<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 33-64467
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VIACOM INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4841 04-2980402
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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.
DEPUTY CHAIRMAN, 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)
----------------
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. [_]
----------------
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.
================================================================================
<PAGE>
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.
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
--------------------------- ---------------------------------
<S> <C>
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.... Transaction Overview; Summary; Unaudited
Pro Forma Condensed Consolidated Financial
Statements of Viacom; 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............... Transaction Overview; Summary; The
Transaction; The Exchange Offer;
Arrangements among Viacom, Viacom
International, TCI and TCI Cable;
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 after the Exchange Offer;
Certain Federal Income Tax Consequences
5. Pro Forma Financial Information........ Unaudited Pro Forma Condensed Consolidated
Financial Statements of Viacom; 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
--------------------------- ---------------------------------
<S> <C>
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
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........................ Risk Factors; The Transaction; Business of
VII Cable; Management; Security
Ownership of VII Cable Common Stock;
Security Ownership of Certain Beneficial
Owners and Management of Viacom
Common Stock; Arrangements among
Viacom, Viacom International, TCI and TCI
Cable; Description of Certain Indebtedness
of VII Cable; Relationship between Viacom
and VII Cable
</TABLE>
<PAGE>
OFFERING CIRCULAR - PROSPECTUS
[LOGO OF VIACOM APPEARS HERE]
OFFERING CIRCULAR
VIACOM INTERNATIONAL INC.
(TO BE RENAMED TCI PACIFIC COMMUNICATIONS, INC.)
PROSPECTUS
Offer by Viacom to exchange a total of [ ] shares of Class A Common Stock
(having a par value of $100 per share and an aggregate par value of [$ ])
of a company (as further defined below, "VII Cable") that will own the cable
operations currently owned by Viacom for shares of Viacom Class A Common Stock
or Viacom Class B Common Stock, at an exchange ratio of not more than [. ] nor
less than [. ] of a share of VII Cable for each share of Viacom Class A Common
Stock or Viacom Class B Common Stock tendered. Each share of Class A Common
Stock of VII Cable will automatically and immediately convert into one share
of Class A Senior Cumulative Exchangeable Preferred Stock of VII Cable upon
the purchase of shares of Class B Common Stock of VII Cable by a wholly owned
subsidiary ("TCI Cable") of Tele-Communications, Inc. ("TCI"). On and after
the fifteenth day following the fifth anniversary of the date of issuance, VII
Cable may redeem shares of such Class A Senior Cumulative Exchangeable
Preferred Stock at redemption prices which decline ratably from $[ ] to $100
per share (plus accrued and unpaid dividends to the date of redemption)
between the fifth and eighth anniversaries of the date of issuance. On the
tenth anniversary of the date of issuance VII Cable is required to redeem such
Class A Senior Cumulative Exchangeable Preferred Stock for $100 per share,
plus accrued and unpaid dividends to the date of redemption. Unless previously
redeemed, each share of such Class A Senior Cumulative Exchangeable Preferred
Stock is exchangeable at the option of the holder after the fifth anniversary
of the date of issuance for a number of shares of TCI Stock (as defined below)
at the exchange rate determined as described herein, which will be announced
on the second business day prior to the expiration of the exchange offer
described herein. Dividends and payments upon optional or mandatory redemption
of shares of such Class A Senior Cumulative Exchangeable Preferred Stock may
be paid in cash, shares of TCI Stock or any combination thereof, at the option
of VII Cable. See "Index of Defined Terms" beginning on page xiv for the
location of the definitions of capitalized terms used herein.
---------------
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.
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
---------------
On [ ], 1996, the Class A Senior Cumulative Exchangeable Preferred
Stock of VII Cable was approved for quotation on the Nasdaq National Market
under the symbol "TPACP." On July 24, 1995, the last trading day prior to the
announcement of the Transaction, the closing sale prices per share of Viacom
Class A Common Stock and Viacom Class B Common Stock on the American Stock
Exchange (the "AMEX") were $50 and $50 1/4, respectively. Effective August 3,
1995, 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 the Nasdaq National
Market was $23 13/16. On May 10, 1996, the closing sale prices per share of
Viacom Class A Common Stock and Viacom Class B Common Stock on the AMEX were
$39 5/8 and $40 7/8, respectively, and the closing sale price per share of TCI
Stock on the Nasdaq National Market was $17 7/8 per share.
---------------
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 [ ], 1996.
<PAGE>
TRANSACTION OVERVIEW
Viacom Inc. ("Viacom") is offering you the opportunity to exchange some or
all of your shares of Viacom for shares of VII Cable, a company that will,
upon consummation of the transactions described herein, (i) own the cable
operations currently owned by Viacom, (ii) ultimately become a wholly owned
subsidiary of TCI, and be called TCI Pacific Communications, Inc. and (iii)
have a capital structure consisting principally of $1.35 billion of bank debt,
$[ ] million of preferred equity and $350 million of common equity. Although
the shares you would receive in such exchange offer will initially be common
stock, they will automatically and immediately convert (as described below)
into preferred stock having an annual dividend of [ ]% of its $100 par value.
You will not take physical possession of that common stock. Because it is
possible that all payments made in respect of that preferred stock, whether in
respect of dividends or mandatory or optional redemption, may be made in
shares of TCI Stock, you may ultimately own only shares of TCI Stock in lieu
of the shares of Viacom you tendered in the exchange offer. If you elect not
to participate in this exchange offer, you would continue to own common stock
in Viacom, a diversified entertainment and publishing company, which will (i)
no longer own any cable operations (which represented approximately 4% and 7%
of Viacom's consolidated revenues and operating income during 1995,
respectively, and 4% of Viacom's consolidated total assets as of December 31,
1995), (ii) have reduced its aggregate bank debt by approximately $1.7 billion
and (iii) have reduced the total number of shares of its outstanding common
stock by approximately 3%.
Throughout this Offering Circular - Prospectus we refer to your opportunity
to exchange as the "Exchange Offer." Because the Exchange Offer is unusual and
involves a series of steps, this condensed discussion will summarize the
choices and considerations facing a holder of either class of common stock of
Viacom. When we talk about Viacom's Class A Common Stock and Class B Common
Stock elsewhere in this Offering Circular -Prospectus we refer to that stock
as "Viacom Common Stock." Please be careful not to confuse Viacom Class A and
Class B Common Stock with VII Cable Class A and Class B Common Stock, which
are discussed below. Finally, when we refer to "VII Cable Preferred Stock" we
mean the shares of preferred stock that will ultimately be issued to
successful participants in the Exchange Offer.
As this discussion is just a summary, it is qualified by (and you are
strongly urged to carefully read and consider) the much more detailed
information contained in the rest of this Offering Circular - Prospectus.
BACKGROUND INFORMATION
Prior to the commencement of the transaction, Viacom International Inc. has
been a wholly owned subsidiary of Viacom Inc. Viacom International, in turn,
owns numerous businesses, including Paramount Pictures, MTV Networks, Showtime
Networks and Simon & Schuster, among many others. Included in those businesses
are cable television distribution systems located in California, Washington,
Oregon, Tennessee and Ohio, which serve an aggregate of approximately 1.2
million customers. Throughout this Offering Circular - Prospectus, the
business of Viacom International that operates those cable television systems
is referred to as the "Cable Business." However, Viacom International Inc. is
referred to as "Viacom International" so long as it still owns all the many
businesses described in the preceding paragraph and is referred to as "VII
Cable" when we are only referring to the Cable Business.
STRUCTURE OF THE TRANSACTION
On July 24, 1995, Viacom, Viacom International and a newly created wholly
owned subsidiary of Viacom International (which is referred to in this
Offering Circular - Prospectus as "Viacom Services") entered into agreements
with TCI and TCI Cable, which provide for the Steps described below. As you
will see, the structure of the transaction is such that Viacom and its family
of subsidiaries will look about the same before and after the Exchange Offer,
with the only difference being that Viacom will no longer own the Cable
Business and will have reduced the debt on its balance sheet by approximately
$1.7 billion.
i
<PAGE>
STEP 1. Viacom commences the
Exchange Offer described here-
in. Set forth below is a dia- [DEPICTION OF STEP 1. APPEARS HERE]
gram which shows the structure
of the relevant Viacom compa-
nies at the commencement of the
Exchange Offer.
- --------------------------------------------------------------------------------
STEP 2. Immediately prior to
the expiration of the Exchange
Offer, scheduled to be 20 busi-
ness days after commencement,
Viacom International will bor-
row $1.7 billion from a group
of bank lenders. This borrow- [DEPICTION OF STEP 2. APPEARS HERE]
ing, which is shown below, is
referred to in this Offering
Circular - Prospectus as the
"Loan" and the $1.7 billion is
referred to as the "Loan Pro-
ceeds."
- --------------------------------------------------------------------------------
STEP 3. On the same date the
Exchange Offer is completed
(which will occur shortly after
its expiration), all of the
Viacom International assets re-
lating to its businesses other
than the Cable Business (which
are referred to as the "Non-Ca-
ble Businesses"), together with
the Loan Proceeds of $1.7 bil-
lion, will be transferred to
Viacom Services (as shown be-
low). In addition, Viacom Serv- [DEPICTION OF STEP 3. APPEARS HERE]
ices will assume Viacom
International's outstanding
public debt securities and
guarantees, bank debt and all
of the liabilities related to
the Non-Cable Businesses (as
shown below). (Prior to these
transfers Viacom Services will
have no assets or liabilities.)
Viacom International will, how-
ever, keep the obligation to
repay the Loan and all of the
liabilities related to the Ca-
ble Business (other than cer-
tain nonmaterial specified lia-
bilities which will be trans-
ferred to Viacom Services).
ii
<PAGE>
STEP 4. In order to leave the Non-Cable Businesses and the Loan Proceeds be-
hind with Viacom after completion of the Exchange Offer, Viacom International
will transfer its ownership of Viacom Services to Viacom. After this transfer
Viacom International is referred to in this Offering Circular - Prospectus as
"VII Cable." As shown below, as a result of the first four steps, Viacom will
have two separate wholly owned subsidiaries: VII Cable, which will own only the
Cable Business and will have retained the obligation to repay the Loan; and
Viacom Services, which will own all of what initially were the non-cable busi-
nesses of Viacom International and the transferred debt and liabilities and
hold the Loan Proceeds of $1.7 billion. Viacom's $[. ] million ownership inter-
est in VII Cable is represented by [. ] million shares of a new class of stock
($100 par value per share) which we call "VII Cable Class A Common Stock." Do
not confuse this with Viacom's Class A Common Stock.
[DEPICTION OF STEP 4. APPEARS HERE]
- --------------------------------------------------------------------------------
STEP 5. Viacom will consummate the Exchange Offer, assuming that a sufficient
number of shares of Viacom Common Stock are tendered so as to enable Viacom to
exchange its entire $[. ] million ownership interest in VII Cable for shares of
Viacom Common Stock. The condition that there be tendered a sufficient number
of shares of Viacom Common Stock to enable Viacom to exchange such [$. ] mil-
lion ownership interest in VII Cable is a very important concept that appears
throughout this Offering Circular - Prospectus and is referred to as the "Trig-
ger Amount." We direct your attention to the further discussion of this concept
under the heading "Exchange Procedure" below. As shown below, after this Step
5, VII Cable will no longer be a subsidiary of Viacom and will be wholly owned
by the successful participating Viacom stockholders.
[DEPICTION OF STEP 5. APPEARS HERE]
iii
<PAGE>
STEP 6. VII Cable will issue all of the VII Cable Class B Common Stock to
TCI Cable for $350 million. This will occur immediately after completion of the
Exchange Offer. Upon that issuance, the VII Cable Class A Common Stock will au-
tomatically and immediately become VII Cable Preferred Stock. As shown below,
after this Step 6, the only common stock of VII Cable outstanding will be VII
Cable Class B Common Stock, all of which will be owned by TCI Cable, and those
Viacom stockholders whose shares are accepted for exchange in the Exchange Of-
fer will own all of the outstanding shares of VII Cable Preferred Stock.
[DEPICTION OF STEP 6. APPEARS HERE]
THE EXCHANGE PROCEDURE
The Exchange Offer is being conducted as a modified "dutch auction." This
means you will have the opportunity to pick an Exchange Ratio (within the range
specified below) at which you are willing to exchange some or all of your
Viacom Common Stock for shares of VII Cable Class A Common Stock (and therefore
ultimately for shares of VII Cable Preferred Stock). Whether and to what extent
you will have your tendered shares accepted for exchange in the Exchange Offer
will depend upon how the Exchange Ratio specified by you compares to Exchange
Ratios specified by other tendering Viacom stockholders. In other words, a
"dutch auction" is a competitive bid between you and other Viacom stockholders
where the Final Exchange Ratio is the lowest bid which enables Viacom to
exchange all of the shares of VII Cable Class A Common Stock.
If you elect to participate in the Exchange Offer you must decide what
portion of a share of VII Cable Class A Common Stock (and, therefore, of a
share of VII Cable Preferred Stock) you would be willing to receive for each
share of Viacom Common Stock you choose to tender in the Exchange Offer. That
relationship (i.e., that portion of a share of VII Cable Class A Common Stock
(and, therefore, of a share of VII Cable Preferred Stock) which you are willing
to accept in exchange for each share of Viacom Common Stock tendered) is
referred to throughout the Offering Circular - Prospectus as the "Exchange
Ratio." Viacom has established a range within which stockholders may select an
Exchange Ratio (which is referred to in this Offering Circular - Prospectus as
the "Exchange Ratio Range"). At the bottom of this range, which is referred to
in this Offering Circular - Prospectus as the "Minimum Exchange Ratio," a
successful participating stockholder would receive [. ] of a share of VII
Cable Class A Common Stock for each share of Viacom Common Stock tendered. At
the top of this range, which is referred to in this Offering Circular -
Prospectus as the "Maximum Exchange Ratio," a successful participating
stockholder would receive [. ] of a share of VII Cable Class A Common Stock
for each share of Viacom Common Stock tendered. Shortly after expiration of the
Exchange Offer, Viacom will determine the lowest Exchange Ratio at or below
which a sufficient number of shares of Viacom Common Stock
iv
<PAGE>
have been tendered to satisfy the Trigger Amount. For example, since the
Trigger Amount is [$ ] million, the Trigger Amount would be satisfied in any
one of the following examples:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
VIACOM COMMON STOCK
TENDERED AT OR BELOW THE
EXCHANGE RATIO INDICATED EXCHANGE RATIO VALUE TENDERED
-------------- ------------------------ --------------
<S> <C> <C>
[. ] [ ] million [$ ] million
[. ] [ ] million [$ ] million
[. ] [ ] million [$ ] million
</TABLE>
Said another way, the Trigger Amount will be satisfied whenever the number
of shares tendered at or below a particular Exchange Ratio multiplied by that
Exchange Ratio (times 100) equals or exceeds [$ ] million. The Exchange Ratio
used to satisfy the Trigger Amount is referred to in this Offering Circular -
Prospectus as the "Final Exchange Ratio." If the result is over [$ ]
million, the Exchange Offer will be oversubscribed and all tendering Viacom
stockholders who tendered their shares at or below the Final Exchange Ratio
will be prorated. All stockholders whose shares are accepted in the Exchange
Offer will receive the Final Exchange Ratio even if they tendered at an
Exchange Ratio lower than the Final Exchange Ratio. Accordingly, any
stockholder whose shares are accepted in the Exchange Offer will receive no
less than the Exchange Ratio specified by that stockholder.
TERMS OF THE VII CABLE PREFERRED STOCK
The following is a brief description of the principal terms of the VII Cable
Preferred Stock:
DIVIDENDS--[ ]% annually of the $100 par value; cumulative and payable
quarterly if declared by the Board of Directors of VII Cable. VII Cable has
the right to make dividend payments in cash, shares of TCI Stock or any
combination thereof. If VII Cable elects to pay any dividend payment 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 equal to a number of shares of TCI Stock determined
by dividing the dollar amount of the Stock Dividend Amount by an amount equal
to 95% of the Average Market Price. 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 the Nasdaq National Market for the ten
consecutive dates on which the Nasdaq National Market is open for the
transaction of business ending on the third such day preceding the date of
determination (adjusted as described herein). See "--Payments in TCI Stock"
below.
Viacom determined the dividend rate based upon the advice of its financial
advisor, Wasserstein Perella & Co., Inc. and TCI's financial advisor, Merrill
Lynch & Co. (which are referred to in this Offering Circular - Prospectus as
"Wasserstein Perella" and "Merrill Lynch", respectively, and collectively as
the "Financial Advisors"). The dividend rate was set so that the VII Cable
Preferred Stock would, in the opinion of the Financial Advisors and based upon
conditions at the time they gave their advice, be expected to have a market
value of approximately $100 per share immediately after completion of the
transaction (assuming no change in conditions between the date of their
opinion and the date of consummation of the transaction). In advising Viacom
and TCI as to the dividend rate, the Financial Advisors considered various
factors, including the following: (i) the other terms of the VII Cable
Preferred Stock described below, (ii) VII Cable's recent results of
operations, its future prospects and those of the cable industry generally,
(iii) the terms of (including the dividend rates on), and market prices of,
securities of other companies considered to be comparable to VII Cable, and
(iv) general economic, financial and market conditions prevailing at the time
that the dividend rate was set. The dividend rate was determined based on
conditions as of [ ], 1996 and may not be the rate that the Financial
Advisors would have recommended if the rate were determined at the end of the
Exchange Offer based on conditions at that time. Furthermore, the Financial
Advisors' advice does not constitute an assurance that the VII Cable Preferred
Stock will not trade below $100 per share initially or at any time thereafter.
See "Risk Factors--Uncertainties with Respect to Setting the Dividend Rate."
v
<PAGE>
LIQUIDATION PREFERENCE; RANKING--In the event of a dissolution of VII Cable or
similar event, holders of VII Cable Preferred Stock will be entitled to
receive $100 per share, together with accrued but unpaid dividends, from the
assets of VII Cable prior to any distributions to holders of any other
security of VII Cable which ranks junior to the VII Cable Preferred Stock. The
aggregate liquidation preference of $[ ] million represents the difference
between the estimated value of the assets of VII Cable of $[ ] billion
(referred to in this Offering Circular - Prospectus as the "Estimated Asset
Value") and the $1.7 billion Loan.
EXCHANGE PRIVILEGE--A holder of VII Cable Preferred Stock may, at its option,
at any time after the fifth anniversary of the date of issuance (but subject
to certain restrictions), exchange any or all of its shares of VII Cable
Preferred Stock for shares of TCI Stock. The number of shares of TCI Stock
that each share of VII Cable Preferred Stock will be exchangeable for (which
is referred to in this Offering Circular - Prospectus as the "TCI Exchange
Rate") will be determined and announced by 5:00 pm, New York City time, on the
second business day prior to the expiration of the Exchange Offer by issuing a
press release to the Dow Jones News Service. After that time, holders of
Viacom Common Stock will also be able to obtain the initial TCI Exchange Rate
from the Information Agent or the Dealer Manager at their respective telephone
numbers appearing on the back cover of this Offering Circular - Prospectus.
The initial TCI Exchange Rate will be obtained by dividing (i) $100 by (ii)
125% of the weighted average of the sales prices for all trades of shares of
TCI Stock as reported on Nasdaq on each of the 20 full consecutive trading
days ending on such business day. The TCI Exchange Rate will be subject to
adjustment as described in this Offering Circular - Prospectus. For example,
if the 20-day average market price of a share of TCI Stock on the second
business day prior to the expiration of the Exchange Offer was $20 per share,
a 25% premium on such price would result in a $25 per share price and a holder
of VII Cable Preferred Stock (which has a liquidation preference of $100 per
share) would receive four shares of TCI Stock for every share of VII Cable
Preferred Stock exchanged. Changes in the market value of the VII Cable
Preferred Stock will not cause the TCI Exchange Rate to fluctuate.
OPTIONAL REDEMPTION--On and after the fifteenth day following the fifth
anniversary of the date of issuance, VII Cable may redeem shares of VII Cable
Preferred Stock at redemption prices which decline ratably from $[ ] to $100
per share (plus accrued and unpaid dividends to the date of redemption)
between the fifth and eighth anniversaries of the date of issuance. VII Cable
has the right to make optional redemption payments in cash, shares of TCI
Stock or any combination thereof. See "--Payments in TCI Stock" below.
MANDATORY REDEMPTION--On the tenth anniversary of the date of issuance, VII
Cable is required to redeem the VII Cable Preferred Stock for $100 per share,
plus accrued and unpaid dividends to the date of redemption. VII Cable has the
right to make mandatory redemption payments in cash, shares of TCI Stock or
any combination thereof. See "--Payments in TCI Stock" below.
PAYMENTS IN TCI STOCK--VII Cable has the right to make dividend, optional
redemption and mandatory redemption payments in cash, shares of TCI Stock or
any combination of cash and TCI Stock. If payments are made in shares of TCI
Stock, VII Cable will discount the market value of the TCI Stock by 5% in
determining the number of shares of TCI Stock required to be issued to satisfy
such payments. Accordingly, it is possible that you may only receive dividends
in the form of TCI Stock and that, if you hold the VII Cable Preferred Stock
through the date of any redemption, you will not receive anything other than
shares of TCI Stock.
DETERMINING TO PARTICIPATE IN THE EXCHANGE OFFER
Whether to participate in the Exchange Offer. Viacom stockholders should
consider not only the value of what they are tendering in the Exchange Offer
(i.e., shares of Viacom Common Stock), and the value of what they are
ultimately receiving after completion of the transaction (i.e., shares of VII
Cable Preferred Stock) but also considerations discussed in the first
paragraph of this Transaction Overview. In valuing a share of Viacom Common
Stock to be tendered in the Exchange Offer, a Viacom stockholder may wish to
consider the market prices of the Viacom Common Stock as well as such
stockholder's view of the future trading prices of the Viacom Common Stock. In
valuing a share of VII Cable Preferred Stock to be ultimately received after
completion of the transaction, a Viacom stockholder should consider all of the
factors described above under
vi
<PAGE>
"Terms of the VII Cable Preferred Stock--Dividends," including but not limited
to the fact that the dividend rate was set so that the VII Cable Preferred
Stock would, in the opinion of the Financial Advisors and based upon
conditions at the time they gave their advice, be expected to have a market
value of approximately $100 per share (assuming no change in conditions
between the date of their opinion and the date of consummation of the
transaction). Please note that since the dividend rate was set prior to
commencement of the Exchange Offer based on conditions as of [ ], 1996, it
may not be the dividend rate that the Financial Advisors would have
recommended if the rate were determined at the end of the Exchange Offer based
on conditions at that time. See "Risk Factors--Uncertainties with Respect to
Setting the Dividend Rate."
Selecting an Exchange Ratio. In the event you determine to tender some or
all of your shares of Viacom Common Stock in the Exchange Offer, in deciding
at which Exchange Ratio to tender you should consider not only your view of
the value of a single share of Viacom Common Stock and a single share of VII
Cable Preferred Stock (i.e., the value ultimately to be received for that
being surrendered) but the level of certainty that your tender will be
accepted in the Exchange Offer. That is, even if you determine that a share of
Viacom Common Stock is worth [$ ] and a share of VII Cable Preferred Stock is
worth $100, you do not have to tender at an Exchange Ratio of [ ] ([$ ]
divided by $100), but can tender the same share of Viacom Common Stock at a
higher Exchange Ratio. Obviously, the higher the Exchange Ratio specified, the
lower the likelihood that you will have your shares accepted for exchange. A
tender at an Exchange Ratio above the Final Exchange Ratio will not be
accepted. Because only tenders made at an Exchange Ratio equal to or less than
the Final Exchange Ratio will be accepted for exchange, only tenders at the
Minimum Exchange Ratio are assured of being accepted in the Exchange Offer
(subject to proration and assuming the Trigger Amount is reached). In
selecting an Exchange Ratio at which to tender a share of Viacom Common Stock
you should remember that you based your decision in part on your view of the
value of a share of VII Cable Preferred Stock. You should also remember that
the market value of such a share may be different from your view of the value
of such a share. If the market value of a share of VII Cable Preferred Stock
is lower than the value you assumed in selecting the Exchange Ratio at which
you tendered (and assuming all other things remain the same), each share of
VII Cable Preferred Stock you receive will have less value than you thought it
would at the Exchange Ratio you selected. For example, if you selected an
Exchange Ratio of [ ] based on your view of a $100 per share value of the VII
Cable Preferred Stock and the per share market value becomes [$ ], you would
have only received VII Cable Preferred Stock having a value of [$ ] rather
than [$ ] for each share of Viacom Common Stock which was accepted for
exchange.
Set forth below is a chart which shows the number of shares of VII Cable
Preferred Stock and the value thereof that would ultimately be received
(assuming no proration) after completion of the transaction for tenders of
various amounts of shares of Viacom Common Stock. Also shown is the value of
such amounts of Viacom Common Stock assuming various values per share.
<TABLE>
<CAPTION>
CONSIDERATION RECEIVED FOR SHARES OF VIACOM COMMON STOCK(A)
-----------------------------------------------------------
NUMBER OF SHARES
OF VIACOM COMMON VALUE OF VIACOM AT THE MINIMUM AT THE MAXIMUM
STOCK TENDERED COMMON STOCK TENDERED(A) EXCHANGE RATIO ([ ]) EXCHANGE RATIO ([ ])
- ---------------- ----------------------------- ------------------------------ ------------------------------
AT [$ ] AT [$ ] AT [$ ] NUMBER VALUE NUMBER VALUE
PER SHARE PER SHARE PER SHARE OF SHARES PER SHARE(B) OF SHARES PER SHARE(B)
--------- --------- --------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 [$ ] [$ ] [$ ] [$ ] [$ ] [$ ] [$ ]
100 [$ ] [$ ] [$ ] [ ] [$ ] [ ] [$ ]
</TABLE>
- --------
(a) - Some amounts have been rounded. No fractional shares will be issued.
(b) - Assumes that the market value per share is equal to the par value of
$100 per share. As described in "Risk Factors--Uncertainties with
Respect to Setting the Dividend Rate," the VII Cable Preferred Stock
may not have a market value of $100 per share immediately after
completion of the transaction. As also described above, if the market
value of a share of VII Cable Preferred Stock is lower than the value
assumed in selecting the Exchange Ratio at which a share of Viacom
Common Stock is tendered (and assuming all other things remain the
same), you will receive VII Cable Preferred Stock having less value
than you expected it to have at the Exchange Ratio you selected.
vii
<PAGE>
For example, if you value one share of your Viacom Common Stock at [$ ] and
you elect to tender that share at the Maximum Exchange Ratio ([. ]), assuming
the $100 value per share of the VII Cable Preferred Stock, you would
ultimately receive [$ ] of value if the Final Exchange Ratio is the Maximum
Exchange Ratio (but if in this example the Final Exchange Ratio is below the
Maximum Exchange Ratio, your shares would not have been accepted). This would
be giving a 12.5% premium to your share but would be decreasing the likelihood
of your successful participation in the Exchange Offer. However, if you elect
to tender that same [$ ] share of Viacom Common Stock at the Minimum Exchange
Ratio, with the same assumption as to the value of a share of VII Cable
Preferred Stock, you would ultimately receive [$ ] of value, but you would be
increasing the likelihood of your successful participation in the Exchange
Offer. If you elect to tender at the Minimum Exchange Ratio, with the same
assumption as to the value of a share of VII Cable Preferred Stock, you could
still ultimately receive greater than [$ ] if the Final Exchange Ratio is in
excess of the Minimum Exchange Ratio.
RISK FACTORS
In considering whether or not to tender shares of Viacom Common Stock in the
Exchange Offer, you should be aware that there are various risks related to an
investment in VII Cable Preferred Stock. In particular, you should consider
the following:
Market Uncertainties with Respect to VII Cable Preferred Stock--The VII
Cable Preferred Stock has no trading history. Even if the VII Cable Preferred
Stock has a market value of approximately $100 per share immediately after the
completion of the transaction, it may trade below $100 per share after that.
Uncertainties with Respect to Setting the Dividend Rate--The dividend rate
was set one day prior to the commencement of the Exchange Offer and may not be
the rate that the Financial Advisors would have recommended if the rate were
determined at the end of the Exchange Offer based on conditions at that time.
Therefore, the VII Cable Preferred Stock may not trade at $100 per share after
completion of the transaction.
Payments in TCI Stock--You may only receive dividends in the form of TCI
Stock and if you hold the shares of VII Cable Preferred Stock through the date
of any redemption, you may not receive anything other than shares of TCI
Stock.
Impact of High Leverage--VII Cable's high level of debt will limit its
ability to use its cash flow to grow its business.
Controlling Stockholder--TCI will be able to control the election of the VII
Cable Board and the way in which VII Cable conducts its business in the
future.
Potential Conflicts of Interest--Although intercompany arrangements between
TCI and its affiliates and VII Cable and its affiliates will generally be on
an arm's length basis, conflicts of interest may arise from time to time.
Dependence on Additional Cash--VII Cable will continue to need additional
cash to take advantage of technological advances and may not be able to raise
such cash on terms acceptable to it.
Rapid Technological Changes--VII Cable's business may not be able to keep
pace with these changes.
Regulation and Competition in the Cable Distribution Business--The cable
distribution business is regulated by federal, state and local laws and
regulations which are constantly being changed. In addition, the cable
distribution business faces the potential for significant competition.
Tax Treatment of the Transaction--Although the Internal Revenue Service has
stated that the transaction will not be taxable (except for any cash received
in lieu of fractional shares), if the transaction is subsequently held to be
taxable, both Viacom and Viacom stockholders whose shares were accepted for
exchange in the Exchange Offer could be subject to a significant amount of
tax.
viii
<PAGE>
The foregoing is an abbreviated discussion of the risks related to an
investment in VII Cable Preferred Stock. For a more detailed discussion, see
"Risk Factors" in this Offering Circular - Prospectus.
None of Viacom, Viacom International, the Dealer Manager, the Board of
Directors of Viacom and 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 to be distributed
pursuant to the Exchange Offer and to all shares of VII Cable Preferred Stock
to be issued upon conversion of the VII Cable Class A Common Stock.
National Amusements, Inc., the owner of approximately 61% of the outstanding
shares of 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.
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, as
Dealer Manager, or one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
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, VIACOM INTERNATIONAL OR THE DEALER MANAGER. 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.
ix
<PAGE>
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, VII Cable will be required to file reports, proxy
statements and other information with the Commission pursuant to the
requirements of the Exchange Act.
x
<PAGE>
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,
1995;
2. Viacom's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996; and
3. Viacom's Current Reports on Form 8-K filed April 14, 1995 and January
18, 1996.
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.
xi
<PAGE>
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 Stock which may be issued as dividends
on, or upon exchange or optional or mandatory redemption of, the VII Cable
Preferred 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 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. NEITHER
VIACOM NOR VIACOM INTERNATIONAL NOR THE DEALER MANAGER HAS PARTICIPATED IN THE
PREPARATION OF SUCH DOCUMENT OR MADE ANY DUE DILIGENCE INQUIRY WITH RESPECT TO
TCI. NEITHER VIACOM NOR VIACOM INTERNATIONAL NOR THE DEALER MANAGER MAKES ANY
REPRESENTATION THAT SUCH TCI PROSPECTUS IS ACCURATE OR COMPLETE. VIACOM,
VIACOM INTERNATIONAL AND THE DEALER MANAGER 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.
xii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRANSACTION OVERVIEW...................................................... i
AVAILABLE INFORMATION..................................................... x
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE............................................................ xi
TCI PROSPECTUS--EXPLANATORY NOTE.......................................... xii
INDEX OF DEFINED TERMS.................................................... xiv
OFFERING CIRCULAR - PROSPECTUS SUMMARY.................................... 1
RISK FACTORS.............................................................. 22
Market Uncertainties with Respect to VII
Cable Preferred Stock............................................... 22
Uncertainties with Respect to Setting the
Dividend Rate....................................................... 22
Payments in TCI Stock................................................. 22
Impact of High Leverage............................................... 22
Controlling Stockholder............................................... 23
Potential Conflicts of Interest....................................... 23
Dependence on Additional Capital...................................... 24
Rapid Technological Changes........................................... 24
Regulation and Competition in the Cable
Distribution Business............................................... 24
Tax Treatment of the Transaction...................................... 25
THE TRANSACTION........................................................... 26
General............................................................... 26
Purpose and Effects of the Transaction................................ 27
No Appraisal Rights................................................... 28
Regulatory Approvals.................................................. 28
Anticipated Accounting Treatment...................................... 29
THE EXCHANGE OFFER........................................................ 29
Terms of the Exchange Offer........................................... 29
Exchange of Shares of Viacom Common Stock............................. 31
Determining to Participate in the Exchange Offer...................... 33
Procedures for Tendering Shares of Viacom Common Stock................ 34
Guaranteed Delivery Procedure......................................... 36
Withdrawal Rights..................................................... 37
Extension of Tender Period; Termination; Amendment.................... 37
Conditions to Consummation of the Exchange Offer...................... 39
Fees and Expenses..................................................... 40
Miscellaneous......................................................... 41
MARKET PRICES, TRADING AND DIVIDEND INFORMATION........................... 41
Viacom Common Stock................................................... 41
VII Cable Class A Common Stock and VII Cable Preferred Stock.......... 42
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF VIACOM.............................. 43
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS OF VII CABLE............................... 49
SELECTED COMBINED HISTORICAL
FINANCIAL DATA OF VII CABLE.............................................. 57
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VII CABLE.................................................. 58
BUSINESS OF VII CABLE..................................................... 65
The Company............................................................. 65
VII Cable's Systems..................................................... 65
Franchises.............................................................. 66
Subscriber Services and Rates........................................... 67
Programming............................................................. 68
Competition............................................................. 68
Regulation.............................................................. 70
Properties.............................................................. 74
Employees............................................................... 74
Legal Proceedings....................................................... 74
MANAGEMENT................................................................ 75
Management Biographies.................................................. 75
Board of Directors...................................................... 76
Compensation of the Board of Directors.................................. 76
Indemnification......................................................... 76
Compensation of Executive Officers...................................... 77
SECURITY OWNERSHIP OF VII CABLE COMMON STOCK.............................. 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF VIACOM
COMMON STOCK............................................................. 77
ARRANGEMENTS AMONG VIACOM, VIACOM INTERNATIONAL, TCI AND TCI CABLE........ 79
Terms of the Parents Agreement.......................................... 79
Terms of the Implementation Agreement................................... 82
Terms of the Subscription Agreement..................................... 87
Terms of Certain Ancillary Agreements................................... 92
DESCRIPTION OF CERTAIN INDEBTEDNESS OF VII CABLE.......................... 94
DESCRIPTION OF VII CABLE CAPITAL STOCK.................................... 96
General................................................................. 96
Common Stock--General................................................... 96
VII Cable Class A Common Stock.......................................... 97
VII Cable Class B Common Stock.......................................... 97
VII Cable Preferred Stock............................................... 97
COMPARISON OF RIGHTS OF STOCKHOLDERS OF VIACOM AND VII CABLE.............. 110
RELATIONSHIP BETWEEN VIACOM AND VII CABLE................................. 112
RELATIONSHIP BETWEEN VII CABLE AND TCI AFTER THE EXCHANGE OFFER........... 112
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 113
The Transaction......................................................... 113
Ownership and Disposition of VII Cable Preferred Stock.................. 113
LEGAL MATTERS............................................................. 115
EXPERTS................................................................... 115
INDEX TO COMBINED FINANCIAL STATEMENTS.................................... F-1
</TABLE>
xiii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
"Adjustment Amounts"........................................... 4
"Affiliate".................................................... 109
"Agent's Message".............................................. 35
"Aggregate Loan Amount"........................................ 39
"AMEX"......................................................... prospectus cover
"Ancillary Agreements"......................................... 93
"Anticipated Commencement Date"................................ 87
"Applicable Period"............................................ 93
"Approved Capital Expenditure Plan"............................ 89
"ASCAP"........................................................ 72
"Asset Value".................................................. 83
"Assumption of Liabilities".................................... 82
"Average Market Price"......................................... 99
"Basic Subscribers"............................................ 81
"Benchmark Regulations"........................................ 64
"Bill of Sale"................................................. 82
"BMI".......................................................... 72
"Book-Entry Transfer Facility"................................. 35
"Cable Business"............................................... i
"Cable Division Subsidiary".................................... 79
"Capital Expenditure Amount"................................... 3
"Cash Collateral Account"...................................... 79
"Cash Equivalent Amount"....................................... 16
"Channel Occupancy Rules"...................................... 71
"Class A Senior Cumulative Exchangeable Preferred Stock"....... prospectus cover
"Code"......................................................... 25
"Commission"................................................... ix
"Commitments to Lend".......................................... 87
"Communications Act"........................................... 24
"Conversion"................................................... 4
"Conveyance"................................................... 3
"Conveyance of Assets"......................................... 82
"Copyright Act"................................................ 68
"Credit Agreement"............................................. 62
"Credit Facilities"............................................ 94
"Dayton"....................................................... 62
"DBS".......................................................... 62
"Dealer Manager"............................................... prospectus cover
"DGCL"......................................................... 6
"DirecTV"...................................................... 69
"Distributions"................................................ 4
"Dividend Payment Date"........................................ 98
"DTC".......................................................... 35
"Eligible Institution"......................................... 35
"Estimated Asset Value"........................................ vi
"Estimated Net Asset Value".................................... 50
"Exchange Act"................................................. ix
"Exchange Agent"............................................... 13
"Exchange Date"................................................ 32
"Exchange Offer"............................................... i
"Exchange Ratio"............................................... iv
</TABLE>
<TABLE>
<S> <C>
"Exchange Ratio Range"...................................................... iv
"Exchange Time"............................................................. 32
"Expiration Date"........................................................... 11
"Expiration Time"........................................................... 11
"Extraordinary Cash Dividends".............................................. 103
"FCC"....................................................................... 7
"Federal Funds Effective Rate".............................................. 95
"Final Exchange Ratio"...................................................... v
"Financial Advisors"........................................................ v
"First Distribution"........................................................ 1
"Fixed Amount".............................................................. 4
"Force Majeure Event"....................................................... 38
"Force Majeure Notice"...................................................... 38
"HSR Act"................................................................... 6
"IMP"....................................................................... 19
"Implementation Agreement".................................................. 2
"Inconsistent Terms"........................................................ 79
"Information Agent"......................................................... 13
"Initial Redemption Date"................................................... 105
"Inventory Amount".......................................................... 3
"IRS"....................................................................... 7
"Issue Date"................................................................ 98
"Junior Stock".............................................................. 100
"Lenders"................................................................... 87
"Letter Agreement".......................................................... 93
"Liberty"................................................................... 61
"LIBOR"..................................................................... 4
"Limited Service"........................................................... 67
"Liquidation Preference".................................................... 97
"Loan"...................................................................... 94
"Loan Documentation"........................................................ 87
"Loan Proceeds"............................................................. ii
"Mandatory Redemption Date"................................................. 105
"Mandatory Redemption Price"................................................ 105
"Maximum Exchange Ratio".................................................... iv
"Merrill Lynch"............................................................. v
"Minimum Exchange Ratio".................................................... iv
"Missouri Plan"............................................................. 35
"Missouri Plan Participants"................................................ 35
"MLDS"...................................................................... 68
"MMDS"...................................................................... 62
"MSTC"...................................................................... 35
"NAI"....................................................................... 2
"Negotiation Period"........................................................ 80
"Net Asset Value"........................................................... 50
"1992 Cable Act"............................................................ 24
"1992 Capital Expenditure Plan"............................................. 90
"1996 Telecommunications Act"............................................... 24
"Non-Cable Businesses"...................................................... ii
"November 1994 Regulations"................................................. 64
"NPTs"...................................................................... 64
"NVOD"...................................................................... 69
"Offer Period".............................................................. 80
"Offered Business".......................................................... 80
"Optional Redemption Date".................................................. 105
</TABLE>
xiv
<PAGE>
<TABLE>
<S> <C>
"Optional Redemption Price"................................................. 105
"Paramount"................................................................. 116
"Parents Agreement"......................................................... 2
"Parity Stock".............................................................. 17
"Par Value"................................................................. 97
"PCI Group"................................................................. 79
"PCI Subsidiaries".......................................................... 79
"PEG"....................................................................... 67
"Permitted Subsidiary Equity Interest"...................................... 100
"PHILADEP".................................................................. 35
"Preferred Stock"........................................................... 96
"Preferred Stock Directors"................................................. 108
"Price Notice".............................................................. 80
"Prime Sports".............................................................. 61
"PrimeStar"................................................................. 69
"Prospectus Condition"...................................................... 15
"PVIT/PVI Participants"..................................................... 35
"PVIT/PVI Plan"............................................................. 35
"Recapitalization".......................................................... 3
"Record Date"............................................................... 98
"Redeemable Capital Stock".................................................. 103
"Redemption Date"........................................................... 105
"Redemption Event".......................................................... 103
"Redemption Notice"......................................................... 106
"Redemption Price".......................................................... 105
"Redemption Securities"..................................................... 103
"Refund".................................................................... 93
"Refund Amount"............................................................. 93
"Registration Statement".................................................... x
"Restricted Subsidiaries"................................................... 95
"Retransmission Consent".................................................... 68
"Reviewing Party"........................................................... 76
"Revolving Facility"........................................................ 94
"Ruling Letter"............................................................. 7
"Satellite Value Package"................................................... 67
"Schedule 13E-4"............................................................ x
"Second Distribution"....................................................... 4
"Securities Act"............................................................ x
"Senior Stock".............................................................. 17
"Services Agreement"........................................................ 112
"Settlement Agreements"..................................................... 93
"SFAS"...................................................................... 61
"SFAS 123".................................................................. 63
"SMATV"..................................................................... 62
"SNI"....................................................................... 93
"Special Delivery Instructions"............................................. 35
"Special Issuance Instructions"............................................. 35
"Specified Party"........................................................... 84
"Spelling".................................................................. 1
"SSI"....................................................................... 93
"Stock Dividend Amount"..................................................... v
"Stock Issuance"............................................................ 4
"Stock Portion"............................................................. 16
"Subscription Agreement".................................................... 2
"Subscription Payment"...................................................... 4
"Subsidiary"................................................................ 101
</TABLE>
<TABLE>
<S> <C>
"Subsidiary Borrowers"......................................... 62
"Subsidiary Equity Interest"................................... 101
"Sunset Date".................................................. 24
"Swap"......................................................... 19
"Tax Indemnity Letter"......................................... 93
"TCGSF"........................................................ 61
"TCGS"......................................................... 61
"TCI".......................................................... prospectus cover
"TCI Cable".................................................... prospectus cover
"TCI Class A Common Stock"..................................... prospectus cover
"TCI Exchange Rate"............................................ vi
"TCI Pacific Communications, Inc."............................. 2
"TCI Prospectus"............................................... xii
"TCI Registration Statement"................................... xii
"TCI Stock".................................................... prospectus cover
"TCI Stock Exchange Date"...................................... 102
"Telecom Amount"............................................... 3
"Telecom Partnership Agreements"............................... 89
"Telecom Partnerships"......................................... 89
"Term Facility"................................................ 94
"Term Facility B".............................................. 94
"Trading Day".................................................. 99
"Transaction".................................................. 4
"Transaction Agreements"....................................... 2
"Transfer Agent"............................................... 109
"Trigger Amount"............................................... iii
"TVRO"......................................................... 62
"USSB"......................................................... 69
"Viacom"....................................................... i
"Viacom Class A Common Stock".................................. 2
"Viacom Class B Common Stock".................................. 5
"Viacom Common Stock".......................................... i
"Viacom Form 8-K".............................................. 116
"Viacom International"......................................... i
"Viacom Market Value".......................................... 8
"Viacom Services".............................................. i
"VII Cable".................................................... prospectus cover
"VII Cable Board".............................................. 76
"VII Cable Carve-Out Financial Statements"..................... 18
"VII Cable Class A Common Stock"............................... iii
"VII Cable Class B Common Stock"............................... 4
"VII Cable Preferred Stock".................................... i
"VII Cable Pro Forma Events"................................... 19
"VIP".......................................................... 35
"VIP Participants"............................................. 35
"Wisconsin Cable System"....................................... 61
"Wasserstein Perella".......................................... v
"Working Capital Amount"....................................... 3
</TABLE>
xv
<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 of Defined Terms." Stockholders are urged to
read this Offering Circular - Prospectus. For information concerning TCI and
TCI Stock, stockholders are directed to the accompanying TCI Prospectus. See
"TCI Prospectus--Explanatory Note."
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 stations
and 12 radio stations. Through the Entertainment segment, which includes
PARAMOUNT PICTURES(TM) and Viacom's approximately 75% owned subsidiary,
Spelling Entertainment Group Inc. ("Spelling"), 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 and one water park 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 (as defined herein), Viacom will no longer own
the operations which comprise its Cable Television segment. On May 21, 1996,
Viacom announced it had decided not to pursue the proposed sale of Spelling.
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
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Sound area, Nashville, Tennessee and Dayton, Ohio. As of December 31, 1995, VII
Cable was approximately the twelfth 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
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 (to be 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 in greater detail below) and the liability
represented by the Loan. See "The Transaction--General."
THE TRANSACTION
General..................... Viacom has determined to offer to holders of
shares of Viacom Common Stock the opportunity to
acquire shares of VII Cable, a company that will,
upon the consummation of the steps summarized
below, own 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."
Step 1. Viacom commences this Exchange Offer in
which it is offering 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. A total of [ million] shares of VII Cable
Class A Common Stock having a par value of $100
per share and an aggregate par value of [$
million] are exchangeable in the Exchange Offer.
Holders of Viacom Common Stock whose shares are
accepted for exchange will receive shares of VII
Cable Class A Common Stock which, after the
completion of the Transaction (as defined
herein), will automatically and immediately
convert into shares of VII Cable Preferred Stock
on a one for one basis. Viacom stockholders
participating in the Exchange Offer will not at
any time take physical possession of shares of
VII Cable Class A Common Stock. National
Amusements, Inc. ("NAI"), a closely held
corporation that owns approximately 61% of the
outstanding Class A Common Stock, $0.01 par value
per share of Viacom ("Viacom Class A Common
Stock") and approximately 25% of the outstanding
2
<PAGE>
Viacom Common Stock, has advised Viacom that it
will not participate in the Exchange Offer.
Step 2. Immediately prior to expiration of the
Exchange Offer, Viacom International will borrow
the Loan Proceeds. See "Arrangements among
Viacom, Viacom International, TCI and TCI Cable--
Terms of the Subscription Agreement--Certain
Borrowings" and "Description of Certain
Indebtedness of VII Cable."
Step 3. 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
and guarantees, 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").
Step 4. 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
[ million] new shares of VII Cable Class A
Common Stock having a par value of $100 per share
and an aggregate par value of [$ million] (the
"Recapitalization"). Such number of shares of VII
Cable Class A Common Stock was determined by
dividing (a) the excess of the Estimated Asset
Value (as defined herein) over the Loan Proceeds
by (b) $100 (the par value per share of VII Cable
Class A Common Stock). The Estimated Asset Value
is an amount which was determined by Viacom
International in accordance with the provisions
of the Implementation Agreement prior to the
commencement of the Exchange Offer by estimating
various asset and liability amounts related to
the Cable Business at the Exchange Date,
including: (i) a capital expenditure amount based
on certain capital expenditures by VII Cable
during the period from January 1, 1995 through
the Exchange Date for system upgrades and
rebuilds, during the period from February 23,
1995 through the Exchange Date for line
extensions and during the period from January 20,
1995 through the Exchange Date for other
specified items (the "Capital Expenditure
Amount"), (ii) an inventory amount derived from
the book value of all inventory as of the
Exchange Date (the "Inventory Amount"), (iii) the
aggregate amount of all capital contributions
(less distributions) and capital expenditures
made with respect to the Telecom Partnerships (as
such term is defined herein) (the "Telecom
Amount"), (iv) an amount of working capital (the
"Working Capital Amount"), and (v) a fixed
amount, which decreases proportionally from $2
billion to the extent that the
3
<PAGE>
number of Basic Subscribers (as defined herein)
to Viacom International's cable systems is
expected to fall below 1,122,660 on the Exchange
Date (the "Fixed Amount" and, collectively with
the foregoing amounts, the "Adjustment Amounts").
The Estimated Asset Value was determined to be
$[ billion], and is equal to (i) the Fixed
Amount, plus (ii) the Capital Expenditure Amount,
plus (iii) the Inventory Amount, plus (iv) the
Telecom Amount, plus (v) an amount equal to
Working Capital, if Working Capital is a positive
number, minus (vi) an amount, if any, equal to
the amount by which Working Capital is a negative
number, minus (vii) the amount of certain front-
end loaded programming payments specified in the
Implementation Agreement, plus (viii) an amount
equal to interest on the sum of the foregoing
amounts at the one-month London Interbank Offered
Rate ("LIBOR") plus 1 1/4% for the period from
September 1, 1995 to the Exchange Date. The
foregoing Adjustment Amounts are subject to
change as a result of adjustments from estimated
to actual values. See "Arrangements among Viacom,
Viacom International, TCI and TCI Cable--Terms of
the Implementation Agreement--Post-Closing
Adjustments." VII Cable will then be renamed "TCI
Pacific Communications, Inc."
Step 5. Assuming that a sufficient number of
shares of Viacom Common Stock is tendered to
enable Viacom to exchange its entire [$ ] million
ownership interest in VII Cable (i.e., assuming
that the Trigger Amount is reached), Viacom will
then consummate the Exchange Offer. Upon
consummation of the Exchange Offer, 100% of the
[ ] million 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 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 and will be wholly owned by those Viacom
stockholders whose shares were accepted for
exchange.
Step 6. 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 and
immediately 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." After the
4
<PAGE>
consummation of the Stock Issuance, the only
common stock of VII Cable which will be
outstanding will be the VII Cable Class B Common
Stock, all of which will be owned by TCI Cable,
and all of the shares of VII Cable Preferred
Stock will be owned by those Viacom stockholders
whose shares were accepted for exchange in the
Exchange Offer.
