall equal at least ninety percent (90%) of the total number of Subscribers
covered by all Franchises and shall equal at least ninety-five percent (95%)
of the total number of Subscribers covered by Franchises located within the
thirty largest Metropolitan Statistical Areas (as ranked on the basis of the
1994 U.S. Census by Rand McNally) in which the Company or its Subsidiaries
operates a Franchise, in each case as of March 31, 1996 based on the Company's
month-end billing report as of such date, as adjusted to reflect any
acquisitions or dispositions of Systems. The aggregate number of Required
Franchise Consents (i) as to which Franchise Consents are obtained in
accordance with the terms of Section 7.5 and (ii) that do not require
Franchise Consents, shall equal at least eighty-five percent (85%) of the
total number of Franchises as of the date hereof.
<PAGE>
(k) Corporate Proceedings and Documents. All corporate proceedings
taken by the Company in connection with the transactions contemplated hereby
and all documents incident thereto shall be reasonably satisfactory in all
material respects to Acquiror and Acquiror's counsel, and Acquiror and
Acquiror's Counsel shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
VIII.3 Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:
(a) Representations and Warranties. There shall be no breach of any
representation or warranty of Acquiror and Company Sub made hereunder that,
individually or together with all other such breaches, results in a Material
Adverse Effect with respect to Acquiror. The Company shall have received a
certificate dated the Closing Date signed by an authorized officer of Acquiror
certifying to the fulfillment of this condition.
(b) Agreements. Acquiror and Company Sub shall have performed and
complied in all material respects with all of their respective undertakings,
covenants, conditions and agreements required by this Agreement to be
performed or complied with prior to or at the Closing. The Company shall have
received a certificate dated the Closing Date signed by an authorized officer
of Acquiror certifying to the fulfillment of this condition.
(c) Tax Opinion. The Company shall have received an opinion of
Sullivan & Worcester LLP, dated the Closing Date, to the effect that (i) the
Merger should be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (ii) each of the Acquiror,
the Company and, in the case of the Subsidiary Merger, Company Sub should be a
party to the reorganization within the meaning of Section 368(b) of the Code;
and (iii) gain, if any, realized should be recognized by a stockholder of the
Company as a result of the Merger, but not in excess of the amount of cash
received by such stockholder. In rendering such opinion, Sullivan & Worcester
LLP, may receive and rely upon
<PAGE>
representations contained in certificates of Acquiror, the Company, certain
stockholders of the Company and, in the case of the Subsidiary Merger, Company
Sub.
(d) Consents. All Company Consents (other than Franchise Consents)
and Acquiror Consents shall have been obtained, except where the failure to
obtain any such consent would not have a Material Adverse Effect with respect
to the Company or Acquiror, as the case may be.
(e) Transaction Documents. Each of the Transaction Documents shall
have been duly authorized and executed by the parties thereto other than the
Company.
(f) Preferred Stock Listing. The shares of Series D Preferred Stock
issuable to the Company's stockholders pursuant to this Agreement shall have
been approved for listing on the NYSE or otherwise approved for listing or
eligible for trading as provided in Section 7.12 hereof, subject only to
official notice of issuance.
(g) Corporate Proceedings and Documents. All corporate proceedings
taken by Acquiror and Company Sub in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in all material respects to the Company and the Company's
counsel, and the Company and the Company's counsel shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
(h) Franchise and License Consents. The Company shall have obtained,
in accordance with the terms of Section 7.5, (i) all Franchise Consents
required pursuant to this Section 8.3(h) (the "Company Required Franchise
Consents"); (ii) all License Consents for each FCC license set forth in
Section 4.6 of the Company Disclosure Letter and (iii) to the extent required
by the FCC or any Governmental Authority with jurisdiction, the Social
Contract Consent; provided, however, that each Franchise Consent and
License Consent and the Social Contract Consent required to be obtained
hereunder shall be a Final Order. The aggregate number of Subscribers covered
by the Company Required Franchise Consents (i) as to which Franchise Consents
are obtained in accordance with the terms of Section 7.5 and (ii) that do not
require Franchise Consents, shall equal at least ninety percent (90%) of
<PAGE>
the total number of Subscribers covered by all Franchises and shall equal at
least ninety-five percent (95%) of the total number of Subscribers covered by
Franchises located within the thirty largest Metropolitan Statistical Areas
(as ranked on the basis of the 1994 U.S. Census by Rand McNally) in which the
Company or its Subsidiaries operates a Franchise, in each case as of March 31,
1996 based on the Company's month-end billing report as of such date, as
adjusted to reflect any acquisitions or dispositions of Systems. The
aggregate number of Company Required Franchise Consents (i) as to which
Franchise Consents are obtained in accordance with the terms of Section 7.5
and (ii) that do not require Franchise Consents, shall equal at least
eighty-five percent (85%) of the total number of Franchises as of the date
hereof.
IX
TERMINATION AND AMENDMENT
IX.1 Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, whether before or after
the Stockholder Approvals:
(a) by mutual written consent of the Company, on the one hand, and
Acquiror, on the other hand, or by mutual action of their respective boards of
directors;
(b) by Acquiror, if any of the conditions set forth in Section 8.1 or
8.2 shall have become incapable of fulfillment, and shall not have been waived
by Acquiror, or if the Company shall breach in any material respect any of its
representations, warranties or obligations hereunder and such breach shall not
have been cured in all material respects or waived and the Company shall not
have provided reasonable assurance that such breach will be cured in all
material respects on or before the Closing Date, but only if such breach,
singly or together with all other such breaches, would have a Material Adverse
Effect with respect to the Company;
(c) by the Company, if any of the conditions set forth in Section 8.1 or
8.3 shall have become incapable of fulfillment, and shall not have been waived
by the Company, or if Acquiror or Company Sub shall breach in any material
respect any of its representations,
<PAGE>
warranties or obligations hereunder and such breach shall not have been cured
in all material respects or waived and Acquiror shall not have provided
reasonable assurance that such breach will be cured in all material respects
on or before the Closing Date, but only if such breach, singly or together
with all other such breaches, would have a Material Adverse Effect with
respect to Acquiror;
(d) by either the Company or Acquiror, if the Merger shall not have been
consummated on or before August 31, 1997 (the "Termination Date"); provided,
however, that if all the conditions set forth in Article VIII (other than
the conditions set forth in Sections 8.1(a), 8.1(b), 8.1(c), 8.2(e), 8.2(h),
8.2(i) and 8.2(j)) have been satisfied at the Termination Date, either
Acquiror or the Company may, by notice to the other prior to such date, extend
the Termination Date to the latest date so extended by either party but in no
event later than December 31, 1997;
(e) by either the Company or Acquiror if the Stockholder Approvals shall
not have been obtained by reason of the failure to obtain the required vote
upon a vote held at the Stockholders' Meetings (including any postponements or
adjournments thereof); provided, however, that if the Stockholder
Approvals are not obtained at the Initial Stockholders' Meeting solely by
reason of a failure to obtain approval of the Consideration Charter Amendment,
then this Agreement shall not be terminable unless the Stockholder Approvals
shall not have been obtained by reason of a failure to obtain the required
vote upon a vote held at the Additional Stockholders' Meeting;
(f) by Acquiror, if the Company shall have (i) withdrawn or modified, in
a manner adverse to Acquiror, its approval or recommendation of this
Agree-ment or any of the transactions contemplated hereby, (ii) failed to
include such recommendation in the Proxy Statement, (iii) approved or
recommended any Acquisition Proposal from a Third Party or (iv) resolved to do
any of the foregoing;
(g) by the Company, prior to the adoption of this Agreement by the
stockholders of the Company, if the Board of Directors shall approve, and the
Company shall enter into, a definitive agreement providing for the
implementation of an Acquisition Proposal; provided, however, that (i) the
Company is not then in breach of Section 7.10, (ii) prior to such termination,
the
<PAGE>
Company has negotiated with Acquiror in good faith to make such adjustments in
the terms and conditions of this Agreement as would enable the Company to
proceed with the transactions contemplated hereby and (iii) the Board of
Directors, has determined in good faith (on the basis of the terms of such
Acquisition Proposal and the terms of this Agreement, after giving effect to
any concessions offered by Acquiror pursuant to clause (ii) above), after
receipt of written advice from the Company's outside legal counsel, that such
termination is advisable for the Board of Directors to act in a manner
consistent with its fiduciary duties to stockholders under Applicable Law and
(iv) the Company shall provide to Acquiror prior written notice of such
termination, which notice shall advise Acquiror of the matters described in
clauses (ii) and (iii) above;
(h) by the Company pursuant to Section 3.1(d)(ii)(B); or
(i) by Acquiror pursuant to Section 3.1(d)(ii)(C).
Notwithstanding the foregoing, a party shall not be permitted to terminate
this Agreement pursuant to clause (b), (c) or (d) hereof if such party is in
breach of any of its material representations, warranties, covenants or
agreements contained in this Agreement.
IX.2 Effect of Termination. In the event of termination by the
Company or Acquiror pursuant to Section 9.1, written notice thereof shall
promptly be given to the other parties and, except as otherwise provided
herein, the transactions contemplated by this Agreement shall be terminated,
without further action by any party. Notwithstanding the foregoing, nothing
in this Section 9.2 shall be deemed to release any party from any liability
for any breach by such party of the terms and provisions of this Agreement or
to impair the right of the Company, on the one hand, and Acquiror and Company
Sub, on the other hand, to compel specific performance of the other party of
its or their obligations under this Agreement.
IX.3 Fees and Expenses. In order to induce Acquiror to, among other
things, enter into this Agreement, the Company agrees that if this Agreement
is terminated (A) by Acquiror pursuant to Section 9.1(f) hereof, (B) by the
Company pursuant to Section 9.1(g) hereof, or (C) by the Company or Acquiror
pursuant to Section 9.1(e) hereof and the Board of Directors shall have
materially modified or withdrawn its approval, determination or recommendation
of
<PAGE>
this Agreement or any of the transactions contemplated hereby prior to the
Initial Stockholders' Meeting or there shall have been an Acquisition Proposal
and such proposal shall not have been withdrawn prior to the Initial
Stockholders' Meeting and within one year thereafter the Company enters into a
definitive agreement with respect to such Acquisition Proposal (including any
definitive agreement relating to an Acquisition Proposal offered by the same
proponent or its Affiliate as such Acquisition Proposal), then the Company
shall promptly pay Acquiror a fee of $125 million, plus an amount equal to the
actual reasonable fees and expenses paid or payable by or on behalf of
Acquiror to its attorneys, accountants, environmental consultants, management
consultants, and other consultants and advisors in connection with the
negotiation, execution and delivery of this Agreement and the transactions
contemplated hereby; provided, however, that payment for fees and expenses
shall in no event exceed $15 million. Any payment required by this Section
9.3 shall be made in same day funds to Acquiror by the Company no later than
five Business Days following termination of this Agreement by Acquiror or the
Company, as the case may be.
IX.4 Certain Purchase Obligations. (a) In order to induce the
Company to, among other things, enter into this Agreement, Acquiror agrees
that if this Agreement is terminated by the Company pursuant to Section
9.1(h), then the Company shall have the right, for a period of 30 days
thereafter, to require Acquiror to purchase from the Company (the "Put Right")
5,650,000 shares of Series B Convertible Preferred Stock, par value $.01 per
share, of the Company, having the rights, preferences and terms set forth in
the Certificate of Designations attached as Exhibit E hereto (the "Put
Shares") for an aggregate purchase price of $282.5 million.
(a) Following termination by the Company of this Agreement pursuant to
Section 9.1(h), the Company may exercise the Put Right by delivering to
Acquiror a written notice of such exercise (the "Put Exercise Notice"), which
shall specify a date not less than 90 days from the date of such notice for
the closing of the purchase of the Put Shares by Acquiror.
(b) The closing with respect to the purchase of the Put Shares shall
take place on the earlier of (i) the date specified in the Put Exercise Notice
and (ii) the second Business Day following the date on which the last of the
conditions set forth in Section 9.4(d) is fulfilled or waived, unless another
date, time or place is agreed to in writing by the parties hereto (the "Put
Closing Date"). At
<PAGE>
such closing, the Company shall deliver to Acquiror certificates representing
the Put Shares and Acquiror shall deliver to the Company $282.5 million by
wire transfer of immediately available funds to an account designated by the
Company.
(c) The obligations of Acquiror to purchase the Put Shares shall be
subject to the satisfaction prior to the Put Closing Date of the following
conditions:
(i) HSR Act. The waiting periods (and any extension thereof)
applicable to the purchase of the Put Shares under the HSR Act shall have
expired or been terminated and there shall be no authorized or pending action
by a Governmental Authority seeking to restrain or prevent the purchase of the
Put Shares.
(ii) No Injunctions or Restraints. No statute, rule, regulation,
injunction, restraining order or decree of any nature of any court or
Governmental Authority shall be in effect that restrains or prevents the
purchase of the Put Shares.
(iii) Representations and Warranties. There shall be no breach of any
representation or warranty of the Company made hereunder that, individually or
together with all other such breaches, results in a Material Adverse Effect
with respect to the Company. Acquiror shall have received a certificate from
the Company dated the Put Closing Date signed by an authorized officer of the
Company certifying to the fulfillment of this condition.
(iv) Agreements. The Company shall have performed and complied in all
material respects with all of its undertakings, covenants, conditions and
agreements required by this Agreement to be performed or complied with by it
prior to or at the Put Closing Date. Acquiror shall have received a
certificate from the Company dated the Put Closing Date signed by an
authorized officer of the Company and certifying to the fulfillment of this
condition.
(v) Franchise Consents. To the extent any Franchise(s) individually
or collectively representing more than 5% of total Subscribers of the Company
and its Subsidiaries require notice to, or the consent of, a Governmental
Authority in connection with the purchase by Acquiror of the Put Shares, the
consent of each such Governmental Authority shall have been obtained by the
Company.
<PAGE>
(vi) Registration Rights Agreement. The Company and Acquiror shall
have entered into a Registration Rights Agreement substantially in the form of
Exhibit F hereto.
(d) From and after the Put Closing Date, for so long as Acquiror owns
any of the Put Shares, Acquiror shall not acquire, or agree to acquire,
directly or indirectly, any shares of Company Capital Stock, or any rights or
options to acquire shares of Company Capital Stock, if as a result of any such
acquisition, Acquiror would beneficially own 10 percent or more of the Company
Capital Stock.
IX.5 Amendment. Subject to Applicable Law, this Agreement may be
amended, modified or supplemented only by written agreement of Acquiror and
the Company at any time prior to the Effective Time with respect to any of the
terms contained herein; provided, however, that, after this Agreement is
adopted by the Company's stockholders, no such amendment or modification shall
(i) alter or change the amount or kind of consideration to be delivered to
the stockholders of the Company or (ii) alter or change any of the terms and
conditions of this Agreement, if such alteration or change would adversely
affect the holders of any class of capital stock of the Company.
IX.6 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective boards of
directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto; (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party. The failure of any party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights nor in any way effect the
validity of this Agreement or any part hereof or the right of such party
thereafter to enforce each and every provision of this Agreement. No waiver
of any breach of or non-compliance with this Agreement shall be held to be a
waiver of any other or subsequent breach or non-compliance.
<PAGE>
X
GENERAL PROVISIONS
X.1 Frustration of the Closing Conditions. None of the Company,
Acquiror or Company Sub may rely on the failure of any condition precedent set
forth in Article VIII to be satisfied if such failure was caused by such
party's (or parties') failure to act in good faith or to use its reasonable
best efforts to consummate the transactions contemplated by this Agreement in
accordance with Section 7.4.
X.2 Effectiveness of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Article IX, except that the agreements set forth in Articles I, II and III and
Sections 7.11, 7.14 and 7.20 shall survive the Effective Time and those set
forth in Sections 9.2, 9.3, 9.4 and Article X hereof shall survive
termination.
X.3 Expenses. Except as otherwise provided herein, including in
Sections 7.5 and 9.3, each of the parties hereto shall pay the fees and
expenses of its respective counsel, accountants and other experts and shall
pay all other costs and expenses incurred by it in connection with the
negotia-tion, preparation and execution of this Agreement and the Transaction
Documents and the consummation of the transac-tions contemplated hereby and
thereby; provided, however, that the Company shall pay, with funds of the
Company and not with funds provided by Acquiror, any and all property or
transfer Taxes imposed on the Company or any Gains Taxes.
X.4 Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without
reference to choice of law principles, including all matters of construction,
validity and performance.
<PAGE>
X.5 Notices. Notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if signed by the respective Persons giving them (in the case of any
corporation the signature shall be by an officer thereof) and delivered by
hand, deposited in the United States mail (registered or certified, return
receipt requested), properly addressed and postage prepaid, or delivered by
telecopy:
If to the Company, to:
Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, Massachusetts 02110
Telephone: (617) 742-9500
Telecopy: (617) 742-0530
Attention: Amos B. Hostetter, Jr.
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-5100
Telecopy: (212) 541-5369
Attention: Dennis J. Friedman, Esq.
and:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
If to Acquiror or Company Sub, to:
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
Telephone: (303) 793-6310
Telecopy: (303) 793-6707
Attention: General Counsel
<PAGE>
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Telecopy: (212) 310-8007
Attention: Dennis J. Block, Esq.
Such names and addresses may be changed by notice given in accordance with
this Section 10.5.
X.6 Entire Agreement. This Agreement and the Transaction Documents
(including the Exhibits attached hereto, all of which are a part hereof)
contain the entire understanding of the parties hereto and thereto with
respect to the subject matter contained herein and therein, supersede and
cancel all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting such subject
matter. There are no restrictions, promises, representations, warranties,
agreements or undertakings of any party hereto or to any of the Transaction
Documents with respect to the transactions contemplated by this Agreement and
the Transaction Documents other than those set forth herein or therein or made
hereunder or thereunder. Notwithstanding the foregoing, the Confidentiality
Agreements shall remain in full force and effect and shall survive any
termination of this Agreement.
X.7 Headings; References. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. All
references herein to "Articles", "Sections" or "Exhibits" shall be deemed to
be references to Articles or Sections hereof or Exhibits hereto unless
otherwise indicated.
X.8 Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original, but all
of which shall constitute one and the same original.
X.9 Parties in Interest; Assignment. Neither this Agreement nor any
of the rights, interest or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except that Company Sub may assign, in its sole discretion, any or all of its
rights, interests and obligations under this Agreement to any direct wholly
owned
<PAGE>
subsidiary of Acquiror, but no such assignment shall relieve Company Sub of
any of its obligations hereunder. Subject to the preceding sentence, this
Agreement shall inure to the benefit of and be binding upon the Company,
Acquiror and Company Sub and shall inure to the sole benefit of the Company,
Acquiror and Company Sub and their respective successors and permitted
assigns. Except as set forth in Section 7.11 and Section 7.14(c), nothing in
this Agreement, express or implied, is intended to confer upon any other
Person any rights or remedies under or by reason of this Agreement.
X.10 Severability; Enforcement. The invalidity of any portion hereof
shall not affect the validity, force or effect of the remaining portions
hereof. If it is ever held that any restriction hereunder is too broad to
permit enforcement of such restriction to its fullest extent, each party
agrees that a court of competent jurisdiction may enforce such restriction to
the maximum extent permitted by law, and each party hereby consents and agrees
that such scope may be judicially modified accordingly in any proceeding
brought to enforce such restriction.
X.11 Specific Performance. The parties hereto agree that the remedy
at law for any breach of this Agreement will be inadequate and that any party
by whom this Agreement is enforceable shall be entitled to specific
performance in addition to any other appropriate relief or remedy. Such party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunctive or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by Applicable Law, each party waives any
objection to the imposition of such relief.
X.12 Jurisdiction. Each party to this Agreement hereby irrevocably
agrees that any legal action, suit or proceeding arising out of or relating to
this Agreement, the Transaction Documents or any other agreements or
transactions contemplated hereby shall be brought in the Chancery Court of the
State of Delaware and each party hereto agrees not to assert, by way of
motion, as a defense or otherwise, in any such action, suit or proceeding any
claim that it is not subject personally to the jurisdiction of such court,
that the action, suit or proceeding is brought in an inconvenient forum, that
the venue of the action, suit or proceeding is improper or that this
Agreement, any Transaction Document, any other agreement or transaction or the
subject matter hereof or thereof may not be enforced in or by such court.
Each party hereto further
<PAGE>
and irrevocably submits to the jurisdiction of such court in any action, suit
or proceeding.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
U S WEST, INC.
By:/s/ Charles M. Lillis
Name: Charles M. Lillis
Title: Executive Vice President;
President and Chief
Executive Officer of the
U S WEST Media Group
CONTINENTAL MERGER CORPORATION
By:/s/ Charles M. Lillis
Name: Charles M. Lillis
Title: President
CONTINENTAL CABLEVISION, INC.
By:/s/ Amos B. Hostetter, Jr.
Name: Amos B. Hostetter, Jr.
Title: Chairman of the Board and
Chief Executive Officer
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
1.1 Definitions 2
1.2 Terms Defined Elsewhere in the Agreement 13
1.3 Other Definitional Provisions 16
ARTICLE II
THE MERGER
2.1 The Merger 16
2.2 Closing 17
2.3 Effective Time 17
2.4 Effects of the Merger 17
2.5 Directors; Certificate of Incorporation; Bylaws 17
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3.1 Effect on Capital Stock 18
3.2 Company Common Stock Elections; Exchange Fund 23
3.3 Proration 26
3.4 Dividends, Fractional Shares, Etc 27
3.5 Restricted Stock 30
3.6 Dissenting Shares 31
3.7 Share Price Adjustment 31
<PAGE>
<CAPTION>
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization and Authority of the Company 32
4.2 Capitalization 34
4.3 No Conflicts 35
4.4 Vote Required 36
4.5 Board Recommendation; Opinion of Financial Advisor 36
4.6 Consents 36
4.7 Compliance; No Defaults 38
4.8 SEC Documents; Undisclosed Liabilities 39
4.9 Litigation 40
4.10 Taxes 40
4.11 Employee Benefits. 43
4.12 Cable Television Franchises 45
4.13 Environmental Matters 50
4.14 Labor 51
4.15 Absence of Changes or Events 53
4.16 Unlawful Payments and Contributions 54
4.17 Brokers and Intermediaries 54
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
5.1 Organization and Authority 55
5.2 Capitalization 56
5.3 No Conflicts 57
5.4 Stockholder Vote 58
5.5 Consents 58
5.6 Compliance; No Defaults 59
5.7 Acquiror SEC Documents; Undisclosed Liabilities 59
5.8 Litigation 60
5.9 Absence of Changes or Events 61
5.10 Brokers and Intermediaries 61
<PAGE>
<CAPTION>
<S> <C>
5.11 Ownership of Company Capital Stock 61
5.12 Operations of Company Sub 61
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Conduct of Business of the Company 62
6.2 Conduct of Business of Acquiror and Company Sub. 67
6.3 Access to Information 69
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Preparation of Form S-4 and the Proxy Statement; Stockholders' Meeting; Charter Amendments 70
7.2 Letter of the Company's Accountants 73
7.3 Letter of Acquiror's Accountants 73
7.4 Reasonable Best Efforts 74
7.5 Franchise and License Consents 74
7.6 Antitrust Notification 76
7.7 Certain Actions 77
7.8 Supplemental Disclosure 79
7.9 Announcements 79
7.10 No Solicitation 79
7.11 Indemnification; Directors' and Officers 81
Insurance
7.12 NYSE Listing 82
7.13 Affiliates 83
7.14 Employee Benefits 83
7.15 Registration Rights Agreement 84
7.16 Tax Treatment 84
7.17 Series D Preferred Stock 85
7.18 Company Indebtedness 85
7.19 Authorization of Issuance of Merger Consideration 85
7.20 Attribution 85
<PAGE>
<CAPTION>
<S> <C>
7.21 Further Assurances 85
7.22 Internal Revenue Service Ruling 86
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Effect 86
the Merger
8.2 Conditions to Obligations of Acquiror and 87
Company Sub
8.3 Conditions to Obligations of the Company 90
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination 92
9.2 Effect of Termination 95
9.3 Fees and Expenses 95
9.4 Certain Purchase Obligations 96
9.5 Amendment 98
9.6 Extension; Waiver 98
ARTICLE X
GENERAL PROVISIONS
10.1 Frustration of the Closing Conditions 99
10.2 Effectiveness of Representations, Warranties 99
and Agreements
10.3 Expenses 99
10.4 Applicable Law 99
10.5 Notices 99
10.6 Entire Agreement 101
10.7 Headings; References 101
<PAGE>
<CAPTION>
<S> <C>
10.8 Counterparts 101
10.9 Parties in Interest; Assignment 101
10.10 Severability; Enforcement 102
10.11 Specific Performance 102
10.12 Jurisdiction 102
</TABLE>
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Form of Charter Amendments
Exhibit B Form of Registration Rights Agreement for Media Stock and Series D Preferred Stock
Exhibit C Form of Certificate of Designation for Series D Convertible Preferred Stock
Exhibit D Form of Affiliate Letter
Exhibit E Form of Certificate of Designation for Put Shares
Exhibit F Form of Registration Rights Agreement for Put Shares
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
among
U S WEST, INC.,
CONTINENTAL MERGER CORPORATION
and
CONTINENTAL CABLEVISION, INC.
Dated as of February 27, 1996
And as amended and restated as of June 27, 1996
-1-
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CONTINENTAL CABLEVISION, INC.
Continental Cablevision, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, at a meeting duly
called and held on __________ __, 1996, accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware, duly
adopted resolutions setting forth proposed amendments to the Restated
Certificate of Incorporation of the Corporation. The resolutions setting
forth the proposed amendments are as follows:
RESOLVED: That Section F of Article FOURTH of the Corporation's Restated
Certificate of Incorporation be amended by adding a new paragraph immediately
following the last sentence of said Section F to read as follows:
Notwithstanding anything in this Section F to the contrary, so long as
the Agreement and Plan of Merger, dated as of February 27, 1996, as the same
may be amended from time to time (the "Merger Agreement"), between U S WEST,
Inc., a Delaware corporation, and the Corporation, shall remain in effect, no
share of Class B Common Stock may be converted into a share of Class A Common
Stock pursuant to the immediately preceding paragraph; provided, however,
that a fully paid share of Class B Common Stock may be converted into a share
of Class A Common Stock pursuant to the immediately preceding paragraph in
connection with (i) a bona fide transfer of such share of Class B Common Stock
for the fair market value of such share at the time of such transfer, other
than to a Permitted Transferee, or (ii) the enforcement by a secured party of
its rights in and to such share of Class B Common Stock pursuant to a bona
fide pledge of such share to secure obligations. If a holder of shares of
Class B Common Stock elects to convert any such shares in connection with a
bona fide transfer of such shares for the fair market value of such share at
the time of such transfer, such holder shall certify in writing to the
Corporation that such conversion is in connection with a bona fide transfer
for and that such transfer is not being made to a Permitted Transferee. If a
secured party with rights in and to shares of Class B Common Stock elects to
convert any such shares in connection with the enforcement of such rights,
such secured party shall certify in writing to the Corporation that such
conversion is in connection with the enforcement of such secured party rights
pursuant to a bona fide pledge of such stock to secure obligations. Such
certifications shall be delivered to the Corporation at the same time as such
holder or secured party delivers the notice of election and other instruments
required by the immediately preceding paragraph.
RESOLVED: That Section H of Article FOURTH of the Corporation's Restated
Certificate of Incorporation be amended to read as follows:
H. Other Rights. Except as otherwise required by the Delaware
General Corporation Law or as otherwise provided in this Restated Certificate
of Incorporation, and except as provided in the Merger Agreement, each share
of Class A Common Stock and each share of Class B Common Stock shall have
identical powers, preferences, rights and privileges.
RESOLVED: That the foregoing amendments to the Restated Certificate of
Incorporation of the Corporation are recommended to the stockholders for
approval as being in the best interests of the Corporation and that said
amendments be presented to the stockholders for their adoption and that a
special meeting of the stockholders duly be called for that purpose.
SECOND: The stockholders of the Corporation (including (i) the holders
of the Class A Common Stock, the Class B Common Stock, and the Series A
Participating Convertible Preferred Stock voting together as a single class,
(ii) the holders of the Class A Common Stock voting together as a separate
class (but only with regard to the proposed amendment to Section H of Article
FOURTH of the Corporation's Restated Certificate of Incorporation) and (iii)
the holders of the Class B Common Stock voting together as a separate class)
approved said proposed amendments at a special meeting of stockholders for
which written notice was given pursuant to Section 222 of the General
Corporation Law of the State of Delaware.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed
by William T. Schleyer, its duly authorized officer, this ___ day of
___________, 1996.
CONTINENTAL CABLEVISION, INC.
By:____________________________
Name: William T. Schleyer
Title: President
-2-
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of _________ __, 1996, among U S
WEST, INC. , a Delaware corporation ("Acquiror"), Amos B. Hostetter, Jr.
("Hostetter"), the Amos B. Hostetter, Jr. 1989 Trust (the "Trust") and the
Hostetter Foundation (the "Foundation" and, together with Hostetter and the
Trust, the "Stockholders").
W I T N E S S E T H:
WHEREAS, Acquiror, CONTINENTAL MERGER CORPORATION, a Delaware corporation
("Sub"), and CONTINENTAL CABLEVISION, INC., a Delaware corporation (the
"Company"), are parties to an Agreement and Plan of Merger, dated as of
February 27, 1996, as amended and restated as of June 27, 1996 (as in effect
on the date hereof, the "Merger Agreement"), pursuant to which either (i) the
Company will merge with and into Acquiror, with Acquiror continuing as the
surviving corporation or (ii) the Company will merge with and into Sub, with
Sub continuing as the surviving corporation (as applicable, the "Merger"); and
WHEREAS, Acquiror has agreed to provide registration rights to the
Stockholders with respect to the stock to be received in connection with the
Merger, subject to the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings assigned to such terms in the Merger Agreement. For
purposes of this Agreement, the following terms shall have the following
meanings:
"Blackout Period" shall mean any Section 6(a) Period and any Section
6(b) Period.
"Closing Price", for any class of securities, shall mean the last
reported sale price per share of such security, regular way, as shown on the
Composite Tape of the NYSE, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices on the NYSE, or, if such
security is not listed or admitted to trading on the NYSE, on the principal
national securities exchange on which such security is listed or admitted to
trading, or, if it is not listed or admitted to trading on any national
securities exchange, the last reported sale price per share of such security,
or, in case no such sale takes place on such day, the average of the closing
bid and asked prices, in either case as reported by Nasdaq.
"Current Market Price" for any class of securities on any applicable
date shall mean the average of the daily Closing Prices per share of such
security for the ten (10) consecutive Trading Days ending on the third Trading
Day immediately preceding such date.
"Effective Period" shall mean a period commencing on the date of this
Agreement and ending on the earliest of (i) the first date as of which all
Registrable Securities cease to be Registrable Securities, (ii) the sixth
anniversary of the Closing Date and (iii) the date on which the aggregate
number of Registrable Securities issued and outstanding (assuming conversion
of all shares of Series D Preferred Stock held by the Holders) shall no longer
exceed one tenth (1/10) of the aggregate number of Registrable Securities
(adjusted appropriately to reflect any stock dividends, splits, combinations,
exchange, reorganization, recapitalization or reclassification involving the
Media Stock or Series D Preferred Stock or resulting from a merger or
consolidation or similar transaction involving Acquiror or the like after the
date hereof) outstanding on the date hereof.
"Holder" shall mean each Stockholder listed on Schedule A hereto and
each Permitted Assignee that becomes a holder of Registrable Securities,
provided that if such Person is not a Stockholder listed on Schedule A hereto,
such Permitted Assignee has agreed in writing to become a Holder hereunder and
to be bound by the terms and conditions of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the Nasdaq National Market.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Permitted Assignee" shall mean (w) Hostetter, (x) Hostetter's lineal
descendants, (y) a trust for the benefit of, the estate of, executors,
personal representatives, administrators, guardians or conservators of any of
the individuals referred to in the foregoing clauses (w) and (x) (but only in
their capacity as such) and (z) charitable trusts and charitable foundations
(in addition to the Foundation) formed by Hostetter or the Trust.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable
Securities covered by any Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Registrable Securities" shall mean any and all of (i) the shares of
Media Stock issued pursuant to the Merger, (ii) the shares of Series D
Preferred Stock issued pursuant to the Merger, (iii) the shares of Media Stock
or other securities of Acquiror issuable or issued upon conversion of the
Series D Preferred Stock issued pursuant to the Merger and (iv) any securities
issuable or issued or distributed in respect of any of the securities
identified in clauses (i), (ii) or (iii) by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization,
reorganization, merger, consolidation or otherwise. Securities will cease to
be Registrable Securities in accordance with Section 2 hereof.
