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REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VIACOM INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4841 04-2980402
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (IRS EMPLOYER
OF INCORPORATION INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
OR ORGANIZATION) CODE NUMBER)
1515 BROADWAY
NEW YORK, NEW YORK 10036
(212) 258-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
PHILIPPE P. DAUMAN, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL,
CHIEF ADMINISTRATIVE OFFICER AND SECRETARY
VIACOM INTERNATIONAL INC.
1515 BROADWAY
NEW YORK, NEW YORK 10036
(212) 258-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
STEPHEN T. GIOVE, ESQ.
CREIGHTON O'M. CONDON, ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this Registration Statement becomes effective and the other
conditions to the commencement of the Exchange Offer described herein have been
satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED AMOUNT OF
AMOUNT MAXIMUM MAXIMUM REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE FEE
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE/(1)/
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Class A Common Stock, $100.00 par value per share......... 5,000,000 shares N.A. $441,918,750 $171,025
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Series A Senior Cumulative Exchangeable Preferred Stock, 5,000,000 shares N.A. N.A. N.A.
$100.00 par value per share/(2)/..........................
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(1) Estimated solely for the purpose of calculating the registration fee. The
registration fee has been calculated in accordance with Rule 457(f) under
the Securities Act, as amended, based on the market value of the shares of
Viacom Class A Common Stock and Class B Common Stock to be received in the
exchange for the shares of the registrant's securities registered pursuant
hereto ($48 3/4, which is the average of the averages of the high and low
prices per share of Viacom Class A Common Stock and Class B Common Stock on
the American Stock Exchange, Inc. on November 16, 1995).
(2) Represents shares of Series A Senior Cumulative Exchangeable Preferred
Stock underlying the Registrant's Class A Common Stock, all of which will
be issuable to holders of Class A Common Stock automatically, and without
any further consideration, upon the subscription by a third party for
shares of the registrant's Class B Common Stock.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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VIACOM INTERNATIONAL INC.
Cross Reference Sheet pursuant to Rule 404(a) of the Securities Act of 1933
and Item 501(b) of Regulation S-K, showing the location or heading in the
Offering Circular - Prospectus of the information required by Part I of Form S-
4.
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S-4 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
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A. Information About the Transaction
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page of Prospectus; Available
Information; Incorporation of Certain Documents
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information..................... Summary; Unaudited Pro Forma Condensed
Combined Financial Statements of VII Cable;
Selected Combined Historical Financial Data of
VII Cable; Market Prices, Trading and Dividend
Information; Risk Factors
4. Terms of the Transaction............................ Summary; The Transaction; The
Exchange Offer; Arrangements among Viacom,
Viacom International and TCI; Description of VII
Cable Capital Stock; Comparison of Rights of
Stockholders of Viacom and VII Cable;
Relationship between Viacom and VII Cable;
Relationship between VII Cable and TCI; Certain
Federal Income Tax Consequences
5. Pro Forma Financial Information..................... Unaudited Pro Forma Condensed Combined
Financial Statements of VII Cable
6. Material Contacts with the Company Being
Acquired.......................................... Management; Arrangements among Viacom,
Viacom International, TCI and TCI Cable;
Relationship between Viacom and VII Cable;
Relationship between VII Cable and TCI after the
Exchange Offer
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to Be
Underwriters...................................... Not Applicable
8. Interests of Named Experts and
Counsel........................................... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................................... Not Applicable
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S-4 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
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B. Information About the Registrant
10. Information with Respect to S-3 Registrants........ Not Applicable
11. Incorporation of Certain Information by
Reference........................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants...................... Summary; Market Prices, Trading and Dividend
Information; Selected Combined Historical
Financial Data of VII Cable; Management's
Discussion and Analysis of Financial Condition
and Results of Operations of VII Cable; Business
of VII Cable; Description of Certain Indebtedness
of VII Cable; Financial Statements of VII Cable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies.......... Available Information; Incorporation of Certain
Documents by Reference; Summary; Selected
Consolidated Historical Financial Data of Viacom
16. Information with Respect to S-2 or S-3
Companies........................................ Not Applicable
17. Information with Respect to Companies Other
than S-2 or S-3 Companies........................ Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited............... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited in an
Exchange Offer................................... The Transaction; Business of VII Cable;
Management; Risk Factors; Security Ownership
of VII Cable Common Stock; Security Ownership
of Certain Beneficial Owners and Management of
Viacom Common Stock; Arrangements among
Viacom, Viacom International and TCI;
Description of Certain Indebtedness of VII Cable;
Relationship between Viacom and VII Cable
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
OFFERING CIRCULAR - PROSPECTUS (SUBJECT TO COMPLETION, DATED )
- ------------------------------
VIACOM INC.
OFFERING CIRCULAR
VIACOM INTERNATIONAL INC.
(TO BE RENAMED TCI PACIFIC COMMUNICATIONS, INC.)
PROSPECTUS
OFFER TO EXCHANGE NOT MORE THAN NOR LESS THAN OF A SHARE OF CLASS
A COMMON STOCK, $100.00 PAR VALUE PER SHARE, OF VIACOM
INTERNATIONAL INC. FOR EACH SHARE OF CLASS A COMMON
STOCK, $0.01 PAR VALUE PER SHARE, OR CLASS B
COMMON STOCK, $0.01 PAR VALUE
PER SHARE, OF VIACOM INC.
________________
EACH SHARE OF CLASS A COMMON STOCK OF VIACOM INTERNATIONAL INC. WILL
AUTOMATICALLY CONVERT INTO ONE SHARE OF % SERIES A SENIOR
CUMULATIVE EXCHANGEABLE PREFERRED STOCK, $100.00 PAR VALUE
PER SHARE, OF VIACOM INTERNATIONAL INC. UPON THE PURCHASE
OF 100 SHARES OF CLASS B COMMON STOCK, $0.01 PAR VALUE
PER SHARE, OF VIACOM INTERNATIONAL INC. BY A
SUBSIDIARY OF TELE-COMMUNICATIONS, INC.
________________
UNLESS PREVIOUSLY REDEEMED, EACH SHARE OF SERIES A SENIOR CUMULATIVE
EXCHANGEABLE PREFERRED STOCK,$100.00 PAR VALUE PER SHARE, OF VIACOM
INTERNATIONAL INC. IS EXCHANGEABLE AT THE OPTION OF THE HOLDER AFTER
THE FIFTH ANNIVERSARY OF THE DATE OF ISSUANCE FOR A NUMBER OF SHARES
OF SERIES A TCI GROUP COMMON STOCK, $1.00 PAR VALUE PER SHARE, OF
TELE-COMMUNICATIONS, INC. AT THE EXCHANGE RATE DESCRIBED HEREIN,
WHICH WILL BE ANNOUNCED ON THE SECOND BUSINESS DAY PRIOR TO THE
EXPIRATION OF THE EXCHANGE OFFER. DIVIDENDS AND PAYMENTS
UPON OPTIONAL OR MANDATORY REDEMPTION OF SHARES OF %
SERIES A SENIOR CUMULATIVE EXCHANGEABLE PREFERRED
STOCK, $100.00 PAR VALUE PER SHARE, MAY BE PAID IN
SHARES OF SERIES A TCI GROUP COMMON STOCK, $1.00
PAR VALUE PER SHARE, OF TELE-COMMUNICATIONS INC.
AS PROVIDED HEREIN.
________________
THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME ON , 199 ,
UNLESS THE EXCHANGE OFFER IS EXTENDED.
________________
Viacom Inc., a Delaware corporation ("Viacom"), is offering hereby to the
holders of shares of (i) Class A Common Stock, $0.01 par value per share of
Viacom ("Viacom Class A Common Stock"), and/or (ii) Class B Common Stock, $0.01
par value per share of Viacom ("Viacom Class B Common Stock," and collectively
with Viacom Class A Common Stock, "Viacom Common Stock"), the opportunity to
exchange all or a portion of their shares of Viacom Common Stock for shares of
Class A Common Stock of VII Cable (as defined herein), $100.00 par value per
share ("VII Cable Class A Common Stock"), at an exchange ratio (the "Exchange
Ratio"), specified by tendering stockholders, not greater than
nor less than of a share of VII Cable Class A Common
Stock for each share of Viacom Class A Common Stock or Viacom Class B Common
Stock tendered and exchanged, upon the terms and subject to the conditions set
forth herein and in the related Letter of Transmittal (which together constitute
the "Exchange Offer").
(continued on following page)
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR - PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________
The Dealer Manager for the Exchange Offer is:
WASSERSTEIN PERELLA & CO., INC.
THE DATE OF THIS OFFERING CIRCULAR - PROSPECTUS IS , 199 .
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(Cover continued from previous page)
Each share of Viacom Common Stock accepted by Viacom in accordance with the
Exchange Offer shall be exchanged for that number of fully paid and
nonassessable shares of VII Cable Class A Common Stock equal to the smallest
Exchange Ratio sufficient to satisfy the Minimum Condition (as defined herein).
The Exchange Offer is subject to a number of conditions, including the
Minimum Condition, among others. See "Arrangements Among Viacom, Viacom
International, TCI and TCI Cable--Terms of the Parents Agreement--Conditions
Precedent."
NONE OF VIACOM, VIACOM INTERNATIONAL INC. ("VIACOM INTERNATIONAL"), THE
BOARD OF DIRECTORS OF VIACOM NOR THE BOARD OF DIRECTORS OF VIACOM INTERNATIONAL
MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER OF VIACOM WHETHER TO TENDER OR
REFRAIN FROM TENDERING SHARES OF VIACOM COMMON STOCK PURSUANT TO THE EXCHANGE
OFFER. EACH STOCKHOLDER MUST MAKE ITS OWN DECISION WHETHER TO TENDER SHARES OF
VIACOM COMMON STOCK PURSUANT TO THE EXCHANGE OFFER AND, IF SO, HOW MANY SHARES
TO TENDER AND AT WHAT EXCHANGE RATIO TO TENDER SUCH SHARES AFTER READING THIS
OFFERING CIRCULAR - PROSPECTUS AND CONSULTING WITH ITS ADVISORS BASED ON ITS OWN
FINANCIAL POSITION AND REQUIREMENTS. THIS OFFERING CIRCULAR - PROSPECTUS
RELATES TO ALL SHARES OF VII CABLE CLASS A COMMON STOCK AND TO ALL SHARES OF
% SERIES A SENIOR CUMULATIVE EXCHANGEABLE PREFERRED STOCK, $100.00 PAR VALUE PER
SHARE, OF VII CABLE ("VII CABLE PREFERRED STOCK") TO BE DISTRIBUTED PURSUANT TO
THE EXCHANGE OFFER.
SEE "RISK FACTORS" BEGINNING ON PAGE 60 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
Application will be made for quotation of the shares of VII Cable Preferred
Stock on the Nasdaq National Market System ("Nasdaq") under the symbol "
." On July 24, 1995, the last trading day prior to the announcement of the
Transaction (as defined herein), the closing sale prices per share of Viacom
Class A Common Stock and Viacom Class B Common Stock on the American Stock
Exchange, Inc. ("AMEX") were $50 1/4 and $50, respectively. Effective August 3,
1995, Tele-Communications, Inc. ("TCI") amended its Restated Certificate of
Incorporation to, among other things, redesignate its Class A Common Stock, par
value $1.00 per share ("TCI Class A Common Stock"), as Tele-Communications, Inc.
Series A TCI Group Common Stock, par value $1.00 per share ("TCI Stock"). On
July 24, 1995, the closing sale price per share of the TCI Class A Common Stock
on Nasdaq was $23-13/16. On November 16, 1995, the closing sales price per
share of Viacom Class A Common Stock and Viacom Class B Common Stock on AMEX
were $48 7/8 and $49 1/4, respectively, and the closing sale price per share of
TCI Stock on Nasdaq was $18 3/8 per share.
In those jurisdictions where securities, blue sky or other laws require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer
shall be deemed to be made on behalf of Viacom by Wasserstein Perella & Co.,
Inc., as Dealer Manager, or one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
(End of Cover Page)
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING CIRCULAR -
PROSPECTUS IN CONNECTION WITH THE OFFERING OF SECURITIES MADE BY THIS OFFERING
CIRCULAR - PROSPECTUS OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY VIACOM OR VIACOM INTERNATIONAL. THIS OFFERING CIRCULAR -
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES HEREBY OR THEREBY OFFERED IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR - PROSPECTUS NOR
THE EXCHANGE OF SECURITIES PURSUANT TO THIS OFFERING CIRCULAR - PROSPECTUS
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF VIACOM OR VIACOM INTERNATIONAL SINCE SUCH DATE
OR, IN THE CASE OF INFORMATION INCORPORATED HEREIN BY REFERENCE, THE DATE OF
FILING OF SUCH INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION").
UNTIL 40 DAYS AFTER THE DATE OF THIS OFFERING CIRCULAR - PROSPECTUS, ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
________________
AVAILABLE INFORMATION
Viacom International has filed a Registration Statement on Form S-4 under
the Securities Act of 1933, as amended (the "Securities Act"), with the
Commission with respect to the VII Cable Class A Common Stock and VII Cable
Preferred Stock offered hereby (together with any amendments thereto, the
"Registration Statement"). Viacom has filed a Schedule 13E-4 Issuer Tender
Offer Statement (together with any amendments thereto, the "Schedule 13E-4")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
the Commission with respect to the Exchange Offer. This Offering Circular -
Prospectus does not contain all the information set forth or incorporated by
reference in the Registration Statement, the Schedule 13E-4 and their respective
exhibits, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information, reference is made
to the Registration Statement and the Schedule 13E-4 and the exhibits filed or
incorporated as a part thereof, which are on file at the offices of the
Commission and may be inspected and copied as set forth below.
Viacom is currently subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. The Registration Statement, Schedule
13E-4, reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and should
be available at the Commission's Regional Offices at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material also
can be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. In
addition, material filed by Viacom can be inspected at the offices of the AMEX,
86 Trinity Place, New York, New York 10006. As of March 1, 1995, Viacom
International was no longer required to file reports, proxy statements or other
information with the Commission pursuant to the requirements of the Exchange
Act. Instead, information with respect to Viacom International since such date
has been provided, to the extent required, in filings made by Viacom. Absent an
available exemption, following consummation of the Transaction (as defined
herein), VII Cable will be required to file reports, proxy statements and other
information with the Commission pursuant to the requirements of the Exchange
Act.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Viacom (File No.
1-9553) and Viacom International (File No. 1-9554) pursuant to the Exchange Act
are incorporated by reference in this Offering Circular - Prospectus:
1. Viacom's Annual Report on Form 10-K for the year ended December 31,
1994;
2. Viacom's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995, June 30, 1995 and September 30, 1995; and
3. Viacom's Current Reports on Form 8-K filed January 24, 1995, March 15,
1995, April 14, 1995, May 8, 1995, May 25, 1995, June 29, 1995, July
26, 1995 and September 29, 1995.
All documents and reports filed by Viacom, if any, pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Offering
Circular - Prospectus and prior to the termination of the Exchange Offer shall
be deemed to be incorporated herein by reference and made a part of this
Offering Circular - Prospectus from the dates of filing of such documents or
reports. Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Offering Circular - Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified and superseded, to constitute a part of
this Offering Circular - Prospectus.
THIS OFFERING CIRCULAR - PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER OF SHARES OF VIACOM COMMON STOCK, TO WHOM A COPY
OF THIS OFFERING CIRCULAR - PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO VIACOM INC., 1515 BROADWAY, NEW YORK, NEW YORK 10036, ATTENTION:
JOHN H. BURKE (TELEPHONE NUMBER (212) 258-6000). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE FIVE BUSINESS DAYS PRIOR
TO THE EXPIRATION DATE (AS DEFINED HEREIN). REQUESTS MAY ALSO BE MADE TO THE
INFORMATION AGENT, GEORGESON & COMPANY INC., TELEPHONE NUMBER (800) 223-6064.
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TCI PROSPECTUS - EXPLANATORY NOTE
TCI has filed with the Commission a registration statement (the "TCI
Registration Statement"), together with a related prospectus (the "TCI
Prospectus"), with respect to the TCI Common Stock which may be issued as
dividends on, or upon exchange or optional or mandatory redemption of, the VII
Cable Preferred Stock. For the convenience of holders of Viacom Common Stock, a
copy of the TCI Prospectus has been mailed to each registered holder of Viacom
Common Stock together with this Offering Circular - Prospectus.
THIS OFFERING CIRCULAR - PROSPECTUS RELATES ONLY TO THE VII CABLE CLASS A
COMMON STOCK OFFERED HEREBY AND THE UNDERLYING VII CABLE PREFERRED STOCK AND
DOES NOT RELATE TO THE TCI COMMON STOCK OR OTHER SECURITIES OF TCI. TCI FILES
PERIODIC AND OTHER REPORTS AND PROXY STATEMENTS WITH THE COMMISSION. VIACOM
STOCKHOLDERS ARE DIRECTED TO SUCH PUBLICLY AVAILABLE DOCUMENTS AS WELL AS TO THE
TCI PROSPECTUS FOR INFORMATION CONCERNING TCI AND THE TCI STOCK (AS DEFINED
HEREIN). NEITHER VIACOM NOR VIACOM INTERNATIONAL HAS PARTICIPATED IN THE
PREPARATION OF SUCH DOCUMENT OR MADE ANY DUE DILIGENCE INQUIRY WITH RESPECT TO
TCI. NEITHER VIACOM NOR VIACOM INTERNATIONAL MAKES ANY REPRESENTATION THAT SUCH
TCI PROSPECTUS IS ACCURATE OR COMPLETE. THE TCI PROSPECTUS IS BEING PROVIDED TO
VIACOM STOCKHOLDERS SOLELY FOR THEIR CONVENIENCE. VIACOM AND VIACOM
INTERNATIONAL DISCLAIM ANY AND ALL LIABILITY FOR ANY UNTRUE STATEMENT OF A
MATERIAL FACT IN THE TCI PROSPECTUS OR OMISSION TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN NOT MISLEADING, IN LIGHT OF
THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION..................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... ii
TCI PROSPECTUS - EXPLANATORY NOTE......................................... iii
OFFERING CIRCULAR - PROSPECTUS SUMMARY..................................... 1
THE TRANSACTION........................................................... 16
General................................................................ 16
Purpose and Effects of the Transaction................................. 17
No Appraisal Rights.................................................... 18
Regulatory Approvals................................................... 18
Anticipated Accounting Treatment....................................... 18
THE EXCHANGE OFFER........................................................ 19
Terms of the Exchange Offer............................................ 19
Exchange of Shares of Viacom Common
Stock................................................................. 20
Procedures for Tendering Shares of
Viacom Common Stock................................................... 22
Guaranteed Delivery Procedure.......................................... 24
Withdrawal Rights...................................................... 25
Extension of Tender Period; Termination;
Amendment............................................................. 25
Conditions to Consummation of the
Exchange Offer........................................................ 27
Fees and Expenses...................................................... 28
Miscellaneous.......................................................... 29
MARKET PRICES, TRADING AND DIVIDEND INFORMATION........................... 30
Viacom Common Stock.................................................... 30
VII Cable Class A Common Stock and VII
Cable Preferred Stock................................................. 30
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS VII CABLE................................ 32
SELECTED COMBINED HISTORICAL
FINANCIAL DATA OF VII CABLE............................................ 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF VII CABLE....................... 39
BUSINESS OF VII CABLE..................................................... 45
The Company............................................................ 45
VII Cable's Systems.................................................... 45
Franchises............................................................. 46
Subscriber Services and Rates.......................................... 47
Programming............................................................ 48
Competition............................................................ 48
Regulation............................................................. 51
Federal Regulation..................................................... 51
State and Local Regulation............................................. 55
Properties............................................................. 55
Employees.............................................................. 55
Legal Proceedings...................................................... 55
MANAGEMENT................................................................ 56
Management Biographies................................................. 56
Board of Directors..................................................... 57
Compensation of the Board of Directors................................. 57
Indemnification........................................................ 57
Compensation of Executive Officers..................................... 58
RISK FACTORS.............................................................. 59
Total Indebtedness and Cash Flow of VII
Cable................................................................. 59
Controlling Stockholder................................................ 59
Potential Conflicts of Interest........................................ 59
Dependence on Additional Capital....................................... 60
Rapid Technological Changes............................................ 60
Market Uncertainties with Respect to VII
Cable Preferred Stock................................................. 60
Total Indebtedness of Viacom........................................... 61
Regulation and Competition in the Cable
Television Industry................................................... 61
Tax Treatment of the Transaction....................................... 62
SECURITY OWNERSHIP OF VII CABLE
COMMON STOCK........................................................... 63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF VIACOM COMMON STOCK..................................... 63
ARRANGEMENTS AMONG VIACOM, VIACOM INTERNATIONAL, TCI AND TCI CABLE........ 65
Terms of the Parents Agreement......................................... 65
Terms of the Implementation Agreement.................................. 68
Terms of the Subscription Agreement.................................... 73
Terms of Certain Ancillary Agreements.................................. 79
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DESCRIPTION OF CERTAIN INDEBTEDNESS
OF VII CABLE............................................................. 81
DESCRIPTION OF VII CABLE CAPITAL STOCK.................................... 81
General................................................................ 81
Common Stock -- General................................................ 81
VII Cable Class A Common Stock......................................... 82
VII Cable Class B Common Stock......................................... 82
VII Cable Preferred Stock.............................................. 82
COMPARISON OF RIGHTS OF STOCKHOLDERS OF VIACOM AND
VII CABLE................................................................ 93
RELATIONSHIP BETWEEN VIACOM AND VII CABLE................................. 94
RELATIONSHIP BETWEEN VII CABLE AND
TCI AFTER THE EXCHANGE OFFER............................................. 95
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES............................................................. 96
The Transaction........................................................ 96
Ownership and Disposition of VII Cable
Preferred Stock....................................................... 96
LEGAL MATTERS............................................................. 98
EXPERTS................................................................... 98
INDEX TO COMBINED FINANCIAL STATEMENTS.................................... F-1
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
"Adjustment Amounts"......................... 32
"affiliates"................................. 31
"Affiliate".................................. 92
"Agent's Message"............................ 23
"Aggregate Loan Amount"...................... 27
"AMEX"....................................... cover
"Ancillary Agreements"....................... 80
"Anticipated Commencement Date".............. 73
"Applicable Period".......................... 80
"Approved Capital Expenditure Plan".......... 76
"ASCAP"...................................... 53
"Asset Value"................................ 70
"Assumption of Liabilities".................. 68
"Average Market Price"....................... 84
"AVR Partnership"............................ 70
"Basic Subscriber Rate"...................... 74
"Basic Subscribers".......................... 69
"benchmark".................................. 43
"Benchmark Regulations"...................... 43
"Bill of Sale"............................... 68
"BMI"........................................ 53
"Book-Entry Transfer Facilities"............. 23
"Book Entry Transfer Facility"............... 23
"business day"............................... 26
"1984 Cable Act"............................. 43
"1992 Cable Act"............................. 40
"Cable Business"............................. 1
"Cable Division Subsidiary".................. 65
"Cable Division Subsidiaries"................ 70
"1996 Capital Expenditure Plan".............. 76
"Cash Collateral Account".................... 73
"Cash Equivalent Amount"..................... 10
"change in control".......................... 58
"Channel Occupancy Rules".................... 52
"Code"....................................... 62
"Commission"................................. i
"Commitments to Lend"........................ 73
"Communications Act"......................... 43
"complete termination"....................... 97
"Consented Subscribers"...................... 67
"Conversion"................................. 3
"Conveyance"................................. 3
"Conveyance of Assets"....................... 68
"Copyright Act".............................. 48
"cost-of-service"............................ 43
"Credit Agreement"........................... 42
"Dayton"..................................... 42
"DBS"........................................ 42
"de minimis amount".......................... 97
"DGCL"....................................... 93
"DirecTV".................................... 49
"Distributions".............................. 3
"Dividend Payment Date"...................... 83
"drop cable"................................. 55
"DTC"........................................ 23
"dutch auction".............................. 6
"EBITDA"..................................... 39
"effective competition"...................... 52
</TABLE>
<TABLE>
<S> <C>
"Eligible Institution"....................... 23
"enhanced"................................... 54
"Estimated Asset Value"...................... 69
"Estimated Exchange Date Basic Subscribers".. 67
"Estimated Net Asset Value".................. 70
"Exchange Act"............................... i
"Exchange Agent"............................. 8
"Exchange Date".............................. 21
"Exchange Offer"............................. cover
"Exchange Rate".............................. 9
"Exchange Ratio"............................. cover
"Exchange Time".............................. 21
"Expiration Date"............................ 7
"Expiration Time"............................ 7
"external"................................... 43
"Extraordinary Cash Distributions"........... 87
"FCC"........................................ 6
"Final Exchange Ratio"....................... 6
"First Distribution"......................... 1
"Franchise Area"............................. 71
"going forward".............................. 51
"House Bill"................................. 52
"HSR Act".................................... 5
"Implementation Agreement"................... 2
"Inconsistent Terms"......................... 65
"Information Agent".......................... 9
"initial permitted rate"..................... 43
"Initial Redemption Date".................... 88
"IRS"........................................ 6
"Junior Stock"............................... 84
"Lenders".................................... 73
"Letter Agreement"........................... 80
"Limited Service"............................ 47
"Liquidation Preference"..................... 83
"Loan"....................................... 2
"Loan Documentation"......................... 73
"Loan Proceeds".............................. 2
"local"...................................... 53
"Mandatory Redemption Date".................. 88
"Mandatory Redemption Price"................. 88
"Minimum Condition".......................... 7
"MLDS"....................................... 49
"MMDS"....................................... 42
"MSTC"....................................... 23
"NAI"........................................ 2
"Nasdaq"..................................... cover
"Negotiation Period"......................... 66
"Net Asset Value"............................ 70
"Non-Cable Businesses"....................... 1
"not essentially equivalent"................. 97
"November 1994 Regulations".................. 44
"NPTs"....................................... 44
"NVOD"....................................... 49
"Offer Period"............................... 66
"Offered Business"........................... 66
"Optional Redemption Date"................... 88
"Optional Redemption Price".................. 88
"Paramount".................................. 98
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
"Parents Agreement".......................... 2
"Parity Stock"............................... 11
"Parity Subsidiary Equity Interest".......... 85
"Par Value".................................. 82
"passed by cable"............................ 45
"PCI Group".................................. 65
"PCI Subsidiaries"........................... 65
"PEG"........................................ 47
"PHILADEP"................................... 23
"1995 Plan".................................. 76
"Preferred Stock"............................ 81
"Preferred Stock Directors".................. 91
"Price Notice"............................... 66
"PrimeStar".................................. 49
"Recapitalization"........................... 3
"Record Date"................................ 20
"Redemption Date"............................ 89
"Redemption Notice".......................... 89
"Redemption Price"........................... 88
"Registration Statement"..................... i
"Refund"..................................... 80
"Refund Amount".............................. 80
"Retransmission Consent"..................... 48
"Reviewing Party"............................ 57
"Ruling Letter".............................. 6
"Satellite Value Package".................... 47
"Schedule 13E-4"............................. i
"Second Distribution"........................ 3
"section 306 stock".......................... 6
"Securities Act"............................. i
"Senate Bill"................................ 52
"Senior Stock"............................... 11
"Series A Senior Cumulated Exchangeable
Preferred Stock"............................ 81
"Services Agreement"......................... 95
"Settlement Agreements"...................... 80
"SFAS"....................................... 41
"SMATV"...................................... 42
"SNI"........................................ 80
"Soliciting Dealers"......................... 28
"Specified Party"............................ 71
"SSI"........................................ 80
"Stock Dividend Amount"...................... 83
"Stock Issuance"............................. 3
"Subscription Agreement"..................... 2
"Subscription Payment"....................... 3
"Subsidiary"................................. 85
"Subsidiary Borrowers"....................... 42
"Subsidiary Equity Interest.................. 85
"substantially disproportionate"............. 97
"Tax Indemnity Agreement".................... 80
"TCG San Francisco Partnership".............. 70
"TCG Seattle Partnership".................... 70
"TCI"........................................ cover
"TCI Cable".................................. 2
"TCI Class A Common Stock"................... cover
"TCI Pacific Communications Inc."............ 3
"TCI Pacific Telecommunications Inc."........ 2
"TCI Prospectus"............................. iii
"TCI Registration Statement"................. iii
</TABLE>
<TABLE>
<S> <C>
"TCI Stock".................................. cover
"TCI Stock Exchange Date".................... 86
"TCOMA"...................................... 12
"telcos"..................................... 49
"Telecom Amount"............................. 69
"Telecom Capital Expenditure Amount"......... 76
"Telecom Partnership Agreements"............. 76
"Telecom Partnerships"....................... 75
"through to the viewer"...................... 53
"Tiebreaker Investment Bank"................. 68
"Trading Date"............................... 83
"Transaction"................................ 3
"Transaction Agreements"..................... 2
"Transfer Agent"............................. 92
"transitional rate".......................... 43
"TVRO"....................................... 42
"USSB"....................................... 49
"VDT"........................................ 50
"VIA"........................................ 30
"VIA B"...................................... 30
"Viacom"..................................... cover
"Viacom Class A Common Stock"................ cover
"Viacom Class B Common Stock"................ cover
"Viacom Common Stock"........................ cover
"Viacom Form 8-K"............................ 99
"Viacom Group"............................... 62
"Viacom International"....................... cover
"Viacom Services"............................ 2
"Viacom Stock Fund Account".................. 23
"Video Programming Ban"...................... 54
"VII Cable".................................. 2
"VII Cable Board"............................ 57
"VII Cable Carve-Out Financial Statements"... 13
"VII Cable Class A Common Stock"............. cover
"VII Cable Class B Common Stock"............. 3
"VII Cable Preferred Stock".................. cover
"VII Cable Pro Forma Events"................. 13
"VIP"........................................ 23
"VIP Participants"........................... 23
"Wisconsin cable system"..................... 41
"Withdrawal Rights".......................... 8
</TABLE>
vii
<PAGE>
OFFERING CIRCULAR - PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Offering Circular -Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information included or
incorporated by reference in this Offering Circular - Prospectus and in the
exhibits to the Registration Statement. Capitalized terms used but not defined
in this summary have the meanings assigned to them elsewhere in this Offering
Circular - Prospectus. See "Index to Defined Terms." Stockholders are urged to
read this Offering Circular - Prospectus. For information concerning TCI and TCI
Common Stock, stockholders are directed to the accompanying TCI Prospectus. See
"Explanatory Note--TCI Prospectus."
VIACOM INC.
Viacom Inc. (together with its subsidiaries and divisions, unless the
context otherwise requires, "Viacom") is a diversified entertainment and
publishing company with operations in five segments: (i) Networks and
Broadcasting, (ii) Entertainment, (iii) Video and Music/Theme Parks, (iv)
Publishing and (v) Cable Television. Through the Networks and Broadcasting
segment, Viacom operates MTV: MUSIC TELEVISION/(R)/, SHOWTIME/(R)/,
NICKELODEON/(R)//NICK AT NITE/(R)/ and VH1 MUSIC FIRST/TM/, among other program
services, and 12 broadcast television and 12 radio stations. Through the
Entertainment segment, which includes PARAMOUNT PICTURES/TM/, Viacom produces
and distributes theatrical motion pictures and television programming. Through
the Video and Music/Theme Parks segment, which includes the BLOCKBUSTER/(R)/
family of businesses and PARAMOUNT PARKS/TM/, Viacom is the leading worldwide
owner, operator and franchisor of videocassette rental and sales stores and a
leading owner and operator of music stores in the U.S. In addition, PARAMOUNT
PARKS/TM/ owns and operates five theme parks located in the U.S. and Canada.
Through the Publishing segment, which includes SIMON & SCHUSTER/(R)/, MACMILLAN
PUBLISHING USA/TM/ and PRENTICE HALL/(R)/, Viacom publishes and distributes
educational, consumer, business, technical and professional books, and audio-
video software products. Through the Cable Television segment, Viacom operates
cable television systems serving approximately 1.2 million customers. Upon
completion of the Transaction, Viacom will no longer own the operations which
comprise its Cable Television segment. Viacom's principal offices are located at
1515 Broadway, New York, New York 10036 and its telephone number is (212) 258-
6000.
VIACOM INTERNATIONAL INC. (PRIOR TO THE FIRST DISTRIBUTION)
As of the date of this Offering Circular - Prospectus, Viacom International
is a wholly owned subsidiary of Viacom through which Viacom conducts its
Networks and Broadcasting, Entertainment, Theme Parks, Publishing and Cable
Television operations. The Cable Television operations and the operations other
than Cable Television are hereinafter referred to as the "Cable Business" and
the "Non-Cable Businesses," respectively. Prior to the consummation of the
Exchange Offer, Viacom International will transfer the Non-Cable Businesses to
Viacom International Services Inc. ("Viacom Services"), a wholly owned
subsidiary of Viacom International, and thereafter distribute the stock of
Viacom Services to Viacom (the "First Distribution"). After giving effect to the
First Distribution, Viacom Services will own and operate all of the Non-Cable
Businesses and Viacom International will be solely engaged in the Cable
Business. Viacom International's principal offices are at 1515 Broadway, New
York, New York 10036 and its telephone number is (212) 258-6000.
VII CABLE
VII Cable currently owns and operates cable television systems in five
geographic regions, including the San Francisco and Northern California area,
Salem, Oregon, the Seattle, Washington and the Greater Puget Sound area,
Nashville, Tennessee and Dayton, Ohio. As of September 30, 1995, VII Cable was
approximately the tenth largest multiple cable television system operator in the
United States, with approximately 1.2 million basic subscribers. VII Cable's
principal offices are currently located at 5924 Stoneridge Drive, Pleasanton,
California 94566 and its telephone number is (510) 463-0870. For a further
description of VII Cable, see "Business of VII
<PAGE>
Cable." Upon the consummation of the Transaction, VII Cable will be renamed as
"TCI Pacific Communications, Inc."
As used in this Offering Circular - Prospectus, all references to "Viacom
International" are to the assets and operations of the Cable Business and Non-
Cable Businesses of Viacom International for all periods ending on or before the
First Distribution, and all references to "VII Cable" are (i) to the assets,
operations and management of the Cable Business of Viacom International for all
periods ending on or before the First Distribution and (ii) to the assets and
operations of Viacom International (renamed "TCI Pacific Communications, Inc.")
immediately following the completion of the Transaction, which at that time will
consist almost entirely of the assets and liabilities of the Cable Business (as
discussed with greater detail below) and the liability represented by the Loan.
See "The Transaction--General."
THE TRANSACTION
General........... Viacom has determined to implement the steps summarized
below in order to offer to holders of shares of Viacom
Common Stock the opportunity to acquire direct ownership of
the Cable Business. All such steps are being undertaken
pursuant to the terms and conditions of (i) a Parents
Agreement among Viacom, TCI and TCI Communications, Inc.
("TCI Cable"), dated as of July 24, 1995 (the "Parents
Agreement"), (ii) an Implementation Agreement between Viacom
International and Viacom Services, dated as of July 24, 1995
(the "Implementation Agreement"), (iii) a Subscription
Agreement among Viacom International, TCI and TCI Cable
dated as of July 24, 1995 (the "Subscription Agreement") and
(iv) certain Ancillary Agreements (as defined herein)
(collectively, the "Transaction Agreements"). For a
description of the Transaction Agreements, see "Arrangements
Among Viacom, Viacom International, TCI and TCI Cable."
Viacom is offering hereby to the holders of shares of Viacom
Common Stock the opportunity to exchange all or a portion of
their shares of Viacom Common Stock for shares of VII Cable
Class A Common Stock. The total number of shares of VII
Cable Class A Common Stock exchangeable in the Exchange
Offer ( shares) has been determined as the quotient
obtained by dividing (x) the excess of the Estimated Asset
Value of VII Cable (as defined in the Implementation
Agreement) over the Loan Proceeds (as defined herein) by (y)
$100 (the par value of VII Cable Class A Common Stock). The
Exchange Offer will be subject to a number of conditions,
including the Minimum Condition. National Amusements, Inc.
("NAI"), a closely held corporation that owns approximately
61% of the outstanding Viacom Class A Common Stock and
approximately 25% of the outstanding Viacom Common Stock,
has advised Viacom that it will not participate in the
Exchange Offer.
Prior to expiration of the Exchange Offer, Viacom
International will borrow $1.7 billion (the "Loan
Proceeds"). The facilities pursuant to which Viacom
International will borrow the Loan Proceeds are hereinafter
referred to as the "Loan." See "Arrangements Among Viacom,
Viacom International, TCI and TCI Cable--The
2
<PAGE>
Subscription Agreement--Certain Borrowings" and "Description
of Certain Indebtedness of VII Cable."
On the date the Exchange Offer is consummated, Viacom
International will convey to Viacom Services ownership of
the assets relating to the Non-Cable Businesses, the Loan
Proceeds and certain nonmaterial assets (as described
herein) and Viacom Services will assume substantially all of
Viacom International's liabilities (including its existing
public debt, bank debt and the existing intercompany debt
owed by Viacom International to Viacom), other than Viacom
International's repayment and other obligations under the
Loan and liabilities relating to the Cable Business other
than certain nonmaterial specified liabilities (the
"Conveyance"). Viacom International will then distribute
100% of the stock of Viacom Services to Viacom in the First
Distribution, and Viacom International will be
recapitalized, with all of the existing common stock being
reclassified into new VII Cable Class A Common Stock (the
"Recapitalization"). Upon consummation of the Exchange
Offer, 100% of the outstanding shares of VII Cable Class A
Common Stock will be exchanged for the shares of Viacom
Common Stock properly tendered at or below the Final
Exchange Ratio (as defined herein) and not withdrawn or
deemed withdrawn in the Exchange Offer (the "Second
Distribution" and, collectively with the First Distribution,
the "Distributions"). VII Cable will thereupon cease to be
a subsidiary of Viacom.
Immediately following the consummation of the Exchange
Offer, VII Cable has agreed to issue and TCI Cable has
agreed to acquire (the "Stock Issuance") 100 shares of Class
B Common Stock, $.01 par value per share, of VII Cable ("VII
Cable Class B Common Stock"), in exchange for a capital
contribution of $350 million (the "Subscription Payment").
Under the anticipated terms and conditions of the Loan, VII
Cable will be obligated to use such capital contribution to
reduce the amount outstanding under the Loan. Furthermore,
as a result of such issuance, each share of VII Cable Class
A Common Stock distributed to Viacom stockholders pursuant
to the Exchange Offer will automatically convert into one
share of VII Cable Preferred Stock (the "Conversion," and,
together with the Conveyance, the Distributions and the
Stock Issuance, the "Transaction"). See "Description of VII
Cable Capital Stock--VII Cable Preferred Stock." Upon
consummation of the Stock Issuance, TCI Cable will own all
of the Common Stock of VII Cable, and VII Cable will be
renamed as "TCI Pacific Communications, Inc."
If insufficient tenders are made by Viacom stockholders in
the Exchange Offer to permit the Minimum Condition to be
satisfied, Viacom has the right to extend the Exchange Offer
for not less than 10 nor more than 15 business days and,
during such extension, TCI and Viacom have agreed to
negotiate in good faith to determine mutually acceptable
changes to the terms and conditions for the VII Cable
Preferred Stock (including without limitation the Exchange
Rate (as defined herein) and the dividend yield on the VII
Cable
3
<PAGE>
Preferred Stock) and the Exchange Offer (including without
limitation the duration of any extension and the maximum
Exchange Ratio) described herein that each believes in good
faith will cause the Minimum Condition to be fulfilled and
that would cause the VII Cable Preferred Stock to trade at a
price equal to its $100 par value per share immediately
following the consummation of the Exchange Offer and the
Stock Issuance. In the event the Minimum Condition is not
thereafter met, TCI and Viacom will each have the right to
terminate the Transaction.
Upon the closing of the Transaction, assuming the partial
repayment of the Loan with the proceeds of the Subscription
Payment, VII Cable will have an aggregate capitalization
consisting of (i) approximately $1.35 billion of borrowings
under the Loan, (ii) VII Cable Preferred Stock with an
estimated aggregate par value of approximately $500 million
and (iii) $350 million of paid-in capital for the VII Cable
Class B Common Stock (representing the Subscription
Payment), and will have no shares of VII Cable Class A
Common Stock outstanding (such shares having been converted
into the VII Cable Preferred Stock). See "Unaudited Pro
Forma Condensed Combined Financial Statements of VII Cable."
Purpose and
Effects of the
Transaction....... The Transaction will reduce Viacom's overall level of
indebtedness, which will enhance Viacom's prospects for an
increase in the rating of its long-term senior unsecured
debt to investment grade, thereby lowering Viacom's
financing costs and enhancing the terms on which Viacom can
access the capital markets. The Transaction will enable
Viacom to utilize its investment capital to invest in the
growth of its core, content-driven entertainment and
publishing businesses rather than in the further development
of its cable television business. The Transaction will
eliminate perceived conflicts and permit Viacom to further
its position on regulatory matters consistent with Viacom's
focus on its programming businesses. Upon the consummation
of the Transaction, certain rules under current federal
telecommunications law which impose restrictions on cable
programmers affiliated with cable system operators would no
longer apply to Viacom. Viacom believes that all of the
foregoing will result in improved deployment of its assets
that will enhance value for its stockholders. This enhanced
value has been evidenced by the decline in the number of
shares of Viacom Class B Common Stock that were issued in
satisfaction of Viacom's Variable Common Rights in September
1995.
The Exchange Offer will also provide Viacom stockholders
with an opportunity to adjust, on a tax-free basis, their
investment between the Cable Business and Viacom's Non-Cable
Businesses. See "Certain Federal Income Tax Consequences."
To the extent that a holder exchanges its Viacom Common
Stock pursuant to the Exchange Offer, such holder will no
longer participate in any increase in the value of such
Viacom Common Stock.
4
<PAGE>
Holders of shares of Viacom Common Stock will be
affected by the Transaction regardless of whether such
holders tender their shares of Viacom Common Stock for
exchange pursuant to the Exchange Offer. Holders of shares
of Viacom Common Stock who tender all of their shares for
exchange pursuant to the Exchange Offer will, if all such
shares are accepted for exchange, no longer have an
ownership interest in Viacom. Holders of shares of Viacom
Common Stock who tender all of their shares for exchange
pursuant to the Exchange Offer and who become subject to
proration because more shares of Viacom Common Stock are
tendered for exchange than are necessary to satisfy the
Minimum Condition will have a diminished ownership interest
in Viacom. Holders of shares of Viacom Common Stock who do
not tender any of their shares for exchange pursuant to the
Exchange Offer will not receive shares of VII Cable Class A
Common Stock as a result of the Exchange Offer and will
continue to have an ownership interest in Viacom, which
ownership interest will have increased on a percentage basis
as a result of the Exchange Offer, but will no longer have
any interest in the Cable Business.
NONE OF VIACOM, VIACOM INTERNATIONAL, THE BOARD OF DIRECTORS
OF VIACOM NOR THE BOARD OF DIRECTORS OF VIACOM INTERNATIONAL
MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER OF VIACOM
WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES OF VIACOM
COMMON STOCK PURSUANT TO THE EXCHANGE OFFER. EACH
STOCKHOLDER OF VIACOM MUST MAKE ITS OWN DECISION WHETHER TO
TENDER SHARES OF VIACOM COMMON STOCK PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, HOW MANY SHARES TO TENDER AND AT
WHAT EXCHANGE RATIO TO TENDER SUCH SHARES AFTER READING THIS
OFFERING CIRCULAR - PROSPECTUS AND CONSULTING WITH ITS
ADVISORS BASED ON ITS OWN FINANCIAL POSITION AND
REQUIREMENTS.
No Appraisal
Rights............ No appraisal rights are available to Viacom
stockholders in connection with the Transaction.
Regulatory
Approvals......... No filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") are required in
connection with the Exchange Offer generally. Viacom and
TCI have to date made filings under the HSR Act with respect
to the Stock Issuance. The waiting period with respect to
each of these filings terminated in September 1995. To the
extent that certain stockholders of Viacom decide to
participate in the Exchange Offer and thereby acquire a
number of shares of VII Cable Class A Common Stock that
exceeds any threshold stated in the regulations under the
HSR Act, and if an exemption under those regulations does
not apply, such stockholders and Viacom would be required to
make filings under the HSR Act, and the waiting period under
the HSR Act would have to expire or be terminated before any
exchange of shares with those particular stockholders could
be effected.
Approvals must be obtained from certain local franchise
authorities having rights of approval over changes of
control with respect to the
5
<PAGE>
change of control of the VII Cable subsidiaries operating
cable systems in such authorities' jurisdictions. In
addition, the Federal Communications Commission ("FCC") must
approve the change of control of the (i) entities licensed
to operate the wireless communications systems used in VII
Cable's business and (ii) entities licensed to operate the
wireless communications systems used in the Non-Cable
Businesses. See "Arrangements Among Viacom, Viacom
International, TCI and TCI Cable--Terms of the
Implementation Agreement--Consents and Approvals."
Viacom and Viacom International do not believe that any
other material federal or state regulatory approvals will be
necessary to consummate the Transaction.
Certain Federal
Income Tax
Consequences of
the Transaction... On , 199 , Viacom has received an
advance private letter ruling (the "Ruling Letter") from the
Internal Revenue Service (the "IRS") to the effect that the
Transaction will qualify as a distribution that is tax-free
to Viacom's stockholders (except with respect to cash
received in lieu of fractional shares) and, in general, is
tax-free to Viacom. The VII Cable Preferred Stock may be
"section 306 stock" for federal income tax purposes, with
the result that all or a portion of the proceeds received by
a stockholder from the sale, exchange or redemption of such
shares will be taxable as ordinary income, and a stockholder
may not recognize any loss from such sale, exchange or
redemption. For a more complete discussion of the U.S.
federal income tax consequences of the Transaction to
holders of Viacom Common Stock, see "Certain Federal Income
Tax Consequences." Each stockholder should consult its tax
advisor as to the particular consequences of the Transaction
to such stockholder.
THE EXCHANGE OFFER
Terms of the
Exchange Offer.... Upon the terms and subject to the conditions of
the Exchange Offer, Viacom is offering hereby to exchange
all of the outstanding shares of VII Cable Class A Common
Stock for shares of Viacom Common Stock at an Exchange Ratio
not greater than nor less than of a
share of VII Cable Class A Common Stock for each share of
Viacom Common Stock tendered. The Exchange Offer will be
conducted as a "dutch auction" in which each holder of
Viacom Common Stock will be able to specify a fraction, not
greater than nor less than , of a share of
VII Cable Class A Common Stock that such holder is willing
to receive in exchange for a share of Viacom Common Stock.
The Exchange Ratio selected by Viacom will be the smallest
Exchange Ratio that will enable Viacom to exchange all of
the outstanding shares of VII Cable Class A Common Stock for
Viacom Common Stock pursuant to the Exchange Offer (the
"Final Exchange Ratio"). All shares of Viacom Common Stock
properly tendered and not withdrawn or deemed withdrawn at
Exchange Ratios at or below the Final Exchange Ratio will be
6
<PAGE>
exchanged at the Final Exchange Ratio, on the terms and
subject to the conditions of the Exchange Offer, including
the proration provisions described herein. If more shares
of Viacom Common Stock are validly tendered at or below the
Final Exchange Ratio, and not properly withdrawn, than are
necessary to satisfy the Minimum Condition, then Viacom will
accept all of such shares on a pro rata basis as described
herein in exchange for the shares of VII Cable Class A
Common Stock. The Exchange Offer, proration period and
withdrawal rights will expire at the Expiration Time on the
Expiration Date (as such terms are defined herein). To be
eligible to receive VII Cable Class A Common Stock pursuant
to the Exchange Offer, a holder of Viacom Common Stock must
validly tender and not properly withdraw Viacom Common Stock
on or prior to the Expiration Time on the Expiration Date.
See "The Exchange Offer--Terms of the Exchange Offer."
Expiration Date... The Exchange Offer will expire at 12:00 Midnight, New
York City time (the "Expiration Time"), on , 1996
(the "Expiration Date"), unless extended, in which case the
terms "Expiration Time" and "Expiration Date" shall mean the
last time and date to which the Exchange Offer is extended.
See "The Exchange Offer--Extension of Tender Period;
Termination; Amendment."
Conditions of the
Exchange Offer... The Exchange Offer is conditioned upon, among other
things, there being validly tendered and not properly
withdrawn prior to the expiration of the Exchange Offer a
number of shares of Viacom Common Stock which, when
multiplied by the Final Exchange Ratio, equals all of the
outstanding shares of VII Cable Class A Common Stock (the
"Minimum Condition"); the Exchange Offer is also subject to
other terms and conditions. See "The Exchange Offer--
Certain Conditions of the Exchange Offer."
Procedures for
Tendering........ To be tendered properly, certificates for shares of
Viacom Common Stock, together with a properly completed and
duly executed Letter of Transmittal (or manually signed
facsimile thereof) or an Agent's Message in the case of a
book-entry transfer of shares, and any other documents
required by the Letter of Transmittal must be received by
the Exchange Agent at one of the addresses set forth on the
back cover of this Offering Circular - Prospectus prior to
the Expiration Time on the Expiration Date, or stockholders
must comply with the specific procedures for guaranteed
delivery described herein. Certain financial institutions
may also effect tenders by book-entry transfer through a
Book-Entry Transfer Facility (as defined herein). Holders
of Viacom Common Stock having shares registered in the name
of a broker, dealer, commercial bank, trust company or
nominee are urged to contact such person promptly if they
wish to tender any shares of Viacom Common Stock pursuant to
the Exchange Offer. See "The Exchange Offer--Procedures for
Tendering Shares of Viacom Common Stock" and "--Guaranteed
Delivery Procedure."
7
<PAGE>
Proration......... If more shares of Viacom Common Stock have been validly
tendered for exchange at or below the Final Exchange Ratio,
and not properly withdrawn, on or prior to the Expiration
Date than are necessary to satisfy the Minimum Condition,
subject to the terms and conditions of the Exchange Offer,
Viacom will accept such shares on a pro rata basis. See
"The Exchange Offer--Terms of the Exchange Offer."
Withdrawal
Rights........... Subject to the conditions set forth herein, tenders of
shares of Viacom Common Stock may be withdrawn, at any time
on or prior to the Expiration Time on the Expiration Date
and, unless theretofore accepted for exchange as provided in
this Offering Circular--Prospectus, may also be withdrawn at
any time after the expiration of 40 business days from the
commencement of the Exchange Offer. See "The Exchange
Offer--Withdrawal Rights."
No Fractional
Shares........... No fractional shares of VII Cable Class A Common Stock
or VII Cable Preferred Stock, as the case may be, will be
distributed. The Exchange Agent, acting as agent for Viacom
stockholders otherwise entitled to receive fractional
shares, will aggregate all fractional shares and sell them
for the accounts of such stockholders. Such proceeds as may
be realized by the Exchange Agent upon the sale of such
fractional shares will be distributed, net of commissions,
to such stockholders on a pro rata basis. See "The Exchange
Offer-- Terms of the Exchange Offer."
Delivery of and
Market for VII
Cable Preferred
Stock............ Upon consummation of the Stock Issuance, each
share of VII Cable Class A Common Stock will automatically
convert into one share of VII Cable Preferred Stock, and
shares of VII Cable Preferred Stock and cash in lieu of
fractional shares will be delivered as soon as practicable
after acceptance of Viacom Common Stock for exchange.
Accordingly, holders of shares of Viacom Common Stock
electing to tender such shares in the Exchange Offer should
not expect to take physical delivery of shares of VII Cable
Class A Common Stock which they will have the right to
receive in exchange for shares of Viacom Common Stock after
the consummation of the Stock Issuance. See "The Exchange
Offer--Exchange of Shares of Viacom Common Stock."
Application will be made for quotation of the VII Cable
Preferred Stock on Nasdaq under the symbol " ." No
current public trading market for VII Cable Class A Common
Stock or VII Cable Preferred Stock exists and there can be
no assurance that an active trading market for the VII Cable
Preferred Stock will be established or maintained after the
consummation of the Exchange Offer. See "Risk Factors--
Market Uncertainties with respect to VII Cable Preferred
Stock"; and "Market Prices, Trading and Dividend
Information--VII Cable Class A Common Stock and VII Cable
Preferred Stock."
Exchange Agent.... is serving as the Exchange Agent in
connection with the Exchange Offer. Its telephone number
is .
8
<PAGE>
Information
Agent............. Georgeson & Company Inc. is serving as the Information
Agent in connection with the Exchange Offer. Its telephone
number is (800) 223-2064.
TERMS OF THE %
SERIES A SENIOR
CUMULATIVE
EXCHANGEABLE
PREFERRED
STOCK............. Each share of VII Cable Class A Common Stock will
automatically convert into one share of VII Cable Preferred
Stock upon the Stock Issuance, which is expected to occur
immediately after the consummation of the Exchange Offer.
Dividends......... Dividends on the VII Cable Preferred Stock will accrue
and be cumulative from the date of issuance at a rate per
annum of %, payable quarterly when, as and if declared by
the VII Cable Board (as defined herein). The dividend rate
was determined by two investment banking firms as the rate
that, in the opinion of such firms, will cause the VII Cable
Preferred Stock to trade initially at a liquidation
preference of $100 per share immediately after the
consummation of the Exchange Offer and the Stock Issuance.
VII Cable may elect to make dividend payments (i) in cash,
(ii) by delivery of shares of TCI Stock or (iii) in any
combination of the foregoing forms of consideration elected
by VII Cable. If the VII Cable Board determines to pay a
dividend and VII Cable is prohibited from paying cash
dividends pursuant to the Loan or if VII Cable otherwise
decides to pay dividends in TCI Stock, TCI Cable has agreed
to make available to VII Cable (i) funds in the form of an
equity contribution or a subordinated loan or (ii)
sufficient shares of TCI Stock, in each case to pay such
dividends in cash, TCI Stock or a combination thereof, with
respect to any dividend payment. See "Description of VII
Cable Preferred Stock--Dividends."
Liquidation
Preference........ Upon any voluntary or involuntary liquidation,
dissolution or winding up of VII Cable, holders of VII Cable
Preferred Stock will be entitled to be paid $100 per share,
plus accumulated and unpaid dividends, out of VII Cable
assets available for distribution.
Exchange
Privilege......... Commencing after the fifth anniversary of the date of
issuance, the VII Cable Preferred Stock will be
exchangeable, in whole or in part, at the option of the
holders of VII Cable Preferred Stock (unless earlier
redeemed), into TCI Stock, at the Exchange Rate (as defined
herein), subject to adjustment in certain events. The
initial exchange rate (the "Exchange Rate") will be obtained
by dividing (i) $80 by (ii) the weighted average of the
sales prices for all trades of shares of TCI Stock as
reported on Nasdaq on each of the twenty full consecutive
trading days ending on the second business day prior to the
Expiration Date, including any extension thereof. Pursuant
to the Subscription Agreement, TCI is required to reserve
sufficient shares of TCI Stock to effect such exchange of
the VII Cable Preferred Stock. See "Description of the VII
Cable Preferred Stock--Exchange Privilege."
VIACOM WILL ANNOUNCE THE INITIAL EXCHANGE RATE FOR THE
EXCHANGE OF SHARES OF VII CABLE PREFERRED STOCK INTO SHARES
OF TCI STOCK BY 5:00 P.M., NEW YORK CITY TIME, ON THE SECOND
BUSINESS DAY
9
<PAGE>
PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER. VIACOM
INTERNATIONAL WILL MAKE SUCH ANNOUNCEMENT BY ISSUING A PRESS
RELEASE TO THE DOW JONES NEWS SERVICE. AFTER THAT TIME,
HOLDERS OF SHARES OF VIACOM COMMON STOCK WILL ALSO BE ABLE
TO OBTAIN THE INITIAL EXCHANGE RATE FROM THE INFORMATION
AGENT OR THE DEALER MANAGER FOR THE EXCHANGE OFFER AT THEIR
RESPECTIVE TELEPHONE NUMBERS APPEARING ON THE BACK COVER OF
THIS OFFERING CIRCULAR - PROSPECTUS.
Optional
Redemption........ The VII Cable Preferred Stock is not redeemable prior to 15
days after the fifth anniversary of the date of issuance. At
any time and from time to time on or after that date, VII
Cable may redeem any or all of the outstanding shares of VII
Cable Preferred Stock, initially at a redemption price of $
per share and thereafter at prices declining ratably
annually to $100 per share on and after the eighth
anniversary of the date of issuance, plus accrued and unpaid
dividends to the date of redemption. VII Cable may elect to
make any optional redemption payment (i) in cash, (ii) by
delivery of TCI Stock or (iii) by any combination of the
foregoing forms of consideration elected by VII Cable. See
"Description of the VII Cable Preferred Stock--Redemption--
Optional Redemption."
Mandatory
Redemption........ The VII Cable Preferred Stock is subject to mandatory
redemption by VII Cable on the tenth anniversary of the date
of issuance, at a redemption price of $100 per share, plus
accrued and unpaid dividends to the date of redemption. VII
Cable may elect to make any mandatory redemption payment (i)
in cash, (ii) by delivery of TCI Stock or (iii) by any
combination of the foregoing forms of consideration elected
by VII Cable. See "Description of the VII Cable Preferred
Stock--Redemption--Mandatory Redemption."
VII Cable May Make
Dividend and
Redemption Payments
with TCI Stock.... VII Cable may elect to make dividend payments and
redemption payments (optional or mandatory) to holders of
VII Cable Preferred Stock (i) in cash, (ii) by delivery of
TCI Stock or (iii) by any combination of the foregoing forms
of consideration elected by VII Cable. If VII Cable elects
to make any such payment (or a designated portion thereof)
through the delivery of shares of TCI Stock, each holder
will receive a number of shares of TCI Stock determined by
dividing the amount of such payment (or designated portion
thereof) by the Cash Equivalent Amount. The "Cash
Equivalent Amount" means an amount equal to 95% of the
average of the closing sale prices for a share of TCI Stock
on Nasdaq for the 10 consecutive trading days ending on the
third business day prior to (i) in the case of dividends,
the related record date and (ii) in the case of a
redemption, the date of such redemption. The market price
of the shares of TCI Stock may vary between the date of such
determination and the subsequent delivery of such shares to
a holder of VII Cable Preferred Stock.
10
<PAGE>
In the case of a dividend or redemption payment that is
made through delivery of shares of TCI Stock, if the average
closing price upon which the Cash Equivalent Amount is
determined is more than 5.26% higher than the market value
of such shares on the dividend payment date or the
redemption date and the holder sells such shares of TCI
Stock at such lower price, (x) in the case of such dividend,
the holder's actual dividend yield for the dividend period
in respect of which such dividend was paid would be lower
than the stated dividend yield on the VII Cable Preferred
Stock (for such period) and (y) in the case of such
redemption, the actual sales proceeds received by such
holder would be lower than the stated redemption price for
the VII Cable Preferred Stock. In addition, in connection
with any such sale the holder is likely to incur commissions
and other transaction costs.
Voting Rights..... If at any time accrued dividends on the VII Cable
Preferred Stock are in arrears and unpaid in an amount equal
to six or more quarterly dividend periods (whether or not
consecutive), holders of the VII Cable Preferred Stock will
have the right to elect two additional directors to VII
Cable's Board of Directors, voting as a separate class with
the holders of any Parity Stock (as defined herein) upon
which like voting rights have been conferred and are vested,
until such dividend arrearage is eliminated. The holders of
VII Cable Preferred Stock will have no other voting rights,
except that the affirmative vote of at least 66 2/3% of the
VII Cable Preferred Stock (voting separately as a class)
will be required, subject to certain exceptions, before (i)
VII Cable may amend, alter or repeal any provision of VII
Cable's Restated Certificate of Incorporation which would
adversely affect the powers, preferences or rights of the
holders of the VII Cable Preferred Stock, (ii) VII Cable or
the VII Cable Board may authorize the creation or issue of
any class or series of preferred stock of VII Cable that
ranks senior to the VII Cable Preferred Stock as to dividend
payments, payments on redemption or payments of amounts
distributable upon the dissolution, liquidation or winding
up of the Company ("Senior Stock") or (iii) VII Cable may
effect a reclassification of the VII Cable Preferred Stock.
See "Description of the VII Cable Preferred Stock--Voting
Rights."
Ranking........... The VII Cable Preferred Stock will rank senior to any
class or series of common stock of VII Cable. Immediately
following the consummation of the Transaction, the only
class or series of preferred stock outstanding of VII Cable
will be the VII Cable Preferred Stock, and all of the
authorized shares of the VII Cable preferred stock will be
issued in connection with the Exchange Offer.
11
<PAGE>
Registration and
Listing of
TCI Stock......... The TCI Stock is listed on Nasdaq under the symbol "TCOMA."
Shares of TCI Stock delivered upon the exchange of VII Cable
Preferred Stock will be, and the delivery of such shares as
dividend or redemption payments in respect of VII Cable
Preferred Stock will be conditioned upon such shares being,
eligible for trading on Nasdaq and exempt from (or
registered under) the Securities Act and applicable state
securities laws. Trading in such shares by affiliates of VII
Cable and TCI will be subject to the restrictions of Rule
144.
12
<PAGE>
SUMMARY HISTORICAL COMBINED FINANCIAL INFORMATION
VII CABLE
(IN MILLIONS)
The following table sets forth certain summary historical combined
financial data of VII Cable and has been derived from and should be read in
conjunction with the audited combined financial statements of VII Cable for the
three years ended December 31, 1994, including the notes thereto, and the
unaudited interim combined financial statements of VII Cable, including the
notes thereto, appearing elsewhere in this Offering Circular - Prospectus
(collectively, the "VII Cable Carve-Out Financial Statements"). Unaudited
interim data for the nine-month period ended September 30, 1995 and 1994
reflect, in the opinion of management of VII Cable, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation of such data. Results of operations for the nine months ended
September 30, 1995 are not necessarily indicative of results which may be
expected for any other interim or annual period. The VII Cable Carve-Out
Financial Statements reflect the carve-out historical results of operations and
financial position of the cable television distribution business of Viacom
International during the periods presented and are not necessarily indicative of
results of operations or financial position that would have occurred if VII
Cable had been a separate stand-alone entity during the periods presented or of
future results of operations or financial position of VII Cable.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues.......................................... $328.6 $303.6 $ 404.5 $414.8 $410.1 $378.0 $330.5
Earnings from operations.......................... 59.8 42.7 57.4 83.8 97.5 82.2 55.9
Earnings (loss) before taxes...................... 54.1 20.2 26.4 128.1 53.1 15.0 (10.0)
Net earnings (loss) before cumulative effect of
change in accounting principle............... 27.8 6.7 9.1 83.9 25.8 (.2) (15.3)
Net earnings (loss)............................... 27.8 6.7 9.1 97.4 25.8 (.2) (15.3)
RATIO OF EARNINGS TO FIXED
CHARGES/(A)/..................................... 2.3x N/A 1.7x 4.6x 2.0x 1.2x (b)
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS/(A)/............................. 2.3x N/A 1.7x 4.6x 2.0x 1.2x (b)
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------ --------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $1,053.9 $1,040.4 $966.2 $964.7 $976.0 $992.7
Total debt........................................ 57.0 57.0 57.0 106.0 106.1 106.1
Viacom equity investment.......................... 842.7 823.9 765.5 753.9 767.7 788.1
</TABLE>
- -----------------------------
(a) For purposes of computing the ratio of earnings to fixed charges and the
ratio of earnings to combined fixed charges and preferred stock dividends,
earnings represent income from operations before fixed charges and taxes,
and fixed charges represent interest on indebtedness, amortization of debt
discount and such portion of rental expense which is deemed to be
representative of the interest factor.
(b) Earnings were inadequate to cover fixed charges. The additional amount of
earnings required to cover fixed charges and combined fixed charges and
preferred stock dividends for the year ended December 31, 1990 would have
been $8.7 million.
13
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
VII CABLE
(IN MILLIONS)
The following summary unaudited pro forma combined financial data of VII
Cable as of and for the nine months ended September 30, 1995 and as of and for
the twelve months ended December 31, 1994 give effect to (i) the Loan, (ii) the
Conveyance, (iii) the Recapitalization, (iv) the Exchange Offer, (v) the
Distributions, (vi) the Conversion, (vii) the Stock Issuance (collectively, the
"VII Cable Pro Forma Events") as if such events occurred at the beginning of the
earliest period presented for results of operations data. The summary unaudited
pro forma combined statement of operations data for the nine months ended
September 30, 1995 and the year ended December 31, 1994 were based upon the
statements of operations of VII Cable for the nine months ended September 30,
1995 and year ended December 31, 1994, respectively. The summary unaudited pro
forma combined balance sheet data give effect to the VII Cable Pro Forma Events
as if they had occurred on September 30, 1995. The summary unaudited pro forma
combined financial data of VII Cable were derived from, and should be read in
conjunction with, the unaudited pro forma condensed combined financial
statements of VII Cable and the notes thereto appearing elsewhere in this
Offering Circular -Prospectus. See "Unaudited Pro Forma Condensed Combined
Financial Statements of VII Cable." The unaudited pro forma data are not
necessarily indicative of the combined results of operations or financial
position that would have occurred if the VII Cable Pro Forma Events occurred at
the beginning of the earliest period presented nor are they necessarily
indicative of future results of operations or financial position.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1995 YEAR ENDED DECEMBER 31, 1994
-------------------------- ----------------------------
HISTORICAL PRO FORMA/(A)/ HISTORICAL PRO FORMA/(A)/
---------- -------------- ---------- ----------------
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues............................. $ 328.6 $ 326.7 $404.5 $407.6
Earnings from operations............. 59.8 33.6 57.4 28.6
Earnings (loss) before taxes......... 54.1 (39.6) 26.4 (70.7)
Net earnings (loss).................. 27.8 (41.0) 9.1 (65.5)
Net earnings (loss) attributable to N/A (57.9) N/A (88.0)
common stock........................
Ratio of earnings to fixed charges... 2.3x (b) 1.7x (b)
Ratio of earnings to combined 1.7x (c)
fixed charges and preferred
stock dividends................... 2.3x (c)
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
--------------------------
HISTORICAL PRO FORMA/(A)/
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets......................... $1,053.9 $2,311.1
Total debt........................... 57.0 1,350.0
Series A Preferred Stock............. -- 500.0
Class B Common Stock................. -- 350.0
Viacom equity investment............. 842.7 --
</TABLE>
- -------------------------------------
(a) Gives pro forma effect to the VII Cable Pro Forma Events as if such events
had occurred at the beginning of the earliest period presented for results
of operations data and on September 30, 1995 for balance sheet data.
(b) Earnings were inadequate to cover fixed charges. The additional amount of
earnings required to cover fixed charges on a pro forma combined basis for
the nine months ended September 30, 1995 and the year ended December 31,
1994 would have been $40.3 million and $67.9 million, respectively.
(c) Earnings were inadequate to cover fixed charges. The additional amount of
earnings required to cover combined fixed charges and preferred stock
dividends on a pro forma combined basis for the nine months ended September
30, 1995 and the year ended December 31, 1994 would have been $66.3 million
and $102.5 million, respectively.
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents historical and equivalent per share data for
Viacom giving effect to the consummation of the Exchange Offer assuming 10
million shares of Viacom Common Stock are exchanged at an assumed Exchange Ratio
of 0.5 shares of VII Cable Class A Common Stock for each share of Viacom Common
Stock (based on a per share price of $50). The table should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended December 31, 1994 and the unaudited financial information as
of and for the nine months ended September 30, 1995 of Viacom incorporated by
reference in this Offering Circular - Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995 YEAR ENDED DECEMBER 31, 1994
------------------------------------ ----------------------------
HISTORICAL EQUIVALENT HISTORICAL EQUIVALENT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Per Share of Viacom Common Stock:
Net income from continuing
operations..................... $ .44 $ .45 $ .25 $ .26
Dividends........................ -- -- -- --
Book Value....................... $32.67 $33.59 $32.87 $33.82
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth (i) the ratio of earnings to fixed charges
for Viacom for the nine-month periods ended September 30, 1995 and September 30,
1994 and each year in the five-year period ended December 31, 1994 and (ii) the
ratio of earnings to combined fixed charges and preferred stock dividends for
Viacom for the nine-month periods ended September 30, 1995 and September 30,
1994 and each applicable year in the five-year period ended December 31, 1994.
For purposes of computing the following ratios, earnings represent income from
operations before fixed charges and taxes, and fixed charges represent interest
on indebtedness, amortization of debt discount and such portion of rental
expense which is deemed to be representative of the interest factor. The ratios
set forth below should be read in conjunction with the financial statements of
Viacom incorporated in this Offering Circular-Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 1.8x 1.6x 1.7x 2.8x 1.8x 1.0x (a)
Ratio of Earnings to Combined Fixed Charges 1.6x 1.5x 1.1x 2.5x (b) (b) (b)
and Preferred Stock Dividends
- -----------
</TABLE>
(a) Earnings of Viacom were insufficient to cover fixed charges for the year
ended December 31, 1990. The additional amount of earnings required to cover
fixed charges of Viacom for the year ended December 31, 1990 would have been
$66.2 million.
(b) Viacom did not have any preferred stock outstanding from 1990 to October
1993.
15
<PAGE>
THE TRANSACTION
GENERAL
As of the date of this Offering Circular - Prospectus, Viacom International
is a wholly owned subsidiary of Viacom through which Viacom conducts its
Networks and Broadcasting, Entertainment, Theme Parks, Publishing and Cable
Business operations. Viacom has determined to implement the steps summarized
below in order to offer to holders of shares of Viacom Common Stock the
opportunity to acquire direct ownership of the Cable Business. All such steps
are being undertaken pursuant to the terms and conditions of the Parents
Agreement, the Implementation Agreement, the Subscription Agreement and the
Ancillary Agreements. For a description of each of those agreements, see
"Arrangements Among Viacom, Viacom International, TCI and TCI Cable."
Viacom is offering hereby to the holders of shares of Viacom Common Stock
the opportunity to exchange all or a portion of their shares of Viacom Common
Stock for shares of VII Cable Class A Common Stock. The total number of shares
of VII Cable Class A Common Stock exchangeable in the Exchange Offer
( shares) has been determined as the quotient obtained by dividing (x)
the excess of the Estimated Asset Value over the Loan Proceeds by (y) $100 (the
par value of VII Cable Class A Common Stock). The Exchange Offer will be
subject to a number of conditions, including the Minimum Condition.
NAI, a closely held corporation that owns approximately 61% of the
outstanding Viacom Class A Common Stock and approximately 25% of the
outstanding Viacom Common Stock, will not participate in the Exchange Offer.
Prior to expiration of the Exchange Offer, Viacom International will
borrow the Loan Proceeds. For a description of the terms of the Loan, see
"Description of Certain Indebtedness of VII Cable."
On the date the Exchange Offer is consummated, Viacom International will
convey to Viacom Services ownership of the assets relating to the Non-Cable
Businesses, the Loan Proceeds and certain nonmaterial assets (including certain
equity investments and marketable securities) which have historically been
reported as part of Viacom's Cable Television segment and which from and after
the First Distribution are deemed included in the definition of Non-Cable
Businesses and Viacom Services will assume substantially all of Viacom
International's liabilities (including its existing public debt, bank debt and
the existing intercompany debt owed by Viacom International to Viacom), other
than Viacom International's repayment and other obligations under the Loan and
liabilities relating to the Cable Business other than certain nonmaterial
specified liabilities. Next, Viacom International will distribute 100% of the
stock of Viacom Services to Viacom, and Viacom International will be
recapitalized, with all of the existing common stock being reclassified into
new VII Cable Class A Common Stock. Upon consummation of the Exchange Offer,
100% of the outstanding shares of VII Cable Class A Common Stock will be
exchanged at the Final Exchange Ratio for the shares of Viacom Common Stock
properly tendered and not withdrawn or deemed withdrawn in the Exchange Offer
at exchange ratios at or below the Final Exchange Ratio. VII Cable will
thereupon cease to be a subsidiary of Viacom.
Immediately following the consummation of the Exchange Offer, VII Cable
has agreed to issue and TCI Cable has agreed to acquire 100 shares of VII Cable
Class B Common Stock in consideration of the payment of the Subscription
Payment. Under the anticipated terms and conditions of the Loan, VII Cable will
be obligated to use such capital contribution to reduce VII Cable's obligations
under the Loan. Furthermore, as a result of such issuance, each share of VII
Cable Class A Common Stock distributed to Viacom stockholders pursuant to the
Exchange Offer will automatically convert into one share of VII Cable Preferred
Stock. See "Description of VII Cable Capital Stock--VII Cable Preferred Stock."
Upon the consummation of the Stock Issuance, VII Cable will be renamed "TCI
Pacific Communications, Inc."
If insufficient tenders are made by Viacom stockholders in the Exchange
Offer to permit the Minimum Condition to be satisfied, Viacom has the right to
extend the Exchange Offer not less than 10 nor more than 15
16
<PAGE>
business days. During such extension, TCI and Viacom have agreed to negotiate in
good faith to determine mutually acceptable changes to the terms and conditions
for the VII Cable Preferred Stock (including without limitation the Exchange
Rate and the dividend yield on the VII Cable Preferred Stock) and the Exchange
Offer (including without limitation the duration of any extension and the
maximum Exchange Ratio) that each believes in good faith will cause the Minimum
Condition to be fulfilled and that would cause the VII Cable Preferred Stock to
trade at a price equal to its $100 par value per share immediately following the
consummation of the Exchange Offer and the Stock Issuance. In the event the
Minimum Condition is not thereafter met, TCI and Viacom will each have the right
to terminate the Transaction.
Upon the closing of the Transaction, assuming the partial repayment of the
Loan with the proceeds of the Subscription Payment, VII Cable will have an
aggregate capitalization consisting of (i) approximately $1.35 billion of
borrowings under the Loan, (ii) VII Cable Preferred Stock with an estimated
aggregate par value of approximately $500 million and (iii) $350 million of
paid-in capital for the VII Cable Class B Common Stock (representing the
Subscription Payment), and will have no shares of VII Cable Class A Common Stock
outstanding (such shares having been converted into the VII Cable Preferred
Stock). See "Unaudited Pro Forma Condensed Combined Financial Statements of VII
Cable."
PURPOSE AND EFFECTS OF THE TRANSACTION
The Transaction will reduce Viacom's overall level of indebtedness, which
Viacom expects will enhance Viacom's prospects for an increase in the rating of
its long-term senior unsecured debt to investment grade, thereby lowering
Viacom's financing costs and enhancing the terms on which Viacom can access the
capital markets. The Transaction will enable Viacom to utilize its investment
capital to invest in the growth of its core, content-driven entertainment and
publishing businesses rather than in the further development of its cable
television business. The Transaction will eliminate perceived conflicts and
permit Viacom to further its position on regulatory matters consistent with
Viacom's focus on its programming businesses. Upon the consummation of the
Transaction, certain rules under current federal telecommunications law which
impose restrictions on cable programmers affiliated with cable system operators
would no longer apply to Viacom. Viacom believes that all of the foregoing will
result in improved deployment of its assets that will enhance value for its
stockholders. This enhanced value has been evidenced by the decline in the
number of shares of Viacom Class B Common Stock that were issued in satisfaction
of Viacom's Variable Common Rights in September 1995.
The Exchange Offer will also provide Viacom stockholders with an
opportunity to adjust, on a tax-free basis, their investment between the Cable
Business and Viacom's Non-Cable Businesses. See "Certain Federal Income Tax
Consequences." To the extent that a holder exchanges its Viacom Common Stock
pursuant to the Exchange Offer, such holder will no longer participate in any
increase in the value of such Viacom Common Stock.
Holders of shares of Viacom Common Stock will be affected by the
Transaction regardless of whether such holders tender their shares of Viacom
Common Stock for exchange pursuant to the Exchange Offer. Holders of shares of
Viacom Common Stock who tender all of their shares for exchange pursuant to the
Exchange Offer will, if all such shares are accepted for exchange, no longer
have an ownership interest in Viacom. Holders of shares of Viacom Common Stock
who tender all of their shares for exchange and who become subject to proration
because more shares of Viacom Common Stock are tendered for exchange than are
necessary to satisfy the Minimum Condition will have a diminished ownership
interest in Viacom. Holders of shares of Viacom Common Stock who do not tender
any of their shares for exchange pursuant to the Exchange Offer will not receive
shares of VII Cable Class A Common Stock as a result of the Exchange Offer and
will continue to have an ownership interest in Viacom, which ownership interest
will have increased on a percentage basis as a result of the Exchange Offer, but
will no longer hold an interest in the Cable Business.
NONE OF VIACOM, VIACOM INTERNATIONAL, THE BOARD OF DIRECTORS OF VIACOM NOR
THE BOARD OF DIRECTORS OF VIACOM INTERNATIONAL MAKES ANY RECOMMENDATION TO ANY
STOCKHOLDER OF VIACOM WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES OF
VIACOM COMMON STOCK PURSUANT TO THE EXCHANGE OFFER. EACH
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STOCKHOLDER MUST MAKE ITS OWN DECISION WHETHER TO TENDER SHARES OF VIACOM COMMON
STOCK PURSUANT TO THE EXCHANGE OFFER AND, IF SO, HOW MANY SHARES TO TENDER AND
AT WHAT EXCHANGE RATIO TO TENDER SUCH SHARES, AFTER READING THIS OFFERING
CIRCULAR - PROSPECTUS AND CONSULTING WITH ITS ADVISORS BASED ON ITS OWN
FINANCIAL POSITION AND REQUIREMENTS.
NO APPRAISAL RIGHTS
No appraisal rights are available to Viacom stockholders in connection with
the Transaction.
REGULATORY APPROVALS
No filings under the HSR Act are required in connection with the Exchange
Offer generally. Viacom and TCI have to date made filings under the HSR Act with
respect to the Stock Issuance. The waiting period with respect to each of these
filings terminated in September 1995. To the extent that certain stockholders of
Viacom decide to participate in the Exchange Offer and thereby acquire a number
of shares of VII Cable Class A Common Stock that exceeds any threshold stated in
the regulations under the HSR Act, and if an exemption under those regulations
does not apply, such stockholders and Viacom would be required to make filings
under the HSR Act, and the waiting period under the HSR Act would have to expire
or be terminated before any exchanges of shares with those particular
stockholders could be effected.
Approvals must be obtained from certain local franchise authorities having
rights of approval over changes of control with respect to the change of control
of the VII Cable subsidiaries operating cable systems in such authorities'
jurisdictions. In addition, the FCC must approve the change of control of the
(i) entities licensed to operate the wireless communications systems used in VII
Cable's business and (ii) entities licensed to operate the wireless
communications systems used in the Non-Cable Businesses. See "Arrangements Among
Viacom, Viacom International, TCI and TCI Cable--Terms of the Implementation
Agreement--Consents and Approvals."
Viacom and Viacom International do not believe that any other material
federal or state regulatory approvals will be necessary to consummate the
Transaction.
ANTICIPATED ACCOUNTING TREATMENT
Following completion of the Conveyance, the First Distribution, the
Recapitalization and the Second Distribution, the assets and liabilities and
results of operations of VII Cable will cease to be consolidated with the assets
and liabilities and results of operations of Viacom. It is expected that the
transactions contemplated by the Subscription Agreement will be accounted for
under the purchase method of accounting in accordance with generally accepted
accounting principles. Accordingly, the cost to acquire VII Cable will be
allocated, by TCI, to the assets and liabilities acquired based on their fair
values, with any excess being treated as intangible assets.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in the Exchange
Offer, Viacom is offering hereby to exchange all of the outstanding shares of
VII Cable Class A Common Stock for shares of Viacom Common Stock that are
validly tendered by the Expiration Time on the Expiration Date and not deemed
withdrawn, as set forth below under "--Withdrawal Rights," at an Exchange Ratio
(determined in the manner set forth below) not greater than nor less
than of a share of VII Cable Class A Common Stock for each share of
Viacom Common Stock tendered. The term "Expiration Time" shall mean 12:00
Midnight, New York City time, and the term "Expiration Date" shall mean
, 1996, unless the period of time during which the Exchange Offer is
open shall have been extended in accordance with applicable law and the Parents
Agreement, in which event the terms "Expiration Time" and "Expiration Date"
shall mean the latest time and date at which the Exchange Offer, as so extended,
shall expire. See "--Extension of Tender Period; Termination; Amendment." If the
Exchange Offer is oversubscribed, shares of Viacom Common Stock tendered at or
below the Final Exchange Ratio will be subject to proration. The proration
period will also expire at the Expiration Time on the Expiration Date.
The Exchange Offer will be conducted as a "dutch auction" in which holders
of Viacom Common Stock will be able to specify a fraction, not greater than
nor less than , of a share of VII Cable Class A Common Stock that such
holders are willing to receive in exchange for a share of Viacom Common Stock.
The minimum and maximum Exchange Ratios of VII Cable Class A Common Stock for
each share of Viacom Common Stock exchanged were established by Viacom, pursuant
to its obligations under the Parents Agreement. The maximum Exchange Ratio was
set at a level equal to 112.5% of the weighted averages for all trades of shares
of Viacom Class B Common Stock, as reported by the ADP Financial Information
Services reporting service, during the twenty trading day period ended the date
prior to the commencement of the Exchange Offer, divided by $100.00, and the
minimum Exchange Ratio was set at a level equal to the maximum Exchange Ratio
divided by 1.125. Viacom will, upon the terms and subject to the conditions of
the Exchange Offer, determine the Final Exchange Ratio, taking into account the
number of shares of Viacom Common Stock tendered and the fraction of a share of
VII Cable Class A Common Stock specified by tendering stockholders. Viacom will
select as the Final Exchange Ratio the lowest Exchange Ratio that will allow it
to exchange all of the outstanding shares of VII Cable Class A Common Stock.
The Exchange Offer is conditioned upon there being validly tendered and not
properly withdrawn prior to the Expiration Time on the Expiration Date a number
of shares of Viacom Common Stock which, when multiplied by the Final Exchange
Ratio, equals all of the outstanding shares of VII Cable Class A Common Stock.