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 (after repayment of $350 million), (ii)
VII Cable Preferred Stock with an estimated
aggregate par value of approximately $[ ]
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 Exchange Offer will 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.
The Transaction will also 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.
Viacom believes that this enhanced value may have
been a factor in the increased market price of
shares of Class B Common Stock, $0.01 par value
per share of Viacom ("Viacom Class B Common
Stock") in the period preceding the September
1995 maturity date of Viacom's Variable Common
Rights (which were issued in connection with the
acquisition of Blockbuster Entertainment
Corporation and which represented the right to
receive shares of Viacom Class B Common Stock
depending on market prices of
5
<PAGE>
Viacom Class B Common Stock). The magnitude of
the obligation of Viacom to deliver shares of
Viacom Class B Common Stock upon the maturity of
the Variable Common Rights was inversely related
to such market prices during such period.
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 reach the Trigger Amount 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 DEALER
MANAGER, THE BOARD OF DIRECTORS OF VIACOM OR 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......... Because an exchange offer is not a merger or
consolidation giving rise to appraisal rights
under Section 262 of the Delaware General
Corporation Law (the "DGCL"), 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
6
<PAGE>
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 have been obtained from all 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. Two of these approvals will expire
by their terms on July 24, 1996, if the
Transaction has not been consummated by such
date. In such event, requests for these approvals
will be resubmitted and reapproval is expected to
be granted. Any such request for reapproval would
not be expected to delay the consummation of the
Transaction. The Federal Communications
Commission ("FCC") has approved 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 [ ], 1996, Viacom 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 [. ] (the Maximum Exchange Ratio) nor less
than [. ] (the Minimum Exchange Ratio) 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 modified
"dutch auction" in which each holder of Viacom
Common Stock will be able to specify a fraction
of a share of VII Cable Class A Common Stock (or
Exchange Ratio) that
7
<PAGE>
such holder is willing to receive in exchange for
a share of Viacom Common Stock. Whether and to
what extent a tendering Viacom stockholder will
have its tendered shares accepted for exchange in
the Exchange Offer will depend upon how the
Exchange Ratio specified by it compares to
Exchange Ratios specified by other tendering
Viacom stockholders. In other words, a "dutch
auction" is a competitive bid among Viacom
stockholders where the Final Exchange Ratio is
the lowest bid which enables Viacom to exchange
all of the shares of VII Cable Class A Common
Stock.
The Exchange Ratio specified by each tendering
Viacom stockholder must be within the Exchange
Ratio Range. The Minimum Exchange Ratio and
Maximum Exchange Ratio were set by Viacom. The
Maximum Exchange Ratio was set at a level equal
to 112.5% of the weighted average for all trades
of shares of Viacom Class B Common Stock, as
reported by the ADP Financial Information
reporting service, during the 20 trading day
period ended on the date prior to the
commencement of the Exchange Offer (such weighted
average being hereinafter referred to as the
"Viacom Market Value"), divided by $100, and the
Minimum Exchange Ratio was set at a level equal
to the Viacom Market Value, divided by $100.
Viacom will select as the Final Exchange Ratio
the lowest Exchange Ratio that will allow 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 will be promptly announced by
Viacom after the Expiration Date (as defined
herein).
The Final Exchange Ratio (i.e., the amount of VII
Cable Class A Common Stock that Viacom will
exchange for each share of Viacom Common Stock
accepted for exchange) will be calculated by
Viacom as follows: at the expiration of the
Exchange Offer, Viacom will calculate the number
of shares of Viacom Common Stock validly tendered
at Exchange Ratios within the Exchange Ratio
Range, beginning with shares tendered at the
Minimum Exchange Ratio and ending, if necessary,
at the Maximum Exchange Ratio. When the aggregate
dollar value of the tenders made (calculated as
described in the immediately following sentence)
in ascending order of Exchange Ratios is equal to
or greater than $[ ] million (i.e., the Trigger
Amount), Viacom will become obligated to accept,
on a pro rata basis, the shares of all
stockholders who tendered at or below the lowest
Exchange Ratio required to reach the Trigger
Amount. Whether such aggregate dollar value
amount is reached will be determined by
multiplying (i) the total number of shares of
Viacom Common Stock tendered at or below such
Exchange Ratio by (ii) the product of such
Exchange Ratio times 100. This lowest Exchange
Ratio required to reach the Trigger Amount will
be the Final Exchange Ratio, at which Exchange
Ratio all [ ] million shares of VII Cable Class
A Common Stock will be issued to holders of
shares of Viacom Common Stock whose shares are
accepted for exchange pursuant to the Exchange
Offer. At the Minimum Exchange Ratio, Viacom
would accept for exchange [ million] shares of
Viacom Common Stock (or [ ]% of the
8
<PAGE>
total number of shares of Viacom Common Stock
outstanding). At the Maximum Exchange Ratio,
Viacom would accept for exchange [ million]
shares of Viacom Common Stock (or [ ]% of the
total number of shares of Viacom Common Stock
outstanding). The total number of shares of
Viacom Common Stock to be accepted for exchange
in the Exchange Offer will be equal to (i) the
total number of shares of VII Cable Class A
Common Stock exchangeable in the Exchange Offer
([ million] shares) divided by (ii) the Final
Exchange Ratio. Holders of Viacom Common Stock
whose shares are accepted for exchange will
receive shares of VII Cable Class A Common Stock
which, after the completion of the Transaction,
will automatically and immediately convert into
shares of VII Cable Preferred Stock on a one for
one basis.
Based on the Estimated Asset Value of $[
billion] and Loan Proceeds of $1.7 billion, in
calculating the number of shares of Viacom Common
Stock to be accepted for exchange in the Exchange
Offer, Viacom: (i) subtracted the Loan Proceeds
($1.7 billion) from the Estimated Asset Value
($[ billion]), thereby fixing the aggregate par
value of VII Cable Class A Common Stock to be
distributed to Viacom stockholders (i.e., the
Trigger Amount) at $[ ] million; (ii) divided
the Trigger Amount by the par value per share of
VII Cable Class A Common Stock ($100) in order to
determine the number of shares of VII Cable Class
A Stock ([ ] million) to be received by
stockholders of Viacom Common Stock upon
consummation of the Transaction; and (iii) will
divide such number of shares of VII Cable Class A
Common Stock by 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 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 than are necessary to reach
the Trigger Amount are validly tendered at or
below the Final Exchange Ratio and are not
properly withdrawn prior to the Expiration Date,
then Viacom will accept all of such shares on a
pro rata basis as described herein in exchange
for shares of VII Cable Class A Common Stock. In
the event that the number of shares tendered at
any combination of Exchange Ratios within the
Exchange Ratio Range is insufficient to reach the
Trigger Amount, Viacom will not accept for
exchange any of the shares tendered in the
Exchange Offer, although, subject to the
conditions thereof, Viacom has the right to
extend the Exchange Offer as described in "The
Exchange Offer--Extension of Tender Period;
Termination; Amendment" below. All shares which
are tendered but not acquired pursuant to the
Exchange Offer, including shares tendered at
Exchange Ratios greater than the Final Exchange
Ratio and shares not acquired because of
proration, will be returned to tendering
stockholders promptly following the Expiration
Date. 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
9
<PAGE>
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."
Determining to Participate
in the Exchange Offer...... Whether to participate in the Exchange
Offer. Viacom stockholders should consider not
only the value of what they are tendering in the
Exchange Offer (i.e., shares of Viacom Common
Stock), and the value of what they are ultimately
receiving after completion of the Transaction
(i.e., shares of VII Cable Preferred Stock) but
also whether they wish to own shares of common
stock of Viacom, a diversified entertainment and
publishing company which will (i) no longer own
the Cable Business, (ii) have reduced the debt on
its balance sheet by approximately $1.7 billion
and (iii) have reduced the total number of
outstanding shares of Viacom Common Stock by
approximately 3%, or shares of preferred stock of
VII Cable, a company that will (i) own the Cable
Business, (ii) be a wholly owned subsidiary of
TCI and (iii) have a capital structure consisting
principally of $1.35 billion of bank debt, $[ ]
million of preferred equity and $350 million of
common equity. In valuing a share of Viacom
Common Stock to be tendered in the Exchange
Offer, a Viacom stockholder may wish to consider
the market prices of the Viacom Common Stock as
well as such stockholder's view of the future
trading prices of the Viacom Common Stock. In
valuing a share of VII Cable Preferred Stock to
be ultimately received after completion of the
transaction, a Viacom stockholder should consider
all of the factors described below under "Terms
of the Class A Senior Cumulative Exchangeable
Preferred Stock--Dividends," including but not
limited to the fact that the dividend rate was
set so that the VII Cable Preferred Stock would,
in the opinion of the Financial Advisors and
based upon conditions at the time they gave their
advice, be expected to have a market value of
approximately $100 per share immediately after
completion of the Transaction (assuming no change
in conditions between the date of their opinion
and the date of consummation of the Transaction).
Since the dividend rate was prior to the
commencement of the Exchange Offer based on
conditions as of [ ], 1996, it may not be the
dividend rate that the Financial Advisors would
have recommended if the rate were determined at
the end of the Exchange Offer based on conditions
at that time. See "Risk Factors--Uncertainties
with respect to Setting the Dividend Rate."
Selecting an Exchange Ratio. In the event a
Viacom stockholder determines to tender some or
all of its shares of Viacom Common Stock in the
Exchange Offer, in deciding at which Exchange
Ratio to tender such stockholder should consider
not only its view of the value of a single share
of Viacom Common Stock and a single share of VII
Cable Preferred Stock (i.e., the value ultimately
to be received for that being surrendered) but
the level of certainty that its tender will be
accepted in the Exchange Offer. The higher the
Exchange Ratio specified, the lower the
likelihood that an investor
10
<PAGE>
will have its shares accepted for exchange. A
tender at an Exchange Ratio above the Final
Exchange Ratio will not be accepted. Only tenders
at the Minimum Exchange Ratio are assured of
being accepted in the Exchange Offer (subject to
proration and assuming the Trigger Amount is
reached). In selecting an Exchange Ratio at which
to tender a share of Viacom Common Stock, a
Viacom stockholder should remember that its
decision is based in part on its view of the
value of a share of VII Cable Preferred Stock,
and also that the market value of a share of VII
Cable Preferred Stock may be different from its
view of the value of such a share. If the market
value of a share of VII Cable Preferred Stock is
lower than the value assumed by a Viacom
stockholder in selecting the Exchange Ratio at
which to tender (and assuming all other things
remain the same), each share of VII Cable
Preferred Stock received will have less value
than such Viacom stockholder thought it would
have at the Exchange Ratio selected.
Expiration Date;
Extensions................. 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."
If insufficient tenders are made by Viacom
stockholders in the Exchange Offer to permit the
Trigger Amount to be reached, Viacom has the
right to extend the Exchange Offer for not less
than ten nor more than 15 business days (or such
longer period as may be required under the
Exchange Act) 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 TCI
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)
described herein that each believes in good faith
will cause the Trigger Amount to be reached and
that would cause the VII Cable Preferred Stock to
have a market value of approximately $100 per
share immediately following the consummation of
the Transaction. If Viacom materially changes the
terms of the VII Cable Preferred Stock or the
conditions of the Exchange Offer, Viacom will
extend the Exchange Offer to the extent required
by the Exchange Act. See "The Exchange Offer--
Extension of Tender Period; Termination;
Amendment." In the event the Trigger Amount is
not thereafter reached, TCI and Viacom will each
have the right to terminate the Transaction.
Conditions of the Exchange
Offer....................... The Exchange Offer is subject to the condition
that a sufficient number of shares of Viacom
Common Stock shall be tendered to reach the
Trigger Amount and to the satisfaction of certain
other conditions. See "The Exchange Offer--
Conditions to Consummation 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
11
<PAGE>
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."
Proration................... If more shares of Viacom Common Stock than are
necessary to reach the Trigger Amount have been
validly tendered for exchange at or below the
Final Exchange Ratio and not properly withdrawn,
on or prior to the Expiration Date then, 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 and immediately 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
12
<PAGE>
the consummation of the Stock Issuance. See "The
Exchange Offer--Exchange of Shares of Viacom
Common Stock."
On [ ], 1996, the VII Cable Preferred Stock
was approved for quotation on the Nasdaq National
Market under the symbol "TPACP." 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.............. The Bank of New York is serving as the Exchange
Agent in connection with the Exchange Offer. Its
telephone number is (800) 274-2944.
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 CLASS A SENIOR
CUMULATIVE EXCHANGEABLE
PREFERRED STOCK............. Each share of VII Cable Class A Common Stock will
automatically and immediately 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 [ ]% of the $100
par value per share, payable quarterly when, as
and if declared by the VII Cable Board (as
defined herein). VII Cable has the right to make
dividend payments in cash, shares of TCI Stock or
any combination thereof. See "--VII Cable May
Make Dividend and Redemption Payments with TCI
Stock."
The dividend rate was determined based upon the
advice of the Financial Advisors. The dividend
rate was set so that the VII Cable Preferred
Stock would, in the opinion of the Financial
Advisors and based on conditions at the time they
gave their advice, be expected to have a market
value of approximately $100 per share immediately
after completion of the Transaction (assuming no
change in conditions between the date of their
opinions and the date of consummation of the
Transaction). In advising Viacom as to the
setting of the dividend rate, the Financial
Advisors considered various factors, including
the following: (i) the other terms of the VII
Cable Preferred Stock described below, (ii) VII
Cable's recent results of operations, its future
prospects and those of the cable industry
generally, (iii) the terms of (including the
dividend rates on), and market prices of,
securities of other companies considered to be
comparable to VII Cable, and (iv) general
economic, financial and market conditions
prevailing at the time that the dividend rate was
set. The dividend rate was determined based on
conditions as of [ ], 1996 and may not be
the rate that the Financial
13
<PAGE>
Advisors would have recommended if the rate were
determined at the end of the Exchange Offer based
on conditions at that time. Furthermore, the
Financial Advisors' advice does not constitute an
assurance that the VII Cable Preferred Stock will
not trade below $100 per share initially or at
any time thereafter. See "Risk Factors--
Uncertainties with Respect to Setting the
Dividend Rate."
In advising Viacom as to the setting of the
dividend rate, neither Wasserstein Perella nor
Merrill Lynch has issued an opinion that the
consideration to be paid to Viacom stockholders
in the Exchange Offer is fair, from a financial
point of view (i.e., a "fairness" opinion). A
fairness opinion is typically delivered by a
financial advisor to its client in connection
with a merger or consolidation of its client with
another company. A fairness opinion is different
in both form and substance from the advice given
by the Financial Advisors with regard to the
setting of the dividend rate for the VII Cable
Preferred Stock. Unlike a fairness opinion, the
advice furnished by the Financial Advisors
relates solely to the market value which the VII
Cable Preferred Stock is expected to have
immediately after the completion of the
Transaction based upon the dividend rate and
certain other factors, and does not purport to be
a valuation of either VII Cable or Viacom or to
express an opinion on the fairness, from a
financial point of view, of the consideration to
be paid to Viacom stockholders whose shares are
accepted for exchange in the Exchange Offer.
In the event that the VII Cable Board determines
to pay a dividend on the VII Cable Preferred
Stock in shares of TCI Stock at a time when there
is a prohibition under the definitive agreements
relating to the Loan (or any refinancing of the
Loan) on the ability of VII Cable to pay cash
dividends on the VII Cable Preferred Stock, TCI
agrees to 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 the declaration by the VII Cable Board of
such dividend in accordance with the terms of the
VII Cable Preferred Stock. See "Description of
VII Cable Capital Stock--VII Cable Preferred
Stock--Dividends."
Liquidation Preference...... In the event of any voluntary or involuntary
liquidation, dissolution or winding up of VII
Cable, holders of VII Cable Preferred Stock will
be entitled to be paid $100 per share, plus
accumulated and unpaid dividends, out of VII
Cable assets available for distribution prior to
any distributions to holders of any other
security of VII Cable which ranks junior to the
VII Cable Preferred Stock. The aggregate
liquidation preference of [$ ] million represents
the difference between the Estimated Asset Value
and the Loan.
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), for TCI Stock at
the TCI Exchange Rate. The initial TCI Exchange
Rate will be determined on the second business
day prior to the Expiration Date and will be
obtained by
14
<PAGE>
dividing (i) $100 by (ii) 125% of the weighted
average of the sales prices for all trades of
shares of TCI Stock as reported on the Nasdaq
National Market on each of the 20 full
consecutive Trading Days (as defined herein)
ending on such business day. The TCI Exchange
Rate is subject to adjustment in certain events.
Changes in the market value of the VII Cable
Preferred Stock will not cause the TCI Exchange
Rate to fluctuate. Viacom will announce the
initial TCI Exchange Rate by 5:00 p.m., New York
City time, on the second business day prior to
the expiration of the Exchange Offer 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 TCI Exchange Rate from the Information
Agent or the Dealer Manager at their respective
telephone numbers appearing on the back cover of
this Offering Circular - Prospectus.
Pursuant to the Subscription Agreement, TCI is
required to contribute to VII Cable or otherwise
cause VII Cable to have available sufficient
shares of TCI Stock to enable VII Cable to issue
to holders of VII Cable Preferred Stock shares of
TCI Stock upon their exercise of their exchange
rights in respect of the VII Cable Preferred
Stock. TCI is further required to reserve
sufficient shares of TCI Stock to satisfy its
obligations to VII Cable in connection with such
exchange. See "Description of VII Cable Capital
Stock--VII Cable Preferred Stock--Exchange at
Option of Holder."
In connection with any exchange by a holder of
VII Cable Preferred Stock, TCI may be required
under the Securities Act to deliver to such
holder a current prospectus relating to the TCI
Stock. It is therefore a condition (the
"Prospectus Condition") to any exchange that TCI
be able to deliver a current prospectus if one is
required under the Securities Act or the rules
and regulations of the Commission promulgated
thereunder, and no exchanges of TCI Stock will be
effected during any period in which the
Prospectus Condition cannot be met. TCI has
agreed that if delivery of a current prospectus
is so required, for so long as the holders of
shares VII Cable Preferred Stock have the right
to exchange such shares of VII Cable Preferred
Stock for shares of TCI Stock, TCI will use all
reasonable efforts to ensure that it will be able
to deliver a current prospectus upon a requested
exchange by a holder of VII Cable Preferred
Stock. The market value of the TCI Stock may
change during any period that a holder is unable
to effect an exchange due to the Prospectus
Condition not being met.
Optional Redemption......... The VII Cable Preferred Stock is not redeemable
prior to 15 days after the fifth anniversary of
the Issue Date (as defined herein). 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 has the right to make optional
redemption payments in cash, shares of TCI
15
<PAGE>
Stock or any combination thereof. See "--VII
Cable May Make Dividend and Redemption Payments
with TCI Stock"; "Description of VII Cable
Capital Stock--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 Issue Date, at a redemption
price of $100 per share, plus accrued and unpaid
dividends to the date of redemption. VII Cable
has the right to make mandatory redemption
payments in cash, shares of TCI Stock or any
combination thereof. See "--VII Cable May Make
Dividend and Redemption Payments with TCI Stock";
"Description of VII Cable Capital Stock--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 selected by the VII Cable Board in
its sole discretion. If VII Cable elects to make
any such payment, in whole or in part, through
the delivery of shares of TCI Stock (the portion
paid through the delivery of shares being
referred to herein as the "Stock Portion"), each
holder will receive a number of shares of TCI
Stock determined by dividing the dollar amount of
such Stock Portion by the Cash Equivalent Amount.
Any portion of a dividend or redemption payment
that is not paid through the delivery of shares
of TCI Stock will be paid in cash. The "Cash
Equivalent Amount" means an amount equal to 95%
of the Average Market Price of a share of TCI
Stock. The "Average Market Price" is defined as
the average of the closing sale prices for a
share of TCI Stock on the Nasdaq National Market
for the 10 consecutive Trading Days ending on the
third such Trading 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 of the Cash Equivalent Amount and
the subsequent delivery of shares.
In the case of a dividend or redemption payment
that is made through delivery of shares of TCI
Stock, if the market value of such shares on the
dividend payment date or the redemption date is
more than 5% lower than the Average Market Price
upon which the Cash Equivalent Amount is
determined 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.
16
<PAGE>
It is possible that an investor who acquires
shares of VII Cable Preferred Stock in the
Transaction and holds such shares though the date
of any redemption thereof may not receive
anything other than shares of TCI Stock.
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 the VII
Cable Board, voting as a separate class with the
holders of any preferred stock other than the VII
Cable Preferred Stock ranking pari passu with the
VII Cable Preferred Stock with respect to
dividend rights, rights on redemption or rights
on liquidation of VII Cable ("Parity Stock") upon
which like voting rights have been conferred and
are vested, until all dividends in arrears on the
VII Cable Preferred Stock have been paid in full.
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
issue additional shares of VII Cable Preferred
Stock or create or issue 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 VII Cable Capital
Stock--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. All of the
authorized shares of the VII Cable Preferred
Stock will be issued in connection with the
Transaction.
Registration and Listing of
TCI Stock................... The TCI Stock is listed on the Nasdaq National
Market 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 the Nasdaq National Market 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.
17
<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, 1995, including the notes thereto, appearing elsewhere in
this Offering Circular - Prospectus (collectively, the "VII Cable Carve-Out
Financial Statements"). Unaudited interim data for the three months ended March
31, 1996 and 1995 reflect, in the opinion of management of VII Cable, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data. Results of operations for the three months
ended March 31, 1996 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>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------ -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA:
Revenues................ $ 116.6 $ 105.9 $ 442.2 $404.5 $414.8 $410.1 $378.0
Operating income(a)..... 18.8 18.2 80.8 57.4 83.8 97.5 82.2
Earnings (loss) before
taxes and cumulative
effect of change
in accounting
principle.............. 8.7 35.0 66.6 26.4 128.1 53.1 15.0
Net earnings (loss)
before cumulative
effect of change in
accounting principle... 3.4 19.6 33.7 9.1 83.9 25.8 (.2)
Net earnings (loss)..... 3.4 19.6 33.7 9.1 97.4 25.8 (.2)
RATIO OF EARNINGS TO
FIXED CHARGES(B)....... 1.6x n/a 2.3x 1.7x 4.6x 2.0x 1.2x
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, -----------------------------------------
1996 1995 1994 1993 1992 1991
------------ -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $1,064.9 $1,066.8 $1,040.4 $966.2 $964.7 $976.0
Total debt.............. 57.0 57.0 57.0 57.0 106.0 106.1
Viacom equity
investment............. 854.8 857.1 823.9 765.5 753.9 767.7
</TABLE>
- --------
(a) Operating income is defined as earnings before interest expense, other
items, net, income taxes, equity in income (loss) of affiliated companies
and cumulative effect of change in accounting principle.
(b) For purposes of computing the ratio of earnings to fixed charges, earnings
represent earnings 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.
18
<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 three months ended March 31, 1996 and for the year
ended December 31, 1995 give effect to (i) the Loan, (ii) the Conveyance, (iii)
the Recapitalization, (iv) the First Distribution, (v) the Stock Issuance, (vi)
the Conversion and (vii) the exchange of InterMedia Partners Southeast ("IMP")
Houston cable systems for VII Cable's Nashville cable systems (the "Swap")
(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
three months ended March 31, 1996 and year ended December 31, 1995 was based
upon the statement of operations of VII Cable for the three months ended March
31, 1996 and year ended December 31, 1995, 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 March 31, 1996. 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 period presented nor are they necessarily indicative of
future results of operations or financial position.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 YEAR ENDED DECEMBER 31, 1995
----------------------------------- -----------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL PRE-SWAP(A) POST-SWAP(B) HISTORICAL PRE-SWAP(A) POST-SWAP(B)
---------- ----------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA:
Revenues................ $116.6 $116.6 $114.7 $442.2 $440.5 $434.7
Operating income........ 18.8 10.7 9.7 80.8 47.0 37.9
Earnings (loss) before
taxes.................. 8.7 (12.5) (13.6) 66.6 (50.7) (59.6)
Net earnings (loss)..... 3.4 (13.6) (13.9) 33.7 (53.9) (57.2)
Net earnings (loss)
attributable to common
stock.................. N/A (18.9) (19.2) N/A (75.2) (78.5)
Ratio of earnings to
fixed charges.......... 1.6x (c) (e) 2.3x (c) (e)
Ratio of earnings to
combined fixed charges
and preferred stock
dividends.............. N/A (d) (f) N/A (d) (f)
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-----------------------------------
PRO FORMA PRO FORMA
HISTORICAL PRE-SWAP(A) POST-SWAP(B)
---------- ----------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................ $1,064.9 $2,314.6 $2,309.2
Total debt.................................. 57.0 1,350.0 1,350.0
Series A Preferred Stock.................... -- 500.0 500.0
Class B Common Stock........................ -- 350.0 350.0
Viacom equity investment.................... 854.8 -- --
</TABLE>
- --------
(a) Gives pro forma effect to the VII Cable Pro Forma Events, except for Item
(vii) described above, as if such events had occurred at the beginning of
each period presented for results of operations data and on March 31, 1996
for balance sheet data.
(b) Gives pro forma effect to the VII Cable Pro Forma Events as if such events
had occurred at the beginning of each period presented for results of
operations data and on March 31, 1996 for balance sheet data.
(c) Earnings were inadequate to cover fixed charges. The additional amount of
earnings required to cover fixed charges on a pro forma basis for the three
months ended March 31, 1996 and the year ended December 31, 1995 would have
been $12.9 million and $50.8 million, respectively.
(d) Earnings were inadequate to cover combined fixed charges and preferred
stock dividends. The additional amount of earnings required to cover
combined fixed charges and preferred stock dividends on a pro forma
combined basis for the three months ended March 31, 1996 and the year ended
December 31, 1995 would have been $21.1 million and $83.6 million,
respectively.
(e) Earnings were inadequate to cover fixed charges. The additional amount
required to cover fixed charges on a pro forma basis for the three months
ended March 31, 1996 and the year ended December 31, 1995 would have been
$14.0 million and $59.6 million, respectively.
(f) Earnings were inadequate to cover combined fixed charges and preferred
stock dividends. The additional amount of earnings required to cover
combined fixed charges and preferred stock dividends on a pro forma
combined basis for the three months ended March 31, 1996 and the year ended
December 31, 1995 would have been $22.2 million and $92.5 million,
respectively.
19
<PAGE>
COMPARATIVE PER SHARE DATA
Holders of Viacom Common Stock who successfully participate in the Exchange
Offer will initially receive shares of VII Cable Class A Common Stock which, at
the completion of the Transaction, will automatically become shares of VII
Cable Preferred Stock. Accordingly, it is the VII Cable Preferred Stock that
holders of Viacom Common Stock will ultimately receive if their shares are
accepted for exchange in the Exchange Offer. The VII Cable Preferred Stock will
have specific dividend, liquidation, voting, exchange and redemption rights
which are not comparable to the rights of a holder of common stock of Viacom or
VII Cable. See "Description of VII Cable Capital Stock--VII Cable Preferred
Stock" and "Comparison of Rights of Stockholders of Viacom and VII Cable."
Therefore, the following presentation is based solely upon market values, and
may not reflect all of the relevant considerations an investor may have in
comparing these two different types of securities.
The following table presents equivalent pro forma per share data reflecting
the receipt by a Viacom stockholder upon completion of the Transaction of a
portion of a share of VII Cable Preferred Stock for each share of Viacom Common
Stock tendered in the Exchange Offer. Such equivalent pro forma per share data
reflect only an assumed market value per share of VII Cable Preferred Stock of
$100 and an assumed dividend rate of [4.25%] and assumed Final Exchange Ratios
of [. ] and [. ] (the Minimum Exchange Ratio and Maximum Exchange Ratio,
respectively) of a share of VII Cable Class A Common Stock for each share of
Viacom Common Stock (based on a per share price of [$ ] reflecting recent per
share prices of Viacom Common Stock). Historical per share data of VII Cable
are not presented because the Cable Business was conducted through Viacom
International, a wholly owned subsidiary of Viacom prior to the Exchange Offer.
No consideration was given to the many differences in the rights attendant to
each security. The VII Cable Preferred Stock may not trade at $100 per share
immediately after completion of the Transaction. See "Risk Factors--
Uncertainties with respect to Setting the Dividend Rate" and "--Market
Uncertainties with respect to VII Cable Preferred Stock."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, 1996 YEAR ENDED DECEMBER 31, 1995
---------------------- ---------------------------------
AT MINIMUM AT MAXIMUM AT MINIMUM
EXCHANGE EXCHANGE EXCHANGE AT MAXIMUM
RATIO RATIO RATIO EXCHANGE RATIO
---------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
VII Cable Preferred
Stock per share of
Viacom Common Stock:
Market value.......... [$ ] [$ ] [$ ] [$ ]
Dividends............. [$ ] [$ ] [$ ] [$ ]
</TABLE>
The following table presents historical and pro forma per share data for
Viacom giving effect to the consummation of the Transaction at assumed Final
Exchange Ratios of [. ] and [. ] (the Minimum Exchange Ratio and Maximum
Exchange Ratio, respectively) of a share of VII Cable Class A Common Stock for
each share of Viacom Common Stock (based on a per share price of [$ ]
reflecting recent per share prices of Viacom Common Stock). The Minimum
Exchange Ratio and Maximum Exchange Ratio columns reflect the assumed exchange
of [11.1] million and [12.5] million shares of Viacom Common Stock,
respectively. The table should be read in conjunction with the historical
consolidated financial statements and notes thereto (incorporated herein by
reference) and the unaudited pro forma condensed consolidated financial
statements and notes thereto appearing elsewhere in this Offering Circular-
Prospectus of Viacom for the three months ended March 31, 1996 and the year
ended December 31, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 YEAR ENDED DECEMBER 31, 1995
-------------------------------- --------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
AT MINIMUM AT MAXIMUM AT MINIMUM AT MAXIMUM
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
HISTORICAL RATIO RATIO HISTORICAL RATIO RATIO
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per share of Viacom
Common Stock:
Net earnings from
continuing operations. $ .03 $ .05 $ .05 $ .41 $.49 $.49
Dividends.............. N/A N/A N/A N/A N/A N/A
Book value............. $29.51 $32.49 $32.62 $29.47 N/A N/A
</TABLE>
20
<PAGE>
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 three months ended March 31, 1996 and the year ended December
31, 1995 presented on a pro forma basis, for the three months ended March 31,
1996 and for each year in the five-year period ended December 31, 1995 and (ii)
the ratio of earnings to combined fixed charges and preferred stock dividends
for Viacom for the three months ended March 31, 1996 and the year ended
December 31, 1995 presented on a pro forma basis, for the three months ended
March 31, 1996 and for each applicable year in the five-year period ended
December 31, 1995. For purposes of computing the following ratios, earnings
represent earnings 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>
PRO FORMA THREE MONTHS YEAR ENDED DECEMBER 31,
------------------------------------ ENDED ----------------------------
THREE MONTHS ENDED YEAR ENDED MARCH 31,
MARCH 31, 1996 DECEMBER 31, 1995 1996 1995 1994 1993 1992 1991
------------------ ----------------- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges.......... 1.4x 1.8x 1.3x 1.7x 1.7x 2.8x 1.8x 1.0x
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends.............. 1.2x 1.5x 1.1x 1.5x 1.1x 2.5x (a) (a)
</TABLE>
- --------
(a) Viacom did not have any preferred stock outstanding from 1991 to October
1993.
21
<PAGE>
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:
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 was approved for
quotation on the Nasdaq National Market on [ ], 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.
UNCERTAINTIES WITH RESPECT TO SETTING THE DIVIDEND RATE
Viacom determined the dividend rate based upon the advice of its financial
advisor, Wasserstein Perella, and TCI's financial advisor, Merrill Lynch. The
dividend rate was set so that the VII Cable Preferred Stock would, in the
opinion of the Financial Advisors and based on conditions at the time they
gave their advice, be expected to have a market value of approximately $100
per share immediately after completion of the Transaction (assuming no change
in conditions between the date of their opinion and the date of consummation
of the Transaction). The dividend rate was determined one day prior to the
commencement of the Exchange Offer taking into account various factors
including: (i) the other terms of the VII Cable Preferred Stock, (ii) VII
Cable's recent results of operations, its future prospects and those of the
cable industry generally, (iii) the terms of (including the dividend rates
on), and market prices of, securities of other companies considered to be
comparable to VII Cable, and (iv) general economic, financial and market
conditions prevailing at the time that the dividend rate was set. The dividend
rate was determined based on conditions as of [ ], 1996 and may not be the
rate that the Financial Advisors would have recommended in order for the VII
Cable Preferred Stock to have a market value of approximately $100 per share
immediately after completion of the Transaction if the rate were determined at
the end of the Exchange Offer based on conditions at that time. Furthermore,
the Financial Advisors' advice does not constitute an assurance that the VII
Cable Preferred Stock will not trade below $100 per share initially or at any
time thereafter.
PAYMENTS IN TCI STOCK
VII Cable has the right to make dividend, optional redemption and mandatory
redemption payments in cash, shares of TCI Stock or any combination of the
foregoing. Accordingly, it is possible that an investor who acquires shares of
VII Cable Preferred Stock and holds such shares through the date of any
redemption thereof may receive shares of TCI Stock rather than cash. The price
at which TCI Stock trades is determined by the marketplace and is subject to
fluctuations in response to various factors.
IMPACT OF HIGH LEVERAGE
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
22
<PAGE>
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. 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, but there can be
no assurance 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 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 or renegotiation of the foregoing agreements.
Furthermore, to the extent that TCI and its affiliates supply VII Cable with
program services after the consummation of the Transaction, the Channel
Occupancy Rules (as defined herein) may affect the number of TCI-affiliated
program 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. See "Business of VII Cable--Regulation--Federal
Regulation--1992 Cable Act--Carriage of Affiliated Programming" and
"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.
23
<PAGE>
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, 1995, VII Cable's capital expenditures
were $396 million. VII Cable's capital expenditures in 1996 are estimated to
be approximately $150 million. Of such amount, approximately 68% will be
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 (as defined herein) 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 Operations of VII Cable--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.
REGULATION AND COMPETITION IN THE CABLE DISTRIBUTION BUSINESS
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 Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") amended the Communications Act
of 1934 (as amended by the 1992 Cable Act, the "Communications Act") and
significantly expanded the scope of cable television regulation in effect
immediately prior to the enactment of the 1992 Cable Act. The Communications
Act was most recently amended on February 8, 1996 when the Telecommunications
Act of 1996 (the "1996 Telecommunications Act") was enacted. When fully
implemented by the FCC, the 1996 Telecommunications Act will change the
communications industry and alter federal, state and local laws and
regulations regarding the provision of cable and telephony services. Among
other things, the 1996 Telecommunications Act authorizes entry of cable
operators and electric utilities into the telephone/telecommunications
business, and, beginning on March 31, 1999 (the "Sunset Date") eliminates the
regulation of certain cable rates. Other rate regulations will remain in
effect after the Sunset Date. A number of provisions in the Communications 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 Communications 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 rates (which
VII Cable has adjusted to comply with the Communications 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.
Additionally, under the 1996 Telecommunications Act, until the Sunset Date,
the FCC will, upon a complaint by a 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 (as defined herein) services from the date of complaint to July 14,
1994. Although Viacom has adjusted its rates to conform with the FCC's rate
standards,
24
<PAGE>
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. It is possible that these rate complaints could be
settled in an agreement with the FCC which would obviate the pursuit of the
appeals process. 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. These rate
rules 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 1996 Telecommunications Act will
deregulate rates of non-basic tiers of programming after the Sunset Date. 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 Communications Act prohibits franchising authorities from
granting exclusive cable television franchises and from unreasonably refusing
to award additional competitive franchises; it also permits locally authorized
municipal authorities 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 (as defined herein) delivery
systems and telcos (as defined herein). The 1996 Telecommunications Act
eliminates substantially all restrictions on the entry of telcos and public
utilities subject to the Public Utility Holding Company Act of 1935 into the
cable television business. Telcos may now enter as traditional cable
operators, as common carrier conduits for programming supplied by others, as
operators of wireless distribution systems such as MMDS or MLDS (as defined
herein), or as hybrid common carrier/cable operator providers of programming
on so-called "open video systems". 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 [ ], 1996, 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 whose shares were
accepted for exchange in the Exchange Offer 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."
25
<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 offer to holders of shares of
Viacom Common Stock the opportunity to acquire shares of VII Cable, a company
that will, upon the consummation of the steps summarized below, own 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."
Step 1. Viacom commences this Exchange Offer in which it is offering 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. A total of [ million] shares of VII Cable Class A Common Stock
having a par value of $100 per share and an aggregate par value of [______
million] are exchangeable in the Exchange Offer. Once the Trigger Amount is
reached, and subject to certain other conditions, Viacom will become obligated
to consummate the Exchange Offer. Holders of Viacom Common Stock whose shares
are accepted for exchange will receive shares of VII Cable Class A Common
Stock which, after the completion of the Transaction, will automatically and
immediately convert into shares of VII Cable Preferred Stock on a one for one
basis. Viacom stockholders participating in the Exchange Offer will not at any
time take physical possession of shares of VII Cable Class A Common Stock.
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.
Step 2. Immediately prior to the 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."
Step 3. 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 and
guarantees, 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.
Step 4. Viacom International will then 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 [ ] million new
shares of VII Cable Class A Common Stock having a par value of $100 per share
and an aggregate par value of [$ ] million. VII Cable will be renamed "TCI
Pacific Communications, Inc."
Step 5. Assuming that a sufficient number of shares of Viacom Common Stock
is tendered to enable Viacom to exchange its entire [$ ] million ownership
interest in VII Cable (i.e., assuming that the Trigger Amount is reached),
Viacom will then consummate the Exchange Offer. 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 and will be wholly
owned by those Viacom stockholders whose shares were accepted for exchange.
26
<PAGE>
Step 6. 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 exchange for the Subscription Payment. Under
the anticipated terms and conditions of the Loan, VII Cable will be obligated
to use the Subscription Payment 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 and immediately convert into one share of VII Cable
Preferred Stock. See "Description of VII Cable Capital Stock--VII Cable
Preferred Stock." After the consummation of the Stock Issuance, the only
common stock of VII Cable which will be outstanding will be the VII Cable
Class B Common Stock, all of which will be owned by TCI Cable, and all of the
shares of VII Cable Preferred Stock will be owned by those Viacom stockholders
whose shares were accepted for exchange in the Exchange Offer.
If insufficient tenders are made by Viacom stockholders in the Exchange
Offer to permit the Trigger Amount to be reached, Viacom has the right to
extend the Exchange Offer not less than ten nor more than 15 business days (or
such greater period as may be required under the Exchange Act). 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 TCI 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 have a market value of approximately $100 par value per share immediately
following the consummation of the Exchange Offer and the Stock Issuance. If
Viacom materially changes the terms of the VII Cable Preferred Stock or the
conditions of the Exchange Offer, Viacom will extend the Exchange Offer to the
extent required by the Exchange Act. See "The Exchange Offer--Extension of
Tender Period; Termination; Amendment." In the event the Trigger Amount is not
thereafter reached, 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 (after repayment of $350 million), (ii) VII Cable
Preferred Stock with an estimated aggregate par value of approximately $[ ]
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 Exchange Offer will 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.
The Transaction will also 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. Viacom believes that this enhanced value may have
been a factor in the increased market price of shares of Viacom Class B Common
Stock in the period preceding the September 1995 maturity date of Viacom's
Variable
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Common Rights (which were issued in connection with the acquisition of
Blockbuster Entertainment Corporation and which represented the right to
receive shares of Viacom Class B Common Stock depending on market prices of
Viacom Class B Common Stock). The magnitude of the obligation of Viacom to
deliver shares of Viacom Class B Common Stock upon the maturity of the
Variable Common Rights was inversely related to such market prices during such
period.
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 reach the Trigger Amount 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 DEALER MANAGER, THE BOARD OF
DIRECTORS OF VIACOM OR 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.
NO APPRAISAL RIGHTS
Because an exchange offer is not a merger or consolidation giving rise to
appraisal rights under Section 262 of the DGCL, 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 have been obtained from all 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. Two of these approvals will expire by their terms
on July 24, 1996, if the Transaction has not been consummated by such date. In
such event, requests for these approvals will be resubmitted and reapproval is
expected to be granted. Any such request for reapproval would not be expected
to delay the consummation of the Transaction. The FCC has approved 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."
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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 following consummation of the Exchange Offer will be allocated, by TCI,
to the assets and liabilities acquired based on their fair values, with any
excess being treated as intangible assets.
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 [ ] (the
Maximum Exchange Ratio) nor less than [ ] (the Minimum Exchange Ratio) 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." The maximum number of
shares of Viacom Common Stock which will be accepted for exchange will be that
number of shares which, when multiplied by the Final Exchange Ratio, equals
all of the outstanding shares of VII Cable Class A Common Stock. If more than
such maximum number of shares of Viacom Common Stock are tendered, the
Exchange Offer will be oversubscribed. 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 modified "dutch auction" in which
holders of Viacom Common Stock will be able to specify a fraction of a share
of VII Cable Class A Common Stock (or Exchange Ratio) that such holders are
willing to receive in exchange for a share of Viacom Common Stock. Whether and
to what extent a tendering Viacom stockholder will have its tendered shares
accepted for exchange in the Exchange Offer will depend upon how the Exchange
Ratio specified by it compares to Exchange Ratios specified by other tendering
Viacom stockholders. In other words, a "dutch auction" is a competitive bid
among Viacom stockholders where the Final Exchange Ratio is the lowest bid
which enables Viacom to exchange all of the outstanding shares of VII Cable
Class A Common Stock. The Exchange Ratio specified by each tendering Viacom
stockholder must be within the Exchange Ratio Range. The Minimum Exchange
Ratio and Maximum Exchange Ratio 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 Viacom Market Value on the date prior to the
commencement of the Exchange Offer, divided by $100, and the Minimum Exchange
Ratio was set at a level equal to the Viacom Market Value, divided by $100.
Viacom will, upon the terms and subject to the conditions of the Exchange
Offer, determine the Final Exchange Ratio (i.e., the amount of VII Cable Class
A Common Stock that Viacom will exchange for each share of Viacom Common Stock
accepted for exchange), 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 Final Exchange
Ratio will be promptly announced by Viacom after the Expiration Date.
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The Final Exchange Ratio will be calculated by Viacom as follows. At the
expiration of the Exchange Offer, Viacom will calculate the number of shares
of Viacom Common Stock validly tendered at Exchange Ratios within the Exchange
Ratio Range, beginning with shares tendered at the Minimum Exchange Ratio and
ending, if necessary, at the Maximum Exchange Ratio. When the aggregate dollar
value of the tenders made (calculated as described in the immediately
following sentence) in ascending order of Exchange Ratios is equal to or
greater than $[ ] million (i.e., the Trigger Amount), Viacom will become
obligated to accept, on a pro rata basis, the shares of all stockholders who
tendered at or below the lowest Exchange Ratio required to reach the Trigger
Amount. Whether such aggregate dollar value amount is reached will be
determined by multiplying (i) the total number of shares of Viacom Common
Stock tendered at or below such Exchange Ratio by (ii) the product of such
Exchange Ratio times 100. The lowest Exchange Ratio required to reach the
Trigger Amount will be the Final Exchange Ratio, at which Exchange Ratio all
[ ] million shares of VII Cable Class A Common Stock will be issued to holders
of shares of Viacom Common Stock whose shares are accepted for exchange
pursuant to the Exchange Offer. At the Minimum Exchange Ratio, Viacom would
accept for exchange [ million] shares of Viacom Common Stock (or [ %] of the
total number of shares of Viacom Common Stock outstanding). At the Maximum
Exchange Ratio, Viacom would accept for exchange [ million] shares of Viacom
Common Stock (or [ %] of the total number of shares of Viacom Common Stock
outstanding). The total number of shares of Viacom Common Stock to be accepted
for exchange in the Exchange Offer will be equal to (i) the total number of
shares of VII Cable Class A Common Stock exchangeable in the Exchange Offer
([ million] shares) divided by (ii) the Final Exchange Ratio. Holders of
Viacom Common Stock whose shares are accepted for exchange will receive shares
of VII Cable Class A Common Stock which, after the completion of the
Transaction, will automatically and immediately convert into shares of VII
Cable Preferred Stock on one for one basis.
Based on the Estimated Asset Value of $[ billion] and Loan Proceeds of $1.7
billion, in calculating the number of shares of Viacom Common Stock to be
accepted for exchange in the Exchange Offer, Viacom: (i) subtracted the Loan
Proceeds ($1.7 billion) from the Estimated Asset Value ($[ billion]), thereby
fixing the aggregate par value of VII Cable Class A Common Stock to be
distributed to Viacom stockholders (i.e., the Trigger Amount) at $[ ] million;
(ii) divided the Trigger Amount by the par value per share of VII Cable Class
A Common Stock ($100) in order to determine the number of shares of VII Cable
Class A Stock ([ ] million) to be received by stockholders of Viacom Common
Stock upon consummation of the Transaction; and (iii) will divide such number
of shares of VII Cable Class A Common Stock by 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 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 than are necessary to reach the
Trigger Amount are validly tendered for exchange at or below the Final
Exchange Ratio 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). In the event that the
number of shares tendered at any combination of Exchange Ratios within the
Exchange Ratio Range is insufficient to reach the Trigger Amount, Viacom will
not accept for exchange any of the shares tendered in the Exchange Offer
although, subject to the conditions thereof, Viacom has the right to extend
the Exchange Offer as described in "The Exchange Offer--Extension of Tender
Period; Termination Amendment." All shares which are tendered but not acquired
pursuant to the Exchange Offer, including shares tendered at Exchange Ratios
greater than the Final Exchange Ratio and shares not acquired because of
proration, will be returned to tendering stockholders promptly following the
Expiration Date.
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.
If proration of tendered shares of Viacom Common Stock is required, 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
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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. 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, THE DEALER MANAGER 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.
Once the Trigger Amount is reached, and subject to certain conditions set
forth in "--Conditions to Consummation of the Exchange Offer" below, Viacom
will become obligated to consummate the Exchange Offer. 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 [ ], 1996. As of such 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 (and, in the case of the condition set forth
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in clause (e) under "--Conditions to Consummation of the Exchange Offer," to
the discussion set forth under "--Extension of Tender Offer Period;
Termination; Amendment" relating to the "Force Majeure Notice"), 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 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, after the consummation of the
Stock Issuance, to take physical delivery of shares of VII Cable Class A
Common Stock which they receive in exchange for shares of Viacom Common Stock.
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 "--Conditions to Consummation 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
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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 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.
DETERMINING TO PARTICIPATE IN THE EXCHANGE OFFER
Whether to participate in the Exchange Offer. Viacom stockholders should
consider not only the value of what they are tendering in the Exchange Offer
(i.e., shares of Viacom Common Stock), and the value of what they are
ultimately receiving after completion of the Transaction (i.e., shares of VII
Cable Preferred Stock) but also whether they wish to own shares of common
stock of Viacom, a diversified entertainment and publishing company which will
(i) no longer own the Cable Business, (ii) have reduced the debt on its
balance sheet by approximately $1.7 billion and (iii) have reduced the total
number of outstanding shares of Viacom Common Stock by approximately 3%, or
shares of preferred stock of VII Cable, a company that will (i) own the Cable
Business, (ii) be a wholly owned subsidiary of TCI and (iii) have a capital
structure consisting principally of $1.35 billion of bank debt, $[ ] million
of preferred equity and $350 million of common equity. In valuing a share of
Viacom Common Stock to be tendered in the Exchange Offer, a Viacom stockholder
may wish to consider the market prices of the Viacom Common Stock as well as
such stockholder's view of the future trading prices of the Viacom Common
Stock. In valuing a share of VII Cable Preferred Stock to be ultimately
received after completion of the Transaction, a Viacom stockholder should
consider all of the factors described below under "Description of VII Cable
Capital Stock--VII Cable Preferred Stock--Dividends," including but not
limited to the fact that the dividend rate was set so that the VII Cable
Preferred Stock would, in the opinion of the Financial Advisors and based upon
conditions at the time they gave their advice, be expected to have a market
value of approximately $100 per share immediately after consummation of the
Transaction (assuming no change in conditions between the date of their
opinion and the date of consummation of the Transaction). Since the dividend
rate was set prior to commencement of the Exchange Offer based on conditions
as of [ ], 1996, it may not be the dividend rate that the Financial Advisors
would have recommended if the rate were determined at the end of the Exchange
Offer based on conditions at that time. See "Risk Factors--Uncertainties with
respect to Setting the Dividend Rate."
Selecting an Exchange Ratio. In the event a Viacom stockholder determines to
participate in the Exchange Offer, in deciding at which Exchange Ratio to
tender such stockholder should consider not only its view of the value of a
single share of Viacom Common Stock and a single share of VII Cable Preferred
Stock (i.e., the value ultimately to be received for that being surrendered)
but the level of certainty that its tender will be accepted in the Exchange
Offer. That is, even if it determines that a share of Viacom Common Stock is
worth [$ ] and a share of VII Cable Preferred Stock is worth $100, it does not
have to tender at an Exchange Ratio of [ ] ([$ ] divided by $100), but can
tender the same share of Viacom Common Stock at a higher Exchange Ratio,
thereby ascribing a premium to its Viacom shares. The higher the Exchange
Ratio specified, the lower the likelihood that an investor will have its
shares accepted for exchange. A tender at an Exchange Ratio above the Final
Exchange Ratio will not be accepted. Only tenders at the Minimum Exchange
Ratio are assured of being accepted in the Exchange Offer (subject to
proration and assuming the Trigger Amount is reached). In selecting an
Exchange
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Ratio at which to tender a share of Viacom Common Stock, a Viacom stockholder
should remember that its decision is based in part on its view of the value of
a share of VII Cable Preferred Stock, and also that the market value of a
share of VII Cable Preferred Stock may be different from its view of the value
of such a share. If the market value of a share of VII Cable Preferred Stock
is lower than the value assumed by a Viacom stockholder in selecting the
Exchange Ratio at which to tender (and assuming all other things remain the
same), each share of VII Cable Preferred Stock received will have less value
than such Viacom stockholder thought it would have at the Exchange Ratio
selected.