"Registration Expenses" means any and all expenses incident to
performance of or compliance with this Agreement, including, without
limitation, (i) all SEC, NASD and securities exchange registration and filing
fees, (ii) all fees and expenses of complying with state securities or blue
sky laws (including fees and disbursements of counsel for any underwriters in
connection with blue sky qualifications of the Registrable Securities), (iii)
all processing, printing, copying, messenger and delivery expenses, (iv) all
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange pursuant to Section 7(h), (v) the fees
and disbursements of counsel for Acquiror and of its independent public
accountants and (vi) the reasonable fees and expenses of any special experts
retained in connection with the requested registration, but excluding (x)
underwriting discounts and commissions and transfer taxes, if any, and (y) any
fees or disbursements of counsel to the Holders or any Holder.
"Registration Statement" means any registration statement (including a
Shelf Registration) of Acquiror referred to in Section 3 or 4, including any
Prospectus, amendments and supplements to any such registration statement,
including post-effective amendments, and all exhibits and all material
incorporated by reference in any such registration statement.
"Related Securities" means any securities of Acquiror similar or
identical to any of the Registrable Securities, including, without limitation,
any class of capital stock of Acquiror and all options, warrants, rights and
other securities convertible into, or exchangeable or exercisable for, any
class of capital stock of Acquiror.
"Section 6(a) Period" has the meaning specified in Section 6(a).
"Section 6(b) Period" has the meaning specified in Section 6(b).
"Shelf Registration" means a "shelf" registration statement on an
appropriate form pursuant to Rule 415 under the Securities Act (or any
successor rule that may be adopted by the SEC).
"Trading Day", for any class of securities, shall mean, so long as such
securities are listed or admitted to trading on the NYSE, a day on which the
NYSE is open for the transaction of business, or, if such securities are not
listed or admitted to trading on the NYSE, a day on which the principal
national securities exchange on which such securities are listed is open for
the transaction of business, or, if such securities are not so listed or
admitted for trading on any national securities exchange, a day on which
Nasdaq is open for the transaction of business.
"underwritten registration or underwritten offering" shall mean an
offering in which securities of Acquiror are sold to an underwriter for
reoffering to the public.
2. Securities Subject to this Agreement. The securities entitled to
the benefits of this Agreement are the Registrable Securities. For the
purposes of this Agreement, as to any particular Registrable Securities, such
Registrable Securities shall cease to be Registrable Securities when and to
the extent that (i) a Registration Statement covering such Registrable
Securities has been declared effective under the Securities Act and such
Registrable Securities have been disposed of pursuant to such effective
Registration Statement, (ii) such Registrable Securities are distributed to
the public pursuant to and in accordance with Rule 144 (or any similar
provision then in force) under the Securities Act, (iii) such Registrable
Securities have been otherwise transferred to a party that is not a Permitted
Assignee, (iv) the Effective Period ends or (v) such Registrable Securities
have ceased to be outstanding.
3. Piggy-Back Registration Rights. (a) Whenever Acquiror shall
propose to file a Registration Statement under the Securities Act relating to
the public offering of Media Stock for cash (other than pursuant to a
Registration Statement on Form S-4 or Form S-8 or any successor forms thereto,
or filed in connection with an exchange offer or an offering of securities
solely to existing stockholders or employees of Acquiror and other than
pursuant to a Registration Statement filed in connection with an offering by
Acquiror of securities convertible into or exchangeable for Media Stock) for
sale for its own account, Acquiror shall (i) give written notice at least
fifteen Business Days prior to the filing thereof to each Holder then
outstanding, specifying the approximate date on which Acquiror proposes to
file such Registration Statement and the intended method of distribution in
connection therewith, and advising such Holder of such Holder's right to have
any or all of the Registrable Securities then held by such Holder included
among the securities to be covered thereby and (ii) at the written request of
any such Holder given to Acquiror at least two Business Days prior to the
proposed filing date, include among the securities covered by such
Registration Statement the number of Registrable Securities that such Holder
shall have requested be so included. Subject to reduction in accordance with
paragraph (b) of this Section 3, Acquiror shall cause the Registration
Statement to include the Registrable Securities requested to be included in
the Registration Statement for such offering in the case of Registrable
Securities which are Media Stock, on the same terms and conditions as the
shares of Media Stock included therein and in the case of Registrable
Securities which are Series D Preferred Stock, on terms which would not
conflict or interfere with in any material respect (including, without
limitation, adversely affect the pricing of) the offering by Acquiror of Media
Stock.
(b) If the lead managing underwriter selected by Acquiror for an
underwritten offering pursuant to Section 3(a) determines in writing that
marketing factors require a limitation on the number of shares of Media Stock
and/or Series D Preferred Stock (or other securities convertible into or
exchangeable for Media Stock) to be offered and sold by stockholders of
Acquiror in such offering, there shall be included in the offering, first, all
securities proposed by Acquiror to be sold for its account and, second, only
that number of shares of Media Stock and Series D Preferred Stock (and other
securities convertible into or exchangeable for Media Stock), if any,
requested to be included in such Registration Statement by stockholders of
Acquiror that such lead managing underwriter reasonably and in good faith
believes will not substantially interfere with (including, without limitation,
adversely affect the pricing of) the offering of all the shares of Media Stock
that the Company desires to sell for its own account. In such event and
provided the managing underwriter has so notified Acquiror in writing, the
number of shares of Media Stock and Series D Preferred Stock (and other
securities of Acquiror convertible into or exchangeable for Media Stock) to be
offered and sold by stockholders of Acquiror, including Holders of Registrable
Securities, desiring to participate in such offering shall be allocated among
such stockholders of Acquiror on a pro rata basis based upon the number of
shares of Media Stock (assuming conversion of the Series D Preferred Stock and
other securities convertible into or exchangeable for Media Stock held by such
stockholders) each such stockholder beneficially owns.
(c) Nothing in this Section 3 shall create any liability on the part of
Acquiror to the Holders of Registrable Securities if Acquiror for any reason
should decide not to file a Registration Statement proposed to be filed under
Section 3(a) or to withdraw such Registration Statement subsequent to its
filing, regardless of any action whatsoever that a Holder may have taken,
whether as a result of the issuance by Acquiror of any notice hereunder or
otherwise.
(d) A request by Holders to include Registrable Securities in a proposed
offering pursuant to Section 3(a) shall not be deemed to be a request for a
demand registration pursuant to Section 4.
4. Demand Registration Rights. (a) Upon the written request (the
"Initial Request") of Holders of at least a majority in number of the
Registrable Securities (assuming conversion of all Series D Preferred Stock
held by Holders) that Acquiror effect the registration with the SEC under and
in accordance with the provisions of the Securities Act of all or part of such
Holder's or Holders' Registrable Securities and specifying the aggregate
number of shares of Registrable Securities requested to be so registered,
Acquiror will promptly give written notice of such requested registration to
all other Holders. Within 15 days after receipt of Acquiror's notice (such 15
day period being the "Additional Request Period"), each such other Holder
shall notify Acquiror in writing as to whether such Holder wishes to have any
or all of its Registrable Securities included in such requested registration.
Thereupon, subject to Section 4(f), Acquiror shall use its best efforts to
file a Registration Statement as expeditiously as practicable (the terms of
any underwritten offering or other distribution to be determined by the
Holders of a majority of the Registrable Securities so requested to be
registered); provided, however, that Acquiror shall not be required to
take any action pursuant to this Section 4:
(i) if prior to the date of such request Acquiror shall have effected
four registrations pursuant to this Section 4;
(ii) if Acquiror has effected a registration pursuant to this Section 4
within the 90-day period next preceding such request;
(iii) if Acquiror shall at the time have effective a Shelf Registration
pursuant to which the Holder or Holders that requested registration could
effect the disposition of such Registrable Securities pursuant to an
underwritten offering or such other method of distribution requested by such
Holder or Holders;
(iv) if the Registrable Securities that Acquiror shall have been
requested to register shall have a then current market value of less than
$100,000,000, unless such registration request is for all remaining
Registrable Securities; or
(v) during the pendency of any Blackout Period;
and provided, further, that Acquiror shall be permitted to satisfy its
obligations under this Section 4(a) by amending (to the extent permitted by
applicable law) any Shelf Registration previously filed by Acquiror under the
Securities Act so that such Shelf Registration (as amended) shall permit the
disposition (in accordance with the intended methods of disposition specified
as aforesaid) of all of the Registrable Securities for which a demand for
registration has been made under this Section 4(a). If Acquiror shall so
amend a previously filed Shelf Registration, it shall be deemed to have
effected a registration for purposes of this Section 4.
(b) A registration requested pursuant to this Section 4 shall not be
deemed to be effected for purposes of this Section 4: (i) if it has not been
declared effective by the SEC or become effective in accordance with the
Securities Act, (ii) if after it has become effective, such registration is
materially interfered with by any stop order, injunction or similar order or
requirement of the SEC or other governmental agency or court for any reason
not attributable to any of the Holders and has not thereafter become
effective, or (iii) if the conditions to closing specified in the underwriting
agreement, if any, entered into in connection with such registration are not
satisfied or waived, other than by reason of a failure on the part of any of
the Holders.
(c) Should a Registration Statement filed pursuant to this Section 4 not
become effective due to the failure of the Holders to perform their
obligations under this Agreement or the inability of the Holders to reach
agreement with the underwriters on price or other customary terms for such
transaction, or in the event the Holders of a majority in number of the
Registrable Securities (assuming conversion of all Series D Preferred Stock
held by Holders) determine to withdraw or do not pursue a request for
registration pursuant to this Section 4 (in each of the foregoing cases,
provided that at such time Acquiror is in compliance in all material respects
with its obligations under this Agreement), then (subject to the last sentence
of this Section 4(c)) such registration shall be deemed to have been effected
for purposes of this Section 4. In such event, the Holders of Registrable
Securities who requested registration shall reimburse Acquiror for all its
out-of-pocket expenses incurred in the preparation, filing and processing of
the Registration Statement. If such reimbursement is made within 30 Business
Days following a request therefor, such registration shall not be deemed to
have been effected for purposes of this Section 4.
(d) Acquiror will not include any securities that are not Registrable
Securities in any Registration Statement (including a Shelf Registration
referred to in the second proviso of Section 4(a)) filed pursuant to a demand
made under this Section 4 without the prior written consent of the Holders of
a majority in number of the Registrable Securities covered by such
Registration Statement (including a Shelf Registration referred to in the
second proviso of Section 4(a)).
(e) If the lead managing underwriter of an underwritten offering made
pursuant to this Section 4 shall advise Acquiror in writing (with a copy to
the Holders of Registrable Securities participating in such offering) that, in
its opinion, the number of Registrable Securities requested to be included in
such registration exceeds the number which can be sold in such offering within
a price range acceptable to the Holders of a majority in number of the
Registrable shares requested to be included in such offering, Acquiror will
reduce to the number which Acquiror is so advised can be sold in such offering
within such price range the Registrable Securities requested to be included in
such offering. If, as a result of any such reduction, the number of
Registrable Securities requested to be included in such registration by the
Holders of Registrable Securities participating in such offering is reduced by
twenty-five percent (25%) or more, then notwithstanding anything to the
contrary contained in this Agreement, a registration will not be deemed to
have been effected for purposes of this Section 4; provided, however, that
the provisions of this sentence shall only apply to the first request made by
Holders for a registration pursuant to this Section 4. In the case of such a
registration which would have been deemed to be a registration for purposes of
this Section 4 but for the application of the immediately preceding sentence,
Acquiror nonetheless shall pay the Registration Expenses in connection with
such registration.
(f) Prior to the filing by Acquiror of a Registration Statement pursuant
to Section 4(a), Acquiror shall have the right, exercisable for the ten day
period following the end of the Additional Request Period, upon written notice
to the Holders requesting registration, to purchase for cash from such Holders
on a pro rata basis all of the Registrable Securities which such Holders
requested to be registered pursuant to such Registration Statement (the
"Purchased Securities"). The exercise of such right shall constitute
Acquiror's legal and binding commitment to purchase the Purchased Securities
in accordance with this Section 4(f). The closing of the purchase by Acquiror
of the Purchased Securities shall take place within 30 days of delivery of
such notice and the purchase price per Purchased Security shall be equal to
the Current Market Price of such Purchased Security on the date of the Initial
Request, less the amount of any customary discounts and commissions that would
be payable by Acquiror or a similar issuer in connection with an underwritten
offering of similar securities (which discounts and commissions shall not
exceed 5% of such Current Market Price). At the closing of the sale of the
Purchased Securities, the Holders shall deliver to Acquiror certificates
representing the Purchased Securities and Acquiror shall deliver to the
Holders the purchase price of the Purchased Securities by wire transfer of
immediately available funds. Following the purchase of the Purchased Shares
by Acquiror, a registration shall be deemed to have been effected for purposes
of this Section 4.
5. Selection of Underwriters. In connection with any offering
pursuant to a Registration Statement filed pursuant to a demand made in
accordance with Section 4, Acquiror shall have the right to select a managing
underwriter or underwriters to administer the offering, so long as such
managing underwriter or underwriters shall be reasonably satisfactory to
Holders of a majority in number of the Registrable Securities to be included
in such offering (assuming conversion of all Series D Preferred Stock held by
Holders); provided, however, that such Holders shall have the right to
select one co-managing underwriter, so long as such co-managing underwriter
shall be reasonably satisfactory to Acquiror. The managing underwriter or
underwriters selected by Acquiror shall be deemed reasonably satisfactory to
Holders of a majority in number of the Registrable Securities to be included
in such offering (assuming conversion of all Series D Preferred Stock held by
Holders) unless such Holders sends a written notice of objection to Acquiror
within 10 days of receipt of notice from Acquiror of the appointment of a
managing underwriter or underwriters and the co-managing underwriter selected
by such Holders shall be deemed to be reasonably satisfactory to Acquiror
unless Acquiror sends a written notice of objection to such Holders within 10
days of receipt of notice from such Holders of the appointment of a
co-managing underwriter.
6. Blackout Periods. (a) If Acquiror determines in good faith that
the registration and distribution of Registrable Securities (or the use of the
Registration Statement or related Prospectus) would interfere with any pending
financing, acquisition, corporate reorganization or any other corporate
development involving Acquiror or any of its subsidiaries (or would require
premature disclosure thereof) and promptly gives the Holders of Registrable
Securities written notice of such determination, Acquiror shall be entitled to
(i) postpone the filing of the Registration Statement otherwise required to be
prepared and filed by Acquiror pursuant to Section 3 or 4, or (ii) elect that
the Registration Statement not be used, in either case for a reasonable period
of time, but not to exceed 90 days (a "Section 6(a) Period"). Any such
written notice shall contain a general statement of the reasons for such
postponement or restriction on use and an estimate of the anticipated delay.
Acquiror shall promptly notify each Holder of the expiration or earlier
termination of a Section 6(a) Period.
(b) If (i) during the Effective Period, Acquiror shall file a
registration statement (other than in connection with the registration of
securities issuable pursuant to an employee stock option, stock purchase or
similar plan on Form S-8 or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Securities Act)
with respect to any Related Securities and (ii) with reasonable written prior
notice, (A) Acquiror (in the case of a non-underwritten offering pursuant to
such registration statement) advises the Holders in writing that a sale or
distribution of Registrable Securities would adversely affect such offering or
(B) the managing underwriter or underwriters (in the case of an underwritten
offering) advise Acquiror in writing (in which case Acquiror shall notify the
Holders), that a sale or distribution of Registrable Securities would
adversely impact such offering, then each Holder shall, to the extent not
inconsistent with Applicable Law, refrain from effecting any sale or
distribution of Registrable Securities, including sales pursuant to Rule 144
under the Securities Act, during the 10-day period prior to, and during the
90-day period beginning on, the effective date of such registration statement
(a "Section 6(b) Period").
(c) The Effective Period and, in the case where the use of an effective
Registration Statement is prohibited under Section 6(a), the period for which
a Registration Statement shall be kept effective pursuant to Section 7(b), as
the case may be, shall be extended by a number of days equal to the number of
days of any Blackout Period occurring during such period. Except as provided
below, the beginning of any Blackout Period shall be at least 120 days after
the end of any prior Blackout Period; provided, however, that once during
any consecutive 12 months during the Effective Period a Section 6(b) Period
may begin on or within five days of the last day of a Section 6(a) Period.
Notwithstanding anything to the contrary contained herein, the aggregate
number of days included in all Blackout Periods during any consecutive 18
months during the Effective Period shall not exceed 180 days.
(d) During the five day period prior to, and during the 30 day period
commencing on, the effective date of a registration statement filed by
Acquiror on behalf of Holders in connection with an underwritten offering
pursuant to Section 4(a), Acquiror hereby agrees not to effect (except
pursuant to employee benefit plans, the U S WEST Shareowner Investment Plan or
a similar plan) any public sale or distribution of (i) Media Stock, if the
Registrable Securities included in such registration include shares of Media
Stock, and (ii) preferred stock convertible into Media Stock, if the
Registrable Securities included in such registration include shares of Series
D Preferred Stock.
7. Registration Procedures. If and whenever Acquiror is required to
use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, Acquiror
shall, as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement with respect
to such Registrable Securities on any form for which Acquiror then qualifies
or that counsel for Acquiror shall deem appropriate, and which form shall be
available for the sale of the Registrable Securities in accordance with the
intended methods of distribution thereof, and use its best efforts to cause
such Registration Statement to become and remain effective;
(b) prepare and file with the SEC amendments and post-effective
amendments to such Registration Statement and such amendments and supplements
to the Prospectus used in connection therewith as may be necessary to maintain
the effectiveness of such registration or as may be required by the rules,
regulations or instructions applicable to the registration form utilized by
Acquiror or by the Securities Act for a Shelf Registration or otherwise
necessary to keep such Registration Statement effective for at least 90 days
and cause the Prospectus as so supplemented to be filed pursuant to Rule 424
under the Securities Act, and to otherwise comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement until the earlier of (x) such 90th day and (y)
such time as all Registrable Securities covered by such Registration Statement
have ceased to be Registrable Securities (it being understood that Acquiror at
its option may determine to maintain such effectiveness for a longer period,
whether pursuant to a Shelf Registration or otherwise); provided, however,
that a reasonable time before filing a Registration Statement or Prospectus,
or any amendments or supplements thereto (other than reports required to be
filed by it under the Exchange Act), Acquiror shall furnish to the Holders,
the managing underwriter and their respective counsel for review and comment,
copies of all documents proposed to be filed and shall not file any such
documents (other than as aforesaid) to which any of them reasonably object
prior to the filing thereof;
(c) furnish to each Holder of such Registrable Securities and to any
underwriter in connection with an underwritten offer such number of conformed
copies of such Registration Statement and of each amendment and post-effective
amendment thereto (in each case including all exhibits) and such number of
copies of any Prospectus or Prospectus supplement and such other documents as
such Holder or underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities by such Holder or underwriter
(Acquiror hereby consenting to the use (subject to the limitations set forth
in the last paragraph of this Section 7) of the Prospectus or any amendment or
supplement thereto in connection with such disposition);
(d) use its best efforts to register or qualify such Registrable
Securities covered by such Registration Statement under such other securities
or "blue sky" laws of such jurisdictions as each Holder shall reasonably
request, except that Acquiror shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
where, but for the requirements of this Section 7(d), it would not be
obligated to be so qualified, to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(e) notify each Holder of any such Registrable Securities covered by
such Registration Statement, at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act within the appropriate
period mentioned in Section 7(b), of Acquiror's becoming aware that the
Prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and at the request
of any such Holder, prepare and furnish to such Holder a reasonable number of
copies of an amendment or supplement to such Registration Statement or related
Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such Prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(f) notify each Holder covered by such Registration Statement at any
time:
(i) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or
any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC for amendments or supplements to the
Registration Statement or the Prospectus or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or any order preventing the use of
a related Prospectus, or the initiation (or any overt threats) of any
proceedings for such purposes;
(iv) of the receipt by Acquiror of any written notification of the
suspension of the qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation (or overt threats) of any proceeding for
that purpose); and
(v) if at any time the representations and warranties of Acquiror
contemplated by paragraph (i)(1) below cease to be true and correct in all
material respects;
(g) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders an
earnings statement that shall satisfy the provisions of Section 11(a) of the
Securities Act, provided that Acquiror shall be deemed to have complied with
this paragraph if it has complied with Rule 158 of the Securities Act;
(h) use its best efforts to cause all such Registrable Securities to be
listed on any securities exchange on which the class of Registrable Securities
being registered is then listed, if such Registrable Securities are not
already so listed and if such listing is then permitted under the rules of
such exchange, and to provide a transfer agent and registrar for such
Registrable Securities covered by such Registration Statement no later than
the effective date of such Registration Statement;
(i) enter into agreements (including an underwriting agreement in the
form customarily entered into by Acquiror in a comparable underwritten
offering) and take all other appropriate and all commercially reasonable
actions in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders of such
Registrable Securities and the underwriters, if any, in form, substance and
scope as are customarily made by Acquiror to underwriters in comparable
underwritten offerings;
(ii) obtain opinions of counsel to Acquiror and updates thereof (which
counsel and opinions shall be reasonably satisfactory (in form, scope and
substance) to the managing underwriters, if any, and the Holders of a majority
in number of the Registrable Securities being sold) addressed to such Holders
and the underwriters covering the matters customarily covered in opinions
requested in comparable underwritten offerings by Acquiror;
(iii) obtain "cold comfort" letters and updates thereof from Acquiror's
independent certified public accountants addressed to the selling Holders of
Registrable Securities and the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters by independent accountants in connection with comparable
underwritten offerings on such date or dates as may be reasonably requested by
the managing underwriter;
(iv) provide the indemnification in accordance with the provisions and
procedures of Section 10 hereof to all parties to be indemnified pursuant to
such Section; and
(v) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority in number of the Registrable Securities
being sold and the managing underwriters, if any, to evidence compliance with
clause (f) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by Acquiror;
(j) cooperate with the Holders of Registrable Securities covered by such
Registration Statement and the managing underwriter or underwriters to
facilitate, to the extent reasonable under the circumstances, the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing the securities to be sold under such Registration Statement, and
enable such securities to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or such Holders may
request and/or in a form eligible for deposit with the Depository Trust
Company;
(k) make available for inspection by any Holder included in such
Registration Statement, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney, accountant or other
agent retained by any such Holder or underwriter (collectively, the
"Inspectors"), reasonable access to appropriate officers of Acquiror and
Acquiror's subsidiaries to ask questions and to obtain information reasonably
requested by such Inspector and all financial and other records and other
information, pertinent corporate documents and properties of any of Acquiror
and its subsidiaries and affiliates (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility; provided, however, that the Records that Acquiror
determines, in good faith, to be confidential and which it notifies the
Inspectors in writing are confidential shall not be disclosed to any Inspector
unless such Inspector signs a confidentiality agreement reasonably
satisfactory to Acquiror or either (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission of a material fact in
such Registration Statement or (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction;
provided, further, that any decision regarding the disclosure of
information pursuant to subclause (i) shall be made only after consultation
with counsel for the applicable Inspectors; and provided, further, that
each Holder agrees that it will, promptly after learning that disclosure of
such Records is sought in a court having jurisdiction, give notice to Acquiror
and allow Acquiror, at Acquiror's expense, to undertake appropriate action to
prevent disclosure of such Records; and
(l) in the event of the issuance of any stop order suspending the
effectiveness of the Registration Statement or of any order suspending or
preventing the use of any related Prospectus or suspending the qualification
of any Registrable Securities included in the Registration Statement for sale
in any jurisdiction, Acquiror will use all commercially reasonable efforts
promptly to obtain its withdrawal.
Acquiror may require each Holder as to which any registration is being
effected to furnish Acquiror with such information regarding such Holder and
pertinent to the disclosure requirements relating to the registration and the
distribution of such securities as Acquiror may from time to time reasonably
request in writing.
Each Holder agrees that, upon receipt of any notice from Acquiror of the
happening of any event of the kind described in Section 7(e), such Holder
shall forthwith discontinue disposition of Registrable Securities pursuant to
the Prospectus or Registration Statement covering such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 7(e), and, if so directed by Acquiror, such
Holder will deliver to Acquiror (at Acquiror's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event Acquiror shall give any such notice, the Effective
Period and the period mentioned in Section 7(b) shall be extended by the
number of days during the period from the date of the giving of such notice
pursuant to Section 7(e) and through the date when each seller of Registrable
Securities covered by such Registration Statement shall have received the
copies of the supplemented or amended Prospectus contemplated by Section 7(e).
8. Registration Expenses. Acquiror shall pay all Registration
Expenses in connection with all registrations of Registrable Securities
pursuant to Sections 3 and 4 and each Holder shall pay (x) all fees and
expenses of counsel to such Holder and any counsel to the Holders and (y) all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to
the Registration Statement.
9. Rule 144. Acquiror agrees that it shall timely file the reports
required to be filed by it under the Securities Act or the Exchange Act
(including, without limitation, the reports under sections 13 and 15 (d) of
the Exchange Act referred to in paragraph (c)(1) of Rule 144 under the
Securities Act), and shall take such further actions as any Holder may
reasonably request, all to the extent required to enable Holders to sell
Registrable Securities, from time to time, pursuant to the resale limitations
of (a) Rule 144 under the Securities Act, as such rule may be hereafter
amended, or (b) any similar rules or regulations hereafter adopted by the SEC.
Upon the written request of any Holder, Acquiror shall deliver to such Holder
a written statement verifying that it has complied with such requirements.
10. Indemnification; Contribution. (a) Indemnification by Acquiror.
Acquiror agrees to indemnify and hold harmless each Holder included in any
registration of Registrable Securities pursuant to this Agreement, its
trustees, officers and directors and each Person who controls such Holder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act), and any agent or investment adviser thereof against all losses,
claims, damages, liabilities and expenses (including reasonable attorneys'
fees and expenses) incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation arising out of or based upon (i) any
untrue or alleged untrue statement of material fact contained in any
Registration Statement, any Prospectus or preliminary Prospectus, or any
amendment or supplement to any of the foregoing or (ii) any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
Prospectus or a preliminary Prospectus, in light of the circumstances then
existing) not misleading, except in each case insofar as the same arise out of
or are based upon, any such untrue statement or omission made in reliance on
and in conformity with information with respect to such Holder furnished in
writing to Acquiror by such Holder or its counsel expressly for use therein.
In connection with an underwritten offering, Acquiror will indemnify the
underwriters thereof, their officers, directors and agents and each Person who
controls such underwriters (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above
with respect to the indemnification of the Holders. Notwithstanding the
foregoing provisions of this Section 10(a), Acquiror will not be liable to any
Holder, any Person who participates as an underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
Holder or underwriter (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act), under the indemnity agreement in this
Section 10(a) for any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense that arises out of such Holder's or
other Person's failure to send or deliver a copy of a final Prospectus to the
Person asserting an untrue statement or alleged untrue statement or omission
or alleged omission at or prior to the written confirmation of the sale of the
Registrable Securities to such Person if such statement or omission was
corrected in such final Prospectus and Acquiror has previously furnished
copies thereof to such Holder in accordance with this Agreement.
(b) Indemnification by Holders of Registrable Securities. In
connection with the any registration of Registrable Securities pursuant to
this Agreement, each Holder included in such registration shall furnish to
Acquiror and any underwriter in writing such information, including the name,
address and the amount of Registrable Securities held by such Holder, as
Acquiror or any underwriter reasonably requests for use in the Registration
Statement relating to such registration or the related Prospectus and agrees
to indemnify and hold harmless Acquiror, all other Holders and any
underwriter, each such party's officers and directors and each Person who
controls each such party (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act), and any agent or investment adviser
thereof against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses) incurred by each such
party pursuant to any actual or threatened action, suit, proceeding or
investigation arising out of or based upon (i) any untrue or alleged untrue
statement of material fact contained in any Registration Statement, any
Prospectus or preliminary Prospectus, or any amendment or supplement to any of
the foregoing or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein (in the case of a Prospectus or a preliminary Prospectus,
in light of the circumstances then existing) not misleading, but only to the
extent that any such untrue statement or omission is made in reliance on and
in conformity with information with respect to such Holder furnished in
writing to Acquiror or any underwriter by such Holder or its counsel
specifically for inclusion therein.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such indemnified party of any written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party may claim
indemnification or contribution pursuant to this Section 10 (provided that
failure to give such notification shall not affect the obligations of the
indemnifying party pursuant to this Section 10 except to the extent the
indemnifying party shall have been actually prejudiced as a result of such
failure). In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such
indemnified party under these indemnification provisions for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof
other than reasonable costs of investigation. Notwithstanding the foregoing,
if (i) the indemnifying party shall not have employed counsel reasonably
satisfactory to such indemnified party to take charge of the defense of such
action within a reasonable time after notice of commencement of such action
(so long as such failure to employ counsel is not the result of an
unreasonable determination by such indemnified party that counsel selected
pursuant to the immediately preceding sentence is unsatisfactory), or (ii) the
actual or potential defendants in, or targets of, any such action include both
the indemnifying party and such indemnified party and such indemnified party
shall have reasonably concluded that there may be legal defenses available to
it which are different from or additional to those available to the
indemnifying party which, if the indemnifying party and such indemnified party
were to be represented by the same counsel, could result in a conflict of
interest for such counsel or materially prejudice the prosecution of the
defenses available to such indemnified party, then such indemnified party
shall have the right to employ separate counsel, in which case the fees and
expenses of one counsel or firm of counsel (plus one local or regulatory
counsel or firm of counsel) selected by a majority in interest of the
indemnified parties shall be borne by the indemnifying party and the fees and
expenses of all other counsel retained by the indemnified parties shall be
paid by the indemnified parties. No indemnified party shall consent to entry
of any judgment or enter into any settlement without the consent (which
consent, in the case of an action, suit, claim or proceeding exclusively
seeking monetary relief, shall not be unreasonably withheld) of each
indemnifying party.
(d) Contribution. If the indemnification from the indemnifying party
provided for in this Section 10 is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the actions
which resulted in such losses, claims, damages, liabilities and expenses, as
well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether any action in question, including any untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to information supplied
by, such indemnifying party or indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 10(c), any legal and
other fees and expenses reasonably incurred by such indemnified party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 10(d), no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which such underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission and no Holder shall be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities of
such Holder were offered to the public exceeds the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 10, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided
in Section 10(a) or (b), as the case may be, without regard to the relative
fault of such indemnifying parties or indemnified party or any other equitable
consideration provided for in this Section 10(d).
(e) The provisions of this Section 10 shall be in addition to any
liability which any party may have to any other party and shall survive any
termination of this Agreement. The indemnification provided by this Section
10 shall remain in full force and effect irrespective of any investigation
made by or on behalf of an indemnified party, so long as such indemnified
party does not act in a fraudulent, reckless or grossly negligent manner.
11. Participation in Underwritten Offerings. No Holder may
participate in any underwritten offering hereunder unless such Holder (a) in
the case of a registration pursuant to Section 3, agrees to sell such Holder's
securities on the basis provided in any underwriting arrangements approved by
Acquiror in its reasonable discretion and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
12. Miscellaneous. (a) Remedies. Each Holder, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement.
(b) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless Acquiror has obtained the written consent of Holders of at least a
majority in number of the Registrable Securities then outstanding.