The Exchange Offer is also subject to certain other conditions. See "--Certain
Conditions of the Exchange Offer." Upon the terms and subject to the conditions
of the Exchange Offer, if more shares of Viacom Common Stock are validly
tendered for exchange at or below the Final Exchange Ratio than are necessary to
satisfy the Minimum Condition and are not properly withdrawn prior to the
Expiration Date, Viacom will exchange shares of VII Cable Class A Common Stock
for shares of Viacom Common Stock on a pro rata basis (with appropriate
adjustments to avoid purchases of fractional shares of Viacom Common Stock).
Shares of Viacom Common Stock not exchanged for shares of VII Cable Class A
Common Stock because of proration will be returned.
The Exchange Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on , 1996, unless the Exchange Offer
is extended.
Viacom does not expect that it would be able to announce the final
proration factor or to commence delivery of any shares of VII Cable Class A
Common Stock exchanged pursuant to the Exchange Offer until approximately seven
AMEX trading days after the Expiration Date. This delay results from the
difficulty in determining the number of shares of Viacom Common Stock validly
tendered for exchange (including shares of Viacom Common Stock tendered for
exchange pursuant to the guaranteed delivery procedure described in "--
Guaranteed Delivery Procedure" below) and not properly withdrawn prior to the
Expiration Date.
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Preliminary results of proration will be announced by press release as promptly
as practicable after the Expiration Date. Holders of shares of Viacom Common
Stock may obtain such preliminary information from the Information Agent and may
also be able to obtain such information from their brokers.
No fractional shares of VII Cable Class A Common Stock or VII Cable
Preferred Stock, as the case may be, will be distributed. The Exchange Agent,
acting as agent for Viacom stockholders otherwise entitled to receive fractional
shares, will aggregate all fractional shares and sell them for the accounts of
such stockholders. Such proceeds as may be realized by the Exchange Agent upon
the sale of such fractional shares will be distributed, net of commissions, to
such stockholders on a pro rata basis. Any such cash payments will be made
through the Exchange Agent if the related shares of Viacom Common Stock are
tendered to the Exchange Agent or, if such shares of Viacom Common Stock are
tendered through a Book-Entry Transfer Facility (as defined herein), through
such Book-Entry Transfer Facility. NONE OF THE EXCHANGE AGENT, VIACOM, VIACOM
INTERNATIONAL OR VII CABLE WILL GUARANTEE ANY MINIMUM PROCEEDS FROM THE SALE OF
SHARES OF VII CABLE CLASS A COMMON STOCK OR, FOLLOWING THE CONVERSION, VII CABLE
PREFERRED STOCK, AND NO INTEREST WILL BE PAID ON ANY SUCH PROCEEDS.
The Exchange Offer is subject to certain conditions set forth in "--Certain
Conditions of the Exchange Offer" below, including the Minimum Condition. If any
such conditions are not satisfied, Viacom may, subject to certain provisions of
the Parents Agreement, (w) terminate the Exchange Offer and as promptly as
practicable return all tendered shares of Viacom Common Stock to tendering
stockholders, (x) extend the Exchange Offer and, subject to the withdrawal
rights described in "--Withdrawal Rights" below, retain all such shares of
Viacom Common Stock until the expiration of the Exchange Offer as so extended,
(y) waive any such condition and, subject to any requirement to extend the
period of time during which the Exchange Offer is open, exchange all shares of
Viacom Common Stock validly tendered for exchange by the Expiration Date and not
properly withdrawn or (z) delay acceptance for exchange of any shares of Viacom
Common Stock until satisfaction or waiver of all such conditions to the Exchange
Offer. Viacom's right to delay acceptance for exchange of, or exchange for,
shares of Viacom Common Stock tendered for exchange pursuant to the Exchange
Offer is subject to the provisions of applicable law, including, to the extent
applicable, Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires
that Viacom pay the consideration offered or return the shares of Viacom Common
Stock deposited by or on behalf of Viacom stockholders promptly after the
termination or withdrawal of the Exchange Offer. For a description of Viacom's
right to extend the period of time during which the Exchange Offer is open and
to amend, delay or terminate the Exchange Offer and of the provisions of the
Parents Agreement applicable thereto, see "--Extension of Tender Period;
Termination; Amendment" below.
This Offering Circular - Prospectus and the Letter of Transmittal are being
sent to persons who were holders of record of Viacom Common Stock at the close
of business on ["record date" for Exchange Offer], 1996 (the "Record Date"). As
of the Record Date, there were shares of Viacom Class A Common Stock and
shares of Viacom Class B Common Stock outstanding. This Offering
Circular -Prospectus and related Letter of Transmittal also will be furnished to
brokers, banks and similar persons whose names or the names of whose nominees
appear on the Viacom stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of shares of Viacom Common Stock.
EXCHANGE OF SHARES OF VIACOM COMMON STOCK
Upon the terms (including, without limitation, the proration provisions of
the Exchange Offer) and subject to the satisfaction or waiver of the conditions
of the Exchange Offer, Viacom will accept for exchange, and shares of VII Cable
Class A Common Stock will be exchanged for, shares of Viacom Common Stock that
have been validly tendered and not properly withdrawn by the Expiration Time on
the Expiration Date. In addition, Viacom reserves the right, in its sole
discretion (subject to Rule 13e-4(f)(5) under the Exchange Act), to delay the
acceptance for exchange or delay exchange of any shares of Viacom Common Stock
in order to comply in whole or in part with any applicable law. For a
description of Viacom's right to terminate the Exchange Offer and not accept for
exchange or exchange any shares of Viacom Common Stock or to delay
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acceptance for exchange or exchange any shares of Viacom Common Stock, see "--
Extension of Tender Period; Termination; Amendment" below.
Assuming consummation of the Stock Issuance, each share of VII Cable Class
A Common Stock issued in connection with the Exchange Offer will automatically
convert into a share of VII Cable Preferred Stock, and shares of VII Cable
Preferred Stock and cash in lieu of fractional shares will be delivered as soon
as possible after acceptance of Viacom Common Stock for exchange. Accordingly,
holders of shares of Viacom Common Stock electing to tender such shares in the
Exchange Offer should not expect to take physical delivery of shares of VII
Cable Class A Common Stock which they receive in exchange after the consummation
of the Stock Issuance.
For purposes of the Exchange Offer, Viacom shall be deemed, subject to the
proration provisions of the Exchange Offer, to have accepted for exchange and
exchanged shares of Viacom Common Stock validly tendered for exchange when, as
and if Viacom gives oral or written notice to the Exchange Agent of its
acceptance of the tenders of such shares of Viacom Common Stock for exchange.
Exchange of shares of Viacom Common Stock accepted for exchange pursuant to the
Exchange Offer will be made on the first business day following announcement by
Viacom of the final proration factor (which first business day in no event shall
be more than ten business days after the Expiration Date and which first
business day shall be hereinafter referred to as the "Exchange Time") by deposit
of tendered shares of Viacom Common Stock with the Exchange Agent, which will
act as agent for the tendering stockholders for the purpose of receiving shares
of VII Cable Class A Common Stock and VII Cable Preferred Stock and transmitting
such shares to tendering stockholders. (The date on which the Exchange Time
occurs is hereinafter referred to as the "Exchange Date.") In all cases,
tendered shares of Viacom Common Stock accepted for exchange pursuant to the
Exchange Offer will be exchanged only after timely receipt by the Exchange Agent
of (i) certificates for such shares of Viacom Common Stock (or of a confirmation
of a book-entry transfer of such shares of Viacom Common Stock into the Exchange
Agent's account at one of the Book-Entry Transfer Facilities), and (ii) a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) or an Agent's Message (as defined herein) in connection with
a book-entry transfer of shares, together with any other documents required by
the Letter of Transmittal. For a description of the procedures for tendering
shares of Viacom Common Stock pursuant to the Exchange Offer, see "--Procedures
for Tendering Shares of Viacom Common Stock" below. Under no circumstances will
interest be paid by Viacom pursuant to the Exchange Offer, regardless of any
delay in making such exchange.
The exchange of shares of VII Cable Class A Common Stock for shares of
Viacom Common Stock may be delayed in the event of difficulty in determining the
number of shares of Viacom Common Stock validly tendered or if proration is
required. See "--Terms of the Exchange Offer" above. In addition, if certain
events occur, Viacom may not be obligated to exchange shares of VII Cable Class
A Common Stock for shares of Viacom Common Stock pursuant to the Exchange Offer.
See "--Certain Conditions of the Exchange Offer" below. As provided in Rules
13e-4(f)(4) and (8)(ii) under the Exchange Act, Viacom will exchange the same
number of shares of VII Cable Class A Common Stock for each share of Viacom
Common Stock accepted for exchange pursuant to the Exchange Offer.
If any tendered shares of Viacom Common Stock are not exchanged pursuant to
the Exchange Offer for any reason, or if certificates are submitted for more
shares of Viacom Common Stock than are (i) tendered for exchange or (ii)
accepted for exchange due to the proration provisions, certificates for such
unexchanged or untendered shares of Viacom Common Stock will be returned (or, in
the case of shares of Viacom Common Stock tendered by book-entry transfer, such
shares of Viacom Common Stock will be credited to an account maintained at one
of the Book-Entry Transfer Facilities (as defined herein)), without expense to
the tendering stockholder, as promptly as practicable following the expiration
or termination of the Exchange Offer.
Viacom will pay all stock transfer taxes, if any, payable on the transfer
to it of shares of Viacom Common Stock and the transfer to tendering
stockholders of shares of VII Cable Class A Common Stock or VII Cable Preferred
Stock, as the case may be, pursuant to the Exchange Offer. If, however, the
exchange of shares is to be made to, or (in the circumstances permitted by the
Exchange Offer) if shares of Viacom
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Common Stock that are not tendered or not accepted for exchange are to be
registered in the name of or delivered to any person other than the registered
owner, or if tendered certificates are registered in the name of any person
other than the person signing the Letter of Transmittal, the amount of all stock
transfer taxes, if any (whether imposed on the registered owner or such other
person), payable on account of the transfer to such person must be paid by the
tendering stockholder unless evidence satisfactory to Viacom of the payment of
such taxes or exemption therefrom is submitted.
PROCEDURES FOR TENDERING SHARES OF VIACOM COMMON STOCK
To tender shares of Viacom Common Stock pursuant to the Exchange Offer,
either (i) a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) with any required signature guarantees, or an
Agent's Message (as defined herein) in the case of a book-entry transfer of
shares, and any other documents required by the Letter of Transmittal must be
received by the Exchange Agent at one of its addresses set forth on the back
cover of this Offering Circular - Prospectus prior to the Expiration Time on the
Expiration Date, and either (a) certificates for the shares of Viacom Common
Stock to be tendered must be transmitted to and received by the Exchange Agent
at one of such addresses prior to such time or (b) such shares of Viacom Common
Stock must be delivered pursuant to the procedures for book-entry transfer
described below (and a confirmation of such delivery received by the Exchange
Agent), in each case by the Expiration Date, or (ii) the guaranteed delivery
procedure described below must be complied with.
As specified in Instruction 3 of the Letter of Transmittal, each
stockholder desiring to tender shares of Viacom Common Stock pursuant to the
Exchange Offer must properly indicate in the section captioned "Exchange Ratio
At Which Shares Are Being Tendered" of the Letter of Transmittal the Exchange
Ratio (in multiples of 0.01) at which such stockholder's shares of Viacom Common
Stock are being tendered. STOCKHOLDERS DESIRING TO TENDER SHARES AT MORE THAN
ONE EXCHANGE RATIO MUST COMPLETE SEPARATE LETTERS OF TRANSMITTAL FOR EACH
EXCHANGE RATIO AT WHICH SUCH STOCKHOLDER IS TENDERING SHARES, EXCEPT THAT THE
SAME SHARES CANNOT BE TENDERED (UNLESS PROPERLY WITHDRAWN PREVIOUSLY IN
ACCORDANCE WITH THE TERMS OF THE OFFER) AT MORE THAN ONE EXCHANGE RATIO. IN
ORDER TO TENDER SHARES PROPERLY, ONE AND ONLY ONE EXCHANGE RATIO MUST BE
INDICATED IN THE APPROPRIATE SECTION ON EACH LETTER OF TRANSMITTAL.
LETTERS OF TRANSMITTAL AND CERTIFICATES FOR SHARES OF VIACOM COMMON STOCK
SHOULD NOT BE SENT TO VIACOM, VIACOM INTERNATIONAL OR THE INFORMATION AGENT.
DELIVERY OF ANY OF THE AFOREMENTIONED REQUIRED DOCUMENTS TO ANY ADDRESS OTHER
THAN AS SET FORTH HEREIN WILL NOT CONSTITUTE VALID DELIVERY THEREOF.
It is a violation of Rule 14e-4 promulgated under the Exchange Act for a
person to tender shares of Viacom Common Stock for such person's own account
unless the person so tendering (i) owns such shares of Viacom Common Stock or
(ii) owns other securities convertible into or exchangeable for such shares of
Viacom Common Stock or owns an option, warrant or right to purchase such shares
of Viacom Common Stock and intends to acquire shares of Viacom Common Stock for
tender by conversion or exchange of such securities or by exercise of such
option, warrant or right. Rule 14e-4 provides a similar restriction applicable
to the tender or guarantee of a tender on behalf of another person.
A tender of shares of Viacom Common Stock made pursuant to any method of
delivery set forth herein will constitute a binding agreement between the
tendering stockholder and Viacom upon the terms and subject to the conditions of
the Exchange Offer, including the tendering stockholder's representation that
(i) such stockholder owns the shares of Viacom Common Stock being tendered
within the meaning of Rule 14e-4 promulgated under the Exchange Act and (ii) the
tender of such shares of Viacom Common Stock complies with Rule 14e-4.
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The Exchange Agent will establish accounts with respect to shares of Viacom
Common Stock at The Depository Trust Company ("DTC"), the Midwest Securities
Trust Company ("MSTC") and the Philadelphia Depository Trust Company
("PHILADEP," and together with DTC and MSTC, the "Book-Entry Transfer
Facilities" and each alone, a "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of this Offering
Circular - Prospectus, and any financial institution that is a participant in
the system of any Book-Entry Transfer Facility may make delivery of shares of
Viacom Common Stock by causing such Book-Entry Transfer Facility to transfer
such shares of Viacom Common Stock into the Exchange Agent's account in
accordance with the procedures of such Book-Entry Transfer Facility. Although
delivery of shares of Viacom Common Stock may be effected through book-entry
transfer to the Exchange Agent's account at DTC, MSTC or PHILADEP, a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) and any other required documents, or an Agent's Message (as defined
herein) must, in any case, be transmitted to and received or confirmed by the
Exchange Agent at one of its addresses set forth on the back cover of this
Offering Circular - Prospectus on or prior to 12:00 Midnight on the Expiration
Date, or the guaranteed delivery procedure described below must be complied
with. "Agent's Message" means a message transmitted through electronic means by
a Book-Entry Transfer Facility to and received by the Exchange Agent and forming
a part of a book-entry confirmation, which states that such Book-Entry Transfer
Facility has received an express acknowledgement from the participant in such
Book-Entry Transfer Facility tendering the shares that such participant has
received and agrees to be bound by the Letter of Transmittal. DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT AS REQUIRED HEREBY.
Signatures on a Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined herein) unless the shares of Viacom Common Stock
tendered pursuant to the Letter of Transmittal are tendered (i) by the
registered holder of the shares of Viacom Common Stock tendered therewith and
such holder has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. An "Eligible Institution" means a
participant in the Security Transfer Agents Medallion Program or the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program. A verification by a notary public alone is not acceptable. If
a certificate representing shares of Viacom Common Stock is registered in the
name of a person other than the signer of a Letter of Transmittal, or if
delivery of shares of VII Cable Class A Common Stock is to be made or shares of
Viacom Common Stock not tendered or not accepted for exchange are to be returned
to a person other than the registered owner, the certificate must be endorsed or
accompanied by an appropriate stock power, and the signature on such certificate
or stock power must appear exactly as the name of the registered owner appears
on the certificate with the signature on the certificate or stock power
guaranteed by an Eligible Institution.
If the Letter of Transmittal or Notice of Guaranteed Delivery or any
certificates or stock powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by Viacom, proper evidence satisfactory to Viacom of
their authority so to act must be submitted.
If any certificate representing shares of Viacom Common Stock has been
mutilated, destroyed, lost or stolen, the stockholder must (i) furnish to the
Exchange Agent evidence, satisfactory to it in its discretion, of the ownership
of and the destruction, loss or theft of such certificate, (ii) furnish to the
Exchange Agent indemnity, satisfactory to it in its discretion and (iii) comply
with such other reasonable regulations as the Exchange Agent may prescribe.
Shares held by Savings Plans. Participants or, as applicable, beneficiaries
("VIP participants") under the Viacom Investment Plan (the "VIP") may direct the
Trustee of the VIP to tender shares of Viacom Common Stock credited to their
matching accounts or to their investment accounts in the Viacom Common Stock
fund (the "Viacom Stock Fund Account"). The Trustee will make available to such
VIP participants all documents furnished to stockholders generally in connection
with the Exchange Offer. Each such VIP participant will also receive a form upon
which the VIP participant may instruct the Trustee regarding the Exchange Offer.
Each
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VIP participant may direct that all, some or none of the shares credited to the
VIP participant's Viacom Stock Fund Account and/or matching account be tendered
and shall specify the Exchange Ratio at which such shares are to be tendered.
VIP PARTICIPANTS MAY NOT USE THE LETTER OF TRANSMITTAL BUT MUST USE THE SEPARATE
FORM SENT TO THEM.
Under the Employee Retirement Income Security Act of 1974, as amended,
Viacom will be prohibited from accepting for exchange any shares from the VIP if
the Final Exchange Ratio multiplied by 100 is an amount less than the prevailing
market price of the shares on the date the shares are accepted for exchange
pursuant to the Exchange Offer.
GUARANTEED DELIVERY PROCEDURE
If a stockholder desires to tender shares of Viacom Common Stock pursuant
to the Exchange Offer and cannot deliver such shares of Viacom Common Stock and
all other required documents to the Exchange Agent prior to the Expiration Time
on the Expiration Date, such shares of Viacom Common Stock may nevertheless be
tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by Viacom setting forth the
name and address of the holder and the number of shares of Viacom Common
Stock tendered, stating that the tender is being made thereby and
guaranteeing that, within three AMEX trading days after the date of the
Notice of Guaranteed Delivery, the certificate(s) representing the shares
of Viacom Common Stock accompanied by all other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent, is received by the Exchange Agent (as provided below)
by the Expiration Date; and
(iii) the certificate(s) for such shares of Viacom Common Stock (or a
confirmation of a book-entry transfer of such shares of Viacom Common Stock
into the Exchange Agent's account at one of the Book-Entry Transfer
Facilities), together with a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) and any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer, and any other documents required by the Letter of Transmittal,
are received by the Exchange Agent within three AMEX trading days after the
date of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, telegram,
facsimile transmission or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such Notice.
THE METHOD OF DELIVERY OF SHARES OF VIACOM COMMON STOCK AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF
CERTIFICATES REPRESENTING SHARES OF VIACOM COMMON STOCK ARE SENT BY MAIL, IT IS
RECOMMENDED THAT TENDERING STOCKHOLDERS USE PROPERLY INSURED, REGISTERED MAIL
WITH RETURN RECEIPT REQUESTED, AND ALLOW SUFFICIENT TIME TO ENSURE TIMELY
RECEIPT.
All questions as to the form of documents (including notices of withdrawal)
and the validity, form, eligibility (including time of receipt) and acceptance
for exchange of any tender of shares of Viacom Common Stock will be determined
by Viacom in its sole discretion, which determination will be final and binding
on all tendering stockholders. Viacom reserves the absolute right to reject any
or all tenders of shares of Viacom Common Stock determined by it not to be in
proper form or the acceptance for exchange of shares of Viacom Common Stock
which may, in the opinion of Viacom counsel, be unlawful. Viacom also reserves
the absolute right to waive any defect or irregularity in any tender of shares
of Viacom Common Stock. None of Viacom, the Exchange Agent, the Information
Agent or any other person will be under any duty to give notification of any
defect or irregularity in tenders or notices of withdrawal or incur any
liability for failure to give any such notification.
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* * *
The Exchange Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on , 1996, unless the Exchange Offer
is extended.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, any tender of shares of Viacom Common
Stock made pursuant to the Exchange Offer is irrevocable. Tenders of shares of
Viacom Common Stock may be withdrawn at any time on or prior to the Expiration
Time on the Expiration Date and, unless theretofore accepted for exchange as
provided in this Offering Circular - Prospectus, may also be withdrawn after the
expiration of 40 business days from the commencement of the Exchange Offer. If
Viacom (i) extends the period of time during which the Exchange Offer is open,
(ii) is delayed in its acceptance of shares of Viacom Common Stock for exchange
or (iii) is unable to accept shares of Viacom Common Stock for exchange pursuant
to the Exchange Offer for any reason, then, without prejudice to Viacom's rights
under the Exchange Offer, the Exchange Agent may, on behalf of Viacom, retain
all shares of Viacom Common Stock tendered, and such shares of Viacom Common
Stock may not be withdrawn except as otherwise provided herein, subject to Rule
13e-4(f)(5) under the Exchange Act, which provides that the person making an
issuer exchange offer shall either pay the consideration offered or return
tendered securities promptly after the termination or withdrawal of the offer.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent at one of its addresses
set forth on the back cover of this Offering Circular Prospectus and must
specify the name of the person who tendered the shares of Viacom Common Stock to
be withdrawn and the number of shares of Viacom Common Stock to be withdrawn
precisely as they appear in the Letter of Transmittal. If the shares of Viacom
Common Stock to be withdrawn have been delivered to the Exchange Agent, a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution must
be submitted prior to the release of such shares of Viacom Common Stock (except
that such signature guarantee requirement is not applicable in the case of
shares of Viacom Common Stock tendered by an Eligible Institution). In addition,
such notice must specify, in the case of shares of Viacom Common Stock tendered
by delivery of certificates, the name of the registered holder (if different
from that of the tendering stockholder) and the serial numbers shown on the
particular certificates evidencing the shares of Viacom Common Stock to be
withdrawn or, in the case of shares of Viacom Common Stock tendered by book-
entry transfer, the name and number of the account at the Book-Entry Transfer
Facility from which the shares were transferred. Withdrawals may not be
rescinded, and shares of Viacom Common Stock withdrawn will thereafter be deemed
not validly tendered for purposes of the Exchange Offer. However, withdrawn
shares of Viacom Common Stock may be retendered by again following one of the
procedures described above in "--Procedures for Tendering Shares of Viacom
Common Stock" at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Viacom, in its sole discretion,
which determination shall be final and binding. None of Viacom, the Exchange
Agent, the Information Agent or any other person will be under any duty to give
notification of any defect or irregularity in any notice of withdrawal or incur
any liability for failure to give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
Subject to the immediately following sentence, Viacom expressly reserves
the right, at any time or from time to time, in its sole discretion and
regardless of whether any of the conditions specified in "--Certain Conditions
of the Exchange Offer" below shall have been satisfied, (i) to extend the period
of time during which the Exchange Offer is open by giving oral or written notice
of such extension to the Exchange Agent and by making a public announcement of
such extension or (ii) to amend the Exchange Offer in any respect by making a
public announcement of such amendment. If insufficient tenders are made by
Viacom stockholders in the Exchange Offer to permit the Minimum Condition to be
satisfied, Viacom has the right to extend the Exchange Offer for not less than
10 nor more than 15 business days. During such extension, TCI and Viacom have
25
<PAGE>
agreed to negotiate in good faith to determine mutually acceptable changes to
terms and conditions for the VII Cable Preferred Stock (including without
limitation the Exchange Rate and the dividend yield on the VII Cable Preferred
Stock) and the Exchange Offer (including without limitation the duration of any
extension and the maximum Exchange Ratio) that each believes in good faith will
cause the Minimum Condition to be fulfilled and that would cause the VII Cable
Preferred Stock to trade at a price equal to its $100 par value per share
immediately following the consummation of the Exchange Offer and the Stock
Issuance. There can be no assurance that Viacom will exercise its right to
extend or amend the Exchange Offer.
Subject to the foregoing paragraph, if Viacom materially changes the terms
of the Exchange Offer or the information concerning the Exchange Offer, Viacom
will extend the Exchange Offer to the extent required by the Exchange Act.
Certain rules promulgated under the Exchange Act provide that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price,
change in the dealer's soliciting fee or a change in percentage of securities
sought) will depend on the facts and circumstances, including the relative
materiality of such terms or information. The Commission has stated that, as a
general rule, it is of the view that an offer should remain open for a minimum
of five business days from the date that notice of such material change is first
published, sent or given, and that if material changes are made with respect to
information that approaches the significance of price and share levels, a
minimum of ten business days may be required to allow adequate dissemination and
investor response. Subject to the foregoing paragraph, if (i) Viacom increases
or decreases (x) the number of shares of VII Cable Class A Common Stock offered
in exchange for shares of Viacom Common Stock pursuant to the Exchange Offer,
(y) the number of shares of Viacom Common Stock eligible for exchange or (z) the
Minimum Condition, and (ii) the Exchange Offer is scheduled to expire at any
time earlier than the expiration of a period ending on the tenth business day
from and including the date that notice of such increase or decrease is first
published, sent or given, the Exchange Offer will be extended until the
expiration of such period of ten business days. The term "business day" shall
mean any day other than Saturday, Sunday or a federal holiday and shall consist
of the time period from 12:01 a.m. through 12:00 Midnight, New York City time.
Viacom also reserves the right, in its sole discretion, in the event any of
the conditions specified in "--Certain Conditions of the Exchange Offer" below
shall not have been satisfied and so long as shares of Viacom Common Stock have
not theretofore been accepted for exchange, to delay (except as otherwise
required by applicable law) acceptance for exchange of or exchange for any
shares of Viacom Common Stock or to terminate the Exchange Offer and not accept
for exchange of or exchange for any shares of Viacom Common Stock.
If Viacom (i) extends the period of time during which the Exchange Offer is
open, (ii) is delayed in accepting for exchange of or exchange for any shares of
Viacom Common Stock or (iii) is unable to accept for exchange of or exchange for
any shares of Viacom Common Stock pursuant to the Exchange Offer for any reason,
then, without prejudice to Viacom rights under the Exchange Offer, the Exchange
Agent may, on behalf of Viacom, retain all shares of Viacom Common Stock
tendered and such shares of Viacom Common Stock may not be withdrawn except as
otherwise provided in "--Withdrawal Rights" above. The reservation by Viacom of
the right to delay acceptance for exchange of or exchange for any shares of
Viacom Common Stock is subject to applicable law, which requires that Viacom pay
the consideration offered or return the shares of Viacom Common Stock deposited
by or on behalf of stockholders promptly after the termination or withdrawal of
the Exchange Offer.
Any extension, termination or amendment of the Exchange Offer will be
followed as promptly as practicable by a public announcement thereof. Without
limiting the manner in which Viacom may choose to make any public announcement,
Viacom will have no obligation (except as otherwise required by applicable law)
to publish, advertise or otherwise communicate any such public announcement
other than by making a release to the Dow Jones News Service. In the case of an
extension of the Exchange Offer, Commission regulations require a public
announcement of such extension no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
26
<PAGE>
CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER
The conditions to the obligations of Viacom to commence the Exchange Offer
were satisfied or waived on , 199 . See "Arrangements Among Viacom,
Viacom International, TCI and TCI Cable--Terms of the Parents Agreement--
Conditions Precedent." In addition, there are conditions to Viacom's
obligations to consummate the Exchange Offer. Notwithstanding any other
provisions of the Exchange Offer and without prejudice to Viacom's other rights
under the Exchange Offer, Viacom shall not be required to accept for exchange of
or, subject to any applicable rules and regulations of the Commission, including
Rule 14e-1(c) under the Exchange Act relating to Viacom's obligation to exchange
or return tendered shares of Viacom Common Stock promptly after termination or
withdrawal of the Exchange Offer, exchange for any shares of Viacom Common
Stock, and may terminate the Exchange Offer as provided in "--Extension of
Tender Period; Termination; Amendment" above, if prior to the acceptance for
exchange of any shares of Viacom Common Stock, any of the following conditions
exist:
(a) the Minimum Condition to the Exchange Offer shall not have been
satisfied;
(b) all conditions of Viacom International, TCI and TCI Cable to
consummate the closing under the Subscription Agreement shall not have been
satisfied or waived (other than the acceptance for exchange of shares by
Viacom in this Exchange Offer);
(c) Viacom International shall not have received loans in an aggregate
principal amount at least equal to $1.7 billion (the "Aggregate Loan
Amount"), to the satisfaction of Viacom International, or the Aggregate
Loan Amount shall not be available for transfer as a contribution to Viacom
Services without condition prior to the Exchange Time as contemplated in
the Implementation Agreement;
(d) (i) any action, proceeding or litigation seeking to enjoin, make
illegal or materially delay consummation of the Exchange Offer or otherwise
relating in any manner to the Exchange Offer shall have been instituted
before any court or other regulatory or administrative authority; or (ii)
any order, stay, judgment or decree shall have been issued by any court,
government, governmental authority or other regulatory or administrative
authority and be in effect, or any statute, rule, regulation, governmental
order or injunction shall have been proposed, enacted, enforced or deemed
applicable to the Exchange Offer, any of which would or might restrain,
prohibit or delay consummation of the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to Viacom;
(e) there shall have occurred (and the adverse effect of such
occurrence shall, in the reasonable judgment of Viacom, be continuing) (i)
any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the over-the-counter
market in the United States, (ii) any extraordinary or material adverse
change in United States financial markets generally, including, without
limitation, a decline of at least 25% in either the Dow Jones average of
industrial stocks or the Standard & Poor's 500 index from July 24, 1995,
(iii) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States, (iv) any limitation (whether or
not mandatory) by any governmental entity, on, or any other event that
would reasonably be expected to materially adversely affect, the extension
of credit by banks or other lending institutions, (v) a commencement of a
war or armed hostilities or other national or international calamity
directly or indirectly involving the United States, which would reasonably
be expected to affect materially and adversely (or to delay materially) the
consummation of the Exchange Offer or (vi) in the case of any of the
foregoing existing at the time of commencement of the Exchange Offer, a
material acceleration or worsening thereof; or
(f) any of the Parents Agreement, the Implementation Agreement or the
Subscription Agreement shall have been terminated in accordance with its
terms;
27
<PAGE>
which in the reasonable judgment of Viacom in any such case, and regardless of
the circumstances, makes it inadvisable to proceed with the Exchange Offer or
with such acceptance for exchange of shares.
The foregoing conditions are for the sole benefit of Viacom and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances giving rise to such conditions or may be waived
by Viacom in whole or in part at any time and from time to time in its sole
discretion. Any determination by Viacom concerning the conditions described
above will be final and binding upon all parties.
The failure by Viacom at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, Viacom will not accept any shares of Viacom Common Stock
tendered, and no shares of VII Cable Class A Common Stock will be exchanged for
any shares of Viacom Common Stock, at any time at which there shall be a stop
order issued by the Commission which shall remain in effect with respect to the
Registration Statement.
FEES AND EXPENSES
Wasserstein Perella & Co., Inc. is acting as Dealer Manager in connection
with the Exchange Offer. The Dealer Manager will, among other things,
coordinate all aspects of marketing of the Exchange Offer through the conduct of
informational meetings, the direct solicitation of certain identified
stockholders and the management of a selected group of dealers (the "Soliciting
Dealers") that will solicit shares of Viacom Common Stock pursuant to the
Exchange Offer. Viacom has agreed to pay Wasserstein Perella & Co., Inc. as
compensation for their services as Dealer Manager, a fee of $ plus
reasonable out of pocket financial expenses. Wasserstein Perella & Co., Inc.
from time to time has provided and continues to provide financial advisory and
financing services to Viacom and has received customary fees for the rendering
of these services. In particular Wasserstein Perella & Co., Inc. has provided
financial advisory services in connection with the Transaction. Upon
consummation of the Transaction, Wasserstein Perella & Co., Inc. will receive
its customary fee for services rendered in connection with the Transaction in
addition to its fee as Dealer Manager. Viacom will pay each Soliciting Dealer
only in the event such Soliciting Dealer is so designated by a tendering
stockholder of Viacom Common Stock on the Letter of Transmittal a fee equal to $
in respect of each share of VII Cable Class A Common Stock issued to such
stockholder pursuant to the Exchange Offer, up to a maximum of shares of
VII Cable Class A Common Stock distributed to such stockholder. Viacom has
agreed to indemnify the Dealer Manager and the Soliciting Dealers against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Dealer Manager or the Soliciting Dealers may be
required to make in respect thereof.
Viacom has retained Georgeson & Company Inc. to act as the Information
Agent and to act as the Exchange Agent in connection with the
Exchange Offer. The Information Agent may contact holders of shares of Viacom
Common Stock by mail, telephone, facsimile transmission and personal interviews
and may request brokers, dealers and other nominee stockholders to forward
materials relating to the Exchange Offer to beneficial owners. The Information
Agent and the Exchange Agent each will receive reasonable and customary
compensation for their respective services, will be reimbursed for certain
reasonable out-of-pocket expenses and will be indemnified against certain
liabilities in connection with their services, including certain liabilities
under the federal securities laws. Neither the Information Agent nor the
Exchange Agent has been retained to make solicitations or recommendations in
their respective roles as Information Agent and Exchange Agent, and the fees to
be paid to them will not be based on the number of shares of Viacom Common Stock
tendered pursuant to the Exchange Offer; however, the Exchange Agent will be
compensated in part on the basis of the number of Letters of Transmittal
received and the number of stock certificates distributed pursuant to the
Exchange Offer.
Viacom will not pay any fees or commissions to any broker or dealer or any
other person (other than the Dealer Manager, the Soliciting Dealers, the
Information Agent, and the Exchange Agent) for soliciting tenders of shares of
Viacom Common Stock pursuant to the Exchange Offer. Brokers, dealers,
commercial
28
<PAGE>
banks and trust companies will, upon request, be reimbursed by Viacom for
reasonable and necessary costs and expenses incurred by them in forwarding
materials to their customers.
MISCELLANEOUS
The Exchange Offer is not being made to (nor will tenders be accepted from
or on behalf of) holders of Viacom Common Stock in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. Viacom is not aware of any
jurisdiction where the making of the Exchange Offer or the acceptance thereof
would not be in compliance with applicable law. If Viacom becomes aware of any
jurisdiction where the making of the Exchange Offer or acceptance thereof would
not be in compliance with any valid applicable law, Viacom will make a good
faith effort to comply with such law. If, after such good faith effort, Viacom
cannot comply with such law, the Exchange Offer will not be made to, nor will
tenders be accepted from or on behalf of, holders of shares of Viacom Common
Stock in any such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS OFFERING CIRCULAR -
PROSPECTUS OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY VIACOM OR VIACOM INTERNATIONAL. SEE ALSO "TCI PROSPECTUS--EXPLANATORY NOTE."
29
<PAGE>
MARKET PRICES, TRADING AND DIVIDEND INFORMATION
VIACOM COMMON STOCK
Viacom Class A Common Stock and Viacom Class B Common Stock are listed and
traded on the AMEX under the symbols "VIA" and "VIA B," respectively.
The following table sets forth, for the calendar periods indicated, the per
share range of high and low sales prices for Viacom Class A Common Stock and
Viacom Class B Common Stock, as reported on the AMEX Composite Tape.
<TABLE>
<CAPTION>
Viacom Class A Viacom Class B
Common Stock Common Stock
------------------ ------------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
1993
1st Quarter.......................... $46 1/2 $37 1/2 $44 1/8 $35 1/4
2nd Quarter.......................... $52 5/8 $37 1/8 $49 1/2 $36
3rd Quarter.......................... $67 1/2 $50 1/2 $61 1/4 $45 3/4
4th Quarter.......................... $66 1/2 $47 $60 1/2 $40 3/8
1994
1st Quarter.......................... $49 3/4 $28 1/2 $45 $23 3/4
2nd Quarter.......................... $34 1/4 $24 1/2 $32 1/2 $21 3/4
3rd Quarter.......................... $41 3/4 $33 7/8 $39 3/4 $30 1/4
4th Quarter.......................... $42 1/8 $38 $41 $37 1/8
1995
1st Quarter.......................... $48 1/4 $41 1/8 $47 3/8 $40 1/4
2nd Quarter.......................... $49 1/2 $41 $48 5/8 $40 3/4
3rd Quarter.......................... $54 1/8 $44 3/4 $54 1/4 $44 5/8
4th Quarter (through Nov. 16, 1995).. $50 5/8 $45 1/2 $50 3/4 $45
</TABLE>
-------------------------------------
The number of holders of record of Viacom Class A Common Stock and Viacom
Class B Common Stock as of November 16, 1995 was 14,012 and 25,137,
respectively.
On July 24, 1995 (the last trading day prior to announcement of the
Transaction), the closing sales prices per share of Viacom Class A Common Stock
and Viacom Class B Common Stock as reported on the AMEX Composite Tape were $50
1/4 and $50, respectively. On November 16, 1996, the last reported sales prices
per share of Viacom Class A Common Stock and Viacom Class B Common Stock as
reported on the AMEX Composite Tape were $48 7/8 and $49 1/4, respectively.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF VIACOM
COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE MARKET PRICE OF VIACOM
COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE EXCHANGE OFFER IS
CONSUMMATED.
Viacom has not declared cash dividends on its common equity and has no
present intention of so doing.
VII CABLE CLASS A COMMON STOCK AND VII CABLE PREFERRED STOCK
Application has been made for quotation of the VII Cable Preferred Stock on
Nasdaq under the symbol " ."
No current public trading market for either the VII Cable Class A Common
Stock or the VII Cable Preferred Stock exists. The extent of any market for the
VII Cable Class A Common Stock and the VII Cable Preferred Stock and the prices
at which these securities may trade prior to or after the expiration of the
30
<PAGE>
Exchange Offer cannot be predicted. No assurance can be given that an active
trading market for the VII Cable Preferred Stock will be established or
maintained after the consummation of the Exchange Offer. The prices at which the
VII Cable Preferred Stock trades will be determined by the marketplace and could
be subject to significant fluctuations. See "Risk Factors--Market Uncertainties
with Respect to VII Cable Preferred Stock."
Shares received by Viacom stockholders in the Exchange Offer will be freely
transferable, except for shares received by persons who may be deemed to be
"affiliates" of VII Cable under the Securities Act. Persons who may be deemed to
be affiliates of VII Cable after the expiration of the Exchange Offer generally
include individuals or entities that control, are controlled by or are under
common control with VII Cable, and will include the directors and principal
executive officers of VII Cable as well as any principal stockholder of VII
Cable. Persons who are affiliates of VII Cable will be permitted to sell their
shares of VII Cable Preferred Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as the exemptions afforded by Rule 144
thereunder.
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
VII CABLE
The following unaudited pro forma condensed combined financial statements
of VII Cable as of and for the nine months ended September 30, 1995 and as of
and for the twelve months ended December 31, 1994 give effect to the VII Cable
Pro Forma Events as if such events occurred at the beginning of the earliest
period presented for results of operations data. The unaudited pro forma
condensed combined statements of operations for the nine months ended September
30, 1995 and the year ended December 31, 1994 are based upon the statements of
operations of VII Cable for the nine months ended September 30, 1995 and year
ended December 31, 1994, respectively. The unaudited pro forma condensed
combined balance sheet gives effect to the VII Cable Pro Forma Events as if they
had occurred on September 30, 1995. The unaudited pro forma condensed combined
financial statements of VII Cable were derived from, and should be read in
conjunction with, the VII Cable Carve-Out Financial Statements appearing
elsewhere in this Offering Circular - Prospectus.
The unaudited pro forma data are not necessarily indicative of the combined
results of operations or financial position that would have occurred if the VII
Cable Pro Forma Events had been in effect at the beginning of the earliest
period presented nor are they necessarily indicative of future results of
operations or financial position. The pro forma adjustments are based upon
available information and certain assumptions set forth herein, including in the
notes to the unaudited pro forma condensed combined financial statements.
It is expected that the transactions contemplated by the Subscription
Agreement will be accounted for under the purchase method of accounting.
Accordingly, the cost to acquire VII Cable estimated at approximately $2.2
billion (reflecting the Loan Proceeds and the estimated aggregate par value of
the VII Cable Preferred Stock) will be allocated to the assets and liabilities
acquired according to their respective fair values, with any excess being
treated as intangible assets. The valuations and other studies which will
provide the basis for the allocation of the excess purchase price over net
assets acquired have not yet been performed. Accordingly, the purchase
accounting adjustments made in connection with the development of the unaudited
pro forma condensed combined financial statements are preliminary and have been
made solely for the purposes of developing such unaudited pro forma condensed
combined financial statements. The approximate $1.3 billion pro forma excess of
unallocated acquisition costs as of September 30, 1995 is being amortized over
40 years at a rate of $32.6 million per year.
The Estimated Asset Value of VII Cable (as defined in the Implementation
Agreement) is anticipated to be approximately $2.2 billion. The Estimated Asset
Value is subject to change as a result of several factors including the Capital
Expenditure Amount, the Inventory Amount, the Telecom Amount, the Working
Capital, the Fixed Amount and the amount of Loan Proceeds actually transferred
to New VII (each as defined in the Implementation Agreement) (collectively, the
"Adjustment Amounts"). A change in the Estimated Asset Value will result in
corresponding changes in the pro forma amounts of intangible assets, the related
amortization thereof, the aggregate par value of the VII Cable Preferred Stock
and the related dividends thereon. An increase in the Estimated Asset Value of
$10 million will result in an increase to annual amortization expense of $0.25
million and an increase in annual VII Cable Preferred Stock dividend
requirements of $0.45 million based upon an estimated useful life of 40 years
and an annual dividend rate of 4.5%.
It is expected that after the consummation of the transaction contemplated
by the Subscription Agreement, an appraisal of the significant assets,
liabilities and business operations of VII Cable will be completed. On the
basis of this information, a final allocation of the excess purchase price will
be made.
The future financial position of VII Cable will reflect increased
intangibles, increased long-term debt and decreased common stockholders' equity
resulting from the Conveyance and the Conversion. The future results of
operations of VII Cable will reflect increased amortization of franchise costs,
increased interest
32
<PAGE>
expense and VII Cable Preferred Stock dividend requirements. The following
unaudited pro forma condensed combined statement of operations does not reflect
potential cost savings attributable to (i) economies of scale which may be
realized in connection with purchases of programming and equipment or (ii)
consolidation of certain operating and administrative functions including the
elimination of duplicative facilities and personnel.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
VII CABLE
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
---------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- --------------- ---------
<S> <C> <C> <C>
ASSETS
Cash..................................................... $ 2.3 $ 1,700.0/(1)/ $ 2.3
(1,700.0)/(2)/
Other current assets..................................... 17.9 0.8/(2)/ 18.7
-------- ---------- --------
Total current assets.................................. 20.2 0.8 21.0
Property and equipment, net.............................. 403.6 (3.3)/(2)/ 400.3
Intangible assets, at amortized cost..................... 565.7 1,303.6/(5)/ 1,869.3
Other assets............................................. 64.4 (43.9)/(2)/ 20.5
-------- ---------- --------
$1,053.9 $ 1,257.2 $2,311.1
======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities...................................... $ 82.9 $ (30.5)/(2)/ $ 52.4
Long-term debt........................................... 57.0 1,700.0/(1)/ 1,350.0
(57.0)/(2)/
(350.0)/(3)/
Other liabilities........................................ 71.3 (12.6)/(2)/ 58.7
__% Series A Preferred Stock (mandatory redemption)...... -- 500.0/(4)/ 500.0
Stockholders' Equity:
Class B Common Stock.................................. -- 350.0/(3)/ 350.0
Viacom equity investment.............................. 842.7 (842.7)/(5)/ --
-------- ---------- --------
$1,053.9 $ 1,257.2 $2,311.1
======== ========== ========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
VII CABLE
(IN MILLIONS)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1995 December 31, 1994
-------------------------------------- -------------------------------------
Pro Forma Pro Pro Forma Pro
Historical Adjustments Forma Historical Adjustments Forma
---------- ----------- ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $328.6 ($1.9)/(2)/ $326.7 $404.5 $3.1/(2)/ $407.6
Expenses:
Operating............................... 142.1 142.1 170.8 - 170.8
Selling, general and 65.6 65.6 99.9 - 99.9
administrative......................
Depreciation and amortization........... 61.1 24.3/(6a)/ 85.4 76.4 31.9/(2)(6a) 108.3
----- ------- ------- ------ ------ -------
Total Expenses....................... 268.8 24.3 293.1 347.1 31.9 379.0
----- ------- ------- ------ ------ -------
Earnings from operations................. 59.8 (26.2) 33.6 57.4 (28.8) 28.6
Other income (expense):
Interest expense........................ (37.9) (40.6)/(6b)/ (78.5) (38.0) (66.6)/(6b)/ (104.6)
Other items, net........................ 32.2 ( 26.9)/(2)/ 5.3 7.0 (1.7)/(2)/ 5.3
----- ------- ------- ------ ------ -------
Total other income (expense)......... (5.7) ( 67.5) (73.2) (31.0) (68.3) (99.3)
----- ------- ------- ------ ------ -------
Earnings from operations before 54.1 (93.7) (39.6) 26.4 (97.1) (70.7)
income taxes...........................
Benefit (provision) for income (25.9) 25.3/(6c)/ (0.6) (17.7) 22.8/(6c)/ 5.1
taxes...................................
Equity in earnings (loss) of affiliated
companies, net of tax................... (0.4) (0.4)/(2)/ ( 0.8) 0.4 ( 0.3)/(2)/ 0.1
----- ------- ------- ------ ------ -------
Net earnings............................. 27.8 (68.8) (41.0) 9.1 (74.6) (65.5)
Preferred stock dividend
requirement............................. -- ( 16.9)/(6d)/ (16.9) -- (22.5)/(6d)/ (22.5)
----- ------- ------- ------ ------ -------
Net earnings attributable to $27.8 ($ 85.7) ($ 57.9) $ 9.1 ($97.1) ($ 88.0)
common stock............................ ===== ======= ======= ====== ====== =======
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
VII CABLE
1. Reflects the borrowing of the Loan Proceeds ($1.7 billion) under the Loan.
2. Reflects the conveyance to Viacom Services of the Loan Proceeds, existing
bank debt of $57 million and certain other nonmaterial assets, liabilities
and related results of operations of VII Cable.
3. Reflects the assumed reduction of debt with the proceeds of TCI Cable's
capital contribution of $350 million and the corresponding issuance to TCI
Cable of 100 shares of VII Cable Class B Common Stock immediately following
the consummation of the Exchange Offer.
4. Assumes the shares of VII Cable Class A Common Stock to be issued as part
of the Exchange Offer are converted into shares of VII Cable Preferred
Stock at the time of TCI Cable's capital contribution as described in Note
3. Solely for the purposes of this presentation the shares of VII Cable
Preferred Stock are assumed to pay dividends at a rate of 4.5% per annum.
The assumed dividend rate is based upon the actual rate for a market
comparable preferred security recently issued by TCI Cable.
5. The unallocated excess of the Loan and the estimated aggregate par value of
the VII Cable Preferred Stock over the adjusted net assets of VII Cable is
summarized below (in millions):
<TABLE>
<CAPTION>
<S> <C>
Loan............................................ $1,700.0
VII Cable Preferred Stock(a).................... 500.0
--------
2,200.0
VII Cable net assets............................ (842.7)
Net liabilities conveyed to Viacom Services(c).. (53.7)
--------
$1,303.6
========
</TABLE>
(a) Solely for the purposes of this presentation the amount of VII
Cable Preferred Stock indicated above is equal to the value of
Viacom Common Stock retired based upon the assumptions that (i)
the Final Exchange Ratio is 0.5 shares of VII Cable Class A
Common Stock for each share of Viacom Common Stock based on a
per share price of $50 and (ii) the number of shares of Viacom
Common Stock exchanged is 10 million.
(b) Represents VII Cable's existing bank debt of $57 million and
certain equity investments, marketable securities and other
nonmaterial assets and liabilities conveyed to Viacom Services
in accordance with the Implementation Agreement.
6. Other pro forma adjustments relating to the Transaction are as follows:
a. An increase in annual amortization expense of $32.6 million resulting
from the increase in intangibles as described in Note 5.
b. Additional interest expense resulting from the incremental borrowings
described in Note 1. Solely for the purposes of this presentation
Viacom has assumed an interest rate of 7.75% based upon the
anticipated terms of the Loan. A change in the assumed interest rate
of 1/8% will result in a change in interest expense of $1.7 million on
an annual basis.
c. Reflects the income tax effects of certain pro forma adjustments
calculated at the statutory tax rate in effect during the periods
presented. The effective income tax rate on a pro forma
36
<PAGE>
basis is adversely affected by amortization of excess acquisition
costs, which are assumed to be not deductible for tax purposes.
d. Reflects an assumed 4.5% cumulative annual dividend on the $500
million of VII Cable Preferred Stock. (See Note 4 above)
37
<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL DATA
VII CABLE
(IN MILLIONS)
The following table sets forth certain selected historical combined financial
data of VII Cable and has been derived from and should be read in conjunction
with the VII Cable Carve-Out Financial Statements for the three years ended
December 31, 1994. See Notes 1 and 6 to the Notes to Combined Financial
Statements of VII Cable included elsewhere in this Offering Circular -
Prospectus. Unaudited interim data as of and for the nine-month periods ended
September 30, 1995 and 1994 reflect, in the opinion of management of VII Cable,
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of such data. Results of operations for the
nine months ended September 30, 1995 are not necessarily indicative of results
which may be expected for any other interim or annual period. The VII Cable
Carve-Out Financial Statements reflect the carve-out historical results of
operations and financial position of VII Cable during the periods presented and
are not necessarily indicative of results of operations or financial position
that would have occurred if VII Cable had been a separate stand-alone entity
during the periods presented or of future results of operations or financial
position of VII Cable.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ -------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues....................................... $328.6 $303.6 $ 404.5 $414.8 $410.1 $378.0 $330.5
Earnings from operations....................... 59.8 42.7 57.4 83.8 97.5 82.2 55.9
Earnings (loss) before taxes................... 54.1 20.2 26.4 128.1 53.1 15.0 (10.0)
Net earnings (loss) before cumulative effect
of change in accounting principle............. 27.8 6.7 9.1 83.9 25.8 (.2) (15.3)
Net earnings (loss)............................ 27.8 6.7 9.1 97.4 25.8 (.2) (15.3)
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, -----------------------------------------
1995 1994 1993 1992 1991 1990
---------------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................... $1,053.9 $1,040.4 $966.2 $964.7 $976.0 $992.7
Total debt..................................... 57.0 57.0 57.0 106.0 106.1 106.1
Viacom equity investment....................... 842.7 823.9 765.5 753.9 767.7 788.1
</TABLE>
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF VII CABLE
GENERAL
VII Cable owns and operates cable television systems in five geographic
regions in the United States. Substantially all of VII Cable's revenues are
earned from subscriber fees for primary (i.e., non-premium) and premium
subscription services, the rental of converters and remote control devices, and
installation fees. Additional revenues are derived from the sale of
advertising, pay-per-view programming fees, payments received from revenue-
sharing arrangements in respect of products sold through home shopping services,
and the leasing of fiber optic capacity in three of VII Cable's franchise areas
to partnerships (in which VII Cable has an equity interest) engaged in the
provision of competitive access telephone services.
Recent federal laws and regulations, including the decision to reregulate
certain aspects of the cable television distribution industry, have affected VII
Cable's ability to increase rates for certain subscriber services or restructure
its rates for certain services. These reregulation activities are designed to
reduce customer rates and limit future rate increases for non-premium program
services. Legislation pending in Congress would substantially amend the rate
regulation provisions under current federal law. For further discussion of
federal regulation of the cable television distribution industry, see "--Recent
Legislation" and "Business of VII Cable--Regulation--Federal Regulation."
The following discussion should be read in conjunction with VII Cable's pro
forma and historical financial statements, including the notes thereto, included
elsewhere in this Offering Circular - Prospectus. The historical financial
statements of VII Cable reflect the carve-out historical results of operations
and financial position of the cable television distribution business of Viacom
International. Such financial statements are not necessarily indicative of the
results that would have occurred if VII Cable had been a separate stand-alone
entity during the periods presented or of future results of operations or
financial condition of VII Cable.
The following comparisons of operating results include an analysis of earnings
from operations before interest, taxes, depreciation and amortization
("EBITDA"). While many in the financial community consider EBITDA to be an
important measure of comparative operating performance, it should be considered
in addition to, but not as a substitute for or superior to, earnings from
operations, net income, cash flow and other measures of financial performance.
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 VS. SEPTEMBER 30, 1994
Revenues increased to $113.0 million for the third quarter of 1995 from $100.1
million for the third quarter of 1994 (or 13%), primarily attributable to
increases in primary, premium and pay-per-view revenues. EBITDA increased to
$41.7 million for the third quarter of 1995 from $32.6 million for the third
quarter of 1994 (or 28%). Earnings from operations increased to $21.1 million
for the third quarter of 1995 from $13.4 million for the third quarter of 1994
(or 58%). The increase in revenues reflects a 10% and 4% increase in average
premium and primary customers, respectively, an 8% increase in primary rates,
partially offset by a 4% decrease in the average premium rate. Total revenues
per primary customer per month increased 9% to $32.43 for the third quarter of
1995 from $29.80 for the third quarter of 1994. The increase in EBITDA and
earnings from operations principally reflect the increase revenues.
Revenues increased to $328.6 million for the nine months ended September 30,
1995 from $303.6 million for the nine months ended September 30, 1994 (or 8%),
primarily attributable to an increase in primary, premium and pay-per-view
revenues. EBITDA increased to $120.8 million for the nine months ended
September 30, 1995 from $100.3 million for the nine months ended September 30,
1994 (or 20%). Earnings from operations increased to $59.8 million for the nine
months ended September 30, 1995 from $42.7 million for the nine months ended
September 30, 1994 (or 40%). The increase in revenues primarily reflects 17%
and
39
<PAGE>
4% increases in average premium and primary customers, respectively, a 3%
increase in primary rates, partially offset by an 8% decrease in the average
premium rate. Total revenues per primary customer per month increased 4% to
$31.57 for the nine months ended September 30, 1995 from $30.33 for the nine
months ended September 30, 1994. The increase in EBITDA and earnings from
operations principally reflect the increased revenues.
It is anticipated that following the consummation of the Transaction, VII
Cable will reflect an increase in amortization expense of approximately $32.6
million per year due to the allocation of the purchase price to intangible
assets, increased interest expense of approximately $66.6 million per year and
preferred stock dividends of $22.5 million per year.
As of September 30, 1995, VII Cable serviced approximately 1,171,000 primary
customers subscribing to approximately 945,000 premium units, representing a 4%
and 5% increase, respectively, since September 30, 1994.
Interest expense
Interest expense increased 43% to $13.0 million for the third quarter of 1995
from $9.1 million for the third quarter of 1994. Interest expense increased 36%
to $37.9 million for the nine months ended September 30, 1995 from $28.0 million
for the nine months ended September 30, 1994. Interest expense reflects amounts
recorded by VII Cable on borrowings under a credit agreement and amounts
allocated by Viacom of $12.4 and $8.3 million for the quarters ended September
30, 1995 and September 30, 1994, respectively, and $36.3 and $26.3 million for
the nine months ended September 30, 1995 and September 30, 1994, respectively.
Viacom allocated interest expense to VII Cable based on a percentage of VII
Cable's average net assets to Viacom's average net assets. VII Cable's
allocated interest expense from Viacom may not be reflective of any interest
allocated by TCI subsequent to the Transaction. Interest expense is expected to
increase significantly following consummation of the Transaction as a result of
the borrowings under the Loan. See "Unaudited Pro forma Condensed Combined
Financial Statements of VII Cable."
Provision for income taxes
VII Cable has been included in the consolidated federal, state and local
income tax returns filed by Viacom. However, the income tax provision has been
prepared on a separate return basis as though VII Cable filed stand-alone income
tax returns.
The annual effective tax rates of 48% for 1995 and 67% for 1994 were both
adversely affected by the amortization of acquisition costs which are not
deductible for tax purposes.
1994 VS. 1993
Revenues decreased to $404.5 million for 1994 from $414.8 million for 1993 (or
2%). The decrease in revenues primarily reflects a 10% decrease in average
rates for primary services partially offset by a 3% increase in average primary
customers. EBITDA decreased to $133.8 million for 1994 from $157.2 million for
1993 (or 15%). Earnings from operations decreased to $57.4 million for 1994
from $83.8 million for 1993 (or 31%). Total revenues per primary customer per
month decreased 6% to $30.17 for 1994 from $31.94 for 1993. The revenue
variance reflects the effect of the FCC rate regulations pursuant to the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") governing rates in effect as of September 1, 1993 and as of May 15, 1994.
The decrease in EBITDA and earnings from operations principally reflect the
decreased revenues attributable to the above rate regulations and increased
programming, general and administrative expenses.
As of December 31, 1994, VII Cable served approximately 1,139,000 primary
customers subscribing to approximately 875,000 premium units, representing a 4%
and 22% increase, respectively, since December 31, 1993.
40
<PAGE>
Interest expense
Interest expense increased 14% to $38.0 million for 1994 from $33.4 million
for 1993. Amounts allocated by Viacom were $35.7 million for 1994 and $31.2
million for 1993.
Other items, net
Other items, net in 1993 reflected a pre-tax gain of approximately $55 million
from the sale of the stock of Viacom Cablevision of Wisconsin, Inc. (the
"Wisconsin cable system") and a pre-tax gain of $17.4 million from sales of a
portion of an investment held at cost.
Provision for income taxes
The annual effective tax rates of 67% for 1994 and 35% for 1993 were both
adversely affected by the amortization of acquisition costs which are not
deductible for tax purposes. For 1993, the annual effective tax rate reflects a
9% tax benefit related to the sale of the Wisconsin cable system.
During the first quarter of 1993, VII Cable adopted Statement of Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," on a prospective
basis. As a result, VII Cable recognized an increase to earnings of $13.5
million in 1993 as the cumulative effect of a change in accounting principle.
1993 VS. 1992
Revenues increased to $414.8 million for 1993 from $410.1 million for 1992 (or
1%). EBITDA decreased to $157.2 million for 1993 from $164.7 million for 1992
(or 5%). Earnings from operations decreased to $83.8 million for 1993 from
$97.5 million for 1992 (or 14%).
On a comparable basis with the 1992 results (excluding the Wisconsin cable
system, which was sold effective January 1, 1993), revenues increased to $414.8
million for 1993 from $392.7 million for 1992 (or 6%), primarily attributable to
an increase in revenues from primary customers. EBITDA decreased to $157.2
million for 1993 from $158.2 million for 1992. Earnings from operations
decreased to $83.8 million for 1993 from $94.7 million for 1992 (or 12%). The
increase in revenues reflects a 4% increase in average rates for primary
services and a 2% increase in average primary customers. Total revenues per
primary customer per month increased 3% to $31.94 for 1993 from $30.97 for 1992.
The decrease in EBITDA reflects increased operating expenses (which included
non-recurring costs associated with the implementation of FCC rate regulations
during the period). The decrease in earnings from operations reflects increased
depreciation and amortization expense related to the step-up in basis of
property and equipment due to the implementation of SFAS 109.
As of December 31, 1993, VII Cable served approximately 1,094,000 primary
customers subscribing to approximately 718,000 premium units, representing a 2%
and 9% decrease, respectively, since December 31, 1992. Excluding the Wisconsin
cable system customers in 1993, primary customers increased 2% and premium units
decreased 5% since December 31, 1992.
Interest expense
Interest expense decreased 33% to $33.4 million for 1993 from $49.8 million
for 1992. Amounts allocated by Viacom were $31.2 million for 1993 and $44.6
million for 1992.
Provision for income taxes
The annual effective tax rates of 35% for 1993 and 53% for 1992 were both
adversely affected by the amortization of acquisition costs which were not
deductible for tax purposes.
41
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Immediately following the Consummation of the Stock Issuance, it is expected
that VII Cable will have borrowings of approximately $1.35 billion under the
Loan and approximately $500 million aggregate par value of VII Cable Preferred
Stock. See "Unaudited Pro forma Condensed Combined Financial Statements of VII
Cable." Additionally, VII Cable's business requires significant capital
expenditures to maintain, upgrade, rebuild and expand its cable television
systems. VII Cable's cash requirements have been funded by VII Cable's
operating activities and historically, as needed, through intercompany advances
from Viacom. VII Cable expects its future cash requirements (including capital
expenditures, capital contributions to joint ventures, commitments and payments
of principal and interest on the Loan and dividends payable on the VII Cable
Preferred Stock) to be funded by cash provided by operating activities and
intercompany advances, as required, from TCI.
VII Cable's partnerships are expected to require estimated cash contributions
of approximately $8 million to $10 million in 1995 and 1996. Planned capital
expenditures, including information systems costs, are estimated to be
approximately $130 million in 1995 and $150 million in 1996. Capital
expenditures are primarily related to additional construction and equipment
upgrades for the existing cable franchises.
VII Cable is involved in various claims and lawsuits arising in the ordinary
course of business, none of which, in the opinion of management, will have a
material adverse effect on VII Cable's financial position or results of
operations.
VII Cable's current franchises expire on various dates through 2017. VII
Cable has never had a franchise revoked and, to date, all of VII Cable's
franchises have been renewed or extended at or prior to their scheduled
expirations. VII Cable has no reason to believe that its franchises will not be
renewed.
VII Cable's cable systems currently compete for viewers with, or face
potential competition from, other distribution systems which deliver programming
by microwave transmission (through multichannel multipoint distribution systems
("MMDS")) and satellite master antenna television ("SMATV") systems or directly
to subscribers via either direct broadcast satellite ("DBS") or TV-receive only
("TVRO") technology. See "Business of VII Cable--Competition."
In the ordinary course of business, VII Cable enters into long-term
affiliation agreements with programming services which require that VII Cable
continue to carry and pay for programming and meet certain performance
requirements.
In July 1994, Viacom International and certain of its subsidiaries (the
"Subsidiary Borrowers") entered into a $311 million credit agreement (the
"Credit Agreement") with certain banks. The Credit Agreement is an 8-year term
loan maturing on July 1, 2002. Viacom Cablevision of Dayton Inc. ("Dayton") is
a Subsidiary Borrower of $57 million under this facility, which amount of
indebtedness is included in the historical financial statements of VII Cable
included elsewhere in this Offering Circular - Prospectus. The Credit Agreement
provides that in the event that Dayton ceases to be a wholly owned subsidiary of
Viacom or Viacom International, the $57 million of borrowings shall become due
and payable. Under the Implementation Agreement, Viacom Services will assume
Dayton's obligation in respect of the $57 million of indebtedness under the
Credit Agreement.
VII Cable was in compliance with all debt covenants and had satisfied all
financial ratios and tests as of December 31, 1994 in respect of its $57 million
of borrowings under the Credit Agreement and expects to remain in compliance and
satisfy all such financial ratios and tests during 1995.
Net cash flow from operating activities increased 2% to $57.9 million for the
nine months ended September 30, 1995 from $56.9 million for the nine months
ended September 30, 1994, primarily reflecting increased earnings from
operations offset by increased interest expense. Investing activities primarily
reflect capital expenditures, VII Cable's investment in two partnerships (TCG
San Francisco and TCG Seattle) and in
42
<PAGE>
1995 proceeds from the sale of marketable securities available-for-sale.
Financing activities reflect Viacom's funding of VII Cable's working capital
requirements, net of amounts allocated to VII Cable from Viacom, including
amounts for interest, certain administrative services and employee benefits.
Net cash flow from operating activities decreased 21% to $77.9 million in 1994
from $98.8 million in 1993, primarily reflecting decreased earnings from
operations. Investing activities principally reflect capital expenditures and
VII Cable's investment in two partnerships (TCG San Francisco and TCG Seattle)
in 1994, and proceeds from the sale of the Wisconsin cable system in 1993.
Financing activities reflect Viacom's funding of VII Cable's working capital
requirements, net of amounts allocated to VII Cable from Viacom. Financing
activities for 1992 also reflect the repayment of $49 million of bank debt in
connection with the sale of the Wisconsin cable system.
IMPACT OF INFLATION
The net impact of inflation on operations has not been material in the last
three years due to the relatively low rates of inflation during the period.
RECENTLY ISSUED ACCOUNTING REQUIREMENTS
In March of 1995, the Financial Accounting Standards Board issued SFAS 121,
effective for fiscal years beginning after December 15, 1995. SFAS 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the asset carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. VII Cable has not yet determined the financial statement impact of
the adoption of SFAS 121.
Effective January 1, 1994, VII Cable adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS 115, investments
classified as available-for-sale are carried at fair value and unrealized
holding gains and losses during the period are recorded as a component of
equity. The cumulative effect of the change in accounting principle is
recorded, net of tax, as a component of equity. Prior to the adoption of SFAS
115, marketable equity securities held by VII Cable were reported at the lower
of cost or market. During February 1995, VII Cable sold its marketable
securities available-for-sale, resulting in a pre-tax gain of $27 million.
RECENT LEGISLATION
On October 5, 1992, Congress enacted the 1992 Cable Act substantially amending
the regulatory framework under which cable television systems have operated
since the Communications Act of 1934 (the "Communications Act") was amended by
the Cable Communications Policy Act of 1984 (the "1984 Cable Act"). The FCC,
through its rules and regulations, began implementing the requirements of the
1992 Cable Act in 1993. Rate regulations adopted in 1993 and revised in 1994 by
the FCC (collectively, the "Benchmark Regulations") established a "benchmark"
formula used to set a cable operator's "initial permitted rate" or "transitional
rate" for regulated tiers of cable service. Cable systems whose rates exceeded
the applicable benchmark were required to reduce their rates either to the
benchmark or by 17% from those charged on September 30, 1992, whichever
reduction was less. These regulations also established the prices that an
operator may charge for subscriber equipment and installation services, based on
the operator's actual cost plus a permitted 11.25% margin of profit.
The FCC in 1994 also (1) adopted interim standards governing "cost-of-service"
proceedings pursuant to which a cable operator may attempt to prove that its
costs of providing regulated service justify initial permitted rates that are
higher than those produced under the benchmark approach, and (2) established a
regulatory scheme to adjust initial permitted rates on a going-forward basis for
inflation and certain "external" cost increases, which provided (among other
things) a pass-through of and 7.5% mark-up for increases in an operator's
programming expenses.
43
<PAGE>
In November 1994, the FCC revised its "going forward" rules ("November 1994
Regulations") to increase the price which could be charged for new channels.
The new rules allow operators to pass through to subscribers the costs, plus a
$0.20 per channel mark-up, for channels added to regulated tiers other than
limited basic service, so long as the total increase does not exceed $1.50
through 1996. For 1997, the November 1994 Regulations allow an operator to
recover all product costs for such new channels, plus $0.20 per channel, up to a
ceiling allowing recovery of all product costs plus $1.20. In addition,
operators may launch new services as optional New Product Tiers ("NPTs") on an
unregulated basis, although the FCC may in the future determine to regulate
NPTs. In September 1995, the FCC again liberalized its cable rate rules. Among
other things, the new rules permit the recovery of significant upgrade costs on
a cost-of-service basis without subjecting all of the system's costs to a full
cost-of-service review. There are positive and negative effects to the new
rules. They will change how often rate changes can be made (once per year) but
allow for full recovery of costs. However, there is expected to be a delay
between the incurrence of cost increases and the collection of revenue.
The implementation of the Benchmark Regulations has had and is
expected to continue to have a negative effect on VII Cable's revenues and
earnings from operations. The reduction in revenues in 1994 was partially
offset by customer growth and subsequent permitted rate increases. On a going
forward basis, the November 1994 Regulations have mitigated and are expected to
continue to mitigate a portion of the adverse impact of the reduction in
revenues of VII Cable. See "Business of VII Cable--Subscriber Services and
Rates." Further, VII Cable has made cost-of-service filings in two systems.
While VII Cable cannot predict the outcome of these filings, it believes that
both cost-of-service proceedings justify rates in excess of those calculated
using the Benchmark Regulations. For further discussion of the impact of
federal rate regulation and of certain legislation pending in Congress on VII
Cable, see "Business of VII Cable--Regulation--Federal Regulation."
44
<PAGE>
BUSINESS OF VII CABLE
THE COMPANY
VII Cable currently owns and operates cable television systems in five
geographic regions, including the San Francisco and Northern California area,
Salem, Oregon, the Seattle, Washington and greater Puget Sound area, Nashville,
Tennessee and Dayton, Ohio. As of September 30, 1995, VII Cable was
approximately the tenth largest multiple cable television system operator in the
United States, with approximately 1.2 million basic subscribers in five states.
VII CABLE'S SYSTEMS
The following tables set forth information relating to VII Cable's
systems as of September 30, 1995.
<TABLE>
<CAPTION>
VII CABLE
AS OF SEPTEMBER 30, 1995
-----------------------------------------------------------------------------------------------------
APPROXIMATE
HOMES IN APPROXIMATE NUMBER OF MILES OF
FRANCHISE HOMES PASSED PRIMARY PRIMARY PREMIUM PREMIUM CABLE
AREA(1) BY CABLE(2) CUSTOMERS(3) PENETRATION(4) UNITS(5) PENETRATION(6) DISTRIBUTION
----------- ------------ ------------ -------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BAY AREA REGION
Marin(7).................. 81,000 77,700 62,700 81% 39,100 62% 646
Sonoma(7)................. 47,000 45,600 35,600 78% 23,000 65% 540
Napa...................... 33,000 32,600 24,000 74% 16,800 70% 321
East Bay/Castro Valley(7). 89,000 88,200 74,200 84% 70,700 95% 683
Pittsburg/Pinole(7)....... 74,000 73,500 55,200 75% 56,600 103% 566
San Francisco............. 357,000 339,300 176,400 52% 149,600 85% 711
--------- --------- --------- -- ------- --- ------
Total Bay Area Region.... 681,000 656,900 428,100 65% 355,800 83% 3,467
ORE-CAL REGION
Redding(7)................ 58,000 55,400 36,300 66% 21,500 59% 663
Oroville.................. 44,000 40,000 26,200 66% 12,200 47% 501
Salem..................... 78,000 75,400 47,300 63% 30,700 65% 629
--------- --------- --------- -- ------- --- ------
Total Ore-Cal Region..... 180,000 170,800 109,800 64% 64,400 59% 1,793
PUGET SOUND REGION(7)...... 641,000 620,500 435,800 70% 315,700 72% 6,388
MIDWEST REGION
Nashville(7).............. 271,000 238,500 143,500 60% 146,200 102% 2,347
Dayton(7)................. 98,000 94,200 53,300 57% 63,100 118% 634
--------- --------- --------- -- ------- --- ------
Total Midwest Region..... 369,000 332,700 196,800 59% 209,300 106% 2,981
TOTAL VII CABLE 1,871,000 1,780,900 1,170,500 66% 945,200 61% 14,629
========= ========= ========= == ======= === ======
</TABLE>
(1) Homes in franchise area represents VII Cable's estimate based upon local
sources such as city directories, chambers of commerce, public utilities,
public officials and house counts.
(2) Homes are deemed "passed by cable" if such homes can be connected relatively
inexpensively and without any further extension of the trunk transmission
lines.
(3) Represents the number of homes connected, rather than the number of
television outlets connected within such homes.
(4) Represents primary customers as a percentage of homes passed by cable.
(5) The premium unit count is based on the total number of premium services
subscribed to by primary customers.
(6) Represents premium units as a percentage of primary customers.
(7) Other cable television companies, while not competing with VII Cable for
subscribers, have franchises serving parts of these areas in which VII Cable
also has franchises. For further discussion of competition, see "--
Competition."
45
<PAGE>
The following table demonstrates the growth of VII Cable's systems during the
five-year period ended December 31, 1994 and the nine months ended September 30,
1995, adjusted to eliminate the impact of the disposition of the Milwaukee cable
system in January, 1993.
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, AT DECEMBER 31,
------------- ---------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
Homes passed............. 1,780,900 1,757,700 1,729,900 1,697,500 1,658,100 1,165,200
Primary customers........ 1,170,500 1,139,100 1,094,100 1,069,100 1,041,700 1,013,700
Primary penetration...... 66% 65% 63% 63% 63% 63%
Premium units............ 945,200 875,200 718,100 752,700 744,700 697,700
Premium penetration...... 81% 77% 66% 70% 71% 69%
Average monthly
operating revenue per
primary customer....... $33.49 $31.90 $33.76 $32.28 $30.47 $27.63
</TABLE>
Under the Subscription Agreement, it is contemplated that VII Cable will sell
or exchange the Dayton and Nashville systems on or after the day following the
Exchange Date. See "Arrangements Among Viacom, Viacom International, TCI and
TCI Cable--Terms of the Subscription Agreement."
VII Cable's operations require, as do all cable systems, a large investment
in physical assets consisting primarily of receiving apparatus, trunk lines,
feeder cable and drop lines connecting the distribution network to the premises
of customers, electronic amplification and distribution equipment, converters
located in customers' homes and other components. Significant expenditures are
also required for maintenance and replacement of and additions to such system
assets as a result of technological advances, ordinary wear and tear and changes
in regulatory requirements. System construction and operation and quality of
equipment used must conform with federal, state and local electrical and safety
codes and certain regulations of the FCC. Although management believes the
equipment used in the cable operations is in good operating condition, VII Cable
invests significant amounts each year to upgrade, rebuild and expand its cable
systems. During the last five years, VII Cable's capital expenditures were
approximately as follows: 1990: $46 million; 1991: $45 million; 1992: $55
million; 1993: $79 million; and 1994: $100 million. VII Cable expects that
its capital expenditures in 1995 will be approximately $130 million. Under the
Subscription Agreement, if the Subscription Agreement terminates without the
Exchange Offer having been consummated, TCI Cable will reimburse VII Cable for
certain capital expenditures made after January 20, 1995. See "Arrangements
Among Viacom, Viacom International, TCI and TCI Cable--Terms of the
Subscription Agreement."
In addition, VII Cable is analyzing potential business applications for its
broadband network, including telephony, the use of high-speed cable modems for
connection to on-line services, interactive video applications and video on
demand. These applications, either individually or in combination, will require
upgrading and rebuilding VII Cable's systems to replace or supplement coaxial
cable with fiber optic cable and incorporate two-way activation and digital
compression techniques. Significant additional capital expenditures will be
required in order to implement such technological advances.
FRANCHISES
As of December 31, 1994, VII Cable held franchises authorizing it to engage
in the delivery of multi-channel programming to subscribers located in its
franchise areas. These franchises, all of which are nonexclusive, generally
provide for the payment of fees to the issuing authority. Annual franchise fees
imposed on VII Cable's systems generally average 5.0% of gross revenues (as
defined in the relevant franchise
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agreement). The 1984 Cable Act prohibits franchising authorities from imposing
annual franchise fees in excess of 5.0% of gross revenues. See "--Regulation--
State and Local Regulation."
The 1984 Cable Act guarantees cable operators due process rights in franchise
renewal proceedings and provides that franchises will be renewed unless the
cable operator fails to meet one or more of four enumerated statutory criteria.
VII Cable's current franchises expire on various dates through 2,017. VII Cable
has never had a franchise revoked and, to date, all of VII Cable's franchises
have been renewed or extended at or prior to their scheduled expirations. VII
Cable has no reason to believe that its franchises will not be renewed. See "--
Regulation--State and Local Regulation."
SUBSCRIBER SERVICES AND RATES
In all but two of its local franchise areas, VII Cable offers at least two
tiers of primary service: "Limited Service," which consists generally of local
and distant broadcast stations and all public, educational and governmental
("PEG") channels required by local franchise authorities; and the "Satellite
Value Package," which generally provides additional channels of advertiser-
supported program services and, where applicable, commercial leased access
channels required by federal law. In addition, VII Cable has introduced a third
tier of non-premium service which qualifies as a non-regulated NPT under FCC
regulations in a number of its systems. Each such tier consists of at least
five channels of advertiser-supported program services. VII Cable also offers
premium program services to its customers for an additional monthly fee. At
September 30, 1995, the Company's cable television systems had approximately
945,200 subscriptions to premium program services. In addition, VII Cable
offers, through certain of its addressable cable systems, individually priced,
stand-alone pay-per-view movies and events (some of which are also offered on
certain non-addressable systems).
The primary and premium program services and pay-per-view programming offered
to subscribers by VII Cable include programming supplied by Viacom (including
joint venture program services) as well as third-party programming. Viacom
programming is provided under affiliation agreements which will continue in
effect after the consummation of the Transaction. See "Relationship between
Viacom and VII Cable." For a discussion of future programming arrangements
between VII Cable and TCI and its affiliates, see "Relationship between VII
Cable and TCI."
The monthly service fees for Limited Service and the Satellite Value Package
constitute the major source of the systems' revenue and are regulated under the
1992 Cable Act. See "--Regulation--Federal Regulation." Rates charged to
subscribers vary from system to system. At September 30, 1995, VII Cable's
fixed monthly fees charged to customers for primary services ranged from $8.58
to $15.12 per month for Limited Service, from $19.83 to $27.19 for the
combination of Limited Service plus the Satellite Value Package and up to $12.95
per month for each premium service, in each case for all of an individual's
cable television connections, plus a charge for converter rental ranging from
$.10 to $3.93 per unit. An installation charge is levied in many cases, which
in the year ended December 31, 1994 constituted approximately 2% of total
revenues. Customers may discontinue service at will without additional charge
or downgrade service at a nominal charge. Although a number of jurisdictions in
which VII Cable is franchised have not, under the 1992 Cable Act, exercised
their authority to regulate the rates charged to subscribers for the Limited
Service tier, none of VII Cable's systems in those jurisdictions would be exempt
from such rate regulation should such jurisdictions exercise such authority in
the future. All of VII Cable's systems are subject to rate regulation by the
FCC with respect to rates charged to subscribers for the Satellite Value Package
tier of service under the 1992 Cable Act. The NPTs mentioned above are not rate
regulated at the present time, but the FCC has reserved the right to impose rate
regulation for NPTs in the future. See "--Regulation--Federal Regulation."
In addition to revenue derived from subscriber fees, VII Cable also sells
available advertising spots on advertiser-supported program services. Another
source of revenue is the sale of pay-per-view movies and events to VII Cable's
subscribers in systems where such service is offered. VII Cable also offers
home shopping services to its customers. All shopping services pay VII Cable a
share of revenue from sales of
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products in a system's service area. In addition, VII Cable derives revenues
from the lease of certain fiber optic capacity in three of its franchise areas
to partnerships engaged in competitive access telephone services. VII Cable
through certain of its subsidiaries is a general partner in these partnerships
and TCI through certain of its subsidiaries is a general partner in two of such
partnerships. AVR of Tennessee, L.P. (in which an affiliate of TCI has an
interest) is a limited partner in the third partnership.
VII Cable markets its cable television services through a combination of
telemarketing, direct mail advertising, radio, television and local newspaper
advertising and door to door selling. In addition to marketing efforts to
attract new customers, VII Cable conducts periodic campaigns to encourage
existing customers to purchase additional levels of primary and premium
services. From time to time, VII Cable also engages in cooperative marketing
campaigns with other cable operators and cable programmers. Following the
consummation of the Transaction, VII Cable expects that in the ordinary course
of business it may conduct marketing campaigns in cooperation with cable
operators and programmers affiliated with TCI.
PROGRAMMING
VII Cable provides satellite-delivered cable programming to its subscribers
pursuant to contracts with programming suppliers generally providing for per-
subscriber license fees payable to such suppliers. Primary program services
offered to subscribers are licensed for a periodic fee payable to such suppliers
generally calculated on the basis of the number of primary subscribers. Premium
program services are licensed for a fee payable to such suppliers generally
calculated on the basis of the number of subscribers to the particular premium
service. VII Cable's programming contracts are generally for fixed periods of
time ranging from 3 to 7 years. The costs to VII Cable to provide cable
programming have increased in recent years and are expected to continue to
increase due to additional programming being provided to subscribers, increased
costs to produce or purchase cable programming, inflationary increases and other
factors. Rate regulations adopted by the FCC implementing the 1992 Cable Act
permit cable operators to pass through to subscribers increases in programming
expenses for regulated tiers and to increase rates to reflect an annual
inflation factor. In addition, cable operators may increase the charge to
subscribers for regulated tiers of service by a regulated per channel fee, plus
license fees, for each new channel added to a regulated tier, subject to certain
price caps.
Under the 1992 Cable Act, local broadcasting stations may require cable
television operators to negotiate a fee for the right to continue to retransmit
their local television signals ("Retransmission Consent") or, alternatively, may
demand carriage under the 1992 Cable Act's "Must-Carry" provisions. Under the
1992 Cable Act, agreements to carry television stations expire every three years
(the next expiration cycle is in October 1996), whereupon the station may either
renegotiate the terms for its Retransmission Consent with the cable system for
carriage or assert the station's "Must-Carry" right. Despite the statutory
three-year cycle, and in compliance with the 1992 Cable Act, VII Cable's current
retransmission agreements with television stations are generally terminable at
will by the stations upon prior notice. See "--Regulation--Federal Regulation--
Must Carry/Retransmission Consent."
Cable television systems are subject to the Copyright Act of 1976 (the
"Copyright Act") which provides a compulsory license for carriage of copyrighted
material on broadcast signals. See "--Regulation--Federal Regulation--
Compulsory Copyright."
COMPETITION
VII Cable's cable systems currently compete for viewers with, or face
potential competition from, other distribution systems which deliver programming
by microwave transmission (through MMDS) and SMATV systems or directly to
subscribers via either DBS or TVRO technology. Local multipoint distribution
systems ("MLDS"), a newly developed microwave technology which to date has been
deployed only on a trial basis, may be competitive with cable in the future.
