<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NO. 33-64467
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VIACOM INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4841 04-2980402
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (IRS EMPLOYER
OF INCORPORATION INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
OR ORGANIZATION) CODE NUMBER)
1515 BROADWAY
NEW YORK, NEW YORK 10036
(212) 258-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
PHILIPPE P. DAUMAN, ESQ.
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$100.00 par value per
share................. 6,193,447 shares N.A. $592,775,911 $204,406(1)
- --------------------------------------------------------------------------------------
Series A Senior
Cumulative Exchangeable
Preferred Stock,
$100.00 par value per
share(2).............. 6,193,447 shares N.A. N.A. N.A.
======================================================================================
</TABLE>
(1) An additional registration fee in the amount of $33,381 is being paid
herewith pursuant to Rule 457(a) under the Securities Act, as amended, in
connection with the registration of an additional 1,193,447 shares of
Class A Common Stock. The additional registration fee has been calculated
in accordance with Rule 457(f) under the Securities Act, as amended, based
on the market value of the shares of Viacom Class A Common Stock and Class
B Common Stock to be received in exchange for the shares of the
registrant's securities registered pursuant hereto ($37.53, which was the
average of the averages of the high and low prices per share of Viacom
Class A Common Stock and Class B Common Stock on the American Stock
Exchange, Inc. on June 17, 1996). The filing fee of $171,025 in respect of
the 5,000,000 shares of Class A Common Stock initially registered under
this registration statement was previously paid on November 20, 1995.
(2) Represents shares of Series A Senior Cumulative Exchangeable Preferred
Stock underlying the Registrant's Class A Common Stock, all of which will
be issuable to holders of Class A Common Stock automatically, and without
any further consideration, upon the subscription by a third party for
shares of the registrant's Class B Common Stock.
---------------
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
16. Information with Respect to S-2 or S-3 Certain Documents by Reference; Summary
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
OFFERING CIRCULAR
VIACOM INTERNATIONAL INC.
(TO BE RENAMED TCI PACIFIC COMMUNICATIONS, INC.)
PROSPECTUS
Offer by Viacom to exchange a total of 6,193,447 shares of Class A Common
Stock (having a par value of $100 per share and an aggregate par value of
$619,344,700) 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 JULY
22, 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 June 21, 1996, the closing sale prices per share of
Viacom Class A Common Stock and Viacom Class B Common Stock on the AMEX were
$[ ] and $[ ], respectively, and the closing sale price per share of TCI Stock
on the Nasdaq National Market was $[ ] 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 June 24, 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,
$619,344,700 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
and will be exchangeable into shares of TCI Stock after five years. 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 4%.
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-
gram which shows the structure
of the relevant Viacom compa-
nies at the commencement of the
Exchange Offer.
LOGO
- --------------------------------------------------------------------------------
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-
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."
LOGO
- --------------------------------------------------------------------------------
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-
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).
LOGO
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 $619,344,700 ownership inter-
est in VII Cable is represented by 6,193,447 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.
LOGO
- --------------------------------------------------------------------------------
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 $619,344,700 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 $619,344,700
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.
LOGO
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.
LOGO
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 $619,344,700, the Trigger Amount would be satisfied in any
one of the following examples:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
VIACOM COMMON STOCK
TENDERED AT OR BELOW THE
EXCHANGE RATIO INDICATED EXCHANGE RATIO VALUE TENDERED
-------------- ------------------------ --------------
<S> <C> <C>
[. ] [ ] million [$ ] 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 $619,344,700. 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 $619,344,700,
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 June [ ], 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 $619,344,700 represents the difference
between the estimated value of the assets of VII Cable of $2,319,344,700
(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. Except in certain circumstances in the case of dividends,
TCI is not obligated to deliver shares of TCI Stock to VII Cable for use in
making any dividend or redemption (optional or mandatory) payments.
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
vi
<PAGE>
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 "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 $100
per share (assuming no change in conditions between the date of their opinion
and the date of consummation of the transaction). Please note that since the
dividend rate was set prior to commencement of the Exchange Offer based on
conditions as of June [ ], 1996, it may not be the dividend rate that the
Financial Advisors would have recommended if the rate were determined at the
end of the Exchange Offer based on conditions at that time. See "Risk
Factors--Uncertainties with Respect to Setting the Dividend Rate."
Selecting an Exchange Ratio. In the event you determine to tender some or
all of your shares of Viacom Common Stock in the Exchange Offer, in deciding
at which Exchange Ratio to tender you should consider not only your view of
the value of a single share of Viacom Common Stock and a single share of VII
Cable Preferred Stock (i.e., the value ultimately to be received for that
being surrendered) but the level of certainty that your tender will be
accepted in the Exchange Offer. That is, even if you determine that a share of
Viacom Common Stock is worth [$___] 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.
Except in certain circumstances in the case of dividends, TCI is not obligated
to deliver 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) 223-2064.
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
"Facility B"................................................................ 94
"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
"1996 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
</TABLE>
xiv
<PAGE>
<TABLE>
<S> <C>
"Optional Redemption Date".................................................. 105
"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/PDI Participants"..................................................... 35
"PVIT/PDI 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
</TABLE>
<TABLE>
<S> <C>
"Subsidiary"................................................... 101
"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
"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 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>
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<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 6,193,447 shares of VII Cable
Class A Common Stock having a par value of $100
per share and an aggregate par value of
$619,344,700 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
6,193,447 new shares of VII Cable Class A Common
Stock having a par value of $100 per share and an
aggregate par value of $619,344,700 (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
$2,319,344,700, 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 $619,344,700
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
6,193,447 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 $619,344,700
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 THE TCI 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................ Viacom has received an advance private letter
ruling (the "Ruling Letter") from the Internal
Revenue Service (the "IRS") to the effect that
the Transaction will qualify as a distribution
that is tax-free to Viacom's stockholders (except
with respect to cash received in lieu of
fractional shares) and, in general, is tax-free
to Viacom. The VII Cable Preferred Stock may be
"section 306 stock" for federal income tax
purposes, with the result that all or a portion
of the proceeds received by a stockholder from
the sale, exchange or redemption of such shares
will be taxable as ordinary income, and a
stockholder may not recognize any loss from such
sale, exchange or redemption. For a more complete
discussion of the U.S. federal income tax
consequences of the Transaction to holders of
Viacom Common Stock, see "Certain Federal Income
Tax Consequences." Each stockholder should
consult its tax advisor as to the particular
consequences of the Transaction to such
stockholder.
THE EXCHANGE OFFER
Terms of the Exchange
Offer....................... Upon the terms and subject to the conditions of
the Exchange Offer, Viacom is offering hereby to
exchange all of the outstanding shares of VII
Cable Class A Common Stock for shares of Viacom
Common Stock at an Exchange Ratio not greater
than [. ] (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. 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 $619,344,700 (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 6,193,447 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
8
<PAGE>
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 (6,193,447 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
$2,319,344,700 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 ($2,319,344,700), 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 $619,344,700; (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 (6,193,447) 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 and withdrawal rights
will expire at the Expiration Time on the
Expiration Date (as such terms are defined
herein). To be eligible to receive VII Cable
Class A Common Stock pursuant to the Exchange
Offer, a holder of Viacom Common Stock must
validly tender and not properly withdraw Viacom
Common Stock on or prior to the
9
<PAGE>
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 4%, 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,
$619,344,700 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 determined prior to
the commencement of the Exchange Offer based on
conditions as of June [ ], 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 will have its shares
accepted for exchange. A tender at an Exchange
Ratio above the Final Exchange Ratio will not be
accepted. Only
10
<PAGE>
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
July 22, 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 shall 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 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
11
<PAGE>
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 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
12
<PAGE>
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) 361-9781.
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 June [ ], 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
13
<PAGE>
$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 $619,344,700 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 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
14
<PAGE>
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 Stock
or any combination thereof. See "--VII Cable May
Make Dividend and Redemption Payments with TCI
Stock";
15
<PAGE>
"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. Except in certain
circumstances in the case of dividends, TCI is
not obligated to deliver shares of TCI Stock to
VII Cable for use in making any dividend or
redemption (optional or mandatory) payments.
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>
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 9.9 8.9 80.8 43.9 34.8
Earnings (loss) before
taxes.................. 8.7 (13.3) (14.4) 66.6 (53.8) (62.7)
Net earnings (loss)..... 3.4 (14.4) (14.7) 33.7 (57.0) (60.3)
Net earnings (loss)
attributable to common
stock.................. N/A (21.0) (21.3) N/A (83.3) (86.6)
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 $2,433.9 $2,428.5
Total debt.................................. 57.0 1,350.0 1,350.0
Series A Preferred Stock.................... -- 619.3 619.3
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 $13.7 million and $53.9 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 $23.9 million and $94.4 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
$14.8 million and $62.8 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 $25.0 million and $103.3 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 12.5 million and 11.1 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 $.50 $.49
Dividends.............. N/A N/A N/A N/A N/A N/A
Book value............. $29.51 $32.90 $32.74 $29.47 N/A N/A
</TABLE>
Viacom has not declared cash dividends on its common stock and has no present
intention of so doing.
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 June [ ], 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. Except in certain circumstances
in the case of dividends, TCI is not obligated to deliver shares of TCI Stock
to VII Cable.
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
Viacom has 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 6,193,447 shares of VII Cable Class A Common Stock
having a par value of $100 per share and an aggregate par value of
$619,344,700 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 6,193,447 new
shares of VII Cable Class A Common Stock having a par value of $100 per share
and an aggregate par value of $619,344,700. 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 $619,344,700 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.
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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
$619,344,700 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 THE TCI 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 July 22, 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. 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 $619,344,700 (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
6,193,447 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
(6,193,447 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 $2,319,344,700 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 ($2,319,344,700),
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 $619,344,700;
(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 Common Stock (6,193,447) 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 and withdrawal rights will expire at 12:00 Midnight, New
York City time, on July 22, 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 June 19, 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 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 4%, 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, $619,344,700
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 $100 per share immediately after consummation of the
Transaction (assuming no change in conditions between the date of their
opinion and the date of consummation of the Transaction). Since the dividend
rate was set prior to commencement of the Exchange Offer based on conditions
as of June [ ], 1996, it may not be the dividend rate that the Financial
Advisors would have recommended if the rate were determined at the end of the
Exchange Offer based on conditions at that time. See "Risk Factors--
Uncertainties with respect to Setting the Dividend Rate."
Selecting an Exchange Ratio. In the event a Viacom stockholder determines to
participate in the Exchange Offer, in deciding at which Exchange Ratio to
tender such stockholder should consider not only its view of the value of a
single share of Viacom Common Stock and a single share of VII Cable Preferred
Stock (i.e., the value ultimately to be received for that being surrendered)
but the level of certainty that its tender will be accepted in the Exchange
Offer. That is, even if it determines that a share of Viacom Common Stock is
worth [$ ] 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 Box #2 entitled "Fraction of a Share of VII
Cable Class A Common Stock at which Shares of Viacom Common Stock Are Being
Tendered for Exchange" in 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 EXCHANGE OFFER) AT MORE THAN ONE EXCHANGE
RATIO. IN ORDER TO TENDER SHARES PROPERLY, ONE AND ONLY ONE EXCHANGE RATIO
MUST BE INDICATED IN BOX #2 OF 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 and the acceptance by Viacom for exchange of such
shares pursuant to the procedures described herein and in the Letter of
Transmittal will constitute a binding agreement between the tendering
stockholder and Viacom upon the terms and subject to the conditions of the
Exchange Offer, including the tendering stockholder's representation that (i)
such stockholder owns the shares of Viacom Common Stock being tendered within
the meaning of Rule 14e-4 promulgated under the Exchange Act and (ii) the
tender of such shares of Viacom Common Stock complies with Rule 14e-4.
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The Exchange Agent will establish accounts with respect to shares of Viacom
Common Stock at The Depository Trust Company ("DTC"), the Midwest Securities
Trust Company ("MSTC") and the Philadelphia Depository Trust Company
("PHILADEP," and together with DTC and MSTC, the "Book-Entry Transfer
Facilities" and each alone, a "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of this Offering
Circular - Prospectus, and any financial institution that is a participant in
the system of any Book-Entry Transfer Facility may make delivery of shares of
Viacom Common Stock by causing such Book-Entry Transfer Facility to transfer
such shares of Viacom Common Stock into the Exchange Agent's account in
accordance with the procedures of such Book-Entry Transfer Facility. Although
delivery of shares of Viacom Common Stock may be effected through book-entry
transfer to the Exchange Agent's account at DTC, MSTC or PHILADEP, a properly
completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) and any other required documents, or an Agent's Message
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
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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 investment 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, or cannot complete the
procedure for delivery by book-entry transfer, 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) prior to the
Expiration Time on 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
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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 July 22, 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
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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 shall 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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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 or before June 24, 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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(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 June 19, 1996).......... $-- $-- $-- $--
</TABLE>
The number of holders of record of Viacom Class A Common Stock and Viacom
Class B Common Stock as of June 19, 1996 was and , 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 June 19, 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 $
and $ , respectively. STOCKHOLDERS ARE URGED
41
<PAGE>
TO OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF VIACOM COMMON STOCK. NO
ASSURANCE CAN BE GIVEN CONCERNING THE MARKET PRICE OF VIACOM COMMON STOCK
BEFORE OR AFTER THE DATE ON WHICH THE EXCHANGE OFFER IS CONSUMMATED.
Viacom has not declared cash dividends on its common stock and has no
present intention of so doing.
VII CABLE CLASS A COMMON STOCK AND VII CABLE PREFERRED STOCK
On June [ ], 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
15.5 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) (619.3)(4) 11,710.9
619.3 (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 -- (15.5)(9) 359.2
Fully diluted:
Earnings per common
share................ $ .03 -- -- $ .05
Weighted average
number of shares..... 375.0 -- (15.5)(9) 359.5
</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 -- -- $ 0.50
Weighted average number
of shares............. 375.1 -- (15.5)(9) 359.6
Fully diluted:
Earnings per common
share................. $ 0.41 -- -- $ 0.50
Weighted average number
of shares............. 375.5 -- (15.5)(9) 360.0
</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 $619.3 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.................................................. $ 619.3
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................................................ $1,366.9
========
</TABLE>
Viacom has 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 15.5 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 $2.3 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 $619.3 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 $1.4
billion pro forma excess of unallocated acquisition costs as of March 31, 1996
is being amortized over 40 years at a rate of $35.4 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 $2.3 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 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 1,416.9 (5) 1,973.6 .9 1,974.5
Other assets............ 67.9 (45.4)(2) 22.5 .6 23.1
-------- --------- -------- ----- --------
$1,064.9 $ 1,369.0 $2,433.9 $(5.4) $2,428.5
======== ========= ======== ===== ========
<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). -- 619.3 (4) 619.3 -- 619.3
Stockholders' Equity:
Class B Common Stock.. -- 350.0 (3) 350.0 -- 350.0
Viacom equity
investment........... 854.8 (854.8)(5) -- -- --
-------- --------- -------- ----- --------
$1,064.9 $ 1,369.0 $2,433.9 $(5.4) $2,428.5
======== ========= ======== ===== ========
</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 8.9 (6) 30.7 1.6 32.3
------ ------ ------ ----- ------
Total expenses........ 97.8 8.9 106.7 (.9) 105.8
------ ------ ------ ----- ------
Operating income.......... 18.8 (8.9) 9.9 (1.0) 8.9
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 (22.0) (13.3) (1.1) (14.4)
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 (17.8) (14.4) (.3) (14.7)
Preferred stock dividend
requirement.............. -- (6.6)(9) (6.6) -- (6.6)
------ ------ ------ ----- ------
Net earnings (loss)
attributable to common
stock.................... $ 3.4 $(24.4) $(21.0) $ (.3) $(21.3)
====== ====== ====== ===== ======
</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 35.3 (2)(6) 117.1 7.8 124.9
------ ------- ------- ----- ------
Total expenses...... 361.4 35.2 396.6 3.3 399.9
------ ------- ------- ----- ------
Operating income........ 80.8 (36.9) 43.9 (9.1) 34.8
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 (120.4) (53.8) (8.9) (62.7)
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 (90.7) (57.0) (3.3) (60.3)
Preferred stock dividend
requirement............ -- (26.3)(9) (26.3) -- (26.3)
------ ------- ------- ----- ------
Net earnings (loss)
attributable to common
stock.................. $ 33.7 $(117.0) $ (83.3) $(3.3) $(86.6)
====== ======= ======= ===== ======
</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...................................... 619.3
--------
2,319.3
VII Cable net assets........................................... (854.8)
Net liabilities conveyed to Viacom Services(a)................. (47.6)
--------
$1,416.9
========
</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 $8.9 million and $35.4 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 $619.3
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 $774,000. 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 therefore 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
amortization......... 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 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. After passage of the 1996
Telecommunications Act, Congress revisited the issue of broadcasters'
utilization of such additional spectra to determine whether such spectra
should be set aside for broadcasters (as is provided in the 1996
Telecommunications Act) or auctioned to the highest bidders. No Congressional
action resulted from this review. The issue, however, may be raised again in
the future. 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 and is currently engaged in
such rulemaking. 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...................... 72 Director
John C. Malone................... 55 Director
Donne F. Fisher.................. 58 Director
Brendan R. Clouston.............. 43 President and Director
Barry P. Marshall................ 50 Executive Vice President
Stephen M. Brett................. 55 Senior Vice President and Secretary
Bernard W. Schotters............. 51 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 31, 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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<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............ Class B Common -- 5,000(7) -- (6)
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
31, 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. 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 6,193,447
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 $2,319,344,700 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
Effective as of June [ ], 1996, Viacom International entered into credit
agreements with certain banks and institutions (the "Loan") that provide for
$1.7 billion in financing, consisting of (i) Facility A, 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) Facility B, a $300 million term loan due upon
receipt by Viacom International of the Subscription Price. 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.
Facility A. Effective as of June [ ], 1996 Viacom International entered into
a $1.4 billion credit facility consisting of a $1.05 billion reducing
revolving credit facility (the "Revolving Facility") and a $350 million term
loan facility (the "Term 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>
Facility B. Effective as of June [ ], 1996 Viacom International entered into
a $300 million term loan facility ("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.
Facility A and 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 June 19,
1996 the most favorable blended interest rate available to Viacom
International based on the foregoing interest rate options was approximately
7.16% 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 6.9 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 prior to the
Transaction Effective Date 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 22,386,994 shares, of which 6,193,547 shares shall be common
stock and 16,193,447 shares shall be preferred stock (the "Preferred Stock").
The shares of common stock shall be divided into two classes, of which
6,193,447 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, 6,193,447 shares shall be of a class designated as "Class A Senior
Cumulative Exchangeable Preferred Stock" and 10,000,000 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 June [ ], 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 June [ ], 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 February 15, May 15, August 15 and November 15 (or, if any such date
is not a business day, on the next succeeding business day (each a "Dividend
Payment Date")), commencing November 15, 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. Except in certain
circumstances described in the last sentence in this paragraph, TCI is not
obligated to deliver shares of TCI Stock to VII Cable for use in
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making any dividend or redemption (optional or mandatory) payments. If VII
Cable elects to pay any dividend 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.
Except in certain circumstances in the case of dividends, TCI is not obligated
to deliver shares of TCI Stock to VII Cable for use in making any dividend or
redemption (optional or mandatory) payments.
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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 to any such holder or (except in certain circumstances in the case
of dividends) to VII Cable with respect to 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 February 15, May 15, August
15 and November 15 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
Viacom has 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.
116
<PAGE>
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
<PAGE>
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) 361-9781
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
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> <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 Pre-
ferred Stock
8 -- Internal Revenue Service Letter Ruling**
10.1 -- Parents Agreement*
10.2 -- Implementation Agreement*
10.3 -- Subscription Agreement*
10.4 -- Forms of Credit Agreements relating to Facilities A and
B under the Loan
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*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
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
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 Nomi-
nees
99.5 -- Form of Letter to Participants in Viacom Employee Bene-
fit Plans
</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.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 4 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 June 19, 1996.
Viacom International Inc.
/s/ Sumner M. Redstone
By __________________________________
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. 4 to the registration statement has been signed by the following persons
in the capacities indicated on June 19, 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
8- Internal Revenue Service Letter Ruling**
10.1- Parents Agreement*
10.2- Implementation Agreement*
10.3- Subscription Agreement*
10.4- Forms of Credit Agreements relating to Facilities A and B under
the Loan
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 Employee Benefit Plans
</TABLE>
- --------
*Previously filed.
**To be supplied by amendment.
<PAGE>
Exhibit 5
SHEARMAN & STERLING
599 Lexington Avenue
New York, N.Y. 10022-6069
212-848-4000
June 19, 1996
Viacom International Inc.
1515 Broadway
New York, New York 10036
Ladies and Gentlemen:
We have acted as counsel for Viacom International Inc., a Delaware
corporation (the "Company"), and Viacom Inc., a Delaware corporation ("Viacom"),
------- ------
in connection with the preparation and filing by the Company with the Securities
and Exchange Commission of a Registration Statement on Form S-4 (No. 33-64467)
and Amendment Nos. 1, 2, 3 and 4 thereto (the "Registration Statement") covering
----------------------
the registration under the Securities Act of 1933, as amended (the "Securities
----------
Act"), of (i) 6,193,447 shares of the Company's Class A Common Stock, par value
- ---
$100.00 per share (the "Common Shares") and (ii) 6,193,447 shares of the
-------------
Company's Series A Senior Cumulative Exchangeable Preferred Stock, par value
$100.00 per share (the "Preferred Shares" and, together with the Common Shares,
----------------
the "Shares"). The Shares are to be issued by the Company in the manner and on
------
the terms set forth in the Exchange Offer and in the Transaction Agreements.
Capitalized terms used but not defined herein shall have the meanings assigned
to such terms in the Registration Statement.
The Preferred Shares will be governed by a restated certificate of
incorporation of the Company in the form included in the Registration Statement
as Exhibit 4.3(c) (the "Restated Certificate of Incorporation").
In connection with the foregoing, we have examined the Registration
Statement, including the Offering Circular - Prospectus contained therein and
the Restated Certificate of Incorporation. We have also examined and relied as
to factual matters upon the representations and warranties contained in
originals, or copies certified or otherwise
<PAGE>
2 Exhibit 5
identified to our satisfaction, of such records, documents, certificates and
other instruments as in our judgment are necessary or appropriate to enable us
to render the opinions expressed below. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents, certificates
and instruments presented to us as originals and the conformity with originals
of all documents submitted to us as copies.
Our opinion expressed herein is limited to the Federal law of the
United States, the law of the State of New York and the General Corporation Law
of the State of Delaware.
Based on the foregoing and having regard for such legal considerations
as we deem relevant, we are of the opinion that:
1. When (a) the Registration Statement has become effective under the
Securities Act, (b) the Restated Certificate of Incorporation has been duly
filed with the Secretary of State of the State of Delaware and become effective,
and (c) the Common Shares have been issued and delivered in the manner and on
the terms set forth in the Exchange Offer and the Transaction Agreements, the
Common Shares will be validly issued, fully paid and non-assessable.
2. When (a) the Registration Statement has become effective under the
Securities Act, (b) the Restated Certificate of Incorporation has been duly
filed with the Secretary of State of the State of Delaware and become effective,
(c) the Common Shares have been issued and delivered in the manner and on the
terms set forth in the Exchange Offer and the Transaction Agreements, and (d)
TCI Cable shall have consummated its acquisition of 100 shares of VII Cable
Class B Common Stock in the manner and on the terms set forth in the Transaction
Agreements, the Preferred Shares will be validly issued, fully paid and non-
assessable.
We hereby consent to the use of this opinion as Exhibit 5 to the
Registration Statement and to the reference to us under the heading "Legal
Matters" contained in the Offering Circular - Prospectus which is included in
the Registration Statement. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act.
Very truly yours,
/s/ Shearman & Sterling
STG/CCP/WR
<PAGE>
DRAFT 6/18/96
EXHIBIT 10.4(a)
CREDIT AGREEMENT
by and among
VIACOM INTERNATIONAL INC.
(name to be changed to TCI PACIFIC
COMMUNICATIONS, INC. immediately following
the Transaction Effective Date)
and
on and after the TCI Cosign Date
TCI PACIFIC, INC., as Borrowers,
THE SIGNATORY BANKS HERETO,
THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA,
CIBC INC., NATIONSBANK OF TEXAS, N.A.
and THE TORONTO-DOMINION BANK,
as Arranging Agents,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
BANK OF MONTREAL, BANQUE NATIONALE DE PARIS,
BARCLAYS BANK PLC, CHEMICAL BANK, CORESTATES BANK, N.A.,
CREDIT LYONNAIS NEW YORK BRANCH, DEUTSCHE BANK AG, THE FUJI BANK, LIMITED,
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
THE LONG TERM CREDIT BANK OF JAPAN, MELLON BANK, N.A.,
PNC BANK, NATIONAL ASSOCIATION, ROYAL BANK OF CANADA,
SOCIETE GENERALE, THE SUMITOMO BANK, LTD.
and SWISS BANK CORPORATION, as Agents,
and
THE BANK OF NEW YORK,
as Administrative Agent
FACILITY A
--------------------------
$1,400,000,000
-------------------------
Dated as of , 1996
-------------
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS....................................................... 1
ARTICLE 2. LOANS; LOAN COMMITMENT AMOUNTS.................................... 25
2.1. Revolving Loans; Revolving Commitment Amounts......................... 25
2.2. Term Loans; Term Commitment Amounts................................... 27
ARTICLE 3. INTEREST RATES ON LOANS........................................... 27
3.1. Interest Rate......................................................... 27
3.2. Interest Rate After Maturity.......................................... 28
ARTICLE 4. LOAN PROCEDURES, NOTES AND PAYMENT OF INTEREST.................... 28
4.1. Amount of Revolving Loans............................................. 28
4.2. Borrowing Requests.................................................... 28
4.3. Disbursement of Proceeds.............................................. 29
4.4. Notes................................................................. 30
4.5. Limitation on Interest Rate Options and Maximum Interest Rate......... 31
4.6. Interest Payment Periods.............................................. 32
4.7. Funding............................................................... 32
ARTICLE 5. PAYMENT, CONTINUATION OR CONVERSION, AND PRE
PAYMENT OF LOANS....................................................... 33
5.1. Payments.............................................................. 33
5.2. Late Payments......................................................... 33
5.3. Continuation or Conversion............................................ 34
5.4. Prepayments........................................................... 34
5.5. Application of Payments............................................... 35
5.6. Sharing of Payments................................................... 35
ARTICLE 6. FEES AND TAXES.................................................... 36
6.1. Commitment Fee........................................................ 36
6.2. Taxes and Duties; Counterclaims....................................... 36
6.3. Tax Forms............................................................. 37
ARTICLE 7. COST PROTECTION................................................... 38
7.1. Change in Circumstances; Reserve Costs................................ 38
7.2. Change in Legality.................................................... 39
7.3. Responsibility of Affected Bank....................................... 40
7.4. Cost of Funds......................................................... 41
ARTICLE 8. CONDITIONS OF LENDING AND RELEASE................................. 42
8.1. Conditions Precedent to First Funding................................. 42
8.2. Conditions Precedent to all Loans..................................... 45
8.3. Release of Cash Collateral Account.................................... 46
8.4. Notice to Banks....................................................... 47
8.5. Tax Forms............................................................. 47
-i-
<PAGE>
ARTICLE 9. REPRESENTATIONS AND WARRANTIES................................... 47
9.1. Subsidiaries ........................................................ 47
9.2. Corporate Existence and Power........................................ 48
9.3. Corporate Authority.................................................. 48
9.4. Binding Agreement.................................................... 48
9.5. Litigation........................................................... 48
9.6. No Conflicting Agreements............................................ 49
9.7. Taxes................................................................ 49
9.8. Compliance with Applicable Laws...................................... 49
9.9. Governmental Regulations............................................. 50
9.10. Property............................................................ 50
9.11. Federal Reserve Regulations; Use of Proceeds of Loans............... 50
9.12. ERISA............................................................... 51
9.13. Franchises, Etc..................................................... 51
9.14. Burdensome Obligations.............................................. 51
9.15. Financial Statements................................................ 52
9.16. FCC and Copyright Matters........................................... 53
9.17. Capital Stock of the Borrowers...................................... 53
9.18. Use of Proceeds..................................................... 53
9.19. Business of Borrowers............................................... 54
9.20. Ranking of Loans; Joint and Several Liability....................... 54
9.21. No Misrepresentation................................................ 54
9.22. Environmental Law................................................... 55
ARTICLE 10. AFFIRMATIVE CONVENANTS.......................................... 55
10.1. Legal Existence..................................................... 55
10.2. Taxes............................................................... 55
10.3. Insurance........................................................... 55
10.4. Payment of Indebtedness and Performance of Obligations.............. 56
10.5. Maintenance of Property............................................. 56
10.6. Observance of Legal Requirements.................................... 56
10.7. Financial Statements and Other Information.......................... 56
10.8. Inspection; Confidentiality......................................... 60
10.9. Leverage Ratio...................................................... 60
10.10. Annualized Cash Flow to Pro-Forma Debt Service..................... 61
10.11. Franchises, Etc.................................................... 61
10.12. Restricted/Unrestricted Designation of Subsidiaries................ 61
10.13. Ownership of Restricted Subsidiaries............................... 62
10.14. Environmental Compliance........................................... 62
10.15. Interest Rate Protection Arrangements.............................. 62
10.16. TCI Cosign Date.................................................... 62
ARTICLE 11. NEGATIVE COVENANTS.............................................. 63
11.1. Borrowing........................................................... 64
11.2. Liens............................................................... 64
11.3. Merger and Acquisition.............................................. 65
11.4. Restricted Payments; Other Payment Limitations...................... 66
-ii-
<PAGE>
11.5. Investments, Loans, Etc.............................................. 67
11.6. Sales and Exchanges.................................................. 68
11.7. Amendment of Parent Preferred Stock or Intercompany
Subordinated Debt Agreement.......................................... 69
11.8. Transactions with Affiliates......................................... 69
11.9. Limitation on Other Business......................................... 70
11.10. ERISA............................................................... 70
11.11. Consolidated Tax Returns............................................ 70
11.12. Sale or Discount of Receivables..................................... 70
11.13. Guaranties.......................................................... 71
11.14. Limitation on Upstream Dividends by Restricted Subsidiaries......... 71
11.15. Management Fees..................................................... 71
11.16. Amendment of Transaction Documents.................................. 72
ARTICLE 12. EVENTS OF DEFAULT................................................ 72
12.1. Events of Default.................................................... 72
12.2. Consequences of an Event of Default.................................. 75
12.3. Waiver of Defaults................................................... 76
ARTICLE 13. THE ADMINISTRATIVE AGENT, ARRANGING AGENTS AND
AGENTS................................................................ 76
13.1. The Administrative Agent............................................. 76
13.2. Delegation of Duties, Etc............................................ 76
13.3. Indemnification...................................................... 76
13.4. Exculpatory Provisions............................................... 77
13.5. Knowledge of Default................................................. 78
13.6. Administrative Agent in Its Individual Capacity...................... 78
13.7. Payee of Note Treated as Owner....................................... 78
13.8. Resignation or Removal of Administrative Agent....................... 78
13.9. The Arranging Agents................................................. 79
13.10. The Agents.......................................................... 79
ARTICLE 14. MISCELLANEOUS.................................................... 79
14.1. Notices.............................................................. 79
14.2. Term of Agreement.................................................... 80
14.3. Copies of Certificates, Etc.......................................... 80
14.4. No Waivers; Rights Cumulative........................................ 80
14.5. Changes, Waivers, Amendments, Etc.................................... 80
14.6. Rights of Set-Off.................................................... 81
14.7. Integration and Severability......................................... 81
14.8. Assignments and Participations; Successors and Assigns............... 81
14.9. JURISDICTION; WAIVER OF JURY TRIAL................................... 84
14.10. Headings; Plurals................................................... 84
14.11. Applicable Law...................................................... 84
14.12. Counterparts; When Effective........................................ 84
14.13. Payment of Expenses; Indemnity by Borrower.......................... 84
14.14. Liability of VI..................................................... 86
-iii-
<PAGE>
EXHIBITS
- --------
Exhibit A Form of Borrowing Request, Payment Notice and Continuation
Notice
Exhibit B-1 Form of Revolving Note
Exhibit B-2 Form of Replacement Revolving Note
Exhibit B-3 Form of Term Note
Exhibit B-4 Form of Replacement Term Note
Exhibit C Form of Leverage Ratio Certificate
Exhibit D Form of Intercompany Debt Subordination Agreement
Exhibit E Form of Security Agreement
Exhibit F Form of VI Indemnity Agreement
Exhibit G Form of Assignment and Acceptance Agreement
Exhibit H-1 Form of Opinion of General Counsel to Old VII and VI
Exhibit H-2 Form of Opinion of Regulatory Counsel to the Borrowers
Exhibit H-3 Form of Opinion of Counsel to TCI Pacific
Exhibit I Form of Opinion of Special Counsel
Exhibit J Transaction Matters
Exhibit K Form of TCIC Certificate
Exhibit L Form of Restated Certificate of Incorporation
Exhibit M Form of Parent Environmental Certificate
SCHEDULES
- ---------
Schedule 1.1(T) List of Transaction Documents
Schedule 2.1 List of Commitments/Lending Offices
Schedule 9.1 List of Subsidiaries
Schedule 9.5 List of Litigation
Schedule 9.6 List of Conflicting Agreements
Schedule 9.1 List of Capital Stock of the Borrowers
Schedule 11.1 Listed of Existing Indebtedness
Schedule 11.5 List of Existing Investments
Schedule 14.1 List of Addresses for Notices
-iv-
<PAGE>
DRAFT 6/18/96
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and dated as of
---------
, 1996, by and among VIACOM INTERNATIONAL INC. (name to be changed
- -----------
to TCI PACIFIC COMMUNICATIONS, INC. immediately following the Transaction
Effective Date), a Delaware corporation ("Parent"), and, on and after the TCI
------
Cosign Date, TCI PACIFIC, INC., a Delaware corporation ("TCI Pacific") (each a
-----------
"Borrower" and collectively, the "Borrowers"), the banks and other lenders from
-------- ---------
time to time party hereto, together with their respective successors and
assigns as determined pursuant to the terms hereof (each a "Bank" and
----
collectively the "Banks"), THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA, CIBC
-----
INC., NATIONSBANK OF TEXAS, N.A. and THE TORONTO-DOMINION BANK (each an
"Arranging Agent" and collectively the "Arranging Agents"), BANK OF AMERICA
- ---------------- ----------------
NATIONAL TRUST AND SAVINGS ASSOCIATION, BANK OF MONTREAL, BANQUE NATIONALE DE
PARIS, BARCLAYS BANK PLC, CHEMICAL BANK, CORESTATES BANK, N.A., CREDIT LYONNAIS
NEW YORK BRANCH, DEUTSCHE BANK AG, THE FUJI BANK, LIMITED, THE INDUSTRIAL BANK
OF JAPAN, LIMITED, THE LONG TERM CREDIT BANK OF JAPAN, MELLON BANK, N.A., PNC
BANK, NATIONAL ASSOCIATION, ROYAL BANK OF CANADA, SOCIETE GENERALE, THE
SUMITOMO BANK, LTD. and SWISS BANK CORPORATION (each an "Agent" and
-----
collectively the "Agents"), and THE BANK OF NEW YORK, as administrative agent
------
for the Banks (in such capacity, the "Administrative Agent"). Capitalized terms
--------------------
used herein are used with the meanings given such terms when they first appear
or in Article 1 hereof.