(c) Notices. Notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if signed by the respective Persons giving them (in the case of any
corporation the signature shall be by an officer thereof) and delivered by
hand, deposited in the United States mail (registered or certified, return
receipt requested), properly addressed and postage prepaid, or delivered by
telecopy:
If to a Holder, to:
Amos B. Hostetter, Jr.
c/o CONTINENTAL CABLEVISION, INC.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Telephone: (617) 742-9500
Telecopy: (617) 742-0530
Attention: Amos B. Hostetter, Jr.
with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
If to Acquiror, to:
U S WEST, INC.
7800 East Orchard Road
Englewood, Colorado 80111
Telephone: (303) 793-6310
Telecopy: (303) 793-6707
Attention: General Counsel
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Telecopy: (212) 310-8007
Attention: Dennis J. Block, Esq.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors of each of the parties; provided,
however, that any successor to a Holder shall have agreed in writing to
become a Holder under this Agreement and to be bound by the terms and
conditions hereof and to become a Stockholder under the Stockholders Agreement
and to be bound by the terms and conditions thereof. This Agreement and the
provisions of this Agreement that are for the benefit of the Holders shall not
be assignable by any Holder to any Person and any such purported assignment
shall be null and void.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
(f) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and
of the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all remaining provisions contained herein
shall not be in any way impaired thereby, it being intended that all of the
rights and privileges of the Holder shall be enforceable to the fullest extent
permitted by law.
(i) Entire Agreement. This Agreement is intended by the parties as a
final expression and a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter hereof.
There are no restrictions, promises, warranties or undertakings with respect
to the subject matter hereof, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
U S WEST, INC.
By: __________________________________
Name:
Title:
________________________________________
Amos B. Hostetter, Jr.
THE AMOS B. HOSTETTER, JR. 1989 TRUST
By:_____________________________________
Name: Amos B. Hostetter, Jr.
Title: Trustee
By:_____________________________________
Name: Timothy P. Neher
Title: Trustee
THE HOSTETTER FOUNDATION
By:_____________________________________
Name:
Title:
(..continued)
44
EXHIBIT C
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES D CONVERTIBLE
PREFERRED STOCK
OF
U S WEST, INC.
_____________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
_____________________
U S WEST, INC., a corporation organized and existing by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that the following resolution was duly adopted by action of the
Board of Directors of the Corporation at a meeting duly held on February 26,
1996.
RESOLVED that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation by the provisions of Section 3 of
Article V of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), and Section 151(g) of the General Corporation
Law of the State of Delaware, such Board of Directors hereby creates, from the
authorized shares of Preferred Stock, par value $1.00 per share (the
"Preferred Stock"), of the Corporation authorized to be issued pursuant to the
Certificate of Incorporation, a series of Preferred Stock, and hereby fixes
the voting powers, designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, of the shares of such series as follows:
The series of Preferred Stock hereby established shall consist of
20,000,000 shares designated as Series D Convertible Preferred Stock. The
rights, preferences and limitations of such series shall be as follows:
1. Definitions. Unless otherwise defined herein, terms used herein
shall have the meanings assigned to them in Section 2.6 of Article V of the
Certificate of Incorporation and the following terms shall have the indicated
meanings:
1.1 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take
such action.
1.2 "Capital Stock" shall mean any and all shares of corporate stock of
a Person (however designated and whether representing rights to vote, rights
to participate in dividends or distributions upon liquidation or otherwise
with respect to the Corporation, or any division or subsidiary thereof, or any
joint venture, partnership, corporation or other entity).
1.3 "Certificate" shall mean the certificate of the voting powers,
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
Series D Convertible Preferred Stock filed with respect to this resolution
with the Secretary of State of the State of Delaware pursuant to Section 151
of the General Corporation Law of the State of Delaware.
1.4 "Closing Price" shall mean the last reported sale price of the Media
Stock (or such other class or series of common stock into which shares of
this Series are then convertible), regular way, as shown on the Composite Tape
of the NYSE, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices on the NYSE, or, if the Media Stock (or such
other class or series of common stock) is not listed or admitted to trading on
the NYSE, on the principal national securities exchange on which such stock is
listed or admitted to trading, or, if it is not listed or admitted to trading
on any national securities exchange, the last reported sale price of the Media
Stock (or such other class or series of common stock), or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
in either case as reported by Nasdaq.
1.5 "Communications Stock" shall mean the class of U S WEST
Communications Group Common Stock, par value $.01 per share, of the
Corporation or any other class of stock resulting from (x) successive changes
or reclassifications of such stock consisting solely of changes in par value,
or from par value to no par value or (y) a subdivision or combination, and in
any such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities
of the Corporation which are at the time represented by the certificates
representing such shares.
1.6 "Conversion Date" shall have the meaning set forth in Section 3.5.
1.7 "Conversion Price" shall have the meaning set forth in Section 3.1
hereof.
1.8 "Conversion Rate" shall have the meaning set forth in Section 3.1
hereof.
1.9 "Converting Holder" shall have the meaning set forth in Section 3.5
hereof.
1.10 "Current Market Price" on any applicable record date, Conversion
Date or Redemption Date referred to in Section 3 or Section 4 shall mean the
average of the daily Closing Prices per share of Media Stock (or such other
class or series of common stock into which shares of this Series are then
convertible) for the ten (10) consecutive Trading Days ending on the third
Trading Day immediately preceding such record date, Conversion Date or
Redemption Date.
1.11 "Dividend Payment Date" shall have the meaning set forth in Section
2.1 hereof.
1.12 "Effective Time" shall mean the effective time of the Merger.
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
1.14 "Exchange Rate" for each share of this Series called for exchange
shall be a number of shares of Media Stock (or such other class or series of
common stock into which shares of this Series are then convertible) equal to
the quotient of (x) the sum of (I) the Liquidation Value plus (II) the amount
of accrued and unpaid dividends on such share of Series D Stock to the
Redemption Date divided by (y) the product of (I) .95 multiplied by (II) the
Current Market Price on the Redemption Date.
1.15 "Extraordinary Cash Distributions" shall mean, with respect to any
consecutive 12-month period, all cash dividends and cash distributions on the
outstanding shares of Media Stock during such period (other than cash
dividends or cash distributions for which a prior adjustment to the Conversion
Rate was previously made) to the extent such cash dividends and cash
distributions exceed, on a per share of Media Stock basis, 10% of the average
daily Closing Price of the Media Stock over such period.
1.16 "Junior Stock" shall mean the Media Stock, the Communications Stock
and the shares of any other class or series of stock of the Corporation
which, by the terms of the Certificate of Incorporation or of the instrument
by which the Board of Directors, acting pursuant to authority granted in the
Certificate of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall be junior to the Series D Stock in respect of the
right to receive dividends or to participate in any distribution of assets
other than by way of dividends.
1.17 "Liquidation Value" shall have the meaning set forth in Section 6.2
hereof.
1.18 "Media Group Disposition Redemption" shall have the meaning set
forth in Section 4.1 hereof.
1.19 "Media Group Disposition Dividend" shall have the meaning set forth
in Section 4.1 hereof.
1.20 "Media Group Special Dividend" shall have the meaning set forth in
Section 4.1 hereof.
1.21 "Media Group Special Events" shall have the meaning set forth in
Section 4.1 hereof.
1.22 "Media Group Subsidiary Redemption" shall have the meaning set
forth in Section 4.1 hereof.
1.23 "Media Stock" shall mean the class of U S WEST Media Group Common
Stock, par value $.01 per share, of the Corporation or any other class of
stock resulting from (x) successive changes or reclassifications of such stock
consisting solely of changes in par value, or from par value to no par
value or (y) a subdivision or combination, and in any such case including any
shares thereof authorized after the date of the Certificate, together with any
associated rights to purchase other securities of the Corporation which are at
the time represented by the certificates representing such shares.
1.24 "Media Group Tender or Exchange Offer" shall have the meaning set
forth in Section 4.1 hereof.
1.25 "Merger" shall mean either (i) the merger of Continental
Cablevision, Inc., a Delaware corporation, with and into Continental
Cablevision, Inc. or (ii) the merger of Continental Merger Corporation, a
Delaware corporation, with and into the Corporation, pursuant to the terms of
the Merger Agreement.
1.26 "Merger Agreement" shall mean the Agreement and Plan of Merger,
dated as of February 27, 1996, as amended and restated as of June 27, 1996,
among the Corporation, Continental Merger Corporation, a Delaware corporation,
and Continental Cablevision, Inc., a Delaware corporation.
1.27 "Nasdaq" shall mean the Nasdaq National Market.
1.28 "NYSE" shall mean the New York Stock Exchange, Inc.
1.29 "Parity Stock" shall mean the Series A Stock, the Series B Stock,
the Series C Stock and the shares of any other class or series of stock of the
Corporation (other than Junior Stock) which, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the Series D Stock in the payment of
dividends, including accumulations, if any, in accordance with the sums which
would be payable on such shares if all dividends were declared and paid in
full, or shall, in the event that the amounts payable thereon on liquidation
are not paid in full, be entitled to share ratably with the Series D Stock in
any distribution of assets other than by way of dividends in accordance with
the sums which would be payable in such distribution if all sums payable were
discharged in full; provided, however, that the term "Parity Stock" shall
be deemed to refer (i) in Section 6 hereof, to any stock which is Parity Stock
in respect of the distribution of assets; and (ii) in Sections 5.1 and 5.2
hereof, to any stock which is Parity Stock in respect of either dividend
rights or the distribution of assets and which, pursuant to the Certificate of
Incorporation or any instrument in which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall so
designate, is entitled to vote with the holders of Series D Stock.
1.30 "Person" shall mean an individual, corporation, limited liability
company, partnership, joint venture, association, trust, unincorporated
organization or other entity.
1.31 "Preferred Stock" shall mean the class of Preferred Stock, par
value $1.00 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.32 "Record Date" shall have the meaning set forth in Section 2.1
hereof.
1.33 "Redemption Date" shall mean the date on which the Corporation
shall effect the redemption or exchange of all or any part of the outstanding
shares of this Series pursuant to Section 4.1.
1.34 "Redemption Price" for each share of this Series called for
redemption shall be equal to the sum of (x) the Liquidation Value plus (y) an
amount equal to the accrued and unpaid dividends on such share of Series D
Stock to the Redemption Date.
1.35 "Redemption Rescission Event" shall mean the occurrence of (a) any
general suspension of trading in, or limitation on prices for, securities on
the principal national securities exchange on which shares of Media Stock (or
such other class or series of common stock into which shares of this Series
are then convertible) are registered and listed for trading (or, if shares of
Media Stock (or such other class or series of common stock) are not registered
and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (6 ) consecutive trading hours, (b) any
decline in either the Dow Jones Industrial Average or the Standard & Poor's
Index of 500 Industrial Companies (or any successor index published by Dow
Jones & Company, Inc. or Standard & Poor's Corporation) by either (i) an
amount in excess of 10%, measured from the close of business on any Trading
Day to the close of business on the next succeeding Trading Day during the
period commencing on the Trading Day preceding the day notice of any
redemption or exchange of shares of this Series is given (or, if such notice
is given after the close of business on a Trading Day, commencing on such
Trading Day) and ending at the Redemption Date or (ii) an amount in excess of
15% (or, if the time and date fixed for redemption or exchange is more than 15
days following the date on which notice of redemption or exchange is given,
20%), measured from the close of business on the Trading Day preceding the day
notice of such redemption or exchange is given (or, if such notice is given
after the close of business on a Trading Day, from such Trading Day) to the
close of business on any Trading Day on or prior to the Redemption Date, (c) a
declaration of a banking moratorium or any suspension of payments in respect
of banks by Federal or state authorities in the United States or (d) the
commencement of a war or armed hostilities or other national or international
calamity directly or indirectly involving the United States which in the
reasonable judgment of the Corporation could have a material adverse effect on
the market for the Media Stock (or such other class or series of common stock
into which shares of this Series are then convertible).
1.36 "Rescission Date" shall have the meaning set forth in Section 4.5
hereof.
1.37 "Senior Stock" shall mean the shares of any class or series of
stock of the Corporation which, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix
the relative rights, preferences and limitations thereof, shall be senior to
the Series D Stock in respect of the right to receive dividends or to
participate in any distribution of assets other than by way of dividends.
1.38 "Series A Stock" shall mean the series of Preferred Stock
authorized and designated as Series A Junior Participating Cumulative
Preferred Stock at the date of the Certificate, including any shares thereof
authorized and designated after the date of the Certificate.
1.39 "Series B Stock" shall mean the series of Preferred Stock
authorized and designated as Series B Junior Participating Cumulative
Preferred Stock at the date of the Certificate, including any shares thereof
authorized and designated after the date of the Certificate.
1.40 "Series C Stock" shall mean the series of Preferred Stock
authorized and designated as Series C Cumulative Redeemable Preferred Stock at
the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.41 "Series D Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series D Convertible
Preferred Stock, including any shares thereof authorized and designated after
the date of the Certificate.
1.42 "Surrendered Shares" shall have the meaning set forth in Section
3.5 hereof.
1.43 "Trading Day" shall mean, so long as the Media Stock (or such other
class or series of common stock into which shares of this Series are then
convertible) is listed or admitted to trading on the NYSE, a day on which the
NYSE is open for the transaction of business, or, if the Media Stock (or such
other class or series of common stock) is not listed or admitted to trading on
the NYSE, a day on which the principal national securities exchange on which
the Media Stock (or such other class or series of common stock) is listed is
open for the transaction of business, or, if the Media Stock (or such other
class or series of common stock) is not so listed or admitted for trading on
any national securities exchange, a day on which Nasdaq is open for the
transaction of business.
2. Dividends.
2.1 The holders of the outstanding Series D Stock shall be entitled to
receive dividends, as and when declared by the Board of Directors out of funds
legally available therefor, and any dividends declared by the Board of
Directors out of funds legally available therefor in accordance with Section
3.6(d). Each dividend shall be at the annual rate equal to ____% per share of
Series D Stock (which is equivalent to $__________ quarterly and $__________
annually per share). All dividends shall be payable in cash on or about the
first day of February, May, August and November in each year, beginning on the
first such date that is more than 15 days after the Effective Time, as fixed
by the Board of Directors, or such other dates as are fixed by the Board of
Directors (each a "Dividend Payment Date"), to the holders of record of Series
D Stock at the close of business on or about the 15th day of the month next
preceding such first day of February, May, August and November, as the case
may be, as fixed by the Board of Directors, or such other dates as are fixed
by the Board of Directors (each a "Record Date"). Such dividends shall accrue
on each share cumulatively on a daily basis, whether or not there are
unrestricted funds legally available for the payment of such dividends and
whether or not earned or declared, from and after the day immediately
succeeding the Effective Time and any such dividends that become payable for
any partial dividend period shall be computed on the basis of the actual days
elapsed in such period. All dividends that accrue in accordance with the
foregoing provisions shall be cumulative from and after the day immediately
succeeding the Effective Time. The per share dividend amount payable to each
holder of record of Series D Stock on any Dividend Payment Date shall be
rounded to the nearest cent. The dividend rate per share of this Series shall
be appropriately adjusted from time to time to reflect any split or
combination of the shares of this Series.
2.2 Except as hereinafter provided in this Section 2.2 and except for
redemptions by the Corporation pursuant to Sections 4.1(b), 4.1(c) or 4.1(d),
unless all dividends on the outstanding shares of Series D Stock and any
Parity Stock that shall have accrued through any prior Dividend Payment Date
shall have been paid, or declared and funds set apart for payment thereof, no
dividend or other distribution (payable other than in shares of Junior Stock)
shall be paid to the holders of Junior Stock or Parity Stock, and no shares of
Series D Stock, Parity Stock or Junior Stock shall be purchased, redeemed
or otherwise acquired by the Corporation or any of its subsidiaries (except by
conversion into or exchange for Junior Stock), nor shall any monies be paid or
made available for a purchase, redemption or sinking fund for the purchase or
redemption of any Series D Stock, Junior Stock or Parity Stock. When
dividends are not paid in full upon the shares of this Series and any Parity
Stock, all dividends declared upon shares of this Series and all Parity Stock
shall be declared pro rata so that the amount of dividends declared per share
on this Series and all such Parity Stock shall in all cases bear to each other
the same ratio that accrued dividends per share on the shares of this Series
and all such Parity Stock bear to each other. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on this Series which may be in arrears.
3. Conversion Rights.
3.1 (a) Subject to Section 3.1(b), each holder of a share of this
Series shall have the right at any time to convert such share into a number of
shares of Media Stock equal to [ ] shares of Media Stock for each share
of this Series, subject to adjustment as provided in this Section 3 (such
rate, as so adjusted from time to time, is herein called the "Conversion
Rate"; and the "Conversion Price" at any time shall mean the Liquidation Value
per share divided by the Conversion Rate in effect at such time (rounded to
the nearest one hundredth of a cent))
(a) The right of a holder of a share of this Series called for
redemption or exchange pursuant to Sections 4.1(a) or 4.1(c) to convert such
share into Media Stock (or such other class or series of common stock into
which shares of this Series are then convertible) pursuant to Section 3.1(a)
shall terminate at the close of business on the Redemption Date unless the
Corporation defaults in the payment of the Redemption Price or Exchange Rate
or, in the case of a redemption or exchange pursuant to Section 4.1(a), the
Corporation exercises its right to rescind such redemption or exchange
pursuant to Section 4.5, in which case such right of conversion shall not
terminate at the close of business on such date. The right of a holder of a
share of this Series called for redemption pursuant to Section 4.1(b): (i) in
connection with a Media Group Subsidiary Redemption, a Media Group Tender
or Exchange Offer or a Media Group Disposition Redemption involving a
Disposition of all (not merely substantially all) of the properties and assets
attributed to the Media Group, to convert such share into Media Stock pursuant
to Section 3.1(a) shall terminate at the close of business on the Redemption
Date; (ii) in connection with a Media Group Disposition Dividend or Media
Group Special Dividend, to convert such share into Media Stock pursuant to
Section 3.1(a) shall terminate at the close of business on the record date for
determining holders entitled to receive such dividend; and (iii) in connection
with a Media Group Disposition Redemption involving a Disposition of
substantially all (but not all) of the properties and assets attributed to the
Media Group, to convert such share into Media Stock shall terminate at the
close of business on the date on which shares of Media Stock are selected to
be redeemed in such Media Group Disposition Redemption, unless, in any of the
foregoing cases, the Corporation defaults in the payment of the Redemption
Price or the conditions to such redemption set forth in the last sentence of
Section 4.1(b) shall not have been satisfied, in which event such right of
conversion shall not terminate at the close of business on such date. In the
event the Corporation converts all of the outstanding shares of Media Stock
into shares of Communications Stock (or, if the Communications Stock is not
Publicly Traded at such time and shares of any other class or series of common
stock of the Corporation (other than Media Stock) are then Publicly Traded, of
such other class or series of common stock as has the largest Market
Capitalization), the right of a holder of a share of this Series called for
redemption pursuant to Section 4.1(d) in connection with an event
substantially similar to a Media Group Special Event to convert such share
into Communications Stock (or such other class or series of common stock)
shall terminate on a date comparable to the date specified in the preceding
sentence with respect to a Media Group Special Event substantially similar to
such event.
3.2 If any shares of this Series are surrendered for conversion
subsequent to the Record Date preceding a Dividend Payment Date but on or
prior to such Dividend Payment Date (except shares called for redemption or
exchange on a Redemption Date between such Record Date and Dividend Payment
Date and with respect to which such redemption or exchange has not been
rescinded), the registered holder of such shares at the close of business on
such Record Date shall be entitled to receive the dividend, if any, payable on
such shares on such Dividend Payment Date notwithstanding the conversion
thereof. Except as provided in this Section 3.2, no adjustments in respect of
payments of dividends on shares surrendered for conversion or any dividend on
the Media Stock issued upon conversion shall be made upon the conversion of
any shares of this Series.
3.3 The Corporation may, but shall not be required to, in connection
with any conversion of shares of this Series, issue a fraction of a share of
Media Stock, and if the Corporation shall determine not to issue any such
fraction, the Corporation shall, subject to Section 3.6(g), make a cash
payment (rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Media Stock on the last Trading Day prior to the
date of conversion.
3.4 Any holder of shares of this Series electing to convert such shares
into Media Stock shall surrender the certificate or certificates for such
shares at the office of the transfer agent or agents therefor (or at such
other place in the United States as the Corporation may designate by notice to
the holders of shares of this Series) during regular business hours, duly
endorsed to the Corporation or in blank, or accompanied by instruments of
transfer to the Corporation or in blank, or in form satisfactory to the
Corporation, and shall give written notice to the Corporation at such office
that such holder elects to convert such shares of this Series. The
Corporation shall, as soon as practicable and in any event within five Trading
Days (subject to Section 3.6(g)) after such surrender of certificates for
shares of this Series, accompanied by the written notice above prescribed
issue and deliver at such office to the holder for whose account such shares
were surrendered, or to his nominee, (i) certificates representing the number
of shares of Media Stock to which such holder is entitled upon such conversion
and (ii) if less than the full number of shares of this Series represented by
such certificate or certificates is being converted, a new certificate of like
tenor representing the shares of this Series not converted.
3.5 Conversion shall be deemed to have been made immediately prior to
the close of business as of the date that certificates for the shares of this
Series to be converted, and the written notice prescribed in Section 3.4, are
received by the transfer agent or agents for this Series (such date being
referred to herein as the "Conversion Date"). The Person entitled to receive
the Media Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such Media Stock as of the close of business
on the Conversion Date and such conversion shall be at the Conversion Rate in
effect on such date. Notwithstanding anything to the contrary contained
herein, in the event the Corporation shall have rescinded a redemption or
exchange of shares of this Series pursuant to Section 4.5, any holder of
shares of this Series that shall have surrendered shares of this Series for
conversion following the day on which notice of the redemption or exchange
shall have been given but prior to the later of (a) the close of business on
the Trading Day next succeeding the date on which public announcement of the
rescission of such redemption or exchange shall have been made and (b) the
date which is three Trading Days following the mailing of the notice of
rescission required by Section 4.5 (a "Converting Holder") may rescind the
conversion of such shares surrendered for conversion by (i) properly
completing a form prescribed by the Corporation and mailed to holders of
shares of this Series (including Converting Holders) with the Corporation's
notice of rescission, which form shall provide for the certification by any
Converting Holder rescinding a conversion on behalf of any beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of shares of this
Series that the beneficial ownership (within the meaning of such Rule) of such
shares shall not have changed from the date on which such shares were
surrendered for conversion to the date of such certification and (ii)
delivering such form to the Corporation no later than the close of business on
that date which is fifteen (15) Trading Days following the date of the mailing
of the Corporation's notice of rescission. The delivery of such form by a
Converting Holder shall be accompanied by (x) any certificates representing
shares of Media Stock issued to such Converting Holder upon a conversion of
shares of this Series that shall be rescinded by the proper delivery of such
form (the "Surrendered Shares"), (y) any securities, evidences of indebtedness
or assets (other than cash) distributed by the Corporation to such Converting
Holder by reason of such Converting Holder's being a record holder of the
Surrendered Shares and (z) payment in New York Clearing House funds or other
funds acceptable to the Corporation of an amount equal to the sum of (I) any
cash such Converting Holder may have received in lieu of the issuance of
fractional shares upon conversion and (II) any cash paid or payable by the
Corporation to such Converting Holder by reason of such Converting Holder
being a record holder of the Surrendered Shares. Upon receipt by the
Corporation of any such form properly completed by a Converting Holder and any
certificates, securities, evidences of indebtedness, assets or cash payments
required to be returned or made by such Converting Holder to the Corporation
as set forth above, the Corporation shall instruct the transfer agent or
agents for shares of Media Stock and shares of this Series to cancel any
certificates representing the Surrendered Shares (which Surrendered Shares
shall be deposited in the treasury of the Corporation) and reissue
certificates representing shares of this Series to such Converting Holder
(which shares of this Series shall, notwithstanding their surrender for
conversion, be deemed to have been outstanding at all times). The Corporation
shall, as promptly as practicable, and in no event more than five (5) Trading
Days, following the receipt of any such properly completed form and any such
certificates, securities, evidences of indebtedness, assets or cash payments
required to be so returned or made, pay to the Converting Holder or as
otherwise directed by such Converting Holder any dividend or other payment
made on such shares of this Series during the period from the time such shares
shall have been surrendered for conversion to the rescission of such
conversion. All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of any form submitted to the Corporation to
rescind the conversion of shares of this Series, including questions as to the
proper completion or execution of any such form or any certification contained
therein, shall be resolved by the Corporation, whose good faith determination
shall be final and binding. The Corporation shall not be required to deliver
certificates for shares of Media Stock while the stock transfer books for such
stock or for this Series are duly closed for any purpose (but not for a period
in excess of two Trading Days) or during any period commencing at a Redemption
Rescission Event and ending at either (i) the time and date at which the
Corporation's right of rescission shall expire pursuant to Section 4.5 if the
Corporation shall not have exercised such right or (ii) the close of business
on that day which is fifteen (15) Trading Days following the date of the
mailing of a notice of rescission pursuant to Section 4.5 if the Corporation
shall have exercised such right of rescission, but certificates for shares of
Media Stock shall be delivered as soon as practicable after the opening of
such books or the expiration of such period.
3.6 The Conversion Rate shall be adjusted from time to time as follows
for events occurring after the Effective Time:
(a) In case the Corporation shall, at any time or from time to time, (i)
pay a dividend or make a distribution in shares of Media Stock, (ii)
combine the outstanding shares of Media Stock into a smaller number of shares,
or (iii) subdivide or reclassify the outstanding shares of Media Stock, then
the Conversion Rate in effect immediately before such action shall be adjusted
so that immediately following such event the holders of the Series D Stock
shall be entitled to receive upon conversion thereof the kind and amount of
shares of capital stock of the Corporation which they would have owned or been
entitled to receive upon or by reason of such event if such shares of Series D
Stock had been converted immediately before the record date (or, if no record
date, the effective date) for such event. An adjustment made pursuant to this
Section 3.6(a) shall become effective immediately after the opening of
business on the day next following the record date in the case of a dividend
or distribution and shall become effective immediately after the opening of
business on the day next following the effective date in the case of a
subdivision, combination or reclassification. For the purposes of this
Section 3.6(a), if holders of Media Stock are entitled to elect the kind or
amount of securities receivable upon the payment of any such divided,
subdivision, combination or reclassification, each holder of Series D Stock
shall be deemed to have failed to exercise any such right of election
(provided that if the kind or amount of securities receivable upon such
dividend, distribution, subdivision, combination or reclassification is not
the same for each nonelecting share, then the kind and amount of securities
receivable upon such dividend, distribution, subdivision, combination or
reclassification for each nonelecting share shall be deemed to be the kind and
amount so receivable per share by a plurality of the nonelecting shares).
(b) If the Corporation shall issue rights, warrants or options to all
holders of Media Stock entitling them (for a period not exceeding 45 days from
the record date referred to below) to subscribe for or purchase shares of
Media Stock at a price per share less than the Current Market Price
(determined as of the record date for the determination of stockholders
entitled to receive such rights, warrants or options), then, in any such
event, the Conversion Rate shall be adjusted by multiplying the Conversion
Rate in effect immediately prior to the opening of business on such record
date by a fraction, the numerator of which shall be the number of shares of
Media Stock outstanding on such record date plus the maximum number of
additional shares of Media Stock offered for subscription pursuant to such
rights, warrants or options, and the denominator of which shall be the number
of shares of Media Stock outstanding on such record date plus the maximum
number of additional shares of Media Stock which the aggregate offering price
of the maximum number of shares of Media Stock so offered for subscription or
purchase pursuant to such rights, warrants or options would purchase at such
Current Market Price (determined by multiplying such maximum number of shares
by the exercise price of such rights, warrants or options (plus any other
consideration received by the Corporation upon the issuance or exercise of
such rights, warrants or options) and dividing the product so obtained by such
Current Market Price). Such adjustment shall become effective at the opening
of business on the day next following the record date for the determination of
stockholders entitled to receive such rights, warrants or options. To the
extent that shares of Media Stock are not delivered after the expiration of
such rights, warrants or options, the Conversion Rate shall be readjusted to
the Conversion Rate which would then be in effect had the adjustments made
upon the record date for the determination of stockholders entitled to receive
such rights, warrants or options been made upon the basis of delivery of only
the number of shares of Media Stock actually delivered and the amount actually
paid therefor. In determining whether any rights, warrants or options entitle
the holders to subscribe for or purchase shares of Media Stock at a price per
share less than such Current Market Price, there shall be taken into account
any consideration received by the Corporation upon issuance and upon exercise
of such rights, warrants or options. The value of such consideration, if
other than cash, shall be determined by the good faith business judgment of
the Board of Directors, whose determination shall be conclusive.
(c) If the Corporation shall pay a dividend or make a distribution to
all holders of outstanding shares of Media Stock, of capital stock, cash,
evidences of its indebtedness or other assets of the Corporation (but
excluding (x) any cash dividends or distributions (other than Extraordinary
Cash Distributions) and (y) dividends or distributions referred to in Section
3.6(a)), then the Conversion Rate shall be adjusted by multiplying the
Conversion Rate in effect immediately prior to the opening of business on the
record date for the determination of stockholders entitled to receive such
dividend or distribution by a fraction, the numerator of which shall be the
Current Market Price (determined as of such record date), and the denominator
of which shall be such Current Market Price less either (A) the fair market
value (as determined by the good faith business judgment of the Board of
Directors, whose determination shall be conclusive), as of such record date,
of the portion of the capital stock, assets or evidences of indebtedness to be
so distributed applicable to one share of Media Stock or (B), if
applicable, the amount of the Extraordinary Cash Distribution to be
distributed per share of Media Stock. The adjustment pursuant to the
foregoing provisions of this Section 3.6(c) shall become effective at the
opening of business on the day next following the record date for the
determination of stockholders entitled to receive such dividend or
distribution.
(d) In lieu of making an adjustment to the Conversion Rate pursuant
to Sections 3.6(a), 3.6(b) or 3.6(c) above for a dividend or distribution or
an issue of rights, warrants or options, the Corporation may distribute out of
funds legally available therefor to the holders of shares of this Series,
or reserve for distribution out of funds legally available therefor with each
share of Media Stock delivered to a person converting a share of this Series
pursuant to this Section 3, such dividend or distribution or such rights,
warrants or options; provided, however, that in the case of such a
reservation, on the date, if any, on which a person converting a share of this
Series would no longer be entitled to receive such dividend or distribution or
receive or exercise such rights, warrants or options, such dividend or
distribution shall be deemed to have occurred, or such rights, warrants or
options shall be deemed to have issued, and the Conversion Rate shall be
adjusted as provided in Section 3.6(a), 3.6(b) or 3.6(c), as the case may be
(with such termination date being the relevant date of determination for
purposes of determining the Current Market Price).
(e) The Corporation shall be entitled to make such additional increases
in the Conversion Rate, in addition to the adjustments required by subsections
3.6(a) through 3.6(c), as shall be determined by the Board of Directors
to be necessary in order that any dividend or distribution in Media Stock, any
subdivision, reclassification or combination of shares of Media Stock or any
issuance of rights or warrants referred to above, shall not be taxable to the
holders of Media Stock for United States Federal income tax purposes.
(f) To the extent permitted by applicable law, the Corporation may from
time to time increase the Conversion Rate by any amount for any period of time
if the period is at least 20 Trading Days, the increase is irrevocable
during such period and the Board of Directors shall have made a determination
that such increase would be in the best interests of the Corporation, which
determination shall be conclusive.
(g) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or immediately following a record date, the
Corporation may elect to defer (but only for five (5) Trading Days
following the occurrence of the event which necessitates the filing of the
statement referred to in Section 3.9(a)) issuing to the holder of any shares
of this Series converted after such record date (i) the shares of Media Stock
and other capital stock of the Corporation issuable upon such conversion over
and above the shares of Media Stock and other capital stock of the Corporation
issuable upon such conversion on the basis of the Conversion Rate prior to
adjustment and (ii) paying to such holder any amount in cash in lieu of any
fraction thereof pursuant to Section 3.3; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
upon the occurrence of the event requiring such adjustment.