The FCC has concluded a proceeding aimed at eliminating a
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number of technological and regulatory limitations applicable to, and thereby
supporting the potential growth of, MMDS as a competitive video technology. The
nature and extent of competition from such alternative distribution systems
varies among and within cable systems and depends, in part, upon reliability,
programming and pricing. Digital compression (a technology which when deployed
will enable cable systems to increase the number of channels of programming
available to subscribers without necessitating as extensive a rebuild as would
otherwise be required) may allow cable systems to significantly increase the
number of channels of programming they deliver and thereby help cable systems
meet competition from these other distribution systems, particularly DBS (which
already incorporates digital compression techniques). SMATV, DBS and TVRO are
the alternative delivery technologies which currently offer competition to cable
television systems. In the future, greater competition can be expected from DBS
and, as described below, local telephone companies ("telcos").
These competing video technologies are described in greater detail below:
DBS. DBS services transmit signals by satellite to receiving
facilities located on customers' premises. Newly deployed high-powered,
digitally compressed, direct-to-home satellites now offer delivery of
programming (including near video on demand ("NVOD")) to subscribers
throughout the United States using relatively small roof-top or wall-
mounted antennas. Companies offering DBS services use digital compression
technology to increase satellite channel capacity and to provide a package
of movies and other program services competitive to those of cable
television systems. Two companies, United States Satellite Broadcasting,
Inc. ("USSB") and Hughes DirecTV ("DirecTV") are currently offering DBS
service using two high-powered satellites (with a third such satellite
expected to be placed in service in the near future). Primestar Partners,
L.P. ("Primestar"), in which TCI has an equity interest, is offering DBS
service using a medium-powered satellite. Two other companies are expected
to enter this marketplace in the near future. USSB and DirecTV together
offer more than 100 channels of service using digital compression
technology, Primestar currently offers approximately 80 channels of
programming and other DBS entities propose providing similar program
packages.
SMATV. SMATV systems distribute programming to condominiums,
apartment complexes and other multiple unit residential developments, often
on an exclusive basis. Due to the widespread availability of the
reasonably-priced earth stations through which SMATV systems operate, such
systems can offer improved reception of local television stations as well
as many of the same satellite-delivered services which are offered by
franchised cable television systems. Unlike a franchised cable television
system, SMATV systems generally require no local franchise approval in
order to operate, pay no franchise fees and may confine their operations to
small areas that are easy to serve and more likely to be profitable.
MMDS/MLDS. MMDS systems, also known as wireless cable, deliver (and,
when deployed, MLDS systems will deliver) programming services over
microwave channels licensed by the FCC which are received by subscribers
with special antennas. These systems are less capital intensive, are not
required to obtain local franchises or to pay franchise fees and are
subject to fewer regulatory requirements than cable television systems. To
date, the ability of MMDS systems to compete with cable television systems
has generally been limited by channel capacity, the lack of two-way
interactive capabilities and the need for unobstructed line-of-sight over-
the-air transmission. MLDS is expected substantially to overcome these
impediments, but thus far has only been deployed on a trial basis.
Additionally, the amount of spectrum to be made available for use by MLDS
has not yet been determined by the FCC, and consequently it is not possible
to predict the extent to which MLDS will be commercially exploited.
Certain telcos have recently acquired or have options to purchase MMDS
systems in furtherance of their strategy to position themselves to enter
into the video services business. In the event the telcos make substantial
additional capital investments in MMDS systems and related technology, MMDS
could be expected to become more widely available to subscribers and
therefore pose greater competition to cable television systems in the
future than they do currently.
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The 1992 Cable Act prohibits a franchisor from granting exclusive
franchises and from unreasonably refusing to award additional competitive
franchises. Other cable operators have been franchised and may continue to
apply for franchises in certain areas served by VII Cable's cable systems. In
1986, the U.S. Supreme Court held that cable system operations implicate First
Amendment rights and that local franchising authorities may violate those rights
by establishing franchise requirements, unless there is a legitimate government
purpose. Since this decision, various federal district and appellate courts
have issued contradictory opinions with respect to the enforceability of
specific franchise requirements. Depending on the resolution of these cases,
competitive entry by other operators into VII Cable's franchise areas and VII
Cable's entry into other franchise areas could be more easily achieved.
Telco video services. The entry of the telcos into the cable television
business may provide additional competition to the cable industry. The
Communications Act's prohibitions against telcos engaging in the distribution of
video services within their local service areas have been held to be
unconstitutional in a series of federal district court decisions. Although
appellate court rulings upholding certain of these decisions are being appealed,
on March 17, 1995, the FCC issued a public notice announcing that, pending
disposition of these appeals, it will not enforce its cross-ownership rules in a
manner inconsistent with these decisions.
Pending the outcome of this litigation, the FCC has in the interim adopted
and is currently refining video dial tone ("VDT") regulations which allow
delivery of video programming by telcos over telephone lines in their local
service areas. The programming may be provided by unaffiliated third party
programmers or programmers owned by or affiliated with the applicable telco. In
the former case, the telco need not obtain a franchise nor comply with other
requirements of the Communications Act applicable to cable operators. In its
current proceeding, the FCC is considering which, if any, of the Communications
Act's requirements (including the obligation to obtain a franchise) should be
imposed on telcos operating a VDT system which delivers programming of an entity
affiliated with the telco. If the within-service-area telco-cable cross-
ownership prohibitions are ultimately held to be unconstitutional, telcos could
own within-service-area cable systems as traditional cable operators and would
not have to comply with the FCC's VDT rules, which impose certain common-carrier
requirements on telcos (i.e., use of the telco's facilities must be available to
all programmers and program packagers on a non-discriminatory, first-come first-
served basis). Certain telcos are already building such within-service-area
cable systems. The FCC has also decided to streamline the process by which it
previously reviewed telco proposals to build new communications facilities
(including cable television systems), thereby facilitating the direct provision
by telcos of cable television services.
Furthermore, both houses of Congress have passed bills which, if enacted,
would, among other things, permit telcos to enter the cable business either as
traditional cable operators subject to the Communications Act's requirements
applicable to cable operators or on a common carrier basis. This legislation
would, if enacted, also permit cable systems to provide local exchange telephone
service in competition with the telcos, by eliminating most of the state and
local barriers to entry into the telephone business which currently exist.
These bills, which deal with a variety of matters of telecommunications policy
and differ in certain significant respects, are being taken up for
reconciliation in the House/Senate Conference Committee. It is not possible to
predict the timing or the outcome of such proposed legislation. See "--
Regulation--Federal Regulation--Video Dialtone Regulations." In September 1995,
VII Cable filed an application with the California Public Utilities Commission
to provide telephone service in the greater San Francisco area. VII Cable has
announced its intention to commence offering such service on a limited trial
basis in the Castro Valley area in the first quarter of 1996. In addition, VII
Cable is a general partner in three partnerships providing commercial
competitive access telephone services which link business customers to long
distance carriers via private networks owned by the cable television company
partners and leased to the partnerships.
The FCC is currently considering allowing broadcasters to utilize
additional spectrum in new, digital transmission modes so that each currently
licensed broadcaster could, if the FCC proposals are adopted, broadcast several
additional channels of programming. Pending legislation would require the FCC
to permit broadcasters to utilize digitally transmitted signals for various
purposes including, if the FCC so determines, for additional channels of
programming. The aggregation of these additional broadcast signals in a given
market
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could pose additional competition for cable systems once digital broadcast
transmissions are implemented. Broadcast signals are presently transmitted in
analog rather than digital form. Full conversion from analog to digital mode is
expected to occur within 10 to 15 years after the standards for digital
transmissions are formally adopted by the FCC (and potentially sooner). These
standards may be adopted by the FCC in 1996.
VII Cable views the future success of its cable television distribution
business as being dependent on supplying additional programming and new services
to its customers and increasing primary and premium subscriber penetrations.
REGULATION
VII Cable's business is subject to regulation by federal, state and local
governmental authorities. The rules, regulations, policies and procedures
affecting the cable television business are constantly subject to change. The
descriptions which follow are summaries and should be read in conjunction with
the texts of the statutes, rules and regulations described herein. The
descriptions do not purport to describe all present and proposed federal, state
and local statutes, rules and regulations affecting VII Cable's business.
FEDERAL REGULATION
1992 Cable Act. On October 5, 1992, Congress enacted the 1992 Cable Act,
substantially amending the regulatory framework under which cable television
systems have operated since the Communications Act was amended by the 1984 Cable
Act. The FCC, through its rules and regulations, began implementing the
requirements of the 1992 Cable Act in 1993. The following is a summary of
certain significant issues:
Rate Regulation. The Benchmark Regulations established a "benchmark"
formula used to set a cable operator's "initial permitted rate" or
"transitional rate" for regulated tiers of cable service. Cable systems
whose rates exceeded the applicable benchmark were required to reduce their
rates either to the benchmark or by 17% from those charged on September 30,
1992, whichever reduction was less. These regulations also established the
prices that an operator may charge for subscriber equipment and
installation services, based on the operator's actual cost plus a permitted
11.25% margin of profit.
The FCC in 1994 also (1) adopted interim standards governing "cost-of-
service" proceedings pursuant to which a cable operator may attempt to
prove that its costs of providing regulated service justify initial
permitted rates that are higher than those produced under the benchmark
approach, and (2) established a regulatory scheme to adjust initial
permitted rates on a going-forward basis for inflation and certain
"external" cost increases, which provided (among other things) a pass-
through of, and 7.5% mark-up for, increases in an operator's programming
expenses.
In the November 1994 Regulations, the FCC revised its "going forward"
rules to increase the price which could be charged for new channels. The
new rules allow operators to pass through to subscribers the costs, plus a
$0.20 per channel mark-up, for channels added to regulated tiers, other
than limited basic service, so long as the total increase does not exceed
$1.50 through 1996. For 1997, the November 1994 Regulations allow an
operator to recover all product costs for such new channels, plus $0.20 per
channel, up to a ceiling allowing recovery of all product costs plus $1.20.
In addition, operators may launch new services as optional NPTs on an
unregulated basis, although the FCC may in the future determine to regulate
NPTs. In September 1995, the FCC again liberalized its cable rate rules.
Among other things, the new rules permit the recovery of significant
upgrade costs on a cost-of-service basis without subjecting all of the
system's costs to a full cost-of-service review. There are positive and
negative effects to the new rules. They will change how often rate changes
can be made (once per year) but allow for full recovery of costs. However,
there is expected to be a delay between the incurrence of cost increases
and the collection of revenue.
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The implementation of the Benchmark Regulations has had and is expected to
continue to have a negative effect on VII Cable's revenues and earnings
from operations. The reduction in revenues in 1994 was partially offset by
customer growth and subsequent permitted rate increases. On a going-
forward basis, the November 1994 Regulations have mitigated and are
expected to continue to mitigate a portion of the adverse impact of the
reduction in revenues of VII Cable. For example, VII Cable has launched
multi-channel NPTs in various systems. See "--Subscriber Services and
Rates." Further, VII Cable has made cost-of-service filings in two
systems. While VII Cable cannot predict the outcome of these filings, it
believes that both cost-of-service proceedings justify rates in excess of
those calculated using the Benchmark Regulations.
The 1992 Cable Act deregulated cable systems subject to "effective
competition" (as defined in such statute). Legislation passed by the
Senate on June 15, 1995 (the "Senate Bill") would, in addition, eliminate
rate regulation of (a) all regulated tiers (other than the basic tier)
except for those cable operators whose rates substantially exceed the
national average, and (b) all cable systems which are subject to telco
video competition. Legislation passed by the House on August 4, 1995 (the
"House Bill") would, in addition, eliminate rate regulation of (i) all
regulated tiers (other than the basic tier) within 15 months of the House
Bill's enactment into law (and immediately for smaller systems, as defined
in the House Bill), and (ii) all cable systems in areas in which a telco is
authorized to provide cable services. Additionally, the House Bill would
substantially raise the minimum number of subscriber complaints which must
be filed with the FCC during the 15-month interim period with respect to
matters within the FCC's jurisdiction concerning regulated tiers of
programming in order to commence a rate proceeding. The House Bill and
Senate Bill cover a variety of other issues affecting U.S.
telecommunications policy and diverge in their treatment of such issues.
Such differences are being taken up in the House/Senate Conference
Committee in an attempt to reconcile the Senate Bill and House Bill. VII
Cable is unable to predict the timing or outcome of any such proposed
legislation.
Carriage of Affiliated Programming. The FCC's implementing
regulations limit the number of channels on a cable system which may be
used to carry the programming of such system's affiliated (as defined by
FCC regulations) cable programmers. These regulations (the "Channel
Occupancy Rules") generally provide that no more than 40% of such a
system's channels can be used to carry the programming of the system's
affiliated cable programmers. These channel occupancy limits apply to up
to 75 channels of a given system. To the extent that TCI and its
affiliates supply VII Cable with programming services after the
consummation of the Transaction, the Channel Occupancy Rules will affect
the number of TCI-affiliated programming services that VII Cable's systems
distribute to their subscribers until such time as VII Cable increases
channel capacity on a system by system basis beyond 75 channels. However,
no program service currently carried by VII Cable's systems is anticipated
to be dropped because of the Channel Occupancy Rules. Viacom is unable to
predict the impact, if any, of the Channel Occupancy Rules on the
programming carried by VII Cable after the consummation of the Transaction.
Must Carry/Retransmission Consent. Local broadcasting stations may
require cable television operators to negotiate a fee for the right to
continue to retransmit their local television signals or, alternatively,
may demand carriage under the 1992 Cable Act's "Must-Carry" provisions.
See "--Programming." In addition, a cable system may not carry any
commercial non-satellite-delivered television station which is "distant" to
communities served by such system, certain satellite-delivered television
stations which are distant to those communities or any radio station
without obtaining the consent of such station for such retransmission;
however, such television and radio stations do not have Must Carry rights.
Stations having Retransmission Consent rights may require payment in
consideration for Retransmission Consent. VII Cable has negotiated
retransmission rights for a number of commercial local and distant
television stations which it carries. Some of these agreements are on an
interim basis and may be canceled by the stations. VII Cable also carries
a number of local stations pursuant to their exercise of their Must Carry
rights. Local non-commercial television stations have Must Carry rights,
but may not elect Retransmission Consent. The Must Carry rules were
challenged
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by cable program services and cable system operators. In April 1993, a
District of Columbia three-judge federal district court upheld the rules
against a First Amendment attack. In June 1994, the U.S. Supreme Court
held that the rules were content-neutral rather than per se
unconstitutional, but vacated the federal district court's decision and
remanded the case back to the federal district court to determine whether
the Must Carry rules are drafted narrowly enough to satisfy constitutional
requirements applicable to legislative restrictions on cable operators'
First Amendment rights. The Must Carry rules remain in effect pending the
decision of the district court on remand.
Buy Through to Premium Services. Pursuant to the 1992 Cable Act, a
cable system may not require subscribers to purchase any tier of service
other than the basic service tier in order to obtain services offered by
the cable operator on a per channel (e.g., premium services) or pay-per-
view basis. A cable system which is not now fully addressable and which
cannot utilize other means to facilitate access to all of its programming
will have until October 2002 to comply with this provision through the
implementation of fully addressable technology. VII Cable's cable systems
have already substantially implemented compliance.
Compulsory Copyright. Cable television systems are subject to the
Copyright Act which provides a compulsory license for carriage of
copyrighted material on broadcast signals. Distant signals are licensed at
prescribed rates (the proceeds of which are divided among the various
copyright holders of the programs contained in such signals). No license
fee is payable to any copyright holder for retransmission of broadcast
signals which are "local" to the communities served by the cable system.
Various bills have been introduced into Congress from time to time that
would eliminate or modify the cable television compulsory license. Without
the compulsory license, VII Cable could incur additional costs for its
carriage of programming of certain broadcast stations and if some broadcast
stations are not carried, customer satisfaction with cable service could be
adversely affected until satisfactory replacement programming is found.
Copyrighted music performed in programming supplied to cable
television systems by premium program services and advertiser-supported
program services has generally been licensed by the networks through
private agreements with the American Society of Composers, Authors and
Publishers ("ASCAP") and Broadcast Music, Inc. ("BMI"), the two major
performing rights organizations in the United States. ASCAP and BMI offer
"through to the viewer" licenses to the program services which cover the
retransmission of the program services' programming by cable television
systems to their customers. However, the performing rights organizations
have claimed the right to receive royalties from cable systems for their
transmission of music contained in other programming. Cable systems have
not yet concluded negotiations with respect to these licensing fees.
ASCAP has instituted suit against two named cable operators and
unnamed operators as a class claiming that these cable systems are
violating copyright of musical compositions contained in programming
distributed by the systems on a pay-per-view basis.
Ownership Limitation. Pursuant to the 1992 Cable Act, the FCC has
imposed limits on the number of cable systems which a single cable operator
may own. In general, no cable operator may hold an attributable interest
in cable systems which pass more than 30% of all homes nationwide.
Attributable interests for these purposes include voting interests of 5% or
more (unless there is another single holder of more than 50% of the voting
stock), officerships, directorships and general partnership interests. The
FCC has stayed the effectiveness of these rules pending the outcome of the
appeal of a federal district court decision holding this ownership
limitation provision of the 1992 Cable Act unconstitutional.
Judicial challenges have been filed regarding other provisions of the 1992
Cable Act, including the provisions relating to rate regulation, Must
Carry/Retransmission Consent, and the mandated availability of cable channels
for leased access and PEG programming and the treatment of indecent programming
distributed
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by cable systems on public and leased-access channels. If enacted, the House
and Senate Bills may affect the status of the rate regulation lawsuits. See
"Regulation--Federal Regulation."
Video Dialtone Regulations. A series of federal district court decisions
has declared unconstitutional and enjoined enforcement of the Communications
Act's ban (the "Video Programming Ban") on the direct provision of video
programming by a telco in its local service area. The U.S. Courts of Appeals
for the Fourth and Ninth Circuits (in which VII Cable operates cable systems)
have affirmed the district court rulings brought before them on appeal. Prior
to these court rulings, the FCC had reinterpreted and liberalized the Video
Programming Ban in its 1992 "video dialtone" decision, authorizing a role for
telco participation in video distribution where such participation had
previously been prohibited. The FCC's VDT policy is being challenged in court
by cable interests as violating the Communications Act. It is also being
challenged in court by telephone interests as not being liberal enough. The
policy permits in-service-area delivery of video programming by a telco and
exempts telcos from the Communications Act's franchising requirements so long as
their facilities are capable of two-way video and are used for transmission of
video programming on a common carrier basis. Under the FCC's VDT policy, telcos
are also permitted to provide, on a non-common carrier basis, additional
"enhanced" services such as video gateways, video processing services, customer
premises equipment and billing and collection.
In January 1995, in response to the court rulings discussed above striking
down the Video Programming Ban, the FCC issued a Notice of Proposed Rulemaking
seeking to craft rules to govern telco provision of video programming directly
to subscribers in instances where the telco distributes over its VDT system
programming which it or one of its affiliates owns. The FCC's pending
proceeding addresses the extent to which regulations applicable to common
carriers and/or regulations applicable to cable operators should govern telcos
that provide video programming directly to subscribers over their own VDT
systems, including the necessity of a telco obtaining franchises and paying
franchise fees. The FCC has already approved several VDT construction
applications for market trials and/or limited commercial deployment and has
granted, in part, the first tariff filed to govern the rates and terms of a VDT
offering. In response to the court rulings noted above, the FCC's more recent
VDT authorizations have also allowed telcos to serve as program packagers on
their VDT platforms. Both the House Bill and Senate Bill contemplate a
relatively permissive framework for telco entry into the direct provision of
video services, essentially giving the telcos the option to choose between
operating as a traditional cable operator, subject to all of the cable
provisions of the Communications Act, or operating as a VDT system, in which
case a telco would be regulated as a common carrier, subject only to certain
cable provisions of the Communications Act.
At present, state and/or local laws do not prohibit cable television
companies from engaging in certain kinds of telephony business in many states,
but affirmative state approval must generally be obtained before a cable
operator can offer telephony services. Several states, including California and
Ohio (in which VII Cable operates), have recently reduced barriers to entry into
the telephone business, but substantial impediments still exist. Both the House
Bill and Senate Bill propose generally to eliminate state and local entry
barriers which currently either prohibit or restrict an entity's (including a
cable operator's) ability to offer telecommunications services (including
telephone exchange service) in competition with telcos and to interconnect on a
non-discriminatory basis with telcos and utilize certain telco facilities in
order to provide service in competition with a telco after the date of enactment
of such legislation. VII Cable cannot predict the outcome or impact of these
legislative and regulatory efforts although it can be anticipated that cable
operators could benefit from the elimination of barriers to the provision of
competitive telephone access. If the pending legislation does not become law,
and the U.S. Supreme Court affirms the lower court decisions holding the
Communications Act's Video Programming Ban unconstitutional, certain of the
telcos have stated their intention to enter the video programming business
immediately. In the event that the pending Senate and House Bills are not
enacted and the Video Programming Ban should ultimately be held to be
constitutional by the U.S. Supreme Court, the FCC's VDT policy will continue to
permit at least one method for the provision of video services by telcos in
their local service areas.
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STATE AND LOCAL REGULATION
State and local regulation of cable is exercised primarily through the
franchising process under which a company enters into a franchise agreement with
the appropriate franchising authority and agrees to abide by applicable
ordinances. Local franchising authorities are also permitted to exercise rate
regulation authority over limited basic service within federal constraints and
to regulate customer service standards where permitted by state law. See "--
Federal Regulation."
In addition to the above, under the Communications Act, franchising
authorities may control only cable-related equipment and facilities requirements
and may not require the carriage of specific program services. However, federal
law (as implemented by FCC regulations) mandates the carriage of both commercial
television stations which elect to exercise their Must Carry rights and
noncommercial television broadcast stations if such stations are "local" to the
area in which a cable system is located. See "--Federal Regulation" and "--Must
Carry/Retransmission Consent."
PROPERTIES
A cable television system consists of three principal operating components.
The first component, known as the headend, receives television, radio and
information signals by means of special antennas and satellite earth stations.
The second component, the distribution network, which originates at the headend
and extends throughout the system's service area, consists of microwave relays,
coaxial or fiber optic cables and associated electronic equipment placed on
utility poles or buried underground. The third component of the system is a
"drop cable," which extends from the distribution or trunk network into each
customer's home and connects the distribution system to the customer's
television set.
VII Cable leases premises in Pleasanton, California for its corporate
headquarters. Pursuant to the Implementation Agreement, the corporate
headquarters lease will be included in the Conveyance to Viacom Services. VII
Cable also owns and leases parcels of real property for signal reception sites
(antenna towers and headends), microwave facilities and business offices in
California, Ohio, Oregon, Tennessee and Washington (the locations of VII Cable's
franchises). Viacom International believes that such premises are in good
condition and are suitable and adequate for its business operations.
EMPLOYEES
At December 31, 1994, VII Cable had 2,210 employees. VII Cable is a party
to a collective bargaining agreement dated August 2, 1994 with Teamsters Local
856 covering 50 employees in San Francisco, California. VII Cable considers
its relations with its employees to be good.
LEGAL PROCEEDINGS
VII Cable is a party to various legal proceedings that are ordinary and
incidental to its business. Management does not believe that any legal
proceedings currently pending will have a material adverse effect on the
consolidated financial position of VII Cable.
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MANAGEMENT
The following table sets forth certain information regarding each person
who will serve as a director and executive officer of VII Cable immediately
following the Stock Issuance.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bob Magness 71 Director
John C. Malone 54 Director
Donne F. Fisher 57 Director
Brendan R. Clouston 42 President and Director
Barry P. Marshall 49 Executive Vice President
Stephen M. Brett 55 Senior Vice President and Secretary
Bernard W. Schotters 50 Senior Vice President and Treasurer
Gary K. Bracken 56 Senior Vice President
</TABLE>
There are no family relations, of first cousin or closer, among any of the
foregoing persons, by blood, marriage or adoption.
During the past five years, none of the foregoing persons has had any
involvement in a legal proceeding that would be material to an evaluation of his
ability or integrity.
MANAGEMENT BIOGRAPHIES
Bob Magness has served as Chairman of the Board and as a director of TCI
since June 1994 and of TCI Cable since 1968.
John C. Malone has served as Chief Executive Officer and President of TCI
since January 1994. He also served as Chief Executive Officer of TCI Cable from
March 1992 to October 1994 and President of TCI Cable from 1973 to October 1994.
Dr. Malone is a director of TCI, TCI Cable, Tele-Communications International,
Inc., Turner Broadcasting System, Inc., BET Holdings, Inc. and The Bank of New
York.
Donne F. Fisher has served as Executive Vice President and Treasurer of TCI
since January 1994. From 1970 through October 1994, Mr. Fisher held various
executive positions with TCI Cable, including Executive Vice President, Senior
Vice President and Treasurer. Mr. Fisher is a director of TCI, TCI Cable and
General Communication, Inc.
Brendan R. Clouston has served as Executive Vice President of TCI since
January 1994 and President and Chief Executive Officer of TCI Cable since
October 1994. From March 1992 to October 1994, he served as TCI Cable's
Executive Vice President and Chief Operating Officer, and from December 1991 to
March 1992, its Senior Vice President. Prior to joining TCI Cable in 1991, Mr.
Clouston held various executive positions with United Artists Entertainment
Company, including Executive Vice President and Chief Financial Officer.
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<PAGE>
Barry P. Marshall has served as TCI Cable's Executive Vice President and
Chief Operating Officer since October 1994. From March 1992 to January 1994, he
served as Executive Vice President and Chief Operating Officer of TCI Cable's
primary operating subsidiary, where he directly oversaw all of TCI Cable's
regional operating divisions. From 1986 to March 1992, Mr. Marshall was Vice
President and Chief Operating Officer of TCI Cable's largest regional operating
division.
Stephen M. Brett has served as Executive Vice President, General Counsel
and Secretary of TCI since January 1994. He has also served as Senior Vice
President and General Counsel of TCI Cable since December 1991. From August
1988 to December 1991, Mr. Brett was Executive Vice President-Legal and
Secretary of United Artists Entertainment Company and its predecessor, United
Artists Communications, Inc.
Bernard W. Schotters has served as Senior Vice President-Finance and
Treasurer of TCI Cable since December 1991. From 1981 to December 1991, he was
TCI Cable's Vice President-Finance and Treasurer. Mr. Schotters also serves as
Vice President and Treasurer of most of TCI's subsidiaries.
Gary K. Bracken has served as controller of TCI Cable since 1969 and as its
Senior Vice President since December 1991. He also serves as TCI Cable's chief
accounting officer, a position he has held since 1982.
BOARD OF DIRECTORS
Composition and Term. VII Cable's Restated Certificate of Incorporation
will provide for a Board of Directors (the "VII Cable Board") of not less than
three members, with the exact number of directors to be fixed by resolution of
the VII Cable Board. The VII Cable Board will initially consist of four
members, each of whom shall serve a one-year term or until his earlier death,
resignation or removal.
Committees. The VII Cable Board will have an Audit Committee consisting of
Messrs. Malone, Fisher and Clouston. The duties of the Audit Committee will be
to review and monitor VII Cable's financial reports and accounting practices to
ascertain that they are within acceptable limits of sound practice, to receive
and review audit reports submitted by VII Cable's independent auditors and by
its internal auditing staff and make such recommendations to the VII Cable Board
as may seem appropriate to the Committee to assure that the interests of VII
Cable are adequately protected and to review all related party transactions and
potential conflict-of-interest situations.
COMPENSATION OF THE BOARD OF DIRECTORS
VII Cable's directors will not be separately compensated by VII Cable for
serving on the VII Cable Board or any committee thereof.
INDEMNIFICATION
VII Cable will enter into indemnification agreements with each person who
will serve as a director of VII Cable immediately following the Stock Issuance.
The indemnification agreements will generally provide (i) for the prompt
indemnification to the fullest extent permitted by law against (a) any and all
expenses including attorneys' fees and all other costs paid or incurred in
connection with investigating, preparing to defend, defending or otherwise
participating in any threatened, pending or completed action, suit or proceeding
related to the fact that such indemnitee is or was a director, officer,
employee, agent or fiduciary of VII Cable or is or was serving at VII Cable's
request as a director, officer, employee, agent or fiduciary of another entity,
or by reason of anything done or not done by such indemnitee in any such
capacity and (b) any and all judgments, fines, penalties and amounts paid in
settlement of any claim, unless the "Reviewing Party" (defined as one or more
members of the VII Cable Board or appointee(s) of the VII Cable Board who are
not parties to
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<PAGE>
the particular claim, or independent legal counsel) determines that such
indemnification is not permitted under applicable law and (ii) for the prompt
advancement of expenses to an indemnitee as well as the reimbursement by such
indemnitee of such advancement to VII Cable if the Reviewing Party determines
that the indemnitee is not entitled to such indemnification under applicable
law. In addition, the indemnification agreements will provide (i) a mechanism
through which an indemnitee may seek court relief in the event the Reviewing
Party determines that the indemnitee would not be permitted to be indemnified
under applicable law (and would therefore not be entitled to indemnification or
expense advancement under the indemnification agreement) and (ii)
indemnification against all expenses (including attorneys' fees), and the
advancement thereof, if requested, incurred by the indemnitee in any action
brought by the indemnitee to enforce an indemnity claim or to collect an
advancement of expenses or to recover under a directors' and officers' liability
insurance policy, regardless of whether such action is ultimately successful or
not. Furthermore, the indemnification agreements will provide that after there
has been a "change in control" in VII Cable (as defined in the indemnification
agreements), other than a change in control approved by a majority of directors
who were directors prior to such change, then, with respect to all
determinations regarding rights to indemnification and the advancement of
expenses, VII Cable will seek legal advice as to the right of the indemnitee to
indemnification under applicable law only from independent legal counsel
selected by the indemnitee and approved by VII Cable.
The indemnification agreements will impose upon VII Cable the burden of
proving that an indemnitee is not entitled to indemnification in any particular
case and negate certain presumptions that may otherwise be drawn against an
indemnitee seeking indemnification in connection with the termination of actions
in certain circumstances. Indemnitees' rights under the indemnification
agreements are not exclusive of any other rights they may have under Delaware
law, the VII Cable Bylaws or otherwise. Although not requiring the maintenance
of directors' and officers' liability insurance, the indemnification agreements
require that indemnitees be provided with the maximum coverage available for any
VII Cable director or officer if there is such a policy.
COMPENSATION OF EXECUTIVE OFFICERS
Each of the persons who will serve as an executive officer of VII Cable
immediately following the Stock Issuance is expected to continue to serve as an
officer of TCI and/or TCI Cable. None of the executive officers of VII Cable is
expected to be separately compensated by VII Cable for serving in such capacity.
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RISK FACTORS
IN CONSIDERING WHETHER OR NOT TO TENDER SHARES OF VIACOM COMMON STOCK
PURSUANT TO THE EXCHANGE OFFER, HOLDERS OF VIACOM COMMON STOCK SHOULD CONSIDER
CAREFULLY ALL OF THE INFORMATION SET FORTH OR INCORPORATED IN THIS OFFERING
CIRCULAR - PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING:
TOTAL INDEBTEDNESS AND CASH FLOW OF VII CABLE
After consummation of the Transaction, VII Cable will have debt which will
be substantial in relation to its stockholders' equity. See "Unaudited Pro
Forma Condensed Combined Financial Statements of VII Cable."
The amount of VII Cable's debt could have important consequences to holders
of shares of Viacom Common Stock who elect to tender shares in the Exchange
Offer, including: (i) limiting VII Cable's ability to obtain additional
financing to fund future working capital requirements, capital expenditures,
acquisitions or other general corporate requirements; (ii) requiring a
substantial portion of VII Cable's cash flow from operations to be dedicated to
debt service requirements, thereby reducing the funds available for operations
and future business opportunities; (iii) requiring all of the indebtedness
incurred under the Loan to be repaid prior to the time any payments for
mandatory redemption are required with respect to the VII Cable Preferred Stock;
and (iv) causing VII Cable to become more sensitive to adverse economic and
industry conditions. Although neither TCI nor TCI Cable is obligated to provide
additional capital or financial support to VII Cable after payment of the
Subscription Payment, based upon current levels of operations, anticipated
growth and intercompany advances, as required, from TCI, VII Cable expects to be
able to generate sufficient cash flow to make all of the principal and interest
payments when due on the Loan. No assurances can be given however, that VII
Cable will be able to repay such borrowings. See "Description of Certain
Indebtedness of VII Cable."
CONTROLLING STOCKHOLDER
Immediately after completion of the Transaction, TCI Cable will own all of
the outstanding common stock of VII Cable and TCI will own all of the
outstanding common stock of TCI Cable. Consequently, TCI will be in a position
to control the election of the of VII Cable Board as well as the direction and
future operations of VII Cable.
POTENTIAL CONFLICTS OF INTEREST
General. Following the consummation of the Transaction, it is expected
that TCI or its affiliates will enter into business transactions, agreements and
arrangements with VII Cable and its affiliates. These transactions, agreements
and arrangements are expected to be on terms which in the aggregate are not
materially different from those which could be obtained from unrelated third
parties through negotiations on an arm's length basis. See "Description of VII
Cable Capital Stock--VII Cable Preferred Stock--Certain Covenants--Transactions
with Affiliates."
Intercompany Agreements. Following the consummation of the Transaction,
TCI and its affiliates will enter into a number of intercompany agreements with
VII Cable and its affiliates covering the carriage of programming services, as
well as matters such as lending arrangements, tax sharing and the use of certain
trade names and service marks by VII Cable. It is anticipated that VII Cable
will purchase a portion of its programming from cable programmers in which TCI
or its affiliates (other than VII Cable) have an interest. In addition, it is
anticipated that TCI will provide certain administrative, financial, treasury,
accounting, tax, legal and other services to VII Cable and make available
certain of its employee benefit plans to officers and employees of VII Cable and
its affiliates. While these agreements and arrangements are expected to be on
terms which in the aggregate are not materially different from those which could
be obtained from unrelated third parties through negotiations on an arm's length
basis, conflicts could arise in the interpretation, extension
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<PAGE>
or renegotiation of the foregoing agreements. See "Relationship between VII
Cable and TCI after the Exchange Offer."
Business Opportunities. Following the consummation of the Transaction, TCI
and VII Cable, through their respective affiliates, will each own or have
interests in cable television systems. The presence of both companies in the
cable distribution industry could give rise to potential conflicts of interest
between them, including conflicts which may arise with respect to the
acquisition of cable franchises covering areas contiguous with service areas in
which TCI and VII Cable, through their respective affiliates, have franchises,
as well as in other instances in which TCI and VII Cable may both be pursuing
the same business opportunity.
DEPENDENCE ON ADDITIONAL CAPITAL
The ownership, development and operation of cable television systems
requires substantial capital investment. Significant capital expenditures are
also required to maintain, upgrade, rebuild and expand such systems. During the
five year period ended December 31, 1994, VII Cable's capital expenditures were
$325 million. VII Cable expects that its capital expenditures in 1995 will be
approximately $130 million. Of such amounts, approximately 56% have been
incurred in connection with the rebuilding of VII Cable's cable distribution
network. Additional capital expenditures will be required in order for VII
Cable to take advantage of technological advances such as fiber optics, two-way
communication and digital compression so as to enable it to offer such services
as high-capacity data transmission, telephony, interactive video, NVOD and video
on demand. VII Cable will therefore continue to need capital to fund such
capital expenditures and working capital requirements for the foreseeable
future. No assurance can be given that VII Cable will be able to obtain
additional financing on terms acceptable to it and in an amount sufficient to
meet such anticipated capital expenditure requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Liquidity and Capital Resources" and the historical and pro forma financial
statements, including the notes thereto, of VII Cable.
RAPID TECHNOLOGICAL CHANGES
The cable industry is subject to rapid and significant changes in
technology. While Viacom's Cable Business is in the process of rebuilding its
broadband network to be sufficiently flexible to permit the delivery to its
customers of a variety of existing television and telephony services, and
advanced, interactive and integrated entertainment, telecommunications and
information services as they become available in the future, the effect of any
future technological changes on the viability or competitiveness of VII Cable's
business cannot be predicted.
MARKET UNCERTAINTIES WITH RESPECT TO VII CABLE PREFERRED STOCK
Prior to the Exchange Offer, there has been no public market for the VII
Cable Preferred Stock. Although the VII Cable Preferred Stock has been approved
for quotation on Nasdaq, there can be no assurance that an active trading market
for the VII Cable Preferred Stock will be established or maintained after the
consummation of the Exchange Offer. The prices at which the VII Cable Preferred
Stock trades will be determined by the marketplace and could be subject to
significant fluctuations in response to many factors, including, among other
things, variations in quarterly operating results, changes in economic
conditions in the industries in which VII Cable participates and changes in
government regulations. In addition, the stock market often experiences
significant price fluctuations that are unrelated to the operating performance
of the specific companies whose stock is traded. Market fluctuations as well as
economic conditions may adversely affect the market price of VII Cable Preferred
Stock.
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<PAGE>
TOTAL INDEBTEDNESS OF VIACOM
As of December 31, 1994 and September 30, 1995, Viacom had outstanding
total indebtedness of approximately $10.4 billion and $10.9 billion,
respectively, and at each such date 5% preferred stock with a liquidation
preference of $1.2 billion. Viacom's scheduled maturities of long-term debt,
through December 31, 1999 assuming full utilization of the outstanding credit
agreements (after giving effect to the reduction in commitments resulting from
the Transaction), are approximately $150 million (1997), $1 billion (1998) and
$1.5 billion (1999). Viacom's preferred stock dividend requirement is $60
million per year.
REGULATION AND COMPETITION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation on the
federal, state and local levels. Many aspects of such regulations are currently
the subject of judicial proceedings and administrative or legislative proposals.
The 1992 Cable Act amended the Communications Act and has significantly expanded
the scope of cable television regulation in effect immediately prior to the
enactment of the 1992 Cable Act. The FCC was required to complete a number of
rulemaking proceedings under the 1992 Cable Act, the majority of which,
including certain of those related to rate regulation, have been completed. A
number of provisions in the 1992 Cable Act relating to, among other things, rate
regulation, have had an adverse effect, potentially material, on the cable
television industry and on the Cable Business. In particular, pursuant to the
1992 Cable Act, the FCC adopted regulations that permit franchising authorities
to set rates for basic service and the provision of cable-related equipment. To
the extent that existing rates (which VII Cable has adjusted to comply with the
1992 Cable Act and the regulations thereunder) are found, upon review, to exceed
those permitted by the FCC regulations, franchising authorities may require
cable television systems to reduce those rates and provide refunds for up to a
one-year period. The FCC will also, upon a complaint by a customer or
franchising authority, determine whether rates for regulated non-basic service
tiers are unreasonable and, if so found, reduce such rates and provide refunds
from the date of such complaint.
The FCC's Cable Services Bureau has issued rulings with respect to the
rates which Viacom charged to subscribers for regulated non-basic Satellite
Value Package services from the date of complaint to July 14, 1994. Although
Viacom has adjusted its rates to conform with the FCC's rate standards, these
rulings required reductions in rates and refunds in most cases. Virtually every
case is now undergoing an internal appeal process at the FCC. The FCC has not
issued any rulings on the rates which have been in effect since July 15, 1994.
In addition, local franchising authorities have issued rate rulings in respect
of Viacom's Limited Service tier in a majority of jurisdictions. These rulings
have either been implemented or appealed to the FCC for the correction of
technical errors. It is possible that additional orders by the FCC or by local
franchising authorities will result in additional rate refunds for prior
periods. However, future rates will be subject to increase under the FCC's
recently revised rate rules, which generally permit operators to increase tier
rates to recover reasonably anticipated changes in cost and inflation to account
for past years' cost changes, recovering such costs with interest for time lost
as a result of regulatory delays. In addition, the House and Senate Bills
could, if enacted, substantially deregulate many of these rates. Under the
House Bill, all pending complaints at the FCC in respect of any given franchise
would be dismissed unless there were complaints outstanding at the enactment
date which represented 3% or more of the subscribers in such franchise area.
(Most of VII Cable's FCC cases were initiated by only one or a few complaints.)
In addition, within 15 months after enactment of the House Bill, services other
than the Limited Service tier would be deregulated. Under the Senate Bill, non-
premium services other than the Limited Service tier would be subject to
regulation only if the rates charged for such services in a given system
substantially exceed the national average. No assurance can be given as to
whether and in what form such proposed legislation will be enacted. See
"Business of VII Cable--Regulation --Federal Regulation."
Cable television companies operate under franchises granted by state,
county or local authorities which are subject to renewal and renegotiation from
time to time. The 1992 Cable Act prohibits franchising authorities from
granting exclusive cable television franchises and from unreasonably refusing to
award
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additional competitive franchises; it also permits municipal authorities where
authorized locally to operate cable television systems in their communities
without a franchise. Therefore, there is a potential for competition with VII
Cable's cable television systems from these sources, as well as from other
distribution systems capable of delivering television programming to homes.
Recent court and administrative decisions have removed certain of the
restrictions that heretofore have limited entry into the cable television
business by potential competitors, such as MMDS delivery systems and telcos, and
the Senate and House Bills, if enacted, could result in the elimination of other
such restrictions. Viacom cannot predict the extent to which competition will
materialize from other cable television operators, other distribution systems
for delivering television programming to the home or other potential
competitors, or, if such competition materializes, the extent of its effect on
VII Cable. See "Business of VII Cable--Competition."
TAX TREATMENT OF THE TRANSACTION
On , 199 , Viacom received a Ruling Letter from the IRS
stating that, for U.S. federal income tax purposes, the Transaction will qualify
under Sections 355 and 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), as a distribution that is tax-free to Viacom's stockholders (except
with respect to cash received in lieu of fractional shares) and, in general,
tax-free to Viacom. Nevertheless, if Viacom, having obtained the Ruling Letter
from the IRS, consummates the Transaction and the Transaction is subsequently
held to be taxable, both Viacom and its stockholders could be subject to tax on
the Transaction (subject to the obligation of TCI and TCI Cable to indemnify
Viacom under certain circumstances pursuant to the Tax Indemnity Letter (as
defined herein)), which tax could be material. See "Certain Federal Income Tax
Consequences."
The Tax Indemnity Letter provides for indemnification on an after-tax basis
by TCI and TCI Cable, jointly and severally, of each member of the Viacom
consolidated group of companies in the event that any or all of the Ruling
Letter, following its issuance by the IRS, is withdrawn or otherwise not
followed by the IRS and the Transaction or any of the component steps of the
Transaction gives rise to federal, state or local income or franchise tax
liability as a result of any misstatements or omissions of material fact in
respect of certain representations made by TCI and TCI Cable with regard to VII
Cable and its subsidiaries. See "Arrangements Among Viacom, Viacom
International, TCI and TCI Cable--Terms of Certain Ancillary Agreements."
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SECURITY OWNERSHIP OF VII CABLE COMMON STOCK
Viacom International is currently a wholly owned subsidiary of Viacom.
After the consummation of the Transaction, Viacom will not own any interest in
VII Cable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF VIACOM COMMON STOCK
Set forth below, as of November 15, 1995 (and without giving effect to the
Transaction), is certain information concerning beneficial ownership of Viacom
Common Stock by (i) each director of Viacom, (ii) each of the executive officers
named below, (iii) all executive officers and directors of Viacom as a group,
and (iv) holders of 5% or more of the outstanding shares of Viacom Common Stock.
SHARES OF VIACOM COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
NUMBER
TITLE OF OF EQUITY OPTION PERCENT
NAME EQUITY SECURITY SHARES SHARES(1) OF CLASS
- ---- --------------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
George S. Abrams Class A Common --(2) -- --
Class B Common 200(2) 16,500 (6)
Steven R. Berrard Class A Common 58,393 141,239 (6)
Class B Common 461,221 1,100,170 (6)
3 Year Warrant 1,206 -- (6)
5 Year Warrant 723 -- (6)
Frank J. Biondi, Jr. Class A Common 453(3) 24,000 (6)
Class B Common 178,441(3) 294,000 (6)
Philippe P. Dauman Class A Common 1,060(3) -- (6)
Class B Common 8,445(3) 60,000 (6)
Thomas E. Dooley Class A Common 2,120(3) 4,000 (6)
Class B Common 2,233(3) 77,666 (6)
Edward D. Horowitz Class A Common 281(3) 4,000 (6)
Class B Common 807(3) 88,000 (6)
George D. Johnson, Jr. Class A Common 6,482(4) 68,706 (6)
Class B Common 49,298(4) 540,042 (6)
Ken Miller Class A Common --(2) -- --
Class B Common --(2) 16,500 (6)
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
National Amusements, Inc. Class A Common 45,547,214(5) -- 61.0%
200 Elm Street Class B Common 46,565,414(5) -- 15.9%
Dedham, MA 02026
Brent D. Redstone -- -- -- --
Shari Redstone -- -- -- --
Sumner M. Redstone Class A Common 45,547,294(5) -- 61.0%
Class B Common 46,565,494(5) -- 15.9%
Frederic V. Salerno Class B Common -- 6,500 (6)
William Schwartz Class A Common --(2) -- --
Class B Common --(2) 16,500 (6)
Ivan Seidenberg -- -- -- --
Mark M. Weinstein Class A Common 392(3) 7,500 (6)
Class B Common 505(3) 91,500 (6)
All directors and Class A Common 74,840(3) 259,345 0.45%
executive officers as a Class B Common 714,978(3) 2,486,908 1.09%
group other than 3 Year Warrant 1,206 1,875 (6)
Mr. Sumner Redstone 5 Year Warrant 723 1,125 (6)
(22 persons)
- ----------------------
</TABLE>
(1) Reflects shares subject to options to purchase such shares which on
November 15, 1995 were unexercised but were exercisable within a period of
60 days from that date. These shares are excluded from the column headed
"Number of Equity Shares."
(2) Messrs. Abrams, Miller and Schwartz participate in Viacom's Deferred
Compensation Plan in which their directors' fees are converted into stock
units. Messrs. Abrams, Miller and Schwartz have been credited with 4,362,
3,984 and 3,956 Class A Common Stock units, respectively, and 4,556, 4,158
and 4,127 Class B Common Stock units, respectively.
(3) Includes shares held through the Company's 401(k) plans.
(4) Does not include 158,833 shares of Class A Common Stock and 1,003,473
shares of Class B Common Stock transferred to irrevocable trusts, of which
Mr. Johnson and his wife are beneficiaries, for which Mr. Johnson
disclaims beneficial ownership. Also does not include 14,110 shares of
Class A Common Stock and 110,929 shares of Class B Common Stock held in
trusts for the benefit of Mr. Johnson's children for which Mr. Johnson
disclaims beneficial ownership.
(5) Except for 80 shares of each class of Common Stock owned directly by Mr.
Redstone, all shares are owned of record by NAI. Mr. Redstone is the
Chairman and the beneficial owner of the controlling interest in NAI and,
accordingly, beneficially owns all such shares.
(6) Less than 1%.
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ARRANGEMENTS AMONG VIACOM, VIACOM INTERNATIONAL, TCI AND TCI CABLE
The following is a summary of the material provisions of the Parents
Agreement, the Implementation Agreement and the Subscription Agreement, copies
of which are attached as exhibits to the Registration Statement and incorporated
herein by reference. The following summary does not purport to be complete and
is qualified in its entirety by reference to the full texts of such exhibits.
TERMS OF THE PARENTS AGREEMENT
TRANSACTIONS OCCURRING PRIOR TO THE EXCHANGE DATE
Under the Parents Agreement, Viacom has agreed to cause the
Recapitalization. Pursuant to the Recapitalization, VII Cable will amend and
restate its certificate of incorporation so as to, among other things, (i)
change the par value of its Class A Common Stock from $.01 to $100.00, (ii)
increase the number of authorized shares of Class A Common Stock to
shares (i.e., the total number of shares of VII Cable Class A Common Stock to be
issued to holders of Viacom Common Stock pursuant to the Exchange Offer), such
number of shares being equal to (x) the Estimated Asset Value of VII Cable minus
$1.7 billion, (y) divided by $100, and (iii) authorize 100 shares of Class B
Common Stock, $0.01 par value per share, and (iv) authorize a number of shares
of VII Cable Preferred Stock equal to the number of shares of VII Cable Class A
Common Stock authorized under (ii) above. The obligation of Viacom to cause VII
Cable to take such action is subject to, among other conditions, the condition
that Viacom shall have accepted shares of Viacom Common Stock for exchange in
the Exchange Offer.
THE EXCHANGE OFFER
The Parents Agreement requires Viacom to make the Exchange Offer (subject
to the terms and conditions set forth in "The Exchange Offer--Terms of the
Exchange Offer" and "--Certain Conditions of the Exchange Offer").
CERTAIN OTHER AGREEMENTS
Pursuant to the Parents Agreement, TCI and TCI Cable have agreed (i) to
execute and deliver the Subscription Agreement, (ii) that the documentation for
the Loan will not contain, and the Loan will not be made on, any terms or
conditions thereof that (x) are inconsistent with the terms of the Transaction
or the VII Cable Preferred Stock or (y) would require the grant of any security
interest in an asset of Viacom or any of its affiliates (other than (a) a grant
by Viacom International of a security interest in the Cash Collateral Account
(as defined in the Subscription Agreement) prior to the Exchange Time, (b) the
pledge by Viacom International or by certain cable division subsidiaries which
are identified in the Implementation Agreement (each, a "Cable Division
Subsidiary") of stock in a Cable Division Subsidiary that is effective upon the
release of all funds to Viacom International from the Cash Collateral Account or
(c) pursuant to certain provisions of the Implementation Agreement
(collectively, "Inconsistent Terms")), (iii) not to permit Viacom International
or any Cable Division Subsidiary to engage in any transaction on the Exchange
Date other than in the ordinary course of business and other than transactions
required to take place on the Exchange Date by the Parents Agreement,
Implementation Agreement or Subscription Agreement, and (iv) to acknowledge that
certain direct and indirect subsidiaries of Viacom International (the "PCI
Subsidiaries") which were formerly includable in the consolidated federal income
tax returns of the affiliated group of which Paramount Communications Inc. was
the common parent (the "PCI Group") intend to apply to the IRS for permission to
designate Paramount Pictures Corporation or another PCI Subsidiary as the agent
for the PCI Group pursuant to Treasury Regulation 1.1502-77(d) and to cooperate
in attempting to have such permission granted.
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TCI additionally has agreed not to consummate any transaction in which all
or a majority in value of its assets (as determined by TCI) are distributed
without fair consideration to its direct or indirect stockholders unless (x) the
transferee of such assets assumes or, if such assets represent principally an
equity interest in an entity, such entity assumes, by instrument reasonably
satisfactory to Viacom, TCI's obligations pursuant to the Transaction to which
TCI is a party and (y) the equity of such transferee or entity has a fair market
value immediately following such transaction of at least $1.5 billion.
Pursuant to the Parents Agreement, Viacom has agreed to cause Viacom
International and Viacom Services to execute and deliver the Implementation
Agreement to each other and to cause Viacom International to execute and deliver
to TCI and TCI Cable the Subscription Agreement.
Right of First Offer. Pursuant to the Parents Agreement, Viacom has
agreed that, in the event the Parents Agreement is terminated solely as a result
of the failure of the condition precedent relating to Viacom's satisfaction with
the treatment of the Transaction for federal income tax purposes, then if at any
time during the period commencing on the date of such termination and ending on
the date which is eighteen months after the date of such termination (the "Offer
Period") Viacom intends to sell all or substantially all of the Cable Business,
or all or substantially all of the Bay Area system or the Puget Sound system, or
all or substantially all of the stock of any subsidiary or subsidiaries the
assets of which consist primarily of all or substantially all of the Cable
Business, the Bay Area system or the Puget Sound system (in any such case, an
"Offered Business"), Viacom shall deliver to TCI a written notice to such
effect. If TCI notifies Viacom in writing of its desire to conduct negotiations
regarding such sale within five Business Days of its receipt of such notice from
Viacom, Viacom and TCI shall negotiate in good faith during the period ending on
the sixtieth day after the date of such notice by Viacom (the "Negotiation
Period") to reach an agreement for the sale of the Offered Business to TCI.
During the Negotiation Period, Viacom shall notify TCI of the amount, and
material terms, of the consideration Viacom would be willing to accept for a
sale of the Offered Business (a "Price Notice") on one or more occasions. If a
binding agreement for a sale of the Offered Business is not reached by the end
of the Negotiation Period, for a period of 120 days following the termination of
the Negotiation Period, Viacom may sell (or enter into a binding agreement to
sell) the Offered Business for an aggregate consideration equal to or greater
than the fair market value of the consideration set forth in the Price Notice
delivered by Viacom during the Negotiation Period reflecting the lowest fair
market value consideration, and, if such sale is consummated, TCI shall have no
further rights of first offer under the Parents Agreement. If (i) at the end of
such 120 day period, a binding agreement for a sale of the Offered Business has
not been reached or (ii) such a binding agreement has been reached and is
terminated prior to its consummation during the Offer Period, Viacom shall not,
for the remainder of the Offer Period, if any, sell or negotiate to sell any
Offered Business without complying with the procedures described above, as fully
set forth in the Parents Agreement.
REPRESENTATIONS AND WARRANTIES
The Parents Agreement contains various representations and warranties of
Viacom relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): corporate existence and power, corporate and governmental
authorization of the Parents Agreement and the Transaction, third-party
consents, the binding effect of the Parents Agreement, the absence of finders'
fees with respect to the Parents Agreement, the absence of violations of, among
other things, certificates of incorporation, bylaws and certain contracts and
laws and that the Exchange Offer shall be conducted in compliance with
applicable laws.
The Parents Agreement contains various representations and warranties of
TCI and TCI Cable relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): corporate existence and power, corporate and governmental
authorization of the Parents Agreement and the Transaction, third-party
consents, the binding effect of the
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Parents Agreement, and the absence of finders' fees with respect to the Parents
Agreement and the absence of violations of, among other things, certificates of
incorporation, bylaws and certain contracts and laws.
The representations and warranties contained in the Parents Agreement
shall terminate and be of no further force on and as of April 30, 1997.
CONDITIONS PRECEDENT
The obligations of Viacom to commence the Exchange Offer and to
recapitalize VII Cable are subject to the satisfaction or, where legally
permissible, waiver of various conditions, including the following: (i) any
applicable waiting period (and any extension thereof) under the HSR Act shall
have expired or been terminated without the commencement or threat of any
litigation by a governmental authority of competent jurisdiction to restrain the
consummation of the Exchange Offer, the Subscription Agreement or other material
action contemplated by the Transaction in any material respect; (ii) the number
of Consented Subscribers (as defined in the Subscription Agreement) shall be not
less than 90% of Estimated Exchange Date Basic Subscribers (as defined in the
Implementation Agreement); (iii) no order, stay, judgment or decree shall have
been issued by any court and be in effect restraining or prohibiting the
consummation of the Transaction in any material respect; (iv) Viacom shall be
satisfied with the treatment of the Transaction for federal income tax purposes
(as determined in the Letter Agreement (as defined herein)); (v) the
Subscription Agreement shall remain in full force and effect and there shall be
no condition to TCI's, TCI Cable's or Viacom International's obligations
thereunder that is incapable of being satisfied on the Expiration Date; (vi) the
documentation for the Loan shall have been duly executed and delivered by all
parties thereto and shall remain in full force and effect and Viacom shall have
received confirmation, in form and substance satisfactory to it, that Viacom
International shall be able to draw down the Aggregate Loan Amount thereunder on
the Expiration Date and (subject only to Viacom being required to give notice
that it will consummate the Exchange Offer and that all Exchange Offer
conditions set forth in the Parents Agreement have been satisfied or waived)
such Aggregate Loan Amount shall be available for transfer as a contribution to
Viacom Services without condition; (vii) certain cable-related consents of the
FCC and all non-cable related authorizations of the FCC shall have been obtained
and shall remain in full force and effect; and (viii) the Registration Statement
and, if the TCI Registration Statement is required by applicable law or the
Commission to be effective prior to the consummation of the Exchange Offer, the
TCI Registration Statement, shall have been declared effective, and no stop
order suspending the effectiveness of the Registration Statement or, if the TCI
Registration Statement is required by applicable law or the Commission to be
effective prior to the consummation of the Exchange Offer, the TCI Registration
Statement, shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission. The obligation of Viacom to
recapitalize VII Cable is subject to the further condition that Viacom shall
have accepted shares of Viacom Common Stock for exchange in the Exchange Offer.
TERMINATION
The Parents Agreement may be terminated at any time prior to the
Expiration Time: (a) by written consent of Viacom, TCI and TCI Cable; (b) by
TCI or TCI Cable, if any of certain conditions precedent contained in the
Subscription Agreement (see "Agreements Among Viacom, Viacom International, TCI
and TCI Cable--Terms of the Subscription Agreement--Conditions to the
Obligations of TCI and TCI Cable") has become incapable of satisfaction (other
than by the action or omission of TCI or TCI Cable in contravention of the terms
and conditions of the Transaction); (c) by Viacom, if any of the conditions
precedent contained in the Parents Agreement or certain conditions precedent in
the Subscription Agreement has become incapable of satisfaction (other than by
the action or omission of Viacom or its affiliates in contravention of the terms
and conditions of the Transaction); (d) by TCI or TCI Cable, (x) if the
Expiration Date has not occurred on or prior to July 24, 1996 (other than as a
result of any action or omission of TCI or TCI Cable that is in contravention of
the terms and conditions of the Transaction) or (y) if the Exchange Offer has
not commenced on or prior to June 24, 1996 (other than as a result of the
failure of certain conditions precedent to the Parents Agreement resulting from
an action or omission of TCI or TCI Cable that is in contravention of the terms
and conditions of
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the Transaction); (e) by Viacom, (x) if the Expiration Date has not occurred on
or prior to July 24, 1996 (other than as a result of any action or omission of
Viacom that is in contravention of the terms and conditions of the Transaction)
or (y) if the Exchange Offer has not commenced on or prior to June 24, 1996
(other than as a result of the failure of certain conditions precedent to the
Parents Agreement resulting from an action or omission of Viacom that is in
contravention of the terms and conditions of the Transaction); or (f) by TCI,
TCI Cable or Viacom if the Exchange Offer terminates or finally expires after
one extension thereof without any shares of Viacom Common Stock having been
accepted for exchange by Viacom. In addition, in the event that the Minimum
Condition is not met after an extension of the Exchange Offer made in accordance
with the terms of the Parents Agreement, TCI and Viacom each have the right to
terminate the Transaction.
In the event of termination of the Parents Agreement by TCI, TCI Cable or
Viacom, (i) the Parents Agreement will become null and void, (ii) such
termination will be the sole remedy with respect to any breach of any
representation, warranty, covenant or agreement contained therein and (iii)
there will be no liability or obligation on the part of TCI, TCI Cable or Viacom
other than under certain provisions of the Parents Agreement relating to any
breach of the Parents Agreement, the information provided for this Offering
Circular -Prospectus, the fees and expenses of the investment bankers engaged in
connection with the Transaction, including the Tiebreaker Investment Bank (as
defined in the Parents Agreement) and the right of first offer. See "--Terms of
the Parents Agreement--Certain Other Agreements--Right of First Offer."
EXPENSES
Under the Parents Agreement, except as expressly set forth therein, the
fees and expenses (including the fees of any lawyers, accountants, investment
bankers or others engaged by a party thereto) incurred in connection with the
Parents Agreement and the transactions contemplated thereby, whether or not the
Transaction is consummated, will be paid by the party incurring such expenses.
AMENDMENT
Subject to applicable law, the Parents Agreement may be amended or
modified only by a writing signed by the party against whom enforcement of any
such amendment or modification is being sought. In addition, any party to the
Parents Agreement may, by written instrument, waive compliance with any term or
provision of the Parents Agreement on the part of such other party thereto.
TERMS OF THE IMPLEMENTATION AGREEMENT
CONVEYANCE OF ASSETS AND ASSUMPTION OF LIABILITIES
Pursuant to the Implementation Agreement, Viacom International and Viacom
Services have agreed to execute and deliver (and to cause the Cable Division
Subsidiaries to execute and deliver) the Bill of Sale, Instrument of Assumption
and Provision of Benefits Agreement (the "Bill of Sale"), pursuant to which
Viacom International and the Cable Division Subsidiaries shall convey to Viacom
Services ownership of the assets relating to the Non-Cable Businesses, the Loan
Proceeds and certain nonmaterial assets (including certain equity investments
and marketable securities) which have historically been reported as part of
Viacom's Cable Television segment and which from and after the First
Distribution are deemed included in the definition of Non-Cable Businesses (the
"Conveyance of Assets"), and Viacom Services will assume and agree to perform
substantially all of Viacom International's liabilities (including its existing
public debt, bank debt and the existing intercompany debt owed by Viacom
International to Viacom), other than the Loan and liabilities relating to the
Cable Business other than certain specified liabilities (the "Assumption of
Liabilities"). Prior to the exchange of shares pursuant to the Exchange Offer,
but after the occurrence of the Conveyance of Assets and the Assumption of
Liabilities, Viacom International will distribute to Viacom all of the
outstanding capital stock of Viacom Services so that after such distribution
Viacom Services will be a direct wholly owned subsidiary of Viacom. VII Cable
has further agreed, prior to the exchange of shares pursuant to
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the Exchange Offer, to amend and restate its certificate of incorporation in
order to effectuate the Recapitalization.
Such obligations of Viacom International relating to the Conveyance of
Assets and Assumption of Liabilities are subject to the fulfillment of each of
the following conditions: (i) the conditions precedent to Viacom's obligations
in the Parents Agreement shall have been satisfied (see "--Terms of the Parents
Agreement--Conditions Precedent"), (ii) Viacom International shall have received
loan proceeds at least equal to the Aggregate Loan Amount, and (subject only to
Viacom being required to give notice that it will consummate the Exchange Offer
and that all Exchange Offer conditions set forth in the Parents Agreement have
been satisfied or waived) such proceeds shall be available for transfer without
condition as a contribution to Viacom Services pursuant to the Conveyance of
Assets and (iii) Viacom shall have accepted shares of Viacom Common Stock for
exchange in the Exchange Offer.
CONSENTS AND APPROVALS
If the Transaction requires regulatory approval or any other consent with
respect to a contract or cable franchise that is intended to remain with VII
Cable, and such approval or other consent has not been obtained prior to the
Exchange Time, VII Cable will use its best efforts to assign legal ownership of
such contract or franchise to Viacom Services, together with the related
equipment and other property, if necessary, under the applicable approval
procedure. Viacom Services will hold such assets for the benefit of VII Cable,
will enter into security arrangements with respect to such assets if requested
by VII Cable's lenders, and will retransfer, without additional consideration,
such assets to VII Cable promptly upon receipt of such approval or consent.
Viacom does not expect that there will be significant contracts (other than
certain franchises) for which consents are required. As of November 10, 1995,
local authorities for franchises representing 501,026 subscribers had approved
the Transaction or were deemed to have approved because their consent was not
required. In the case of franchises where approval or consent is ultimately
denied pursuant to a final, unappealable order or ruling, or at the election of
VII Cable or Viacom Services if such approval or consent is not obtained within
two years after the Exchange Date, beneficial ownership of the cable system will
be transferred in full to Viacom Services upon payment by Viacom Services to VII
Cable of an amount equal to the appraised value of such cable system, which
appraised value will be determined by multiplying the cash flow of such cable
system for the previous 12 months by 10, and adding capital expenditures made
following the Exchange Date. In the event that a local cable authority exercises
a right of first refusal to purchase a particular cable system after the
Exchange Date, Viacom Services will pay to VII Cable an amount equal to the
excess, if any, of the appraised value of such cable system (determined in
accordance with the preceding sentence) over the price paid by the local
authority. In the event of a natural disaster prior to the Exchange Date causing
more than 11,340 Basic Subscribers (as defined in the Implementation Agreement)
to be unable to receive service at the Exchange Time, Viacom Services shall
reimburse VII Cable for (i) VII Cable's reasonable out-of-pocket cost to repair
damage to the extent necessary to reconnect service to such subscribers and (ii)
the lost cash flow from such subscribers up to a specified amount per subscriber
(subject to adjustment as provided in the Implementation Agreement).
NAME CHANGE
In connection with the Exchange Offer, Viacom International will change
its name to TCI Pacific Communications, Inc. and Viacom Services will change its
name to Viacom International Inc.
POST-CLOSING ADJUSTMENTS
In accordance with the provisions of the Implementation Agreement, prior
to the commencement of the Exchange Offer, Viacom International estimated
various asset and liability amounts related to the Cable Business (the
"Estimated Asset Value") including: (i) a capital expenditure amount based on
certain capital expenditures by VII Cable, (ii) an inventory amount derived from
book value, (iii) a "Telecom Amount" (as
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defined in the Implementation Agreement) based on capital contributions and
capital expenditures made with respect to the TCG San Francisco Partnership, the
TCG Seattle Partnership and the AVR Partnership (as such terms are defined in
the Implementation Agreement), (iv) its working capital, and (v) a fixed amount,
which decreases proportionally from $2 billion to the extent that the number of
Basic Subscribers to Viacom International's cable systems is expected to fall
below 1,122,660 on the Exchange Date (such amounts being referred to
collectively as the "Adjustment Amounts"). VII Cable is obligated to deliver to
Viacom Services within 60 days after the Exchange Date VII Cable's calculation
of the actual values for the Adjustment Amounts as of the Exchange Date (the
"Asset Value"). To the extent that the Asset Value as finally determined minus
the amount of Loan Proceeds actually transferred to Viacom Services pursuant to
the Conveyance of Assets (the "Net Asset Value") is greater than the Estimated
Asset Value minus $1.7 billion (the "Estimated Net Asset Value"), VII Cable will
pay to Viacom Services an amount in cash equal to such excess, plus an amount
equal to interest thereon from the Exchange Date. If the Net Asset Value is
less than the Estimated Net Asset Value, Viacom Services will pay to VII Cable
an amount in cash equal to such deficiency plus an amount equal to interest
thereon from the Exchange Date. Viacom International also made certain
representations and warranties with respect to certain of the Adjustment
Amounts.
REPRESENTATIONS AND WARRANTIES
The Implementation Agreement contains various representations and
warranties of Viacom Services relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases, to
specified exceptions): (i) the due organization, existence and good standing
of, and similar corporate matters with respect to, each of Viacom International,
Viacom Services and the Cable Division Subsidiaries (as defined in the
Implementation Agreement), (ii) corporate and governmental authorization on
behalf of each of Viacom International, Viacom Services and the Cable Division
Subsidiaries of the Implementation Agreement and the Transaction, (iii) Viacom
International's capital structure and ownership of each of the Cable Division
Subsidiaries, (iv) the binding effect of the Implementation Agreement on Viacom
International and Viacom Services, (v) third-party consents, (vi) the absence of
violations of, among other things, certificates of incorporation, bylaws and
certain contracts and laws, (vii) the accuracy of certain information, including
financial statements, provided in the Implementation Agreement, (viii) the
absence of certain changes having a material adverse effect on the Cable
Business of Viacom International, (ix) the marketability of Viacom
International's title to certain assets, (x) the absence of infringement by
Viacom International's Cable Business upon any patents, trademarks, tradenames
or other intellectual property rights that could cause a material adverse
effect, (xi) the absence of pending and threatened litigation having a material
adverse effect on the Cable Business of Viacom International, (xii) compliance
with applicable laws, (xiii) employee matters and employee benefits, (xiv) the
absence of any brokers, finders or other intermediaries retained on behalf of
Viacom International or any Cable Division Subsidiary in connection with the
Implementation Agreement and the Transaction, (xv) material compliance with
environmental laws and other environmental matters, (xvi) compliance with
certain requirements of the FCC and United States Copyright Office, and (xvii)
the absence of covenants not to compete, other than those enumerated in the
Implementation Agreement.
Viacom Services' obligations to make certain payments to VII Cable
pursuant to the terms of the Implementation Agreement shall rank no lower than
pari passu in right of payment with Viacom Services' obligations to repay its
senior unsecured bank debt.
The representations, warranties, covenants and agreements contained in the
Implementation Agreement shall terminate and be of no further force on and as of
April 30, 1997, except for certain representations and warranties made by Viacom
Services with respect to capitalization, assets, employee benefit plans,
environmental matters and covenants not to compete, which representations and
warranties shall survive indefinitely.
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RELEASE OF VII CABLE FROM DEBT
Viacom Services will obtain the release of VII Cable from, or substitution
of Viacom Services as obligor under (so that VII Cable will have no obligation
under), all of Viacom International's obligations to repay any indebtedness of
Viacom International for borrowed money incurred prior to the Exchange Time
(other than the Loan), or shall cause the indenture pursuant to which such debt
was issued to be amended or supplemented so that VII Cable will no longer be an
obligor (so that VII Cable will have no obligation) thereunder, in each case
concurrently with the transfer of the Loan Proceeds to Viacom Services pursuant
to the Conveyance of Assets. See "--Terms of Subscription Agreement--Certain
Borrowings."
NONCOMPETITION
If the closing contemplated in the Subscription Agreement occurs, so long
as VII Cable, TCI, TCI Cable or any person to whom VII Cable initially transfers
the cable system in Nashville, Tennessee, or Dayton, Ohio, in accordance with
the Subscription Agreement (a "Specified Party") owns and operates a cable
television system in a Franchise Area (as defined in the Implementation
Agreement), Viacom Services has agreed that, with respect to each such Franchise
Area, following the Exchange Date until the earlier of (i) the third anniversary
of the Exchange Date or (ii) the date such Specified Party no longer owns and
operates such Franchise Area, Viacom Services, its subsidiaries and any
subsidiaries of Viacom shall not (x) directly engage in the cable television
distribution business in such Franchise Area or (y) indirectly engage in the
cable television distribution business in such Franchise Area through ownership
of an equity interest in any person 25% or more of whose revenues are derived
from the cable television distribution business within certain territories or
whose cable television business has an active plant passing 100,000 or more of
the homes in the Franchise Areas in certain territories, taken as a whole.
TERMINATION
The Implementation Agreement shall automatically terminate upon any
termination of the Parents Agreement in accordance with its terms. Upon
termination of the Implementation Agreement, (i) the Implementation Agreement
will become null and void, (ii) termination will be the sole remedy with respect
to any breach of any representation, warranty, covenant or agreement contained
therein and (iii) there will be no liability or obligation on the part of VII
Cable or Viacom Services thereunder.
INDEMNIFICATION
If the Exchange Offer is consummated, Viacom Services shall indemnify and
hold harmless VII Cable against and in respect of any and all losses (x)
constituting or arising out of certain liens attaching after the Exchange Date
on any franchise assets transferred to Viacom Services or any contract relating
to the Cable Business assigned to Viacom Services, in each case while title to
such franchise asset or contract is held by Viacom Services, (y) which may be
incurred by VII Cable by reason of (i) the breach of any representation and
warranty of Viacom Services contained in the Implementation Agreement as if such
representations and warranties were made as of the Exchange Date (except to the
extent a different date is specified therein in which case such representation
and warranty shall be deemed to be made as of such date), or (ii) the breach of
any covenant or agreement of Viacom Services contained in the Implementation
Agreement (other than with respect to tax matters) or the Bill of Sale, or (iii)
the breach at or prior to the Exchange Date of any covenant or agreement of
Viacom International contained in the Implementation Agreement (other than with
respect to tax matters) or (z) constituting liabilities relating to the Non-
Cable Businesses.
If the Exchange Offer is consummated, VII Cable shall indemnify and hold
harmless Viacom Services against any and all losses (w) constituting or arising
out of certain liens attaching after the Exchange Date on any non-cable asset
while it cannot be transferred to Viacom Services, (x) which may be incurred by
Viacom Services by reason of a breach after the Exchange Date of a covenant or
agreement of VII Cable
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contained in the Implementation Agreement (other than with respect to tax
matters) or the Bill of Sale, (y) constituting Cable Business liabilities or (z)
constituting accounts payable, certain current liabilities or the new
borrowings. See "--Terms of the Subscription Agreement--Certain Borrowings."
The aggregate liability of an indemnifying party pursuant to the
Implementation Agreement (together with any liability of such indemnifying party
and its affiliates for breaches of other agreements relating to the Transaction,
other than with respect to (i) information provided for this Offering Circular -
Prospectus, (ii) indemnification of Viacom and its affiliates following the
Exchange Date with respect to any liability related to the Commitments to Lend,
the Loan or the Loan Proceeds and (iii) indemnification by Viacom Services for
liabilities relating to the Non-Cable Business) shall not exceed the Asset
Value, and no party shall be entitled to recover consequential damages. Certain
claims for indemnification are recoverable only after the losses that would be
recoverable under such claims aggregate in excess of 1/2 of 1% of the Asset
Value, and then only to the extent of such excess.
CERTAIN OTHER AGREEMENTS
Prohibited Transactions. The Implementation Agreement prohibits Viacom
Services from consummating any transaction in which all or a majority in value
of its assets are distributed without fair consideration to its direct or
indirect stockholders unless (x) the transferee of such assets or, if such
assets represent principally an equity interest in an entity, such entity,
assumes Viacom Services' indemnification obligations under the Implementation
Agreement and (y) the equity of such transferee or entity has a fair market
value immediately following such transaction of at least $1.5 billion.
Employee Matters. Viacom International has agreed to terminate the
employment, prior to the Exchange Date, of each employee not intended to remain
as an employee of VII Cable. Many of the continuing employees of VII Cable who
are actively employed at the Exchange Date will be paid compensation at the
same, or substantially similar, rates as their compensation prior to the
Exchange Date, subject generally to terms and conditions substantially similar
to those of similarly situated employees of TCI, and no interruption in
employment shall be deemed to have occurred by virtue of the Transaction. The
Implementation Agreement includes equitable arrangements generally for employee
benefits, pension plans, 401(k) plans, sick leave, vacation and welfare plans
for continuing employees, and provides that VII Cable will have no liability for
severance obligations to non-continuing employees.
Tax Matters. Pursuant to the Implementation Agreement, Viacom Services
has agreed to assume, become liable for, and indemnify and hold harmless VII
Cable and its subsidiaries from and against, all tax liability of Viacom and its
affiliates for taxable years or portions thereof ending on or prior to the
Exchange Date on an after-tax basis, including any tax arising as a result of
the failure of the Transaction to qualify for tax-free treatment (except to the
extent that TCI and TCI Cable have agreed to indemnify Viacom pursuant to the
Tax Indemnity Letter (as defined herein)). VII Cable will pay all taxes of the
Cable Business for which Viacom Services does not have an indemnification
obligation pursuant to the Implementation Agreement, and VII Cable will be
liable for, and shall indemnify and hold harmless Viacom and its affiliates from
and against, all such liabilities on an after-tax basis.
The Implementation Agreement provides that any refunds of taxes or any
credit against taxes, to the extent actually used, of VII Cable or any of its
subsidiaries with respect to taxable years or portions thereof ending on or
prior to the Exchange Date will be for the account of Viacom Services, and any
other refunds of taxes or credits against taxes, to the extent actually used, of
VII Cable or any of its subsidiaries will be for the account of VII Cable. In
either case, the party entitled to such refund or credit will reimburse the
other party to the extent of any net tax cost imposed on such other party in
connection with the receipt of such refund or credit.
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EXPENSES
Under the Implementation Agreement, except as expressly set forth therein,
the fees and expenses (including the fees of any lawyers, accountants,
investment bankers or others engaged by a party thereto) incurred in connection
with the Implementation Agreement and the transactions contemplated thereby,
whether or not the transactions contemplated thereby are consummated, will be
paid by the party incurring such expenses.
AMENDMENT
Subject to applicable law and (in the case of amendments prior to the
Exchange Time) to TCI's consent, the Implementation Agreement may be amended or
modified only by a writing signed by the party against whom enforcement of any
such amendment or modification is being sought. Any party to the Implementation
Agreement also may, by written instrument, waive compliance with any term or
provision of the Implementation Agreement on the part of such other party
thereto.
TERMS OF THE SUBSCRIPTION AGREEMENT
SUBSCRIPTION AND PURCHASE OF STOCK
On the terms and subject to the conditions set forth in the Subscription
Agreement, TCI Cable has subscribed for and has agreed to purchase, and VII
Cable has agreed to issue and sell, 100 shares of VII Cable Class B Common Stock
in consideration of the payment of the Subscription Payment.
CERTAIN BORROWINGS
TCI and TCI Cable have agreed to cause to be delivered to Viacom
International commitments of commercial banks or other lending institutions or
other institutional investors reasonably acceptable to TCI Cable (the "Lenders")
to make the Loan to Viacom International on the Expiration Date (the
"Commitments to Lend"). TCI and TCI Cable will be responsible for and will pay
any and all fees and expenses (including, but not limited to, commitment fees)
arising from the Commitments to Lend.
Pursuant to the Subscription Agreement, not less than ten business days
prior to the Anticipated Commencement Date (as defined in the Parents
Agreement), there are required to be executed and delivered by the Lenders all
agreements and other documentation (i) containing terms and conditions that are
reasonably acceptable to TCI Cable, (ii) which do not contain any obligation of
Viacom or its affiliates other than Viacom International or, after the Exchange
Date, a wholly owned direct or indirect subsidiary of VII Cable and (iii)
containing no Inconsistent Terms (collectively, the "Loan Documentation"). TCI
Cable will be responsible for and will pay any and all fees and expenses arising
from the Loan Documentation.
Subject to the fulfillment of the conditions precedent to the obligations
of TCI and TCI Cable (see "--Terms of the Subscription Agreement--Conditions to
the Obligations of TCI and TCI Cable"), the Loan will be made to Viacom
International on the Expiration Date prior to the Conveyance of Assets. The
Loan Proceeds will be deposited into a cash collateral account maintained by
Viacom International at The Bank of New York (the "Cash Collateral Account") in
which the Lenders shall be granted a security interest to secure the Loan, the
terms of which shall provide that upon notice from Viacom that it will
consummate the Exchange Offer and that all Exchange Offer conditions set forth
in the Parents Agreement have been satisfied or waived, all funds held in the
Cash Collateral Account will be released without condition to Viacom
International on the Exchange Date immediately prior to the Conveyance of Assets
and the Exchange Time. If the closing of the Subscription Agreement does not
occur within ten business days after the Expiration Date, at the option of the
Lenders, the Loan will be repaid in full from the Cash Collateral Account. Upon
release of the funds in the Cash Collateral Account to Viacom International, the
Loan Proceeds will be conveyed to Viacom Services pursuant to the
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Conveyance of Assets and VII Cable will retain responsibility for repayment of
and will be liable and responsible for the Loan. Following the Exchange Date,
none of Viacom, Viacom Services nor their affiliates will have any liability,
responsibility or obligation under or in connection with the Commitments to
Lend, the Loan Documentation or otherwise for or with respect to the Loan. TCI
and TCI Cable have agreed to indemnify and hold harmless Viacom Services and its
affiliates from any such liability, responsibility or obligation.
TCI and TCI Cable have further agreed that in the event the closing under
the Subscription Agreement does not occur, they will be responsible for and will
pay (or, in the case of fees already paid, reimburse Viacom International for)
any and all fees and expenses (including, but not limited to, commitment fees,
but not including principal and interest on principal) payable under or in
connection with the Commitments to Lend, the Loan Documentation, the Loan or any
action by Viacom International pursuant to the Loan or by TCI or TCI Cable
pursuant to the provisions of the Commitments to Lend. TCI and TCI Cable will
indemnify and hold harmless Viacom International from any and all such fees and
expenses. In the event that the Exchange Offer is not consummated as a result
of the failure of the condition relating to the treatment of the Transaction for
federal income tax purposes, Viacom has agreed to reimburse TCI for 50% of
commitment fees payable in connection with the Commitments to Lend, up to a
maximum reimbursement obligation of $5 million.
REPRESENTATIONS AND WARRANTIES
The Subscription Agreement contains various representations and warranties
of TCI and TCI Cable relating to, among other things, the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) corporate existence and power, (ii) corporate and
governmental authorization of the Subscription Agreement, the Transaction and
issuance of shares of TCI Stock to VII Cable upon exercise by the holders of the
VII Cable Preferred Stock of their exchange rights as specified in the terms
thereof, (iii) third-party consents, (iv) the binding effect of the Subscription
Agreement, (v) the absence of finders' fees with respect to the Subscription
Agreement, (vi) the absence of violations of, among other things, certificates
of incorporation, bylaws and certain contracts and laws and (vii) that TCI is
acquiring the shares of VII Cable Class B Common Stock for investment and not
with a present view or intention of distributing or selling the shares of VII
Cable Class B Common Stock.
The Subscription Agreement contains various representations and warranties
of Viacom International relating to, among other things, the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) corporate existence and power, (ii) corporate and
governmental authorization of the Subscription Agreement and the Transaction,
(iii) third-party consents, (iv) the binding effect of the Subscription
Agreement, (v) the absence of finders' fees with respect to the Subscription
Agreement, (vi) the absence of violations of, among other things, certificates
of incorporation, bylaws and certain contracts and laws, (vii) that the shares
of VII Cable Class B Common Stock, when paid for by and issued to TCI Cable in
accordance with the terms of the Subscription Agreement will be duly and validly
issued, fully paid and non-assessable and will constitute all of the issued and
outstanding shares of VII Cable Class B Common Stock and (viii) that Viacom
International has delivered or made available to TCI Cable or RCS Pacific, L.P.,
a California limited partnership, copies of all material contracts, certain test
tank reports and Immigration and Naturalization Service Forms I-9 for all
continuing employees.