RECITALS
A. The Borrowers have requested that the Banks through their Applicable
Lending Offices extend credit to the Borrowers in order to enable them to
borrow up to an aggregate principal amount of (i) $1,050,000,000 on a revolving
credit basis and (ii) $350,000,000 on a term loan basis.
B. The Banks through their Applicable Lending Offices are willing to
extend such revolving credit loans and term loans on the terms and conditions
set forth herein.
C. As used herein, the terms "Borrower" and "Borrowers" shall mean (i)
prior to the TCI Cosign Date, Parent and (ii) on and after the TCI Cosign Date,
Parent or TCI Pacific, as the case may be, and Parent and TCI Pacific,
respectively.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1. DEFINITIONS.
-----------
For the purposes of this Agreement unless the context otherwise requires,
the following terms shall have the meanings indicated, all accounting terms not
otherwise defined herein shall have the respective meanings accorded to them
under GAAP and all terms defined in the New York Uniform Commercial Code and
not otherwise defined herein shall have the respective meanings accorded to
them therein.
<PAGE>
"Accountants" shall mean prior to the Transaction Effective Date, Price
-----------
Waterhouse, and on and after the Transaction Effective Date, KPMG Peat Marwick,
or such other firm of independent certified public accountants of recognized
national standing as shall be selected by the Borrowers and satisfactory to the
Majority Banks.
"Accumulated Funding Deficiency" shall mean a funding deficiency described
------------------------------
in Section 302 of ERISA.
"Administrative Agent" shall have the meaning assigned to such term in the
--------------------
preamble hereto.
"Affected Bank" shall have the meaning assigned to such term in Section
-------------
7.2.
"Affected Principal Amount" shall mean: (a) in the event that any Borrower
-------------------------
shall fail for any reason to make a borrowing, continuation or conversion after
it shall have delivered to the Administrative Agent a Borrowing Request or
Continuation Notice, an amount equal to the amount requested pursuant to such
Borrowing Request or Continuation Notice; (b) in the event that notice shall be
given to any Borrower pursuant to Section 7.2(b) prior to the last day of the
applicable Interest Period, the principal amount of the borrowings affected;
and (c) in the event that any Borrower shall prepay or repay all or any part of
the principal amount of Loans prior to the last day of the Interest Period
applicable thereto, an amount equal to the principal amount so prepaid or
repaid.
"Affiliate" shall mean any Person directly or indirectly controlling,
---------
controlled by, or under direct or indirect common control with either Borrower,
excluding any Restricted Subsidiary. A Person shall be deemed to control a
corporation (hereinafter, "Control") if such Person (acting alone or with a
-------
group of Persons acting in concert) possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" shall have the meaning assigned to such term in the preamble
-----
hereof.
"Aggregate Commitments" shall mean the sum of the Aggregate Revolving
---------------------
Commitments and the Aggregate Term Loan Commitments of all Banks.
"Aggregate Revolving Commitments" shall mean the sum of the Revolving
-------------------------------
Commitments of all Banks set forth on Schedule 2.1, as the same may be adjusted
from time to time pursuant to the provisions of Sections 2.1(c), 2.1(d), 7.1,
7.2 and 14.8 and as otherwise provided in this Agreement.
"Aggregate Term Loan Commitments" shall mean the sum of the Term Loan
-------------------------------
Commitments of all Banks set forth on Schedule 2.1, as the same may be adjusted
from time to time pursuant to the provisions of Sections 7.1, 7.2 and 14.8 and
as otherwise provided in this Agreement.
"Agreement" shall have the meaning set forth in the preamble hereof.
---------
"Annual Pro-Forma Interest Expense" shall mean, as of any date of
---------------------------------
determination, Pro-Forma Interest Expense for the four complete fiscal quarters
immediately succeeding such date of determination.
-2-
<PAGE>
"Annualized Cash Flow" shall mean:
--------------------
(i) solely for purposes of determining compliance with Section 10.10, as
of any date of determination, (a) Cash Flow of TCI Pacific and its Restricted
Subsidiaries for the fiscal quarter ending on such date of determination or
most recently ended prior to such date of determination multiplied by (b) four,
less tax expense (net of deferred taxes) excluding all capital gains taxes
resulting from the sale or other disposition of assets, of the Borrowers and
the Restricted Subsidiaries for the four fiscal quarter period ending on such
date of determination or most recently ended prior to such date of
determination; and
(ii) for all other purposes, as of any date of determination, (a) Cash
Flow of TCI Pacific and its Restricted Subsidiaries for the fiscal quarter
ending on such date of determination or most recently ended prior to such date
of determination multiplied by (b) four.
Notwithstanding the foregoing, for the period from and including the First
Funding Date to the delivery of the quarterly compliance certificate for the
first fiscal quarter following the First Funding Date, Annualized Cash Flow
shall be based on the Cash Flow of Parent and its Restricted Subsidiaries as
determined pursuant to paragraph (b) of the definition of Cash Flow (as
adjusted to reflect the items set forth on Schedule 1.1A) multiplied by four.
"Applicable Lending Office" shall mean in relation to a Bank, its offices
-------------------------
for CD Rate Loans, for LIBOR Rate Loans and for Base Rate Loans specified in
Schedule 2.1 hereto, as the case may be, any of which offices may, upon 10
days' prior written notice to the Administrative Agent and the Borrowers and
subject to the provisions of Article 7, be changed by such Bank.
"Applicable Leverage Ratio" shall mean, at any time, the maximum Leverage
-------------------------
Ratio permitted to be maintained at such time pursuant to Section 10.9.
"Applicable Margin" shall mean:
-----------------
(i) prior to the Transaction Effective Date, with respect to the unpaid
principal amount of the Loans which are subject to a LIBOR Rate Option, 0.500%,
and with respect to the unpaid principal amount of the Loans which are subject
to a Base Rate Option, 0.000%; and
(ii) on and after the Transaction Effective Date, with respect to the
unpaid principal amount of the Loans which are subject to a LIBOR Rate Option,
a CD Rate Option or a Base Rate Option, a percentage equal to, at all times
during the applicable periods set forth below, (a) with respect to the unpaid
principal amount of the Loans which are subject to a LIBOR Rate Option, the
applicable percentage set forth below in the column entitled "LIBOR Margin";
(b) with respect to the unpaid principal amount of the Loans which are subject
to a CD Rate Option, the applicable percentage set forth below in the column
entitled "CD Margin"; and (c) with respect to the unpaid principal amount of
the Loans which are subject to a Base Rate Option, the applicable percentage
set forth below in the column entitled "Base Rate Margin".
-3-
<PAGE>
(x) In the case of Revolving Loans:
<TABLE>
<CAPTION>
LIBOR Base Rate CD
Period Margin Margin Margin
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Leverage Ratio
(greater than)6.75:1.0 1.625% 0.500% 1.750%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)6.5:1.0 and
(less than or equal)6.75:1.0 1.500% 0.375% 1.625%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)6.0:1.0 and
(less than or equal)6.5:1.0 1.375% 0.250% 1.500%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)5.5:1.0 and
(less than or equal)6.0:1.0 1.125% 0.000% 1.250%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)5.0:1.0 and
(less than or equal)5.5:1.0 1.000% 0.000% 1.125%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)4.5:1.0 and
(less than or equal)5.0:1.0 0.750% 0.000% 0.875%
- -----------------------------------------------------------------------------------
Leverage Ratio
(less than or equal)4.5:1.0 0.500% 0.000% 0.625%
- -----------------------------------------------------------------------------------
</TABLE>
(y) In the case of Term Loans:
<TABLE>
<CAPTION>
LIBOR Base Rate CD
Period Margin Margin Margin
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
(greater than)6.75:1.0 2.000% 0.875% 2.125%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)6.5:1.0 and
(less than or equal)6.75:1.0 1.875% 0.750% 2.000%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)6.0:1.0 and
(less than or equal)6.5:1.0 1.750% 0.625% 1.875%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)5.5:1.0 and
(less than or equal)6.0:1.0 1.500% 0.375% 1.625%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)5.0:1.0 and
(less than or equal)5.5:1.0 1.375% 0.250% 1.500%
- -----------------------------------------------------------------------------------
Leverage Ratio
(greater than)4.5:1.0 and
(less than or equal)5.0:1.0 1.125% 0.000% 1.250%
- -----------------------------------------------------------------------------------
Leverage Ratio
(less than or equal)4.5:1.0 0.875% 0.000% 1.000%
- -----------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
Leverage Ratio information shall be taken from the Leverage Ratio
Certificate most recently delivered to the Administrative Agent, beginning with
the Leverage Ratio Certificate provided by the Borrowers pursuant to Section
8.1; changes in the Applicable Margin resulting from a change in the Leverage
Ratio shall become effective three Business Days following the delivery by the
Borrowers to the Administrative Agent of a new Leverage Ratio Certificate
pursuant to Section 10.7(e) evidencing a change in the Leverage Ratio. If the
Borrowers shall fail to deliver a Leverage Ratio Certificate within 75 days
after the end of any of the first three fiscal quarters (or within 120 days
after the end of the last fiscal quarter), as required by Section 10.7(e), the
Leverage Ratio from and including the 76th day (or 121st day, in the case of
the last quarter) after the end of such fiscal quarter to the third Business
Day following the delivery by the Borrowers to the Administrative Agent of a
Leverage Ratio Certificate shall be conclusively presumed to be greater than
6.75:1.0.
"Assessment Rate" means, for any CD Interest Period, the assessment rate
---------------
per annum (rounded upwards, if necessary, to the next higher 1/100 of 1%)
payable to the Federal Deposit Insurance Corporation (or any successor) for the
insurance of domestic time deposits of the Administrative Agent during the
calendar year in which the first day of such CD Interest Period falls, as
estimated by the Administrative Agent on the first day of such CD Interest
Period.
"Assignment and Acceptance" shall mean the Assignment and Acceptance in
-------------------------
the form of Exhibit G to this Agreement.
"Available Commitments" shall mean, with respect to each Bank, its
---------------------
Available Revolving Commitment and its Available Term Loan Commitment.
"Available Revolving Commitment" shall mean, during the Revolving
------------------------------
Commitment Period, with respect to each Bank having a Revolving Commitment on
the date of determination thereof, the amount by which (a) the Revolving
Commitment of such Bank on such date exceeds (b) the sum of such Bank's
Revolving Loans outstanding on such date.
"Available Term Loan Commitment" shall mean, during the Term Loan
------------------------------
Commitment Period, with respect to each Bank having a Term Loan Commitment on
the date of determination thereof, the amount of the Term Loan Commitment of
such Bank on such date.
"Bank" and "Banks" shall have the meanings set forth in the preamble
---- -----
hereof.
"Base Rate" shall mean, as determined by the Administrative Agent on a
---------
daily basis (such determination to be conclusive absent manifest error), a rate
per annum equal to the higher of (i) the Prime Rate in effect on such day or
(ii) the Federal Funds Effective Rate in effect on such day plus .50 of 1% per
annum. All interest based on the Base Rate shall be calculated on the basis of
a 365/366 day year for the actual number of days elapsed.
"Base Rate Loan" shall mean the portion of any Loan subject to a Base Rate
--------------
Option which bears interest at the Base Rate.
"Base Rate Option" shall mean the option granted to the Borrowers pursuant
----------------
to Sections 3.1 and 4.2 to have interest on all or a portion of the outstanding
principal balance of the Loans computed with reference to the Base Rate.
-5-
<PAGE>
"Basic Subscriber" shall mean (a) each dwelling unit, including a separate
----------------
apartment within an apartment building, in respect of which the Borrowers and
the Restricted Subsidiaries are paid the full monthly price for their basic
services offered in a Cable System in accordance with standard basic rates
generally charged by the Borrowers and the Restricted Subsidiaries in respect
of such Cable System, none of which is more than 60 days delinquent in its
payment for basic service and (b) each Equivalent Subscriber.
"Borrowing Date" shall mean any date on which the Banks shall make Loans
--------------
hereunder.
"Borrowing Request" shall have the meaning assigned to such term in
-----------------
Section 4.2.
"Business Day" shall mean any day other than a Saturday, Sunday or other
------------
day on which banks in New York are authorized to close their regular banking
business and which, in the case of a LIBOR Rate Loan or LIBOR Interest Period,
is a Eurodollar Business Day.
"Cable Systems" shall mean all cable television facilities that are
-------------
operated and maintained by either Borrower or a Restricted Subsidiary pursuant
to the terms of the related licenses, franchises and permits issued under
federal, state or municipal laws from time to time in effect, which authorize a
person to receive or distribute, or both, by cable or otherwise, audio and
visual signals within a defined geographical area for the purpose of providing
entertainment or other services, together with all the property, tangible and
intangible, owned or used in connection with the services provided pursuant to
said licenses, franchises and permits, and each other cable television facility
from time to time operated by the Borrowers and the Restricted Subsidiaries. A
Cable System means one of such Cable Systems.
"Capitalized Lease Obligations" shall mean all rental obligations which,
-----------------------------
under GAAP, are required to be capitalized on the books of the obligor, in each
case taking as the amount thereof the amount which would be treated as
indebtedness (net of interest expense) in accordance with GAAP.
"Cash Collateral Account" shall have the meaning assigned to such term in
-----------------------
Section 4.3.
"Cash Flow" shall mean:
---------
(a) for TCI Pacific and its Restricted Subsidiaries shall mean, for the
period stated, Operating Income of TCI Pacific and the Restricted Subsidiaries
(excluding Operating Income attributable to Unrestricted Subsidiaries) for such
period, plus the sum of depreciation, amortization, deferred management fees
----
and other non-cash charges (in each case to the extent deducted in determining
such Operating Income) for such period (or less such amounts to the extent that
deferred management fees or other non-cash charges become a non-cash
contribution to such Operating Income); excluding all extraordinary or non-
recurring items and calculated after giving effect to acquisitions, exchanges
and dispositions of assets of TCI Pacific or any of the Restricted Subsidiaries
(and designations of Restricted Subsidiaries and Unrestricted Subsidiaries)
during such period as if such transactions had occurred on the first day of
such period;
(b) for Parent and its Restricted Subsidiaries shall mean the amount set
forth in the Parent Cable 5/31/96 Summary of Operations under the heading "Op.
Income (EBITDA)" for the three month period ending May 31, 1996; and
-6-
<PAGE>
(c) for any other Person shall mean, for the period stated, Operating
Income of such Person for such period, plus the sum of depreciation,
----
amortization, deferred management fees and other non-cash charges (in each case
to the extent deducted in determining such Operating Income) for such period
(or less such amounts to the extent that deferred management fees or other non-
cash charges become a non-cash contribution to such Operating Income);
excluding all extraordinary or non-recurring items and calculated after giving
effect to acquisitions, exchanges and dispositions of assets of such Person
during such period as if such transactions had occurred on the first day of
such period.
"Cash Management Affiliate" shall mean (a) TCIC, (b) TCI Holdings, so long
-------------------------
as it is a direct or indirect wholly-owned subsidiary of TCIC, or (c) any other
wholly-owned subsidiary of TCIC which is designated by the Borrowers in writing
to the Administrative Agent as a Cash Management Affiliate and which is
acceptable to the Majority Banks.
"Cash Manager Significant Default" shall mean (i) the failure of any Cash
--------------------------------
Management Affiliate to pay, or if required to purchase or otherwise acquire,
to purchase or otherwise acquire, when due (after the expiration of any grace
period for the payment or purchase thereof) any amount of principal or interest
in respect of obligations for the payment of Indebtedness for Borrowed Money in
an aggregate principal amount of $20,000,000 or more unless such failure or
default is waived by or on behalf of the holders of such obligations, (ii) the
failure of any Cash Management Affiliate to perform or observe any other
agreement, term or condition contained in one or more documents evidencing or
securing Indebtedness for Borrowed Money having a then outstanding aggregate
principal amount of $20,000,000 or more if the effect of such failure is (a) to
cause, or permit the holders of such Indebtedness to cause, any payment in
respect of such Indebtedness to become due prior to its stated date of
maturity, or (b) to cause the Cash Management Affiliate to be required to
purchase or otherwise acquire such Indebtedness, unless, in either case, such
failure or default is waived by or on behalf of the holders of such
Indebtedness, or (iii) the occurrence with respect to any Cash Management
Affiliate of any of the events of the type and duration set forth in Section
12.1(i) or (j) of this Agreement. The term "Cash Management Affiliate," as
used in this definition, shall include TCIC regardless of whether or not TCIC
has been so designated as a Cash Management Affiliate or is actually performing
cash management functions.
"Cash Management Suspension Notice" shall mean a notice delivered to the
---------------------------------
Borrowers executed by the Majority Banks following the occurrence of a Default
stating that it is a "Cash Management Suspension Notice." Such Cash Management
Suspension Notice shall be in effect from the time such notice is sent until
the earlier of (a) such time as it is revoked by notice delivered to the
Borrowers executed by the Administrative Agent at the request of the Majority
Banks, or (b) such time as the event to which it relates is cured or waived in
accordance with the terms of this Agreement and the Borrowers have given the
Administrative Agent and the Banks written notice of the Borrowers' intent to
resume their ordinary cash management practices.
"CD Interest Period" shall mean, with respect to any Loan subject to a CD
------------------
Rate Option, any 30, 60, 90 or, if made available by each Bank, 180 day period
selected by the Borrowers, commencing on a Business Day and ending on the 30th,
60th, 90th or 180th day thereafter, as the case may be, provided that:
(a) no CD Interest Period (i) for a Revolving Loan shall end later
than the Revolving Commitment Expiration Date or (ii) for a Term Loan shall end
later than the Term Loan Maturity Date;
-7-
<PAGE>
(b) if a CD Interest Period so selected would otherwise end on a date
which is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day; and
(c) no CD Interest Period shall end later than, with respect to any
Revolving Loans, any Revolving Commitment Reduction Date if the effect of
establishing such an Interest Period would be that the aggregate unpaid
principal amount of all Revolving Loans subject to a CD Rate Option or a LIBOR
Rate Option and having Interest Periods ending after such date would exceed the
amount of the Aggregate Revolving Commitments as reduced on such date.
"CD Rate" shall mean, with respect to a CD Rate Loan for the relevant CD
-------
Interest Period, a rate per annum equal to the sum of (i) the Assessment Rate
applicable to the relevant CD Interest Period and (ii) the product of (x) the
rate determined by the Administrative Agent to be the arithmetic average of the
rates reported to the Administrative Agent by the Reference Banks (or, if any
Reference Bank fails to provide such quotation, the rate reported to the
Administrative Agent by the remaining Reference Banks) as the lowest prevailing
bid rate for the purchase at face value at or before 10:00 a.m. on the first
day of the relevant CD Interest Period, by three certificate of deposit dealers
in New York of recognized standing selected by the Reference Banks, of
certificates of deposit of such Reference Bank in the approximate amount of
such Reference Bank's relevant CD Rate Loan and having a maturity approximately
equal to the relevant CD Interest Period and (y) Statutory Reserves, if any,
relating to such CD Rate Loan. The CD Rate shall be rounded, if necessary, to
the next higher 1/100 of 1%. All interest based on the CD Rate shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed.
"CD Rate Loan" shall mean the portion of any Loan subject to a CD Rate
------------
Option which bears interest at the CD Rate.
"CD Rate Option" shall mean the option granted to the Borrowers pursuant
--------------
to Sections 3.1 and 4.2 to have interest on all or a portion of the outstanding
principal balance of the Loans computed with reference to the CD Rate.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
----
rules and regulations issued thereunder, as from time to time in effect.
"Commission" shall mean the Securities and Exchange Commission and any
----------
other similar or successor agency of the federal government administering the
Securities Act, the Exchange Act or the Trust Indenture Act of 1939, as each
shall be amended from time to time.
"Commitment Expiration Date" shall mean, with respect to the Revolving
--------------------------
Commitment, the Revolving Credit Maturity Date and, with respect to the Term
Loan Commitments, the earlier to occur of July 31, 1996 or the First Funding
Date.
"Commitments" shall mean for each Bank, the sum of the Bank's Revolving
-----------
Commitment and Term Loan Commitment.
"Commitment Fee" shall have the meaning assigned to such term in Section
--------------
6.1(a).
"Communications Act" shall mean the Communications Act of 1934, as
------------------
amended, and the rules and regulations issued thereunder, as from time to time
in effect.
-8-
<PAGE>
"Consolidated" shall mean (i) when used in connection with the
------------
determination of the standard for materiality, the Borrowers and the Restricted
Subsidiaries taken as a whole and (ii) in all other cases, the aggregate for
two or more Persons of the amounts signified by such term for all such Persons,
in each case consolidated in accordance with GAAP.
"Continuation Notice" shall mean a request for continuation or conversion
-------------------
of a Loan as set forth in Section 5.3.
"Control" shall have the meaning assigned to such term in the second
-------
sentence of the definition of the term "Affiliate".
"Copyright Act" shall mean Title 17 of the United States Code, as amended,
-------------
and the rules and regulations issued thereunder, as from time to time in
effect.
"Credit Exposure": shall mean, with respect to any Bank at any time, the
---------------
sum of (i) the Revolving Credit Commitment or, if no Revolving Credit
Commitment, the outstanding Revolving Credit Loans and (ii) the Term Loan
Commitment or, if no Term Loan Commitment, the outstanding Term Loan, as the
case may be, of such Bank at such time.
"Default" shall mean any Event of Default, and any event which, with the
-------
passage of time or giving of notice or both, would constitute an Event of
Default.
"Dollars" and the symbol "$" shall mean the lawful currency of the United
-------
States of America.
"Eligible Assignee" shall mean (i) a commercial bank organized under the
-----------------
laws of the United States, or any State thereof, and having total assets in
excess of $1,000,000,000; (ii) a commercial bank organized under the laws of
any other country, or a political subdivision of any such country, having total
assets in excess of $1,000,000,000 or the equivalent thereof; or (iii) with
respect to the Term Loans, any other entity which is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary course of
its business.
"Eligible Institution" shall mean a bank organized under the laws of the
--------------------
United States of America or any state thereof or a country which is a member of
the Organization for Economic Cooperation and Development and (i) whose long
term debt rating is rated A- or better by Standard and Poor's Ratings Group or
A3 or better by Moody's Investor Services, Inc. and (ii) which has a combined
capital, surplus and undivided profits of not less than $500,000,000 or the
equivalent thereof in Dollars.
"Environmental Law" shall mean any federal, state or local statute, law,
-----------------
ordinance, rule, regulation or decree regulating or relating to industrial
hygiene or the protection of the environment or imposing liability or standards
of conduct with respect to the use, generation, handling, storage, treatment,
transport, or disposal, or otherwise concerning, any hazardous, toxic or
dangerous waste, substance or material, now or at any time hereafter in effect.
"Equivalent Subscribers" shall mean all subscribers deemed to make up bulk
----------------------
subscribers (such as hotels and apartment buildings) of bulk basic subscription
services offered in a Cable System, where the number of Equivalent Subscribers
with respect to a bulk subscriber in such Cable System is deemed to consist of
the number obtained by dividing the monthly revenues for such bulk subscriber
by the average monthly basic subscription price for individual subscribers in
such Cable System. "Equivalent Subscriber" shall mean each subscriber deemed
---------------------
to make up a bulk subscriber.
-9-
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended, and the rules and regulations issued thereunder as from time to time
in effect. Any reference herein to any specific ERISA section or form shall
refer to such new or analogous section or form should such section or form be
modified, amended or replaced.
"ERISA Affiliate" shall mean each trade or business, including each
---------------
Borrower or any Restricted Subsidiary, whether or not incorporated, which
together with either Borrower or any Restricted Subsidiary would be treated as
a single employer under Section 4001(b) of ERISA.
"Eurodollar Business Day" shall mean any day on which banks are open for
-----------------------
dealings in dollar deposits in the London Interbank Market.
"Event of Default" shall mean any of the events specified as such in
----------------
Section 12.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations issued thereunder, as from time to time in
effect.
"Exchange Offer" shall have the meaning specified in the Parents
--------------
Agreement.
"Exchange Time" shall have the meaning specified in the Parents
-------------
Agreement.
"Execution Closing Date" shall have the meaning assigned to such term in
----------------------
Section 14.12.
"Expiration Time" shall have the meaning specified in the Parents
---------------
Agreement.
"Facility B" shall mean the Credit Agreement, dated as of the date hereof,
----------
among Parent, the lenders party thereto, The Bank of New York, The Bank of Nova
Scotia, CIBC Inc., NationsBank of Texas, N.A. and The Toronto Dominion Bank, as
arranging agents, and The Bank of New York, as administrative agent, as the
same may be amended, supplemented or otherwise modified from time to time.
"Facility B Cash Collateral Account" shall mean the cash collateral
----------------------------------
account maintained in connection with Facility B.
"Facility B Loans" shall mean the loans made under Facility B.
----------------
"Facility B Notes" shall mean the notes issued under Facility B.
----------------
"FCC" shall mean the Federal Communications Commission or any successor
---
thereto.
"Federal Funds Effective Rate" shall mean, for any period, a fluctuating
----------------------------
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected by it.
-10-
<PAGE>
"Financial Officer" of any corporation shall mean its chief financial
-----------------
officer, senior vice president-finance, vice president-finance, finance
director, principal accounting officer, treasurer or assistant treasurer.
"Financial Statements" shall mean the Parent Cable Carve-Out 12/31/95
--------------------
Financial Statements, the Parent Cable Carve-Out 3/31/96 Financial Statements,
the Parent Cable Special Purpose 12/31/95 Financial Statements, the Parent
Cable Special Purpose 3/31/96 Financial Statements, the Parent Cable 5/31/96
Summary of Operations and the Pro-Forma Financial Statements.
"First Funding Date" shall mean the date on which the first Loans are made
------------------
hereunder and in no event later than July 31, 1996.
"Funded Debt" shall mean, in respect of the Borrowers and the Restricted
-----------
Subsidiaries, the aggregate outstanding amount of all Indebtedness for Borrowed
Money (excluding Parent Preferred Stock to the extent it would constitute
Indebtedness for Borrowed Money), all as determined on a Consolidated basis,
excluding Indebtedness for Borrowed Money constituting Intercompany
Subordinated Debt.
"GAAP" shall mean generally accepted accounting principles as from time to
----
time in effect which shall include the official interpretations thereof by the
Financial Accounting Standards Board, consistently applied.
"Governmental Body" shall mean any foreign, federal, state, municipal or
-----------------
other government, or any department, commission, board, bureau, agency, public
authority or instrumentality thereof or any court or arbitrator.
"Gross Revenues" for any period shall mean the gross revenues from
--------------
continuing operations of the Borrowers and the Restricted Subsidiaries for such
period prior to deducting operating expenses, overhead, cost of goods sold,
provisions for taxes and reserves or any other deduction, all determined and
Consolidated in accordance with GAAP after eliminating all intercompany items
and all interest accrued on Indebtedness of an Affiliate owed to either
Borrower or to any Restricted Subsidiary.
"Guaranty" of any Person shall mean and include as of any date as of which
--------
the amount thereof is to be determined, without duplication, (a) all
obligations of such Person to purchase any materials, supplies or other
property, or to obtain the services of any other Person, or for the sale or use
of any materials, supplies or other property, or the rendering of services, if
payment or performance under or in respect of the relevant contract or other
property to be purchased, or services to be rendered, shall be made regardless
of whether or not delivery of such materials, supplies or other property is
ever made or tendered or such services are ever performed or tendered or if
payments for such materials, supplies or other property to be sold or used, or
payment for such services to be rendered shall be subordinated to any
Indebtedness of such Person owed to the purchaser or user of such materials,
supplies or other property, or the beneficiary of such services, (b) all
obligations of such Person to advance or supply funds to, or to purchase
property or services from, any other Person, if the purpose is to enable such
other Person to maintain working capital, net worth or any other balance sheet
condition or to pay debts, dividends or expenses of such other Person or to
assure such other Person or any third party against any liability or loss,
including, without limitation, obligations under any agreement or
understanding, oral or written, pursuant to which such Person is obligated to
advance funds to or on behalf of any other Person upon the happening of one or
more stated events, (c) all contracts for the rental or lease (as lessee) of
any real or personal property which provide that the payment obligations
thereunder are absolute and unconditional under conditions not customarily
found in commercial
-11-
<PAGE>
leases then in general use or require that the lessee purchase or otherwise
acquire securities or obligations of the lessor, and (d) all guaranties,
endorsements and other contingent obligations, direct or indirect, on the part
of such Person (other than endorsements of negotiable instruments for
collection in the ordinary course of business) for the payment, discharge or
satisfaction of Indebtedness of others, including any agreement, contingent or
otherwise, to (x) purchase such Indebtedness of others, or (y) purchase or sell
property or sell property or services primarily to permit the debtor in respect
of such Indebtedness of others to pay the same or the owner of such
Indebtedness of others to avoid loss, or (z) supply funds to or invest in any
such debtor.
For purposes of this Agreement, a Guaranty shall not include (i) any bond
obligation of, or any Guaranty of or letter of credit securing performance by,
either Borrower or any Restricted Subsidiary undertaken or incurred in the
ordinary course of its or their business (other than in connection with the
borrowing of money or obtaining of credit) as presently conducted for or on
behalf of the either Borrower or a Restricted Subsidiary and (ii) a guaranty or
other obligation consisting of a pledge of such Person's interest in any
Unrestricted Subsidiary Equity, provided that recourse under any such guaranty
or obligation secured by such pledge shall be limited solely to such Person's
interest in such Unrestricted Subsidiary Equity so pledged.
"Homes Passed" shall mean dwelling units, including separate units within
------------
an apartment building, passed by an operational portion of a Cable System
operated and maintained by the Borrowers or any Restricted Subsidiary.
"Implementation Agreement" shall mean the Implementation Agreement
------------------------
described in Schedule 1.1(T), as the same may be amended, supplemented or
otherwise modified in accordance with Section 11.16.
"Indebtedness" shall mean, as of the date of determination, all
------------
liabilities, obligations and reserves, contingent or otherwise, including Money
Market Preferred Stock.