(h) All calculations under this Section 3 shall be made to the nearest
cent, one-hundredth of a share or, in the case of the Conversion Rate, one
hundred-thousandth. Notwithstanding any other provision of this Section 3,
the Corporation shall not be required to make any adjustment of the Conversion
Rate unless such adjustment would require an increase or decrease of at
least 1.00000% of such Conversion Rate. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least 1.00000%
in such rate. Any adjustments under this Section 3 shall be made successively
whenever an event requiring such an adjustment occurs.
(i) If the Corporation shall take a record of the holders of Media Stock
for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Conversion Rate then in
effect shall be required by reason of the taking of such record.
(j) Subject to Section 3.6(e) hereof, no adjustment shall be made
pursuant to this Section 3.6 with respect to any share of Series D Stock that
is converted prior to the time such adjustment otherwise would be made.
3.7 In case of (a) any consolidation or merger to which the Corporation
is a party, other than a merger or consolidation in which the Corporation is
the surviving or continuing corporation and which does not result in any
reclassification of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as a result of a
subdivision or combination) in, outstanding shares of Media Stock (or such
other class or series of common stock into which shares of this Series are
then convertible) or (b) any sale or conveyance of all or substantially all of
the property and assets of the Corporation, then lawful provision shall
be made as part of the terms of such transaction whereby the holder of each
share of Series D Stock which is not converted into the right to receive stock
or other securities and property in connection with such transaction shall
have the right thereafter, during the period such share shall be convertible,
to convert such share into the kind and amount of shares of stock or other
securities and property receivable upon such consolidation, merger, sale or
conveyance by a holder of the number of shares of Media Stock (or such other
class or series of common stock into which shares of this Series are then
convertible) into which such shares of this Series could have been converted
immediately prior to such consolidation, merger, sale or conveyance, subject
to adjustment which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3. If holders of Media Stock (or
such other class or series of common stock into which shares of this Series
are then convertible) are entitled to elect the kind or amount of securities
or other property receivable upon such consolidation, merger, sale or
conveyance, all adjustments made pursuant to this Section 3.7 shall be based
upon (i) the election, if any, made in writing to the Secretary of the
Corporation by the record holder of the largest number of shares of Series D
Stock prior to the earlier of (x) the last date on which a holder of Media
Stock (or such other class or series of common stock) may make such an
election and (y) the date which is five (5) Trading Days prior to the record
date for determining the holders of Media Stock (or such other class or series
of common stock) entitled to participate in the transaction (or if no such
record date is established, the effective date of such transaction) or (ii) if
no such election is timely made, an assumption that each holder of Shares of
this Series failed to exercise such rights of election (provided that if the
kind or amount of securities or other property receivable upon such
consolidation, merger, sale or conveyance is not the same for each nonelecting
share, then the kind and amount of securities or other property receivable
upon such consolidation, merger, sale or conveyance for each nonelecting share
shall be deemed to be the kind and amount so receivable per share by a
plurality of the nonelecting shares). Concurrently with the mailing to
holders of Media Stock (or such other class or series of common stock) of any
document pursuant to which such holders may make an election regarding the
kind or amount of securities or other property that will be receivable by such
holder in any transaction described in clause (a) or (b) of the first sentence
of this Section 3.7, the Corporation shall mail a copy thereof to the holders
of shares of the Series D Stock. The Corporation shall not enter into any of
the transactions referred to in clauses (a) or (b) of the first sentence of
this Section 3.7 unless, prior to the consummation thereof, effective
provision shall be made in a certificate or articles of incorporation or other
constituent document or written instrument of the Corporation or the entity
surviving the consolidation or merger, if other than the Corporation, or the
entity acquiring the Corporation's assets, unless, in either case, such entity
is a direct or indirect subsidiary of another entity, in which case such
provision shall be made in the certificate or articles of incorporation or
other constituent document or written instrument of such other entity (any
such entity or other entity being the "Surviving Entity") so as to assume the
obligation to deliver to each holder of shares of Series D Stock such stock or
other securities and property and otherwise give effect to the provisions set
forth in this Section 3.7. The provisions of this Section 3.7 shall apply
similarly to successive consolidations, mergers, sales or conveyances.
3.8 After the date, if any, on which all outstanding shares of Media
Stock (or such other class or series of common stock into which shares of this
Series are then convertible) are converted into or exchanged for shares
of another class or series of common stock of the Corporation, each share of
this Series shall thereafter be convertible into or exchangeable for the
number of shares of such other class or series of common stock receivable upon
such conversion or exchange by a holder of that number of shares or fraction
thereof of Media Stock (or such other class or series of common stock into
which shares of this Series are then convertible) into which one share of this
Series was convertible immediately prior to such conversion or exchange. From
and after any such conversion or exchange, Conversion Rate adjustments as
nearly equivalent as may be practicable to the adjustments pursuant to
Sections 3.6 and 3.7 which, prior to such exchange, were made in respect of
Media Stock (or such other class or series of common stock into which shares
of this Series are then convertible) shall instead be made pursuant to such
Sections 3.6 and 3.7 in respect of shares of such other class or series of
common stock.
3.9 (a) Whenever the Conversion Rate is adjusted as provided in this
Section 3, the Corporation (or, in the case of Section 3.7, the Corporation or
the Surviving Entity, as the case may be, shall forthwith place on file
with its transfer agent or agents for this Series a statement signed by a duly
authorized officer of the Corporation or the Surviving Entity, as the case may
be, stating the adjusted Conversion Rate determined as provided herein. Such
statements shall set forth in reasonable detail such facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Promptly after the adjustment of the Conversion Rate, the Corporation or the
Surviving Entity, as the case may be, shall mail a notice thereof to each
holder of shares of this Series. Whenever the Conversion Rate is increased
pursuant to Section 3.6(f), such notice shall be mailed to each holder of
shares of this Series as promptly as possible after the Corporation shall have
determined to effect such increase and, in any event, at least 15 Trading Days
prior to the date such increased Conversion Rate takes effect, and such notice
shall state such increased Conversion Rate and the period during which it will
be in effect. Where appropriate, the notice required by this Section 3.9(a)
may be given in advance and included as part of the notice required pursuant
to Section 3.9(b) or 3.9(c).
(a) Subject to the provisions of Section 3.9(c), if: (i) the
Corporation takes any action that would require an adjustment of the
Conversion Rate pursuant to Sections 3.6 through 3.8; (ii) there shall be any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required, or the sale or
transfer of all or substantially all of the assets of the Corporation; or
(iii) there shall occur the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, then the Corporation shall, as promptly as
possible, but at least 10 Trading Days prior to the record date or other date
set for definitive action if there shall be no record date, cause notice to be
filed with the transfer agent or agents for this Series and given to each
record holder of outstanding shares of this Series stating the action or event
for which such notice is being given and the record date for and the
anticipated effective date of such action or event. Failure to give or
receive such notice or any defect therein shall not affect the legality or
validity of the related transaction.
(b) If the Corporation intends to convert all of the outstanding shares
of Media Stock into shares of Communications Stock (or, if the Communications
Stock is not Publicly Traded at such time and shares of any other class or
series of common stock of the Corporation (other than Media Stock) are then
Publicly Traded, of such other class or series of common stock as has the
largest Market Capitalization) (as provided in Section 2.4 of Article V of the
Certificate of Incorporation), then the Corporation shall, not later than
the 35th Trading Day and not earlier than the 45th Trading Day prior to the
date of such conversion, cause notice to be filed with the transfer agent or
agents for this Series and given to each record holder of shares of this
Series, setting forth: (1) a statement that all outstanding shares of Media
Stock shall be converted; (2) the date of such conversion; (3) the per share
number of shares of Communications Stock (or such other class or series of
common stock) to be received with respect to each share of Media Stock,
including details as to the calculation thereof; (4) the place or places where
certificates for shares of Media Stock, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement), are to be
surrendered for delivery of certificates for shares of Communications Stock
(or such other class or series of common stock); (5) the number of shares of
Media Stock outstanding and the number of shares of Media Stock into or for
which outstanding Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof, including
the number of outstanding shares of this Series and the Conversion Price; (6)
a statement to the effect that, subject to Section 2.4.5(I) of Article V of
the Certificate of Incorporation, dividends on shares of such Media Stock
shall cease to be paid as of the date of such conversion; (7) that a holder of
shares of this Series shall be entitled to receive shares of Communications
Stock (or such other class or series of common stock) pursuant to such
conversion if such holder converts shares of this Series on or prior to the
date of such conversion; and (8) a statement as to what such holder will be
entitled to receive pursuant to the terms of Section 3.8 if such holder
thereafter properly converts shares of this Series. In addition, from and
after any conversion of Media Stock effected in accordance with Section 2.4 of
Article V of the Certificate of Incorporation, if (x) a class or series of
common stock of the Corporation exists in addition to the class or series of
common stock into which the Media Stock was converted and (y) the Corporation
intends to convert the class or series of common stock into which the Media
Stock was converted into another such class or series of common stock of the
Corporation, then the Corporation shall give notice comparable to the notice
described in the preceding sentence of its intention to effect such a
conversion. In the event of any conflict between the notice provisions of
this Section 3.9(c) and Section 3.9(b), the notice provisions of this Section
3.9(c) shall govern.
3.10 There shall be no adjustment of the Conversion Rate in case of the
issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in this Section 3.
If any action or transaction would require adjustment of any Conversion
Rate established hereunder pursuant to more than one paragraph of this Section
3, only the adjustment which would result in the largest increase of such
Conversion Rate shall be made.
3.11 The Corporation shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of this Series, such number
of its duly authorized shares of Media Stock (or, if applicable, any other
shares of Capital Stock of the Corporation) as shall from time to time be
sufficient to effect the conversion of all outstanding shares of this Series
into such Media Stock (or such other shares of Capital Stock) at any time;
provided, however, that nothing contained herein shall preclude the
Corporation from satisfying its obligations in respect of the conversion of
the shares by delivery of purchased shares of Media Stock (or such other
shares of Capital Stock) that are held in the treasury of the Corporation.
All shares of Media Stock (or such other shares of Capital Stock of the
Corporation) which shall be deliverable upon conversion of the shares of this
Series shall be duly and validly issued, fully paid and nonassessable. For
purposes of this Section 3, the number of shares of Media Stock or any
other class or series of common stock of the Corporation at any time
outstanding shall not include any shares of Media Stock or such other class or
series of common stock then owned or held by or for the account of Corporation
or any subsidiary of the Corporation.
3.12 If any shares of Media Stock (or such other class or series of
common stock into which shares of this Series are then convertible) which
would be issuable upon conversion of shares of this Series hereunder require
registration with or approval of any governmental authority before such shares
may be issued upon conversion, the Corporation will in good faith and as
expeditiously as possible cause such shares to be duly registered or approved,
as the case may be. The Corporation will endeavor to list the shares of (or
depositary shares representing fractional interests in) Media Stock (or such
other class or series of common stock into which shares of this Series are
then convertible) required to be delivered upon conversion of shares of this
Series prior to such delivery upon the principal national securities exchange
upon which the outstanding Media Stock (or such other class or series of
common stock) is listed at the time of such delivery.
3.13 The Corporation shall pay any and all issue, stamp, documentation,
transfer or other taxes that may be payable in respect of any issue or
delivery of shares of Media Stock (or such other class or series of common
stock into which shares of this Series are then convertible) on conversion of
shares of this Series pursuant hereto. The Corporation shall not, however, be
required to pay any tax which is payable in respect of any transfer
involved in the issue or delivery of Media Stock (or such other class or
series of common stock) in a name other than that in which the shares of this
Series so converted were registered, and no such issue or delivery shall be
made unless and until the Person requesting such issue has paid to the
Corporation the amount of such tax, or has established, to the satisfaction of
the Corporation, that such tax has been paid.
4. Redemption or Exchange.
4.1 (a) Except as provided in Section 4.1(b), the shares of this Series
shall not be redeemable by the Corporation prior to the third anniversary
of the Effective Time. The Corporation may, at its sole option, subject to
Section 2.2 hereof, from time to time on and after the third anniversary of
the Effective Time and prior to the fifth anniversary of the Effective Time,
exchange shares of Media Stock (or such other class or series of common stock
into which shares of this Series are then convertible) for all or any part of
the outstanding shares of this Series at the Exchange Rate; provided,
however, that such an exchange may only be effected if the Closing Price
shall be greater than the product of (x) the Conversion Price multiplied by
(y) 1.35, on 20 of the 30 Trading Days immediately prior to the date of the
notice delivered by the Corporation pursuant to Section 4.3(a) to holders of
shares of this Series to be exchanged. The Corporation may, at its sole
option, subject to Section 2.2 hereof, from time to time on and after the
fifth anniversary of the Effective Time, at its election either: (i) redeem,
out of funds legally available therefor, all or any part of the outstanding
shares of this Series at the Redemption Price; (ii) exchange shares of Media
Stock (or such other class or series of common stock into which shares of this
Series are then convertible) for all or any part of the outstanding shares of
this Series at the Exchange Rate; or (iii) effect a combination of the options
described in the foregoing clauses (i) and (ii) (in which event each holder of
shares of this Series which are selected for redemption and exchange pursuant
to Section 4.2 shall receive the same proportion of cash and shares of Media
Stock (or such other class or series of common stock into which shares of this
Series are then convertible) (except for cash paid in lieu of fractional
shares) paid to other holders of shares of this Series selected for redemption
and exchange).
(a) The Corporation shall redeem, out of funds legally available
therefor, all of the outstanding shares of this Series, at the Redemption
Price, if any of the following events with respect to the Media Group occur
(such events being collectively referred to herein as the "Media Group Special
Events"):
(i) (A) the Corporation redeems all of the outstanding shares of Media
Stock in exchange for shares of common stock of the Media Group Subsidiaries
as provided in Section 2.4.3 of Article V of the Certificate of Incorporation
(the "Media Group Subsidiary Redemption") or (B) following a Disposition of
all or substantially all of the properties and assets attributed to the Media
Group, the Corporation either (1) pays a dividend on the Media Stock in an
amount equal to the product of the Outstanding Media Fraction multiplied by
the Fair Value of the Net Proceeds of such Disposition as provided in Section
2.4.1(A)(1)(a) of Article V of the Certificate of Incorporation (the "Media
Group Disposition Dividend"), or (2) redeems shares of Media Stock for an
amount equal to the product of the Outstanding Media Fraction multiplied by
the Fair Value of the Net Proceeds of such Disposition as provided in Section
2.4.1(A)(1)(b) of Article V of the Certificate of Incorporation (the "Media
Group Disposition Redemption"); or
(ii) the Corporation pays a dividend on, or the Corporation or any of
its subsidiaries consummates a tender offer or exchange offer for, shares of
Media Stock and the aggregate amount of such dividend or the consideration
paid in such tender offer or exchange offer is an amount equal to the Fair
Value of all or substantially all of the properties and assets attributed to
the Media Group (the "Media Group Special Dividend" or the "Media Group Tender
or Exchange Offer", respectively); provided, however, that the
calculation of the Fair Value of all or substantially all of the properties
and assets attributed to the Media Group shall be made without giving effect
to any money borrowed by the Corporation or any of its subsidiaries in
connection with such dividend or tender offer or exchange offer, as the case
may be.
The Redemption Date for shares of this Series to be redeemed by the
Corporation pursuant to this Section 4.1(b) shall be, if the applicable Media
Group Special Event is (I) the Media Group Subsidiary Redemption, the date of
such exchange, (II) the Media Group Disposition Dividend or the Media Group
Special Dividend, the date of payment of such dividend, (III) the Media Group
Disposition Redemption, the date of such redemption or (IV) the Media Group
Tender or Exchange Offer, the date such tender offer or exchange offer is
consummated. Notwithstanding anything to the contrary contained in this
Section 4.1(b), any redemption pursuant to this Section 4.1(b) shall be
conditioned upon the actual redemption of Media Stock for shares of common
stock of the Media Group Subsidiaries, payment of the Media Group Disposition
Dividend or the amount due as a result of the Media Group Disposition
Redemption (in each case in the required kind of capital stock, cash,
securities and/or other property), payment of the Media Group Special Dividend
or the consummation of the Media Group Tender or Exchange Offer, as the case
may be.
(b) The Corporation shall, on the twentieth anniversary of the Effective
Time, at its election either: (i) redeem, out of funds legally available
therefor, all of the outstanding shares of this Series at the Redemption
Price; (ii) exchange shares of Media Stock (or such other class or series of
common stock into which shares of this Series are then convertible) for all of
the outstanding shares of this Series at the Exchange Rate; or (iii) effect a
combination of the options described in the foregoing clauses (i) and (ii) (in
which event each holder of shares of this Series shall receive the same
proportion of cash and shares of Media Stock (or such other class or series of
common stock into which shares of this Series are then convertible) (except
for cash paid in lieu of fractional shares) paid to other holders of shares of
this Series).
(c) The Corporation shall redeem, out of funds legally available
therefore, all of the outstanding shares of this Series at the Redemption
Price, if (i) the Corporation converts all of the outstanding shares of Media
Stock into shares of Communications Stock (or, if the Communications Stock is
not Publicly Traded at such time and shares of any other class or series of
common stock of the Corporation (other than Media Stock) are then Publicly
Traded, of such other class or series of common stock as has the largest
Market Capitalization) as provided in Section 2.4 of Article V of the
Certificate of Incorporation and (ii) at any time following such conversion
(A) an event substantially similar to any Media Group Special Event occurs in
respect to the Communications Stock (or such other class or series of common
stock) and (B) at the time of such event shares of another class or series of
common stock of the Corporation (other then Communications Stock or such other
class or series of common stock) are then Publicly Traded. The
Redemption Date for, and the conditions to, any such redemption shall be
determined in a manner consistent with the Redemption Date and conditions set
forth in Section 4.1(b) for a redemption resulting from a substantially
similar Media Group Special Event.
(d) The Corporation shall be entitled to effect an exchange of shares of
Media Stock (or such other class or series of common stock into which
shares of this Series are then convertible) for shares of Series D Stock
pursuant to Section 4.1(a) or 4.1(c) only to the extent Media Stock (or such
other class or series of common stock) shall be available for issuance
(including delivery of previously issued shares of Media Stock (or such other
class or series) held in the Corporation's treasury on the Redemption Date).
The Corporation may, but shall not be required to, in connection with any
exchange of shares of this Series pursuant to Section 4.1(a) or 4.1(c), issue
a fraction of a share of Media Stock (or such other class or series of common
stock into which shares of this Series are then convertible), and if the
Corporation shall determine not to issue any such fraction, the Corporation
shall make a cash payment (rounded to the nearest cent) equal to such fraction
multiplied by the Closing Price of the Media Stock (or such other class or
series of common stock) on the last Trading Day prior to the Redemption Date.
4.2 In the event that fewer than all of the outstanding shares of this
Series are to be redeemed and/or exchanged pursuant to Section 4.1(a), subject
to clause (iii) of the third sentence of Section 4.1(a), the aggregate
number of shares of this Series held by each holder which will be redeemed
and/or exchanged shall be determined by the Corporation by lot or pro rata or
by any other method as may be determined by the Board of Directors in its sole
discretion to be equitable, and the certificate of the Corporation's Secretary
or an Assistant Secretary filed with the transfer agent or transfer agents for
this Series in respect of such determination by the Board of Directors shall
be conclusive.
4.3 (a) If the Corporation determines to redeem and/or exchange shares
of this Series pursuant to Section 4.1(a) or 4.1(c), the Corporation shall,
not later than the 15th Trading Day nor earlier than the 60th Trading Day
prior to the Redemption Date, cause notice to be filed with the transfer agent
or agents for this Series and to be given to each record holder of the
shares to be redeemed and/or exchanged, setting forth: (1) the Redemption
Date; (2) in the case of a redemption or exchange pursuant to Section 4.1(c),
that all shares of this Series outstanding on the Redemption Date shall be
redeemed and/or exchanged by the Corporation; (3) in the case of a redemption
or exchange pursuant to Section 4.1(a), the total number of shares of this
Series to be redeemed and/or exchanged and, if fewer than all the shares held
by such holder are to be redeemed and/or exchanged, the aggregate number of
such shares which will be redeemed and/or exchanged; (4) the Redemption Price
and/or the manner in which the Exchange Rate will be calculated prior to the
Redemption Date; (5) that, if applicable, the Corporation shall determine on
or prior to the second Trading Day preceding the Redemption Date the
percentage of such holder's shares to be redeemed and the percentage of such
holder's shares to be exchanged; (6) that shares of this Series called for
redemption or exchange may be converted at any time prior to the Redemption
Date (unless the Corporation (i) shall, in the case of a redemption, default
in payment of the Redemption Price or, in the case of an exchange, fail to
exchange the shares of this Series for the applicable number of shares of
Media Stock or (ii) shall, in the case of a redemption pursuant to Section
4.1(a), exercise its right to rescind such redemption or exchange pursuant to
Section 4.5, in which case such right of conversion shall not terminate at
such time and date); (7) the applicable Conversion Price; (8) the place or
places where certificates for such shares are to be surrendered for payment of
the Redemption Price and/or the Exchange Rate, as the case may be; and (9)
that dividends on the shares to be redeemed and/or exchanged will cease to
accrue on the Redemption Date. Promptly, following the Redemption Date, the
Corporation shall cause notice to be filed with the transfer agent or agents
for this Series and to be given to each record holder of the shares to be
redeemed and/or exchanged setting forth the percentage of such holder's shares
which the Corporation has elected to redeem and the percentage of such
holder's shares which the Corporation has elected to exchange.
(a) If the Corporation determines to effect a Media Group Subsidiary
Redemption, the Corporation shall, not later than the 30th Trading Day and not
earlier than the 45th Trading Day prior to the Redemption Date, cause
notice to be filed with the transfer agent or agents for this Series and given
to each record holder of shares of this Series, setting forth: (1) the
Redemption Date (which, pursuant to the penultimate sentence of Section
4.1(b), shall be the same as the date specified in clause (8) below); (2) that
all shares of this Series outstanding on the Redemption Date shall be redeemed
by the Corporation; (3) the Redemption Price; (4) that the redemption of the
shares of this Series shall be conditioned upon the consummation of the Media
Group Subsidiary Redemption; (5) the place or places where certificates for
shares of this Series, properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), are to be surrendered for payment of the
Redemption Price; (6) that dividends on the shares to be redeemed will cease
to accrue on the Redemption Date; (7) a statement that all shares of Media
Stock outstanding on the date of the Media Group Subsidiary Redemption shall
be redeemed in exchange for shares of common stock of the Media Group
Subsidiaries; (8) the date of such Media Group Subsidiary Redemption; (9) the
Outstanding Media Fraction on the date of such notice; (10) the place or
places where certificates for shares of Media Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement),
are to be surrendered for delivery of certificates for shares of the Media
Group Subsidiaries; (11) a statement to the effect that, subject to Section
2.4.5(I) of Article V of the Certificate of Incorporation, dividends on the
Media Stock shall cease to be paid as of the Redemption Date; (12) the number
of shares of Media Stock outstanding and the number of shares of Media Stock
into or for which outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof, including the number of outstanding shares of this Series and the
Conversion Price; and (13) that a holder of shares of this Series shall be
entitled to receive shares of common stock of the Media Group Subsidiaries
upon the Media Group Subsidiary Redemption in lieu of the Redemption Price
only if such holder converts such shares of this Series on or prior to the
Redemption Date.
(b) If the Corporation determines to effect a Media Group Disposition
Dividend, the Corporation shall, not later than the 30th Trading Day following
the consummation of the Disposition by the Corporation of all or
substantially all of the properties and assets attributed to the Media Group,
cause notice to be filed with the transfer agent or agents for this Series and
given to each record holder of shares of this Series, setting forth: (1) the
anticipated Redemption Date (which, pursuant to the penultimate sentence of
Section 4.1(b), shall be the same as the date specified in clause (8) below);
(2) that all shares of this Series outstanding on the Redemption Date shall be
redeemed by the Corporation; (3) the Redemption Price; (4) that the redemption
of the shares of this Series shall be conditioned upon the payment of the
Media Group Disposition Dividend; (5) the place or places where certificates
for shares of this Series, properly endorsed or assigned for transfer (unless
the Corporation waives such requirement), are to be surrendered for payment of
the Redemption Price; (6) that dividends on the shares to be redeemed will
cease to accrue on the Redemption Date; (7) the record date for determining
holders of Media Stock entitled to receive the Media Group Disposition
Dividend, which shall be not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition; (8)
the anticipated date of payment of the Media Group Disposition Dividend (which
shall not be more than 85 Trading Days following the consummation of such
Disposition); (9) the type of property to be paid as such dividend in respect
of the outstanding shares of Media Stock; (10) the Net Proceeds of such
Disposition; (11) the Outstanding Media Fraction on the date of such notice;
(12) the number of outstanding shares of Media Stock and the number of shares
of Media Stock into or for which outstanding Convertible Securities are then
convertible, exchangeable or exercisable and the conversion, exchange or
exercise price thereof, including the number of outstanding shares of this
Series and the Conversion Price in effect at such time; and (13) that a holder
of shares of this Series shall be entitled to receive such dividend in lieu of
the Redemption Price only if such holder properly converts such shares on or
prior to the record date referred to in clause (7) of this sentence and that
shares of this Series shall not be convertible after such record date.
(c) If the Corporation determines to effect a Media Group Disposition
Redemption following a Disposition of all (not merely substantially all) of
the properties and assets attributed to the Media Group (in accordance with
Section 2.4.1(A)(1)(b)(i) of Article V of the Certificate of Incorporation),
the Corporation shall, not later than the 35th Trading Day and not earlier
than the 45th Trading Day prior to the Redemption Date, cause notice to be
filed with the transfer agent or agents for this Series and given to each
record holder of shares of this Series, setting forth: (1) the Redemption
Date (which, pursuant to the penultimate sentence of Section 4.1(b), shall be
the same as the date specified in clause (8) below); (2) that all shares of
this Series outstanding on the Redemption Date shall be redeemed by the
Corporation; (3) the Redemption Price; (4) that the redemption of shares of
this Series shall be conditioned upon the consummation of the Media Group
Disposition Redemption; (5) the place or places where certificates for shares
of this Series, properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), are to be surrendered for payment of the
Redemption Price; (6) that dividends on the shares to be redeemed will
cease to accrue on the Redemption Date; (7) that all shares of Media Stock
outstanding on the date of such Media Group Disposition Redemption shall be
redeemed; (8) the date of such Media Group Disposition Redemption (which shall
not be more than 85 Trading Days following the consummation of such
Disposition); (9) the type of property in which the redemption price for the
shares of Media Stock to be redeemed is to be paid; (10) the Net Proceeds of
such Disposition; (11) the Outstanding Media Fraction on the date of such
notice; (12) the place or places where certificates for shares of Media Stock,
properly endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of cash and/or securities or
other property; (13) the number of outstanding shares of Media Stock and the
number of shares of Media Stock into or for which such outstanding Convertible
Securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price thereof, including the number of
outstanding shares of this Series and the Conversion Price in effect at such
time; (14) that a holder of shares of this Series shall be entitled to
participate in the Media Group Disposition Redemption in lieu of participating
in the redemption of the shares of this Series only if such holder properly
converts such shares of this Series on or prior to the Redemption Date; and
(15) that, except as otherwise provided by Section 2.4.5(I) of Article V of
the Certificate of Incorporation, dividends on shares of Media Stock shall
cease to be paid as of the Redemption Date.
(d) If the Corporation determines to effect a Media Group Disposition
Redemption following a Disposition of substantially all (but not all) of the
properties and assets attributed to the Media Group (in accordance with
Section 2.4.1(A)(1)(b)(ii) of Article V of the Certificate of Incorporation),
the Corporation shall, not later than the 30th Trading Day following the
consummation of such Disposition, cause notice to be filed with the transfer
agent or agents for this Series and given to each record holder of shares of
this Series, setting forth: (1) the anticipated Redemption Date (which,
pursuant to the penultimate sentence of Section 4.1(b), shall be the same as
the date specified in clause (8) below); (2) that all shares of this Series
outstanding on the Redemption Date shall be redeemed by the Corporation; (3)
the Redemption Price; (4) that the redemption of shares of this Series shall
be conditioned upon the consummation of the Media Group Disposition
Redemption; (5) the place or places where certificates for shares of this
Series, properly endorsed or assigned for transfer (unless the Corporation
waives such requirement), are to be surrendered for payment of the Redemption
Price; (6) that dividends on the shares to be redeemed will cease to accrue on
the Redemption Date; (7) a date not earlier than the 40th Trading Day and
not later than the 50th Trading Day following the consummation of such
Disposition on which shares of Media Stock shall be selected for redemption
pursuant to such Media Group Disposition Redemption; (8) the anticipated date
of such Media Group Disposition Redemption (which shall not be more than 85
Trading Days following the consummation of such Disposition); (9) the type of
property in which the redemption price for the shares of Media Stock to be
redeemed is to be paid; (10) the Net Proceeds of such Disposition; (11) the
Outstanding Media Fraction; (12) the number of shares of Media Stock
outstanding and the number of shares of Media Stock into or for which
outstanding Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof, including
the number of outstanding shares of this Series and the Conversion Price in
effect at such time; (13) that a holder of shares of this Series shall be
eligible to participate in such selection for redemption pursuant to such
Media Group Disposition Redemption in lieu of participating in the redemption
of shares of this Series only if such holder properly converts such shares of
this Series on or prior to the date referred to in clause (7) of this sentence
and that shares of this Series shall not be convertible after such date; and
(14) a statement that the Corporation will not be required to register a
transfer of any shares of Media Stock for a period of 15 Trading Days next
preceding the date referred to in clause (7) of this sentence.
(e) If the Corporation determines to effect a Media Group Special
Dividend, the Corporation shall, not later than the 45th Trading Day and not
earlier than the 60th Trading day prior to the date of payment of such
dividend, cause notice to be filed with transfer agent or agent for this
Series and given to each record holder of shares of this Series, setting
forth: (1) the anticipated Redemption Date (which, pursuant to the
penultimate sentence of Section 4.1(b), shall be the same as the date
specified in clause (8) below); (2) that all shares of this Series outstanding
on the Redemption Date shall be redeemed by the Corporation; (3) the
Redemption Price; (4) that the redemption of the shares of this Series shall
be conditioned upon the payment of the Media Group Special Dividend; (5) the
place or places where certificates for shares of this Series, properly
endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for payment of the Redemption Price; (6)
that dividends on the shares to be redeemed will cease to accrue on the
Redemption Date; (7) the record date for determining holders of Media Stock
entitled to receive the Media Group Special Dividend, which shall be not
earlier than the 20th Trading Day prior to the date of payment of such
dividend; (8) the anticipated date of payment of the Media Group Special
Dividend; (9) the type of property to be paid as such dividend in respect of
the outstanding shares of Media Stock; (10) the Outstanding Media Fraction on
the date of such notice; (11) the number of outstanding shares of Media Stock
and the number of shares of Media Stock into or for which outstanding
Convertible Securities are then convertible, exchangeable or exercisable and
the conversion, exchange or exercise price thereof, including the number of
outstanding shares of this Series and the Conversion Price in effect at such
time; and (12) that a holder of shares of this Series shall be entitled to
receive such dividend in lieu of the Redemption Price only if such holder
properly converts such shares on or prior to the record date referred to in
clause (7) of this sentence and that shares of this Series shall not be
convertible after such record date.