CONDUCT OF THE BUSINESS PENDING THE EXCHANGE OFFER
Except for (u) certain actions with respect to the Telecom Partnerships
(as defined in the Implementation Agreement), (v) any increase in the Basic
Subscriber Rate (as defined in the Implementation Agreement) or any other rate
charged Viacom International's subscribers or otherwise contemplated by the
Transaction, (w) the incurrence of the Loan, (x) the amendment of Viacom
International's Certificate of Incorporation contemplated by the Transaction,
(y) certain changes permitted explicitly by the Subscription
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Agreement or (z) compliance with Viacom's obligations under the Parents
Agreement or Viacom International's obligations under the Implementation
Agreement or any other event or action contemplated by the Transaction, from the
date of execution of the Subscription Agreement until the Exchange Date, Viacom
International has agreed to conduct the Cable Business only in the ordinary
course of business consistent with past practices. Without limiting the
generality of the foregoing, Viacom International has agreed not to do any of
the following, without the consent of TCI Cable:
(i) (w) enter into a negotiated settlement with the FCC resolving
regulated rate disputes or challenges which negotiated settlement imposes
any obligations on VII Cable after the Exchange Date, (x) materially amend
or, other than in accordance with its terms, terminate any material
contract, or enter into any material contract outside of the ordinary
course of business, (y) enter into any programming agreement with any
programming service owned or operated by Viacom or its subsidiaries or
affiliates, or (z) enter into any programming agreement that would require
carriage of programming or is not terminable at any time by VII Cable
without any out-of-pocket cost to VII Cable, in each case following the
date that is six months after the Exchange Date;
(ii) enter into any employment agreement providing for a term of
employment other than as an employee at will, except as disclosed to TCI
Cable (or RCS Pacific, L.P. or InterMedia Partners IV, L.P.) on or prior
to July 24, 1995;
(iii) increase the rate of compensation or bonus payments to any Cable
Business-related employee of Viacom International, except in the ordinary
course of business and except for bonus payments in conjunction with the
Transaction where the cost is borne by Viacom Services or Viacom;
(iv) sell or dispose of assets relating to the Cable Business (other
than certain assets to be transferred to Viacom Services pursuant to the
Conveyance of Assets) except for sales or dispositions of assets in the
ordinary course of business, provided that such assets (other than certain
assets specified in the Implementation Agreement) are replaced with other
assets in the ordinary course of business;
(v) amend the certificate of incorporation or bylaws of Viacom
International or any Cable Division Subsidiary;
(vi) issue or sell any shares of the capital stock of Viacom
International or any Cable Division Subsidiary (except for shares of the
VII Cable Class A Common Stock which will be issued in the
Recapitalization);
(vii) incur any indebtedness for borrowed money outside the ordinary
course of business (other than the Loan); and
(viii) extend the term of (or fail to exercise a right of termination
with respect to) Viacom International's programming agreement with the
Science Fiction Channel or Comedy Central.
CERTAIN OTHER AGREEMENTS
Telecom Partnerships. Viacom International has further agreed, prior to
the Exchange Date, to make or cause to be made, when due and payable, all
capital contributions required to be made under, and otherwise to comply in all
material respects with all material terms and conditions of, the Telecom
Partnership Agreements (as defined in the Implementation Agreement). In
addition, VII Cable has entered into agreements with each Telecom Partnership
covering the lease, license or use by such Telecom Partnership of the plant,
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property and equipment of Viacom International relating to capital expenditures
covered by the definition of Telecom Capital Expenditure Amount (as defined in
the Implementation Agreement), to the extent such lease, license or use is not
otherwise covered by the Telecom Partnership Agreements. Viacom International
has agreed not to sell, transfer or assign its interest in the Telecom
Partnerships.
Approved Capital Expenditure Plan. Viacom International will make or
cause to be made the capital expenditures called for by the Approved Capital
Expenditure Plan (as defined in the Implementation Agreement) in all material
respects except that Viacom International shall not be required to make or cause
to be made (i) expenditures which were required by law at the time the Approved
Capital Expenditure Plan was approved but are no longer so required, (ii)
expenditures which TCI Cable has agreed in writing do not have to be made, (iii)
expenditures which it is commercially unreasonable to make because the
assumptions used in developing and underlying the Approved Capital Expenditure
Plan prove to be incorrect in any material respect and (iv) expenditures which
cannot be made for reasons not within Viacom International's control (including,
without limitation, unavailability of equipment, lack of access to real
property, delays in orders being filled, unavailability of pole attachment
agreements and force majeure). In the event clause (iii) above is applicable,
Viacom International and TCI Cable will cooperate and negotiate in good faith to
amend the Approved Capital Expenditure Plan to preserve the economic benefits
originally intended to be afforded by such expenditures.
Reimbursement of Capital Expenditures. If the Subscription Agreement
terminates without the exchange of shares having occurred, TCI Cable will
reimburse Viacom International for the amount of additional capital expenditures
made after January 20, 1995, as a result of complying with RCS Pacific, L.P.'s
or TCI Cable's rebuild standards as determined pursuant to the Approved Capital
Expenditure Plan and the Subscription Agreement. TCI Cable will promptly pay to
Viacom International the amount of all such expenditures as to which Viacom
International has provided to TCI Cable documentation establishing that such
expenditures were made, provided that no such payment shall be required earlier
than the fifth business day after the date of such termination, and the
aggregate amount of such payments shall not exceed $6,215,000 if the Exchange
Date occurs on or prior to December 31, 1995 or $11,495,000 if the Exchange Date
occurs after December 31, 1995, unless TCI Cable shall have approved the capital
expenditures to which such reimbursements in excess of such amount relate.
Viacom International shall not be required to make any capital expenditure in
order to comply with RCS Pacific, L.P.'s or TCI Cable's rebuild standards if it
would not be reimbursed for the incremental cost upon the termination of the
Subscription Agreement without the exchange of shares having occurred pursuant
to the Exchange Offer.
Sale of Dayton and Nashville Systems. Viacom International will cooperate
with TCI Cable to facilitate the sale or exchange by VII Cable of the Dayton and
Nashville Systems on or after the day following the Exchange Date other than to
the extent such cooperation involves any out-of-pocket expenditure by Viacom
International or could reasonably be expected to delay the Exchange Date.
1996 Capital Expenditure Plan. Viacom International and TCI Cable have
agreed to negotiate a capital expenditure plan for the Cable Business of Viacom
International for 1996 (the "1996 Capital Expenditure Plan"). If Viacom
International and TCI Cable cannot agree on a 1996 Capital Expenditure Plan by
December 31, 1995, the 1996 Capital Expenditure Plan will be prepared by Viacom
International and shall provide for quarterly aggregate capital expenditures not
in excess of the amount required to be spent pursuant to the capital expenditure
plan attached to the Implementation Agreement (the "1995 Plan") plus an amount
equal to the percentage growth in the consumer price index for 1995 multiplied
by such amount, provided that such amount shall be allocated among different
categories of expenditures in a manner consistent with the 1995 Plan with such
changes as are consistent with the progress of rebuilds and other projects
reflected therein.
Preferred Stock Exchange. TCI will contribute to VII Cable or otherwise
cause VII Cable to have available sufficient shares to enable VII Cable to issue
to holders of the VII Cable Preferred Stock, shares of TCI Stock upon exercise
by the holders of the VII Cable Preferred Stock of their exchange rights as
specified in
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the terms of the VII Cable Preferred Stock. TCI has agreed to reserve and keep
available at all times, out of its authorized and unissued stock, sufficient
shares of TCI Stock to satisfy its obligations to VII Cable in connection with
such exchange of the VII Cable Preferred Stock. TCI has agreed that any such
TCI Stock, when issued, will be registered under the 1933 Act, and all state
securities and blue sky laws applicable to such issuance shall have been
complied with in respect thereto.
CONDITIONS TO THE OBLIGATIONS OF TCI AND TCI CABLE
The obligations of TCI and TCI Cable to take the action required to be
taken by them with respect to the Loan (see "--Certain Borrowings") shall be
subject to the satisfaction of each of the following conditions: (i) any
applicable waiting period (and any extension thereof) under the HSR Act shall
have expired or been terminated without the commencement or threat of any
litigation by a governmental authority to restrain the consummation of the
Transaction in any material respect; (ii) the number of Consented Subscribers
shall be not less than 90% of Estimated Exchange Date Basic Subscribers (as such
terms are defined in the Subscription Agreement); (iii) no order, stay, judgment
or decree shall have been issued by any court and be in effect restraining or
prohibiting the consummation of the Transaction in any material respect; (iv)
all conditions to the Exchange Offer (other than the Minimum Condition and the
bank borrowing condition) (see "The Exchange Offer--Certain Conditions of the
Exchange Offer") shall have been satisfied or waived; (v) no condition of TCI
and TCI Cable with respect to the closing of the Subscription Agreement shall
have become incapable of satisfaction; and (vi) Viacom International shall have
delivered to TCI Cable a certificate in which it certifies that to its knowledge
the conditions to the obligations of TCI and TCI Cable with respect to the
closing of the Subscription Agreement are reasonably likely to be satisfied.
The obligations of TCI Cable required to be performed by it at the closing
of the Subscription Agreement are subject to the satisfaction, on or prior to
the Exchange Date, of the following conditions:
(i) (a) each representation and warranty of Viacom International
contained in the Subscription Agreement and each representation and
warranty of Viacom Services contained in the Implementation Agreement
shall (x) if qualified by a reference therein to "material adverse
effect," be true and correct as of the Expiration Date as though such
representation and warranty was made at and as of such date (except to the
extent a different date is specified therein, in which case such
representation and warranty will be true and correct as of such date), or
(y) if not so qualified, be true and correct as of the Expiration Date as
though such representation and warranty were made at and as of such date
(except to the extent a different date is specified therein, in which case
such representation and warranty will be true and correct as of such
date), with such exceptions that do not, individually or in the aggregate,
result in a material adverse effect, and except in the case of both
clauses (x) and (y) for changes occurring after July 24, 1995 (A) pursuant
to the terms of the Transaction, (B) not prohibited with respect to the
operation of the Cable Business pending consummation of the Exchange Offer
(see "--Conduct of the Business Pending the Exchange Offer") or (C)
consented to by RCS Pacific L.P. prior to July 24, 1995, or by TCI Cable
at any time;
(b) each material covenant and obligation of Viacom International and
Viacom Services required by the Subscription Agreement or the
Implementation Agreement to be performed by it at or prior to the
Expiration Date will have been duly performed and complied with in all
material respects as of the Expiration Date;
(c) VII Cable shall have delivered the stock certificate for 100 shares
of VII Cable Class B Common Stock to TCI Cable;
(d) TCI Cable shall have received a certificate to the effect that the
conditions with respect to the representations, warranties and material
covenants and obligations of Viacom International and Viacom Services have
been satisfied;
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(ii) any applicable waiting period (and any extension thereof) under
the HSR Act will have expired or been terminated without the commencement
or threat of any litigation by a governmental authority of competent
jurisdiction to restrain the consummation of the transactions contemplated
by the Subscription Agreement in any material respect;
(iii) the number of Consented Subscribers shall be not less than 90%
of Estimated Exchange Date Basic Subscribers;
(iv) all consents required to be obtained by Viacom or Viacom
International in connection with the transactions contemplated by the
Subscription Agreement shall have been obtained and remain in full force
and effect, with such exceptions as would not have a material adverse
effect;
(v) no order, stay, judgment or decree shall have been issued by any
court and be in effect restraining or prohibiting the consummation of the
Transaction in any material respect;
(vi) certain legal opinions of counsel to Viacom International shall
have been delivered to TCI Cable;
(vii) the Exchange Time shall have occurred; and
(viii) Viacom International shall have delivered to TCI Cable the
resignation of each of its directors and corporate officers, effective as
of the closing of the Subscription Agreement.
CONDITIONS TO THE OBLIGATIONS OF VII CABLE
The obligations of VII Cable to be performed by it at the closing of the
Subscription Agreement are subject to the satisfaction, on or prior to the
Expiration Date (or in the case of the conditions relating to payment of the
Subscription Payment and the consummation of the Exchange Offer, the closing of
the Subscription Agreement) of each of the following conditions:
(i) (a) each representation and warranty of TCI and TCI Cable
contained in the Subscription Agreement will be true and correct in all
material respects as of the Expiration Date as though such representation
and warranty was made at and as of such date (except to the extent that a
different date is specified therein, in which case such representation and
warranty will be true and correct as of such date);
(b) each material covenant and obligation of each of TCI and TCI Cable
required by the Subscription Agreement to be performed by it on or prior
to the Expiration Date will have been duly performed and complied with in
all material respects as of the Expiration Date;
(c) TCI Cable shall have paid the Subscription Payment to VII Cable;
(d) VII Cable will have received a certificate to the effect that the
conditions relating to the representations, warranties and material
covenants and obligations of TCI Cable have been satisfied;
(ii) any applicable waiting period under the HSR Act (and any extension
thereof), shall have expired or been terminated without the commencement
or threat of any litigation by a governmental authority of competent
jurisdiction to restrain the consummation of the transactions contemplated
by the Subscription Agreement in any material respect;
(iii) the number of Consented Subscribers shall not be less than 90%
of Estimated Exchange Date Basic Subscribers;
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(iv) a certain legal opinion of counsel to TCI and TCI Cable shall be
delivered to VII Cable;
(v) all consents required to be obtained by TCI and TCI Cable in
connection with the transactions contemplated by the Subscription
Agreement shall have been obtained and remain in full force and effect,
with such exceptions as do not result in a material adverse effect on
TCI's and TCI Cable's ability to consummate such transactions;
(vi) no order, stay, judgment or decree will have been issued by any
court and be in effect restraining or prohibiting the consummation of the
Transaction in any material respect; and
(vii) the Exchange Time shall have occurred.
TERMINATION
The Subscription Agreement shall automatically terminate upon any
termination of the Parents Agreement in accordance with its terms. Upon
termination of the Subscription Agreement, (i) the Subscription Agreement will
become null and void, (ii) such termination will be the sole remedy with respect
to any breach of any representation, warranty, covenant or agreement contained
therein and (iii) there will be no liability or obligation on the part of TCI,
TCI Cable or VII Cable other than under certain provisions of the Subscription
Agreement relating to certain breaches of the Subscription Agreement, payment of
the fees and expenses relating to the Commitments to Lend, the Loan
Documentation, the Loan, confidentiality and the reimbursement of certain
capital expenditures.
EXPENSES
Under the Subscription Agreement, except as expressly set forth therein,
the fees and expenses (including the fees of any lawyers, accountants,
investment bankers or others engaged by a party thereto) incurred in connection
with the Subscription Agreement and the transactions contemplated thereby,
whether or not the transactions contemplated thereby are consummated, will be
paid by the party incurring such expenses.
AMENDMENT
Subject to applicable law, the Subscription Agreement may be amended or
modified only by a writing signed by the party against whom enforcement of any
such amendment or modification is being sought. Any party to the Subscription
Agreement also may, by written instrument, waive compliance with any term or
provision of the Subscription Agreement on the part of such other party thereto.
SURVIVAL
The representations and warranties contained in the Subscription Agreement
shall terminate and be of no further force on and as of April 30, 1997, except
that the representations and warranties relating to finders' fees, the shares of
VII Cable Class B Common Stock and the liability of TCI and TCI Cable for fees
and expenses arising from the Commitments to Lend shall survive indefinitely.
TERMS OF CERTAIN ANCILLARY AGREEMENTS
Contemporaneously with the execution of the Parents Agreement, the
Implementation Agreement and the Subscription Agreement, Viacom, Viacom
International, Viacom Services and certain other Viacom affiliates entered into
certain other agreements with TCI, TCI Cable and certain other TCI affiliates,
including a letter agreement governing certain ancillary elements of the
Transaction (the "Letter Agreement"), a letter providing for indemnification
against certain tax liabilities (the "Tax Indemnity Agreement"), and amendments
to certain
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agreements entered into in connection with the settlement of certain litigation
among such parties (the "Settlement Agreements") (collectively, the "Ancillary
Agreements").
LETTER AGREEMENT
The Letter Agreement contains a number of provisions clarifying the
Parents Agreement, Implementation Agreement and Subscription Agreement. In
particular, the Letter Agreement provides that the satisfactory tax treatment
condition to closing the Parents Agreement will be fulfilled by receipt of the
Ruling Letter (as described below under "Certain Federal Income Tax
Consequences"). The Letter Agreement also provides that, in the event any of
the cable systems is required, pursuant to a refund order of a local authority,
the FCC or a court of competent jurisdiction, to refund to subscribers (a
"Refund") any overpayment or excess charge paid during the period between
September 1, 1993 and the Exchange Date (the "Applicable Period") for any basic
service or related equipment, any other regulated tier of service or related
equipment or any other charge for service or equipment, Viacom Services shall be
obligated to reimburse VII Cable an amount (the "Refund Amount"), computed on an
after-tax basis, equal to (x) the portion of the Refund required to be paid to
such subscribers that is attributable to the Applicable Period (after taking
into account any available offsets or credits actually realized by VII Cable) to
the extent actually paid, including any penalties, interest, forfeiture or other
payment ordered by such refund order and any other associated reasonable costs
(in each case, to the extent actually paid), net of the present value of any
refund, rebate or offset of franchise fees, copyright fees, savings in taxes or
other benefits to VII Cable and its affiliates actually realized as a result of
such Refund, less (y) an amount equal to the aggregate amount (on a net after-
tax basis) of any increases in revenue resulting from any rate increases granted
after the Exchange Date with respect to such subscribers, to the extent that VII
Cable is permitted to increase rates in order specifically to recoup any amount
previously refunded as described under (x) above to the extent that such
increases are actually realized by VII Cable net of any accompanying increase in
franchise, copyright or other fees actually paid by VII Cable and have not been
previously applied under (x) above to reduce the Refund or pursuant to this (y).
The Letter Agreement further provides that Viacom Services shall have the right
to assume control of the defense of and settlement of any regulatory proceeding
relating to rates charged to subscribers during the applicable period which
could result in a refund order as to which the Refund Amount could exceed 50% of
the Refund.
TAX INDEMNITY LETTER
The Tax Indemnity Letter provides for indemnification on an after-tax
basis by TCI and TCI Cable, jointly and severally, of each member of the Viacom
consolidated group of companies in the event that any or all of the Ruling
Letter is withdrawn or otherwise not followed by the IRS and the Transaction or
any of the component steps of the Transaction gives rise to federal, state or
local income or franchise tax liability as a result of any misstatements or
omissions of material fact in certain representations made by TCI and TCI Cable
with regard to VII Cable and its subsidiaries.
SETTLEMENT AGREEMENTS
Pursuant to the Settlement Agreements, Viacom and its affiliates and TCI
and its affiliates have provisionally agreed to settle and dismiss certain
antitrust litigation instituted by Viacom International. This settlement is
subject to certain conditions, including the consummation of the Transaction.
The Settlement Agreements relate to, among other things, the carriage by
Satellite Services, Inc., a TCI affiliate ("SSI"), and VII Cable (after the
Exchange Date) of SHOWTIME(R) and THE MOVIE CHANNEL(TM), which are commercial-
free premium subscription services owned by Viacom's subsidiary Showtime
Networks Inc. ("SNI").
Pursuant to the Settlement Agreements, SSI and other TCI affiliates are
required to continue to carry SHOWTIME and THE MOVIE CHANNEL through (at a
minimum) the year 2000 in each of their systems currently carrying each such
service and in each of the VII Cable cable systems. SSI is further required to
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engage in certain marketing relating to SHOWTIME and THE MOVIE CHANNEL. SSI is
also provided with certain incentives to increase the number of SHOWTIME and THE
MOVIE CHANNEL subscribers.
The Settlement Agreements were originally entered into in January 1995.
They were amended on July 24, 1995 to become effective in accordance with their
terms only and immediately upon the consummation of the Stock Issuance.
DESCRIPTION OF CERTAIN INDEBTEDNESS OF VII CABLE
Viacom International anticipates that the Loan will be comprised of a
combination of term and revolving credit facilities and will be repayable in
part on the date of receipt by VII Cable of the Subscription Payment. Certain
terms of the Loan are currently under negotiation. Pursuant to the Parents
Agreement, TCI and TCI Cable have agreed that the Loan Documentation will not
contain any Inconsistent Terms. The execution and delivery of the Loan
Documentation and the ability of Viacom International to draw down the Aggregate
Loan Amount thereunder on the Expiration Date and transfer such amount as a
contribution to Viacom Services are conditions to commencement of the Exchange
Offer. See "Arrangements Among Viacom, Viacom International, TCI and TCI Cable-
- -Terms of the Subscription Agreement--Certain Borrowings."
DESCRIPTION OF VII CABLE CAPITAL STOCK
Set forth below is a general summary of the capital stock of VII Cable in
the form effective immediately after the Recapitalization. See "Business of VII
Cable--Recapitalization." The following summary does not purport to be a
complete description of such capital stock and is qualified in its entirety by
reference to the Amended and Restated Certificate of Incorporation, the form of
which has been filed as an exhibit to the Registration Statement of which this
Offering Circular - Prospectus is a part. The definitive Amended and Restated
Certificate of Incorporation shall be filed by VII Cable with the Secretary of
State of the State of Delaware immediately prior to the Recapitalization.
GENERAL
Following the Recapitalization, the authorized capital stock of VII Cable
will consist of shares, of which shares shall be common stock and
shares shall be preferred stock (the "Preferred Stock"). The shares of common
stock shall be divided into two classes, of which shares shall be VII
Cable Class A Common Stock, and 100 shares shall be of a class designated as VII
Cable Class B Common Stock. Of the preferred stock, shares shall be
of a class designated as "Series A Senior Cumulative Exchangeable Preferred
Stock" and shares shall be of a class issuable from time to time in
series with such voting rights, if any, designations, powers, preferences and
other rights and such qualifications, limitations and restrictions as may be
determined by the VII Cable Board.
COMMON STOCK -- GENERAL
Except as otherwise described below, shares of VII Cable Class A Common
Stock and VII Cable Class B Common Stock shall be identical in all respects and
shall have equal rights and privileges.
Holders of VII Cable Class A Common Stock and holders of VII Cable Class B
Common Stock shall be entitled to one vote for each share of such stock held on
all matters presented to holders of common stock. Except as may otherwise be
required by the laws of the State of Delaware, the holders of shares of VII
Cable Class A Common Stock and the holders of shares of VII Cable Class B Common
Stock shall vote as one class
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with respect to the election of directors and with respect to all other matters
to be voted on by stockholders of VII Cable.
The holders of common stock shall be entitled to receive dividends only as
and when declared by the Board of Directors of VII Cable out of funds legally
available therefor, subject to the rights of any preferred stock then
outstanding.
In the event of a liquidation, dissolution or winding up of VII Cable,
after payment or provision for payment of the debts and liabilities of VII Cable
and subject to the prior payment in full of the preferential amounts to which
any Preferred Stock is entitled, the holders of VII Cable Class A Common Stock
and VII Cable Class B Common Stock shall share equally, on a share for share
basis, in the assets of VII Cable remaining for distribution to its holders of
common stock.
VII CABLE CLASS A COMMON STOCK
Upon the issuance of shares of VII Cable Class B Common Stock to TCI Cable
pursuant to the terms of the Subscription Agreement, each outstanding share of
VII Cable Class A Common Stock shall automatically convert into one share of VII
Cable Preferred Stock, without any action on the part of the holder thereof.
Holders of shares of Viacom Common Stock electing to tender such shares in the
Exchange Offer should not expect to take physical delivery of shares of VII
Cable Class A Common Stock which they will have the right to receive in exchange
for shares of Viacom Common Stock after the consummation of the Stock Issuance.
See "Arrangements Among Viacom, Viacom International, TCI and TCI Cable--Terms
of the Subscription Agreement." Effective as of such date, the shares of VII
Cable Class A Common Stock shall no longer be deemed to be outstanding and all
rights with respect to such shares shall thereupon terminate, except the right
of the holders thereof to receive the VII Cable Preferred Stock issuable upon
such automatic conversion of the VII Cable Class A Common Stock.
VII CABLE CLASS B COMMON STOCK
Subject to the terms and conditions stated in the Subscription Agreement,
all of the authorized shares of VII Cable Class B Common Stock will be issued to
TCI Cable immediately following consummation of the Exchange Offer in
consideration of the payment of the Subscription Payment. See "Arrangements
Among Viacom, Viacom International, TCI and TCI Cable--Terms of the Subscription
Agreement."
VII CABLE PREFERRED STOCK
The shares of VII Cable Class A Common Stock received by Viacom
stockholders in exchange for their shares of Viacom Common Stock will
automatically convert into shares of VII Cable Preferred Stock upon the issuance
to TCI Cable of VII Cable Class B Common Stock pursuant to the Subscription
Agreement. Application will be made for quotation of the VII Cable Preferred
Stock on Nasdaq under the symbol " ."
RANKING
Each share of VII Cable Preferred Stock will have a par value of $100 (the
"Par Value") and will have a liquidation preference equal to the Par Value plus
an amount equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of payment of the liquidation preference (the
"Liquidation Preference"), and no more. VII Cable Preferred Stock will rank
senior to VII Cable common stock with respect to the payment of dividends and
payments of amounts distributable upon dissolution, liquidation or winding up of
VII Cable. While any shares of VII Cable Preferred Stock are outstanding, VII
Cable may not create, and the VII Cable Board may not authorize, any class or
series of Senior Stock without the prior affirmative vote of the holders of at
least 66 2/3% of the then outstanding shares of VII Cable Preferred
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Stock, voting as a separate class. See "Voting Rights" below. Immediately
following the Exchange Date, the only capital stock of VII Cable issued and
outstanding will be VII Cable Class B Common Stock and VII Cable Preferred
Stock; no shares of Parity Stock or Senior Stock will be authorized, issued or
outstanding.
DIVIDENDS
Payments of Dividends; Method of Payment. Holders of shares of VII Cable
Preferred Stock will be entitled to receive, when, as and if declared by the VII
Cable Board out of funds legally available therefor, cumulative accrued
dividends from the date (the "Issue Date") of initial issuance of the shares of
VII Cable Preferred Stock (upon conversion of the VII Cable Class A Common Stock
immediately following the Stock Issuance) at the rate per annum of % of the
Par Value per share, or $ per share of VII Cable Preferred Stock annually.
The dividend rate was determined by two investment banking firms as the rate
that, in the opinion of such firms, will cause the VII Cable Preferred Stock to
trade at its initial Liquidation Preference of $100 per share immediately
following the Exchange Date. Dividends on VII Cable Preferred Stock will be
payable quarterly in arrears on each , ,
and (or, if any such date is not a business day, on the next
succeeding business day (each a "Dividend Payment Date")), commencing ,
1996 (and, in the case of any accrued but unpaid dividends, at such additional
times and for such interim periods, if any, as may be determined by VII Cable
Board). Dividends payable on any Dividend Payment Date will be paid to holders
of record as they appear on the stock register of VII Cable at the close of
business on such record dates (each a "Record Date"), which shall not be more
than 60 days or less than 10 days preceding the Dividend Payment Dates
corresponding thereto, as shall be fixed by the VII Cable Board. Dividends on
shares of VII Cable Preferred Stock will accrue on a daily basis (without
interest or compounding) whether or not there are unrestricted funds legally
available for the payment of such dividends and whether or not such dividends
are earned or declared.
Whenever a Redemption Date (as defined below) occurs during a dividend
period, the VII Cable Board may, at its option, declare accrued dividends to,
and pay such dividends on, such Redemption Date, in which case such dividends
will be payable on such Redemption Date to the holders of shares of VII Cable
Preferred Stock as of a special record date to be designated by the VII Cable
Board for such dividend payment.
Any dividends may be paid, at the election of VII Cable, (i) out of funds
legally available therefor, (ii) through the delivery of shares of TCI Stock or
(iii) through any combination of the foregoing forms of consideration elected by
VII Cable. If VII Cable elects to pay any dividend payment, in whole or in
part, by delivery of shares of TCI Stock, the amount of such dividend payment to
be paid per share of VII Cable Preferred Stock in shares of TCI Stock (the
"Stock Dividend Amount") will be paid through the delivery to the holders of
record of such shares of VII Cable Preferred Stock on the Record Date for such
dividend payment of a number of shares of TCI Stock determined by dividing the
Stock Dividend Amount by an amount (the "Cash Equivalent Amount") equal to 95%
of the Average Market Price (as defined below) per share of TCI Stock
(determined as of the Record Date for such dividend payment). No fractional
shares of TCI Stock will be delivered to a holder of shares of VII Cable
Preferred Stock, but VII Cable shall instead pay a cash adjustment determined as
described under "Adjustment for Fractional Shares" below. If the VII Cable Board
determines to pay a dividend and VII Cable is prohibited from paying cash
dividends pursuant to the Loan or if VII Cable otherwise decides to pay
dividends in TCI Stock, TCI Cable has agreed to make available to VII Cable (i)
funds in the form of an equity contribution or a subordinated loan or (ii)
sufficient shares of TCI Stock, in each case to pay such dividends in cash, TCI
Stock or a combination thereof, with respect to any dividend payment.
The "Average Market Price" per share of TCI Stock on any date of
determination means the average of the daily closing sale prices of the TCI
Stock on Nasdaq for the ten consecutive dates on which Nasdaq is open for the
transaction of business (each a "Trading Date") ending on the third business
day preceding the date of determination (appropriately adjusted to take into
account the actual occurrence, during the period following the first of such
ten consecutive Trading Dates and ending on the business day immediately
preceding the date of determination, of any event of a type described under
"Exchange at Option of Holder--Exchange Adjustments" below).
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The market price of the TCI Stock may vary from the Average Market Price
between the date of determination of such Average Market Price and the
subsequent delivery of shares of TCI Stock, in payment of a dividend, to holders
of VII Cable Preferred Stock. If such Average Market Price is more than 5.26%
higher than the market value of such shares on the Dividend Payment Date and the
holder sells such shares of TCI Stock at such lower price, the holder's actual
dividend yield for the dividend period in respect of which such dividend was
paid would be lower than the stated dividend yield on the VII Cable Preferred
Stock. In addition, in connection with any such sale the holder is likely to
incur commissions and other transaction costs.
If VII Cable elects to make any dividend payment, in whole or in part,
through the delivery of shares of TCI Stock, it will give notice of such
determination (which shall include the number of shares of TCI Stock and cash,
if any, to be delivered in respect of each share of VII Cable Preferred Stock)
by publication, on the Record Date for such dividend payment, of such election
in a daily newspaper of national circulation.
Certain Limitations. As long as any shares of VII Cable Preferred Stock
are outstanding, (i) no dividends shall be paid or declared in cash or
otherwise, nor will any other distribution be made, on any stock of VII Cable
ranking junior to the VII Cable Preferred Stock as to dividend rights, payments
on redemption and payments of amounts distributable upon the dissolution,
liquidation or winding up of VII Cable ("Junior Stock") and (ii) no shares of
any Junior Stock may be purchased, redeemed, or otherwise acquired by VII Cable
or any Subsidiary (as defined below), nor may any funds be set aside or made
available for any sinking fund for the purchase or redemption of any Junior
Stock, unless: (a) full dividends on all outstanding shares of VII Cable
Preferred Stock and any Parity Stock have been paid, or declared and set aside
for payment, for all dividend periods terminating on or prior to the date of
such Junior Stock dividend or distribution payment, to the extent such dividends
are cumulative; (b) VII Cable has paid or set aside all amounts, if any, then or
theretofore required to be paid or set aside for all purchase, retirement, and
sinking funds, if any, for any Parity Stock; and (c) VII Cable is not in default
on any of its obligations to redeem any VII Cable Preferred Stock or any Parity
Stock. Immediately following the Exchange Date, VII Cable will not have issued
or outstanding any Parity Stock and VII Cable's common stock will represent the
only Junior Stock of VII Cable.
As long as any shares of VII Cable Preferred Stock are outstanding,
dividends or other distributions may not be declared or paid on the VII Cable
Preferred Stock or on any Parity Stock, and VII Cable may not purchase, redeem
or otherwise acquire any VII Cable Preferred Stock or Parity Stock, unless
either: (a) (i) full dividends on the VII Cable Preferred Stock and any Parity
Stock have been paid, or declared and set aside for payment, for all dividend
periods terminating on or prior to the date of such VII Cable Preferred Stock or
Parity Stock dividend, distribution, purchase, redemption or other acquisition
payment, to the extent such dividends are cumulative; (ii) VII Cable has paid or
set aside all amounts, if any, then or theretofore required to be paid or set
aside for all purchase, retirement, and sinking funds, if any, for any Parity
Stock; and (iii) VII Cable is not in default on any of its obligations to redeem
any VII Cable Preferred Stock or Parity Stock; or (b) with respect to the
payment of dividends only, any such dividends are declared and paid pro rata so
that the amounts of any dividends declared and paid per share on shares of VII
Cable Preferred Stock and shares of any Parity Stock will in all cases bear to
each other the same ratio that accrued and unpaid dividends (including any
accumulation with respect to unpaid dividends for prior dividend periods, if
such dividends are cumulative) per share on shares of VII Cable Preferred Stock
and shares of Parity Stock bear to each other.
Notwithstanding the foregoing, nothing will prevent (i) the payment of
dividends on any Junior Stock, Parity Stock or VII Cable Preferred Stock solely
in shares of Junior Stock and/or warrants, rights or options exercisable for or
convertible into Junior Stock or the redemption, purchase or other acquisition
of Junior Stock, Parity Stock or VII Cable Preferred Stock solely in exchange
for (together with a cash adjustment for fractional shares, if any), or through
the application of the proceeds from the sale of, shares of Junior Stock and/or
warrants, rights or options exercisable for or convertible into Junior Stock or
(ii) the conversion, exchange or redemption of Parity Stock or VII Cable
Preferred Stock at the option of the holders into shares of
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any capital stock (other than Senior Stock) in accordance with the terms of the
instruments creating such securities (together with a cash adjustment for
fractional shares, if any).
In addition, as long as any shares of VII Cable Preferred Stock are
outstanding, VII Cable shall not, nor shall VII Cable permit any of its
Subsidiaries to, (i) pay or declare dividends, in cash or otherwise, or make any
other distribution on any Subsidiary Equity Interest (as defined blow) or (ii)
purchase, redeem, or otherwise acquire any Subsidiary Equity Interest, or set
aside any funds for any sinking fund for the purchase or redemption of any
Subsidiary Equity Interest, unless: (i) full dividends on all VII Cable
Preferred Stock have been paid, or declared and set aside for payment, for all
dividend periods terminating on or prior to the date of such Subsidiary Equity
Interest dividend or distribution payment and (ii) VII Cable is not in default
on any of its obligations to redeem or exchange any shares of VII Cable
Preferred Stock pursuant to the terms of the VII Cable Preferred Stock.
Notwithstanding the foregoing, nothing will prevent (i) the payment of
dividends on any Subsidiary Equity Interest of a Subsidiary solely in shares of
the same class of Subsidiary Equity Interest ("Parity Subsidiary Equity
Interest") of such Subsidiary and/or warrants, rights or options exercisable for
or convertible into such Parity Subsidiary Equity Interest or the redemption,
purchase or other acquisition of any Subsidiary Equity Interest solely in
exchange for (together with a cash adjustment for fractional shares, if any), or
through the application of the proceeds from the sale of, shares of any Parity
Subsidiary Equity Interest and/or warrants, rights or options exercisable for or
convertible into such Parity Subsidiary Equity Interest; (ii) paying dividends
or other distributions on any Subsidiary Equity Interest if such dividends are
required to be made (there being no right of deferral) pursuant to the terms of
any charter document or any partnership, joint venture, stockholder, acquisition
or other agreement in effect on the Exchange Date, or (iii) purchasing,
redeeming or otherwise acquiring any Subsidiary Equity Interest if required to
do so pursuant to the terms of any charter document or any partnership, joint
venture, stockholder, acquisition or other agreement in effect on the Exchange
Date.
A "Subsidiary" means (i) a corporation a majority of the capital stock of
which, having voting power under ordinary circumstances to elect directors, is
at the time, directly or indirectly, owned by VII Cable and (ii) any other
entity (other than a corporation) in which VII Cable, directly or indirectly,
has the power to elect or direct the election of a majority of the members of
the governing body of such entity. A "Subsidiary Equity Interest" means (x)
capital stock of Subsidiary (other than a wholly owned Subsidiary) that is a
corporation or (y) a partnership or other ownership interest of a Subsidiary
that is not a corporation.
Payment of dividends or other distributions to the holders of VII Cable
Preferred Stock shall be subject to the prior preferences and other rights of
any future class or series of Senior Stock. See "Ranking" above.
EXCHANGE AT OPTION OF HOLDER
Exchange Privilege. Each share of VII Cable Preferred Stock will be
exchangeable, in whole or in part, at the option of the holder thereof, at any
time after the fifth anniversary of the Issue Date, unless previously redeemed,
at an exchange rate (the "Exchange Rate"), to be determined by dividing (i)
$80.00 by (ii) the weighted average of the sales prices for all trades of TCI
Stock as reported on Nasdaq on each of the twenty consecutive Trade Dates ending
on the second business day prior to the Exchange Date, including any extension
thereof. The Exchange Rate will be subject to adjustment as described under
"Exchange Adjustments" below. VII Cable will announce the initial Exchange Rate
by 5:00 p.m., New York City time, on the second business day prior to the
Exchange Date by issuing a press release to the Dow Jones News Service. Holders
of Viacom Common Stock will also be able to obtain the initial Exchange Date,
following such press release, from the Information Agent and the Dealer Manager
at their respective telephone numbers appearing on the back cover of this
Offering Circular--Prospectus.
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The exchange of shares of VII Cable Preferred Stock at the option of the
holder for shares of TCI Stock may be effected by delivering (i) the
certificates evidencing such holder's shares of VII Cable Preferred Stock,
together with written notice of exchange specifying the number of shares of VII
Cable Preferred Stock to be exchanged and specifying the name or names (with
addresses) in which the certificate or certificates representing the TCI Stock
deliverable on such exchange are to be registered, and (ii) a proper assignment
of such certificates to VII Cable (or in blank) of the certificates for the
shares of VII Cable Preferred Stock surrendered for exchange, to the office or
agency to be maintained by VII Cable for that purpose and otherwise in
accordance with exchange procedures established by VII Cable. Initially such
office will be the principal corporate trust office of the Transfer Agent (as
hereinafter defined). Each notice of exchange will be irrevocable and each
exchange will be deemed to be effective immediately before the close of business
on the date (the "TCI Stock Exchange Date") on which all of the requirements
for such exchange have been satisfied. The exchange will be at the Exchange
Rate in effect immediately prior to the close of business on the TCI Stock
Exchange Date.
As promptly as practicable after the surrender by a holder of certificates
for shares of VII Cable Preferred Stock for exchange, together with any other
required documentation, VII Cable shall cause to be delivered at said office or
agency to such holder, or on his or her written order, a certificate or
certificates for the number of full shares of TCI Stock to which such holder is
entitled, together with a cash adjustment for any fractional shares determined
as described under "Adjustment for Fractional Shares" below.
Holders of shares of VII Cable Preferred Stock at the close of business on
a Record Date for any payment of declared dividends will be entitled to
receive the dividend payable on such shares of VII Cable Preferred Stock on the
corresponding Dividend Payment Date notwithstanding the effective exchange of
such shares following such Record Date and prior to the corresponding Dividend
Payment Date. However, shares of VII Cable Preferred Stock surrendered for
exchange after the close of business on a Record Date for any payment of
dividends and before the opening of business on the next succeeding Dividend
Payment Date must be accompanied by payment in cash of an amount equal to the
dividend thereon attributable to the current quarterly dividend period which is
to be paid on such Dividend Payment Date (unless such shares of VII Cable
Preferred Stock are subject to redemption on a Redemption Date falling between
such Record Date and such Dividend Payment Date). A holder of shares of VII
Cable Preferred Stock called for redemption on any Dividend Payment Date will
(if such holder is the registered holder on the applicable Record Date) receive
the dividend on such shares payable on that date and will be able to exchange
such shares after the Record Date for such dividend without paying an amount
equal to such dividend to VII Cable upon exchange. Except as provided above,
upon any exchange of shares of VII Cable Preferred Stock for shares of TCI Stock
VII Cable will not make any payment or allowance for unpaid dividends, whether
or not in arrears, on exchanged shares of VII Cable Preferred Stock or for
previously declared dividends or distributions on the shares of TCI Stock
issued upon such exchange.
If the shares of VII Cable Preferred Stock represented by a certificate
surrendered for exchange are exchanged in part only, VII Cable will cause to be
issued and delivered to the holder, without charge therefor, a new certificate
or certificates representing in the aggregate the number of unexchanged shares.
The right to exchange shares of VII Cable Preferred Stock called for
redemption will terminate immediately before the close of business on the
related Redemption Date. See "Redemption" below.
Exchange Adjustments. The Exchange Rate is subject to adjustment upon the
occurrence of certain events involving TCI including, without limitation: (i)
the payment by TCI of dividends (and other distributions) on outstanding shares
of TCI Stock in shares of TCI Stock; (ii) subdivisions or combinations of TCI
Stock; (iii) the issuance by TCI, in reclassification of its outstanding shares
of TCI Stock, of any other shares of common stock of TCI; (iv) the issuance by
TCI to all holders of TCI Stock of rights, warrants or options entitling holders
of such rights, warrants or options (for a period not exceeding forty-five days)
to
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purchase shares of TCI Stock at a price per share less than the Average Market
Price (determined as of the record date for such rights, warrants or options);
and (v) the payment by TCI of dividends (or other distributions) consisting of
capital stock, evidences of its indebtedness or other assets of TCI (other than
those dividends, rights, warrants, options and distributions referred to above
and excluding cash dividends or distributions other than Extraordinary Cash
Distributions (as defined below)) to all holders of outstanding shares of TCI
Stock. "Extraordinary Cash Distributions" means, with respect to any
consecutive 12-month period, all cash dividends and cash distributions on the
outstanding shares of TCI Stock during such period to the extent such dividends
or distributions exceed, on a per share of TCI Stock basis, 10% of the average
daily closing sale price of the TCI Stock during such period (other than cash
dividends or cash distributions for which a prior adjustment to the Exchange
Rate was made). VII Cable reserves the right, in lieu of making an adjustment
to the Exchange Rate, to distribute to the holders of VII Cable Preferred Stock,
or reserve for delivery with shares of TCI Stock upon surrender of shares of VII
Cable Preferred Stock in exchange therefor, any dividend or distribution
described above. All adjustments to the Exchange Rate will be calculated to the
nearest 1/1000th of a share of TCI Stock. No adjustment in the Exchange Rate
will be required unless such adjustment would require an increase or decrease of
at least one percent therein; provided, however, that any adjustment which is
not required to be made will be carried forward and taken into account in any
subsequent adjustment. In addition to the foregoing adjustments, VII Cable may
make increases in the Exchange Rate that are necessary or advisable in order
that any event treated for federal income tax purposes as a dividend of stock or
stock rights will not be taxable to the holders of TCI Stock.
If an adjustment is required to be made in the Exchange Rate, VII Cable
may, in its sole discretion, elect to defer the following until after the
occurrence of the event requiring such adjustment: (i) delivering to the holder
of any VII Cable Preferred Stock surrendered for exchange the additional shares
of TCI Stock deliverable upon such exchange over the shares of TCI Stock
deliverable before giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of a fractional share of TCI Stock. In
addition, no adjustment need be made for rights to purchase shares of TCI Stock
or for sales of shares of TCI Stock which in either case are made pursuant to a
plan providing for reinvestment of dividends or interest or pursuant to a bona
fide employee stock option or stock purchase plan of TCI or any of its direct or
indirect wholly owned subsidiaries (including VII Cable).
Whenever the Exchange Rate is required to be adjusted, VII Cable will
forthwith compute such adjusted Exchange Rate and file with the transfer
agent(s) for the VII Cable Preferred Stock and the TCI Stock a certificate with
respect to such adjustment, and mail a notice to holders of VII Cable Preferred
Stock providing information with respect to such adjustment. At least 10 days
before the record date or other date set for definitive action, VII Cable will
notify holders of VII Cable Preferred Stock of (i) any action which would
require an adjustment to the Exchange Rate, (ii) certain mergers or combinations
involving TCI or (iii) the dissolution, liquidation or winding up of TCI.
Adjustment for Consolidation or Merger of TCI. In case of (i) any
consolidation or merger to which TCI is a party, (ii) any sale or transfer to
another corporation of the property of TCI as an entirety or substantially as an
entirety or (iii) any statutory exchange of securities by TCI with another
corporation (other than in connection with a merger or acquisition), in each
case as a result of which shares of TCI Stock shall be converted into the right
to receive stock, securities or other property (including cash or any
combination thereof), each share of VII Cable Preferred Stock which is not
converted into the right to receive stock, securities or other property in
connection with such transaction will, after consummation of such transaction,
be subject to exchange at the option of the holder into the kind and amount of
securities, cash or other property receivable upon consummation of such
transaction by a holder of the number of shares of TCI Stock into which such
share of VII Cable Preferred Stock might have been exchanged immediately prior
to consummation of such transaction and assuming in each case that such holder
of TCI Stock failed to exercise rights of election, if any, as to the kind or
amount of securities, cash or other property receivable upon consummation of
such transaction (provided that if the kind or amount of securities, cash or
other property receivable upon consummation of such
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transaction is not the same for each non-electing share, then the kind and
amount of securities, cash or other property receivable upon consummation of
such transaction for each non-electing share will be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares). The
kind and amount of securities into which shares of VII Cable Preferred Stock
will be exchangeable after consummation of such transaction will be subject to
adjustment, as nearly as may be practicable, as described under "Exchange
Adjustments" above following the date of consummation of such transaction. TCI
will agree not to become a party to any such transaction unless the terms
thereof are consistent with the foregoing.
REDEMPTION
Mandatory Redemption. Each share of VII Cable Preferred Stock (if not
earlier exchanged or redeemed) will be subject to mandatory redemption by VII
Cable on the tenth anniversary of the Issue Date (the "Mandatory Redemption
Date"), at a redemption price (the "Mandatory Redemption Price") equal to the
Liquidation Preference.
Optional Redemption. Shares of VII Cable Preferred Stock are not
redeemable prior to 15 days after the fifth anniversary of the Issue Date (the
"Initial Redemption Date"). At any time and from time to time on or after the
Initial Redemption Date and until the Mandatory Redemption Date, VII Cable will
have the right to redeem, in whole or in part, the outstanding shares of VII
Cable Preferred Stock at the following per share redemption prices, together
with accrued but unpaid dividends (whether or not earned or declared) to the
date fixed for redemption (each an "Optional Redemption Price," such price and
the Mandatory Redemption Price being sometimes referred to collectively herein
as a "Redemption Price"), if redeemed during the twelve-month periods beginning
on the anniversary of the Issue Date in the years shown below.
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2001.................................
2002.................................
2003.................................
2004 and thereafter..................
</TABLE>
If fewer than all the outstanding shares of VII Cable Preferred Stock are
to be redeemed as of any date (an "Optional Redemption Date," such date and the
Mandatory Redemption Date being sometimes referred to collectively herein as a
"Redemption Date"), the shares of VII Cable Preferred Stock to be redeemed will
be selected by VII Cable from outstanding shares of VII Cable Preferred Stock by
lot or pro rata (as nearly as may be practicable) or by any other method
determined by the VII Cable Board to be equitable.
Manner of Payment of Redemption Price. VII Cable may effect the
redemption of shares of VII Cable Preferred Stock upon the mandatory or optional
redemption thereof, at the election of VII Cable, (i) out of funds legally
available therefor, (ii) through the delivery of shares of TCI Stock or (iii)
through any combination of the foregoing forms of consideration elected by VII
Cable. If VII Cable elects to pay, in whole or in part, the Redemption Price in
respect of shares of VII Cable Preferred Stock through the delivery of shares of
TCI Stock, then VII Cable shall deliver to each holder of shares of VII Cable
Preferred Stock to be redeemed on the applicable Redemption Date a number of
shares of TCI Stock equal to the amount determined by dividing (i) the aggregate
Redemption Price (or designated portion thereof) of such shares of VII Cable
Preferred Stock by (ii) the Cash Equivalent Amount (determined as of such
Redemption Date). The market price of the TCI Stock may vary from the Average
Market Price between the date of determination of such
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Average Market Price (for purposes of determining the Cash Equivalent Amount)
and the subsequent delivery of shares of TCI Stock, in payment of the Redemption
Price, to holders in respect of shares of VII Cable Preferred Stock called for
redemption. If such Average Market Price is more than 5.26% higher than the
market value of the TCI Stock on the Redemption Date and the holder sells such
shares of TCI Stock at such lower price, the holder's actual proceeds from the
sale of such shares would be lower that the stated Redemption Price for shares
of VII Cable Preferred Stock. In addition, in connection with any such sale the
holder is likely to incur commissions and other transaction costs.
No fractional shares of TCI Stock will be delivered to a holder upon
redemption of his shares of VII Cable Preferred Stock, but VII Cable will
instead pay a cash adjustment determined as described under "Adjustment for
Fractional Shares" below.
Dividends on shares of VII Cable Preferred Stock selected for redemption
will cease to accrue, and the right of the holders of such shares to exercise
their right to exchange such shares for TCI Stock will terminate immediately
prior to the close of business, on the related Redemption Date.
Notice of Redemption. VII Cable will provide notice (a "Redemption
Notice") of any redemption of shares of VII Cable Preferred Stock to holders of
record of VII Cable Preferred Stock to be called for redemption not less than 15
nor more than 60 days prior to the applicable Redemption Date. The Redemption
Notice will be provided by mail sent to each holder of record of shares of VII
Cable Preferred Stock to be redeemed, at such holder's address as it appears on
the stock register of VII Cable; provided, however, that neither failure to give
such notice nor any defect therein will affect the validity of the proceeding
for the redemption of any shares of VII Cable Preferred Stock to be redeemed
except as to the holders to whom VII Cable has failed to give said notice or
whose notice was defective.
Each Redemption Notice sent to a holder will include, without limitation,
the following information: (i) the Redemption Date; (ii) if less than all
outstanding shares of VII Cable Preferred Stock are to be redeemed, the number
of shares held by such holder to be redeemed; (iii) the Redemption Price and the
form or forms of consideration that VII Cable has elected to pay and/or deliver
upon such redemption and, if more than one form of consideration has been
elected by VII Cable, the designated portions of the Redemption Price to be paid
in each form of consideration so elected; (iv) if VII Cable has elected to
deliver shares of TCI Stock in payment of the Redemption Price (or a designated
portion thereof), the method of determining the number of shares of TCI Stock so
deliverable; (v) the place or places where certificates for VII Cable Preferred
Stock to be redeemed are to be surrendered for payment of the Redemption Price;
(vi) that dividends on the shares of VII Cable Preferred Stock to be redeemed
shall cease to accrue on the Redemption Date; and (vii) the then current
Exchange Rate and that the exchange privilege will terminate immediately prior
to the close of business on the Redemption Date.
On or after the Redemption Date, each holder of shares of VII Cable
Preferred Stock to be redeemed must present and surrender his certificate or
certificates for such shares to VII Cable at the place designated in the
Redemption Notice and thereupon the Redemption Price of such shares will be paid
to or on the order of the person whose name appears on such certificate or
certificates as the record owner thereof, and each surrendered certificate will
be cancelled. Should fewer than all the shares represented by a certificate be
redeemed, a new certificate will be issued representing the unredeemed shares.
If a Redemption Notice with respect to shares of VII Cable Preferred Stock
to be redeemed pursuant to a mandatory or optional redemption has been timely
given by VII Cable, and if on or before the applicable Redemption Date VII Cable
has deposited with the redemption agent for VII Cable Preferred Stock (or, if
there is no redemption agent, shall have set apart so as to be available for
such purpose and only such purpose) cash (including cash for any adjustment in
lieu of delivering fractional securities) and/or shares of TCI Stock, as
applicable, sufficient to pay in full the aggregate Redemption Price for such
shares of VII Cable Preferred Stock
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on such Redemption Date, then effective as of the close of business on such
Redemption Date the shares of VII Cable Preferred Stock to be so redeemed will
no longer be deemed outstanding (notwithstanding that any certificate therefor
may not have been surrendered for cancellation), dividends with respect to the
shares so called for redemption shall cease to accrue on the Redemption Date
(except that holders of shares of VII Cable Preferred Stock at the close of
business on a Record Date for any payment of dividends shall be entitled to
receive the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such shares following such Record
Date and prior to such Dividend Payment Date) and all rights with respect to the
shares so called for redemption will forthwith after such date cease and
terminate, except the right of such holders, upon the surrender of certificates
evidencing the shares of VII Cable Preferred Stock so redeemed, to receive the
cash and/or TCI Stock, as applicable, payable or deliverable in payment of the
Redemption Price and the applicable cash adjustment, if any, in lieu of
fractional shares, without interest. Any cash and/or shares of TCI Stock so
deposited or set apart and unclaimed at the end of one year from such Redemption
Date will be repaid and released to VII Cable, after which the holder or holders
of such shares of VII Cable Preferred Stock so called for redemption will look
only to VII Cable for delivery of such cash and/or shares of TCI Stock.
The ability of VII Cable to redeem VII Cable Preferred Stock shall be
subject to the prior preferences and rights of any future class or series of
Senior Stock. See "Ranking" above.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary dissolution, liquidation or
winding up of VII Cable, the holders of shares of VII Cable Preferred Stock then
outstanding will be entitled to receive, after payment or provision for payment
of the debts and other liabilities of VII Cable and payment or provision for
payment of any distribution on shares of any Senior Stock, an amount per share
equal to the Liquidation Preference, before any distribution of assets is made
to the holders of Junior Stock or any other capital stock of VII Cable ranking
junior to the VII Cable Preferred Stock upon liquidation, dissolution or winding
up. After payment of the Liquidation Preference, holders of shares of VII Cable
Preferred Stock will not be entitled to any further participation in any
distribution of assets of VII Cable.
If, upon any dissolution, liquidation or winding up of VII Cable, the
assets of VII Cable available for distribution to the holders of the shares of
VII Cable Preferred Stock shall be insufficient to pay in full (i) the aggregate
Liquidation Preference payable to holders of VII Cable Preferred Stock and (ii)
the liquidation preference payable to holders of shares of all outstanding
classes and series of Parity Stock (as set forth in the instrument or
instruments creating such Parity Stock), the holders of shares of VII Cable
Preferred Stock and such Parity Stock shall share ratably in such distribution
of assets in proportion to the amount which would be payable on such
distribution if the amounts to which the holders of outstanding shares of VII
Cable Preferred Stock and the holders of outstanding shares of such Parity Stock
were paid in full. The sale, lease, transfer or exchange of all or
substantially all of the assets of VII Cable, the consolidation or merger of VII
Cable with one or more other corporations (whether or not VII Cable is the
corporation surviving such consolidation or merger), and the consummation of a
statutory binding share exchange involving VII Cable will not be deemed a
liquidation, dissolution or winding up of VII Cable.
CONDITIONS TO DELIVERY OF SHARES OF TCI STOCK
FOR DIVIDEND AND REDEMPTION PAYMENTS
VII Cable's right to elect to make any dividend or redemption payment (or
designated portions thereof) through the delivery of shares of TCI Stock will be
conditioned upon: (i) the shares of TCI Stock to be so delivered being fully
paid and nonassessable and free from any preemptive rights, liens or adverse
claims; (ii) the delivery of such shares being exempt from the registration or
qualification requirements of the Securities Act and applicable state securities
laws or, if no such exemption is available, the delivery of such shares having
been duly registered or qualified under the Securities Act and applicable state
securities laws; and (iii) the shares
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of TCI Stock to be so delivered being listed, and upon delivery being eligible
for trading, on Nasdaq or on a national securities exchange. If such conditions
have not been satisfied prior to or on the date of any such dividend or
redemption payment, such payment shall be made solely in cash.
ADJUSTMENT FOR FRACTIONAL SHARES
No fractional shares or scrip representing fractional shares of TCI Stock
will be delivered upon the redemption or exchange of any shares of VII Cable
Preferred Stock or in connection with any dividend payment. Whether or not a
fractional share would be delivered to a holder of VII Cable Preferred Stock
shall be based upon (i), in the case of an exchange, on the total number of
shares of VII Cable Preferred Stock such holder is at the time exchanging into
TCI Stock and the total number of shares of TCI Stock otherwise deliverable upon
such exchange and (ii), in the case of the payment, in whole or in part, of a
dividend or redemption payment through the delivery of shares of TCI Stock, on
the total number of shares of VII Cable Preferred Stock at the time held by such
holder and the total number of shares of TCI Stock otherwise deliverable in
respect thereof. In lieu of the issuance of a fraction of a share of TCI Stock
or scrip, VII Cable shall pay instead an amount in cash by its check equal to
the same fraction of (i), in the case of an exchange, the Average Market Price
(determined as of the TCI Stock Exchange Date) and (ii), in the case of a
dividend or redemption payment, the Cash Equivalent Amount (determined as of the
record date of such dividend or the date of such redemption payment).
VOTING RIGHTS
The holders of shares of VII Cable Preferred Stock will have no voting
rights, except as otherwise required by law and except as set forth below. When
and if the holders of VII Cable Preferred Stock are entitled to vote, each
holder will be entitled to one vote per share.
If at any time accrued dividends payable on the shares of VII Cable
Preferred Stock are in arrears and unpaid in an aggregate amount equal to or
exceeding the aggregate amount of dividends payable thereon for six quarterly
dividend periods, the holders of the shares of VII Cable Preferred Stock, voting
separately as a class (with the holders of all other shares of Parity Stock upon
which like voting rights have been conferred and are exercisable), will have the
right to vote for the election of two directors (the "Preferred Stock
Directors") to the VII Cable Board, such directors to be in addition to the
number of directors constituting the VII Cable Board immediately prior to the
accrual of such right. Such right of the holders of shares of VII Cable
Preferred Stock to vote for the election of two Preferred Stock Directors will
continue until all dividends in arrears on the shares of VII Cable Preferred
Stock have been paid in full. The term of office of each Preferred Stock
Director shall terminate on the earlier of (i) the next annual meeting of
stockholders of VII Cable at which a successor shall have been elected and
qualified (irrespective of whether the VII Cable Board is divided into staggered
classes) or (ii) the termination of the right of the holders of shares of VII
Cable Preferred Stock (and any such other shares of Parity Stock and Senior
Stock) to vote for Preferred Stock Directors.
For as long as any shares of VII Cable Preferred Stock remain outstanding,
the affirmative vote of the holders of at least 66 2/3% of such outstanding
shares (voting separately as a class) will be necessary: (i) before VII Cable
may amend, alter or repeal any of the provisions of VII Cable's Restated
Certificate of Incorporation which would adversely affect the powers,
preferences or rights of the holders of the shares of VII Cable Preferred Stock
then outstanding; provided, however, that (x) any such amendment, alteration or
repeal that would authorize, create or increase the authorized amount of any
Junior Stock or Parity Stock and (y) any such amendment that would increase the
number of authorized shares of Preferred Stock (other than VII Cable Preferred
Stock) or that would decrease (but not below the number of authorized shares
then outstanding) the number of authorized shares of Preferred Stock (other than
VII Cable Preferred Stock), will be deemed not to adversely affect such powers,
preferences or rights and shall not be subject to approval by the holders of
shares of VII Cable Preferred Stock; (ii) before VII Cable or the VII Cable
Board may
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create or issue any class or series of Senior Stock; or (iii) before VII Cable
may effect any reclassification of VII Cable Preferred Stock (other than a
reclassification that solely seeks to change the designation of the VII Cable
Preferred Stock and does not adversely affect the powers, preferences or rights
of the holders of shares of VII Cable Preferred Stock outstanding immediately
prior to such reclassification). No vote of the holders of VII Cable Preferred
Stock in respect of an amendment, alteration or repeal of any provision of VII
Cable's Restated Certificate of Incorporation or the creation or issue of any
class or series of Senior Stock will be required if, at or prior to the time
when such amendment, alteration or repeal or creation or issue is to take
effect, as the case may be, provision is made for the redemption of all shares
of VII Cable Preferred Stock at the time outstanding (except that no such
provision may be made prior to the Initial Redemption Date); provided, however,
-------- -------
notwithstanding the foregoing, in the event that VII Cable does not pay the
Redemption Price to holders of VII Cable Preferred Stock on the applicable
Redemption Date, such holders will be entitled to vote in respect of the matters
described above on which such holders would have been entitled to so vote but
for the provision for redemption which was made and any vote taken in respect of
such matters shall be void.
Except as required by law, the holders of VII Cable Preferred Stock will
not be entitled to vote on any merger or consolidation involving VII Cable or a
sale of all or substantially all of the assets of VII Cable.
CERTAIN COVENANTS
Transactions with Affiliates. As long as any shares of VII Cable
Preferred Stock are outstanding, VII Cable will not, and will not permit any
Subsidiary to, enter into any transaction with an Affiliate unless such
transaction is on terms that are no less favorable to VII Cable or such
Subsidiary than those that would have been obtained in a comparable transaction
with a person that is not an Affiliate; provided, however, that transactions
between VII Cable and its Subsidiaries or among such Subsidiaries shall not be
subject to this covenant. An "Affiliate" of VII Cable or any Subsidiary is
defined as any person or entity that directly or indirectly controls, is
controlled by, or is under common control with VII Cable or such Subsidiary.
SEC Reports. As long as any shares of VII Cable Preferred Stock are
outstanding, VII Cable shall timely file with the Commission copies of the
annual reports, quarterly reports and other reports, information and documents
which VII Cable is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act and, within 15 days after such filing is required
to be made with the Commission, mail copies of such reports, information or
other documents to the holders of the VII Cable Preferred Stock. If at any time
while shares of VII Cable Preferred Stock are outstanding VII Cable is not
required to, and does not, have, any class of securities registered under the
Exchange Act, then VII Cable shall prepare comparable reports, information and
documents and mail the same to holders of the VII Cable Preferred Stock within
15 days after the date it would have been required to file such reports,
information or documents with the Commission if it had continued to have
securities registered under the Exchange Act.
TRANSFER AGENT AND REGISTRAR
(the "Transfer Agent") will act as paying, exchange and redemption
agent and registrar for the shares of VII Cable Preferred Stock.
MISCELLANEOUS
Upon issuance, the shares of VII Cable Preferred Stock will be fully paid
and nonassessable. Holders of shares of VII Cable Preferred Stock will have no
preemptive rights. TCI has agreed to at all times reserve and keep available
out of its authorized and unissued TCI Stock, solely for issuance upon the
exchange of shares of VII Cable Preferred Stock, such number of shares of TCI
Stock as will from time to time be deliverable upon the exchange of all shares
of VII Cable Preferred Stock then outstanding (assuming for this purpose that
all of the shares of VII Cable Preferred Stock are held by one person). Shares
of VII Cable Preferred Stock redeemed by VII Cable will be retired and resume
the status of authorized and unissued shares of Preferred Stock, without
designation as to series, until such shares are once more designated as part of
a particular series of Preferred Stock by the VII Cable Board.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF VIACOM AND VII CABLE
The following is a summary of material differences between the rights of
holders of Viacom Common Stock and the rights of holders of VII Cable Class A
Common Stock and VII Cable Preferred Stock (after giving effect to the
Recapitalization). Because each of Viacom and VII Cable is organized under the
laws of Delaware, such differences arise principally from provisions of the
charter of each of Viacom and VII Cable. Assuming that the Stock Issuance
occurs in accordance with the terms and conditions of the Subscription
Agreement, shares of VII Cable Class A Common Stock issued to holders of shares
of Viacom Common Stock whose shares are accepted for exchange will automatically
convert into shares of VII Cable Preferred Stock on the Exchange Date
immediately after the consummation of the Stock Issuance. Accordingly, holders
of shares of Viacom Common Stock tendering such shares in the Exchange Offer
should expect to receive shares of VII Cable Preferred Stock in exchange after
the consummation of the Stock Issuance.
The following summaries do not purport to be complete statements of the
rights of Viacom stockholders under Viacom's Restated Certificate of
Incorporation as compared with the rights of VII Cable stockholders under VII
Cable's Restated Certificate of Incorporation and By-laws or a complete
description of the specific provisions referred to herein. The identification
of specific differences is not meant to indicate that other equal or more
significant differences do not exist. These summaries are qualified in their
entirety by reference to the Delaware General Corporation Law ("DGCL") and
governing corporate instruments of Viacom and VII Cable, to which stockholders
are referred. The terms of VII Cable's capital stock are described in greater
detail under "Description of VII Cable Capital Stock."
VOTING RIGHTS
Viacom Common Stock. Except as otherwise expressly provided below, all
issued and outstanding shares of Viacom Class A Common Stock and Viacom Class B
Common Stock are identical and entitle the holders to the same rights and
privileges. With respect to all matters upon which stockholders are entitled to
vote, holders of outstanding shares of Viacom Class A Common Stock vote together
with the holders of any other outstanding shares of capital stock of Viacom
entitled to vote, without regard to class, and every holder of outstanding
shares of Viacom Class A Common Stock is entitled to cast one vote in person or
by proxy for each share of Viacom Class A Common Stock outstanding in such
stockholder's name. Except as otherwise required by the DGCL, the holders of
outstanding shares of Viacom Class B Common Stock are not entitled to any votes
upon any questions presented to stockholders of Viacom.
VII Cable Class A Common Stock. VII Cable Class A Common Stock entitles
holders thereof to one vote for each share on each matter upon which
stockholders have the right to vote.
VII Cable Preferred Stock. VII Cable Preferred Stock does not entitle its
holders to voting rights with respect to general corporate matters, except as
provided by law and except (i) if dividends on the VII Cable Preferred Stock are
in arrears and unpaid for at least six quarterly dividend periods, in which case
the number of directors constituting the VII Cable Board will, without further
action, be increased by two to permit the holders of the shares of VII Cable
Preferred Stock, voting separately as a class (with the holders of all other
shares of Parity Stock upon which like voting rights have been conferred and are
exercisable), to elect by a plurality vote two directors, until such time as all
dividends in arrears on the VII Cable Preferred Stock are paid in full or (ii)
if VII Cable seeks to (a) amend, alter or repeal (by merger or otherwise) any
provision of the Amended and Restated Certificate of Incorporation so as to
affect adversely the specified rights, preferences, privileges or voting rights
of holders of shares of the VII Cable Preferred Stock, (b) create or issue any
class or series of Senior Stock or (c) effect any reclassification of the VII
Cable Preferred Stock (other than a reclassification that solely seeks to change
the designation of the VII Cable Preferred Stock and does not adversely affect
the powers, preferences or rights of the holders of shares or VII Cable
Preferred Stock outstanding immediately
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prior to such reclassification), in each of which events specified in this
clause (ii) the affirmative vote or consent of at least 66 2/3% of the shares of
VII Cable Preferred Stock then outstanding, voting or consenting, as the case
may be, separately as one class, would be required.
DIVIDENDS
Viacom Common Stock. Viacom has not declared cash dividends on its common
equity and has no present intention of so doing.
VII Cable Class A Common Stock. The VII Cable Class A Common Stock is not
expected to be outstanding for any significant period of time, if at all, after
the consummation of the Stock Issuance. Accordingly, it is not anticipated that
any dividends will be declared or paid with respect to such stock.
VII Cable Preferred Stock. Holders of VII Cable Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, dividends on the Preferred Stock at a rate per
annum equal to % of the Initial Liquidation Preference of $100 per share of
VII Cable Preferred Stock, payable quarterly, and no more. All dividends will
be fully cumulative whether or not earned or declared and shall accrue on a
daily basis from the date of issuance of the VII Cable Preferred Stock and will
be payable quarterly in arrears on , ,
and of each year to holders of record as they appear on the
stock transfer books of VII Cable on such record dates, not more than 60 days
nor less than 10 days preceding the payment dates for such dividends, as are
fixed by the VII Cable Board.
All dividends may be paid, at VII Cable's option, in cash or in TCI Stock,
or in a combination of the foregoing forms of consideration. See "Description
of VII Cable Capital Stock--VII Cable Preferred Stock--Dividends."
LIQUIDATION PREFERENCE
None of the holders of Viacom Common Stock or VII Cable Class A Common
Stock are entitled to be paid any liquidation preference.
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of VII Cable, holders of VII Cable Preferred Stock will be entitled to be paid,
out of the assets of VII Cable available for distribution, $100.00 per share,
plus an amount in cash equal to accumulated and unpaid dividends thereon to the
date fixed for liquidation, dissolution or winding-up, and no more, before any
payment shall be made or any assets distributed to the holders of any class or
series of Junior Stock, including, without limitation, any class or series of
common stock of VII Cable. If, upon any voluntary or involuntary liquidation,
dissolution or winding-up of VII Cable, the amounts payable with respect to the
VII Cable Preferred Stock and all other Parity Stock are not paid in full, the
holders of the VII Cable Preferred Stock and the Parity Stock will share equally
and ratably in any distribution of assets of VII Cable in proportion to the full
liquidation preference and accumulated and unpaid dividends to which each is
entitled. See "Description of VII Cable Capital Stock--VII Cable Preferred
Stock--Liquidation Preference."
RELATIONSHIP BETWEEN VIACOM AND VII CABLE
Viacom has provided VII Cable with certain administrative services,
including risk management, legal, financial and other corporate functions for
which an expense has been allocated in VII Cable's financial
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statements. In addition, VII Cable, through the normal course of business, is
involved in transactions with Viacom and its affiliated companies. VII Cable
has affiliation arrangements to distribute television program services of
companies owned by or affiliated with Viacom, including Showtime, MTV,
Nickelodeon, VH1, Comedy Central, USA Network, The Sci-Fi Channel, The Movie
Channel, Flix and Lifetime (in which Viacom had an equity participation until
April 1, 1994). These affiliation arrangements require VII Cable to pay license
fees based upon the number of subscribers receiving the programming. Aggregate
license fees incurred under such affiliation arrangements with Viacom affiliates
were $28.6 million in 1994, $23.8 million in 1993 and $24.6 million in 1992.
See Note 6 of the Notes to Combined Financial Statements of VII Cable.
RELATIONSHIP BETWEEN VII CABLE AND TCI AFTER THE EXCHANGE OFFER
OWNERSHIP OF CLASS B COMMON STOCK
Immediately following the Stock Issuance, TCI Cable will own 100 shares of
VII Cable Class B Common Stock, which at that time, will represent 100% of the
outstanding common equity securities of VII Cable. Consequently, TCI Cable will
have significant influence over the policies and affairs of VII Cable and,
subject only to the rights of holders of VII Cable Preferred Stock set forth in
VII Cable's Restated Certificate of Incorporation, will have the power to
control all matters (including the election of directors) requiring the approval
of stockholders of VII Cable. See "RISK FACTORS--Controlling Stockholder" and
"DESCRIPTION OF VII CABLE CAPITAL STOCK--VII Cable Preferred Stock--Voting
Rights."
SERVICES AGREEMENT
Upon consummation of the Stock Issuance, TCI and TCI Cable will provide
certain facilities, services and personnel to VII Cable. The scope of the
facilities, personnel and services to VII Cable and the respective charges
payable in respect thereof are set forth in a services agreement to be entered
into among TCI, TCI Cable and VII Cable (the "Services Agreement"). Pursuant to
the Services Agreement, TCI will provide to VII Cable administrative and
operational services necessary for the conduct of its business, including, but
not limited to, such services as are generally performed by TCI's accounting,
finance, corporate, legal and tax departments. In addition, TCI and TCI Cable
will make available to VII Cable such general overall management services and
strategic planning services as TCI, TCI Cable and VII Cable shall agree, and
shall provide VII Cable with such access to and assistance from TCI Cable's
engineering and construction groups and TCI's programming and technology/venture
personnel as VII Cable may from time to time request.
The Services Agreement will also provide that TCI, for so long as TCI
continues to beneficially own shares of VII Cable Common Stock representing at
least a majority in voting power of the outstanding shares of capital stock of
VII Cable entitled to vote generally in the election of directors, will continue
to provide in the same manner, and on the same basis as generally provided from
time to time to other participating TCI subsidiaries, benefits and
administrative services to VII Cable's employees. In this regard, VII Cable
will be allocated that portion of TCI's compensation expense attributable to
benefits extended to employees of VII Cable.
Pursuant to the Services Agreement, VII Cable will from time to time
reimburse TCI and TCI Cable for all direct expenses incurred by them in
providing such services and a pro rata share of all indirect expenses incurred
by them in connection with the rendering of such services, including a pro rata
share of the salary and other compensation of TCI and TCI Cable employees
performing services for VII Cable and general overhead expenses. The
obligations of TCI and TCI Cable to provide services under the Services
Agreement (other than TCI's obligation to allow the Company's employees to
participate in TCI's employee benefit plans) will continue in effect until
terminated by any party to the Services Agreement at any time on not less than
60 days' notice.
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PROGRAMMING
SSI, an indirect wholly owned subsidiary of TCI Cable, purchases
programming services from program suppliers and then makes such services
available to TCI Cable's subsidiaries and certain of its affiliates at SSI's
cost and, in some circumstances, an administrative fee. Following the Stock
Issuance, it is anticipated that the cable systems owned and operated by VII
Cable will purchase programming from SSI at SSI's cost.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income
tax consequences relating to the Transaction and the ownership and disposition
of VII Cable Preferred Stock. The discussion contained in this Offering
Circular -- Prospectus is based on the law in effect as of the date of this
Offering Circular--Prospectus. Viacom stockholders are urged to consult their
own tax advisors as to the particular tax consequences to them of the
Transaction.
THE TRANSACTION
On , 199 , Viacom received a Ruling Letter from the IRS to
the effect that, for federal tax purposes, the Transaction will qualify as a
tax-free distribution to Viacom's stockholders under Sections 355 and 368 of the
Code (except with respect to cash received in lieu of fractional shares) and, in
general, is tax-free to Viacom. The Ruling Letter, while generally binding on
the IRS, is subject to certain factual representations and assumptions. If any
such factual representations or assumptions are incorrect or untrue in any
material respect, Viacom will not be able to rely on the Ruling Letter. Viacom
is not aware of any facts or circumstances which would cause any such
representations or assumptions to be incorrect or untrue in any material
respect. Nevertheless, if the Transaction is subsequently held to be taxable,
both Viacom and its stockholders could be subject to tax on the Transaction
(subject to the obligation of TCI and TCI Cable to indemnify Viacom under
certain circumstances pursuant to the Tax Indemnity Letter), which tax could be
material.
OWNERSHIP AND DISPOSITION OF VII CABLE PREFERRED STOCK
Dividends. Dividends paid on the VII Cable Preferred Stock out of VII
Cable's current or accumulated earnings and profits (if any) will be taxable as
ordinary income and should qualify for the 70% intercorporate dividends-received
deduction subject to the minimum holding period (generally at least 46 days) and
other applicable requirements. The amount of any such dividends will be the
amount of cash distributed or, in the case of dividends paid in shares of TCI
Stock, the fair market value of such TCI Stock on the date it is distributed.
Dividends in excess of VII Cable's current and accumulated earnings and profits
will be taxed first as a tax-free return of capital to the extent of the
holder's basis in its VII Cable Preferred Stock, and thereafter as capital gain
from the sale or exchange of the VII Cable Preferred Stock. Such gain will be
long-term or short-term capital gain depending on the holder's holding period
for the VII Cable Preferred Stock.
Constructive Dividends. Under Section 305 of the Code and related
Treasury Regulations, if the redemption price of redeemable preferred stock
exceeds its issue price, and such redemption premium is not considered
reasonable, such premium may in certain circumstances be taxable as a
constructive dividend taken into account by the holder each year generally in
the same manner as original issue discount would be taken into account were the
preferred stock treated as a debt instrument for federal income tax purposes.
Any such constructive dividends would be subject to the same rules applicable to
the stated quarterly dividends, as described above. In the case where preferred
stock is subject to mandatory redemption or is puttable by the holder to the
issuer, a premium payable on such redemption or put will be considered
reasonable only if such premium does not exceed 0.25% of the redemption price
multiplied by the number of complete years to
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maturity or the time at which the stock is assumed to be put, as the case may be
(in either case, the "de minimis amount").
For purposes of these provisions, the issue price of the VII Cable
Preferred Stock should be its fair market value at the time of issuance. If
this amount is less than the mandatory redemption price by at least the de
minimis amount, the foregoing constructive dividend rules will be applicable
with respect to such premium. In addition, the VII Cable Preferred Stock will
also be considered puttable because of the holder's ability to exchange such
shares for TCI Stock. As a result, it is possible that the holder could be
required to take into account as a constructive dividend any additional
redemption premium resulting from such put right. Because the premium payable
as a result of such an exchange for TCI Stock will depend on the fair market
value of the TCI Stock received, the amount of any such premium is unclear.
Moreover, it is also unclear how any such constructive dividends as a result of
any such premium should be taken into account where the amount of such premium
could vary over time.
Sale or Exchange. Except as discussed below with respect to "section 306
stock", a holder will generally recognize gain or loss upon a sale or exchange
of VII Cable Preferred Stock measured by the difference (if any) between the
amount realized upon such sale or exchange and the holder's tax basis in the VII
Cable Preferred Stock. An exchange of VII Cable Preferred Stock for TCI Stock
will be treated as such a taxable exchange, and the amount realized upon such
exchange will equal the fair market value of such TCI Stock. Any such gain or
loss recognized upon a sale or exchange will be long-term or short-term capital
gain or loss depending on the holder's holding period for the VII Cable
Preferred Stock so sold or exchanged.
Under certain circumstances, a stockholder that receives "section 306
stock" within the meaning of Section 306(c) of the Code is required to recognize
as ordinary income, in the case of a taxable disposition of such stock, or as
dividend income, in the case of a redemption of such stock, all or a portion of
the proceeds received by such stockholder from such disposition or redemption,
without regard to the stockholder's tax basis in its shares, and may not
recognize any loss therefrom. The VII Cable Preferred Stock received by
tendering holders is likely to be considered "section 306 stock" if, immediately
prior to the consummation of the Transaction, the receipt by such holder of cash
(in an amount equal to the fair market value of such VII Cable Preferred Stock)
in a redemption of the number of such holder's shares of Viacom Common Stock
exchanged in the Exchange Offer would have been treated as a dividend under
Section 302 of the Code. Under the circumstances, a redemption for cash
generally would not have been treated as a dividend with respect to a holder
under Section 302 if the redemption (i) results in a "complete termination" of
the holder's interest in Viacom, (ii) is "substantially disproportionate" with
respect to such holder, or (iii) is "not essentially equivalent" to a dividend
with respect to such holder. The determination of whether these tests will be
met will depend on the facts and circumstances in each case, including the
proportion of the Viacom Common Stock exchanged by such holder in the Exchange
Offer, and the constructive stock ownership of such holder in Viacom under
Section 318 of the Code. An exception to the disposition and redemption rules
described in the first sentence of this paragraph is provided for a disposition
or redemption in complete termination of the stockholder's interest (subject to
certain ownership attribution rules); however, it is not clear whether such
exception would apply if the stockholder continued to own (directly or through
attribution) any stock of Viacom. Holders should consult their tax advisors
regarding the consequences of the acquisition and ownership of the VII Cable
Preferred Stock under Section 306 of the Code.
Adjustments to Exchange Ratio. In general, any adjustments to the
exchange ratio for the exchange of VII Cable Preferred Stock into TCI Stock
should not be taxable to the holders thereof. However, adjustments to the
exchange ratio to take into account distributions of indebtedness, cash or other
property with respect to the TCI Stock will be taxable to the holder of the VII
Cable Preferred Stock. Such an adjustment will be treated as a constructive
dividend and will be taxable in the manner described above.
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BACKUP WITHHOLDING
A holder of VII Cable Preferred Stock may, under certain circumstances, be
subject to backup withholding at the rate of 31% with respect to dividends or
the proceeds of sale, exchange or redemption of such shares unless such holder
(i) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies that such holder is not subject to backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. Any amount withheld under these rules will be creditable
against the holder's federal income tax liability. A holder who does not
provide a correct taxpayer identification number may be subject to penalties
imposed by the IRS.
THE SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS
BASED ON THE CODE, THE REGULATIONS PROMULGATED THEREUNDER BY THE UNITED STATES
TREASURY DEPARTMENT AND THE INTERPRETATIONS OF THE CODE AND REGULATIONS BY THE
COURTS AND THE IRS, ALL AS THEY EXIST AS OF THE DATE OF THIS OFFERING CIRCULAR -
- - PROSPECTUS. THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND DOES NOT DISCUSS
ALL TAX CONSIDERATIONS THAT MAY BE RELEVANT TO VIACOM STOCKHOLDERS IN LIGHT OF
THEIR PARTICULAR CIRCUMSTANCES, NOR DOES IT ADDRESS THE CONSEQUENCES TO CERTAIN
VIACOM STOCKHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE UNITED STATES FEDERAL
INCOME TAX LAWS (SUCH AS TAX-EXEMPT ENTITIES, NON-RESIDENT ALIEN INDIVIDUALS AND
FOREIGN CORPORATIONS). IN ADDITION, THIS SUMMARY DOES NOT ADDRESS THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES TO VIACOM STOCKHOLDERS WHO DO NOT HOLD
THEIR VIACOM COMMON STOCK AS A CAPITAL ASSET. THIS SUMMARY DOES NOT ADDRESS ANY
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES. VIACOM STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
TRANSACTION AND THE OWNERSHIP AND DISPOSITION OF VII CABLE PREFERRED STOCK,
INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS AND ANY CHANGES
IN FEDERAL TAX LAWS THAT OCCUR AFTER THE DATE OF THIS OFFERING CIRCULAR--
PROSPECTUS.
For a description of an agreement pursuant to which Viacom and Viacom
International have provided for certain tax sharing and other tax-related
matters, see "Arrangements among Viacom, Viacom International, TCI and TCI Sub--
Terms of Certain Ancillary Agreements--Tax Indemnity Letter."
LEGAL MATTERS
The validity of the shares of VII Cable Class A Common Stock and the
shares of VII Cable Preferred Stock will be passed upon by Shearman & Sterling.