"Indebtedness for Borrowed Money" shall mean, as of the date of
-------------------------------
determination, without duplication, all Indebtedness other than TCI Pacific
Group Debt (a) in respect of money borrowed, (b) evidenced by a note, debenture
or other like written obligation to pay money (including, without limitation,
the Notes), (c) in respect of Capitalized Lease Obligations, (d) in respect of
obligations under conditional sales or other title retention agreements, (e) in
respect of the par value or other value of Money Market Preferred Stock as to
which dividends and other payments are calculated, (f) in respect of the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables arising in the ordinary course), and (g) all
Guaranties in respect of any of the foregoing and all Guaranties incurred
pursuant to Section 11.13(c) hereof. For purposes of this Agreement,
Indebtedness for Borrowed Money shall not include (i) any bond obligation of,
or any Guaranty of or letter of credit securing performance by, either Borrower
or any Restricted Subsidiary undertaken or incurred in the ordinary course of
its or their business (other than in connection with the borrowing of money or
obtaining of credit) as presently conducted for or on behalf of either Borrower
or a Restricted Subsidiary and (ii) a guaranty or other obligation consisting
of a pledge of such Person's interest in any Unrestricted Subsidiary Equity,
provided that recourse under any such guaranty or obligation secured by such
pledge shall be limited solely to such Person's interest in such Unrestricted
Subsidiary Equity so pledged.
"Indemnified Liabilities" shall have the meaning assigned to such term in
-----------------------
Section 14.13(d).
-12-
<PAGE>
"Indemnified Parties" shall have the meaning assigned to such term in
-------------------
Section 14.13(d).
"Intercompany Debt Subordination Agreement" shall mean the agreement by
-----------------------------------------
and among the Borrowers, TCIC, and any other Person who becomes a party thereto
from time to time, substantially in the form of Exhibit D hereto.
"Intercompany Subordinated Debt" shall mean, and include at any date as of
------------------------------
which a determination is to be made, any Indebtedness of either Borrower or any
Restricted Subsidiary related to or resulting from any loan or advance from, or
any non-equity investment by, or any management or similar fees payable to, or
any obligation to pay for goods or services to, an Affiliate (excluding,
however, any obligation of either Borrower or a Restricted Subsidiary to pay
for programming arising out of a transaction entered into in the ordinary
course of such Borrower's or such Restricted Subsidiary's business with an
Affiliate, provided that such obligation was incurred in accordance with
Section 11.8 hereof); provided that to qualify as Intercompany Subordinated
Debt the full amount of any such Indebtedness shall be subordinated to the full
payment and performance of the Obligations in accordance with the terms of the
Intercompany Debt Subordination Agreement; and provided further that such
Borrower, such Affiliate and such Restricted Subsidiary, as applicable, is, and
during such time as any such Indebtedness remains outstanding continues to be,
a party to the Intercompany Debt Subordination Agreement.
"Interest Deficit" shall have the meaning assigned to such term in Section
----------------
4.5(b).
"Interest Determination Date" shall mean with respect to any LIBOR Rate
---------------------------
Loans, the date which is two Eurodollar Business Days prior to the first day of
each LIBOR Interest Period.
"Interest Period" shall mean a CD Interest Period or a LIBOR Interest
---------------
Period, as applicable.
"Interest Rate Protection Arrangement" shall mean any interest rate swap,
------------------------------------
cap or collar arrangement or any other derivative product customarily offered
by banks to their customers in order to reduce the exposure of such customers
to interest rate fluctuations, as the same may be amended, supplemented or
otherwise modified from time to time.
"Investments" shall have the meaning assigned to such term in Section
-----------
11.5.
"IRS" shall mean the Internal Revenue Service of the United States or any
---
successor thereto.
"IRS Ruling" shall mean .
---------- ---------------
"Leverage Ratio" shall mean, as of any date of calculation, the ratio of
--------------
Funded Debt to Annualized Cash Flow as of such date.
"Leverage Ratio Certificate" shall mean a certificate substantially in the
--------------------------
form of Exhibit C delivered pursuant to Sections 8.1(d) or 10.7(e).
"LIBID Rate" shall mean, with respect to a LIBOR Rate Loan for the
----------
relevant Interest Period, the rate per annum determined by the Administrative
Agent as follows:
(a) the Administrative Agent shall obtain the bid quotation(s) that
appear on the Reuter's Screen for Dollar deposits for a period comparable to
such Interest Period. If at least two such bid quotations appear on the
Reuter's Screen, the LIBID Rate
-13-
<PAGE>
shall be the arithmetic average (rounded up to the nearest 1/16th of 1%) of
such bid quotations, as determined by the Administrative Agent;
(b) if the Reuter's Screen is not available or has been discontinued,
the LIBID Rate shall be the rate per annum that the Administrative Agent
determines to be the arithmetic average (rounded as aforesaid) of the per annum
rates of interest reported to the Administrative Agent by each Reference Bank
(or, if either Reference Bank fails to provide such quotation, on the basis of
the rate reported to the Administrative Agent by the remaining Reference Bank)
as the bid rate for deposits in Dollars given by such Reference Banks in the
London Interbank Market at 11:00 a.m., London time, on the date of
determination in the approximate amount of such Reference Bank's relevant LIBOR
Rate Loan and having a maturity approximately equal to the relevant Interest
Period; and
(c) if the Administrative Agent is not able to obtain quotations for
the determination of the LIBID Rate pursuant to subsection (a) or (b) above,
the LIBID Rate shall be the rate per annum which the Administrative Agent in
good faith determines to be the arithmetic average (rounded as aforesaid) of
bid quotations for Dollar deposits in an amount comparable to the
Administrative Agent's share of the relevant amount in respect of which the
LIBID Rate is being determined for a period comparable to the relevant Interest
Period that leading banks in New York City selected by the Administrative Agent
are quoting at 11:00 a.m. on the date of determination in the New York
Interbank Market to major international banks.
Each determination by the Administrative Agent of the LIBID Rate shall be
conclusive in the absence of manifest error. All interest based on the LIBID
Rate shall be calculated on the basis of a 360-day year for the actual number
of days elapsed.
"LIBOR Interest Period" shall mean, with respect to any Loan subject to a
---------------------
LIBOR Rate Option (i) for the period commencing on the First Funding Date and
ending on the Transaction Effective Date, any seven day period and (ii) at all
other times, any one, two, three, six or, if made available by each Bank, nine
or twelve month period, selected by the Borrowers, commencing on a Eurodollar
Business Day and ending on the numerically corresponding day (or if there is no
corresponding day, the last day) in the first, second, third, sixth, ninth or
twelfth calendar month thereafter, as the case may be, provided that:
(a) no LIBOR Interest Period (i) for a Revolving Loan shall end later
than the Commitment Expiration Date with respect to the Revolving Commitment,
or (ii) for a Term Loan shall end later than the Term Loan Maturity Date.
(b) if a LIBOR Interest Period so selected would otherwise end on a
date which is not a Eurodollar Business Day, such LIBOR Interest Period shall
be extended to the next succeeding Eurodollar Business Day, unless such next
succeeding Eurodollar Business Day would fall in the next calendar month, in
which case, such Interest Period shall end on the next preceding Eurodollar
Business Day; and
(c) no LIBOR Interest Period shall end later than, with respect to
any Revolving Loans, any Revolving Commitment Reduction Date if the effect of
establishing such an Interest Period would be that the aggregate unpaid
principal amount of all Revolving Loans subject to a LIBOR Rate Option or a CD
Rate Option and having Interest Periods ending after such date would exceed the
amount of the Aggregate Revolving Commitments as reduced on such date.
-14-
<PAGE>
"LIBOR Rate" shall mean, with respect to a LIBOR Rate Loan for the
----------
relevant LIBOR Interest Period, the rate per annum determined by the
Administrative Agent as follows:
(a) on the Interest Determination Date relating to such Interest
Period, the Administrative Agent shall obtain the offered quotation(s) that
appear on the Reuter's Screen for Dollar deposits for a period comparable to
such Interest Period. If at least two such offered quotations appear on the
Reuter's Screen, the LIBOR Rate shall be the arithmetic average (rounded up to
the nearest 1/16th of 1%) of such offered quotations, as determined by the
Administrative Agent;
(b) if the Reuter's Screen is not available or has been discontinued,
the LIBOR Rate shall be the rate per annum that the Administrative Agent
determines to be the arithmetic average (rounded as aforesaid) of the per annum
rates of interest reported to the Administrative Agent by each Reference Bank
(or, if any Reference Bank fails to provide such quotation, on the basis of the
rates reported to the Administrative Agent by the remaining Reference Banks) as
the rate at which deposits in Dollars are offered to such Reference Banks in
the London Interbank Market at 11:00 a.m., London time, on the Interest
Determination Date in the approximate amount of such Reference Bank's relevant
LIBOR Rate Loan and having a maturity approximately equal to the relevant LIBOR
Interest Period; and
(c) if the Administrative Agent is not able to obtain quotations for
the determination of the LIBOR Rate pursuant to subsection (a) or (b) above,
the LIBOR Rate shall be the rate per annum which the Administrative Agent in
good faith determines to be the arithmetic average (rounded as aforesaid) of
the offered quotations for Dollar deposits in an amount comparable to the
Administrative Agent's share of the relevant amount in respect of which the
LIBOR Rate is being determined for a period comparable to the relevant LIBOR
Interest Period that leading banks in New York City selected by the
Administrative Agent are quoting at 11:00 a.m. on the Interest Determination
Date in the New York Interbank Market to major international banks.
Each determination by the Administrative Agent of the LIBOR Rate shall be
conclusive in the absence of manifest error. All interest based on the LIBOR
Rate shall be calculated on the basis of a 360-day year for the actual number
of days elapsed.
"LIBOR Rate Loan" shall mean the portion of any Loan subject to a LIBOR
---------------
Rate Option which bears interest at the LIBOR Rate.
"LIBOR Rate Option" shall mean the option granted to the Borrowers
-----------------
pursuant to Sections 3.1 and 4.2 to have interest on all or a portion of the
outstanding principal balance of the Revolving Loans or Term Loans computed
with reference to a LIBOR Rate.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind (including any agreement to give any of the
foregoing), any conditional sale or title retention agreement and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
of any jurisdiction.
"Loan" and "Loans" shall mean the Revolving Loans and/or the Term Loans,
---- -----
as the context may require.
"Loan Documents" shall mean this Agreement, the Notes, the Security
--------------
Agreement, the VI Indemnity Agreement and the Intercompany Debt Subordination
Agreement.
-15-
<PAGE>
"Majority Banks" shall mean, at any time when no Loans are outstanding,
--------------
Banks having Commitments equal to more than 50% of the Aggregate Commitments,
and at any time when Loans are outstanding, Banks with outstanding Loans having
an unpaid principal balance equal to more than 50% of all Loans outstanding,
excluding from such calculation Banks which have failed or refused to fund a
Loan and which are subject to the voting restrictions set forth in the last
sentence of Section 4.3(b) hereof.
"Margin Stock" shall have the meaning assigned to such term in Regulation
------------
U of the Board of Governors of the Federal Reserve System, as amended.
"Material Adverse Change" shall mean (i) at any time on or prior to the
-----------------------
First Funding Date, a material adverse change in the business, financial
condition or results of operations of Parent Cable from that reflected in the
Parent Cable Carve-Out 12/31/95 Financial Statements, except for (a) changes
in, or changes required in order to comply with, any adjustment in subscriber
rates implemented in a manner consistent with the rate regulations promulgated
under the Cable Television Consumer Protection and Competition Act of 1992, as
amended, and (b) changes resulting from technological changes generally
applicable to the cable television industry, and (ii) at any time after the
Transaction Effective Date, a material adverse change in the business,
operations, condition (financial or otherwise) or Property of the Borrowers and
the Restricted Subsidiaries on a Consolidated basis. Notwithstanding the
foregoing, the mere enactment of the Telecommunications Act of 1996 shall not
in and of itself be deemed to constitute a Material Adverse Change.
"Material Adverse Effect" shall mean (i) at any time on or prior to the
-----------------------
First Funding Date, a material adverse effect in the business, financial
condition or results of operations of Parent Cable from that reflected in the
Parent Cable Carve-Out 12/31/95 Financial Statements, except for (a) changes
in, or changes required in order to comply with, any adjustment in subscriber
rates implemented in a manner consistent with the rate regulations promulgated
under the Cable Television Consumer Protection and Competition Act of 1992, as
amended, and (b) changes resulting from technological changes generally
applicable to the cable television industry, and (ii) at any time after the
Transaction Effective Date, a material adverse effect on the business,
operations, condition (financial or otherwise) or Property of the Borrowers and
the Restricted Subsidiaries on a Consolidated basis. Notwithstanding the
foregoing, the mere enactment of the Telecommunications Act of 1996 shall not
in and of itself be deemed to constitute a Material Adverse Effect.
"Maturity" shall mean the Revolving Credit Maturity Date or the Term Loan
--------
Maturity Date, as the context requires.
"Maximum Permitted Funded Debt" shall mean, at any time, an amount equal
-----------------------------
to the product of (i) Annualized Cash Flow at such time and (ii) the Applicable
Leverage Ratio in effect on the date of determination.
"Minimum Condition" shall have the meaning specified in the Parents
-----------------
Agreement.
"Money Market Preferred Stock" shall mean preferred stock issued on terms
----------------------------
where the rate of dividend paid thereon is determined by either (i) reference
to a recognized financial index or (ii) through an auction mechanism conducted
by a recognized financial institution, provided that the Parent Preferred Stock
shall not constitute Money Market Preferred Stock.
-16-
<PAGE>
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA under which either Borrower or any ERISA Affiliate
is required to contribute on behalf of its employees.
"Net Unrestricted Designated Subsidiaries Three Month Cash Flow" shall
--------------------------------------------------------------
mean, for any period, the excess, if any, of (i) the Three Month Cash Flow
attributable to all Restricted Subsidiaries which have been designated during
such period as Unrestricted Subsidiaries pursuant to Section 10.12, including,
if applicable, the Three Month Cash Flow attributable to any Restricted
Subsidiary which is then being designated as an Unrestricted Subsidiary
pursuant to Section 10.12 (calculated at the time of each such designation),
over (ii) the sum of (A) the Three Month Cash Flow attributable to all
Unrestricted Subsidiaries which have been designated during such period as
Restricted Subsidiaries pursuant to Section 10.12, including, if applicable,
the Three Month Cash Flow attributable to any Unrestricted Subsidiary which is
then being designated as a Restricted Subsidiary pursuant to Section 10.12
(calculated at the time of each such designation) plus (B) the Three Month Cash
Flow attributable to the Cable Systems, if any, owned by TCI Pacific or a
Restricted Subsidiary and acquired after the Transaction Effective Date.
"New VII" shall mean Viacom International Services Inc., a Delaware
-------
corporation.
"Note" and "Notes" shall mean one or more of the Revolving Notes, the Term
---- -----
Notes, or both as the context requires.
"Obligations" shall mean (i) all payment and performance obligations of
-----------
the Borrowers under the Loan Documents, as they may be amended from time to
time, or as a result of making the Loans and (ii) the obligation to pay an
amount equal to the amount of all damages which the Administrative Agent, the
Arranging Agents, the Agents and the Banks may suffer by reason of any breach
by the Borrowers of any obligation, covenant or undertaking with respect to
this Agreement or any other Loan Document.
"Operating Income" (a) (i) with respect to the period prior to the TCI
----------------
Cosign Date, for Parent and its Restricted Subsidiaries (to the extent
allocable to the Transaction Cable Systems) and (ii) with respect to the period
on and after the TCI Cosign Date, for TCI Pacific and its Restricted
Subsidiaries, shall mean operating income as determined on a Consolidated basis
in accordance with GAAP and in a manner consistent with the calculation of
operating income as set forth in the 1995 annual audited financial statements
of TCIC as contained in the 1995 10-K of TCIC less, to the extent not deducted
----
in connection with the determination thereof, all management fees, plus all
----
operating income attributable to cable assets transferred by Parent to New VII
on the Transaction Effective Date pursuant to the Transaction Documents due to
the failure to obtain necessary consents and approvals, but only to the extent
that Parent or TCI Pacific, as the case may be, or any of its Restricted
Subsidiaries actually receives the revenues from such cable assets either
directly or from New VII, and excluding all operating income attributable to
Untransferred Non-Cable Assets; and
(b) for any other Person shall mean operating income of such Person as
determined in accordance with GAAP and in a manner consistent with the
calculation of operating income as set forth in the 1995 annual audited
financial statements of TCIC as contained in the 1995 10-K of TCIC less, to the
----
extent not deducted in connection with the determination thereof, all
management fees.
"Parent Cable" shall mean Parent and its Subsidiaries after giving effect
------------
to the Conveyance of Assets and Assumption of Liabilities (as each such term is
used in the
-17-
<PAGE>
Parents Agreement) and the distribution by Parent of all of the common stock of
New VII to VI as contemplated by the Transaction.
"Parent Cable Carve-Out 12/31/95 Financial Statements" shall have the
----------------------------------------------------
meaning assigned to such term in Section 9.15(a).
"Parent Cable Carve-Out 3/31/96 Financial Statements" shall have the
---------------------------------------------------
meaning assigned to such term in Section 9.15(c).
"Parent Cable Special Purpose 12/31/95 Financial Statements" shall have
----------------------------------------------------------
the meaning assigned to such term in Section 9.15(b).
"Parent Cable Special Purpose 3/31/96 Financial Statements" shall have
---------------------------------------------------------
the meaning assigned to such term in Section 9.15(d).
"Parent Cable 5/31/96 Summary of Operations" shall have the meaning
------------------------------------------
assigned to such term in Section 9.15(e).
"Parent Debt Release Agreements" shall have the meaning assigned to such
------------------------------
term in Section 8.1(p).
"Parent Management Fee" shall mean any management or similar fee paid to
---------------------
the Parent by TCI Pacific or any Restricted Subsidiary of TCI Pacific.
"Parent Preferred Stock" shall mean the Class A Senior Cumulative
----------------------
Exchangeable Preferred Stock of the Parent (exchangeable into TCI Series A
Group Stock) into which the Class A common Stock of the Parent will be
automatically converted as part of the Transaction on the Transaction Effective
Date, as the same may be amended, supplemented or otherwise modified from time
to time in accordance with Section 11.7.
"Parents Agreement" shall mean the Parents Agreement described in
-----------------
Schedule 1-1(T), as the same may be amended, supplemented or otherwise modified
in accordance with Section 11.16.
"Payment Notice" shall mean a notice of payment as set forth in Section
--------------
5.1.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA, or any Governmental Body
succeeding to the functions thereof.
"Permitted Control Stockholders" shall mean any one or more of the
------------------------------
following: (i) TCIC or any wholly-owned direct or indirect subsidiary of TCIC;
(ii) John C. Malone or Bob Magness; or (iii) the legal heirs of John C. Malone
or Bob Magness following the death of such Person, so long as, in the case of
this clause (iii), TCIC continues to manage or appoint the management of
Parent.
"Permitted Sale Representations" shall have the meaning set forth in
------------------------------
Section 11.6(a)(vi)(2).
"Person" shall mean and include any individual, firm, partnership, joint
------
venture, corporation, association, business enterprise trust, unincorporated
organization, government or department or agency thereof or other entity,
whether acting in an individual, fiduciary or other capacity.
-18-
<PAGE>
"Plan" shall mean any plan (other than a Multiemployer Plan) subject to
----
Title IV of ERISA maintained for employees of either Borrower or any ERISA
Affiliate (and any such plan no longer maintained by a Borrower or any of its
ERISA Affiliates to which such Borrower or any of its ERISA Affiliates has made
or was required to make any contributions within any of the preceding five
years).
"Prime Rate" shall mean the prime commercial lending rate of the
----------
Administrative Agent as publicly announced in New York City to be in effect
from time to time, such rate to be adjusted on and as of the effective date of
any change in the Prime Rate. The Prime Rate is only one of the bases for
computing interest on loans made by the Banks, and by basing interest on the
unpaid principal amount of the Loans not subject to a CD Rate Option or a LIBOR
Rate Option on the Prime Rate, the Banks have not committed to charge, and the
Borrowers have not in any way bargained for, interest based on a lower or the
lowest rate at which the Banks may now or in the future make loans to other
borrowers.
"Pro-Forma Debt Service" shall mean, in respect of the Borrowers and the
----------------------
Restricted Subsidiaries, determined on a Consolidated basis, the sum of all
Annual Pro-Forma Interest Expense and scheduled principal payments, including
the current maturities thereof, due on Funded Debt for the four complete fiscal
quarters immediately succeeding the date of any determination thereof, but
excluding, without duplication, (i) the principal amount of the Facility B
Loans, (ii) the principal amount of the Term Loans, payable on the Term Loan
Maturity Date, and (iii) Annual Pro-Forma Interest Expense and scheduled
principal payments, in each case payable on short term Funded Debt (including
the current portion of long term Funded Debt) that could be refinanced on the
date of determination by Funded Debt under a committed credit facility under
which there are sufficient unused commitments on such date of determination and
as to which the conditions precedent to funding can be satisfied on such date
of determination ("Substitute Long Term Funded Debt"), provided that the
--------------------------------
applicable scheduled payments of principal and interest with respect to such
Substitute Long Term Funded Debt are included in the calculation of Pro-Forma
Debt Service.
"Pro-Forma Financial Statements" shall have the meaning assigned such
------------------------------
term in Section 9.15(f).
"Pro-Forma Interest Expense" shall mean, for any period for which a
--------------------------
determination thereof is to be made, the sum of (i) the amount of all interest
on Funded Debt (excluding the Facility B Loans) of the Borrowers and the
Restricted Subsidiaries on a Consolidated basis which, without duplication, is
scheduled to be paid or will accrue during such period, including, without
limitation, in respect of the Loans (ii) all commitment or line of credit fees
(no matter how designated) scheduled or required to be paid by either Borrower
or any Restricted Subsidiary to any lender in exchange for such lender's
commitment to lend to either Borrower or such Restricted Subsidiary, including,
without limitation, the Commitment Fee in respect of the Loans and the
Commitments, which is scheduled or required to be paid by the Borrowers or any
Restricted Subsidiary during such period and (iii) all dividends or other
distributions scheduled or required to be made or paid by either Borrower or
any Restricted Subsidiary during such period in respect of Money Market
Preferred Stock. For purposes of calculating Pro-Forma Interest Expense (i)
where any item of interest on any Funded Debt varies or depends upon a variable
rate of interest (including, without limitation, the Base Rate, a LIBOR Rate or
a CD Rate), such rate shall be assumed to equal the rate in effect on the date
of calculation thereof and (ii) the principal amount outstanding under any
revolving or line of credit facility shall be assumed to be the outstanding
principal balance thereunder on the last day of the fiscal quarter immediately
preceding the period in respect of which the calculation of Pro-Forma Interest
Expense is being determined or, if less, the aggregate
-19-
<PAGE>
commitment under such revolving or line of credit facility as of the date of
any determination thereof, in each case adjusted to give effect to any
mandatory commitment reductions which are scheduled to occur during such period
in respect of which the calculation of Pro-Forma Interest Expense is being
determined.
"Prohibited Transaction" shall mean any transaction described in Section
----------------------
406 of ERISA that is not exempt by reason of Section 408 of ERISA or the
transitional rules set forth in Section 414(c) of ERISA and any transaction
described in Section 4975(c) of the Code that is not exempt by reason of
Section 4975(c)(2) or Section 4975(d) of the Code or the transitional rules of
Section 2003(c) of ERISA.
"Property" shall mean, in respect of any Person, all types of real,
--------
personal or mixed property and all types of tangible or intangible property
owned or leased by such Person.
"Reference Banks" shall mean the Administrative Agent, NationsBank of
---------------
Texas, N.A. and The Toronto-Dominion Bank.
"Register" shall have the meaning assigned to such term in Section 14.8.
--------
"Regulation G" shall mean Regulation G of the Board of Governors of the
------------
Federal Reserve System, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of the
------------
Federal Reserve System, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of the
------------
Federal Reserve System, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Remaining Interest Period" shall mean: (a) in the event that a Borrower
-------------------------
shall fail for any reason to make a borrowing, continuation or conversion after
it delivers to the Administrative Agent of a Borrowing Request or Continuation
Notice, a period equal to the Interest Period that the Borrowers elected (from
and including the first day of such Interest Period to but excluding the last
day of such Interest Period); (b) in the event that notice shall be given to
the Borrowers pursuant to Section 7.2 prior to the last day of the Interest
Period applicable thereto, a period equal to the period from and including the
date of such notice to but excluding the last day of such Interest Period as if
such Interest Period had not been so terminated; and (c) in the event that a
Borrower shall prepay or repay or give notice of prepayment of all or any part
of the principal amount of the Loans prior to the last day of the Interest
Period applicable thereto, a period equal to the period from and including the
date of such prepayment or repayment or date notified as the date of such
prepayment (whichever is earlier) to but excluding the last day of such
Interest Period.
"Reportable Event" shall mean any of the events set forth in Section
----------------
4043(b) of ERISA or the regulations thereunder, a withdrawal from a Plan
described in Section 4063 of ERISA, a cessation of operations described in
Section 4068(f) or 4062(c) of ERISA, an amendment to a Plan necessitating the
posting of security under Section 401(a)(29) of the Code and either Borrower's
failure to post such security thereafter or a failure to make a payment
required by Section 412(m) of the Code and Section 302(e) of ERISA when due.
"Restricted Payment" shall have the meaning set forth in Section 11.4
------------------
hereof.
-20-
<PAGE>
"Restricted Subsidiary" shall mean (a) prior to the TCI Cosign Date, each
---------------------
of the Subsidiaries designated as such on Schedule 9.1 hereto and (b) on and
after the TCI Cosign Date, (i) each of the Subsidiaries of TCI Pacific
designated as such on Schedule 9.1 hereto and (ii) any other Subsidiary of TCI
Pacific organized under the laws of any state of the United States or the
District of Columbia which has been designated as a Restricted Subsidiary in
accordance with Section 10.12, unless and until designated as an Unrestricted
Subsidiary pursuant to Section 10.12; provided that not less than 80% of the
voting control thereof and not less than 80% of the overall economic equity
therein, at the time of which any determination is being made, is owned,
directly or indirectly, beneficially and of record by the Borrowers or (1) not
less than seventy-five percent (75%) of the voting control thereof and not less
than seventy-five percent (75%) of the overall economic equity therein, at the
time of which any determination is being made, is owned, directly or
indirectly, beneficially and of record by the Borrowers and (2) the Borrowers
represent and warrant, in connection with the designation thereof as a
Restricted Subsidiary, that the Borrowers directly or indirectly (through one
or more Restricted Subsidiaries) are entitled to receive one hundred percent
(100%) of the cash flow of such Restricted Subsidiary.
"Reuter's Screen" shall mean the display designated at page "LIBO" on the
---------------
Reuter Monitor System or such other display on the Reuter Monitor System as may
replace such page displaying the London interbank bid or offered rates, as the
case may be, as of 11:00 a.m., London time, on the day on which the relevant
determination is made.
"Revolving Commitment" shall mean the commitment of each Bank listed on
--------------------
Schedule 2.1 under the heading "Revolving Commitment" to make Revolving Loans
hereunder through its Applicable Lending Office as set forth in Schedule 2.1,
as the same shall be adjusted from time to time pursuant to Sections 2.1(c),
2.1(d), 7.1, 7.2 and 14.8 and as otherwise provided in this Agreement.
"Revolving Commitment Expiration Date" shall mean September 30, 2004, or
------------------------------------
such earlier date as the Aggregate Revolving Commitments shall expire (whether
by acceleration, reduction to zero pursuant to Section 2.1(c) or otherwise).
"Revolving Commitment Percentage" shall mean, with respect to each Bank,
-------------------------------
the percentage equivalent of the ratio which such Bank's Revolving Commitment
bears to the Aggregate Revolving Commitments, as such Bank's Revolving
Commitment and the Aggregate Revolving Commitments may be adjusted from time to
time pursuant to the terms hereof.
"Revolving Commitment Period" shall mean the period commencing on the
---------------------------
Execution Closing Date and ending on the Revolving Commitment Expiration Date.
"Revolving Commitment Reduction Date" shall have the meaning assigned to
-----------------------------------
such term in Section 2.1(c).
"Revolving Commitment Reduction Notice" shall have the meaning assigned to
-------------------------------------
such term in Section 2.1(d).
"Revolving Credit Maturity Date" shall mean, in respect of any Revolving
------------------------------
Note, the earliest of (i) September 30, 2004, (ii) the date such Revolving Note
shall become due and payable, whether by acceleration or otherwise, or (iii)
ten Business Days after the First Funding Date in the event that the
Transaction shall not have been consummated on or before such tenth Business
Day.
-21-
<PAGE>
"Revolving Loan" and "Revolving Loans" shall have the meanings assigned to
-------------- ---------------
such terms in Section 2.1(a).
"Revolving Note" and "Revolving Notes" shall have the meanings assigned to
-------------- ---------------
such terms in Section 4.4(a) and shall include the replacement Revolving Notes
delivered pursuant to Section 10.16.
"Sale Guaranty" shall mean a Guaranty by either Borrower of Permitted Sale
-------------
Representations.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Security Agreement" shall mean the Security Agreement substantially in
------------------
the form of Exhibit E hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Significant Default" shall mean the occurrence of any of the events
-------------------
described in Sections 12.1(a), (b), (i) or (j), unless the occurrence of such
event is waived in accordance with this Agreement.
"Single Employer Plan" shall mean any Plan which is not a Multiemployer
--------------------
Plan.
"Statutory Reserves" shall mean (a) with respect to a CD Rate, the
------------------
quotient (expressed as a decimal, rounded to the nearest 1/100 of 1%) obtained
by dividing (i) the number one by (ii) the number one minus the aggregate of
the reserve percentages expressed as a decimal established by the Board of
Governors of the Federal Reserve System for new non-personal negotiable time
deposits in dollars over $100,000 with maturities approximately equal to the CD
Interest Period in question, such reserve percentages including, without
limitation, those imposed under Regulation D of said Board of Governors and (b)
with respect to a LIBOR Rate, the quotient (expressed as a decimal, rounded to
the nearest 1/100 of 1%) obtained by dividing (i) the number one by (ii) one
minus the aggregate of the reserve percentages expressed as a decimal
established by the Board of Governors of the Federal Reserve System for
Eurocurrency Liabilities as prescribed under Regulation D of said Board of
Governors.
"Stock" shall mean any and all shares, interests, participations or other
-----
equivalents (however designated) of corporate stock.
"Subscriber Information" shall mean, at any time for which a determination
----------------------
thereof is to be made, the number of Homes Passed, the number of Basic
Subscribers, the number of Basic Subscribers as a percentage of the number of
Homes Passed, and the number of pay-TV subscriptions and the number of pay-TV
subscriptions as a percentage of Basic Subscribers for the Cable Systems owned
by the Borrowers and any of the Restricted Subsidiaries.
"Subscription Agreement" shall mean the Subscription Agreement described
----------------------
in Schedule 1-1(T), as the same may be amended, supplemented or otherwise
modified in accordance with Section 11.16.
"Subsidiary" shall mean any corporation, association, partnership, joint
----------
venture or other business entity of which a Borrower and/or any Subsidiary of a
Borrower, directly or indirectly, either (a) in respect of a corporation, owns
or controls more than 50% of the outstanding Stock having ordinary voting power
to elect a majority of the board of directors or similar managing body,
irrespective of whether or not a class or classes shall or might have voting
power by reason of the happening of any contingency,
-22-
<PAGE>
or (b) in respect of an association, partnership, joint venture or other
business entity, is entitled to share in more than 50% of the profits and
losses, however determined.
"Substitute Long Term Funded Debt" shall have the meaning assigned to such
--------------------------------
term in the definition of Pro-Forma Debt Service.
"Taxes" shall have the meaning assigned to such term in Section 6.2.
-----
"TCI" shall mean Tele-Communications, Inc., a Delaware corporation.
---
"TCIC" shall mean TCI Communications, Inc., a Delaware corporation.
----
"TCI Cosign Date" shall mean the business day immediately succeeding the
---------------
Transaction Effective Date.
"TCI Holdings" shall mean TCI Holdings, Inc., a Colorado corporation.
------------
"TCIC Subscription" shall mean the purchase by TCIC from the Parent on the
-----------------
Transaction Effective Date of 100 shares of the Class B common Stock of the
Parent for a purchase price of $350 million pursuant to the Subscription
Agreement.
"TCI Pacific Group Debt" shall mean indebtedness for borrowed money of TCI
----------------------
Pacific owed solely to a Restricted Subsidiary of TCI Pacific and indebtedness
for borrowed money of any Restricted Subsidiary owed solely to TCI Pacific or
another Restricted Subsidiary of TCI Pacific.
"TCI Series A Group Stock" shall mean the Series A TCI Group Common
------------------------
Stock, $1.00 par value per share, of TCI.