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 0.00125) 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, THE DEALER MANAGER 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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<PAGE>
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
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 New York City time 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," "PVIT/PDI participants" or "Missouri Plan participants,"
as applicable) under the Viacom Investment Plan (the "VIP"), the Savings and
Investment Plan for Employees of PVI Transmission Inc. and Paramount (PDI)
Distribution Inc. (the "PVIT/PDI Plan") and the Savings and Investment Plan
for Collective Bargaining Employees of Viacom Broadcasting of Missouri, Inc.
(the "Missouri Plan") may direct the Trustee of the VIP, the PVIT/PDI
35
<PAGE>
Plan or the Missouri Plan, as applicable, to tender shares of Viacom Common
Stock credited to their matching accounts or to their investment accounts in
the Viacom Common Stock fund of each such plan. The Trustee will make
available to such VIP participants, PVIT/PDI participants and Missouri Plan
participants all documents furnished to stockholders generally in connection
with the Exchange Offer. In the Letter of Transmittal, each VIP participant,
PVIT/PDI participant and Missouri plan participant may direct that all, some
or none of the shares credited to such participant's VIP Viacom Stock Fund
Account and/or matching account under the relevant plan be tendered and shall
specify the Exchange Ratio at which such shares are to be tendered.
Under the Employee Retirement Income Security Act of 1974, as amended,
Viacom will be prohibited from accepting for exchange any shares from the VIP,
the PVIT/PDI Plan or Missouri Plan 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 Dealer Manager, the Information Agent or any other person will be under
any duty to give
36
<PAGE>
notification of any defect or irregularity in tenders or notices of withdrawal
or incur any liability for failure to give any such notification.
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 Dealer Manager, 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 "--Conditions to Consummation 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
37
<PAGE>
making a public announcement of such amendment. If insufficient tenders are
made by Viacom stockholders in the Exchange Offer to permit the Trigger Amount
to be reached, Viacom has the right to extend the Exchange Offer for not less
than 10 nor more than 15 business days (or such greater period as may be
required under the Exchange Act). During such extension, TCI and Viacom have
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 TCI 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 Trigger Amount to be reached and that would cause
the VII Cable Preferred Stock to have a market value of approximately $100 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. Viacom has agreed with TCI that it will
not accept for exchange shares of Viacom 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
(a "Force Majeure Notice") from TCI and TCI Cable to it prior to 5:00 P.M. on
the date the Exchange Offer is scheduled to expire that they have determined
on a reasonable basis that any of the events (a "Force Majeure Event")
specified in section (e) under "--Conditions to Consummation of the Exchange
Offer" has occurred.
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 Trigger Amount, 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 "--Conditions to Consummation 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.
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<PAGE>
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.
CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER
The conditions to the obligations of Viacom to commence the Exchange Offer
were satisfied or waived on [ ], 1996. 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 Trigger Amount shall not have been reached;
(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 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
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<PAGE>
(f) any of the Parents Agreement, the Implementation Agreement or the
Subscription Agreement shall have been terminated in accordance with its
terms;
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 is acting as Financial Advisor to Viacom with respect to
the Transaction and 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
and the direct solicitation of certain identified stockholders. In
consideration for Wasserstein Perella acting as its Financial Advisor, Viacom
has paid Wasserstein Perella a fee of $250,000 and, contingent upon
consummation of the Transaction, will pay a fee of $2.75 million (against
which the $250,000 already paid will be credited). Viacom has also agreed to
reimburse Wasserstein Perella for its reasonable out of pocket expenses.
Wasserstein Perella will not receive any additional compensation for acting as
Dealer Manager. Wasserstein Perella 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. Viacom has
agreed to indemnify the Dealer Manager against certain liabilities, including
civil liabilities under the Securities Act, and to contribute to payments
which the Dealer Manager may be required to make in respect thereof.
Viacom has retained Georgeson & Company Inc. to act as the Information Agent
and The Bank of New York 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 Information Agent and the
Exchange Agent) for soliciting tenders of shares of Viacom Common Stock
pursuant to the Exchange Offer. Brokers, dealers, commercial 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.
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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, VIACOM INTERNATIONAL OR THE DEALER MANAGER. SEE ALSO
"TCI PROSPECTUS--EXPLANATORY NOTE."
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 VIACOM
CLASS A CLASS B
COMMON COMMON
STOCK STOCK
------------ ------------
HIGH LOW HIGH LOW
---- ---- ---- ----
<S> <C> <C> <C> <C>
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.................................. $50 5/8 $44 $50 3/4 $44 5/8
1996
1st Quarter.................................. $46 3/4 $36 5/8 $47 5/8 $37 1/8
2nd Quarter (through May 10, 1996)........... $41 3/4 $39 $42 5/8 $39 3/4
</TABLE>
The number of holders of record of Viacom Class A Common Stock and Viacom
Class B Common Stock as of May 10, 1996 was 13,303 and 24,333, 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 American Stock
Exchange ("AMEX") Composite Tape were $50 1/4 and $50, respectively. On May
10, 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 $39 5/8 and $40 7/8, respectively. STOCKHOLDERS ARE URGED TO OBTAIN
41
<PAGE>
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
On [ ], 1996, the VII Cable Preferred Stock was approved for quotation on
the Nasdaq National Market under the symbol "TPACP."
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 Preferred Stock and the prices at which these securities may
trade prior to or after the expiration of the 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. Although the dividend rate on the VII Cable Preferred
Stock was set so that the VII Cable Preferred Stock would, in the opinion of
the Financial Advisors and based on conditions at the time they gave their
advice, be expected to have a market value of approximately $100 per share
immediately after completion of the Transaction (assuming no change in
conditions between the date of their opinions and the date of consummation of
the Transaction), see "Summary--Terms of the Class A Senior Cumulative
Exchangeable Preferred Stock--Dividends," the prices at which the VII Cable
Preferred Stock trades immediately following the Exchange Date and thereafter
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.
42
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
VIACOM
The following unaudited pro forma condensed consolidated financial
statements of Viacom as of and for the three months ended March 31, 1996 and
for the twelve months ended December 31, 1995 give effect to the Viacom Pro
Forma Events (as described below), as if such events occurred at the beginning
of the earliest period presented for results of operations data. The unaudited
pro forma condensed consolidated statement of operations of Viacom for the
three months ended March 31, 1996 and the year ended December 31, 1995 are
based upon the statements of operations of Viacom and VII Cable for the three
months ended March 31, 1996 and the year ended December 31, 1995. The
unaudited pro forma condensed consolidated balance sheet is based upon the
balance sheets of Viacom and VII Cable as of March 31, 1996 and gives effect
to the Viacom Pro Forma Events as if they had occurred on March 31, 1996.
The Viacom Pro Forma Events are (i) Viacom's split-off of the Cable Business
and its related assets and liabilities as a result of the consummation of the
Exchange Offer, (ii) the reduction in the number of shares of Viacom Common
Stock outstanding and the weighted average number of such shares outstanding
used in earnings per share calculations as a result of such shares being
accepted for exchange in the Exchange Offer, and (iii) the application of the
Loan Proceeds to the reduction of Viacom's indebtedness. The Final Exchange
Ratio is assumed to be .40 (the Minimum Exchange Ratio) shares of VII Cable
Class A Common Stock for each share of Viacom Common Stock, which results in
12.5 million shares of Viacom Common Stock being exchanged for all outstanding
shares of VII Cable Class A Common Stock. The Exchange Ratio assumed is solely
for purposes of presenting pro forma data and is not necessarily indicative of
the actual Final Exchange Ratio. If the Maximum Exchange Ratio was utilized in
the assumptions, 11.1 million shares of Viacom Common Stock would be exchanged
for all outstanding shares of VII Cable Class A Common Stock; however, this
change does not have a significant impact on the calculated primary and fully
diluted earnings per share.
These unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the audited financial statements, and the
unaudited interim financial statements, including the notes thereto, of Viacom
and VII Cable, which are incorporated by reference and included in this
Offering Circular - Prospectus, respectively. See "Incorporation of Certain
Documents by Reference." The unaudited pro forma data are not necessarily
indicative of the results of operations or financial position of Viacom that
would have occurred if the Viacom 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
consolidated financial statements.
43
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
VIACOM
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------
SPLIT-OFF PRO
HISTORICAL OF OTHER FORMA
VIACOM INC. VII CABLE (1) ADJUSTMENTS VIACOM INC.
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and short term invest-
ments..................... $ 350.8 $ (3.5) $1,700.0 (2) $ 347.3
(1,700.0)(3)
Other current assets....... 4,761.1 (14.5) (0.8)(2) 4,745.8
--------- --------- -------- ---------
Total current assets... 5,111.9 (18.0) (0.8) 5,093.1
--------- --------- -------- ---------
Property and equipment,
net....................... 3,298.8 (422.3) 3.3 (2) 2,879.8
Intangibles, at amortized
cost...................... 16,074.8 (556.7) -- 15,518.1
Other assets............... 4,708.2 (67.9) 45.4 (2) 4,685.7
--------- --------- -------- ---------
Total assets........... $29,193.7 $(1,064.9) $ 47.9 $28,176.7
========= ========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities........ $ 3,486.6 $ (80.3) $ 26.1 (2) $ 3,482.4
50.0 (5)
Long-term debt............. 11,399.5 (57.0) (1,700.0)(3) 9,699.5
57.0 (2)
Other liabilities.......... 2,144.3 (72.8) 12.4 (2) 2,083.9
Shareholders' equity:
Preferred................ 1,200.0 -- -- 1,200.0
Common................... 10,963.3 (854.8) (500.0)(4) 11,710.9
500.0 (5)
1,700.0 (5)
(47.6)(5)
(50.0)(5)
--------- --------- -------- ---------
Total shareholders' eq-
uity.................. 12,163.3 (854.8) 1,602.4 12,910.9
--------- --------- -------- ---------
$29,193.7 $(1,064.9) $ 47.9 $28,176.7
========= ========= ======== =========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
44
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
VIACOM
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------
SPLIT-OFF
HISTORICAL OF OTHER PRO FORMA
VIACOM INC. VII CABLE (1) ADJUSTMENTS VIACOM INC.
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................ $2,798.1 $(116.6) $ -- $2,681.5
Expenses:
Operating............. 1,728.2 (51.7) -- 1,676.5
Selling, general and
administrative....... 576.4 (24.3) 4.8 (7) 556.9
Depreciation and
amortization......... 220.0 (21.8) -- 198.2
-------- ------- ----- --------
Total expenses...... 2,524.6 (97.8) 4.8 2,431.6
-------- ------- ----- --------
Operating income........ 273.5 (18.8) (4.8) 249.9
Other income (expense):
Interest expense, net. (205.0) 11.9 14.9 (6) (178.2)
Other items, net...... (.5) (1.8) 1.8 (7) (.5)
-------- ------- ----- --------
Total other income
(expense).......... (205.5) 10.1 16.7 (178.7)
-------- ------- ----- --------
Earnings from continuing
operations before
income taxes........... 68.0 (8.7) 11.9 71.2
Provision for income
taxes.................. (42.6) 5.2 (4.3)(2)(8) (41.7)
Equity in earnings
(loss) of affiliated
companies, net of tax.. 1.2 0.1 0.5 (2) 1.8
Minority interest....... 1.2 -- -- 1.2
-------- ------- ----- --------
Net earnings from
continuing operations.. 27.8 (3.4) 8.1 32.5
Preferred stock dividend
requirements........... (15.0) -- -- (15.0)
-------- ------- ----- --------
Net earnings
attributable to common
stock before
discontinued
operations............. $ 12.8 $ (3.4) $ 8.1 $ 17.5
======== ======= ===== ========
Primary:
Earnings per common
share................ $ .03 -- -- $ .05
Weighted average
number of shares..... 374.7 -- (12.5)(9) 362.2
Fully diluted:
Earnings per common
share................ $ .03 -- -- $ .05
Weighted average
number of shares..... 375.0 -- (12.5)(9) 362.5
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
45
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
VIACOM
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------
SPLIT-OFF
HISTORICAL OF OTHER PRO FORMA
VIACOM INC. VII CABLE (1) ADJUSTMENTS VIACOM INC.
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................. $11,688.7 $(442.2) $ 1.7 (2) $11,248.2
Expenses:
Operating.............. 7,072.7 (191.1) 0.1 (2) 6,881.7
Selling, general and
administrative........ 2,302.3 (88.5) 16.8 (7) 2,230.6
Depreciation and amor-
tization.............. 820.4 (81.8) 0.1 (2) 738.7
--------- ------- ----- ---------
Total expenses....... 10,195.4 (361.4) 17.0 9,851.0
--------- ------- ----- ---------
Operating income......... 1,493.3 (80.8) (15.3) 1,397.2
Other income (expense):
Interest expense, net.. (821.4) 48.5 69.6 (6) (703.3)
Other items, net....... 17.3 (34.3) 26.9 (2) 17.3
7.4 (7)
--------- ------- ----- ---------
Total other income
(expense)........... (804.1) 14.2 103.9 (686.0)
--------- ------- ----- ---------
Earnings from continuing
operations before income
taxes................... 689.2 (66.6) 88.6 711.2
Provision for income tax-
es...................... (417.0) 32.8 (31.8)(2)(8) (416.0)
Equity in earnings (loss)
of affiliated companies,
net of tax.............. (53.9) 0.1 0.8 (2) (53.0)
Minority interest........ (3.4) -- -- (3.4)
--------- ------- ----- ---------
Net earnings from contin-
uing operations......... 214.9 (33.7) 57.6 238.8
Preferred stock dividend
requirements............ (60.0) -- -- (60.0)
--------- ------- ----- ---------
Net earnings attributable
to common stock before
discontinued operations. $ 154.9 $ (33.7) $57.6 $ 178.8
========= ======= ===== =========
Primary:
Earnings per common
share................. $ 0.41 -- -- $ 0.49
Weighted average number
of shares............. 375.1 -- (12.5)(9) 362.6
Fully diluted:
Earnings per common
share................. $ 0.41 -- -- $ 0.49
Weighted average number
of shares............. 375.5 -- (12.5)(9) 363.0
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
46
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
VIACOM
(TABULAR DOLLARS IN MILLIONS)
1. Reflects impact of the deconsolidation of the historical VII Cable.
2. Reflects the conveyance from VII Cable to Viacom Services of the Loan
Proceeds of $1.7 billion, existing bank debt of $57 million and certain other
non-material assets, liabilities and related results of operations of VII
Cable including a pre-tax gain of $26.9 million from the sale of marketable
securities and income taxes of $10.7 million for the year ended December 31,
1995.
3. Reflects the assumed repayment by Viacom of $1.7 billion bank debt with
the Loan Proceeds.
4. Reflects a $500 million reduction for the shares of Viacom Common Stock
tendered as a result of the consummation of the Exchange Offer.
5. Viacom will account for the split-off based upon the fair value of Viacom
Common Stock exchanged for VII Cable Class A Common Stock resulting in a non-
recurring gain of approximately $1.2 billion which is not reflected in the pro
forma results of operations. The calculation of the estimated gain on the
Transaction is summarized below:
Consideration received for VII Cable Class A
<TABLE>
<S> <C>
Common Stock.................................................. $ 500.0
Conveyance of assets and liabilities to Viacom Services:
Loan Proceeds................................................. 1,700.0
Other assets and liabilities.................................. (47.6)
Net book value of VII Cable..................................... (854.8)
Transaction costs............................................... (50.0)
--------
Transaction gain................................................ $1,247.6
========
</TABLE>
On [ ], 1996 Viacom received a Ruling Letter from the IRS to the effect
that, for federal tax purposes, the Transaction will qualify as a distribution
that is tax-free to Viacom's shareholders (except with respect to cash
received in lieu of fractional shares) and, in general, is tax-free to Viacom.
See "Certain Federal Income Tax Consequences--The Transaction."
6. Reduction in interest expense of $26.8 million and $118.1 million for the
three months ended March 31, 1996 and the year ended December 31, 1995,
respectively, resulting from the decrease in borrowings described in Note 3,
offset by VII Cable's historical interest expense of $11.9 million and $48.5
million for the three months ended March 31, 1996 and the year ended December
31, 1995, respectively. The reduction in interest expense has been based upon
Viacom's historical interest rate on bank debt 6.5% and 7.2% for the three
months ended March 31, 1996 and the year ended December 31, 1995,
respectively.
7. Represents $1.8 million and $7.4 million for the three months ended March
31, 1996 and the year ended December 31, 1995, respectively, of
reclassification of items to conform the presentation of the VII Cable
financial statements to that of the Viacom financial statements and the
reversal of $3.0 million and $9.4 million for the three months ended March 31,
1996 and the year ended December 31, 1995, respectively, allocated by Viacom
to VII Cable for general and administrative expenses. These general and
administrative expenses are expected to be incurred by Viacom on an ongoing
basis.
8. Reflects the income tax effect of $4.2 million and $21.1 million for the
three months ended March 31, 1996 and the year ended December 31, 1995,
respectively, on the pro forma adjustments for interest expense and general
and administrative expenses calculated at the 35% statutory tax rate.
47
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
VIACOM
(TABULAR DOLLARS IN MILLIONS)
9. Pro forma primary earnings per common share is based on the weighted
average of common shares and common share equivalents outstanding, reduced by
the 12.5 million common shares assumed to be exchanged in connection with the
Transaction as if it occurred at the beginning of the periods presented. The
assumed conversion of Preferred Stock would have an antidilutive effect on
earnings per common share and, therefore, fully diluted earnings per common
share is not presented.
48
<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 three months ended March 31, 1996 and for the
twelve months ended December 31, 1995 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 statement of operations for the three months ended March 31, 1996 and
year ended December 31, 1995 is based upon the statement of operations of VII
Cable for the three months ended March 31, 1996 and year ended December 31,
1995, respectively. The unaudited pro forma condensed combined balance sheet
gives effect to the VII Cable Pro Forma Events as if they had occurred on
March 31, 1996. 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 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 following the consummation of the
Exchange Offer, which is estimated at approximately [$2.2] billion, consisting
of TCI Cable's $350 million investment, the $1.35 billion Loan (after
reduction by the $350 million received from TCI Cable's equity investment) and
the [$500] million estimated aggregate par value of the VII Cable Preferred
Stock, will be allocated by TCI to the assets and liabilities acquired
according to their respective fair values, with any excess being treated as
goodwill. The valuations and other studies which will provide the basis for
the allocation of the cost to acquire VII Cable following consummation of the
Exchange Offer have not yet been performed by TCI. Because the valuations and
other studies will not be performed until after the Exchange Offer occurs, the
purchase accounting adjustments made in connection with the development of the
unaudited pro forma condensed combined financial statements are preliminary.
The entire purchase price in excess of the book value of VII Cable's assets
and liabilities has been attributed to goodwill. The approximately [$1.3
billion] pro forma excess of unallocated acquisition costs as of March 31,
1996 is being amortized over 40 years at a rate of [$32.3] million per year.
To the extent that the excess purchase price over book value is allocated to
property and equipment or other assets, including identifiable intangibles
with lives of less than 40 years, depreciation and amortization will increase
and, on an after-tax basis, net income will decrease. Although VII Cable
cannot estimate the potential increase in depreciation or amortization, it may
be significant. VII Cable estimates the average useful life of property and
equipment to be approximately 10.5 years. In addition, VII Cable does not
believe that there are substantial intangible assets which will require
amortization over periods less than 10.5 years. As a result, VII Cable does
not believe that any allocation of purchase price to other assets should be
expected to result in an amortization period less than 10.5 years. VII Cable
has estimated, that for every $100 million allocated to property and equipment
or to other assets including identifiable intangibles, and assuming an average
life of 10.5 years, depreciation and amortization would increase by [$7
million] per year over such 10.5 year period.
Solely for purposes of presentation of the unaudited pro forma condensed
combined financial statements of VII Cable, the Estimated Asset Value of VII
Cable has been assumed to be approximately $2.2 billion. The Estimated Asset
Value is 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 certain front-end
loaded programming payments specified in the Implementation Agreement, plus
(viii) an amount equal to interest on the sum of the foregoing amounts at one-
month LIBOR plus 1 1/4% for the period from September 1, 1995 to the Exchange
Date (one month LIBOR as of
49
<PAGE>
March 31, 1996 was 5 7/16%). The foregoing Adjustment Amounts are subject to
change as a result of adjustments from estimated to actual values. To the
extent that the Asset Value (as defined herein) 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. For further discussion of
such post-closing adjustments, see "Arrangements among Viacom, Viacom
International, TCI and TCI Cable--Terms of the Implementation Agreement--Post-
Closing Adjustments." Any change between the Estimated Asset Value assumed for
purposes of the unaudited pro forma condensed combined financial statements of
VII Cable and 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
[$250,000] and an increase in annual VII Cable Preferred Stock dividend
requirements of [$425,000] based upon an estimated useful life of 40 years and
an annual dividend rate of [4.25%].
It is expected that after the consummation of the Stock Issuance, 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 cost to acquire VII Cable following consummation of the
Exchange Offer will be made by TCI.
The future financial position of VII Cable may reflect increased property
and equipment, 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 may reflect increased depreciation,
amortization of goodwill, increased interest 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.
50
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
VII CABLE
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------------
EFFECTS
PRO FORMA PRO FORMA OF THE PRO FORMA
ASSETS HISTORICAL ADJUSTMENTS PRE-SWAP SWAP(10) POST-SWAP
------ ---------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Cash.................... $ 3.5 $ 1,700.0 (1) $ 3.5 $ 1.7 $ 5.2
(1,700.0)(2)
Other current assets.... 14.5 0.8 (2) 15.3 $ (.2) 15.1
-------- --------- -------- ----- --------
Total current
assets............. 18.0 0.8 18.8 1.5 20.3
Property and equipment,
net.................... 422.3 (3.3)(2) 419.0 (8.4) 410.6
Intangible assets, at
amortized cost......... 556.7 1,297.6 (5) 1,854.3 .9 1,855.2
Other assets............ 67.9 (45.4)(2) 22.5 .6 23.1
-------- --------- -------- ----- --------
$1,064.9 $ 1,249.7 $2,314.6 $(5.4) $2,309.2
======== ========= ======== ===== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
- -----------------------------
<S> <C> <C> <C> <C> <C>
Current liabilities..... $ 80.3 $ (26.1)(2) $ 54.2 $(2.7) $ 51.5
Long-term debt.......... 57.0 1,700.0 (1) 1,350.0 1,350.0
(57.0)(2)
(350.0)(3)
Other liabilities....... 72.8 (12.4)(2) 60.4 (2.7) 57.7
Class A Preferred Stock
(mandatory redemption). -- 500.0 (4) 500.0 -- 500.0
Stockholders' Equity:
Class B Common Stock.. -- 350.0 (3) 350.0 -- 350.0
Viacom equity
investment........... 854.8 (854.8)(5) -- -- --
-------- --------- -------- ----- --------
$1,064.9 $ 1,249.7 $2,314.6 $(5.4) $2,309.2
======== ========= ======== ===== ========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
51
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
VII CABLE
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------------
EFFECTS
PRO FORMA PRO FORMA OF THE PRO FORMA
HISTORICAL ADJUSTMENTS PRE-SWAP SWAP(10) POST-SWAP
---------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................. $116.6 $ $116.6 $(1.9) $114.7
Expenses:
Operating............... 51.7 -- 51.7 (1.8) 49.9
Selling, general and
administrative......... 24.3 -- 24.3 (.7) 23.6
Depreciation and
amortization........... 21.8 8.1 (6) 29.9 1.6 31.5
------ ------ ------ ----- ------
Total expenses........ 97.8 8.1 105.9 (.9) 105.0
------ ------ ------ ----- ------
Operating income.......... 18.8 (8.1) 10.7 (1.0) 9.7
Other income (expense):
Interest expense........ (11.9) (13.1)(7) (25.0) -- (25.0)
Other items, net........ 1.8 -- 1.8 (.1) 1.7
------ ------ ------ ----- ------
Total other income
(expense)............ (10.1) (13.1) (23.2) (.1) (23.3)
------ ------ ------ ----- ------
Earnings (loss) before
income taxes............. 8.7 (21.2) (12.5) (1.1) (13.6)
Benefit (provision) for
income taxes............. (5.2) 4.7 (8) (.5) .8 .3
Equity in earnings (loss)
of affiliated companies,
net of tax............... (.1) (.5)(2) (.6) (.6)
------ ------ ------ ----- ------
Net earnings (loss)....... 3.4 (17.0) (13.6) (.3) (13.9)
Preferred stock dividend
requirement.............. -- (5.3)(9) (5.3) -- (5.3)
------ ------ ------ ----- ------
Net earnings (loss)
attributable to common
stock.................... $ 3.4 $(22.3) $(18.9) $ (.3) $(19.2)
====== ====== ====== ===== ======
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
52
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
VII CABLE
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
EFFECTS
PRO FORMA PRO FORMA OF THE PRO FORMA
HISTORICAL ADJUSTMENTS PRE-SWAP SWAP(10) POST-SWAP
---------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................ $442.2 $ (1.7)(2) $ 440.5 $(5.8) $434.7
Expenses:
Operating............. 191.1 (.1)(2) 191.0 (7.4) 183.6
Selling, general and
administrative....... 88.5 -- 88.5 2.9 91.4
Depreciation and
amortization......... 81.8 32.2 (2)(6) 114.0 7.8 121.8
------ ------- ------- ----- ------
Total expenses...... 361.4 32.1 393.5 3.3 396.8
------ ------- ------- ----- ------
Operating income........ 80.8 (33.8) 47.0 (9.1) 37.9
Other income (expense):
Interest expense...... (48.5) (56.6)(7) (105.1) -- (105.1)
Other items, net...... 34.3 (26.9)(2) 7.4 .2 7.6
------ ------- ------- ----- ------
Total other income
(expense).......... (14.2) (83.5) (97.7) .2 (97.5)
------ ------- ------- ----- ------
Earnings (loss) before
income taxes........... 66.6 (117.3) (50.7) (8.9) (59.6)
Benefit (provision) for
income taxes........... (32.8) 30.5 (8) (2.3) 5.6 3.3
Equity in earnings
(loss) of affiliated
companies, net of tax.. (.1) (.8)(2) (.9) -- (.9)
------ ------- ------- ----- ------
Net earnings (loss)..... 33.7 (87.6) (53.9) (3.3) (57.2)
Preferred stock dividend
requirement............ -- (21.3)(9) (21.3) -- (21.3)
------ ------- ------- ----- ------
Net earnings (loss)
attributable to common
stock.................. $ 33.7 $(108.9) $ (75.2) $(3.3) $(78.5)
====== ======= ======= ===== ======
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
53
<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.
Scheduled maturities of the Loan through December 31, 2000 are assumed to
be $300 million (1996), none (1997), $30 million (1998), $110 million
(1999) and $135 million (2000) and $1,125 million thereafter. The $300
million maturity in 1996 will be paid upon consummation of the Stock
Issuance from a portion of the proceeds of the Subscription Payment.
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 including for the year ended
December 31, 1995 a pre-tax gain of $26.9 million from the sale of
marketable securities and a provision for income taxes of $10.7 million.
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 above. Solely for the purposes of this presentation the shares of VII
Cable Preferred Stock are assumed to pay dividends at a rate of [4.25%] per
annum. The assumed dividend rate was derived from 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 as
of March 31, 1996 is summarized below (in millions):
<TABLE>
<S> <C>
Loan (after repayment of $350 million)....................... $ 1,350.0
TCI Subscription Payment..................................... 350.0
VII Cable Preferred Stock.................................... [500.0]
---------
[2,200.0]
VII Cable net assets......................................... [(854.8)]
Net liabilities conveyed to Viacom Services(a)............... (47.6)
---------
[$1,297.6]
=========
</TABLE>
The valuations and other studies which will provide the basis for the
allocation of the cost to acquire VII Cable following consummation of the
Exchange Offer have not yet been performed by TCI. Because the valuations and
other studies will not be performed until after the Exchange Offer occurs the
purchase accounting adjustments made in connection with the development of the
unaudited pro forma condensed combined financial statements are preliminary.
The entire purchase price in excess of the book value of VII Cable's assets
and liabilities has been attributed to goodwill.
(a) Represents VII Cable's existing bank debt of $57 million and
certain equity investments and other nonmaterial assets and
liabilities conveyed to Viacom Services in accordance with the
Implementation Agreement.
6. An increase in amortization expense of $8.1 million and $32.3 million for
the three months ended March 31, 1996 and the year ended December 31, 1995,
respectively, resulting from the increase in intangibles as described in
Note 5. See paragraph 3 of the introductory paragraphs to the Unaudited Pro
Forma Condensed Combined Financial Statements of VII Cable.
7. Additional interest expense resulting from the incremental borrowings
described in Note 1. Solely for the purposes of this presentation Viacom
International has assumed an interest rate of 7.41% and 7.78% for the three
months ended March 31, 1996 and the year ended December 31, 1995,
respectively, based upon historical interest rates adjusted for 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.
Assumes no interest expense will be allocated by TCI Cable to VII Cable
after the Transaction.
54
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
VII CABLE
8. Reflects the income tax effects of $4.6 million and $29.4 million for the
three months ended March 31, 1996 and the year ended December 31, 1995,
respectively, on the pro forma adjustments calculated at the 35% statutory
tax rate. The effective income tax rate on a pro forma basis is adversely
affected by amortization of excess acquisition costs, which are assumed not
to be deductible for tax purposes.
9. Reflects an assumed [4.25%] cumulative annual dividend on the [$500]
million of VII Cable Preferred Stock as described in Note 4 above. A change
in the assumed dividend rate of 1/8% will result in a change in preferred
stock dividend requirements and pro forma net income available to holders
of outstanding shares of VII Cable Class B Common Stock (all of which,
immediately after the completion of the Transaction, will be held by TCI
Cable) of [$625,000]. See paragraph 4 of the introductory paragraphs to the
Unaudited Pro Forma Condensed Combined Financial Statements of VII Cable.
10. Following consummation of the Transaction, IMP intends to exchange its
Houston cable systems for VII Cable's Nashville cable system. The exchange
is intended to qualify as a like-kind exchange under Section 1031 of the
Code. For financial reporting purposes the transaction is to be recorded
on a book value basis and therefor the recorded amounts of the nonmonetary
assets exchanged are used as the basis for valuing the net assets
received. TCI Cable is a limited partner in the partnership that owns a
majority interest in IMP. The following tables reflect the condensed
combined financial statements of the Houston cable systems and of the
Nashville cable systems as of and for the three months ended March 31,
1996 and for the twelve months ended December 31, 1995 giving effect to
certain pro forma adjustments described in the notes below. The final
column presents the net effects of the Swap, calculated as the difference
between the adjusted Houston cable systems and the Nashville cable system
historical.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------------------------------
HOUSTON CABLE ADJUSTED NASHVILLE PRO FORMA
SYSTEMS PRO FORMA HOUSTON CABLE CABLE SYSTEM EFFECTS OF
HISTORICAL ADJUSTMENTS SYSTEM HISTORICAL THE SWAP
------------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 1.7 $ -- $ 1.7 $ -- $ 1.7
Other current assets.... 2.1 -- 2.1 2.3 (.2)
------ ------ ------ -----
Total current
assets............. 3.8 -- 3.8 2.3 1.5
Property and equipment,
net.................... 55.8 -- 55.8 64.2 (8.4)
Intangible assets, at
amortized cost......... 15.5 37.3 (a) 52.8 51.9 .9
Other assets............ 3.0 (2.4)(b) .6 -- .6
------ ------- ------ ------ -----
$ 78.1 $ 34.9 $113.0 $118.4 $(5.4)
====== ======= ====== ====== =====
LIABILITIES AND EQUITY
Current liabilities..... $ 2.6 $ (1.4)(b) $ 1.2 $ 3.9 $(2.7)
Long-term debt.......... 142.5 (142.5)(b) -- -- --
Other liabilities....... 5.0 -- 5.0 7.7 (2.7)
Equity.................. (72.0) 178.8 (a)(b) 106.8 106.8 --
------ ------- ------ ------ -----
$ 78.1 $ 34.9 $113.0 $118.4 $(5.4)
====== ======= ====== ====== =====
</TABLE>
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
VII CABLE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------------------
HOUSTON CABLE ADJUSTED NASHVILLE PRO FORMA
SYSTEMS PRO FORMA HOUSTON CABLE CABLE SYSTEM EFFECTS OF
HISTORICAL ADJUSTMENTS SYSTEMS HISTORICAL THE SWAP
------------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 14.6 -- $14.6 $16.5 $(1.9)
Expenses:
Operating............. 4.3 -- 4.3 6.1 (1.8)
Selling, general and
administrative....... 3.9 -- 3.9 4.6 (.7)
Depreciation and
amortization......... 4.9 $ (.5)(a)(c) 4.4 2.8 1.6
------ ----- ----- ----- -----
Total expenses...... 13.1 (.5) 12.6 13.5 (.9)
Operating income........ 1.5 .5 2.0 3.0 (1.0)
Other income (expense):
Interest expense...... (2.9) 1.7 (b) (1.2) (1.2) --
Other items, net...... (.1) -- (.1) -- (.1)
------ ----- ----- ----- -----
Total other income
(expense).......... (3.0) 1.7 (1.3) (1.2) (.1)
Earnings (loss) before
income taxes........... (1.5) 2.2 .7 1.8 (1.1)
Benefit (provision) for
income taxes........... -- -- -- (.8) .8
------ ----- ----- ----- -----
Net earnings (loss)..... $ (1.5) $ 2.2 $ .7 $ 1.0 $ (.3)
====== ===== ===== ===== =====
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------
HOUSTON CABLE ADJUSTED NASHVILLE PRO FORMA
SYSTEMS PRO FORMA HOUSTON CABLE CABLE SYSTEM EFFECTS OF
HISTORICAL ADJUSTMENTS SYSTEMS HISTORICAL THE SWAP
------------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 53.2 -- $53.2 $59.0 $(5.8)
Expenses:
Operating............. 15.4 -- 15.4 22.8 (7.4)
Selling, general and
administrative....... 16.1 -- 16.1 13.2 2.9
Depreciation and amor-
tization............. 19.6 $(2.2)(a)(c) 17.4 9.6 7.8
------ ----- ----- ----- -----
Total expenses...... 51.1 (2.2) 48.9 45.6 3.3
Operating income........ 2.1 2.2 4.3 13.4 (9.1)
Other income (expense):
Interest expense...... (12.2) 7.4 (b) (4.8) (4.8) --
Other items, net...... .1 -- .1 (.1) .2
------ ----- ----- ----- -----
Total other income
(expense).......... (12.1) 7.4 (4.7) (4.9) .2
Earnings (loss) before
income taxes........... (10.0) 9.6 (.4) 8.5 (8.9)
Benefit (provision) for
income taxes........... -- .9(d) .9 (4.7) 5.6
------ ----- ----- ----- -----
Net earnings (loss)..... $(10.0) $10.5 $ .5 $ 3.8 $(3.3)
====== ===== ===== ===== =====
</TABLE>
- --------
(a) The entire excess of the Nashville Cable Systems historical book value of
net assets over the adjusted Houston Cable Systems net assets, in the
amount of $37.3 million, has been attributed to goodwill. Such amount has
been amortized over an estimated useful life of 40 years resulting in
incremental amortization expense of $.3 million and $.9 million for the
three months ended March 31, 1996 and the year ended December 31, 1995,
respectively.
(b) Reflects the reversal of $142.5 million of long-term debt that will not be
a part of the Swap and related $2.4 million of deferred financing fees,
$1.4 million of accrued interest and $1.7 million and $7.4 million of
interest expense for the three months ended March 31, 1996 and the year
ended December 31, 1995, respectively. Interest expense has been allocated
to the Houston cable systems based upon the Nashville historical interest
expense allocation.
(c) Reflects an adjustment of $.8 million and $3.2 million for the three
months ended March 31, 1996 and the year ended December 31, 1995,
respectively, on the conforming of the Houston cable systems' accounting
policies pertaining to the estimated useful life of acquisition goodwill
to those of VII Cable. The Houston cable systems utilized a 10 year
estimated useful life for amortization of acquisition goodwill as compared
to 40 years utilized by VII Cable.
(d) Reflects the income tax effects of the pro forma interest adjustments and
a tax benefit attributable to the Houston Cable Systems historical results
of operations at the 35% statutory tax rate of $.9 million for the year
ended December 31, 1995.
56
<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, 1995. See Notes 1 and 6 of the Notes to the Combined
Financial Statements of VII Cable included elsewhere in this Offering Circular
- - Prospectus. 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>
THREE MONTHS
ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------- ----------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Revenues..................... $116.6 $105.9 $442.2 $404.5 $414.8 $410.1 $378.0
Operating income(a).......... 18.8 18.2 80.8 57.4 83.8 97.5 82.2
Earnings (loss) before taxes
and cumulative effect of
change in accounting
principle................... 8.7 35.0 66.6 26.4 128.1 53.1 15.0
Net earnings (loss) before
cumulative effect of change
in accounting principle..... 3.4 19.6 33.7 9.1 83.9 25.8 (.2)
Net earnings (loss).......... 3.4 19.6 33.7 9.1 97.4 25.8 (.2)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------------------------
1996 1995 1994 1993 1992 1991
------------ -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................ $1,064.9 $1,066.8 $1,040.4 $966.2 $964.7 $976.0
Total debt.................. 57.0 57.0 57.0 57.0 106.0 106.1
Viacom equity investment.... 854.8 857.1 823.9 765.5 753.9 767.7
</TABLE>
- --------
(a) Operating income is defined as earnings before interest expense, other
items, net, income taxes, equity in income (loss) of affiliated companies
and cumulative effect of change in accounting principle.
57
<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. The 1996 Telecommunications Act substantially
amended the rate regulation provisions of the Communications Act. 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.
RESULTS OF OPERATIONS
First Quarter 1996 vs. First Quarter 1995
Revenue increased 10% to $116.6 million for first quarter 1996 from $105.9
million for first quarter 1995, attributable to increases of $6.7 million in
primary, $0.4 million in premium, $2.3 million in pay-per-view, $0.4 million
in advertising revenues and $0.9 million in other operating revenues. The
increase in revenues primarily reflects a 3% and 5% increase in average
primary customers and premium units, respectively, and a 6% increase in
average primary rates, partially offset by a 7% decrease in the average
premium rate. Total revenues per primary customer per month increased 7% to
$32.78 for first quarter 1996 from $30.73 for first quarter 1995. Operating
expense increased 12% principally reflecting an increase in programming and
other costs of $5.3 million related to customer growth, increased programming
fees and increased channel capacity. Selling, general and administrative
expenses increased 14% principally reflecting higher overhead allocations and
the absence of programming launch incentives in 1996. Operating income
increased to $18.8 million for first quarter 1996 from $18.2 million for first
quarter 1995 (or 3%) principally as a result of the factors described above.
As of March 31, 1996, VII Cable served approximately 1,194,000 primary
customers subscribing to approximately 939,000 premium units, representing a
3% and 1% increase, respectively, since March 31, 1995.
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, operating income and net assets of VII Cable in relation to Viacom.
Management believes that the methodologies used to allocate these charges are
reasonable. See Note 6 of the Notes to the Combined Financial Statements of
VII Cable for the year ended December 31, 1995.
58
<PAGE>
Because the valuations and other studies will not be performed until after
the Exchange Offer occurs, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma condensed combined
financial statements of VII Cable are preliminary. The entire purchase price
in excess of the book value of VII Cable's assets and liabilities has been
attributed to goodwill. The approximate $1.3 billion pro forma excess of
unallocated acquisition costs as of December 31, 1995 is being amortized over
40 years at a rate of $32.3 million per year. To the extent that the excess
purchase price over book value is allocated to property and equipment or other
assets, including identifiable intangibles with lives of less than 40 years,
depreciation and amortization will increase and, on an after-tax basis, net
income will decrease. Although VII Cable cannot estimate the potential
increase in depreciation or amortization, it may be significant. VII Cable
estimates the average useful life of property and equipment to be
approximately 10.5 years. In addition, VII Cable does not believe that there
are substantial intangible assets which will require amortization over periods
less than 10.5 years. As a result, VII Cable does not believe that any
allocation of purchase price to other assets should be expected to result in
an amortization period less than 10.5 years. VII Cable has estimated, that for
every $100 million allocated to property and equipment or to other assets,
including identifiable intangibles, and assuming an average life of 10.5
years, depreciation and amortization would increase by $7 million per year
over such 10.5 year period. It is anticipated that VII Cable will incur
interest expense and preferred stock dividends of approximately $105 million
and $21 million, respectively, per year following the Transaction.
Interest expense
Interest expense decreased slightly to $12.0 million for first quarter 1996
from $12.1 million for first quarter 1995. Interest expense reflects amounts
recorded by VII Cable on borrowings under a credit agreement and amounts
allocated by Viacom of $11.4 million and $11.7 million for first quarter 1996
and 1995, 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. 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."
Other items, net
Other items, net, principally reflects for 1995 a pre-tax gain of $26.9
million from the sale of marketable securities.
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 59% for 1996, and 44% for 1995 were both
adversely affected by the amortization of acquisition costs which are not
deductible for tax purposes.
1995 vs. 1994
Revenues increased to $442.2 million for 1995 from $404.5 million for 1994
(or 9%), attributable to increases of $25.7 million in primary, $3.8 million
in premium, $3.7 million in pay-per-view, $1.2 million in advertising revenues
and $3.3 million in other operating revenues. The increase in revenues
reflects a 4% and 13% increase in average primary and premium customers,
respectively, and a 5% increase in average primary rates, partially offset by
a 7% decrease in the average premium rate. Total revenues per primary customer
per month increased 5% to $31.74 for 1995 from $30.17 for 1994. Operating
expenses increased 12% principally reflecting an increase in programming and
other costs of $16.3 million related to customer growth, increased programming
fees and increased channel capacity. Selling, general and administrative
expenses decreased 11% principally reflecting lower overhead allocations and
programming launch incentives. Operating income
59
<PAGE>
increased to $80.8 million for 1995 from $57.4 million for 1994 (or 41%)
principally as a result of the factors described above.
As of December 31, 1995, VII Cable served approximately 1,180,000 primary
customers subscribing to approximately 921,100 premium units, representing a
4% and 5% increase, respectively, since December 31, 1994.
Interest expense
Interest expense increased 28% to $48.5 million for 1995 from $38.1 million
for 1994. Interest expense reflects amounts recorded by VII Cable on
borrowings under a credit agreement and amounts allocated by Viacom of $46.4
and $35.7 million for 1995 and 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. 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."
Other items, net
Other items, net, principally reflects for 1995 a pre-tax gain of $26.9
million from the sale of marketable securities.
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 49% 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%), attributable to decreases of $20.2 million in primary and $4.8
million in premium revenues, partially offset by increases of $10.6 million in
other operating revenues, $2.3 million in pay-per-view revenues and $1.8
million in advertising revenues. 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. 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 1992
amendments to the Communications Act governing rates in effect as of September
1, 1993 and as of May 15, 1994. Operating expenses increased 9% principally
reflecting an increase in programming and other costs of $11.4 million related
to customer growth and increased programming fees. Selling, general and
administrative expenses decreased 1% principally reflecting lower overhead
allocations partially offset by increased payroll expense. Operating income
decreased to $57.4 million for 1994 from $83.8 million for 1993 (or 31%)
principally reflecting the decreased revenues and increased operating expenses
described above.
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.
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.
60
<PAGE>
Other items, net
Other items, net in 1993, principally 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.
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. On a pro forma basis for 1995, VII Cable's cash flow
would have been insufficient to meet its anticipated cash requirements
(including capital expenditures, capital contributions to joint ventures,
payments of interest and principal on the Loan and dividends payable on the
VII Cable Preferred Stock). The Unaudited Pro Forma Condensed Combined
Financial Statements of VII Cable do not, however, reflect any potential
benefits from VII Cable's affiliation with TCI after the completion of the
Transaction. VII Cable would expect any remaining insufficiency to be
addressed by borrowings of up to $50 million under the revolving credit
portion of the Loan and thereafter through intercompany advances, as required,
from TCI. See "Risk Factors--Impact of High Leverage" and "--Dependence on
Additional Capital."
VII Cable has several general partnership interests, including 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 is
the sale of advertising on cable television systems owned by VII Cable, its
general partners and other cable television operators. 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.
Prime Sports is a partnership between VII Cable and a subsidiary of Liberty
Media Corporation ("Liberty"). Liberty is a wholly owned subsidiary of TCI
through which TCI conducts its domestic programming businesses. 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's partnerships are expected to require estimated cash
contributions of approximately $8 million to $10 million in 1996. Planned
capital expenditures, including information systems costs, are estimated to be
approximately $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.
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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, 1995 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 in respect of
borrowings under the Credit Agreement during 1996.
Net cash flow from operating activities increased 36% to $28.9 million for
the three months ended March 31, 1996 from $21.2 million for the three months
ended March 31, 1995, primarily reflecting the lower provision for income
taxes for first quarter 1996 due to the first quarter 1995 gain on the sale of
marketable securities and increased operating income in the first quarter of
1996. Investing activities primarily reflect capital expenditures, VII Cable's
investment in two partnerships (TCG San Francisco and TCG Seattle) and in
first quarter 1995 proceeds from the sale of marketable securities. Net cash
flow from financing activities reflect Viacom's funding of VII Cable's working
capital requirements, net of amount allocated to VII Cable from Viacom,
including amounts for interest, certain administrative services and salaries
and benefits.
Net cash flow from operating activities increased 9% to $84.6 million in
1995 from $77.9 million for 1994, primarily reflecting increased operating
income 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 1995 proceeds from the sale of
marketable securities available-for-sale. Net cash flow from financing
activities reflect Viacom's funding of VII Cable's working capital
requirements, net of amount allocated to VII Cable from Viacom, including
amounts for interest, certain administrative services and salaries and
benefits.
Net cash flow from operating activities decreased 21% to $77.9 million in
1994 from $98.8 million in 1993, primarily reflecting decreased operating
income. 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.
Receivables, net of allowances, decreased $2.9 million to $11.4 million at
March 31, 1996 from $14.3 million at December 31, 1995, primarily due to one
additional work day of cash receipts from customers at March 31, 1996 as
compared to December 31, 1995, and the subsequent receipt of one time shared
construction costs.
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Receivables increased $4.3 million between 1994 and 1993 primarily due to
increased non-cable customer receivables, principally from receivables from
the leasing of communication network facilities to TCGSF and TCGS. Cable
customer receivables also increased, due to an increase in customers offset by
a slight decrease in the average cable customer receivable.
The decrease in allowance for doubtful accounts of $540 thousand between
December 31, 1993 and December 31, 1994 is primarily due to a decrease in
cable customer churn and the decrease in the average cable customer
receivable. The allowance for doubtful accounts increased $438 thousand
between December 31, 1994 and December 31, 1995 primarily due to an increase
in the average cable customer receivable and pay-per-view events.
Collectibility of revenues approximated 98% in 1994 and 1995.
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,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," 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 evaluated
the impact of SFAS 121 and it will not have a significant effect on VII
Cable's combined financial position or results of operations.
During 1995, the FASB issued Financial Accounting Standard No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," which establishes a fair
value based method of accounting for compensation costs related to stock
option plans and other forms of stock based compensation plans as an
alternative to the intrinsic value based method of accounting defined under
Accounting Principles Board Opinion No. 25. Companies who do not elect the new
method of accounting for 1996 will be required to provide pro forma
disclosures as if the fair value based method had been applied. VII Cable has
not determined which method it will elect.
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
The regulatory framework governing cable television systems reflected in the
Communications Act was recently amended on February 8, 1996, when the
President signed into law the 1996 Telecommunications Act which, among other
things, eases regulation of the cable and telephone businesses while opening
each of them to the potential for increased competition. The 1996
Telecommunications Act repeals rate regulation of expanded basic tiers of
cable programming, such as VII Cable's Satellite Value Package, as of the
Sunset Date. It also expands the Communications Act's "effective competition"
tests by adding a fourth test under which the rates imposed by a cable system
are deregulated if the cable system becomes subject to "effective competition"
from a telco which provides comparable services by any means (except direct to
home satellite delivery programming) and, to the degree determined by the FCC,
irrespective of the number of subscribers to the telco service. The 1996
Telecommunications Act also permits those public utilities which were
previously prohibited from
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providing cable services to provide such services and repeals the statutory
ban against telcos providing video programming in their own service areas.
Accordingly, telcos may now act as traditional cable systems, as providers of
programming by means of wireless technologies such as MMDS or MLDS, as common
carriers or as operators of newly created "open video systems." Additionally,
the 1996 Telecommunications Act preempts state and local regulations barring
cable operators and others from providing local telephone services and
requires telcos to negotiate with new telephone service providers with respect
to the interoperability of each of their systems. The FCC is required under
the 1996 Telecommunications Act to adopt regulations to effectuate all aspects
of interoperability and address the complex issues concerning interconnection
obligations imposed by the 1996 Telecommunications Act which requires all
telephony carriers to interconnect their networks, either directly or
indirectly, with each other so as to ensure interoperability.
The FCC, through its rules and regulations, began implementing the 1992
amendments to the Communications Act in 1993. These regulations will continue
to apply to all tiers of cable service until the Sunset Date. 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 has also (1) adopted 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 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.
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. It is expected that this negative effect will be mitigated after
the Sunset Date, at which time VII Cable's Satellite Value Package of non-
basic tier programming will no longer be subject to rate regulation. 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 the enactment of the 1996 Telecommunications Act on VII Cable, see
"Business of VII Cable--Regulation--Federal Regulation."
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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 December 31, 1995, VII Cable was
approximately the twelfth largest multiple cable television system operator in
the United States, with approximately 1.2 million primary customers in five
states.