EXPERTS
The combined financial statements of VII Cable as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The (i) consolidated financial statements of Viacom incorporated in this
Offering Circular --Prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1994 and (ii) consolidated financial statements
of Paramount Communications Inc. ("Paramount") as of March 31, 1994 and
98
<PAGE>
for the eleven months ended March 31, 1994 incorporated by reference from the
Current Report on Form 8-K of Viacom filed on April 14, 1995 (the "Viacom Form
8-K") have been so incorporated in reliance on the reports of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Paramount at April 30, 1993 and
at October 31, 1992, and for the six-month period ended April 30, 1993, and for
each of the two years in the period ended October 31, 1992 incorporated by
reference in this Offering Circular - Prospectus from the Viacom Form 8-K have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein, and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements and schedules of Blockbuster
Entertainment Corporation and subsidiaries as of December 31, 1993 and 1992, and
for each of the three years in the period ended December 31, 1993 incorporated
by reference in this Offering Circular - Prospectus have been audited by Arthur
Andersen LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
99
<PAGE>
VII CABLE
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants................................................................... F-2
Audited Combined Financial Statements:
Combined Statements of Operations for the years ended December 31, 1992, 1993 and 1994............. F-3
Combined Balance Sheets as of December 31, 1993 and 1994........................................... F-4
Combined Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994............. F-5
Notes to Combined Financial Statements............................................................. F-6
Unaudited Interim Combined Financial Statements:
Combined Statements of Operations for the three months and nine months ended
September 30, 1994 and 1995...................................................................... F-15
Combined Balance Sheets as of December 31, 1994 and September 30, 1995............................. F-16
Combined Statements of Cash Flows for the nine months ended September 30, 1994 and 1995............ F-17
Notes to Combined Financial Statements............................................................. F-18
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
September 11, 1995
To the Board of Directors and
Stockholders of Viacom International Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, and of cash flows present fairly, in all
material respects, the financial position of Viacom International Inc. (as
defined in Note 1 to the financial statements) at December 31, 1994 and 1993,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Viacom International Inc.'s management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in the notes to the combined financial statements, effective
January 1, 1993, Viacom International Inc. adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Effective January
1, 1994, Viacom International Inc. adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
PRICE WATERHOUSE LLP
150 Almaden Boulevard
San Jose, CA 95113
F-2
<PAGE>
VII CABLE
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues................................................... $404,499 $414,786 $410,129
Expenses:
Operating.............................................. 170,779 156,270 152,764
Selling, general and administrative.................... 99,935 101,347 92,629
Depreciation and amortization.......................... 76,343 73,354 67,218
-------- -------- --------
Total expenses...................................... 347,057 330,971 312,611
-------- -------- --------
Earnings from operations................................... 57,442 83,815 97,518
Other income (expense):
Interest expense....................................... (38,050) (33,417) (49,768)
Other items, net....................................... 6,982 77,736 5,361
-------- -------- --------
Earnings from operations before income taxes............... 26,374 128,134 53,111
Provision for income taxes............................. (17,680) (45,276) (28,077)
Equity in earnings of affiliated companies, net of tax. 452 997 759
-------- -------- --------
Net earnings before cumulative effect of change in
accounting principle................................... 9,146 83,855 25,793
Cumulative effect of change in accounting principle.... -- 13,536 --
-------- -------- --------
Net earnings............................................... $ 9,146 $ 97,391 $ 25,793
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
VII CABLE
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 3,011 $ 1,852
Receivables, less allowances of $1,251 (1994) and $1,791 (1993).. 12,655 8,422
Marketable securities available-for-sale......................... 24,730 99
Other current assets............................................. 3,065 2,116
---------- --------
Total current assets........................................... 43,461 12,489
---------- --------
Property and equipment:
Land............................................................. 5,447 5,348
Buildings........................................................ 19,479 17,657
Distribution systems............................................. 472,938 418,142
Equipment and other.............................................. 147,680 124,119
---------- --------
645,544 565,266
Less accumulated depreciation.................................... 280,511 239,186
---------- --------
Net property and equipment..................................... 365,033 326,080
---------- --------
Intangibles, at amortized cost.................................... 578,072 593,749
Other assets...................................................... 53,868 33,930
---------- --------
$1,040,434 $966,248
========== ========
LIABILITIES AND VIACOM EQUITY INVESTMENT
Current liabilities:
Accounts payable and accrued expenses........................... $ 57,598 $ 64,686
Accrued compensation............................................ 10,154 7,440
Deferred taxes.................................................. 19,904 6,357
Other current liabilities....................................... 1,112 205
---------- --------
Total current liabilities...................................... 88,768 78,688
---------- --------
Deferred taxes.................................................... 59,750 55,020
Long-term debt.................................................... 57,000 57,000
Other liabilities................................................. 10,976 10,009
Commitments and contingencies (Note 8)
Viacom equity investment.......................................... 823,940 765,531
---------- --------
$1,040,434 $966,248
========== ========
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
VII CABLE
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Operating activities:
Net earnings.............................................. $ 9,146 $ 97,391 $ 25,793
Adjustments to reconcile net earnings to net cash flow
from operating activities:
Depreciation and amortization............................ 76,343 73,354 67,218
Gain on sale of Viacom Cablevision of Wisconsin, Inc..... -- (55,007) --
Gain on sale of investment held at cost.................. -- (17,437) --
Cumulative effect of change in accounting principle...... -- (13,536) --
Decrease (increase) in receivables....................... (4,315) (3,005) 2,376
Increase (decrease) in accounts payable and
accrued expenses......................................... (1,085) 14,895 (2,780)
Utilization of investment tax credit..................... -- -- 13,141
Other, net............................................... (2,197) 2,134 (11,098)
--------- --------- --------
Net cash flow from operating activities................... 77,892 98,789 94,650
--------- --------- --------
Investing activities:
Capital expenditures...................................... (99,198) (79,341) (54,778)
Proceeds from dispositions................................ 1,430 112,569 --
Investments in and advances to affiliated companies....... (12,765) -- (248)
Other, net................................................ (315) 158 (17)
--------- --------- --------
Net cash flow from investing activities................... (110,848) 33,386 (55,043)
--------- --------- --------
Financing activities:
Net distributions from (to) Viacom Inc.................... 34,115 (85,789) (39,579)
Principal repayment of long-term debt..................... -- (49,018) (18)
--------- --------- --------
Net cash flow from financing activities................... 34,115 (134,807) (39,597)
--------- --------- --------
Net increase (decrease) in cash............................. 1,159 (2,632) 10
Cash at beginning of period................................. 1,852 4,484 4,474
--------- --------- --------
Cash at end of period....................................... $ 3,011 $ 1,852 $ 4,484
========= ========= ========
</TABLE>
See notes to combined financial statements.
F-5
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION
On July 24, 1995, Viacom Inc. ("Viacom"), Viacom International Inc. (after
giving effect to the First Distribution as defined below, "VII Cable"), a wholly
owned subsidiary of Viacom, and Viacom International Services Inc. ("New VII"),
a wholly owned subsidiary of VII Cable, entered into certain agreements (the
"Transaction Agreements") with Tele-Communications, Inc. ("TCI") and a
subsidiary of TCI ("TCI Sub"), providing for, among other things, the conveyance
of Viacom International Inc.'s non-cable assets and liabilities to New VII, the
distribution of all of the common stock of New VII to Viacom (the "First
Distribution"), the Exchange Offer (as defined below) and the issuance to TCI
Sub of all of the Class B Common Stock of VII Cable. Viacom will commence an
exchange offer (the "Exchange Offer") pursuant to which Viacom stockholders may
exchange shares of Viacom Class A or Class B Common Stock for shares of VII
Cable Class A Common Stock.
Prior to the consummation of the Exchange Offer, Viacom International Inc. will
enter into a $1.7 billion credit agreement. Proceeds from such credit agreement
will be transferred by Viacom International Inc. to New VII as part of the First
Distribution. Viacom also entered into a definitive agreement with TCI under
which TCI Sub, through a capital contribution of $350 million in cash, will
purchase all of the shares of Class B Common Stock of VII Cable immediately
following the consummation of the Exchange Offer. At that time, the shares of
Class A Common Stock of VII Cable will convert into shares of cumulative
redeemable exchangeable preferred stock (the "Preferred Stock"). The Preferred
Stock will be exchangeable after the fifth anniversary of issuance at the
holders' option for TCI Class A Common Stock.
National Amusements, Inc. ("NAI"), which owns approximately 26% of Viacom Inc.
Class A and Class B Common Stock on a combined basis, will not participate in
the Exchange Offer. The Exchange Offer and related transactions are subject to
several conditions, including regulatory approvals, receipt of a tax ruling and
consummation of the Exchange Offer.
The accompanying financial statements and related notes reflect the carve-out
historical results of operations and financial position of the cable television
business of Viacom. These financial statements are not necessarily indicative
of results that would have occurred if VII Cable had been a separate stand-alone
entity during the periods presented or of future results of VII Cable.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The combined financial statements include the accounts of VII Cable and all
investments of more than 50% in subsidiaries. All significant intercompany
transactions with combined entities have been eliminated. Investments in
affiliated companies over which VII Cable has significant influence or ownership
of more than 20% but less than or equal to 50% are accounted for under the
equity method. Investments of 20% or less are accounted for under the cost
method.
F-6
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
Property and Equipment
Property and equipment, including construction in progress, is stated at cost.
Inventory, which consists primarily of construction material, is recorded at the
lower of weighted average cost or market. Construction in progress and inventory
are included in "Equipment and other." VII Cable capitalizes interest costs
associated with certain qualifying assets. The total amount of interest costs
capitalized was $839 (1994), $372 (1993) and $502 (1992). Repairs and
maintenance are charged to operations, and renewals and additions are
capitalized. Upon the normal retirement of distribution system components, the
cost is charged to accumulated depreciation with no effect on net earnings. For
all other retirements, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized.
Depreciation expense is computed principally on a straight-line method over
estimated useful lives of 9-15 years for distribution systems, 4-10 years for
machinery and equipment and 28-30 years for buildings. Depreciation expense was
$57,826 (1994), $54,754 (1993) and $49,107 (1992).
Intangibles
Intangible assets primarily consist of the cost of acquired businesses in excess
of the fair value of tangible assets and liabilities acquired attributable to
the NAI leveraged buyout of Viacom International Inc. in June 1987. Such assets
are amortized on a straight-line method over estimated useful lives of up to 40
years. In addition, VII Cable has franchise rights to operate cable television
systems in various towns and political subdivisions within its service areas.
The cost of successful franchise applications are capitalized and amortized over
the life of the related franchise agreement. Franchise lives generally range
from 10 to 25 years with various dates of expiration. VII Cable evaluates the
realizability of intangibles on an ongoing basis in light of changes in business
conditions, events or circumstances that may indicate the potential impairment
of intangible assets. Accumulated amortization of intangible assets at
December 31 was $138,739 (1994) and $120,222 (1993).
Revenue Recognition
Subscriber fees are recognized in the period the service is provided.
Provision for Doubtful Accounts
The provision for doubtful accounts charged to expense was $6,428 (1994), $7,250
(1993) and $6,178 (1992).
Financial Instruments
VII Cable's carrying value of financial instruments approximates fair value. The
most significant financial instruments are debt and marketable securities
available-for-sale.
During the first quarter of 1994, VII Cable adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). Under SFAS 115, investments classified as
available-for-sale are carried at fair value and unrealized holding gains and
losses during the period are recorded as a component of equity. The cumulative
effect of the change in accounting principle is recorded, net of tax, as a
component of equity. Prior to the adoption of SFAS 115, marketable equity
securities held by VII Cable were reported at the lower of cost or market.
During February 1995, VII Cable sold its marketable securities available-for-
sale, resulting in a pre-tax gain of $27 million.
F-7
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 3 - EQUITY IN EARNINGS OF AFFILIATED COMPANIES
Equity in earnings of affiliated companies is primarily comprised of VII Cable's
general partnership interests in Northwest Cable Advertising (50% owned), Bay
Cable Advertising (33 1/3% owned), TCG San Francisco ("TCGSF") (23% owned), TCG
Seattle ("TCGS") (22% owned) and Prime Sports Northwest Network ("Prime Sports")
(40% owned).
The principal business of Northwest Cable Advertising and Bay Cable Advertising
(the "Advertising Affiliates") is the sale of advertising on cable television
systems owned by VII Cable, its general partners and other cable television
operators. In exchange for providing advertising airtime, the Advertising
Affiliates pay VII Cable affiliate fees, calculated in accordance with
affiliation agreements. Revenues from Advertising Affiliates were $6,302 (1994),
$5,225 (1993) and $4,343 (1992). Affiliate fees receivable were $1,293 and
$1,033 at December 31, 1994 and 1993, respectively.
TCGSF and TCGS were formed on January 1, 1994 for the purpose of investing in
and operating communication facilities. Both TCGSF and TCGS lease communication
network facilities from VII Cable, which are financed and constructed by VII
Cable.
The principal business of Prime Sports is to provide a television sports
programming service in the northwest United States. In exchange for programming,
Prime Sports receives subscriber revenue from cable television operators
including its general partners. VII Cable incurred affiliate subscriber fees of
$1,962 (1994), $1,849 (1993) and $1,795 (1992). During January 1995, VII Cable
entered into an agreement to sell its 40% partnership interest in Prime Sports
to a subsidiary of Liberty Media Corporation ("Liberty"), an affiliate of TCI,
for sales proceeds of approximately $9 million. Prime Sports is a partnership
between VII Cable and Liberty. Net assets of Prime Sports were approximately $3
million at December 31, 1994.
F-8
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
Summarized aggregated financial information for the affiliated companies
discussed above is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Results of operations:
Revenues....................... $49,142 $36,618 $31,878
Earnings from operations....... 13,381 15,427 13,059
Net earnings................... 34 4,842 3,484
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993
------- -------
<S> <C> <C>
Financial position:
Current assets................ $34,879 $14,051
Noncurrent assets............. 54,118 7,764
Current liabilities........... 12,262 5,930
Noncurrent liabilities........ 13,219 --
Partners' equity.............. 61,464 15,885
</TABLE>
NOTE 4 - LONG-TERM DEBT
During 1994, Viacom International Inc. and certain of its subsidiaries (the
"Subsidiary Borrowers") entered into a $311 million credit agreement (the
"Credit Agreement"), of which $57 million was entered into by Viacom
Cablevision of Dayton Inc. ("Dayton"), which is included in the combined
financial statements for VII Cable.
The Credit Agreement is an 8-year term loan maturing on July 1, 2002. Dayton is
required to pay interest on the borrowings based upon Citibank, N.A.'s base rate
or the London Interbank Offered Rate ("LIBOR") and is affected by Viacom's
credit rating. At December 31, 1994 and 1993, LIBOR (upon which the subsidiary
borrowing rate was based) was 6.25% and 3.3125%, respectively. Viacom guarantees
obligations under the Credit Agreement.
The Credit Agreement contains certain covenants which, among other things,
require that the Subsidiary Borrowers maintain certain financial ratios and
impose on the Subsidiary Borrowers certain limitations on substantial asset
sales and mergers with any other company in which an affiliate of Viacom is not
the surviving entity. The Credit Agreement contains certain customary events of
default and provides that it is an event of default if NAI fails to own at least
51% of the outstanding voting stock of Viacom. The Company is in compliance with
all debt covenants.
In the event that Dayton ceases to be a wholly owned subsidiary of Viacom or VII
Cable, the $57 million of borrowings shall be due and payable on the date on
which Dayton ceases to be such a wholly owned subsidiary. As a result of the
transactions described in Note 1, New VII will assume Dayton's obligation under
the Credit Agreement.
F-9
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
Under a prior credit agreement with Viacom, $49 million of debt was entered into
by Viacom Cablevision of Wisconsin, Inc. This amount was repaid in connection
with the sale of this cable system on January 1, 1993.
NOTE 5 - VIACOM EQUITY INVESTMENT
An analysis of the Viacom equity investment activity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
-------- --------- ---------
<S> <C> <C> <C>
Balance as of the beginning of
the period.................................... $765,531 $753,929 $767,715
Net earnings.................................... 9,146 97,391 25,793
Net distributions from (to) Viacom.............. 34,115 (85,789) (39,579)
Unrealized holding gains on marketable
securities available-for-sale, net of tax..... 15,148 -- --
-------- -------- --------
Balance as of the end of the period............. $823,940 $765,531 $753,929
======== ======== ========
</TABLE>
Viacom funds the working capital requirements of its businesses based upon a
centralized cash management system. Viacom equity investment includes
accumulated equity as well as any payables and receivables due to from Viacom
resulting from cash transfers.
NOTE 6 - RELATED PARTY TRANSACTIONS
Viacom provides VII Cable with certain general services, including insurance,
legal, financial and other corporate functions. Charges for these services have
been made based on the average of certain specified ratios of revenues, earnings
from operations and net assets. Management believes that the methodologies used
to allocate these charges are reasonable. The charges for such services were
$14,007 (1994), $18,068 (1993) and $19,486 (1992).
In addition to the interest expense recorded by VII Cable on the borrowings
under the credit agreements described in Note 4, Viacom allocated interest
expense of $35,681 (1994), $31,191 (1993) and $44,646 (1992) related to the
Viacom corporate debt. The additional interest is allocated based on a
percentage of VII Cable's average net assets to Viacom's average net assets.
VII Cable, through the normal course of business, is involved in transactions
with companies owned by or affiliated with Viacom. VII Cable has agreements to
distribute television programs of such companies, including Showtime Networks
Inc., MTV Networks, Comedy Central, USA Networks and Lifetime (prior to its sale
by Viacom on April 1, 1994). The agreements require VII Cable to pay license
fees based upon the number of customers receiving the service. Affiliate license
fees incurred under these agreements were $28,582 (1994), $23,785 (1993) and
$24,565 (1992). In addition, cooperative advertising expenses charged to
affiliated companies
F-10
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
were $1,181 (1994), $597 (1993) and $559 (1992). Related party accounts
receivable were $562 and $320 at December 31, 1994 and 1993, respectively.
Related party accounts payable were $3,636 and $2,838 at December 31, 1994 and
1993, respectively.
NOTE 7 - INCOME TAXES
Viacom International Inc. has been included in consolidated federal, state and
local income tax returns filed by Viacom. However, the tax expense reflected in
the Combined Statement of Operations and tax liabilities reflected in the
Combined Balance Sheets have been prepared on a separate return basis as though
VII Cable had filed stand-alone income tax returns. The current income tax
liabilities for the periods presented have been satisfied by Viacom. These
amounts have been reflected in Viacom equity investment in the Combined Balance
Sheet. In connection with the transactions described in Note 1, Viacom has
agreed to indemnify VII Cable against income tax assessments, if any, arising
from federal or state tax audits for periods in which VII Cable was a member of
Viacom's consolidated tax group.
During the first quarter of 1993, VII Cable adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") on a
prospective basis and recognized an increase to earnings of $13,536 in 1993 as
the cumulative effect of a change in accounting principle. SFAS 109 mandates the
liability method for computing deferred income taxes.
Earnings accounted for under the equity method of accounting are shown net of
tax on the Combined Statement of Operations.
Components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
--------- --------- ----------
<S> <C> <C> <C>
Federal:
Current...................... $ 6,018 $31,381 $27,649
Deferred..................... 8,534 8,366 (3,460)
State and local:
Current...................... 2,868 4,975 4,236
Deferred..................... 260 554 (348)
------- ------- -------
Provision for income taxes on
earnings from operations........ 17,680 45,276 28,077
Provision for income taxes on
earnings of affiliated
companies.................... 301 664 506
------- ------- -------
Total provision for
income taxes.............. $17,981 $45,940 $28,583
======= ======= =======
</TABLE>
F-11
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
A reconciliation of the U.S. Federal statutory tax rate to VII Cable's effective
tax rate on earnings from operations before income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Statutory U.S. tax rate............................... 35.0% 35.0% 34.0%
Amortization of goodwill.............................. 23.3 4.8 10.7
State and local taxes, net of federal tax benefit..... 8.1 3.0 4.7
Basis differential on assets sold..................... -- (8.7) --
Effect of change in tax rate.......................... -- 1.1 --
Property and equipment basis difference............... -- -- 3.2
Other................................................. .6 .1 .3
---- ---- ----
Effective tax rate................................. 67.0% 35.3% 52.9%
==== ==== ====
</TABLE>
The following is a summary of the deferred tax accounts in accordance with SFAS
109 for the years ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993
------------ -----------
<S> <C> <C>
Current deferred tax (assets) liabilities:
Property taxes................................. $10,576 $ 7,283
Marketable securities available-for-sale....... 9,483 --
Other.......................................... (155) (926)
------- -------
Net current deferred tax liabilities........... 19,904 6,357
------- -------
Noncurrent deferred tax (assets) liabilities:
Fixed asset basis differences.................. 59,902 60,848
Investment tax credits......................... -- (5,735)
Other.......................................... (152) (93)
------- -------
Net noncurrent deferred tax liabilities.......... 59,750 55,020
------- -------
Deferred tax liabilities......................... $79,654 $61,377
======= =======
</TABLE>
The following table identifies the deferred tax items which were part of VII
Cable's tax provision (benefit) under previously applicable accounting
principles for the year ended December 31, 1992:
<TABLE>
<S> <C>
Depreciation......................... $ 1,430
Property taxes....................... 1,967
Deferred revenue..................... (6,800)
Other, net........................... (405)
-------
Total deferred tax benefit......... $(3,808)
=======
</TABLE>
F-12
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Minimum annual rental commitments at December 31, 1994 under noncancellable
operating leases for office space and equipment are as follows:
<TABLE>
<S> <C>
1995....................................... $ 4,402
1996....................................... 3,856
1997....................................... 3,013
1998....................................... 2,660
1999....................................... 2,222
Thereafter................................. 2,948
-------
Total minimum lease payments............... $19,101
=======
</TABLE>
Rent expense was $7,670 (1994), $7,299 (1993) and $7,548 (1992).
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "Cable Act"). In 1993, 1994 and 1995 the
Federal Communication Commission (the "FCC") issued and subsequently clarified
regulations implementing the rate regulation provisions of the Cable Act. As a
result of the Cable Act, VII Cable's basic and tier service rates and its
equipment and installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. Basic and tier
service rates are set utilizing either FCC benchmarks and increase formulas, or
cost of service methodologies; equipment and installation charges are based on
actual costs.
VII Cable believes that it has complied in all material respects with the
provisions of the Cable Act. However, VII Cable's rates for Regulated Services
are subject to review by appropriate local franchise authorities or, if a
complaint is filed, the FCC. If as a result of such review a cable television
system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund a portion of the excess
rates received. Management believes the amount of refund, if any, would not have
a material effect on VII Cable's combined financial position or results of
operations.
During July 1991, VII Cable received reassessments from ten California counties
of its real and personal property, related to the June 1987 acquisition by NAI,
which could result in substantially higher California property tax liabilities.
VII Cable is appealing the reassessments. At December 31, 1994 and 1993, VII
Cable had paid $36,581 and $29,049, respectively, of real and personal property
taxes which have been recorded as an excess property tax receivable included in
"Other Assets."
VII Cable is involved in various claims and lawsuits arising in the ordinary
course of business, none of which, in the opinion of management, will have a
material adverse effect on VII Cable's financial position or results of
operations.
In the ordinary course of business, VII Cable enters into long-term affiliation
agreements with programming services which require that VII Cable continues to
carry and pay for programming and meet certain performance requirements.
F-13
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 9 - PENSION PLANS AND OTHER EMPLOYEE BENEFITS
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of VII Cable. Retirement benefits are based
principally on years of service and salary. Viacom has allocated charges for
pension expense of $1,574 (1994), $1,392 (l993) and $1,150 (1992). Information
on the amount of actuarial present value of benefit obligations, fair value of
plan assets and pension costs is not provided as such information is not
maintained separately for employees of VII Cable. Further, the obligation for
pension benefits earned prior to the consummation of the Exchange Offer will be
retained by Viacom. All employees of VII Cable will be fully vested upon the
Exchange Offer.
Viacom also provides other employee benefits to VII Cable's employees, including
certain medical and dental insurance costs and contributions to a 401(K) savings
plan, at an allocated cost of $4,364 (1994), $4,387 (1993) and $5,140 (1992). In
addition, certain executives of VII Cable participate in non-compensatory stock
option plans of Viacom.
NOTE 10 - OTHER ITEMS, NET
As part of the settlement of the antitrust lawsuit filed by Viacom against Time
Warner, Viacom sold all the stock of Viacom Cablevision of Wisconsin, Inc. to
Warner Communications Inc. ("Warner"). This transaction was effective on January
1, 1993. As consideration for the stock, Warner paid the sum of $46 million plus
repayment of debt under the then current Viacom credit agreement in the amount
of $49 million, resulting in a pre-tax gain of approximately $55.0 million
reflected in "Other items, net." Also reflected in this line item is the net
gain of $17.4 million on the sale of a portion of an investment held at cost in
1993.
F-14
<PAGE>
VII CABLE
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues........................................... $112,990 $100,117 $328,564 $303,595
Expenses:
Operating........................................ 47,960 43,189 142,109 127,217
Selling, general and administrative.............. 23,333 24,314 65,608 76,050
Depreciation and amortization.................... 20,591 19,219 61,040 57,643
-------- -------- -------- --------
Total expenses................................. 91,884 86,722 268,757 260,910
-------- -------- -------- --------
Earnings from operations........................... 21,106 13,395 59,807 42,685
Other income (expense):
Interest expense................................. (12,996) (9,080) (37,928) (27,951)
Other items, net................................. 1,702 1,506 32,234 5,441
-------- -------- -------- --------
Earnings from operations before income taxes....... 9,812 5,821 54,113 20,175
Provision for income taxes....................... (5,449) (3,862) (25,902) (13,517)
Equity in earnings (loss) of affiliated
companies, net of tax........................... (120) (35) (357) 49
-------- -------- -------- --------
Net earnings....................................... $ 4,243 $ 1,924 $ 27,854 $ 6,707
======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
VII CABLE
COMBINED BALANCE SHEETS
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------
ASSETS 1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash.................................................................. $ 2,275 $ 3,011
Receivables, less allowances of $1,714 (1995) and $1,251 (1994)....... 13,545 12,655
Marketable securities available-for-sale.............................. -- 24,730
Other current assets.................................................. 4,362 3,065
---------- ----------
Total current assets.............................................. 20,182 43,461
---------- ----------
Property and equipment:
Land.................................................................. 5,447 5,447
Buildings............................................................. 19,977 19,479
Distribution systems.................................................. 526,917 472,938
Equipment and other................................................... 173,153 147,680
---------- ----------
725,494 645,544
Less accumulated depreciation......................................... 321,849 280,511
---------- ----------
Net property and equipment........................................ 403,645 365,033
---------- ----------
Intangibles, at amortized cost........................................... 565,658 578,072
Other assets............................................................. 64,409 53,868
---------- ----------
$1,053,894 $1,040,434
========== ==========
LIABILITIES AND VIACOM EQUITY INVESTMENT
Current liabilities:
Accounts payable and accrued expenses................................. $ 58,517 $ 57,598
Accrued compensation.................................................. 11,489 10,154
Deferred taxes........................................................ 12,238 19,904
Other current liabilities............................................. 659 1,112
---------- ----------
Total current liabilities......................................... 82,903 88,768
---------- ----------
Deferred taxes........................................................... 60,843 59,750
Long-term debt........................................................... 57,000 57,000
Other liabilities........................................................ 10,428 10,976
Commitments and contingencies (Note 5)
Viacom equity investment................................................. 842,720 823,940
---------- ----------
$1,053,894 $1,040,434
========== ==========
</TABLE>
See notes to combined financial statements.
F-16
<PAGE>
VII CABLE
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Operating activities:
Net earnings................................................................... $ 27,854 $ 6,707
Adjustments to reconcile net earnings to net cash flow from
operating activities:
Depreciation and amortization................................................ 61,040 57,643
Gain on sale of marketable securities available-for-sale..................... (26,902) --
Decrease (increase) in receivables........................................... (890) 1,107
Increase (decrease) in accounts payable and accrued
expenses................................................................... 1,801 (1,932)
Other, net................................................................... (5,013) (6,638)
-------- --------
Net cash flow from operating activities......................................... 57,890 56,887
-------- --------
Investing activities:
Capital expenditures......................................................... (85,824) (78,129)
Proceeds from dispositions................................................... 27,001 1,430
Investments in and advances to affiliated companies.......................... (5,166) (10,701)
Other, net................................................................... (711) (845)
-------- --------
Net cash flow from investing activities...................................... (64,700) (88,245)
-------- --------
Financing activities:
Net distributions from Viacom Inc............................................ 6,074 31,624
-------- --------
Net cash flow from financing activities...................................... 6,074 31,624
-------- --------
Net increase (decrease) in cash................................................. (736) 266
Cash at beginning of period..................................................... 3,011 1,852
-------- --------
Cash at end of period........................................................... $ 2,275 $ 2,118
======== ========
</TABLE>
See notes to combined financial statements.
F-17
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited; Dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION
On July 24,1995, Viacom Inc. ("Viacom"), Viacom International Inc. (after giving
effect to the First Distribution as defined below, "VII Cable"), a wholly owned
subsidiary of Viacom, and Viacom International Services Inc. ("New VII"), a
wholly owned subsidiary of VII Cable, entered into certain agreements (the
"Transaction Agreements") with Tele-Communications, Inc. ("TCI") and a
subsidiary of TCI ("TCI Sub"), providing for, among other things, the conveyance
of Viacom International Inc.'s non-cable assets and liabilities to New VII, the
distribution of all of the common stock of New VII to Viacom (the "First
Distribution"), the Exchange Offer (as defined below) and the issuance to TCI
Sub of all of the Class B Common Stock of VII Cable. Viacom will commence an
exchange offer (the "Exchange Offer") pursuant to which Viacom stockholders may
exchange shares of Viacom Class A or Class B Common Stock for shares of VII
Cable Class A Common Stock.
Prior to the consummation of the Exchange Offer, Viacom International Inc. will
enter into a $1.7 billion credit agreement. Proceeds from such credit agreement
will be transferred by Viacom International Inc. to New VII as part of the First
Distribution. Viacom also entered into a definitive agreement with TCI under
which TCI Sub, through a capital contribution of $350 million in cash, will
purchase all of the shares of Class B Common Stock of VII Cable immediately
following the consummation of the Exchange Offer. At that time, the shares of
Class A Common Stock of VII Cable will convert into shares of cumulative
redeemable exchangeable preferred stock (the "Preferred Stock"). The Preferred
Stock will be exchangeable after the fifth anniversary of issuance at the
holders' option for TCI Class A Common Stock.
National Amusements, Inc., ("NAI") which owns approximately 25% of Viacom Inc.
Class A and Class B Common Stock on a combined basis as of September 30. 1995,
will not participate in the Exchange Offer. The Exchange Offer and related
transactions are subject to several conditions, including regulatory approvals,
receipt of a tax ruling and consummation of the Exchange Offer.
The accompanying combined financial statements and related notes reflect the
carve-out historical results of operations and financial position of the cable
television business of Viacom. These combined financial statements are not
necessarily indicative of results that would have occurred if VII Cable had been
a separate stand-alone entity during the periods presented or of future results
of VII Cable.
NOTE 2 - VIACOM EQUITY INVESTMENT
An analysis of the Viacom equity investment activity is as follows:
<TABLE>
<S> <C>
Balance as of December 31, 1994....................................... $823,940
Net earnings.......................................................... 27,854
Unrealized holding gains on marketable securities available-for-sale.. (15,148)
Net distribution from Viacom.......................................... 6,074
--------
Balance as of September 30, 1995...................................... $842,720
========
</TABLE>
Viacom funds the working capital requirements of its businesses based upon a
centralized cash management system. Viacom equity investment includes
accumulated equity as well as any payables and receivables due to/from Viacom
resulting from cash transfers.
NOTE 3 - LONG-TERM DEBT
During 1994, Viacom International Inc. and certain of its subsidiaries (the
"Subsidiary Borrowers") entered into a $311 million credit agreement (the
"Credit Agreement"), of which $57 million was entered into by Viacom Cablevision
of Dayton Inc. ("Dayton"), which is included in the combined financial
statements for VII Cable. In the event that Dayton ceases to be a wholly owned
subsidiary of Viacom or VII Cable, the $57 million of borrowings shall be due
and payable on the date on which Dayton ceases to be such a wholly owned
subsidiary. As a result of the transactions described in Note 1, New VII will
assume Dayton's obligation under the credit agreement.
F-18
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited; Dollars in thousands)
NOTE 4 - RELATED PARTY TRANSACTIONS
Viacom provides VII Cable with certain general services, including insurance,
legal, financial and other corporate functions. Charges for these services have
been made based on the average of certain specified ratios of revenues, earnings
from operations and net assets. Management believes that the methodologies used
to allocate these charges are reasonable. The charges for such services were
$5,996 (1995) and $11,992 (1994).
In addition to the interest expense recorded by VII Cable on borrowings under
the credit agreement described in Note 3, Viacom has allocated interest expense
of $36,322 (1995) and $26,299 (1994) related to Viacom corporate debt to VII
Cable on the basis of a percentage of VII Cable's average net assets to Viacom's
average net assets.
VII Cable, through the normal course of business, is involved in transactions
with companies owned by or affiliated with Viacom. VII Cable has agreements to
distribute television programs of such companies, including Showtime Networks
Inc., MTV Networks, Comedy Central, USA Networks and Lifetime (prior to its sale
by Viacom on April 1, 1994). The agreements require VII Cable to pay license
fees based upon the number of customers receiving the service. Affiliate
license fees incurred under these agreements were $25,401 (1995) and $22,757
(1994). In addition, cooperative advertising expenses charged to affiliated
companies were $779 (1995) and $806 (1994). Related party accounts receivable
were $366 and $562 at September 30, 1995 and December 31, 1994, respectively.
Related party accounts payable were $4,927 and $3,636 at September 30, 1995 and
December 31, 1994, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "Cable Act"). In 1993, 1994 and 1995 the
Federal Communication Commission (the "FCC") issued and subsequently clarified
regulations implementing the rate regulation provisions of the Cable Act. As a
result of the Cable Act, VII Cable's basic and tier service rates and its
equipment and installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. Basic and tier
service rates are set utilizing either FCC benchmarks and increase formulas, or
cost of service methodologies; equipment and installation charges are based on
actual costs.
VII Cable believes that it has complied in all material respects with the
provisions of the Cable Act. However, VII Cable's rates for Regulated Services
are subject to review by appropriate local franchise authorities or, if a
complaint is filed, the FCC. If as a result of such review a cable television
system can not substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund a portion of the excess
rates received. Management believes the amount of refund, if any, would not
have a material effect on VII Cable's combined financial position or results of
operations.
During July 1991, VII Cable received reassessments from ten California counties
of its real and personal property, related to the June 1987 acquisition by NAI,
which could result in substantially higher California property tax liabilities.
VII Cable is appealing the reassessments. At September 30, 1995 and December
31, 1994, VII Cable had paid $43,249 and $36,581, respectively, of real and
personal property taxes which have been recorded as an excess property tax
receivable included in "Other Assets."
VII Cable is involved in various claims and lawsuits arising in the ordinary
course of business, none of which, in the opinion of management, will have a
material adverse effect on VII Cable's financial position or results of
operations.
In the ordinary course of business, VII Cable enters into long-term affiliation
agreements with programming services which require that VII Cable continues to
carry and pay for programming and meet certain performance requirements.
F-19
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for shares of Viacom Common
Stock and any other required documents should be sent or delivered by each
stockholder of Viacom or his or her broker, dealer, commercial bank, trust
company or other nominee to the Exchange Agent at one of the addresses set forth
below:
[NAME OF EXCHANGE AGENT]
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
Confirmation of Facsimile
Transmission ONLY:
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth below. Additional copies of this Offering Circular -Prospectus, the
Letter of Transmittal and other Exchange Offer material may be obtained from the
Information Agent or the Dealer Manager as set forth below. You may also
contact your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Exchange Offer.
The Information Agent for the Exchange Offer is:
GEORGESON
& COMPANY INC.
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll-Free: (800) 223-2064
The Dealer Manager for the Exchange Offer is:
WASSERSTEIN PERELLA & CO., INC.
31 West 52nd Street
New York, NY 10019
(212) 969-2700 (call collect)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is, or is threatened to
be made, a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation) by reason of the fact that
such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his conduct was
unlawful. A Delaware corporation may indemnify such persons against expenses
(including attorneys' fees) in actions brought by or in the right of the
corporation to procure a judgment in its favor under the same conditions, except
that no indemnification is permitted in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and to the extent the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon application
that, in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the Court of Chancery or
other such court shall deem proper. To the extent such person has been
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify such person against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. The indemnification
and advancement of expenses provided for in, or granted pursuant to, Section 145
is not exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. Section 145 also provides
that a corporation may maintain insurance against liabilities for which
indemnification is not expressly provided by the statute.
Article VI of Viacom International's Certificate of Incorporation provides
for indemnification of the directors, officers, employees and agents of Viacom
International, to the full extent currently permitted by the DGCL.
In addition, Viacom International's Certificate of Incorporation, as
permitted by Section 102(b) of the DGCL, limits directors' liability to Viacom
International and its stockholders by eliminating liability in damages for
breach of fiduciary duty. Article VII of Viacom International's Certificate of
Incorporation provides that neither Viacom International nor its stockholders
may recover damages from Viacom International's directors for breach of their
fiduciary duties in the performance of their duties as directors of Viacom
International. As limited by Section 102(b), this provision cannot, however,
have the effect of indemnifying any director of Viacom International in the case
of liability (i) for a breach of the director's duty of loyalty, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payment of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the DGCL, or (iv)
for any transactions for which the director derived an improper personal
benefit.
Viacom International has in effect liability insurance policies covering
certain claims against any of its respective officers or directors by reason of
certain breaches of duty, neglect, error, misstatement, omission or other act
committed by such person in his capacity as officer or director.
VII Cable will enter into indemnification agreements with each person who
will serve as a director of VII Cable immediately following the Stock Issuance.
The indemnification agreements will generally provide (i) for the prompt
indemnification to the fullest extent permitted by law against (a) any and all
expenses including attorneys' fees and all other costs paid or incurred in
connection with investigating, preparing to defend, defending or otherwise
participating in any threatened, pending or completed action, suit or proceeding
related to the fact that such indemnitee is or was a director, officer,
employee, agent or fiduciary of VII Cable or is or was serving at VII Cable's
request as a director, officer, employee, agent or fiduciary of another entity,
or by reason
II-1
<PAGE>
of anything done or not done by such indemnitee in any such capacity and (b) any
and all judgments, fines, penalties and amounts paid in settlement of any claim,
unless the "Reviewing Party" (defined as one or more members of the VII Cable
Board or appointee(s) of the VII Cable Board who are not parties to the
particular claim, or independent legal counsel) determines that such
indemnification is not permitted under applicable law and (ii) for the prompt
advancement of expenses to an indemnitee as well as the reimbursement by such
indemnitee of such advancement to VII Cable if the Reviewing Party determines
that the indemnitee is not entitled to such indemnification under applicable
law. In addition, the indemnification agreements will provide (i) a mechanism
through which an indemnitee may seek court relief in the event the Reviewing
Party determines that the indemnitee would not be permitted to be indemnified
under applicable law (and would therefore not be entitled to indemnification or
expense advancement under the indemnification agreement) and (ii)
indemnification against all expenses (including attorneys' fees), and the
advancement thereof, if requested, incurred by the indemnitee in any action
brought by the indemnitee to enforce an indemnity claim or to collect an
advancement of expenses or to recover under a directors' and officers' liability
insurance policy, regardless of whether such action is ultimately successful or
not. Furthermore, the indemnification agreements will provide that after there
has been a "change in control" in VII Cable (as defined in the indemnification
agreements), other than a change in control approved by a majority of directors
who were directors prior to such change, then, with respect to all
determinations regarding rights to indemnification and the advancement of
expenses, VII Cable will seek legal advice as to the right of the indemnitee to
indemnification under applicable law only from independent legal counsel
selected by the indemnitee and approved by VII Cable.
The indemnification agreements will impose upon VII Cable the burden of
proving that an indemnitee is not entitled to indemnification in any particular
case and negate certain presumptions that may otherwise be drawn against an
indemnitee seeking indemnification in connection with the termination of actions
in certain circumstances. Indemnitees' rights under the indemnification
agreements are not exclusive of any other rights they may have under Delaware
law, the VII Cable Bylaws or otherwise. Although not requiring the maintenance
of directors' and officers' liability insurance, the indemnification agreements
require that indemnitees be provided with the maximum coverage available for any
VII Cable director or officer if there is such a policy.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
(a) Exhibits.
<S> <C>
4.3(a) - Certificate of Incorporation of Viacom International Inc.
4.3(b) - By-Laws of Viacom International Inc.
4.3(c) - Form of Restated Certificate of Incorporation of VII Cable*
4.4(a) - Form of Certificate of VII Cable Class A Common Stock*
4.4(b) - Form of Certificate of VII Cable Preferred Stock*
5 - Opinion of Shearman & Sterling as to the validity of the VII Cable
Class A Common Stock and VII Cable Preferred Stock*
10.1 - Parents Agreement
10.2 - Implementation Agreement
10.3 - Subscription Agreement
12 - Computation of Ratio of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Stock Dividends
21 - List of Subsidiaries of the Registrant
23.1 - Consent of Price Waterhouse LLP as to financial statements of Viacom
Inc. and Paramount Communications Inc.
23.2 - Consent of Price Waterhouse LLP as to financial statements of VII
Cable
23.3 - Consent of Ernst & Young LLP as to financial statements of Paramount
Communications Inc.
23.4 - Consent of Arthur Andersen LLP as to financial statements of
Blockbuster Entertainment Corporation
23.5 - Consent of Shearman & Sterling (included in their opinion filed as
Exhibit 5)*
24 - Powers of Attorney filed herewith
27.1 - Financial Data Schedule for Nine Months Ended September 30, 1995
27.2 - Financial Data Schedule for Year Ended December 31, 1994
99.1 - Form of Letter of Transmittal*
99.2 - Form of Notice of Guaranteed Delivery*
99.3 - Form of Letter from Wasserstein Perella & Co., Inc. to
Securities Dealers, Commercial Banks, Trust Companies and Other
Nominees*
99.4 - Form of Letter to Clients for use by Securities Dealers, Commercial
Banks, Trust Companies and Other Nominees*
- ---------------------
</TABLE>
* To be supplied by amendment.
(b) Financial Statement Schedules.
Report of Independent Accountants
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown on the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the registrants of expenses incurred or paid by a
director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by them is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was
not the subject of and included in the registration statement when it
became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on , 1995.
VIACOM INTERNATIONAL INC.
By /s/ Frank J. Biondi, Jr.
----------------------------------
Frank J. Biondi, Jr.
President, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on , 1995:
NAME AND SIGNATURE TITLE
/s/ Frank J. Biondi, Jr. Director, President,
------------------------- Chief Executive Officer
(Frank J. Biondi, Jr.)
/s/ George S. Smith, Jr. Senior Vice President,
------------------------- Chief Financial Officer
(George S. Smith, Jr.)
/s/ Susan C. Gordon Vice President, Controller,
------------------------- Chief Accounting Officer
(Susan C. Gordon)
* Director
-------------------------
(George S. Abrams)
* Director
-------------------------
(Steven R. Berrard)
/s/ Philippe P. Dauman Director
-------------------------
(Philippe P. Dauman)
* Director
-------------------------
(George D. Johnson, Jr.)
II-5
<PAGE>
* Director
-------------------------
(Ken Miller)
* Director
-------------------------
(Brent D. Redstone)
* Director
-------------------------
(Shari Redstone)
* Director
-------------------------
(Sumner M. Redstone)
* Director
-------------------------
(Frederic V. Salerno)
* Director
-------------------------
(William Schwartz)
* Director
-------------------------
(Ivan Seidenberg)
*By /s/ Philippe P. Dauman
---------------------------
Philippe P. Dauman,
Attorney-in-Fact
for the Directors
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
THE FINANCIAL STATEMENT SCHEDULE
September 11, 1995
To the Board of Directors and
Stockholders of Viacom International, Inc.
Our audits of the consolidated financial statements of VII Cable referred to in
our report dated September 11, 1995, appearing on Page F-2 of this Registration
Statement on Form S-4 also included an audit of the Financial Statement Schedule
on page S-2. In our opinion, this Financial Statement Schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
150 Almaden Boulevard
San Jose, CA 95113
S-1
<PAGE>
VII CABLE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------- ------ ------ ------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions (A) Period
----------- ---------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994...... $1,791 $5,202 -- $5,742 $1,251
Year ended December 31, 1993...... $1,463 $6,303 -- $5,975 $1,791
Year ended December 31, 1992...... $1,462 $5,363 -- $5,362 $1,463
</TABLE>
Note:
- ----
(A) Includes amounts written off.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO.
------- ----
<C> <S> <C>
4.3(a)- Certificate of Incorporation of Viacom International Inc.
4.3(b)- By-Laws of Viacom International Inc.
4.3(c)- Form of Restated Certificate of Incorporation of VII Cable*
4.4(a)- Form of Certificate of VII Cable Class A Common Stock*
4.4(b)- Form of Certificate of VII Cable Preferred Stock*
5 - Opinion of Shearman & Sterling as to the validity of the VII
Cable Class A Common Stock and VII Cable Preferred Stock*
10.1 - Parents Agreement
10.2 - Implementation Agreement
10.3 - Subscription Agreement
12 - Computation of Ratio of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Stock Dividends
21 - List of Subsidiaries of the Registrant
23.1 - Consent of Price Waterhouse LLP as to financial statements of
Viacom Inc. and Paramount Communications Inc.
23.2 - Consent of Price Waterhouse LLP as to financial statements of VII Cable
23.3 - Consent of Ernst & Young LLP as to financial statements of Paramount
Communications Inc.
23.4 - Consent of Arthur Andersen LLP as to financial statements of
Blockbuster Entertainment Corporation
23.5 - Consent of Shearman & Sterling (included in their opinion filed
as Exhibit 5)*
24 - Powers of Attorney filed herewith
27.1 - Financial Data Schedule for Nine Months Ended September 30, 1995
27.2 - Financial Data Schedule for Year Ended December 31, 1994
99.1 - Form of Letter of Transmittal*
99.2 - Form of Notice of Guaranteed Delivery*
99.3 - Form of Letter from Wasserstein Perella & Co., Inc. to
Securities Dealers, Commercial Banks, Trust Companies and Other
Nominees*
99.4 - Form of Letter to Clients for use by Securities Dealers,
Commercial Banks, Trust Companies and Other Nominees*
</TABLE>
- --------
* To be supplied by amendment.
<PAGE>
EXHIBIT 4.3(a)
EXHIBIT 4.3(a)
CERTIFICATE OF INCORPORATION
of
ARSENAL HOLDINGS II, INC.
ARTICLE I
Name
The name of the Corporation is Arsenal Holdings II, Inc.
ARTICLE II
Registered Office and Registered Agent
The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name and address of the Corporation's
registered agent is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware 19801.
ARTICLE III
Corporate Purposes
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
1
<PAGE>
ARTICLE IV
Capital Stock
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is one hundred (100) all of which
shall be Common Stock of the par value of ten cents ($0.10) each (hereinafter
called "Common Stock"). The Common Stock shall have voting rights for the
election of directors and for all other purposes, each holder of Common Stock
being entitled to one vote for each share thereof held by holder, except as
otherwise required by law.
ARTICLE V
Powers of Board of Directors
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized:
(a) To make, alter, amend or repeal the By-Laws, except as otherwise
expressly provided in any By-Law made by the holders of the capital stock
of the Corporation entitled to vote thereon. Any By-Law may be altered,
amended or repealed by the holders of the capital stock of the Corporation
entitled to vote thereon at any annual meeting or at any special meeting
called for that purpose.
(b) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
(c) To determine the use and disposition of any surplus and net
profits of the Corporation, including the determination of the amount of
working capital required, to set apart out of any of the funds of the
Corporation, whether or not available for dividends, a reserve or reserves
for any proper purpose and to abolish any such reserve in the manner in
which it was created.
(d) To designate, by resolution passed by a majority of the whole
Board of Directors, one or more committees, each committee to consist of
one or more directors of the Corporation, which, to the extent provided in
the resolution designating the committee or in the By-Laws of the
Corporation, shall, subject to the limitations prescribed by law, have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed to all papers which may require
it. Such committee or committees shall have such name or names as may be
provided in the By-Laws of the Corporation or as may be determined from
time to time by resolution adopted by the Board of Directors.
2
<PAGE>
(e) To adopt such pension, retirement, deferred compensation or other
employee benefit plans or provisions as may, from time to time, be approved
by it, providing for pensions, retirement income, deferred compensation or
other benefits for officers or employees of the Corporation and of any
corporation which is a subsidiary of the Corporation, or any of them, in
consideration for or in recognition of the services rendered by such
officers or employees or as an inducement to future efforts. No such plan
or provision, which is not at the time of adoption unreasonable or unfair,
shall be invalidated or in any way affected because any director shall be a
beneficiary thereunder or shall vote for any plan or provision under which
he may benefit.
(f) To exercise, in addition to the powers and authorities
hereinbefore or by law conferred upon it, any such powers and authorities
and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws of the
State of Delaware and of this Certificate of Incorporation and of the
By-Laws of the Corporation.
ARTICLE VI
Indemnification of Directors, Officers and Others
(a) Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent (including
trustee) of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation (funds paid or required to
be paid to any person as a result of the provisions of this Article shall be
returned to the Corporation or reduced, as the case may be, to the extent that
such person receives funds pursuant to an indemnification from any such other
corporation or organization) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. Any
such person who could be indemnified pursuant to the preceding sentence except
for the fact that the subject action or suit is or was by or in the right of the
Corporation shall be indemnified by the Corporation against expenses (including
3
<PAGE>
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought, shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(b) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraph (a) of this Section 1, or in
defense of any claim, issue or matter therein, including the dismissal of an
action without prejudice, he shall be indemnified by the Corporation against
expenses (including attorneys' fee) actually and reasonably incurred by him in
connection therewith without the necessity of any action being taken by the
Corporation other than the determination, in good faith, that such defense has
been successful. In all other cases wherein indemnification is provided by this
Article, unless ordered by a court, indemnification shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct specified in
this Article. Such determination shall be made (1) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) 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, or (3) by the holders of a majority of the
shares of capital stock of the Corporation entitled to vote thereon.
(c) The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person seeking indemnification did
not act in good faith and in a manner which reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. Entry of a judgment by consent as part of a settlement shall not
be deemed a final adjudication of liability for negligence or misconduct in the
performance of duty, nor of any other issue or matter.
(d) Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors in
the specific case upon receipt of an undertaking by the director, officer,
employee
4
<PAGE>
or agent involved to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Corporation. Such expenses incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems appropriate.
(e) The indemnification and advancement of expenses hereby provided not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or other both as to action in an
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
(f) By action of the Board of Directors, notwithstanding any interest of
the directors in the action, the Corporation, at its expense, may purchase and
maintain insurance, in such amounts as the Board of Directors deems appropriate,
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent (including trustee) or another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation shall have the power to
indemnify him against such liability under the provisions of this Article
or under the provisions of the General Corporation Law of the State of Delaware.
(g) All rights to indemnification and advancement of expenses under this
Article shall be deemed to be provided by contract between the Corporation and
the director, officer, employee or agent who serves in such capacity at any time
while this Certificate of Incorporation and other relevant provisions of the
General Corporation Law of the State of Delaware and other applicable law, if
any, are in effect.
(h) Any repeal or modification of the foregoing paragraphs by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director, officer, employee or agent of the Corporation existing
at the time of such repeal or modification.
(i) If the General Corporation Law of the State of Delaware is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, officers, employees or agents, then such person, in
addition to the circumstances in which he is not now personally liable, shall be
free of liability to the fullest extent permitted by the General Corporation Law
of the State of Delaware, as so amended.
(j) For purposes of this Article, reference to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
5
<PAGE>
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation", as referred to in this
Article.
(k) If this Article or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each person as provided above as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suitor proceeding, whether civil, criminal, administrative or
investigative, including a grand jury proceeding and an action by the
Corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated or by any other applicable law.
ARTICLE VII
Director Liability to the Corporation
(a) A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breaches of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware or (iv)for any transaction from which the director derived an
improper personal benefit.
(b) Any repeal or modification of the foregoing paragraph (a) by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director or the Corporation existing at the time of such appeal
or modification.
(c) If the General Corporation Law of the State of Delaware is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then a director of the Corporation, in addition to the
circumstances in which he is not now personally liable shall be free of
liability to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
6
<PAGE>
ARTICLE VIII
Reservation of Right to Amend Certificate of Incorporation
The Corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by law, and all the provisions of this Certificate of
Incorporation and all rights and powers conferred in this Certificate of
Incorporation on stockholders, directors and officers are subject to this
reserved power.
ARTICLE IX
Reorganization
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of the Delaware General Corporation Law or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of the Delaware General
Corporation Law order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or the stockholders or class of stockholders of the Corporation,
as the case may be, agree to any compromise or arrangement and to any
reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
ARTICLE X
The name and mailing address of the incorporator is as follows:
7
<PAGE>
Name Mailing Address
---- ---------------
Kenneth J. Ryan Shearman & Sterling
53 Wall Street
New York, New York 10005
The undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate, hereby declaring and certifying
that the facts herein stated are true; and accordin has hereunto set his hand
this __ day of May, 1987.
/s/ Kenneth J. Ryan
------------------------------
Kenneth J. Ryan
8
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Be It Remembered, that on this 30th day of May, 1987, personally appeared
before me, Lisa M. Nasoff, a Notary Public in and for the county and state
aforesaid, Kenneth J. Ryan, who executed the foregoing Certificate of
Incorporation, known to me personally to be such, and he did acknowledge said
Certificate to be his act and deed, and that the facts therein stated are true.
Given under my name and seal of office the day and year aforesaid.
/s/ Lisa M. Nasoff
-------------------------------
Lisa M. Nasoff
9
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
PARAMOUNT COMMUNICATIONS INC.
INTO
VIACOM INTERNATIONAL INC.
VIACOM INTERNATIONAL INC., a corporation organized and existing under the
laws of the State of Delaware (hereinafter this "Corporation"), DOES HEREBY
CERTIFY:
FIRST: That this Corporation owns all of the outstanding shares of
common stock (the only outstanding class of stock) of Paramount
Communications Inc., a corporation incorporated on the 18th day of April,
1967, pursuant to the General Corporation Law of the State of Delaware.
SECOND: That this Corporation, by resolutions of its Board of
Directors, duly adopted on the 14th day of December, 1994, determined to
effect a merger of said Paramount Communications Inc. into itself (the
"Merger"), and this Corporation shall be the surviving corporation. A true
copy of said resolutions is annexed hereto as Exhibit A. Said resolutions
have not been modified or rescinded and are in full force and effect on the
date hereof.
THIRD: That upon the effective date of the Merger the name of the
surviving corporation shall be Viacom International Inc.
FOURTH: The merger shall become effective upon the filing of this
certificate with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, VIACOM INTERNATIONAL INC. has caused this certificate
to be signed by Philippe P. Dauman, its Executive Vice President, General
Counsel, Chief Administrative Officer and Secretary, this 3rd day of January,
1995.
VIACOM INTERNATIONAL INC.
By: /s/ Philippe P. Dauman
-------------------------------
Philippe P. Dauman
Executive Vice President, General
Counsel Administrative Officer and
Secretary
10
<PAGE>
EXHIBIT A
VIACOM INTERNATIONAL INC.
RESOLUTIONS OF THE BOARD OF DIRECTORS
ADOPTED DECEMBER 14, 1994
RESOLVED, that pursuant to Section 253 of the General Corporation Law of
the State of Delaware, Paramount Communications Inc. shall be merged with and
into the Corporation, on or after January 3, 1995, in accordance with
Certificate of Merger, substantially in the form attached here as Exhibit I,
which Certificate of Merger is hereby approved and adopted, and that the
officers of the Corporation be, and each of them acting alone hereby is,
authorized and directed, in the name and on behalf of the Corporation, to
execute and file the Certificate of Merger with the office of the Secretary of
State of the State of Delaware; and
FURTHER RESOLVED, that the officers of the Corporation be, and each of them
alone hereby is, authorized and directed, in the name and on behalf of the
Corporation, to execute and deliver any and all agreements, documents or
certificates and to do or cause to be done all such further acts and things,
including, without limitation, filings with the Federal Communications
Commission, as such officer or officers deem necessary, appropriate or desirable
in order to carry out the purposes and intents of the foregoing resolutions; and
that the authority of such officer or officers to act under these resolutions
shall be conclusively evidenced by their so acting.
11
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
TELECASTERS, INC.
(an Ohio corporation)
INTO
VIACOM INTERNATIONAL INC.
(a Delaware corporation)
It is hereby certified that:
1. Viacom International Inc. hereinafter sometimes referred to as the
"Corporation" is a business corporation of the State of Delaware.
2. The Corporation is the owner of all of the outstanding shares of stock
of Telecasters, Inc., which is a business corporation of the State of Ohio.
3. The laws of the jurisdiction of organization of Telecasters, Inc. permit
the merger of a business corporation of that jurisdiction with a business
corporation of another jurisdiction.
4. The Corporation hereby elects to merge Telecasters, Inc. into the
Corporation.
5. The following is a copy of the resolutions adopted on October 24, 1991
by the Board of Directors of the Corporation to merge the said Telecasters, Inc.
into the Corporation:
RESOLVED that Telecasters, Inc. be merged into this Corporation, and
that all of the estate, property, rights, privileges, powers, and
franchises of Telecasters, Inc. be vested in and held and enjoyed by this
Corporation as fully and entirely and without change or diminution the same
were before held and enjoyed by Telecasters, Inc. in its name.
RESOLVED that this Corporation assume all of the obligations of
Telecasters, Inc.
RESOLVED that this Corporation shall cause to be executed and filed
and/or recorded the documents prescribed by the laws of the State of
Delaware, by the laws of the State of Ohio, and by the laws of any other
12
<PAGE>
appropriate jurisdiction and will cause to be performed all necessary acts
within the jurisdiction of organization of Telecasters, Inc. and of this
Corporation and in any other appropriate jurisdiction.
Executed on October 31, 1991.
By /s/ Mark M. Weinstein
-------------------------------
Mark W. Weinstein
Senior Vice President
Attest:
/s/ Teresa Marando
------------------------
Teresa Marando
Assistant Secretary
13
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
VIACOM INTERNATIONAL INC.
(an Ohio corporation)
INTO
ARSENAL HOLDINGS II, INC.
(a Delaware corporation)
It is hereby certified that:
1. ARSENAL HOLDINGS II, INC. (hereinafter sometimes referred to as the
"Corporation") is a business corporation of the State of Delaware.
2. The Corporation is the owner of all of the outstanding shares of each
class of Viacom International Inc., which is a business corporation of the State
of Ohio.
3. The Corporation determined to merge Viacom International Inc. into the
Corporation by the following resolution adopted by unanimous written consent of
the Board of Directors of the Corporation dated April 24, 1990:
RESOLVED, that the VII Merger (i.e., the merger of Viacom
International Inc. with and into the Corporation), following the completion
of the redemptions and exchanges, to be accomplished pursuant to the
resolution adopted herewith, be, and the same hereby is, in all respects
authorized and approved and the proper officers of the Corporation be, and
each of them hereby is, authorized and empowered in the name of and on
behalf of the Corporation, to cause to be executed and filed the documents
prescribed by the laws of the States of Delaware and Ohio, which documents
shall include the amendment to Article FIRST of the Certificate of
Incorporation to read as follows:
14
<PAGE>
"FIRST: The name of the Corporation is VIACOM INTERNATIONAL INC."
Executed on April 24, 1990
Arsenal Holding II, Inc.
By: /s/ Sumner M. Redstone
------------------------------
Sumner M. Redstone
President
Attest:
/s/ M. Teresa Marando
-----------------------
M. Teresa Marando
Assistant Secretary
<PAGE>
EXHIBIT 4.3(b)
VIACOM INTERNATIONAL INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of stockholders may be held at such time and place,
within or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof. The annual meeting of
stockholders may be held at such place, within or without the State of Delaware,
as shall be designated by the board of directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. The annual meeting of stockholders for the purpose of electing
directors and for the transaction of such other business as may properly come
before the meeting shall be held at such date and hour as shall be determined by
the board of directors or, in the absence of such determination, on the third
Thursday of the ninth month after the month end most nearly coinciding with the
close of the fiscal year of the Corporation.
Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
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Section 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept open at the time and place where the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Restated Certificate
of Incorporation, may be called by the affirmative vote of a majority of the
board of directors, the Chairman of the Board, the Vice Chairman of the Board or
the President and shall be called by the Chairman of the Board, the Vice
Chairman of the Board, the President or Secretary at the request in writing of
the holders of record of at least 50.1% of the aggregate voting power of all
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors, acting together as a single class. Such
request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose and purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
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Section 8. The holders of a majority of the aggregate voting power of the
shares of the capital stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute or by the Restated Certificate of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the aggregate voting power of the shares of the capital stock
having voting power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which, by
express provision of applicable law or of the Restated Certificate of
Incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
Section 10. At every meeting of the stockholders, each stockholder shall be
entitled to vote, in person or by proxy executed in writing by the stockholder
or his duly authorized attorney-in-fact, each share of the capital stock having
voting power held by such stockholder in accordance with the provisions of the
Restated Certificate of Incorporation and, if applicable, the certificate of
designations relating thereto, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period.
Section 11. Any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by stockholders representing
not less than the minimum number of votes that would be necessary to authorize
or take such actions at a meeting at which all shares entitled to vote thereon
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were present and voted. Prompt notice of the taking of such action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. The Secretary shall file such
consents with the minutes of the meetings of the stockholders.
Section 12. At all meetings of stockholders, the chairman of the meeting
shall have absolute authority over matters of procedure, and there shall be no
appeal from the ruling of the chairman.
Section 13. Attendance of a stockholder, in person or by proxy, at any
meeting shall constitute a waiver of notice of such meeting, except where the
stockholder, in person or by proxy, attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the entire Board
of Directors shall be fixed from time to time by resolution of the Board of
Directors but shall not be less than three nor more than twelve. Directors shall
have such qualifications as may be prescribed by these by-laws. Directors need
not be stockholders. Each director shall be a citizen of the United States of
America.
Section 2. Subject to the rights of the holders of any series of Preferred
Stock or any other class of capital stock of the Corporation then outstanding
(other than the Common Stock), vacancies in the board of directors for any
reason, including by reason of an increase in the authorized number of
directors, shall, if occurring prior to the expiration of the term of office in
which the vacancy occurs, be filled by a majority of the directors then in
office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual meeting of
stockholders of the Corporation or until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
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Section 3. The property and business of the Corporation shall be controlled
and managed by its board of directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Restated Certificate of Incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the Corporation, or any committees
thereof, may hold meetings, both regular and special, either within or without
the State of Delaware.
Section 5. A regular annual meeting of the board of directors,
including newly elected directors, shall be held immediately after each annual
meeting of stockholders at the place of such stockholders' meeting, and no
notice of such meeting to the directors shall be necessary in order legally to
constitute the meeting, provided a quorum shall be present. If such meeting is
held at any other time or place, notice thereof must be given or waived as
hereinafter provided for special meetings of the board of directors.
Section 6. Additional regular meetings of the board of directors shall be
held on such dates and at such times and at such places as shall from time to
time be determined by the board of directors.
Section 7. The Chairman of the Board, Vice Chairman of the Board or the
President of the Corporation and the Secretary may call a special meeting of the
board of directors at any time by giving notice, specifying the business to be
transacted and the purpose or purposes of the meeting, to each member of the
board at least twenty-four (24) hours before the time appointed.
Section 8. At all meetings of the board a majority of the full board of
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute, the Restated Certificate of Incorporation or
these by-laws. If a quorum shall not be present at any
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meeting of the board of directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 9. Any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing, setting forth the action so taken, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the Restated Certificate of
Incorporation or these by-laws, members of the board of directors, or any
committee thereof, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment whereby all persons participating in the meeting can hear each other,
an such participation in a meeting shall constitute presence in person at the
meeting.
COMMITTEES OF DIRECTORS
Section 11. Designation of Committees. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
Section 12. Vacancies. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
Section 13. Powers. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the powers
and authority of the board of directors to the extent provided by Section 141(c)
of the General Corporation Law of the State of Delaware as it exists now or may
hereafter be amended.
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Section 14. Each committee of the board of directors shall keep regular
minutes of its meetings and report the same to the board of directors when
required.
COMPENSATION OF DIRECTORS
Section 15. Unless otherwise restricted by the Restated Certificate of
Incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. All directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors, and directors
who are not full-time employees of the Corporation may be paid a fixed sum for
attendance at each meeting of the board of directors and/or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation and expenses
for attending committee meetings.
REMOVAL OF DIRECTORS
Section 16. Subject to the rights of the holders of any series of Preferred
Stock or any other class of capital stock of the Corporation (other than the
Common Stock) then outstanding, (a) any director, or the entire board of
directors, may be removed from office at any time prior to the expiration of his
term of office, with or without cause, only by the affirmative vote of the
holders of record of outstanding shares representing at least a majority of all
of the aggregate voting power of outstanding shares of capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class at a special meeting of stockholders called expressly
for that purpose; provided that any director may be removed from office by the
affirmative vote of a majority of the entire board of directors, at any time
prior to the expiration of his term of office, as provided by law, in the event
a director fails to meet the qualifications stated in these by-laws for election
as a director or in the event such director is in breach of any agreement
between such director and the Corporation relating to such director's service as
a director or employee of the Corporation.
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INDEMNIFICATION OF DIRECTORS
Section 17. The Corporation shall have the right to indemnify directors,
officers and agents of the Corporation to the fullest extent permitted by the
General Corporation Law of Delaware and by the Restated Certificate of
Incorporation, as both may be amended from time to time.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of applicable law or of the
Restated Certificate of Incorporation or of these by-laws, notice is required to
be given to any director or stockholder, it shall be construed to mean written
or printed notice given either personally or by mail or wire addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage or other charges thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail or at the appropriate office for transmission by wire. Notice
to directors may also be given by telephone.
Section 2. Whenever any notice is required to be given under the provisions
of applicable law or of the Restated Certificate of Incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
Section 3. Attendance at a meeting shall constitute a waiver of notice
except where a director or shareholder attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
Section 4. Neither the business to be transacted at, nor the purpose of,
any regular meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
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ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be elected by the board of
directors at its first meeting after each annual meeting of the stockholders and
shall be a President, a Treasurer and a Secretary. The board of directors may
also elect a Chairman of the Board, one or more Vice Chairmen of the Board and
Vice Presidents and one or more Assistant Treasurers and Assistant Secretaries.
Any number of offices may be held by the same person, except that the offices of
President and Secretary shall not be held by the same person. Vice Presidents
may be given distinctive designations such as Executive Vice President or Senior
Vice President. Every officer shall be a citizen of the United States of
America.
Section 2. The board of directors may elect such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board of directors.
Section 3. The officers of the Corporation shall hold office until their
successors are elected or appointed and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the board of
directors may be removed at any time with or without cause by the affirmative
vote of a majority of the whole board of directors. Any vacancy occurring in any
office of the Corporation shall be filled by the board of directors.
CHAIRMAN OF THE BOARD
Section 4. The Chairman of the Board, if any shall be elected, shall
preside at all meetings of the board of directors and the stockholders and shall
have such other powers and perform such other duties as may from time to time be
assigned to him by the board of directors.
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VICE CHAIRMAN OF THE BOARD
Section 5. The Vice Chairman of the Board, if any shall be elected, or if
there be more than one, the Vice Chairmen of the Board in order of their
election, shall, in the absence of the Chairman of the Board, or in the case the
Chairman of the Board shall resign, retire, become deceased or otherwise cease
or be unable to act, perform the duties and exercise the powers of the Chairman
of the Board. In addition, the Vice Chairman of the Board shall have such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors.
THE PRESIDENT
Section 6. The President shall serve as the chief executive officer of the
Corporation and shall, subject to the direction of the board of directors, have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the board of directors are carried into
effect. In the event that no Chairman of the Board or Vice Chairman of the Board
has been elected or in the absence of the Chairman of the Board, or in the case
they both shall resign, retire, become deceased or otherwise cease or be unable
to act, the President shall also perform the duties and exercise the powers of
the Chairman of the Board.
THE VICE-PRESIDENTS
Section 7. The Vice-Presidents shall have such powers and perform such
duties as may from time to time be assigned to them by the board of directors or
the President.
THE SECRETARY AND ASSISTANT SECRETARY
Section 8. The Secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
of the board of directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the board of
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directors, and shall perform such other duties as may be prescribed by the board
of directors or the President, under whose supervision he shall be. He shall
have custody of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The board of directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
Section 9. The Assistant Secretary, if any shall be elected, or if there be
more than one, the Assistant Secretaries in the order determined by the board of
directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall have such other powers and perform such other duties as may
from time to time be assigned to them by the board of directors or the
President.
THE TREASURER AND ASSISTANT TREASURERS
Section 10. The Treasurer, under the supervision of the President, shall
have charge of the corporate funds and securities and shall keep or cause to be
kept full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as may be
designated by or at the direction of the board of directors.
Section 11. The Treasurer shall disburse or cause to be disbursed the funds
of the Corporation as may be ordered by or at the direction of the President or
the board of directors, taking proper vouchers for such disbursements, and
subject to the supervision of the President, shall render to the board of
directors, when they or either of them so require, an account of his
transactions as Treasurer and of the financial condition of the Corporation.
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Section 12. If required by the board of directors, the Treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 13. The Assistant Treasurer, if any shall be elected, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
board of directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall have such other powers and perform such other duties as may
from time to time be assigned to them by the board of directors.
Section 14. In addition to the corporate officers elected by the board of
directors pursuant to this Article V, the President may, from time to time,
appoint one or more other persons as appointed officers who shall not be deemed
to be corporate officers, but may, respectively, be designated with such titles
as the President may deem appropriate. The President may prescribe the powers to
be exercised and the duties to be performed by each such appointed officer, may
designate the term for which each such appointment is made, and may, from time
to time, terminate any or all of such appointments. Such appointments and
termination of appointments shall be reported to the board of directors.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of shares of capital stock in the Corporation shall
be entitled to have a certificate sealed with the seal of the Corporation and
signed by, or in the name of the Corporation by, the Chairman of the Board, Vice
Chairman of the Board or the President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the designations, preferences and relative,
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participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Section 2. Any or all of the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of capital stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
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TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. 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 to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of 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 of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meetings, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered in its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares 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.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of any statute, the Restated Certificate of
Incorporation and these by-laws.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
preparing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
CHECKS
Section 4. All checks or demands for money of the Corporation shall be
signed by such officer or officers or such other person or persons as the board
of directors may from time to time designate.
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FISCAL YEAR
Section 5. The fiscal year of the Corporation shall be as specified by the
board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
CONTRACTS
Section 7. An officer of the Corporation may sign any note, bond, or
mortgage of the Corporation in furtherance of the Corporation's ordinary
business and in order to implement any action authorized by these by-laws.
ARTICLE VIII
AMENDMENTS
In furtherance of and not in limitation of the powers conferred by statute,
the board of directors of the Corporation from time to time may make, amend,
alter, change or repeal the by-laws of the Corporation; provided that any
by-laws made, amended, altered, changed or repealed by the board of directors or
the stockholders of the Corporation may be made, by the stockholders of the
Corporation. Notwithstanding any other provisions of the Restated Certificate of
Incorporation or these by-laws (and notwithstanding the fact that a lesser
percentage may be specified by law, the Restated Certificate of Incorporation or
these by-laws), the affirmative vote of not less than a majority of the
aggregate voting power of all outstanding shares of capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the stockholders of the
Corporation to amend, alter, change, repeal or adopt any by-laws of the
Corporation.
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EXHIBIT 10.1
-----------------------------------------------------------
PARENTS AGREEMENT
among
VIACOM INC.,
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC.
Dated as of July 24, 1995
---------------------------------------------------------
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TABLE OF CONTENTS
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Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Definitions................................................ 1
ARTICLE II
THE EXCHANGE OFFER
Section 2.1 Exchange Offer............................................. 7
Section 2.2 Number of Shares of Class A Common Stock................... 10
Section 2.3 Exchange Offer Mechanics................................... 10
Section 2.4 Recapitalization........................................... 12
ARTICLE III
OTHER AGREEMENTS
Section 3.1 Execution of Other Agreements.............................. 12
Section 3.2 Amendments of Implementation Agreement..................... 12
Section 3.3 Designation of Agent for PCI Group......................... 12
Section 3.4 Prohibited Transactions.................................... 13
Section 3.5 No Inconsistent Terms...................................... 13
Section 3.6 Operation of the Business.................................. 13
Section 3.7 Right of First Offer....................................... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VI
Section 4.1 Corporate Existence and Power.............................. 14
Section 4.2 Corporate Authorization.................................... 14
Section 4.3 Governmental Authorization................................. 14
Section 4.4 Consents................................................... 14
Section 4.5 Non-Contravention.......................................... 15
Section 4.6 Binding Effect............................................. 15
Section 4.7 Finders' Fees.............................................. 15
Section 4.8 Exchange Offer............................................. 15
</TABLE>
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<TABLE>
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ii
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TCI AND TCI SUB
<S> <C> <C>
Section 5.1 Corporate Existence and Power............................. 16
Section 5.2 Corporate Authorization................................... 16
Section 5.3 Governmental Authorization................................ 16
Section 5.4 Consents.................................................. 16
Section 5.5 Non-Contravention......................................... 16
Section 5.6 Binding Effect............................................ 17
Section 5.7 Finders' Fees............................................. 17
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to OBligations of VI........................... 17
Section 6.2 Further Condition......................................... 18
ARTICLE VII
TERMINATION
Section 7.1 Termination............................................... 19
Section 7.2 Effect of Termination..................................... 20
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Expenses.................................................. 20
Section 8.2 Headings.................................................. 21
Section 8.3 Notices................................................... 21
Section 8.4 Assignment................................................ 21
Section 8.5 Entire Agreement.......................................... 22
Section 8.6 Amendment; Waiver......................................... 22
Section 8.7 Counterparts.............................................. 22
Section 8.8 Governing Law............................................. 22
Section 8.9 Severability.............................................. 22
Section 8.10 Consent to Jurisdiction................................... 22
Section 8.11 Third Person Beneficiaries................................ 23
Section 8.12 Specific Performance...................................... 23
Section 8.13 Survival.................................................. 23
</TABLE>
<PAGE>
iii
EXHIBITS
Exhibit A - Exchange Offer Conditions
Exhibit B - Implementation Agreement
SCHEDULES
Schedule 5.4 - Consents Required by Contracts of TCI and TCI Sub
<PAGE>
PARENTS AGREEMENT
Parents Agreement, dated as of July 24, 1995 (this "Agreement"), among
Viacom Inc., a Delaware corporation ("VI"), Tele-Communications, Inc., a
Delaware corporation ("TCI"), and TCI Communications, Inc., a Delaware
corporation ("TCI Sub").
WHEREAS, Viacom International Inc., a Delaware corporation ("Old VII"), is
a wholly-owned subsidiary of VI; and
WHEREAS, VI desires to make an exchange offer to its shareholders pursuant
to which shares of VI Common Stock would be exchanged for Class A Common Stock
of Old VII; and
WHEREAS, it is the intent of VI that prior to the consummation of the
Exchange Offer Old VII will (i) convey all of the Non-Cable Assets to New VII
and (ii) distribute its shares in New VII to VI; and
WHEREAS, TCI Sub desires to purchase from Old VII shares of Class B Common
Stock of Old VII immediately following the Exchange Time; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein between the parties referred to above, the parties hereto
hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
Section 1.1 Definitions. For purposes of this Agreement the following
terms, when used in capitalized form, shall have the following meanings (and
such meanings shall be equally applicable to both the singular and plural forms
of the terms defined herein):
"Affiliate" shall have the meaning specified in the Implementation
Agreement.
"Aggregate Loan Amount" shall have the meaning set forth in Section
6.1(vi).
"Agreement" shall mean this Parents Agreement, including the Exhibits and
Schedules hereto.
"Amended and Restated Certificate of Incorporation" shall have the meaning
specified in the Implementation Agreement.
"Anticipated Commencement Date" shall have the meaning specified in Section
2.3(ii).
"Assumption of Liabilities" shall have the meaning specified in the
Implementation Agreement.
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"Bill of Sale" shall have the meaning specified in the Implementation
Agreement.
"Business Day" shall have the meaning specified in the Implementation
Agreement.
"Cable Division Subsidiary" shall have the meaning specified in the
Implementation Agreement.
"Cash Collateral Account" shall have the meaning specified in the
Subscription Agreement.
"Class A Common Stock" shall mean the Class A Common Stock, par value $100,
of Old VII, after giving effect to the filing of the Amended and Restated
Certificate of Incorporation with the Secretary of State of Delaware.
"Communications Act" shall have the meaning specified in the Implementation
Agreement.
"Consented Subscribers" shall have the meaning specified in the
Subscription Agreement.
"Conversion Ratio" shall have the meaning specified in Section 2.3(ii).
"Conversion Ratio Spread" shall have the meaning specified in Section
2.3(ii).
"Conveyance of Assets" shall have the meaning specified in the
Implementation Agreement.
"Estimated Asset Value" shall have the meaning specified in the
Implementation Agreement.
"Estimated Exchange Date Basic Subscribers" shall have the meaning
specified in the Subscription Agreement.
"Exchange Date" shall mean the date on which the Exchange Time occurs.
"Exchange Offer" shall mean an offer by VI to exchange Class A Common Stock
for VI Common Stock on the basis set forth in Article II and subject to the
Exchange Offer Conditions.
"Exchange Offer Commencement Date" shall mean the date on which the
Exchange Offer commences in accordance with the 1934 Act.
"Exchange Offer Conditions" shall mean the conditions set forth on Exhibit
A.
"Exchange Ratio" shall have the meaning specified in Section 2.3.
3
<PAGE>
"Exchange Time" shall mean, if the Exchange Offer is consummated, the first
Business Day following announcement of the proration factor (which in no event
shall be more than ten (10) Business Days after the Expiration Date), in
accordance with the terms and conditions of the Exchange Offer and applicable
SEC rules and regulations, at which time VI shall exchange share certificates of
Class A Common Stock for share certificates of VI Common Stock pursuant to the
Exchange Offer.
"Expiration Date" shall mean the date on which the Expiration Time occurs
in accordance with its terms.
"Expiration Time" shall mean the time at which the Exchange Offer finally
expires.
"FCC Authorizations" shall have the meaning specified in the Implementation
Agreement.
"Final Exchange Ratio" shall have the meaning specified in Section 2.3(i).
"Force Majeure Event" means any event described in paragraph (e) of the
Exchange Offer Conditions.
"Force Majeure Notice" shall have the meaning specified in Section 2.1(e).
"Governmental Authority" shall have the meaning specified in the
Implementation Agreement.
"HSR Act" shall have the meaning specified in the Implementation Agreement.
"Implementation Agreement" shall mean the Implementation Agreement, dated
as of the date hereof, between New VII and Old VII, in the form of Exhibit B.
"Inconsistent Terms" shall mean, with respect to the Loans or Loan
Documentation, terms or conditions thereof that (i) are inconsistent with the
terms of the Transaction Documents or the Preferred Stock or (ii) would require
the grant of any security interest in an asset of VI or any of its Affiliates
(other than (x) a grant by Old VII of a security interest in the Cash Collateral
Account prior to the Exchange Time, (y) the pledge by Old VII or any Cable
Division Subsidiary of stock in a Cable Division Subsidiary that is effective
upon (but not before) the release of all funds to Old VII from the Cash
Collateral Account or (z) pursuant to Section 2.17 of the Implementation
Agreement, in each case consistent with the terms of the Transaction Documents).
"InterMedia" shall mean InterMedia Partners IV, L.P., a California limited
partnership.
4
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"Intraday Price" shall mean, with respect to a day, the weighted average of
the sale prices for all trades of shares of VI Class B Common Stock on such
date, as reported by the ADP Financial Information Services reporting service.
"Legal Requirement" shall have the meaning specified in the Implementation
Agreement.
"Loan Documentation" shall have the meaning specified in the Subscription
Agreement.
"Loan Proceeds" shall have the meaning specified in the Subscription
Agreement.
"Loans" shall have the meaning specified in the Subscription Agreement.
"Local Authority" shall have the meaning specified in the Implementation
Agreement.
"Local Authorizations" shall have the meaning specified in the
Implementation Agreement.
"Minimum Condition" shall mean the condition that a number of shares of VI
Common Stock shall have been validly tendered and not withdrawn prior to the
expiration of the Exchange Offer that is sufficient to enable VI to exchange the
Number of Shares to be Exchanged at the Final Exchange Ratio in accordance with
the terms and conditions of the Exchange Offer.
"ML&Co." shall have the meaning specified in Section 2.3(ii).
"NASDAQ" shall mean the electronic inter-dealer quotation system operated
by NASDAQ, Inc., a subsidiary of the National Association of Securities Dealers,
Inc.
"Negotiation Period" shall have the meaning specified in Section 3.7.
"New VII" means Viacom International Services Inc., a Delaware corporation.
"1933 Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, as amended.
"Non-Cable Assets" shall have the meaning specified in the Implementation
Agreement.
"Non-Cable FCC Authorizations" shall have the meaning specified in the
Implementation Agreement.
5
<PAGE>
"Number of Shares to be Exchanged" shall have the meaning specified in
Section 2.2.
"Offered Business" shall have the meaning specified in Section 3.7.
"Offering Materials" means the Offering Circular/Prospectus relating to the
Exchange Offer included in the Registration Statement and each of the other
documents mailed to stockholders of VI in connection with the Exchange Offer
and, if a TCI Registration Statement is required pursuant to Section 2.1(b) to
be declared effective prior to the commencement of the Exchange Offer, the
Prospectus relating to the TCI Stock issuable upon conversion of the Preferred
Stock included in such TCI Registration Statement.
"Offer Period" shall have the meaning specified in Section 3.7.
"Old VII" shall have the meaning specified in the preamble of this
Agreement.
"PCI Group" shall have the meaning specified in the Implementation
Agreement.
"PCI Subsidiaries" shall have the meaning specified in the Implementation
Agreement.
"Person" shall have the meaning specified in the Implementation Agreement.
"Preferred Stock" shall mean the Series A Senior Cumulative Exchangeable
Preferred Stock of Old VII, having the rights and privileges set forth in the
term sheet set forth as Exhibit K to the Implementation Agreement, and having a
yield and conversion ratio determined in accordance with Section 2.3 and having
such other terms as are customary for such securities and consistent with such
term sheet.