"Termination Event" shall mean (a) a Reportable Event, (b) the institution
-----------------
of proceedings to terminate a Single Employer Plan by the PBGC under Section
4042 of ERISA, (c) the appointment by the PBGC of a trustee to administer any
Single Employer Plan, or (d) the existence of any other event or condition that
could reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment by the PBGC of a trustee to
administer, any Plan.
"Term Loan" and "Term Loans" shall have the meanings assigned to such
--------- ----------
terms in Section 2.2(a).
"Term Loan Commitment" shall mean the commitment of each Bank listed on
--------------------
Schedule 2.1 under the heading "Term Loan Commitment" to make a Term Loan
hereunder through its Applicable Lending Office as set forth in Schedule 2.1,
as the same shall be adjusted from time to time pursuant to Sections 7.1, 7.2
and 14.8 and as otherwise provided in this Agreement.
"Term Loan Commitment Percentage" shall mean, with respect to each Bank,
-------------------------------
the percentage equivalent of the ratio which such Bank's Term Loan Commitment
bears to the Aggregate Term Loan Commitments, as such Bank's Term Loan
Commitment and the Aggregate Term Loan Commitments may be adjusted from time to
time pursuant to the terms hereof.
"Term Loan Commitment Period" shall mean the period commencing on the
---------------------------
Execution Closing Date and ending on the Commitment Expiration Date for the
Term Loan Commitment.
-23-
<PAGE>
"Term Loan Maturity Date" shall mean, in respect of any Term Loan Note,
-----------------------
the earliest of (i) December 31, 2004, (ii) the date such Term Note shall
become due and payable, whether by acceleration or otherwise, or (iii) ten
Business Days after the First Funding Date in the event that the Transaction
shall not have been consummated on or before such tenth Business Day.
"Term Note" and "Term Notes" shall have the meanings assigned to such
--------- ----------
terms in Section 4.4(a) and shall include the replacement Term Notes delivered
pursuant to Section 10.16.
"Three Month Cash Flow" shall mean for a Person or group of Persons or the
---------------------
assets of any Person as the context requires, that portion of Cash Flow derived
from or produced by such Person, Persons or assets for the three month period
ending on the last day of the month immediately preceding the date of
designation, transfer, sale or exchange of such Person, Persons or assets or,
in the case of TCI Pacific and its Restricted Subsidiaries, immediately prior
to the date of determination thereof, less tax expense (net of deferred taxes),
excluding all capital gains taxes resulting from the sale or disposition of
assets, of such Person or Persons or allocable to such assets for such three
month period.
"Transaction" shall mean the Conveyance of Assets, the Assumption of
-----------
Liabilities, the Loans, the Exchange Offer, the sale of the Shares and all
other transactions contemplated by the Transaction Documents (as each such term
is used in the Parents Agreement).
"Transaction Cable Systems" shall mean the Bay Area System, the Dayton
-------------------------
System, the Nashville System, the Northern California System, the Puget Sound
System and the Salem System, as each such term is used in the Implementation
Agreement.
"Transaction Documents" shall mean the documents listed on Schedule
---------------------
1.1(T), in each case as amended, supplemented or otherwise modified from time
to time in accordance with Section 11.16.
"Transaction Effective Date" shall mean the date on which the Transaction
--------------------------
shall have been consummated in accordance with the Transaction Documents.
"Unrestricted Subsidiary" shall mean any Subsidiary that is not designated
-----------------------
as a Restricted Subsidiary or that is designated as an Unrestricted Subsidiary
in accordance with the terms hereof.
"Unrestricted Subsidiary Equity" shall mean any capital Stock of, or
------------------------------
limited partnership or debt interest in, an Unrestricted Subsidiary or a Person
that is not a Borrower or a Subsidiary.
"Untransferred Non-Cable Assets" shall mean Untransferable Assets as such
------------------------------
term is defined in the Implementation Agreement.
"Upstream Dividends" shall have the meaning assigned to such term in
------------------
Section 11.14.
"VI" shall mean Viacom Inc., a Delaware corporation.
--
"VI Indemnity Agreement" shall mean the Indemnity Agreement substantially
----------------------
in the form of Exhibit F, as the same may be amended, supplemented or otherwise
modified from time to time.
-24-
<PAGE>
"Zero-Rated Jurisdiction" shall mean any of the following countries each
-----------------------
of which has a treaty with the United States which, in general, as of the
Execution Closing Date, fully eliminates United States withholding tax on
interest, subject to compliance with treaty conditions: Austria, Denmark,
Finland, France, Federal Republic of Germany, Greece, Hungary, Iceland,
Ireland, Luxembourg, Netherlands, Norway, Poland, Sweden and the United
Kingdom.
All accounting terms not specifically defined herein shall be construed in
accordance with GAAP and practices consistent with those applied in the
preparation of the financial statements referred to herein and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with
such principles and practices, except as otherwise specified herein.
Unless otherwise specified, all references to times of day shall be to New
York City, New York time.
Each definition of an agreement or instrument in this Article 1 shall
include such agreement as amended from time to time in accordance with this
Agreement.
ARTICLE 2. LOANS; LOAN COMMITMENT AMOUNTS.
------------------------------
2.1. Revolving Loans; Revolving Commitment Amounts.
---------------------------------------------
(a) Subject to the terms and conditions of this Agreement, each Bank
severally agrees to make loans on a revolving credit basis through its
Applicable Lending Office to the Borrowers from time to time from the Execution
Closing Date to but excluding the Revolving Commitment Expiration Date, during
which period the Borrowers may borrow, prepay and reborrow such loans (each a
"Revolving Loan", and collectively the "Revolving Loans") in accordance with
- --------------- ---------------
the provisions of this Agreement. The principal amount of each Bank's
Revolving Loan made on a Borrowing Date shall be an amount equal to the product
of (a) such Bank's Revolving Commitment Percentage (expressed as a fraction)
and (b) the total amount of the Revolving Loan or Revolving Loans requested;
provided that in no event shall any Bank be obligated to make a Revolving Loan
if after giving effect to such Revolving Loan such Bank's Revolving Loans
outstanding would exceed its Revolving Commitment or if the amount of such
requested Revolving Loan is in excess of such Bank's Available Revolving
Commitment. Prior to the TCI Cosign Date, all borrowings hereunder shall be
made by Parent. Prior to the TCI Cosign Date, the only borrowings hereunder
shall be made on the First Funding Date. On and after the TCI Cosign Date, all
borrowings hereunder shall be made by TCI Pacific.
(b) The amount of each Bank's initial Revolving Commitment and the
Revolving Commitment Percentage of each Bank shall be as set forth on Schedule
2.1 hereto.
(c) On each of the following dates (each such date a "Revolving
---------
Commitment Reduction Date"), the Aggregate Revolving Commitments as then in
- -------------------------
effect shall be reduced to the amounts (unless the Aggregate Revolving
Commitments have been previously reduced pursuant to Section 2.1(d) or (e) to
such amount or less) set forth in the following schedule for the applicable
Revolving Commitment Reduction Date:
-25-
<PAGE>
<TABLE>
<CAPTION>
Revolving Aggregate
Commitment Revolving
Reduction Date Commitments
-------------- --------------
<S> <C>
June 30, 1998 $1,035,000,000
December 31, 1998 $1,020,000,000
June 30, 1999 $ 965,000,000
December 31, 1999 $ 910,000,000
June 30, 2000 $ 842,500,000
December 31, 2000 $ 775,000,000
June 30, 2001 $ 700,000,000
December 31, 2001 $ 625,000,000
June 30, 2002 $ 525,000,000
December 31, 2002 $ 425,000,000
June 30, 2003 $ 320,000,000
December 31, 2003 $ 215,000,000
June 30, 2004 $ 107,500,000
September 30, 2004 $ 0
</TABLE>
(d) At the Borrowers' option and upon at least two Business Days'
prior irrevocable written notice to the Administrative Agent, with such notice
specifying the amount and the date of such reduction (a "Revolving Commitment
--------------------
Reduction Notice"), the Borrowers may permanently reduce the Aggregate
- ----------------
Revolving Commitments in whole at any time or in part from time to time;
provided, however, that each partial reduction of the Aggregate Revolving
Commitments pursuant to this Section 2.1(d) shall be in an aggregate amount
equal to at least $5,000,000, or an integral multiple of $1,000,000 in excess
thereof, and provided further that any reduction of the Aggregate Revolving
Commitments made pursuant to this Section 2.1(d) shall require a simultaneous
mandatory prepayment of the Term Loans pursuant to Section 5.4(b).
(e) Simultaneously with each voluntary prepayment of the Term Loans
pursuant to Section 5.4(a), the Aggregate Revolving Commitments shall be
automatically and simultaneously reduced by an amount equal to the amount of
the Aggregate Revolving Commitments in effect immediately prior to such
voluntary Term Loan prepayment multiplied by a fraction the numerator of which
is the amount of such voluntary Term Loan prepayment and the denominator of
which is the outstanding principal amount of the Term Loans in effect
immediately prior to such voluntary Term Loan prepayment.
(f) Reductions of the Aggregate Revolving Commitments pursuant to
Section 2.1(c), (d) or (e) shall automatically effect a reduction of the
Revolving Commitment of each Bank to an amount equal to the product of (i) the
Aggregate Revolving Commitments of all Banks, as reduced pursuant to Section
2.1(c), (d) or (e), as the case may be, and (ii) the Revolving Commitment
Percentage of such Bank, in each case determined immediately prior to such
reduction of the Aggregate Revolving Commitments on such date. The
Administrative Agent shall promptly notify each Bank (by telecopy or by
telephone promptly confirmed by telecopy) of the contents of each Revolving
Commitment Reduction Notice.
-26-
<PAGE>
(g) Upon each reduction of the Aggregate Revolving Commitments the
Borrowers shall (i) pay the Commitment Fee accrued on the amount of the
Aggregate Revolving Commitments so reduced through the date of such reduction,
(ii) prepay the amount, if any, by which the aggregate unpaid principal amount
of the Revolving Loans exceeds the amount of the Aggregate Revolving
Commitments as so reduced, together with accrued interest on the amount being
prepaid to the date of such prepayment, (iii) compensate the Banks for their
funding costs, if any, in accordance with Section 7.4, and (iv) prepay the Term
Loans as required pursuant to Section 5.4(b).
(h) Neither the Administrative Agent nor any Bank shall be
responsible for the obligations or Available Revolving Commitment of any other
Bank hereunder, nor will the failure of any Bank to comply with the terms of
this Agreement relieve any other Bank or the Borrowers of their obligations
under this Agreement and the other Loan Documents.
(i) The Revolving Commitment of each Bank and the Aggregate Revolving
Commitments shall terminate on the Revolving Commitment Expiration Date.
2.2. Term Loans; Term Commitment Amounts.
-----------------------------------
(a) Subject to the terms and conditions of this Agreement, each Bank
severally agrees to make term loans through its Applicable Lending Office to
the Borrowers on the First Funding Date (each a "Term Loan" and collectively
---------
the "Term Loans") in accordance with the provisions of this Agreement. The
----------
principal amount of each Bank's Term Loan shall be an amount equal to the
product of (a) such Bank's Term Loan Commitment Percentage (expressed as a
fraction) and (b) the total amount of the Term Loan or Term Loans requested;
provided that in no event shall any Bank be obligated to make a Term Loan in an
amount greater than such Bank's Term Loan Commitment. The Term Loans shall be
payable in full on the Term Loan Maturity Date.
(b) The amount of each Bank's Term Loan Commitment and the Term Loan
Commitment Percentage of each Bank shall be as set forth on Schedule 2.1
hereto.
(c) Neither the Administrative Agent nor any Bank shall be
responsible for the obligations or Term Loan Commitment of any other Bank
hereunder, nor will the failure of any Bank to comply with the terms of this
Agreement relieve any other Bank or the Borrowers of their obligations under
this Agreement and the other Loan Documents.
(d) The Term Loan Commitment of each Bank and the Aggregate Term Loan
Commitments shall terminate on the Commitment Expiration Date for the Term Loan
Commitments.
ARTICLE 3. INTEREST RATES ON LOANS.
-----------------------
3.1. Interest Rate.
-------------
Interest on the Loans shall be determined on the basis of interest
rate options selected by the Borrowers from among the LIBOR Rate Option, the CD
Rate Option and the Base Rate Option, it being understood that, subject to the
provisions of this Agreement, the Borrowers may select different options to
apply simultaneously to different Loans or portions thereof, provided, however,
that the Borrowers may not select the CD Rate Option or the LIBOR Rate Option
if a Default has occurred and is continuing, and provided further that the
Borrowers may not select the CD Rate Option
-27-
<PAGE>
prior to the Transaction Effective Date. The Loans shall bear interest (a) on
the unpaid principal amount of each Loan subject to a Base Rate Option at a
rate per annum equal to the Base Rate plus the Applicable Margin until the
earlier of the occurrence of an Event of Default under Section 12.1(a) or
12.1(b) or the Revolving Credit Maturity Date or Term Loan Maturity Date, as
the case may be, (b) on the unpaid principal amount of each Loan subject to a
LIBOR Rate Option at a rate per annum equal to the applicable LIBOR Rate for
the applicable Interest Period plus the Applicable Margin from and including
the first day of each Interest Period to but excluding the last day of each
such Interest Period relating thereto until the earlier of the occurrence of an
Event of Default under Section 12.1(a) or 12.1(b) or the Revolving Credit
Maturity Date or Term Loan Maturity Date, as the case may be, (c) on the unpaid
principal amount of each Loan subject to a CD Rate Option at a rate per annum
equal to the applicable CD Rate for the applicable Interest Period plus the
Applicable Margin from and including the first day of each Interest Period to
but excluding the last day of each such Interest Period relating thereto until
the earlier of the occurrence of an Event of Default under Section 12.1(a) or
12.1(b) or the Revolving Credit Maturity Date or Term Loan Maturity Date, as
the case may be, and (d) from and after the earlier of any Event of Default
under Section 12.1(a) or 12.1(b) or the Revolving Credit Maturity Date or Term
Loan Maturity Date, as the case may be, in accordance with Sections 3.2 or
5.2(b), as the case may be.
3.2. Interest Rate After Maturity.
----------------------------
From and after the Revolving Credit Maturity Date, each Revolving
Loan, and from and after the Term Loan Maturity Date, each Term Loan, shall
bear interest (computed and adjusted in the same manner, and with the same
effect, as interest on such Loan prior to its Maturity), payable on demand, on
the unpaid principal amount thereof at the Base Rate plus the Applicable Margin
plus 2% per annum until paid, whether before or after entry of any judgment
thereon.
ARTICLE 4. LOAN PROCEDURES, NOTES AND PAYMENT OF INTEREST.
----------------------------------------------
4.1. Amount of Revolving Loans.
-------------------------
The aggregate unpaid principal amount of all Revolving Loans at any
one time outstanding hereunder shall not exceed the Aggregate Revolving
Commitments, and the aggregate unpaid principal amount of each Bank's Revolving
Loans at any one time outstanding shall at no time exceed the amount of such
Bank's Revolving Commitment.
4.2. Borrowing Requests.
------------------
The Borrowers agree to request the making of Loans hereunder (except
as provided in Section 5.3(b) for continuations or conversions) by delivery to
the Administrative Agent of a notice substantially in the form of Exhibit A
hereto (a "Borrowing Request"), which may be by telecopy or by telephone, in
-----------------
each case promptly confirmed in writing, and which shall be irrevocable. Any
failure by the Borrowers to confirm any borrowing request given by telephone or
telecopy shall not invalidate any request so given. Such Borrowing Request
shall be delivered to the Administrative Agent no later than (a) 12:00 noon at
least (i) three Business Days prior to the date of the intended borrowing in
the case of Loans subject to a LIBOR Rate Option or (ii) two Business Days
prior to the date of the intended borrowing in the case of Loans subject to a
CD Rate Option or (b) on the date of the intended borrowing in the case of
Loans subject to a Base Rate Option. Such Borrowing Request shall specify (i)
the aggregate amount of Revolving Loans and, with respect to the First Funding
Date, Term Loans to be borrowed, (ii) the date on which the requested Loans are
to be made, (iii) the amount,
-28-
<PAGE>
if any, of Revolving Loans and Term Loans requested to be subject to a Base
Rate Option, (iv) the amount, if any, of Revolving Loans and Term Loans
requested to be subject to a LIBOR Rate Option and the Interest Period
therefor, and (v) the amount, if any, of Revolving Loans and Term Loans
requested to be subject to a CD Rate Option and the Interest Period therefor.
The Administrative Agent shall notify each Bank (by telecopy or by telephone
promptly confirmed by telecopy) of the receipt by it of a Borrowing Request
(x) promptly on the date of receipt with respect to a request for Base Rate
Loans, (y) prior to 5:00 p.m. on the second Business Day preceding the
Borrowing Date with respect to a request for CD Rate Loans, and (z) prior to
5:00 p.m. on the third Business Day preceding the Borrowing Date with respect
to a request for LIBOR Rate Loans. Subject to the terms and conditions hereof,
each Bank shall make immediately available funds available to the
Administrative Agent not later than 1:00 p.m. on the applicable Borrowing Date
in an amount equal to the product of (x) its Revolving Commitment Percentage or
Term Loan Commitment Percentage (expressed as a fraction), as the case may be,
and (y) the principal amount of the Revolving Loans or Term Loans requested.
All Loans requested to be made on a Borrowing Date shall equal $5,000,000, or
an integral multiple of $1,000,000 in excess thereof.
4.3. Disbursement of Proceeds.
------------------------
(a) The Administrative Agent shall disburse the proceeds of the Loans
at its office designated in Section 14.1 prior to 3:00 p.m. (i) on the First
Funding Date, by directly depositing the funds received from each Bank into a
collateral account (the "Cash Collateral Account") established and maintained
-----------------------
at the Administrative Agent's offices at One Wall Street, New York, New York,
or at such other offices in the City of New York as it shall designate from
time to time, under the sole dominion and control of the Administrative Agent
for the benefit of the Banks, designated as follows: The Bank of New York -
[ ], Account No. [ ], and the Borrowers hereby irrevocably
---------- ------------
direct the Administrative Agent to deposit such funds into the Cash Collateral
Account on such date, and (ii) thereafter, on the applicable Borrowing Date, by
crediting to an account specified by the Borrowers the funds received from each
Bank, unless the Administrative Agent shall determine that any condition
precedent set forth in Sections 4.2, 5.3, 8.1 or 8.2, as applicable, has not
been fulfilled. The Administrative Agent shall not be required to disburse the
proceeds of any Loans until the Administrative Agent has received each Bank's
pro rata share of such Loans in immediately available funds.
(b) Unless the Administrative Agent shall have received prior notice
from a Bank (which notice shall be given promptly by telephone or telecopy, in
each case to be promptly confirmed in writing, provided that the failure to so
confirm in writing shall not invalidate any notice so given) that such Bank
will not make available to the Administrative Agent such Bank's Revolving
Commitment Percentage or Term Loan Commitment Percentage, as the case may be,
of the Loans requested by the Borrowers, and provided that the Administrative
Agent shall have given such Bank timely notice of the applicable Borrowing
Request in accordance with Section 4.2, the Administrative Agent may assume
that such Bank has made its applicable percentage available to the
Administrative Agent on the applicable Borrowing Date and the Administrative
Agent in reliance upon such assumption, may (but shall not be obligated to)
make available to the Borrowers on such Borrowing Date an amount corresponding
to such Bank's applicable percentage of the Loans made on such date. If and to
the extent such Bank shall not have so made such applicable percentage
available to the Administrative Agent, such Bank agrees to repay to the
Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, (i) for each day from the date such amount is made
available to the Borrowers until the earlier to occur of the date such amount
is repaid to the Administrative Agent or the second Business Day following the
date such amount was made available to the Borrowers by the Administrative
Agent, at a
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rate per annum equal to the Federal Funds Effective Rate for such day and (ii)
for each day thereafter until the date such amount is repaid to the
Administrative Agent, at a rate per annum equal to the Federal Funds Effective
Rate plus 1% for such day, and such Bank agrees to repay to the Administrative
Agent forthwith on demand such out of pocket administrative and investigative
expenses incurred by the Administrative Agent in connection with the
Administrative Agent's reasonable efforts to obtain such payments. If such
Bank shall repay to the Administrative Agent such corresponding amount,
together with accrued interest, such amount so repaid shall constitute such
Bank's Loan for purposes of this Agreement. In the event that, at any time when
the conditions to borrowing have been satisfied pursuant to Sections 8.1 and
8.2, as applicable, a Bank for any reason fails or refuses to fund a Loan which
it is obligated to fund hereunder, and such failure or refusal shall have
continued for five Business Days, such non-funding Bank shall not be entitled
(1) to vote regarding any issue (other than an issue which requires the consent
or approval of all of the Banks) on which voting is required or advisable under
this Agreement or any other Loan Document, (2) to receive any payment of
principal or interest from the Borrowers in respect of the Loan or Loans which
such non-funding Bank failed or refused to fund, or (3) to receive any
Commitment Fees which have accrued after the date such non-funding Bank failed
or refused to fund until such time as (A) such non-funding Bank has funded such
Loan or (B) all of the other Banks who funded their respective Loans have
received their pro rata shares of all principal and interest payable by the
Borrowers in respect of the Loan or Loans which such non-funding Bank failed or
refused to fund.
4.4. Notes.
-----
(a) The obligation of the Borrowers to repay the Revolving Loans
shall be evidenced by (i) notes in the form of Exhibit B-1, signed by Parent,
for the period commencing on the First Funding Date to the TCI Cosign Date, and
(ii) replacement notes in the form of Exhibit B-2 signed by the Borrowers, for
the period commencing on the TCI Cosign Date and thereafter (as indorsed or
modified from time to time, including all replacements thereof and
substitutions therefor, each a "Revolving Note" and collectively, the
--------------
"Revolving Notes"), in each case, with appropriate insertions therein, dated
- ----------------
the First Funding Date, one (or more if requested by a Bank) payable to the
order of each Bank in the aggregate principal amount of the Revolving
Commitment of such Bank. The obligation of the Borrowers to repay the Term
Loans shall be evidenced by (i) notes in the form of Exhibit B-3, signed by
Parent, for the period commencing on the First Funding Date to the TCI Cosign
Date, and (ii) replacement notes in the form of Exhibit B-4 signed by the
Borrowers, for the period commencing on the TCI Cosign Date and thereafter (as
indorsed or modified from time to time, including all replacements thereof and
substitutions therefor, each a "Term Note" and collectively, the "Term Notes"),
--------- ----------
in each case with appropriate insertions therein, dated the First Funding Date,
one (or more if requested by a Bank) payable to the order of each Bank in the
aggregate principal amount of the Term Loan Commitment of such Bank. Each Bank
is hereby irrevocably authorized by the Borrowers to enter on the schedule
attached to its Notes the principal amount and interest rate or rates of each
Loan made by it, each payment thereon, and the other information provided for
on such schedule; provided, however, that the failure to make any such entry
with respect to any Loan shall not limit or otherwise affect the obligation of
the Borrowers to repay the same and, in all events, the principal amount owing
by the Borrowers in respect of each Bank's Notes shall be the aggregate amount
of all Loans made by such Bank less all payments of principal thereon made by
the Borrowers. Each Bank may attach one or more continuations to such schedule
as and when required. The aggregate unpaid principal balances of and the
interest rates applicable to the Loans set forth in the schedule attached to
each Note shall be presumptive evidence of the principal amounts owing and
unpaid thereon and the interest rates applicable thereto, absent manifest
error. Any amounts outstanding under the Revolving Notes shall become due and
payable on the
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earlier of the Revolving Commitment Expiration Date or Revolving Credit
Maturity Date. Any amounts outstanding under the Term Notes shall become due
and payable on the Term Loan Maturity Date.
(b) Upon surrender of any Note to the Borrowers by reason of the
assignment by any Bank of any Note, Loan or Commitment or portion thereof in
accordance with the provisions of Section 14.8, the Borrowers shall, at the
cost of such Bank, execute and deliver one or more new Notes of like tenor and
of a like aggregate principal amount in the name of the designated holder or
holders of such Note, Loan or Commitment or portions thereof. Upon receipt of
written notice from any holder or other evidence reasonably satisfactory to the
Borrowers of the loss, theft, destruction or mutilation of any Note held by
such holder and, in the case of any such loss, theft or destruction, upon
receipt of an unsecured indemnity agreement, or in the case of any such
mutilation, upon surrender and cancellation of any such Note, the Borrowers
shall, at the cost of such holder, make and deliver a new Note, of like tenor,
in lieu of the lost, stolen, destroyed or mutilated Note. Any such new Note or
Notes shall thereafter be considered a Note or Notes under this Agreement. Any
such new Note or Notes shall carry the rights to accrued and unpaid interest
which were carried by the Note or Notes so exchanged so that neither gain nor
loss of interest shall result from any such exchange.
4.5. Limitation on Interest Rate Options and Maximum Interest Rate.
-------------------------------------------------------------
(a) If, on or prior to the determination of an interest rate for any
CD Rate Loan or any LIBOR Rate Loan for any Interest Period, (i) the
Administrative Agent determines that for any reason appropriate quotations are
not available to it for purposes of determining the LIBOR Rate or the CD Rate
or (ii) the Majority Banks in good faith notify the Administrative Agent that
the LIBOR Rate or CD Rate applicable to such Loans for such Interest Period
would not adequately and fairly reflect the cost to such Banks of making,
maintaining or converting that portion of the outstanding principal balance of
their Loans proposed to be subject to a LIBOR Rate Option or CD Rate Option for
such Interest Period, the Administrative Agent shall promptly give notice
thereof to the Borrowers and the Banks, and the Banks' obligation to make,
maintain or convert such CD Rate or LIBOR Rate Loans shall be suspended until
such time as such circumstance shall no longer exist and the applicable
requests by the Borrowers shall be deemed requests for Base Rate Loans from the
Banks unless the Borrowers specifically request another interest rate option
which remains available to the Borrowers pursuant to the terms hereof.
(b) If the provisions of this Agreement or any Note would at any time
require payment by the Borrowers to the Administrative Agent on behalf of any
Bank of any amount of interest in excess of the maximum amount then permitted
by the law applicable to any Loan, the interest payments to the Administrative
Agent on behalf of such Bank shall be reduced to the extent necessary so that
such Bank shall not receive interest in excess of such maximum amount. If, as
a result of the foregoing such Bank shall receive interest payments under this
Agreement or any Note in an amount less than the amount otherwise provided
therein, such deficit (hereinafter called the "Interest Deficit") will, to the
----------------
fullest extent permitted by applicable law, cumulate and be carried forward
(without interest) until the termination of this Agreement. Interest otherwise
payable to the Administrative Agent on behalf of such Bank under this Agreement
or any Note for any subsequent period shall be increased by the maximum amount
of the Interest Deficit that may be so added without causing such Bank to
receive interest in excess of the maximum amount then permitted by the law
applicable to the Loans, provided that at no time shall the aggregate amount by
which interest paid by the Borrowers has been increased pursuant to this
sentence exceed the aggregate amount by
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<PAGE>
which interest paid by the Borrowers has theretofore been reduced pursuant to
this Section 4.5(b).
4.6. Interest Payment Periods.
------------------------
(a) Interest on the unpaid principal amount of each Base Rate Loan
shall be payable quarterly in arrears on the last day of each March, June,
September and December of each year, commencing on the first such date
following the date of such Loan, and at Maturity. If any payment of interest
in respect of a Base Rate Loan shall be due and payable hereunder on a day
which is not a Business Day, the due date thereof shall be extended to the next
Business Day but such extension shall not affect the amount of interest due
hereunder as of such payment due date. Interest for the period between (i) any
due date for the payment of interest hereunder which is not a Business Day and
(ii) the next Business Day shall be due and payable on the last day of the
fiscal quarter in which such next Business Day falls.
(b) Interest on the unpaid principal amount of each LIBOR Rate Loan
that is subject to an Interest Period equal to or less than three months in
duration shall be payable for each such Interest Period on the last day
thereof, and at Maturity.
(c) Interest on the unpaid principal amount of each LIBOR Rate Loan
that is subject to an Interest Period greater than three months in duration
shall be payable on the last day of each three-month interval occurring during
such Interest Period, with the first such payment to be made on the last day of
the first such interval occurring during such Interest Period, and on the last
day of such Interest Period, and at Maturity.
(d) Interest on the unpaid principal amount of each CD Rate Loan
shall be paid on the last day of the Interest Period applicable thereto and at
Maturity, except that with respect to any 180-day CD Interest Period, interest
shall also be payable on the 90th day of such Interest Period.
(e) Notwithstanding paragraphs (a)-(d) above, any interest payment on
the Loans otherwise due between the First Funding Date and the Transaction
Effective Date will be due and payable on the earlier to occur of the
Transaction Effective Date or Maturity.
(f) Interest on the unpaid principal amount of any Loan after such
Loan is due and payable shall be due and payable on demand.
(g) The Administrative Agent shall promptly notify the Borrowers and
each Bank of the amount and the effective date of each adjustment in the
interest rate or rates applicable to the Loans, other than in respect of Base
Rate Loans, provided that no failure or delay in giving any such notice shall
affect or delay the making of any such adjustments or the obligations of the
Borrowers to pay in a timely manner the interest due on such Loans.
4.7. Funding.
-------
Each Bank may, if it so elects, fulfill its obligation to make,
continue or convert CD Rate Loans or LIBOR Rate Loans hereunder by causing one
of its foreign branches or affiliates (or an international banking facility
created by such Bank) to make or maintain such CD Rate Loan or LIBOR Rate Loan;
provided, however, that such CD Rate Loan or LIBOR Rate Loan shall nonetheless
be deemed to have been made and to be held by such Bank, and the obligation of
the Borrowers to repay such CD Rate Loan or LIBOR Rate Loan shall nevertheless
be to such Bank, for the account of such foreign
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<PAGE>
branch, affiliate or international banking facility. Without limiting the
responsibility of the Banks to mitigate or eliminate the increased cost to such
Bank of making, funding or maintaining the Loan made by it in accordance with
Section 7.3 hereof, the Borrowers hereby consent and agree that, for purposes
of any determination to be made under Section 7.1, 7.2 or 7.4, it shall be
conclusively assumed that each Bank elected to fund all CD Rate Loans or LIBOR
Rate Loans by purchasing Dollar certificates of deposit in the U.S. or Dollar
deposits in its Applicable Lending Office in the London Interbank Market,
respectively.
ARTICLE 5. PAYMENT, CONTINUATION OR CONVERSION, AND PREPAYMENT OF LOANS.
------------------------------------------------------------
5.1. Payments.
--------
Each payment with respect to Loans, including each prepayment of
principal and interest on the Loans, and each payment of the Commitment Fee
shall be accompanied by a notice substantially in the form of Exhibit A (a
"Payment Notice"), and shall be made by the Borrowers to the Administrative
- ---------------
Agent at its office designated pursuant to Section 14.1, in funds immediately
available by 1:00 p.m., on the due date for such payment and shall be remitted
promptly by the Administrative Agent to the applicable Banks in funds
immediately available at their respective Applicable Lending Offices (a) pro
rata according to the average daily amount of such Bank's Available
Commitments, in the case of the Commitment Fee, (b) pro rata according to the
aggregate outstanding principal balance of the Revolving Loans, in the case of
principal and interest due thereon and (c) pro rata according to the aggregate
outstanding principal balance of the Term Loans, in the case of principal and
interest due thereon. The failure of the Borrowers to make any such payment
by such time shall not constitute a Default hereunder, provided that such
payment is received by the Administrative Agent in immediately available funds
by 4:00 p.m. on such due date, but any such payment made after 1:00 p.m. on
such due date shall be deemed to have been made on the next Business Day for
the purpose of calculating interest on amounts outstanding on the Loans, unless
the Administrative Agent, in fact, was able to remit to each Bank its pro rata
share of such payment by 4:00 p.m. on such due date. If any payment hereunder
or under the Notes shall be due and payable on a day which is not a Business
Day, the due date thereof (except as otherwise provided in the definition of
LIBOR Interest Period or CD Interest Period) shall be extended to the next
Business Day and interest shall be payable at the applicable rate specified
herein during such extension. If any payment is made with respect to any
portion of the unpaid principal balance of any LIBOR Rate Loan or CD Rate Loan
prior to the last Business Day of the applicable Interest Period, the Borrowers
shall indemnify each Bank against any loss or expense suffered by such Bank as
a result of such payment in accordance with Section 7.4. Each Borrower agrees
to pay principal, interest, fees and all other amounts due hereunder or under
the other Loan Documents without setoff or counterclaim or any deduction
whatsoever, except for Taxes to the extent a Bank fails to comply with the
provisions of Sections 6.2(b) and 6.3.