(f) If the Corporation or any of its subsidiaries determines to effect a
Media Group Tender or Exchange Offer, the Corporation shall, on the date
of the public announcement of such tender offer or exchange offer by the
Corporation or any of its subsidiaries but in any event not later than the
35th Trading Day prior to such redemption, cause notice to be filed with the
transfer agent or agent for this Series and given to each record holder of
shares of this Series, setting forth: (1) the anticipated Redemption Date
(which, pursuant to the penultimate sentence of Section 4.1(b), shall be the
same as the date specified in clause (7) below); (2) that all shares of this
Series outstanding on the Redemption Date shall be redeemed by the
Corporation; (3) the Redemption Price; (4) that the redemption of shares of
this Series shall be conditioned upon the consummation of the Media Group
Tender or Exchange Offer; (5) the place or places where certificates for
shares of this Series, properly endorsed or assigned for transfer (unless the
Corporation waives such requirement), are to be surrendered for payment of the
Redemption Price; (6) that dividends on the shares to be redeemed will cease
to accrue on the Redemption Date; (7) the anticipated date of consummation of
such Media Group Tender or Exchange Offer; (8) the type of consideration to be
paid by the Corporation or its subsidiary in such Media Group Tender Offer or
Exchange Offer for shares of Media Stock; (9) the date on which such Media
Group Tender or Exchange Offer commenced, the date on which such Media Group
Tender or Exchange Offer is scheduled to expire unless extended and any other
material terms thereof (or the material terms of any amendment thereto); (10)
the Outstanding Media Fraction on the date of such notice; (11) the number of
outstanding shares of Media Stock and the number of shares of Media Stock into
or for which such outstanding Convertible Securities are then convertible,
exchangeable or exercisable and the conversion, exchange or exercise price
thereof, including the number of outstanding shares of this Series and the
Conversion Price in effect at such time; and (12) that a holder of shares of
this Series shall be entitled to participate in the Media Group Tender or
Exchange Offer in lieu of participating in the redemption of the shares of
this Series only if such holder properly converts such shares of this Series
on or prior to the Redemption Date and then complies with the terms and
conditions of the Media Group Tender or Exchange Offer and that such holder
shall be permitted to tender or exchange shares of Media Stock upon conversion
of shares of this Series by notice of guaranteed delivery so long as physical
certificates are tendered as soon as practicable after physical receipt
thereof.
(g) In the event the Corporation shall redeem shares of this Series
pursuant to Section 4.1(d), notice of such redemption shall be given by the
Corporation at a time, and such notice shall contain information, comparable
to the time or information, as the case may be, specified in Sections 4.3(b)
through (g) with respect to a notice of a redemption pursuant to Section
4.1(b) resulting from a substantially similar Media Group Special Event.
4.4 If notice of redemption or exchange shall have been given by the
Corporation as provided in Section 4.3, from and after the Redemption Date,
dividends on the shares of this Series so called for redemption or exchange
shall cease to accrue, such shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of the
Corporation with respect to shares so called for redemption or exchange
(except, in the case of a redemption, the right to receive from the
Corporation the Redemption Price without interest and, in the case of an
exchange, the right to receive from the Corporation the Exchange Rate without
interest) shall cease (including any right to receive dividends otherwise
payable on any Dividend Payment Date that would have occurred after the
Redemption Date), unless (a) the Corporation, in the case of a redemption,
defaults in the payment of the Redemption Price and, in the case of an
exchange, the Corporation fails to exchange the shares of this Series for the
applicable number of shares of Media Stock, (b) in the case of a redemption or
exchange pursuant to Section 4.1(a), the Corporation exercises its right
to rescind such redemption or exchange pursuant to Section 4.5 or (c) in the
case of a redemption pursuant to Section 4.1(b) or 4.1(d), the conditions to
such redemption shall not have been satisfied, in which case such rights shall
not terminate at the close of business on such date. On or before the
Redemption Date, the Corporation shall deposit with a bank or trust company
doing business in New York, as paying agent, in the case of a redemption,
money sufficient to pay the Redemption Price on the Redemption Date, and in
the case of an exchange, certificates representing the shares of Media Stock
to be exchanged on the Redemption Date, in trust, with irrevocable
instructions that such money or shares be applied to the redemption or
exchange of shares of this Series so called for redemption or exchange. Any
money or certificates so deposited with any such paying agent which shall not
be required for such redemption or exchange because of the exercise of any
right of conversion, rescission or otherwise (including if the conditions to a
redemption pursuant to Section 4.1(b) or 4.1(d) are not satisfied) shall be
returned to the Corporation forthwith. Upon surrender (in accordance with the
notice of redemption or exchange) of the certificate or certificates for any
shares of this Series to be so redeemed or exchanged (properly endorsed or
assigned for transfer, if the Corporation shall so require and the notice of
redemption or exchange shall so state), such shares shall be redeemed by the
Corporation at the Redemption Price or exchanged by the Corporation at the
Exchange Rate, as applicable (unless, in the case of a redemption or exchange
pursuant to Section 4.1(a), the Corporation shall have exercised its right to
rescind such redemption or exchange pursuant to Section 4.5 or, in the case of
a redemption pursuant to Section 4.1(b) or 4.1(d), the conditions to such
redemption shall not have been satisfied). In case fewer than all the shares
represented by any such certificate are to be redeemed or exchanged, a new
certificate shall be issued representing the unredeemed and unexchanged shares
(or fractions thereof as provided in Section 7.4), without cost to the holder
thereof. Subject to applicable escheat laws, any moneys or shares so set
aside by the Corporation and unclaimed at the end of two years from the
Redemption Date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption or
exchange shall look only to the Corporation for the payment of the Redemption
Price or the Exchange Rate, as the case may be, without interest. Any
interest accrued on any funds so deposited shall be paid to the Corporation
from time to time.
4.5 If notice of redemption or exchange pursuant to Section 4.1(a) shall
have been given by the Corporation pursuant to Section 4.3(a), in the
event that a Redemption Rescission Event shall occur following the date of
such notice but at or prior to the Redemption Date, the Corporation may, at
its sole option, at any time prior to the earlier of (i) the close of business
on that day which is five (5) Trading Days following such Redemption
Rescission Event and (ii) the Redemption Date, rescind such redemption or
exchange by making a public announcement of such rescission (the date on which
such public announcement shall have been made being hereinafter referred to as
the "Rescission Date"). The Corporation shall be deemed to have made such
announcement if it shall issue a release to the Dow Jones News Service and
Reuters Information Services or any successor news wire service. From and
after the making of such announcement, the Corporation shall have no
obligation to effect such redemption or exchange or to pay the Redemption
Price or Exchange Rate therefor and all rights of holders of shares of this
Series shall be restored as if notice of redemption or exchange had not been
given. The Corporation shall give notice of any such rescission by
first-class mail, postage prepaid, mailed as promptly as practicable, but in
no event later than the close of business on that date which is five (5)
Trading Days following the Rescission Date to each record holder of shares of
this Series at the close of business on the Rescission Date and to any other
Person or entity that was a record holder of shares of this Series and that
shall have surrendered shares of this Series for conversion following the
giving of notice of the subsequently rescinded redemption or exchange. Each
notice of rescission shall (w) state that such redemption or exchange has been
rescinded, (x) state that any Converting Holder shall be entitled to rescind
the conversion of shares of this Series surrendered for conversion following
the day on which notice of such redemption or exchange was given but on or
prior to the later of (I) the close of business on the Trading Day next
succeeding the date on which public announcement of the rescission of such
redemption or exchange shall have been made and (II) the date which is three
Trading Days following the mailing of the Corporation's notice of rescission,
(y) be accompanied by a form prescribed by the Corporation to be used by any
Converting Holder rescinding the conversion of shares so surrendered for
conversion (and instructions for the completion and delivery of such form,
including instructions with respect to payments that may be required to
accompany such delivery in accordance with Section 3.5) and (z) state that
such form must be properly completed and received by the Corporation no later
than the close of business on a date that shall be fifteen (15) Trading Days
following the date of the mailing of such notice of rescission.
5. Voting. The shares of this Series shall have no voting rights
except as required by law or as set forth below.
5.1 (a) So long as any shares of this Series remain outstanding, unless
a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at
least a majority of the shares of this Series then outstanding (i) authorize
any Senior Stock or reclassify any Junior Stock or Parity Stock as Senior
Stock, or (ii) amend, alter or repeal any of the provisions of the Certificate
or the Certificate of Incorporation, so as in any such case to materially and
adversely affect the voting powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of the shares of this Series; provided,
however, that an amendment which effects a split of this Series or which
effects a combination of the shares of this Series into a fewer number of
Shares shall not be deemed to have any such material adverse effect.
(a) No vote or consent of holders of shares of this Series shall be
required for (i) the creation of any indebtedness of any kind of the
Corporation, (ii) the authorization or issuance of any class of Junior Stock
(including any class or series of common stock of the Corporation) or Parity
Stock, (iii) the authorization, designation or issuance of additional shares
of Series D Stock or (iv) subject to Section 5.1(a), the authorization or
issuance of any other shares of Preferred Stock.
5.2 (a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the
Board of Directors shall be automatically increased by two and the holders of
shares of this Series, together with the holders of any shares of any Parity
Stock as to which in each case dividends are in arrears and unpaid in an
aggregate amount equal to or exceeding the amount of dividends payable thereon
for six quarterly dividend periods, shall have the exclusive right,
voting separately as a class with such other series, to elect two directors of
the Corporation.
(a) Such voting right may be exercised initially either by written
consent or at a special meeting of the holders of the Preferred Stock having
such voting right, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter
at each such annual meeting until such time as all dividends in arrears on the
shares of this Series shall have been paid in full and all dividends payable
on the shares of this Series on four subsequent consecutive Dividend Payment
Dates shall have been paid in full on such dates or funds shall have been set
aside for the payment thereof, at which time such voting right and the term of
the directors elected pursuant to Section 5.2(a) shall terminate.
(b) At any time when such voting right shall have vested in holders of
shares of such series of Preferred Stock described in Section 5.2(b), and if
such right shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request, addressed
to the Secretary of the Corporation, of the record holders of either (i)
shares representing twenty-five percent (25%) of the voting power of the
shares then outstanding of the Series D Stock or (ii) shares representing
twenty-five percent (25%) of the voting power of shares of all series of
Preferred Stock having such voting right, shall call, a special meeting of the
holders of Preferred Stock having such voting right. Such meeting shall
be held at the earliest practicable date upon the notice required for annual
meetings of stockholders at the place for holding annual meetings of
stockholders of the Corporation, or, if none, at a place designated by the
Board of Directors. Notwithstanding the provisions of this Section 5.2(c), no
such special meeting shall be called during a period within 60 days
immediately preceding the date fixed for the next annual meeting of
stockholders.
(c) At any meeting held for the purpose of electing directors at which
the holders of such Preferred Stock shall have the right to elect directors as
provided herein, the presence in person or by proxy of the holders of
shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election
of directors by such class.
(d) Any director elected by holders of Preferred Stock pursuant to the
voting right created under this Section 5.2 shall hold office until the next
annual meeting of stockholders (unless such term has previously terminated
pursuant to Section 5.2(b)) and any vacancy in respect of any such director
shall be filled only by vote of the remaining director so elected, or if there
be no such remaining director, by the holders of such Preferred Stock
entitled to elect such director or directors by written consent or at a
special meeting called in accordance with the procedures set forth in Section
5.2(c), or, if no special meeting is called or written consent executed, at
the next annual meeting of stockholders.
(e) In exercising the voting rights set forth in this Section 5.2, each
share of this Series shall have a number of votes equal to its Liquidation
Value.
6. Liquidation Rights.
6.1 Upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, the holders of the shares of this Series
shall be entitled to receive out of the assets of the Corporation available
for distribution to stockholders, in preference to the holders of, and before
any payment of distribution shall be made on, Junior Stock, the Liquidation
Value in effect at such time, plus an amount equal to all accrued and unpaid
dividends to the date of final distribution.
6.2 The Liquidation Value shall initially be equal to $50 per share of
Series D Stock. The Liquidation Value shall be subject to adjustment from
time to time to appropriately give effect to any split or combination of the
shares of this Series.
6.3 Neither the sale, exchange or other conveyance (for cash, shares of
stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation, or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this Section 6.
6.4 After the payment to the holders of the shares of this Series of
full preferential amounts provided for in this Section 6, the holders of this
Series as such shall have no right or claim to any of the remaining assets of
the Corporation.
6.5 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Section 6.1, no such distribution shall be
made on account of any shares of any Parity Stock upon such dissolution,
liquidation or winding up unless proportionate distributive amounts shall be
paid on account of the shares of this Series, ratably, in proportion to the
full distributable amounts for which holders of all Parity Stock are entitled
upon such dissolution, liquidation or winding up.
7. Other Provisions.
7.1 All notices from the Corporation to the holders shall be given by
first class mail, postage prepaid, to the holders of shares of this Series at
their last address as it shall appear on the stock register. With respect to
any notice to a holder of Shares of this Series required to be provided
hereunder, neither failure to mail such notice, nor any defect therein or in
the mailing thereof, shall affect the sufficiency of the notice or the
validity of the proceedings referred to in such notice or affect the legality
or validity of any distribution, right, warrant, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any such action. Any notice which was mailed in
the manner herein provided shall be conclusively presumed to have been duly
given whether or not the holder receives the notice.
7.2 All notices and other communications from a holder of shares of this
Series shall be deemed given if delivered personally or sent by overnight
courier (providing proof of delivery) to the Corporation at the following
address (or at such other address as the Corporation shall specify in a notice
pursuant to Section 7.1): U S WEST, Inc., 7800 East Orchard Road, Englewood,
Colorado 80111, Attention: General Counsel.
7.3 Any shares of this Series which have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such
conversion, redemption, exchange or acquisition, as the case may be, be
retired and promptly cancelled and the Corporation shall take all appropriate
action to cause such shares to obtain the status of authorized but unissued
shares of Preferred Stock, without designation as to series, until such shares
are once more designated as part of a particular series by the Board of
Directors. The Corporation may cause a certificate setting forth a resolution
adopted by the Board of Directors that none of the authorized shares of this
Series are outstanding to be filed with the Secretary of State of the State of
Delaware. When such certificate becomes effective, all references to Series D
Stock shall be eliminated from the Certificate of Incorporation and the shares
of Preferred Stock designated hereby as Series D Stock shall have the status
of authorized and unissued shares of Preferred Stock and may be reissued as
part of any new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors.
7.4 The shares of this Series shall be issuable in whole shares or in
any fraction of a whole share or any integral multiple of such fraction.
7.5 The Corporation shall, to the fullest extent permitted by law, be
entitled to recognize the exclusive right of a Person registered on its
records as the holder of shares of this Series, and such record holder shall
be deemed the holder of such shares for all purposes.
7.6 All notice periods referred to in the Certificate shall commence on
the date of the mailing of the applicable notice.
7.7 Subject to applicable law, any determinations made in the exercise
of the good faith business judgment of the Board of Directors under any
provision of the Certificate shall be final and binding on all stockholders of
the Corporation, including the holders of shares of this Series.
7.8 Certificates for shares of this Series shall bear such legends as
the Corporation shall from time to time deem appropriate.
IN WITNESS WHEREOF, U S WEST, INC. has caused this certificate to be
signed and attested this [ ] day of [ ], 1996.
U S WEST, INC.
By:__________________________
Name:
Title:
. The dividend rate (the "Dividend Rate") shall be equal to the sum of 4.375%
(the "Base Dividend Rate") plus the Adjustment Amount (as defined below). If
the Calculation Price (as defined in the Merger Agreement) is less than
$24.50, the Corporation shall have the right, in its sole discretion, to (i)
increase the Base Dividend Rate to 6.00% and (ii) increase the Conversion Rate
pursuant to footnote 2.
The Base Dividend Rate shall be subject to adjustment in the following
manner:
(i) If the Adjustment Amount is less than seven basis points in absolute
terms, then the Adjustment Amount shall be deemed to be zero and the Dividend
Rate shall equal the Base Dividend Rate.
(Ii) If the Adjustment Amount is greater than or equal to seven basis points
in absolute terms, then the Dividend Rate shall be equal to the Base Dividend
Rate plus the Adjustment Amount, rounded to the nearest multiple of 0.125%.
"Adjustment Amount" shall be equal to the product of (x) the sum of (1)
the Change In Weighted Average Yield plus (2) the Change In Credit Spread
multiplied by (y) the Discount Factor.
"Change In Weighted Average Yield" shall equal the sum (whether positive
or negative) of the following, based upon the average market closing levels of
Treasury securities for the 10 Trading Days ending 5 Trading Days prior to the
Effective Time:
(i) the change (whether positive or negative) since February 27, 1996 in
basis points in 3-year Treasury yields x 0.25;
(ii) the change (whether positive or negative) since February 27, 1996 in
basis points in 5-year Treasury yields x 0.25;
(iii) the change (whether positive or negative) since February 27, 1996 in
basis points in 10-year Treasury yields x 0.25; and
(iv) the change (whether positive or negative) since February 27, 1996 in
basis points in 20-year Treasury yields x 0.25.
"Change In Credit Spread" shall equal (whether positive or negative) the
average credit spread measured in basis points on U S WEST Financing I's 7.96%
Trust Originated Preferred Securities (based upon the closing market price
expressed as a stripped current yield) over the 30-year Treasury "pricing
bond" for the 10 Trading Days ending 5 Trading Days prior to the Effective
Time minus 159.5 basis points.
"Discount Factor" shall equal 0.55.
For example, if (i) the Base Dividend Rate is 4.375%, (ii) the average
3-year Treasury, 5-year Treasury, 10-year Treasury and 20-year Treasury yields
are each 20 basis points lower at the Effective Time than they are on February
27, 1996 and (iii) the Change In Credit Spread is fifty basis points, then the
Adjustment Amount shall equal 16.5 basis points ((-20 basis points + fifty
basis points) x 0.55). Because such Adjustment Amount is greater than seven
basis points, the Dividend Rate would be equal to the Base Dividend Rate plus
the Adjustment Amount (or 4.540%), rounded to the yield which is at the
nearest multiple of 0.125% (or 4.500%).
. The Conversion Rate shall be equal to the quotient of (x) $50 divided by
(y) the product of (I) 1.25 multiplied by (II) the Calculation Price (as
defined in the Merger Agreement). If the Calculation Price is less than
$24.50, the Corporation shall have the right, in its sole discretion, to (i)
set the Conversion Rate equal to the quotient of (x) $50 divided by (y) the
product of (I) 1.40 multiplied by (II) the Calculation Price and (ii) increase
the Base Dividend Rate in accordance with footnote 1.
(..continued)
4
EXHIBIT D
[Form of Affiliate Letter]
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Continental Cablevision, Inc., a Delaware corporation
(the "Company"), as such term is (i) defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) used in and
for purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger, dated
as of February 27, 1996, as amended and restated as of June 27, 1996 (as
amended from time to time, the "Merger Agreement"), among U S WEST, Inc., a
Delaware corporation ("Acquiror"), CONTINENTAL MERGER CORPORATION, a Delaware
corporation ("Sub"), and the Company, either (i) the Company will be merged
with and into Acquiror, with Acquiror continuing as the surviving corporation
or (ii) the Company will be merged with and into Sub, with Sub continuing as
the surviving corporation (as applicable, the "Merger").
Pursuant to the Merger, each share of Class A Common Stock, par value
$.01 per share, of the Company owned by me, if any, and each share of Class B
Common Stock, par value $.01 per share, of the Company ("Class B Common
Stock") owned by me will be converted into the right to receive, at my
election, either (i) cash (in the case of shares of Class B Common Stock only)
or (ii) shares of U S WEST Media Group Common Stock, par value $.01 per share,
of Acquiror (the "Media Stock") and shares of Series D Convertible Preferred
Stock, par value $1.00 per share, of Acquiror (the "Series D Preferred
Stock").
I represent, warrant and covenant to Acquiror that, with respect to all
Media Stock and Series D Preferred Stock received by me as a result of the
Merger:
1. I shall not make any sale, transfer or other disposition of Media
Stock or Series D Preferred Stock in violation of the Securities Act or the
Rules and Regulations.
2. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and any other applicable
limitations upon my ability to sell, transfer or otherwise dispose of Media
Stock or Series D Preferred Stock to the extent I felt necessary, with my
counsel or counsel for the Company.
3. I have been advised that the issuance of Media Stock and Series D
Preferred Stock to me pursuant to the Merger has been registered with the
Commission under the Securities Act. However, I have also been advised that,
since at the time the Merger Agreement was submitted for a vote of the
stockholders of the Company, I may be deemed to have been an "affiliate" of
the Company and the distribution by me of Media Stock and Series D Preferred
Stock has not been registered under the Act, I may not sell, transfer or
otherwise dispose of Media Stock and Series D Preferred Stock issued to me in
the Merger unless (i) such sale, transfer or other disposition has been
registered under the Securities Act or is made in conformity with Rule 145
under the Securities Act, or (ii) in the opinion of counsel reasonably
acceptable to Acquiror, or pursuant to a "no action" letter obtained by me
from the staff of the Commission, such sale, transfer or other disposition is
otherwise exempt from registration under the Securities Act.
4. I understand, that, except as may be provided in a registration
rights agreement, if any, to be entered into by Acquiror and me as
contemplated by the Merger Agreement, Acquiror is under no obligation to
register under the Securities Act the sale, transfer or other disposition of
Media Stock or Series D Preferred Stock by me or on my behalf or to take any
other action necessary in order to make compliance with an exemption from such
registration available.
5. I understand that Acquiror will give stop transfer instructions to
Acquiror's transfer agents with respect to the Media Stock and Series D
Preferred Stock and that the certificates for the Media Stock and Series D
Preferred Stock issued to me, or any substitutions therefor, will bear a
legend substantial to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT, DATED _________ __, 1996, BETWEEN
THE REGISTERED HOLDER HEREOF AND U S WEST, INC., A COPY OF WHICH AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICES OF U S WEST, INC."
6. I also understand that unless the transfer by me of my Media Stock or
Series D Preferred Stock has been registered under the Securities Act or
is a sale made in conformity with the provisions of Rule 145, Acquiror
reserves the right to place the following legend on the certificates issued to
any transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH
SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933 APPLIES. THE SECURITIES HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH
A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN
THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs 5
and 6 above shall be removed by delivery of substitute certificates without
such legend if such legend is not required for purposes of the Securities Act.
It is understood and agreed that such legends and the stop orders referred to
above will be removed if (i) two years shall have elapsed from the date I
acquired Media Stock and Series D Preferred Stock received in the Merger and
the provisions of Rule 145(d)(2) are then available to me, (ii) three years
shall have elapsed from the date I acquired Media Stock and Series D Preferred
Stock received in the Merger and the provisions of Rule 145(d)(3) are then
available to me, or (iii) Acquiror has received either an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to Acquiror, or a
"no-action" letter obtained by me from the staff of the Commission, to the
effect that the restrictions imposed by Rule 145 under the Securities Act no
longer apply to me.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter or as a waiver of any rights that I may have to object to any
claim that I am such an affiliate on or after the date of this letter.
Sincerely,
________________________________
Name:
Accepted this __ day of
________ __, 1996:
U S WEST, INC.
By:_________________________
Name:
Title:
(Cont'd from preceding page)
(Cont'd on following page)
28
EXHIBIT E
CONTINENTAL CABLEVISION, INC.
CERTIFICATE OF DESIGNATION
OF SERIES B CONVERTIBLE
PREFERRED STOCK SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF
SUCH SERIES OF PREFERRED STOCK
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Continental Cablevision, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DOES
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Corporation by Article FOURTH of the Restated Certificate of Incorporation
of the Corporation (as in effect on the date hereof and as amended from time
to time in accordance with its terms, the "Restated Certificate of
Incorporation"), and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation on ______, 199_, adopted the following resolution creating a
series of Preferred Stock designated as Series B Convertible Preferred Stock:
RESOLVED that, pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Restated
Certificate of Incorporation, a series of the class of authorized Preferred
Stock, par value $.01 per share, of the Corporation is hereby created and that
the designation and number of shares thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations and
restrictions thereof are as follows:
Section 1. Designation and Number. (a) The shares of such series
shall be designated as "Series B Convertible Preferred Stock" (the "Series B
Preferred Stock" or "this Series"). The number of shares initially
constituting the Series B Preferred Stock shall be 5,650,000, which number may
be decreased (but not increased) by the Board of Directors without a vote of
stockholders; provided, however, that such number may not be decreased
below the number of then outstanding shares of Series B Preferred Stock.
Notwithstanding any other provision in this Certificate of Designation, the
Corporation shall not be required to issue fractional shares of the Series B
Preferred Stock.
Section 2. Ranking. The Series B Preferred Stock shall, with respect
to dividend rights and rights on liquidation, dissolution or winding up, rank
pari passu with the Series A Preferred Stock and prior to or pari passu with
all other classes and series of the Corporation's preferred stock (other than
preferred stock that is not convertible into or exchangeable for any class or
series of the Corporation's equity securities or for any other property,
including without limitation securities other than the Corporation's equity
securities referred to herein) and prior to all classes of the Common Stock,
par value $.01 per share, of the Corporation (the "Common Stock").
Section 3. Dividends and Distributions. (a) The holders of shares of
Series B Preferred Stock shall be entitled to receive as and when declared by
the Board of Directors out of funds legally available therefor, cash dividends
at the rate (the "Dividend Rate") of ___________ ___________________ percent
(_____%) per annumThe Base Dividend Rate shall be subject to adjustment in the
following manner:
(i) If the Adjustment Amount is less than seven basis points in absolute
terms, then the Adjustment Amount shall be deemed to be zero and the Dividend
Rate shall equal the Base Dividend Rate.
(ii) If the Adjustment Amount is greater than or equal to seven basis
points in absolute terms, then the Dividend Rate shall be equal to the Base
Dividend Rate plus the Adjustment Amount (whether positive or negative),
rounded to the nearest multiple of 0.125%.
"Adjustment Amount" shall be equal to the product of (x) the sum of (1)
the Change In Weighted Average Yield plus (2) the Credit Spread multiplied by
(y) the Discount Factor.
"Average Credit Spread" shall be equal to the average of the difference
between the closing bid-side yield of the Corporation's 8.30% senior unsecured
notes due 2006 and the 10-year Treasury yield, calculated for each of the 10
Trading Days after announcement of the termination of the transactons
contemplated by the Merger Agreement (as defined in Section 12).
"Change In Weighted Average Yield" shall equal the sum (whether positive
or negitive) of the following, based upon the average market closing levels of
Treasury securities for the 10 Trading Days after announcement of the
termination of the transactons contemplated by the Merger Agreement:
(i) the change (whether positive or negative) since February 27, 1996 in
basis points in 3-year Treasury yields x 0.25;
(ii) the change (whether positive or negative) since February 27, 1996 in
basis points in 5-year Treasury yields x 0.25;
(iii) the change (whether positive or negative) since February 27, 1996 in
basis points in 10-year Treasury yields x 0.25; and
(iv) the change (whether positive or negative) since February 27, 1996 in
basis points in 20-year Treasury yields x 0.25.
"Credit Spread" shall equal the difference between (A) the product of 1.87234
multiplied by the Average Credit Spread minus (B) 440 basis points.
"Discount Factor" shall equal 0.55.
For example, if (i) the Base Dividend Rate is 5.875%, (ii) the average 3-year
Treasury, 5-year Treasury, 10-year Treasury and 20-year Treasury yields are
each 20 basis points lower at closing than they are currently and (iii) the
Average Credit Spread is 260 basis points, the Credit Spread would be equal to
47 basis points ((260 x 1.87234) - 440). The resulting Adjustment Amount
would be equal to 14.85 basis points ((-20 + 47) x 0.55). Because such
Adjustment Amount is greater than seven basis points, the Dividend Rate would
be equal to the Base Dividend Rate plus the Adjustment Amount (or 6.0235%),
rounded to the yield which is at the nearest multiple of 0.125% (or 6.00%).,
through and including the date on which such Series B Preferred Stock is no
longer issued and outstanding, which dividends shall be payable in equal
quarterly installments on,, and each year (each such date, regardless of
whether any dividends have been paid or declared and set aside for payment on
such date, being a "Dividend Payment Date") to holders of record as they
appear on the stock books on such record dates as are fixed by the Board of
Directors, but only when, as and if declared by the Board of Directors out of
funds at the time legally available for the payment of dividends. For
purposes of calculation of such cash dividends, the Series B Preferred Stock
shall be valued at the Stated Value (as defined in Section 12). Such
dividends shall begin to accrue on outstanding shares of Series B Preferred
Stock from the date of issuance and shall be deemed to accrue from day to day
whether or not earned or declared until paid; provided, however, that
dividends accrued or deemed to have accrued for any period shorter than the
full three-month period between Dividend Payment Dates shall be computed based
on the actual number of days elapsed in the three-month period for which such
dividends are payable. Dividends on the Series B Preferred Stock shall be
cumulative. The Dividend Rate per share of Series B Preferred Stock shall be
appropriately adjusted from time to time to reflect any split or combination
of the shares of the Series B Preferred Stock.
(b) No dividends or other distributions, other than dividends or other
distributions payable solely in shares of capital stock ranking junior (both
as to dividends and upon liquidation, dissolution or winding up) to the Series
B Preferred Stock (or cash in lieu of fractional shares with respect to such
dividends or distributions) and liquidating distributions which are subject to
the provisions of Section 8 hereof, shall be paid or set aside for payment on,
and no purchase, redemption or other acquisition shall be made of, any shares
of capital stock of the Corporation (other than any class or series of
Preferred Stock that, in accordance with Section 2 hereof, (i) ranks senior to
the Series B Preferred Stock or (ii) is Parity Stock (as defined in Section
12), so long as any dividend payments per share on Parity Stock as a
percentage of accrued and unpaid dividends per share on Parity Stock do not
exceed contemporaneous dividend payments per share on the Series B Preferred
Stock as a percentage of accrued and unpaid dividends per share on the Series
B Preferred Stock), unless and until all accrued and unpaid dividends on the
Series B Preferred Stock for any prior quarterly dividend period shall have
been declared and paid or a sum sufficient for the payment thereof set aside
for such purposes. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series B
Preferred Stock which may be in arrears.
(c) Any reference to "distribution" contained in this Section 3 shall
not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
(d) The holders of shares of Series B Preferred Stock shall not be entitled
to receive any dividends or other distributions with respect to such shares
except as provided herein.
Section 4. Voting. (a) The holders of record of shares of Series B
Preferred Stock shall have no voting rights except as required by law or as
set forth below; provided, however, that the rights set forth in Section
4(c) hereof may be exercised only to the extent that such exercise would not
result in a Legal Prohibition or any violation of applicable law or
regulation.
(b) (i) So long as any shares of Series B Preferred Stock remain
outstanding, unless a greater percentage shall then be required by law, the
Corporation shall not, without the affirmative vote at a meeting or the
written consent with or representing at least 51% of the shares of Series B
Preferred Stock then outstanding (A) authorize any Senior Stock or reclassify
any Junior Stock or Parity Stock as Senior Stock or (B) amend, alter or repeal
any of the provisions of the Certificate or the Restated Certificate of
Incorporation, so as in any such case to materially and adversely affect the
voting powers, designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions of
the Series B Preferred Stock; provided, however, that an amendment which
effects a split of Series B Preferred Stock or which effects a combination of
the shares of Series B Preferred Stock into a fewer number of shares shall not
be deemed to have any such material adverse effect.
(ii) No vote or consent of holders of shares of Series B Preferred Stock
shall be required for (A) the creation of any indebtedness of any kind of the
Corporation, (B) the authorization or issuance of any class of Junior Stock
(including any class or series of common stock of the Corporation) or Parity
Stock, (C) the authorization, designation or issuance of additional shares of
Series B Preferred Stock or (D) subject to Section 4(b)(i), the authorization
or issuance of any other shares of Preferred Stock.
(c) (i) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the
Board of Directors shall be automatically increased by two and the holders of
shares of Series B Preferred Stock, together with the holders of any shares of
any Parity Stock as to which in each case dividends are in arrears and unpaid
in an aggregate amount equal to or exceeding the amount of dividends payable
thereon for six quarterly dividend periods, shall have the exclusive right,
voting separately as a class with the holders of any such Parity Stock, to
elect two directors of the Corporation.
(ii) Such voting right may be exercised initially either by written
consent or at a special meeting of the holders of Preferred Stock having such
voting right, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at
each such annual meeting until such time as all dividends in arrears on the
shares of this Series shall have been paid in full and all dividends payable
on the shares on this Series on four subsequent consecutive Dividend Payment
Dates shall have been paid in full on such dates or funds shall have been set
aside for the payment thereof, at which time such voting right and the term of
the directors elected pursuant to Section 4(c)(i) shall terminate.