VII CABLE'S SYSTEMS
The following tables set forth information relating to VII Cable's systems as
of December 31, 1995.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
HOMES IN HOMES NUMBER OF MILES OF
FRANCHISE PASSED BY PRIMARY PRIMARY PREMIUM PREMIUM CABLE
AREA(1) 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 77,800 63,000 81% 38,600 61% 648
Sonoma(7)............... 48,000 45,700 36,100 79% 23,600 65% 542
Napa.................... 33,000 32,700 24,100 74% 16,500 68% 323
East Bay/Castro
Valley(7).............. 90,000 88,700 74,700 84% 68,300 91% 691
Pittsburg/Pinole(7)..... 74,000 73,900 55,500 75% 55,800 101% 572
San Francisco........... 358,000 339,500 178,500 53% 148,700 83% 711
--------- --------- --------- --- ------- ---- ------
Total Bay Area Region... 684,000 658,300 431,900 66% 351,500 81% 3,487
ORE-CAL REGION
Redding(7).............. 58,000 55,800 36,600 66% 21,500 59% 682
Oroville................ 44,000 40,100 26,500 66% 13,000 49% 504
Salem................... 79,000 76,200 47,800 63% 29,600 62% 632
--------- --------- --------- --- ------- ---- ------
Total Ore-Cal Region.... 181,000 172,100 110,900 64% 64,100 58% 1,818
PUGET SOUND REGION(7)... 645,000 624,400 438,100 70% 302,100 69% 6,410
MIDWEST REGION
Nashville(7)............ 271,000 240,700 146,300 61% 143,800 98% 2,357
Dayton(7)............... 98,000 94,100 52,300 56% 59,600 114% 635
--------- --------- --------- --- ------- ---- ------
Total Midwest Region.... 369,000 334,800 198,600 59% 203,400 102% 2,992
TOTAL VII CABLE...... 1,879,000 1,789,600 1,179,500 66% 921,100 78% 14,707
========= ========= ========= === ======= ==== ======
</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 have franchises serving parts of these
areas in which VII Cable also has franchises. For further discussion of
competition, see "--Competition."
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The following table demonstrates the growth of VII Cable's systems during
the five-year period ended December 31, 1995, adjusted to eliminate the impact
of the disposition of the Milwaukee cable system in January, 1993.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Homes passed............ 1,789,600 1,757,700 1,729,900 1,697,500 1,658,100
Primary customers....... 1,179,500 1,139,100 1,094,100 1,069,100 1,041,700
Primary penetration..... 66% 65% 63% 63% 63%
Premium units........... 921,100 875,200 718,100 752,700 744,700
Premium penetration..... 78% 77% 66% 70% 71%
Average monthly
operating revenue per
primary customer....... $33.62 $31.90 $33.76 $32.28 $30.47
</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: 1991: $45 million; 1992: $55 million; 1993: $79 million; 1994: $99
million; and 1995: $118 million. VII Cable's capital expenditures in 1996 are
estimated to be approximately $150 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
VII Cable holds 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 agreement). The 1984 Cable Act, as supplemented by the 1996
Telecommunications 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 2017. VII Cable has never had
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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 December 31, 1995, the Company's cable television systems had
approximately 921,100 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 After the Exchange Offer."
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 December 31, 1995, VII Cable's
fixed monthly fees charged to customers for primary services ranged from $8.58
to $15.61 per month for Limited Service, from $19.83 to $27.92 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, 1995 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 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 affiliates is a general partner in two of such partnerships.
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
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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 Communications 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 Communications 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. (These Must-Carry provisions have been challenged in the U.S.
Supreme Court by the cable industry as an infringement of cable operators'
First Amendment rights. The Supreme Court has agreed to hear the case in the
fourth quarter of 1996.) Under the Communications 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 Communications 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--
Communications Act--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--Communications Act--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 by SMATV systems or
systems which deliver programming 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 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
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techniques). SMATV, DBS and TVRO are 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.
Three companies, United States Satellite Broadcasting, Inc. ("USSB"),
Hughes DirecTV ("DirecTV") and Echostar Communications Corp., are currently
offering DBS service using high-powered satellites. Primestar Partners,
L.P. ("Primestar"), in which TCI has an equity interest, is offering DBS
service using a medium-powered satellite. Two other companies and possibly
a third 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 are privately owned, on-premises broadband
distribution systems which receive local broadcast television signals by
antenna as well as video programming by satellite. Each SMATV system then
delivers this programming to the condominium, apartment complex or other
multiple unit residential development at which it is located, 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 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.
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.
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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 repealed by the
1996 Telecommunications Act.
The 1996 Telecommunications Act, among other things, permits telcos to enter
the cable business either as traditional cable operators subject to the
Communications Act's requirements applicable to cable operators, as operators
of wireless distribution systems (e.g., MMDS or MLDS), on a common carrier
basis for the distribution of programming provided by others or as hybrid
common carrier/cable operator of "open video systems." The 1996
Telecommunications Act also permits 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. 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.
Broadcast signals are presently transmitted in analog rather than digital
form. The FCC is currently considering allowing broadcasters to convert to
digital transmissions and utilize additional spectra, so that each currently
licensed broadcaster could, if the FCC proposals are adopted, broadcast
several additional channels of programming. The 1996 Telecommunications Act
requires the FCC, which has determined to adopt its digital transmission
proposals, to also permit broadcasters to utilize digitally transmitted
signals for various broadcast and non-broadcast purposes including for
additional channels of programming. Various members of Congress have announced
their intention to revisit the issue of broadcasters' utilization of such
additional spectra to determine whether such spectra should be set aside for
broadcasters (as currently provided in the 1996 Telecommunications Act) or
auctioned to the highest bidders. The aggregation of additional broadcast
signals in a given market could pose additional competition for cable systems
once digital broadcast transmissions are implemented. 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). Such adoption of a digital standard was recently proposed
by the FCC.
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
Communications Act. The Communications Act was recently amended by the 1996
Telecommunications Act which, on the Sunset Date, will repeal the regulation
of cable rates with respect to tiers of program services other than the basic
tier. Rate regulation will continue to apply to all tiers of cable service
until the Sunset Date, at which time they will no longer apply to non-basic
tiers of cable programming.
Rate Regulation. In 1993 the FCC adopted Benchmark Regulations which
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
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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 has also (1) adopted 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 November 1994, 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.
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. It is expected that this negative effect will be mitigated
after the Sunset Date. Moreover, 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 Communications Act deregulated cable systems subject to one of three
tests of "effective competition" (as defined in such statute). The 1996
Telecommunications Act expands the statutory definition of "effective
competition" by adding a fourth test under which such competition is deemed
to exist in areas where a local telephone company, its affiliate, or a
multichannel video programming distributor using the facilities of the
telephone company or its affiliate offers programming to subscribers by any
means (other than direct-to-home satellites) in the franchise area of the
cable system, provided that the programming so offered is "comparable" to
the programming provided by the cable operator in that area and
irrespective (to the degree determined by the FCC) of the number of
subscribers served. The legislative history to the 1996 Telecommunications
Act provides that "comparable" programming is that which includes at least
12 channels of programming, at least some of which are broadcast signals.
Carriage of Affiliated Programming. The FCC's 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.
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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 Communications 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 FCC has recently proposed
adoption of regulations which will permit broadcasters to transmit their
signal in a digital rather than analog mode and consequently, each
broadcaster could possibly then transmit up to six different channels of
programming, although such transmissions will likely be subject to
Congressional or FCC regulation, or both. The application of Must Carry
requirements to any such additional channels would be subject to
Congressional or FCC determination. The Must Carry rules were challenged 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. On December 13, 1995, the district court again upheld the rules in
a 2-to-1 decision. This decision has been appealed to the U.S. Supreme
Court, which has agreed to hear the case. Oral argument is expected to
occur in the fourth quarter of this year.
Buy Through to Premium Services. Pursuant to the Communications 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 at least 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. The cable industry trade association
has
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concluded negotiations with BMI with respect to a standard industry license
for cable systems' use of BMI music. VII Cable intends to execute the BMI
license. The industry association has not yet concluded negotiations with
ASCAP with respect to ASCAP's 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 Communications 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 Communications Act unconstitutional.
Provision of Video Services by Telcos. The 1996 Telecommunications Act
allows 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 provider of
programming through wireless technologies (e.g., MMDS or MLDS), as a common
carrier, or as a hybrid common carrier/cable operator of a so-called "open
video system." Certain of the telcos have stated their intention to enter the
video programming business immediately or have already begun to do so.
Heretofore, while state and/or local laws did not prohibit cable television
companies from engaging in certain kinds of telephony business in many states,
affirmative state approval generally had to be obtained before a cable
operator could 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 existed.
The 1996 Telecommunications Act generally eliminates state and local entry
barriers which 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. The 1996 Telecommunications Act
also outlines the bases on which telephony providers may 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. The FCC is required under the 1996
Telecommunications Act to adopt regulations with respect to the complex issues
surrounding interoperability of telephony networks. The states will generally
implement these regulations once they are adopted. VII Cable cannot predict
the 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.
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 "--Communications Act--Must Carry/Retransmission Consent."
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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, 1995, VII Cable had 2,248 employees. VII Cable is a party to
a collective bargaining agreement dated August 2, 1994 with Teamsters Local
856 covering approximately 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.
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.
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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 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
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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. A portion of the compensation expense of any TCI and TCI Cable
employees who will serve as executive officers of VII Cable will be allocated
to VII Cable. For further discussion of the management services to be provided
to VII Cable by TCI and TCI Cable after the consummation of the Transaction
and the charges payable in respect thereof, see "Relationship between VII
Cable and TCI after the Exchange Offer--Services Agreement."
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 May 1, 1996 (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
Class A Common Stock.
SHARES OF VIACOM COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
NUMBER
TITLE OF OF
EQUITY EQUITY OPTION PERCENT
NAME 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)
Philippe P. Dauman.................. Class A Common 1,060(3) -- (6)
Class B Common 8,430(3) 60,000 (6)
Thomas E. Dooley.................... Class A Common 2,120(3) 4,000 (6)
Class B Common 2,214(3) 77,666 (6)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TITLE OF NUMBER
EQUITY OF EQUITY OPTION PERCENT
NAME SECURITY SHARES SHARES(1) OF CLASS
- ---- -------------- ---------- --------- --------
<S> <C> <C> <C> <C>
Edward D. Horowitz......... Class A Common 281(3) 4,000 (6)
Class B Common 789(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)
National Amusements, Inc... Class A Common 45,547,214(5) -- 60.5%
200 Elm Street Class B Common 46,565,414(5) -- 15.7%
Dedham, MA 02026
Brent D. Redstone*......... -- -- -- --
Shari Redstone*............ -- -- -- --
Sumner M. Redstone......... Class A Common 45,547,294(5) -- 60.5%
Class B Common 46,565,494(5) -- 15.7%
Frederic V. Salerno........ Class B Common -- 6,500(7) (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 486(3) 91,500 (6)
All directors and executive
officers as a group other
than Mr. Sumner Redstone
(20 persons).............. Class A Common 15,825(3) 94,106 (6)
Class B Common 77,813(3) 1,072,497 (6)
3 Year Warrant 1,573 1,875 (6)
5 Year Warrant 943 1,125 (6)
</TABLE>
- --------
* Brent Redstone is the son of Sumner Redstone and Shari Redstone is Sumner
Redstone's daughter.
(1) Reflects shares subject to options to purchase such shares which on May 1,
1996 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. As of April 1, 1996 Messrs. Abrams, Miller and Schwartz have been
credited with 4,741, 4,282 and 4,346 Class A Common Stock units,
respectively, and 4,936, 4,449 and 4,508 Class B Common Stock units,
respectively.
(3) Includes shares held through the Company's 401(k) plans as of December 31,
1995.
(4) Does not include 158,833 shares of Class A Common Stock and 1,003,470
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%.
(7) Held for the benefit of NYNEX Corporation.
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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, (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 actions 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 "--Conditions to Consummation 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 any 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 to be maintained by it at The Bank of New York into which
the Loan Proceeds will be deposited and in which the Lenders shall be granted
a security interest to secure the Loan subject to the further terms specified
in the Subscription Agreement (the "Cash Collateral Account") 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 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.
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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 (defined in the Subscription Agreement as
the number of subscribers as of a date within ten days prior to the Exchange
Date located in franchise areas in which VII Cable provides cable services as
to which either (i) the respective local authorities have granted the required
consents with respect to the Transaction or (ii) no consent of a local
authority is required with respect to the Transaction) shall be not less than
90% of the Estimated Exchange Date Basic Subscribers (defined in the
Subscription Agreement as the average of the aggregate number of private and
residential customer accounts and commercial and bulk-billed commercial
accounts determined on an equivalent basis receiving basic cable television
service ("Basic Subscribers") determined during a consecutive nine-week period
ending on or immediately prior to the Exchange Date); (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; (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 "--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
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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 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 or its affiliates 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 or its affiliates 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 (w) any breach of the Parents Agreement, (x) the information provided for
this OfferingCircular - Prospectus, (y) the fees and expenses of the
investment bankers engaged in connection with the Transaction, and (z) 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 (as defined in the Implementation Agreement) 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 satisfy substantially
all of Viacom International's liabilities (including its existing public debt
and guarantees, 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
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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 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 May 1, 1996, all
Basic Subscribers were Consented Subscribers. Consented Subscribers
constituted more than 90% of Basic Subscribers (as such terms are defined
herein). In the event of a natural disaster prior to the Exchange Date causing
more than 11,340 Basic Subscribers 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 the
Adjustment Amounts (including (i) the Capital Expenditure Amount, (ii) the
Inventory Amount, (iii) the Telecom Amount, (iv) the Working Capital Amount,
and (v) the Fixed Amount) to determine the Estimated Asset Value. The
Estimated Asset Value was determined to be $[ ] and is 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 certain front-end loaded programming
payments specified in the Implementation Agreement, plus (viii) an amount
equal to interest on the sum of the foregoing amounts at one-month LIBOR plus
1 1/4% for the period from September 1, 1995 to the Exchange Date. 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 Net Asset
Value is greater than the Estimated Net Asset Value, VII Cable will pay to
Viacom Services an amount in cash
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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, (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.
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
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in a Franchise Area (defined in the Implementation Agreement to mean an area
in which VII Cable provides cable television service under authorization from
the local authority or an area in which VII Cable provides cable television
service where a local authorization is not required), 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 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.
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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.
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.
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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 date which Viacom shall have notified TCI to be the anticipated
commencement date of the Exchange Offer (the "Anticipated Commencement Date"),
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 the Cash Collateral Account, 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 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,
except in certain circumstances. 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.
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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, (v)
any increase in the Basic Subscriber Rate (defined in the Implementation
Agreement to mean the monthly fees and charges for the provision of basic
cable television service as such term is customarily used in the cable
television industry charged by VII Cable to customers served in its Franchise
Area) 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 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;
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(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 SCI-
FI CHANNEL(TM) or COMEDY CENTRAL(TM).
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 partnership
agreements (the "Telecom Partnership Agreements") entered into in respect of
TCGS, TCGSF and one other partnership (the "Telecom Partnerships"). In
addition, VII Cable has entered into agreements with each Telecom Partnership
covering the lease, license or use by such Telecom Partnership of certain
specified plant, property and equipment of Viacom International, 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 1995 capital expenditure
plan for the Cable Business (as amended by certain changes approved by TCI
Cable and/or RCS Pacific, L.P. since January 1, 1995) and (to the extent
agreed by VII Cable and TCI Cable) the 1996 capital expenditure plan for the
Cable Business (collectively, the "Approved Capital Expenditure Plan") 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 documentation to TCI Cable
establishing that such expenditures were
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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 $11,495,000, 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"). As of the
date of this Offering Circular - Prospectus, Viacom International and TCI
Cable have reached agreement on the 1996 Capital Expenditure Plan.
Preferred Stock Exchange. TCI will contribute to VII Cable or otherwise
cause VII Cable to have available sufficient shares to enable VII Cable to
deliver 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 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 actions 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; (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
attainment of the Trigger Amount and the bank borrowing condition) (see "The
Exchange Offer--Conditions to Consummation 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
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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;
(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;
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(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;
(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
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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 Letter"),
and amendments to certain 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
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currently carrying each such service and in each of the VII Cable cable
systems. SSI is further required to 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 will enter into credit agreements with certain banks
and institutions (the "Loan") that will provide for $1.7 billion in financing.
Viacom International has received a loan commitment from a group of banks for
(i) a $1.4 billion credit facility consisting of a $1.05 billion reducing
revolving credit facility with a final maturity of September 30, 2004, and a
$350 million term loan due December 31, 2004 and (ii) a $300 million term loan
due upon receipt by Viacom International of the Subscription Price. 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 THE CREDIT FACILITIES
The credit facilities entered into by Viacom International, and their
principal terms, are summarized below.
Term Facility and Revolving Facility. Viacom International will enter into a
$1.05 billion term loan facility (the "Term Facility") and a $350 million
revolving loan facility (the "Revolving Facility") with The Bank of New York
as agent for a bank group. The commitments under the Revolving Facility will
be reduced semi-annually commencing on June 30, 1998 to the following amounts:
<TABLE>
<CAPTION>
REMAINING
DATE COMMITMENTS
---- --------------
<S> <C>
6/30/98...................................... $1,035,000,000
12/31/98..................................... $1,020,000,000
6/30/99...................................... $ 965,000,000
12/31/99..................................... $ 910,000,000
6/30/00...................................... $ 842,500,000
12/31/00..................................... $ 775,000,000
6/30/01...................................... $ 700,000,000
12/31/01..................................... $ 625,000,000
6/30/02...................................... $ 525,000,000
12/31/02..................................... $ 425,000,000
6/30/03...................................... $ 320,000,000
12/31/03..................................... $ 215,000,000
6/30/04...................................... $ 107,500,000
9/30/04...................................... $ 0
</TABLE>
Term Facility B. Viacom International will enter into a $300 million term
loan facility (the "Term Facility B") with The Bank of New York as agent for a
bank group. Borrowings under the Term Facility B will mature in full upon
receipt by Viacom International of the Subscription Price.
The Term Facility, the Revolving Facility and the Term Facility B are
referred to collectively as the "Credit Facilities."
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Interest Rates. Borrowings under the Term Facility and the Revolving
Facility will bear interest at a rate per annum equal to, at the borrower's
option, (i) the agent bank's base rate plus a margin ranging from 0% to .875%,
(ii) an adjusted certificate of deposit rate plus a margin ranging from .625%
to 2.125% or (iii) an adjusted London Interbank Offering Rate ("LIBOR") plus a
margin ranging from .5% to 2%. Borrowings under the Term Facility B will bear
interest at a rate per annum equal to, at the borrower's option, the agent
bank's base rate or LIBOR plus a margin of 1/2%.
Generally, under each of the Credit Facilities, the agent bank's base rate
is a rate per annum equal to the higher of (i) the agent bank's prime rate and
(ii) a rate based on the rates for overnight Federal Funds transactions as
published by the Federal Reserve Bank of New York (the "Federal Funds
Effective Rate") plus .5%. An adjusted certificate of deposit rate under each
of these facilities is a rate per annum based on the prevailing rate per annum
for negotiable certificates of deposit with principal and duration
approximately equal to the principal amount and duration period of the
applicable loan, subject to certain adjustments.
The margin applicable to each of the interest rate options under the Term
Facility and the Revolving Facility is based on the ratio of the consolidated
borrowed-money indebtedness to annualized operating cash flow (generally,
gross operating revenues from continuing operations minus all operating
expenses from continuing operations, but excluding all non-cash charges) of
VII Cable and its subsidiaries of which it owns at least 80% ("Restricted
Subsidiaries"). The highest margins for each interest rate option apply if the
ratio of consolidated debt to operating cash flow is greater than 6.75. The
margins are reduced in various increments as the ratio of consolidated debt to
operating cash flow is reduced. The lowest margins for each interest rate
option apply if the ratio of consolidated debt to operating cash flow is less
than or equal to 4.5.
On a pro forma basis after giving effect to the Transaction, as of May 22,
1996 the most favorable blended interest rate available to Viacom
International based on the foregoing interest rate options was approximately
7.2% per annum.
Co-Borrower. One day after the Exchange Time, TCI Pacific, Inc., a newly
formed wholly owned subsidiary of VII Cable, will become a co-borrower with
respect to the Term Facility and the Revolving Facility and thereby become
jointly and severally liable with VII Cable for all such obligations.
Covenants and Events of Default. The Credit Facilities will contain
covenants that will place restraints on the operations of VII Cable and
certain of its subsidiaries. These covenants place restraints on VII Cable and
such subsidiaries with respect to the following: (i) the creation of
additional consolidated indebtedness or guaranties, (ii) the merger or
consolidation of VII Cable or such subsidiaries or the sale, exchange or
acquisition of assets, (iii) the payment of dividends and other distributions
(including restraints on the payment of dividends and other distributions to
holders of VII Cable Preferred Stock), (iv) the incurrence of liens on assets,
(v) making certain investments, (vi) the repayment of subordinated
indebtedness, (vii) the issuance of additional equity securities and (viii)
transactions with affiliates.
The Credit Facilities will require VII Cable and its Restricted Subsidiaries
to maintain specified ratios of indebtedness to operating cash flow and a
minimum operating cash flow to debt service ratio. The initial ratio of
indebtedness to operating cash flow is required to be not more than 8.9 to 1
and the ratio of cash flow to debt service through maturity is required to be
greater than or equal to 1.1 to 1. The Credit Facilities also contain
customary affirmative covenants, including financial reporting obligations.
Events of default under the Credit Facilities include, among other things,
(i) default in payment of principal of or interest on indebtedness under the
Credit Facilities, (ii) default in the payment of principal or interest on
other indebtedness of VII Cable and certain subsidiaries in excess of a
specified amount, (iii) failure to observe any term, covenant or agreement
governing other indebtedness in excess of a specified amount, if the effect of
such failure is to permit acceleration of such indebtedness, (iv) default in
the observance of any covenant in the Credit Facilities, (v) the bankruptcy or
insolvency of VII Cable or certain subsidiaries, (vi) the failure by VII Cable
or certain subsidiaries to discharge any judgment exceeding a specified dollar
amount and (vii) a change in control of Viacom International or VII Cable
(other than the change in control contemplated by the Transaction).
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Conditions. Initial borrowings under the Credit Facilities will be subject
to the following conditions, among others: (i) the Ruling Letter shall have
been obtained, (ii) the absence of any pending or threatened material
litigation which seeks to enjoin the consummation of the Transaction, (iii)
the accuracy of the representations and warranties contained in the Credit
Facilities, (iv) the lenders having received satisfactory legal opinions and
evidence of corporate authority on the part of Viacom International to perform
the transactions described in the Credit Facilities, (v) Viacom International,
TCI and TCI Cable being in compliance, after giving effect to the borrowings
under the Credit Facilities, with the provisions of the Transaction Agreements
and none of the material conditions thereof having been waived, (vi) Viacom
International being in compliance with the provisions of the covenants
contained in the Credit Facilities and (vii) evidence satisfactory to the
lenders that Viacom International will be released as an obligor under all
indebtedness of Viacom International assumed by Viacom Services. 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. 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 Restated Certificate of
Incorporation (including the definitions therein of certain terms), 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 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 "Class 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 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.
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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 ratably 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 and immediately 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
exchange for 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 and
immediately 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. On [ ], 1996, the VII Cable Preferred Stock was approved for
quotation on the Nasdaq National Market under the symbol "TPACP."
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 create or issue, 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 Stock, voting as a separate class.
See "--Voting Rights" below. Immediately following the consummation of the
Transaction, 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 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
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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 $100 par value per share.
The dividend rate was determined based upon the advice of Viacom's financial
advisor, Wasserstein Perella, and TCI's financial advisor, Merrill Lynch. The
dividend rate was set so that the VII Cable Preferred Stock would, in the
opinion of the Financial Advisors and based on conditions at the time they
gave their advice, be expected to have a market value of approximately $100
per share immediately after completion of the Transaction (assuming no change
in conditions between the date of their opinions and the date of consummation
of the Transaction). In advising Viacom as to the setting of the dividend
rate, the Financial Advisors considered various factors, including the
following: (i) the other terms of the VII Cable Preferred Stock described
below, (ii) VII Cable's recent results of operations, its future prospects and
those of the cable industry generally, (iii) the terms of (including the
dividend rates on), and market prices of, securities of other companies
considered to be comparable to VII Cable, and (iv) general economic, financial
and market conditions prevailing at the time that the dividend rate was set.
The dividend rate was determined based on conditions as of [ ], 1996
and may not be the rate that the Financial Advisors would have recommended if
the rate were determined at the end of the Exchange Offer based on conditions
at that time. Furthermore, the Financial Advisors' advice does not constitute
an assurance that the VII Cable Preferred Stock will not trade below $100 per
share initially or at any time thereafter. See "Risk Factors--Uncertainties
with respect to Setting the Dividend Rate."
In advising Viacom as to the setting of the dividend rate, neither
Wasserstein Perella nor Merrill Lynch has issued an opinion that the
consideration to be paid to Viacom stockholders in the Exchange Offer is fair,
from a financial point of view (i.e., a "fairness opinion"). A fairness
opinion is typically delivered by a financial advisor to its client in
connection with a merger or consolidation of its client with another company.
A fairness opinion is different in both form and substance from the advice
given by the Financial Advisors with regard to the setting of the dividend
rate for the VII Cable Preferred Stock. Unlike a fairness opinion, the advice
furnished by the Financial Advisors relates solely to the market value which
the VII Cable Preferred Stock is expected to have immediately after the
completion of the Transaction based upon the dividend rate and certain other
factors, and does not purport to be a valuation of either VII Cable or Viacom
or to express an opinion on the fairness, from a financial point of view, of
the consideration to be paid to Viacom stockholders whose shares are accepted
for exchange in the Exchange Offer.
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.
All interest shall be payable in respect of any dividend payment on the VII
Cable Preferred Stock that may be in arrears.
Whenever a Redemption Date (as defined herein) 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 the VII Cable Board in its sole discretion. If VII Cable elects to
pay any dividend
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payment, in whole or in part, by delivery of 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 dollar
amount of the Stock Dividend Amount by the Cash Equivalent Amount (equal to
95% of the Average Market Price). 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. Any portion of a dividend that is
declared by the VII Cable Board and not paid through the delivery of TCI Stock
shall be paid in cash. In the event that the VII Cable Board determines to pay
a dividend on the VII Cable Preferred Stock in shares of TCI Stock at a time
when there is a prohibition under the definitive agreements relating to the
Loan (or any refinancing of the Loan) on the ability of VII Cable to pay cash
dividends on the VII Cable Preferred Stock, TCI agrees to 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 the declaration by the VII Cable Board of such dividend in
accordance with the terms of the VII Cable Preferred Stock.
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 the Nasdaq National Market for the ten consecutive dates on which the
Nasdaq National Market is open for the transaction of business (each a
"Trading Day") ending on the third such Trading Day preceding the date of
determination (appropriately adjusted in such manner as the VII Cable Board in
good faith deems appropriate to take into account any stock dividend on the
TCI Stock, or any subdivision, split, combination or reclassification of the
TCI Stock that occurs, or the Ex-Dividend Date for which occurs, during the
period following the first Trading Day in such ten-Trading Day period and
ending on the last full Trading Day immediately preceding the date of payment
of any dividend or redemption with respect to which the Average Market Price
is being determined). The date of determination of Average Market Price (i)
for any dividend will be as of the related Record Date and (ii) for any
redemption payment will be as of the related Redemption Date. See "--
Redemption--Manner of Payment of Redemption Price."
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 the market value on the Dividend Payment Date
of the shares of TCI Stock delivered in payment of a dividend is more than 5%
lower than the Average Market Price as of the related Record 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 Restrictions on Capital Stock of VII Cable
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 shares of Junior Stock (as
defined herein) and (ii) no shares of any Junior Stock may be purchased,
redeemed, or otherwise acquired by VII Cable or any Subsidiary (as defined
herein), nor may any funds be set aside or made available for any sinking fund
for the purchase or redemption or other acquisition 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, or purchase, redemption or
acquisition of Junior Stock, as the case may be, 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
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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. "Junior Stock" means (i)
the common stock of VII Cable, (ii) each other class or series of capital
stock of VII Cable hereafter created (other than any class or series of Senior
Stock or Parity Stock) and (iii) any class or series of Parity Stock to the
extent that it ranks junior to the VII Cable Preferred Stock as to dividend
rights, rights of redemption or rights on liquidation, as the case may be.
Immediately following the Exchange Date, VII Cable will not have issued or
outstanding any Senior Stock or 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 or the making of distributions on any Junior Stock solely in shares
of Junior Stock and/or warrants, rights or options exercisable for or
convertible into shares of Junior Stock (together with a cash adjustment for
fractional shares, if any) or the redemption, purchase or other acquisition of
Junior 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 shares of Junior Stock; (ii) the payment
of dividends or the making of distributions on any class or series of Parity
Stock solely in (together with a cash adjustment for fractional shares, if
any) (x) shares of Junior Stock and/or warrants, rights or options exercisable
for or convertible into shares of Junior Stock or (y) any securities of TCI
(including shares of TCI Stock), or the redemption, exchange, purchase or
other acquisition of any class or series of Parity 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, (A) shares of Junior
Stock and/or warrants, rights or options exercisable for or convertible into
shares of Junior Stock or (B) any securities of TCI (including shares of TCI
Stock); or (iii) the exchange of VII Cable Preferred Stock for shares of TCI
Stock (together with a cash adjustment for fractional shares, if any) and any
other property issuable in exchange in accordance with the Restated
Certificate of Incorporation.
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 herein)
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 solely in shares of the same class
or series as, or ranking junior to, such Subsidiary Equity Interest
("Permitted Subsidiary Equity Interest") and/or warrants, rights or options
exercisable for or convertible into
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such Permitted Subsidiary Equity Interest (together with a cash adjustment for
fractional shares, if any) 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 Permitted Subsidiary Equity Interest
and/or warrants, rights or options exercisable for or convertible into such
Permitted 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 Issue Date, or (iii) purchasing, redeeming
or otherwise acquiring any Subsidiary Equity Interest solely in exchange for
securities of TCI (together with a cash adjustment for fractional shares, if
any), including shares of TCI Stock, or 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 Issue 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/or one or more
Subsidiaries of VII Cable, and (ii) any other entity (other than a
corporation) in which VII Cable and/or one or more Subsidiaries of VII Cable,
directly or indirectly, has (x) a majority ownership interest and (y) 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 a Subsidiary (other than a wholly owned Subsidiary) that is a
corporation or (y) a partnership or other ownership interest of a Subsidiary
(other than a wholly owned 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, for TCI Stock at the TCI Exchange Rate. The initial TCI Exchange
Rate will be determined on the second business day prior to the Expiration
Date and will be obtained by dividing (i) $100 by (ii) 125% of the weighted
average of the sales prices for all trades of shares of TCI Stock as reported
on the Nasdaq National Market on each of the 20 full consecutive Trading Days
ending on such business day. The TCI Exchange Rate will be subject to
adjustment as described under "--Exchange Adjustments" below. Changes in the
market value of the VII Cable Preferred Stock will not cause the TCI Exchange
Rate to fluctuate. Viacom will announce the initial TCI Exchange Rate by 5:00
p.m., New York City time, on the second business day prior to the expiration
of the Exchange Offer by issuing a press release to the Dow Jones News
Service. After that time, holders of Viacom Common Stock will also be able to
obtain the initial TCI Exchange Rate from the Information Agent or the Dealer
Manager at their respective telephone numbers appearing on the back cover of
this Offering Circular - Prospectus.
Pursuant to the Subscription Agreement, TCI is required to contribute to VII
Cable or otherwise cause VII Cable to have available sufficient shares of TCI
Stock to enable VII Cable to issue to holders of VII Cable Preferred Stock
shares of TCI Stock upon their exercise of their exchange rights in respect of
the VII Cable Preferred Stock. TCI is further required to reserve sufficient
shares of TCI Stock to satisfy its obligations to VII Cable in connection with
such exchanges.
In connection with any exchange by a holder of VII Cable Preferred Stock,
TCI may be required under the Securities Act to deliver to such holder a
current prospectus relating to the TCI Stock. The Prospectus Condition
provides that TCI must be able to deliver a current prospectus if one is
required under the Securities Act or the rules and regulations of the
Commission promulgated thereunder before any exchange may be made, and no
exchanges of TCI Stock will be effected during any period in which the
Prospectus Condition cannot be met. TCI has agreed that if delivery of a
current prospectus is so required, for so long as the holders of shares VII
Cable Preferred Stock have the right to exchange such shares of VII Cable
Preferred Stock for shares of TCI
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Stock, TCI will use all reasonable efforts to ensure that it will be able to
deliver a current prospectus upon a requested exchange by a holder of VII
Cable Preferred Stock. The market value of the TCI Stock may change during any
period that a holder is unable to effect an exchange due to the Prospectus
Condition not being met.
In order to exchange shares of VII Cable Preferred Stock, the holder thereof
must surrender the certificates evidencing the shares of VII Cable Preferred
Stock to be exchanged at the office or agency to be maintained by VII Cable
for that purpose, duly endorsed to VII Cable or in blank (or accompanied by
duly executed instruments of transfer to VII Cable or in blank) with
signatures guaranteed (such endorsements or instruments of transfer to be in
form satisfactory to VII Cable), 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 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 defined herein). Each notice of exchange shall be
irrevocable and each exchange shall be deemed to have been effected
immediately prior to the close of business on the date (the "TCI Stock
Exchange Date") on which all of the requirements for such exchange (including
the satisfaction of the Prospectus Condition, if required) shall have been
satisfied. The exchange shall 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 such 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 or on any other property issued
upon such exchange in accordance with the Restated Certificate of
Incorporation.
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 TCI 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;
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(iii) the payment by TCI of dividends (and other distributions) on outstanding
shares of TCI Stock in shares of TCI's capital stock (other than TCI Stock);
(iv) the issuance by TCI, in reclassification of its outstanding shares of TCI
Stock, of any other shares of capital stock of TCI; (v) the distribution by
TCI to all or substantially all holders of TCI Stock of rights, warrants or
options entitling holders of such rights, warrants or options (for a period
not exceeding 45 days after the record date for the determination of
stockholders entitled to receive such distribution) to purchase shares of TCI
Stock (or securities exercisable for or convertible into shares of TCI Stock,
having a conversion or exercise price per share, after adding thereto an
allocable portion of the exercise price of the rights, warrants or options to
purchase such securities) less than the Current Market Price on the applicable
Determination Date and (vi) the distribution by TCI to all or substantially
all holders of TCI Stock of any assets or debt securities or any rights,
warrants or options to purchase securities (other than those dividends,
distributions, rights, warrants and options referred to above and excluding
cash dividends other than Extraordinary Cash Dividends (as defined herein).
"Extraordinary Cash Dividends" means cash dividends on TCI Stock that, when
aggregated with all other cash dividends made on TCI Stock having an Ex-
Dividend Date occurring in the 365/366 consecutive day period ending on the
date prior to the Ex-Dividend Date for the cash dividend in question (other
than those dividends or distributions for which a prior adjustment to the
Exchange Rate was made), equal or exceed on a per share basis 10% of the
average of the Closing Prices of the TCI Stock during the shorter of (i) such
365/366 day period or (ii) the period beginning after the first Ex-Dividend
Date in such period and ending on the date prior to the Ex-Dividend Date for
the cash dividend in question. In the case of any such dividend or
distribution on TCI Stock of shares of capital stock, subdivision, combination
or reclassification (i.e., the adjustment events described in (i)-(iv) in the
first sentence of this paragraph, respectively), the holder of each
outstanding share of VII Cable Preferred Stock will have the right to exchange
such share of VII Cable Preferred Stock into the kind and amount of securities
which such holder would have owned immediately after such event if such share
of VII Cable Preferred Stock had been exchanged immediately before the record
date for or effective date of, as the case may be, such event. However, in the
case of any dividend, distribution or reclassification in which the VII Cable
Preferred Stock becomes exchangeable for shares of more than one class or
series of TCI capital stock, any one of which is redeemable or exchangeable at
the election of TCI ("Redeemable Capital Stock"), and such Redeemable Capital
Stock may be redeemed or exchanged by TCI for consideration that includes
securities of an issuer other than TCI ("Redemption Securities"), then such
dividend, distribution or reclassification shall be treated in the manner
described in the next sentence as though it were a distribution of assets by
TCI. In the case of any such issuance of rights, warrants or options which
expire within 45 days after the record date for the determination of
stockholders entitled to receive such rights, warrants or options, or any such
distribution of assets, debt securities or certain rights, warrants or options
to purchase securities (i.e., the adjustment events described in (v) and (vi)
in the first sentence of this paragraph, respectively), the TCI Exchange Rate
will be adjusted pursuant to formulas contained in the VII Cable Restated
Certificate of Incorporation. In certain cases of distributions of assets,
debt securities or certain rights, warrants or options to purchase securities
to holders of TCI Stock, rather than being entitled to an adjustment in the
TCI Exchange Rate, the holder of a share of VII Cable Preferred Stock upon
exchange thereof will be entitled to receive, in addition to the shares of TCI
Stock into which such share of VII Cable Preferred Stock is exchangeable, the
kind and amount of assets, debt securities, rights, warrants or options
comprising the distribution that such holder would have received if such
holder had exchanged such share of VII Cable Preferred Stock immediately prior
to the record date for determining the holders of TCI Stock entitled to
receive the distribution.
If the holders of VII Cable Preferred Stock would be entitled to receive
upon exchange thereof any Redeemable Capital Stock (other than Redeemable
Capital Stock that may be redeemed or exchanged for consideration that
includes Redemption Securities), and such Redeemable Capital Stock is
redeemed, exchanged or otherwise acquired in full, then, from and after such
event (a "Redemption Event"), the holders of VII Cable Preferred Stock then
outstanding shall be entitled to receive upon exchange of such shares, in lieu
of shares of such Redeemable Capital Stock, the kind and amount of securities,
cash or other assets receivable upon such Redemption Event by a holder of the
number of shares of Redeemable Capital Stock for which such shares of VII
Cable Preferred Stock could have been exchanged immediately prior to the
effectiveness of such Redemption Event (assuming that such holder failed to
exercise any applicable right of election with respect thereto and
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received per share of such Redeemable Capital Stock the kind and amount of
securities, cash or other assets received per share by the holders of a
plurality of the nonelecting shares thereof) and, thereafter, the holders of
the VII Cable Preferred Stock shall have no other exchange rights with respect
to such Redeemable Capital Stock.
All adjustments to the TCI Exchange Rate will be calculated to the nearest
1/1000th of a share of TCI Stock. No adjustment in the TCI 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 TCI 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 TCI 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 TCI Exchange Rate is required to be adjusted, VII Cable will
forthwith compute such adjusted TCI 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 TCI 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 reclassified or
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 (or any other property into which shares of VII Cable Preferred Stock
may be exchangeable in accordance with the Restated Certificate of
Incorporation) 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 transaction is not the same for each nonelecting share,
then the kind and amount of securities, cash or other property receivable upon
consummation of such transaction for each nonelecting share will be deemed to
be the kind and amount so receivable per share by a plurality of the
nonelecting 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 has agreed not to become a party to any
such transaction unless the terms thereof are consistent with the foregoing.
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Other. TCI has agreed to take such reasonable action which may be necessary,
in the opinion of TCI's legal counsel, in order that (i) VII Cable may validly
and legally deliver fully paid and nonassessable shares of TCI Stock upon any
surrender of shares of VII Cable Preferred Stock for exchange, (ii) the
delivery of shares of TCI Stock in connection with any such exchange is exempt
from the registration or qualification requirements of the Securities Act and
applicable state securities laws or, if no such exemption is available, that
the offer and exchange of such shares of TCI Stock has been duly registered or
qualified under the Securities Act and applicable state securities laws, (iii)
the shares of TCI Stock delivered upon such exchange are listed for trading on
the Nasdaq National Market or on a national securities exchange (upon official
notice of issuance) and (iv) the shares of TCI Stock delivered upon such
exchange are free of preemptive rights and any liens or adverse claims.
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 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 call 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>
REDEMPTION
YEAR 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 pro rata (as nearly as may be practicable) among all holders of
outstanding shares of VII Cable Preferred Stock.
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) in cash, 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
selected by the VII Cable Board in its sole discretion. 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 to be paid through delivery of shares of TCI
Stock) of such shares of VII Cable Preferred Stock by (ii) the Cash Equivalent
Amount. Any portion of a Redemption Price that is not paid through the
delivery of shares of TCI Stock will be paid in cash. The market price of the
TCI Stock may vary from the Average Market Price between the date of
determination of such 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 the market value of the TCI Stock on
the
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Redemption Date is more than 5% lower than the Average Market Price as of such
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 than 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 TCI 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 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 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
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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 liquidation, dissolution 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 in cash equal to the Liquidation Preference, before any
distribution of assets is made to the holders of Junior Stock or any Parity
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 that rank pari passu with the
VII Cable Preferred Stock upon liquidation, dissolution or winding up (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, in
whole or in part, 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 of TCI Stock to be so
delivered being listed, and upon delivery being eligible for trading, on the
Nasdaq National Market 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.
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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
(rounded to the nearest whole cent) by its check equal to the same fraction of
the Closing Price of a share of TCI Stock on the Trading Day immediately
preceding the Exchange Date or the date of payment of the dividend or
redemption, as the case may be, in respect of which such cash adjustment is
being determined.
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 or more
quarterly dividend periods (whether or not consecutive), 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) to vote for Preferred Stock
Directors. The Preferred Stock Directors shall be elected by a plurality of
the votes cast by the holders of VII Cable Preferred Stock and any other class
or series of Parity Stock upon which like voting rights have been conferred
and are exercisable.
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 issue any additional shares of VII Cable
Preferred Stock or 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
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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 which does not include the vote of the VII
Cable Preferred Stock 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 reasonably be expected to be 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 registered 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 Bank of New York (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 reserve and keep available, at all times,
out of its authorized and unissued TCI Stock and/or issued shares of TCI Stock
held in its treasury, 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). TCI has also agreed that if
VII Cable elects to pay any dividend or optional or mandatory redemption
payment (or a designated portion thereof) through the delivery of shares of
TCI Stock and TCI agrees to deliver such shares to VII Cable in order to pay
such dividend or Redemption Price, TCI will (x) after the date on which VII
Cable has (i) declared such a dividend in shares of TCI Stock or (ii) elected
to pay such redemption payment in shares of TCI Stock, reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued TCI Stock and its issued TCI Stock held in its treasury, for the
purpose of paying such
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declared dividend or redemption payment, as the case may be, the full number
of shares of TCI Stock then deliverable in respect of such declared dividend
or redemption payment (assuming for this purpose that all of the outstanding
shares of VII Cable Preferred Stock are held by a single holder), and (y) take
such reasonable action which may be necessary, in the opinion of TCI's legal
counsel, in order that (i) the shares of TCI Stock to be so delivered are
fully paid and nonassessable and free from any preemptive rights, liens or
adverse claims, (ii) the delivery of such shares of TCI Stock is exempt from
the registration or qualification requirements of the Securities Act and
applicable state securities laws or, if no such exemption is available, the
shares of TCI Stock to be so delivered are duly registered or qualified under
the Securities Act and applicable state securities laws, and (iii) the shares
of TCI Stock to be so delivered are listed, and upon delivery are eligible for
trading, on the Nasdaq National Market or on a national securities exchange.
Notwithstanding the foregoing, neither TCI nor TCI Cable shall have any
express or implied liability or obligation to any holder of shares of VII
Cable Preferred Stock with respect to the exchange of such shares into TCI
Stock or the payment of any dividend or mandatory or optional redemption
payment in shares of TCI Stock. 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.
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 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.
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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) issue additional shares of VII Cable Preferred
Stock, (c) create or issue any class or series of Senior Stock or (d) 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 of VII Cable Preferred Stock outstanding
immediately 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 of $[ ] per share, 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
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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 services for
which an expense has been allocated in VII Cable's financial 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 $30.7 million in 1995, $28.6 million in 1994 and $23.8
million in 1993. 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, for so long as TCI continues
to beneficially own shares of VII Cable's 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, TCI will
continue to provide in the same manner, and on the same basis as is 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.
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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.
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.
OTHER
TCI, through certain of its affiliates, is a general partner in TCGSF and
TCGS. See Note 3 of the Notes to Combined Financial Statements of VII Cable
for the year ended December 31, 1995.
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 [ ], 1996, 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 whose shares were accepted for exchange in
the Exchange Offer 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.
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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 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.
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Adjustments to Exchange Ratio. In general, any adjustments to the TCI
Exchange Rate for the exchange of VII Cable Preferred Stock into TCI Stock
should not be taxable to the holders thereof. However, adjustments to the TCI
Exchange Rate, and adjustments to the property that the holder is entitled to
receive upon an exchange, to take into account indebtedness, cash or other
property distributed with respect to the TCI Stock or used to redeem or
exchange any Redeemable Capital Stock for which shares of VII Cable Preferred
Stock could have been exchanged 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.
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, 1995 and
1994 and for each of the three years in the period ended December 31, 1995
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.
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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, 1995 and (ii) consolidated financial
statements of Paramount Communications Inc. ("Paramount") as of March 31, 1994
and 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.
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VII CABLE
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Combined Financial Statements:
Report of Independent Accountants..................................... F-2
Combined Statements of Operations for the years ended December 31,
1995, 1994 and 1993.................................................. F-3
Combined Balance Sheets as of December 31, 1995 and 1994.............. F-4
Combined Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................. F-5
Notes to Combined Financial Statements................................ F-6
Unaudited Interim Combined Financial Statements:
Combined Statements of Operations for the three months ended March 31,
1996 and 1995........................................................ F-15
Combined Balance Sheets as of March 31, 1996 and December 31, 1995.... F-16
Combined Statements of Cash Flows for the three months ended March 31,
1996 and 1995........................................................ F-17
Notes to Combined Financial Statements................................ F-18
</TABLE>
F-1
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REPORT OF INDEPENDENT ACCOUNTANTS
February 14, 1996
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 VII Cable (as defined in Note 1
to the financial statements) at December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of 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, VII Cable adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Effective January 1, 1994, VII Cable
adopted Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".
Our audits of the combined financial statements of VII Cable also included
an audit of the Financial Statement Schedule on page S-1. In our opinion, the
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
combined financial statements.
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,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues......................................... $442,170 $404,499 $414,786
Expenses:
Operating (Note 6)............................. 191,082 170,779 156,270
Selling, general and administrative (Note 6)... 88,488 99,935 101,347
Depreciation and amortization.................. 81,774 76,343 73,354
-------- -------- --------
Total expenses............................... 361,344 347,057 330,971
-------- -------- --------
Operating income................................. 80,826 57,442 83,815
Other income (expense):
Interest expense (Note 6)...................... (48,524) (38,050) (33,417)
Other items, net (Note 10)..................... 34,305 6,982 77,736
-------- -------- --------
Earnings before income taxes and cumulative
effect of change
in accounting principle......................... 66,607 26,374 128,134
Provision for income taxes (Note 7)............ (32,849) (17,680) (45,276)
Equity in earnings (loss) of affiliated
companies, net of tax (Note 3)................ (44) 452 997
-------- -------- --------
Net earnings before cumulative effect of change
in accounting principle......................... 33,714 9,146 83,855
Cumulative effect of change in accounting
principle (Note 7)............................ -- -- 13,536
-------- -------- --------
Net earnings..................................... $ 33,714 $ 9,146 $ 97,391
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
VII CABLE
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 2,294 $ 3,011
Receivables, less allowances of $1,689 (1995) and
$1,251 (1994) (Note 6).............................. 14,333 12,655
Marketable securities available-for-sale............. -- 24,730
Other current assets................................. 3,342 3,065
---------- ----------
Total current assets............................... 19,969 43,461
---------- ----------
Property and equipment:
Land................................................. 5,470 5,447
Buildings............................................ 20,347 19,479
Distribution systems................................. 549,553 472,938
Equipment and other.................................. 171,958 147,680
---------- ----------
747,328 645,544
Less accumulated depreciation........................ (327,684) (280,511)
---------- ----------
Net property and equipment......................... 419,644 365,033
---------- ----------
Intangibles, at amortized cost......................... 561,229 578,072
Other assets........................................... 65,971 53,868
---------- ----------
$1,066,813 $1,040,434
========== ==========
LIABILITIES AND VIACOM EQUITY INVESTMENT
Current liabilities:
Accounts payable (Note 6)............................ $ 28,380 $ 24,975
Accrued expenses (Note 6)............................ 30,613 32,623
Accrued compensation................................. 8,152 10,154
Deferred taxes (Note 7).............................. 12,501 19,904
Other current liabilities............................ 1,477 1,112
---------- ----------
Total current liabilities.......................... 81,123 88,768
---------- ----------
Deferred taxes (Note 7)................................ 60,452 59,750
Long-term debt (Note 4)................................ 57,000 57,000
Other liabilities...................................... 11,131 10,976
Commitments and contingencies (Note 8)
Viacom equity investment (Note 5)...................... 857,107 823,940
---------- ----------
$1,066,813 $1,040,434
========== ==========
</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,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net earnings................................ $ 33,714 $ 9,146 $ 97,391
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation and amortization............. 81,774 76,343 73,354
Gain on sale of marketable securities..... (26,902) -- (17,437)
Gain on sale of Viacom Cablevision of
Wisconsin, Inc........................... -- -- (55,007)
Cumulative effect of change in accounting
principle................................ -- -- (13,536)
Increase in receivables................... (1,678) (4,315) (3,005)
Increase (decrease) in accounts payable
and accrued expenses..................... (242) (1,085) 14,895
Other, net................................ (2,070) (2,197) 2,134
--------- --------- ---------
Net cash flow from operating activities. 84,596 77,892 98,789
--------- --------- ---------
Investing activities:
Capital expenditures........................ (117,966) (99,198) (79,341)
Proceeds from sale of marketable securities. 27,001 -- 18,140
Proceeds from dispositions.................. -- 1,430 94,429
Investments in and advances to affiliated
companies.................................. (7,336) (12,765) --
Other, net.................................. (1,613) (315) 158
--------- --------- ---------
Net cash flow from investing activities. (99,914) (110,848) 33,386
--------- --------- ---------
Financing activities:
Distributions to Viacom..................... (505,265) (434,002) (508,257)
Distributions from Viacom................... 409,264 392,896 317,078
Allocated charges from Viacom............... 110,602 75,221 105,390
Principal repayment of long-term debt....... -- -- (49,018)
--------- --------- ---------
Net cash flow from financing activities....... 14,601 34,115 (134,807)
--------- --------- ---------
Net increase (decrease) in cash............... (717) 1,159 (2,632)
Cash at beginning of year..................... 3,011 1,852 4,484
--------- --------- ---------
Cash at end of year........................... $ 2,294 $ 3,011 $ 1,852
========= ========= =========
</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 shareholders may exchange shares of Viacom Class A or Class B
Common Stock for shares of VII Cable Class A Common Stock. The First
Distribution will not occur until the date of consummation of the Exchange
Offer.