5.2. Late Payments.
-------------
(a) Any payment of principal on any Note not paid on the date when
due and payable shall bear interest, to the extent permitted by law, at the
Base Rate, plus the Applicable Margin for Base Rate Loans plus 2% per annum
from the due date thereof until the date such payment is made. Any payment of
interest on any Note or any payment of any Commitment Fee or other fee or
payment payable by the Borrowers hereunder and not paid within five days of the
date when due and payable shall bear interest, to the extent permitted by law,
at the Base Rate plus the Applicable Margin
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<PAGE>
for Base Rate Loans for five days and thereafter at the Base Rate plus the
Applicable Margin plus 2% per annum until the date such payment is made. In
determining the amount payable under this Section 5.2(a) with respect to any
Commitment Fee or other fee or payment (excluding principal and interest on any
Loan), the Applicable Margin shall be deemed to be that applicable to the
Revolving Loans.
(b) Upon the occurrence of an Event of Default under Section 12.1(a)
or (b), each Note shall bear interest, payable on demand, on the unpaid
principal amount thereof at the Base Rate, plus the Applicable Margin for Base
Rate Loans, plus 2% per annum until paid, whether before or after entry of any
judgment thereon.
5.3. Continuation or Conversion.
--------------------------
(a) Subject to the terms and conditions of Section 7.2, the Borrowers
may, at the conclusion of any Interest Period for any LIBOR Rate Loans or CD
Rate Loans and at any time for any Base Rate Loans, and upon notice to the
Administrative Agent substantially in the form of Exhibit A (a "Continuation
------------
Notice"), elect to continue or to convert any Loans (or portion thereof) into
- ------
LIBOR Rate Loans or CD Rate Loans with an Interest Period of equivalent or
different length or to Base Rate Loans, as the case may be (in a minimum amount
of $5,000,000 or $1,000,000 integral multiples in excess thereof in the case of
a conversion of any Revolving Loans or Term Loans into a LIBOR Rate Loan or CD
Rate Loan); provided, however, that no Loan may be converted to, or continued
after the expiration of its Interest Period as, a LIBOR Rate Loan or a CD Rate
Loan if a Default has occurred and is continuing. The Borrowers shall make the
elections provided for in this Section 5.3(a) by giving notice, which notice
shall be irrevocable, by telephone or telecopy, in each case promptly confirmed
in writing to the Administrative Agent by 1:00 p.m. (x) at least three Business
Days prior to the commencement of the new Interest Period specified in such
notice with respect to the continuance of any Loans as LIBOR Rate Loans or the
conversion of any Loans to LIBOR Rate Loans or (y) at least two Business Days
prior to the commencement of the new Interest Period specified in such notice
with respect to the continuance of any Loans as CD Rate Loans or the conversion
of any Loans to CD Rate Loans. The Administrative Agent shall give notice to
the applicable Banks (by telecopy or by telephone promptly confirmed by
telecopy) promptly on the day it receives any Continuation Notice (or if
received by the Administrative Agent after 1:00 p.m., not later than the
Business Day after which it receives such notice) and, subject to the terms
hereof, the Loans to be continued or converted shall be (i) extended for a new
LIBOR Interest Period or CD Interest Period, as applicable, beginning on the
last day of the previous Interest Period or (ii) converted to Base Rate Loans,
LIBOR Rate Loans or CD Rate Loans, all as specified in the Continuation Notice.
Any such continued or converted Loans may, in accordance with the provisions
hereof, be continued or converted into additional Interest Periods. Failure to
confirm (in writing) any notice given by telephone or telecopy under this
Section shall not invalidate any notice so given.
(b) If the Borrowers do not give notice by 1:00 p.m. to the
Administrative Agent at least three Business Days prior to the expiration of an
Interest Period for LIBOR Rate Loans and at least two Business Days prior to
the expiration of an Interest Period for CD Rate Loans, as provided in Section
5.3(a), then the principal amount of such Loans shall automatically be
converted into Base Rate Loans upon expiration of the applicable Interest
Period.
5.4. Prepayments.
-----------
(a) Voluntary. Upon at least two Business Days', in the case of
---------
LIBOR Loans, or one Business Day's, in the case of CD Loans, irrevocable prior
notice to the Administrative Agent (or in the case of Base Rate Loans such
notice shall have
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<PAGE>
been given no later than 12:00 noon on the date of proposed prepayment)
pursuant to a Payment Notice specifying the amount and the date of prepayment,
whether the Loans to be prepaid are Revolving Loans or Term Loans and which
portion, if any, of the Revolving Loans or Term Loans to be prepaid are LIBOR
Rate Loans and CD Rate Loans, the Borrowers shall have the right to prepay the
Revolving Loans or the Term Loans in whole at any time or in part from time to
time (pro rata to each Bank based on the proportion of its outstanding
Revolving Loans or Term Loans to the aggregate amount of Revolving Loans or
Term Loans, as the case may be, outstanding for all Banks) in aggregate
principal amounts equal to at least $5,000,000, or an integral multiple of
$1,000,000 in excess thereof, together with accrued interest on the amount
being prepaid to the date of such prepayment, provided, however, that any
prepayment of the Term Loans made pursuant to this Section 5.4(a) shall effect
a simultaneous mandatory reduction in the Aggregate Revolving Commitments
pursuant to Section 2.1(e). No prepayment of Revolving Loans hereunder shall
affect the Aggregate Revolving Commitments unless the Borrowers have so
notified the Administrative Agent pursuant to Section 2.1(d).
(b) Mandatory. Upon and simultaneously with any voluntary reduction
---------
of the Aggregate Revolving Commitments pursuant to Section 2.1(d), the
Borrowers shall prepay the Term Loans in an amount equal to the outstanding
principal amount of the Term Loans in effect immediately prior to such
voluntary reduction of the Aggregate Revolving Commitments, multiplied by a
fraction the numerator of which is the amount of such voluntary reduction of
the Aggregate Revolving Commitments and the denominator of which is the
Aggregate Revolving Commitments in effect immediately prior to such voluntary
reduction of the Aggregate Revolving Commitments, together with accrued
interest on the amount being prepaid to the date of such prepayment.
(c) General. Prepayments hereunder shall be without premium or
-------
penalty, provided however that with respect to the prepayment of Loans subject
to a LIBOR Rate Option or a CD Rate Option, the Borrowers shall compensate each
Bank for its funding costs, if any, at the time of any such prepayment in
accordance with the terms of Section 7.4. The Administrative Agent shall
promptly notify each Bank (by telecopy or by telephone confirmed by telecopy)
of the contents of each notice of prepayment. Failure to confirm any notice
given by telephone under this Section by telecopy shall not invalidate any
notice so given.
5.5. Application of Payments.
-----------------------
All payments to the Administrative Agent or the Banks under this
Agreement or the Notes (other than payments pursuant to Section 7.1, 7.2, 7.4,
or 14.13, which payments shall be applied as set forth in those respective
Sections) will be applied in the following order of priority: (a) to the
Commitment Fee then due and payable, (b) to any other amounts then due and
payable under this Agreement not otherwise listed in this Section 5.5, (c) to
the accrued interest then due and payable on the principal amount of the Loans,
(d) to the principal amount of the Loans then due and payable and (e) to the
prepayment of the Loans in accordance with the terms of this Agreement;
provided, however, that payments shall be applied in accordance with Section
12.2 under the circumstances described therein.
5.6. Sharing of Payments.
-------------------
Except where a provision of this Agreement provides or contemplates
non-pro rata treatment, if any Bank shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Revolving Loans or Term Loans made by it in excess
of its pro rata share of payments
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<PAGE>
on account of the Revolving Loans or Term Loans received by the other Banks,
then such Bank shall forthwith purchase for cash, without recourse, from the
other Banks having Revolving Loans or Term Loans, as the case may be, such
participations in the Revolving Loans or Term Loans, as the case may be, made
by them as shall be necessary to cause such purchasing Bank to share the excess
payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Bank, such purchase from each Bank shall be rescinded and each such Bank shall
repay to the purchasing Bank the purchase price to the extent of such recovery,
together with an amount equal to such Bank's pro rata share (according to the
proportion of (a) the amount of such Bank's required repayment to (b) the total
amount so recovered from the purchasing Bank) of any interest or other amount
paid or payable by the purchasing Bank in respect of the total amount so
recovered. Each Borrower agrees that any Bank so purchasing a participation
from another Bank pursuant to this Section 5.6 may exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Bank were the direct creditor of such Borrower in the amount
of such participation.
ARTICLE 6. FEES AND TAXES.
--------------
6.1. Commitment Fee.
--------------
(a) The Borrowers agree to pay to the Administrative Agent for the
account of each Bank, a fee (the "Commitment Fee") (i) for the period from the
--------------
Execution Closing Date to but excluding the Transaction Effective Date, equal
to .375 of 1% per annum on the sum of the average daily Available Revolving
Commitment and the Available Term Loan Commitment, if any, of such Bank, and
(ii) for the period from and including the Transaction Effective Date and
thereafter, (x) .375 of 1% per annum on the average daily Available Revolving
Commitment of such Bank at all times when the Leverage Ratio is greater than
5.5:1.0 and (y) .250 of 1% per annum on the average daily Available Revolving
Commitment of such Bank at all times when the Leverage Ratio is less than or
equal to 5.5:1.0. The Commitment Fee shall be computed on the basis of a
365/366 day year for the actual number of days elapsed and shall be payable in
arrears on the Transaction Effective Date, on the last day of each March, June,
September, and December of each year commencing on the first such date
following the Transaction Effective Date and on the Revolving Commitment
Expiration Date or such earlier date as such Bank's Commitments are fully
terminated.
(b) If any payment of the Commitment Fee shall be due and payable on
a day which is not a Business Day, the due date thereof shall be extended to
the next Business Day but such extension shall not affect the amount due as of
such payment date.
6.2. Taxes and Duties; Counterclaims.
-------------------------------
(a) So long as a Bank has complied with Sections 6.2(b) and 6.3, all
payments in respect of this Agreement, the Loans or the Notes shall be made by
the Borrowers to such Bank without defense, setoff or counterclaim for Taxes
(as defined below) and free and clear of all present and future taxes, levies,
imposts, fees, duties and withholdings or other deductions whatsoever (other
than a tax based upon the net income of any Bank) (collectively, "Taxes"). So
-----
long as a Bank has complied with Sections 6.2(b) and 6.3, if any such Tax
becomes payable in respect of this Agreement or any Loan or Note, or any
amendment, modification or supplement hereof or thereof, the Borrowers agree to
pay the same together with any interest or penalties thereon plus an amount
which, after provision for such Tax, is necessary to yield and remit to such
Bank payments at the applicable rate set forth herein, and agrees to hold the
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<PAGE>
Administrative Agent and the Bank harmless with respect thereto. To the extent
the Borrowers are obligated hereunder, the Borrowers shall provide evidence
that such Taxes of any nature whatsoever in respect of this Agreement, any
Loan, or any Note shall have been paid to the appropriate taxing authorities by
delivery to the Bank on whose account such payment was made of the official tax
receipts or notarized copies of such receipts within 30 days after payment of
any such Tax. If the Borrowers fail to make any such payments when due, the
Borrowers shall indemnify the Banks and the Administrative Agent for any
incremental Taxes, interest or penalties that may become payable by any Bank or
the Administrative Agent as a result of any such failure.
(b) In order to avoid United States withholding tax costs as in
effect on the Execution Closing Date, each Bank extending credit to the
Borrowers hereunder shall book and maintain its Loans through:
(i) any entity that is incorporated in the United States and that
completes the appropriate Form W9; or
(ii) the branch or agency of an entity incorporated outside the
United States that completes and delivers to each of the Borrowers in
duplicate and to the Administrative Agent a currently effective Form 4224
(or any successor form) certifying that as of the Execution Closing Date
such entity is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes; or
(iii) an entity that is resident in a Zero-Rated Jurisdiction for
United States withholding tax purposes and that completes and delivers to
each of the Borrowers and the Administrative Agent a currently effective
Form 1001 (or any successor form) certifying that as of the Execution
Closing Date such entity is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal
income taxes.
6.3. Tax Forms.
---------
On or prior to the Execution Closing Date, upon the request of the
Administrative Agent (which request shall be made on or prior to December 31 of
each year) and from time to time thereafter if requested by the Borrowers or
the Administrative Agent, and to the extent possible under the tax laws and
treaties then in effect, each Bank shall provide to the Administrative Agent
and the Borrowers executed forms prescribed by the IRS certifying as to such
Bank's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Bank
hereunder as specified in Section 6.2(b), such forms, in the case of those
delivered on or prior to the Execution Closing Date, to be for the 1995
calendar year, and, in the case of those delivered on or prior to December 31
of each year thereafter, to be for the next succeeding calendar year if then
available for delivery.
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<PAGE>
<PAGE>
ARTICLE 7. COST PROTECTION.
---------------
7.1. Change in Circumstances; Reserve Costs.
--------------------------------------
In the event that any present or future applicable law, rule or
regulation, or any change therein or in the interpretation or administration
thereof, including any request, guideline, directive or policy (whether or not
having the force of law) by any Governmental Body charged with the
administration or interpretation thereof, or compliance by any Bank with any
request, guideline, directive or policy of any such Governmental Body:
(a) subjects any Bank through its Applicable Lending Office to any
tax, duty or other charge (including the imposition of any withholding tax so
long as such Bank has complied with Sections 6.2(b) and 6.3) with respect to
any Loan or any part of its Commitments (other than any tax on or measured by
the overall net income of such Bank); or
(b) changes the basis of taxation of payments to any Bank through its
Applicable Lending Office of principal of, or interest on, any Loan made by
such Bank with respect to its Commitments or of other amounts payable
hereunder, or any combination of the foregoing (other than any tax on or
measured by the overall net income of such Bank); or
(c) imposes, modifies or deems applicable any reserve, capital
adequacy, deposit or similar requirement against any assets held by, deposits
with or for the account of, or loans or commitments by, or any acquisition of
funds by or for the account of an office of any Bank or its holding company in
connection with any Loan, including, without limitation, Statutory Reserves; or
(d) imposes upon any Bank any other condition with respect to any
Loan, any part of such Bank's Commitments, or this Agreement;
and the result of any of the foregoing (taking such Bank's policies into
account) is to (x) increase the cost to such Bank of making, funding or
maintaining any Loan or any part of its Commitments hereunder or (y) reduce the
amount of any payment (whether of principal, interest or otherwise) received or
receivable by such Bank or (z) require such Bank or its holding company to
deposit any reserve, increase its capital or make any payment on or calculated
by reference to any Loan made or sum received by it, or any part of its
Commitment, in each case by an amount which such Bank in its sole judgment
reasonably deems material after conducting the review required by Section 7.3
hereof:
(i) such Bank shall promptly notify the Borrowers and the
Administrative Agent of the happening of such event;
(ii) such Bank shall promptly, and in any case within 90 days of the
date when it becomes aware of the happening of such an event, deliver to
the Borrowers and the Administrative Agent a certificate, executed by an
authorized officer of such Bank and delivered by a relationship officer
thereof, stating the change which has occurred or the reserve requirements
or other conditions which have been imposed or the request, direction or
requirement with which such Bank has complied or will comply, together with
the date thereof, the amount of such increased costs, reduction or payment,
the way in which such amount has been calculated, and shall certify that
this is the Bank's standard method of calculating such amount, that such
amount is or will be calculated in a similar way for other borrowers of the
Bank under similar circumstances, that such requests are not inconsistent
with its treatment of other borrowers which are subject to similar
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provisions, and that its method of allocating any such costs,
reductions or payments is fair and reasonable; and
(iii) the Borrowers shall promptly pay to the Administrative Agent
for transfer to such affected Bank such amount or amounts set forth in such
certificate as will compensate such Bank for such additional costs,
reduction or payment.
The certificate of the affected Bank as to the additional amounts payable
pursuant to this Section 7.1 delivered to the Borrowers shall contain in
reasonable detail the basis upon which such additional amounts have been
calculated and shall be presumed correct absent manifest error. The provisions
of this Section 7.1 shall be applicable to the Borrowers and the affected Bank
regardless of any possible contention of invalidity or inapplicability of the
law, regulation or condition which has been imposed. Notwithstanding the
foregoing, the Borrowers will not be required to reimburse any Bank for any
increased costs, reductions or payments under this Section 7.1 arising prior to
90 days preceding the date of request, unless the applicable law or regulation
is imposed retroactively. In the case of a law or regulation which is
retroactive in effect, such notice shall be provided to the Borrowers not later
than 90 days from the date that such Bank reasonably should have learned of
such law or regulation, and the Borrowers' obligation to compensate such Bank
for such increased cost or reduction is contingent upon the provision of such
timely notice (but any failure by such Bank to provide such timely notice shall
not affect the Borrowers' reimbursement obligations with respect to (a) costs
or reduction incurred from the date as of which the law or regulation became
effective to the date that is 90 days after such Bank reasonably should have
learned of such law or regulation and (b) costs or reduction incurred following
the provision of such notice). No failure on the part of any Bank to demand
compensation under this Section 7.1 shall constitute a waiver of its right to
demand such compensation on any other occasion in connection with any other
similar or dissimilar event. If the affected Bank shall subsequently recoup
costs for which such Bank has theretofore been compensated by the Borrowers,
such Bank shall remit to the Borrowers the amount of the recoupment.
If the Borrowers shall be required to make any payment or reimbursement or
to compensate any Bank under this Section 7.1, so long as no Default has
occurred and is continuing, the Borrowers shall be free at any time within 180
days after the receipt of the certificate of the affected Bank, (x) to
terminate the affected Bank's Revolving Commitment and, if then in effect, Term
Loan Commitment together with the affected Bank's entitlement to the Commitment
Fee accruing after such termination and to prepay the loans of such Bank in
full, (y) to prepay the affected portion of any Loan in full (plus all amounts
payable pursuant to Section 7.4 with respect to cost of funds or clause (iii)
above in order to compensate such affected Bank for additional costs,
reductions or payments with respect to the period prior to prepayment),
together with accrued interest on the amount thereof through the date of such
prepayment or (z) to replace any such Bank with another major international
bank reasonably acceptable to the Administrative Agent. Upon any exercise of
the rights described in clause (x) above, the Aggregate Revolving Commitments
and, if then in effect, the Aggregate Term Loan Commitments, as the case may
be, shall be automatically and irrevocably reduced by the amount of the
terminated Revolving Commitment and Term Loan Commitment, as the case may be,
and by the amount of the prepayment in the case of clause (y).
7.2. Change in Legality.
------------------
Notwithstanding anything to the contrary contained in this Agreement,
if any change in any present or future applicable law, rule or regulation or in
the interpretation or administration thereof by any Governmental Body charged
with the
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administration thereof, or compliance with any request, guideline, policy or
directive (whether or not having the force of law) of any such Governmental
Body, shall make it unlawful or impracticable in the sole judgment of any Bank
(an "Affected Bank") for such Bank to make, fund or maintain any Loan, or any
-------------
part of its Commitments hereunder, and such Bank determines that it is not
reasonably possible to take steps to avoid such illegality or impracticability
without adverse cost or consequences to such Bank, then by notice to the
Borrowers and the Administrative Agent upon the request of such Bank, the
Administrative Agent shall (a) if such event occurs prior to the making of any
Loan, declare such Bank's Commitments terminated and it shall thereby be
terminated and the Banks' Commitment Fee thereafter payable shall be
proportionately reduced or (b) if such event occurs after the making of any
Loan (i) request the Affected Bank to use reasonable efforts (which efforts
shall be undertaken) to transfer the Loan or Commitments to another of its
branches or agencies (or to another Bank or major international bank acceptable
to the Borrowers, notwithstanding the restrictions on transfer set forth in
Section 14.8 hereof) in order to remove any illegality provided and to the
extent such transfer is not inconsistent with such Affected Bank's internal
policies of general application and only if, as determined by such Affected
Bank in its sole discretion, the transfer of such Loan or Commitments, as
applicable, would not otherwise materially adversely affect such Loan or such
Affected Bank, and provided further that if such transfer is inconsistent with
such Affected Bank's internal policies or would materially adversely affect
such Loan or such Affected Bank, such Affected Bank shall deliver a
certificate, executed by an authorized officer thereof and delivered by a
relationship officer, stating the nature of such internal policy and that such
policy has been applied consistently to similarly situated borrowers and loans,
or that such transfer would materially adversely affect such Loan or such
Affected Bank, as the case may be, and (ii) request the Borrowers to make a
good faith effort (which effort shall be undertaken) to refinance the Affected
Bank's Commitments in order to remove any illegality; provided, however, that
if the efforts requested to be made by the Affected Bank and the Borrowers in
clause (i) and clause (ii) above are not successful within a reasonable period
of time, the Borrowers shall pay in full the then outstanding principal amount
of such Bank's Loans together with accrued interest thereon either (x) on the
last day of the then current Interest Period if such Loan is subject to a LIBOR
Rate Option or CD Rate Option and if such Bank may lawfully continue to fund
and maintain such Loan to such day or (y) immediately if such Bank may not
lawfully continue to fund and maintain such Loan to such day, in each case
together with any amounts necessary to reimburse such Bank for any loss
incurred as a result thereof pursuant to Section 7.4. If any Bank shall claim
that the funding or maintenance of any Loan or any part of its Commitments
hereunder has become unlawful, such Bank shall deliver to the Administrative
Agent and the Borrowers a letter from legal counsel to such Bank, which may be
in-house counsel to such Bank, describing the legal basis for the determination
of such illegality.
7.3. Responsibility of Affected Bank.
-------------------------------
Upon the occurrence of any change in circumstances pursuant to
Section 7.1 or 7.2 and subject to the provisions of such Sections, the Bank
affected by such change shall use its reasonable efforts to conduct a review of
alternative reasonable courses of action which may mitigate or eliminate the
increased cost to the Bank of making, funding or maintaining any Loan made by
it and its obligations in respect of its Commitments hereunder and shall engage
in any such alternative course of action which is considered reasonable under
the circumstances as they shall exist at such time; provided that such
alternative course of action will not result in any increased costs or
reduction of the amount of any payment receivable hereunder by such Bank or
cause such Bank, in its good faith judgment, to violate one or more of its
policies in order to avoid such increased cost or reduction.
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<PAGE>
7.4. Cost of Funds.
-------------
Notwithstanding anything contained in this Agreement to the contrary,
if: (a) the Borrowers shall fail to borrow a Loan subject to a LIBOR Rate
Option or a CD Rate Option on a Borrowing Date (unless such failure is due to
the notification to the Borrowers by the Administrative Agent pursuant to
Section 4.5(a)(ii)), (b) the Borrowers shall fail to continue or convert on the
day requested for a continuation of or conversion to a CD Rate Loan or a LIBOR
Rate Loan after it shall have given a Continuation Notice (unless such failure
is due to the notification to the Borrowers by the Administrative Agent
pursuant to Section 4.5(a)(ii)), (c) the Borrowers shall fail to make any
prepayment after having given notice thereof pursuant to Section 5.4, (d) a
notice shall be given to the Borrowers pursuant to Section 7.2 prior to the
last day of the Interest Period applicable to any LIBOR Rate Loan or CD Rate
Loan or (e) any repayment or prepayment of the principal amount of any LIBOR
Rate Loan or CD Rate Loan is made for any reason (including, without
limitation, as a result of acceleration or illegality) on a date which is prior
to the last day of the Interest Period applicable thereto, the Borrowers agree
to indemnify each Bank against, and to pay directly to such Bank promptly upon
receipt of a request therefor, the amount of any reasonable loss or expense
(other than attorneys' fees unless an Event of Default then exists) suffered by
such Bank as a result of such failure to borrow, continue or convert,
termination or repayment, including without limitation, an amount equal to:
D
A x (B-C) x ---
360
where:
"A" equals such Bank's pro rata share of the Affected Principal
Amount;
"B" equals, as applicable, the LIBOR Rate (expressed as a decimal)
applicable to such LIBOR Rate Loan or the CD Rate (expressed as a decimal)
applicable to such CD Rate Loan;
"C" equals, as applicable, the LIBID Rate or the CD Rate applicable
to such Loan or portion thereof (expressed as a decimal) in effect on or about
the date of such failure to borrow, continue or convert, termination,
prepayment or repayment, based on the applicable rates bid or offered, as the
case may be, on or about such date, for deposits in an amount equal
approximately to such Bank's pro rata share of the Affected Principal Amount
with an Interest Period equal approximately to the period commencing on the
first day of the Remaining Interest Period and ending on the last day of such
Remaining Interest Period or ending on the last day of the applicable Interest
Period, as the case may be, as determined by such Bank (which for purposes of
this calculation shall not exceed "B");
"D" equals the number of days from and including the first day of the
Remaining Interest Period to but excluding the last day of such Remaining
Interest Period or the last day of the applicable Interest Period, as the case
may be;
and any other reasonable out-of-pocket loss or expense (including any
reasonable internal processing charge customarily charged by such Bank)
suffered by such Bank in liquidating or employing deposits prior to maturity in
amounts which correspond to such Bank's pro rata share of such proposed Loan or
repayment. Each Bank shall provide to the Borrowers a statement, accompanied
where applicable by any supporting documentation illustrating the computation
described above and explaining the amount of
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any such loss or expense, which statements shall be presumed correct absent
manifest error with respect to the parties hereto.
ARTICLE 8. CONDITIONS OF LENDING AND RELEASE.
---------------------------------
8.1. Conditions Precedent to First Funding
-------------------------------------
The obligations of the Banks to make the Loans on the First Funding Date
shall be subject to the satisfaction of the following conditions precedent
(each in form and substance satisfactory to the Administrative Agent) on or
prior to the First Funding Date:
(a) The Administrative Agent shall have received the Notes, in each
case dated as of the First Funding Date, duly executed by the duly authorized
officer or officers of Parent;
(b) The Administrative Agent shall have received the Security
Agreement, duly executed by the duly authorized officer or officers of the
Parent, together with such UCC-1 financing statements and other documents as
the Administrative Agent shall reasonably request in order to perfect the
security interest granted thereunder;
(c) The Administrative Agent shall have received a Borrowing Request,
duly executed by the duly authorized officer or officers of Parent;
(d) The Administrative Agent shall have received a Leverage Ratio
Certificate, duly executed by a Financial Officer of the Parent and/or TCIC
calculating the Leverage Ratio and the ratio of Annualized Cash Flow to Pro-
Forma Debt Service immediately after giving effect to the closing of the
Transaction on the Transaction Effective Date;
(e) The Administrative Agent shall have received the VI Indemnity
Agreement, duly executed by the duly authorized officer of officers of VI;
(f) The Administrative Agent shall have received certified copies,
each dated as of a recent date, of (i) the certificate of incorporation,
together with all amendments thereto (including the amended and restated
certificate of incorporation specifying the terms and conditions of the Parent
Preferred Stock in the form of Exhibit L), of Parent, certified by the
Secretary of State of Delaware and a certificate as to the good standing of
Parent from such Secretary of State, (ii) certificates of the Secretary of
State or other appropriate official of each state in which Parent conducts
business or owns assets certifying that Parent is in good standing as a foreign
corporation in such state, except where the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect and (iii) all
documents evidencing other necessary governmental approvals, if any, with
respect to this Agreement, the Notes and the Loan Documents;
(g) The Administrative Agent shall have received a certificate of the
secretary or an assistant secretary of Parent certifying (i) that attached
thereto are true and complete copies of the resolutions, in form and substance
satisfactory to the Administrative Agent, adopted by the board of directors of
Parent, and all other necessary corporate action evidencing approval of the
transactions contemplated by this Agreement, the Notes, the Loan Documents and
the Transaction, (ii) that attached thereto is a true and complete copy of the
bylaws of Parent, together with all amendments thereto, as in effect on the
date of such certificate, (iii) that the certificate of incorporation of Parent
has not been amended since the date of the certification thereto furnished
pursuant to Section 8.1(f) above and that no dissolution proceedings with
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respect to the Borrower have been commenced or are contemplated and (iv) as to
the incumbency and specimen signature of each officer of Parent executing this
Agreement, the Notes or the Loan Documents;
(h) The Administrative Agent shall have received a certificate signed
by a duly authorized Financial Officer of Parent to the effect that, as of the
First Funding Date, (i) no event has occurred, is continuing, or would result
from the incurrence of such Loans which constitutes a Default; (ii) the
representations and warranties contained in Article 9 (excluding Sections 9.5,
9.15, 9.21(b) and 9.22) are true and correct as of the First Funding Date; and
(iii) no Material Adverse Change shall have occurred at any time on or prior to
the commencement of the Exchange Offer;
(i) The Administrative Agent shall have received a certificate from
Parent attaching a true and complete copy of each of the Transaction Documents
and a list and status report of all governmental approvals with respect to the
Transaction which have not been obtained;
(j) The Administrative Agent shall have received a certificate from
Parent, VI and New VII to the effect that (i) the Transaction Documents are in
full force and effect and each of Parent, VI and New VII is in compliance in
all material respects with all obligations on its part to be performed under
the Transaction Documents and to its knowledge TCI and TCIC are in compliance
in all material respects with all obligations on their part to be performed
under the Transaction Documents, (ii) the Minimum Condition is expected to be
satisfied at 12:00 Midnight on the First Funding Date, (iii) the Expiration
Time is expected to occur, without further condition (other than the
satisfaction of the Minimum Condition and the making of the Loans in the
aggregate principal amount of $1.4 billion under this Agreement and the deposit
of the proceeds thereof in the Cash Collateral Account and the making of the
Facility B Loans in the aggregate amount of $300 million under Facility B and
the deposit of the proceeds thereof in the Facility B Cash Collateral Account),
on the First Funding Date, (iv) all conditions to the consummation by Parent,
VI and New VII of the Transaction set forth in the Transaction Documents have
been satisfied (without amendment, modification or waiver, except for
amendments expressly contemplated by the Transaction Documents and amendments,
modifications or waivers permitted under Section 11.16) except for the matters
set forth on Exhibit J hereto, and (v) each of Parent, VI and New VII is ready,
willing and able to satisfy or cause to be satisfied in the manner required by
the Transaction Documents all matters set forth on Exhibit J on its part to be
satisfied and to consummate the Transaction and knows of no reason why it
cannot satisfy or cause to be satisfied in the manner required by the
Transaction Documents any of such matters on its part to be satisfied or why
the Transaction cannot be fully consummated in accordance with the Transaction
Documents within 10 Business Days following the First Funding Date;
(k) The Administrative Agent shall have received a certificate from
TCI and TCIC to the effect that (i) the Transaction Documents are in full force
and effect and each of TCI and TCIC is in compliance in all material respects
with all obligations on its part to be performed under the Transaction
Documents and to its knowledge Parent, VI and New VII are in compliance in all
material respects with all obligations on their part to be performed under the
Transaction Documents, (ii) all conditions to the consummation by TCI and TCIC
of the Transaction set forth in the Transaction Documents have been satisfied
(without amendment, modification or waiver, except for amendments expressly
contemplated by the Transaction Documents and amendments, modifications or
waivers permitted under Section 11.16) except for the matters set forth on
Exhibit J attached hereto, and (iii) each of TCI and TCIC is ready, willing and
able to satisfy or cause to be satisfied in the manner required by the
Transaction Documents all matters set forth on Exhibit J on its part to be
satisfied and to
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<PAGE>
consummate the Transaction and knows of no reason why it cannot satisfy or
cause to be satisfied in the manner required by the Transaction Documents any
of such matters on its part to be satisfied or why the Transaction cannot be
fully consummated in accordance with the Transaction Documents within 10
Business Days following the First Funding Date;
(l) The IRS Ruling shall have been issued by the IRS, shall not have
been amended, modified, repealed, waived or withdrawn and shall not contain any
significant conditions, representations or caveats not contained in the request
(or any supplement thereto) for such IRS Ruling, and the Administrative Agent
shall have received a copy of the IRS Ruling and a certificate from Parent to
such effect;
(m) TCIC shall have on the First Funding Date and on the Transaction
Effective Date either (i) cash on hand or (ii) the availability to borrow, and
the ability to satisfy all preconditions to borrow, the necessary funds under
committed credit facilities, in each case in an amount equal to the amount
necessary to close the TCIC Subscription, and the Administrative Agent shall
have received a certificate from TCIC to such effect;
(n) No actual litigation, order, decree, injunction or other
proceeding shall exist which enjoins or seeks to enjoin (i) the consummation of
the Transaction, (ii) the Banks from making the Loans or releasing the proceeds
of the Loans from the Cash Collateral Account, or (iii) the Facility B Banks
from making the Facility B Loans or releasing the proceeds of the Facility B
Loans from the Facility B Cash Collateral Account, and the Administrative Agent
shall have received a certificate from Parent to such effect;
(o) No Material Adverse Change shall have occurred at any time on or
prior to the commencement of the Exchange Offer;
(p) New VII shall have obtained the release of Parent from or the
substitution of New VII as obligor under (so that Parent will have no
obligation under), all of Parent's obligations to repay the Old VII Debt (as
defined in the Implementation Agreement), or shall have caused the agreement or
indenture pursuant to which such debt was issued to be amended or supplemented
so that Parent will no longer be an obligor (so that Parent will have no
obligation) thereunder, in each case effective concurrently with the release of
all funds from the Cash Collateral Account and the Facility B Cash Collateral
Account, and a copy of each such release, amendment or supplement shall have
been delivered to the Administrative Agent and shall be in all respects
reasonably satisfactory to the Arranging Agents (such releases, amendments or
supplements, the "Parent Debt Release Agreements");
------------------------------
(q) The Administrative Agent shall have received the Parent Cable
Carve-Out 12/31/95 Financial Statements, the Parent Cable Special Purpose
12/31/95 Financial Statements, the Parent Cable Carve-Out 3/31/96 Financial
Statements, the Parent Cable Special Purpose 3/31/96 Financial Statements, the
Parent Cable 5/31/96 Summary of Operations and the Pro-Forma Financial
Statements;
(r) If there are Untransferred Non-Cable Assets, the Administrative
Agent shall have received a copy of the form of security agreement to be
executed and delivered by the Parent in favor of New VII with respect to
Untransferred Non-Cable Assets, such security agreement to be reasonably
satisfactory to the Administrative Agent, together with a list of such
Untransferred Non-Cable Assets;
(s) The Administrative Agent shall have received a certificate of a
Financial Officer of TCIC with respect to the financial projections delivered
by TCIC to
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the Banks in connection with this Agreement, such certificate to be
substantially in the form of Exhibit K hereto;
(t) The Administrative Agent shall have received a certificate of an
authorized officer of Parent with respect to environmental matters, such
certificate to be substantially in the form of Exhibit M hereto;
(u) The Administrative Agent shall have received opinions, dated the
First Funding Date, of Philippe Dauman, general counsel to Parent, and Edward
N. Schor, regulatory counsel to Parent, in substantially the form attached
hereto as Exhibits H-1 and H-2, and Parent hereby instructs each such counsel
to prepare and deliver its opinion to the Administrative Agent;
(v) The Administrative Agent shall have received an opinion of Emmet,
Marvin & Martin, LLP special counsel to the Administrative Agent, in
substantially the form attached hereto as Exhibit I; and
(w) All fees and expenses payable to the Administrative Agent, the
Arranging Agents, the Agents and the Banks shall have been paid to the extent
such fees and expenses have become payable on or prior to the First Funding
Date.