"Price Notice" shall have the meaning specified in Section 3.7.
"RCS" shall mean RCS Pacific, L.P., a California limited partnership.
"Registration Statement" shall have the meaning specified in Section 2.1.
"SEC" shall mean the Securities and Exchange Commission.
"Share Purchase Closing" shall have the meaning specified in the
Implementation Agreement.
"Spread" shall have the meaning specified in Section 2.3.
"Subscription Agreement" shall mean a Subscription Agreement, dated as of
the date hereof, among Old VII, TCI and TCI Sub, provided that the definition of
Subscription Agreement shall not include any amendment thereto entered into from
and after the Exchange Time without the written consent of VI (which consent may
be withheld for any reason).
6
<PAGE>
"TCI Information" shall have the meaning specified in Section 2.1(f).
"TCI Registration Statement" shall have the meaning specified in Section
2.1(b).
"TCI Stock" shall mean (i) the Class A Common Stock, $1.00 par value per
share, of TCI, or (ii) if the "Liberty Media Group Stock Proposal" (as such term
is defined in the proxy statement/prospectus of TCI dated June 29, 1995) is
adopted by the stockholders of TCI and the Distribution (as so defined)
contemplated thereby is made, the Series A TCI Group Common Stock, $1.00 par
value per share, of TCI.
"TCI Sub" shall have the meaning specified in the preamble of this
Agreement.
"Tiebreaker Investment Bank" shall have the meaning specified in Section
2.3(ii).
"Transaction" shall mean the Conveyance of Assets, the Assumption of
Liabilities, the Loans, the Exchange Offer, the sale of the Shares (as such term
is defined in the Subscription Agreement) and all other transactions
contemplated by the Transaction Documents.
"Transaction Documents" shall mean this Agreement, the Implementation
Agreement, the Subscription Agreement, the Bill of Sale and any other
agreements, documents, instruments and certificates dated as of the date hereof
and executed and delivered by TCI or any of its Affiliates, on the one hand, and
VI or any of its Affiliates, on the other hand, in connection with the
transactions contemplated by the foregoing.
"VI" shall have the meaning specified in the preamble of this Agreement.
"VI Class B Common Stock" shall mean the Class B Common Stock, par value
$0.01, of VI.
"VI Common Stock" means the Class A Common Stock, par value $0.01 per share
of VI, and the VI Class B Common Stock.
"WP&Co." shall have the meaning specified in Section 2.3(ii).
ARTICLE II
----------
THE EXCHANGE OFFER
Section 2.1 Exchange Offer. (a) VI shall (i) cause Old VII to prepare and
file with the SEC as promptly as practicable following the date hereof a
registration statement on Form S-4 (or another appropriate form) under the 1933
Act with respect to the Exchange Offer (the "Registration Statement"); (ii) use
its commercially reasonable efforts to have the Registration Statement declared
effective by the SEC under the 1933 Act; and (iii) take all such action as may
be required under state blue sky or securities laws in connection with the
Exchange Offer.
7
<PAGE>
(b) TCI agrees to prepare and file with the SEC, and use its commercially
reasonable efforts to cause to be declared effective (which, if required by the
SEC, shall be prior to the commencement of the Exchange Offer), a registration
statement under the 1933 Act which will permit the exchange of TCI Stock for
shares of Preferred Stock upon conversion thereof to be made in compliance with
the 1933 Act and the rules and regulations of the SEC promulgated thereunder
(the "TCI Registration Statement").
(c) Subject to the fulfillment of the conditions set forth in Section 6.1,
promptly after both the Registration Statement and the TCI Registration
Statement (if required pursuant to Section 2.1(b) to be declared effective prior
to the commencement of the Exchange Offer) become effective, VI shall commence
the Exchange Offer (and file with the SEC a Schedule 13E-4 under the 1934 Act
relating to the Exchange Offer), cause the Offering Materials to be mailed to
the record holders of its Common Stock and, subject to the terms and conditions
of the Exchange Offer and this Agreement, take all action necessary to
consummate the Exchange Offer. It is agreed that VI shall have no obligation to
make a recommendation to its shareholders concerning the Exchange Offer.
(d) VI shall accept for exchange, in accordance with the terms of the
Exchange Offer, shares of VI Common Stock tendered prior to the Expiration Time
and not theretofore withdrawn if all Exchange Offer Conditions shall have been
satisfied or waived by VI in accordance with the terms of the Exchange Offer. VI
agrees that it will not exercise its right to terminate the Exchange Offer as a
result of the failure of an Exchange Offer Condition without a reasonable basis
for believing that such Exchange Offer Condition has not been satisfied.
(e) VI agrees that it will not accept for exchange shares of VI Common
Stock tendered to it in the Exchange Offer and shall extend the Expiration Date
(provided that the Expiration Date has not already been extended) if it receives
written notice from TCI and TCI Sub to it prior to 5:00 P.M. on the date the
Exchange Offer is scheduled to expire that they have determined that any Force
Majeure Event has occurred (a "Force Majeure Notice"), provided that TCI and TCI
Sub must have a reasonable basis for making such a determination. In the event
that a Force Majeure Notice has been delivered to VI and no Force Majeure Event
shall exist on the subsequent Expiration Date following extension of the
Exchange Offer pursuant to Section 2.3(ii), VI may give written notice to such
effect to TCI and TCI Sub prior to 5:00 p.m. on such subsequent Expiration Date,
in which case such Force Majeure Notice shall be deemed to be withdrawn and of
no further force and effect at 8:59 A.M. on the Business Day following the date
such notice is delivered by VI.
(f) TCI and TCI Sub agree to provide VI with such information with respect
to TCI, TCI Sub, the Loans and, with respect to any period after the Exchange
Time, Old VII or any Cable Division Subsidiary, as is necessary for VI to
complete the Registration Statement in accordance with the requirements of the
1933 Act. TCI and TCI Sub covenant that the information supplied or to be
supplied by TCI or TCI Sub in writing specifically for inclusion in, and which
is included in, the Registration Statement or any amendment or supplement
thereto, or the Offering Materials, which concerns TCI, TCI Sub, or the Loans
or, with respect to any period after the Exchange Time, Old VII or any Cable
8
<PAGE>
Division Subsidiary (the "TCI Information"), will not, at the respective times
such documents are filed and at the Expiration Time, and, in the case of the
Registration Statement or any amendment or supplement thereto, when the same
becomes effective, and, in the case of the Offering Materials, at the time of
mailing thereof to VI's stockholders, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or necessary to correct any statement in any earlier
communication with respect to the Exchange Offer. For this purpose, any TCI
Information included in any such document will be deemed to have been so
supplied in writing specifically for inclusion therein if such document was
available for review by TCI a reasonable time before such document was filed and
not objected to in writing by TCI prior to the filing thereof. If at any time
prior to the Exchange Date any event or circumstance relating to TCI, TCI Sub or
any of their Affiliates or their officers or directors, the Loans or, with
respect to any period after the Exchange Time Old VII or any Cable Division
Subsidiary, should be discovered by TCI which should be set forth in an
amendment or supplement to the Registration Statement or Offering Materials, as
required by applicable law, TCI shall promptly inform VI. VI and its Affiliates,
officers, directors, employees, agents, successors and assigns shall be
indemnified and held harmless by TCI and TCI Sub (who shall be jointly and
severally liable) for any and all liabilities, losses, damages, claims, costs
and expenses (including, without limitation, attorneys' fees and expenses)
actually suffered or incurred by them arising out of or resulting from any
untrue statement of a material fact contained in the Registration Statement or
the Offering Materials, or any omission to state therein 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, if the
statement or omission was made in reliance upon and in conformity with the TCI
Information.
(g) VI covenants that the information in the Registration Statement and
Offering Materials (other than the TCI Information) shall not, at the time (i)
the Registration Statement is declared effective, (ii) the Offering Materials
(or any amendment thereof or supplement thereto) is first mailed to the
shareholders of VI, and (iii) at the Expiration Time contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. If any time prior to the Exchange Date any event
or circumstance relating to VI or any of its Affiliates or its officers or
directors, should be discovered by VI which should be set forth in an amendment
or a supplement to the Registration Statement or Offering Materials, as required
by applicable law, VI shall promptly inform TCI and TCI Sub. TCI, TCI Sub and
their Affiliates, officers, directors, employees, agents, successors and assigns
shall be indemnified and held harmless by VI for any and all liabilities,
losses, damages, claims, costs and expenses (including, without limitation,
attorneys' fees and expenses) actually suffered or incurred by them arising out
of or resulting from any untrue statement of a material fact contained in the
Registration Statement or the Offering Materials, or any omission to state
therein 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, in each case except to the extent that the statement or omission
was made in reliance upon and in conformity with the TCI Information.
9
<PAGE>
Section 2.2 Number of Shares of Class A Common Stock. The number of shares
of Class A Common Stock that VI shall exchange for VI Common Stock in the
Exchange Offer shall be a number (the "Number of Shares to be Exchanged") equal
to (x) the Estimated Asset Value, minus $1,700,000,000 (one billion, seven
hundred million dollars), divided by (y) $100 (the par value of the Class A
Common Stock and the stated amount of the liquidation preference (before
provision for accrued and unpaid dividends) of one share of the Preferred
Stock.)
Section 2.3 Exchange Offer Mechanics.
(i) Unless otherwise agreed, the Exchange Offer shall
be a "Dutch Auction" tender offer pursuant to
which stockholders of VI who tender their shares
of VI Common Stock shall be provided with the
opportunity to state the minimum fraction of a
share or shares of Class A Common Stock (an
"Exchange Ratio") that such shareholder will
accept in exchange for each share of such VI
Common Stock accepted by VI for exchange pursuant
to the Exchange Offer. The Exchange Offer shall
state a maximum Exchange Ratio and a minimum
Exchange Ratio, provided that the maximum
Exchange Ratio times $100 shall represent a price
not less than 112.5% of the average of the
Intraday Prices for a share of VI Class B Common
Stock reported by the American Stock Exchange
during the twenty trading day period ended the
date prior to the Exchange Offer Commencement
Date. The final Exchange Ratio shall be the
smallest Exchange Ratio (within applicable SEC
rules and regulations) equal to or less than the
specified maximum Exchange Ratio (the "Final
Exchange Ratio") that would result in the issuance
of the Number of Shares to be Exchanged in
exchange for the shares of VI Common Stock validly
tendered prior to the Expiration Date, and,
subject to satisfaction of all conditions to the
Exchange Offer and to proration, VI shall accept
for exchange at the Final Exchange Ratio all
shares validly tendered and not withdrawn with
respect to which an Exchange Ratio has been
designated which is equal to or less than the
Final Exchange Ratio. If there is no such Final
Exchange Ratio, the Minimum Condition shall be
deemed not met as of such expiration date.
(ii) The terms of the Exchange Offer shall specify (a)
that the yield on the Preferred Stock to be issued
in exchange for the Class A Common Stock upon the
Share Purchase Closing shall bear a dividend yield
equal to (x) the yield on ten (10) year treasury
bonds immediately prior to the commencement of the
Exchange Offer, plus a specified spread (the
"Spread") which shall not be greater than one and
one-quarter (1.25) percentage points over such
yield or (y) such higher dividend yield as may be
specified by TCI as provided below and (b) the
conversion ratio (the "Conversion Ratio") on the
Preferred Stock for the conversion of the
10
<PAGE>
Preferred Stock into TCI Stock, which shall be
based upon a percentage premium of twenty-five
percent (25%) (the "Conversion Ratio Spread") over
the weighted average of the sale prices for all
trades of shares of TCI Stock on NASDAQ during the
twenty (20) trading days ending on the second
Business Day (or such longer period as is required
by the 1934 Act) prior to the expiration of the
Exchange Offer. VI shall notify TCI Sub not less
than fifteen (15) Business Days prior to the
anticipated commencement date of the Exchange
Offer (the "Anticipated Commencement Date") of
such Anticipated Commencement Date. Merrill, Lynch
& Co., Incorporated ("ML&Co.") and Wasserstein,
Perella & Co. ("WP&Co.") shall use their best
efforts to agree on the Spread not later than the
fifth Business Day after the date of such notice.
In the event that ML&Co. and WP&Co. are unable to
agree on the Spread by such date, they shall
immediately notify TCI Sub and VI of their
respective positions with respect to the
appropriate Spread and Smith Barney Inc. (the
"Tiebreaker Investment Bank") shall select a
Spread, which Spread shall be within the range of
the two Spreads proposed by ML&Co. and WP&Co.
Notwithstanding the foregoing, TCI shall have the
right to specify a dividend yield that is higher
than the dividend yield that would result from the
Spread determined by ML&Co. and WP&Co. or the
Tiebreaker Investment Bank, as the case may be, by
giving VI written notice of such higher dividend
yield by the third Business Day after the date of
such determination of the Spread. Spreads shall be
determined pursuant to this Section 2.3, such
that, in the opinion of the entity proposing the
Spread, if the Preferred Stock bears a dividend
yield equal to the ten (10) year treasury bond
yield plus such Spread, the Preferred Stock would
be expected to trade at a price equal to the
liquidation preference thereof immediately
following the Exchange Date. ML&Co. and WP&Co.
shall provide the Tiebreaker Investment Bank with
full access to all significant information
employed by them, and TCI and VI shall provide
such other information that is reasonably
requested in estimating the Spread. In the event
that the Minimum Condition is not met on the first
expiration date of the Exchange Offer, VI shall,
not later than the last day permitted under the
1934 Act, extend the Exchange Offer for not less
than ten (10) Business Days nor more than fifteen
(15) Business Days (or such greater period as is
required under the 1934 Act). During the period of
the extension, TCI and VI shall negotiate in good
faith in order to determine mutually acceptable
terms and conditions for the Preferred Stock
(including, without limitation, the dividend yield
and Conversion Ratio) and the Exchange Offer
(including, without limitation, the duration of
any further extension thereof and the maximum
Exchange Ratio) that each believes in good faith
would cause the Minimum Condition to be fulfilled
at the Expiration Date of a further extension of
the Exchange Offer, and that would cause the
Preferred Stock to trade at a price equal to the
liquidation preference thereof immediately
11
<PAGE>
following the Exchange Date. In the event that the
parties agree with respect to such terms prior to
the Expiration Date of such extension, the
Exchange Offer shall be further extended to the
extent mutually agreed and in accordance with the
requirements of the 1934 Act. In the event that
the Minimum Condition is not met at the expiration
date of the Exchange Offer after such extension,
either party shall have the right to terminate
this Agreement pursuant to Section 7.1(f).
(iii) VI shall be responsible for the fees and expenses
of WP&Co. and TCI and TCI Sub shall be responsible
for the fees and expenses of ML&Co., and each of
VI, on the one hand, and TCI and TCI Sub, on the
other hand, shall be responsible for one-half the
fees and expenses of the Tiebreaker Investment
Bank (which fees shall be negotiated in good faith
by VI and TCI Sub).
Section 2.4 Recapitalization. Subject to the fulfillment of the conditions
set forth in Section 6.1, prior to the Exchange Time, VI shall cause Old VII to
take the action contemplated by Section 2.1(c) of the Implementation Agreement
and shall cause all of the capital stock of Old VII held by VI to be
reclassified into a number of shares of Class A Common Stock equal to the Number
of Shares to be Exchanged.
ARTICLE III
-----------
OTHER AGREEMENTS
Section 3.1 Execution of Other Agreements. (a) Concurrently with the
execution and delivery hereof, TCI and TCI Sub shall execute and deliver to Old
VII the Subscription Agreement.
(b) Concurrently with the execution and delivery hereof, VI shall cause (i)
Old VII and New VII to execute and deliver to each other the Implementation
Agreement and (ii) Old VII to execute and deliver to TCI and TCI Sub the
Subscription Agreement.
Section 3.2 Amendments of Implementation Agreement. VI agrees that prior to
the Exchange Time it shall not cause or permit Old VII or New VII to amend or
waive performance of any provision of the Implementation Agreement without the
prior written consent of TCI or TCI Sub, provided that upon the written notice
of TCI Sub delivered to VI, or upon written notice of VI delivered to TCI Sub,
in either case within ninety (90) days of the date certifications under Section
617 of the Communications Act are delivered to the Local Authorities pursuant to
Section 7.9(c)(iii) of the Subscription Agreement, to the effect that in its
reasonable judgment consents of Local Authorities are required for the
consummation of the Transaction that are not reflected on Schedule 4.9 of the
Implementation Agreement, VI shall cause Old VII and New VII to amend Schedule
4.9 of the Implementation Agreement to indicate such additional Local
Authorizations requiring the consent of the Local Authority for consummation of
the Transaction.
12
<PAGE>
Section 3.3 Designation of Agent for PCI Group. TCI and TCI Sub hereby (i)
acknowledge that the PCI Subsidiaries of Old VII which were formerly includible
in the consolidated federal income tax returns of the PCI Group intend to apply
to the Internal Revenue Service for permission to designate Paramount Pictures
Corporation or another PCI Subsidiary as the agent for the PCI Group pursuant to
Treas. Reg. ss. 1.1502-77(d) and (ii) agree to cooperate in attempting to have
such permission granted.
Section 3.4 Prohibited Transactions. TCI shall not consummate any
transaction in which all or a majority in value (as determined in good faith by
the management of TCI) of its assets are distributed without fair consideration
to its direct or indirect stockholders unless (x) the transferee of such assets
or, if such assets represent principally an equity interest in an entity, such
entity, assumes, by instrument reasonably satisfactory to VI, TCI's obligations
under the Transaction Documents to which TCI is a party and (y) the equity of
such transferee or entity has a fair market value immediately following such
transaction of at least $1,500,000,000 (one billion five hundred million
dollars).
Section 3.5 No Inconsistent Terms. TCI Sub and TCI covenant and agree with
VI that the Loan Documentation will not contain, and that the Loans will not be
made on, any Inconsistent Terms.
Section 3.6 Operation of the Business. TCI and TCI Sub shall not permit Old
VII or any Cable Division Subsidiary to engage in any transaction on the Closing
Date other than in the ordinary course of business and other than transactions,
if any, required to take place on the Closing Date by the Parents Agreement,
Implementation Agreement or Subscription Agreement.
Section 3.7 Right of First Offer. In the event this Agreement is terminated
pursuant to Section 7.1 solely as a result of the failure of the condition set
forth in Section 6.1(iv), then if at any time during the period commencing on
the date of such termination and ending on the date which is eighteen (18)
months after the date of such termination (the "Offer Period") VI intends to
sell all or substantially all of the Business, or all or substantially all of
the Bay Area System or the Puget Sound System, or all or substantially all of
the stock of any Subsidiary or Subsidiaries the assets of which consist
primarily of all or substantially all of the Business, the Bay Area System or
the Puget Sound System (in any such case, an "Offered Business"), VI shall
deliver to TCI a written notice to such effect. If TCI notifies VI in writing of
its desire to conduct negotiations regarding such sale within five Business Days
of its receipt of such notice from VI, VI and TCI shall negotiate in good faith
during the period ending on the sixtieth day after the date of such notice by VI
(the "Negotiation Period") to reach an agreement for the sale of the Offered
Business to TCI. During the Negotiation Period, VI shall notify TCI of the
amount, and material terms, of the consideration VI would be willing to accept
for a sale of the Offered Business (a "Price Notice") on one or more occasions.
If a binding agreement for a sale of the Offered Business is not reached by the
end of the Negotiation Period, for a period of 120 days following the
termination of the Negotiation Period VI may sell (or enter into a binding
agreement to sell) the Offered Business for an aggregate consideration equal to
or greater than the fair market value of the consideration set forth in the
Price Notice delivered by VI during the Negotiation Period reflecting the lowest
13
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fair market value consideration, and, if such sale is consummated, TCI shall
have no further rights under this Section 3.7. If (i) at the end of such 120 day
period, a binding agreement for a sale of the Offered Business has not been
reached or (ii) such a binding agreement has been reached and is terminated
prior to its consummation during the Offer Period, VI shall not, for the
remainder of the Offer Period, if any, sell or negotiate to sell any Offered
Business without complying with the procedures set forth in this Section 3.7.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF VI
VI represents and warrants to TCI and TCI Sub that:
Section 4.1 Corporate Existence and Power. VI (i) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, (ii) is authorized to transact business and is in
good standing in each state in which its ownership of assets or conduct of
business requires such qualification, and (iii) has all corporate powers
required to carry on its business as conducted on the date hereof, with such
exceptions to clauses (i), (ii) and (iii) as would not materially and adversely
affect the ability of VI to consummate the Transactions to be consummated by it.
Section 4.2 Corporate Authorization. The performance by VI of this
Agreement and the consummation by VI of the Transactions to be consummated by it
are within the corporate powers of VI and have been duly authorized by all
necessary corporate action on the part of VI. The approval of the stockholders
of VI is not required in order to consummate the Transaction.
Section 4.3 Governmental Authorization. The execution and delivery of this
Agreement by VI, and the performance by VI of this Agreement, and the
consummation by VI of the Transactions to be consummated by it pursuant hereto,
require no material action by or in respect of, or material filing with, any
Governmental Authority other than (x) compliance with any applicable
requirements of the HSR Act, the FCC Authorizations, the Non-Cable FCC
Authorizations and the Local Authorizations, (y) compliance with any applicable
requirements of the 1933 Act and the 1934 Act and state blue sky and securities
laws in connection with the Exchange Offer and (z) those that may be applicable
as a result of the regulatory status of TCI, TCI Sub or their Affiliates.
Section 4.4 Consents. Except as set forth on Schedule 4.5 to the
Implementation Agreement, no consent by any Person under any contract as to
which VI is a party or to which its assets are subject is required or necessary
for the execution and delivery of this Agreement by VI, or the performance by VI
of this Agreement, or the consummation by VI of the Transactions to be
consummated by it pursuant hereto with such exceptions as would not materially
and adversely affect the ability of VI to consummate the Transactions to be
consummated by it.
14
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Section 4.5 Non-Contravention. The execution, delivery and performance of
this Agreement by VI, and the consummation by VI of the Transactions
contemplated to be consummated by it pursuant hereto, do not or before the
Exchange Date will not, (x) contravene the certificate of incorporation or
bylaws of VI or (y) subject to obtaining the consents set forth in Schedules
4.5, 4.9, 4.14 and 4.16 of the Implementation Agreement and subject to
obtaining, making or taking the actions and filings described in clauses (x),
(y) and (z) of Section 4.3, result in, or constitute a breach or default
(including any event that, with the passage of time or giving of notice, or
both, would become a breach or default) under any applicable Legal Requirement
or any judgment, injunction, order, decree, contract, license, lease, indenture,
mortgage, loan agreement, note or other agreements or instrument as to which VI
is a party or by which any of its properties may be bound, the effect of which
would be to materially and adversely impair the ability of VI to consummate the
Transactions to be consummated by it.
Section 4.6 Binding Effect. This Agreement has been duly executed and
delivered by VI, and this Agreement constitutes a valid and binding obligation
of VI, enforceable against VI in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable remedies.
Section 4.7 Finders' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of VI or any of its Affiliates who might be entitled to any fee or commission
from TCI or TCI Sub or any of their Affiliates in connection with the execution,
delivery or performance of this Agreement or the consummation of the
Transactions.
Section 4.8 Exchange Offer. The Exchange Offer shall be conducted in
compliance with the 1933 Act, the 1934 Act and any relevant state securities
laws (provided that no representation is made in this Section 4.8 as to any
non-compliance resulting from actions of TCI, TCI Sub or their Affiliates or
from information included in (or omitted from) the Offering Materials or
Registration Statement).
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES OF TCI AND TCI SUB
Each of TCI and TCI Sub jointly and severally represent and warrant to VI
that:
Section 5.1 Corporate Existence and Power. It is (i) a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, (ii) is authorized to transact business and is in good standing in
each state in which its ownership of assets or conduct of business requires such
qualification, and (iii) has all corporate powers required to carry on its
business as now conducted, with such exceptions as would not materially and
adversely affect its ability to consummate the Transactions to be consummated by
it.
Section 5.2 Corporate Authorization. The execution, delivery and
performance by it of this Agreement and the consummation by it of the
15
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Transactions to be consummated by it are within its corporate powers and have
been duly authorized by all necessary corporate action on its part.
Section 5.3 Governmental Authorization. The execution, delivery and
performance by it of this Agreement, and the consummation by it of the
Transactions to be consummated by it, require no material action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than compliance with any applicable requirements of the HSR Act, the
Non-Cable FCC Authorizations, the FCC Authorizations, and the Local
Authorizations.
Section 5.4 Consents. Except as set out in Schedule 5.4, no consent by any
Person under any contract to which it is a party or to which its assets are
subject is required or necessary for the execution, delivery and performance by
it of this Agreement or the consummation by it of the Transactions to be
consummated by it, with such exceptions as would not materially and adversely
affect its ability to consummate the Transactions to be consummated by it.
Section 5.5 Non-Contravention. The execution, delivery and performance by
it of this Agreement and the consummation by it of the Transactions contemplated
to be consummated by it pursuant hereto do not and will not (x) contravene its
certificate of incorporation or by-laws or (y) subject to obtaining, making or
taking the actions and filings described in Section 5.3, result in a, or
constitute a breach or default (including any event that, with the passage of
time or giving of notice, or both, would become a breach or default) under any
applicable Legal Requirement or any judgment, order, decree, contract, license,
lease, indenture, mortgage, loan agreement, note, security agreement or other
agreement or instrument, as to which it is a party or by which any of its
properties may be bound, the effect of which would materially and adversely
impair its ability to consummate the Transactions to be consummated by it.
Section 5.6 Binding Effect. This Agreement has been duly executed and
delivered by it and this Agreement constitutes its valid and binding obligation,
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies.
Section 5.7 Finders' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of TCI, TCI Sub, RCS, InterMedia or any of their Affiliates who might be
entitled to any fee or commission from VI or any of its Affiliates in connection
with the execution, delivery or performance of this Agreement or the
consummation of the Transactions.
16
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ARTICLE VI
----------
CONDITIONS PRECEDENT
Section 6.1 Conditions to Obligations of VI. The obligations of VI to take
the action required to be taken by it pursuant to Sections 2.1(c) and 2.4 are
subject to the satisfaction of each of the following conditions, each of which
may be waived by VI (except that the conditions contained in clauses (vii) and
(viii) may not be waived without the prior consent of TCI Sub, such consent not
to be unreasonably withheld):
(i) HSR Act. Any applicable waiting period (and any
extension thereof) under the HSR Act shall have
expired or been terminated without the
commencement or threat of any litigation by a
Governmental Authority of competent jurisdiction
to restrain the consummation of the Exchange
Offer, Subscription Agreement or other material
action contemplated by the Transaction in any
material respect.
(ii) Consented Subscribers. The number of Consented
Subscribers shall be not less than 90% of
Estimated Exchange Date Basic Subscribers.
(iii) Absence of Injunction. No order, stay, judgment or
decree shall have been issued by any court and be
in effect restraining or prohibiting the
consummation of the Transaction in any material
respect.
(iv) Tax Matters. VI shall be satisfied with the
treatment of the Transaction for Federal income
tax purposes.
(v) Subscription Agreement. The Subscription Agreement
shall remain in full force and effect and there
shall be no condition to TCI's, TCI Sub's or Old
VII's obligations thereunder that is incapable of
being satisfied at the Expiration Time.
(vi) Loans. The Loan Documentation shall have been duly
executed and delivered by all parties thereto and
shall remain in full force and effect and VI shall
have received confirmation, in form and substance
satisfactory to it, that Old VII shall be able to
draw down Loan Proceeds in an aggregate principal
amount equal to $1,700,000,000 (one billion, seven
hundred million dollars) (the "Aggregate Loan
Amount") thereunder on the Expiration Date prior
to the Expiration Time and such Loan Proceeds that
are equal to the Aggregate Loan Amount shall be
available for transfer as a contribution to New
VII without condition (but without limiting VI's
obligation to provide the notice required for the
release of funds from the Cash Collateral Account
as specified in the definition of Cash Collateral
Account) prior to the Exchange Time as
contemplated in the Implementation Agreement.
17
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(vii) FCC. All consents of the FCC listed on Schedule
4.9 of the Implementation Agreement and all
Non-Cable FCC Authorizations shall have been
obtained and shall remain in full force and
effect.
(viii) Registration Statements. The Registration
Statement and, if the effectiveness of the TCI
Registration Statement is required by the 1933 Act
or the SEC prior to the consummation of the
Exchange Offer, the TCI Registration Statement
shall have been declared effective, and no stop
order suspending the effectiveness of the
Registration Statement or, if the effectiveness of
the TCI Registration Statement is required by the
1933 Act or the SEC prior to the consummation of
the Exchange Offer, the TCI Registration
Statement, shall have been issued and no
proceeding for that purpose shall have been
initiated or threatened by the SEC.
Section 6.2 Further Condition. The obligations of VI to take the action
required to be taken by it pursuant to Section 2.4 is subject to the further
condition that VI shall have accepted shares of VI Common Stock for exchange in
the Exchange Offer in accordance with Section 2.1(d).
ARTICLE VII
-----------
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Expiration Time:
(a) by written consent of VI, TCI and TCI Sub;
(b) by TCI or TCI Sub, if any condition contained
in Article VIII of the Subscription Agreement has become
incapable of satisfaction (other than if such incapacity
results from actions or omissions of TCI or TCI Sub that are
in contravention of the provisions of the Transaction
Documents);
(c) by VI, if any condition contained in Sections
6.1 or 6.2 hereof or in Article IX of the Subscription
Agreement has become incapable of satisfaction (other than
if such incapacity results from actions or omissions of VI
or its Affiliates that are in contravention of the
provisions of the Transaction Documents);
(d) by TCI or TCI Sub, (x) if the Expiration Time
has not occurred on or prior to the date that is twelve (12)
months from the date of this Agreement (other than as a
result of (i) the failure by TCI or TCI Sub to consummate
the transactions contemplated hereby when all conditions to
their obligations contained in Article VIII of the
Subscription Agreement have been satisfied or waived, (ii)
the failure by TCI or TCI Sub or their Affiliates to duly
18
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comply with their covenants and obligations in the
Transaction Documents or (iii) the failure of a condition
contained in Sections 6.1 or 6.2 hereof or in Articles VIII
or IX of the Subscription Agreement resulting from actions
or omissions of TCI or TCI Sub or their Affiliates that are
in contravention of the provisions of the Transaction
Documents) or (y) if the Exchange Offer has not commenced on
or prior to the date that is eleven (11) months from the
date of this Agreement (other than as a result of the
failure of a condition contained in Section 6.1 hereof
resulting from actions or omissions of TCI or TCI Sub or
their Affiliates that are in contravention of the provisions
of the Transaction Documents);
(e) by VI, (x) if the Expiration Time has not
occurred on or prior to the date that its twelve (12) months
from the date of this Agreement (other than as a result of
(i) the failure by VI to consummate the transactions
contemplated hereby when all conditions to its obligations
contained in Section 6.1 hereof or in Article IX of the
Subscription Agreement have been satisfied or waived, (ii)
the failure by VI or its Affiliates to duly comply with
their covenants and obligations under the Transaction
Documents or (iii) the failure of a condition contained in
Sections 6.1 or 6.2 hereof or in Article VIII or IX of the
Subscription Agreement resulting from actions or omissions
of VI or its Affiliates that are in contravention of the
provisions of the Transaction Documents) or (y) if the
Exchange Offer has not commenced on or prior to the date
that is eleven (11) months from the date of this Agreement
(other than as a result of the failure of a condition
contained in Section 6.1 hereof resulting from actions or
omissions of VI or its Affiliates that are in contravention
of the provisions of the Transaction Documents); or
(f) by TCI, TCI Sub or VI if the Exchange Offer
terminates or finally expires after one extension thereof
without any shares of VI Common Stock having been accepted
for exchange by VI thereunder in accordance with Section
2.1(d).
If TCI, TCI Sub or VI terminates this Agreement pursuant to the provisions
hereof, such termination will be effected by written notice to the other parties
specifying the provision hereof pursuant to which such termination is made.
Section 7.2 Effect of Termination. (a) Upon termination of this Agreement
pursuant to Section 7.1 hereof, except as provided in clause (b) below: (i) this
Agreement will forthwith become null and void, (ii) such termination will be the
sole remedy with respect to any breach of any representation, warranty, covenant
or agreement contained herein and (iii) no party hereto or any of their
respective officers, directors, partners, employees, agents, consultants,
shareholders or principals will have any liability or obligation hereunder or
with respect hereto.
(b) The provisions of clause (a) above notwithstanding, no party will be
relieved of: (i) liability for any breach of Articles IV and V and (ii)
liability for any breach of any material covenant or agreement contained herein
or made pursuant hereto, provided, however, that no party to this Agreement
19
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shall be entitled to recover consequential damages in respect of any breach of
this Agreement or any other Transaction Document. The provisions of Sections
2.1(f), 2.1(g), 2.3(iii), 3.7, 7.2, 8.1, 8.8 and 8.10 will survive termination
hereof.
ARTICLE VIII
------------
MISCELLANEOUS
Section 8.1 Expenses. Except as expressly set forth herein, the fees and
expenses (including the fees of any lawyers, accountants, investment bankers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the Transaction is consummated
will be paid by the party incurring the same.
Section 8.2 Headings. The section headings herein are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. References to
Sections and Exhibits, unless otherwise indicated, are references to Sections
and Exhibits hereof.
Section 8.3 Notices. Any notice or other communication required or
permitted to be given hereunder will be in writing and will be mailed by prepaid
registered or certified mail, timely deposited with an overnight courier such as
Federal Express, or delivered against receipt, as follows:
(a) In the case of TCI and TCI Sub, to:
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, CO 80111-3000
Attention: Chief Executive Officer,
with a copy similarly addressed to the
attention of General Counsel
(b) In the case of VI to:
Viacom Inc.
1515 Broadway
New York, NY 10036
Attention: General Counsel
with a copy to:
Hughes Hubbard & Reed
One Battery Park Plaza
New York, NY 10004
Attention: Ed Kaufmann, Esq.
20
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or to such other address as the party may have furnished in writing in
accordance with the provisions of this Section 8.3. Any notice or other
communication shall be deemed to have been given, made and received upon
receipt. Either party may change the address to which notices are to be
addressed by giving the other party notice in the manner herein set forth.
Section 8.4 Assignment. This Agreement and all provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors, however, neither this Agreement nor any right, interest, or
obligation hereunder may be assigned by any party hereto (other than by
operation of law) without the prior written consent of the other parties, and
any such assignment or purported assignment without such consent shall be void.
Section 8.5 Entire Agreement. This Agreement together with the other
Transaction Documents embody the entire agreement and understanding of the
parties with respect to the transactions contemplated hereby and supersede all
prior written or oral commitments, arrangements or understandings with respect
thereto.
Section 8.6 Amendment; Waiver. (a) This Agreement may only be amended or
modified in writing signed by the party against whom enforcement of any such
amendment or modification is sought.
(b) Any party hereto may, by an instrument in writing, waive compliance
with any term or provision of this Agreement on the part of such other party
hereto. The waiver by any party hereto of a breach of any term or provision of
this Agreement will not be construed as a waiver of any subsequent breach.
Section 8.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
each of which will be deemed an original. All signatures need not be on one
counterpart.
Section 8.8 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER
PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO
MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE.
Section 8.9 Severability. If any one or more of the provisions of this
Agreement is held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement will
not be affected thereby, and VI, TCI and TCI Sub will use their reasonable
efforts to substitute one or more valid, legal and enforceable provisions which
insofar as practicable implement the purposes and intent hereof. To the extent
permitted by applicable law, each party waives any provision of law which
renders any provision of this Agreement invalid, illegal or unenforceable in any
respect.
Section 8.10 Consent to Jurisdiction. Each party hereby submits to the
non-exclusive jurisdiction of the courts of general jurisdiction of the States
of New York and Colorado and the federal courts of the United States of America,
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located in the City of New York, New York, and Denver, Colorado solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and hereby waives, and agrees not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement of this
Agreement that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in such courts or that this Agreement
may not be enforced in or by such courts or that its property is exempt or
immune from execution, that the suit, action or proceeding is brought in an
inconvenient forum, or that the venue of the suit, action or proceeding is
improper. Service of process with respect thereto may be made upon any party by
mailing a copy thereof by registered or certified mail, postage prepaid, to such
party at its address as provided in Section 8.3 hereof, provided that service of
process may be accomplished in any other manner permitted by applicable law.
Section 8.11 Third Person Beneficiaries. This Agreement is not intended and
shall not be construed to confer upon any Person (other than VI, TCI and TCI
Sub) any rights or remedies hereunder.
Section 8.12 Specific Performance. VI, TCI and TCI Sub recognize that any
breach of any covenant or agreement contained in this Agreement may give rise to
irreparable harm for which money damages would not be an adequate remedy, and
accordingly agree that, in addition to other remedies, any non-breaching party
will be entitled to enforce the agreements and covenants contained herein of TCI
and TCI Sub or VI, as the case may be, by a decree of specific performance
without the necessity of proving the inadequacy as a remedy of money damages.
Section 8.13 Survival. The representations and warranties contained in or
made pursuant to this Agreement shall terminate and be of no further force on
and as of April 30, 1997.
22
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in New York, New York, as of the day and year first above written.
VIACOM INC.
By: /s/ Philippe P. Dauman
---------------------------------
Name: Philippe P. Dauman
Title: Executive Vice President
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
TCI COMMUNICATIONS, INC.
By: /s/ Gary S. Howard
--------------------------------
Name: Gary S. Howard
Title: Senior Vice President
<PAGE>
EXHIBIT 10.2
------------------------------------------------
IMPLEMENTATION AGREEMENT
between
VIACOM INTERNATIONAL INC.
and
VIACOM INTERNATIONAL SERVICES INC.
----------------------------------------------
Dated as of July 24, 1995
----------------------------------------------
1
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms.............................................. 1
ARTICLE II
CONVEYANCE; LACK OF CONSENTS OR REGULATORY APPROVALS;
RIGHT OF FIRST REFUSAL; DISASTERS
Section 2.1 Conveyance of Assets and Assumption of Liabilities:
Transfers to New VII, Recapitalization..................... 17
Section 2.2 Lack of Consents........................................... 18
Section 2.3 Lack of Regulatory Approvals............................... 19
Section 2.4 Right of First Refusal..................................... 21
Section 2.5 Lost Service Subscribers................................... 21
Section 2.6 Release of Old VII......................................... 22
Section 2.7 Receipt of Consents........................................ 22
Section 2.8 Execution of Other Instruments............................. 22
Section 2.9 Use of Viacom Name......................................... 22
Section 2.10 Name Change................................................ 23
Section 2.11 Bank Accounts.............................................. 23
Section 2.12 Intercompany Debt.......................................... 23
Section 2.13 Consents................................................... 23
Section 2.14 Books and Records.......................................... 23
</TABLE>
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Section 2.15 Confidentiality............................................ 23
Section 2.16 Control of Litigation...................................... 24
Section 2.17 Security Interest.......................................... 24
ARTICLE III
ADJUSTMENTS
Section 3.1 Determination of Estimated Asset Value..................... 25
Section 3.2 Calculation of Adjustment Amounts.......................... 26
Section 3.3 Adjustment Payment......................................... 26
Section 3.4 Fixed Amount............................................... 27
Section 3.5 Proration.................................................. 27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEW VII
Section 4.1 Corporate Existence and Power.............................. 27
Section 4.2 Corporate Authorization.................................... 28
Section 4.3 Capitalization; Subsidiaries; Certificates of Incorporation
and By-Laws................................................ 28
Section 4.4 Governmental Authorization................................. 29
Section 4.5 Consents................................................... 29
Section 4.6 Non-Contravention.......................................... 29
Section 4.7 Binding Effect............................................. 30
Section 4.8 Financial Statements; Undisclosed Liabilities.............. 30
</TABLE>
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Section 4.9 Systems; Local Authorizations and FCC Authorizations....... 30
Section 4.10 Absence of Changes......................................... 31
Section 4.11 Subsidiaries............................................... 31
Section 4.12 Assets..................................................... 32
Section 4.13 Intellectual Property...................................... 32
Section 4.14 Material Contracts......................................... 32
Section 4.15 Litigation................................................. 32
Section 4.16 Compliance with Legal Requirements......................... 32
Section 4.17 Employees.................................................. 33
Section 4.18 Finders' Fees.............................................. 34
Section 4.19 Real Property.............................................. 34
Section 4.20 Environmental Matters...................................... 34
Section 4.21 FCC and Copyright.......................................... 35
Section 4.22 Covenants not to Compete................................... 35
Section 4.23 Telecom Capital Expenditures............................... 35
Section 4.24 Accounts Receivable, Net................................... 36
Section 4.25 Number of Basic Subscribers................................ 36
Section 4.26 Adjustment Amounts......................................... 36
Section 4.27 Ranking of Payment Obligations............................. 36
</TABLE>
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ARTICLE V
NONCOMPETITION
<C> <S> <C>
Section 5.1 Noncompetition ................................................ 36
ARTICLE VI
TERMINATION
Section 6.1 Termination ................................................... 37
Section 6.2 Effect of Termination ......................................... 37
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1 Survival ...................................................... 37
Section 7.2 Indemnification ............................................... 37
ARTICLE VIII
EMPLOYEE MATTERS
Section 8.1 Employment .................................................... 40
ARTICLE IX
TAX MATTERS
Section 9.1 Obligation of New VII to Indemnify ............................ 43
Section 9.2 Refunds ....................................................... 43
Section 9.3 Final Returns ................................................. 44
</TABLE>
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Section 9.4 Conduct of Audits and Disputes ............................... 44
Section 9.5 Carrybacks ................................................... 45
Section 9.6 Designation of Agent for PCI Group ........................... 45
ARTICLE X
MISCELLANEOUS
Section 10.1 Expenses ..................................................... 46
Section 10.2 Headings ..................................................... 46
Section 10.3 Notices ...................................................... 46
Section 10.4 Assignment ................................................... 47
Section 10.5 Entire Agreement ............................................. 47
Section 10.6 Amendment; Waiver ............................................ 47
Section 10.7 Counterparts ................................................. 48
Section 10.8 Governing Law ................................................ 48
Section 10.9 Severability ................................................. 48
Section 10.10 Consent to Jurisdiction ...................................... 48
Section 10.11 Third Person Beneficiaries ................................... 48
Section 10.12 Representations and Warranties; Schedules .................... 48
Section 10.13 Specific Performance ......................................... 49
</TABLE>
<PAGE>
vi
EXHIBITS
Exhibit A - Approved Capital Expenditure Plan
Exhibit B - Front End Loaded Programming Payments
Exhibit C - Bill of Sale, Instrument of Assumption and Provision of Benefits
Agreement
Exhibit D - Cable Division Subsidiaries
Exhibit E - Access Fee Conditions
Exhibit F - PVIT Assets
Exhibit G - PVIT Bill of Sale
Exhibit H - Systems
Exhibit I - Transferred Assets
Exhibit J - Amended and Restated Certificate of Incorporation
Exhibit K - Term Sheet for Series A Senior Cumulative Exchangeable Preferred
Stock
SCHEDULES
Schedule 4.5 - Consents
Schedule 4.8 - Financial Statements
Schedule 4.9 - Systems: Local Authorizations and FCC Authorizations
Schedule 4.10 - Material Changes
Schedule 4.14 - Material Contracts
Schedule 4.15 - Litigation
Schedule 4.16 - Non-compliance with Legal Requirements
Schedule 4.17 - Employment Agreements; Labor Disputes; Labor Agreements;
Benefit Plans
Schedule 4.19 - Owned Real Property
Schedule 4.20 - Underground Storage Tanks
Schedule 4.21 - Equal Employment Opportunity Rules
Schedule 4.22 - Covenants not to Compete
<PAGE>
IMPLEMENTATION AGREEMENT
Implementation Agreement, dated July 24, 1995 (this "Agreement") by and
among Viacom International Inc., a Delaware corporation ("Old VII") and Viacom
International Services Inc., a Delaware corporation ("New VII").
WHEREAS, Old VII is a wholly-owned subsidiary of Viacom Inc., a Delaware
corporation ("VI") and New VII is a wholly-owned subsidiary of Old VII; and
WHEREAS, VI desires to make an exchange offer to its shareholders in which
shares of VI Common Stock would be exchanged for Class A Common Stock of Old
VII; and
WHEREAS, VI has entered into a Parents Agreement, dated as of the date
hereof, with Tele-Communications, Inc., a Delaware corporation ("TCI"), and TCI
Communications, Inc., a Delaware corporation ("TCI Sub"), which contains certain
agreements of VI, TCI and TCI Sub regarding the Transaction; and
WHEREAS, in connection with the Exchange Offer, Old VII and New VII desire
to enter into the agreements set forth below;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
other agreements contained herein, the parties hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
Section 1.1 Defined Terms. The following terms, as used in this Agreement,
shall have the following meanings (and such meanings shall be equally applicable
to both the singular and plural forms of the terms defined herein):
"Accounts Payable" shall mean the book value of all accounts payable of the
Company as of the Exchange Date (other than those constituting New Borrowing
Obligations) after giving effect to the Assumption of Liabilities, calculated in
accordance with GAAP on a basis consistent with the application of such
principles in the preparation of the Financial Statements.
"Accounts Receivable, Net" shall mean the book value of all accounts
receivable of the Company as of the Exchange Date net of the allowance for
doubtful accounts and advance billings (other than deferred customer revenue and
accounts receivable relating to payments of principal due from the Telecom
Partnerships referred to in clause (ii) of the definition of Telecom Capital
Expenditure Amount), calculated in accordance with GAAP on a basis consistent
with the application of such principles in the preparation of the Financial
Statements and after giving effect to the Conveyance of Assets.
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"Ad Interconnect Assets" shall mean all right, title and interest of Old
VII and each Cable Division Subsidiary in and to the Bay Cable Advertising and
Northwest Cable Advertising Partnerships described on Schedule 4.14.
"Adjustment Amounts" shall have the meaning specified in Section 3.2.
"Affiliate" of any Person at any time shall mean any other Person directly
or indirectly controlling, controlled by or under common control with such
Person at such time.
"Aggregate Loan Amount" shall have the meaning specified in the Parents
Agreement.
"Agents" shall have the meaning specified in the Subscription Agreement.
"Agreement" shall mean this Implementation Agreement, including the
Exhibits and Schedules hereto.
"Amended and Restated Certificate of Incorporation" shall have the meaning
specified in Section 2.1(c).
"Anticipated Commencement Date" shall have the meaning specified in the
Parents Agreement.
"Appraised Value" shall mean, with respect to any System (or portion
thereof) at any date of determination, an amount equal to the sum of (A) (x)
Cash Flow of such System (or portion thereof) for the twelve full calendar
months ending the calendar month ended prior to such date of determination,
multiplied by (y) ten, plus (B) the Specified Capital Expenditure Amount for
such System (or portion thereof). The Appraised Value of a System (or portion
thereof) shall be established by mutual agreement of Old VII and New VII. If Old
VII and New VII are unable to agree on the Appraised Value of a System (or
portion thereof), such Appraised Value will be determined by an Arbitrating
Firm, whose determination shall be binding upon the parties. The Arbitrating
Firm will render its determination within ten (10) Business Days of its
engagement. Each of New VII and Old VII shall be responsible for one-half the
fees and expenses of the Arbitrating Firm (which fees shall be negotiated in
good faith by New VII and Old VII). As used herein, "Cash Flow" of a System (or
portion thereof) for a period shall mean the operating income of such System (or
portion thereof) for such period, before provision for income taxes, interest
expense, depreciation and amortization, but including allocations for direct and
indirect operating expenses and overhead (excluding any allocation of VI
administrative overhead and any management fees), determined in accordance with
accounting principles applied on a basis consistent with the application of such
principles by Old VII prior to the Exchange Time.
"Approved Capital Expenditure Plan" shall mean the capital expenditure plan
for the Company, by System, which identifies Covered Capital Expenditures and
Line Extension and Other Capital Expenditures, attached as Exhibit A hereto,
together with the 1996 Capital Expenditure Plan (as defined in the Subscription
Agreement).
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"Arbitrating Firm" shall mean Arthur Andersen & Co. or, if it cannot serve
in such capacity, another "big six" independent public accounting firm (other
than KPMG Peat Marwick LLP and Price Waterhouse & Co. LLP and their respective
successors) selected by agreement of Old VII and New VII or, if they cannot
agree, chosen by lot from among the aforesaid firms.
"Asset Value" shall mean an amount equal to (i) the Fixed Amount, plus (ii)
the Capital Expenditure Amount, plus (iii) the Inventory Amount, plus (iv) the
Telecom Amount plus (v) an amount equal to Working Capital, if Working Capital
is a positive number, minus (vi) an amount, if any, equal to the amount by which
Working Capital is a negative number, minus (vii) the amount of the front-end
loaded programming payments set forth on Exhibit B, plus (viii) an amount equal
to interest on the sum of the foregoing amounts at the LIBOR Rate for the period
from (and including) September 1, 1995 to (but excluding) the Exchange Date.
"Assumption of Liabilities" shall have the meaning specified in Section
2.1(a).
"Balance Sheet Date" shall mean March 31, 1995.
"Banked Sick Leave Days" shall have the meaning specified in Section
8.1(f).
"Basic Subscriber" shall mean the sum of the following amounts for all
Franchise Areas:
(a) with respect to a Franchise Area, the number
of all private and residential customer accounts (regardless
of whether in a single-family home or in an individually
billed unit in a multiple-unit building) who are receiving
basic cable television service at the Basic Subscriber Rate
(but excluding "complimentary subscribers," "second
connects" and "additional outlets" as such terms are
customarily used in the cable television industry); plus
(b) with respect to a Franchise Area, the number
of private and residential customer accounts (regardless of
whether in a single-family home or in an individually billed
unit in a multiple unit building) who are receiving basic
cable television service at a discount to the Basic
Subscriber Rate because the account is or was to the
knowledge of New VII a "low income" and/or "senior citizen"
account in accordance with the Company's policy as of
January 1, 1995, determined as the quotient of the total
monthly basic service revenue derived from these customers
as of the date of determination thereof (excluding any
charges for taxes or nonrecurring items (including, without
limitation, nonrecurring charges for installation,
equipment, any outlet or connection or a pass-through charge
for sales taxes, line-itemized franchise fees and charges))
divided by the Basic Subscriber Rate; plus
(c) with respect to a Franchise Area, without
duplication of clauses (a) and (b) above, the number of
commercial and bulk billed accounts (including, without
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limitation, hotels, motels, apartment houses and
multi-family homes) that receive basic cable television
service, determined as the quotient of the total monthly
basic service revenue derived from the commercial and bulk
billed accounts as of the date of determination thereof
(excluding any charges for taxes or nonrecurring items
(including, without limitation, nonrecurring charges for
installation, equipment, any outlet or connection or a
pass-through charge for sales taxes, line-itemized franchise
fees and charges)) divided by the Basic Subscriber Rate.
"Basic Subscriber Rate" shall mean for each Franchise Area, the monthly
fees and charges for the provision of the "basic service" (as such term is
customarily used in the cable television industry and regardless of whether
customers taking basic service take any other tier of regulated or unregulated
service (excluding (i) any charges for installation fees and revenues derived
from the rental of converters, remote control devices and other like charges for
equipment and (ii) any charges for taxes or nonrecurring items (including,
without limitation, nonrecurring charges for installation, equipment, any outlet
or connection or a pass-through charge for sales taxes, line-itemized franchise
fees and charges))) charged to customers served by the Franchise Area, as of the
date of determination.
"Benefit Plans" shall have the meaning specified in Section 4.17(c)(i).
"Bill of Sale" shall mean a Bill of Sale, Instrument of Assumption and
Provision of Benefits Agreement executed by Old VII, New VII and the Cable
Division Subsidiaries in the form of Exhibit C.
"Business" shall mean and include the business of each and all of the
Systems.
"Business Day" shall mean a day other than a Saturday, Sunday or other day
on which banks in New York City are required to or may be closed.
"Cable Act" shall mean the Cable Television Consumer Protection and
Competition Act of 1992, as amended, and the rules and regulations promulgated
thereunder.
"Cable Assets" shall mean (i) all right, title and interest of Old VII and
the Cable Division Subsidiaries in all assets, rights, privileges, interests,
claims and properties owned, used or held for use by Old VII and the Cable
Division Subsidiaries in the Business (including without limitation (aa) all
equity and other ownership interests of Old VII in the Cable Division
Subsidiaries, (bb) the Telecom Assets, (cc) the Ad Interconnect Assets and (dd)
all interest earned on the Cash Collateral Account) and (ii) all rights of Old
VII under the Transaction Documents with respect to periods after the Exchange
Date (including, without limitation, rights of Old VII under Section 7.2(b)
hereof).
"Cable Cash Balances" shall mean the petty cash, cash drawer and imprest
account balances of the Company, as of the Exchange Date, excluding the Loan
Proceeds.
"Cable Division Assets" shall have the meaning specified in Section 4.12.
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"Cable Division Subsidiaries" or "Cable" shall mean the Persons set out on
Exhibit D.
"Cable Group Bargaining Agreement" shall have the meaning specified in the
Subscription Agreement.
"Cable Group Contracts" shall mean all contracts, purchase orders and other
agreements of the Company to the extent relating to the Business.
"Cable Group Welfare Plans" shall have the meaning specified in Section
8.1(h).
"Cable Liabilities" shall mean all obligations and liabilities (other than
Pre-Closing Specified Liabilities) of Old VII and the Cable Division
Subsidiaries arising out of the operation of or with respect to the Business
(but not including any liability of Old VII arising out of the breach by Old
VII, on or prior to the Exchange Date, of any representation, warranty, covenant
or agreement of Old VII contained in the Subscription Agreement), together with
all obligations and liabilities (x) of Old VII under the Transaction Documents
with respect to periods after the Exchange Date, (y) constituting or arising
from the New Borrowing Obligations (including, without limitation, the payment
of principal, interest, premium, fees, expenses and indemnities) or (z) of Old
VII or any Cable Division Subsidiary arising with respect to periods after the
Exchange Date under employment agreements with any Continuing Employee.
"Cable Television Business" shall mean the business of owning and operating
a coaxial or fiber optic cable television signal distribution system.
"Capital Expenditure Amount" shall mean (i) the aggregate amount of all
Covered Capital Expenditures, plus (ii) the aggregate amount of the Covered Line
Extension and Other Capital Expenditures, plus (iii) without duplication of
clauses (i) and (ii) above, the aggregate amount of all capital expenditures
made by the Company during the period from January 20, 1995 through the Exchange
Date at the request of, or with the express written consent of (whether prior to
or after the date of this Agreement) TCI Sub, or (prior to the date of this
Agreement) RCS.
"Cash Collateral Account" shall have the meaning specified in the
Subscription Agreement.
"CERCLA" shall have the meaning specified in Section 4.20.
"Class A Common Stock" shall have the meaning specified in the Parents
Agreement.
"Class B Common Stock" shall have the meaning specified in the Subscription
Agreement.
"COBRA" shall have the meaning specified in Section 8.1(h).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Communications Act" shall mean the Communications Act of 1934 including
the Cable Communications Policy Act of 1984, and the Cable Television Consumer
Protection and Competition Act of 1992, each as amended, and all rules and
regulations promulgated thereunder, as amended (the "Rules and Regulations").
"Company" shall mean (x) Old VII after giving effect to the Conveyance of
Assets and Assumption of Liabilities and as if such conveyance and assumption
occurred immediately prior to the execution and delivery of this Agreement (with
the same effect as if the Conveyance of Assets and Assumption of Liabilities
occurred at the time they are to occur pursuant to Section 2.1) and (y) each of
the Cable Division Subsidiaries.
"Continuing Employee" shall have the meaning specified in the Subscription
Agreement.
"Conveyance of Assets" shall have the meaning specified in Section 2.1.
"Copyright Act" shall mean Title 17 of the United States Code, as amended,
and all rules and regulations promulgated thereunder, as amended.
"Covered Capital Expenditures" shall mean the sum of (i) the aggregate
amount of all capital expenditures made by the Company during the period from
January 1, 1995 through the Exchange Date relating to (a) upgrades and rebuilds
and associated items (including, without limitation, head-end sites and head-end
equipment to expand channel capacity, but excluding costs of repairing damage
caused by a Disaster that would not have been incurred if such Disaster had not
occurred) and (b) converter change-outs (including the purchase of converters
for such purpose), (ii) without duplication of clause (i) above, any capital
expenditure identified as a Covered Capital Expenditure in the Approved Capital
Expenditure Plan and (iii) a reasonable allocation of construction overhead
(other than capitalized interest) for such period related to such upgrades and
rebuilds (other than with respect to repairing damage caused by a Disaster).
"Covered Line Extension and Other Capital Expenditures" shall mean the sum
of (i) the aggregate amount of all Line Extension and Other Capital Expenditures
made by the Company during the period from February 23, 1995 through the
Exchange Date plus (ii) a reasonable allocation of construction overhead (other
than capitalized interest) for such period related to such Line Extension and
Other Capital Expenditures.
"Deferred Closing Date" shall have the meaning specified in Section 2.3(c).
"Delaware Corporation Law" shall mean the General Corporation Law of the
State of Delaware.
"Disaster" shall have the meaning specified in Section 2.5(a).
"Disclosing Party" shall have the meaning specified in Section 2.15.
"Dispute Notice" shall have the meaning specified in Section 3.2(c).
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"Disqualified Person" shall have the meaning specified in Section 5.1.
"Employees" shall mean all employees of the Company with respect to the
Systems at the relevant time.
"Equipment" shall mean all equipment and other personal property of the
Company owned, used or held for use by the Company in connection with the
Business or the Systems.
"ERISA" shall have the meaning specified in Section 4.17(c)(i).
"ERISA Affiliate" shall have the meaning specified in Section 8.1(b).
"Estimate Statement" shall have the meaning specified in Section 3.1.
"Estimated Adjustment Amounts" shall have the meaning specified in Section
3.1.
"Estimated Asset Value" shall have the meaning specified in Section 3.1.
"Estimated Capital Expenditure Amount" shall have the meaning specified in
Section 3.1.
"Estimated Fixed Amount" shall have the meaning specified in Section 3.1.
"Estimated Inventory Amount" shall have the meaning specified in Section
3.1.
"Estimated Net Asset Value" shall mean an amount equal to the Estimated
Asset Value, minus $1,700,000,000 (one billion, seven hundred million dollars).
"Estimated Telecom Amount" shall have the meaning specified in Section 3.1.
"Estimated Working Capital" shall have the meaning specified in Section
3.1.
"Exchange Date" shall have the meaning specified in the Parents Agreement.
"Exchange Date Basic Subscribers" shall mean the average number of Basic
Subscribers for the nine (9) consecutive Thursdays (or such other day used by
the Company for accounts receivable cutoffs) ending on or immediately prior to
the Exchange Date, calculated by summing the number of Basic Subscribers as of
each such Thursday (or such other day) and dividing such sum by nine (9),
without, for these purposes, giving effect to the loss, if any, of Basic
Subscribers as a result of a Disaster (defined for these purposes without regard
to the number of Basic Subscribers affected).
"Exchange Offer" shall have the meaning specified in the Parents Agreement.
"Exchange Offer Conditions" shall have the meaning specified in the Parents
Agreement.
"Exchange Time" shall have the meaning specified in the Parents Agreement.
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"Expiration Time" shall have the meaning specified in the Parents
Agreement.
"FCC" shall mean the Federal Communications Commission.
"FCC Authorizations" shall mean all authorizations, approvals,
certifications, franchises, licenses and permits of the FCC granted to the
Company with respect to the Systems.
"Final Certificate" shall have the meaning set out in Section 3.2(b).
"Final Determination" shall mean (1) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision, judgment, decree
or other order has become final after all allowable appeals by either party to
the action have been exhausted (it being understood that for purposes of this
definition, the term "allowable appeals" means an appeal taken or required to be
taken under the provisions of the contest provisions with respect to the
applicable indemnification obligation and permitted by applicable law) or the
time for filing such appeal has expired, (2) a closing agreement entered into
under Section 7121 of the Code (or comparable state or local law) or any other
binding settlement agreement entered into in connection with an administrative
or judicial proceeding (including, without limitation, any settlement entered
into in accordance with the contest provisions with respect to the applicable
indemnification obligation), or (3) the expiration of the time for instituting a
claim for refund, or if such a claim was filed, the expiration of the time for
instituting suit with respect thereto.
"Financial Statements" shall have the meaning set out in Section 4.8(a).
"Fixed Amount" shall mean $2,000,000,000 (two billion dollars), subject to
adjustment pursuant to Section 3.4.
"Franchise Areas" shall mean the areas in which the Company is authorized
to provide cable television service under the Local Authorizations and the areas
served by any System in which the Company provides cable television service
without a Local Authorization.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"Governmental Authority" shall mean any federal, state, municipal or local
governmental authority or political subdivision thereof.
"Hazardous Materials" shall have the meaning specified in Section 4.20.
"Homes Passed" shall mean the sum of (a) each single family residence in
the Franchise Areas, and (b) each townhouse, condominium or dwelling unit which
is part of a building containing multiple dwelling units in the Franchise Areas,
but excluding single family residences and units in multiple dwelling unit
buildings which (i) are located more than 150 feet from an activated trunk or
feeder cable of a System, (ii) require an underground service stub in order to
be connected to activated trunk or feeder cable of a System or (iii) are located
in multiple dwelling unit buildings to which a System does not have a right of
access.
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"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder, as amended.
"Indemnified Party" shall have the meaning specified in Section 7.2(a).
"Indemnifying Party" shall have the meaning specified in Section 7.2(a).
"INS" shall mean the Immigration and Naturalization Service.
"Intangible Assets" shall mean subscriber lists and customer records of the
Systems, construction and engineering maps and data, schematics and blueprints,
books and financial records pertaining to the operation of the Business or the
Systems, and all correspondence and documents pertaining to subscribers,
Governmental Authorities and other third parties relevant to the Systems'
ongoing relationships with subscribers, Governmental Authorities and other third
parties, in each case then in the possession of the Company; and all trademarks,
trade names, service marks, copyrights and other intangible property used
primarily in the Business (other than Transferred Assets).
"Inventory" shall mean the inventory and supplies of the Company.
"Inventory Amount" shall mean the book value of all Inventory as of the
Exchange Date in accordance with GAAP on a basis consistent with the application
of such principles in the preparation of the Financial Statements after giving
effect to the Conveyance of Assets, multiplied by a fraction: (i) the numerator
of which is equal to the aggregate book value of all Inventory consumed during
the two-month period ending on the last day of the monthly accounting period
ending prior to the Exchange Date to the extent such Inventory was consumed in
connection with the Covered Capital Expenditures, Covered Line Extension and
Other Capital Expenditures, the Telecom Capital Expenditure Amount or capital
expenditures made by the Company at the request of, or with the express written
consent of, TCI Sub (or, prior to the date of this Agreement, RCS) and (ii) the
denominator of which is equal to the aggregate book value of all Inventory
consumed during such two-month period.
"knowledge" of New VII shall mean the knowledge of VI, Old VII, New VII, or
any Cable Division Subsidiary.
"Leased Real Property" shall mean leasehold interests of the Company in the
real property used in connection with any System.
"Legal Requirement" shall mean the requirements of any law, ordinance,
statute, rule, regulation, code, order, judgment, decree, injunction, franchise,
determination, approval, permit, license, authorization or other requirement of
any Governmental Authority.
"LIBOR Rate" shall mean a per annum fluctuating rate of interest equal to
the sum of (i) the London Interbank Offered Rate for one month published as such
from time to time in the Money Rates column of The Wall Street Journal (Eastern
Edition) (or, if the Wall Street Journal (Eastern Edition) is not published or
if such rate is for any other reason unavailable on any relevant date, the
highest offered rate for deposits in U.S. Dollars for the one month period which
appears on the Reuters Screen London Interbank Offered Rates Page at
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approximately 11:00 a.m. (London time) on the relevant date) plus (ii) 1 1/4
percentage points. For all purposes of this Agreement, interest at the LIBOR
Rate shall be calculated on the basis of the actual number of days elapsed in
the relevant period over a year of 360 days, as applicable.
"Lien" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Line Extension and Other Capital Expenditures" shall mean any capital
expenditure made after January 20, 1995 (calculated on a basis consistent with
the Company's policies prior to the Exchange Date) for (i) extension of trunk
and feeder cable within the Franchise Areas to serve new commercial accounts,
new residential developments and/or additional residential dwelling units,
thereby adding new Homes Passed, (ii) initial connections from trunk and feeder
cable in the Franchise Areas to any single family residence, townhouse,
condominium or dwelling unit which is part of a building containing multiple
dwelling units or to any potential commercial or bulk-billed account which
relate to extensions covered in clause (i) above, (iii) the purchase of
converters (but without duplication of the amounts included in Covered Capital
Expenditures pursuant to clause (i)(b) of the definition thereof), (iv) fees or
similar payments made to owners or managers of multiple dwelling units (e.g.,
apartments or condominiums) in order to obtain access and the exclusive right to
serve such units in accordance with the conditions and limitations set forth in
Exhibit E and (v) without duplication of clauses (i), (ii), (iii) and (iv)
above, any capital expenditure identified as a Line Extension and Other Capital
Expenditure in the Approved Capital Expenditure Plan.
"Lender" shall have the meaning specified in the Subscription Agreement.
"Loan Documentation" shall have the meaning specified in the Subscription
Agreement.
"Loan Proceeds" shall have the meaning specified in the Subscription
Agreement.
"Loans" shall have the meaning specified in the Subscription Agreement.
"Local Authority" shall mean any Governmental Authority having jurisdiction
to grant a cable television franchise with respect to all or a portion of any
System.
"Local Authority Consent" shall mean any approval, authorization or consent
of a Local Authority necessary for a change in control of a Local Authorization
or otherwise in connection with the consummation of the Transaction.
"Local Authorizations" shall mean all authorizations, approvals,
franchises, licenses and permits of Local Authorities granted to the Company
which permit the operation of the Systems as amended, modified or supplemented.
"Losses" shall mean losses, liabilities, claims and reasonable expenses of
defense thereof (including, without limitation, expenses of investigation,
defense and fees and disbursements of counsel, but excluding compensation paid
to employees of the relevant Indemnified Party or its Affiliates), and Liens or
other obligations of any nature whatsoever, other than Losses to the extent
recoverable by the relevant Indemnified Party under any applicable insurance
policy, computed on an after-Tax basis.
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"Lost Service Subscriber Cumulative Deemed Net Cash Flow" shall mean, for
any period after the Exchange Date during which an Exchange Date Basic
Subscriber is a Lost Service Subscriber, an amount equal to $13.16 for each
month (or $0.44 on a daily basis in the case of a portion of any month) that
such Exchange Date Basic Subscriber is a Lost Service Subscriber, subject to
reduction as provided in Section 2.5(b).
"Lost Service Subscribers" shall have the meaning set out in Section
2.5(a).
"Material Adverse Effect" shall mean a material adverse effect on the
business, financial condition or results of operations of the Business, any
System or the Company, except for:
(a) changes resulting from general economic,
financial or market conditions;
(b) changes in, or changes required in order to
comply with, applicable legislation or regulations affecting
U.S. cable television operators generally, including but not
limited to any adjustment in subscriber rates implemented in
a manner consistent with the rate regulations promulgated
under the Cable Act from time to time; and
(c) changes resulting from technological changes
generally applicable to the cable television industry.
"Material Contract" shall mean any contract of the Company that (i) is
material to the Business or any System or (ii) requires aggregate payments by a
party thereto in excess of $500,000. Material Contract shall not include any
Local Authorization or FCC Authorization.
"Net Asset Value" shall mean an amount equal to the Asset Value, minus the
amount of Loan Proceeds actually transferred to New VII pursuant to the
Conveyance of Assets.
"New Borrowing Obligations" shall have the meaning specified in the
Subscription Agreement.
"New VII" shall have the meaning specified in the preamble of this
Agreement.
"1993 Act" shall have the meaning specified in the Parents Agreement.
"1934 Act" shall have the meaning specified in the Parents Agreement.
"Non-Cable Assets" shall mean all right, title and interest of Old VII and
the Cable Division Subsidiaries in and to all of their assets, rights,
privileges, interests, claims and properties other than the Cable Assets,
provided that notwithstanding any other provision hereof, Non-Cable Assets shall
include (and Cable Assets shall not include), (i) the Transferred Assets, (ii)
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all equity and other ownership interests of Old VII in its Subsidiaries (other
than the Cable Division Subsidiaries), (iii) all rights of Old VII under the
Transaction Documents with respect to periods prior to the Exchange Time (but
excluding any right to indemnification pursuant to Section 7.2 (b)) and (iv) all
rights of Old VII and its Subsidiaries under (x) employment agreements with
Non-Continuing Employees, (y) the lease dated December 27, 1985 between A.L.
McCormick and Viacom International, Inc., an Ohio corporation, as amended by
Lease Amendment No. 1 dated January 15, 1986 and (z) all Benefit Plans (other
than the Company's vacation and sick pay policies).
"Non-Cable FCC Authorizations" shall mean consents of the FCC under FCC
licenses and permits of Old VII and its Affiliates (other than the FCC
Authorizations) (x) to the transfer thereof to New VII in connection with the
Transaction or (y) to the change in control of Old VII in connection with the
Transaction.
"Non-Cable Liabilities" means all obligations and liabilities of Old VII
and its Subsidiaries, other than (x) those constituting Cable Liabilities and
(y) those arising from or with respect to the operation of the business of Old
VII and the Cable Division Subsidiaries after the Exchange Date (other than
Pre-Closing Specified Liabilities), provided that notwithstanding any other
provision hereof, Non-Cable Liabilities shall include (and Cable Liabilities
shall not include) (i) the Old VII Debt (including without limitation principal,
interest, premium, fees, expenses and indemnities in connection therewith), (ii)
liability for the breach by Old VII, on or prior to the Exchange Date, of any
representation, warranty, covenant or agreement of Old VII contained in the
Subscription Agreement, (iii) liabilities for Taxes of the members of the Old
VII Subgroup for taxable years or portions thereof ending on or prior to the
Exchange Date, (iv) Pre-Closing Specified Liabilities and (v) liabilities and
obligations of Old VII and its Subsidiaries under (x) employment agreements with
Non-Continuing Employees, (y) the lease dated December 27, 1985 between A.L.
McCormick and Viacom International, Inc., an Ohio corporation, as amended by
Lease Amendment No. 1 dated January 15, 1986 and (z) all Benefit Plans (other
than the Company's vacation and sick pay policies).
"Non-Continuing Employee" shall have the meaning specified in the
Subscription Agreement.
"Number of Shares to be Exchanged" shall have the meaning set forth in the
Parents Agreement.
"Old VII" shall have the meaning specified in the preamble of this
Agreement.
"Old VII Debt" shall mean all indebtedness of Old VII for borrowed money
incurred prior to the Exchange Time (other than such indebtedness owed to VI
(which will not be outstanding at the Exchange Time as provided in Section 2.12)
or constituting or arising from New Borrowing Obligations).
"Old VII Subgroup" shall mean Old VII and the Cable Division Subsidiaries,
including any predecessor of any such corporation.
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"Other Current Liabilities" shall mean all current liabilities (including,
but not limited to, current liabilities on account of Covered Capital
Expenditures and Covered Line Extension and Other Capital Expenditures, accrued
vacation pay for Continuing Employees, subscriber security deposits, customer
prepayments for service to be rendered after the Exchange Date and deferred
customer revenues (other than any deferred revenues arising out of any payments
of principal due from the Telecom Partnerships referred to in clause (ii) of the
definition of Telecom Capital Expenditure Amount), but excluding (i) Accounts
Payable, (ii) any advance billings subtracted in the calculation of Accounts
Receivable, Net) of the Company relating to the conduct of the Business as of
the Exchange Date after giving effect to the Assumption of Liabilities and (iii)
New Borrowing Obligations, calculated in accordance with GAAP on a basis
consistent with the application of such principles in the preparation of the
Financial Statements.
"Owned Real Property" shall mean all fee interests of the Company in the
real property used in connection with any System.
"Parents Agreement" shall mean the Parents Agreement, dated as of the date
hereof, among VI, TCI and TCI Sub.
"PCI Group" shall have the meaning specified in Section 9.6.
"PCI Subsidiaries" shall have the meaning specified in Section 9.6.
"Per Subscriber Amount" shall mean $1,763.67, provided that if the Fixed
Amount is adjusted pursuant to Section 3.4, the Per Subscriber Amount shall be
reduced to an amount equal to the product of $1,763.67, multiplied by a
fraction, the numerator of which is the new Fixed Amount (expressed as a number)
and the denominator of which is 2,000,000,000 (two billion).
"Permits" shall mean all authorizations, approvals, certifications,
franchises, licenses and permits of Governmental Authorities necessary to the
continued operation of, or owned, used or held for use by the Company in
connection with, the Business as conducted immediately prior to the Exchange
Time, including, without limitation, all Local Authorizations and all FCC
Authorizations.
"Permitted Liens" shall mean (i) Liens for Taxes not yet due and payable;
(ii) any carrier's, warehousemen's, mechanic's, materialmen's, repairmen's,
employees' or other like Lien arising in the ordinary course of business, to the
extent the obligation secured thereby constitutes Cable Liabilities or relates
to an obligation that was paid by the Company; (iii) easements, rights-of-way,
restrictions, encroachments and other similar encumbrances which do not
materially interfere with the use of the Cable Assets as presently used in the
Business; (iv) Liens arising under or specifically permitted by this Agreement
or as a result of any action by TCI Sub or any of its Affiliates; (v) rights of
first refusal in favor of, and restrictions imposed by, Governmental
Authorities; (vi) in the case of assets leased or licensed to the Company, the
rights of, and any Lien encumbering the interest of, the owner, lessor or
licensor of such assets, provided such Lien does not materially interfere with
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the use of such asset as presently used in the Business; and (vii) Liens arising
under the Loan Documentation or otherwise securing New Borrowing Obligations.
"Person" shall mean and include an individual, a corporation, a partnership
(general, limited or limited liability), a joint venture, a limited liability
company, an association, a trust or any other organization or entity, including
a Governmental Authority.
"Pre-Closing Specified Liabilities" shall mean liabilities and obligations
of Old VII and the Cable Division Subsidiaries arising out of the operation of
or with respect to the Business on or prior to the Exchange Date, including
without limitation any obligations accruing prior to the Exchange Date under
retransmission consent agreements with respect to the Systems for carriage of
fX, ESPN2, Bay TV, or America's Talking, but excluding Accounts Payable, Other
Current Liabilities or New Borrowing Obligations.
"Preferred Stock" shall have the meaning specified in the Parents
Agreement.
"Prepaid Expenses" shall mean the book value of prepaid expenses and
miscellaneous prepaids (in each case, only to the extent constituting a current
asset) of the Company as of the Exchange Date after giving effect to the
Conveyance of Assets calculated in accordance with GAAP, applied on a basis
consistent with the application of such principles in the preparation of the
Financial Statements, to the extent that such prepaid expenses will accrue to
the benefit of the Company immediately following the Exchange Time.
"Prime Rate" shall mean the per annum rate of interest published as such
from time to time in the Money Rates column of The Wall Street Journal (Eastern
Edition). For all purposes of this Agreement, interest at the Prime Rate shall
be calculated on the basis of the actual number of days elapsed in the relevant
period over a year of 365 or 366 days, as applicable.
"PVIT" shall mean PVI Transmission Inc., a Delaware corporation.
"PVIT Assets" shall mean the assets set forth on Exhibit F.
"PVIT Bill of Sale" shall mean a bill of sale in the form of Exhibit G.
"RCS" shall mean RCS Pacific, L.P., a California limited partnership.
"Real Property" shall mean Owned Real Property or Leased Real Property.
"Replacement Welfare Plans" shall have the meaning specified in Section
8.1(h).
"Required Treatment" shall have the meaning specified in Section 9.3.
"Right of First Refusal" shall mean any right of first refusal of a Local
Authority in regard to or arising as a result of the Transaction.
"Right of First Refusal Franchise Area" shall have the meaning specified in
Section 2.4.
"Right of First Refusal Franchise Area Consideration" shall have the
meaning specified in Section 2.4.
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"Right of First Refusal Local Authorization" shall have the meaning
specified in Section 2.4.
"Rules and Regulations" shall have the meaning specified in the definition
of Communications Act.
"Section 2.17 Secured Obligations" shall have the meaning specified in
Section 2.17.
"Share Purchase Closing" shall mean the "Closing", as such term is defined
in the Subscription Agreement.
"Shares" shall have the meaning specified in the Subscription Agreement.
"Shortfall Number" shall have the meaning specified in Section 3.4.
"626 Letters" shall mean written notices pursuant to Section 626(a)(1)(B)
of the Communications Act.
"Specified Capital Expenditure Amount" shall mean, with respect to a System
(or portion thereof), all capital expenditures made by the Company with respect
to such System (or portion thereof) after the Exchange Date (and not reflected
in Accounts Payable or Other Current Liabilities), calculated in accordance with
the accounting principles employed by Old VII on the date hereof.
"Specified Party" shall have the meaning specified in Section 5.1.
"Straddle Period" shall have the meaning specified in Section 9.1(c).
"Subsidiary" shall mean, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are directly or indirectly owned by such Person.
"System" shall mean each of the cable television systems listed on Exhibit
H.
"Tax Indemnified Party" shall have the meaning specified in Section 9.4(e).
"Tax Indemnifying Party" shall have the meaning specified in Section
9.4(e).
"Tax Return" shall mean any return, report, information return or other
document (including any related or supporting information) filed or required to
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be filed with any taxing authority in connection with the determination,
assessment, collection, administration or imposition of any Taxes.
"Taxes" shall mean all taxes, fees, duties, imposts, levies, withholdings,
tax deficiencies, assessments, and charges, including, without limitation, all
net income, gross income, gross receipts, sales, use, value-added, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes and customs
duties of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts relating thereto, imposed by any
Governmental Authority (domestic or foreign). For purposes of determining any
Tax cost or Tax benefit to any Person, such amount shall be the actual cost or
benefit recognized by such Person at the time of actual payment of the
additional Tax or actual recognition of the Tax benefit. In the event that any
payment or other amount is required to be determined on an after-Tax basis, such
payment or other amount shall initially be determined without regard to any Tax
cost or Tax benefit not actually recognized currently, and appropriate
adjustments shall be made when and to the extent that such Tax cost or Tax
benefit is actually recognized.
"TCI" shall have the meaning specified in the preamble of this Agreement.
"TCI Sub" shall have the meaning specified in the preamble of this
Agreement.
"Telecom Agreements" shall mean all agreements of the Company relating to
the Telecom Partnerships, including, without limitation, the Telecom Partnership
Agreements.
"Telecom Amount" shall mean the sum of the Telecom Capital Account Amount
and the Telecom Capital Expenditure Amount.
"Telecom Assets" shall mean all right, title and interest of Old VII and
each Cable Division Subsidiary in and to (i) the Telecom Partnerships,
including, without limitation, under the Telecom Partnership Agreements, and
(ii) all interests in real property, all equipment and all other property of Old
VII and each Cable Division Subsidiary leased or licensed to, or held for, or
built for lease, license or use by, any Telecom Partnership.
"Telecom Capital Account Amount" shall mean the aggregate amount of all
Capital Contributions (as defined in the relevant Telecom Partnership Agreement)
by Old VII and its Affiliates to the Telecom Partnerships under the Telecom
Partnership Agreements as of the Exchange Date, minus the aggregate amount of
all distributions of capital made to Old VII or its Affiliates under the Telecom
Partnership Agreements.
"Telecom Capital Expenditure Amount" shall mean, without duplication of the
Telecom Capital Account Amount, (i) the aggregate amount of all capital
expenditures (including allocated overhead) made by the Company on or prior to
the Exchange Date on behalf of or for the benefit of any Telecom Partnership in
accordance with the allocation methods provided pursuant to the relevant Telecom
Partnership Agreement, less (ii) the principal portion of any payments received
from the Telecom Partnerships, provided that if the Exchange Date occurs on or
before December 31, 1995, the Telecom Capital Expenditure Amount shall not in
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any event exceed $20,800,000, and if the Exchange Date occurs after December 31,
1995, such maximum amount shall be increased by the amount of additional capital
expenditures and capital contributions made by the Company after December 31,
1995 in accordance with the terms of the Telecom Partnership Agreements.
"Telecom Partnership Agreements" shall mean (i) the Partnership Agreement
creating TCG San Francisco (the "TCG San Francisco Partnership") dated as of
January 1, 1994, by and among Teleport Communications of San Francisco, Inc., a
Delaware corporation and the other parties listed on the signature pages
thereof, (ii) the Partnership Agreement creating TCG Seattle (the "TCG Seattle
Partnership") dated as of January 1, 1994, by and among Teleport Communications
of Seattle, Inc., a Delaware corporation and the other parties listed on the
signature pages thereof and (iii) the Limited Partnership Agreement of AVR of
Tennessee, L.P., a California limited partnership, dated as of November 15,
1993, by and among Viacom Telecom Inc., a Delaware corporation, and the other
parties signatories thereto (the "AVR Partnership").
"Telecom Partnerships" shall mean the TCG San Francisco Partnership, the
TCG Seattle Partnership and the AVR Partnership.
"Tele-Vue" shall mean Tele-Vue Systems, Inc., a Washington corporation.
"Terminated Unapproved Franchise Areas" shall have the meaning specified in
Section 2.3(d).
"Territory" shall have the meaning specified in Section 5.1.
"Transaction" shall have the meaning specified in the Parents Agreement.
"Transaction Documents" shall have the meaning specified in the Parents
Agreement.
"Transferred Assets" shall mean the following:
(a) Cash. Cash and cash equivalents (other than
the Cable Cash Balances).
(b) Loan Proceeds. The Loan Proceeds in an
aggregate amount equal to $1,700,000,000 (one billion, seven
hundred million dollars).