Prior to the consummation of the Exchange Offer, Viacom International 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
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.
VII Cable owns and operates cable television systems in five geographic
regions, including the San Francisco and Northern California area, Salem,
Oregon, Seattle, Washington and the Greater Puget Sound area, Nashville,
Tennessee and Dayton, Ohio. Substantially all of VII Cable's revenues are
earned from subscriber fees for primary 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.
On October 13, 1995, TCI Sub (as buyer) and Prime Cable of Fort Bend, L.P.
and Prime Cable Income Partners, L.P. (as sellers) executed asset and stock
purchase and sale agreements providing for the sale of certain cable
television systems serving the greater Houston Metropolitan Area for a total
base purchase price of $301 million, subject to adjustments. On December 18,
1995, TCI Sub assigned all of its rights, remedies, title and interest in, to
and under such agreements to InterMedia Partners Southeast ("IMP"). After
consummation of the VII Cable transaction, IMP intends to swap its Houston
cable system for VII Cable's Nashville cable system. The swap is intended to
qualify as a like-kind exchange under Section 1031 of the Internal Revenue
Code. As of December 31, 1995, the net book value of VII Cable's Nashville
cable system was $109,842.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could subsequently differ from those
estimates.
F-6
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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 Combination
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 control 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. Investments in affiliates are included in Other assets.
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 $1,884 (1995), $839 (1994) and
$372 (1993). 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 $63,092 (1995), $57,826 (1994) and $54,754 (1993).
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 basis 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 was $157,407 and $138,739 at December 31,
1995 and 1994, respectively.
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 $7,362 (1995),
$6,178, (1994) and $7,250 (1993).
F-7
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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 $26,902 which is in Other items, net.
Recent Accounting Pronouncements
During 1995, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which VII Cable will be required to adopt in 1996. SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. VII Cable has evaluated the impact of SFAS 121 and it will not
have a significant effect on VII Cable's combined financial position or
results of operations.
During 1995, the FASB issued Financial Accounting Standard No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," which establishes a fair
value based method of accounting for compensation costs related to stock
option plans and other forms of stock based compensation plans as an
alternative to the intrinsic value based method of accounting defined under
Accounting Principles Board Opinion No. 25. Companies who do not elect the new
method of accounting for 1996 will be required to provide pro forma
disclosures as if the fair value based method had been applied. VII Cable has
not determined which method they will elect.
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 $7,264
(1995), $6,302 (1994) and $5,225 (1993). Affiliate fees receivable were $2,069
and $1,293 at December 31, 1995 and 1994, respectively.
TCGSF and TCGS were formed on January 1, 1994 for the purpose of investing
in and operating communication facilities. These partnerships lease
communication network facilities from VII Cable, which are financed and
constructed by VII Cable. TCI through certain of its affiliates is a general
partner in these two partnerships. VII Cable's lease revenues were $1,299
(1995) and $484 (1994). Receivables were $1,046 and $2,944 at December 31,
1995 and 1994, respectively.
F-8
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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 program license revenue from cable
television operators including its general partners. VII Cable incurred
program license fees under this agreement of $3,347 (1995), $1,962 (1994) and
$1,849 (1993). Accounts payable were $280 at December 31, 1995, accrued
expenses were $282 and $169 at December 31, 1995 and 1994, respectively.
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 $4.6 million at
December 31, 1995.
Summarized aggregated financial information for the affiliated companies
discussed above is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Results of operations:
Revenues...................................... $60,235 $49,142 $36,499
Operating income (loss)....................... (3,912) 117 4,729
Net earnings (loss)........................... (3,894) (57) 4,842
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
<S> <C> <C>
Financial position:
Current assets........................................... $21,840 $32,828
Noncurrent assets........................................ 87,267 54,118
Current liabilities...................................... 14,555 12,262
Noncurrent liabilities................................... 11,705 13,219
Partners' equity......................................... 82,847 61,465
</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, 1995 and 1994, LIBOR (upon which the
subsidiary borrowing rate was based) was 6.0% and 6.25% 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.
F-9
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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, and such amount will be repaid.
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,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance as of the beginning of the year..... $823,940 $765,531 $753,929
Net earnings................................ 33,714 9,146 97,391
Cash distributions to Viacom................ (505,265) (434,002) (508,257)
Cash distributions from Viacom.............. 409,264 392,896 317,078
Allocated charges from Viacom............... 110,602 75,221 105,390
Unrealized holding gains on marketable
securities available-for-sale, net of tax.. (15,148) 15,148 --
-------- -------- --------
Balance as of the end of the year........... $857,107 $823,940 $765,531
======== ======== ========
</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 and other intercompany activity. The following
is a summary of the allocated charges from Viacom that are reflected in the
foregoing analysis of Viacom equity investment activity:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Interest allocation............................. $ 46,363 $35,681 $ 31,191
Overhead allocation............................. 13,492 16,849 20,260
Income tax allocation........................... 30,035 9,188 37,020
Salaries and benefits payments.................. 11,293 11,625 10,103
Other........................................... 9,419 1,878 6,816
-------- ------- --------
Allocated charges from Viacom................... $110,602 $75,221 $105,390
======== ======= ========
</TABLE>
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 primarily made based on the average of certain specified
ratios of revenues, operating income and net assets. Management believes that
the methodologies used to allocate these charges are reasonable. The charges
for such services were $13,492 (1995), $16,849 (1994) and $20,260 (1993) and
are included in selling, general and administrative expenses.
F-10
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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 $46,363 (1995), $35,681 (1994) and $31,191 (1993) 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.
Management believes that the methodology used to allocate these charges is
reasonable.
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. Program license fees incurred under these agreements
were $30,694 (1995), $28,582 (1994) and $23,785 (1993). These amounts are
included in operating expenses. In addition, cooperative advertising expenses
charged to affiliated companies were $1,350 (1995), $1,181 (1994) and $597
(1993). Related party accounts receivable, included in receivables, were $572
and $562 at December 31, 1995 and 1994, respectively. Related party
liabilities, included in accounts payable, were $1,176 and $1,128 at December
31, 1995 and 1994, respectively. Related party liabilities, included in
accrued expenses, were $2,645 and $2,508 at December 31, 1995 and 1994,
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 Statements 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 Sheets. 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, state or local 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 is shown net of
tax on the Combined Statements of Operations.
F-11
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal:
Current........................................ $25,894 $ 6,018 $31,381
Deferred....................................... 2,546 8,534 8,366
State and local:
Current........................................ 4,171 2,868 4,975
Deferred....................................... 238 260 554
------- ------- -------
Provision for income taxes on operating income... 32,849 17,680 45,276
Provision (benefit) for income taxes on income of
affiliated companies............................ (30) 301 664
------- ------- -------
Total provision for income taxes............. $32,819 $17,981 $45,940
======= ======= =======
</TABLE>
A reconciliation of the U.S. Federal statutory tax rate to VII Cable's
effective tax rate on operating income before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Statutory U.S. tax rate........................ 35.0% 35.0% 35.0%
Amortization of goodwill....................... 9.5 23.3 4.8
State and local taxes, net of federal tax bene-
fit........................................... 4.4 8.1 3.0
Basis differential on assets sold.............. -- -- (8.7)
Effect of change in tax rate................... -- -- 1.1
Other, net..................................... 0.4 0.6 0.1
------- ------- -------
Effective tax rate......................... 49.3% 67.0% 35.3%
======= ======= =======
</TABLE>
The following is a summary of the deferred tax accounts in accordance with
SFAS 109:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -------
<S> <C> <C>
Current deferred tax (assets) liabilities:
Property taxes......................................... $13,230 $10,576
Marketable securities available-for-sale............... -- 9,483
Other.................................................. (729) (155)
------- -------
Net current deferred tax liabilities..................... 12,501 19,904
------- -------
Noncurrent deferred tax (assets) liabilities:
Fixed asset basis differences.......................... 60,558 59,902
Other.................................................. (106) (152)
------- -------
Net noncurrent deferred tax liabilities.................. 60,452 59,750
------- -------
Deferred tax liabilities................................. $72,953 $79,654
======= =======
</TABLE>
F-12
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--COMMITMENTS AND CONTINGENCIES
Minimum annual rental commitments at December 31, 1995 under noncancellable
operating leases for office space and equipment are as follows:
<TABLE>
<S> <C>
1996............................. $ 4,161
1997............................. 3,272
1998............................. 2,931
1999............................. 2,361
2000............................. 1,628
Thereafter....................... 1,837
-------
Total minimum lease payments..... $16,190
=======
</TABLE>
Rent expense was $7,704 (1995), $7,670 (1994) and $7,299 (1993).
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, results
of operations or cash flows.
On February 8, 1996, the President signed into law the Telecommunications
Act of 1996 (the "Act") which among other things eases regulation of the cable
and telephone businesses while opening each of them to increased competition.
The Act deregulates expanded basic tiers of cable programming, such as VII
Cable's Satellite Value Package, after March 31, 1999. It also deregulates any
cable system that becomes subject to "effective competition" from a telephone
company which provides comparable services by any means (except direct
broadcast satellite). The Act repeals the statutory ban against telephone
companies and certain public utility companies providing video programming in
their own service areas as either cable systems, common carriers or newly
created "open video systems." Additionally, the Act preempts state and local
regulations barring cable operators and others from providing local telephone
services and requires telephone companies to negotiate with new telephone
service providers with respect to the interoperationality of each of their
systems.
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, 1995 and 1994, VII Cable had paid $43,245 and $36,581,
respectively, related to real and personal property taxes which have been
recorded as an excess property tax receivable included in Other assets.
F-13
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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, results of
operations or cash flows.
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.
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 $1,134 (1995), $1,574 (1994) and $1,392 (1993). 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 $4,177 (1995), $4,364 (1994) and
$4,387 (1993). In addition, certain executives of VII Cable participate in
non-compensatory stock option plans of Viacom. There were no grants of stock
options during 1995.
NOTE 10--OTHER ITEMS, NET
During 1995, Other items, net principally reflects a pre-tax gain of $26,902
from the sale of marketable securities.
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
$45,429 plus repayment of debt under the then current Viacom credit agreement
in the amount of $49,000, resulting in a pre-tax gain of approximately $55,007
reflected in Other items, net. Also reflected in this line item is the net
gain of $17,437 from sales 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
MARCH 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues.................................................. $ 116,599 $ 105,872
Expenses:
Operating (Note 4)...................................... 51,730 46,379
Selling, general and administrative (Note 4)............ 24,236 21,339
Depreciation and amortization........................... 21,807 19,913
--------- ---------
Total expenses........................................ 97,773 87,631
--------- ---------
Operating income.......................................... 18,826 18,241
Other income (expense):
Interest expense (Note 4)............................... (11,958) (12,057)
Other items, net (Note 6)............................... 1,829 28,801
--------- ---------
Earnings before income taxes.............................. 8,697 34,985
Provision for income taxes.............................. (5,154) (15,284)
Equity in loss of affiliated companies, net of tax...... (153) (67)
--------- ---------
Net earnings.............................................. $ 3,390 $ 19,634
========= =========
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
VII CABLE
COMBINED BALANCE SHEETS
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................ $ 3,540 $ 2,294
Receivables, less allowances of $1,659
(1996) and $1,689 (1995) (Note 4).......... 11,444 14,333
Other current assets........................ 2,986 3,342
---------- ----------
Total current assets...................... 17,970 19,969
---------- ----------
Property and equipment:
Land........................................ 5,909 5,470
Buildings................................... 20,505 20,347
Distribution systems........................ 566,676 549,553
Equipment and other......................... 169,656 171,958
---------- ----------
762,746 747,328
Less accumulated depreciation............... (340,436) (327,684)
---------- ----------
Net property and equipment................ 422,310 419,644
---------- ----------
Intangibles, at amortized cost................ 556,659 561,229
Other assets.................................. 67,912 65,971
---------- ----------
$1,064,851 $1,066,813
========== ==========
LIABILITIES AND VIACOM EQUITY INVESTMENT
Current liabilities:
Accounts payable (Note 4)................... $ 28,211 $ 28,380
Accrued expenses (Note 4)................... 31,129 30,613
Accrued compensation........................ 6,514 8,152
Deferred taxes.............................. 13,173 12,501
Other current liabilities................... 1,263 1,477
---------- ----------
Total current liabilities................. 80,290 81,123
---------- ----------
Deferred taxes................................ 61,698 60,452
Long-term debt (Note 3)....................... 57,000 57,000
Other liabilities............................. 11,044 11,131
Commitments and contingencies (Note 5)
Viacom equity investment (Note 2)............. 854,819 857,107
---------- ----------
$1,064,851 $1,066,813
========== ==========
</TABLE>
See notes to combined financial statements.
F-16
<PAGE>
VII CABLE
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net earnings............................................ $ 3,390 $ 19,634
Adjustments to reconcile net earnings to net cash flow
from operating activities:
Depreciation and amortization.......................... 21,807 19,913
Gain on sale of marketable securities.................. -- (26,902)
Decrease in receivables................................ 2,889 5,643
Increase (decrease) in accounts payable and accrued ex-
penses................................................ (1,505) 2,286
Other, net............................................. 2,274 660
--------- ---------
Net cash flow from operating activities.............. 28,855 21,234
--------- ---------
Investing activities:
Capital expenditures................................... (19,866) (22,087)
Proceeds from sale of marketable securities............ -- 27,001
Investments in and advances to affiliated companies.... (2,045) (1,719)
Other, net............................................. (20) 11
--------- ---------
Net cash flow from investing activities.............. (21,931) 3,206
--------- ---------
Financing activities:
Distributions to Viacom................................ (125,312) (145,468)
Distributions from Viacom.............................. 97,319 89,970
Allocated charges from Viacom.......................... 22,315 31,212
--------- ---------
Net cash flow from financing activities.............. (5,678) (24,286)
--------- ---------
Net increase in cash..................................... 1,246 154
Cash at beginning of period.............................. 2,294 3,011
--------- ---------
Cash at end of period.................................... $ 3,540 $ 3,165
========= =========
</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 shareholders may exchange shares of Viacom Class A or Class B
Common Stock for shares of VII Cable Class A Common Stock. The First
Distribution will not occur until the date of consummation of the Exchange
Offer.
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
Class A and Class B Common Stock on a combined basis as of March 31, 1996,
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.
On October 13, 1995, TCI Sub (as buyer) and Prime Cable of Fort Bend, L.P.
and Prime Cable Income Partners, L.P. (as sellers) executed asset and stock
purchase and sale agreements providing for the sale of certain cable
television systems serving the greater Houston Metropolitan Area for a total
base purchase price of $301 million, subject to adjustments. On December 18,
1995, TCI Sub assigned all of its rights, remedies, title and interest in, to
and under such agreements to InterMedia Partners Southeast ("IMP"). On May 8,
1996, IMP consummated the transactions under the Houston purchase agreements
consummation of the VII Cable transaction, IMP intends to swap its Houston
cable system for VII Cable's Nashville cable system. The swap is intended to
qualify as a like-kind exchange under Section 1031 of the Internal Revenue
Code. As of March 31, 1996, the net book value of VII Cable's Nashville cable
system was $106,828.
The accompanying unaudited combined financial statements and related notes
reflect the carve-out historical results of operations and financial position
of the cable television business of Viacom and have been prepared pursuant to
the rules of the Securities and Exchange Commission. The unaudited combined
financial statements reflect, in the opinion of management, all normal
recurring adjustments necessary for a fair statement of financial position and
results of operations of VII Cable. These unaudited combined financial
statements should be read in conjunction with the audited combined financial
statements of VII Cable for the three years ended December 31, 1995. 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.
F-18
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED; DOLLARS IN THOUSANDS)
NOTE 2--VIACOM EQUITY INVESTMENT
An analysis of the Viacom equity investment activity is as follows:
<TABLE>
<S> <C>
Balance as of December 31, 1995................................. $ 857,107
Net earnings.................................................... 3,390
Cash distributions to Viacom.................................... (125,312)
Cash distributions from Viacom.................................. 97,319
Allocated charges from Viacom................................... 22,315
---------
Balance as of March 31, 1996.................................... $ 854,819
=========
</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 and other intercompany activities.
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, and such
amount will be repaid.
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 primarily made based on the average of certain specified
ratios of revenues, operating income and net assets. Management believes that
the methodologies used to allocate these charges are reasonable. The charges
for such services for the three months ended March 31, 1996 and March 31, 1995
were $3,017 and $2,055, respectively. These charges are included in selling,
general and administrative expenses.
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 for the three months ended March 31, 1996 and March 31, 1995 of
$11,421 and $11,651, respectively, 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. Management believes that the methodology used to
allocate these charges is reasonable.
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 and USA Networks. The
agreements require VII Cable to pay license fees based upon the number of
customers receiving the service. Program license fees incurred under these
agreements for the three months ended March 31, 1996 and March 31, 1995 were
$8,639 and $6,877, respectively. These amounts are included in operating
expenses. In addition, cooperative advertising expenses charged to affiliated
companies for the three months ended March 31, 1996 and March 31, 1995 were
$106 and $195, respectively. Related party receivables, included in
receivables, were
F-19
<PAGE>
VII CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED; DOLLARS IN THOUSANDS)
$291 and $572 at March 31, 1996 and December 31, 1995, respectively. Related
party liabilities, included in accounts payable, were $2,655 and $1,176 at
March 31, 1996 and December 31, 1995, respectively. Related party liabilities,
included in accrued expenses, were $2,918 and $2,645 at March 31, 1996 and
December 31, 1995, 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, results of operations or
cash flows.
On February 8, 1996, the Telecommunications Act of 1996 (the "Act") was
signed into law. The Act eases regulation of the cable and telephone
businesses while opening each of them to increased competition. The Act
deregulates expanded basic tiers of cable programming, such as VII Cable's
Satellite Value Package, after March 31, 1999. It expands the existing
definition of "effective competition" which, when it occurs with respect to a
particular cable system, results in the deregulation of that cable system's
rates. The Act repeals the statutory ban against telephone companies and
certain utility companies from providing video programming in their own
service areas as either cable systems, common carriers or newly created "open
video systems". Additionally, the Act substantially preempts state and local
regulations barring cable operators and others from providing local telephone
services and requires telephone companies to negotiate with new telephone
service providers with respect to the interoperationality of each of their
systems.
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 March
31, 1996 and December 31, 1995, VII Cable had paid $43,389 and $43,245,
respectively, related to 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, results of
operations or cash flows.
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.
NOTE 6--OTHER ITEMS, NET
For 1995 other items, net, principally reflects a pre-tax gain of $26.9
million from the sale of marketable securities.
F-20
<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:
THE BANK OF NEW YORK
By Mail: Facsimile Transmission: By Hand or Overnight
Courier:
TENDER & EXCHANGE (FOR ELIGIBLE INSTITUTIONS ONLY) TENDER & EXCHANGE
DEPARTMENT (212) 815-6213 DEPARTMENT
P.O. BOX 11248 101 BARCLAY STREET
CHURCH STREET STATION RECEIVE AND DELIVER
NEW YORK, NY 10286-1248 WINDOW
NEW YORK, NY 10286
Confirmation of Facsimile
Transmission ONLY:
(800) 274-2944
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:
[LOGO OF GEORGESON & COMPANY, INC. APPEARS HERE]
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
II-1
<PAGE>
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 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
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 Pre-
ferred Stock**
10.1 -- Parents Agreement*
10.2 -- Implementation Agreement*
10.3 -- Subscription Agreement*
12.1 -- Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and Pre-
ferred Stock Dividends of VII Cable
12.2 -- Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and Pre-
ferred Stock Dividends of Viacom
21 -- List of Subsidiaries of the Registrant*
23.1 -- Consent of Price Waterhouse LLP as to financial state-
ments of Viacom Inc. and Paramount Communications Inc.
23.2 -- Consent of Price Waterhouse LLP as to financial state-
ments of VII Cable
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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 state-
ments of Blockbuster Entertainment Corporation
23.5 -- Consent of Shearman & Sterling (included in their opin-
ion filed as Exhibit 5)**
24 -- Powers of Attorney
27.1 -- Financial Data Schedule for Three Months Ended March 31, 1996
27.2 -- Financial Data Schedule for Year Ended December 31, 1995
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 Deal-
ers, Commercial Banks, Trust Companies and Other Nominees
99.5 -- Form of Letter to Participants in Viacom Investment
Plan**
99.6 -- Form of Letter to Participants in Savings and Invest-
ment Plan for Employees of PVI Transmission Inc. and
Paramount (PDI) Distribution Inc.**
99.7 -- Form of Letter to Participants in Savings and Invest-
ment Plan for Collective Bargaining Employees of Viacom
Broadcasting of Missouri, Inc.**
</TABLE>
- --------
* Previously filed.
** To be supplied by amendment.
(b)Financial Statement Schedules.
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;
(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.
II-3
<PAGE>
(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 Amendment No. 3 to the 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 May 24, 1996.
Viacom International Inc.
By /s/ Sumner M. Redstone
----------------------------------
Sumner M. Redstone
Chairman of the Board of Directors,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the registration statement has been signed by the following persons
in the capacities indicated on May 24, 1996:
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE
------------------ -----
<S> <C>
/s/ Sumner M. Redstone Chairman of the Board of Directors,
- ------------------------------------------- Chief Executive Officer
(Sumner M. Redstone)
/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)
/s/ Philippe P. Dauman Director
- -------------------------------------------
(Philippe P. Dauman)
* Director
- -------------------------------------------
(Thomas E. Dooley)
* Director
- -------------------------------------------
(George D. Johnson, Jr.)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
* Director
___________________________________________
(Ken Miller)
* Director
___________________________________________
(Brent D. Redstone)
* Director
___________________________________________
(Shari Redstone)
* Director
___________________________________________
(Frederic V. Salerno)
* Director
___________________________________________
(William Schwartz)
* Director
___________________________________________
(Ivan Seidenberg)
</TABLE>
/s/ Philippe P. Dauman
*By _________________________________
Philippe P. Dauman,
Attorney-in-Fact
for the Directors
II-6
<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 BALANCE AT
BEGINNING COSTS AND TO 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, 1995............. $1,251 $7,362 -- $6,924 $1,689
Year ended December
31, 1994............. $1,791 $6,178 -- $6,718 $1,251
Year ended December
31, 1993............. $1,463 $7,250 -- $6,922 $1,791
</TABLE>
- --------
Note:
(A) Includes amounts written off.
S-1
<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*
12.1 - Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock Divi-
dends of VII Cable
12.2 - Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock Divi-
dends of Viacom
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 Par-
amount 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
27.1 - Financial Data Schedule for Three Months Ended March 31, 1996
27.2 - Financial Data Schedule for Year Ended December 31, 1995
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 Securi-
ties Dealers, Commercial Banks, Trust Companies and Other Nom-
inees
99.4 - Form of Letter to Clients for use by Securities Dealers, Com-
mercial Banks, Trust Companies and Other Nominees
99.5 - Form of Letter to Participants in Viacom Investment Plan**
99.6 - Form of Letter to Participants in Savings and Investment Plan
for Employees of PVI Transmission Inc. and Paramount (PDI)
Distribution Inc.**
99.7 - Form of Letter to Participants in Savings and Investment Plan
for Collective Bargaining Employees of Viacom Broadcasting of
Missouri, Inc.**
</TABLE>
- --------
* Previously filed.
** To be supplied by amendment.
<PAGE>
EXHIBIT 4.3(C)
FORM OF RESTATED CERTIFICATE OF INCORPORATION
OF
VIACOM INTERNATIONAL INC.
----------------
VIACOM INTERNATIONAL, INC., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(1) The name of the Corporation is Viacom International Inc. The original
Certificate of Incorporation of the Corporation was filed on June 2, 1987.
The name under which the Corporation was originally incorporated was
Arsenal Holdings II, Inc. The Certificate of Incorporation of the
Corporation was amended on April 26, 1990.
(2) This Restated Certificate of Incorporation ("Certificate") further
amends and restates in its entirety the Certificate of Incorporation of the
Corporation.
(3) Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, the text of the Certificate of Incorporation is
hereby restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is TCI Pacific Communications, Inc.
ARTICLE II
REGISTERED OFFICE
The location of the registered office of the Corporation in the State of
Delaware is the office of The Prentice-Hall Corporation System, Inc., 32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19904. The name
of the registered agent at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall have
authority to issue is [ ] ( ) shares, of which [ ] ( ) shares shall be
common stock ("Common Stock") and ( ) shares shall be preferred stock
("Preferred Stock"). Said shares of Common Stock and Preferred Stock shall be
divided into the following classes:
(a) [ ] ( )/1/ shares of Common Stock shall be of a class designated
as Class A Common Stock with a par value of $100 per share ("Class A Common
Stock");
- --------
/1/ A number equal to the Number of Shares to be Exchanged.
<PAGE>
(b) One hundred (100) shares of Common Stock shall be of a class
designated as Class B Common Stock with a par value of $0.01 per share
("Class B Common Stock");
(c) [ ] ( )/1/ shares of Preferred Stock shall be of a class
designated as Class A Senior Cumulative Exchangeable Preferred Stock with a
par value of $100 per share ("Class A Preferred Stock"); and
(d) [ ] ( ) shares of Preferred Stock shall be of a class designated
as Series Preferred Stock with a par value of $0.01 per share ("Series
Preferred Stock").
The description of the Common Stock and the Preferred Stock of the
Corporation, and the relative rights, preferences and limitations thereof, or
the method of fixing and establishing the same, are as hereinafter in this
Article IV set forth:
SECTION A
COMMON STOCK
Each share of Class A Common Stock and each share of Class B Common Stock of
the Corporation shall, except as otherwise provided in this Section A, be
identical in all respects and shall have equal rights and privileges.
(1) VOTING RIGHTS. Holders of Class A Common Stock and holders of Class B
Common Stock shall each be entitled to one vote for each share of such stock
held, on all matters presented to such stockholders. Except as may otherwise
be required by the laws of the State of Delaware, the holders of shares of
Class A Common Stock and the holders of shares of Class B Common Stock shall
vote as one class with respect to the election of directors and with respect
to all other matters to be voted on by stockholders of the Corporation
(including, without limitation, any proposed amendment to this Certificate
that would increase the number of authorized shares of Class A Common Stock,
of Class B Common Stock or of any other class or series of stock or decrease
the number of authorized shares of any such class or series of stock (but not
below the number of shares thereof then outstanding)), and no separate vote or
consent of the holders of shares of Class A Common Stock or the holders of
shares of Class B Common Stock shall be required for the approval of any such
matter.
(2) CONVERSION RIGHTS.
(a) Class A Common Stock. Upon the Conversion Time (as defined below), (i)
each share of Class A Common Stock shall automatically convert into and
represent one share of Class A Preferred Stock and (ii) the shares of Class A
Common Stock so converted shall be restored to the status of authorized but
unissued shares of Class A Common Stock. Shares of Class A Common Stock that
are issued after the Conversion Time shall not be convertible into shares of
Class A Preferred Stock, nor shall they be convertible into any other class or
series of capital stock of the Corporation. Each share of Class A Preferred
Stock into which a share of Class A Common Stock shall have been converted
shall be deemed to have been issued at the opening of business on the date on
which the Conversion Time occurs. As used in this Certificate, the term
"Conversion Time" means the time at which shares of Class B Common Stock are
issued to, and paid for by, TCI Communications, Inc, a Delaware corporation
("TCI Sub"), pursuant to the terms of that certain Subscription Agreement,
dated as of July 24, 1995, among the Corporation, TCI Sub and Tele-
Communications, Inc., a Delaware corporation.
(b) Class B Common Stock. The Class B Common Stock is not convertible into
the Class A Preferred Stock, nor shall it be convertible into any other class
or series of capital stock of the Corporation.
(3) DIVIDENDS. Whenever a dividend is paid to the holders of Class A Common
Stock, the Corporation also shall also pay to the holders of Class B Common
Stock a dividend per share equal to the dividend per share
- --------
/1/ A number equal to the Number of Shares to be Exchanged.
2
<PAGE>
paid to the holders of the Class A Common Stock, and whenever a dividend is
paid to the holders of Class B Common Stock, the Corporation also shall also
pay to the holders of Class A Common Stock a dividend per share equal to the
dividend per share paid to the holders of the Class B Common Stock. Dividends
shall be payable only as and when declared by the Board of Directors.
(4) LIQUIDATION AND DISSOLUTION. In the event of a liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and liabilities of the
Corporation and subject to the prior payment in full of the preferential
amounts to which any Preferred Stock is entitled, the holders of Class A
Common Stock and the holders of Class B Common Stock shall share ratably per
share in the assets of the Corporation remaining for distribution to its
common stockholders.
SECTION B
CLASS A SENIOR CUMULATIVE EXCHANGEABLE PREFERRED STOCK
The Class A Senior Cumulative Exchangeable Preferred Stock shall have the
following preferences, limitations and relative rights:
(1) CERTAIN DEFINITIONS. Unless the context otherwise requires, the terms
defined in this paragraph (1) shall have, for all purposes of this Certificate
of Designations, the meanings herein specified:
"Affiliate" shall mean any Person that directly or indirectly through one or
more intermediaries controls, is controlled by or is under common control with
the Corporation.
"Average Market Price" as of any Record Date or Redemption Date shall mean
the average of the daily Closing Prices for the period of ten consecutive
Trading Days ending on the third Trading Day preceding such Record Date or
Redemption Date, respectively, appropriately adjusted in such manner as the
Board of Directors in good faith deems appropriate to take into account any
stock dividend on the Series A TCI Group Common Stock, or any subdivision,
split, combination or reclassification of the Series A TCI Group Common Stock
that occurs, or the Ex-Dividend Date for which occurs, during the period
following the first Trading Day in such ten-Trading Day period and ending on
the last full Trading Day immediately preceding the Dividend Payment Date to
which such Record Date relates or such Redemption Date, respectively.
"Board of Directors" shall mean the Board of Directors of the Corporation,
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in The City of New York, New York are authorized or
obligated by law or executive order to close.
"Cash Equivalent Amount" shall mean an amount equal to 95% of the Average
Market Price per share of Series A TCI Group Common Stock, such Average Market
Price to be determined (i) in the case of a dividend payment, as of the
related Record Date and (ii) in the case of a redemption payment, as of the
related Redemption Date.
"Closing Price" shall mean, on any day, (i) the last sale price (or, if no
sale price is reported on that day, the average of the bid and asked prices)
of a share of Series A TCI Group Common Stock on the Nasdaq National Market on
such day, or (ii), if the primary trading market for the Series A TCI Group
Common Stock is not the Nasdaq National Market, then the closing sale price
regular way on such day, or, in case no such sale takes place on such day, the
reported closing bid price regular way on such day, in each case on the New
York Stock Exchange or, if the Series A TCI Group Common Stock is not listed
or admitted to trading on such Exchange, then on the principal exchange on
which such stock is traded, or (iii) if the Closing Price on such day is not
available pursuant to one of the methods specified above, then the average of
the bid and asked prices for the Series A TCI Group Common Stock on such day
as furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors for that purpose.
3
<PAGE>
"Convertible Securities" shall mean rights, options, warrants and other
securities which are exercisable or exchangeable for or convertible into
shares of capital stock at the option of the holder thereof. As used herein,
Convertible Securities for shares of Series A TCI Group Common Stock do not
include the Series B TCI Group Common Stock (whether or not at the time in
question the Series B TCI Group Common Stock is convertible into shares of
Series A TCI Group Common Stock).
"Current Market Price," on the Determination Date for any issuance of
rights, warrants or options or any distribution in respect of which the
Current Market Price is being calculated, shall mean the average of the daily
Closing Prices of the Series A TCI Group Common Stock for the shortest of:
(a) the period of 30 consecutive Trading Days commencing 45 Trading Days
before such Determination Date,
(b) the period commencing on the date next succeeding the first public
announcement of the issuance of rights, warrants or options or the
distribution in respect of which the Current Market Price is being
calculated and ending on the last full Trading Day before such
Determination Date, and
(c) the period, if any, commencing on the date next succeeding the Ex-
Dividend Date with respect to the next preceding issuance of rights,
warrants or options or distribution for which an adjustment is required by
the provisions of subparagraph (5)(b)(i)(D), (ii) or (iii), and ending on
the last full Trading Day before such Determination Date.
If the record date for an issuance of rights, warrants or options or a
distribution for which an adjustment is required by the provisions of
subparagraph (5)(b)(i)(D), (5)(b)(ii) or (5)(b)(iii) (the "preceding
adjustment event") precedes the record date for the issuance or distribution
in respect of which the Current Market Price is being calculated and the Ex-
Dividend Date for such preceding adjustment event is on or after the
Determination Date for the issuance or distribution in respect of which the
Current Market Price is being calculated, then the Current Market Price shall
be adjusted by deducting therefrom the fair market value (on the record date
for the issuance or distribution in respect of which the Current Market Price
is being calculated), as determined in good faith by the Board of Directors,
of the capital stock, rights, warrants or options, assets or debt securities
issued or distributed in respect of each share of Series A TCI Group Common
Stock in such preceding adjustment event. Further, in the event that the Ex-
Dividend Date (or in the case of a subdivision, combination or
reclassification, the effective date with respect thereto) with respect to a
dividend, subdivision, combination or reclassification to which paragraph
(5)(b)(i) (A), (B), (C) or (E) applies occurs during the period applicable for
calculating the Current Market Price, then the Current Market Price shall be
calculated for such period in a manner determined in good faith by the Board
of Directors to reflect the impact of such dividend, subdivision, combination
or reclassification on the Closing Prices of the Series A TCI Group Common
Stock during such period.
"Determination Date" for any issuance of rights, warrants or options or any
dividend or distribution to which paragraph (5)(b)(ii) or (iii) applies shall
mean the earlier of (i) the record date for the determination of stockholders
entitled to receive the rights, warrants or options or the dividend or
distribution to which such paragraph applies and (ii) the Ex-Dividend Date for
such rights, warrants or options or dividend or distribution.
"Dividend Payment Date" shall mean the [ ] day of each [ ], [ ], [ ]
and [ ], commencing with [ ], 1996, or the next succeeding Business Day if
any such day is not a Business Day.
"Dividend Period" shall mean the period from the Issue Date to but excluding
the first Dividend Payment Date and, thereafter, each quarterly period from
and including a Dividend Payment Date to but excluding the next Dividend
Payment Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, as
amended from time to time, or any successor statute, and the rules and
regulations promulgated thereunder.
"Exchange Rate" shall mean the kind and amount of securities, assets or
other property that as of any date are deliverable upon exchange of a share of
Class A Preferred Stock pursuant to the exchange privilege set forth in
paragraph (5). The Exchange Rate of a share of Class A Preferred Stock shall
initially mean [ ] shares
4
<PAGE>
of Series A TCI Group Common Stock for each share of Class A Preferred Stock,
subject to adjustment as set forth in subparagraph (5)(b). In the event that
pursuant to paragraph (5) the Class A Preferred Stock becomes exchangeable for
more than one class or series of capital stock of the Parent, the term
"Exchange Rate," when used with respect to any such class or series, shall
mean the number or fraction of shares or other units of such capital stock
that as of any date would be issued upon exchange of a share of Class A
Preferred Stock.
"Exchange Date" shall have the meaning set forth in subparagraph (5)(a).
"Ex-Dividend Date" shall mean the date on which "ex-dividend" trading
commences for a divided, an issuance of rights, warrants or options or a
distribution to which any of subparagraphs (5)(b)(i), (ii) or (iii) applies in
the Nasdaq National Market or on the principal exchange on which the Series A
TCI Group Common Stock is then quoted or traded.
"Initial Exchange Date" shall mean [ ], 2001. [One day after the fifth
anniversary of Issue Date]
"Initial Redemption Date" shall mean [ ], 2001. [Fifteenth day after the
fifth anniversary of Issue Date]
"Issue Date" shall mean the date on which shares of Class A Preferred Stock
are first issued.
"Junior Stock" shall mean (i) each class or series of common stock of the
Corporation, (ii) any other class or series of capital stock of the
Corporation hereafter created, other than (A) any class or series of Parity
Stock (except to the extent provided under clause (iii) hereof) and (B) any
class or series of Senior Stock, and (iii) any class or series of Parity Stock
to the extent that it ranks junior to the Class A Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation, as the case
may be. For purposes of clause (iii) above, a class or series of Parity Stock
shall rank junior to the Class A Preferred Stock as to dividend rights, rights
of redemption or rights on liquidation if the holders of shares of Class A
Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding
up of the Corporation, as the case may be, in preference or priority to the
holders of shares of such class or series of Parity Stock.
"Liquidation Preference," measured per share of the Class A Preferred Stock
as of any date of determination, shall mean an amount equal to (a) the par
value of such share ($100) plus (b) an amount equal to all dividends accrued
but unpaid on such share, whether or not such unpaid dividends have been
declared or there are any funds of the Corporation legally available for the
payment of dividends.
"Mandatory Redemption Date" shall mean [ ], 2006. [Tenth anniversary of
Issue Date]
"Mandatory Redemption Price," as to any share of Class A Preferred Stock
which is to be redeemed on the Mandatory Redemption Date, shall mean the
Liquidation Preference thereof on such date.
"Optional Redemption Price" shall have the meaning set forth in subparagraph
4(b).
"Other Property" shall mean any security (other than Series A TCI Group
Common Stock), assets or other property deliverable upon the surrender of
shares of Class A Preferred Stock for exchange in accordance with the
provisions of paragraph (5).
"Parent" means Tele-Communications, Inc., a Delaware corporation.
"Parity Stock" shall mean the Class A Preferred Stock and any class or
series of capital stock, whether now existing or hereafter created, of the
Corporation ranking on a parity basis with the Class A Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock
of any class or series, whether now existing or hereafter created, shall rank
on a parity as to dividend rights, rights of redemption or rights on
liquidation with the Class A Preferred Stock, whether or not the dividend
rates, dividend payment dates, redemption or liquidation prices per share or
sinking fund or mandatory redemption provisions, if any, are
5
<PAGE>
different from those of the Class A Preferred Stock, if the holders of shares
of such class or series shall be entitled to dividend payments, payments on
redemption or payments of amounts distributable upon dissolution, liquidation
or winding up of the Corporation, as the case may be, in proportion to their
respective accumulated and accrued and unpaid dividends, redemption prices or
liquidations prices, respectively, without preference or priority, one over
the other, as between the holders of shares of such class or series and the
holders of Class A Preferred Stock. No class or series of capital stock that
ranks junior to the Class A Preferred Stock as to rights on liquidation shall
rank or be deemed to rank on a parity basis with the Class A Preferred Stock
as to dividend rights or rights of redemption, unless the instrument creating
or evidencing such class or series of capital stock otherwise expressly
provides.
"Person" shall mean any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Preferred Stock Directors" has the meaning set forth in subparagraph
(10)(a).
"Prospectus Condition" shall mean, with respect to any exchange requested by
a holder of Class A Preferred Stock pursuant to paragraph (5)(a), that a
current prospectus (meeting the requirements of Section 10 of the Securities
Act) relating to the Series A TCI Group Common Stock shall have been delivered
to such holder or its designee; provided, however, that the Prospectus
Condition shall be deemed satisfied if the Parent receives (i) an opinion of
counsel (which may be the General Counsel of, or regular outside counsel to,
the Parent) to the effect that neither the Parent nor the Corporation is
required, under the Securities Act or the rules and regulations of the SEC
promulgated thereunder, to deliver a current prospectus in connection with any
exchange of Class A Preferred Stock for shares of Series A TCI Group Common
Stock or (ii) a letter from the Division of Corporation Finance (or other
appropriate division of the SEC) to the effect that such Division will not
raise objection or recommend any enforcement action to the SEC if the neither
the Parent nor the Corporation delivers a current prospectus in connection
with an exchange of Class A Preferred Stock for shares of Series A TCI Group
Common Stock.
"Record Date" for the dividends payable on any Dividend Payment Date shall
mean the [ ] day of the month during which such Dividend Payment Date shall
occur, as and if designated by the Board of Directors.
"Redeemable Capital Stock" has the meaning set forth in subparagraph
(5)(b)(i).
"Redemption Date," as to any share of Class A Preferred Stock, shall mean
(i), for purposes of subparagraph (3)(a), the Mandatory Redemption Date and
(ii), for purposes of subparagraph (3)(b), the date fixed by the Board of
Directors for the redemption of such share; provided, that no such date will
be a Redemption Date unless the applicable of the Mandatory Redemption Price
or the Optional Redemption Price is actually paid in full on such date or the
consideration sufficient for the payment thereof, and for no other purpose,
has been set apart or deposited in trust as contemplated by subparagraph
(3)(f).
"Redemption Notice" shall have the meaning set forth in subparagraph (3)(d).
"Redemption Price," as to any share of Class A Preferred Stock, shall mean
(i), if such share is to be redeemed pursuant to subparagraph (3)(a), the
Mandatory Redemption Price and (ii), if such share is to be redeemed pursuant
to subparagraph (3)(b), the applicable Optional Redemption Price.
"Redemption Securities" shall mean securities of an issuer other than the
Parent that are distributed by the Parent in payment, in whole or in part, of
the call, redemption, exchange or other acquisition price for Redeemable
Capital Stock.
"SEC" shall mean the Securities and Exchange Commission, or any successor
agency.
"Securities Act" shall mean the Securities Act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations promulgated
thereunder.
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<PAGE>
"Senior Stock" shall mean any class or series of capital stock of the
Corporation hereafter created ranking prior to the Class A Preferred Stock as
to dividend rights, rights of redemption or rights on liquidation. Capital
stock of any class or series shall rank prior to the Class A Preferred Stock
as to dividend rights, rights of redemption or rights on liquidation if the
holders of shares of such class or series shall be entitled to dividend
payments, payments on redemption or payments of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of Class A Preferred Stock.
No class or series of capital stock that ranks on a parity basis with or
junior to the Class A Preferred Stock as to rights on liquidation shall rank
or be deemed to rank prior to the Class A Preferred Stock as to dividend
rights or rights of redemption, notwithstanding that the dividend rate,
dividend payment dates, sinking fund provisions, if any, or mandatory
redemption provisions thereof are different from those of the Class A
Preferred Stock, unless the instrument creating or evidencing such class or
series of capital stock otherwise expressly so provides.
"Series A TCI Group Common Stock" shall mean the Tele-Communications, Inc.
Series A TCI Group Common Stock, par value $1.00 per share, of Parent, which
term shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series A TCI Group Common Stock, or in
the case of a consolidation or merger of Parent with or into another Person
affecting the Series A TCI Group Common Stock, such capital stock to which a
holder of Series A TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series B TCI Group Common Stock" shall mean the Tele-Communications, Inc.
Series B TCI Group Common Stock, par value $1.00 per share, of Parent, which
term shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series B TCI Group Common Stock, or in
the case of a consolidation or merger of Parent with or into another Person
affecting the Series B TCI Group Common Stock, such capital stock to which a
holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Stock Dividend Amount" shall have the meaning set forth in subparagraph
(2)(c).
"Subsidiary" shall mean (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 the Corporation and/or one or
more subsidiaries of the Corporation and (ii) any other entity (other than a
corporation) in which the Corporation and/or one or more subsidiaries of the
Corporation, directly or indirectly, has (x) a majority ownership interest and
(y) the power to elect or direct the election of a majority of the members of
the governing body of such entity. The term "Subsidiary" does include a Wholly
Owned Subsidiary.
"Subsidiary Equity Interest" shall mean (i) capital stock of a Subsidiary
(other than a Wholly Owned Subsidiary) that is a corporation or (ii) a
partnership or other ownership interest of a Subsidiary (other than a Wholly
Owned Subsidiary) that is not a corporation.
"Trading Day" shall mean a day on which the Nasdaq National Market and the
New York Stock Exchange are each open for the transaction of business.
"Wholly Owned Subsidiary" means (i) a corporation all of the capital stock
of which, having voting power under ordinary circumstances to elect directors,
is at the time, directly or indirectly, owned by the Corporation and/or one or
more Wholly Owned Subsidiaries and (ii) any other Person (other than a
corporation) in which the Corporation and/or one or more Wholly Owned
Subsidiaries, directly or indirectly, has (x) the entire ownership interest
and (y) the power to elect or direct the election of all of the members of the
governing body of such Person.
(2) DIVIDENDS.
(a) PAYMENT. The holders of shares of Class A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available therefor, cumulative dividends, in preference to
dividends on any Junior Stock, from the Issue Date at the rate per annum of
[ ]% of the par value of the
7
<PAGE>
Class A Preferred Stock per share ($100), rounded to the nearest cent on the
basis of the total number of shares of Class A Preferred Stock held by a
holder (or a dividend rate per share of $[ ] per annum), and no more,
payable quarterly for each share of Class A Preferred Stock in arrears on each
Dividend Payment Date; provided, however, that, with respect to any Dividend
Period during which a redemption occurs, the Board of Directors may, at its
option, declare accrued dividends to, and pay such dividends on, the related
Redemption Date, in which case such dividends would be payable on such
Redemption Date to the holders of the shares of Class A Preferred Stock as of
a special record date (not to exceed 45 days preceding the payment date) for
such dividend payment. Each dividend on the shares of Class A Preferred Stock
shall be payable to holders of record as they appear on the stock register of
the Corporation on the Record Date for such dividend and, for purposes of
calculating the accrual of dividends, dividends will accrue to, but not
including, the date fixed for payment. For purposes of determining the amount
of dividends "accrued" (i) as of the first Dividend Payment Date and as of any
date that is not a Dividend Payment Date, such amount shall be calculated on
the basis of the rate per annum specified above for actual days elapsed from
the Issue Date (in the case of the first Dividend Payment Date and any date
prior to the first Dividend Payment Date) or the last preceding Dividend
Payment Date (in the case of any other date) to but excluding the date as of
which such determination is being made, based on a 365-or 366-day year, as the
case may be, and (ii) as of any Dividend Payment Date (other than the first
Dividend Payment Date), such amount shall be calculated on the basis of the
foregoing rate per annum, based on a 360-day year of twelve 30-day months.
Dividends on the shares of Class A 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 declared. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the Class A
Preferred Stock that may be in arrears. Dividends will cease to accrue in
respect of shares of Class A Preferred Stock on the date of their redemption
or exchange.
Accrued and unpaid dividends for any past Dividend Period or Dividend
Periods may be declared and paid at any time, without reference to any
Dividend Payment Date, to holders of record on such date, not exceeding 45
days preceding the payment date thereof, as may be fixed by the Board of
Directors.
(b) COMPANY'S RIGHT TO ELECT MANNER OF PAYMENT OF DIVIDENDS. Any dividends
may be paid, in the sole discretion of the Board of Directors, (i) out of
funds legally available therefor, (ii) through the delivery of shares of
Series A TCI Group Common Stock or (iii) through any combination of the
foregoing forms of consideration elected by the Board of Directors in its sole
discretion. If any dividend declared by the Board of Directors is to be paid,
in whole or in part, through the delivery of shares of Series A TCI Group
Common Stock, each holder of Class A Preferred Stock shall receive the same
proportion of cash and/or shares of Series A TCI Group Common Stock (except
for cash paid in lieu of fractional shares) delivered in payment of such
dividend to other holders of shares of Class A Preferred Stock.
(c) PAYMENT OF DIVIDENDS BY DELIVERY OF SERIES A TCI GROUP COMMON STOCK. If
the Corporation elects to pay any dividend payment, in whole or in part, by
delivery of shares of Series A TCI Group Common Stock, the amount of such
dividend payment to be paid per share of Class A Preferred Stock in shares of
Series A TCI Group Common Stock (the "Stock Dividend Amount") shall be paid
through the delivery to the holders of record of such shares of Class A
Preferred Stock on the Record Date for such dividend payment of a number of
shares of Series A TCI Group Common Stock determined by dividing the Stock
Dividend Amount by the Cash Equivalent Amount. No fractional shares of Series
A TCI Group Common Stock shall be delivered to a holder of shares of Class A
Preferred Stock, but the Corporation shall instead pay a cash adjustment
determined as provided in paragraph (7).
If the Corporation elects to pay any dividend, in whole in part, through the
delivery of shares of Series A TCI Group Common Stock, the Corporation will
give notice of such determination (which shall include the number of shares of
Series A TCI Group Common Stock and the amount of cash, if any, to be
delivered in respect of each share of Class A Preferred Stock) by publication,
on the Record Date or any special record date for such dividend, of such
election in a daily newspaper of national circulation.
8
<PAGE>
The Corporation's right to make any dividend payment (or a designated
portion thereof) through the delivery of shares of Series A TCI Group Common
Stock shall be conditioned upon: (i) the shares of Series A TCI Group Common
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
of Series A TCI Group Common Stock 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 of Series A TCI Group Common Stock having been duly registered or
qualified under the Securities Act and applicable state securities laws; and
(iii) the shares of Series A TCI Group Common Stock to be so delivered being
listed, and upon delivery being eligible for trading, on the Nasdaq National
Market or on a national securities exchange. If the conditions set forth in
this subparagraph (2)(c) have not been satisfied prior to or on the applicable
Dividend Payment Date, then such dividend payment shall be paid solely in
cash. If the Corporation elects to pay any dividend (or a designated portion
thereof) through the delivery of shares of Series A TCI Group Common Stock and
Parent agrees to deliver such shares to the Corporation in order to pay such
dividend, Parent has separately agreed to take such reasonable action which
may be necessary, in the opinion of the Parent's legal counsel, in order to
satisfy the requirements of clauses (i) through (iii) of this subparagraph
(2)(c) in connection with such shares and the delivery thereof.