8.2. Conditions Precedent to all Loans.
---------------------------------
The obligations of the Banks to make any Loans hereunder, other than
Loans that would not increase the aggregate Dollar amount of the Revolving
Loans or the Term Loans outstanding, shall be subject to the further conditions
precedent that:
(a) The representations and warranties contained in Article 9
(excluding Sections 9.5, 9.15, 9.21(b) and 9.22 with respect to the First
Funding Date) shall be accurate and complete on and as of the Borrowing Date
therefor;
(b) Immediately before and after giving effect thereto, no Default
shall exist;
(c) No Default or Event of Default shall have occurred and be
continuing under any Funded Debt having an outstanding aggregate principal
amount equal to or greater than $10,000,000;
(d) For all Loans (other than the Loans made on the First Funding
Date), no Material Adverse Change (after giving effect to the consummation of
the Transaction) shall have occurred from that reflected in the Parent Cable
Carve-Out 12/31/95 Financial Statements, except to the extent the same resulted
solely from the impact of the rate regulations promulgated by the FCC pursuant
to the Cable Television Consumer Protection and Competition Act of 1992 as such
regulations have been revised;
(e) For all Loans (other than the Loans made on the First Funding
Date), no Material Adverse Change (after giving effect to the consummation of
the Transaction) shall have occurred from that reflected in the Pro-Forma
Financial Statements, except to the extent the same resulted solely from the
impact of the rate regulations promulgated by the FCC pursuant to the Cable
Television Consumer Protection and Competition Act of 1992 as such regulations
have been revised; and
(f) For all Loans (other than the Loans on the First Funding Date),
all documents executed or submitted pursuant hereto by or on behalf of the
Borrowers or
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any other obligor under any of the Loan Documents shall be satisfactory in form
and substance to the Administrative Agent; and
(g) For all Loans (other than the Loans made on the First Funding
Date), the Administrative Agent shall have received all information, approvals,
opinions, documents or instruments as the Administrative Agent and the
Arranging Agents may reasonably request.
The acceptance of the proceeds of any Loans hereunder shall be deemed to be a
representation and warranty by the Borrowers as to compliance with this Section
8.2 on the Borrowing Date for any such Loan.
8.3. Release of Cash Collateral Account.
----------------------------------
The Administrative Agent shall release the funds held in the Cash
Collateral Account to Parent subject to the conditions precedent that:
(a) The Arranging Agents shall have received evidence satisfactory to
them that TCIC has cash on hand in an amount equal to the amount necessary to
close the TCIC Subscription and that TCIC is ready, willing and able to
transfer such cash to Parent immediately following the Exchange Time whereupon
Parent shall immediately repay Facility B in full. The Administrative Agent
shall have received a certificate from TCI and TCIC that each of TCI and TCIC
is ready, willing and able to satisfy or cause to be satisfied in the manner
required by the Transaction Documents all matters set forth on Exhibit J hereto
on its part to be satisfied and to consummate the Transaction and knows of no
reason why it cannot satisfy or cause to be satisfied in the manner required by
the Transaction Documents any of such matters on its part to be satisfied or
why the Transaction cannot be fully consummated in accordance with the
Transaction Documents immediately following the release of the funds from the
Cash Collateral Account and the Facility B Cash Collateral Account;
(b) No order, decree or injunction shall be in effect which enjoins
the consummation of the Transaction or the release of the funds in the Cash
Collateral Account or the Facility B Cash Collateral Account;
(c) Immediately before and after giving effect thereto no Default
shall exist;
(d) No default or event of default shall have occurred and be
continuing under any Funded Debt having an outstanding aggregate principal
amount equal to or greater than $10,000,000;
(e) The representations and warranties set forth in Section 9.11
shall be true and correct;
(f) The Administrative Agent shall have received a certificate from
Parent, VI and New VII to the effect that (i) the Transaction Documents are in
full force and effect and each of Parent, VI and New VII is in compliance in
all material respects with all obligations on its part to be performed under
the Transaction Documents and to its knowledge TCI and TCIC are in compliance
in all material respects with all obligations on their part to be performed
under the Transaction Documents, (ii) all Exchange Offer conditions shall have
been satisfied (without amendment, modification or waiver except for amendments
expressly contemplated by the Transaction Documents and amendments,
modifications or waivers permitted under Section 11.16), (iii) subject to the
release of the funds in the Cash Collateral Account and the Facility B Cash
Collateral Account and the delivery of $1.7 billion of such funds to Parent for
transfer to
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New VII as part of the Conveyance of Assets (as such term is defined in the
Implementation Agreement), (x) Parent, VI and New VII will immediately in
accordance with the Transaction Documents cause the Conveyance of Assets and
Assumption of Liabilities (as each such term is defined in the Implementation
Agreement), take the actions referred to in Items XI and XII of Exhibit J and
cause the Exchange Time to occur and (y) subject to receipt of the Purchase
Price (as defined in the Subscription Agreement) from TCIC Parent will, and VI
and New VII expect that Parent will, deliver the Certificate (as defined in the
Subscription Agreement) to TCIC, and (iv) subject to the matters referred to in
preceding clause (iii), there are no conditions to the consummation of the
Transaction that remain to be satisfied and upon completion of such matters the
Transaction will be consummated; and
(g) The Administrative Agent shall have received copies of the
opinions of counsel to VI, New VII and Parent and counsel to TCI and TCIC
delivered pursuant to the Transaction Documents.
8.4. Notice to Banks.
---------------
Promptly after the Administrative Agent receives all documents
required under Section 8.1 as a condition precedent to the obligation of the
Banks to make the Loans on the First Funding Date, the Administrative Agent
shall give notice to the Banks at their Applicable Lending Offices that it has
received all such documents and that such documents are satisfactory to it.
8.5. Tax Forms.
---------
On or prior to the Execution Closing Date, each Bank shall provide
the Administrative Agent and the Borrowers with tax forms prescribed by Section
6.3.
ARTICLE 9. REPRESENTATIONS AND WARRANTIES.
------------------------------
In order to induce the Banks to make the Loans, on each Borrowing
Date and at each other time as this Agreement shall require each Borrower hereby
represents and warrants (except that no representation or warranty under
Sections 9.5, 9.15, or 9.21(b) or 9.22 shall be required on the First Funding
Date) to the Administrative Agent and the Banks as to itself and, as the context
may require, to each of its Subsidiaries, as follows:
9.1. Subsidiaries.
------------
Except for changes otherwise permitted by this Agreement, Schedule
9.1 hereto sets forth a true and complete list of each of the Borrowers'
Subsidiaries (excluding any Subsidiaries to be transferred to New VII on or
prior to the Transaction Effective Date as part of the consummation of the
Transaction) on the Execution Closing Date and on the Transaction Effective
Date, specifying as of the Execution Closing Date and as of the Transaction
Effective Date whether such Subsidiary is a Restricted Subsidiary or an
Unrestricted Subsidiary for purposes of this Agreement. The outstanding shares
of capital stock of each Restricted Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable, and, except as otherwise
indicated on Schedule 9.1 or otherwise permitted by this Agreement, all of the
outstanding shares of each class of the capital stock of each Restricted
Subsidiary are owned, directly or indirectly, beneficially and of record, by
Parent prior to the Transaction Effective Date, and by TCI Pacific after the
TCI Cosign Date, free and clear of all Liens.
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<PAGE>
9.2. Corporate Existence and Power.
-----------------------------
Each Borrower and each Restricted Subsidiary is duly organized or
formed and validly existing in good standing under the laws of the state in
which it is incorporated or formed, and each has the power to own its property
and to carry on its respective business as now being conducted and is duly
qualified and is in good standing in each jurisdiction in which the nature of
the respective business conducted by it or the properties owned by it makes
such qualification necessary, except where such failure to qualify could not
reasonably be expected to have a Material Adverse Effect.
9.3. Corporate Authority.
-------------------
Each Borrower has full legal power and corporate authority to enter
into, execute, deliver and perform the terms of this Agreement, the Loan
Documents and the Transaction Documents to which it is a party, to make the
borrowings contemplated hereby and pursuant to the Notes, to execute, deliver
and perform the terms of the Loans, the Loan Documents and the Transaction
Documents to which it is a party, and to incur the obligations provided for
herein and therein, all of which have been duly authorized by all proper and
necessary corporate actions and are in full compliance with its certificate of
incorporation and bylaws. No consent or approval of, notice to or filing with,
or other action by, shareholders, any Governmental Body or any other Person,
which has not already been obtained, is required to authorize, or is required
in connection with the execution, delivery and performance of this Agreement,
the Notes, the Loans, the Loan Documents or the Transaction Documents (except
as expressly contemplated in the Transaction Documents) to which it is a party,
or is required as a condition to the validity or enforceability of this
Agreement, the Notes, the Loans, the Loan Documents or the Transaction
Documents to which it is a party.
9.4. Binding Agreement.
-----------------
This Agreement, the Notes and the other Loan Documents to which each
Borrower is a party have been duly executed and delivered on behalf of each
Borrower and constitute the legal, valid and binding obligations of each
Borrower, enforceable against each Borrower in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except that the remedy of specific performance
is within the discretion of the applicable court.
9.5. Litigation.
----------
Except for proceedings affecting the cable television industry
generally and matters set forth on Schedule 9.5 hereto, there are no actions,
suits or proceedings at law or in equity or by or before any Governmental Body
pending or, to the knowledge of the Borrowers, threatened against either
Borrower or any Restricted Subsidiary or any of its or their properties or
rights, as to which there is a reasonable possibility of an adverse
determination and which, if adversely determined, could reasonably be expected
to, individually or in the aggregate, materially impair the ability of the
Borrowers and the Restricted Subsidiaries on a Consolidated basis to conduct
their business substantially as now conducted or materially and adversely
affect the business, operations, condition (financial or otherwise) or Property
of the Borrowers and the Restricted Subsidiaries on a Consolidated basis or
impair the validity or enforceability of, or the ability of each Borrower to
perform its obligations under, this Agreement, the Notes or any of the other
Loan Documents or the enforceability hereof or thereof.
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<PAGE>
9.6. No Conflicting Agreements.
-------------------------
Neither Borrower nor any Restricted Subsidiary is a party to any
contract or agreement or subject to any charter or other corporate restriction
that could reasonably be expected to have a Material Adverse Effect. Neither
the execution nor delivery by the Borrowers of this Agreement, the borrowings
hereunder or, with respect to each Borrowing Date other than the First Funding
Date, the use of the proceeds thereof, nor performance or fulfillment of or
compliance with the terms and provisions of this Agreement or the other Loan
Documents, will conflict with, or result in a breach of the terms, conditions
or provisions of, or constitute a default under, or result in any violation of,
or result in the creation of any Lien upon any of the properties or assets
(after giving effect to the consummation of the Transaction) of the Borrower or
any Restricted Subsidiary pursuant to its charter or bylaws, any award of any
arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment, decree, statute, law, rule or regulation to which
any of them is subject. The use of the proceeds of the Loans made on the First
Funding Date will not conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien upon any of the properties
or assets of the Borrowers or any Restricted Subsidiary pursuant to (i) its
charter or bylaws, any award of any arbitrator, any agreement with
stockholders, any order, judgment or decree, or any statute, law, rule or
regulation to which any of them is subject or (ii) any other agreement or
instrument to which any of them is subject that could reasonably be expected to
have a Material Adverse Effect. Neither Borrower nor any Restricted Subsidiary
is a party to, or otherwise subject to, any provision contained in any
instrument evidencing Indebtedness of any of them, any agreement relating
thereto or any other contract or agreement (including its charter) that limits
the amount of, or otherwise imposes restrictions on, the incurrence of
Indebtedness by either Borrower of the type to be evidenced by the Notes except
as set forth in Schedule 9.6 hereto and, as to the instruments, agreements or
contracts, if any, listed on Schedule 9.6 each Borrower and/or any Restricted
Subsidiary that is a party to any of the same has complied therewith, or
received any consents or waivers necessary for compliance therewith.
9.7. Taxes.
-----
Each Borrower and each Restricted Subsidiary has filed or caused to
be filed all federal, state and other material local income tax returns
required to be filed, and has paid, or has made adequate provision for the
payment of, all taxes shown to be due and payable on said returns or in any
assessments made against it, and no tax Liens have been filed and no claims are
being asserted with respect to such taxes which are required by GAAP to be
reflected in the Pro-Forma Financial Statements and are not so reflected
therein. The charges, accruals and reserves on the books of each Borrower and
each Restricted Subsidiary with respect to all federal, state and other
material local taxes are considered by the management of each Borrower to be
adequate, and each Borrower has no knowledge of any material unpaid assessment,
tax or other governmental charge or levy which is or might be due and payable
against it or any Restricted Subsidiary or any Property (after giving effect to
the consummation of the Transaction) of such Borrower or any Restricted
Subsidiary, except such thereof as are being contested in good faith and by
appropriate proceedings diligently conducted, and for which adequate reserves
have been set aside in accordance with GAAP.
9.8. Compliance with Applicable Laws.
-------------------------------
Neither Borrower nor any Restricted Subsidiary is in default with
respect to any judgment, order, writ, injunction, decree or decision of any
Governmental Body which default could reasonably be expected to have a Material
Adverse Effect.
-49-
<PAGE>
Each Borrower and each Restricted Subsidiary is complying in all material
respects with all applicable statutes and regulations, including, without
limitation, the Communications Act and ERISA, of all Governmental Bodies,
including the FCC, a violation of which could reasonably be expected to have a
Material Adverse Effect.
9.9. Governmental Regulations.
------------------------
Neither Borrower nor any Restricted Subsidiary nor any corporation
controlling either Borrower or any Restricted Subsidiary or under common
control with either Borrower or any Restricted Subsidiary is subject to
regulation under the Public Utility Holding Company Act of 1935, as amended,
the Federal Power Act, as amended, or the Investment Company Act of 1940, as
amended, or is subject to any statute or regulation which regulates the
incurrence of Indebtedness for Borrowed Money (other than Regulation X),
including, without limitation, statutes or regulations relative to common or
contract carriers or to the sale of electricity, gas, steam, water, telephone,
telegraph or other public utility services.
9.10. Property.
--------
Each Borrower and each Restricted Subsidiary has good and marketable
title to all of its owned Property (after giving effect to the consummation of
the Transaction) other than personal property and good title to all of its
Property that is personal property (after giving effect to the consummation of
the Transaction), title to which is material to such Borrower or such
Restricted Subsidiary, except for title imperfections referred to in Section
11.2(i) or defects which could not reasonably be expected to have a Material
Adverse Effect, and such Property is subject to no Liens, except Liens
permitted under Section 11.2. Each Borrower and each Restricted Subsidiary
enjoys peaceful and undisturbed possession under all material leases necessary
for the use and operation of its Property (after giving effect to the
consummation of the Transaction), none of which contains any provisions which
could reasonably be expected to have a Material Adverse Effect. All such
leases are valid and subsisting and are in full force and effect, and neither
Borrower nor any Restricted Subsidiary is in default thereunder which default
could reasonably be expected to have a Material Adverse Effect.
9.11. Federal Reserve Regulations; Use of Proceeds of Loans.
-----------------------------------------------------
Neither Borrower is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying any Margin Stock. No part of the proceeds of the Loans will be
used, directly or indirectly, by either Borrower or any of its Subsidiaries for
a purpose which violates any law, rule or regulation of any Governmental Body,
including, without limitation, the provisions of Regulation G, Regulation U or
Regulation X. Neither Borrower nor any agent acting on its behalf has taken
any action that might cause this Agreement or the Notes to violate Regulation
G, Regulation U or Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act.
Following application of the proceeds of each Loan, not more than 25% (or such
greater or lesser percentage as provided in the exclusions from the definition
of "Indirectly Secured" contained in Regulation G and Regulation U in effect at
the time of the making of such Loan) of the value of the assets (both of each
Borrower alone and of the Borrowers and the Restricted Subsidiaries on a
consolidated basis) subject to the provisions of Section 11.2 hereof will be
Margin Stock.
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<PAGE>
9.12. ERISA.
-----
(a) No Prohibited Transactions, Accumulated Funding Deficiencies,
withdrawals from Multiemployer Plans or Reportable Events have occurred with
respect to any Plans or Multiemployer Plans that, in the aggregate, could
subject either Borrower or any ERISA Affiliate to any material tax, penalty or
other liability where such tax, penalty or liability is not covered in full for
the benefit of such Borrower or such ERISA Affiliate, by insurance. As of the
date of this Agreement, neither Borrower nor any ERISA Affiliate reasonably
expects to withdraw from a Multiemployer Plan where such withdrawal would
subject such Borrower or any ERISA Affiliate to any material tax, penalty or
other liability;
(b) No notice of intent to terminate a Plan under Section 4041(c) of
ERISA has been filed, nor has any Plan been terminated under Section 4041(c) of
ERISA nor has the PBGC instituted proceedings to terminate, nor appointed a
trustee to administer, a Plan and no event has occurred or condition exists
which could reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment by the PBGC of a trustee to
administer, any Plan;
(c) The present value of all vested benefit liabilities (as defined
in Section 4001(a)(16) of ERISA) under all Plans does not exceed by a material
amount the assets of the Plans allocable to such vested benefits; and
(d) The execution, delivery and performance by each Borrower of this
Agreement and the borrowings hereunder and the use of the proceeds thereof will
not involve any Prohibited Transaction with respect to any Plan or
Multiemployer Plan.
9.13. Franchises, Etc.
---------------
Each Borrower and each Restricted Subsidiary possesses all material
franchises, certificates, licenses, permits and other authorizations from
Governmental Bodies and all material patents, trademarks, service marks, trade
names, copyrights, licenses, easements, rights of way and other rights, use,
access or rental agreements and utility easements that are necessary for the
ownership of its properties and assets and the maintenance and operation of its
businesses as presently conducted (after giving effect to the consummation of
the Transaction), and is not in violation of any of the foregoing in any
material respect. No event has occurred which permits, or after notice or
lapse of time (except expiration of the stated term thereof), or both, would
permit, the revocation or termination of any such franchise, certificate,
permit, license, authorization or other right which could reasonably be
expected to have a Material Adverse Effect. All such franchises, certificates,
permits, licenses and other authority have been validly issued to a Borrower or
a Restricted Subsidiary, as the case may be, by the appropriate governmental
authority and, except for franchises, certificates, permits, licenses or other
authority which if not obtained could not reasonably be expected to have a
Material Adverse Effect, each such franchise, certificate, permit, license or
other authority is valid and subsisting. Each Borrower and each Restricted
Subsidiary is operating its respective businesses (after giving effect to the
consummation of the Transaction) in material compliance with the terms and
conditions of such franchises, certificates, permits, licenses and other
authority.
9.14. Burdensome Obligations.
----------------------
Neither Borrower nor any Restricted Subsidiary is a party to or is
bound by any franchise, agreement, deed, lease or other instrument, or subject
to any corporate restriction which, in the opinion of the management of such
Borrower, is so
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unusual or burdensome as in the foreseeable future could reasonably be expected
to have a Material Adverse Effect.
9.15. Financial Statements.
--------------------
(a) Parent has heretofore delivered to each Bank copies of the
audited combined balance sheet of Parent Cable for the year ended December 31,
1995 and the related audited combined statements of operations and cash flows
for the fiscal year then ended (collectively, the "Parent Cable Carve-Out
----------------------
12/31/95 Financial Statements"). The Parent Cable Carve-Out 12/31/95 Financial
- -----------------------------
Statements are correct and complete in all material respects, and have been
prepared in accordance with GAAP consistently applied throughout the period
involved and fairly present in all material respects the financial position and
results of operations of Parent Cable as of and for the period then ended.
(b) Parent has heretofore delivered to each Bank copies of the
audited Special Purpose Combined Balance Sheet of Parent Cable for the year
ended December 31, 1995 and the related audited Special Purpose Combined
Statements of Operations and Cash Flows for the fiscal year then ended
(collectively, the "Parent Cable Special Purpose 12/31/95 Financial
------------------------------------- ---------
Statements"). The Parent Cable Special Purpose 12/31/95 Financial Statements
- ----------
were prepared on the basis of presentation described in Note 1 to the Parent
Cable Special Purpose 12/31/95 Financial Statements and fairly present in all
material respects the financial position and results of operations of Parent
Cable (as defined in Note 1) as of and for the period then ended.
(c) Parent has heretofore delivered to each Bank copies of the
unaudited combined balance sheet of Parent Cable for the quarter ended March
31, 1996 and the related unaudited combined statements of operations and cash
flows for the fiscal quarter then ended (collectively, the "Parent Cable Carve-
------------------
Out 3/31/96 Financial Statements"), which statements are complete and correct
- --------------------------------
in all material respects, and have been prepared in accordance with GAAP
consistently applied throughout the period involved and fairly present in all
material respects the financial position and results of operations of Parent
Cable as of and for the period then ended, subject to changes resulting from
normal year-end audit adjustments.
(d) Parent has heretofore delivered to each Bank copies of the
unaudited Special Purpose Combined Balance Sheet of Parent Cable for the
quarter ended March 31, 1996 and the related unaudited Special Purpose Combined
Statements of Operations and Cash Flows for the fiscal quarter then ended
(collectively, the "Parent Cable Special Purpose 3/31/96 Financial
----------------------------------------------
Statements"), which statements were prepared on the basis of presentation
- ----------
described in Note 1 therein and fairly present in all material respects the
financial position and results of operations of Parent Cable (as defined in
Note 1) as of and for the period then ended, subject to changes resulting from
normal year-end audit adjustments.
(e) Parent has heretofore delivered to each Bank copies of the
unaudited Viacom Cable Systems Summary of Operations for the 3 month period
ending May 31, 1996 (the "Parent Cable 5/31/96 Summary of Operations"), which
------------------------------------------
Summary of Operations fairly presents in all material respects, subject to
quarter and year-end adjustments consistent with Parent's cable accounting
policies, the aggregate revenues and operating expenses (excluding cable
headquarters expenses) of the Cable Systems which would be used in compiling
(in a manner similar to the Parent Cable Carve-Out 3/31/96 Financial
Statements) an unaudited combined balance sheet of Parent Cable and the related
unaudited combined statements of operations and cash flows for the period then
ended if such statements were to be prepared for such period.
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<PAGE>
(f) Parent has heretofore delivered to each Bank copies of the
unaudited pro-forma condensed combined balance sheet of Parent Cable for the
year ended December 31, 1995 and the related unaudited pro-forma condensed
combined statement of operations for the year then ended (collectively, the
"Pro-Forma Financial Statements"). The Pro-Forma Financial Statements give
------------------------------
effect to the Viacom Pro-Forma Events (as described therein), as if such events
occurred at the beginning of the earliest period presented for results of
operations data, and are based on good faith estimates and assumptions believed
by Parent to be reasonable at the time made.
9.16. FCC and Copyright Matters.
-------------------------
Each Borrower and each Restricted Subsidiary (a) has duly and timely
filed all cable television registration statements and other filings that are
required to be filed by the Borrowers and each Restricted Subsidiary under the
Communications Act, the failure to file of which could reasonably be expected
to have a Material Adverse Effect, and (b) is complying in all material
respects with the Communications Act, including, without limitation, the rules,
regulations and published policies of the FCC relating to the transmission of
television, cable and microwave signals, a violation of which could reasonably
be expected to have a Material Adverse Effect. Neither Borrower nor any
Restricted Subsidiary has any knowledge that either Borrower or any Restricted
Subsidiary has not recorded or deposited with and paid to the United States
Copyright Office, the Register of Copyrights and the Copyright Royalty Tribunal
all material notices, statements of account, royalty fees and other documents
and instruments required under the Copyright Act with respect to its business
operations (after giving effect to the consummation of the Transaction), and,
to the knowledge of each Borrower, neither Borrower nor any Restricted
Subsidiary is liable in any material respect to any Person for copyright
infringement under the Copyright Act as a result of its business operations
(after giving effect to the consummation of the Transaction). Each Borrower
and each Restricted Subsidiary has filed or caused to be filed with the FCC all
reports, applications, documents, instruments and information required to be
filed pursuant to all FCC rules, regulations and requests the failure to file
of which could reasonably be expected to have a Material Adverse Effect.
9.17. Capital Stock of the Borrowers.
------------------------------
Except as otherwise permitted by the terms of this Agreement, the
ownership of the issued and outstanding capital stock of the Borrowers is as
set forth on Schedule 9.17 at the relevant times set forth therein. The
outstanding shares of capital stock of each Borrower has been duly authorized
and validly issued and are fully paid and non-assessable. Except as disclosed
on Schedule 9.17, and except as otherwise permitted by the terms of this
Agreement, there are no outstanding options, rights or warrants for the
acquisition by any Person, directly or indirectly, of shares of the capital
stock (other than Money Market Preferred Stock) of the Borrowers or of
securities or obligations convertible into such capital stock and there are no
sale agreements, proxies, voting trusts, powers of attorney or other agreements
binding upon either Borrower and any Person, directly or indirectly, with
respect to beneficial or record ownership, or voting rights with respect to,
shares of capital stock of either Borrower.
9.18. Use of Proceeds.
---------------
On the First Funding Date, funds equal to the entire principal amount
of the Loans made on the First Funding Date shall be directly deposited into
the Cash Collateral Account and such funds, subject to and in accordance with
the terms and conditions of this Agreement, shall be released to Parent on the
Transaction Effective Date to enable Parent to contribute such funds to New
VII. Thereafter, the borrowings
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<PAGE>
hereunder shall be applied by the Borrowers for working capital, capital
expenditure and general corporate purposes.
9.19. Business of Borrowers.
---------------------
The Borrowers and the Restricted Subsidiaries (after giving effect to
the consummation of the Transaction) are engaged primarily in the cable
television business, including pay cable service, which involves the
distribution primarily by cable of audio and video signals in defined
geographical areas, and in the business of acquiring, owning, expanding,
operating and maintaining Cable Systems, and in directly related media
activities, including, without limitation, data transmission services,
telephony and the production and distribution of programming.
9.20. Ranking of Loans; Joint and Several Liability.
---------------------------------------------
(a) This Agreement and the other Loan Documents to which each
Borrower is a party, when executed, and the Loans, when borrowed, are and will
be the direct and general obligations of the Borrowers. Each Borrower's
obligations hereunder and under the other Loan Documents rank and will rank at
least pari passu in priority of payment to all other Indebtedness for Borrowed
Money of such Borrower. For purposes of this Section 9.20(a), the phrase
"priority of payment" refers to the order of payment or seniority of debt and
not to the presence or absence of security.
(b) On and after the TCI Cosign Date, each of the Borrowers are and
shall be jointly and severally liable for all obligations hereunder and under
the Loan Documents.
9.21. No Misrepresentation.
--------------------
(a) On the First Funding Date, no representation or warranty
contained in this Agreement and no certificate, document, written statement or
written report furnished or to be furnished by or on behalf of the Borrowers in
connection with this Agreement or the transactions contemplated hereby, taken
as a whole, contains any untrue statement of a material fact, or omits to state
a material fact required to be stated in order to make such representation,
warranty, certificate, document, statement or report not misleading in the
light of the circumstances under which they are made.
(b) No representation or warranty contained in this Agreement and no
certificate, document, written statement or written report furnished or to be
furnished by or on behalf of the Borrowers in connection with this Agreement or
the transactions contemplated hereby (to the extent modified by the Form 10-K
of TCI for the year ended December 31, 1995, the Form 10-Q of TCI for the
quarter ended March 31, 1996 and the Financial Statements), taken as a whole,
contains any untrue statement of a material fact, or omits to state a material
fact required to be stated in order to make such representation, warranty,
certificate, document, statement or report not misleading in the light of the
circumstances under which they are made.
(c) As of the First Funding Date, there is no fact peculiar to either
Borrower or any Restricted Subsidiary which could reasonably be expected to
have a Material Adverse Effect that has not been set forth in this Agreement or
in the other documents, certificates and written statements and reports
furnished to the Administrative Agent by or on behalf of the Borrowers.
(d) Notwithstanding anything to the contrary contained in this
Section 9.21, the representations and warranties contained in this Section 9.21
shall not
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<PAGE>
be deemed to apply to any financial projections provided by either Borrower or
any Restricted Subsidiary.
9.22. Environmental Law.
-----------------
The Borrowers and the Restricted Subsidiaries are in compliance with
all Environmental Laws applicable to the operation of their business in all
jurisdictions in which they are presently doing business, such that they will
not incur or be subject to any liability or penalty thereunder which could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Borrowers and the Restricted Subsidiaries do not manage
any hazardous wastes, hazardous substances, hazardous materials, toxic
substances or toxic pollutants in violation of any Environmental Law, and there
are no known conditions or circumstances associated with the currently or
previously owned or leased properties or operations of either Borrower or the
Restricted Subsidiaries or tenants which may give rise to any liabilities and
costs under any Environmental Law which could reasonably be expected to
materially and adversely affect the business, operations or condition
(financial or otherwise) or Property of the Borrowers and the Restricted
Subsidiaries, on a Consolidated basis.
ARTICLE 10. AFFIRMATIVE COVENANTS.
---------------------
Subject to the last paragraph of this Article 10, each Borrower
covenants and agrees that until the termination of the Aggregate Commitments
and the payment and performance in full of the Obligations of the Borrowers,
each Borrower will:
10.1. Legal Existence.
---------------
Preserve and keep in force and effect and, except as permitted by
Section 11.3, cause each Restricted Subsidiary to preserve and keep in force
and effect, its corporate existence in good standing in the jurisdiction of its
incorporation or organization and in each other jurisdiction in which the
failure so to do could reasonably be expected to have a Material Adverse
Effect.
10.2. Taxes.
-----
Pay and discharge when due, and cause each Restricted Subsidiary so
to do, all taxes, assessments and governmental charges, license fees and levies
upon or with respect to such Borrower and each Restricted Subsidiary, and upon
the income, profits and Property of such Borrower and each Restricted
Subsidiary, unless and to the extent only that such taxes, assessments,
charges, license fees and levies shall be contested in good faith and by
appropriate proceedings diligently conducted by such Borrower or such
Restricted Subsidiary, and provided that such reserve or other appropriate
provision as shall be required by the Accountants in accordance with GAAP shall
have been made therefor.
10.3. Insurance.
---------
Maintain, and cause each Restricted Subsidiary to maintain, insurance
on such of its Property, against such risks, and in such forms and amounts and
against such hazards as is customarily maintained by companies of similar size
engaged in similar businesses and owning and operating similar properties.
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<PAGE>
10.4. Payment of Indebtedness and Performance of Obligations.
------------------------------------------------------
Pay and discharge promptly when due, and cause each Restricted
Subsidiary so to do, all lawful Indebtedness, obligations and claims for labor,
materials and supplies or otherwise which, if unpaid, could reasonably be
expected to (a) have a Material Adverse Effect or (b) become a material Lien on
its Property, except those Liens permitted under Section 11.2, provided that
each Borrower and any such Restricted Subsidiary shall not be required to pay
and discharge or cause to be paid and discharged any such Indebtedness,
obligation or claim so long as the validity thereof shall be contested in good
faith and by appropriate proceedings diligently conducted by such Borrower or
such Restricted Subsidiary, and further provided that such reserve or other
appropriate provision as shall be required by the Accountants in accordance
with GAAP shall have been made therefor.