(c) Viacom Name. All rights in and to the names
"Viacom," "Viacom International" and "Viacom Cable" and
derivations thereof (subject to Section 2.9).
(d) Other Assets. The patent and other rights and
assets listed on Exhibit I.
(e) Tax Refunds. All rights of Old VII to any
refunds or credits of any Taxes (including any interest
relating thereto) with respect to taxable years or portions
thereof ending on or prior to the Exchange Date that are for
the account of New VII pursuant to Section 9.2.
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"Unapproved Franchise Areas" shall mean Franchise Areas covered by
Unapproved Local Authorizations.
"Unapproved Franchise Assets" shall mean, with respect to all Unapproved
Franchise Areas, all Unapproved Local Authorizations and all related Real
Property and Equipment.
"Unapproved Local Authorizations" shall mean a Local Authorization (other
than Right of First Refusal Local Authorizations) as to which all Local
Authority Consents have not been obtained or do not remain in full force and
effect immediately prior to the Exchange Time.
"Untransferable Asset" shall have the meaning specified in the Bill of
Sale.
"VI" shall have the meaning specified in the preamble of this Agreement.
"Viacom Pension Plan" shall have the meaning specified in Section 8.1(c).
"Viacom Plans" shall have the meaning specified in Section 8.1(b).
"VI Common Stock" shall have the meaning specified in the Parents
Agreement.
"VI Group" means VI and its subsidiaries, including any predecessor of any
such corporation.
"Working Capital" shall mean an amount equal to (a) Accounts Receivable,
Net, plus the amount of Prepaid Expenses, plus the amount of Cable Cash
Balances, plus the amount of deposits (as of the Exchange Date after giving
effect to the Conveyance of Assets) of the Company held by others to secure
performance of a Cable Liability by the Company, minus (b) the amount of
Accounts Payable, plus the amount of Other Current Liabilities.
ARTICLE II
----------
CONVEYANCE; LACK OF CONSENTS OR REGULATORY
APPROVALS; RIGHT OF FIRST REFUSAL; DISASTERS
Section 2.1 Conveyance of Assets and Assumption of Liabilities: Transfers
to New VII, Recapitalization. (a) Prior to the Exchange Time, Old VII shall (and
shall cause the Cable Division Subsidiaries to) execute and deliver to New VII
the Bill of Sale (and such other documentation as Old VII and the Cable Division
Subsidiaries shall be required to execute pursuant thereto), pursuant to which
Old VII (and the Cable Division Subsidiaries) shall convey to New VII all of
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their right, title and interest in and to all Non-Cable Assets (the "Conveyance
of Assets") and New VII shall execute and deliver the Bill of Sale and thereby
assume and agree to perform when due in accordance with their terms the
Non-Cable Liabilities of Old VII and the Cable Division Subsidiaries (the
"Assumption of Liabilities").
(b) Prior to the Exchange Time, but after the occurrence of the Conveyance
of Assets and the Assumption of Liabilities, Old VII shall distribute to VI all
of the outstanding capital stock of New VII so that after such distribution New
VII will be a direct wholly-owned Subsidiary of VI.
(c) Prior to the Exchange Time, Old VII shall take all action necessary
under its certificate of incorporation and the Delaware Corporation Law to amend
and restate its certificate of incorporation so that it reads in full
substantially as set forth in Exhibit J, except that (i) the terms and
conditions of the Preferred Stock of Old VII shall be as specified by Old VII
with the consent of TCI Sub and consistent with the term sheet attached as
Exhibit K, (ii) the number of shares of Class A Common Stock and Preferred Stock
that are authorized shall in each case be a number equal to the Number of Shares
to be Exchanged and (iii) such changes as are necessary in order to ensure that
the Amended and Restated Certificate of Incorporation shall be accepted for
filing by the Secretary of State of Delaware, shall be made with the consent of
TCI Sub and New VII (such consents not to be unreasonably withheld) (the
"Amended and Restated Certificate of Incorporation").
(d) The obligations of Old VII contained in Sections 2.1(a), (b) and (c)
are subject to the fulfillment of each of the following conditions, each of
which may be waived by Old VII: (w) the conditions described in Section 6.1 of
the Parents Agreement (as if such conditions were set forth in full herein)
shall have been satisfied, (x) Old VII shall have received, to its satisfaction,
Loan Proceeds, in an aggregate principal amount at least equal to the Aggregate
Loan Amount, and such Loan Proceeds shall be available for transfer as a
contribution to New VII in the Conveyance of Assets without condition (but
without limiting VI's obligation to provide the notice required for the release
of funds from the Cash Collateral Account as specified in the definition of Cash
Collateral Account) and (y) VI shall have accepted shares of VI Common Stock for
exchange in the Exchange Offer in accordance with Section 2.1(d) of the Parents
Agreement.
(e) The parties acknowledge that the portion of the Old VII Debt that is
equal to the Loan Proceeds transferred to New VII in the Conveyance of Assets is
being assumed by New VII in consideration of the transfer to New VII of such
Loan Proceeds pursuant to the Conveyance of Assets.
Section 2.2 Lack of Consents. If the Transaction requires the consent of
another Person under any Cable Group Contract and such consent has not been
obtained prior to the Exchange Time or does not remain in full force and effect
at the Exchange Time, such failure to obtain such consent or failure of such
consent to be in full force and effect shall not itself constitute a breach of
any provision hereof. Prior to the Exchange Time, Old VII shall use its best
efforts to assign any such Cable Group Contract to New VII and New VII shall at
the Exchange Time assume all obligations of Old VII under any such assigned
Cable Group Contract with respect to periods from and after the Exchange Time.
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New VII shall, with respect to each such Cable Group Contract, use its
reasonable commercial efforts (at the expense of New VII and at no out-of-pocket
expense to Old VII, but without New VII being required to provide any
consideration therefor) to: (i) keep each such Cable Group Contract in effect
and obtain such consent; (ii) provide to Old VII the benefits of each such Cable
Group Contract through subcontract or otherwise; (iii) cooperate in any
reasonable arrangement designed to provide such benefits to Old VII; and (iv)
enforce, at the request and sole expense of Old VII, any rights of New VII
included in the Cable Assets under or with respect to any such Cable Group
Contract against all other Persons (including termination of the foregoing in
accordance with the terms thereof upon the election of Old VII), in each case of
clauses (i)-(iv) to the extent that Old VII performs all obligations of New VII
under such Cable Group Contract. If all such consents under any such Cable Group
Contract are obtained after the Exchange Time, New VII shall promptly assign
such Cable Group Contract to Old VII and Old VII shall assume all obligations
under such Cable Group Contract with respect to periods following such
assignment, in each case without the payment of additional consideration by New
VII or Old VII.
Section 2.3 Lack of Regulatory Approvals. (a) If immediately prior to the
Exchange Time any Local Authority Consent has not been obtained or does not
remain in full force and effect immediately prior to the Exchange Time, such
failure to obtain such Local Authority Consent or such failure of such Local
Authority Consents to be in full force and effect shall not itself constitute a
breach of any provision hereof. Prior to the Exchange Time, all Unapproved Local
Authorizations and the related Unapproved Franchise Assets shall be transferred
to New VII.
(b) Old VII and New VII shall take such steps and enter into such
agreements, including management agreements (with Old VII as manager, but at no
cost to New VII), as may be reasonably necessary or appropriate so that Old VII
shall have the exclusive (as between Old VII and New VII) use and benefit of
(including, without limitation, cash flow), and burdens (including, without
limitation, payments, liabilities, Taxes, risk of loss and responsibility for
making capital expenditures) with respect to, the Unapproved Franchise Assets as
if the Unapproved Franchise Assets had not been transferred to New VII (and
remained with Old VII at and after the Exchange Time), until, with respect to
any Unapproved Local Authorization and the related Unapproved Franchise Assets,
the Deferred Closing Date or the termination of such agreements as contemplated
below in this Section 2.3. Such management agreements will provide that Old VII
will have all rights to manage and receive cash flow of the relevant Unapproved
Franchise Assets and to pledge such cash flow to the Lenders, including but not
limited to management of marketing, pricing, capital expenditures and
programming, provided that, with respect to any Unapproved Franchise Area, Old
VII will not take or omit to take any action, that could reasonably be expected
to delay the Deferred Closing Date with respect to such Unapproved Franchise
Area or make the occurrence thereof less likely, provided, however, that Old VII
shall be entitled to change subscriber rates in its sole discretion. Such
management agreements will also provide that Old VII will continue to make
capital expenditures with respect to each Unapproved Franchise Area as if all
Local Authority Consents had been obtained and such Unapproved Local
Authorizations and the related Unapproved Franchise Assets had not been
transferred to New VII as provided above. If and to the extent that New VII
receives cash flow with respect to the Unapproved Franchise Assets to which Old
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VII is entitled pursuant to this Section 2.3(b), New VII shall be obligated to
pay to Old VII or, if requested by Old VII, to the Lenders, an amount equal to
the amount of such cash flow. The out-of-pocket costs and expenses of all such
arrangements shall be shared equally by Old VII and New VII (except that each
party shall be responsible for the fees and expenses of its own legal advisors).
(c) If following the Exchange Time, New VII is able to transfer to Old VII
(or a designee of Old VII) an Unapproved Local Authorization, New VII shall
promptly so notify Old VII (or, in the case of transfer to such a designee, Old
VII shall notify New VII) and, on the fifth Business Day after the date of such
notice (a "Deferred Closing Date"), New VII shall transfer to Old VII (or such
designee of Old VII), as the case may be, such Unapproved Local Authorization
and all related Unapproved Franchise Assets held on such Deferred Closing Date.
Old VII (or such designee of Old VII), as the case may be, shall assume, pay,
perform and discharge the liabilities and obligations arising after the Exchange
Date under or in respect of such related Unapproved Franchise Assets.
(d) With respect to any Unapproved Local Authorization, upon the earlier of
the second anniversary of the Exchange Date or the date on which a Local
Authority Consent has been denied in a final, unappealable order or ruling, if
New VII and Old VII have been unable, after good faith negotiations, to enter
into agreements providing in all material respects the economic equivalent to
Old VII of ownership of the related Unapproved Franchise Assets, then thereafter
either Old VII or New VII may, by written notice to the other, elect to
terminate all the agreements referred to in this Section 2.3 on a termination
date specified in such notice for such Unapproved Franchise Areas ("Terminated
Unapproved Franchise Areas"), which termination date may not be earlier than 90
days following the other's receipt of such notice. If New VII so requests, prior
to such termination Old VII and New VII shall enter into such agreements,
including without limitation service and management agreements for such
Terminated Unapproved Franchise Areas, on reasonable and customary commercial
terms, including reasonable and customary management fees (provided that such
service and management agreements shall be cancelable by Old VII without penalty
or other payment on not more than 180 days prior notice and shall be cancelable
by New VII without penalty or other payment on not more than thirty (30) days'
prior written notice to Old VII) as may be reasonably necessary so that New VII
shall have the use and benefit of, and burdens with respect to, and be able to
operate the related Unapproved Franchise Assets as if, from and after such
termination, the Transaction had not occurred. Upon such termination, New VII
shall pay to Old VII an amount equal to the Appraised Value at the time of such
termination of the Systems covered by such Terminated Unapproved Franchise Areas
and Old VII shall convey or cause to be conveyed to New VII for no additional
consideration all Permits, Cable Group Contracts and Intangible Assets related
to such Terminated Unapproved Franchise Areas. Notwithstanding the preceding
sentence, to the extent any Permit, Cable Group Contract or Intangible Asset is
used in the operation of Systems covered by Local Authorizations that are not
Unapproved Local Authorizations or Terminated Unapproved Local Authorizations,
Old VII shall not convey (or cause to be conveyed) such Permit, Cable Group
Contract or Intangible Asset to New VII and Old VII shall use its reasonable
commercial efforts or cause its Subsidiaries to use their reasonable efforts (at
the expense of New VII and at no out-of-pocket expense to Old VII) to: (i)
provide to New VII the benefits thereof through subcontract or otherwise; (ii)
cooperate in any reasonable arrangement to provide such benefits to New VII; and
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(iii) enforce, at the request and sole expense of New VII, any rights of the
Company included therein (to the extent they relate to such Permit, Cable Group
Contract or Intangible Asset).
Section 2.4 Right of First Refusal. If a Local Authority consummates its
exercise of a right of first refusal arising as a result of the Transaction in
respect of a Local Authorization (a "Right of First Refusal Local Authorization"
(the Franchise Areas covered by Right of First Refusal Local Authorizations
being referred to herein as "Right of First Refusal Franchise Areas")) on the
tenth Business Day after receipt by New VII of written notice from Old VII of
the consummation of the exercise by such Local Authority of its right of first
refusal with respect to such Right of First Refusal Local Authorization,
together with evidence reasonably satisfactory to New VII of the consideration
given by the Local Authority in exercising such right, New VII shall pay to Old
VII, an amount (which shall not be less than zero), if any, equal to (1) the
Appraised Value at the time of such consummation of that portion of the Systems
included in such Right of First Refusal Franchise Areas, minus (2) the Right of
First Refusal Franchise Area Consideration for such Right of First Refusal
Franchise Areas received by Old VII or any Affiliate thereof (or any transferee
or subsequent transferee thereof), less any out-of-pocket expenses (but in any
event excluding Taxes) incurred by Old VII (or such Affiliate thereof (or any
transferee or subsequent transferee thereof)) in connection with such
consummation of a right of first refusal. "Right of First Refusal Franchise Area
Consideration" shall mean, with respect to a Right of First Refusal Franchise
Area, an amount equal to the total consideration given by the Local Authority
and actually received by Old VII and any of its Affiliates (or any transferee or
subsequent transferee thereof) after the Exchange Time in connection with the
exercise of its right of first refusal.
Section 2.5 Lost Service Subscribers. (a) In the event that on or before
the Exchange Time any natural disaster has occurred that has damaged the
tangible assets of any one or more Systems sufficiently to cause more than
11,340 Basic Subscribers to be unable to receive cable television service at the
Exchange Time as a result of such damage (a "Disaster"; the aggregate number of
Exchange Date Basic Subscribers not receiving such service at the Exchange Date
as a result of such Disaster being referred to herein as "Lost Service
Subscribers"), New VII shall reimburse Old VII for Old VII's reasonable
out-of-pocket expenses (provided that such expenses shall be presumed to be
reasonable unless New VII establishes otherwise), computed on an after-Tax
basis, incurred in causing the damage caused by the Disaster to be repaired as
soon as reasonably practicable to the extent necessary to reconnect cable
television service (at a level not substantially more or less than the level of
service provided immediately prior to the Disaster) to the Lost Service
Subscribers.
(b) With respect to Lost Service Subscribers, within ten (10) Business Days
of the end of each month, New VII shall promptly reimburse Old VII for the
amount of Lost Service Subscriber Cumulative Deemed Net Cash Flow, computed on
an after-Tax basis, for each Lost Service Subscriber (but only for periods
during which such Lost Service Subscribers are not receiving, or not obligated
to pay the Basic Subscriber Rate (or a higher rate) for, cable television
service at a level not substantially less than the level of service provided
immediately prior to the Disaster) for periods prior to the date of the relevant
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Disaster, provided that aggregate payments pursuant to this paragraph (b) for
any such Lost Service Subscriber shall not exceed the Per Subscriber Amount
applicable to such Lost Service Subscriber, plus interest at the LIBOR Rate on
the unreimbursed portion of the Per Subscriber Amount attributable to such Lost
Service Subscriber (calculated by deducting payments made by New VII from time
to time of Lost Service Subscriber Cumulative Deemed Net Cash Flow (but not
including interest) on account of such Lost Service Subscriber). Upon such
reimbursement with respect to a Lost Service Subscriber, Lost Service Subscriber
Cumulative Deemed Net Cash Flow for such Lost Service Subscriber shall be
reduced by the amount of such payment on account of Lost Service Subscriber
Cumulative Deemed Net Cash Flow (but not including interest).
Section 2.6 Release of Old VII. New VII will obtain the release of Old VII
from, or the substitution of New VII as obligor under (so that Old VII will have
no obligation under), all of Old VII's obligations to repay the Old VII Debt, or
shall cause the indenture pursuant to which such debt was issued to be amended
or supplemented so that Old VII will no longer be an obligor (so that Old VII
will have no obligation) thereunder, in each case effective concurrently with
the release of all funds from the Cash Collateral Account. New VII shall deliver
to Old VII copies of all documentation provided to the trustees under the
indentures governing Old VII's public debt in connection with its substitution
as obligor in place of Old VII thereunder, and Old VII and the Lenders shall be
entitled to rely on all legal opinions delivered to such indenture trustees in
connection with such substitution.
Section 2.7 Receipt of Consents. It is the intent of the parties that the
arrangements described in Sections 2.2 and 2.3 continue for the shortest
possible time, and to this end they agree to use reasonable commercial efforts
to obtain all consents (including Local Authority Consents) to the Transaction
referred to in said Sections as promptly as practicable following the Exchange
Time.
Section 2.8 Execution of Other Instruments. If, immediately prior to the
Exchange Time, PVIT has not transferred the PVIT Assets to Old VII or a Cable
Division Subsidiary, New VII shall cause PVIT to execute and deliver to Old VII
immediately prior to the Exchange Time the PVIT Bill of Sale.
Section 2.9 Use of Viacom Name. Old VII may continue to use the names
"Viacom," "Viacom International" and "Viacom Cable" and derivations thereof on
trucks and buildings to the extent so used immediately prior to the Exchange
Time for a reasonable period after the Exchange Time, not to exceed ninety (90)
days in the case of trucks and thirty (30) days in the case of buildings;
provided, however, that Old VII will provide replacements for channel cards,
remote control stickers and other items containing any such name in the ordinary
course of business. Old VII acknowledges that following the Exchange Time, it
will have no rights in any such name (except the right of use set forth in this
Section 2.9), and Old VII agrees to use such names only in accordance with this
Section 2.9.
Section 2.10 Name Change. Prior to the Exchange Time, Old VII will change
its name to TCI Pacific Communications, Inc. (provided that such name is
available) in its state of incorporation and, to the extent practicable, in all
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states where it is qualified to do business, and New VII will change its name to
Viacom International Inc. Prior to and following the Exchange Time, the parties
will take all actions necessary to enable New VII to qualify to do business
under the name of Viacom International Inc. in those states in which it
determines to so qualify and to change the name of Old VII to TCI Pacific
Communications, Inc. (provided that such name is available) in all states where
it is qualified to do business. Old VII will from time to time and for no
additional consideration execute such instruments and consents as New VII shall
reasonably request to enable New VII to use such name. If the Exchange Time does
not occur, Old VII and New VII will reverse such name changes.
Section 2.11 Bank Accounts. Prior to the Anticipated Commencement Date, New
VII will identify each bank account of Old VII that it anticipates will be
active immediately following the Exchange Time.
Section 2.12 Intercompany Debt. At the Exchange Time, neither Old VII nor
any Cable Division Subsidiary will have any indebtedness for borrowed money to
VI and its Subsidiaries (other than to Cable Division Subsidiaries or Old VII).
Section 2.13 Consents. Each of Old VII and New VII agrees to use its
reasonable commercial efforts to obtain all consents necessary to consummate the
Conveyance of Assets and Assumption of Liabilities. New VII shall coordinate the
efforts to obtain such consents, and New VII shall be responsible for all costs,
expenses, liabilities, obligations and burdens with respect to such consents.
Section 2.14 Books and Records. After the Exchange Date, each of New VII
and Old VII shall, upon the other's reasonable request, in connection with the
preparation of tax returns, tax or accounting audits or for such other purpose
as such other party shall reasonably request, afford such other party and its
Agents who agree to be bound by the provisions of Section 2.15, access to the
books and records of it and its Affiliates (x) where the requesting party is Old
VII, to the extent such books and records relate to the operation of the
Business prior to the Exchange Date (including payment of any Taxes with respect
to the periods prior to the Exchange Date) and (y) where the requesting party is
New VII, to the extent such books and records relate to the operation of the
business of Old VII and its Subsidiaries prior to the Exchange Date.
Section 2.15 Confidentiality. Following the Exchange Time, each of Old VII
and New VII (the "Disclosing Party") shall, and shall cause its Affiliates, and
its and their respective Agents, to keep secret and retain in strictest
confidence any and all confidential information relating to the business of the
other party and its Affiliates or otherwise not available to the general public
in their possession or within their knowledge at the Exchange Time (provided
that such confidential information shall not include any information that (i)
has become generally available to the public other than as a result of a
disclosure by the Disclosing Party, its Affiliates or its Agents, (ii) has been
independently developed by the Disclosing Party or such Affiliate or Agent of
the Disclosing Party or (iii) was available to the Disclosing Party or an
Affiliate or Agent of the Disclosing Party on a nonconfidential basis from a
third party having no obligation of confidentiality to the other party or any
Affiliate of the other party and which has not itself received such information
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directly or indirectly in breach of any such obligation of confidentiality), and
shall not disclose such confidential information, and shall cause its Affiliates
and Agents not to disclose such confidential information, to any Person, except
(x) as may be required by law or legal process (in which event the Disclosing
Party shall so notify the other party as promptly as practicable (and if
possible, prior to making such disclosure) and, if requested by the other party,
shall seek confidential treatment of such information) or (y) as counsel to such
party reasonably determines is required by the 1933 Act or the 1934 Act.
Section 2.16 Control of Litigation. Old VII shall have the sole right and
obligation to defend and direct the defense of, and to settle or compromise, any
demand, claim, litigation or proceeding arising in respect of (x) any Cable
Group Contract during the period from the Exchange Date until such Cable Group
Contract is assigned to Old VII as provided in Section 2.2 or (y) any Unapproved
Franchise Assets and Unapproved Local Authorizations, during the period from the
Exchange Date until the transfer thereof to Old VII pursuant to Section 2.3(c)
or the payment of the Appraised Value with respect thereto pursuant to Section
2.3(d). Old VII shall be responsible for all costs, expenses, obligations,
judgments and liabilities arising therefrom. New VII will cooperate with Old VII
in the exercise by Old VII of its rights under this Section 2.16.
Section 2.17 Security Interest. If the Lenders so request, New VII shall at
the request of Old VII execute such security agreements and financing statements
in form and substance reasonably satisfactory to Old VII, pursuant to which Old
VII or the Lenders shall be granted a perfected first priority lien and security
interest in all of New VII's right, title and interest in and to any Cable Group
Contract held by New VII pursuant to Section 2.2 and any Unapproved Franchise
Assets and (to the extent permitted by applicable law) Unapproved Local
Authorizations, in each case together with the proceeds thereof, securing New
VII's obligations under Sections 2.2 and 2.3 (the "Section 2.17 Secured
Obligations") and New VII shall make all filings and shall take all other
actions necessary or desirable to perfect and protect such security interest.
Such security interests in Unapproved Franchise Assets and Unapproved Local
Authorizations will terminate and be released upon the payment of the Appraised
Value with respect thereto pursuant to Section 2.3(d). Without limitation of the
foregoing, at the request of Old VII from time to time, New VII shall enter into
such other arrangements as Old VII shall reasonably request to secure
performance of the Section 2.17 Secured Obligations and to otherwise provide to
Old VII the rights and benefits to be provided to it pursuant to this Section
2.17. Old VII shall be responsible for all out-of-pocket costs incurred by New
VII in complying with New VII's obligations under this Section 2.17.
Notwithstanding any provisions of this Section 2.17 or the Transaction
Documents, New VII shall not be required to grant or maintain any lien or
security interest to or for the benefit of Old VII or the Lenders to the extent
such grant or maintenance would constitute a breach or default (including any
event that, with the passage of time or the giving of notice, or both, would
become a breach or default) under, or give rise to a right of acceleration
under, any loan agreement or indenture or other instrument governing
indebtedness to which VI or any Affiliate of VI is a party or by which VI or any
Affiliate of VI or their properties may be bound.
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ARTICLE III
ADJUSTMENTS
Section 3.1 Determination of Estimated Asset Value. Prior to the
Anticipated Commencement Date, Old VII shall determine in good faith its
estimates of the Capital Expenditure Amount (the "Estimated Capital Expenditure
Amount"), the Inventory Amount (the "Estimated Inventory Amount"), the Telecom
Amount (the "Estimated Telecom Amount"), Working Capital ("Estimated Working
Capital"), the Asset Value (the "Estimated Asset Value"), and the Fixed Amount
(the "Estimated Fixed Amount") based on information available to it at the time
it makes such estimates. The Estimated Capital Expenditure Amount, the Estimated
Inventory Amount, the Estimated Telecom Amount, Estimated Working Capital and
Estimated Fixed Amount are referred to herein as the "Estimated Adjustment
Amounts". At least forty-five (45) days prior to the Anticipated Commencement
Date of the Exchange Offer, Old VII shall deliver to New VII a statement setting
forth its preliminary estimates of the Adjustment Amounts and the Estimated
Asset Value as of the anticipated Exchange Date set forth in such statement.
Prior to the Anticipated Commencement Date, Old VII will deliver to New VII a
statement setting forth the Estimated Adjustment Amounts and the Estimated Asset
Value as of the anticipated Exchange Date (an "Estimate Statement"), which
statement shall: (i) contain the information in reasonable detail required to
calculate the Estimated Adjustment Amounts and the Estimated Asset Value; (ii)
be prepared in accordance with the requirements of this Agreement; and (iii) be
certified by an authorized officer of Old VII to be Old VII's good faith
estimate. In the event that the anticipated commencement date of the Exchange
Offer is postponed, Old VII shall if practicable and consistent with the timing
of the Exchange Offer and the provisions of Section 2.3 of the Parents
Agreement, re-estimate the Estimated Adjustment Amounts and deliver to New VII
an updated Estimate Statement. For purposes of this Agreement, the Estimated
Adjustment Amounts and the Estimated Asset Value shall be the amounts set forth
on the last Estimate Statement delivered by Old VII to New VII. Old VII shall
not be deemed to have made any representations or warranties as to the
statements delivered pursuant to this Section, except that they were prepared in
good faith. For purposes of determining "Covered Capital Expenditures" and "Line
Extension and Other Capital Expenditures", a capital expenditure shall be deemed
made at the time that a capital expenditure is recorded on the books of the
Company as such in the ordinary course in accordance with past practices and
consistent with GAAP.
Section 3.2 Calculation of Adjustment Amounts. (a) The Capital Expenditure
Amount, the Inventory Amount, Working Capital, the Telecom Amount, the Fixed
Amount and the amount of Loan Proceeds actually transferred to New VII in the
Conveyance of Assets are referred to herein collectively as the "Adjustment
Amounts."
(b) Not later than sixty (60) days after the Exchange Date, Old VII shall
deliver to New VII a statement showing Old VII's calculation of the actual
Adjustment Amounts and the Asset Value (the "Final Certificate"). Old VII shall
make available to New VII its accountants' work papers and such other
information relating to the calculation of the Adjustment Amounts and the Asset
Value as New VII shall reasonably request.
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(c) In the event that New VII disputes Old VII's calculation of the
Adjustment Amounts and the Asset Value, New VII shall give written notice
thereof to Old VII within 30 days after the Final Certificate was delivered to
New VII which notice shall set forth the basis for such dispute in reasonable
detail (the "Dispute Notice"). The parties shall use all reasonable efforts to
resolve any such dispute, but if any such dispute cannot be resolved by the
parties within thirty (30) days after the date the Dispute Notice is given, all
unresolved disputes shall be referred to an Arbitrating Firm for resolution. The
parties shall seek to cause the Arbitrating Firm to make its determination
within sixty (60) days after referral of a dispute to it. The determination of
the Arbitrating Firm shall be conclusive and binding on each party. The fees of
the Arbitrating Firm shall be allocated and paid by New VII or Old VII, or
divided between them, on a basis determined by the Arbitrating Firm to be fair
taking into account the correctness of the positions asserted by each of them
with respect to the disputed matters resolved by the Arbitrating Firm.
(d) The Adjustment Amounts shall be the amounts set forth in the Final
Certificate unless a Dispute Notice is given with respect to the calculation
thereof, in which case only those Adjustment Amounts not in dispute shall be as
set forth in the Final Certificate. If a Dispute Notice is given, any Adjustment
Amount in dispute shall be deemed finally determined on the date that the
Arbitrating Firm gives written notice to Old VII and New VII of its
determination with respect to all disputes regarding the calculation thereof,
or, if earlier, the date on which New VII and Old VII agree in writing on the
amounts thereof, in which case any Adjustment Amount in dispute shall be
calculated in accordance with such determination or agreement.
Section 3.3 Adjustment Payment. If the Net Asset Value as finally
determined in accordance with Section 3.2 is greater than the amount of the
Estimated Net Asset Value, Old VII shall pay to New VII on the third Business
Day after such determination an amount in cash equal to such excess, plus an
amount equal to interest thereon from the Exchange Date to the date of payment
at the Prime Rate, compounded quarterly. If the Net Asset Value as finally
determined is less than the Estimated Net Asset Value, New VII shall pay to Old
VII on the third Business Day after such determination an amount in cash equal
to such deficiency plus an amount equal to interest thereon from the Exchange
Date to the date of payment at the Prime Rate, compounded quarterly. Payments of
cash pursuant to this Section 3.3 shall be made by wire transfer of immediately
available funds to an account in the United States designated by the party
entitled to payment to the party required to make the payment at least two (2)
Business Days prior to the date such payment is due.
Section 3.4 Fixed Amount. In the event that on the Exchange Date there are
less than 1,122,660 Basic Subscribers (the shortfall of Basic Subscribers below
1,122,660 is referred to herein as the "Shortfall Number"), for this purpose,
calculated without giving effect to the loss, if any, of Basic Subscribers as a
result of a Disaster (defined for these purposes without regard to the number of
Basic Subscribers affected), the Fixed Amount shall be reduced by an amount
equal to the product of (x) the Shortfall Number, multiplied by $1,763.67.
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Section 3.5 Proration. Property taxes and assessments, payroll taxes,
utility charges, association dues, rents, pole rentals, applicable franchise,
copyright or other fees, sales and service charges and wages of Employees of the
Company who are Continuing Employees, and other operating income and expenses of
the Company shall be prorated as of 11:59 p.m. on the Exchange Date, with New
VII being responsible for periods prior to such time and Old VII being
responsible for periods from and after such time, but only to the extent such
items were not taken into account in calculating Working Capital. For purposes
of the foregoing, any settlement with BMI or ASCAP for payment of copyright or
royalty fees with respect to music performance rights in connection with the
Systems, to the extent relating to the period ended on or prior to the Exchange
Date, shall be reimbursed to Old VII by New VII on an after-Tax basis whether
such settlement is entered into before or after the Exchange Date and whether
such payments are paid or payable before or after the Exchange Date, but only to
the extent such items were not taken into account in calculating Working
Capital, provided that New VII shall have no responsibility for any settlement
after the Share Purchase Closing that is not consistent with settlement terms
reached by the cable television industry generally unless such settlement is
approved in advance by New VII, such approval not to be unreasonably withheld.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEW VII
New VII represents and warrants to Old VII (which representations and
warranties may be relied upon by Old VII regardless of any knowledge Old VII may
have as to such matters) that:
Section 4.1 Corporate Existence and Power. Each of Old VII, New VII and the
Cable Division Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, (ii) is authorized to transact business and is in good standing in
each state in which its ownership of assets or conduct of business requires such
qualification, and (iii) has all corporate powers required to carry on its
business as conducted on the date hereof, with such exceptions to clauses (i),
(ii) and (iii) as would not have a Material Adverse Effect or materially and
adversely affect the ability of the Company to consummate the Transaction.
Section 4.2 Corporate Authorization. Each of Old VII, New VII and the Cable
Division Subsidiaries has the corporate power to own its assets and to operate
the Systems operated by it. Old VII and New VII each have the corporate power to
enter into this Agreement and to consummate the Transactions contemplated to be
consummated by each of them. The execution and delivery by each of Old VII and
New VII of this Agreement and the consummation by each of them of the
Transactions contemplated to be consummated by each of them hereunder have been
duly authorized by all necessary corporate action on each of their parts.
Section 4.3 Capitalization; Subsidiaries; Certificates of Incorporation and
By-Laws. (a) As of the date hereof, the authorized capital stock of Old VII
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consists of 100 shares of Common Stock, par value $0.10, of which 100 shares are
issued and outstanding. Immediately prior to the Exchange Time and the Share
Purchase Closing, the authorized capital stock of Old VII will consist of a
number of shares of Class A Common Stock equal to the Number of Shares to be
Exchanged, of which a number equal to the Number of Shares to be Exchanged shall
be issued and outstanding (and shall be owned of record (x) by VI immediately
prior to the Exchange Time and (y) by Persons who have exchanged shares of VI
Common Stock for such shares in the Exchange Offer (and their transferees and
further transferees) immediately prior to the Share Purchase Closing), 100
shares of Class B Common Stock, none of which will be issued and outstanding,
and a number of shares of Preferred Stock equal to the Number of Shares to be
Exchanged, none of which will be issued and outstanding. Except for the Exchange
Offer and any arrangement concerning the issuance by Old VII to VI of shares of
Class A Common Stock to be exchanged in the Exchange Offer as contemplated by
the Transaction Documents, there is no outstanding option, warrant, right
(including conversion or preemptive rights or rights of first refusal), call,
subscription or other agreement pending for the issuance of, or the granting of
rights to acquire from Old VII or VI, any capital stock of Old VII or securities
convertible into or exercisable for capital stock of Old VII.
(b) Exhibit D sets forth a true and correct list of the Cable Division
Subsidiaries as of the date of this Agreement. Old VII has good and, subject to
Permitted Liens, marketable title to all of the outstanding shares of capital
stock of Tele-Vue and Tele-Vue (either directly or through another Cable
Division Subsidiary) has good and, subject to Permitted Liens, marketable title
to all of the outstanding shares of capital stock of each Cable Division
Subsidiary (other than Tele-Vue), free and clear of all Liens. There is no
outstanding option, warrant, right, call, subscription or other agreement
providing for the issuance of, or the granting of rights to acquire from any
Cable Division Subsidiary, any capital stock of any Cable Division Subsidiary or
securities convertible into or exercisable for capital stock of any Cable
Division Subsidiary.
(c) At the Exchange Time, all issued and outstanding shares of Class A
Common Stock shall have been issued in accordance with the registration or
qualification provisions of the 1933 Act and any relevant state securities laws,
or pursuant to valid exemptions therefrom.
Section 4.4 Governmental Authorization. The execution and delivery of this
Agreement by Old VII and New VII, and the performance by Old VII and New VII of
this Agreement, and the consummation by Old VII and New VII of the Transactions
contemplated to be consummated by it pursuant hereto, require no material action
by or in respect of, or material filing with, any Governmental Authority other
than (x) compliance with any applicable requirements of the HSR Act, the FCC
Authorizations, the Non-Cable FCC Authorizations and the Local Authorizations
and (y) those that may be applicable as a result of the regulatory status of
TCI, TCI Sub or their Affiliates.
Section 4.5 Consents. Except as set out in Schedule 4.14, no material
consent by any Person under any Material Contract is required or necessary for
the execution and delivery of this Agreement by Old VII, or the performance by
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Old VII of this Agreement, or the consummation of the Transactions contemplated
to be consummated by it pursuant hereto. Except as indicated in Schedules 4.5,
4.9, 4.14 and 4.16, no consent by any Person (other than a Governmental
Authority) is required or necessary for the execution and delivery of this
Agreement by Old VII or New VII, or the performance by Old VII or New VII of
this Agreement, or the consummation by Old VII or New VII of the Transaction,
with such exceptions as would not have a Material Adverse Effect.
Section 4.6 Non-Contravention. (a) The execution, delivery and performance
of this Agreement by Old VII and New VII, and the consummation by Old VII and
New VII of the Transactions contemplated to be consummated by each of them
pursuant hereto, do not or on or before the Exchange Date will not, (x)
contravene the certificate of incorporation or bylaws of Old VII or New VII or
(y) subject to obtaining the consents described in Schedules 4.5, 4.9, 4.14 and
4.16 and subject to obtaining, taking or making the actions and filings
described in clauses (x) and (y) of Section 4.4, result in the imposition of any
Lien (other than a Permitted Lien) upon any assets of the Company pursuant to,
or constitute a breach or default (including any event that, with the passage of
time or giving of notice, or both, would become a breach or default) under or
give rise to a right of termination, cancellation, first refusal or acceleration
(other than, a Right of First Refusal) under any applicable Legal Requirement or
any judgment, injunction, order, decree, contract, license, lease, indenture,
mortgage, loan agreement, note or other agreement or instrument as to which the
Company is a party or by which any of its properties may be bound, the effect of
which would be to materially impair the ability of Old VII to perform its
obligations under this Agreement.
(b) The Company is not in breach or default (including any event that, with
the passage of time or giving of notice, or both, would become a breach or
default) under any Material Contract or contract by which any of its assets may
be bound, the effect of which would be to impair the ability of the Company in
any material respect to operate any System as presently operated.
Section 4.7 Binding Effect. This Agreement has been duly executed and
delivered by Old VII and New VII, and this Agreement constitutes a valid and
binding obligation of Old VII and New VII, enforceable against Old VII and New
VII in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies.
Section 4.8 Financial Statements; Undisclosed Liabilities. (a) The
unaudited consolidated balance sheets of the Company at December 31, 1994 and
March 31, 1995 and the unaudited consolidated income statements of the Company
for the year ended December 31, 1994 and the three-month period ended March 31,
1995 set forth on Schedule 4.8 hereto (the "Financial Statements"), fairly
present in all material respects in conformity with GAAP, the financial position
of the Company as of the dates thereof and the results of operations of the
Company for the periods then ended, except that such Financial Statements omit
footnotes (and the disclosure contained therein) and are subject to normal,
quarter-end and/or year-end adjustments, and the financial information set forth
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in such unaudited consolidated balance sheet at December 31, 1994 and such
unaudited consolidated income statement for the year ended December 31, 1994 was
incorporated in the audited consolidated financial statements of Viacom Inc. at
and for the year ended December 31, 1994.
(b) Except for obligations and liabilities (w) set forth on the unaudited
consolidated balance sheet of the Company at March 31, 1995, (x) arising in the
ordinary course of the Business since March 31, 1995, (y) described on Schedule
4.8 or (z) for which New VII must indemnify Old VII pursuant to Section 7.2(b),
the Company has no obligations or liabilities of any kind, absolute or
contingent, that would be required under GAAP to be reflected on the
consolidated balance sheet of the Company.
Section 4.9 Systems; Local Authorizations and FCC Authorizations. (a) (i)
Schedule 4.9 sets forth a complete list for each System of the Local
Authorizations (other than any such authorization, approval, certification,
franchise, license or permit which is not material to the ownership or operation
of a System) in effect as of the date hereof and indicates for each System those
Local Authorizations requiring the consent of the Local Authority for
consummation of the Transaction.
(ii) Each Local Authorization (x) is in all material respects validly held
by Old VII or a Cable Division Subsidiary in accordance with and as required by
the terms thereof and according to all applicable Legal Requirements and (y) is
in all material respects in full force and effect and has not been revoked or
canceled and Old VII or the applicable Cable Division Subsidiary is in material
compliance therewith. To the knowledge of New VII and except as set forth on
Schedule 4.9, no proceeding to revoke, cancel or modify in any manner any such
Local Authorization has been initiated or threatened in writing. All 626 Letters
for the Systems required to be filed in connection with renewal of Local
Authorizations have been timely filed.
(iii) Except as otherwise indicated on Schedule 4.9, (aa) Schedule 4.9 sets
forth a list, for each Franchise Area, of the date (or, if applicable, the range
of possible expiration dates) of expiration of each material Local Authorization
with respect thereto; (bb) no other material Local Authorization is required by
law in connection with the operation and maintenance of the Systems; and (cc) to
the knowledge of New VII, (x) there are no operating cable television systems
(other than the Systems) providing cable television programming to a material
number of households in the Franchise Area and (y) no entity has been awarded a
valid cable television franchise which enables such entity to provide cable
television service to a material number of households in the Franchise Area.
(b) Schedule 4.9 contains a complete list as of the Company's accounting
cutoff date ending immediately prior to May 31, 1995 (except that clause (ii) is
reported as of March 31, 1995), with respect to each System, of (i) the number
of Basic Subscribers as shown on the System's monthly subscriber report, (ii)
the number of pay customers by each pay service as shown in the Company's
records, (iii) the approximate length of installed plant, and (iv) the
approximate number of Homes Passed.
(c) Schedule 4.9 contains a complete list of all FCC Authorizations in
effect as of the date hereof and all consents of the FCC necessary in connection
with the Transaction.
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(d) (i) No System is in material violation of and the Company has not
received written notice of any claimed violation of, any FCC Authorization; (ii)
Each such FCC Authorization is validly existing and in full force and effect in
all material respects; and (iii) Each System has all material FCC Authorizations
required for its operation of the Systems. To the knowledge of New VII, no
proceeding to revoke, cancel or modify in any manner any such FCC Authorization
has been initiated or threatened in writing and the applicable member of the
Company is in material compliance with all such FCC Authorizations.
(e) Schedule 4.9 sets forth the Basic Subscriber Rate for each Franchise
Area as of the date indicated therein.
Section 4.10 Absence of Changes. Except as described in Schedule 4.10 or as
contemplated or permitted by the Transaction Documents, since the Balance Sheet
Date, (i) the Company has operated the Business in the ordinary course,
consistent with past practices, (ii) there have been no changes in the Business
which, individually or in the aggregate, have resulted in a Material Adverse
Effect and (iii) there has been no issuance or sale of any shares of Old VII's
capital stock.
Section 4.11 Subsidiaries. At the date of this Agreement, Old VII is a
wholly-owned Subsidiary of VI.
Section 4.12 Assets. The Company has good and, subject to the matters
referred to in item 4 of Schedule 4.19 and Permitted Liens, marketable title to,
or a valid leasehold or license interest in, all tangible assets purported to be
owned, leased or licensed by the Company, including, without limitation, all
Inventory, Real Property and Equipment but excluding the Transferred Assets and
the PVIT Assets (the "Cable Division Assets"), free and clear of all Liens other
than Permitted Liens. The PVIT Bill of Sale is sufficient to transfer to Old VII
good and, subject to Permitted Liens, marketable title to the PVIT Assets. The
Cable Division Assets, the Transferred Assets and the PVIT Assets are in all
material respects sufficient to operate the Business as currently conducted.
Except for the Transferred Assets and the PVIT Assets, the Cable Division Assets
constitute all material operating assets owned, leased or licensed by VI or any
of its Subsidiaries and used primarily in the Cable Television Business of VI
and its Subsidiaries. Any asset owned by VI or any Subsidiary of VI which is
primarily used in the Business but is not held by the Company on the date of
this Agreement will be transferred to the Company on or before the Exchange
Time.
Section 4.13 Intellectual Property. To the knowledge of New VII, the
conduct of the Business does not infringe upon the patents, trademarks, trade
names or other intellectual property rights of any Person, with such exceptions
as would not result in a Material Adverse Effect.
Section 4.14 Material Contracts. (a) Schedule 4.14 lists all Material
Contracts in effect on the date hereof.
(b) Except as disclosed in Schedule 4.14, the Company is not in material
default or breach of any Material Contract and, to the knowledge of New VII, (i)
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there exists no state of facts which after notice or lapse of time or both would
constitute such a material default or breach and (ii) no other party to such
Material Contract is in default or breach thereunder.
(c) Except as set forth on Schedule 4.14, the real property and personal
property which are the subject of leases that constitute Cable Group Contracts
are currently used in the construction, operation or maintenance of the Business
or constitute Telecom Agreements.
Section 4.15 Litigation. Except as set out in Schedule 4.15, there are no
actions, suits or proceedings pending and, to the knowledge of New VII, there
are no claims, grievances, governmental investigations, actions, suits or
proceedings threatened, against or affecting the Company with respect to the
Business at law or in equity or before or by any Governmental Authority, or
before or by an arbitrator or arbitration board which would have a Material
Adverse Effect. Except as set out in Schedule 4.15, there are no judgments,
decrees or orders outstanding against the Company with respect to the Business
or any System.
Section 4.16 Compliance with Legal Requirements. Except as set forth on
Schedule 4.16, (i) the Company is in compliance with all applicable Legal
Requirements and (ii) the Business is being conducted in compliance with all
applicable Legal Requirements, with such exceptions to clauses (i) and (ii) as
would not have a Material Adverse Effect.
Section 4.17 Employees. (a) Employment Agreements. Schedule 4.17 contains a
list of all written employment agreements between the Company and Employees. The
consummation of the Transaction will not result in Old VII or any Affiliate of
Old VII becoming obligated to make any severance payments, to accrue any
severance costs with respect to or to pay any stay-on bonuses to any Continuing
Employee or Non-Continuing Employee. Except as set forth in Schedule 4.17,
neither Old VII nor any Cable Division Subsidiary has made any commitment or
representation to any Continuing Employee with respect to continuing employment
nor will it make any such representation.
(b) Collective Agreements. Except as set out in Schedule 4.17, neither the
Company nor any Affiliate of the Company is a party to any material labor or
employment dispute or is bound by or a party to any collective bargaining
agreement relating to Employees and no trade union, council of trade unions,
employee bargaining agent or affiliated bargaining agent for any of the
Employees (i) holds bargaining rights with respect to any Employees by way of
certification, interim certification, voluntary recognition, designation or
successor rights; or (ii) has, to the knowledge of New VII, applied or indicated
an intention to apply to be certified as the bargaining agent of any of the
Employees.
(c) Employee Benefit Plans/ERISA. (i) Schedule 4.17 lists each stock
option, stock purchase, disability, vacation pay, incentive, bonus, severance
pay, deferred compensation, supplemental income or other employee benefit plan,
policy or arrangement or agreement and each other "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), maintained by or contributed to by VI, the Company
or any ERISA Affiliate of the Company, including all amendments thereto
(collectively referred to as "Benefit Plans"), covering current or former
employees of the Company or dependents or survivors of employees or former
employees of the Company.
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(ii) Except as set forth on Schedule 4.17, each Benefit Plan is in
substantial compliance with all applicable laws and regulatory requirements, and
has been administered substantially in accordance with its terms. To the
knowledge of New VII, there are no circumstances relating to any Benefit Plan
intended to be tax-qualified under Section 401(a) of the Code that would likely
be treated by the IRS as a disqualifying event. No material liabilities, other
than for payment of benefits in the ordinary course, have been incurred nor, to
the knowledge of New VII, do any facts exist which are reasonably likely to
result in any material liability (whether or not asserted as of the date hereof)
of the Company arising by virtue of any event, act or omission occurring prior
to the Exchange Date with respect to any Benefit Plan. To the knowledge of New
VII, no liens under Code Section 412(n) or ERISA Section 4068(a) exists, no
accumulated funding deficiency under Code Section 412(a) exists and no
liabilities under ERISA Section 4069(a) or Section 4201(a) have been incurred
with respect to any employee benefit plan (within the meaning of Section 3(3) of
ERISA) of the Company or any member of an ERISA affiliated group (as defined
under Section 414(b), (c) and (m) of the Code) which would have a Material
Adverse Effect, nor do any facts exist which are reasonably likely to result in
the assertion of such liens or liabilities.
(iii) None of VI, Old VII, New VII or any ERISA Affiliate thereof has any
present or future obligation to make any payment to or with respect to any
present or former employee of the Company pursuant to any retiree medical
benefit plan or other retiree welfare benefit plan (in each case except as
required by law), and no condition exists that would prevent the Company from
amending or terminating any Benefit Plan providing retiree welfare benefits to
employees of the Company.
(d) Immigration. The Company has in all material respects properly verified
the identity and authorization to work in the United States and has completed
and retained INS forms I-9 for all Continuing Employees where required by the
Immigration Reform and Control Act of 1986 and related statutes.
Section 4.18 Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Old VII, any Cable Division Subsidiary or any of their Affiliates who
might be entitled to any fee or commission from Old VII or any of its Affiliates
in connection with the execution, delivery or performance of this Agreement or
the Transactions.
Section 4.19 Real Property. (a) Schedule 4.19 lists the address of each
parcel of Owned Real Property.
(b) Except as set forth in Schedule 4.19, all Owned Real Property is used
or useful in the Business.
(c) The Company has possession and the right to occupy the real property
which is the subject of each lease of Leased Real Property that constitutes a
Material Contract.
(d) The Company has not received written notice from any party to any
instrument affecting any material parcel of Real Property that such party
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intends to terminate or cancel the same, with such exceptions as would not be
reasonably expected to have a Material Adverse Effect.
Section 4.20 Environmental Matters. There is no past or present event,
condition or circumstance (i) which constitutes a material violation by the
Company of any Legal Requirements now in effect relating to pollution or
protection of the environment from contamination (other than violations as to
which Old VII will be indemnified by New VII pursuant to Section 7.2(b)),
including any material Legal Requirements relating to the use, treatment,
storage, disposal, transport or handling of, or the spill, deposit, emission,
discharge, migration, release or threatened release of, contaminants,
substances, wastes or pollutants, including petroleum and "hazardous substances"
as that term is defined under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA") (collectively, "Hazardous
Materials"), into the environment or (ii) which has or will give rise to any
material liability of the Company (other than liabilities as to which Old VII
will be indemnified by New VII pursuant to Section 7.2(b)), including any
material liability under CERCLA or other similar state law, based on, arising
out of or related to the use, treatment, storage, disposal, transport of, or
handling or the spill, deposit, emission, discharge, migration, release or
threatened release of, any Hazardous Material into the environment; provided
that the representations in this Section 4.20, insofar as they apply to the
underground storage tanks listed on Schedule 4.20, shall apply without any
limitation as to materiality. Attached hereto as Schedule 4.20 is a true and
correct list of all underground storage tanks located on the Real Property.
Section 4.21 FCC and Copyright. (a) The Company is in compliance with the
Rules and Regulations concerning Cumulative Leakage Index, as defined by the
Rules and Regulations.
(b) The Company has made all material submissions (including, without
limitation, registration statements) required under the Communications Act
applicable to the conduct and operation of the Business and the Systems. The
Company and the Systems are in compliance in all material respects with the
Communications Act. The Company has provided all material notices to subscribers
and maintained in all material respects all public files required under the
Communications Act. Except as set forth in Schedule 4.21, the Company is
certified as in compliance with the FCC's equal employment opportunity rules to
the extent required to be so certified under such rules. Each System is in
material compliance with all "must carry" requirements and has received all
retransmission consents, except such as are being contested.
(c) The Company has deposited with the United States Copyright Office all
statements of account and other documents and instruments, and paid all
royalties, supplemental royalties, fees and other sums to the United States
Copyright Office required under the Copyright Act with respect to the business
and operations of each System as are sufficient to obtain, hold and maintain the
compulsory copyright license for cable television systems prescribed in section
111 of the Copyright Act.
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(d) The Company and each System are in compliance in all material respects
with the Copyright Act, except as to potential copyright liability arising from
the performance, exhibition or carriage of any music on each System. The Company
and each System are entitled to hold and do now hold the compulsory copyright
license described in section 111 of the Copyright Act.
Section 4.22 Covenants not to Compete. Except as set forth on Schedule
4.22, the Company is not bound by covenants not to compete which will apply to
the Company after the Effective Time. Schedule 4.22 lists all material covenants
not to compete which will be enforceable by the Company after the Exchange Time.
Section 4.23 Telecom Capital Expenditures. As of June 30, 1995, the portion
of Telecom Capital Expenditure Amount expended prior thereto did not exceed
$11,500,000.
Section 4.24 Accounts Receivable, Net. The Company's allowance for customer
doubtful accounts as of the Exchange Time will be in an amount not less than the
total of all disconnected subscriber account balances, all amounts billed to
subscribers for unrecovered converters and all accounts receivable aged over 120
days from the invoice or billing date, determined on a basis consistent with the
Financial Statements.
Section 4.25 Number of Basic Subscribers. At the date of this Agreement,
there are, and as of February 23, 1995, there were at least 1,134,000 Basic
Subscribers (for this purpose, calculated without giving effect to the loss, if
any, of Basic Subscribers as a result of a Disaster (defined for these purposes
without regard to the number of Basic Subscribers affected)).
Section 4.26 Adjustment Amounts. As of June 30, 1995, Covered Capital
Expenditures were $38,709,000, Covered Line Extension and Other Capital
Expenditures were $9,091,000, capital expenditures made for which TCI Sub would
be required to reimburse Old VII pursuant to Section 7.18 of the Subscription
Agreement were $368,000, and access/exclusivity fees incurred in accordance with
Exhibit E were $320,188.
Section 4.27 Ranking of Payment Obligations. On the Exchange Date, New
VII's obligations to make payments to Old VII pursuant to Sections 2.3, 2.4,
2.5(b), 7.2, 9.1 and 9.2 shall rank no lower than pari passu in right of payment
with New VII's obligations to repay its senior unsecured bank debt.
ARTICLE V
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NONCOMPETITION
Section 5.1 Noncompetition. If the Share Purchase Closing occurs, so long
as Old VII, TCI, TCI Sub or any Person to whom the Company initially transfers
the Nashville System or Dayton System following the Share Purchase Closing in
accordance with Section 7.19 of the Subscription Agreement (a "Specified Party")
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owns and operates a cable television system in a Franchise Area (determined as
of the Exchange Date but not including any Unapproved Franchise Area unless and
until the Deferred Closing Date, if any, with respect to such Unapproved
Franchise Area), New VII agrees that, with respect to each such Franchise Area,
from and after the Share Purchase Closing until the earlier of (i) the third
anniversary of the Exchange Date or (ii) the date such Specified Party no longer
owns and operates such Franchise Area, New VII shall not, and New VII shall not
permit any of its Subsidiaries or any Subsidiaries of VI to, (x) directly engage
in Cable Television Business in such Franchise Area or (y) indirectly engage in
Cable Television Business in such Franchise Area through ownership of an equity
interest in any Disqualified Person. For purposes of the preceding sentence (i)
New VII and Subsidiaries of VI shall not be deemed to be engaged in Cable
Television Business as a result of the ownership of 10% or less of the equity
interests of any Person and (ii) no Person shall be deemed to be a Disqualified
Person until the first anniversary of the later of (a) the date New VII and
Subsidiaries of VI own in excess of 10% of the equity interests of such Person
and (b) the date such Person becomes a Disqualified Person. The "Territory"
shall consist, at any time, of all Franchise Areas (determined as of the
Exchange Date) in which a Specified Party owns and operates a cable television
system at such time, provided that any Unapproved Franchise Area shall not in
any event be deemed to be part of the Territory unless and until the Deferred
Closing Date, if any, with respect to such Unapproved Franchise Area. A
"Disqualified Person" shall mean a Person, (i) 25% or more of whose revenues are
derived from Cable Television Business within the Territory or (ii) whose Cable
Television Business has active plant passing 100,000 or more of the homes in the
Franchise Areas in the Territory, taken as a whole.
ARTICLE VI
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TERMINATION
Section 6.1 Termination. This Agreement shall automatically terminate upon
any termination of the Parents Agreement pursuant to Section 7.1 thereof.
Section 6.2 Effect of Termination. Upon termination of this Agreement
pursuant to Section 6.1 hereof: (i) this Agreement will forthwith become null
and void, (ii) such termination will be the sole remedy with respect to any
breach of any representation, warranty, covenant or agreement contained in or
made pursuant to this Agreement and (iii) no party hereto or any of their
respective officers, directors, employees, agents, consultants, shareholders or
principals will have any liability or obligation hereunder or with respect
hereto, provided, however, that no party to this Agreement shall be entitled to
recover consequential damages in respect to any breach of this Agreement or any
other Transaction Document.
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ARTICLE VII
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SURVIVAL AND INDEMNIFICATION
Section 7.1 Survival. The representations, warranties, covenants and
agreements contained in or made pursuant to this Agreement shall survive the
Exchange Time, but the representations and warranties contained or made pursuant
to this Agreement shall terminate and be of no further force on and as of April
30, 1997 except that the representations and warranties made by New VII in
Sections 4.3, 4.12, 4.17(c), 4.20 and 4.22 shall survive indefinitely.
Section 7.2 Indemnification. (a) The party seeking indemnification pursuant
to this Section 7.2 is referred to as the "Indemnified Party" and the party from
whom indemnification is sought under this Section 7.2 is referred to as the
"Indemnifying Party."
(b) If the Exchange Time occurs, notwithstanding any negligence or
misconduct on the part of Old VII prior to the Exchange Time, New VII shall
indemnify and hold harmless Old VII against and in respect of any and all Losses
(w) constituting or arising out of any Lien attaching after the Exchange Date on
(i) any Unapproved Franchise Assets prior to the date the Appraised Value with
respect thereto is paid to Old VII pursuant to Section 2.3(d), or (ii) any Cable
Group Contract assigned to New VII pursuant to Section 2.2, in each case of
clauses (i) and (ii) while title to such Unapproved Franchise Asset or Cable
Group Contract is held by New VII (other than Liens constituting, securing or
arising out of Cable Liabilities or arising as a result of actions of Old VII or
its Affiliates after the Exchange Date), (x) which may be incurred by Old VII by
reason of (i) the breach of any representation and warranty of New VII contained
in Article IV of this Agreement as if such representations and warranties were
made as of the Exchange Date (except to the extent a different date is specified
therein in which case such representation and warranty shall be deemed to be
made as of such date), or (ii) the breach of any covenant or agreement of New
VII contained in this Agreement (other than in Article IX) or the Bill of Sale,
or (iii) the breach at or prior to the Exchange Date of any covenant or
agreement of Old VII contained in this Agreement (other than in Article IX) or
(y) constituting Non-Cable Liabilities.
(c) If the Exchange Time occurs, Old VII shall indemnify and hold harmless
New VII against any and all Losses (w) constituting or arising out of any Lien
attaching after the Exchange Date on any Non-Cable Asset while it is an
Untransferable Asset (other than Liens constituting, securing or arising out of
Non-Cable Liabilities or arising as a result of actions of New VII or its
Affiliates after the Exchange Date), (x) which may be incurred by New VII by
reason of a breach after the Exchange Date of a covenant or agreement of Old VII
contained in this Agreement (other than in Article IX) or the Bill of Sale, (y)
constituting Cable Liabilities or (z) constituting Accounts Payable, Other
Current Liabilities or New Borrowing Obligations.
(d) Notwithstanding anything to the contrary in this Agreement (i) the
aggregate liability of an Indemnifying Party pursuant to this Article VII in
respect of all Losses (together with any liability of such Indemnifying Party
and its Affiliates for breaches of other Transaction Documents, other than
Section 3.1(d)(ii) of the Subscription Agreement and Sections 2.1(f) and 2.1(g)
of the Parents Agreement) shall not exceed the Asset Value (provided that this
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clause (i) shall not limit the liability of New VII pursuant to Sections
7.2(b)(y), and (ii) no party shall be entitled to recover consequential damages
pursuant to this Section 7.2 or otherwise in respect of any breach of this
Agreement or any other Transaction Document.
(e) No claim for indemnification shall be made by any party pursuant to
Section 7.2(b) or 7.2(c) with respect to a breach of a representation or
warranty contained herein or made pursuant hereto or contained in the
Subscription Agreement and constituting a Non-Cable Liability (i) unless notice
of such claim (describing the basic facts or events, the existence or occurrence
of which constitute or have resulted in the alleged breach of a representation
or warranty made in this Agreement) has been given to the Indemnifying Party
during the survival period set forth in Section 11.14 of the Subscription
Agreement or Section 7.1, as the case may be; and (ii) except as to liability
for breach of a representation or warranty set forth in Sections 6.7 and 6.8 of
the Subscription Agreement and Sections 4.3, 4.12, 4.17(c), 4.18 ,4.20, 4.22,
4.25 and 4.26 only, until the Losses that would be recoverable under such claims
aggregate in excess of 1/2 of 1% of the Asset Value, after which event the
Indemnified Party shall be entitled to be indemnified for only such Losses as
are in excess of 1/2 of 1% of the Asset Value.
(f) The Indemnified Party shall give prompt written notice to the
Indemnifying Party of any claim for indemnification under Section 7.2(b) or (c)
relating to a claim or demand of a third party with respect to which it is
seeking indemnification hereunder. The failure to give such prompt notice shall
not relieve the Indemnifying Party of its indemnity obligations hereunder with
respect thereto, except to the extent (and only to the extent) that the
Indemnifying Party is materially prejudiced by such failure. The Indemnifying
Party shall have the right to defend and to direct the defense against any such
claim or demand, in its name or in the name of the Indemnified Party, as the
case may be, at the expense of the Indemnifying Party, and with the counsel
selected by the Indemnifying Party, provided that (x) the Indemnifying Party may
not settle or compromise any such claim or demand without the consent of the
Indemnified Party (which consent may not be unreasonably withheld) if injunctive
or other equitable relief would be imposed against the Indemnified Party as a
result thereof and (y) if the Indemnifying Party fails to defend against any
claim or demand as to which the Indemnifying Party is required to indemnify the
Indemnified Party pursuant to this Article VII, the Indemnified Party may defend
against such claim or demand at the expense of the Indemnifying Party.
Notwithstanding anything in this Agreement, to the contrary, the Indemnified
Party shall cooperate with the Indemnifying Party, and keep the Indemnifying
Party fully informed in the defense of such claim or demand. The Indemnified
Party shall have the right to participate in the defense of any claim or demand
with counsel employed by it at the expense of the Indemnified Party. The
Indemnifying Party shall have no indemnification obligations with respect to any
such claim or demand which shall be settled by the Indemnified Party without the
prior written consent of the Indemnifying Party.
(g) If the Exchange Time occurs, the rights of the parties under Sections
7.2 and 10.13 shall be the exclusive remedies of the parties with respect to
breaches of representations, warranties, covenants and agreements contained in
this Agreement (other than in Article IX hereof). Old VII, on behalf of itself
and its Affiliates from time to time, hereby irrevocably waives and releases New
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VII and its Affiliates, effective as of and immediately after the Exchange Time,
from any statutory or other right of contribution or indemnity (except as set
forth in this Section 7.2 or in Article IX) with respect to the Company's
ownership of the Cable Assets or operation of, or otherwise relating to, the
Systems.
(h) In the event that an Indemnifying Party shall be obligated to indemnify
an Indemnified Party pursuant to Section 7.2(b) or (c), the Indemnifying Party
shall, upon payment of such indemnity, be subrogated to all rights of the
Indemnified Party with respect to claims to which such indemnification relates.
(i) Any payment made by Old VII to New VII pursuant to Sections 3.3, 3.5 or
7.2 hereof or pursuant to Article IX shall be treated as an increase in the
assets contributed by Old VII to New VII pursuant to Section 2.1. Any payment by
New VII to Old VII pursuant to Sections 2.5, 3.3, 3.4, 3.5 or 7.2 hereof or
pursuant to Article IX shall be treated as a reduction in the assets contributed
by Old VII to New VII pursuant to Section 2.1.
(j) New VII shall not consummate any transaction in which all or a majority
in value (as determined in good faith by the management of New VII) of its
assets are distributed without fair consideration to its direct or indirect
stockholders unless (x) the transferee of such assets or, if such assets
represent principally an equity interest in an entity, such entity, assumes, by
instrument reasonably satisfactory to Old VII, New VII's obligations under this
Article VII and (y) the equity of such transferee or entity has a fair market
value immediately following such transaction of at least $1,500,000,000 (one
billion five hundred million dollars).
ARTICLE VIII
------------
EMPLOYEE MATTERS
Section 8.1 Employment. (a) Old VII shall take such action as may be
necessary to terminate the employment of each Non-Continuing Employee prior to
the Exchange Time provided, however, that the Company will not be required to
violate the terms of a Cable Group Bargaining Agreement or any employment
discrimination laws. All Continuing Employees who are actively employed, whether
or not actively at work, at the Exchange Time, and who continue employment with
the Company or a transferee of assets of the Company or with the manager of the
Systems shall be paid at rates of compensation which are the same or
substantially similar to their compensation prior to the Exchange Time and other
terms and conditions substantially similar to those of other similarly situated
employees of TCI, a transferee of assets of the Company or the manager of the
Systems or in accordance with applicable Cable Group Bargaining Agreements, as
applicable, and no interruption in employment shall be deemed to have occurred
by virtue of the Transaction.
(b) Employee Benefits - Generally. Effective as of the Exchange Time,
Continuing Employees shall cease active participation in any Benefit Plan or
program or executive plan or arrangement sponsored and/or maintained by New VII
(the "Viacom Plans"), and, except as specifically set forth herein, Old VII will
have no obligations with respect to Viacom Plans and VI shall have no
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obligations with respect to any benefits plan established or maintained by Old
VII or the Cable Group for Continuing Employees after the Exchange Time. Subject
to the provisions of this Section 8.1 as to any particular benefit, as of the
Exchange Time and for at least one year thereafter employee benefits shall be
provided to Continuing Employees which are substantially similar to those
provided to similarly situated employees of TCI Sub or a transferee of assets of
the Company or of the manager of the Systems and, with respect to collective
bargaining unit employees are consistent with Cable Group Bargaining Agreements.
All prior service of Continuing Employees with the Company and any member of a
controlled group of corporations or trades or businesses or an affiliated
service group with the Company prior to the Exchange Time, within the meaning of
Code Sections 414(b), (c), or (m), respectively ("ERISA Affiliates"), shall be
recognized by the Company for all benefit plan purposes (other than benefit
accrual under a defined benefit plan), to the extent recognized under the
comparable Viacom Plan as in effect on the date of this Agreement. On or before
the Exchange Time, Old VII shall provide New VII with a list setting forth the
service accrued by each Continuing Employee. Old VII maintains a vacation and
sick pay plan for employees; all other Benefit Plans are or will prior to the
Exchange Date be Viacom Plans.
(c) Defined Benefit Pension Plan. As soon as practicable after the Exchange
Time, New VII shall prepare and deliver to Old VII a schedule listing the
Continuing Employees who were participants in the Viacom Pension Plan (formerly
the Pension Plan for Divisional Employees of Viacom International Inc.) or any
successor thereto (the "Viacom Pension Plan") as of the Exchange Time.
New VII shall cause all Continuing Employees to become 100% vested in their
accrued benefits under the Viacom Pension Plan, and to be paid such benefits in
accordance with the terms of the Viacom Pension Plan, as amended from time to
time, and Old VII shall not have any responsibility with respect thereto. Old
VII shall cooperate with New VII and VI to provide such current information
regarding Continuing Employees on an ongoing basis as may be necessary to
facilitate payment of pension benefits to such employees from the Viacom Pension
Plan.
(d) 401(k) Plan. New VII shall cause all Continuing Employees to be 100%
vested in their Viacom Investment Plan accounts as of the Exchange Time. After
the Exchange Time, such reasonable actions necessary to cooperate with New VII
shall be taken by Old VII to facilitate ongoing administration by New VII of the
Viacom Investment Plan with respect to Continuing Employees' accounts,
including, without limitation, providing current information to New VII with
respect to Continuing Employees, including notifying New VII of the termination
of employment or retirement of such employees and of any change of address or
marital status of which Old VII has received notice; administering Investment
Savings Plan loan repayments through payroll deductions for employees with
outstanding Viacom Investment Plan loan balances as of the Exchange Time and
remitting such payments to the plan trustee; distributing information provided
by VI regarding the Viacom Investment Plan to Continuing Employees; and taking
any other action as may be reasonably requested by New VII.
(e) Severance Obligations. Old VII shall not be responsible for any
severance obligations to Non-Continuing Employees. Except as may be provided
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pursuant to the terms of any severance plan for the Company's employees as in
effect immediately prior to the Exchange Time, Old VII agrees that New VII shall
not be responsible for any obligations of the Company, including severance
obligations, arising by virtue of termination of employment after the Exchange
Time of any Continuing Employee.
(f) Sick Leave. Each Continuing Employee shall continue to be eligible for
sick leave, including accrued and unused sick leave days to which such employee
was entitled under the applicable personal sick leave policy applicable to the
Company's employees ("Banked Sick Leave Days") as of the Exchange Time;
provided, however, that any Continuing Employee who participates in a Short-Term
Disability Plan maintained by Old VII, TCI Sub or a transferee of assets of the
Company or the manager of the Systems shall be eligible to retain no more than
ten (10) Banked Sick Leave Days as of the Exchange Date.
(g) Vacation. With respect to the computation year that includes the
Exchange Date, Continuing Employees shall be eligible for paid vacation (as next
described) as follows: The amount of a Continuing Employee's vacation for the
remainder of the computation year shall be not less than the maximum number of
days (up to a maximum of twenty-eight (28) but in any event not less than zero)
accrued for the computation year under the applicable vacation policy adopted by
Old VII for Continuing Employees after the Exchange Time (based on the
employee's service and subject to Section 8.1(b)) less the vacation days used
for the same period as an employee of the Company prior to the Exchange Time. In
addition, each Continuing Employee shall receive the additional vacation, if
any, that such employee would have been entitled to as of the Exchange Time
under the applicable vacation policy applicable to the Company's employees in
effect immediately prior to the Exchange Time.
(h) Welfare Plans. Subject to relevant provisions of applicable Cable Group
Bargaining Agreements, each Continuing Employee shall be covered as of the
Exchange Time under the terms of any medical, dental, vision, prescription drug,
life insurance plans or other welfare benefit plans (within the meaning of
Section 3(1) of ERISA), which are either, at the option of TCI Sub, a transferee
of assets of the Company or the manager of the Systems, as applicable, (i) the
same or substantially similar to the coverage of such employees prior to the
Exchange Time or (ii) maintained by TCI Sub, a transferee of assets of the
Company (only as to the employees of such transferees) or the manager of the
Systems for its similarly situated employees ("Replacement Welfare Plans").
Notwithstanding the preceding sentence, any waiting periods or pre-existing
condition limitations in such Replacement Welfare Plans shall be waived unless
coverage would have been denied on a similar basis under welfare plans
applicable to employees of the Company immediately prior to the Exchange Time
(the "Cable Group Welfare Plans") and deductibles, maximum benefit restrictions
and "out-of-pocket" maximums shall be coordinated so that (i) Continuing
Employees receive credit towards any deductibles under Replacement Welfare Plans
for deductibles paid under the Cable Group's Welfare Plans during the relevant
plan year in which the Exchange Date occurs, and (ii) Continuing Employees
receive credit for eligible claims incurred under the Cable Group's Welfare
Plans during the plan year in which the Exchange Time occurs toward any
"out-of-pocket" maximums under Replacement Welfare Plans. As soon as practicable
after the Exchange Time, New VII shall prepare and deliver to Old VII the
information needed for Old VII to comply with the preceding sentence. New VII
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will be responsible for all eligible unpaid claims incurred by Continuing
Employees prior to the Exchange Time and timely submitted for reimbursement in
accordance with the Cable Group Welfare Plan. Continuation health care coverage
shall be provided by the Company to all Continuing Employees and their qualified
beneficiaries, who incur a qualifying event after the Exchange Time in
accordance with the continuation health care coverage requirements of Section
4980B of the Code and Sections 601 through 608 of ERISA ("COBRA"). New VII shall
be responsible for providing continuation coverage to the extent required by law
to any employee who is a Non-Continuing Employee and the qualified beneficiary
of any such employee who incurs a qualifying event under COBRA on or prior to
the Exchange Date.
(i) Employment Taxes. New VII and Old VII agree to follow the procedures
set forth in Section 5 of Rev. Proc. 84-77 with respect to any Continuing
Employee.
(j) WARN. Prior to the Exchange Time, Old VII shall comply with the Worker
Adjustment and Retraining Notification Act and any comparable state law and New
VII shall be responsible for any failure of Old VII to comply with such laws
provided that TCI Sub has provided the list of Continuing Employees to VI as
required by Section 7.20 of the Subscription Agreement.
(k) No Third Party Beneficiaries. Nothing in this Section 8.1 or elsewhere
in this Agreement shall be deemed to make any employee of the Company a third
party beneficiary of this Agreement.
ARTICLE IX
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TAX MATTERS
Section 9.1 Obligation of New VII to Indemnify. (a) Except as may otherwise
be agreed by the parties, New VII has assumed and shall be liable for, and shall
indemnify and hold the Old VII Subgroup harmless from and against, all liability
for Taxes of any member of the VI Group (including the members of the Old VII
Subgroup) for taxable years or portions thereof ending on or prior to the
Exchange Date on an after-Tax basis including without limitation any Tax arising
as a result of the failure of the Transaction to qualify for the Tax treatment
that satisfied the condition set forth in Section 6.1(iv) of the Parents
Agreement.
(b) All Taxes of any member of the Old VII Subgroup for which New VII is
not required to indemnify the Old VII Subgroup pursuant to Section 9.1(a) shall
be the obligation of the Old VII Subgroup, and Old VII shall be liable for, and
shall indemnify and hold the members of the VI Group harmless from and against,
all such liabilities on an after-Tax basis.
(c) For purposes of this Agreement, each Tax liability for a taxable year
that includes, but does not end on, the Exchange Date (a "Straddle Period")
44
<PAGE>
shall be allocated between the period ending on the Exchange Date and the period
beginning the day after the Exchange Date by allocating Tax liability as if each
such period were a taxable year.
Section 9.2 Refunds. Any refunds of Taxes or any credit against Taxes (when
and to the extent applied by any member of the Old VII Subgroup against any tax
liability that New VII has not assumed pursuant to Section 9.1(a) resulting in a
tax benefit to any member of the Old VII Subgroup that it otherwise would not
have realized in the absence of such credit), to the extent actually used, (in
each case, including any interest relating thereto) of any member of the Old VII
Subgroup with respect to taxable years or portions thereof ending on or prior to
the Exchange Date shall be for the account of New VII (and in the case of
refunds or credits of Old VII, have been or shall be assigned to New VII), and
any other refunds of Taxes or credits against Taxes to the extent actually used
of any member of the Old VII Subgroup shall be for the account of Old VII. Any
refunds or credits with respect to Straddle Periods shall be allocated under the
principles set forth in Section 9.1(c). Old VII shall promptly forward to, or
reimburse New VII for, any such refunds or credits and interest due New VII
after receipt thereof, and New VII shall promptly forward to, or reimburse Old
VII for, any such refunds or credits and interest due Old VII after receipt
thereof. In either case, the party entitled to such refund or credit shall
reimburse the other party to the extent of any net Tax cost imposed on such
other party in connection with the receipt of such refund or credit. Each party
hereto shall cooperate with the other party as reasonably requested in making
such filings as may be necessary and appropriate to seek any such refunds or
credits.
Section 9.3 Final Returns. New VII shall prepare any Tax Returns to be
filed which relate to any period ending on or prior to the Exchange Date. All
such Tax Returns shall be prepared in a manner consistent with prior years and
(to the extent applicable) shall report the Transaction in accordance with the
treatment of the Transaction that satisfied the condition set forth in Section
6.1(iv) of the Parents Agreement (the "Required Treatment"). New VII and Old VII
shall jointly prepare and control any Tax Return of any member of the Old VII
Subgroup for Straddle Periods in a manner consistent with prior years and
reporting the Transaction in accordance with the Required Treatment. Each party
shall promptly respond to all reasonable requests by the other party for
information necessary to prepare and file any such Tax Returns.
Section 9.4 Conduct of Audits and Disputes. (a) Contest Rights. A party who
has "contest rights" with respect to an asserted Tax liability or a refund claim
shall have the right (but not the obligation), at its own expense, to negotiate,
settle or contest such asserted Tax liability or refund claim, in its own name
or in the name of the other party or its affiliates, as appropriate, all in
accordance with the terms of this Section 9.4. Such contest rights shall
include, but not be limited to, the determination (x) whether any action shall
initially be by way of judicial or administrative proceedings, or both, (y)
whether any such asserted Tax liability shall be contested by resisting payment
thereof or by paying the same and seeking a refund thereof and (z) if judicial
action is undertaken, the court or other judicial body before which such action
shall be commenced.
(b) Claims Controlled by New VII. Subject to paragraphs (d), (e) and (f)
hereof, New VII (and not Old VII) shall have the right to control the contest
45
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with respect to any asserted Tax liability or refund claim of any member of the
Old VII Subgroup to the extent that New VII is required to indemnify against
such asserted Tax liability pursuant to Section 9.1(a) or is entitled to such
refund or credit pursuant to Section 9.2. Old VII and its affiliates shall have
no right to participate in any such contest undertaken by New VII.
(c) Claims Controlled by Old VII. Subject to paragraphs (d), (e) and (f)
hereof, Old VII (and not New VII) shall have the right to control the contest
with respect to any asserted Tax liability or refund claim of any member of the
Old VII Subgroup to the extent that Old VII is required to indemnify against
such asserted Tax liability pursuant to Section 9.1(b) or is entitled to such
refund or credit pursuant to Section 9.2. New VII and its affiliates shall have
no right to participate in any such contest undertaken by Old VII.
(d) Contests Involving Multiple Issues. If any contest shall involve issues
with respect to which both New VII and Old VII have contest rights hereunder,
the parties will cooperate in any such contest, and will endeavor to permit each
party to control the contest of issues for which it has such contest rights. In
the event there is a disagreement among the parties over matters (such as choice
of forum) relating to issues the contest of which are controlled by more than
one party, such disagreement shall be resolved in favor of the party who
controls the contest of the issues therein which, in the aggregate, would result
in the largest Tax liability if resolved unfavorably or the largest Tax refund
if resolved favorably.
(e) Notice; Cooperation. If any member of the Old VII Subgroup or the VI
Group (in either case the "Tax Indemnified Party") receives any written
communication from a taxing authority regarding any actual or proposed
assessment, official inquiry or proceeding that could give rise to an official
determination with respect to any Tax liability or Tax refund claim for any
period for which New VII or Old VII, respectively (the "Tax Indemnifying
Party"), may be liable (in the case of a liability) or may be entitled (in the
case of a refund claim) pursuant to this Agreement, such Tax Indemnified Party
(i) shall within 30 days of receipt of such written communication so notify such
Tax Indemnifying Party in writing, (ii) shall request in such notice that such
Tax Indemnifying Party notify it in writing if it intends to exercise its
contest rights hereunder, and (iii) shall, prior to and for at least 30 days
after so notifying such Tax Indemnifying Party (or, if less, within a period
ending 5 days, including extensions, prior to the date on which the Tax
Indemnified Party is required to take action pursuant to such written
communication), refrain from making any payment of any Tax claimed and forebear
from any settlement negotiations or compromises with respect to such proposed
adjustment. The Tax Indemnifying Party agrees to notify the Tax Indemnified
Party in writing within such 30 days period if it intends to exercise its
contest rights hereunder with respect to the asserted Tax liabilities or the Tax
refund claim. The parties hereto agree to cooperate with each other in
connection with any examination process with respect to any asserted Tax
liability or Tax refund claim and shall make available on a reasonable basis to
each other any personnel, books, records or other documents necessary or
appropriate for participation in such process.
(f) Payment After Final Determination. If any contest is undertaken
pursuant to this Section 9.4, then the Tax Indemnifying Party shall have no
46
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indemnification obligation with respect to the subject matter of such contest
until there occurs a Final Determination.
Section 9.5 Carrybacks. No losses or credits of any member of the Old VII
Subgroup arising in taxable years beginning after the Exchange Date may be
carried back to taxable years ending on or prior to the Exchange Date.
Section 9.6 Designation of Agent for PCI Group. Old VII and New VII hereby
(i) acknowledge that certain direct and indirect subsidiaries of Old VII (the
"PCI Subsidiaries") which were formerly includible in the consolidated federal
income tax returns of the affiliated group of which Paramount Communications
Inc. was the common parent (the "PCI Group") intend to apply to the Internal
Revenue Service for permission to designate Paramount Pictures Corporation or
another PCI Subsidiary as the agent for the PCI Group pursuant to Treas. Reg.
ss. 1.1502-77(d) and (ii) agree to cooperate in attempting to have such
permission granted.
ARTICLE X
---------
MISCELLANEOUS
Section 10.1 Expenses. Except as expressly set forth herein, the fees and
expenses (including the fees of any lawyers, accountants, investment bankers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the Transaction is consummated
will be paid by the party incurring the same.
Section 10.2 Headings. The section headings herein are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. References to
Sections, Schedules and Exhibits, unless otherwise indicated, are references to
Sections, Schedules and Exhibits hereof.
Section 10.3 Notices. Any notice or other communication required or
permitted to be given hereunder will be in writing and will be mailed by prepaid
registered or certified mail, timely deposited with an overnight courier such as
Federal Express, or delivered against receipt, as follows:
to:
Viacom Inc.
1515 Broadway
New York, NY 10036
Attention: General Counsel
with a copy to:
Hughes Hubbard & Reed
One Battery Park Plaza
New York, NY 10004
Attention: Ed Kaufmann, Esq.
47
<PAGE>
and
TCI Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, CO 80111-3000
Attention: Chief Executive Officer
with a copy to:
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, CO 80111-3000
Attention: General Counsel
or to such other address as the party may have furnished in writing in
accordance with the provisions of this Section 10.3. Any notice or other
communication shall be deemed to have been given, made and received upon
receipt. Either party may change the address to which notices are to be
addressed by giving the other party notice in the manner herein set forth.
Section 10.4 Assignment. This Agreement and all provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors, however, neither this Agreement nor any right, interest, or
obligation hereunder may be assigned by any party hereto (other than by
operation of law) without the prior written consent of the other parties, and
any such assignment or purported assignment without such consent shall be void,
provided, however, that Old VII may pledge its rights hereunder effective on or
after the Exchange Date to the Lenders pursuant to the Loan Documentation to
secure the New Borrowing Obligations (and no exercise by the Lenders of their
rights as such pledgees shall violate this Section 10.4).
Section 10.5 Entire Agreement. This Agreement and the other Transaction
Documents embody the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby and supersede all prior written
or oral commitments, arrangements or understandings with respect thereto.
Section 10.6 Amendment; Waiver. (a) This Agreement may only be amended or
modified in writing signed by the party against whom enforcement of any such
amendment or modification is sought.
(b) Any party hereto may, by an instrument in writing, waive compliance
with any term or provision of this Agreement on the part of such other party
hereto. The waiver by any party hereto of a breach of any term or provision of
this Agreement will not be construed as a waiver of any subsequent breach.