If the Corporation elects to pay any dividend (or a designated portion
thereof) through the delivery of shares of Series A TCI Group Common Stock and
Parent agrees to deliver such shares to the Corporation in order to pay such
dividend, Parent has also separately agreed after the date on which the
Corporation has declared such a dividend on the Class A Preferred Stock in
shares of Series A TCI Group Common Stock to reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but unissued
Series A TCI Group Common Stock and its issued Series A TCI Group Common Stock
held in its treasury, for the purpose of paying such declared dividend
pursuant to this paragraph (2), the full number of shares of Series A TCI
Group Common Stock then deliverable in respect of such declared dividend
(assuming for this purpose that all of the outstanding shares of Class A
Preferred Stock are held by a single holder).
(d) CREDIT. Any dividend payment made on the shares of Class A Preferred
Stock shall first be credited against the earliest accrued but unpaid dividend
due with respect to the shares of Class A Preferred Stock.
(e) PRO RATA. All dividends paid with respect to the shares of Class A
Preferred Stock shall be paid pro rata to the holders entitled thereto.
(f) PRIORITY. Payment of dividends to the holders of shares of Class A
Preferred Stock shall be subject to the prior preferences and other rights of
any Senior Stock and to the provisions of paragraph (4).
(3) REDEMPTIONS.
(a) MANDATORY REDEMPTION BY THE CORPORATION. The Corporation shall redeem on
the Mandatory Redemption Date all shares of Class A Preferred Stock remaining
outstanding at the Mandatory Redemption Price. If the Corporation is unable to
deliver shares of Series A TCI Group Common Stock in payment of the Mandatory
Redemption Price on the Mandatory Redemption Date, and if funds of the
Corporation legally available for redemption of shares of the Class A
Preferred Stock and any other class or series of Parity Stock then required to
be redeemed are insufficient to redeem the total number of shares of Class A
Preferred Stock remaining outstanding, those funds which are legally available
shall be used to redeem the maximum possible number of shares of Class A
Preferred Stock and each such other class or series of Parity Stock. At any
time and from time to time thereafter when the Corporation is able to deliver
shares of Series A TCI Group Common Stock, or additional funds of the
Corporation are legally available for such purpose, such shares of Series A
TCI Group Common Stock and/or funds shall immediately be used to redeem the
shares of Class A Preferred Stock and of each such other class or series of
Parity Stock which were required to be redeemed that the Corporation failed to
redeem until the balance of such shares have been redeemed. The selection of
shares to be redeemed pursuant to the two immediately preceding sentences
shall be made, as nearly as practicable, on a pro rata basis as among the
different classes or series and as among the holders of shares of a particular
class or series.
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<PAGE>
(b) OPTIONAL REDEMPTION BY THE CORPORATION. Shares of Class A Preferred
Stock are not redeemable by the Corporation prior to the Initial Redemption
Date. At any time and from time to time on or after the Initial Redemption
Date and prior to the Mandatory Redemption Date, the Corporation shall have
the right to redeem, in whole or from time to time in part, the outstanding
shares of Class A Preferred Stock at the following per share call prices,
together with an amount equal to all dividends accrued but unpaid thereon to
the date fixed for redemption (the "Optional Redemption Price"), if redeemed
during the twelve-month period beginning [ ] of the year indicated below:
<TABLE>
<CAPTION>
CALL
YEAR PRICE
---- ------
<S> <C>
2001............................................................... $[ ]
2002............................................................... [ ]
2003............................................................... [ ]
2004............................................................... [ ]
2005 and thereafter................................................ [ ]
</TABLE>
If fewer than all of the outstanding shares of Class A Preferred Stock are
to be redeemed on any Redemption Date, the shares of Class A Preferred Stock
to be redeemed shall be chosen by the Corporation pro rata (as nearly as may
be practicable) among all holders of outstanding shares of Class A Preferred
Stock. If shares of Class A Preferred Stock evidenced by a certificate
selected for partial redemption are thereafter exchanged in part pursuant to
paragraph (5) hereof, the shares so exchanged (as far as may be practicable)
will be deemed to be the shares selected for redemption. The Corporation shall
not be required to register a transfer of (i) any shares of Class A Preferred
Stock for a period of 5 Business Days next preceding any selection of shares
of Class A Preferred Stock to be redeemed or (ii) any shares of Class A
Preferred Stock called for redemption.
(c) COMPANY'S RIGHT TO ELECT MANNER OF PAYMENT OF REDEMPTION PRICE. The
Corporation may effect the redemption of shares of Class A Preferred Stock at
the Redemption Price pursuant to subparagraph (3)(a) or (b) above, in the sole
discretion of the Board of Directors, (i) out of funds legally available
therefor, (ii) through the delivery of shares of Series A TCI Group Common
Stock or (iii) through any combination of the foregoing forms of consideration
elected by the Board of Directors in its sole discretion. Each holder whose
shares of Class A Preferred Stock are redeemed shall receive in payment of the
Redemption Price the same proportion of cash and/or shares of Series A TCI
Group Common Stock (except for cash paid in lieu of fractional shares) paid to
other holders of shares of Class A Preferred Stock redeemed on the same
Redemption Date.
(d) NOTICE OF REDEMPTION. The Corporation shall provide notice of any
redemption of shares of Class A Preferred Stock to holders of record of Class
A Preferred Stock to be called for redemption not less than 15 nor more than
60 days prior to the date fixed for such redemption. Such notice (a
"Redemption Notice") shall be provided by mailing notice of such redemption
first class postage prepaid, to each holder of record of shares of Class A
Preferred Stock to be redeemed, at such holder's address as it appears on the
stock register of the Corporation; provided, however, that neither failure to
give such notice nor any defect therein shall affect the validity of the
proceeding for the redemption of any shares of Class A Preferred Stock to be
redeemed except as to the holders to whom the Corporation has failed to give
said notice or whose notice was defective.
In addition to any information required by law or by the applicable rules of
the Nasdaq National Market or any national securities exchange, each
Redemption Notice shall state, as appropriate, the following (and may contain
such other information as the Corporation deems advisable):
(A) the Redemption Date;
(B) that all outstanding shares of Class A Preferred Stock are to be
redeemed or, in the case of a call for redemption of fewer than all
outstanding shares of Class A Preferred Stock, the number of shares held by
such holder to be redeemed;
(C) the applicable Redemption Price and the form or forms of
consideration that the Corporation has elected to pay and/or deliver upon
such redemption and, if more than one form of consideration has been
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<PAGE>
elected by the Corporation, the designated portions of the Redemption Price
to be paid in each form of consideration so elected;
(D) if the Corporation has elected to deliver shares of Series A TCI
Group Common Stock in payment of the Redemption Price (or a designated
portion thereof), the method of determining the number of shares of Series
A TCI Group Common Stock so deliverable as provided in subparagraph (3)(e)
below;
(E) the place or places where certificates for Class A Preferred Stock to
be redeemed are to be surrendered for redemption;
(F) that dividends on the shares of Class A Preferred Stock to be
redeemed shall cease to accrue on the Redemption Date (except as otherwise
provided herein); and
(G) the then current Exchange Rate and the place or places where
certificates for Class A Preferred Stock may be surrendered for exchange
pursuant to paragraph (5), and shall further state that the exchange
privilege will terminate immediately prior to the close of business on the
Redemption Date.
(e) REDEMPTION BY DELIVERY OF SERIES A TCI GROUP COMMON STOCK. If the
Corporation elects to pay, in whole or in part, the Redemption Price in
respect of shares of Class A Preferred Stock through the delivery of shares of
Series A TCI Group Common Stock, then the Corporation shall deliver to each
holder of shares of Class A Preferred Stock to be redeemed on the applicable
Redemption Date a number of shares of Series A TCI Group Common Stock equal to
the aggregate Redemption Price (or designated portion thereof) of such shares
of Class A Preferred Stock divided by the Cash Equivalent Amount. No
fractional shares of Series A TCI Group Common Stock shall be delivered to a
holder of shares of Class A Preferred Stock in payment of the Redemption
Price, but the Corporation shall instead pay a cash adjustment determined as
provided in paragraph (7).
The Corporation's right to elect to pay any Redemption Price (or designated
portion thereof) through the delivery of shares of Series A TCI Group Common
Stock shall be conditioned upon: (i) the Corporation's having timely given a
Redemption Notice setting forth such election; (ii) the shares of Series A TCI
Group Common Stock to be so delivered being fully paid and nonassessable and
free from any preemptive rights, liens or adverse claims; (iii) the delivery
of such shares of Series A TCI Group Common Stock 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 of Series A TCI Group Common Stock having been duly
registered or qualified under the Securities Act and applicable state
securities laws; and (iv) the shares of Series A TCI Group Common Stock being
listed, and upon delivery being eligible for trading, on the Nasdaq National
Market or on a national securities exchange. If the conditions set forth in
this subparagraph (3)(e) have not been satisfied prior to or on the Redemption
Date, the Redemption Price to be paid on such Redemption Date shall be paid
solely in cash. If the Corporation elects to pay any Redemption Price (or a
designated portion thereof) through the delivery of shares of Series A TCI
Group Common Stock and Parent agrees to deliver such shares to the Corporation
in order to pay such Redemption Price, Parent has separately agreed to take
such reasonable action which may be necessary, in the opinion of the Parent's
legal counsel, in order to satisfy the requirements of clauses (i) through
(iv) of this subparagraph (3)(e) in connection with such shares and the
delivery thereof.
If the Corporation elects to pay any Redemption Price (or a designated
portion thereof) through the delivery of shares of Series A TCI Group Common
Stock and Parent agrees to deliver such shares to the Corporation in order to
pay such Redemption Price, Parent has also separately agreed after the date on
which the Corporation elects to pay the Redemption Price in shares of Series A
TCI Group Common Stock to reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued Series A TCI Group
Common Stock and its issued Series A TCI Group Common Stock held in its
treasury, for the purpose of paying the Redemption Price pursuant to this
paragraph (3), the full number of shares of Series A TCI Group Common Stock
then deliverable in respect of such Redemption Price (assuming for this
purpose that all of the outstanding shares of Class A Preferred Stock are held
by a single holder).
(f) DEPOSIT OF FUNDS AND/OR SHARES. If the Redemption Notice with respect to
shares of Class A Preferred Stock to be redeemed pursuant to this paragraph
(3) shall have been timely given by the Corporation, and if on or before the
applicable Redemption Date the Corporation shall have deposited with the
redemption agent for the Class A Preferred Stock (or, if there is no
redemption agent, shall have set apart so as to be available
11
<PAGE>
for such purpose and only such purpose) cash (including cash for any
adjustment in lieu of delivering fractional shares) and/or shares of Series A
TCI Group Common Stock, as applicable, sufficient to pay in full the aggregate
Redemption Price for such shares of Class A Preferred Stock on such Redemption
Date, and provided that all conditions set forth in subparagraph (3)(e) to the
delivery of shares of Series A TCI Group Common Stock shall have been
satisfied (if applicable), then effective as of the close of business on such
Redemption Date, such shares of Class A Preferred Stock shall no longer be
deemed outstanding (notwithstanding that any certificate therefor shall 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 Class A 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 shall forthwith after such date cease and terminate,
except the right of such holders, upon the surrender of certificates
evidencing the shares of Class A Preferred Stock so redeemed, to receive the
cash and/or Series A TCI Group Common Stock, as applicable, payable or
deliverable in payment of the Redemption Price therefor, and the applicable
cash adjustment, if any, in lieu of fractional shares, without interest. Any
cash and/or shares of Series A TCI Group Common Stock so deposited or set
apart which shall remain unclaimed at the end of one year after the Redemption
Date shall be returned or released to the Corporation, after which time the
holders of shares of Class A Preferred Stock called for redemption on such
Redemption Date that remain outstanding after such one-year period shall look
only to the Corporation for the payment of the Redemption Price for such
shares, without interest, unless an applicable escheat or abandoned property
law otherwise requires. If any shares of Class A Preferred Stock so called for
redemption are exchanged, pursuant to paragraph (5), between the date such
cash and/or shares of Series A TCI Group Common Stock are so deposited or set
apart and the close of business on the Redemption Date, then the cash
(including cash for any adjustment in lieu of delivering fractional shares)
and/or shares of Series A TCI Group Common Stock, as applicable, deposited or
set apart for the redemption of such shares so exchanged shall be promptly
thereafter returned or released to the Corporation.
At its election, the Corporation on or prior to any Redemption Date (but no
more than ninety (90) days prior to such Redemption Date) may deposit
immediately available funds and/or shares of Series A TCI Group Common Stock
sufficient to pay the aggregate Redemption Price of the shares of Class A
Preferred Stock called for redemption on such date in trust for the holders
thereof with any bank or trust company organized under the laws of the United
States of America or any state thereof having capital, undivided profits and
surplus aggregating at least $50 million (the "Redemption Agent"), with
irrevocable instructions and authority to the Redemption Agent, on behalf and
at the expense of the Corporation, to mail the Redemption Notice as soon as
practicable after receipt of such irrevocable instructions (or to complete
such mailing previously commenced, if it has not already been completed) and
to pay, on and after such Redemption Date or prior thereto, the Redemption
Price of the shares of Class A Preferred Stock to be redeemed to their
respective holders upon the surrender of the certificates therefor. A deposit
made in compliance with the immediately preceding sentence shall be deemed to
constitute full payment for the shares of Class A Preferred Stock to be
redeemed and from and after the later of the close of business on the date of
such deposit (although prior to such Redemption Date) or the date the
Redemption Notice is mailed, the shares of Class A Preferred Stock to be
redeemed shall no longer be deemed outstanding and the holders thereof shall
cease to be stockholders with respect to such shares and shall have no rights
with respect to such shares except (x) the right of the holders thereof to
receive the Redemption Price of such shares (calculated through the Redemption
Date), without interest, upon surrender of the certificates therefor and (y)
the right to exchange such shares in accordance with paragraph (5) prior to
the close of business on such Redemption Date. Any interest accrued on funds
so deposited shall be paid by the Redemption Agent to the Corporation from
time to time. Any cash and/or shares of Series A TCI Group Common Stock
deposited with the Redemption Agent which shall remain unclaimed at the end of
one year after the Redemption Date shall be returned by the Redemption Agent
to the Corporation, after which return the holders of shares of Class A
Preferred Stock called for redemption on such Redemption Date that remain
outstanding after such one-year period shall look only to the Corporation for
the payment of the Redemption Price for such shares, without interest, unless
an applicable escheat or abandoned property law otherwise
12
<PAGE>
requires. If any shares of Class A Preferred Stock called for redemption on
such Redemption Date are exchanged, in accordance with paragraph (5), between
the date such cash and/or shares of Series A TCI Group Common Stock are so
deposited with the Redemption Agent and the close of business on the
Redemption Date, then the cash (including cash for any adjustment in lieu of
delivering fractional shares) and/or shares of Series A TCI Group Common
Stock, as applicable, so deposited for the redemption of such shares so
exchanged shall be promptly thereafter returned by the Redemption Agent to the
Corporation.
(g) SURRENDER OF CERTIFICATES; STATUS. Each holder of shares of Class A
Preferred Stock to be redeemed shall surrender the certificates evidencing
such shares (properly endorsed or assigned to the Corporation in blank and
with signatures guaranteed, if the Corporation shall so require and the
Redemption Notice shall so state) to the redemption agent (or to the
Corporation if there is no redemption agent) at the place designated in the
Redemption Notice for such redemption and shall thereupon be entitled to
receive the consideration for such shares specified in the Redemption Notice
(subject to subparagraph (3)(e)) in an aggregate amount equal to the
Redemption Price for such shares. In case fewer than all the shares of Class A
Preferred Stock represented by any such surrendered certificate are called for
redemption, a new certificate shall be issued at the expense of the
Corporation representing the unredeemed shares. Holders of shares of Class A
Preferred Stock that are redeemed on any Redemption Date shall not be entitled
to receive dividends declared and paid on any shares of Series A TCI Group
Common Stock deliverable in payment of the Redemption Price (or designated
portion thereof) for such shares of Class A Preferred Stock, and such shares
of Series A TCI Group Common Stock shall not be entitled to vote, until such
shares of Series A TCI Group Common Stock are delivered upon the surrender of
the certificates representing such shares of Class A Preferred Stock. Upon
such surrender, such holders shall be entitled to receive such dividends
declared and paid on such shares of Series A TCI Group Common Stock subsequent
to such Redemption Date and prior to such delivery.
(h) PRIORITY. The right of the Corporation to redeem shares of Series A
Preferred pursuant to this paragraph (3) shall be subject to the prior
preferences and other rights of any Senior Stock and to the provisions of
paragraph (4).
(4) LIMITATIONS ON DIVIDENDS AND REDEMPTIONS IN RESPECT OF COMPANY AND
SUBSIDIARY STOCK.
(a) LIMITATIONS ON JUNIOR STOCK DIVIDENDS. As long as any shares of Class A
Preferred Stock are outstanding, no dividends shall be paid or declared in
cash or otherwise on Junior Stock, nor shall any other distribution be made on
any Junior Stock, unless: (i) full dividends on all 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; (ii) the
Corporation 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) the Corporation is not in
default on any of its obligations to redeem any Parity Stock.
(b) LIMITATIONS ON PURCHASES OF JUNIOR STOCK. As long as any shares of Class
A Preferred Stock are outstanding, no shares of any Junior Stock may be
purchased, redeemed, or otherwise acquired by the Corporation or any of its
Subsidiaries (except in connection with a reclassification of any Junior Stock
through the issuance of other Junior Stock and/or Convertible Securities for
shares of Junior Stock and cash in lieu of fractional shares in connection
therewith or the purchase, redemption or other acquisition of any Junior Stock
from any Wholly Owned Subsidiary), nor may any funds be set aside or made
available for any sinking fund for the purchase, redemption or other
acquisition of any Junior Stock, unless: (i) full dividends on all 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 purchase, redemption or
acquisition, to the extent such dividends are cumulative; (ii) the Corporation
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) the Corporation is not in default on any of its
obligations to redeem any Parity Stock.
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(c) JUNIOR STOCK DIVIDENDS OTHERWISE PERMITTED. Subject to the provisions of
subparagraphs (4)(a) and (b), dividends or distributions (payable in cash,
property or securities) may be declared and paid on the shares of any Junior
Stock from time to time and any Junior Stock may be purchased, redeemed or
otherwise acquired by the Corporation or any of its Subsidiaries from time to
time. In the event of the declaration and payment of any such dividends or
distributions, the holders of such Junior Stock will be entitled, to the
exclusion of holders of shares of Class A Preferred Stock, to share therein
according to their respective interests.
(d) LIMITATIONS ON PARITY STOCK DIVIDENDS AND REDEMPTIONS. As long as any
shares of Class A Preferred Stock are outstanding, dividends or other
distributions may not be declared or paid on any Parity Stock, and the
Corporation may not purchase, redeem or otherwise acquire any Parity Stock
(except (x) from any Wholly Owned Subsidiary or (y) in connection with a
mandatory conversion or exchange of such Parity Stock or a conversion or
exchange of such Parity Stock at the option of the holder for securities other
than Parity Stock or Senior Stock and cash in lieu of fractional shares in
connection therewith), unless either: (a)(i) full dividends on all 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 Parity Stock dividend,
distribution, purchase, redemption or other acquisition payment, to the extent
such dividends are cumulative; (ii) the Corporation 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) the Corporation is not in default on any of its obligations to redeem
any 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 Class A Preferred Stock and
each other share of such 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 Class A Preferred Stock and such other
share of Parity Stock bear to each other.
(e) CERTAIN PERMITTED DIVIDENDS AND REDEMPTIONS. Nothing contained in this
paragraph (4) shall prevent (i) the payment of dividends or the making of
distributions on any Junior Stock solely in shares of Junior Stock and/or
Convertible Securities for shares of Junior Stock (together with a cash
adjustment for fractional shares, if any) or the redemption, purchase or other
acquisition of Junior 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 Convertible
Securities for shares of Junior Stock; (ii) the payment of dividends or the
making of distributions on any class or series of Parity Stock solely in
(together with a cash adjustment for fractional shares, if any) (x) shares of
Junior Stock and/or Convertible Securities for shares of Junior Stock or (y)
any securities of Parent (including shares of Series A TCI Group Common
Stock), or the redemption, exchange, purchase or other acquisition of any
class or series of Parity 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, (A) shares of Junior Stock and/or Convertible
Securities for shares of Junior Stock or (B) any securities of Parent
(including shares of Series A TCI Group Common Stock); or (iii) the exchange
of Class A Preferred Stock for shares of Series A TCI Group Common Stock
(together with a cash adjustment for fractional shares, if any) and Other
Property, if any, pursuant to the provisions of paragraph (5).
(f) LIMITATIONS ON SUBSIDIARY EQUITY DIVIDENDS AND REDEMPTIONS. As long as
any shares of Class A Preferred Stock are outstanding, the Corporation shall
not, and shall not permit any Subsidiary to: (i) declare or pay dividends on
any Subsidiary Equity Interest 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: (A)
full dividends on the Class A 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, distribution, purchase,
redemption or other acquisition payment; and (B) the Corporation is not in
default on any of its obligations to redeem shares of Class A Preferred Stock
under paragraph (3) or to exchange shares of Class A Preferred Stock under
paragraph (5).
(g) CERTAIN PERMITTED SUBSIDIARY EQUITY DIVIDENDS AND REDEMPTIONS. Nothing
contained in this paragraph (4) shall prevent (i) the payment of dividends or
the making of distributions by any Subsidiary on any of its Subsidiary Equity
Interests solely in shares of the same class or series as, or ranking junior
to, such
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Subsidiary Equity Interest ("Permitted Subsidiary Equity Interest") and/or
Convertible Securities for such Permitted Subsidiary Equity Interests
(together with a cash adjustment for fractional shares, if any) or the
redemption, purchase or other acquisition of any such 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, Permitted Subsidiary Equity Interests or Convertible Securities
for Permitted Subsidiary Equity Interests; (ii) the redemption, purchase or
other acquisition of any such Subsidiary Equity Interest solely in exchange
for (together with a cash adjustment for fractional shares, if any) any
securities of Parent (including shares of Series A TCI Group Common Stock);
(iii) the payment of dividends or the making of distributions by any
Subsidiary on any of its Subsidiary Equity Interests if such dividends or
distributions 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 Issue
Date; or (iv) the redemption, purchase or other acquisition of any such
Subsidiary Equity Interest if such redemption, purchase or other acquisition
is required to be made pursuant to the terms of any charter document or any
partnership, joint venture, stockholder, acquisition or other agreement in
effect on the Issue Date).
(h) WAIVER. The provisions of subparagraphs (4)(a), (b), (d) and (f) are for
the sole benefit of the holders of the Class A Preferred Stock and
subparagraphs (4)(a), (b) and (d) are also for the benefit of any other class
or series of Parity Stock having the terms described therein and accordingly,
at any time when (i) there are no shares of any such other class or series of
Parity Stock outstanding or if the holders of each such other class or series
of Parity Stock have, by such vote or consent of the holders thereof as may be
provided for in the instrument creating or evidencing such class or series,
waived in whole or in part the benefit of the provisions of subparagraphs
(4)(a), (b) or (d) (either generally or in the specific instance), and (ii)
the holders of shares of Class A Preferred Stock shall have waived (as
provided in paragraph (11)) in whole or in part the benefit of the provisions
of subparagraphs (4)(a), (b), (d) or (f) (either generally or in the specific
instance), then such provisions shall not (to the extent waived, in the case
of any partial waiver) restrict the payment of dividends or the making of
distributions on, or the redemption, purchase or other acquisition of any
shares of, Class A Preferred Stock, any other class or series of Parity Stock,
any Junior Stock or any Subsidiary Equity Interest.
(5) EXCHANGE AT OPTION OF HOLDER.
(a) RIGHT TO AND MECHANICS OF EXCHANGE. Subject to the provisions of this
paragraph (5), shares of Class A Preferred Stock are exchangeable, in whole or
from time to time in part, at the option of the holders thereof, at any time
from and after the Initial Exchange Date and prior to the close of business on
the Mandatory Redemption Date, unless previously redeemed, into shares of
Series A TCI Group Common Stock at the Exchange Rate. The right to exchange
shares of Class A Preferred Stock called for redemption shall terminate
immediately prior to the close of business on the related Redemption Date.
In order to exchange shares of Class A Preferred Stock, the holder thereof
shall surrender the certificates evidencing the shares of Class A Preferred
Stock to be exchanged at the office or agency to be maintained by the
Corporation for that purpose, duly endorsed to the Corporation or in blank (or
accompanied by duly executed instruments of transfer to the Corporation or in
blank) with signatures guaranteed (such endorsements or instruments of
transfer to be in form satisfactory to the Corporation), together with written
notice of exchange specifying the number of shares of Class A Preferred Stock
to be exchanged and specifying the name or names (with addresses) in which the
certificate or certificates representing the Series A TCI Group Common Stock
deliverable on such exchange are to be registered, and otherwise in accordance
with exchange procedures established by the Corporation. Each notice of
exchange shall be irrevocable, and each exchange shall be deemed to have been
effected immediately prior to the close of business on the date (the "Exchange
Date") on which (i) all of the requirements for such exchange shall have been
satisfied and (ii) the Parent is able to deliver a current prospectus relating
to the Series A TCI Group Common Stock, if required to satisfy the Prospectus
Condition. The exchange shall be at the Exchange Rate in effect immediately
prior to the close of business on the Exchange Date. If any transfer is
involved in the issuance or delivery of any certificate or certificates for
shares of Series A TCI Group Common Stock in a name other than that of the
registered holder of the shares of Class A Preferred Stock surrendered for
exchange, such holder shall also deliver to the Corporation a sum sufficient
to pay all taxes,
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if any, payable in respect of such transfer or evidence satisfactory to the
Corporation that such taxes have been paid. Except as provided in the
immediately preceding sentence, the Corporation shall pay any issue, stamp or
other similar tax in respect of such issuance or delivery.
As promptly as practicable after the Exchange Date, the Corporation, in
accordance with the provisions of this paragraph (5), shall issue and deliver
at said office or agency to the holder of the shares of Class A Preferred
Stock so surrendered for exchange, or on his or her written order, a
certificate or certificates for the number of full shares of Series A TCI
Group Common Stock issuable upon exchange of such shares in accordance with
the provisions of this paragraph (5), and any fractional interest shall be
settled in accordance with paragraph (7). If required in order to satisfy the
Prospectus Condition, the Corporation shall, or shall cause the Parent to,
deliver to such holder or its designee, together with the certificate for such
shares of Series A TCI Group Common Stock and cash in lieu of any fractional
share, a current prospectus (meeting the requirements of Section 10 of the
Securities Act) relating to the Series A TCI Group Common Stock; provided,
however, that in the event the Parent is unable during any period to deliver a
current prospectus, no exchange shall be effected (and no Exchange Date shall
occur) during such period and any exchange that could otherwise have been
effected during such period shall be deemed to have been effected immediately
prior to the close of business (and the Exchange Date shall be deemed to have
occurred) on the first Business Day that the Parent is able to deliver a
current prospectus relating to the Series A TCI Group Common Stock. The
inability of the Corporation or the Parent to deliver a current prospectus at
any time shall not be deemed a default under this Restated Certificate of
Incorporation. The Parent has separately agreed to use all reasonable efforts
to ensure that it will be able to deliver a current prospectus, if required,
during any period that the holders of shares of Class A Preferred Stock are
entitled to exchange such shares for shares of Series A TCI Group Common
Stock.
The Person in whose name the certificate for shares of Series A TCI Group
Common Stock is issued upon such exchange shall be treated for all purposes as
the stockholder of record of such shares of Series A TCI Group Common Stock as
of the close of business on the Exchange Date; provided, however, that no
surrender of Class A Preferred Stock on any date when the stock transfer books
of the Parent are closed for any purpose shall be effective to constitute the
Person or Persons entitled to receive the shares of Series A TCI Group Common
Stock deliverable upon such exchange as the record holder(s) of such shares of
Series A TCI Group Common Stock on such date, but surrender shall be effective
(assuming all other requirements for the valid exchange of such shares have
been satisfied) to constitute such Person or Persons as the record holder(s)
of such shares of Series A TCI Group Common Stock for all purposes as of the
opening of business on the next succeeding day on which such stock transfer
books are open, and such exchange shall be at the Exchange Rate in effect on
the date that such shares of Class A Preferred Stock were surrendered for
exchange (and such other requirements satisfied) as if the stock transfer
books of the Parent had not been closed on such date. Upon exchange of shares
of Class A Preferred Stock, the rights of the holder of such shares, as a
holder thereof, shall cease.
Holders of shares of Class A Preferred Stock at the close of business on a
Record Date for any payment of declared dividends shall be entitled to receive
the dividend payable on such shares 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
Class A 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 are subject to redemption on a Redemption Date
between such Record Date and such Dividend Payment Date). A holder of shares
of Class A Preferred Stock called for redemption on any Dividend Payment Date
shall (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 the Corporation upon exchange. Except as
provided above, upon any exchange of shares of Class A Preferred Stock
pursuant to this paragraph (5), the Corporation shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on exchanged shares
of Class A Preferred Stock and the Parent shall make no payment or allowance
for
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previously declared dividends or distributions on the shares of Series A TCI
Group Common Stock issued upon such exchange (or on any Other Property issued
upon such exchange pursuant to this paragraph (5)).
If the shares of Class A Preferred Stock represented by a certificate
surrendered for exchange are exchanged in part only, the Corporation shall
cause to be issued and delivered to the registered holder, without charge
therefor, a new certificate or certificates representing in the aggregate the
number of unexchanged shares.
(b) EXCHANGE RATE ADJUSTMENTS. The Exchange Rate shall be subject to
adjustment from time to time as provided below in this subparagraph (5)(b).
(i) If the Parent shall, after the Issue Date:
(A) pay a stock dividend or make a distribution on the outstanding
shares of Series A TCI Group Common Stock in shares of Series A TCI
Group Common Stock,
(B) subdivide or split the outstanding shares of Series A TCI Group
Common Stock into a greater number of shares,
(C) combine the outstanding shares of Series A TCI Group Common Stock
into a smaller number of shares,
(D) pay a dividend or make a distribution on the outstanding shares
of Series A TCI Group Common Stock in shares of its capital stock
(other than Series A TCI Group Common Stock), or
(E) issue by reclassification of its outstanding shares of Series A
TCI Group Common Stock (other than a reclassification by way of merger
or binding share exchange that is subject to subparagraph (5)(d)) any
shares of its capital stock,
then, in any such event, the Exchange Rate in effect immediately prior to
the opening of business on the record date for determination of
stockholders entitled to receive such dividend or distribution or the
effective date of such subdivision, split, combination or reclassification,
as the case may be, shall be adjusted so that the holder of any shares of
Class A Preferred Stock shall thereafter be entitled to receive, upon
exchange at the option of such holder, the number of shares of Series A TCI
Group Common Stock or other capital stock (or both) of the Parent which
such holder would have owned or been entitled to receive immediately
following such action if such holder had exchanged his shares of Class A
Preferred Stock immediately prior to the record date for, or effective date
of, as the case may be, such event. Notwithstanding the foregoing, if an
event listed in clause (D) or (E) above would result in the shares of Class
A Preferred Stock being exchangeable for shares or units (or a fraction
thereof) of more than one class or series of capital stock of the Parent
and any such class or series of capital stock provides by its terms a right
in favor of the Parent to call, redeem, exchange or otherwise acquire all
of the outstanding shares or units of such class or series (such class or
series of capital stock being herein referred to as "Redeemable Capital
Stock") for consideration that may include Redemption Securities, then the
Exchange Rate of the Class A Preferred Stock shall not be adjusted pursuant
to this subparagraph (5)(b)(i) and in lieu thereof the adjustment to the
Exchange Rate contemplated by subparagraph (5)(b)(iii) shall be made with
the same effect as if the dividend or distribution of such Redeemable
Capital Stock or the issuance of the additional class or series of such
Redeemable Capital Stock by reclassification had been a distribution of
assets of the Parent.
The adjustment contemplated by this subparagraph (5)(b)(i) shall be made
successively whenever any event listed above shall occur. For a dividend or
distribution, the adjustment shall become effective at the opening of
business on the Business Day next following the record date for such
dividend or distribution. For a subdivision, split, combination or
reclassification, the adjustment shall become effective immediately after
the effectiveness of such subdivision, split, combination or
reclassification.
If after an adjustment pursuant to this subparagraph (5)(b)(i) a holder
of Class A Preferred Stock would be entitled to receive upon exchange
thereof shares of two or more classes or series of capital stock of the
Parent, the Exchange Rate shall thereafter be subject to adjustment upon
the occurrence of an action taken with respect to any such class or series
of capital stock other than Series A TCI Group Common Stock as is
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contemplated by this paragraph (5), on terms comparable to those applicable
to the Series A TCI Group Common Stock pursuant to this paragraph (5).
(ii) If the Parent shall, after the Issue Date, distribute rights,
warrants or options to all or substantially all holders of its outstanding
shares of Series A TCI Group Common Stock entitling them (for a period not
exceeding 45 days from the record date referred to below) to subscribe for
or purchase shares of Series A TCI Group Common Stock (or Convertible
Securities for shares of Series A TCI Group Common Stock) at a price per
share (or having an exercise, exchange or conversion price per share, after
adding thereto an allocable portion of the exercise price of the right,
warrant or option to purchase such Convertible Securities, computed on the
basis of the maximum number of shares of Series A TCI Group Common Stock
issuable upon exercise, exchange or conversion of such Convertible
Securities) less than the Current Market Price on the applicable
Determination Date, then, in any such event, the Exchange Rate shall be
adjusted by multiplying the Exchange Rate in effect immediately prior to
the opening of business on the record date for the determination of
stockholders entitled to receive such distribution by a fraction, of which
the numerator shall be the number of shares of Series A TCI Group Common
Stock outstanding on such record date plus the number of additional shares
of Series A TCI Group Common Stock so offered pursuant to such rights,
warrants or options to the holders of Series A TCI Group Common Stock (and
to holders of Convertible Securities for shares of Series A TCI Group
Common Stock and to holders of Series B TCI Group Common Stock referred to
in the immediately succeeding paragraph of this subparagraph (5)(b)(ii))
for subscription or purchase (or into which the Convertible Securities for
shares of Series A TCI Group Common Stock so offered are exercisable,
exchangeable or convertible), and of which the denominator shall be the
number of shares of Series A TCI Group Common Stock outstanding on such
record date plus the number of additional shares of Series A TCI Group
Common Stock which the aggregate offering price of the total number of
shares of Series A TCI Group Common Stock so offered (or the aggregate
exercise, exchange or conversion price of the Convertible Securities for
shares of Series A TCI Group Common Stock so offered, after adding thereto
the aggregate exercise price of the rights, warrants or options to purchase
such Convertible Securities) to the holders of Series A TCI Group Common
Stock (and to such holders of Convertible Securities for shares of Series A
TCI Group Common Stock and such holders of Series B TCI Group Common Stock)
would purchase at such Current Market Price.
For purposes of this subparagraph (5)(b)(ii), the number of shares of
Series A TCI Group Common Stock outstanding on any applicable record date
shall be deemed to include (i) the maximum number of shares of Series A TCI
Group Common Stock the issuance of which would be necessary to effect the
full exercise, exchange or conversion of all Convertible Securities for
shares of Series A TCI Group Common Stock outstanding on such record date
which are then exercisable, exchangeable or convertible at a price (before
giving effect to any adjustment to such price for the distribution to which
this subparagraph (5)(b)(ii) is being applied) equal to or less than the
Current Market Price per share of Series A TCI Group Common Stock on the
applicable Determination Date, if all of such Convertible Securities were
deemed to have been exercised, exchanged or converted immediately prior to
the opening of business on such record date and (ii) if the Series B TCI
Group Common Stock is then convertible into Series A TCI Group Common
Stock, the maximum number of shares of Series A TCI Group Common Stock the
issuance of which would be necessary to effect the full conversion of all
shares of Series B TCI Group Common Stock outstanding on such record date,
if all of such shares of Series B TCI Group Common Stock were deemed to
have been converted immediately prior to the opening of business on such
record date.
The adjustment contemplated by this subparagraph (5)(b)(ii) shall be made
successively whenever any such rights, warrants or options are distributed,
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution. If all
of the shares of Series A TCI Group Common Stock (or all of the Convertible
Securities for shares of Series A TCI Group Common Stock) subject to such
rights, warrants or options have not been issued when such rights, warrants
or options expire (or, in the case of rights, warrants or options to
purchase Convertible Securities for shares of Series A TCI Group Common
Stock which have been exercised, if all of the shares of Series A TCI Group
Common Stock issuable upon exercise, exchange or conversion of such
Convertible Securities have not been issued prior to the expiration of the
exercise, exchange or conversion right thereof), then the Exchange
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Rate shall promptly be readjusted to the Exchange Rate which would then be
in effect had the adjustment upon the issuance of such rights, warrants or
options been made on the basis of the actual number of shares of Series A
TCI Group Common Stock (or such Convertible Securities) issued upon the
exercise of such rights, warrants or options (or the exercise, exchange or
conversion of such Convertible Securities).
No adjustment shall be made under this subparagraph (5)(b)(ii) if the
adjusted Exchange Rate would be lower than the Exchange Rate in effect
immediately prior to such adjustment.
(iii) If the Parent shall, after the Issue Date, (x) pay a dividend or
make a distribution to all or substantially all holders of its outstanding
shares of Series A TCI Group Common Stock of any assets or debt securities
or any rights, warrants or options to purchase securities (excluding (A)
dividends or distributions referred to in subparagraph (5)(b)(i) (except as
otherwise provided in clause (y) of this sentence) and distributions of
rights, warrants or options referred to in subparagraph (5)(b)(ii) and (B)
cash dividends, unless such cash dividends are Extraordinary Cash
Dividends), or (y) pay a dividend or make a distribution to all or
substantially all holders of its outstanding shares of Series A TCI Group
Common Stock of Redeemable Capital Stock, or issue Redeemable Capital Stock
by reclassification of the Series A TCI Group Common Stock, and pursuant to
subparagraph (5)(b)(i) such Redeemable Capital Stock is to be treated the
same as a distribution of assets of the Parent subject to this subparagraph
(5)(b)(iii), then, in any such event, the Exchange Rate shall be adjusted
by multiplying the Exchange Rate in effect immediately prior to the opening
of business on (I) the record date for the determination of stockholders
entitled to receive the dividend or distribution or (II) in the case of a
reclassification, the effective date of such reclassification by a
fraction, of which the numerator shall be the total number of shares of
Series A TCI Group Common Stock outstanding on such record date or
immediately prior to such effective date multiplied by the Current Market
Price on the applicable Determination Date, and of which the denominator
shall be the total number of shares of Series A TCI Group Common Stock
outstanding on such record date or immediately prior to such effective date
multiplied by such Current Market Price, less the fair market value (as
determined in good faith by the Board of Directors) on such record date or
effective date of the assets (or Redeemable Capital Stock) or debt
securities or rights, warrants or options so distributed to the holders of
Series A TCI Group Common Stock (and to the holders of Convertible
Securities for shares of Series A TCI Group Common Stock and to the holders
of Series B TCI Group Common Stock referred to in the immediately
succeeding paragraph of this subparagraph (5)(b)(iii) if the dividend or
distribution to which this paragraph (5)(b)(iii) applies is also being made
to such holders).
For purposes of this subparagraph (5)(b)(iii), the number of shares of
Series A TCI Group Common Stock outstanding on any relevant date shall be
deemed to include (i) the maximum number of shares of Series A TCI Group
Common Stock the issuance of which would be necessary to effect the full
exercise, exchange or conversion of all Convertible Securities for Series A
TCI Group Common Stock outstanding on such date which are then exercisable,
exchangeable or convertible at a price (before giving effect to any
adjustment to such price for the dividend or distribution or
reclassification to which this subparagraph (5)(b)(iii) is being applied)
equal to or less than the Current Market Price on the applicable
Determination Date, if all of such Convertible Securities were deemed to
have been exercised, exchanged or converted immediately prior to the
opening of business on such date and (ii) if the Series B TCI Group Common
Stock is then convertible into Series A TCI Group Common Stock, the maximum
number of shares of Series A TCI Group Common Stock the issuance of which
would be necessary to effect the full conversion of all shares of Series B
TCI Group Common Stock outstanding on such date, if all of such shares of
Series B TCI Group Common Stock were deemed to have been converted
immediately prior to the opening of business on such date.
For purposes of this subparagraph (5)(b)(iii), the term "Extraordinary
Cash Dividend" shall mean any cash dividend with respect to the Series A
TCI Group Common Stock the amount of which, together with the aggregate
amount of cash dividends on the Series A TCI Group Common Stock to be
aggregated with such cash dividend in accordance with the following
provisions of this paragraph, equals or exceeds the threshold percentage
set forth in the following sentence. If, upon the date immediately prior to
the Ex-Dividend Date with respect to a cash dividend on Series A TCI Group
Common Stock, the aggregate of the
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amount of such cash dividend together with the amounts of all cash
dividends on the Series A TCI Group Common Stock with Ex-Dividend Dates
occurring in the 365/366 consecutive day period ending on the date prior to
the Ex-Dividend Date with respect to the cash dividend to which this
provision is being applied (other than any such other cash dividends with
Ex-Dividend Dates occurring in such period for which a prior adjustment in
the Exchange Rate was previously made under this subparagraph (5)(b)(iii))
equals or exceeds on a per share basis 10% of the average of the Closing
Prices during the period beginning on the date after the first such Ex-
Dividend Date in such period and ending on the date prior to the Ex-
Dividend Date with respect to the cash dividend to which this provision is
being applied (except that if no other cash dividend has had an Ex-Dividend
Date occurring in such period, the period for calculating the average of
the Closing Prices shall be the period commencing 365/366 days prior to the
date immediately prior to the Ex-Dividend Date with respect to the cash
dividend to which this provision is being applied), such cash dividend
together with each other cash dividend with an Ex-Dividend Date occurring
in such 365-/366-day period that is aggregated with such cash dividend in
accordance with this paragraph shall be deemed to be an Extraordinary Cash
Dividend.
The adjustment pursuant to the foregoing provisions of this subparagraph
(5)(b)(iii) shall be made successively whenever any dividend or
distribution or reclassification to which this subparagraph (5)(b)(iii)
applies is made, and shall become effective immediately after (x), in the
case of a dividend or distribution, the record date for the determination
of stockholders entitled to receive such dividend or distribution or (y),
in the case of a reclassification, the effective date of such
reclassification. No adjustment shall be made under this subparagraph
(5)(b)(iii) if the adjusted Exchange Rate would be lower than the Exchange
Rate in effect immediately prior to such adjustment. In the event that,
with respect to any distribution to which this subparagraph (5)(b)(iii)
would otherwise apply, the denominator of the fraction in the formula set
forth in the first paragraph of this subparagraph (5)(b)(iii) is zero or a
negative number, then the adjustment provided by this subparagraph
(5)(b)(iii) shall not be made. If the Parent makes a distribution to all or
substantially all holders of its Series A TCI Group Common Stock of any of
its assets (including shares of Redeemable Capital Stock that pursuant to
subparagraph 5(b)(i) are to be treated the same as a distribution of assets
of the Parent) or debt securities or any rights, warrants or options to
purchase securities of the Parent that, but for the preceding sentence,
would otherwise result in an adjustment in the Exchange Rate pursuant to
the foregoing provisions of this subparagraph (5)(b)(iii), then, from and
after the record date for determining the holders of Series A TCI Group
Common Stock entitled to receive such distribution, a holder of Class A
Preferred Stock that exchanges such shares in accordance with the
provisions of this paragraph (5) will upon such exchange be entitled to
receive, in addition to the shares of Series A TCI Group Common Stock for
which such shares of Class A Preferred Stock are exchangeable, the kind and
amount of assets or debt securities or rights, warrants or options to
purchase securities of the Parent comprising such distribution that such
holder would have received if such holder had exchanged such shares of
Class A Preferred Stock immediately prior to the record date for
determining the holders of Series A TCI Group Common Stock entitled to
receive such distribution.
(iv) In the event that a holder of Class A Preferred Stock would be
entitled to receive upon exercise of the exchange privilege thereof
pursuant to this paragraph (5) any Redeemable Capital Stock and the Parent
redeems, exchanges or otherwise acquires all of the outstanding shares or
other units of such Redeemable Capital Stock (such event being a
"Redemption Event"), then, from and after the effective date of such
Redemption Event, the holders of shares of Class A Preferred Stock then
outstanding shall be entitled to receive upon the exchange of such shares,
in lieu of shares or units of such Redeemable Capital Stock, the kind and
amount of securities, cash or other assets receivable upon the Redemption
Event by a holder of the number of shares or units of such Redeemable
Capital Stock for which such shares of Class A Preferred Stock could have
been exchanged immediately prior to the effective date of such Redemption
Event (assuming, to the extent applicable, that such holder failed to
exercise any rights of election with respect thereto and received per share
or unit of such Redeemable Capital Stock the kind and amount of securities,
cash or other assets received per share or unit by holders of a plurality
of the non-electing shares or units of such Redeemable Capital Stock), and
(from and after the effective date of such Redemption Event) the
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holders of the Class A Preferred Stock shall have no other exchange rights
under these provisions with respect to such Redeemable Capital Stock.
(v) For purposes of calculating the number of outstanding shares of
Series A TCI Group Common Stock under subparagraphs (5)(b)(ii) and
(5)(b)(iii), any shares of Series A TCI Group Common Stock (i) issuable as
a dividend (including shares that the Corporation has notified the holders
of Class A Preferred Stock will be issued in payment of a dividend (or a
designated portion thereof) pursuant to paragraph (2)) shall be deemed to
have been issued immediately prior to the time of the record date for such
dividend or (ii) issuable in payment of a Redemption Price (or a designated
portion thereof) pursuant to paragraph (3) shall be deemed to have been
issued immediately prior to the related Redemption Date. Shares of Series A
TCI Group Common Stock owned by or held for the account of the Parent or
any of its majority-owned subsidiaries shall not be deemed outstanding for
the purposes of this subparagraph (5)(b).
(vi) In any case in which this subparagraph (5)(b) shall require that an
adjustment be made in the Exchange Rate, the Corporation may, in its sole
discretion, elect to defer the following until after the occurrence of the
event which requires such adjustment: (A) the delivery by the Corporation
to the holder of any Class A Preferred Stock surrendered for exchange the
additional shares of Series A TCI Group Common Stock issuable upon such
exchange over the shares of Series A TCI Group Common Stock issuable before
giving effect to such adjustment and (B) paying to such holder any amount
in cash in lieu of a fractional share of Series A TCI Group Common Stock;
provided, however, that the Corporation shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares of Series A TCI Group Common Stock, and such
cash, upon the occurrence of the event requiring such adjustment.
(vii) All adjustments to the Exchange Rate shall be calculated to the
nearest 1/1000th of a share. No adjustment in the Exchange Rate shall be
required unless such adjustment would require an increase or decrease of at
least one percent therein; provided, however, that any adjustment which by
reason of this subparagraph is not required to be made shall be carried
forward and taken into account in any subsequent adjustment. In addition,
no adjustment need be made for rights to purchase shares of Series A TCI
Group Common Stock or for sales of shares of Series A TCI Group Common
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 (x) of the Parent or any wholly owned
subsidiary of the Parent or (y) of the Corporation or any Wholly Owned
Subsidiary. No adjustment need be made for a change in the par value of the
Series A TCI Group Common Stock. To the extent the shares of Class A
Preferred Stock become exchangeable for cash, no adjustment need be made
thereafter as to the cash and no interest shall accrue on such cash.
(viii) The Corporation shall be entitled, at the direction of the Parent
and to the extent permitted by law, to make such increases in the Exchange
Rate, in addition to those referred to above in this subparagraph (5)(b),
as the Parent determines to be 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 any series of TCI common stock.
(ix) There shall be no adjustment to the Exchange Rate in the event of
the issuance of any stock or other securities or assets of the Parent in a
reorganization, acquisition or other similar transaction except as
specifically provided in this paragraph (5). In the event this subparagraph
(5)(b) requires adjustments to the Exchange Rate under more than one of
subparagraph (5)(b)(i)(D), (5)(b)(ii) or (5)(b)(iii), and the record dates
for the dividends or distributions giving rise to such adjustments shall
occur on the same date, then such adjustments shall be made by applying
first, the provisions of subparagraph (5)(b)(i)(D), second, the provisions
of subparagraph (5)(b)(iii) and third, the provisions of subparagraph
(5)(b)(ii).
(x) No adjustment need be made under this subparagraph (5)(b) for a
transaction referred to in subparagraph (5)(b)(i), (ii), (iii) or (iv) if
holders of the Class A Preferred Stock are to participate in the
transaction on a basis and with notice that the Board of Directors in good
faith determines to be fair and appropriate in light of the basis and
notice on which holders of Series A TCI Group Common Stock participate in
the transaction; provided that the basis on which the holders of shares of
Class A Preferred
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Stock are to participate in the transaction shall not be deemed to be fair
if it would require the holder to exchange his shares of Class A Preferred
Stock in order to participate at any time prior to the expiration of the
exchange period for the shares of Class A Preferred Stock specified in
subparagraph (5)(a).
(c) FRACTIONAL SHARES OF CLASS A PREFERRED STOCK. No fractional shares of
Class A Preferred Stock may be tendered for exchange pursuant to this
paragraph (5).