10.5. Maintenance of Property.
-----------------------
Except for ordinary wear and tear, at all times, maintain, protect
and keep in good repair, working order and condition, all material Property
necessary for the operation of its business, and cause each Restricted
Subsidiary so to do.
10.6. Observance of Legal Requirements.
--------------------------------
Observe and comply in all material respects, and cause each
Restricted Subsidiary so to do, with all laws (including, without limitation,
ERISA, Environmental Laws and Regulations G, U and X), ordinances, orders,
judgments, rules, regulations, certifications, franchises, permits, licenses,
directions and requirements of all Governmental Bodies, which now or at any
time hereafter may be applicable to it or to such Restricted Subsidiary, a
violation of which could reasonably be expected to have a Material Adverse
Effect, and will not take any action, or permit any agent acting on its behalf
to take any action, that might cause this Agreement or the Notes to violate
Regulation G, Regulation U or Regulation X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate the Exchange Act.
10.7. Financial Statements and Other Information.
------------------------------------------
Maintain, and cause each Restricted Subsidiary to maintain, a
standard system of accounting in accordance with GAAP, and furnish to the
Administrative Agent and each Bank:
(a) As soon as available, and in any event within 120 days after the
close of each fiscal year, commencing with the fiscal year ending December 31,
1996, a copy of (i) the Consolidated balance sheet of the Borrowers and the
Restricted Subsidiaries as of the end of such fiscal year; (ii) the
Consolidated statements of operations, stockholders' equity and cash flows of
the Borrowers and the Restricted Subsidiaries as of and through the end of such
fiscal year setting forth in each case in comparative form the corresponding
figures of the previous fiscal year, all in reasonable detail, and in each case
prepared in accordance with GAAP throughout the periods involved and certified
by the Accountants, which certification shall (x) be accompanied by the opinion
of the Accountants without any reservation or exception as to the scope of
their audit, (y) state that the examination by such Accountants in connection
with such financial statements has been made in accordance with generally
accepted auditing standards and (z) include the opinion of such Accountants
that such financial statements have been prepared in accordance with GAAP,
except as otherwise specified in such opinion; (iii) a certificate of a
Financial Officer of the Borrowers, certifying as to Consolidated figures of
the Borrowers and the Restricted Subsidiaries for Subscriber Information, and
such other information as shall be reasonably requested by the
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<PAGE>
Administrative Agent or the Majority Banks, as of and through the end of such
fiscal year, all in reasonable detail and prepared in accordance with customary
industry standards; and (iv) a schedule of all acquisitions, sales and
exchanges of Stock or Property of the Borrowers or any of the Restricted
Subsidiaries which occurred during such fiscal year, and a listing of all
Restricted Subsidiaries designated as Unrestricted Subsidiaries, and vice
versa, during such fiscal year;
(b) Simultaneously with the delivery of the certified statements
required by Section 10.7(a), copies of a certificate of such Accountants (i)
expressing their opinion that the computations by the Borrowers (which
computations shall accompany such certificate and shall be in reasonable
detail) show compliance with Sections 10.9, 10.10, 11.1, 11.2, 11.4, 11.6 and
11.13 and are in accordance with such Sections and (ii) stating that, in making
the examination necessary for their audit of the financial statements of the
Borrowers and the Restricted Subsidiaries for such fiscal year, nothing came to
their attention of a financial or accounting nature that caused them to believe
that the Borrowers were not in compliance with the terms, covenants, provisions
or conditions of this Agreement, or that there shall have occurred any
condition or event which would constitute a Default or, if so, specifying in
such certificate all such instances of noncompliance and the nature and status
thereof;
(c) As soon as available, and in any event within 75 days after the
close of each of the first three quarters of each fiscal year of the Borrowers,
a copy of (i) the Consolidated balance sheet of the Borrowers and the
Restricted Subsidiaries as of the end of such quarter, (ii) the Consolidated
statements of operations, stockholders' equity and cash flows of the Borrowers
and the Restricted Subsidiaries for the period from the beginning of the then
current fiscal year of the Borrowers to the end of such quarter, all in
reasonable detail, prepared in accordance with GAAP, subject to year end
adjustments throughout the periods involved and certified by a Financial
Officer of the Borrowers and accompanied by the same computations, certified by
such officer, as are required under Section 10.7(b), and (iii) a certificate of
a Financial Officer of the Borrowers certifying as to Consolidated figures of
the Borrowers and the Restricted Subsidiaries for Subscriber Information, and
such other information as shall be reasonably requested by the Administrative
Agent or the Majority Banks, as of and through the end of such period, all in
reasonable detail and prepared in accordance with customary industry standards;
provided that prior to the Transaction Effective Date, and in lieu of the
requirements set forth above in this subsection (c), furnish to the
Administrative Agent and each Bank a copy of the reports, financial statements
and other information required to be delivered by Parent to TCIC pursuant to
the last two sentences of Section 7.4 of the Subscription Agreement at the same
time or times required therein;
(d) Simultaneously with the delivery of the certified statements
required by Sections 10.7(a) and (c), a certificate of a Financial Officer of
the Borrowers stating that the signer has reviewed the terms of this Agreement
and that in the course of the performance of his duties, he would normally have
knowledge of any condition or event which would constitute a Default and
certifying that there exists no violation of any of the terms or provisions of
this Agreement and that no condition or event has occurred which would
constitute a Default or, if so, specifying in such certificate all such
violations, conditions and events and the nature and status thereof;
(e) Within 75 days after the end of each of the first three fiscal
quarters (and within 120 days after the end of the last fiscal quarter) of each
fiscal year of the Borrowers, a Leverage Ratio Certificate setting forth the
Leverage Ratio as at the end of such fiscal quarter, certified by a Financial
Officer of the Borrowers;
(f) Prompt written notice upon either Borrower obtaining knowledge
that (i) any Indebtedness for Borrowed Money of either Borrower or any
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Restricted Subsidiary having an aggregate principal amount of $10,000,000 or
more has been declared or shall have become due and payable prior to its stated
maturity, has been called and not paid when due, or is required to be purchased
or otherwise acquired by either Borrower or any Restricted Subsidiary as a
result of any default or failure by such Borrower or any Restricted Subsidiary
to perform or observe any agreement, term, or condition contained in any
document evidencing or securing any such Indebtedness for Borrowed Money, or in
any agreement under which any such Indebtedness for Borrowed Money was issued
or created, or (ii) the holder of any note (other than a Note) or other
evidence of Indebtedness for Borrowed Money, certificate or security evidencing
any such Indebtedness for Borrowed Money of either Borrower or any Restricted
Subsidiary, or any obligee with respect to any other Indebtedness for Borrowed
Money of either Borrower or any Restricted Subsidiary, having, in each case, an
aggregate principal amount of $10,000,000 or more, has the right to declare
such Indebtedness for Borrowed Money due and payable prior to its stated
maturity or has the right to require such Borrower or any Restricted Subsidiary
to purchase or otherwise acquire any such Indebtedness for Borrowed Money as a
result of any default or failure by such Borrower or any Restricted Subsidiary
to perform or observe any agreement, term, or condition contained in any
document evidencing or securing any such Indebtedness for Borrowed Money, or in
any agreement under which any such Indebtedness for Borrowed Money was issued
or created;
(g) Prompt written notice of: (i) any citation, summons, subpoena,
order to show cause or other order naming either Borrower or any Restricted
Subsidiary a party to any proceeding before any Governmental Body which could
reasonably be expected to have a Material Adverse Effect, and include with such
notice a copy of such citation, summons, subpoena, order to show cause or other
order, (ii) any lapse or other termination of any material license, permit,
franchise or other authorization issued to either Borrower or any Restricted
Subsidiary by any Governmental Body, (iii) any refusal by any Governmental Body
to renew or extend any such license, permit, franchise, or other authorization
and (iv) any dispute between either Borrower or any Restricted Subsidiary and
any Governmental Body; which lapse, termination, refusal or dispute referred to
in clauses (ii), (iii) or (iv) above, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(h) Promptly upon becoming available, copies of all regular, periodic
or special reports, schedules and other material which either Borrower or any
Restricted Subsidiary may now or hereafter be required to file with or deliver
to any securities exchange or the Commission, or any other Governmental Body
succeeding to the functions thereof, and copies of all material news releases
sent to financial analysts or stockholders unless such documents contain only
information which is otherwise furnished to the Administrative Agent and each
Bank hereunder;
(i) Copies of any request for a waiver of the funding standards or
any extension of the amortization periods required by Sections 303 and 304 of
ERISA or Section 412 of the Code promptly after any such request is submitted
by either Borrower or any ERISA Affiliate to the Department of Labor or the
IRS, as the case may be;
(j) Prompt written notice in the event that (i) either Borrower or
any ERISA Affiliate shall fail to make any payment when due and payable under
any Plan if such failure constitutes a violation of the minimum funding
standards imposed by Section 412 of the Code or Section 302 of ERISA or (ii)
either Borrower or any ERISA Affiliate shall receive notice from the IRS or the
Department of Labor that such Borrower or such ERISA Affiliate shall have
failed to meet the minimum funding requirements of any Plan, and include
therewith a copy of such notice;
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(k) Promptly after either Borrower knows of the occurrence of a
Reportable Event with respect to a Plan with regard to which notice must be
provided to the PBGC, a copy of such materials required to be filed with the
PBGC with respect to such Reportable Event and in each such case a statement of
a Financial Officer of the Borrowers setting forth details as to such
Reportable Event and the action which such Borrower proposes to take with
respect thereto;
(l) Promptly after either Borrower knows or has reason to know of any
event or condition that would constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment by the PBGC of a trustee to
administer, any Plan, a statement of a Financial Officer of the Borrowers
describing such event or condition;
(m) Promptly after receipt thereof by either Borrower or any ERISA
Affiliate, each notice concerning the imposition of withdrawal liability under
Section 4202 of ERISA;
(n) Promptly after receipt thereof, a copy of any notice either
Borrower or any ERISA Affiliate may receive from the PBGC or the IRS with
respect to any Plan or Multiemployer Plan; provided, however, that this Section
10.7(n) shall apply neither to notices of general application promulgated by
the PBGC or the IRS nor to any notice that does not materially affect the
operation of the Plan or Multiemployer Plan under the Code and ERISA;
(o) Promptly upon becoming aware of the occurrence of any Prohibited
Transaction in connection with any Plan which could reasonably be expected to
result in a material liability, a written notice specifying the nature thereof,
what action is being taken or proposed to be taken with respect thereto and,
when known, any action taken by the IRS with respect thereto;
(p) Immediately upon becoming aware of the institution of any steps
by either Borrower or any other Person to terminate any Plan, or the failure to
make a required contribution to any Plan if such failure is sufficient to give
rise to a Lien under Section 302(f) of ERISA, or the taking of any action with
respect to a Plan which could result in the requirement that either Borrower or
any Restricted Subsidiary furnish a bond or other security to the PBGC or such
Plan, or the occurrence of any event with respect to any Plan which could
reasonably be expected to result in the incurrence by either Borrower or any
Restricted Subsidiary of any material liability, fine or penalty, or any
material increase in the contingent liability of either Borrower or any
Restricted Subsidiary with respect to any post-retirement "welfare plan" (as
such term is defined in Section 3(1) of ERISA) benefit, notice thereof and
copies of all documentation relating thereto;
(q) Promptly after either Borrower knows or has reason to know of any
condition existing with respect to a Plan which presents a material risk of
termination of the Plan, imposition of an excise tax requirement to provide a
material amount of security to the Plan, or incurrence of other material
liability by either Borrower or any ERISA Affiliate, a statement of a Financial
Officer of the Borrowers describing such event or condition;
(r) At least 10 days prior to the filing with the IRS or the PBGC by
any plan administrator of a Plan of a notice of intent to terminate such Plan
if such termination could reasonably be expected to result in a material
liability, a copy of such notice;
(s) Prompt written notice of the occurrence of a Default and a
description of the steps being taken or proposed to be taken in respect
thereof;
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(t) Prompt written notice of the occurrence of a Cash Manager
Significant Default and a description of the steps being taken or proposed to
be taken in respect thereof; and
(u) Promptly upon request therefor, such other information and
reports relating to the past, present or future financial condition,
operations, plans and projections of either Borrower or any Restricted
Subsidiary as the Administrative Agent or any Bank at any time or from time to
time may reasonably request.
10.8. Inspection; Confidentiality.
---------------------------
Keep and cause each Restricted Subsidiary to keep, adequate books and
records of account and of its Property; and permit, and cause each Restricted
Subsidiary to permit, any Person designated by the Administrative Agent or any
Bank to visit the offices of either Borrower or any Restricted Subsidiary, to
examine the books and records thereof and Accountants' reports relating thereto
and to make copies or extracts therefrom, and to discuss the affairs, finances
and accounts of either Borrower or any Restricted Subsidiary with the principal
officers and employees thereof, at all reasonable times, upon reasonable prior
notice, and, at all reasonable times, to examine and inspect the Property of
either Borrower or any Restricted Subsidiary and to meet and discuss the
affairs of either Borrower or any Restricted Subsidiary with the Accountants.
The Administrative Agent and each Bank agrees to use reasonable efforts to keep
confidential all information of a confidential nature received by it from
either Borrower or any Subsidiary pursuant to the Loan Documents; provided,
however, that such information may be disclosed: (i) to directors, officers,
employees, agents, representatives or outside counsel of the Administrative
Agent or any Bank or any affiliate of any Bank, (ii) to any auditor, government
official or examiner, (iii) pursuant to any subpoena or other court order or
otherwise as may be required by applicable law, or (iv) to any assignee of or
participant in, or prospective assignee of or participant in, any Bank's Loans
or its Commitments, or any part thereof, who, in each case, agrees in writing
to be bound by the terms of this Section; and provided further, that no
confidentiality obligation shall attach to any information which (a) is or
becomes publicly known, through no wrongful act on the part of any Person who
shall have received such information, (b) is rightfully received by such Person
from a third party, (c) is independently developed by such Person or (d) is
explicitly approved for release by either Borrower or any Subsidiary.
10.9. Leverage Ratio.
---------------
Maintain at all times during each period specified below a Leverage
Ratio of not more than:
<TABLE>
<CAPTION>
Leverage Ratio Period
-------------- ------
<S> <C>
6.9:1.0 From the Transaction Effective Date through and including
December 31, 1996
6.75:1.0 From January 1, 1997 through and including June 30, 1997
6.25:1.0 From July 1, 1997 through and including December 31, 1998
5.75:1.0 From January 1, 1999 through and including March 31, 2000
5.25:1.0 From April 1, 2000 through and including June 30, 2000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Leverage Ratio Period
-------------- ------
<S> <C>
5.0:1.0 From July 1, 2000 through and including March 31, 2001
4.5:1.0 From and at all times after April 1, 2001
</TABLE>
10.10. Annualized Cash Flow to Pro-Forma Debt Service.
----------------------------------------------
Maintain at all times on and after the Transaction Effective Date a
ratio of Annualized Cash Flow to Pro-Forma Debt Service greater than or equal
to 1.10:1.0.
10.11. Franchises, Etc.
---------------
Maintain, and cause each Restricted Subsidiary to maintain, in full
force and effect, all franchises, copyrights, patents and licenses, including
all licenses, permits, applications, reports, authorizations and other rights
as are necessary or appropriate for the conduct of its business except where
discontinuance or termination of any of the foregoing could not reasonably be
expected to have a Material Adverse Effect.
10.12. Restricted/Unrestricted Designation of Subsidiaries.
---------------------------------------------------
Be permitted to designate a Restricted Subsidiary of TCI Pacific as
an Unrestricted Subsidiary of TCI Pacific and an Unrestricted Subsidiary of TCI
Pacific as a Restricted Subsidiary of TCI Pacific by the delivery to the
Administrative Agent and the Banks of a written notice, not later than 20
Business Days after such designation, certifying that all conditions set forth
in this Section 10.12 are satisfied as of the effective date of such
designation, which certification shall state the effective date of such
designation and shall be signed by a Financial Officer of TCI Pacific, provided
that: (a) no Default shall exist immediately before or after the effective date
of such designation; (b) after giving effect to such designation, there shall
not be any material and adverse effect on TCI Pacific and its Restricted
Subsidiaries on a consolidated basis with respect to the prospects for the
future generation of Cash Flow, Subscriber Information, the general mix of
assets or the condition, quality and developmental level of technical
equipment, and such designation shall not render either Borrower and its
Restricted Subsidiaries on a consolidated basis insolvent or generally unable
to pay their respective debts as they become due; (c) in the case of the
designation of any Restricted Subsidiary as an Unrestricted Subsidiary, the
following additional conditions are satisfied as of the effective date of such
proposed designation: (i) the sum, without duplication, of (x) the Net
Unrestricted Designated Subsidiaries Three Month Cash Flow for the one-year
period (or shorter period commencing on the First Funding Date) ending on the
date of such proposed designation and (y) the Three Month Cash Flow
attributable to all assets sold, leased, transferred, assigned or otherwise
disposed of pursuant to Section 11.6(a)(vi)(4) during the one-year period (or
shorter period commencing on the First Funding Date) ending on the date of such
proposed designation shall not exceed 30% of the Three Month Cash Flow of TCI
Pacific and its Restricted Subsidiaries, and (ii) the sum, without duplication,
of (x) the Net Unrestricted Designated Subsidiaries Three Month Cash Flow for
the five-year period (or shorter period commencing on the First Funding Date)
ending on the date of such proposed designation and (y) the Three Month Cash
Flow attributable to all assets sold, leased, transferred, assigned or
otherwise disposed of pursuant to Section 11.6(a)(vi)(4) during the five-year
period (or shorter period commencing on the First Funding Date) ending on the
date of such proposed designation shall not exceed 50% of the Three Month Cash
Flow of TCI Pacific and its Restricted Subsidiaries; and (d) in the case of the
designation of an Unrestricted Subsidiary as a Restricted Subsidiary, such
notice shall also serve as the certification of the Borrowers that, with
respect to such Restricted Subsidiary, the representations and warranties made
in the following provisions of Article 9 hereto are true and correct on and as
of the effective date of such designation: Sections 9.1, 9.2, 9.5, 9.6
(provided that, together with such notice, the Borrower may submit a revised
Schedule 9.6 to make
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revisions to Schedule 9.6 with respect to the Subsidiary to be so designated as
may be necessary for the representations in Section 9.6 to be true and correct
with respect to such Subsidiary), 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, 9.14,
9.16, 9.19 and 9.22.
10.13. Ownership of Restricted Subsidiaries.
------------------------------------
(a) Prior to the TCI Cosign Date, Parent shall own, directly or
indirectly, through one or more Restricted Subsidiaries, one hundred percent
(100%) of the overall economic equity of each Restricted Subsidiary.
(b) On and after the TCI Cosign Date, TCI Pacific shall own, directly
or indirectly, through one or more Restricted Subsidiaries, at least eighty
percent (80%) (or, if permitted in the definition of "Restricted Subsidiary,"
seventy-five percent (75%)) of the voting control and at least eighty percent
(80%) (or, if permitted in the definition of "Restricted Subsidiary", seventy-
five percent (75%)) of the overall economic equity of each Restricted
Subsidiary.
(c) At all times after the TCI Cosign Date, TCI Pacific shall be the
sole first-tier Subsidiary of Parent, (i) Parent shall own directly at least
eighty percent (80%) of the voting control and at least eighty percent (80%) of
the overall economic equity of TCI Pacific, and (ii) the remaining ownership
interest in TCI Pacific shall be owned by TCIC or a wholly-owned Subsidiary of
TCIC.
10.14. Environmental Compliance.
------------------------
Use and operate all of its facilities and Property in compliance with
all Environmental Laws, keep all necessary permits, approvals, certificates,
licenses and other authorizations relating to environmental matters in effect
and remain in compliance therewith, and handle all hazardous materials in
material compliance with all applicable Environmental Laws, except where
noncompliance with any of the foregoing could not reasonably be expected to
have a Material Adverse Effect.
10.15. Interest Rate Protection Arrangements.
-------------------------------------
In the event that the one month LIBOR Rate (as adjusted for reserves,
if any) shall be equal to or greater than 6.50% for a period of five
consecutive Business Days commencing at any time on or after the Transaction
Effective Date, the Borrowers shall, within 30 days following such fifth
consecutive Business Day, enter into Interest Rate Protection Arrangements in
all respects reasonably satisfactory to the Administrative Agent for a minimum
period of three years (or, if shorter, until the Term Loan Maturity Date) in a
notional principal amount equal to at least 50% of the aggregate outstanding
principal amount of the Revolving Loans and Term Loans. The obligations of the
Borrowers under any such Interest Rate Protection Arrangement provided by a
Bank (or any of its affiliates) shall be secured equally and ratably by the
collateral securing the Obligations under this Agreement.
10.16. TCI Cosign Date
---------------
On the TCI Cosign Date, deliver or cause to be delivered to the
Administrative Agent the following items, each in form and substance
satisfactory to the Administrative Agent:
(a) signature pages to this Agreement duly executed by the duly
authorized officer or officers of TCI Pacific;
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(b) replacement Notes, substantially in the form of Exhibits B-2 and
B-4, in each case dated as of the First Funding Date, duly executed by the duly
authorized officer or officers of each Borrower;
(c) stock certificates representing 100% of the issued and
outstanding capital Stock of TCI Pacific, a stock power executed in blank with
respect to each such certificate and such other documents as the Administrative
Agent shall reasonably require in connection therewith;
(d) evidence satisfactory to the Administrative Agent as to the
contribution by the Parent of all of its Subsidiaries and other assets to TCI
Pacific in exchange for the issuance by TCI Pacific of shares of its common
Stock to the Parent (such shares, immediately following such issuance,
representing 100% of the issued and outstanding shares of capital Stock of TCI
Pacific);
(e) receipt by the Administrative Agent of a certificate of a
Financial Officer of the Borrowers stating that all representations and
warranties contained in Article 9 shall be accurate and complete on the TCI
Cosign Date and that no Default shall exist;
(f) a certified copy, dated as of a recent date, of (x) the
certificate of incorporation of TCI Pacific, certified by the Secretary of
State of Delaware and (y) all documents evidencing other necessary governmental
approvals, if any, with respect to this Agreement, the Notes and the Loan
Documents;
(g) a certificate of the secretary or an assistant secretary of each
Borrower certifying (i) that attached thereto are true and complete copies of
the resolutions, in form and substance satisfactory to the Administrative
Agent, adopted by its board of directors, and all other necessary corporate
action evidencing approval of the transactions contemplated by this Agreement,
the Notes and the Loan Documents, (ii) that attached thereto is a true and
complete copy of its bylaws as in effect on the date of such certificate, and
(iii) as to the incumbency and specimen signature of each officer of such
Borrower executing this Agreement, the Notes or Loan Documents; and
(h) an opinion, dated the TCI Cosign Date, of Sherman & Howard
L.L.P., counsel to the Borrowers, in substantially the form attached hereto as
Exhibit H-3 and the Borrowers hereby instruct such counsel to prepare and
deliver its opinion to the Administrative Agent.
Notwithstanding the foregoing, during the period between the Execution
Closing Date and the closing of the Transaction on the Transaction Effective
Date, the provisions of this Article 10, other than Section 10.7(a) and (c),
shall not apply and Parent and its Subsidiaries shall (a) take any and all
action required by the Transaction Documents to consummate the Transaction, (b)
conduct the Business (as defined in the Implementation Agreement) only in the
ordinary course of business consistent with past practices (except as
contemplated by the Transaction Documents) and (c) comply in all material
respects with all of its covenants and obligations under the Transaction
Documents.
ARTICLE 11. NEGATIVE COVENANTS.
------------------
Subject to the last paragraph of this Article 11, each Borrower covenants
and agrees that until the termination of the Aggregate Commitments and the
payment and performance in full of the Obligations of the Borrowers, each
Borrower will not:
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11.1. Borrowing.
---------
Create, incur, assume or suffer to exist any Funded Debt, with or
without recourse, or permit any Restricted Subsidiary so to do, except as
follows:
(a) Funded Debt due hereunder, under the Notes, under Facility B and
under the Facility B Notes;
(b) Funded Debt of Restricted Subsidiaries of TCI Pacific, provided
that immediately prior to and after giving effect to the creation, incurrence
or assumption of such Funded Debt (i) the aggregate outstanding principal
amount of all Funded Debt of Restricted Subsidiaries of TCI Pacific, on a
combined basis plus (without duplication) the aggregate amount of all Funded
Debt secured by Liens permitted under subsections (j) and (k) of Section 11.2
shall not exceed 15% of Maximum Permitted Funded Debt and (ii) no Default
exists and would then be continuing;
(c) Funded Debt of either Borrower, provided that immediately prior
to and after giving effect to the creation, incurrence or assumption of such
Funded Debt no Default exists and would then be continuing; and
(d) Funded Debt of Parent or any Restricted Subsidiary, satisfactory
to the Arranging Agents, and existing on the Execution Closing Date as set
forth in Schedule 11.1 hereto, for the original stated term or maturity
thereof, respectively, without renewal, refunding or extension of all or any
part of any such Funded Debt unless (i) such renewal, refunding or extension is
provided for in the agreement(s) that govern such Funded Debt or (ii) any such
renewal, refunding or extension results in an effective interest cost to Parent
or such Restricted Subsidiary, as applicable (calculated in accordance with
GAAP and without regard to any conversion right), lower than the interest rate
applicable to such Funded Debt immediately prior to such transaction.
11.2. Liens.
-----
Create, incur, assume or suffer to exist any Lien against or on any
of the Property now owned or hereafter acquired by such Borrower or any
Restricted Subsidiary, or permit any Restricted Subsidiary so to do, except as
follows:
(a) Liens securing the Obligations of the Borrowers hereunder and
under Facility B;
(b) Liens in connection with workers' compensation, unemployment
insurance or other social security obligations (which phrase shall not be
construed to refer to ERISA);
(c) Deposits, pledges or Liens to secure the performance of bids,
tenders, letters of credit, contracts (other than contracts for the payment of
Indebtedness for Borrowed Money), leases, statutory obligations, surety,
customs, appeal, performance and payment bonds and other obligations of like
nature arising in the ordinary course of business;
(d) Mechanics', workmen's, carriers', warehousemen's, materialmen's,
landlords' or other like Liens arising in the ordinary course of business with
respect to obligations which are not due or which are being contested in good
faith and by appropriate proceedings diligently conducted;
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(e) Liens in existence on the Property of any Person at the time such
Person becomes a Restricted Subsidiary by virtue of an acquisition or
investment made by such Borrower or such Restricted Subsidiary permitted under
this Agreement;
(f) Liens for taxes, assessments, fees or governmental charges or
levies not delinquent or being contested in good faith and by appropriate
proceedings diligently conducted, and in respect of which adequate reserves
shall have been established in accordance with GAAP on the books of such
Borrower or such Restricted Subsidiary;
(g) Liens of attachments, judgments or awards against such Borrower
or any Restricted Subsidiary with respect to which an appeal or proceeding for
review shall be pending or a stay of execution shall have been obtained, or
which are otherwise being contested in good faith and by appropriate
proceedings diligently conducted, and in respect of which adequate reserves
shall have been established in accordance with GAAP on the books of such
Borrower or such Restricted Subsidiary;
(h) Statutory Liens in favor of lessors arising in connection with
Property leased to such Borrower or any Restricted Subsidiary;
(i) Easements, rights of way, restrictions, leases of Property to
others, easements for installations of public utilities, title imperfections
and restrictions, zoning ordinances and other similar encumbrances affecting
Property which in the aggregate do not materially adversely affect the value of
such Property or materially impair its use for the operation of the business of
such Borrower or such Restricted Subsidiary;
(j) Purchase money Liens (including without limitation, purchase
money Liens arising as a result of Capitalized Lease Obligations) on Property
acquired after the Execution Closing Date by such Borrower or any Restricted
Subsidiary created contemporaneously with such acquisition to secure or provide
for the payment or financing of all or any part of the purchase price thereof,
provided that the Lien secured thereby shall attach only to the Property so
acquired;
(k) Other Liens securing Funded Debt of TCI Pacific and its
Restricted Subsidiaries, provided that immediately prior to and after giving
effect to the creation of any such Lien the aggregate amount of Funded Debt
secured by Liens permitted under subsections (j) and (k) of this Section 11.2
plus (without duplication) the aggregate amount of all Funded Debt of
Restricted Subsidiaries of TCI Pacific does not exceed 15% of Maximum Permitted
Funded Debt;
(l) Liens consisting of a pledge by TCI Pacific of its interest in
any Unrestricted Subsidiary Equity owned, directly or indirectly, by TCI
Pacific or a Restricted Subsidiary of TCI Pacific, provided that the
Indebtedness or obligation secured by such Lien shall be without recourse to
the Borrowers or any Restricted Subsidiary or any of its or their other
property and assets (other than such Unrestricted Subsidiary Equity), except as
would otherwise be permitted under this Section 11.2; and
(m) Liens in favor of New VII on Untransferred Non-Cable Assets of
Parent.
11.3. Merger and Acquisition.
----------------------
Consolidate or merge into or with any Person or acquire all or
substantially all of the Stock or Property of any Person, or permit any
Restricted Subsidiary so to do, except (a) a Restricted Subsidiary may merge
into or be acquired by
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TCI Pacific provided that TCI Pacific is the survivor thereof, (b) a Restricted
Subsidiary of TCI Pacific may merge into or be acquired by another Restricted
Subsidiary of TCI Pacific, (c) TCI Pacific or any Restricted Subsidiary of TCI
Pacific may acquire all or substantially all of the Stock or Property of any
Person provided that immediately before and after giving effect thereto no
Default shall exist, (d) TCI Pacific may merge with another Person in
connection with an acquisition by TCI Pacific permitted pursuant to (c) above
provided that TCI Pacific is the survivor thereof and immediately before and
after giving effect thereto no Default shall exist, and (e) as contemplated by
Section 10.16(d).
11.4. Restricted Payments; Other Payment Limitations.
----------------------------------------------
(a) Declare or pay any dividends (other than dividends declared and
paid by Parent wholly in common Stock of Parent) or apply any of its Property
to the voluntary purchase, redemption or other retirement of, or set apart any
sum for the voluntary payment of any dividends on, or make any other
distribution by reduction of capital or otherwise (including any warrants,
rights or options in connection therewith) in respect of, any shares of its
present or future issues of Stock, or pay or obligate itself to pay any Parent
Management Fee, or permit any Restricted Subsidiary to do so (each a
"Restricted Payment"), except:
- -------------------
(i) Parent may pay dividends on the Parent Preferred Stock with equity
contributions received from TCI or TCIC in cash or in TCI Series A Group
Stock, with the proceeds of Intercompany Subordinated Debt received from
TCIC or with other funds of Parent (excluding funds received by Parent or
any of its affiliates from the Transaction Documents);
(ii) Parent may redeem the Parent Preferred Stock with equity
contributions received from TCI or TCIC in cash or in TCI Series A Group
Stock;
(iii) Parent may redeem the Parent Preferred Stock with the proceeds
of Intercompany Subordinated Debt received from TCIC (which affiliate
subordinated debt, at the option of the Arranging Agents, shall be
automatically convertible into common Stock of Parent at any time upon the
occurrence or during the continuation of a Default under Section 12.1 (i)
or (j)) or with other funds of Parent (excluding funds received by Parent
or any of its present or former Affiliates from the Transaction Documents),
provided that immediately before and after giving effect thereto no Default
shall exist;
(iv) TCI Pacific may declare and pay dividends to Parent and TCI
Pacific or any Restricted Subsidiary of TCI Pacific may pay Parent
Management Fees if, immediately before and after giving effect thereto (x)
no Default shall exist and (y) the Leverage Ratio shall be less than
5.0:1.0;
(v) TCI Pacific or any Restricted Subsidiary of TCI Pacific may
declare and pay cash dividends on Money Market Preferred Stock of TCI
Pacific or such Restricted Subsidiary and may purchase or redeem
outstanding shares of Money Market Preferred Stock of TCI Pacific or any
such Restricted Subsidiary, provided that immediately before and after
giving effect thereto no Default shall exist; or
(vi) a Restricted Subsidiary of TCI Pacific may make Restricted
Payments to TCI Pacific or another Restricted Subsidiary of TCI Pacific.