(iii) At any time when such voting right shall have vested in holders of
shares of such series of Preferred Stock described in Section 4(c)(ii), and if
such right shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request, addressed
to the Secretary of the Corporation, of the record holders of either (A)
shares representing twenty-five percent (25%) of the voting power of the
shares then outstanding of Series B Preferred Stock or (B) shares representing
twenty-five percent (25%) of the voting power of shares of all series of
Preferred Stock having such voting right, shall call, a special meeting of the
holders of all such series of Preferred Stock having such voting right. Such
meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the place for holding annual
meetings of stockholders of the Corporation, or, if none, at a place
designated by the Board of Directors. Notwithstanding the provisions of this
Section 4(c)(iii), no such special meeting shall be called during a period
within 60 days immediately preceding the date fixed for the next annual
meeting of stockholders.
(iv) At any meeting held for the purpose of electing directors at which
the holders of such Preferred Stock shall have the right to elect directors as
provided herein, the presence in person or by proxy of the holders of shares
representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election
of directors by such class.
(v) Any director elected by holders of such Preferred Stock pursuant to
the voting right created under this Section 4(c) shall hold office until the
next annual meeting of stockholders (unless such term has previously
terminated pursuant to Section 4(c)(ii)) and any vacancy in respect of any
such director shall be filled only by vote of the remaining director so
elected, or if there be no such remaining director, by the holders of such
Preferred Stock entitled to elect such director or directors by written
consent or at a special meeting called in accordance with the procedures set
forth in Section 4(c)(iii), or, if no special meeting is called or written
consent executed, at the next annual meeting of stockholders.
(vi) In exercising the voting rights set forth in this Section 4(c),
each share of Series B Preferred Stock shall have one vote per share.
Section 5. Certain Restrictions. (a) Whenever dividends or
distributions payable on shares of Series B Preferred Stock as provided in
Section 3 for any prior quarterly dividend period are not paid in full,
thereafter and until all such unpaid dividends or distributions payable,
whether or not declared, on the outstanding shares of Series B Preferred Stock
shall have been paid in full or declared and set apart for payment, the
Corporation shall not: (i) redeem, purchase or otherwise acquire for
consideration any shares of Junior Stock or Parity Stock pursuant to any
mandatory redemption, put, sinking fund or other similar obligation;
provided that (A) the Corporation may at any time redeem, purchase or
otherwise acquire shares of Junior Stock or Parity Stock, in exchange for any
shares of Common Stock or for other capital stock of the Corporation ranking
junior (both as to dividends and upon liquidation, dissolution or winding up)
to the Series B Preferred Stock and (B) the Corporation may accept shares of
any Parity Stock for conversion; or (ii) redeem or purchase or otherwise
acquire for consideration any shares of Series B Preferred Stock; provided
that the Corporation may accept shares of Series B Preferred Stock surrendered
for conversion into shares of capital stock of the Corporation pursuant to
Section 9.
(b) The Corporation shall not permit any Subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of capital stock of
the Corporation or to make or extend any loan or advance specified in clause
(iii) of Section 5(a) unless the Corporation could, pursuant to paragraph (a)
of this Section 5, purchase such shares at such time and in such manner or
make or extend such loan or advance at such time, as the case may be.
Section 6. Redemption or Exchange. (a) The Corporation shall not have any
right to redeem any shares of Series B Preferred Stock prior to the third
anniversary of the Issue Date (as defined in Section 12). The Corporation
may, at its sole option, subject to Section 3(b) hereof, from time to time on
and after the third anniversary of the Issue Date, at its election either: (i)
redeem, out of funds legally available therefor, all or any part of the
outstanding shares of the Series B Preferred Stock at the Redemption Price (as
defined in Section 12); (ii) subject to Section 6(f) hereof, exchange shares
of Class A Common Stock (or such other class or series of common stock into
which shares of this Series are then convertible) for all or any part of the
outstanding shares of this Series at the Exchange Price (as defined in Section
12); or (iii) subject to Section 6(f) hereof, effect a combination of the
options described in the foregoing clauses (i) and (ii) (in which event each
holder of shares of this Series which are selected for redemption and exchange
pursuant to Section 6(e) shall receive the same proportion of cash and shares
of Class A Common Stock (or such other class or series of common stock into
which shares of this Series are then convertible) (except for cash paid in
lieu of fractional shares) paid to other holders of shares of this Series
selected for redemption and exchange); provided, however, that shares of
Series B Preferred Stock shall not be redeemable by the Corporation prior to
the fifth anniversary of the Issue Date unless the Current Market Price (as
defined in Section 12) shall be greater than the product of (x) the Conversion
Price (as defined in Section 9) multiplied by (y) 1.35 , on at least 20 of the
30 Trading Days immediately prior to the date of the notice delivered by the
Corporation to holders of shares of Series B Preferred Stock to be redeemed
pursuant to paragraph (d) of this Section 6.
(b) Not more than 60 nor less than 15 Trading Days prior to the Redemption
Date, the Corporation shall, if the Series B Preferred Stock is listed on any
national securities exchange or traded in the over-the-counter market, give
notice by publication in a newspaper of general circulation in the Borough of
Manhattan, The City of New York, that the Corporation has elected in
accordance with paragraph (a) of this Section 6 to redeem and/or exchange any
or all shares of the Series B Preferred Stock. The notice shall also specify
(i) the percentage of the Series B Preferred Stock to be redeemed and/or
exchanged, if less than all, (ii) if more than one form of consideration has
been elected by the Corporation, the portion of such shares to be redeemed and
the portion of such shares to be exchanged, (iii) the Redemption Price and the
manner in which the Exchange Price shall be calculated prior to the Redemption
Date, and (iv) the procedures to be followed to receive payment of the
Redemption Price and/or the Exchange Price, as the case may be; and, a similar
notice shall be mailed concurrently to each record holder of shares of Series
B Preferred Stock, at such holder's address as it appears on the transfer
books of the Corporation; provided, however, that if the Series B
Preferred Stock is owned of record by 50 or fewer holders or groups of
affiliated holders, the Corporation shall publicly announce the information
contained in the notice by issuance of a press release and such notice shall
be mailed in not more than 60 or less than 15 Trading Days prior to the
Redemption Date, and shall set forth the information contained above.
(c) On or before the Redemption Date, the Corporation shall deposit for the
benefit of the holders of shares of Series B Preferred Stock, in the case of a
redemption, the funds necessary for such redemption and, in the case of an
exchange, certificates representing the shares of Class A Common Stock to be
exchanged, with a bank or trust company in the Borough of Manhattan, The City
of New York, or in the City of Boston, in either case having a capital and
surplus of at least $2,000,000,000. Any moneys or certificates so deposited
by the Corporation and unclaimed at the end of two years from the date
designated for such redemption or exchange shall be released from any such
deposit and revert to the general funds of the Corporation. After such
conversion, any such bank or trust company shall, upon demand, pay over to the
Corporation such unclaimed amounts or certificates, as the case may be, and
thereupon such bank or trust company shall be relieved of all responsibility
in respect thereof and any holder of shares of Series B Preferred Stock to be
redeemed shall look only to the Corporation for the payment of the Redemption
Price. In the event that moneys or certificates are deposited pursuant to
this paragraph (c) in respect of shares of Series B Preferred Stock that are
converted in accordance with the provisions of Section 9, such moneys or
certificates, as the case may be, shall, upon such conversion, be released
from any such deposit and revert to the Corporation. After such reversion,
any such bank or trust company shall pay over to the Corporation such moneys
or certificates and shall be relieved of all responsibility to the holders of
such converted shares in respect thereof. Any interest accrued on funds
deposited pursuant to this paragraph (c) shall be paid from time to time to
the Corporation.
(d) Notice of redemption or exchange having been given as aforesaid, upon the
deposit of funds or certificates, as the case may be, pursuant to paragraph
(c) in respect of shares of Series B Preferred Stock to be redeemed or
exchanged pursuant to this Section 6, notwithstanding that any certificates
for such shares to be redeemed or exchanged shall not have been surrendered
for cancellation, from and after the Redemption Date (i) the shares
represented thereby shall no longer be deemed outstanding, (ii) the rights to
receive dividends thereon shall cease and terminate and dividends on the
Series B Preferred Stock shall cease to accrue and (iii) all rights of the
holders of shares of Series B Preferred Stock to be redeemed or exchange shall
cease and terminate, excepting only the right to receive the Redemption Price
and/or Exchange Price therefor, without any interest thereon.
(e) In the event that fewer than all of the outstanding shares of this
Series are to be redeemed and/or exchanged pursuant to Section 6(a), subject
to clause (iii) of the second sentence of section 6(a), the aggregate number
of shares of this Series held by each holder which will be redeemed and/or
exchanged shall be determined by the Corporation by lot or pro rata or by any
other method as may be determined by the Board of Directors in its sole
discretion to be equitable, and the certificate of the Corporation's Secretary
or an Assistant Secretary filed with the transfer agent or transfer agents for
this Series in respect of such determination by the Board of Directors shall
be conclusive.
(f) Notwithstanding anything contained herein to the contrary, the
Corporation shall not be permitted to exchange any shares of Class A Common
Stock (or such other class or series of common stock into which shares of this
Series are convertible) for all or any part of the outstanding shares of this
Series if such stock which the Corporation seeks to exchange for shares of
this Series is not listed or admitted for trading on any national securities
exchange or the Nasdaq National Market. In connection with the exchange of
any shares of this Series, the Corporation may, but shall not be required to,
issue a fraction of a share of Class A Common Stock (or such other class or
series of common stock into which shares of this Series are then convertible)
and, if the Corporation shall determine not to issue such fraction, the
Corporation shall pay a cash payment (rounded to the nearest cent) equal to
such fraction multiplied by the Current Market Price per share of Class A
Common Stock (or such other class or series of common stock into which shares
of this Series are then convertible) on the last Trading Day prior to the
Redemption Date. Notwithstanding the foregoing, this Section 6(f) shall in no
way restrict or limit the Corporation's right to redeem all or any part of the
outstanding shares of this Series for cash at the Redemption Price.
Section 7. Reacquired Shares. Any shares of Series B Preferred Stock
converted, redeemed, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares of Series B Preferred Stock shall upon their
cancellation, and upon the filing of an appropriate certificate with the
Secretary of State of the State of Delaware, become authorized but unissued
shares of Preferred Stock, par value $.01 per share, of the Corporation and
may be reissued as part of another series of Preferred Stock, par value $.01
per share, of the Corporation subject to the conditions or restrictions on
issuance set forth herein.
Section 8. Liquidation, Dissolution or Winding Up. (a) Upon the
liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, no distribution shall be made (i) to the holders of shares of
Junior Stock upon liquidation, dissolution or winding up unless, prior
thereto, the holders of shares of Series B Preferred Stock, subject to Section
9, shall have received the Liquidation Preference (as defined in Section 12
with respect to each share, or (ii) to the holders of shares of Parity Stock
upon liquidation, dissolution or winding up, except distributions made ratably
on all such Parity Stock and the Series B Preferred Stock in proportion to the
total amounts to which the holders of all shares of such Parity Stock and the
Series B Preferred Stock are entitled upon such liquidation, dissolution or
winding up.
(b) Neither the consolidation, merger or other business combination of the
Corporation with or into any other Person or Persons nor the sale of all or
substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 8.
Section 9. Conversion. (a) Each holder of shares of Series B Preferred
Stock may, at its option at any time and from time to time, upon surrender of
the certificates therefor, convert any or all of its shares of Series B
Preferred Stock into Common Stock as follows. The number of fully paid and
nonassessable shares of Class A Common Stock deliverable on conversion of a
share of Series B Preferred Stock is referred to as the "Conversion Ratio".
The Conversion Ratio shall initially be equal to the quotient of $50 per share
divided by the Conversion Price and shall be subject to adjustment from time
to time pursuant to paragraph (f) of this Section 9. The "Conversion Price"
shall be equal to the product of 1.25 multiplied by the greater of: (i) $20
per share, (ii) if shares of Class A Common Stock are publicly traded on the
New York Stock Exchange, then over the fifteen Trading Days beginning the
first Trading Day after the announcement of the termination of the Merger
Agreement (the "Measurement Period"), (a) if the average of the daily volume
of Class A Common Stock traded during the Measurement Period exceeds or is
equal to 100,000 shares per day, the average of the Current Market Price of
Class A Common Stock over the Measurement Period, or (b) if the average of the
daily volume of Class A Common Stock traded during the Measurement Period is
less than 100,000 shares per day, the product of .925 multiplied by the
average of the Current Market Price of Class A Common Stock over the
Measurement Period, or (iii) if shares of Class A Common Stock are publicly
traded on the Nasdaq National Market, over the Measurement Period, (a) if the
average of the daily volume of Class A Common Stock traded during the
Measurement Period exceeds or is equal to 200,000 shares per day, the average
of the Current Market Price of Class A Common Stock over the Measurement
Period, or (b) if the average of the daily volume of Class A Common Stock
traded during the Measurement Period is less than 200,000 shares per day, the
product of .925 multiplied by the average of the Current Market Price of Class
A Common Stock over the Measurement Period.
(b) Conversion of the Series B Preferred Stock may be effected by any such
holder upon the surrender to the Corporation at the principal office of the
Corporation in the Commonwealth of Massachusetts (the "Transfer Agent") or at
the office of any agent or agents of the Corporation, as may be designated by
the Board of Directors of the Corporation, of the certificate for such Series
B Preferred Stock to be converted at any time after the Issue Date accompanied
by a written notice stating that such holder elects to convert all or a
specified whole number of such shares in accordance with the provisions of
this Section 9 and specifying the name or names in which such holder wishes
the certificate or certificates for shares of Common Stock to be issued. In
case such notice shall specify a name or names other than that of such holder,
such notice shall be accompanied by payment of all issue, stamp, documentation
and transfer taxes payable upon the issuance of shares of Common Stock in such
name or names. Other than such taxes, the Corporation will pay any and all
issue, stamp, documentation, transfer and other taxes (other than taxes based
on gross or net income) that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of Series B Preferred Stock
pursuant hereto. As promptly as practicable, and in any event within five
Business Days after the surrender of such certificate or certificates and the
receipt of such notice relating thereto and, if such notice shall specify a
name or names other than that of such holder, (a) payment of all transfer
taxes (or the demonstration to the satisfaction of the Corporation that such
taxes have been paid), and (b) unless such issuance is registered under the
Securities Act and all applicable state securities laws, the holder of the
applicable shares of Series B Preferred Stock which are to be converted into
Class A Common Stock hereunder shall have furnished to the Corporation
evidence satisfactory to it that such issuance is exempt from registration
under the Securities Act and all applicable state securities laws, the
Corporation shall deliver or cause to be delivered (i) certificates
representing the number of validly issued, fully paid and non assessable full
shares of Class A Common Stock to which the holder of shares of Series B
Preferred Stock being converted shall be entitled and (ii) if less than the
full number of shares of Series B Preferred Stock evidenced by the surrendered
certificate or certificates is being converted, a new certificate or
certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares being
converted. Such conversion shall be deemed to have been made at the close of
business on the date of receipt of such notice and of such surrender of the
certificate or certificates representing the shares of Series B Preferred
Stock to be converted so that the rights of the holder thereof as to the
shares being converted shall cease except for the right to receive shares of
Class A Common Stock in accordance herewith, and the person entitled to
receive the shares of Class A Common Stock shall be treated for all purposes
as having become the record holder of such shares of Class A Common Stock at
such time. The Corporation shall not be required to convert, and no surrender
of shares of Series B Preferred Stock shall be effective for that purpose,
while the transfer books of the Corporation for the Common Stock are closed
for any purpose (but not for any period in excess of 2 days); but the
surrender of shares of Series B Preferred Stock for conversion during any
period while such books are so closed shall become effective for conversion
immediately upon the reopening of such books, as if the conversion had been
made on the date such shares of Series B Preferred Stock were surrendered, and
at the Conversion Ratio in effect at the date of such surrender.
(c) In case any shares of Series B Preferred Stock are to be redeemed
pursuant to Section 6, the right of conversion under this Section 9 shall
cease and terminate as to the shares of Series B Preferred Stock to be
redeemed at the close of business on the second Business Day next preceding
the Redemption Date unless the Corporation shall default in the payment of the
Redemption Price.
(d) In connection with the conversion of any shares of Series B Preferred
Stock, no fractions of shares of Class A Common Stock shall be issued, but in
lieu thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied
by the Current Market Price per share of Class A Common Stock on the Trading
Day on which such shares of Series B Preferred Stock are deemed to have been
converted. If more than one share of Series B Preferred Stock shall be
surrendered for conversion by the same holder at the same time, the number of
full shares of Class A Common Stock issuable on conversion thereof shall be
computed on the basis of the total number of shares of Series B Preferred
Stock so surrendered.
(e) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series B Preferred Stock, such number of
its authorized but unissued shares of Class A Common Stock as will from time
to time be sufficient to permit the conversion of all outstanding shares of
Series B Preferred Stock, and shall take all action required to increase the
authorized number of shares of Class A Common Stock if necessary to permit the
conversion of all outstanding shares of Series B Preferred Stock.
(f) The Conversion Ratio shall be subject to adjustment from time to time as
follows:
(i) In case the Corporation shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of its
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in effect at the
time of the record date for such dividend or distribution or the effective
date of such subdivision or combination shall be proportionately adjusted so
that the holder of any shares of Series B Preferred Stock surrendered for
conversion after such time shall be entitled to receive the aggregate number
of shares of Class A Common Stock which the holder would have owned or been
entitled to receive had such shares of Series B Preferred Stock been converted
immediately prior to such record date or effective date and the resulting
Common Stock had been subject to such dividend, distribution, subdivision or
combination. An adjustment made pursuant to this clause (i) shall become
effective (x) in the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination of
holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, combination,
consolidation or reclassification, at the close of business on the day upon
which such corporate action becomes effective.
If the Corporation shall issue rights, warrants or options to all
holders of Class A Common Stock entitling them (for a period not exceeding 45
days from the record date referred to below) to subscribe for or purchase
shares of Class A Common Stock at a price per share less than the Current
Market Price (determined over the Value Period (as defined in Section 12) as
of the date of determination of stockholders entitled to receive such rights,
warrants or options), then, in any such event, the Conversion Ratio shall be
adjusted by multiplying the Conversion Ratio in effect immediately prior to
the opening of business on such record date by a fraction, the numerator of
which shall be the number of shares of Class A Common Stock outstanding on
such record date plus the maximum number of additional shares of Class A
Common Stock offered for subscription pursuant to such rights, warrants or
options, and the denominator of which shall be the number of shares of Class A
Common Stock outstanding on such record date plus the maximum number of
additional shares of Class A Common Stock which the aggregate offering price
of the maximum number of shares of Class A Common Stock so offered for
subscription or purchase pursuant to such rights, warrants or options would
purchase at such Current Market Price (determined by multiplying such maximum
number of shares by the exercise price of such rights, warrants or options
(plus any other consideration received by the Corporation upon the issuance or
exercise of such rights, warrants or options) and dividing the product so
obtained by such Current Market Price). Such adjustment shall become
effective at the opening of business on the day next following the record date
for the determination of stockholders entitled to receive such rights,
warrants or options. To the extent that shares of Class A Common Stock are
not delivered after the expiration of such rights, warrants or options, the
Conversion Ratio shall be readjusted to the Conversion Ratio which would then
be in effect had the adjustments made upon the record date for the
determination of stockholders entitled to receive such rights, warrants or
options been made upon the basis of delivery of only the number of shares of
Class A Common Stock actually delivered and the amount actually paid therefor.
In determining whether any rights, warrants or options entitle the holders to
subscribe for or purchase shares of Class A Common Stock at a price per share
less than such Current Market Price, there shall be taken into account any
consideration received by the Corporation upon issuance and upon exercise of
such rights, warrants or options. The value of such consideration, if other
than cash, shall be determined by the good faith business judgment of the
Board of Directors, whose determination shall be conclusive.
(iii) If the Corporation shall pay a dividend or make a distribution to
all holders of outstanding shares of Class A Common Stock, of capital stock,
cash, evidences of its indebtedness or other assets of the Corporation (but
excluding (x) any cash dividends or distributions (other than Extraordinary
Cash Distributions) and (y) dividends or distributions referred to in Section
9(f)(i)), then the Conversion Ratio shall be adjusted by multiplying the
Conversion Ratio in effect immediately prior to the opening of business on the
record date for the determination of stockholders entitled to receive such
dividend or distribution by a fraction, the numerator of which shall be the
Current Market Price (determined over the Value Period as of such record
date), and the denominator of which shall be such Current Market Price less
either (A) the fair market value (as determined by the good faith business
judgment of the Board of Directors, whose determination shall be conclusive),
as of such record date, of the portion of the capital stock assets or
evidences of indebtedness to be so distributed applicable to one share of
Class A Common Stock or (B), if applicable, the amount of the Extraordinary
Cash Distribution to be distributed per share of Class A Common Stock. The
adjustment pursuant to the foregoing provisions of this Section 9(f)(iii)
shall become effective at the opening of business on the day next following
the record date for the determination of stockholders entitled to receive such
dividend or distribution.
(iv) In lieu of making an adjustment to the Conversion Ratio pursuant to
Sections 9(f)(i), 9(f)(ii) or 9(f)(iii) above for a dividend or distribution
or an issue or rights, warrants or options, the Corporation may distribute to
the holders of shares of Series B Preferred Stock, or reserve for distribution
with each share of Class A Common Stock delivered to a person converting a
share of Series B Preferred Stock pursuant to this Section 9, such dividend or
distribution or such rights, warrants or options; provided, however, that
in the case of such a reservation, on the date, if any, on which a person
converting a share of Series B Preferred Stock would no longer be entitled to
receive such dividend or distribution or to receive or exercise such rights,
warrants or options, such dividend or distribution shall be deemed to have
occurred, or such rights, warrants or options shall be deemed to have issued,
and the Conversion Ratio shall be adjusted as provided in Section 9(f)(i),
9(f)(ii) or 9(f)(iii), as the case may be (with such termination date being
the relevant date of determination for purposes of determining the Current
Market Price).
(v) The Corporation shall be entitled to make such additional increases
in the Conversion Ratio, in addition to those required by subsections 9(f)(i)
thorough 9(f)(iii), as shall be determined by the Board of Directors to be
necessary in order that any dividend or distribution in Class A Common Stock,
any subdivision, reclassification or combination of shares of Class A Common
Stock or any issuance of rights or warrants referred to above, shall not be
taxable to the holders of Class A Common Stock for United States Federal
income tax purposes.
(vi) To the extent permitted by applicable law, the Corporation may from
time to time increase the Conversion Ratio by any amount for any period of
time if the period is at least 20 Trading Days, the increase is irrevocable
during such period and the Board of Directors shall have made a determination
that such increase would be in the best interests of the Corporation, which
determination shall be conclusive.
(vii) In any case in which this Section 9(f) shall require that any
adjustment be made effective as of or immediately following a record date, the
Corporation may elect to defer (but only for five (5) Trading Days following
the occurrence of the event which necessitates the filing of the statement
referred to in Section 10) issuing to the holder of any shares of this Series
converted after such record date (i) the shares of Class A Common Stock and
other capital stock of the Corporation issuable upon such conversion over and
above the shares of Class A Common Stock and other capital stock of the
Corporation issuable upon such conversion on the basis of the Conversion Ratio
prior to adjustment and (ii) paying to such holder any amount in cash in lieu
of any fraction thereof pursuant to Section 9(d); provided, however, that
the Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
upon the occurrence of the event requiring such adjustment.
(viii) For purposes of this paragraph (f), the number of shares of
Common Stock at any time outstanding shall not include any shares of Common
Stock then owned or held by or for the account of the Corporation or a
Subsidiary of the Corporation.
(xi) The certificate of any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Corporation
(which may be the firm of independent public accountants regularly employed by
the Corporation) shall be presumptively correct for any computation made under
this paragraph (f).
(x) If the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of the right of conversion granted by this
paragraph (f) or in the Conversion Ratio then in effect shall be required by
reason of the taking of such record.
(g) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
paragraph (f)(i) of this Section 9), or in case of any consolidation or merger
of the Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Series B Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of the Class A
Common Stock issuable upon such conversion prior to the consummation of such
Transaction, the kind and amount of shares of stock and other securities and
property (including cash) receivable upon the consummation of such Transaction
by a holder of that number of shares of Class A Common Stock into which one
share of Series B Preferred Stock was convertible immediately prior to such
Transaction (including, on a pro rata basis, the cash, securities or property
received by holders of Class A Common Stock in any tender or exchange offer
that is a step in such Transaction). In any such case, if necessary,
appropriate adjustment (as determined by the Board of Directors) shall be made
in the application of the provisions set forth in this Section 9 with respect
to rights and interests thereafter of the holders of shares of Series B
Preferred Stock to the end that the provisions set forth herein for the
protection of the conversion rights of the Series B Preferred Stock shall
thereafter be applicable, as nearly as reasonably may be, to any such other
shares of stock and other securities and property deliverable upon conversion
of the shares of Series B Preferred Stock remaining outstanding. In case
securities or property other than Class A Common Stock shall be issuable or
deliverable upon conversion as aforesaid, then all references in this Section
9 shall be deemed to apply, so far as appropriate and as nearly as may be, to
such other securities or property.
Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, the
Surviving Person (as defined in Section 12) thereof shall assume, by written
instrument mailed to each record holder of shares of Series B Preferred Stock
at the addresses of each as shown on the books of the Corporation maintained
by the Transfer Agent thereof if such shares are held by 50 or fewer holders
or groups of affiliated holders or to each Transfer Agent for the shares of
Series B Preferred Stock at the addresses of each as shown on the books of the
Corporation maintained by the Transfer Agent thereof, if such shares are held
by a greater number of holders, the obligation to deliver to such holder such
cash and such securities to which, in accordance with the foregoing
provisions, such holder is entitled and such Surviving Person shall have
mailed to each record holder of shares of Series B Preferred Stock at the
addresses of each as shown on the books of the Corporation maintained by the
Transfer Agent thereof, if such shares are held by 50 or fewer holders or
groups of affiliated holders, or to each Transfer Agent for the shares of
Series B Preferred Stock, if such shares are held by a greater number of
holders, an opinion of independent counsel for such Person stating that such
assumption agreement is a valid, binding and enforceable agreement of the
Surviving Person (subject to customary exceptions).
(h) In case at any time or from time to time the Corporation shall pay any
dividend or make any other distribution to the holders of its Common Stock, or
shall offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or any other right, or there shall be
any capital reorganization or reclassification of the Common Stock of the
Corporation or consolidation or merger of the Corporation with or into another
corporation, or any sale or conveyance to another corporation of the property
of the Corporation as an entirety or substantially as an entirety, or there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, then, in any one or more of said cases the Corporation shall
give at least 10 days' prior written notice (the time of mailing of such
notice shall be deemed to be the time of giving thereof) to the record holders
of the Series B Preferred Stock at the addresses of each as shown on the books
of the Corporation maintained by the Transfer Agent thereof of the date on
which (i) the books of the Corporation shall close or a record shall be taken
for such stock dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the case may be,
provided that in the case of any Transaction to which paragraph (g) of this
Section 9 applies the Corporation shall give at least 30 days' prior written
notice as aforesaid. Such notice shall also specify the date as of which the
holders of the Common Stock and of the Series B Preferred Stock of record
shall participate in said dividend, distribution or subscription rights or
shall be entitled to exchange their Common Stock or Series B Preferred Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance or participate in
such dissolution, liquidation or winding up, as the case may be. Failure to
give such notice shall not invalidate any action so taken.
(i) The Corporation will at no time effect conversion of any Series B
Preferred Stock pursuant to this Section 9, and any purported conversion of
any Series B Preferred Stock shall be null and void, if such conversion would
result in the violation of a Legal Prohibition (as defined in Section 12).
(j) All calculations under this Section 9 shall be made to the nearest cent
or to the nearest one one-hundredth of a share of Common Stock as the case may
be. Notwithstanding any other provision of this Section 9, the Corporation
shall not be required to make any adjustment of the Conversion Ratio unless
such adjustment would require an increase or decrease of at least 1.00% of
such Conversion Ratio. Any lesser adjustment shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment or adjustments so carried forward, shall
amount to an increase or decrease of at least 1.00% in the Conversion Ratio.
Any adjustments under this Section 9 shall be made successively whenever an
event requiring such an adjustment occurs.
(k) Upon the surrender of certificates representing shares of Series B
Preferred Stock in accordance with the terms hereof, the Person converting or
exchanging shall be deemed to be the holder of record at such time of the
shares of Class A Common Stock and other securities or property issuable on
such conversion or exchange and all rights with respect to the shares of
Series B Preferred Stock surrendered shall forthwith terminate except the
right to receive the shares of Class A Common Stock or other securities or
property issuable on such conversion or exchange, as the case may be. If any
shares of Series B Preferred Stock are surrendered for conversion or exchange
subsequent to the record date preceding a Dividend Payment Date but on or
prior to such Dividend Payment Date (except shares called for redemption or
exchange on a Redemption Date between such record date and Dividend Payment
Date), the registered holder of such shares at the closed of business on such
record date shall be entitled to receive the dividend, if any, payable on such
shares on such Dividend Payment Date notwithstanding the conversion thereof.
Except as provided in this Section 9, no adjustments in respect of payments of
dividends on shares surrendered for conversion or exchange or any dividend on
the Common Stock issued upon conversion or exchange shall be made upon the
conversion or exchange of any shares of this Series.
(l) The Corporation will endeavor to list the shares of (or depositary shares
representing fractional interests in) Class A Common Stock required to be
delivered upon conversion of shares of Series B Preferred Stock prior to such
delivery upon the principal national securities exchange upon which the
outstanding Class A Common Stock is listed at the time of such delivery.
Section 10. Reports as to Adjustments. Upon any adjustment of the
Conversion Ratio then in effect and any increase or decrease in the number of
shares of Common Stock issuable upon the operation of the conversion set forth
in Section 9, then, and in each such case, the Corporation shall promptly
deliver to the Transfer Agent of the Series B Preferred Stock and Common Stock
a certificate signed by the President or a Vice President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated and
specifying the Conversion Ratio then in effect following such adjustment and
the increased or decreased number of shares issuable upon the conversion set
forth in Section 9. The Corporation shall also promptly after the making of
such adjustment give written notice to the record holders of the Series B
Preferred Stock at the address of each holder as shown on the books of the
Corporation maintained by the Transfer Agent thereof, which notice shall state
the Conversion Ratio then in effect, as adjusted, and the increased or
decreased number of shares issuable upon the exercise of the right of
conversion granted by Section 9, and shall set forth in reasonable detail the
method of calculation of each and a brief statement of the facts requiring
such adjustment. Where appropriate, such notice to record holders of the
Series B Preferred Stock may be given in advance and included as part of the
notice required under the provisions of Section 9(h).
Section 11. Certain Covenants. Any record holder of Series B Preferred
Stock may proceed to protect and enforce its rights and the rights of such
holders by any available remedy by proceeding at law or in equity to protect
and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designation or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
Section 12. Definitions. For the purposes of this Certificate of
Designation of Series B Convertible Preferred Stock, the following terms shall
have the meanings indicated:
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Certificate" shall mean the certificate of the voting powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of Series B Preferred
Stock filed with respect to this Certificate of Designation with the Secretary
of State of the State of Delaware pursuant to Section 151 of the General
Corporation Law of the State of Delaware.
"Class A Common Stock" and "Class B Common Stock" each shall have the meaning
assigned to such term in the Corporation's Restated Certificate of
Incorporation. "Common Stock" shall mean either the Class A Common Stock or
the Class B Common Stock.
"Current Market Price", when used with reference to shares of Common Stock or
other securities on any date, shall mean the closing price per share of Common
Stock or such other securities on such date and, when used with reference to
shares of Common Stock or other securities for any period shall mean the
average of the daily closing prices per share of Common Stock or such other
securities for such period. The closing price for each day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Common Stock or such other securities are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting systems with respect to
securities listed on the principal national securities exchange on which the
Common Stock or such other securities are listed or admitted to trading or, if
the Common Stock or such other securities are not listed or admitted to
trading on any national securities exchange, the last quoted sale price or, if
not so quoted, the average of the high bid and low asked prices, as reported
by the Nasdaq National Market or such other system then in use, or, if on any
such date the Common Stock or such other securities are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
the primary professional market maker making a market in the Common Stock or
such other securities as selected by the Board of Directors of the
Corporation. If the Common Stock is not publicly held or so listed or
publicly traded, "Current Market Price" shall mean the amount as determined by
investment bankers mutually agreeable to the Corporation and the holders of a
majority of the outstanding shares of Series B Preferred Stock (the fees and
expenses of which shall be paid by the Corporation) equal to the net proceeds
that would be expected to be received by a stockholder of the Corporation from
the sale of such shares of Common Stock in an underwritten public offering
after being reduced by pro forma expenses and underwriting discounts and
commissions. If securities other than Common Stock are not publicly held or
so listed or publicly traded, "Current Market Price" shall mean the Fair
Market Value per share of such other securities as determined by an
independent investment banking firm mutually agreeable to the Corporation and
the holders of a majority of the outstanding shares of Series B Preferred
Stock (the fees and expenses of which shall be paid by the Corporation).