(d) ADJUSTMENT FOR CONSOLIDATION OR MERGER OF PARENT. In case of any
consolidation or merger to which the Parent is a party, or in the case of any
sale or transfer to another corporation of the property of the Parent as an
entirety or substantially as an entirety, or in case of any statutory exchange
of securities with another corporation (other than in connection with a merger
or acquisition) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which shares of Series A TCI Group
Common Stock shall be reclassified or converted into the right to receive
stock, securities or other property (including cash or any combination
thereof), proper provision shall be made so that each share of Class A
Preferred Stock which is not converted into the right to receive stock,
securities or other property in connection with such Transaction shall, after
consummation of such Transaction, be subject to exchange at the option of the
holder into the kind and amount of stock, securities or other property
receivable upon consummation of such Transaction by a holder of the number of
shares of Series A TCI Group Common Stock (and/or any Other Property into
which the Class A Preferred Stock may be exchangeable in accordance with this
paragraph (5)) into which such share of Class A Preferred Stock might have
been exchanged immediately prior to consummation of such Transaction (assuming
in each case that such holder of Series A TCI Group Common Stock (or such
Other Property) failed to exercise rights of election, if any, as to the kind
or amount of stock, securities or other property receivable upon consummation
of such Transaction (provided that if the kind or amount of stock, securities
or other property receivable upon consummation of such Transaction is not the
same for each non-electing share, then the kind and amount of stock,
securities or other property receivable upon consummation of such Transaction
for each non-electing share shall 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 stock or securities into which the shares of Class A Preferred Stock
shall be exchangeable after consummation of such Transaction shall be subject
to adjustment, as nearly as may be practicable, as described in subparagraph
(5)(b) following the date of consummation of such Transaction. The Parent has
separately agreed not to become a party to any Transaction unless the terms
thereof are consistent with this subparagraph (5)(d). The provisions of this
subparagraph (5)(d) shall similarly apply to successive Transactions.
If this subparagraph (5)(d) applies, subparagraphs (5)(b)(i), (ii), (iii)
and (iv) shall not apply.
(e) NOTICE OF ADJUSTMENTS. Whenever the Exchange Rate is adjusted as herein
provided, the Corporation shall:
(1) forthwith compute the adjusted Exchange Rate in accordance herewith
and prepare a certificate signed by an officer of the Corporation setting
forth the adjusted Exchange Rate, the method of calculation thereof in
reasonable detail and the facts requiring such adjustment and upon which
such adjustment is based, which certificate shall be conclusive, final and
binding evidence of the correctness of the adjustment (absent manifest
error), and file such certificate forthwith with the transfer agent for the
shares of Class A Preferred Stock and the Series A TCI Group Common Stock;
and
(2) mail a notice to the holders of the outstanding shares of Class A
Preferred Stock stating that the Exchange Rate has been adjusted, the facts
requiring such adjustment and upon which such adjustment is based and
setting forth the adjusted Exchange Rate, such notice to be mailed at or
prior to the time the Corporation mails an interim statement, if any, to
its stockholders covering the fiscal quarter during which the facts
requiring such adjustment occurred, but in any event within 45 days
following the end of such fiscal quarter.
(f) NOTICE OF CERTAIN TRANSACTIONS. In case, at any time while any of the
shares of Class A Preferred Stock are outstanding,
(1) the Parent takes any action which would require an adjustment to the
Exchange Rate; or
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(2) the Parent shall authorize (x) any consolidation, merger or binding
share exchange to which the Parent is a party and for which approval of any
stockholders of the Parent is required (except for a merger of the Parent
into one of its wholly owned subsidiaries solely for the purpose of
changing the corporate domicile of the Parent to another state of the
United States and in connection with which there is no substantive change
in the rights or privileges of any securities of the Parent other than
changes resulting from differences in the corporate statutes of the then
existing and the new state of domicile), or (y) the sale or transfer of all
or substantially all of the assets of the Parent; or
(3) the Parent shall authorize the voluntary dissolution, liquidation or
winding up of the Parent or the Parent is the subject of an involuntary
dissolution, liquidation or winding up;
then the Corporation shall cause to be filed at each office or agency
maintained for the purpose of exchange of the shares of Class A Preferred
Stock, and shall cause to be mailed to the holders of shares of Class A
Preferred Stock at their last addresses as they shall appear on the stock
register, at least 10 days before the record date (or other date set for
definitive action if there shall be no record date), a notice stating the
action or event for which such notice is being given and the record date for
(or such other date) and the anticipated effective date of such action or
event; provided, however, that any notice required hereunder shall in any
event be given no later than the time that notice is given to the holders of
the Series A TCI Group Common Stock. The failure to give or receive the notice
required by this subparagraph (5)(f) or any defect therein shall not affect
the legality or validity of any action or any vote thereon.
(g) ACTIONS IN RESPECT OF SERIES A TCI GROUP COMMON STOCK. The Corporation
shall take, and the Parent has separately agreed to take, such reasonable
action which may be necessary, in the opinion of the Corporation's or the
Parent's legal counsel, in order that (i) the Corporation may validly and
legally deliver fully paid and nonassessable shares of Series A TCI Group
Common Stock upon any surrender of shares of Class A Preferred Stock for
exchange pursuant to this paragraph (5), (ii) the delivery of shares of Series
A TCI Group Common Stock in accordance with this paragraph (5) is exempt from
the registration or qualification requirements of the Securities Act and
applicable state securities laws or, if no such exemption is available, that
the offer and exchange of such shares of Series A TCI Group Common Stock have
been duly registered or qualified under the Securities Act and applicable
state securities laws, (iii) the shares of Series A TCI Group Common Stock
delivered upon such exchange are listed for trading on the Nasdaq National
Market or on a national securities exchange (upon official notice of issuance)
and (iv) the shares of Series A TCI Group Common Stock delivered upon such
exchange are free of preemptive rights and any liens or adverse claims.
The Parent has separately agreed to at all times reserve and keep available,
free from preemptive rights, out of the aggregate of its authorized but
unissued Series A TCI Group Common Stock and its issued Series A TCI Group
Common Stock held in its treasury, for the purpose of effecting any exchange
of shares of Class A Preferred Stock at the option of the holder pursuant to
this paragraph (5), the full number of shares of Series A TCI Group Common
Stock then deliverable upon the exchange of all then outstanding shares of
Class A Preferred Stock (assuming for this purpose that all of the outstanding
shares of Class A Preferred Stock are held by a single holder).
(6) LIQUIDATION RIGHTS.
(a) PAYMENT OF LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution, or winding up of the affairs of the Corporation, whether
voluntary or involuntary, the holders of shares of Class A Preferred Stock
then outstanding, after payment or provision for payment of the debts and
other liabilities of the Corporation and the payment or provision for payment
of any distribution on any shares of Senior Stock, and before any distribution
to the holders of Junior Stock or any Parity Stock of the Corporation ranking
junior to the Class A Preferred Stock upon liquidation, dissolution or winding
up, shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders an amount per share of Class A
Preferred Stock in cash equal to the Liquidation Preference. In the event the
assets of the Corporation available for distribution to the holders of the
shares of Class A Preferred Stock upon any dissolution, liquidation or winding
up of the
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Corporation shall be insufficient to pay in full the Liquidation Preference
payable to the holders of outstanding shares of Class A Preferred Stock and
the liquidation preference payable to all other shares of Parity Stock that
rank pari passu with the Class A Preferred Stock upon liquidation, dissolution
or winding up (as set forth in the instrument or instruments creating such
Parity Stock), the holders of shares of Class A Preferred Stock and of all
other shares of 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 Class A Preferred
Stock and the holders of outstanding shares of such other Parity Stock were
paid in full. Except as provided in this subparagraph (6)(a), holders of Class
A Preferred Stock shall not be entitled to any distribution in the event of
the liquidation, dissolution or winding up of the affairs of the Corporation.
(b) CERTAIN EVENTS NOT DEEMED LIQUIDATION, ETC. For the purposes of this
paragraph (6), none of the following shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation:
(1) the sale, lease, transfer or exchange of all or substantially all of
the assets of the Corporation; or
(2) the consolidation or merger of the Corporation with one or more other
corporations (whether or not the Corporation is the corporation surviving
such consolidation or merger) or the consummation of a statutory binding
share exchange involving the Corporation.
(7) NO FRACTIONAL SHARES OF SERIES A TCI GROUP COMMON STOCK. No fractional
shares of Series A TCI Group Common Stock or scrip shall be issued upon the
exchange of Class A Preferred Stock for Series A TCI Group Common Stock or in
connection with the delivery of shares of Series A TCI Group Common Stock in
payment, in whole or in part, of any dividend or Redemption Price. Whether or
not a fractional share would be delivered to a holder of Class A Preferred
Stock shall be based upon (i), in the case of an exchange pursuant to
paragraph (5), on the total number of shares of Class A Preferred Stock such
holder is at the time exchanging into Series A TCI Group Common Stock and the
total number of shares of Series A TCI Group Common Stock otherwise
deliverable upon such exchange, (ii), in the case of the payment, in whole or
in part, of dividends pursuant to paragraph (2) through the delivery of shares
of Series A TCI Group Common Stock, on the total number of shares of Class A
Preferred Stock at the time held by such holder and the total number of shares
of Series A TCI Group Common Stock otherwise deliverable in respect thereof
and (iii), in the case of the payment, in whole or in part, of a Redemption
Price pursuant to paragraph (3) through the delivery of shares of Series A TCI
Group Common Stock, on the total number of shares of Class A Preferred Stock
at the time held by such holder that are to be redeemed on the related
Redemption Date and the total number of shares of Series A TCI Group Common
Stock otherwise deliverable in respect thereof. In lieu of the issuance of a
fraction of a share of Series A TCI Group Common Stock or scrip, the
Corporation shall pay instead an amount in cash (rounded to the nearest whole
cent) by its check equal to the same fraction of the Closing Price of a share
of Series A TCI Group Common Stock on the Trading Day immediately preceding
the Exchange Date, the Dividend Payment Date or the Redemption Date, as the
case may be.
(8) PAYMENT OF TAXES. The Corporation shall pay any and all documentary,
stamp or similar transfer taxes payable in respect of the delivery of shares
of Series A TCI Group Common Stock pursuant to paragraphs (2), (3) or (5);
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any registration of transfer involved in
the delivery of shares of Series A TCI Group Common Stock upon an exchange of
shares of Class A Preferred Stock pursuant to paragraph (5) in a name other
than that of the registered holder of such shares of Class A Preferred Stock.
(9) NO PREEMPTIVE RIGHTS. The holders of shares of Class A Preferred Stock
shall have no preemptive rights, including preemptive rights with respect to
any shares of capital stock or other securities of the Corporation convertible
into or carrying rights or options to purchase any such shares.
(10) VOTING RIGHTS. The holders of shares of Class A Preferred Stock shall
have no voting rights, except as otherwise required by law and except as set
forth in this paragraph (10). When and if the holders of Class A Preferred
Stock are entitled to vote by law or pursuant to this paragraph (10), each
holder will be entitled to one
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vote per share. Shares of Class A Preferred Stock held by the Parent or any
majority-owned subsidiary of the Parent shall not be counted for quorum
purposes and shall be deemed shares not entitled to vote on any matter
presented to the holders of Class A Preferred Stock, except to the extent
otherwise required by law.
(a) ELECTION OF PREFERRED STOCK DIRECTORS. (i) If at any time accrued
dividends payable on the shares of Class A Preferred Stock are in arrears and
unpaid in an aggregate amount equal to or exceeding the aggregate amount of
dividends payable thereon for six or more quarterly Dividend Periods (whether
or not consecutive), the holders of the shares of Class A Preferred Stock,
voting separately as a class (with the holders of shares of any other class or
series of Parity Stock upon which like voting rights have been conferred and
are exercisable), shall have the right to vote for the election of two
directors (the "Preferred Stock Directors") to the Board of Directors of the
Corporation, such directors to be in addition to the number of directors
constituting the Board of Directors immediately prior to the accrual of such
right. Such right of the holders of shares of Class A Preferred Stock to vote
for the election of two Preferred Stock Directors shall, when vested, continue
until all dividends in arrears on the shares of Class A Preferred Stock shall
have been paid in full and, when so paid, such right shall cease, subject
always to the same provisions for the vesting of such right of the holders of
the shares of Class A Preferred Stock to elect two Preferred Stock Directors
in the case of future dividend defaults. The Preferred Stock Directors shall
be elected by a plurality of the votes cast by the holders of Class A
Preferred Stock and any other class or series of Parity Stock upon which like
voting rights have been conferred and are exercisable.
(ii) At any time when the holders of shares of the Class A Preferred Stock
(with the holders of any other class or series of Parity Stock upon which like
voting rights have been conferred and are exercisable) are entitled to elect
two Preferred Stock Directors, the Corporation shall, upon the written request
(a "Request") of the holders of record of not less than the greater of (x) 10%
of the outstanding shares of Class A Preferred Stock or (y) 10% of the
outstanding shares of all classes and series of Parity Stock (including the
Class A Preferred Stock) entitled to vote for such Preferred Stock Directors,
call a special meeting of holders of the Class A Preferred Stock (and such
other Parity Stock) for the election of the two Preferred Stock Directors.
Notice of the special meeting shall be given in accordance with the
requirements of Delaware law, and such meeting shall be held not more that 60
days after the Corporation's receipt of the Request. The Preferred Stock
Directors shall be nominated by the Persons who submit the Request, except
that at any meeting after the first meeting at which the Preferred Stock
Directors are elected, the Preferred Stock Directors shall be nominated,
subject to subparagraph (10)(a)(iii) below, by the existing Preferred Stock
Directors. No person may be nominated or may serve as a Preferred Stock
Director unless such person meets all requirements for serving on the Board of
Directors as set forth in any applicable federal statute (including any such
statute administered by the Federal Communications Commission) or the rules
and regulations of any administrative agency promulgated there- under.
(iii) The term of office of each Preferred Stock Director shall terminate on
the earlier of (x) the next annual meeting of stockholders of the Corporation
at which a successor shall have been elected and qualified (irrespective of
whether the Board of Directors is divided into staggered classes) or (y) the
termination of the right of the holders of shares of Class A Preferred Stock
and any such other shares of Parity Stock to vote for Preferred Stock
Directors pursuant to this subparagraph (10)(a). If, prior to the end of the
term of any Preferred Stock Director elected as aforesaid, a vacancy in the
office of such director shall occur, such vacancy shall be filled for the
unexpired term by the appointment by the remaining Preferred Stock Director
elected as aforesaid of a new director for the unexpired term of such former
Preferred Stock Director. If both Preferred Stock Directors so elected by the
holders of shares of Class A Preferred Stock (and such other Parity Stock)
shall cease, at the same time, to serve as directors before their terms shall
expire, the holders of the shares of Class A Preferred Stock (together with
the holders of such other Parity Stock, if any) may, at a special meeting of
the holders called as provided in subparagraph (10)(a)(ii) above, nominate and
elect successors to hold office for the unexpired terms of such Preferred
Stock Directors.
(b) CERTAIN CHANGES TO CHARTER; RECLASSIFICATIONS. For as long as any shares
of Class A 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), given in Person or by proxy at any annual meeting or special meeting
called for such purpose, shall be necessary (A) before the Corporation may
amend, alter or repeal any of the provisions of this
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Restated Certificate of Incorporation of the Corporation which would adversely
affect the powers, preferences or rights of the holders of the shares of Class
A Preferred Stock then outstanding or reduce the minimum time required for any
notice to which holders of shares of Class A Preferred Stock then outstanding
may be entitled; provided, however, that (x) any such amendment, alteration or
repeal that would authorize, create or increase the authorized amount of any
additional shares of Junior Stock or shares of any other class or series of
Parity Stock (whether or not already authorized) and (y) any such amendment
that would increase the number of authorized shares of Preferred Stock (but
not the number of authorized shares of Class A Preferred Stock) or that would
decrease (but not below the number of shares then outstanding) the number of
authorized shares of Preferred Stock (but not the number of authorized shares
of Class A Preferred Stock), shall be deemed not to adversely affect such
powers, preferences or rights and shall not be subject to approval by the
holders of shares of Class A Preferred Stock; and (B) before the Corporation
may reclassify the outstanding shares of Class A Preferred Stock into another
class or series of capital stock of the Corporation (unless such
reclassification solely seeks to change the designation of the Class A
Preferred Stock and would not adversely affect the powers, preferences or
rights of the holders of the shares of Class A Preferred Stock then
outstanding or reduce the minimum time required for any notice to which
holders of shares of Class A Preferred Stock then outstanding may be
entitled); provided, however, that no consent described in clause (A) of this
paragraph of the holders of the shares of Class A Preferred Stock shall be
required if, at or prior to the time when such amendment, alteration or repeal
is to take effect, provision is made for the redemption of all shares of Class
A Preferred Stock at the time outstanding (except that no such provision may
be made prior to the Initial Redemption Date); provided further, however, that
if the Corporation makes such provision but fails to pay the Redemption Price
on the applicable Redemption Date, then the holders of Class A Preferred Stock
shall be entitled to vote on any such amendment, alteration or repeal, and any
such amendment, alteration or repeal taken without the consent of the holders
of at least 66 2/3% of the outstanding shares of Class A Preferred Stock shall
be void.
(c) ISSUANCE OF ADDITIONAL CLASS A PREFERRED STOCK; CREATION OF SENIOR
STOCK. For as long as any shares of Class A 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), given in Person or by proxy
at any annual meeting or special meeting called for such purpose, shall be
necessary before the Corporation or the Board of Directors may (x) issue
additional shares of Class A Preferred Stock or (y) create or issue any Senior
Stock; provided, however, that no such consent shall be necessary if, at or
prior to the time of such creation or issue of Senior Stock, provision is made
for the redemption of all of the outstanding shares of Class A Preferred Stock
(except that no such provision may be made prior to the Initial Redemption
Date); provided further, however, that if the Corporation makes such provision
but fails to pay the Redemption Price on the applicable Redemption Date, then
the holders of Class A Preferred Stock shall be entitled to vote on the
creation or issuance of any such Senior Stock, and the creation or issuance of
any such Senior Stock without the consent of the holders of at least 66 2/3%
of the outstanding shares of Class A Preferred Stock shall be void.
(d) NO OTHER VOTE. Except as otherwise set forth in this paragraph (10) or
as required by law, the holders of Class A Preferred Stock shall not have any
relative, participating, optional or other special voting rights and powers
and the consent or vote of such holders shall not be required for the taking
of any corporate action by the Corporation or the Board of Directors.
(11) WAIVER. Any provision of this Article IV, Section B which, for the
benefit of the holders of Class A Preferred Stock, prohibits, limits or
restricts actions by the Corporation may be waived in whole or in part, or the
application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case with the consent of the
holders of at least 66 2/3% of the number of shares of Class A Preferred Stock
then outstanding, either in writing or by vote at a meeting called for such
purpose at which the holders of Class A Preferred Stock shall vote as a
separate class.
(12) CERTAIN COVENANTS.
(a) TRANSACTIONS WITH AFFILIATES. As long as any shares of Class A Preferred
Stock are outstanding, the Corporation shall not, and shall not permit any
Subsidiary or Wholly Owned Subsidiary to, enter into any
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transaction with an Affiliate unless such transaction is on terms that are no
less favorable to the Corporation or such Subsidiary or Wholly Owned
Subsidiary than those that would reasonably be expected to be obtained in a
comparable transaction with a Person that is not an Affiliate; provided,
however, that the provisions of this subparagraph (12)(a) shall not apply to
transactions (i) between the Corporation and its Subsidiaries or its Wholly
Owned Subsidiaries, (ii) between Subsidiaries, (iii) between Wholly Owned
Subsidiaries or (iv) between Subsidiaries and Wholly Owned Subsidiaries.
(b) SEC REPORTS. As long as any shares of Class A Preferred Stock are
outstanding, the Corporation shall timely file with the SEC copies of such
reports, information and other documents that the Corporation is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act and,
within 15 days after such filing is required to be made, mail copies of such
reports, information and other documents to the registered holders of the
Class A Preferred Stock. If at any time while shares of Class A Preferred
Stock are outstanding the Corporation is not required to, and does not, have
any class of securities registered under the Exchange Act, then the
Corporation shall prepare comparable reports, information and documents and
mail the same to the registered holders of shares of Class A Preferred Stock
within 15 days after the date the Corporation would have been required to file
such reports, information or other documents with the SEC had the Corporation
continued to have securities registered under the Exchange Act.
(13) STATUS OF REDEEMED OR EXCHANGED SHARES. All shares of Class A Preferred
Stock redeemed or exchanged by the Corporation shall be retired and shall not
be reissued as Class A Preferred Stock.
(14) EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by law,
the shares of Class A Preferred Stock shall not have any designations,
preferences, limitations or relative rights other than those specifically set
forth in this Article IV, Section B.
SECTION C
SERIES PREFERRED STOCK
The Series Preferred Stock may be issued, from time to time, in one or more
series, with such powers, designations, preferences and relative,
participating, optional or other rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of each such series adopted by the Board
of Directors or a duly authorized committee thereof. The Board of Directors
(or committee thereof), in such resolution or resolutions (a copy of which
shall be filed and recorded as required by law), is also expressly authorized
to fix with respect to each series:
(a) the distinctive serial designations and the division of such shares
into series and the number of shares of a particular series, which may be
increased or decreased, but not below the number of shares thereof then
outstanding, by a certificate made, signed, filed and recorded as required
by law;
(b) the dividend rate or amounts, if any, for the particular series, the
date or dates from which dividends on all shares of such series shall be
cumulative, if dividends on stock of the particular series shall be
cumulative and the relative rights of priority, if any, or participation,
if any, with respect to payment of dividends on shares of that series;
(c) the rights of the shares of each series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of each
series;
(d) the right, if any, of the holders of a particular series to convert
or exchange such stock into or for other classes or series of a class of
stock or indebtedness of the Corporation or of another entity, and the
terms and conditions of such conversion or exchange, including provision
for the adjustment of the conversion or exchange rate in such events as the
Board of Directors may determine;
(e) the voting rights, if any, of the holders of a particular series
(which may be in addition to or in lieu of those specified in this
Certificate); and
27
<PAGE>
(f) the terms and conditions, if any, for the Corporation to purchase or
redeem shares of a particular series.
SECTION D
UNCLAIMED DIVIDENDS
Any and all right, title, interest and claim in or to any dividends declared
by the Corporation, whether in cash, stock or otherwise, which are unclaimed
for a period of four years after the close of business on the payment date,
shall be and be deemed extinguished and abandoned; and such unclaimed
dividends in the possession of the Corporation, its transfer agent or other
agents or depositories, shall at such time become the absolute property of the
Corporation, free and clear of any and all claims of any persons whatsoever.
ARTICLE V
DIRECTORS
SECTION A
NUMBER OF DIRECTORS
The governing body of the Corporation shall be a Board of Directors. The
number of directors shall not be less than three (3) and the exact number of
directors shall be fixed by the Board of Directors by resolution. Election of
directors need not be by written ballot.
SECTION B
ELECTION AND REMOVAL OF DIRECTORS
Directors shall be elected for a one-year term at each annual meeting of
stockholders. Election of directors need not be by written ballot. Directors
may be removed from office with or without cause upon the affirmative vote of
the holders of at least 66 2/3% of the total voting power of the then
outstanding shares of Class A Common Stock, Class B Common Stock and any class
or series of Preferred Stock entitled to vote generally at an election of
directors, voting together as a single class.
SECTION C
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Subject to the provisions of any Preferred Stock relating to a special
election of directors, vacancies on the Board of Directors resulting from
death, resignation, removal, disqualification or other cause, and newly
created directorships resulting from any increase in the number of directors
on the Board of Directors, shall be filled by the affirmative vote of a
majority of the remaining directors then in office (even though less than a
quorum) or by the sole remaining director. Any director elected in accordance
with the preceding sentence shall hold office until the next annual meeting of
stockholders and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
28
<PAGE>
SECTION D
LIMITATION ON LIABILITY AND INDEMNIFICATION
(1) LIMITATION ON LIABILITY.
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a director of the Corporation
shall not be liable to the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or modification
of this paragraph 1 shall be prospective only and shall not adversely affect
any limitation, right or protection of a director of the Corporation existing
at the time of such repeal or modification.
(2) INDEMNIFICATION.
(a) RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Section D. The Corporation shall
be required to indemnify or make advances to a person in connection with a
proceeding (or part thereof) initiated by such person only if the proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
(b) PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in advance of
its final disposition, provided, however, that the payment of expenses
incurred by a director or officer in advance of the final disposition of the
proceeding shall be made only upon receipt of an undertaking by the director
or officer to repay all amounts advanced if it should be ultimately determined
that the director or officer is not entitled to be indemnified under this
paragraph or otherwise.
(c) CLAIMS. If a claim for indemnification or payment of expenses under this
paragraph is not paid in full within 60 days after a written claim therefor
has been received by the Corporation, the claimant may file suit to recover
the unpaid amount of such claim and, if successful in whole or in part, shall
be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
(d) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
paragraph shall not be exclusive of any other rights which such person may or
hereafter acquire under any statute, provision of this Certificate, the
Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
(e) OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or nonprofit entity.
(3) AMENDMENT OR REPEAL.
Any repeal or modification of the foregoing provisions of this Section D
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
29
<PAGE>
SECTION E
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors, by action taken by the
affirmative vote of not less than a majority of the members of the Board of
Directors then in office, is hereby expressly authorized and empowered to
adopt, amend or repeal any provision of the Bylaws of this Corporation.
(4) This Restated Certificate of Incorporation was duly adopted by vote of
the sole stockholder of the Corporation in accordance with Sections 242 and
245 of the Delaware General Corporation Law.
(5) Effective upon the filing of this Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware (the "Effective Time"),
each share of Common Stock of the Corporation, par value $0.10 per share,
issued and outstanding immediately prior to the Effective Time ("Old Common
Stock") shall thereupon be reclassified as and changed into [ ] ( )/2/
shares of Class A Common Stock. Such shares of Class A Common Stock shall be
fully paid and nonassessable.
Each holder of a certificate representing issued and outstanding shares of
Old Common Stock at the Effective Time shall be entitled upon surrender of
such certificate to the Corporation for cancellation to receive new
certificates representing the number of shares of Class A Common Stock into
which such issued and outstanding shares of Old Common Stock are reclassified
and changed as provided herein.
IN WITNESS WHEREOF, the undersigned has signed this Restated Certificate of
Incorporation this [ ]th day of [ ], 1996.
Viacom International Inc.
By: _________________________________
Title:
- --------
/2/ Calculated so that the aggregate number of shares equals the Number of
Shares to be Exchanged.
30
<PAGE>
EXHIBIT 4.4(A)
TCI PACIFIC COMMUNICATIONS, INC.
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
TCI PACIFIC COMMUNICATIONS, INC.
COMMON STOCK COMMON STOCK
NUMBER SHARES
-------------- --------------
-------------- --------------
CLASS A COMMON STOCK CUSIP [ ]
PAR VALUE $100.00 PER SHARE
CLASS A COMMON STOCK
THIS CERTIFIES THAT [ ] is the owner of [ ] fully paid and nonassessable
shares of Class A Common Stock of TCI Pacific Communications, Inc. (the
"Corporation") transferable on the books of the Corporation by the holder
thereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. A statement of the rights of the holders of the
shares of the capital stock of the Corporation will be furnished by the
Corporation to any stockholder upon written request and without charge. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
_____________________ _____________________
Secretary President
[SEAL APPEARS HERE]
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--_____Custodian_____
TEN ENT--as tenants by the entireties (Cust) (Minor)
JT TEN--as joint tenants with the right under Uniform Gifts of Minors Act
of survivorship and not as tenants _____________________________________
in common (State)
ADDITIONAL ABBREVIATIONS MAY BE USED THOUGH NOT IN THE ABOVE LIST.
For value received,_____ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------
_______________________________________________________________________________
______________________________________________________________________________,
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
_______________________________________________________________
_______________________________________________________________
________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_________, Attorney to transfer the said stock
on the books of the within-named Corporation with full power of substitution
in the premises.
Dated _______________
_________________________
Signature
NOTICE: The signature to this assignment
must correspond with the names as
written upon the face of this
certificate in every particular,
without alteration or enlargement or
any change whatever.
SIGNATURE(S) GUARANTEED
By ______________________
THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.4(B)
CERTIFICATE
CLASS A SENIOR CUMULATIVE EXCHANGEABLE PREFERRED STOCK
($100.00 PAR VALUE PER SHARE)
PREFERRED STOCK PREFERRED STOCK
NUMBER SHARES
--------------- ---------------
--------------- ---------------
TCI PACIFIC COMMUNICATIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE
IN THE CITY OF NEW YORK, NEW YORK
This certifies that [_________] is the owner of [___] fully paid and
nonassessable shares of Class A Senior Cumulative Exchangeable Preferred
Stock, $100.00 par value per share, of TCI Pacific Communications, Inc.,
transferable on the books of the Corporation by the holder thereof in person
or by duly authorized attorney upon the surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are subject to
all of the terms and conditions contained in the Restated Certificate of
Incorporation and the Bylaws of the Corporation and all amendments thereto.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated [_____], 1996
[SEAL APPEARS HERE]
_____________________ _____________________
Secretary President
<PAGE>
[REVERSE OF CERTIFICATE]
TCI PACIFIC COMMUNICATIONS, INC.
THE CORPORATION WILL FURNISH TO EACH STOCKHOLDER, UPON REQUEST AND WITHOUT
CHARGE, THE POWERS, 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.
THE CLASS A SENIOR CUMULATIVE EXCHANGEABLE PREFERRED STOCK IS EXCHANGEABLE
FOR SHARES OF TELE-COMMUNICATIONS, INC. SERIES A TCI GROUP COMMON STOCK,
SUBJECT TO AND IN ACCORDANCE WITH THE PROVISIONS OF THE RESTATED CERTIFICATE
OF INCORPORATION OF THE CORPORATION.
IF THE CORPORATION ELECTS TO REDEEM IN PART THE SHARES OF CLASS A SENIOR
CUMULATIVE EXCHANGEABLE PREFERRED STOCK, THE CORPORATION WILL NOT BE REQUIRED
TO REGISTER A TRANSFER OF (I) ANY SHARES OF SUCH CLASS FOR A PERIOD OF 5
BUSINESS DAYS NEXT PRECEDING ANY SELECTION OF SHARES OF SUCH CLASS TO BE
REDEEMED OR (II) ANY SHARES OF SUCH CLASS SELECTED OR CALLED FOR REDEMPTION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT--_____Custodian_____
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with under Uniform Gifts of Minors Act
the right of survivorship and
not as tenants in common ____________________________________
(State)
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
<PAGE>
For value received,__________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------
_______________________________________________________________________________
______________________________________________________________________________,
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
_______________________________________________________________
_______________________________________________________________
________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint__________, Attorney to transfer the said
stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated _______________
X _______________________
X _______________________
NOTICE: The signature to this assignment
must correspond with the name(s) as
written upon the face of this
certificate in every particular,
without alteration or enlargement or
any change whatever.
SIGNATURE(S) GUARANTEED
By
_________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE>
NOTICE OF EXCHANGE
To TCI Pacific Communications, Inc.
The undersigned holder of the Class A Senior Cumulative Exchangeable
Preferred Stock (the "Class A Preferred Stock") evidenced by this Certificate
hereby irrevocably exercises the option to exchange that number of shares of
Class A Preferred Stock represented hereby, or a portion thereof, below
designated, into shares of Tele-Communications, Inc. Series A TCI Group Common
Stock, $1.00 par value per share, (the "Series A TCI Group Common Stock") in
accordance with the terms of and subject to the conditions of such Class A
Preferred Stock and directs that the shares of Series A TCI Group Common Stock
deliverable upon such exchange, together with a check in payment for any
fractional share of Series A TCI Group Common Stock, be delivered to the
registered holder thereof unless a different name has been indicated below. If
the shares of Series A TCI Group Common Stock are to be registered in the name
of a person other than the undersigned, the undersigned shall check the
appropriate box above and pay all transfer and similar taxes payable with
respect to such transfer. If the number of shares of such Class A Preferred
Stock represented by this Certificate is greater than the number of shares of
Class A Preferred Stock to be exchanged, the undersigned directs that the
Transfer Agent issue to the undersigned, unless a different name is indicated
below, a new Certificate evidencing Class A Preferred Stock for the balance of
such Class A Preferred Stock not to be exchanged.
Dated: ________________________ Signature _______________________
Note: The signature to this
Notice of Exchange must
correspond with the name as
written upon the face to this
Certificate in every particular,
without alteration or
enlargement or any change
whatever.
_________________________________
Social Security or other
taxpayer identification numbers
of holder of shares of Class A
Preferred Stock
_________________________________
Number of shares of Class A
Preferred Stock to be exchanged
If different from that of holder of shares of Class A Preferred Stock, print
name and address (including zip code) of person in whose name the Series A TCI
Group Common Stock will be issued:
_______________________________
Name
_______________________________
Address
_______________________________
Social Security or other taxpayer identification number
<PAGE>
EXHIBIT 12.1
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 POST-SWAP PRO FORMA PRE-SWAP
------------------------- -------------------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH --------------------------------
1996 1995 1996 1995 1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss)
before income taxes. $(13.6) $(59.6) ($12.5) ($50.7) $ 8.7 $ 66.6 $26.4 $128.1 $ 53.1 $14.9
Add:
Share in income of
fifty-percent-
owned affiliates
and distributed
income of
affiliated
companies......... (0.2) 1.1 (0.2) 1.1 (0.2) 1.1 2.3 1.0 0.6 0.8
Interest expense,
net of capitalized
interest.......... 25.0 105.1 25.0 105.1 11.9 48.5 38.1 33.4 49.8 71.5
Capitalized
interest
amortized......... 0.2 0.7 0.2 0.7 0.2 0.7 1.4 1.9 2.0 2.0
1/3 of rental
expense........... 0.6 2.6 0.6 2.6 0.6 2.6 2.6 2.4 2.5 2.7
------- ------ ------ ------ ----- ------ ----- ------ ------ -----
Earnings............ $ 12.0 $ 49.9 $ 13.1 $ 58.8 $21.2 $119.5 $70.8 $166.8 $108.0 $91.9
======= ====== ====== ====== ===== ====== ===== ====== ====== =====
Fixed charges:
Interest costs on
all indebtedness.. $ 25.4 $107.0 $ 25.4 $107.0 $12.3 $ 50.4 $39.0 $ 33.8 $ 50.3 $72.0
1/3 of rental
expense........... 0.6 2.6 0.6 2.6 0.6 2.6 2.6 2.4 2.5 2.7
------- ------ ------ ------ ----- ------ ----- ------ ------ -----
Total fixed charges. 26.0 109.6 26.0 109.6 12.9 53.0 41.6 36.2 52.8 74.7
Preferred Stock
dividend
requirements........ 8.2 32.8 8.2 32.8 0.0 0.0 0.0 0.0 0.0 0.0
------- ------ ------ ------ ----- ------ ----- ------ ------ -----
Total fixed charges
and Preferred Stock
dividend
requirements........ $ 34.2 $142.4 $ 34.2 $142.4 $12.9 $ 53.0 $41.6 $ 36.2 $ 52.8 $74.7
======= ====== ====== ====== ===== ====== ===== ====== ====== =====
Ratio of earnings to
fixed charges....... Note a Note a Note a Note a 1.6x 2.3x 1.7x 4.6x 2.0x 1.2x
======= ====== ====== ====== ===== ====== ===== ====== ====== =====
Ratio of earnings to
combined fixed
charges and
Preferred Stock
dividend
requirements........ Note b Note b Note b Note b 1.6x 2.3x 1.7x 4.6x 2.0x 1.2x
======= ====== ====== ====== ===== ====== ===== ====== ====== =====
</TABLE>
- ----
(a) Earnings were inadequate to cover fixed charges; the additional amount
required to cover fixed charges for Pro Forma post-Swap three months ended
March 31, 1996, Pro Forma post-Swap year ended December 31, 1995, Pro
Forma pre-Swap three months ended March 31, 1996 and Pro Forma pre-Swap
year ended December 31, 1995 would have been $14.0, $59.7, $12.9 and $50.8
million, respectively.
(b) Earnings were inadequate to cover combined fixed charges and Preferred
stock dividends, the additional amount required to cover combined fixed
charges and preferred stock dividend requirements for Pro Forma post-Swap
three months ended March 31, 1996, Pro Forma post-Swap year ended December
31, 1995, Pro Forma pre-Swap three months ended March 31, 1996 and Pro
Forma pre-Swap year ended December 31, 1995 would have been $22.2, $92.5,
$21.1 and $83.6 million, respectively.
<PAGE>
EXHIBIT 12.2
VIACOM INC. AND SUBSIDIARIES
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
THREE MONTHS ENDED YEAR ENDED THREE MONTHS ENDED
MARCH 31, DECEMBER MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ---------- ------------------ ------------------------------------------
1996 1995 1996 1995 1994 1993 1992 1991
------------------ ---------- ------------------ -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings before income
taxes................... $ 71.2 $ 711.2 $ 68.0 $ 689.2 $ 376.7 $301.8 $155.6 $ 8.2
Add:
Share in income of
fifty-percent-owned
affiliates and
distributed income of
affiliated companies.. 13.4 30.3 13.4 30.3 30.0 13.4 9.5 5.6
Interest expense, net
of capitalized
interest.............. 187.7 748.9 214.5 867.0 526.7 154.1 195.2 298.1
Capitalized interest
amortized............. 1.7 11.2 1.7 11.2 6.9 2.1 2.4 2.4
1/3 of rental expense. 36.4 171.1 36.4 171.1 83.9 24.8 22.6 21.5
Preferred stock
dividends--majority-
owned subsidiaries.... 0.0 0.3 0.0 0.3 0.0 0.0 0.0 0.0
------ -------- ------ -------- -------- ------ ------ ------
Earnings................ $310.4 $1,673.0 $334.0 $1,769.1 $1,024.2 $496.2 $385.3 $335.8
====== ======== ====== ======== ======== ====== ====== ======
Fixed charges:
Interest costs on all
indebtedness.......... $189.9 $ 771.2 $216.7 $ 889.3 $ 536.3 $154.5 $195.7 $298.6
1/3 of rental expense. 36.4 171.1 36.4 171.1 83.9 24.8 22.6 21.5
Preferred stock
dividends--majority-
owned subsidiaries.... 0.0 0.3 0.0 0.3 0.0 0.0 0.0 0.0
------ -------- ------ -------- -------- ------ ------ ------
Total fixed charges..... $226.3 $ 942.6 $253.1 $1,060.7 $ 620.2 $179.3 $218.3 $320.1
Preferred Stock dividend
requirements............ 40.2 151.9 40.2 151.9 288.5 22.4 -- --
------ -------- ------ -------- -------- ------ ------ ------
Total fixed charges and
Preferred Stock dividend
requirements............ $266.5 $1,094.5 $293.3 $1,212.6 $ 908.7 $201.7 $218.3 $320.1
====== ======== ====== ======== ======== ====== ====== ======
Ratio of earnings to
fixed charges........... 1.4x 1.8x 1.3x 1.7x 1.7x 2.8x 1.8x 1.0x
====== ======== ====== ======== ======== ====== ====== ======
Ratio of earnings to
combined fixed charges
and Preferred Stock
dividend requirements... 1.2x 1.5x 1.1x 1.5x 1.1x 2.5x (a) (a)
====== ======== ====== ======== ======== ====== ====== ======
</TABLE>
- ----
(a) The Company did not have any Preferred stock outstanding from 1991 to
October 1993.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Viacom
International Inc. of our report dated February 14, 1996 appearing on page II-
12 of the Viacom Inc. Annual Report on Form 10-K for the year ended December
31, 1995 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
May 22, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Viacom International Inc. of our report
dated February 14, 1996 relating to the financial statements of VII Cable,
which appears in such Prospectus. We also consent to the application of such
report to the Financial Statement Schedule for the three years ended December
31, 1995, which appears in such Prospectus when such schedule is read in
conjunction with the financial statements referred to in our report. The
audits referred to in such report also included this schedule. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
150 Almaden Boulevard
San Jose, CA
May 22, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to 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
May 23, 1996
<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,
May 23, 1996.
<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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,540
<SECURITIES> 0
<RECEIVABLES> 13,103
<ALLOWANCES> 1,659
<INVENTORY> 0
<CURRENT-ASSETS> 17,970
<PP&E> 762,746
<DEPRECIATION> 340,436
<TOTAL-ASSETS> 1,064,851
<CURRENT-LIABILITIES> 80,290
<BONDS> 57,000
0
0
<COMMON> 0
<OTHER-SE> 854,819
<TOTAL-LIABILITY-AND-EQUITY> 1,064,851
<SALES> 116,599
<TOTAL-REVENUES> 116,599
<CGS> 51,730
<TOTAL-COSTS> 97,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,958
<INCOME-PRETAX> 8,697
<INCOME-TAX> 5,154
<INCOME-CONTINUING> 3,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,390
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,294
<SECURITIES> 0
<RECEIVABLES> 16,022
<ALLOWANCES> 1,689
<INVENTORY> 0
<CURRENT-ASSETS> 19,969
<PP&E> 747,328
<DEPRECIATION> 327,684
<TOTAL-ASSETS> 1,066,813
<CURRENT-LIABILITIES> 81,123
<BONDS> 57,000
0
0
<COMMON> 0
<OTHER-SE> 857,107
<TOTAL-LIABILITY-AND-EQUITY> 1,066,813
<SALES> 442,170
<TOTAL-REVENUES> 442,170
<CGS> 191,082
<TOTAL-COSTS> 361,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,524
<INCOME-PRETAX> 66,607
<INCOME-TAX> 32,849
<INCOME-CONTINUING> 33,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,714
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
FORM OF LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES OF
COMMON STOCK OF
VIACOM INC.
TENDERED PURSUANT TO THE OFFERING CIRCULAR - PROSPECTUS DATED [ ], 1996
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.
TO: THE BANK OF NEW YORK, EXCHANGE AGENT
By Hand or Overnight
By Mail: By Facsimile: Courier:
TENDER & EXCHANGE (FOR ELIGIBLE INSTITUTIONS ONLY) TENDER & EXCHANGE
DEPARTMENT (212) 815-6213 DEPARTMENT
P.O. BOX 11248 CONFIRM FACSIMILE BY TELEPHONE: 101 BARCLAY STREET
CHURCH STREET STATION RECEIVE AND DELIVER
NEW YORK, NY 10286-1248 (FOR CONFIRMATION ONLY) WINDOW
(800) 274-2944 NEW YORK, NY 10286
THE UNDERSIGNED, BY COMPLETING THE BOX BELOW AND SIGNING THIS LETTER OF
TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED SHARES OF VIACOM COMMON STOCK
REPRESENTED BY THE CERTIFICATE(S) DESCRIBED BELOW.
BOX #1
DESCRIPTION OF CERTIFICATE(S)
(PERSONS TENDERING SHARES HELD IN VIACOM INC. EMPLOYEE BENEFIT PLANS SHOULD NOT
COMPLETE THIS BOX BUT SHOULD COMPLETE THE BOXES IN ACCORDANCE WITH
INSTRUCTION 6.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) REPRESENTED NUMBER OF
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CLASS OF CERTIFICATE BY SHARES
APPEAR(S) ON STOCK CERTIFICATE(S)) COMMON STOCK NUMBER(S)* CERTIFICATE(S)* TENDERED**
- --------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by Book-Entry Holders (see below).
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered all of the shares of Viacom Common Stock represented by
the certificate(s) indicated in the second column. See Instruction 2.
----------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
----------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THIS
LETTER OF TRANSMITTAL.
<PAGE>
Stockholders:
Reference is made to the Offering Circular - Prospectus, dated [ ], 1996
(the "Offering Circular - Prospectus") of Viacom Inc., a Delaware corporation
("Viacom"), and this Letter of Transmittal (the "Letter of Transmittal"),
receipt of which is hereby acknowledged, which together constitute Viacom's
offer to Viacom stockholders (the "Exchange Offer") to exchange a total of
[ ] shares of VII Cable Class A Common Stock having a par value of
$100 per share and an aggregate par value of [$ million] for shares of
Viacom Class A Common Stock and/or Viacom Class B Common Stock, at an 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 Offering Circular - Prospectus. See "Transaction Overview,"
"Summary," "The Transaction" and "The Exchange Offer--Certain Conditions of
the Exchange Offer" in the Offering Circular - Prospectus. Capitalized terms
used herein shall have the meanings ascribed to them in the Offering
Circular - Prospectus.
HOLDERS WHO SUCCESSFULLY PARTICIPATE IN THE EXCHANGE OFFER WILL INITIALLY
RECEIVE SHARES OF VII CABLE CLASS A COMMON STOCK WHICH, AT THE COMPLETION OF
THE TRANSACTION, WILL AUTOMATICALLY AND IMMEDIATELY CONVERT INTO SHARES OF VII
CABLE PREFERRED STOCK ON A ONE FOR ONE BASIS. VIACOM STOCKHOLDERS
PARTICIPATING IN THE EXCHANGE OFFER WILL NOT AT ANY TIME TAKE PHYSICAL
POSSESSION OF SHARES OF VII CABLE CLASS A COMMON STOCK. ACCORDINGLY, IT IS THE
VII CABLE PREFERRED STOCK THAT HOLDERS OF VIACOM COMMON STOCK WILL ULTIMATELY
RECEIVE IF THEIR SHARES ARE ACCEPTED FOR EXCHANGE IN THE EXCHANGE OFFER.
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. The proration
period and withdrawal rights will also expire at the Expiration Time on the
Expiration Date.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to Viacom the shares of Viacom Common Stock
represented by the certificate(s) described below. Subject to, and effective
upon, the acceptance for exchange of the shares of Viacom Common Stock
tendered herewith, the undersigned hereby sells, assigns and transfers to, or
upon the order of, Viacom, all right, title and interest in and to such
shares. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that said Exchange Agent also acts as the
agent of Viacom) with respect to the shares of Viacom Common Stock tendered
herewith, with full power of substitution (such power of attorney being deemed
to be an irrevocable power coupled with an interest) (a) to deliver stock
certificates representing the shares of Viacom Common Stock tendered herewith
or transfer ownership of such shares on the account books maintained by The
Depository Trust Company ("DTC"), the Midwest Securities Trust Company
("MSTC") or the Philadelphia Depository Trust Company ("PHILADEP," and
together with DTC and MSTC, the "Book-Entry Transfer Facilities"), together,
in any such case, with all accompanying evidences of transfer and
authenticity, to or upon the order of Viacom upon receipt by the Exchange
Agent, as the undersigned's agent, of shares of VII Cable Class A Common Stock
("VII Cable Certificate(s)") to which the undersigned is entitled upon the
acceptance for exchange by Viacom of the shares of Viacom Common Stock
tendered herewith under the Exchange Offer and the consummation of the Stock
Issuance; (b) to present certificate(s) representing such shares of Viacom
Common Stock for transfer on the books of Viacom and (c) to receive all
benefits and otherwise exercise all rights of beneficial ownership of such
shares, all in accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the shares of Viacom
Common Stock tendered hereby and that when such shares of Viacom
2
<PAGE>
Common Stock are accepted by Viacom for exchange pursuant to the Exchange
Offer, Viacom will acquire good, marketable and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and that
none of such shares of Viacom Common Stock will be subject to any adverse
claim when the same are accepted for exchange by Viacom. The undersigned will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or Viacom to be necessary or desirable to complete the sale,
assignment and transfer of the shares of Viacom Common Stock tendered hereby.
All authority conferred or agreed to be conferred in this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
This tender may be withdrawn only in accordance with the procedures set forth
in the Offering Circular - Prospectus and the Instructions contained in this
Letter of Transmittal.
The undersigned understands that, as discussed above, if more shares of
Viacom Common Stock than are necessary to reach the Trigger Amount are validly
tendered and not properly withdrawn in the Exchange Offer at Exchange Ratios
at or below the Final Exchange Ratio as provided in the Offering Circular -
Prospectus, the shares of Viacom Common Stock so tendered and not properly
withdrawn at such Exchange Ratios shall be accepted for exchange on a pro rata
basis in accordance with the terms set forth in the Offering Circular -
Prospectus under "The Exchange Offer--Terms of the Exchange Offer." The
undersigned understands that, upon acceptance by Viacom of the shares of
Viacom Common Stock tendered herewith, the undersigned will be deemed to have
accepted the shares of VII Cable Class A Common Stock exchanged therefor and
will be deemed to have relinquished all rights with respect to the shares of
Viacom Common Stock so accepted.
The undersigned recognizes that, under certain circumstances and subject to
certain conditions to the Exchange Offer (which Viacom may waive) set forth in
the Offering Circular - Prospectus, Viacom may not be required to accept for
exchange any of the shares of Viacom Common Stock tendered herewith or any
shares of Viacom Common Stock tendered after the Expiration Time on the
Expiration Date. The shares of Viacom Common Stock delivered to the Exchange
Agent and not accepted for exchange will be returned to the undersigned as
promptly as practicable following expiration or termination of the Exchange
Offer at the address set forth on the cover page of this Letter of Transmittal
under "Description of Certificate(s)" unless otherwise indicated under
"Special Delivery Instructions" below.
The undersigned understands that Viacom will, upon the terms and subject to
the conditions of the Exchange Offer, conduct the Exchange Offer as a modified
"dutch auction" in which each Viacom stockholder has the opportunity to pick
an Exchange Ratio within the Exchange Ratio Range (in increments of .00125) at
which it is willing to exchange some or all of its Viacom Common Stock for
shares of VII Cable Class A Common Stock. The undersigned understands that a
"dutch auction" is a competitive bid between the undersigned and other Viacom
stockholders where the Final Exchange Ratio is the lowest bid which enables
Viacom to exchange all of the shares of VII Cable Class A Common Stock. The
undersigned understands that all shares of Viacom Common Stock properly
tendered at Exchange Ratios at or below the Final Exchange Ratio and not
withdrawn prior to the Expiration Time on the Expiration Date will be
exchanged at the Final Exchange Ratio, upon the terms and subject to the
conditions of the Exchange Offer, including its proration provisions, and that
Viacom will return all other shares of Viacom Common Stock not exchanged
pursuant to the Exchange Offer, including shares of Viacom Common Stock
tendered and not withdrawn prior to the Expiration Time on the Expiration Date
at Exchange Ratios greater than the Final Exchange Ratio and shares of Viacom
Common Stock not exchanged because of proration.