48
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Section 10.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
each of which will be deemed an original. All signatures need not be on one
counterpart.
Section 10.8 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER
PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO
MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE.
Section 10.9 Severability. If any one or more of the provisions of this
Agreement is held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement will
not be affected thereby, and New VII and Old VII will use their reasonable
efforts to substitute one or more valid, legal and enforceable provisions which
insofar as practicable implement the purposes and intent hereof. To the extent
permitted by applicable law, each party waives any provision of law which
renders any provision of this Agreement invalid, illegal or unenforceable in any
respect.
Section 10.10 Consent to Jurisdiction. Each party hereby submits to the
non-exclusive jurisdiction of the courts of general jurisdiction of the States
of New York and Colorado and the federal courts of the United States of America,
located in the City of New York, New York, and Denver, Colorado solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and hereby waives, and agrees not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement of this
Agreement that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in such courts or that this Agreement
may not be enforced in or by such courts or that its property is exempt or
immune from execution, that the suit, action or proceeding is brought in an
inconvenient forum, or that the venue of the suit, action or proceeding is
improper. Service of process with respect thereto may be made upon any party by
mailing a copy thereof by registered or certified mail, postage prepaid, to such
party at its address as provided in Section 10.3 hereof, provided that service
of process may be accomplished in any other manner permitted by applicable law.
Section 10.11 Third Person Beneficiaries. This Agreement is not intended
and shall not be construed to confer upon any Person (other than Old VII and New
VII) any rights or remedies hereunder.
Section 10.12 Representations and Warranties; Schedules. Neither the
specification of any dollar amount in the representations and warranties set
forth in Article IV or elsewhere herein nor the indemnification provisions of
Article VII nor the inclusion of any items in any Schedule will be deemed to
constitute an admission by New VII, or otherwise imply, that any such amounts or
the items so included are material for the purposes of this Agreement. All
documents or information disclosed in the Schedules are intended to be disclosed
for all purposes under this Agreement and will also be deemed to be incorporated
by reference in each Schedule to which they may be relevant without further
disclosure.
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Section 10.13 Specific Performance. New VII and Old VII recognize that any
breach of any covenant or agreement contained in this Agreement may give rise to
irreparable harm for which money damages would not be an adequate remedy, and
accordingly agree that, in addition to other remedies, any non-breaching party
will be entitled to enforce the agreements and covenants contained herein of New
VII and Old VII, as the case may be, by a decree of specific performance without
the necessity of proving the inadequacy as a remedy of money damages.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in New York, New York, as of the day and year first above written.
VIACOM INTERNATIONAL INC.
By: /s/ Philippe P. Dauman
-----------------------------
Name: Philippe P. Dauman
Title: Executive Vice President
VIACOM INTERNATIONAL SERVICES INC.
By: /s/ Philippe P. Dauman
-------------------------------
Name: Philippe P. Dauman
Title: Executive Vice President
<PAGE>
EXHIBIT 10.3
------------------------------------------------
SUBSCRIPTION AGREEMENT
among
VIACOM INTERNATIONAL INC.,
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC.
Dated as of July 24, 1995.
---------------------------------------------
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS.......................... 1
Section 1.1 Definitions............................................ 1
ARTICLE II
SUBSCRIPTION AND PURCHASE OF STOCK
Section 2.1 Subscription, Issuance, Purchase and Sale of Stock..... 8
Section 2.2 Payment of Purchase Price.............................. 8
ARTICLE III
CERTAIN BORROWINGS
Section 3.1 Certain Borrowings..................................... 8
ARTICLE IV
CLOSING
Section 4.1 Closing................................................ 10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TCI AND TCI SUB
Section 5.1 Corporate Existence and Power.......................... 10
Section 5.2 Corporate Authorization................................ 10
Section 5.3 Governmental Authorization............................. 10
Section 5.4 Consents............................................... 11
Section 5.5 Non-Contravention...................................... 11
Section 5.6 Binding Effect......................................... 11
Section 5.7 Finders' Fees.......................................... 11
Section 5.8 Acquisition of Shares for Investment................... 11
Section 5.9 Preferred Stock........................................ 12
</TABLE>
<PAGE>
ii
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF OLD VII
Section 6.1 Corporate Existence and Power.............................. 12
Section 6.2 Corporate Authorization.................................... 12
Section 6.3 Governmental Authorization................................. 12
Section 6.4 Consents................................................... 12
Section 6.5 Non-Contravention.......................................... 13
Section 6.6 Binding Effect............................................. 13
Section 6.7 Finders' Fees.............................................. 13
Section 6.8 Shares..................................................... 13
Section 6.9 Material Contracts......................................... 14
Section 6.10 Tank Test Reports.......................................... 14
Section 6.11 Forms I-9.................................................. 14
ARTICLE VII
COVENANTS
Section 7.1 Conduct of the Business.................................... 14
Section 7.2 Telecom Partnerships....................................... 15
Section 7.3 Access to Information; Confidentiality..................... 16
Section 7.4 Additional Financial Statements and Reports................ 16
Section 7.5 Material Adverse Changes................................... 17
Section 7.6 Local Authorization and Material Contract Amendments....... 17
Section 7.7 Telecom Partnership Leases................................. 17
Section 7.8 Hart-Scott-Rodino.......................................... 17
Section 7.9 Efforts; Filing and Consents............................... 18
Section 7.10 Notices of Certain Events.................................. 21
Section 7.11 Further Assurances......................................... 22
Section 7.12 Confidentiality of Transaction............................. 22
Section 7.13 TCI Undertaking as to TCI Sub's Obligations................ 22
Section 7.14 Consummation of Transaction................................ 22
Section 7.15 Estimated Exchange Time Basic Subscribers.................. 23
Section 7.16 Estimate Statement; List of Service........................ 23
Section 7.17 Approved Capital Expenditure Plan.......................... 23
Section 7.18 Reimbursement of Capital Expenditures...................... 23
Section 7.19 Sale of Dayton and Nashville Systems....................... 24
Section 7.20 Employment................................................. 24
Section 7.21 1996 Capital Expenditure Plan.............................. 25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
iii Page
----
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF TCI AND TCI SUB
<C> <S> <C>
Section 8.1 Funding Conditions ........................................... 25
Section 8.2 Closing Conditions ........................................... 26
Section 8.2.1 Representations and Warranties; Covenants .................... 26
Section 8.2.2 HSR Act ...................................................... 26
Section 8.2.3 Consented Subscribers ........................................ 27
Section 8.2.4 Required Consents ............................................ 27
Section 8.2.5 Absence of Injunction ........................................ 27
Section 8.2.6 Opinions ..................................................... 27
Section 8.2.7 Exchange Offer ............................................... 27
Section 8.2.8 Resignation of Officers and Directors ........................ 27
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF OLD VII
Section 9.1 Representations and Warranties; Covenants .................... 27
Section 9.2 HSR Act ...................................................... 28
Section 9.3 Consented Subscribers ........................................ 28
Section 9.4 Opinions ..................................................... 28
Section 9.5 Consents ..................................................... 28
Section 9.6 Absence of Injunction ........................................ 28
Section 9.7 Exchange Offer ............................................... 28
ARTICLE X
TERMINATION
Section 10.1 Termination .................................................. 29
Section 10.2 Effect of Termination ........................................ 29
ARTICLE XI
MISCELLANEOUS
Section 11.1 Legend ....................................................... 29
Section 11.2 Expenses ..................................................... 29
Section 11.3 Headings ..................................................... 30
Section 11.4 Notices ...................................................... 30
Section 11.5 Assignment ................................................... 31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
iv
<C> <S> <C>
Section 11.6 Entire Agreement ...................................... 31
Section 11.7 Amendment; Waiver ..................................... 31
Section 11.8 Counterparts .......................................... 31
Section 11.9 Governing Law ......................................... 31
Section 11.10 Severability .......................................... 31
Section 11.11 Consent to Jurisdiction ............................... 32
Section 11.12 Third Person Beneficiaries ............................ 32
Section 11.13 Specific Performance .................................. 32
Section 11.14 Survival .............................................. 32
Section 11.15 Preferred Stock Conversion ............................ 32
</TABLE>
EXHIBITS
Exhibit A-1 - Old VII Opinion
Exhibit A-2 - Old VII Communications Act Opinion
Exhibit B - TCI Sub Opinion
Exhibit C - Form of Section 617 Certification
SCHEDULES
Schedule 5.4 - Consents Required by Contracts of TCI and TCI Sub
Schedule 7.1 - Absence of Changes
Schedule 7.18 - Additional Capital Expenditures
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of July 24, 1995, by and among Viacom
International Inc., a Delaware corporation ("Old VII"), Tele-Communications,
Inc., a Delaware corporation ("TCI") and TCI Communications, Inc., a Delaware
corporation ("TCI Sub").
WHEREAS, TCI Sub wishes to subscribe to and purchase from Old VII, and Old
VII desires to issue and sell to TCI Sub 100 shares of Class B Common Stock; and
WHEREAS, TCI Sub is a wholly-owned subsidiary of TCI and in order to induce
Old VII to enter into this Agreement TCI is agreeing to cause TCI Sub to pay and
perform all of TCI Sub's obligations under this Agreement;
NOW THEREFORE, the parties hereto, in consideration of the premises and
mutual promises hereinafter set forth and intending to be legally bound, hereby
agree as follows:
ARTICLE I
---------
DEFINITIONS
Section 1.1 Definitions. The following terms, as used in this Agreement,
shall have the following meanings (and such meanings shall be equally applicable
to both the singular and plural forms of the terms defined herein):
"Affiliate" shall have the meaning specified in the Implementation
Agreement.
"Agents" shall have the meaning specified in Section 7.3.
"Aggregate Loan Amount" shall have the meaning specified in the Parents
Agreement.
"Agreement" shall mean this Subscription Agreement, including the Exhibits
and Schedules hereto.
"Amended and Restated Certificate of Incorporation" shall have the meaning
specified in the Implementation Agreement.
"Anticipated Commencement Date" shall have the meaning specified in the
Parents Agreement.
"Antitrust Laws" shall have the meaning specified in Section 7.9(b).
2
<PAGE>
"Approved Capital Expenditure Plan" shall have the meaning specified in the
Implementation Agreement.
"Asset Value" shall have the meaning specified in the Implementation
Agreement.
"Basic Subscriber" shall have the meaning specified in the Implementation
Agreement.
"Basic Subscriber Rate" shall have the meaning specified in the
Implementation Agreement.
"Benefit Plans" shall have the meaning specified in the Implementation
Agreement.
"Business" shall have the meaning specified in the Implementation
Agreement.
"Business Day" shall have the meaning specified in the Implementation
Agreement.
"Cable Assets" shall have the meaning specified in the Implementation
Agreement.
"Cable Division Subsidiaries" shall have the meaning specified in the
Implementation Agreement.
"Cable Group" shall have the meaning specified in the Implementation
Agreement.
"Cable Group Bargaining Agreement" shall have the meaning specified in
Section 7.20.
"Cash Collateral Account" shall mean a cash collateral account maintained
by Old VII at The Bank of New York into which the Loan Proceeds will be
deposited in which the Lenders shall be granted a security interest to secure
the Loans, the terms of which shall provide that upon notice from VI that it
will consummate the Exchange Offer and that all Exchange Offer Conditions have
been satisfied or waived, all funds held therein will be released without
condition to Old VII on the Exchange Date immediately prior to the Conveyance of
Assets and the Exchange Time for transfer to New VII as a contribution as
contemplated by the Implementation Agreement.
"Certificate" shall have the meaning specified in Section 4.1(c).
"Class A Common Stock" shall have the meaning specified in the Parents
Agreement.
3
<PAGE>
"Class B Common Stock" means the Class B Common Stock, par value $0.01, of
Old VII, after giving effect to the filing of the Amended and Restated
Certificate of Incorporation with the Secretary of State of Delaware.
"Closing" shall have the meaning specified in Section 4.1(a).
"Closing Date" shall have the meaning specified in Section 4.1(a).
"Code" shall have the meaning specified in the Implementation Agreement.
"Commitments to Lend" shall mean commitments of commercial banks or other
lending institutions or other institutional investors reasonably acceptable to
TCI Sub ("Lenders") to make the Loans in the Aggregate Loan Amount to Old VII on
the Expiration Date prior to the Expiration Time. Without limitation of any
other instruments that may constitute Commitments to Lend, Loan Documentation,
when duly executed and delivered by the parties thereto, shall constitute
Commitments to Lend.
"Communications Act" shall have the meaning specified in the Implementation
Agreement.
"Company" shall have the meaning specified in the Implementation Agreement.
"Consented Subscribers" shall mean the number of Basic Subscribers as of a
date within ten days prior to the Exchange Date residing:
(a) in those Franchise Areas for which Local Authority
Consents have been obtained on or before such date and in respect
of which the ordinances, resolutions or other appropriate
governmental actions evidencing the grant of such Local Authority
Consents shall not have imposed any material adverse change in
the terms of the relevant Local Authorization, except for such
material adverse changes as TCI Sub shall have expressly accepted
or as otherwise agreed to by TCI Sub; and
(b) in those Franchise Areas for which a Local Authority
Consent is not required for the consummation of the Transaction.
"Continuing Employee" shall have the meaning specified in Section 7.20.
"Conveyance of Assets" shall have the meaning specified in the
Implementation Agreement.
"DOJ" shall mean the United States Department of Justice.
"Estimated Exchange Date Basic Subscribers" shall have the meaning
specified in Section 7.15.
4
<PAGE>
"Estimate Statement" shall have the meaning specified in the Implementation
Agreement.
"Exchange Date" shall have the meaning specified in the Parents Agreement.
"Exchange Date Basic Subscribers" shall have the meaning specified in the
Implementation Agreement.
"Exchange Offer" shall have the meaning specified in the Parents Agreement.
"Exchange Offer Conditions" shall have the meaning specified in the Parents
Agreement.
"Exchange Time" shall have the meaning specified in the Parents Agreement.
"Expiration Date" shall have the meaning specified in the Parents
Agreement.
"Expiration Time" shall have the meaning specified in the Parents
Agreement.
"FCC" shall have the meaning specified in the Implementation Agreement.
"FCC Authorizations" shall have the meaning specified in the Implementation
Agreement.
"Franchise Areas" shall have the meaning specified in the Implementation
Agreement.
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall have the meaning specified in the Implementation Agreement.
"Governmental Authority" shall have the meaning specified in the
Implementation Agreement.
"HSR Act" shall have the meaning specified in the Implementation Agreement.
"Implementation Agreement" shall have the meaning specified in the Parents
Agreement.
"Inconsistent Terms" shall have the meaning specified in the Parents
Agreement.
"InterMedia" shall mean InterMedia Partners IV, L.P., a California limited
partnership.
"Legal Requirement" shall have the meaning specified in the Implementation
Agreement.
5
<PAGE>
"Lenders" shall have the meaning specified in the definition of
"Commitments to Lend".
"Loan Documentation" shall mean all agreements and other documentation
containing terms and conditions that are reasonably acceptable to TCI Sub, which
shall not contain any obligation of VI or any of its Affiliates other than Old
VII (including guarantees by Old VII to be effective after the Closing), or
after the Closing, a wholly-owned direct or indirect subsidiary of Old VII and
containing no Inconsistent Terms and pursuant to which Lenders agree to make the
Loans to Old VII on the Expiration Date prior to the Expiration Time.
"Loan Proceeds" shall mean all amounts borrowed by Old VII as Loans.
"Loans" shall mean loans by Lenders to Old VII, or after the Closing, a
wholly-owned direct or indirect subsidiary of Old VII, pursuant to the Loan
Documentation of an aggregate principal amount (after deduction of all interest,
fees and other expenses paid or payable by Old VII in connection with the Loans
or otherwise pursuant to the Commitments to Lend or Loan Documentation) at least
equal to the Aggregate Loan Amount on terms and conditions that are reasonably
acceptable to TCI Sub (which, without limitation, shall not contain any
obligation of VI or any of its Affiliates other than Old VII or, after the
Closing, a wholly-owned direct or indirect subsidiary of Old VII or include any
Inconsistent Terms).
"Local Authority Consent" shall have the meaning specified in the
Implementation Agreement.
"Local Authorizations" shall have the meaning specified in the
Implementation Agreement.
"Material Adverse Effect" shall have the meaning specified in the
Implementation Agreement.
"Material Contract" shall have the meaning specified in the Implementation
Agreement.
"Minimum Condition" shall have the meaning specified in the Parents
Agreement.
"New Borrowing Obligations" shall mean all liabilities and obligations of
Old VII, the Cable Division Subsidiaries and, after the Closing, any
wholly-owned direct or indirect subsidiary of Old VII under, with respect to or
in connection with the Loan Documentation, the Commitments to Lend or otherwise
to repay the Loans, including without limitation for the payment of principal,
interest, premium, fees, expenses or indemnities in connection therewith.
"New VII" shall have the meaning specified in the Implementation Agreement.
"1995 Plan" shall have the meaning specified in Section 7.21.
"1996 Capital Expenditure Plan" shall have the meaning specified in Section
7.21.
6
<PAGE>
"1934 Act" shall have the meaning specified in the Parents Agreement.
"1933 Act" shall have the meaning specified in the Parents Agreement.
"Non-Cable FCC Authorizations" shall have the meaning specified in the
Implementation Agreement.
"Non-Continuing Employees" shall have the meaning specified in Section
7.20.
"Offering Materials" shall have the meaning specified in the Parents
Agreement.
"Old VII" has the meaning specified in the preamble of this Agreement.
"Old VII Bank Borrowing Condition" shall mean the Old VII Bank Borrowing
Condition included in the Exchange Offer Conditions.
"Parents Agreement" shall have the meaning specified in the Implementation
Agreement.
"Person" shall have the meaning specified in the Implementation Agreement.
"Preferred Stock" shall have the meaning specified in the Parents
Agreement.
"Purchase Price" shall have the meaning specified in Section 2.1.
"RCS" shall mean RCS Pacific, L.P., a California limited partnership.
"Regulatory Approvals" shall have the meaning specified in Section 7.9(c).
"SEC" shall have the meaning specified in the Parents Agreement.
"Second Request" shall mean a request for additional information or
documentary material pursuant to 16 C.F.R. ss. 803.20.
"Shares" shall have the meaning specified in Section 2.1.
"Social Contract" shall mean a negotiated settlement with the FCC resolving
regulated rate disputes or challenges which imposes any obligations on the
Company after the Exchange Date.
"System" shall have the meaning specified in the Implementation Agreement.
"TCI" shall have the meaning specified in the preamble of this Agreement.
"TCI Stock" shall have the meaning specified in the Parents Agreement.
"TCI Sub" shall have the meaning specified in the preamble of this
Agreement.
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"Telecom Agreements" shall have the meaning specified in the Implementation
Agreement.
"Telecom Capital Expenditure Amount" shall have the meaning specified in
the Implementation Agreement.
"Telecom Partnership Agreements" shall have the meaning specified in the
Implementation Agreement.
"Telecom Partnerships" shall have the meaning specified in the
Implementation Agreement.
"Transaction" shall have the meaning specified in the Parents Agreement.
"Transaction Documents" shall have the meaning specified in the Parents
Agreement.
"Transferred Assets" shall have the meaning specified in the Implementation
Agreement.
"VI" shall mean Viacom Inc., a Delaware corporation.
ARTICLE II
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SUBSCRIPTION AND PURCHASE OF STOCK
Section 2.1 Subscription, Issuance, Purchase and Sale of Stock. Upon the
terms and subject to the conditions set forth in this Agreement, TCI Sub hereby
subscribes for and agrees to purchase, and Old VII agrees to sell, 100 shares of
Class B Common Stock (the "Shares") for a purchase price of three hundred fifty
million dollars ($350,000,000) (the "Purchase Price"). Upon the terms and
subject to the conditions set forth in this Agreement, upon payment in full of
the Purchase Price, Old VII hereby agrees to issue and sell 100 shares of Class
B Common Stock to TCI Sub, and issue and deliver a certificate in the name of
TCI Sub for 100 shares of Class B Common Stock.
Section 2.2 Payment of Purchase Price. The Purchase Price shall be payable
by wire transfer of immediately available funds to an account designated by
written notice by Old VII to TCI Sub delivered at least forty-eight (48) hours
prior to the Closing.
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ARTICLE III
CERTAIN BORROWINGS
Section 3.1 Certain Borrowings. (a) As soon as practicable following the
date hereof, TCI and TCI Sub shall cause Commitments to Lend (or other evidence
of the willingness of Lenders to make the Loans that is acceptable to Old VII)
to be delivered to Old VII. Old VII shall at such time execute and deliver the
Commitments to Lend. TCI and TCI Sub shall be responsible for and pay any and
all fees and expenses (including, but not limited to commitment fees) arising
from the Commitments to Lend.
(b) No less than ten Business Days prior to the Anticipated Commencement
Date, TCI and TCI Sub shall procure the execution and delivery by Lenders of
Loan Documentation. Old VII shall at such time execute and deliver such Loan
Documentation. TCI Sub shall be responsible for and pay any and all fees and
expenses arising from the Loan Documentation.
(c) Subject to the fulfillment of the conditions set forth in Section 8.1,
TCI and TCI Sub shall cause the Lenders under the Loan Documentation to make the
Loans to Old VII on the Expiration Date prior to the Expiration Time and prior
to the Conveyance of Assets. Old VII shall take any reasonable commercial action
required to be taken by Old VII under the Loan Documentation in order to permit
TCI and TCI Sub to cause the Loans to be so made on the Expiration Date prior to
the Expiration Time and prior to the Conveyance of Assets, including the
granting to the Lenders under the Loan Documentation of a security interest in
the Cash Collateral Account and pledges of stock of the Cable Division
Subsidiaries effective upon the release to Old VII of cash from the Cash
Collateral Account. If the Closing does not occur within ten (10) Business Days
after the Expiration Date, at the option of the Lenders, the Loans will be
repaid in full from the Cash Collateral Account.
(d) It is agreed by the parties hereto that (i) the Loan Proceeds will be
conveyed to New VII pursuant to the Conveyance of Assets and that Old VII will
retain responsibility for repayment of and will be liable and responsible for
the Loans and (ii) following the Exchange Time, neither VI, New VII nor any of
their Affiliates after the Exchange Time will have any liability, responsibility
or obligation under or in connection with the Commitments to Lend, the Loan
Documentation or otherwise for or with respect to the Loans or Loan Proceeds,
including without limitation for payment of the principal, interest, fees
(including Lender's attorneys' fees), expenses or indemnities, and TCI and TCI
Sub shall indemnify and hold harmless New VII and its Affiliates from any such
liability, responsibility or obligation.
(e) Without limitation of TCI's and TCI Sub's obligations under Sections
3.1(a), (b) and (c) above, TCI and TCI Sub agree that in the event the Closing
does not occur, they will be responsible for and pay (or, in the case of fees
already paid, reimburse Old VII for) any and all fees and expenses (including,
but not limited to, commitment fees, but not including principal and interest on
principal) payable under or in connection with the Commitments to Lend, the Loan
Documentation, the Loans or any action by Old VII pursuant to Sections 3.1(a),
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(b) or (c) or by TCI or TCI Sub pursuant to Section 3.1(a), whether incurred
before or after the date hereof and whether or not the Commitments to Lend or
the Loan Documentation is entered into, and TCI and TCI Sub will indemnify and
hold harmless Old VII from any and all such fees and expenses.
ARTICLE IV
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CLOSING
Section 4.1 Closing. (a) The issuance and purchase of the Class B Common
Stock pursuant to Section 2.1 and the closing of the transactions herein set
forth (the "Closing") shall take place at the offices of Hughes Hubbard & Reed,
New York, New York on the Exchange Date immediately following the Exchange Time
(the "Closing Date"). The Closing shall be deemed to be effective at the close
of business on the Closing Date.
(b) At the Closing, TCI Sub shall pay the Purchase Price to Old VII in the
manner specified in Section 2.2.
(c) At the Closing, Old VII shall deliver to TCI Sub a share certificate
representing 100 shares of Class B Common Stock (the "Certificate") and a
receipt executed by Old VII for the Purchase Price.
ARTICLE V
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REPRESENTATIONS AND WARRANTIES OF TCI AND TCI SUB
Each of TCI and TCI Sub jointly and severally represent and warrant to Old
VII that:
Section 5.1 Corporate Existence and Power. It (i) is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, (ii) is authorized to transact business and is in good standing in
each state in which its ownership of assets or conduct of business requires such
qualification, and (iii) has all corporate powers required to carry on its
business as now conducted, with such exceptions as would not materially and
adversely affect its ability to consummate the Transactions contemplated to be
consummated by it pursuant hereto.
Section 5.2 Corporate Authorization. The execution, delivery and
performance by it of this Agreement and the consummation by it of the
Transactions contemplated to be consummated by it pursuant hereto are within its
corporate powers and have been duly authorized by all necessary corporate action
on its part.
Section 5.3 Governmental Authorization. The execution, delivery and
performance by it of this Agreement, and the consummation by it of the
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Transactions contemplated to be consummated by it pursuant hereto, require no
material action by or in respect of, or filing with, any governmental body,
agency, official or authority other than compliance with any applicable
requirements of the HSR Act, the Non-Cable FCC Authorizations, the FCC
Authorizations, and the Local Authorizations.
Section 5.4 Consents. Except as set out in Schedule 5.4, no consent by any
Person under any contract to which it is a party or to which its assets are
subject is required or necessary for the execution, delivery and performance by
it of this Agreement or the consummation by it of the Transactions contemplated
to be consummated by it pursuant hereto, with such exceptions as would not
materially and adversely affect its ability to consummate the Transactions
contemplated to be consummated by it pursuant hereto.
Section 5.5 Non-Contravention. The execution, delivery and performance by
it of this Agreement and the consummation by it of the Transactions contemplated
to be consummated by it pursuant hereto do not and will not (x) contravene its
certificate of incorporation or by-laws or (y) subject to obtaining, making or
taking actions and filings described in Section 5.3, result in or constitute a
breach or default (including any event that, with the passage of time or giving
of notice, or both, would become a breach or default) under any applicable Legal
Requirement or any judgment, order, decree, contract, license, lease, indenture,
mortgage, loan agreement, note, security agreement or other agreement or
instrument as to which it is a party or by which any of its properties may be
bound, the effect of which would materially and adversely impair its ability to
consummate the Transactions contemplated to be consummated by it pursuant
hereto.
Section 5.6 Binding Effect. This Agreement has been duly executed and
delivered by it and this Agreement constitutes its valid and binding obligation,
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies.
Section 5.7 Finders' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of TCI or TCI Sub (or InterMedia or RCS) or any of their Affiliates who might be
entitled to any fee or commission from Old VII or any of the Cable Division
Subsidiaries in connection with the execution, delivery or performance of this
Agreement or the consummation of the Transactions contemplated hereby.
Section 5.8 Acquisition of Shares for Investment. TCI Sub is acquiring the
Shares for investment and not with a present view toward, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the Shares. TCI Sub agrees that the Shares may not be
sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed
of (i) without registration under the 1933 Act, except pursuant to an exemption
from such registration available under the 1933 Act, and (ii) except in
accordance with any applicable provisions of state blue sky and securities laws.
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Section 5.9 Preferred Stock. The issuance of shares of TCI Stock to Old VII
upon exercise by the holders of Preferred Stock of their conversion rights as
specified in the terms of the Preferred Stock has been authorized by all
necessary corporate action on the part of TCI and TCI has available and has
reserved sufficient shares of authorized and unissued TCI Stock to satisfy its
obligation to issue shares of TCI Stock to Old VII upon conversion of the
Preferred Stock.
ARTICLE VI
-----------
REPRESENTATIONS AND WARRANTIES OF OLD VII
Old VII represents and warrants to TCI Sub that:
Section 6.1 Corporate Existence and Power. Old VII (i) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, (ii) is authorized to transact business and is in
good standing in each state in which its ownership of assets or conduct of
business requires such qualification, and (iii) has all corporate powers
required to carry on its business as conducted on the date hereof, with such
exceptions to clauses (ii) and (iii) as would not materially and adversely
affect the ability of Old VII to consummate the Transactions contemplated to be
consummated by it pursuant hereto.
Section 6.2 Corporate Authorization. The Company has the corporate power to
own its assets and carry on its business as currently conducted. The performance
by Old VII of this Agreement and the consummation by Old VII of the Transactions
contemplated to be consummated by it pursuant hereto are within the corporate
powers of Old VII and have been duly authorized by all necessary corporate and
shareholder action on the part of Old VII.
Section 6.3 Governmental Authorization. The execution and delivery of this
Agreement by Old VII, and the performance by Old VII of this Agreement, and the
consummation by Old VII of the Transactions contemplated to be consummated by it
pursuant hereto, require no material action by or in respect of, or material
filing with, any Governmental Authority other than (x) compliance with any
applicable requirements of the HSR Act, the FCC Authorizations, the Non-Cable
FCC Authorizations and the Local Authorizations, (y) compliance with any
applicable requirements of the 1933 Act and the 1934 Act and state blue sky and
securities laws in connection with the Exchange Offer and (z) compliance with
any requirements that may be applicable as a result of the regulatory status of
TCI, Buyer or their Affiliates.
Section 6.4 Consents. Except as set forth on Schedules 4.5, 4.9, 4.14 and
4.16 of the Implementation Agreement, no consent by any Person under any
contract as to which Old VII is a party or to which its assets are subject is
required or necessary for the execution and delivery of this Agreement by Old
VII, or the performance by Old VII of this Agreement, or the consummation by Old
VII of the Transactions contemplated to be consummated by it pursuant hereto
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with such exceptions as would not materially and adversely affect the ability of
Old VII to consummate the Transactions contemplated to be consummated by it
pursuant hereto.
Section 6.5 Non-Contravention. The execution, delivery and performance of
this Agreement by Old VII, and the consummation by Old VII of the Transactions
contemplated to be consummated by it pursuant hereto, do not or before the
Exchange Date will not, (x) contravene the certificate of incorporation or
bylaws of Old VII or (y) subject to obtaining the consents described in
Schedules 4.5, 4.9, 4.14 and 4.16 of the Implementation Agreement, and subject
to obtaining, making or taking the actions and filings described in clauses (x),
(y) and (z) of Section 6.3, result in or constitute a breach or default
(including any event that, with the passage of time or giving of notice, or
both, would become a breach or default) under any applicable Legal Requirement
or any judgment, injunction, order, decree, contract, license, lease, indenture,
mortgage, loan agreement, note or other agreement or instrument as to which Old
VII is a party or by which any of its properties may be bound, the effect of
which would be to materially and adversely impair the ability of Old VII to
consummate the Transactions contemplated to be consummated by it pursuant
hereto.
Section 6.6 Binding Effect. This Agreement has been duly executed and
delivered by Old VII, and this Agreement constitutes a valid and binding
obligation of Old VII, enforceable against Old VII in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable remedies.
Section 6.7 Finders' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Old VII or any of its Affiliates who might be entitled to any fee or
commission from TCI or TCI Sub or, after the Exchange Time, Old VII, or any of
their Affiliates in connection with the execution, delivery or performance of
this Agreement or the consummation of the Transactions contemplated hereby.
Section 6.8 Shares. The Shares, when paid for by and issued to TCI Sub in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and non-assessable, and will constitute all of the issued and
outstanding shares of Class B Common Stock. Upon issuance of the Shares, Old VII
will deliver to TCI Sub good and valid title to the Shares, free and clear of
any Liens. Assuming that the representations and warranties of TCI and TCI Sub
contained in Section 5.8 are true and correct in all respects at the Closing and
that TCI Sub is an "accredited investor" (as such term is used in Regulation D
under the 1933 Act), when issued to TCI Sub in accordance with the provisions
hereof, the Shares will have been issued in accordance with the registration or
qualification provisions of the 1933 Act and any relevant state securities laws
or pursuant to valid exemptions therefrom.
Section 6.9 Material Contracts. Old VII has made available to RCS or TCI
Sub or representatives of RCS or TCI Sub, true and correct copies of all
Material Contracts, including without limitation all Material Contracts that are
programming agreements.
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Section 6.10 Tank Test Reports. Old VII has delivered to TCI Sub or RCS
copies of the most recent tank test reports relating to the tanks listed on
Schedule 4.20 to the Implementation Agreement.
Section 6.11 Forms I-9. Old VII has made available to TCI Sub or RCS true
and complete copies of all Immigration and Naturalization Service Forms I-9 for
all Continuing Employees.
ARTICLE VII
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COVENANTS
Section 7.1 Conduct of the Business. Subject to Section 7.2, and except for
(v) any increase in the Basic Subscriber Rate or any other rate charged the
Company's subscribers or otherwise contemplated by the Transaction Documents,
(w) the incurrence of the New Borrowing Obligations, (x) the amendment of Old
VII's Certificate of Incorporation contemplated by the Transaction Documents,
(y) any change described in clause (a), (b) or (c) of the definition of Material
Adverse Effect or described on Schedule 7.1 or (z) compliance with VI's
obligations under the Parents Agreement or Old VII's obligations under the
Implementation Agreement or any other event or action contemplated by the
Transaction Documents, from the date hereof until the Exchange Date, Old VII
shall cause the Company to conduct the Business only in the ordinary course of
business consistent with past practices. Without limiting the generality of the
foregoing, Old VII shall not permit the Company to do any of the following,
without the consent of TCI Sub:
(i) (w) enter into a Social Contract, (x) materially amend
or, other than in accordance with its terms, terminate
any Material Contract, or enter into any Material
Contract outside of the ordinary course of business,
(y) enter into any programming agreement with any
programming service owned or operated by VI or any of
its Subsidiaries or Affiliates, or (z) enter into any
programming agreement that would require carriage of
programming or is not terminable at any time by Old
VII (without any out-of-pocket cost to Old VII), in
each case following the date that is six months after
the Closing Date;
(ii) enter into any employment agreement providing for a
term of employment other than as an employee at will,
except as disclosed to TCI Sub (or RCS or InterMedia)
on or prior to the date hereof;
(iii) increase the rate of compensation or bonus payments to
any employee of the Company, except in the ordinary
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course of business and except for bonus payments in
conjunction with the Transaction where the cost is
borne by New VII or VI;
(iv) sell or dispose of assets relating to the Business
(other than Transferred Assets) except for sales or
dispositions of assets in the ordinary course of
business, provided that such assets (other than
assets listed as vacant land on Schedule 4.19 of the
Implementation Agreement) are replaced with other
assets in the ordinary course of business;
(v) amend the certificate of incorporation or by-laws (or
other such governing instruments with different
names) of Old VII or any Cable Division Subsidiary;
(vi) issue or sell any shares of the capital stock of Old
VII or any Cable Division Subsidiary (except for
shares of the Class A Common Stock which are issued
as contemplated by Section 2.4 of the Parents
Agreement);
(vii) incur any indebtedness for borrowed money outside the
ordinary course of business (other than the New
Borrowing Obligations); and
(viii) extend the term of (or fail to exercise a right of
termination with respect to) the Company's
programming agreement with the Science Fiction
Channel or Comedy Central.
Section 7.2 Telecom Partnerships. Prior to the Exchange Date, Old VII
shall cause the Company to make or cause to be made, when due and payable, all
capital contributions required to be made by the Company under, and shall
otherwise comply in all material respects with all material terms and conditions
of, the Telecom Partnership Agreements. Old VII shall use commercially
reasonable efforts prior to the Exchange Time to formalize and enter into
agreements with each Telecom Partnership covering the lease, license or use by
such Telecom Partnership of the plant, property and equipment of the Company
relating to capital expenditures covered by the definition of Telecom Capital
Expenditure Amount, to the extent such lease, license or use is not otherwise
covered by the Telecom Agreements. Old VII shall not sell, transfer or assign
its interest in the Telecom Partnerships.
Section 7.3 Access to Information; Confidentiality. Old VII shall cause the
Company to give TCI Sub, its counsel, financial advisors, accountants and other
authorized representatives reasonable access during normal business hours to the
offices, properties, books and records of the Company, and to furnish to TCI
Sub, its counsel, financial advisors, accountants and authorized representatives
such financial and operating data and other information as such Persons may
reasonably request. Prior to the Exchange Time, TCI Sub shall, and shall cause
its Affiliates, and its and their respective officers, directors, employees,
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attorneys, financial advisors, accountants, authorized representatives and
agents (collectively, "Agents"), to keep secret and retain in strictest
confidence any and all confidential information relating to the Business or the
Systems or otherwise not available to the general public (provided that such
confidential information shall not include any information that (i) has become
generally available to the public other than as a result of a disclosure by TCI
Sub, its Affiliates or its Agents, (ii) has been independently developed by TCI
Sub or such Affiliate of TCI Sub or (iii) was available to TCI Sub or an
Affiliate of TCI Sub on a nonconfidential basis from a third party having no
obligation of confidentiality to Old VII or any Affiliate of Old VII and which
has not itself received such information directly or indirectly in breach of any
such obligation of confidentiality), and shall not disclose such confidential
information, and shall cause its Affiliates and Agents not to disclose such
confidential information, to any Person other than TCI Sub, its Affiliates, or
their respective Agents who have a need to know such confidential information,
except as may be required by law or legal process (in which event TCI Sub shall
so notify Old VII as promptly as practicable (and if possible, prior to making
such disclosure) and, if requested by Old VII, shall seek confidential treatment
of such information).
Section 7.4 Additional Financial Statements and Reports. As soon as
available, Old VII shall furnish TCI Sub with a consolidated balance sheet and
related statement of income of the Company for all fiscal quarters ending after
June 30, 1995 but prior to the Exchange Date certified by the Chief Financial
Officer of Old VII to present fairly in all material respects in conformity with
GAAP, the financial position and results of operations of the Company at and for
the fiscal quarter then ended, except to the extent that such unaudited
financial statements omit footnotes (and the disclosure contained therein) and
are subject to normal quarter-end and/or year-end adjustments. Promptly
following filing with the SEC, Old VII shall deliver copies of each Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K
and definitive proxy statement filed by VI or Old VII with the SEC (in each case
without exhibits) and each prospectus of VI or Old VII filed with the SEC under
the 1933 Act (other than any prospectus related to securities offered to
employees). Promptly after the preparation thereof, Old VII will deliver to TCI
Sub (a) copies of (i) each final monthly profit and loss statement for the
Business, (ii) each final monthly capital spending statement for the Business,
and (iii) final monthly customer reports for the Business showing the number of
limited, tier and premium households and (b) to the extent that any statement
referred to in clause (a)(i), (a)(ii) or (a)(iii) above is available on a System
or combined System basis, copies of such statement or report on such basis;
provided, however, that Old VII does not and shall not be deemed to have made
any representations or warranties as to any such statement or report.
Section 7.5 Material Adverse Changes. Old VII shall promptly notify TCI Sub
in writing of any material adverse developments affecting any System which
become known to Old VII, including, without limitation: (a) any material adverse
change in the condition, financial or otherwise, of any System; (b) any material
damage, destruction or loss (whether or not covered by insurance) adversely
affecting any Cable Asset or material to any System; (c) any material notice of
violation, forfeiture or complaint under any Local Authorization; or (d)
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anything which, if not corrected prior to the Exchange Date, will prevent Old
VII from fulfilling any condition precedent described in Article VIII.
Section 7.6 Local Authorization and Material Contract Amendments. (a) Old
VII shall assist TCI Sub in obtaining modifications, renewals or extensions of
the terms of Local Authorizations, as necessary to the extent Old VII determines
that such modification, renewal or extension will not have an adverse effect on
the transfer of such Local Authorization, so that all will have unexpired terms
for at least five (5) years after the Exchange Date; provided that such
modifications, renewals or extensions shall be upon terms reasonably
satisfactory to TCI Sub and Old VII.
(b) Old VII shall consider in good faith any request by TCI Sub that the
Company seek to amend a Material Contract (other than any contract or agreement
between Old VII and VI or Affiliates of VI), and Old VII shall, at TCI Sub's
expense, seek to amend such Material Contract on the terms requested by TCI Sub
so long as both such amendment and seeking such amendment would not in Old VII's
good faith opinion have any adverse effect on the ability of the Company or any
Affiliate of Old VII to consummate the Transaction.
Section 7.7 Telecom Partnership Leases. Old VII shall use reasonable
commercial efforts to cause each Telecom Partnership to enter into leases with
respect to its communications plant as required by the Telecom Partnership
Agreements.
Section 7.8 Hart-Scott-Rodino. As soon as practicable (and in any event
within ten (10) Business Days after the date of this Agreement), if required by
applicable Legal Requirements, TCI Sub, and Old VII shall complete and file, or
cause to be completed and filed, any notification and report required to be
filed under the HSR Act in connection with the Transaction. TCI, TCI Sub and Old
VII shall promptly take or cause to be taken any additional action that may be
necessary, proper or advisable, will cooperate to prevent inconsistencies
between their respective filings and will furnish to each other such necessary
information and reasonable assistance as the other may reasonably request in
connection with its preparation of necessary filings or submissions under the
HSR Act. TCI Sub and Old VII shall use commercially reasonable efforts
(including the filing of a request for early termination) to obtain the early
termination of the waiting period under the HSR Act. TCI Sub and Old VII will
each pay one-half of the fee payable in connection with the filing of such
notification and report under the HSR Act.
Section 7.9 Efforts; Filing and Consents. (a) General. Each of Old VII and
TCI Sub shall take, or cause to be taken, all actions and to do, or cause to be
done, all things reasonably necessary or advisable to consummate and make
effective as promptly as practicable the Transaction and to cooperate with the
other in connection with the foregoing, including using its reasonable
commercial efforts:
(i) to obtain all Local Authority Consents (but without
Old VII being required to provide any consideration
therefor);
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(ii) to obtain (but without Old VII being required to
provide any consideration therefor) all necessary
consents from other parties to Material Contracts;
(iii) to obtain (but without Old VII being required to
provide any consideration therefor) all consents,
actions and authorizations that are required to be
obtained under applicable Legal Requirements in order
to consummate the Transaction;
(iv) to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the
parties to consummate the Transaction;
(v) to effect all necessary registrations and filings and
submissions of information requested by Governmental
Authorities; and
(vi) to fulfill all conditions to this Agreement.
Each of Old VII and TCI Sub shall, with respect to a threatened or pending
action seeking a preliminary or permanent injunction or other order, decree or
ruling or statute, rule, regulation or executive order that would adversely
affect the ability of the parties and their Affiliates to consummate the
Transaction, use its best efforts to prevent the entry, enactment or
promulgation thereof, as the case may be.
(b) Antitrust Matters. In furtherance and not in limitation of the
foregoing, Old VII, TCI and TCI Sub shall use their reasonable commercial
efforts to resolve such objections, if any, as may be asserted with respect to
the Transaction under any antitrust or trade regulatory laws of any government
or Governmental Authority ("Antitrust Laws"). If any such objection is made or
any suit is instituted challenging any part of the Transaction as violative of
any Antitrust Law, Old VII, TCI and TCI Sub shall use reasonable commercial
efforts to take such reasonable action as may be required, as the case may be:
(i) by the applicable government or Governmental Authority
(including, without limitation, the FCC, DOJ or FTC)
in order to promptly resolve such objections as such
government or authority may have to such transactions
under such Antitrust Law; or
(ii) by any court or similar tribunal, in any suit brought
by a private party or Governmental Authority
challenging the transactions contemplated hereby as
violative of any Antitrust Law, in order to avoid the
entry of, or to effect the dissolution of, any
injunction, temporary restraining order or other order
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that has the effect of preventing the consummation of
any of such transactions.
Each of Old VII, TCI and TCI Sub shall promptly inform the other of any
material communication from the FCC, DOJ or FTC or any other Governmental
Authority regarding any matter related to the Antitrust Laws as they bear upon
the Transaction. If either Old VII, TCI or TCI Sub receives a request for
additional information or documentary material (including without limitation a
Second Request) from any Governmental Authority with respect to the Transaction,
such party will, after consultation with the other, supply any such requested
information or documentary material as promptly as practicable (it being
understood that this obligation does not preclude a party from negotiating with
such Governmental Authority regarding the scope of and content of such requested
information provided such negotiations are conducted as promptly as
practicable).
(c) Consents Process. Old VII and TCI Sub shall use their best efforts
(including, without limitation, by attendance at FCC or state regulatory
hearings, City Council or similar or related meetings and hearings before state,
local and county administrative bodies, by giving the other reasonable notice of
the time and date of such meetings and hearings and by responding promptly to
any requests by Governmental Authorities) to apply for and obtain, and shall
cooperate and assist one another in applying for and obtaining, all requisite
consents, actions and authorizations (including ordinances or resolutions
approving transfers) of Governmental Authorities (the "Regulatory Approvals")
required to be received by or on the part of Old VII, New VII, VI or TCI Sub in
order to consummate the Transaction contemplated by this Agreement. Without
limiting the foregoing, in respect of all such applications for such Regulatory
Approvals:
(i) Old VII will coordinate the efforts to obtain the
necessary consents of the Local Authorities. In this
role, Old VII shall submit all filings required by the
Local Authorities after TCI Sub has reviewed and
approved the same. TCI Sub will be responsible for
negotiating with the Local Authorities the form of the
Local Authorizations, which will be provided to Old
VII for its prior review and approval.
(ii) TCI Sub will coordinate the effort to obtain all FCC
Authorizations.
(iii) Form 394's or, with the consent of Old VII, amendments
to Form 394's (which shall include all information
required by the Local Authorities including pro forma
and price allocations if required or requested) shall
be completed by TCI Sub for each franchise, as
identified in Schedule 4.9 to the Implementation
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Agreement, as requiring consent. The Form 394's (or
amendments to Form 394's) shall be in form and
substance acceptable to Old VII and delivered to Old
VII within twenty (20) Business Days from the date
hereof (or within five (5) Business Days of any
amendment of Schedule 4.9 to the Implementation
Agreement that gives rise to the need to file such
Form 394). Old VII shall be responsible for the filing
of the Form 394's (or amendments to Form 394's) and
shall file certifications under Section 617 of the
Communications Act promptly after the date hereof for
each Local Authorization not identified as requiring
consent in Schedule 4.9 to the Implementation
Agreement. Such certifications under Section 617 of
the Communications Act shall be prepared by Old VII,
shall be substantially in the form attached hereto as
Exhibit C, and shall state that such Local Authority
consent is not required for consummation of the
Transaction.
(iv) After the Form 394's (or amendments to Form 394's) are
filed, TCI Sub and Old VII shall respond to all lawful
requests from Local Authorities for additional
information as soon as reasonably practicable after
the receipt of such request. If TCI Sub receives
requests which it deems to be unlawful, TCI Sub shall
use its best efforts to seek to resolve the issues
with the Local Authorities as soon as practicable. If
a resolution cannot be reached within this time frame,
Old VII and TCI Sub will agree upon appropriate
administrative or judicial procedures to achieve such
a clarification.
(v) Old VII shall consult with TCI Sub in connection with
proceedings relating to any renewal of a Local
Authorization, and, insofar as Old VII is concerned,
TCI Sub may participate in such proceedings, subject
to Old VII's control. TCI Sub agrees to accept the
Local Authorizations on their terms existing and in
effect as of the date hereof, with such changes in the
case of Local Authorizations that are renewed prior to
the Closing Date as are not materially adverse to TCI
Sub.
(vi) Old VII and the Cable Division Subsidiaries and New
VII and its Affiliates shall not be obligated to agree
to any continuing obligation under any Local
Authorization as a condition of any consent or
approval to the consummation of the Transaction
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(provided that TCI Sub may agree on its own behalf to
such a continuing obligation so long as it would not
have an effect on the calculation of the Asset Value).
(vii) TCI Sub and Old VII shall each be responsible for its
own out-of-pocket costs incurred in applying for and
obtaining all of the Regulatory Approvals.
(viii)TCI Sub and Old VII shall provide each other with
informal weekly progress reports with respect to the
status of obtaining the Regulatory Approvals
consisting of such information as the parties may from
time to time reasonably request.
(ix) TCI Sub and Old VII shall provide to each other copies
of all correspondence between any franchising
authority, the FCC, any federal, city, state or local
Governmental Authority or regulatory body having
jurisdiction and their respective agents and advisers
in connection with the Regulatory Approvals and the
sender of such correspondence will provide to the
other a copy in advance of its sending.
(x) If any regulatory or judicial proceeding arises from a
dispute relating to the process of obtaining the
Regulatory Approvals, Old VII shall have the right to
name the legal counsel to defend against such action
subject to the consent of TCI Sub. Such expenses shall
be borne by TCI Sub and Old VII in equal shares.
If there should be any change in Legal Requirements applicable to obtaining
Regulatory Approvals after the date hereof, the parties shall, to the extent
necessary, adapt the procedures set forth in paragraphs (i) - (x) above to take
into account such changes.
Section 7.10 Notices of Certain Events. Each of TCI and TCI Sub, on the one
hand, and Old VII, on the other hand, shall promptly notify the other of:
(a) any notice or other communication received from any
Person (other than with respect to consents identified on any
Schedule to this Agreement, the Implementation Agreement or the
Parents Agreement) alleging that the consent of such Person is or
may be required in connection with the Transaction;
(b) any notice or other communication from any governmental
or regulatory agency or authority in connection with the
Transaction;
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(c) any actions, suits, claims, investigations or
proceedings commenced, or to its knowledge threatened, against,
relating to, involving or otherwise affecting Old VII, TCI, TCI
Sub or their Affiliates, relating to the consummation of the
Transaction;
(d) any information known to such party that indicates that
any representation and warranty contained herein will not be true
and correct in any material respect as of the Exchange Time; and
(e) the occurrence of any event known to such party which
will result, or has a reasonable prospect of resulting, in the
failure to satisfy a condition specified in Article VIII or IX
hereof.
Section 7.11 Further Assurances. From time to time after the Exchange Time
and without further consideration, the parties will execute and deliver, or
arrange for the execution and delivery of such other instruments of conveyance
and transfer or other instruments or documents and take or arrange for such
other actions as may reasonably be requested to complete more effectively the
Transaction, to confirm the transfer to TCI Sub of title to the Shares as
provided herein, and to vest in TCI Sub all rights of a record owner of the
Shares. Old VII shall use its reasonable commercial efforts (but without Old VII
being required to incur any out-of-pocket expenses or costs) to remove or clear
any defects to its title to real property.
Section 7.12 Confidentiality of Transaction. Prior to the Exchange Time,
other than the release of information required by Lenders to Old VII or its
Affiliates or by applicable law (including, but not limited to, the preparation
and dissemination of the Offering Materials in the Exchange Offer), each party
shall, and shall cause its respective Affiliates, directors, officers, agents
and employees to, keep the existence and terms of this Agreement confidential,
except as the disclosure thereof may be required by law or pursuant to any
listing agreement with, or the rules or regulations of, any national securities
exchange on which securities of such party or any such Affiliate are listed or
traded or except as may be required to satisfy the "due diligence" inquiries of
any purchaser or underwriter with respect to any securities of such party or
Affiliate or of any lender to such party or Affiliate. Any press release
concerning this Agreement or the Transaction must be jointly approved by the
parties prior to its release.
Section 7.13 TCI Undertaking as to TCI Sub's Obligations. TCI hereby agrees
with Old VII to cause TCI Sub to pay when due all of TCI Sub's payment
obligations under this Agreement and to perform when due all of TCI Sub's other
obligations under this Agreement.
Section 7.14 Consummation of Transaction. Each of TCI, TCI Sub and Old VII
shall use reasonable commercial efforts to consummate and make effective as
promptly as practicable the Transaction, and will not take any action that would
cause the consummation of the Transaction to result in a violation of the
Communications Act or the rules and regulations promulgated thereunder that
would materially and adversely impair the ability of the parties and their
Affiliates to consummate the Transaction.
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Section 7.15 Estimated Exchange Time Basic Subscribers. Prior to the
Anticipated Commencement Date, Old VII will determine in good faith its
estimates of Exchange Date Basic Subscribers ("Estimated Exchange Date Basic
Subscribers"). At least five (5) Business Days prior to the Anticipated
Commencement Date, Old VII will deliver to TCI Sub a statement setting forth
Estimated Exchange Date Basic Subscribers, which statement shall: (i) contain
the information in reasonable detail required to calculate Estimated Exchange
Date Basic Subscribers; (ii) be prepared in accordance with the requirements of
this Agreement; and (iii) be certified by an authorized officer of Old VII to be
Old VII's good faith estimate as of the date thereof. Old VII shall not be
deemed to have made any representations or warranties as to the statements
delivered pursuant to this Section, except that they were prepared in good
faith.
Section 7.16 Estimate Statement; List of Service. Old VII will, at the time
it delivers an Estimate Statement or a statement described in the third sentence
of Section 3.1 of the Implementation Agreement to New VII, deliver a copy
thereof to TCI Sub. Old VII will, at the time it delivers to New VII a list
setting forth the service accrued by each Continuing Employee pursuant to
Section 8.1(b) of the Implementation Agreement, deliver a copy thereof to TCI
Sub.
Section 7.17 Approved Capital Expenditure Plan. Old VII shall make or cause
to be made the capital expenditures called for by the Approved Capital
Expenditure Plan in all material respects except that Old VII shall not be
required to make or cause to be made (i) expenditures which were required by law
at the time the Approved Capital Expenditure Plan was approved but are no longer
so required, (ii) expenditures which TCI Sub has agreed in writing do not have
to be made, (iii) expenditures which it is commercially unreasonable to make
because the assumptions used in developing and underlying the Approved Capital
Expenditure Plan prove to be incorrect in any material respect and (iv)
expenditures which cannot be made for reasons not within Old VII's control
(including, without limitation, unavailability of equipment, lack of access to
real property, delays in orders being filled, unavailability of pole attachment
agreements and force majeure). In the event clause (iii) above is applicable,
Old VII and TCI Sub shall cooperate and negotiate in good faith to amend the
Approved Capital Expenditure Plan to preserve for the parties, to the extent
reasonably practicable and commercially reasonable, the economic benefits
originally intended to be afforded by the expenditures not made as a consequence
of clause (iii) above.
Section 7.18 Reimbursement of Capital Expenditures. If this Agreement
terminates without the Exchange Time having occurred, TCI Sub shall reimburse
Old VII for the amount of additional capital expenditures that the Company shall
have made after January 20, 1995 as a result of complying with RCS's or TCI
Sub's rebuild standards as determined pursuant to the Approved Capital
Expenditure Plan. The incremental costs per mile of such capital expenditures
made prior to the date hereof are set forth under column A on Schedule 7.18 and
of such capital expenditures made after the date hereof are set forth under
column B on Schedule 7.18. TCI Sub shall promptly pay to Old VII the amount of
all such expenditures as to which Old VII has provided to TCI Sub documentation
establishing that such expenditures were made, provided that no such payment
shall be required earlier than the fifth Business Day after the date of such
termination, and the aggregate amount of such payments shall not exceed
23
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$6,215,000 if the Exchange Date occurs on or prior to December 31, 1995 or
$11,495,000 if the Exchange Date occurs after December 31, 1995, unless TCI Sub
shall have approved the capital expenditures to which such reimbursements in
excess of such amount relate. Notwithstanding any provision of any Transaction
Document, Old VII shall not be required to make any capital expenditure in order
to comply with RCS's or TCI Sub's rebuild standards if it would not be
reimbursed for the incremental cost thereof pursuant to this Section 7.18 upon
the termination of this Agreement without the Exchange Time having occurred.
Section 7.19 Sale of Dayton and Nashville Systems. Old VII will cooperate
with TCI Sub on a reasonable basis in seeking consents to the Transaction in a
manner that will facilitate the sale or exchange by Old VII of the Dayton and
Nashville Systems on or after the day following the Closing Date, provided that
Old VII will not be required to cooperate with TCI Sub pursuant to this Section
7.19 to the extent such cooperation involves any out-of-pocket expenditure by
Old VII or could in Old VII's judgment reasonably be expected to delay the
Exchange Date.
Section 7.20 Employment. (a) Not less than 120 days prior to the Exchange
Date, Old VII shall provide to TCI Sub a list of all active employees of the
Company as of a recent date showing then current job titles, work locations and
rates of compensation. Within twenty-five (25) days after Old VII's delivery of
such list, TCI Sub shall notify Old VII in writing of which employees TCI Sub or
its Affiliates intend to retain as employees of the Company (the "Continuing
Employees") and which employees TCI Sub and its Affiliates do not intend to
retain as employees of the Company (the "Non-Continuing Employees") after the
Exchange Time, provided, however, that TCI Sub shall not require the Company to
and the Company shall not violate any applicable employment discrimination laws,
any contractual or promissory rights of any employee or the terms of any
collective bargaining agreement then in effect with respect to any employee of
the Company covered by such agreement ("Cable Group Bargaining Agreement"). All
employees of the Company immediately prior to the Exchange Time which are
Non-Continuing Employees shall not be retained by the Company after the Exchange
Time.
(b) After the date Old VII provides to TCI Sub a list of active employees
of the Company pursuant to paragraph (a) above, TCI Sub may, by notice to Old
VII stating that TCI Sub is in good faith considering designating such an
employee a Continuing Employee, request that it be given access to any
employment agreement between such employee and Old VII or any Cable Division
Subsidiary, in which case Old VII will offer TCI Sub access to such agreement.
(c) Old VII has provided to TCI Sub true and complete copies of the most
recent Internal Revenue Service Form 5500 with respect to each Benefit Plan
which is tax qualified under Code Section 401(a) and which covers employees or
former employees of the Company.
Section 7.21 1996 Capital Expenditure Plan. Old VII and TCI Sub shall in
good faith endeavor to agree on a capital expenditure plan for the Company for
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1996 (the "1996 Capital Expenditure Plan"). If Old VII and TCI Sub cannot agree
on a 1996 Capital Expenditure Plan by December 31, 1995, the 1996 Capital
Expenditure Plan shall be prepared by Old VII and shall provide for quarterly
aggregate capital expenditures not in excess of the amount required to be spent
pursuant to the capital expenditure plan attached as Exhibit A to the
Implementation Agreement (the "1995 Plan") plus an amount equal to the
percentage growth in the consumer price index for 1995 (expressed as a decimal)
multiplied by such amount, provided that such amount shall be allocated among
different categories of expenditures in a manner consistent with the 1995 Plan
with such changes as are consistent with the progress of rebuilds and other
projects reflected thereon.
ARTICLE VIII
------------
CONDITIONS TO THE OBLIGATIONS OF TCI AND TCI SUB
Section 8.1 Funding Conditions. The obligations of TCI and TCI Sub to take
the action required to be taken by them pursuant to Section 3.1(c) shall be
subject to the satisfaction of each of the following conditions, each of which
may be waived by TCI and TCI Sub:
(i) HSR Act. Any applicable waiting period (and any
extension thereof) under the HSR Act shall have
expired or been terminated without the commencement or
threat of any litigation by a Governmental Authority
of competent jurisdiction to restrain the consummation
of the Transaction contemplated by this Agreement in
any material respect.
(ii) Consented Subscribers. The number of Consented
Subscribers shall be not less than 90% of Estimated
Exchange Date Basic Subscribers.
(iii) Absence of Injunction. No order, stay, judgment or
decree shall have been issued by any court and be in
effect restraining or prohibiting the consummation of
the Transaction in any material respect.
(iv) Conditions to Exchange Offer. All Exchange Offer
Conditions (other than the Minimum Condition and the
Old VII Bank Borrowing Condition) shall have been
satisfied or waived.
(v) Other Conditions. No condition contained in Section
8.2 shall have become incapable of satisfaction.
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(vi) Certificate. Old VII shall have delivered to TCI Sub a
certificate in which it certifies that to its
knowledge the conditions set forth in Section 8.2 are
reasonably likely to be satisfied.
Section 8.2 Closing Conditions. The obligations of TCI Sub required to be
performed by TCI Sub at the Closing are subject to the satisfaction, at or prior
to the Expiration Time (or, in the case of the conditions set forth in Sections
8.2.1(c) and 8.2.7, the Closing), of each of the following conditions, each of
which may be waived by TCI Sub:
Section 8.2.1 Representations and Warranties; Covenants. (a) Each
representation and warranty of Old VII contained in Article VI of this Agreement
and each representation and warranty of New VII in Article IV of the
Implementation Agreement that (i) is qualified by a reference therein to
"Material Adverse Effect", shall be true and correct as of the Expiration Time
as though such representation and warranty was made at and as of such time
(except to the extent a different date is specified therein, in which case such
representation and warranty will be true and correct as of such date), or (ii)
is not so qualified, shall be true and correct as of the Expiration Time as
though such representation and warranty were made at and as of such time (except
to the extent a different date is specified therein, in which case such
representation and warranty will be true and correct as of such date), with such
exceptions that do not, individually or in the aggregate, result in a Material
Adverse Effect, and except in the case of both clauses (i) and (ii) for changes
occurring after the date of this Agreement (x) pursuant to the terms of
Transaction Documents, (y) not prohibited by Section 7.1 or (z) consented to by
RCS prior to the date hereof or by TCI Sub.
(b) Each material covenant and obligation of Old VII and New VII required
by this Agreement or the Implementation Agreement to be performed by it at or
prior to the Expiration Time will have been duly performed and complied with in
all material respects as of the Expiration Time.
(c) Old VII shall have delivered the Certificate to TCI Sub.
(d) TCI Sub shall have received a certificate, dated as of the Closing Date
and duly executed by an executive officer of Old VII on behalf of Old VII, to
the effect that the conditions set forth in Section 8.2.1(a) and Section
8.2.1(b) have been satisfied.
Section 8.2.2 HSR Act. Any applicable waiting period (and any extension
thereof) under the HSR Act will have expired or been terminated without the
commencement or threat of any litigation by a Governmental Authority of
competent jurisdiction to restrain the consummation of the transactions
contemplated by this Agreement in any material respect.
Section 8.2.3 Consented Subscribers. The number of Consented Subscribers
shall be not less than 90% of Estimated Exchange Date Basic Subscribers.
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Section 8.2.4 Required Consents. Notwithstanding the provisions of Sections
2.2 and 2.3 of the Implementation Agreement, all consents required to be
obtained by VI or Old VII in connection with the transactions contemplated by
this Agreement shall have been obtained and remain in full force and effect,
with such exceptions as would not have a Material Adverse Effect.
Section 8.2.5 Absence of Injunction. No order, stay, judgment or decree
shall have been issued by any court and be in effect restraining or prohibiting
the consummation of the Transaction in any material respect.
Section 8.2.6 Opinions. Legal opinions of counsel to Old VII (who may be
the general counsel or deputy general counsel of VI or any Affiliate thereof
with respect to Exhibit A-1 only) given as of the time immediately prior to the
Exchange Time and covering the substance of the matters set forth in Exhibits
A-1 and A-2 shall be delivered to TCI Sub.
Section 8.2.7 Exchange Offer. The Exchange Time shall have occurred.
Section 8.2.8 Resignation of Officers and Directors. Old VII shall have
delivered to TCI Sub the resignation of each of its directors and corporate
officers, effective as of the Closing.
ARTICLE IX
----------
CONDITIONS TO THE OBLIGATIONS OF OLD VII
The obligations of Old VII to be performed by Old VII at the Closing are
subject to the satisfaction, at or prior to the Expiration Time (or, in the case
of the conditions set forth in Sections 9.1(c) and 9.7, the Closing) of each of
the following conditions, each of which may be waived by Old VII:
Section 9.1 Representations and Warranties; Covenants. (a) Each
representation and warranty of TCI and TCI Sub contained in Article V of this
Agreement will be true and correct in all material respects as of the Expiration
Time as though such representation and warranty was made at and as of such time
(except to the extent a different date is specified therein, in which case such
representation and warranty will be true and correct as of such date).
(b) Each material covenant and obligation of each of TCI and TCI Sub
required by this Agreement to be performed by it at or prior to the Expiration
Time will have been duly performed and complied with in all material respects as
of the Expiration Time.
(c) TCI Sub shall have paid the Purchase Price to Old VII in the manner
specified by Section 2.2.
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(d) Old VII will have received a certificate, dated as of the Closing Date
and duly executed by an executive officer of TCI Sub to the effect that the
conditions set forth in Sections 9.1(a) and 9.1(b) have been satisfied.
Section 9.2 HSR Act. Any applicable waiting period under the HSR Act (and
any extension thereof) shall have expired or been terminated without the
commencement or threat of any litigation by a Governmental Authority of
competent jurisdiction to restrain the consummation of the Transaction
contemplated by this Agreement in any material respect.
Section 9.3 Consented Subscribers. The number of Consented Subscribers
shall not be less than 90% of Estimated Exchange Date Basic Subscribers.
Section 9.4 Opinions. A legal opinion of counsel to TCI and TCI Sub (who
may be the general counsel or deputy general counsel of TCI, TCI Sub or any
Affiliate thereof) covering the substance of the matters set forth on Exhibit B
shall be delivered to Old VII.
Section 9.5 Consents. All consents required to be obtained by TCI and TCI
Sub in connection with the transactions contemplated hereby shall have been
obtained and remain in full force and effect, with such exceptions as do not
result in a material adverse effect on TCI's and TCI Sub's ability to consummate
the transactions contemplated hereby.
Section 9.6 Absence of Injunction. No order, stay, judgment or decree will
have been issued by any court and be in effect restraining or prohibiting the
consummation of the Transaction in any material respect.
Section 9.7 Exchange Offer. The Exchange Time shall have occurred.
ARTICLE X
---------
TERMINATION
Section 10.1 Termination. This Agreement shall automatically terminate upon
any termination of the Parents Agreement pursuant to Section 7.1 thereof.
Section 10.2 Effect of Termination. (a) Upon termination of this Agreement
pursuant to Section 10.1 hereof, except as provided in clause (b) below (i) this
Agreement will forthwith become null and void, (ii) such termination will be the
sole remedy with respect to any breach of any representation, warranty, covenant
or agreement contained in or made pursuant to this Agreement and (iii) no party
hereto or any of their respective officers, directors, employees, agents,
consultants, shareholders or principals will have any liability or obligation
hereunder or with respect hereto; provided, however, that no party to this
Agreement shall be entitled to recover consequential damages in respect of any
breach of this Agreement or any other Transaction Document.
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(b) The provisions of clause (a) above notwithstanding, no party will be
relieved of: (i) liability for any breach of representations and warranties of
Articles V and VI (other than Sections 6.9, 6.10 and 6.11 hereof), and (ii)
liability for any breach of any material covenant or agreement contained herein
or made pursuant hereto (for purposes of this Section 10.2 the covenants and
agreements of TCI and TCI Sub contained in Sections 2.2 and 3.1, and the
obligations of Old VII contained in Section 2.1, will be deemed to be material).
The provisions of Sections 3.1(e), 7.12, 7.13 (insofar as it applies to the
provisions referred to in this sentence), 7.18, 10.2, 11.2, 11.9 and 11.11 will
survive termination hereof.
ARTICLE XI
----------
MISCELLANEOUS
Section 11.1 Legend. The certificates representing the Shares shall bear
the following legend:
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF
REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT.
Section 11.2 Expenses. Except as expressly set forth herein, the fees and
expenses (including the fees of any lawyers, accountants, investment bankers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated will be paid by the party incurring the same.
Section 11.3 Headings. The Section headings herein are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. References to
Sections and Exhibits, unless otherwise indicated, are references to Sections
and Exhibits hereof.
Section 11.4 Notices. Any notice or other communication required or
permitted to be given hereunder will be in writing and will be mailed by prepaid
registered or certified mail, timely deposited with an overnight courier such as
Federal Express, or delivered against receipt, as follows:
(a) In the case of TCI or TCI Sub, to:
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, CO 80111-3000
Attention: Chief Executive Officer
with a copy to:
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, CO 80111-3000
Attention: General Counsel
(b) In the case of Old VII to:
Viacom Inc.
1515 Broadway
New York, NY 10036
Attention: General Counsel
with a copy to:
Hughes Hubbard & Reed
One Battery Park Plaza
New York, NY 10004
Attention: Ed Kaufmann, Esq.
or to such other address as the party may have furnished in writing in
accordance with the provisions of this Section 11.4. Any notice or other
communication shall be deemed to have been given, made and received upon
receipt. Either party may change the address to which notices are to be
addressed by giving the other party notice in the manner herein set forth.
Section 11.5 Assignment. This Agreement and all provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors, however, neither this Agreement nor any right, interest, or
obligation hereunder may be assigned by any party hereto (other than by
operation of law) without the prior written consent of the other parties, and
any such assignment or purported assignment without such consent shall be void.
Section 11.6 Entire Agreement. This Agreement and the other Transaction
Documents embody the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby and supersede all prior written
or oral commitments, arrangements or understandings with respect thereto.
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Section 11.7 Amendment; Waiver. (a) This Agreement may only be amended or
modified in writing signed by the party against whom enforcement of any such
amendment or modification is sought.
(b) Any party hereto may, by an instrument in writing, waive compliance
with any term or provision of this Agreement on the part of such other party
hereto. The waiver by any party hereto of a breach of any term or provision of
this Agreement will not be construed as a waiver of any subsequent breach.
Section 11.8 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
each of which will be deemed an original. All signatures need not be on one
counterpart.
Section 11.9 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER
PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO
MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE.
Section 11.10 Severability. If any one or more of the provisions of this
Agreement is held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement will
not be affected thereby, and Old VII, TCI Sub and TCI will use their reasonable
efforts to substitute one or more valid, legal and enforceable provisions which
insofar as practicable implement the purposes and intent hereof. To the extent
permitted by applicable law, each party waives any provision of law which
renders any provision of this Agreement invalid, illegal or unenforceable in any
respect.
Section 11.11 Consent to Jurisdiction. Each party hereby submits to the
non-exclusive jurisdiction of the courts of general jurisdiction of the States
of New York and Colorado and the federal courts of the United States of America,
located in the City of New York, New York, and Denver, Colorado solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and hereby waives, and agrees not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement of this
Agreement that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in such courts or that this Agreement
may not be enforced in or by such courts or that its property is exempt or
immune from execution, that the suit, action or proceeding is brought in an
inconvenient forum, or that the venue of the suit, action or proceeding is
improper. Service of process with respect thereto may be made upon any party by
mailing a copy thereof by registered or certified mail, postage prepaid, to such
party at its address as provided in Section 11.4 hereof, provided that service
of process may be accomplished in any other manner permitted by applicable law.
Section 11.12 Third Person Beneficiaries. This Agreement is not intended
and shall not be construed to confer upon any Person (other than TCI, TCI Sub
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and Old VII) any rights or remedies hereunder, except that New VII shall be a
third-party beneficiary of Section 3.1(d), entitled to enforce said Section as
if it were a party hereto.
Section 11.13 Specific Performance. Old VII, TCI and TCI Sub recognize that
any breach of any covenant or agreement contained in this Agreement may give
rise to irreparable harm for which money damages would not be an adequate
remedy, and accordingly agree that, in addition to other remedies, any
non-breaching party will be entitled to enforce the agreements and covenants
contained herein of TCI and TCI Sub or Old VII, as the case may be, by a decree
of specific performance without the necessity of proving the inadequacy as a
remedy of money damages.
Section 11.14 Survival. The representations and warranties contained in or
made pursuant to this Agreement shall terminate and be of no further force on
and as of April 30, 1997, except that the representation and warranty contained
in Sections 5.7, 6.7 and 6.8 and the provisions of the last sentence of Section
3.1(a) shall survive indefinitely.
Section 11.15 Preferred Stock Conversion. TCI shall contribute to Old VII
or otherwise cause Old VII to have available sufficient shares to enable Old VII
to issue to holders of the Preferred Stock, shares of TCI Stock upon exercise by
the holders of the Preferred Stock of their conversion rights as specified in
the terms of the Preferred Stock. TCI shall reserve and keep available at all
times, out of its authorized and unissued stock, sufficient shares of TCI Stock
to satisfy its obligations to Old VII in connection with such conversion of the
Preferred Stock. TCI agrees to comply with its obligations specified herein and
further agrees that any such TCI Stock, when issued, will be registered under
the 1933 Act, and all state securities and blue sky laws applicable to such
issuance shall have been complied with respect thereto.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in New York, New York, as of the day and year first above written.
VIACOM INTERNATIONAL INC.
By: /s/ Philippe P. Dauman
-------------------------------
Name: Philippe P. Dauman
Title: Executive Vice President
TELE-COMMUNICATIONS, INC.
By: /s/Stephen M. Brett
-------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
TCI COMMUNICATIONS, INC.
By: /s/ Gary S. Howard
------------------------------
Name: Gary S. Howard
Title: Senior Vice President
<PAGE>
Exhibit 12
VII CABLE
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(In millions)
<TABLE>
<CAPTION>
Pro Forma Pro Forma Nine Months
Nine Months Ended Year Ended Ended
September December September Year Ended December 31,
----------------- ---------- ---------- ---------------------------------------
1995 1994 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes ($39.6) ($70.7) $54.1 $26.4 $128.1 $ 53.1 $14.9 ($10.0)
Add:
Share in income of fifty-percent-owned
affiliates and distributed income of
affiliated companies 0.2 2.3 0.2 2.3 1.0 0.6 0.8 0.2
Interest expense, net of capitalized interest 78.5 104.6 37.9 38.1 33.4 49.8 71.5 70.2
Capitalized interest amortized 0.5 1.4 0.5 1.4 1.9 2.0 2.0 1.9
1/3 of rental expense 1.9 2.6 1.9 2.6 2.4 2.5 2.7 2.5
---------------------------------------------------------------------------------
Earnings $ 41.5 $ 40.2 $94.6 $70.8 $166.8 $108.0 $91.9 $ 64.8
=================================================================================
Fixed charges
Interest costs on all indebtedness $ 79.9 $ 105.5 $39.3 $39.0 $ 33.8 $ 50.3 $72.0 $ 71.0
1/3 of rental expense 1.9 2.6 1.9 2.6 2.4 2.5 2.7 2.5
---------------------------------------------------------------------------------
Total fixed charges $ 81.8 $ 108.1 $41.2 $41.6 $ 36.2 $ 52.8 $74.7 $ 73.5
Preferred Stock dividend requirements 26.0 34.6 0.0 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------
Total fixed charges and Preferred Stock dividend
requirements $ 107.8 $ 142.7 $41.2 $41.6 $ 36.2 $ 52.8 $74.7 $ 73.5
=================================================================================
Ratio of earnings to fixed charges Note a Note a 2.3x 1.7x 4.6x 2.0x 1.2x Note a
=================================================================================
Ratio of earnings to fixed charges and
Preferred Stock dividend requirements Note b Note b 2.3x 1.7x 4.6x 2.0x 1.2x Note b
=================================================================================
</TABLE>
(a) Earnings were inadequate to cover fixed
charges; the additional amount of earnings
required to cover fixed charges for Pro Forma
nine months ended 9/30/95, Pro Forma year ended
12/31/94, and the year ended 12/31/90, would
have been $40.3, $67.9 and $8.7 million,
respectively.
(b) Earnings were inadequate to cover combined
fixed charges and preferred stock dividends;
the additional amount of earnings required to
cover fixed charges for Pro Forma nine months
ended 9/30/95, Pro Forma year ended 12/31/94,
and the year ended 12/31/90, would have been
$66.3, $102.5 and $8.7 million, respectively.
<PAGE>
Exhibit 21
CABLE SUBSIDIARIES
------------------
Tele-Vue Systems, Inc.
Broadview Television Company
Cable TV of Marin, Inc.
Cable TV Puget Sound, Inc.
Channel 3 Everett Inc.
Clear View Cable Systems, Inc.
Community Telecable of Bellevue, Inc.
Community Telecable of Seattle, Inc.
Com-Cable Tv, Inc.
Contra Costa Cable Co.
Crockett Cable System Inc.
Everett Cablevision, Inc.
Far West Communications, Inc.
H-C-G Cablevision, Inc.
Marin Cable Television, Inc.
Television Signal Corporation
Viacom Bay Interconnect Inc.
Viacom Cablevision Inc.
Viacom Cablevision of Dayton Inc.
Viacom Cablevision of Northern California Inc.
Viacom Telecom Inc.
Vista Television Cable, Inc.
VSC Cable Inc.
United Community Antenna System, Inc.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Offering Circular -
Prospectus constituting part of this Registration Statement on Form S-4 of
Viacom International Inc. of our reports dated February 10, 1995 appearing on
pages II-14 and F-2 of the Viacom Inc. Annual Report on Form 10-K for the year
ended December 31, 1994 and of our reports dated June 3, 1994 appearing on page
F-2 and page 4 of Item 14(a) in the Paramount Communications Inc. Transition
Report on Form 10-K for the eleven month period ended March 31, 1994, as amended
by Form 10-K/A Amendment No. 1 dated July 29, 1994 and as further amended by
Form 10-K/A Amendment No. 2 dated August 12, 1994 included in the Viacom Inc.
Current Report on Form 8-K filed with the Securities and Exchange Commission on
April 14, 1995.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
November 17, 1995
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Offering Circular - Prospectus constituting
part of this Registration Statement on Form S-4 of Viacom International Inc. of
our reports dated September 11, 1995 relating to the financial statements and
schedule of VII Cable, which appear in such Offering Circular - Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
150 Almaden Boulevard
San Jose, CA 95113
November 17, 1995
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement (Form S-4) and related Prospectus of Viacom International
Inc. and to the incorporation by reference therein of our report dated August
27, 1993, except for Notes A and J, as to which the date is September 10, 1993,
with respect to the consolidated financial statements of Paramount
Communications Inc. included in the Viacom Inc. Current Report (Form 8-K) filed
with the Securities and Exchange Commission on April 14, 1995.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
November 17, 1995
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
March 23, 1994 on Blockbuster Entertainment Corporation's 1993, 1992 and 1991
financial statements, included in Viacom Inc.'s Form 8-K dated April 13, 1995,
and to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Fort Lauderdale, Florida,
November 17, 1995.
<PAGE>
EXHIBIT 24
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ Sumner M. Redstone
---------------------------
Sumner M. Redstone
1
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ George S. Abrams
--------------------------
George S. Abrams
2
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ Ken Miller
--------------------------
Ken Miller
3
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ Brent D. Redstone
----------------------------
Brent D. Redstone
4
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ William Schwartz
---------------------------
William Schwartz
5
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ Ivan Seidenberg
-------------------------
Ivan Seidenberg
6
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ Frederic V. Salerno
---------------------------
Frederic V. Salerno
7
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for her and in
her name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as she might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ Shari Redstone
-----------------------------
Shari Redstone
8
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ Steven R. Berrard
--------------------------
Steven R. Berrard
9
<PAGE>
VIACOM INC.
VIACOM INTERNATIONAL INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of VIACOM INC., a Delaware corporation ("Viacom"), and VIACOM INTERNATIONAL
INC., a Delaware corporation (the "Company"), hereby constitutes and appoints
Philippe P. Dauman and Michael D. Fricklas his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign (1) on behalf of
the Company, a registration statement on Form S-4, or such other form as may be
recommended by counsel, to be filed with the Securities and Exchange Commission
(the "Commission"), and any and all amendments and post-effective amendments
thereto and supplements to the Offering Circular - Prospectus contained therein,
and any and all instruments, registration statements and documents filed as a
part of or in connection with the said registration statement or amendments
thereto or supplements or amendments to such Offering Circular - Prospectus,
covering the offering and issuance of shares of the Company's Class A Common
Stock and Series A Preferred Stock (the "Securities") to be issued in connection
with the proposed exchange offer for shares of Viacom Inc. Class A Common Stock
and/or Class B Common Stock, (2) on behalf of Viacom, a Schedule 13E-4 relating
to the Securities to be filed by Viacom with the Commission under the Securities
Exchange Act of 1934, as amended, and any and all instruments and documents
filed as part of or in connection with such Schedule 13E-4 or amendments
thereto, (3) any registration statements or reports relating to the Securities
to be filed by the Company or Viacom with the Commission and/or any national
securities exchanges under the Securities Exchange Act of 1934, as amended, and
any and all amendments thereto, and any and all instruments and documents filed
as a part of or in connection with such registration statements, schedules or
reports or amendments thereto, and (4) any documents in connection with the
Parents Agreement among Viacom Inc., Tele-Communications, Inc. and TCI
Communications, Inc., the Implementation Agreement among the Company and Viacom
International Services Inc., the Subscription Agreement among the Company,
Tele-Communications, Inc. and TCI Communications Inc. and related agreements
thereto and any transactions contemplated thereby; granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that the said attorney-in-fact and agent, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this 16th day of
November, 1995.
/s/ George D. Johnson, Jr.
----------------------------
George D. Johnson, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF VII CABLE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,275
<SECURITIES> 0
<RECEIVABLES> 15,259
<ALLOWANCES> 1,714
<INVENTORY> 0
<CURRENT-ASSETS> 20,182
<PP&E> 725,494
<DEPRECIATION> 321,849
<TOTAL-ASSETS> 1,053,894
<CURRENT-LIABILITIES> 82,903
<BONDS> 57,000
<COMMON> 0
0
0
<OTHER-SE> 842,720
<TOTAL-LIABILITY-AND-EQUITY> 1,053,894
<SALES> 328,564
<TOTAL-REVENUES> 328,564
<CGS> 142,109
<TOTAL-COSTS> 268,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,928
<INCOME-PRETAX> 54,113
<INCOME-TAX> 25,902
<INCOME-CONTINUING> 27,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,854
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Audited
Financial Statements of VII Cable and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1995
<CASH> 3,011
<SECURITIES> 24,730
<RECEIVABLES> 13,906
<ALLOWANCES> 1,251
<INVENTORY> 0
<CURRENT-ASSETS> 43,461
<PP&E> 645,544
<DEPRECIATION> 280,511
<TOTAL-ASSETS> 1,040,434
<CURRENT-LIABILITIES> 88,768
<BONDS> 57,000
<COMMON> 0
0
0
<OTHER-SE> 823,940
<TOTAL-LIABILITY-AND-EQUITY> 1,040,434
<SALES> 404,499
<TOTAL-REVENUES> 404,499
<CGS> 170,779
<TOTAL-COSTS> 347,057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,050
<INCOME-PRETAX> 26,374
<INCOME-TAX> 17,680
<INCOME-CONTINUING> 9,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,146
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