"Dividend Payment Date" shall have the meaning set forth in Section 3(a)
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Price" for each share of this Series called for exchange shall be a
number of shares of Class A Common Stock (or such other class or series of
common stock into which shares of this Series are then convertible) equal to
the quotient of (x) the sum of (I) the Stated Value plus (II) the amount of
accrued or unpaid dividends on this Series to the Redemption Date divided by
(y) the product of (I) .95 multiplied by (II) the Current Market Price
determined over the Value Period as of the Redemption Date.
"Extraordinary Cash Distributions" shall mean, with respect to any consecutive
12-month period, all cash dividends and cash distributions on the outstanding
shares of Series B Preferred Stock during such period (other than cash
dividends or cash distributions for which a prior adjustment to the Conversion
Ratio was previously made) to the extent such cash dividends and cash
distributions exceed, on a per share of Series B Preferred Stock basis, 10% of
the average daily Closing Price of the Series B Preferred Stock over such
period.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Issue Date" shall mean the date on which shares of Series B Preferred Stock
are issued.
"Junior Stock" shall mean any capital stock of the Corporation ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series B Preferred Stock.
"Legal Prohibition" shall mean any law, statute, rule, regulation or judicial
or administrative decision which would prohibit a holder of Series B Preferred
Stock from owning such number of shares of Common Stock which such holder
would receive upon converting the Series B Preferred Stock or which would
require the Corporation to dispose of any assets or terminate any business
activity as a result of a holder of the Series B Preferred Stock owning such
number of shares of Common Stock which such holder would receive upon
converting the Series B Preferred Stock.
"Liquidation Preference" with respect to a share of the Series B Preferred
Stock shall mean an amount equal to the Stated Value plus an amount per share
equal to all unpaid dividends accrued thereon to the date of final
distribution to the holder thereof (without interest).
"Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of
February 27, 1996, between the Corporation and U S WEST, Inc., a Delaware
Corporation.
"Parity Stock" shall mean the Series A Participating Convertible Preferred
Stock and any other capital stock of the Corporation (other than Junior Stock)
ranking on a parity (either as to dividends or upon liquidation, dissolution
or winding up) with the Series B Preferred Stock.
"Person" shall mean any individual, firm, trust, partnership, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
"Preferred Stock" shall mean the class of Preferred Stock, par value $0.01 per
share, of the Corporation authorized at the date of the Certificate, including
any shares thereof authorized after the date of the Certificate.
"Redemption Date" shall mean the date on which the Corporation shall effect
the redemption or exchange, as the case may be, of all or any part of the
outstanding shares of the Series B Preferred Stock pursuant to Section 6
hereof.
"Redemption Price" in respect of a share of Series B Preferred Stock shall
mean the Stated Value as of the Redemption Date, plus an amount per share
equal to all unpaid dividends thereon, whether or not declared, to the date of
redemption (without interest).
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Senior Stock" shall mean the shares of any class or series of stock of the
Corporation which, by the terms of the Restated Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Restated Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series B Preferred Stock in respect of the right to receive dividends or to
participate in any distribution of assets other than by way of dividends.
"Stated Value" in respect of the Series B Preferred Stock shall initially be
$50 per share, as appropriately adjusted from time to time to reflect any
split or combination of the shares of the Series B Preferred Stock.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
"Surviving Person" shall mean the continuing or surviving Person of a merger,
consolidation or other corporate combination, the Person receiving a transfer
of all or a substantial part of the properties and assets of the Corporation,
or the Person consolidating with or merging into the Corporation in a merger,
consolidation or other corporate combination in which the Corporation is the
continuing or surviving person, but in connection with which the Series B
Preferred Stock or Common Stock of the Corporation is exchanged, converted or
reinstated into the securities of any other Person or cash or other property;
provided, however, if such Surviving Person is a direct or indirect
Subsidiary of a Person, the parent entity also shall be deemed to be a
Surviving Person.
"Trading Day" means a day on which the principal national securities exchange
on which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Business Day.
"Transaction" has the meaning specified in Section 9(g).
"Value Period" shall mean the ten (10) consecutive Trading Days ending on
the third Trading Day immediately preceding the applicable date.
IN WITNESS WHEREOF, Continental Cablevision, Inc. has caused this
Certificate to be duly executed in its corporate name as of the th day of
[ ]
CONTINENTAL CABLEVISION, INC.
By
Attest:
____________________
The Dividend Rate shall be subject to an adjustment such that the final
Dividend Rate equals the sum of 5.875%, (the "Base Dividend Rate") plus the
Adjustment Amount (as defined below).
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and entered
into as of _________ __, 199_ among Continental Cablevision, Inc., a Delaware
corporation (the "COMPANY"), and U S WEST, Inc., a Delaware corporation (the
"HOLDER").
RECITALS
A. This Agreement is being entered into in connection with, and pursuant
to section [_.__] of, the Agreement and Plan of Merger, dated as of February
27, 1996, between the Company and the Holder (the "MERGER AGREEMENT").
B. The Company has heretofore entered into (i) a Registration Rights
Agreement dated as of June 22, 1992 with Corporate Partners, L.P. and certain
other signatories thereto and (ii) an amendment thereto dated as of July 15,
1992 (said Registration Rights Agreement and amendment are hereinafter
referred to as the "CP AGREEMENT").
C. The Company has heretofore entered into a Registration Rights
Agreement dated as of July 15, 1992 with Boston Ventures Limited Partnership
III and certain other signatories thereto (said Registration Rights Agreement
is hereinafter referred to as the "BV AGREEMENT").
D. The Company has heretofore entered into a Registration Rights
Agreement dated as of October 5, 1995 with The Providence Journal Company, as
Representative, and certain other signatories thereto (said Registration
Rights Agreement is hereinafter referred to as the "PROJO AGREEMENT").
E. It is intended by the Company and the Holder that this Agreement
shall become effective immediately upon the issuance to the Holder of the
[_________] shares of Series D Convertible Preferred Stock, par value $.01 per
share, of the Company to be issued pursuant to Section [_.__] of the Merger
Agreement (the "PREFERRED SECURITIES").
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Holder, intending to be legally bound, each hereby agrees as follows:
ARTICLE 1.
REGISTRATION UNDER SECURITIES ACT
Section 1.01 Registration Upon Request. (a) Request. Subject to
the provisions of this Agreement (including Section 4.11 hereof), upon the
written request of the Holder requesting that the Company effect the
registration under the Securities Act of Registrable Securities (as
hereinafter defined), which request shall specify in reasonable detail the
number of Registrable Securities to be registered and the intended method of
distribution thereof, the Company shall use its best efforts to register under
the Securities Act (a "DEMAND REGISTRATION"), including by means of a shelf
registration pursuant to Rule 415 under the Securities Act if so requested in
such request and if the Company is then eligible to use such a registration,
as expeditiously as may be practicable, the Registrable Securities which the
Company has been requested to register by the Holder, all to the extent
requisite to permit the disposition of such Registrable Securities in
accordance with the plan of distribution set forth in the applicable
registration statement. In the case of such Demand Registration, the Holder
must request registration of Registrable Securities representing not less than
such number of Registrable Securities the Expected Proceeds of which, on the
date of the aforementioned written request, would equal at least $100 million
unless such registration request is for all remaining Registrable Securities.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 1.01 in connection with an
underwritten offering by the Holder of Registrable Securities, no securities
(other than Registrable Securities) shall be included among the securities
covered by
<PAGE>
such registration if the managing underwriter, if any, of such offering shall
have advised the Holder and the Company in writing of its belief that the
inclusion of such other securities would substantially interfere with such
offering.
(c) Registration Statement Form. Registrations under this Section
1.01 shall be on such appropriate registration form of the Commission as shall
be selected by the Company and available to it under the Securities Act. The
Company agrees to include in any such registration statement all information
which, in the opinion of counsel to the Holder and counsel to the Company, is
reasonably required to be included therein under the Securities Act.
(d) Limitations on Registration; Expenses. The Company will not be
required to effect more than two (2) Demand Registrations pursuant to this
Section 1.01. Subject to the provisions of Sections 1.01(h) and 1.02(b)
hereof, the Company shall pay the Registration Expenses in connection with
such Demand Registration.
(e) Effective Registration Statement. Subject to the provisions of
Section 1.01(i) hereof, a registration requested pursuant to this Section 1.01
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective, (ii) if after it has become
effective, such registration is materially interfered with by any stop order,
injunction or similar order or requirement of the Commission or other
governmental agency or court for any reason not attributable to any of the
Holder and has not thereafter become effective, or (iii) if the conditions to
closing specified in the underwriting agreement, if any, entered into in
connection with such registration are not satisfied or waived, other than by
reason of a failure on the part of the Holder.
(f) Selection of Underwriters. In the case of such Demand Registration,
the selection of any managing underwriter(s) shall be made by the Company
(with the consent of the Holder, which consent shall not be unreasonably
withheld), provided, however, that (i) the Holder shall be entitled to
select (with the consent of the Company, which consent shall not be
unreasonably withheld) one (1) managing underwriter other than the lead
managing underwriter, and (ii) the selection of the underwriters (other than
the managing underwriter(s)) shall be made by the mutual agreement of the
Company and the Holder.
<PAGE>
(g) Certain Requirements in Connection with Registration Rights. In
the case of such Demand Registration, if the Holder has determined to enter
into one or more underwriting agreements in connection therewith, no Person
may participate in such Demand Registration unless such Person agrees to sell
his or its securities on the basis provided in the underwriting arrangements
and completes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents which are reasonable and customary
under the circumstances.
(h) Priority in Demand Registration. If the managing underwriter of
any underwritten offering shall advise the Company in writing (with a copy to
the Holder) that, in its opinion, the number of Registrable Securities
requested to be included in such registration exceeds the number which can be
sold in such offering within a price range acceptable to the Holder, the
Company will reduce to the number which the Company is so advised can be sold
in such offering within such price range (the "Actual Number of Securities to
be Registered"), the Registrable Securities requested to be included in such
registration. If, as a result of any such reduction, the number of
Registrable Securities requested to be included in such registration by the
Holder of the Registrable Securities is reduced by twenty-five percent (25%)
or more, then notwithstanding anything to the contrary contained in this
Agreement, a Demand Registration in connection with such registration will not
be deemed to have been effected under Section 1.01(e) hereof; provided,
however, that the provisions of this sentence shall apply to and be
operative in respect of only the first request in writing made by the Holder
under this Section 1.01 for the registration of Registrable Securities. In
the case of such a registration which would have been deemed to be a Demand
Registration under Section 1.01(e) hereof but for the application of the
immediately preceding sentence of this Section 1.01(h), (i) the Company
nonetheless shall pay the Registration Expenses of the Holder in connection
with such registration, and (ii) no securities other than Registrable
Securities shall be covered by such registration.
<PAGE>
(i) Certain Other Matters. For purposes of Section 1.01(e)(i) hereof,
should a Demand Registration not become effective due to the failure of the
Holder to perform its obligations under this Agreement or the inability of the
Holder to reach agreement with the underwriters on price or other customary
terms for such transaction, or in the event the Holder withdraws or does not
pursue the request for the Demand Registration (in each of the foregoing
cases, provided that at such time the Company is in compliance in all material
respects with its obligations under this Agreement), then, except as otherwise
provided in the last sentence of this Section 1.01(i), such Demand
Registration shall be deemed to have been effected. In such event, the Holder
shall reimburse the Company for all of the Registration Expenses (other than
the Registration Expenses referred to in clause (a) of the definition of
Registration Expenses) incurred by the Company in the preparation, filing and
processing of such registration. If such reimbursement is made within thirty
(30) business days following a request therefor, a Demand Registration shall
not be deemed to have been effected for purposes of this Section 1.01.
Section 1.02 Incidental Registration. (a) Rights to Include.
Subject to the provisions of this Agreement (including Section 4.11 hereof)and
the rights of the holders of the CP/BV Registrable Securities under the BV
Agreement or the CP Agreement, if at any time the Company proposes to register
the offering for cash of any shares of Class A Common Stock under the
Securities Act on Form S-1, S-2 or S-3 (or any successor or similar form
thereto) for the account of the Company, the Company shall furnish prompt
written notice to the Holder of its intention to effect such registration and
the intended method of distribution in connection therewith. Upon the written
request of the Holder made to the Company within fifteen (15) business days
after the delivery of the aforementioned notice by the Company, which request
shall specify the number of shares of Registrable Securities intended to be
registered, the Company shall include such Registrable Securities in such
registration, subject however to the following sentence of this Section
1.02(a) and to the provisions of Section 1.02(c) hereof. If the Company shall
thereafter determine in its sole discretion not to register or to delay the
registration of such securities, the Company may, at its election, provide
written notice of such determination to the Holder and, (i) in the case of a
determination not to effect
<PAGE>
a registration, shall thereupon be relieved of the obligation to register such
Registrable Securities (but, under such circumstances, the Company shall pay
any Registration Expenses reasonably incurred by the Holder until such time as
the Holder received the Company's written notice) and, (ii) in the case of a
determination to delay a registration, shall thereupon be permitted to delay
registering any Registrable Securities for the same period as the delay in
respect of securities being registered for the Company's own account. No
incidental registration effected pursuant to this Section 1.02 shall be deemed
to have been effected or otherwise relieve the Company of any of its
obligations to the Holder pursuant to Section 1.01 hereof.
(b) In connection with any incidental registration as provided in
Section 1.02(a) hereof, the Company shall pay the Registration Expenses for
the registration in question.
(c) Priority in Incidental Registrations. If the lead managing
underwriter of any underwritten offering shall inform the Company by letter of
its belief that the number of Registrable Securities requested to be included
in such registration would substantially interfere with (including without
limitation adversely affect the pricing of) such offering, then the Company
will include in such registration, to the extent of the number and type which
the Company is so advised can be sold in (or during the time of) such offering
without such substantial interference, FIRST, all securities proposed by the
Company to be sold for its own account, SECOND, subject to the provisions of
Section 4.11 hereof, all securities of the Company ranking senior to or on a
parity with (as to rights to dividends and upon liquidation) the Company's
Series A Participating Convertible Preferred Stock ("Senior Securities") and
CP/BV Registrable Securities requested to be included in such registration
(such securities to be included in such registration pro rata on the basis of
the Expected Proceeds from the sale thereof), and THIRD, any other securities
of the Company requested to be included in such registration.
Section 1.03 Registration Procedures. If and whenever the Company is
required by the provisions of this Agreement to effect or cause the
registration of any Registrable Securities under the Securities Act as
provided in this Agreement, the Company shall, as expeditiously as
practicable:
<PAGE>
(a) In the case of a Demand Registration, use its best efforts to
prepare and file with the Commission and obtain the effectiveness of a
registration statement on such form as is available for the sale of
Registrable Securities by the Holder in accordance with the plan of
distribution set forth in such registration statement; provided, however,
if a request for registration pursuant to Section 1.01 hereof is made within
sixty (60) days before the end of the Company's fiscal year and the Company is
not then eligible to effect a registration under the Securities Act by use of
Form S-3 (or other comparable short-form registration statement), the Company
shall be entitled to delay the filing of such registration statement until the
earlier of (i) such time as the Company receives audited financial statements
for such fiscal year and (ii) the expiration of 90 days after the last day of
such fiscal year; and provided, further, that if the Company shall furnish
to the Holder a certificate signed by the President of the Company stating
that, in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed on the date filing would be required under
this Agreement because such registration would require premature disclosure of
any acquisition, corporate reorganization or other material transaction
involving the Company and that it is therefore essential to defer taking
action with respect to the filing of such registration statement, then the
Company may direct that such request for registration be delayed for a period
not to exceed ninety (90) days, such right to delay a request to be exercised
by the Company not more than once in any 12-month period.
(b) Prepare and file with the Commission such amendments, post-effective
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for up to ninety (90) days (unless the Registrable
Securities registered thereunder have been sold or disposed of prior to the
expiration of such 90-day period); and to comply with the provisions of the
Securities Act applicable to the Company with respect to the disposition of
all securities covered by such registration statement during such time as such
registration statement is effective.
<PAGE>
(c) Furnish to the Holder and each underwriter of the Registrable
Securities being sold, as the Holder and such underwriter may reasonably
request in order to facilitate the disposition of Registrable Securities in
accordance with the plan of distribution set forth in such registration
statement, (i) such number of copies (including manually executed and
conformed copies) of such registration statement and of each such amendment
thereof and supplement thereto (including all annexes, appendices, schedules
and exhibits), (ii) such number of copies of the prospectus used in connection
with such registration statement (including each preliminary prospectus and
the final prospectus filed pursuant to Rule 424(b) under the Securities Act),
and (iii) such other documents incident thereto.
(d) Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions in which an exemption is not available
as the Holder and the managing underwriter shall reasonably request, and do
any and all other reasonable acts and things which may be necessary or
advisable to permit the offering and disposition of Registrable Securities in
such jurisdictions in accordance with the plan of distribution set forth in
the registration statement; provided, however, the Company shall not be
required to qualify generally to do business as a foreign corporation, subject
itself to taxation, or consent to general service of process, in any
jurisdiction wherein it would not, but for the requirements of this Section
1.03, be obligated to do so.
(e) Use its best efforts to cause the Registrable Securities covered by
such registration statement to be registered with, or approved by, such other
public, governmental or regulatory authorities as may be necessary in the
reasonable judgment of counsel for the Holder and the Company to facilitate
the disposition of such Registrable Securities in accordance with the plan of
distribution set forth in such registration statement.
<PAGE>
(f) Notify the Holder and the managing underwriter, if any, promptly
and, if requested by any such Person, confirm such notification in writing,
(i) when a prospectus or any prospectus supplement has been filed with the
Commission, and, with respect to such registration statement or any
post-effective amendment thereto, when the same has been declared effective by
the Commission, (ii) of any request by the Commission for amendments or
supplements to such registration statement or related prospectus, or any
written request by the Commission for additional information, (iii) of the
issuance by the Commission of any stop order or the receipt of notice of the
initiation of any proceedings for such or a similar purpose (and the Company
shall make every reasonable effort to obtain the withdrawal of any such order
at the earliest possible moment and the Holder shall cooperate in all
reasonable respects in such efforts), (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction or the receipt of
notice of the initiation or threatening of any proceeding for such purpose
(and the Company shall make every reasonable effort to obtain the withdrawal
of any such suspension at the earliest possible moment and the Holder shall
cooperate in all reasonable respects in such efforts), (v) of the occurrence
of any event during the period when a prospectus with respect to the
Registrable Securities is required to be delivered under the Securities Act
which requires the making of any changes to such registration statement or
related prospectus so that such documents will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (and the Company
shall promptly prepare and furnish to the Holder and any managing underwriter
a reasonable number of copies of a supplemented or amended prospectus or
preliminary prospectus such that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus or preliminary prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading), and (vi) of the Company's determination that the filing of a
post-
<PAGE>
effective amendment to such registration statement shall be necessary or
appropriate. The Holder shall be deemed to have agreed by its acquisition of
Registrable Securities that upon the receipt of any notice from the Company of
the occurrence of any event of the kind described in clause (v) of this
Section 1.03(f), the Holder shall forthwith discontinue the Holder's offer and
disposition of Registrable Securities until the Holder shall have received
copies of an appropriately supplemented or amended prospectus or preliminary
prospectus and, if so directed by the Company, shall deliver to the Company,
at its expense, all copies (other than permanent file copies) of the
prospectus or preliminary prospectus covering such Registrable Securities
which are then in the Holder's possession. In the event the Company shall
provide any notice of the type referred to in the preceding sentence, the
90-day period mentioned in Section 1.03(b) hereof shall be extended by the
number of days from and including the date such notice is provided to and
including the date when each seller of any Registrable Securities covered by
such registration statement and the managing underwriter shall have received
copies of the corrected prospectus contemplated by clause (v) of this Section
1.03(f), plus an additional seven (7) days. The underwriters or, if there are
no underwriters, the Holder shall deliver such supplemented or amended
prospectus or preliminary prospectus to all purchasers or offerees of the
Registrable Securities sold by it to which such delivery may be required or
advisable under the Securities Act and any applicable state securities or
"blue sky" laws.
(g) Otherwise use its best efforts in connection with each registration
and offering of Registrable Securities hereunder to comply with all applicable
rules and regulations of the Commission, as the same may hereafter be amended,
including section 11(a) of the Securities Act and Rule 158 thereunder.
(h) Use its best efforts to cause all such Registrable Securities covered by
such registration statement to be listed on each securities exchange on which
the same class of securities issued by the Company are then listed, if the
listing of such Registrable Securities is then permitted under the rules and
regulations of such exchange and, if requested by the Holder, cause all such
Registrable Securities that are of a different class or series than those
Company securities already listed or traded to be listed on one (but not more
than one) securities exchange reasonably requested by the Holder.
<PAGE>
(i) Engage and provide a transfer agent and registrar for all
Registrable Securities covered by such registration statement not later than
the effective date of such registration statement.
(j) Furnish to the Holder a signed counterpart of an opinion from
counsel to the Company, and a "cold comfort" letter from the Company's
independent certified public accounting firm covering such matters of the type
customarily covered by such opinions and "cold comfort" letters as any
managing underwriter and the Holder shall reasonably request.
(k) Subject to confidentiality restrictions reasonably required by the
Company, at reasonable times and upon reasonable notice, and as necessary to
permit a reasonable investigation with respect to the Company and its business
in connection with the preparation and filing of such registration statement,
make available for inspection by the Holder, by any managing underwriter or
other underwriters participating in any disposition of Registrable Securities,
and by any attorney, accountant or other agent, representative or advisor
retained by any such seller or underwriters, all pertinent financial and other
records and corporate documents of the Company; and cause all of the Company's
officers, directors and employees to discuss pertinent aspects of the
Company's business with the Holder and any such underwriter, accountant,
agent, representative or advisor in connection with such registration
statement; provided, however, that the Company shall not be obligated
pursuant to this Section 1.03(k) to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
(l) Permit the Holder, if the Holder, in the judgment of its counsel,
might be deemed to be a "control person" of the Company (within the meaning of
section 15 of the Securities Act or section 20 of the Exchange Act), to
participate in the preparation of such registration statement and include
therein material, furnished to the Company in writing which, in the reasonable
judgment of the Holder and its counsel, is required to be included therein;
and
<PAGE>
(m) If any registration statement refers to the Holder by name or
otherwise as the holder of any securities of the Company, and if the Holder
reasonably believes it is or may be deemed to be a control person in relation
to, or an Affiliate of, the Company, then the Holder shall have the right to
require (i) the insertion in such registration statement of language, in form
and substance reasonably satisfactory to the Holder, to the effect that the
ownership by the Holder of such securities is not to be construed as and is
not intended to be a recommendation by the Holder of the investment quality
of, or the relative merits and risks attendant to the purchase of, the
Company's securities covered thereby, and that such ownership does not imply
that the Holder will assist in meeting any future financial or operating
requirements of the Company, or (ii) in the case where the reference to the
Holder by name or otherwise is not required by the Securities Act or any
similar federal or state statute then in effect, the deletion of the reference
to the Holder.
Section 1.04 Underwritten Offerings. (a) Requested Underwritten
Offerings. If requested by the underwriters for any underwritten offering by
the Holder of Registrable Securities pursuant to a Demand Registration, the
Company and the Holder will use their best efforts to enter into an
underwriting agreement with such underwriters for such offering, such
agreement (i) to be reasonably satisfactory in substance and form to the
Company, the Holder and the underwriters and (ii) to contain such
representations and warranties by the Company and such other terms as are
reasonable and customary in the circumstances on the part of an issuer in
agreements of that type, including, without limitation, indemnities to the
effect and to the extent provided in Article 2 hereof. The Holder shall
cooperate with the Company in the negotiation of the underwriting agreement,
and shall be party to such underwriting agreement and may, at its option,
require that any or all of the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of the Holder and that
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the obligations
of the Holder. The Company shall notify the Holder if at any time the
representations and warranties contemplated by such underwriting agreement
cease to be true and correct in all material respects.
<PAGE>
The Holder shall not be required to make any representations or warranties to
or agreements with the Company other than representations, warranties or
agreements regarding the Holder, the Holder's Registrable Securities and the
Holder's intended method of distribution as otherwise required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
register any of its securities under the Securities Act as contemplated by
Section 1.02 hereof and such securities are distributed by or through one or
more underwriters, the Holder of Registrable Securities to be distributed by
such underwriters shall be party to the underwriting agreement between the
Company and such underwriters and may, at its option, require that any or all
of the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of the Holder and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of the Holder. The
Company shall notify the Holder if at any time the representations and
warranties contemplated by such underwriting agreement cease to be true and
correct in all material respects. The Holder shall not be required to make
any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
the Holder, the Holder's Registrable Securities and the Holder's intended
method of distribution or as otherwise required by law.
(c) Limitations on Sale or Distribution of Other Securities.
Anything herein to the contrary notwithstanding (including Section 1.01(a)
hereof), if the Company shall file a registration statement with respect to
any of the Company's securities, whether or not for its own account, by means
of an underwritten offering, the Holder agrees not to effect any public sale
or distribution of any Registrable Securities, including any resale pursuant
to Rule 144 under the Securities Act, and to use the Holder's best efforts not
to effect any such public sale or distribution (other than as part of such
underwritten offering) of any other securities which, with notice, lapse of
time and/or payment of monies, are exchangeable or exercisable for or
convertible into any Registrable Securities, during the 15-day period prior
to, and during the 120-day period (or such longer
<PAGE>
period as shall have been requested by the managing underwriters) commencing
on, the effective date of the registration statement filed with the Commission
in connection with such underwritten offering.
(d) In order to ensure compliance with the provisions of Section 1.04(c)
hereof, the Company hereby agrees to notify the Holder as to the status and
proposed effective date of any registration statement of the Company which is
filed with the Commission.
(e) The Company hereby agrees not to effect, except pursuant to employee
benefit plans, any public sale or distribution of any securities of the same
class as (or otherwise similar to) the Registrable Securities, or any
securities which, with notice, lapse of time and/or payment of monies, are
exchangeable or exercisable for or convertible into any such securities during
the 15-day period prior to, and during the 90-day period commencing on, the
effective date of a registration statement filed with the Commission in
connection with an underwritten offering effected pursuant to Section 1.01 of
this Agreement, except to the extent otherwise required by the CP Agreement,
the BV Agreement or the ProJo Agreement.
(f) Without limiting the generality of the foregoing, the provisions of
Section 1.04(c) hereof shall not apply to the Holder if the Holder is
prevented by statute or other applicable regulation from agreeing to such
provisions.
Section 1.05 Certain Agreements of the Company and Holder. (a) The
Holder, in connection with any registration of Registrable Securities, shall
furnish to the Company such information regarding the Holder and the plan of
distribution proposed by the Holder as the Company may reasonably request and
as shall reasonably be required in connection with any registration,
qualification or compliance referred to in this Agreement. In the case of a
Demand Registration, the Company agrees that any plan of distribution included
in the registration statement (which plan relates to the Holder) shall be as
reasonably specified by the Holder.
<PAGE>
If requested by the Company, information with respect to the Holder
required, in the opinion of counsel for the Company, to be included pursuant
to the Securities Act in any registration statement or prospectus for an
offering of Registrable Securities shall be furnished to the Company promptly
by the Holder in writing in a form specifically and expressly for use in such
registration statement or prospectus.
(b) If at the time of any transfer of any Registrable Securities, such
Registrable Securities shall not have been theretofore registered under the
Securities Act, the Company may require, as a condition of allowing such
transfer, that the Holder or the Holder's transferee furnish to the Company
(i) such information as is necessary in order to establish that such transfer
may be made without registration under the Securities Act; and (ii) at the
expense of the Holder or the Holder's transferee, an opinion of legal counsel
designated by the Holder or the Holder's transferee to the effect that such
transfer may be made without registration under the Securities Act, except
that nothing contained in this Section 1.05(b) shall relieve the Company from
complying with any request for registration, qualification or compliance made
pursuant to the other provisions of this Agreement.
(c) The Holder agrees that it will keep confidential and will not
disclose or divulge any confidential, proprietary or secret information that
the Holder may obtain from the Company, and that the Company has marked
"Confidential", "Proprietary" or "Secret" or has otherwise identified as being
such, pursuant to financial information, reports and other materials and
discussions with officers, directors, employees or agents made available by
the Company as required hereunder unless such information is or becomes known
to the Holder from a Person other than the Company (other than as a result of
a breach of a duty of confidentiality owed to the Company by such Person) or
is or becomes publicly known other than as a result of a breach of this
provision, or unless the Company gives its written consent to the Holder's
release of such information, except that no such written consent shall be
required (and the Holder shall be free to release such information) if such
information is to be provided to the Holder's counsel or accountant, or to an
officer, director, employee, advisor or partner of the Holder, provided
<PAGE>
that the Holder shall inform the recipient of the confidential nature of such
information, and shall require the recipient to treat the information as
confidential to the same extent as the Holder.
(d) The Holder agrees to perform any further acts and to execute and
deliver any further documents that may reasonably be requested or necessary to
confirm, or to carry out, the provisions of this Agreement (including the
provisions of Article 2 of this Agreement).
ARTICLE 2.
INDEMNIFICATION
Section 2.01 Indemnification. (a) With respect to each registration
of Registrable Securities pursuant to this Agreement, the Company hereby
indemnifies, to the fullest extent permitted by law, the Holder, its officers
and directors, if any, and each Person, if any, who controls the Holder within
the meaning of section 15 of the Securities Act and section 20 of the Exchange
Act, against all losses, claims, damages, liabilities (or proceedings in
respect thereof) and reasonable expenses (under the Securities Act, common law
and otherwise), joint or several, caused by (i) any untrue statement or
alleged untrue statement of a material fact contained in the applicable
registration statement or prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light (in the case of a prospectus) of the
circumstances under which they were made, not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or any omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading if used prior to
the effective date of such registration statement (unless such statement or
omission is corrected in the final prospectus and the Company has previously
furnished copies thereof to the Holder included in such registration which is
seeking such indemnification and to the underwriters of the registration in
question); provided, however, that such indemnification shall not extend
to any such losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses which are caused (x) by any untrue statement
<PAGE>
or alleged untrue statement contained in, or by any omission or alleged
omission from, information furnished in writing to the Company by the Holder
or any underwriter thereof specifically and expressly for use in any such
registration statement or prospectus or (y) any failure by the Holder or any
underwriter to deliver a prospectus or preliminary prospectus (or amendment or
supplement thereto) as and when required under the Securities Act after such
prospectus has been timely furnished by the Company.
(b) In the case of an underwritten offering in which the registration
statement covers Registrable Securities, the Company agrees to indemnify the
underwriters, their officers and directors, if any, and each Person, if any,
who controls such underwriters within the meaning of section 15 of the
Securities Act and section 20 of the Exchange Act, to the extent customary in
the circumstances for an issuer in an underwritten public offering.
(c) In connection with any written information furnished to the Company
or any underwriter of any underwritten offering specifically and expressly for
use in a registration statement with respect to the Holder, the Holder hereby
indemnifies severally (but not jointly), to the fullest extent permitted by
law, the Company, its officers and directors and each Person, if any, who
controls the Company within the meaning of section 15 of the Securities Act
and section 20 of the Exchange Act, against any losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses caused by (i) any
untrue statement or alleged untrue statement of a material fact contained in
the applicable registration statement, prospectus or preliminary prospectus or
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light (in
the case of a prospectus) of the circumstances under which they were made, not
misleading; provided, however, that the indemnification set forth in this
Section 2.01(c) shall only apply if, and the Holder shall be liable hereunder
if and only to the extent that, any such loss, claim, damage or liability
arises solely out of or is based solely upon an untrue statement or alleged
untrue statement or omission or alleged omission, made in reliance upon and in
conformity with information pertaining to the Holder, which is furnished in
writing to the Company or any underwriter of any underwritten offering by the
Holder expressly for use in any such registration statement or prospectus.