Unless otherwise indicated under "Special Issuance Instructions" (Box #5)
below, please issue (i) the VII Cable Certificate(s) to which the undersigned
is entitled; (ii) if applicable, a check in lieu of a fractional share equal
to such
3
<PAGE>
fraction multiplied by the average gross selling price per share, net of
commissions, of VII Cable Preferred Stock obtained by the Exchange Agent upon
the sale of all fractional shares on behalf of those tendering Viacom
stockholders otherwise entitled to receive fractional shares (a "Fractional
Share Check"); and (iii) if applicable, the certificate(s) representing any
shares of Viacom Common Stock tendered herewith that are not accepted for
exchange, in each case in the name(s) of the registered holder(s) shown on the
cover page of this Letter of Transmittal under "Description of
Certificate(s)." Unless otherwise indicated in the box entitled "Special
Delivery Instructions," (Box #6) please send (i) VII Cable Certificate(s) to
which the undersigned is entitled, and (ii) if applicable, a Fractional Share
Check, in each case issued in the name(s) of the registered holder(s) shown on
the cover page of this Letter of Transmittal under "Description of
Certificate(s)" together with, if applicable, certificate(s) representing any
shares of Viacom Common Stock not tendered by the undersigned or any shares of
Viacom Common Stock tendered herewith not accepted for exchange by Viacom (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) shown below under "Description of Certificate(s)." Any shares of
Viacom Common Stock delivered by book-entry transfer that are not tendered or
any shares of Viacom Common Stock tendered herewith delivered by book-entry
transfer that are not accepted for exchange will be credited to the account at
the Book-Entry Transfer Facility designated on the cover page of this Letter
of Transmittal in Box #1 entitled "Description of Certificate(s)." The
undersigned recognizes that Viacom has no obligation pursuant to the "Special
Issuance Instructions" to transfer any shares of Viacom Common Stock from the
name of the registered holder hereof if Viacom does not accept for exchange
such shares. In the event that Boxes #5 and #6 entitled "Special Issuance
Instructions" and "Special Delivery Instructions" are both completed, please
issue (i) VII Cable Certificate(s) to which the undersigned is entitled; (ii)
if applicable, a Fractional Share Check; and (iii) if applicable, the
certificate(s) representing any shares of Viacom Common Stock tendered
herewith and not accepted for exchange in the name(s) of, and mail such
certificate(s) and check (and accompanying documents, as appropriate) to, the
person(s) so indicated. Certificate(s) representing any shares of Viacom
Common Stock not tendered by the undersigned will be returned in the name(s)
of the tendering holder(s) shown on the cover page of this Letter of
Transmittal to the address(es) under "Description of Certificate(s)," unless
otherwise instructed under "Special Delivery Instructions."
The undersigned understands that the delivery and surrender of the shares of
Viacom Common Stock tendered herewith is not effective, and the risk of loss
of the shares of Viacom Common Stock (including shares of Viacom Common Stock
tendered herewith) does not pass to the Exchange Agent, until receipt by the
Exchange Agent of this Letter of Transmittal, or a manually signed facsimile
hereof, duly completed and signed, or an Agent's Message (as defined in the
Offering Circular - Prospectus under "The Exchange Offer--Procedures for
Tendering Shares of Viacom Common Stock") in connection with a book-entry
transfer of shares, together with all accompanying evidences of authority in
form satisfactory to Viacom and any other required documents. All questions as
to validity, form and eligibility and acceptance for exchange of any surrender
of shares of Viacom Common Stock tendered herewith will be determined by
Viacom in its sole discretion and such determination shall be final and
binding upon all tendering holders.
The undersigned understands that a tender of shares of Viacom Common Stock
and the acceptance by Viacom for exchange of such shares pursuant to the
procedures described in the Offering Circular - Prospectus under "The Exchange
Offer--Procedures for Tendering Shares of Viacom Common Stock" and in the
Instructions hereto will constitute a binding agreement between the
undersigned 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.
4
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
This Letter of Transmittal is to be used if either (i) the certificate(s)
representing shares of Viacom Common Stock are to be forwarded herewith or,
unless an Agent's Message is utilized, if tenders are to be made by book-entry
transfer to the account maintained by the Exchange Agent at DTC, MSTC or
PHILADEP or (ii) guaranteed delivery procedures are being used, according to
the procedures set forth in the Offering Circular - Prospectus under "The
Exchange Offer--Guaranteed Delivery Procedure." Delivery of documents to DTC,
MSTC or PHILADEP does not constitute delivery to the Exchange Agent.
Your bank or broker can assist you in completing this form. The Instructions
included with this Letter of Transmittal must be followed. Questions and
requests for assistance or for additional copies of the Offering Circular -
Prospectus and this Letter of Transmittal may be directed to the Information
Agent at the address indicated below.
Holders of Viacom Common Stock will receive that fraction of a share of VII
Cable Class A Common Stock designated by such holders, or such greater
fraction as may be represented by the Final Exchange Ratio, for each share of
Viacom Common Stock accepted for exchange.
BOX #2
THE FOLLOWING MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS AND PARTICIPANTS
IN VIACOM INC. EMPLOYEE BENEFIT PLANS.
- -------------------------------------------------------------------------------
FRACTION OF A SHARE OF VII CABLE CLASS A COMMON STOCK AT WHICH SHARES
OF VIACOM COMMON STOCK ARE BEING TENDERED FOR EXCHANGE
- -------------------------------------------------------------------------------
CHECK ONLY ONE BOX.
TENDERS MAY ONLY BE SUBMITTED IN INCREMENTS OF .00125. IF MORE THAN ONE BOX IS
CHECKED OR IF NO BOX IS CHECKED,
THERE IS NO PROPER TENDER OF SHARES OF VIACOM COMMON STOCK.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ]
</TABLE>
5
<PAGE>
BOX #3
THE FOLLOWING MUST BE COMPLETED ONLY BY PARTICIPANTS IN VIACOM INC.
EMPLOYEE BENEFIT PLANS (SEE INSTRUCTION 6.)
The undersigned hereby directs Putnam Fiduciary Trust Company, as
Trustee of the Viacom Investment Plan (the "VIP"), the Savings and
Investment Plan for Employees of PVI Transmission Inc. and Paramount
(PDI) Distribution Inc. (the "PVIT/PDI Plan") and the Savings and
Investment Plan for Collective Bargaining Employees of Viacom
Broadcasting of Missouri, Inc. (the "Missouri Plan") to tender to Viacom,
upon the terms and subject to the conditions set forth in this Letter of
Transmittal and in the related Offering Circular -- Prospectus, the
indicated number of shares of Viacom Class A Common Stock or Viacom Class
B Common Stock allocated to my VIP Account, PVIT/PDI Account or Missouri
Plan Account. IF YOU DO NOT WISH TO TENDER ANY PLAN SHARES, DO NOT RETURN
THIS LETTER OF TRANSMITTAL.
[_] CHECK HERE IF YOU ARE A PARTICIPANT IN THE VIP AND WISH TO TENDER
SHARES OF VIACOM COMMON STOCK HELD IN YOUR ACCOUNT UNDER THE VIP AND
COMPLETE THE FOLLOWING:
Number of shares of Viacom Class A Common Stock tendered from VIP:
.
Number of shares of Viacom Class B Common Stock tendered from VIP:
.
[_] CHECK HERE IF YOU ARE A PARTICIPANT IN THE PVIT/PDI PLAN AND WISH TO
TENDER SHARES OF VIACOM COMMON STOCK HELD IN YOUR ACCOUNT UNDER THE
PVIT/PDI AND COMPLETE THE FOLLOWING:
Number of shares of Viacom Class A Common Stock tendered from PVIT/PDI
Plan: .
Number of shares of Viacom Class B Common Stock tendered from PVIT/PDI
Plan: .
[_] CHECK HERE IF YOU ARE A PARTICIPANT IN THE MISSOURI PLAN AND WISH TO
TENDER SHARES OF VIACOM COMMON STOCK HELD IN YOUR ACCOUNT UNDER THE
MISSOURI PLAN AND COMPLETE THE FOLLOWING:
Number of shares of Viacom Class A Common Stock tendered from Missouri
Plan: .
Number of shares of Viacom Class B Common Stock tendered from Missouri
Plan: .
6
<PAGE>
BOX #4
THE FOLLOWING MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS.
PARTICIPANTS IN VIACOM INC. EMPLOYEE BENEFIT PLANS SHOULD NOT COMPLETE
THIS BOX.
[_] CHECK HERE IF THE CERTIFICATE(S) REPRESENTING TENDERED SHARES OF
VIACOM COMMON STOCK ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED SHARES OF VIACOM COMMON STOCK ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution: ________________________________________
Name of Book-Entry Transfer Facility (check one):
[_] DTC [_] MSTC [_] PHILADEP Account Number: _____________________
Transaction Code Number: ______________________________________________
[_] CHECK HERE IF THE CERTIFICATE(S) REPRESENTING TENDERED SHARES OF
VIACOM COMMON STOCK ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (See Instruction 1):
Name(s) of Registered Holder(s): ______________________________________
Date of Execution of Notice of Guaranteed Delivery: ___________________
Window Ticket No. (if any): ___________________________________________
Name of Institution that Guaranteed Delivery: _________________________
If delivered by Book-Entry Transfer, check box of Book-Entry Transfer
Facility (check one):
[_] DTC [_] MSTC [_] PHILADEP Account Number: _____________________
Transaction Code Number: ______________________________________________
7
<PAGE>
THE FOLLOWING MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS WHO HAVE SPECIAL
ISSUANCE OR DELIVERY INSTRUCTIONS. PARTICIPANTS IN VIACOM INC. EMPLOYEE BENEFIT
PLANS SHOULD NOT COMPLETE THESE BOXES.
BOX #5 BOX #6
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5) (See Instructions 4 and 5)
To be completed ONLY if shares To be completed ONLY if shares
of Viacom Common Stock not ten- of Viacom Common Stock not ten-
dered or any shares of Viacom dered or any shares of Viacom
Common Stock not accepted for ex- Common Stock not accepted for ex-
change, VII Cable Certificate(s) change, VII Cable Certificate(s)
and/or any Fractional Share Check and/or any Fractional Share Check
issued in connection therewith issued in connection therewith
are to be issued in the name of are to be sent to someone other
someone other than the under- than the undersigned, or to the
signed. undersigned at an address other
than that shown in the box enti-
tled "Description of Certifi-
cate(s)" on the cover page of
this Letter of Transmittal.
Issue:
(check appropriate box(es)): Mail:
[_]VII Cable Certificate(s) to: (check appropriate box(es)):
[_]Fractional Share Check to: [_]VII Cable Certificate(s) to:
[_]Viacom Certificate(s) to: [_]Fractional Share Check to:
Name(s) __________________________ [_]Viacom Certificate(s) to:
(PLEASE PRINT) Name(s) __________________________
__________________________________ (PLEASE PRINT)
(PLEASE PRINT) __________________________________
Address __________________________ (PLEASE PRINT)
__________________________________ Address __________________________
ZIP CODE __________________________________
__________________________________ ZIP CODE
EMPLOYER IDENTIFICATION OR SOCIAL
SECURITY NUMBER
8
<PAGE>
BOX #7
THE FOLLOWING MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS AND PARTICIPANTS
IN VIACOM INC. EMPLOYEE BENEFIT PLANS.
IMPORTANT--PLEASE SIGN HERE
(Please Complete Substitute Form W-9 on Reverse)
(See Instructions 1 and 4)
X ____________________________________________________________________________
X ____________________________________________________________________________
SIGNATURE(S) OF OWNER(S)
(In the case of tendering stockholders, this Letter of Transmittal must be
signed by the registered holder(s) as the name(s) appear(s) on Viacom stock
certificate(s) or on a security position listing or by person(s) authorized
to become registered holder(s) by endorsements and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 4.)
Name(s): _____________________________________________________________________
_____________________________________________________________________
(PLEASE PRINT)
Capacity: ____________________________________________________________________
Address: _____________________________________________________________________
_____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.: _________________________________________________
Date: __________________________, 199_
9
<PAGE>
BOX #8
THE FOLLOWING MUST BE COMPLETED BY ALL TENDERING STOCKHOLDERS WHO ARE REQUIRED
TO PROVIDE SIGNATURE GUARANTEES. SEE INSTRUCTIONS 1 AND 4.
PARTICIPANTS IN VIACOM INC. EMPLOYEE BENEFIT PLANS SHOULD NOT COMPLETE THIS
BOX.
SIGNATURE GUARANTEE
FOR USE BY ELIGIBLE INSTITUTIONS ONLY.
PLACE MEDALLION GUARANTEE IN SPACE BELOW.
Signature(s) Guaranteed by an Eligible Institution: __________________________
(AUTHORIZED SIGNATURE)
Name: ________________________________________________________________________
(PLEASE PRINT)
Title: _______________________________________________________________________
Name of Firm: ________________________________________________________________
Address: _____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.: _________________________________________________
Date: __________________________, 199_
10
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND VIACOM STOCK CERTIFICATE(S).
This Letter of Transmittal is to be completed by stockholders either if (i)
the certificate(s) representing shares of Viacom Common Stock tendered
herewith are to be forwarded herewith or, unless an Agent's Message (as
defined in the Offering Circular - Prospectus in "The Exchange Offer--
Procedures for Tendering Shares of Viacom Common Stock") is utilized, if
tenders are to be made pursuant to the procedures for book-entry transfer set
forth in the Offering Circular - Prospectus under "The Exchange Offer--
Procedures for Tendering Shares of Viacom Common Stock" or (ii) the shares of
Viacom Common Stock will be tendered pursuant to the guaranteed delivery
procedures set forth in the Offering Circular - Prospectus under "The Exchange
Offer--Guaranteed Delivery Procedure." The certificate(s) representing shares
of Viacom Common Stock tendered herewith, or confirmation of any book-entry
transfer into the Exchange Agent's account at DTC, MSTC or PHILADEP of shares
of Viacom Common Stock tendered electronically, as well as a properly
completed and duly executed copy of this Letter of Transmittal or a manually
signed facsimile hereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at one of its addresses
set forth herein on or prior to the Expiration Date. THE METHOD OF DELIVERY OF
THIS LETTER OF TRANSMITTAL, THE CERTIFICATE(S) REPRESENTING SHARES OF VIACOM
COMMON STOCK TENDERED HEREWITH AND ANY OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER, BUT, EXCEPT AS OTHERWISE
PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
OR CONFIRMED BY THE EXCHANGE AGENT. IF CERTIFICATE(S) REPRESENTING SHARES OF
VIACOM COMMON STOCK TENDERED HEREWITH ARE SENT BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED AND SUFFICIENT TIME
TO ENSURE TIMELY RECEIPT SHOULD BE ALLOWED.
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
No alternative, conditional or contingent tenders will be accepted for
exchange in the Exchange Offer. All tendering stockholders, by execution of
this Letter of Transmittal or a manually signed facsimile hereof, waive any
right to receive any notice of the acceptance of their shares of Viacom Common
Stock for exchange.
Holders whose stock certificate(s) representing shares of Viacom Common
Stock are not immediately available or who cannot deliver their certificate(s)
and all other required documents to the Exchange Agent on or prior to the
Expiration Date or who cannot complete the procedure for delivery by book-
entry transfer on a timely basis may tender their shares of Viacom Common
Stock pursuant to the guaranteed delivery procedure set forth in the Offering
Circular - Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedure." Pursuant to such procedure: (i) such tender must be made by or
through 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 (an "Eligible Institution"); (ii) prior to the
Expiration Time on the Expiration Date, the Exchange Agent must have received
from such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery (by telegram, facsimile transmission, mail or hand
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 such shares of Viacom Common Stock,
accompanied by all other documents required by this Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(iii) the certificate(s) representing the shares of Viacom Common Stock
tendered herewith (or a confirmation of a book-entry transfer of such shares
of Viacom Common Stock into the Exchange Agent's account at DTC, MSTC or
PHILADEP as described above), together with a properly completed and duly
executed Letter of Transmittal (or manually signed
11
<PAGE>
facsimile hereof) and any required signature guarantees, or an Agent's Message
in connection with a book-entry transfer of shares, and any other documents
required hereby, must be received by the Exchange Agent within three AMEX
trading days after the date of the Notice of Guaranteed Delivery, all as
provided in the Offering Circular - Prospectus under "The Exchange Offer--
Guaranteed Delivery Procedure."
See "The Exchange Offer" section of the Offering Circular - Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER); WITHDRAWALS.
If less than all the shares of Viacom Common Stock evidenced by any
certificate(s) are to be tendered, the tendering holder should fill in the
number of shares to be tendered in the part of Box #1 entitled "Number of
Shares Tendered." A reissued certificate representing the number of shares of
Viacom Common Stock not tendered will be issued in the name of, and sent to,
such registered holder, unless otherwise indicated under "Special Issuance
Instructions" (Box #5) or "Special Delivery Instructions" (Box #6) above, as
soon as practicable after the Expiration Date. THE ENTIRE NUMBER OF SHARES OF
VIACOM COMMON STOCK REPRESENTED BY ANY CERTIFICATE(S) DELIVERED TO THE
EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE
INDICATED.
Any holder of shares of Viacom Common Stock who has tendered shares of
Viacom Common Stock may withdraw the tender at any time prior to 12:00
Midnight, New York City time, on the Expiration Date, and may also withdraw
such tender after the expiration of 40 business days from the commencement of
the Exchange Offer, unless theretofore accepted for exchange as provided in
the Offering Circular - Prospectus.
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 above, and must comply with the requirements set forth in
the Offering Circular - Prospectus under "The Exchange Offer--Withdrawal
Rights." 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. Withdrawn shares of Viacom Common Stock, however, may be
retendered by again following one of the procedures described in the Offering
Circular - Prospectus under the caption "The Exchange Offer--Procedures for
Tendering Shares of Viacom Common Stock" at any time on or prior to 12:00
Midnight, New York City time, on the Expiration Date.
3. INDICATION OF EXCHANGE RATIO AT WHICH SHARES OF VIACOM COMMON STOCK ARE
BEING TENDERED.
For shares of Viacom Common Stock to be properly tendered, the stockholder
MUST check the box within Box #2 indicating the fraction of a share of VII
Cable Class A Common Stock that he or she is willing to receive in exchange
for a share of Viacom Common Stock in the table entitled "Fraction of a Share
of VII Cable Class A Common Stock at which Shares of Viacom Common Stock are
being Tendered for Exchange" on page [ ] of this Letter of Transmittal.
Tenders may only be made in increments of .00125. ONLY ONE BOX MAY BE CHECKED.
IF MORE THAN ONE BOX IS CHECKED OR IF NO BOX IS CHECKED, THERE IS NO PROPER
TENDER OF SHARES OF VIACOM COMMON STOCK. A stockholder wishing to tender
portions of his or her holdings of Viacom Common Stock at different fractions
must complete a separate Letter of Transmittal for each fraction at which he
or she wishes to tender such portion of his or her shares of Viacom Common
Stock. The same shares of Viacom Common Stock cannot be tendered (unless
previously properly withdrawn as provided in the Offering Circular -
Prospectus under the caption "The Exchange Offer--Withdrawal Rights") at more
than one Exchange Ratio.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of the
shares of Viacom Common Stock tendered hereby, the signature(s) must
correspond exactly with the name(s) as written on the face of the
certificate(s) representing the shares of Viacom Common Stock without
alteration, enlargement or any other change whatsoever.
12
<PAGE>
If any of the shares of Viacom Common Stock tendered hereby are registered
in the name of two or more joint owners, all such owners must sign this Letter
of Transmittal.
If any tendered shares of Viacom Common Stock are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
shares of Viacom Common Stock listed and tendered hereby, no endorsements of
certificates or separate stock powers are required, unless VII Cable
Certificate(s) are to be issued, or certificate(s) for any untendered shares
of Viacom Common Stock or for any shares of Viacom Common Stock not accepted
for exchange are to be reissued, in the name of a person other than the
registered holder(s), in which case, the stock certificate(s) evidencing the
shares of Viacom Common Stock tendered hereby must be endorsed or accompanied
by appropriate stock power(s), in either case, signed exactly as the name(s)
of the registered holder(s) appear(s) on such stock certificate(s). Signatures
on such stock certificate(s) and stock power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the shares of Viacom Common Stock listed and tendered
hereby, the certificate(s) representing such shares of Viacom Common Stock
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name(s) of the registered holder(s) appear(s) on such
certificate(s), and such signatures must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any certificates or stock powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of a corporation or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and proper evidence satisfactory
to Viacom of their authority so to act must be submitted.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the shares of Viacom Common Stock are tendered:
(i) by a registered holder of such shares of Viacom Common Stock (which term,
for purposes of this Letter of Transmittal, shall include any participant in
DTC, MSTC or PHILADEP whose name appears on a security position listing as the
owner of shares of Viacom Common Stock) who has not completed the box entitled
"Special Issuance Instructions" (Box #5) or "Special Delivery Instructions"
(Box #6) of this Letter of Transmittal; or (ii) for the account of an Eligible
Institution.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders should indicate in the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" (Box #5), as applicable, the
name and address to which VII Cable Certificate(s), a Fractional Share Check,
if any, and/or substitute certificate(s) for shares of Viacom Common Stock not
tendered or any shares of Viacom Common Stock not accepted for exchange are to
be issued or sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the employer identification or social security number of the person
named must also be indicated.
6. SHARES HELD BY VIACOM INC. EMPLOYEE BENEFIT PLANS.
Shareholders who are participants or, as applicable, beneficiaries
("Participants") in the Viacom Investment Plan (the "VIP"), the Savings and
Investment Plan for Employees of PVI Transmission Inc. and Paramount (PDI)
Distribution Inc. (the "PVIT/PDI Plan") and the Savings and Investment Plan
for Collective Bargaining Employees
13
<PAGE>
of Viacom Broadcasting of Missouri, Inc. (the "Missouri Plan" and collectively
with the VIP and the PVIT/PDI Plan, the "Plans") and who wish to tender shares
of Viacom Common Stock held in their account under any of the Plans ("Plan
Shares") pursuant to the Exchange Offer must so indicate by completing Box #2,
Box #3 and the signature line in Box #7 above and returning this Letter of
Transmittal (or manually signed facsimile thereof) to the Exchange Agent. If a
Participant authorizes the tender of his or her Plan Shares, but does not
indicate the number of shares to be tendered or does not otherwise fully and
properly complete this Letter of Transmittal, the Plan Shares in that
Participant's account will not be tendered. IF YOU DO NOT WISH TO TENDER ANY
PLAN SHARES, DO NOT RETURN THIS LETTER OF TRANSMITTAL. If a Participant
authorizes the tender of his or her Plan Shares and such Plan Shares are
actually exchanged under the terms and subject to the conditions of the
Exchange Offer, Putnam Fiduciary Trust Company, as the Trustee of the Plans,
will reduce the number of shares of Viacom Common Stock in the Participant's
VIP, PVIT/PDI Plan or Missouri Plan account by the number of Plan Shares that
are accepted for exchange. Any Plan Shares tendered but not exchanged will be
returned to the Participant's VIP, PVIT/PDI Plan or Missouri Plan account.
7. STOCK TRANSFER TAXES.
Viacom will pay all transfer taxes, if any, applicable to the transfer and
sale of shares of Viacom Common Stock to it or its order pursuant to the
Exchange Offer. If, however, certificate(s) for shares of Viacom Common Stock
not tendered or not accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holder of the shares of Viacom Common Stock tendered hereby, or if tendered
shares of Viacom Common Stock are registered in the name of any person other
than the person signing this Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the transfer and sale of shares of Viacom
Common Stock to Viacom or its order pursuant to the Exchange Offer, the amount
of any such transfer taxes whether imposed on the registered holder or any
other persons will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefor is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) representing shares of
Viacom Common Stock listed in this Letter of Transmittal.
8. MUTILATED, LOST, STOLEN OR DESTROYED VIACOM STOCK CERTIFICATES.
If any stock certificate(s) representing shares of Viacom Common Stock have
been mutilated, lost, stolen or destroyed 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(s), (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. Any holder whose stock certificate(s) representing shares of
Viacom Common Stock have been mutilated, lost, stolen or destroyed should
promptly contact the Exchange Agent at the address indicated above for further
instructions.
9. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
assistance or additional copies of the Offering Circular - Prospectus, this
Letter of Transmittal and the Notice of Guaranteed Delivery, may be directed
to
14
<PAGE>
the Information Agent at the address indicated below. Additional copies of the
Offering Circular - Prospectus, this Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from brokers, dealers, commercial
banks or trust companies.
10. IMPORTANT TAX INFORMATION; SUBSTITUTE FORM W-9.
Federal income tax law requires that a holder whose tendered shares of
Viacom Common Stock are accepted for exchange must provide the Exchange Agent
(as payor) with his or her correct taxpayer identification number ("TIN"), on
Substitute Form W-9 below, which, in the case of a holder who is an
individual, is his or her social security number. If the Exchange Agent is not
provided with the correct TIN or an adequate basis for exemption, the holder
may be subject to a $50 penalty imposed by the Internal Revenue Service (the
"IRS") in addition to backup withholding in an amount equal to 31% of the
gross proceeds resulting from the Exchange Offer.
Exempt holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed Guidelines for Certification of Taxpayer
Identification Number and Substitute Form W-9 for additional instructions.
To prevent backup withholding, each tendering holder must provide his or her
correct TIN by completing the "Substitute Form W-9" set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to backup withholding as a result of the failure to report all
interest or dividends or (iii) the IRS has notified the holder that he or she
is no longer subject to backup withholding. In order to satisfy the Exchange
Agent that foreign individual qualifies as an exempt recipient, such holders
must submit a statement signed under penalty of perjury attesting to such
exempt status. Such statements may be obtained from the Exchange Agent. If the
certificate(s) representing shares of Viacom Common Stock are in more than one
name or are not in the name of the actual owner, consult the enclosed
guidelines for information on which TIN to report. If you do not have a TIN,
consult the enclosed guidelines for instructions of applying for a TIN, check
the box in Part 2 of the Substitute Form W-9 (Box #9), and complete the
Certificate of Awaiting Taxpayer Identification Number (Box #10) in order to
avoid backup withholding. Notwithstanding that the box in Part 2 of Box #9 is
checked and the Certificate of Awaiting Taxpayer Identification Number is
completed, the Exchange Agent will withhold 31% of all reportable payments
made prior to the time a properly certified TIN is provided to the Exchange
Agent, and if the TIN is provided within 60 days, such amount will be
refunded.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any such payments made to the stockholder or other payee. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld.
If backup withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
Holders of shares of Viacom Common Stock who acquired their shares at
different times may have different tax bases in their shares of Viacom Common
Stock, and may wish to consult with their own tax advisors as to the
possibility of identifying the specific shares of Viacom Common Stock
surrendered in the Exchange Offer in order to establish the basis of the
shares of VII Cable Class A Common Stock issued in exchange for shares of
Viacom Common Stock surrendered.
15
<PAGE>
THE FOLLOWING BOXES MUST BE COMPLETED BY ALLTENDERING STOCKHOLDERS.
PARTICIPANTS IN VIACOM INC. EMPLOYEE BENEFIT PLANS SHOULD NOT COMPLETE THESE
BOXES. ---
(See Instruction 10)
PAYOR'S NAME:
BOX #9
- --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR Social security
TIN IN THE BOX AT RIGHT AND number or Employer
CERTIFY BY SIGNING AND identification number
DATING BELOW. ______________________
-------------------------------------------------------
SUBSTITUTE PART 2--Awaiting TIN [_]
FORM W-9 -------------------------------------------------------
DEPARTMENT OF CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
THE TREASURY CERTIFY THAT (1) the number shown on this form is
INTERNAL my correct taxpayer identification number (or I am
REVENUE waiting for a number to be issued to me) and (2) I
SERVICE am not subject to backup withholding either because
(a) I am exempt from backup withholding, (b) I have
not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result
of the failure to report all interest or dividends,
or (c) the Internal Revenue Service has notified me
that I am no longer subject to backup withholding.
-------------------------------------------------------
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
-------------------------------------------------------
Signature _______________ Date _______
You must cross out item (2) above if you have been
notified by the Internal Revenue Service that you
are currently subject to backup withholding because
of under reporting interest or dividends on your
tax return. However, if after being notified by the
IRS that you were subject to backup withholding,
you received another notification from the IRS that
you are no longer subject to backup withholding, do
not cross out such item (2).
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2
OF THE SUBSTITUTE FORM W-9.
BOX #10
- --------------------------------------------------------------------------------
CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either that (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(ii) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable payments made to me will be withheld,
but that such amounts will be refunded to me if I then provide a Taxpayer
Identification Number within sixty (60) days.
Signature _______________________________________ Date
- --------------------------------------------------------------------------------
16
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.-- Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
- ---------------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------------------
<S> <C>
1. An individual's The individual
account
2. Two or more The actual owner
individuals (joint of the account
account) or, if combined
funds, the first
individual on
the account(1)
3. Husband and wife The actual owner
(joint account) of the account
or, if joint
funds. either
person(1)
4. Custodian account The minor(2)
of a minor (Uniform
Gift to Minors Act)
5. Adult and minor The adult or, if
(joint account) the minor is the
only
contributor, the
minor(1)
6. Account in the name The ward, minor,
of guardian or or incompetent
committee for a person(3)
designated ward,
minor, or
incompetent person
7. a. The usual The grantor-
revocable savings trustee(1)
trust account
(grantor is also
trustee)
b. So-called trust The actual
account that is not owner(1)
a legal or valid
trust under State
law
- ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
<S> <C>
8. Sole The owner(4)
proprietorship
account
9. A valid trust, The legal entity
estate, or (Do not furnish
pension trust the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, The organization
charitable, or
educational
organization
account
12. Partnership The partnership
account held in
the name of the
business
13. Association, The organization
club, or other
tax-exempt
organization
14. A broker or The broker or
registered nominee
nominee
15. Account with the The public
Department of entity
Agriculture in
the name of a
public entity
(such as a State
or local
government,
school district,
or prison) that
receives
agricultural
program payments
- ----------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner. If the owner does not have an employer
identification number, furnish the owner's social security number.
(5) List first and circle the name of the legal trust, estate or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
17
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service.
To complete Substitute Form W-9 if you do not have a taxpayer identification
number, write "Applied For" in the space for the taxpayer identification
number in Part 1, sign and date the Form, and give it to the requester.
Generally, you will then have 60 days to obtain a taxpayer identification
number and furnish it to the requester. If the requester does not receive your
taxpayer identification number within 60 days, backup withholding, if
applicable, will begin and continue until you furnish your taxpayer
identification number to the requester.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any political subdivision or instrumentality thereof.
. A foreign government or a political subdivision, agency or instrumentality
thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An entity registered at all times during the tax year under the Investment
Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(3) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. Payers must be
given the numbers whether or not recipients are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividends, and certain
other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CIVIL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
18
<PAGE>
THE INFORMATION AGENT FOR THE EXCHANGE OFFER IS:
[GEORGESON & COMPANY INC. LOGO APPEARS HERE]
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)
19
<PAGE>
EXHIBIT 99.2
FORM OF NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
VIACOM INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Exchange Offer (as defined herein) of Viacom Inc.,
a Delaware corporation ("Viacom"), made pursuant to the Offering Circular -
Prospectus, dated [ ], 1996 (the "Offering Circular - Prospectus"), by
holders whose stock certificate(s) representing shares of Class A Common
Stock, $0.01 par value per share of Viacom ("Viacom Class A Common Stock")
and/or 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") of Viacom are not immediately available or who cannot
deliver the certificate(s) and all other required documents to The Bank of New
York (the "Exchange Agent") on or prior to the Expiration Date (as defined in
the Offering Circular - Prospectus) or who cannot complete the procedure for
book-entry transfer on a timely basis. This Notice of Guaranteed Delivery may
be delivered by hand or transmitted by telegram, facsimile transmission or
mail to the Exchange Agent. See "The Exchange Offer--Guaranteed Delivery
Procedure" in the Offering Circular - Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
By Mail: By Facsimile:
By Hand or Overnight
TENDER & EXCHANGE (FOR ELIGIBLE INSTITUTIONS ONLY) Courier:
DEPARTMENT (212) 815-6213 TENDER & EXCHANGE
P.O. BOX 11248 DEPARTMENT
CHURCH STREET STATION 101 BARCLAY STREET
NEW YORK, NY 10286-1248 RECEIVE AND DELIVER
Confirmation of Facsimile WINDOW
Transmission ONLY: NEW YORK, NY 10286
(800) 274-2944
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO
A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the Instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions set forth in the Offering
Circular - Prospectus, dated [ ], 1996 (the "Offering Circular -
Prospectus"), and the related Letter of Transmittal (which together
constitute the "Exchange Offer"), the receipt of which is hereby acknowledged,
the undersigned hereby tenders to Viacom Inc., a Delaware corporation
("Viacom"), the number of shares of Class A Common Stock, $0.01 par value per
share of Viacom ("Viacom Class A Common Stock"), and/or 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"), of
Viacom set forth below, at the Exchange Ratio (as defined in the Offering
Circular - Prospectus) indicated in this Notice of Guaranteed Delivery,
pursuant to the guaranteed delivery procedure set forth in "The Exchange
Offer--Guaranteed Delivery Procedure" in the Offering Circular - Prospectus.
Holders of Viacom Common Stock will receive that fraction of a share of VII
Cable Class A Common Stock designated by such holders, or such greater
fraction as may be represented by the Final Exchange Ratio, for each share of
Viacom Common Stock accepted for exchange.
FRACTION OF A SHARE OF VII CABLE CLASS A COMMON STOCK AT WHICH SHARES
OF VIACOM COMMON STOCK ARE BEING TENDERED FOR EXCHANGE
- -------------------------------------------------------------------------------
CHECK ONLY ONE BOX.
TENDERS MAY ONLY BE SUBMITTED IN INCREMENTS OF .00125.
IF MORE THAN ONE BOX IS CHECKED OR IF NO BOX IS CHECKED,
THERE IS NO PROPER TENDER OF SHARES OF VIACOM COMMON STOCK.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ]
</TABLE>
2
<PAGE>
(PLEASE TYPE OR PRINT)
Signature(s): _______________________ Number of Shares of Viacom Common
Stock Tendered:
- ------------------------------------- -------------------------------------
Certificate No(s). (if applicable):
Name(s) of
Record Holders: _____________________ -------------------------------------
- ------------------------------------- -------------------------------------
Address(es): ________________________ Total Number of Shares Represented
by Viacom Common Stock Certificate(s):
- -------------------------------------
- ------------------------------------- -------------------------------------
(Zip Code)
IF SHARES OF VIACOM COMMON STOCK
WILL BE TENDERED BY BOOK-ENTRY
Area Code and Tel. No(s).: TRANSFER, CHECK ONE BOX AND PROVIDE
ACCOUNT NUMBER
- -------------------------------------
[_] The Depository Trust Company
Dated: ______________________________ [_] Midwest Securities Trust Company
[_] Philadelphia Depository Trust
Company
Account Number ______________________
3
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, 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, hereby (i) guarantees that either the
certificates representing the shares of Viacom Common Stock tendered hereby in
proper form for transfer or a confirmation of a book-entry of such shares of
Viacom Common Stock into the Exchange Agent's account at The Depository Trust
Company, the Midwest Securities Trust Company or the Philadelphia Depository
Trust Company 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 (as defined in the Offering
Circular - Prospectus) in connection with a book-entry transfer of shares, and
any other documents required by the Letter of Transmittal will be received by
the Exchange Agent at one of its addresses set forth above, within three
American Stock Exchange, Inc. trading days after the date hereof, (ii)
represents that the holder on whose behalf this tender is being made owns the
shares of Viacom Common Stock being tendered within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended ("Rule 14e-
4"), and (iii) represents that the tender of such shares of Viacom Common
Stock complies with Rule 14e-4.
- ------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- ------------------------------------- -------------------------------------
Address Title
- ------------------------------------- Name: _______________________________
(Zip Code) (Please Type or Print)
- ------------------------------------- Dated: ______________________________
Area Code and Tel. No.
NOTE: DO NOT SEND CERTIFICATES FOR SHARES OF VIACOM COMMON STOCK WITH THIS
NOTICE. STOCK CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
4
<PAGE>
EXHIBIT 99.3
[WASSERSTEIN PERELLA & CO., INC. LETTERHEAD]
OFFER TO EXCHANGE
NOT MORE THAN [ ] NOR LESS THAN [ ] OF A SHARE OF CLASS A
COMMON STOCK, $100 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.
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.
[ ], 1996
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
Reference is made to the enclosed Offering Circular - Prospectus dated
[ ], 1996 (the "Offering Circular - Prospectus") and the related Letter of
Transmittal (the "Letter of Transmittal"), which together constitute the offer
of Viacom Inc. to its stockholders (the "Exchange Offer") to exchange a total
of shares of VII Cable Class A Common Stock having a par value of $100
per share and an aggregate par value of [$ million] for shares of Viacom
Class A Common Stock and/or Viacom Class B Common Stock, at an 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
Offering Circular - Prospectus. See "Transaction Overview", "Summary", "The
Transaction" and "The Exchange Offer--Certain Conditions of the Exchange
Offer" in the Offering Circular - Prospectus. Capitalized terms used herein
shall have the meanings ascribed to them in the Offering Circular -
Prospectus.
We have been appointed by Viacom to act as the Dealer Manager in connection
with the Exchange Offer. Your attention is directed to the Offering Circular -
Prospectus, which should be read by you in its entirety.
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 (AS DEFINED IN THE OFFERING CIRCULAR - PROSPECTUS).
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. The proration
period and withdrawal rights will also expire at the Expiration Time on the
Expiration Date. If more shares of Viacom Common Stock than are necessary to
reach the Trigger Amount are validly tendered and not properly withdrawn in
the Exchange Offer at Exchange Ratios at or below the Final Exchange Ratio as
provided in the Offering Circular - Prospectus, the shares of Viacom Common
Stock so tendered and not properly withdrawn at such Exchange Ratios shall be
accepted for exchange on a pro rata basis in accordance with the terms set
forth in the Offering Circular - Prospectus under "The Exchange Offer--Terms
of the Exchange Offer."
<PAGE>
For your information and for forwarding to your clients for whom you hold
shares of Viacom Common Stock registered in your name or in the name of your
nominee or who hold shares of Viacom Common Stock registered in their own
names, we are enclosing the following documents:
1. The Offering Circular - Prospectus;
2. The Letter of Transmittal, including the Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9 for your use and
for the information of your clients;
3. A letter that may be sent to your clients for whose account you hold
shares of Viacom Common Stock registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer;
4. Notice of Guaranteed Delivery to be used to accept the Exchange Offer
if the certificates for shares of Viacom Common Stock are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach The
Bank of New York, the Exchange Agent, on or prior to the Expiration Date;
and
5. A return envelope addressed to the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL
RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON [ DAY], [ ],
1996, UNLESS EXTENDED BY VIACOM AS PROVIDED IN THE OFFERING CIRCULAR -
PROSPECTUS. EXCEPT AS OTHERWISE PROVIDED IN THE OFFERING CIRCULAR - PROSPECTUS
OR THE LETTER OF TRANSMITTAL, TENDERS ARE IRREVOCABLE.
Viacom will not pay any fees or commissions to a broker or dealer or other
person (other than the Dealer Manager, the Information Agent and the Exchange
Agent as described in "The Exchange Offer--Fees and Expenses" in the Offering
Circular - Prospectus) in connection with soliciting tenders of shares of
Viacom Common Stock pursuant to the Exchange Offer. Viacom will, however, upon
request reimburse you for customary mailing and handling expenses incurred by
you in forwarding any of the enclosed materials to your clients. Viacom will
pay all transfer taxes, if any, applicable to the transfer and sale of Viacom
Common Stock to it or its order pursuant to the Exchange Offer, except as
otherwise provided in Instruction 7 of the Letter of Transmittal.
To participate in the Exchange Offer, certificate(s) for shares of Viacom
Common Stock or a confirmation of any book-entry transfer into the Exchange
Agent's account at The Depository Trust Company, the Midwest Securities Trust
Company or the Philadelphia Depository Trust Company of shares of Viacom
Common Stock tendered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) and any
required signature guarantees, or an Agent's Message (as defined in the
Offering Circular - Prospectus) in connection with a book-entry transfer of
shares, and any other documents required by the Letter of Transmittal must be
received by the Exchange Agent as indicated in the Letter of Transmittal and
the Offering Circular - Prospectus on or prior to the Expiration Time on the
Expiration Date.
Holders whose stock certificate(s) representing shares of Viacom Common
Stock are not immediately available or who cannot deliver their certificate(s)
and all other required documents to the Exchange Agent on or prior to the
Expiration Time on the Expiration Date or who cannot complete the procedure
for delivery by book-entry transfer on a timely basis may tender their shares
of Viacom Common Stock pursuant to the guaranteed delivery procedure set forth
in the Offering Circular - Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedure."
2
<PAGE>
Any inquiries you may have with respect to the Exchange Offer should be
addressed to the Dealer Manager or the Information Agent at their respective
addresses and telephone numbers set forth on the back cover page of the
Offering Circular - Prospectus. Additional copies of the enclosed material may
be obtained from the undersigned, Wasserstein Perella & Co., Inc., telephone
(212) 969-2700 (call collect), or the Information Agent, Georgeson & Company
Inc., at (212) 440-9800 (call collect), or from brokers, dealers, commercial
banks or trust companies.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS AN AGENT OF VIACOM, VIACOM INTERNATIONAL, THE EXCHANGE
AGENT, THE INFORMATION AGENT, THE DEALER MANAGER, OR ANY AFFILIATE OF ANY OF
THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR
MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE
OFFER, OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
WASSERSTEIN PERELLA & CO., INC.
To Stockholders in Arizona, Florida, Nebraska,
North Carolina, North Dakota, Oklahoma and Vermont:
Enclosed on behalf of Viacom Inc. ("Viacom") is certain information with
respect to the Exchange Offer by Viacom. In order to comply with the
securities laws and regulations of your state, Wasserstein Perella & Co., Inc.
("Wasserstein Perella") is mailing the enclosed materials on behalf of Viacom.
Wasserstein Perella is forwarding the enclosed materials as an accommodation
to Viacom and is not by this letter making a solicitation or recommendation
with respect to the matters set forth in the enclosed materials, nor does
Wasserstein Perella assume any responsibility for the accuracy or completeness
of the statements made therein.
WASSERSTEIN PERELLA & CO., INC.
<PAGE>
EXHIBIT 99.4
OFFER TO EXCHANGE
NOT MORE THAN [ ] NOR LESS THAN [ ] OF A SHARE OF CLASS A
COMMON STOCK, PAR VALUE $100 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.
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.
[ ], 1996
To Our Clients:
Enclosed for your consideration is the Offering Circular - Prospectus, dated
[ ], 1996 (the "Offering Circular - Prospectus"), and the related Letter of
Transmittal (the "Letter of Transmittal"), which together constitute Viacom's
offer to Viacom stockholders (the "Exchange Offer") to exchange a total of
[ ] shares of VII Cable Class A Common Stock having a par value of $100 per
share and an aggregate par value of [$ million] for shares of Viacom Class A
Common Stock and/or Viacom Class B Common Stock, at an 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 Offering Circular - Prospectus. See "Transaction Overview", "Summary",
"The Transaction" and "The Exchange Offer--Certain Conditions of the Exchange
Offer" in the Offering Circular - Prospectus. Capitalized terms used herein
shall have the meanings ascribed to them in the Offering Circular -
Prospectus.
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. The proration
period and withdrawal rights will also expire at the Expiration Time on the
Expiration Date.
THIS MATERIAL IS BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF SHARES OF
VIACOM COMMON STOCK HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR
NAME. A TENDER OF SUCH SHARES OF VIACOM COMMON STOCK MAY ONLY BE MADE BY US AS
THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED
BY YOU TO TENDER SHARES OF VIACOM COMMON STOCK HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender any
or all such shares of Viacom Common Stock held by us for your account,
pursuant to the terms and conditions set forth in the Exchange Offer.
Your attention is invited to the following:
1. The Exchange Ratio Range within which you may tender for exchange is
not greater than [. ] nor less than [. ] a share of VII Cable Class A
Common Stock for each share of Viacom Common Stock tendered and exchanged.
2. Viacom currently holds all of the shares of VII Cable Class A Common
Stock, all of which will be distributed pursuant to the Exchange Offer. As
more fully described in the Offering Circular - Prospectus, upon the
occurrence of certain events immediately following the consummation of the
Exchange Offer, the shares of VII Cable Class A Common Stock will
automatically convert into shares of VII Cable Preferred Stock.
<PAGE>
3. The Exchange Offer, proration period and withdrawal rights will expire
at 12:00 Midnight, New York City time, on [ day], [ ], 1996, unless
extended.
4. A holder of Viacom Common Stock has the right to tender all, or a
portion, of such holder's shares of Viacom Common Stock.
5. Holders of Viacom Common Stock will receive that fraction of a share
of VII Cable Class A Common Stock designated by such holders, or such
greater fraction as may be represented by the Final Exchange Ratio, for
each share of Viacom Common Stock accepted for exchange.
6. 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 (AS DEFINED IN THE OFFERING CIRCULAR -
PROSPECTUS).
7. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 7 of the Letter
of Transmittal, stock transfer taxes with respect to the exchange of shares
in the Exchange Offer.
8. Please instruct us clearly if you wish to tender some shares of Viacom
Common Stock at one Exchange Ratio and other shares of Viacom Common Stock
at another Exchange Ratio. We must submit separate Letters of Transmittal
on your behalf for each Exchange Ratio you will accept, although the same
shares of Viacom Common Stock cannot be tendered for exchange at more than
one Exchange Ratio.
If more shares of Viacom Common Stock than are necessary to reach the
Trigger Amount are validly tendered and not properly withdrawn in the Exchange
Offer at Exchange Ratios at or below the Final Exchange Ratio as provided in
the Offering Circular - Prospectus, the shares of Viacom Common Stock so
tendered and not properly withdrawn at such Exchange Ratios shall be accepted
for exchange on a pro rata basis in accordance with the terms set forth in the
Offering Circular - Prospectus under "The Exchange Offer--Terms of the
Exchange Offer." Upon acceptance by Viacom of the shares of Viacom Common
Stock tendered herewith, stockholders will be deemed to have accepted the
shares of VII Cable Class A Common Stock exchanged therefor and will be deemed
to have relinquished all rights with respect to the shares of Viacom Common
Stock so accepted.
The Exchange Offer is made solely by the Offering Circular - Prospectus and
the related Letter of Transmittal and is being made to all holders of shares
of Viacom Common Stock. Viacom is not aware of any state where the making of
the Exchange Offer is prohibited by administrative or judicial action pursuant
to any valid state statute. If Viacom becomes aware of any valid state statute
prohibiting the making of the Exchange Offer or the acceptance of shares of
Viacom Common Stock pursuant thereto, Viacom will make a good faith effort to
comply with such state statute. If, after such good faith effort, Viacom
cannot comply with such state statute, the Exchange Offer will not be made to
(nor will tenders be accepted from or on behalf of) the holders of shares of
Viacom Common Stock in such state. In any jurisdiction where the 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 one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
If you wish to have us tender any or all of your shares of Viacom Common
Stock, please so instruct us by completing, executing and returning to us the
attached instruction form. An envelope to return your instructions is
enclosed. Please forward your instructions to us in ample time to permit us to
submit a tender on your behalf on or prior to the Expiration Date. IF YOU
AUTHORIZE THE TENDER OF YOUR SHARES OF VIACOM COMMON STOCK, ALL SUCH SHARES
WILL BE TENDERED UNLESS OTHERWISE SPECIFIED ON THE ATTACHED INSTRUCTION FORM.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER TO EXCHANGE NOT MORE THAN [ ] NOR
LESS THAN [ ] SHARES OF CLASS A COMMON STOCK, $100 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.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offering Circular - Prospectus, dated [ ], 1996 (the "Offering Circular -
Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), which together constitute Viacom's offer to Viacom stockholders
(the "Exchange Offer") to exchange a total of [ ] shares of VII Cable
Class A Common Stock having a par value of $100 per share and an aggregate par
value of [$ million] for shares of Viacom Class A Common Stock and/or
Viacom Class B Common Stock, at an 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 Offering Circular -
Prospectus. See "Transaction Overview," "Summary," "The Transaction" and "The
Exchange Offer--Certain Conditions of the Exchange Offer" in the Offering
Circular - Prospectus. Capitalized terms used herein shall have the meanings
ascribed to them in the Offering Circular - Prospectus.
This will instruct you to tender the number of shares of Viacom Common Stock
indicated below at the Exchange Ratio indicated in the following box (or, if
no number is indicated below, all shares) held by you for the account of the
undersigned, upon the terms and subject to the conditions set forth in the
Offering Circular - Prospectus and the related Letter of Transmittal.
Holders of Viacom Common Stock will receive that fraction of a share of VII
Cable Class A Common Stock designated by such holders, or such greater
fraction as may be represented by the Final Exchange Ratio, for each share of
Viacom Common Stock accepted for exchange.
FRACTION OF A SHARE OF VII CABLE CLASS A COMMON STOCK AT WHICH SHARES
OF VIACOM COMMON STOCK ARE BEING TENDERED FOR EXCHANGE
- -------------------------------------------------------------------------------
CHECK ONLY ONE BOX.
TENDERS MAY ONLY BE SUBMITTED IN INCREMENTS OF .00125.
IF MORE THAN ONE BOX IS CHECKED OR IF NO BOX IS CHECKED,
THERE IS NO PROPER TENDER OF SHARES OF VIACOM COMMON STOCK
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ] [_] [. ] [_] [. ] [_] [. ]
[_] [. ]
</TABLE>
3
<PAGE>
SIGN HERE
NUMBER OF SHARES OF VIACOM COMMON
STOCK TO BE TENDERED:* -------------------------------------
____________________________ SHARES -------------------------------------
SIGNATURE(S)
Account Number: _____________________ -------------------------------------
Dated: _______________________ , 1996 -------------------------------------
PLEASE TYPE OR PRINT NAME(S) HERE
-------------------------------------
PLEASE TYPE OR PRINT ADDRESS(ES)
HERE
-------------------------------------
AREA CODE AND TELEPHONE NUMBER
-------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S)
- --------
* Unless otherwise indicated, it will be assumed that all shares of Viacom
Common Stock held by us for your account are to be tendered.
4