<PAGE>
(d) In the case of an underwritten offering of Registrable Securities,
the Holder shall agree to indemnify such underwriters, their officers and
directors, if any, and each Person, if any, who controls such underwriters
within the meaning of section 15 of the Securities Act and section 20 of the
Exchange Act, to the extent customary in the circumstances for a selling
stockholder in an underwritten public offering.
Section 2.02 Notices of Claims. (a) Any Person seeking
indemnification under the provisions of this Article 2 shall, promptly after
receipt by such Person of notice of the existence of such claim or of the
commencement of any action, suit, claim or proceeding, notify each party
against whom indemnification is to be sought in writing of the existence or
commencement thereof; provided, however, the failure so to notify an
indemnifying party shall not relieve the indemnifying party from any liability
which it may have under this Article 2 or from any liability which the
indemnifying party may otherwise have (except if and to the extent that it has
been prejudiced in any material respect by such failure). In case any such
action, suit, claim or proceeding is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party, except as otherwise provided in Section 2.02(c) hereof. Upon delivery
of such notice by the Company (if it is the indemnifying party) to such
indemnified party and approval of such counsel by such indemnified party, the
Company will not be liable under this Article 2 for any legal or other
expenses subsequently incurred by the Holder in connection with the defense of
such action, suit, claim or proceeding, except as otherwise provided in
Section 2.02(b) hereof.
(b) Notwithstanding the foregoing, the indemnified party shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such suit,
<PAGE>
action, claim or proceeding, (ii) the indemnifying party shall not have
employed counsel (reasonably satisfactory to the indemnified party) to take
charge of the defense of such action, suit, claim or proceeding within a
reasonable time after notice of commencement of the action, suit, claim or
proceeding, or (iii) such indemnified party shall have reasonably concluded
that there may be defenses available to it which are different from or
additional to those available to the indemnifying party which, if the
indemnifying party and the indemnified party were to be represented by the
same counsel, could result in a conflict of interest for such counsel or
materially prejudice the prosecution of the defenses available to such
indemnified party. If any of the events specified in clauses (ii) or (iii) of
the preceding sentence shall have occurred or such clauses shall otherwise be
applicable, then the fees and expenses of one counsel or firm of counsel, plus
one local or regulatory counsel or firm of counsel, selected by a majority in
interest of the indemnified parties shall be borne by the indemnifying party.
(c) If, in any case, the indemnified party employs separate counsel, the
indemnifying party shall not have the right to direct the defense of such
action, suit, claim or proceeding on behalf of the indemnified party.
(d) Anything in this Article 2 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement or compromise of, or
consent to entry of any judgment with respect to, any action, suit, claim or
proceeding effected without its prior written consent (which consent in the
case of an action, suit, claim or proceeding exclusively seeking monetary
relief shall not be unreasonably withheld). Such indemnification shall remain
in full force and effect irrespective of any investigation made by or on
behalf of an indemnified party.
Section 2.03 Contribution. (a) If the indemnification from the
indemnifying party as provided in this Article 2 is unavailable or is
otherwise insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then the
indemnifying party shall, to the fullest extent permitted by law, contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the
<PAGE>
relative fault of the indemnifying party and indemnified parties in connection
with the actions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations, subject
to the provisions of Section 2.03(b) hereof. The relative fault of such
indemnifying party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made, or relates to information supplied by such
indemnifying party, and the parties, relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 2.02 hereof, any legal or other fees
or expenses reasonably incurred by such party in connection with any
investigation or proceeding. The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Article 2 were determined
by pro rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section
2.03(a). Notwithstanding the provisions of this Section 2.03, no underwriter
shall be required to contribute any amount in excess of the amount by which
the total price at which the Registrable Securities underwritten by it and
offered to the public exceeds the amount of any damages for which such
underwriter has otherwise been held liable by reason of such untrue statement
or alleged untrue statement or omission or alleged omission; and the Holder
shall not be required to contribute any amount in excess of the amount by
which the total price at which the Registrable Securities offered to the
public exceeds the amount of any damages for which the Holder has otherwise
been held liable by reason of such untrue statement or alleged untrue
statement or omission or alleged omission.
(b) No Person guilty of fraudulent misrepresentation (within the meaning
of section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(c) If indemnification is available under this Article 2, the
indemnifying parties shall indemnify each
<PAGE>
indemnified party to the fullest extent provided in Section 2.01 and Section
2.02 hereof without regard to the relative fault of said indemnifying party or
indemnified party or any other equitable consideration provided for in this
Section 2.03.
Section 2.04 Indemnification Payments. The indemnification and
contribution required by this Article 2 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
ARTICLE 3.
CERTAIN DEFINITIONS
As used herein, the following terms have the following respective
meanings:
"Affiliate" shall have the meaning specified for "affiliate" in Rule
12b-2 under the Exchange Act.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Class A Common Stock" shall mean Class A Common Stock, par value $.01
per share, of the Company.
"CP/BV Registrable Securities" shall mean the securities of the Company
which are defined as "Registrable Securities" under either the CP Agreement or
the BV Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect at the time.
"Expected Proceeds" shall mean, as of any date, the aggregate proceeds
that would be expected to be received by a holder of securities from the sale
of such securities in an offering made on such date (without being reduced by
any pro forma expenses or underwriting discounts). The determination of
Expected Proceeds shall be made (a) if the offering is intended to be made in
an underwritten public offering, then by the intended managing underwriter of
such offering or (b) if the
<PAGE>
offering is not intended to be made in an underwritten public offering, then
by investment bankers mutually agreeable to the Company and the Holder, the
fees and expenses of which shall be paid by the Company.
"Person" shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political
subdivision thereof or a governmental agency.
"Register", "registered" and "registration" shall mean a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act and the declaration or ordering of the effectiveness of
such registration statement.
"Registrable Securities" shall mean, subject to the provisions of
Sections 4.02(b) and 4.11 hereof, any and all shares of Class A Common Stock
issued or issuable upon conversion of the Preferred Securities. As to any
particular Registrable Securities, such securities shall cease to constitute
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have been declared effective under the
Securities Act and such securities shall have been disposed of in accordance
with the methods contemplated by the registration statement, (ii) such
securities (or the Preferred Securities that are convertible into such
securities) shall have been sold in satisfaction of all applicable conditions
to the resale provisions of Rule 144 under the Securities Act (or any
successor provision thereto), (iii) such securities (or the Preferred
Securities that are convertible into such securities) shall have been
otherwise transferred except to a permitted assignee pursuant to Section
4.02(b) hereof, or (iv) such securities shall have been issued upon conversion
of the Preferred Securities and thereafter shall have ceased to be issued and
outstanding.
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with Article 1, including, without limitation,
(a) any allocation of salaries and expenses of Company personnel or other
general overhead expenses of the Company, or other expenses for the
preparation of historical and pro forma financial statements or other data
normally prepared by the Company in the ordinary course of
<PAGE>
business; (b) all registration, application, filing, listing, transfer and
registrar fees; (c) all NASD fees and fees and expenses of registration or
qualification of Registrable Securities under state securities or "blue sky"
laws pursuant to Section 1.03(d) hereof; (d) all word processing, duplicating
and printing expenses, messenger and delivery expenses; (e) the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of customary "cold comfort" letters
required by or incident to such performance and compliance; and (f) any fees
and disbursements of underwriters and broker-dealers customarily paid by
issuers or sellers of securities; provided, however, Registration Expenses
shall exclude, and the sellers of the Registrable Securities being registered
shall pay, the fees and disbursements of counsel to such sellers, and
underwriting discounts and commissions and transfer taxes in respect of the
Registrable Securities being registered and, to the extent such laws prohibit
the Company from paying such expenses on behalf of the Holder, expenses of
registering or qualifying Registrable Securities under state securities or
blue sky laws.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same shall
be in effect at the time.
ARTICLE 4.
MISCELLANEOUS
Section 4.01 Rule 144. If the Company shall have filed with the
Commission and obtained the effectiveness of a registration statement covering
the Company's equity securities pursuant to the requirements of section 12 of
the Exchange Act or pursuant to the requirements of the Securities Act, the
Company agrees that it shall timely file the reports required to be filed by
it under the Securities Act or the Exchange Act (including, without
limitation, the reports under sections 13 and 15(d) of the Exchange Act
referred to in paragraph (c)(1) of Rule 144 under the Securities Act), and
shall take such further actions as the Holder may reasonably request, all to
the extent necessary to enable the Holder to sell Registrable Securities, from
time to time, pursuant to the resale limitations of (a) Rule 144 under the
Securities Act, as such rule may be hereafter amended, or (b) any similar
rules or regulations hereafter adopted by the
<PAGE>
Commission. Upon the written request of the Holder, the Company shall deliver
to the Holder a written statement verifying that it has complied with such
requirements.
Section 4.02 Assignment. (a) This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the Company and the Holder and,
with respect to the Company, its respective successors and assigns.
(b) The rights of the Holder to cause the Company to register
Registrable Securities under Sections 1.01 and 1.02 hereof may not be assigned
or otherwise conveyed, whether directly or indirectly or by operation of law
or otherwise, to any Person, including any transferee or assignee of any of
the Preferred Securities or the Registrable Securities; provided, however,
that the Holder shall have the right to assign, on one and only one occasion
(whether by instrument of assignment, operation of law or otherwise), to a
third party any of its rights to require the Company to register Registrable
Securities under Section 1.01 or 1.02 hereof in connection with a transfer by
the Holder of more than fifty percent (50%) of the aggregate number of
Registrable Securities (adjusted appropriately to reflect any stock dividends,
splits, combinations, exchange, reorganization, recapitalization or
reclassification involving the Class A Common Stock or resulting from a merger
or consolidation or similar business combination transaction involving the
Company after the date hereof) issuable at the date hereof upon conversion of
the Preferred Securities, provided that such third party shall have executed
and delivered to the Company a written agreement, in form and substance
reasonably satisfactory to the Company, by which such third party shall have
agreed to become party to and bound by the terms and conditions of this
Agreement as though it were the Holder.
Section 4.03 Notices. Except as otherwise provided below, whenever it
is provided in this Agreement that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or
served upon the Company, the Holder, or whenever the Company or the Holder
desires to provide to or serve upon any Person any other communication with
respect to this Agreement, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and either
shall be delivered in person with receipt acknowledged or sent by registered
or
<PAGE>
certified mail (return receipt requested, postage prepaid), or by overnight
mail, courier, or delivery service or by telecopy and confirmed by telecopy
answerback, addressed as follows:
(a) If to the Company, to:
Attention: Vice President and Treasurer
- With a copy to -
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
(B) If to the Holder, to:
- With a copy to -
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Telecopy: (212) 310-8007
Attention: Dennis J. Block, Esq.
<PAGE>
or at such other address as may be substituted by it by notice delivered as
provided herein. The furnishing of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other communication
hereunder shall be deemed to have been duly delivered, furnished or served on
(i) the date on which personally delivered, with receipt acknowledged, (ii)
the date on which telecopied and confirmed by telecopy answerback, (iii) the
next business day if delivered by overnight or express mail, courier or
delivery service, or (iv) three business days after the same shall have been
deposited in the United States mail, as the case may be. Failure or delay in
delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
Section 4.04 Entire Agreement; Amendment. This Agreement represents
the entire agreement and understanding among the parties hereto with respect
to the subject matter hereof and supersedes any and all prior oral and written
agreements, arrangements and understandings among the parties hereto with
respect to such subject matter; and can be amended, supplemented or changed,
and any provision hereof can be waived, only by a written instrument making
specific reference to this Agreement signed by the Company and the Holder.
Section 4.05 Paragraph Headings, etc. The paragraph headings
contained in this Agreement are for general reference purposes only and shall
not affect in any manner the meaning, interpretation or construction of the
terms or other provisions of this Agreement. The terms "including",
"includes" and "included" shall not be limiting.
Section 4.06 Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of The Commonwealth of
Massachusetts, applicable to contracts to be made, executed, delivered and
performed wholly within such state and, in any case, without regard to the
conflicts of law principles of such state.
<PAGE>
Section 4.07 Severability. If at any time subsequent to the date
hereof, any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision
shall be of no force and effect, but the illegality or unenforceability of
such provision shall have no effect upon and shall not impair the
enforceability of any other provision of this Agreement.
Section 4.08 Equitable Remedies. The parties hereto agree that
irreparable harm would occur in the event that any of the agreements and
provisions of this Agreement were not performed fully by the parties hereto in
accordance with their specific terms or conditions or were otherwise breached,
and that money damages are an inadequate remedy for breach of this Agreement
because of the difficulty of ascertaining and quantifying the amount of damage
that will be suffered by the parties hereto in the event that this Agreement
is not performed in accordance with its terms or conditions or is otherwise
breached. It is accordingly hereby agreed that the parties hereto shall be
entitled to an injunction or injunctions to restrain, enjoin and prevent
breaches of this Agreement by the other parties and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, such remedy being in addition to and not in lieu of, any
other rights and remedies to which the other parties are entitled to at law or
in equity.
Section 4.09 No Waiver. The failure of any party at any time or times
to require performance of any provision hereof shall not affect the right at a
later time to enforce the same. No waiver by any party of any condition, and
no breach of any provision, term, covenant, representation or warranty
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be construed as a further or continuing
waiver of any such condition or of the breach of any other provision, term,
covenant, representation or warranty of this Agreement.
Section 4.10 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 but one and the same original instrument.
<PAGE>
Section 4.11 Special Limitation and Termination of Registration
Rights. Anything in this Agreement to the contrary notwithstanding:
(a) The obligations of the Company to the Holder with respect to its
rights of registration provided for in Sections 1.01 and 1.02 hereof shall
cease and terminate upon the earlier of (i) six (6) years after the date
hereof and (ii) the date on which the aggregate number of Registrable
Securities issued and outstanding (or issuable and which would be outstanding
upon conversion of the Preferred Securities) shall no longer exceed one third
(1/3) of the aggregate number of shares (adjusted appropriately downward or
upward to reflect any stock dividends, splits, combinations, exchange,
reorganization, recapitalization or reclassification involving Class A Common
Stock of the Company or pursuant to a merger or consolidation or similar
transaction involving the Company or the like after the date hereof) of
Registrable Securities issuable at the date hereof upon conversion of the
Preferred Securities.
(b) The rights of registration provided for in Sections 1.01 and 1.02
hereof are subject to and limited by the terms and provisions of Article XIII
of the Restated By-Laws of the Company effective as of May 14, 1992, as
amended through the date hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
CONTINENTAL CABLEVISION, INC.
By:________________________________
Name:
Title:
U S WEST, INC.
By:________________________________
Name:
Title:
<PAGE>
EXHIBIT 11
U S WEST, Inc.
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
EARNINGS PER COMMON SHARE: (1)<F1> --------- ----------
<S> <C> <C>
Net income $ - $318,040
Less preferred dividends - 854
Net income available for common ---------- ----------
share calculation $ - $317,186
========== ==========
Weighted average common shares outstanding - 470,414
========== ==========
Earnings per common share $ - $0.67
========== ==========
<CAPTION>
Six Months Ended
June 30,
1996 1995
EARNINGS PER COMMON SHARE: (1) --------- ----------
<S> <C> <C>
Net income $ - $647,676
Less preferred dividends - 1,681
Net income available for common ---------- ----------
share calculation $ - $645,995
========== ==========
Weighted average common shares outstanding - 469,490
========== ==========
Earnings per common share $ - $1.37
========== ==========
<FN>
<F1>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST, Inc.
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
EARNINGS PER COMMON AND COMMON 1996 1995
EQUIVALENT SHARE: (1) --------- ----------
<S> <C> <C>
Net income $ - $318,040
Less preferred dividends - 854
Net income available for common ---------- ----------
share calculation $ - $317,186
========== ==========
Weighted average common shares outstanding - 470,414
Incremental shares from assumed
exercise of stock options - 612
---------- ----------
Total common shares - 471,026
========== ==========
Earnings per common and common
equivalent share $ - $0.67
========== ==========
<CAPTION>
Six Months Ended
June 30,
EARNINGS PER COMMON AND COMMON 1996 1995
EQUIVALENT SHARE: (1)<F1> --------- ----------
<S> <C> <C>
Net income $ - $647,676
Less preferred dividends - 1,681
Net income available for common ---------- ----------
share calculation $ - $645,995
========== ==========
Weighted average common shares outstanding - 469,490
Incremental shares from assumed
exercise of stock options - 515
---------- ----------
Total common shares - 470,005
========== ==========
Earnings per common and common
equivalent share $ - $1.37
========== ==========
<FN>
<F1>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST, Inc.
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
EARNINGS PER COMMON SHARE - ASSUMING 1996 1995
FULL DILUTION: (1)<F1> --------- ----------
<S> <C> <C>
Net income $ - $318,040
Interest on Covertible Liquid Yield
Option Notes (LYONS) - 5,586
---------- ----------
Adjusted income - 323,626
Less preferred dividends - 854
Adjusted net income available for common ---------- ----------
share calculation $ - $322,772
========== ==========
Weighted average common shares outstanding - 470,414
Incremental shares from assumed
exercise of stock options - 664
Shares issued upon conversion of LYONS - 9,876
---------- ----------
Total common shares - 480,954
========== ==========
Earnings per common share -
assuming full dilution $ - $0.67
========== ==========
<FN>
<F1>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST, Inc.
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
EARNINGS PER COMMON SHARE - ASSUMING 1996 1995
FULL DILUTION: (1)<F1> --------- ----------
<S> <C> <C>
Net income $ - $647,676
Interest on Covertible Liquid Yield
Option Notes (LYONS) - 11,163
---------- ----------
Adjusted income - 658,839
Less preferred dividends - 1,681
Adjusted net income available for common ---------- ----------
share calculation $ - $657,158
========== ==========
Weighted average common shares outstanding - 469,490
Incremental shares from assumed
exercise of stock options - 668
Shares issued upon conversion of LYONS - 9,885
---------- ----------
Total common shares - 480,043
========== ==========
Earnings per common share -
assuming full dilution $ - $1.37
========== ==========
<FN>
<F1>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST COMMUNICATIONS GROUP
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995*
EARNINGS PER COMMON SHARE (1) --------- ----------
<S> <C> <C>
Net income for per share calculation $323,958 $292,586
========== ==========
Weighted average common shares outstanding 476,803 470,414
========== ==========
Earnings per common share $0.68 $0.62
========== ==========
<CAPTION>
Six Months Ended
June 30,
1996 1995*
EARNINGS PER COMMON SHARE (1) --------- ----------
<S> <C> <C>
Income before cumulative effect of
change in accounting principle $618,253 $607,852
Cumulative effect of change in
accounting principle - net of tax 34,158 -
---------- ----------
Net income for per share calculation $652,411 $607,852
========== ==========
Weighted average common shares outstanding 475,929 469,490
========== ==========
Income before cumulative effect of
change in accounting principle $1.30 $1.29
Cumulative effect of change in
accounting principle - net of tax 0.07 -
---------- ----------
Earnings per common share $1.37 $1.29
========== ==========
<FN>
<F1>
* Pro forma
<F2>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock. Earnings per common share for 1995 has been
presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
For periods prior to the recapitalization, the average common
shares outstanding are assumed to be equal to the average
common shares outstanding for U S WEST, Inc.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST COMMUNICATIONS GROUP
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
EARNINGS PER COMMON AND COMMON 1996 1995*
EQUIVALENT SHARE: (1) --------- ----------
<S> <C> <C>
Net income for per share calculation $323,958 $292,586
========== ==========
Weighted average common shares outstanding 476,803 470,414
Incremental shares from assumed
exercise of stock options 1,658 612
---------- ----------
Total common shares 478,461 471,026
========== ==========
Earnings per common and common
equivalent share $0.68 $0.62
========== ==========
<CAPTION>
Six Months Ended
June 30,
EARNINGS PER COMMON AND COMMON 1996 1995*
EQUIVALENT SHARE: (1) --------- ----------
<S> <C> <C>
Income before cumulative effect of
change in accounting principle $618,253 $607,852
Cumulative effect of change in
accounting principle - net of tax 34,158 -
---------- ----------
Net income for per share calculation $652,411 $607,852
========== ==========
Weighted average common shares outstanding 475,929 469,490
Incremental shares from assumed
exercise of stock options 1,721 515
---------- ----------
Total common shares 477,650 470,005
========== ==========
Income before cumulative effect of
change in accounting principle $1.29 $1.29
Cumulative effect of change in
accounting principle - net of tax 0.07 -
Earnings per common and common ---------- ----------
equivalent share $1.36 $1.29
========== ==========
<FN>
<F1>
* Pro forma
<F2>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock. Earnings per common share for 1995 has been
presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
For periods prior to the recapitalization, the average common
shares outstanding are assumed to be equal to the average
common shares outstanding for U S WEST, Inc.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST COMMUNICATIONS GROUP
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
EARNINGS PER COMMON SHARE - ASSUMING 1996 1995*
FULL DILUTION: (1) --------- ----------
<S> <C> <C>
Net income $323,958 $292,586
Interest on Convertible Liquid Yield
Option Notes (LYONS) 3,137 3,074
---------- ----------
Adjusted net income for per
share calculation $327,095 $295,660
========== ==========
Weighted average common shares outstanding 476,803 470,414
Incremental shares from assumed
exercise of stock options 1,658 664
Shares issued upon conversion of LYONS 9,620 9,876
---------- ----------
Total common shares 488,081 480,954
========== ==========
Earnings per common share -
assuming full dilution $0.67 $0.61
========== ==========
<FN>
<F1>
* Pro forma
<F2>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock. Earnings per common share for 1995 has been
presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
For periods prior to the recapitalization, the average common
shares outstanding are assumed to be equal to the average
common shares outstanding for U S WEST, Inc.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST COMMUNICATIONS GROUP
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
EARNINGS PER COMMON SHARE - ASSUMING 1996 1995*
FULL DILUTION: (1) --------- ----------
<S> <C> <C>
Income before cumulative effect of
change in accounting principle $618,253 $607,852
Interest on Convertible Liquid Yield
Option Notes (LYONS) 6,299 6,119
---------- ----------
Adjusted income before cumulative effect
of change in accounting principle 624,552 613,971
Cumulative effect of change in
accounting principle - net of tax 34,158 -
---------- ----------
Adjusted net income for per
share calculation $658,710 $613,971
========== ==========
Weighted average common shares outstanding 475,929 469,490
Incremental shares from assumed
exercise of stock options 1,722 668
Shares issued upon conversion of LYONS 9,627 9,885
---------- ----------
Total common shares 487,278 480,043
========== ==========
Adjusted income before cumulative effect
of change in accounting principle $1.28 $1.28
Cumulative effect of change in
accounting principle - net of tax 0.07 -
Earnings per common share - ---------- ----------
assuming full dilution $1.35 $1.28
========== ==========
<FN>
<F1>
* Pro forma
<F2>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock. Earnings per common share for 1995 has been
presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
For periods prior to the recapitalization, the average common
shares outstanding are assumed to be equal to the average
common shares outstanding for U S WEST, Inc.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST MEDIA GROUP
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995*
EARNINGS PER COMMON SHARE: (1) --------- ----------
<S> <C> <C>
Net income (loss) ($10,992) $25,454
Less preferred dividends 855 854
Earnings (loss) available for common ---------- ----------
share calculation ($11,847) $24,600
========== ==========
Weighted average common shares outstanding 473,593 470,414
========== ==========
Earnings (loss) per common share ($0.03) $0.05
========== ==========
<CAPTION>
Six Months Ended
June 30,
1996 1995*
--------- ----------
<S> <C> <C>
EARNINGS PER COMMON SHARE: (1)
($8,075) $39,824
Net income (loss) 1,709 1,681
Less preferred dividends ---------- ----------
Earnings (loss) available for common ($9,784) $38,143
share calculation ========== ==========
473,298 469,490
Weighted average common shares outstanding ========== ==========
Earnings (loss) per common share ($0.02) $0.08
========== ==========
<FN>
<F1>
* Pro forma
<F2>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock. Earnings per common share for 1995 has been
presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
For periods prior to the recapitalization, the average common
shares outstanding are assumed to be equal to the average
common shares outstanding for U S WEST, Inc.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST MEDIA GROUP
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
EARNINGS PER COMMON AND COMMON 1996 1995*
EQUIVALENT SHARE: (1) --------- ----------
<S> <C> <C>
Net income (loss) ($10,992) $25,454
Less preferred dividends 855 854
Earnings (loss) available for common ---------- ----------
share calculation ($11,847) $24,600
========== ==========
Weighted average common shares outstanding 473,593 470,414
Incremental shares from assumed
exercise of stock options 1,138 612
---------- ----------
Total common shares 474,731 471,026
========== ==========
Earnings (loss) per common and common
equivalent share ($0.03) $0.05
========== ==========
<CAPTION>
Six Months Ended
June 30,
EARNINGS PER COMMON AND COMMON 1996 1995*
EQUIVALENT SHARE: (1) --------- ----------
<S> <C> <C>
Net income (loss) ($8,075) $39,824
Less preferred dividends 1,709 1,681
Earnings (loss) available for common ---------- ----------
share calculation ($9,784) $38,143
========== ==========
Weighted average common shares outstanding 473,298 469,490
Incremental shares from assumed
exercise of stock options 1,287 515
---------- ----------
Total common shares 474,585 470,005
========== ==========
Earnings (loss) per common and common
equivalent share ($0.02) $0.08
========== ==========
<FN>
<F1>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock. Earnings per common share for 1995 has been
presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
For periods prior to the recapitalization, the average common
shares outstanding are assumed to be equal to the average
common shares outstanding for U S WEST, Inc.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST MEDIA GROUP
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
EARNINGS PER COMMON SHARE - ASSUMING 1996 1995*
FULL DILUTION: (1) (2) --------- ----------
<S> <C> <C>
Net income (loss) ($10,992) $25,454
Less preferred dividends 855 854
Earnings (loss) available for common ---------- ----------
share calculation ($11,847) $24,600
========== ==========
Weighted average common shares outstanding 473,593 470,414
Incremental shares from assumed
exercise of stock options 1,137 664
---------- ----------
Total common shares 474,730 471,078
========== ==========
Earnings (loss) per common share -
assuming full dilution ($0.03) $0.05
========== ==========
<FN>
<F1>
* Pro forma
<F2>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock. Earnings per common share for 1995 has been
presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
For periods prior to the recapitalization, the average common
shares outstanding are assumed to be equal to the average
common shares outstanding for U S WEST, Inc.
<F3>
(2) The effects of converting the Liquid Yield Option Notes
(LYONS) are excluded from the fully diluted earnings per
common share calculation due to their anti-dilutive effect.
</FN>
</TABLE>
<PAGE>
EXHIBIT 11
U S WEST MEDIA GROUP
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
EARNINGS PER COMMON SHARE - ASSUMING 1996 1995*
FULL DILUTION: (1) (2) --------- ----------
<S> <C> <C>
Net income (loss) ($8,075) $39,824
Less preferred dividends 1,709 1,681
Earnings (loss) available for common ---------- ----------
share calculation ($9,784) $38,143
========== ==========
Weighted average common shares outstanding 473,298 469,490
Incremental shares from assumed
exercise of stock options 1,286 668
---------- ----------
Total common shares 474,584 470,158
========== ==========
Earnings (loss) per common share -
assuming full dilution ($0.02) $0.08
========== ==========
<FN>
<F1>
* Pro forma
<F2>
(1) Effective November 1, 1995, each share of U S WEST, Inc.
common stock was converted into one share each of U S WEST
Communications Group common stock and U S WEST Media Group
common stock. Earnings per common share for 1995 has been
presented on a pro forma basis to reflect the two classes of
stock as if they had been outstanding since January 1, 1995.
For periods prior to the recapitalization, the average common
shares outstanding are assumed to be equal to the average
common shares outstanding for U S WEST, Inc.
<F3>
(2) The effects of converting the Liquid Yield Option Notes
(LYONS) are excluded from the fully diluted earnings per
common share calculation due to their anti-dilutive effect.
</FN>
</TABLE>
<PAGE>
EXHIBIT 12
U S WEST, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in Millions)
<TABLE>
<CAPTION>
Quarter Ended
6/30/96 6/30/95
- ------------------------------------------------ --------- ---------
<S> <C> <C>
Income before income taxes and cumulative
effect of change in accounting principle $519 $514
Interest expense (net of amounts capitalized) 136 139
Interest factor on rentals (1/3) 25 27
Equity losses in unconsolidated ventures 42 2
Guaranteed minority interest expense 12 -
--------- ---------
Earnings $734 $682
Interest expense 157 153
Interest factor on rentals (1/3) 25 27
Guaranteed minority interest expense 12 -
Preferred stock dividends 1 2
--------- ---------
Fixed charges $195 $182
Ratio of earnings to fixed charges 3.76 3.75
- ------------------------------------------------ --------- ---------
<CAPTION>
Year-to-Date
6/30/96 6/30/95
- ------------------------------------------------ --------- ---------
<S> <C> <C>
Income before income taxes and cumulative
effect of change in accounting principle $1,008 $1,052
Interest expense (net of amounts capitalized) 271 267
Interest factor on rentals (1/3) 47 49
Equity losses in unconsolidated ventures 67 28
Guaranteed minority interest expense 24 -
--------- ---------
Earnings $1,417 $1,396
Interest expense 316 292
Interest factor on rentals (1/3) 47 49
Guaranteed minority interest expense 24 -
Preferred stock dividends 3 3
--------- ---------
Fixed charges $390 $344
Ratio of earnings to fixed charges 3.63 4.06
- ------------------------------------------------ --------- ---------
</TABLE>
<PAGE>
EXHIBIT 12
U S WEST Financial Services, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended
6/30/96 6/30/95
- --------------------------------------------------------------------
<S> <C> <C>
Income before income taxes $7,423 $4,567
Interest expense 5,333 7,419
Interest factor on rentals (1/3) 14 14
--------------------
Earnings $12,770 $12,000
Interest expense 5,333 7,419
Interest factor on rentals (1/3) 14 14
--------------------
Fixed charges $5,347 $7,433
Ratio of earnings to fixed charges 2.39 1.61
- --------------------------------------------------------------------
<CAPTION>
Year-to-Date
6/30/96 6/30/95
- --------------------------------------------------------------------
<S> <C> <C>
Income before income taxes $8,723 $5,380
Interest expense 10,711 16,569
Interest factor on rentals (1/3) 31 31
--------------------
Earnings $19,465 $21,980
Interest expense 10,711 16,569
Interest factor on rentals (1/3) 31 31
--------------------
Fixed charges $10,742 $16,600
Ratio of earnings to fixed charges 1.81 1.32
- --------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000732718
<NAME> U S WEST, INC.
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 127 127
<SECURITIES> 0 0
<RECEIVABLES> 1,872 1,872
<ALLOWANCES> 0 0
<INVENTORY> 220 220
<CURRENT-ASSETS> 2,835 2,835
<PP&E> 33,622 33,622
<DEPRECIATION> 18,633 18,633
<TOTAL-ASSETS> 25,289 25,289
<CURRENT-LIABILITIES> 4,679 4,679
<BONDS> 7,360 7,360
651 651
0 0
<COMMON> 8,373 8,373
<OTHER-SE> (156) (156)
<TOTAL-LIABILITY-AND-EQUITY> 25,289 25,289
<SALES> 3,124 6,174
<TOTAL-REVENUES> 3,124 6,174
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,406 4,731
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 136 271
<INCOME-PRETAX> 519 1,008
<INCOME-TAX> 206 398
<INCOME-CONTINUING> 313 610
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 34
<NET-INCOME> 313 644
<EPS-PRIMARY> .68 1.37
<EPS-DILUTED> .67 1.35
</TABLE>