(b) Make, or permit any Restricted Subsidiary to make, any payments of
principal, interest, premium or fees on account of any Intercompany
Subordinated Debt,
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if immediately before or after giving effect thereto, a Default shall exist;
provided, however, that the Borrowers or any Restricted Subsidiary shall be
permitted to make advances to any Affiliate or make such payments in respect of
Intercompany Subordinated Debt in the course of TCI Pacific's normal cash
management practices, so long as no Significant Default or Cash Manager
Significant Default exists immediately before or after giving effect thereto
and no Default has occurred and is continuing with respect to which either
Borrower has received a Cash Management Suspension Notice, which Cash
Management Suspension Notice remains in effect at such time.
11.5. Investments, Loans, Etc.
-----------------------
At any time purchase or otherwise acquire or invest in the Stock of,
or any other equity interest in, any Person (including, without limitation, the
Stock of the Borrowers), or make any loan to, or enter into any arrangement for
the purpose of providing funds or credit to, or, except as permitted in
accordance with Sections 11.1 or 11.13, guarantee or become contingently
obligated in respect of the obligations of or make any other investment,
whether by way of capital contribution or otherwise, in, to or with any Person,
or permit any Restricted Subsidiary so to do (all of which are sometimes
referred to herein as "Investments"), provided that nothing contained in this
-----------
Section 11.5 shall be deemed to prohibit the Borrowers or any Restricted
Subsidiary from:
(a) Making Investments in short-term certificates of deposit in
Dollars of the Banks and of Eligible Institutions;
(b) Making Investments in direct obligations of the United States of
America (and not any agency thereof), in obligations which are fully and
unconditionally guaranteed by the United States of America (and not any agency
thereof) and in commercial paper carrying the highest rating by Standard and
Poor's Ratings Group or Moody's Investors Service, Inc.;
(c) Making Investments constituting loans or advances to any Cash
Management Affiliate made in the course of TCI Pacific's normal cash management
practices, so long as no Significant Default or Cash Manager Significant
Default has occurred and is continuing and no Default has occurred and is
continuing with respect to which either Borrower has received a Cash Management
Suspension Notice, which Cash Management Suspension Notice remains in effect at
such time;
(d) Continuing to own the Investments listed on Schedule 11.5 in
existence on the Execution Closing Date;
(e) Making other Investments by TCI Pacific or any Restricted
Subsidiary of TCI Pacific, provided that (i) any such Investment is made
without recourse (other than pursuant to any Guaranty which constitutes Funded
Debt permitted hereunder) to the Borrowers or any Restricted Subsidiary, (ii)
TCI Pacific or such Restricted Subsidiary, as the case may be, receives
reasonably equivalent value for such Investment, and (iii) no Default exists
immediately before or after giving effect to the transaction;
(f) Making Investments constituting loans or advances by a Restricted
Subsidiary of TCI Pacific to TCI Pacific or another Restricted Subsidiary of
TCI Pacific, by either Borrower to TCI Pacific or a Restricted Subsidiary of
TCI Pacific, or by the Parent to TCI Pacific constituting Intercompany
Subordinated Debt;
(g) Making Investments constituting acquisitions to the extent
permitted under Section 11.3;
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(h) Making Investments constituting Guaranties to the extent
permitted under Section 11.13;
(i) Making Investments with the proceeds of funds in the Cash
Collateral Account hereunder and the Facility B Cash Collateral Account as
permitted by the Security Agreement; and
(j) Making Investments constituting contributions of capital by
Parent in TCI Pacific in exchange for Stock of TCI Pacific provided that such
Stock, together with appropriate stock powers executed by Parent in blank, are
promptly delivered to the Administrative Agent as additional collateral under
the Security Agreement.
11.6. Sales and Exchanges.
-------------------
(a) Sell, lease, transfer, assign or otherwise dispose of any asset
to any Person other than TCI Pacific or a Restricted Subsidiary of TCI Pacific
whether pursuant to a sale, lease, assignment or other disposition of Stock or
assets, or permit any Restricted Subsidiary so to do, except (i) in the
ordinary course of business (which shall not be construed to include the sale,
assignment, transfer or other disposition of any license or franchise), (ii) in
the form of Restricted Payments as permitted under Section 11.4, (iii) the
transfer to New VII of non-cable assets which constitute Untransferred Non-
Cable Assets in accordance with the Transaction Documents, (iv) the transfer of
TCG Partnership to WirelessCo, L.P. or its affiliates, provided that
immediately before and after giving effect thereto no Event of Default shall
exist, (v) the Borrowers may designate any Subsidiary (other than TCI Pacific)
as an Unrestricted Subsidiary in accordance with Section 10.12, and (vi) other
sales, leases, transfers, assignments or other dispositions by TCI Pacific or
any of its Restricted Subsidiaries, provided that the following conditions are
satisfied: (1) TCI Pacific or such Restricted Subsidiary receives consideration
that represents the fair market value of such assets at the time of such sale
or disposition, (2) any such sale, lease, transfer, assignment or other
disposition shall be on a non-recourse basis (except that TCI Pacific or such
Restricted Subsidiary may make commercially reasonable representations and
warranties with respect to such properties or assets that are normal and
customary in the cable television business ("Permitted Sale Representations")
------------------------------
and except to the extent of any Guaranty by TCI Pacific or any Restricted
Subsidiary in connection with such transaction and to the extent that such
Guaranty constitutes permitted Funded Debt hereunder), (3) immediately before
and after giving effect thereto no Event of Default shall exist, and (4) in the
case of a sale, lease, transfer, assignment or other disposition of an asset or
group of assets (other than a sale or other transfer of Unrestricted Subsidiary
Equity and other than a trade or exchange of assets subject to Section
11.6(b)), as of the date of such proposed transaction (x) the sum, without
duplication, of (A) the Net Unrestricted Designated Subsidiaries Three Month
Cash Flow for the one-year period (or shorter period commencing on the First
Funding Date) ending on the date of such proposed transaction, (B) the Three
Month Cash Flow attributable to the assets to be sold, leased, transferred,
assigned or otherwise disposed of and (C) the Three Month Cash Flow
attributable to all assets sold, leased, transferred, assigned or otherwise
disposed of during the one-year period (or shorter period commencing on the
First Funding Date) ending on the date of such proposed transaction shall not
exceed 30% of the Three Month Cash Flow of TCI Pacific and its Restricted
Subsidiaries, and (y) the sum, without duplication, of (A) the Net Unrestricted
Designated Subsidiaries Three Month Cash Flow for the five-year period (or
shorter period commencing on the First Funding Date) ending on the date of such
proposed transaction, (B) the Three Month Cash Flow attributable to the assets
to be sold, leased, transferred, assigned or otherwise disposed of and (C) the
Three Month Cash Flow attributable to all assets sold, leased, transferred,
assigned or disposed of during the five-year period (or shorter period
commencing on the First Funding Date)
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ending on the date of such proposed transaction shall not exceed 50% of the
Three Month Cash Flow of TCI Pacific and its Restricted Subsidiaries, or
(b) Trade or exchange any asset with any Person other than TCI
Pacific or a Restricted Subsidiary of TCI Pacific, or permit any Restricted
Subsidiary to do so, unless in the case of a trade or exchange of an asset or
group of assets the following conditions are satisfied: (i) the assets received
by TCI Pacific or a Restricted Subsidiary of TCI Pacific are free of any Liens
except as permitted under Section 11.2; (ii) TCI Pacific or such Restricted
Subsidiary receives assets which have a fair and comparable value; (iii)
immediately before and after giving effect thereto no Event of Default shall
exist; (iv) such trade or exchange shall not have a Material Adverse Effect,
and (v) TCI Pacific promptly notifies the Administrative Agent (and the
Administrative Agent shall promptly notify the Banks) of such trade or exchange
(such notice to include information comparing the assets being traded or
exchanged and the methodology used to establish fair and comparable value,
except that no such notice shall be required in the case of a trade or exchange
solely of Unrestricted Subsidiary Equity for other Unrestricted Subsidiary
Equity) if the sum of the Three Month Cash Flow attributable to the assets to
be traded or exchanged and the Three Month Cash Flow attributable to all assets
traded or exchanged during the one-year period (or shorter period commencing on
the First Funding Date) ending on the date of the proposed trade or exchange
shall exceed 25%.
(c) For purposes of Section 11.6(b), if not more than 15% of the
total consideration received (or paid) by TCI Pacific or a Restricted
Subsidiary in connection with any exchange or trade of Stock or assets is in
the form of cash or cash equivalents, such exchange or trade shall be treated
as a trade or exchange subject to Section 11.6(b) hereof and such transaction
shall not be considered in calculating the Three Month Cash Flow amounts under
Section 11.6(a)(vi)(4)(x) and (y).
(d) Notwithstanding anything to the contrary contained in this
Section 11.6, Parent and TCI Pacific may (i) exchange certain Nashville,
Tennessee cable assets with InterMedia Partners Southeast for certain cable
assets, including Houston, Texas (approximate fair market value of assets on
each side of exchange: $300 million), (ii) sell the Nashville, Tennessee cable
assets referred to in (i) above for fair market value, provided that at the
time of such sale TCI Pacific shall own the Houston, Texas cable assets
referred to in (i) above, and (iii) exchange certain Dayton, Ohio cable assets
and certain Portland, Maine assets with Time Warner Entertainment Company for
certain Shreveport, Louisiana cable assets (approximate fair market value of
assets on each side of exchange: $110 million), provided that immediately
before and after giving effect thereto no Event of Default shall exist.
11.7. Amendment of Parent Preferred Stock or Intercompany Subordinated
----------------------------------------------------------------
Debt Agreement.
--------------
Amend, supplement or in any manner modify, or permit any Restricted
Subsidiary so to do, (i) the terms of the Intercompany Debt Subordination
Agreement, (ii) the dividend, redemption, voting, priority, exchange or
conversion terms of the Parent Preferred Stock or (iii) any other terms of the
Parent Preferred Stock if such amendment, supplement or modification would be
materially adverse to the interest of the Banks.
11.8. Transactions with Affiliates.
----------------------------
Enter into any transaction with any Affiliate, or permit any
Restricted Subsidiary to do so, other than a loan or advance permitted pursuant
to Section 11.5(c) or (f), if the terms and conditions of such transaction are,
at the time of the making or
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entering into of any thereof, less favorable to such Borrower or such
Restricted Subsidiary in any material respect than the terms and conditions
which would apply in a similar transaction with a Person other than an
Affiliate.
11.9. Limitation on Other Business.
----------------------------
Permit less than 90% of the total Gross Revenues of the Borrowers and
the Restricted Subsidiaries for any calendar quarter to be derived from the
acquisition, ownership, expansion, operation and maintenance of the cable
television business and directly related communications businesses, including,
without limitation, data transmission and telephony. For purposes of this
Section 11.9, directly related communications businesses shall not be deemed to
include the production of programming.
11.10. ERISA.
-----
Be permitted, or permit any ERISA Affiliate or Restricted Subsidiary,
to: (a) terminate or withdraw from any Plan if such termination results in any
material liability to the PBGC; (b) engage in or permit any Person to engage in
any Prohibited Transaction involving any Plan that would subject either
Borrower to any material tax, penalty or other liability; (c) incur or suffer
to exist any material Accumulated Funding Deficiency, whether or not waived,
involving any Plan; (d) allow or suffer to exist any event or condition that
presents a material risk of either Borrower incurring a material liability to
the PBGC; (e) amend any Plan so as to require the posting of security under
Section 401(a)(29) of the Code and fail to post such security thereafter; or
(f) fail to make payments required under Section 412(m) of the Code and Section
302(e) of ERISA which would subject either Borrower to any material tax,
penalty or other liability. For the purpose of this Section 11.10 only, a tax,
penalty or other liability shall be considered material if it is determined in
good faith by the Majority Banks to be in excess of $1,000,000 and such tax,
penalty or liability is not covered in full by insurance.
11.11. Consolidated Tax Returns.
------------------------
Make, or permit any Restricted Subsidiary to make, unreimbursed
payments of income taxes in an amount greater than the amount of such taxes
that would have been payable by the Borrowers on a Consolidated income tax
return filed for the Borrowers and the Restricted Subsidiaries (assuming the
Borrowers had no Unrestricted Subsidiaries), taking into account all
permissible credits, losses and other tax benefits that would have been
available to the Borrowers and the Restricted Subsidiaries, on a Consolidated
basis, for the tax year to which such return relates or for or related to any
prior tax year(s) or be obligated to make unreimbursed contributions on account
of income taxes in amounts in excess of its equitable share (assuming the
Borrowers had no Unrestricted Subsidiaries) of the tax obligations of any
controlled group of corporations with which it has joined in the filing of a
consolidated return.
11.12. Sale or Discount of Receivables.
-------------------------------
Sell with recourse, or discount or otherwise sell for less than the
face value thereof, any of its notes or accounts receivable, or permit any
Restricted Subsidiary to do so; provided that the foregoing is not intended,
nor shall it be construed, to restrict the Borrowers or any Restricted
Subsidiary from entering into arrangements that permit its subscribers to
charge, by personal credit card, subscriber fees or other charges to the extent
permitted pursuant to the Borrowers' or the Restricted Subsidiaries' ordinary
and customary business practices.
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11.13. Guaranties.
----------
Guaranty, or permit any Restricted Subsidiary to Guaranty,
obligations of third parties, Unrestricted Subsidiaries or Affiliates pursuant
to any Guaranty except (a) either Borrower may incur Guaranties for the benefit
of a Restricted Subsidiary in the ordinary course of business, (b) either
Borrower may incur Guaranties for the benefit of a Restricted Subsidiary to
secure the performance of bids, tenders, letters of credit, contracts (other
than contracts for the payment of Indebtedness for Borrowed Money), leases,
statutory obligations, surety, customs, appeal, performance and payment bonds
and other obligations of like nature arising in the ordinary course of
business, and (c) either Borrower or any Restricted Subsidiary may incur other
Guaranties, provided that the aggregate amount of Indebtedness secured by such
other Guaranties does not exceed 15% of Maximum Permitted Funded Debt, and
provided further that (i) the amount of liabilities under any such Guaranty
(other than a Sale Guaranty) can be readily ascertained and such amount shall,
by the express terms of such Guaranty (other than a Sale Guaranty), be subject
to a specified limit and (ii) the maximum amount of liability under any such
Guaranty (such maximum amount, in the case of a Sale Guaranty, to be the
maximum amount of such Borrower's or such Restricted Subsidiary's, as the case
may be, liability under such Sale Guaranty as reasonably determined by TCI
Pacific) shall be deemed Funded Debt for all purposes under this Agreement,
except that in the case of a Guaranty of a contract for the purchase or
acquisition of programming in the ordinary course of business the amount of
such Guaranty to be included in Funded Debt shall be the maximum amount payable
under such Guaranty in the 12-month period immediately succeeding the date of
calculation thereof.
11.14. Limitation on Upstream Dividends by Restricted Subsidiaries.
-----------------------------------------------------------
Permit any Restricted Subsidiary to enter into or agree, or otherwise
become subject, to any agreement, contract or other arrangement with any Person
pursuant to the terms of which (a) such Restricted Subsidiary is or would be
prohibited from declaring or paying any cash dividends on any class of its
stock owned directly or indirectly by the Borrowers or from making any other
distribution on account of any class of any such stock (herein referred to as
"Upstream Dividends") or (b) the declaration or payment of Upstream Dividends
- -------------------
by a Restricted Subsidiary to the Borrowers or another Restricted Subsidiary,
on an annual or cumulative basis, is or would be otherwise limited or
restricted, except for such limitations or restrictions occurring in the
ordinary course of TCI Pacific's standard cash management program and except
for such limitations or restrictions contained in Section 11.4 or limitations
which are no more restrictive than those in existence for such Subsidiary on
the Execution Closing Date.
11.15. Management Fees.
---------------
Pay or obligate itself to pay any management or similar fee to any
Affiliate of either Borrower, or permit any Restricted Subsidiary so to do,
unless immediately before and after giving effect thereto no Default shall
exist and unless the Affiliate entitled to receive such fee shall have become a
party to the Intercompany Debt Subordination Agreement pursuant to the terms
thereof and such Borrower and such Affiliate shall have executed and delivered
to the Administrative Agent such other documents as the Administrative Agent
shall reasonably request in connection therewith, provided that nothing
contained in this Section 11.15 shall prohibit or otherwise restrict any
Restricted Subsidiary from paying or obligating itself to pay management or
similar fees to any Borrower.
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11.16. Amendment of Transaction Documents.
----------------------------------
Neither the Borrowers, TCI nor TCIC shall amend, supplement, modify
or waive in any material respect any term or condition of any Transaction
Document if such amendment, supplement, modification or waiver would materially
and adversely affect the Transaction or the rights or obligations of any party
to any Transaction Document. The Borrowers shall provide prior written notice
to the Administrative Agent of any amendment, modification or waiver of any
term or condition of any Transaction Document.
Notwithstanding the foregoing, during the period between the Execution
Closing Date and the closing of the Transaction on the Transaction Effective
Date, the provisions of this Article 11, other than Sections 11.5(i) and 11.16,
shall not apply and Parent and its Subsidiaries shall (a) take any and all
action required by the Transaction Documents to consummate the Transaction, (b)
conduct the Business (as defined in the Implementation Agreement) only in the
ordinary course of business consistent with past practices (except as
contemplated by the Transaction Documents) and (c) comply in all material
respects with all of its covenants and obligations under the Transaction
Documents.
ARTICLE 12. EVENTS OF DEFAULT.
-----------------
12.1. Events of Default.
-----------------
The following shall each constitute an "Event of Default":
----------------
(a) The failure of the Borrowers to make any scheduled payment or
prepayment (other than a voluntary prepayment pursuant to the terms of Section
5.4) of principal of the Loans on the date due and payable; or
(b) The failure of the Borrowers to make payment of interest on any
of the Loans or the Commitment Fees or any other amount payable hereunder,
other than amounts described in Section 12.1(a), on any date when due and
payable and such failure shall continue unremedied for a period of five days
after the same shall become due; or
(c) The failure of either Borrower to observe or perform any covenant
or agreement contained in Section 10.1, 10.12 or 10.16 or in Article 11; or
(d) The failure of either Borrower to observe or perform any covenant
or agreement contained in Section 10.9 or 10.10 and such failure shall have
continued unremedied for a period of ten days after either Borrower shall have
become aware of such failure or the willful failure of either Borrower to
observe or perform any covenant or agreement contained in Section 10.9 or 10.10
as determined by the Majority Banks; or
(e) The failure of either Borrower or any other obligor under any
other Loan Document (other than the Administrative Agent, the Arranging Agents,
the Agents or any Bank) to observe or perform any other term, covenant or
agreement contained in this Agreement or any other Loan Document, and such
failure shall have continued unremedied for a period of 30 days after either
Borrower shall have become aware of such failure; or
(f) If at any time on or prior to the closing of the Transaction on
the Transaction Closing Date, Parent shall not be a wholly-owned, direct or
indirect
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Subsidiary of VI, or if at any time after the closing of the Transaction on the
Transaction Effective Date, the Permitted Control Stockholders do not have
Control of Parent or the shares of Stock of Parent owned or controlled by the
Permitted Control Stockholders are not owned free and clear of all Liens except
for Liens which if foreclosed or otherwise enforced would not, under any
contingency, result in a loss of Control of Parent by the Permitted Control
Stockholders; or
(g) Any representation or warranty of either Borrower (or of any of
its officers on its behalf in connection with this Agreement or the Loans) made
herein or in any certificate, report, opinion (other than an opinion of
counsel) or other Loan Document shall prove to have been incorrect or
misleading (whether because of misstatement or omission) in any material
respect when made or deemed made or confirmed; or
(h) Either Borrower or any Restricted Subsidiary shall fail (i) to
pay, or, if required to purchase or otherwise acquire, shall fail to purchase
or otherwise acquire, any part of the principal of, the premium, if any, or the
interest on, or any other payment of money due under, any Funded Debt having a
then outstanding aggregate principal amount of $10,000,000 or more, on or prior
to the expiration of any period of grace with respect thereto, whether or not
such default has been waived by the holders of such Indebtedness, or (ii) to
perform or observe any other agreement, term or condition contained in any
document evidencing or securing such Funded Debt, or in any agreement under
which any such Funded Debt was issued or created, which default has not been
waived in writing by the holders of such Funded Debt prior to the time the
Loans have become or been declared to be due and payable hereunder, if the
effect of such failure is (x) to cause, or permit the holders of such Funded
Debt (or a trustee on behalf of such holders) to cause, any payment in respect
of such Funded Debt to become due prior to its stated date of maturity, or (y)
to cause either Borrower or any Restricted Subsidiary to be required to
purchase or otherwise acquire such Funded Debt; or
(i) Either Borrower or any Restricted Subsidiary shall (i) suspend or
discontinue its business (except as otherwise expressly permitted in Section
11.3 or 11.6), (ii) make an assignment for the benefit of creditors, (iii)
generally not be paying its debts as such debts become due, (iv) admit in
writing its inability to pay its debts as they become due, (v) file a voluntary
petition in bankruptcy, (vi) become insolvent (however such insolvency shall be
evidenced), (vii) file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment of debt, liquidation or
dissolution or similar relief under any present or future statute, law or
regulation of any jurisdiction, (viii) petition or apply to any tribunal for
any receiver, custodian or any trustee for it, or any substantial part of its
Property, (ix) be the subject of any such proceeding filed against it that
remains undismissed for a period of 60 days, (x) file any answer admitting or
not contesting the material allegations of any such petition filed against it,
or of any order, judgment or decree approving such petition in any such
proceeding, (xi) seek, approve, consent to or acquiesce in any such proceeding,
or in the appointment of any trustee, receiver, custodian, liquidator or fiscal
agent for it, or any substantial part of its Property, or an order is entered
appointing any such trustee, receiver, custodian, liquidator or fiscal agent
and such order remains unstayed and in effect for 60 days or (xii) take any
formal action for the purpose of effecting any of the foregoing or looking to
the liquidation or dissolution of such Borrower or any Restricted Subsidiary
(except as otherwise expressly permitted by Section 11.3 or 11.6); or
(j) An order for relief is entered under the United States bankruptcy
laws or any other decree or order is entered by a court having jurisdiction
and, in the case of an order for relief entered against either Borrower or any
Restricted Subsidiary (and not voluntarily submitted by such Borrower or any
Restricted Subsidiary), continues unstayed and in effect for a period of 60
days (i) adjudging such
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Borrower or any Restricted Subsidiary a bankrupt or insolvent, (ii) approving
as properly filed a petition seeking reorganization, liquidation, arrangement,
adjustment or composition of, or in respect of such Borrower or any Restricted
Subsidiary under the United States bankruptcy laws or any other applicable
Federal or state law, (iii) appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of such Borrower
or any Restricted Subsidiary or of any substantial parts of the Property of any
thereof or (iv) ordering the winding up or liquidation of the affairs of such
Borrower or any Restricted Subsidiary; in each such case such Borrower, for
itself and on behalf of each Restricted Subsidiary, expressly authorizes the
Administrative Agent to protect and defend the Administrative Agent's or such
Bank's rights in such case or proceeding; or
(k) One or more judgments or decrees in an aggregate amount in excess
of $1,500,000 shall be rendered against the Borrowers and the Restricted
Subsidiaries, or any of them, and such judgments or decrees shall continue
unsatisfied and unstayed for a period of 60 days; or
(l) (i) A Termination Event with respect to a Plan shall occur, (ii)
any Person shall engage in any transaction involving any Plan which is
prohibited under Section 4975 of the Code or Section 406 of ERISA and not
exempt under Section 4975 of the Code or Section 408 of ERISA or by a class or
individual exemption issued by the Department of Labor, which results in
material liability of either Borrower or any ERISA Affiliate, (iii) an
Accumulated Funding Deficiency, whether or not waived, shall exist in a
material amount with respect to any Plan, (iv) either Borrower or any ERISA
Affiliate shall be in "default" (as defined in Section 4219(c)(5) of ERISA)
with respect to payments due to a Multiemployer Plan resulting from such
Borrower's or such ERISA Affiliate's complete or partial withdrawal (as
described in Section 4203 or 4205 of ERISA) from such Plan or (v) any other
event or condition shall occur or exist with respect to a Single Employer Plan
or a Multiemployer Plan, except that no event or condition referred to in any
of the clauses (i) through (v) shall constitute an Event of Default if it,
together with all other events or conditions at the time existing, would not
subject such Borrower or any of its Restricted Subsidiaries to any tax,
penalty, Indebtedness for Borrowed Money or liability which, alone or in the
aggregate, would have a Material Adverse Effect; or
(m) Any of the following events shall occur with respect to any Plan:
(i) the institution of any steps by either Borrower, any ERISA Affiliate or any
other Person to terminate a Plan if, as a result of such termination, such
Borrower or any ERISA Affiliate could be required to make a contribution to
such Plan, or could reasonably expect to incur a liability or obligation to
such Plan in excess of $1,000,000; or (ii) a contribution failure occurs with
respect to any Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA; or
(n) The failure of (i) Parent, VI, TCI or TCIC to observe or perform
any material term, covenant or agreement contained in the Transaction
Documents, and such failure shall have continued unremedied for a period of 3
days after such party shall have become aware of such failure, (ii) any other
party to the Transaction Documents to observe or perform any term, covenant or
agreement contained in the Transaction Documents, if such failure could
reasonably be expected to have a Material Adverse Effect, and such failure
shall have continued unremedied for a period of 3 days after such party shall
have become aware of such failure, or (iii) any of the Transaction Documents
shall terminate or any party thereto shall elect to terminate any of the
Transaction Documents prior to the closing of the Transaction on the
Transaction Effective Date; or
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(o) The failure of Parent to observe or perform any of its
obligations in respect of the Parent Preferred Stock (after the expiration of
any grace period with respect thereto); or
(p) The occurrence of an Event of Default under and as defined in any
Loan Document; or
(q) The occurrence of an Event of Default under and as defined in
Facility B.
12.2. Consequences of an Event of Default.
-----------------------------------
Upon the occurrence or at any time during the continuance of an Event
of Default, the Administrative Agent, at the written request of the Majority
Banks, shall notify the Borrowers that the Aggregate Commitments have been
terminated and/or that the Loans (plus any prepayment premium due hereunder)
have been declared immediately due and payable, whereupon the Loans shall be
and become immediately due and payable; provided, however, that upon the
occurrence of an Event of Default with respect to either Borrower under Section
12.1(i) or (j) the Aggregate Commitments shall automatically terminate and the
Loans shall become immediately due and payable, without declaration or notice
to the Borrowers and that, upon the occurrence of a Significant Default or a
Cash Manager Significant Default, neither the Borrowers nor any Restricted
Subsidiary shall be permitted to make any advances to any Cash Management
Affiliate, or reimburse any Cash Management Affiliate for any advances from
such Cash Management Affiliate to such Borrower, pursuant to normal cash
management practices. To the fullest extent permitted by law, except for the
notice provided for in the preceding sentence, the Borrowers hereby expressly
waive any presentment, demand, protest, notice of protest or other notice of
any kind. To the fullest extent permitted by law, the Borrowers hereby further
expressly waive and covenant not to assert any appraisement, valuation, stay,
extension, redemption or similar laws, now or at any time hereafter in force
which might delay, prevent or otherwise impede the performance or enforcement
of this Agreement, the Notes, the Intercompany Debt Subordination Agreement,
the Loans or any of the other Loan Documents.
In the event that the Aggregate Commitments shall have been
terminated or the Loans shall have been declared due and payable pursuant to
the provisions of this Section 12.2, the Banks and the Borrowers agree that any
funds received from or on behalf of the Borrowers by any of the Banks in
respect of the Obligations shall be remitted to the Administrative Agent and
shall be applied by the Administrative Agent in payment of the Loans and the
Obligations of the Borrowers in the following manner and order: (a) first, to
reimburse the Administrative Agent and the Banks for any expenses due from the
Borrowers pursuant to the expense reimbursement and indemnification provisions
of this Agreement; (b) second, to the payment, pro rata according to the
Aggregate Commitments, of the Commitment Fee due under this Agreement; (c)
third, to the payment of any other fees, expenses or amounts (other than the
principal of and interest on the Loans and any obligations to any Bank (or any
affiliate of any Bank) arising out of any Interest Rate Protection Arrangement
entered into under, and required by, Section 10.15) payable by the Borrowers to
the Administrative Agent or any of the Banks under or in connection with this
Agreement; (d) fourth, to the payment of any interest due on the Loans, pro
rata according to the aggregate outstanding principal balance of the Loans; (e)
fifth, to the payment, pro rata according to the aggregate outstanding
principal balance of the Loans and the obligations of the Borrowers to the
Banks (or any affiliates of the Banks) arising out of any Interest Rate
Protection Arrangement entered into under, and required by, Section 10.15, of
such principal and obligations, and (f) sixth, any remaining funds shall be
paid to whomsoever shall be entitled thereto or as a court of competent
jurisdiction shall direct.
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12.3. Waiver of Defaults.
------------------
Except as otherwise specifically provided by the provisions of this
Agreement, including without limitation Section 14.5, the Administrative Agent
shall, only if authorized in writing by the Majority Banks, by written notice
to the Borrowers, at any time and from time to time, waive in whole or in part,
absolutely or conditionally, any Default that shall have occurred or that may
be expected to occur hereunder, under the Notes or under any of the other Loan
Documents. Any such waiver shall be for such period and subject to such
conditions or limitations as shall be specified in any such notice, and no
single or partial waiver by the Administrative Agent or the Majority Banks of
any right, power or remedy shall preclude other or further exercise thereof or
any exercise of any other rights, powers or remedies. In the case of any such
waiver, the rights and obligations of the Borrowers and the Banks under this
Agreement, the Notes and the other Loan Documents shall be otherwise
unaffected, and any Default so waived shall be deemed to be cured and not
continuing to the extent and on the conditions or limitations set forth in such
waiver, but no such waiver shall extend to any subsequent or other Default, or
impair any right, remedy or power consequent upon any such other Default.
ARTICLE 13. THE ADMINISTRATIVE AGENT, ARRANGING AGENTS AND AGENTS.
-----------------------------------------------------
13.1. The Administrative Agent.
------------------------
The Bank of New York is hereby irrevocably designated the
Administrative Agent by each of the other Banks to perform such duties on
behalf of the other Banks and itself, and to have such powers as are set forth
herein and as are reasonably incidental thereto. In performing its functions
and duties under this Agreement and the Loan Documents, the Administrative
Agent shall act solely as agent of the Banks and does not assume and shall not
be deemed to have assumed any obligation toward or relationship of agency or
trust hereunder or thereunder with or for the Borrowers. The duties of the
Administrative Agent shall be mechanical and administrative in nature; the
Administrative Agent shall not have by reason of this Agreement or any Loan
Document a fiduciary relationship with any Bank, and nothing in this Agreement
or any Loan Document, expressed or implied, is intended or shall be so
construed to impose upon the Administrative Agent any obligations in respect of
this Agreement, the Loan Documents, the Loans or the other instruments and
agreements referred to herein except as expressly set forth herein or therein.
13.2. Delegation of Duties, Etc.
-------------------------
The Administrative Agent may execute any of its duties and perform
any of its powers hereunder by or through agents or employees and shall be
entitled to consult with legal counsel and any accountant or other professional
selected by it. The Administrative Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
13.3. Indemnification.
---------------
The Banks agree to indemnify the Administrative Agent, in its
capacity as such, and its directors, officers, employees or agents, to the
extent not reimbursed promptly by the Borrowers, pro rata according to their
respective Loans outstanding or, if no Loans are outstanding, according to
their respective Commitments, from and against any and all claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that
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may be imposed on, incurred by or asserted against any of them in any way
relating to or arising out of this Agreement or any Loan Document or any action
taken or omitted to be taken or suffered in good faith by any of them hereunder
or thereunder, provided that no Bank shall be liable for any portion of any of
the foregoing items resulting from the gross negligence or willful misconduct
of the Administrative Agent or any of its directors, officers, employees or
agents. Without limiting the foregoing, each Bank agrees to reimburse the
Administrative Agent promptly upon demand for its pro rata share of any out-of-
pocket expenses (including reasonable counsel fees and disbursements) incurred
by the Administrative Agent in connection with the preparation, execution,
administration or enforcement of, legal advice in respect of rights or
responsibilities under, or amendment, modification or waiver of any provision
of, this Agreement or any Loan Document, to the extent that the Administrative
Agent is not promptly reimbursed for such expenses by the Borrowers. If the
Administrative Agent is subsequently reimbursed by the Borrowers for such
expenses, the Administrative Agent shall remit to the Banks their pro rata
shares of such reimbursement.
13.4. Exculpatory Provisions.
----------------------
(a) Neither the Administrative Agent nor any of its officers,
directors, employees or agents shall be liable for any action taken or omitted
to be taken or suffered in good faith by it hereunder or in connection
herewith, except that the Administrative Agent shall be liable for its own
gross negligence or willful misconduct. Neither the Administrative Agent nor
any of its directors, officers, employees or agents, shall be liable in any
manner for the effectiveness, enforceability, collectability, genuineness,
perfection, validity, sufficiency or the due execution of this Agreement or any
Loan Document or for the due authorization, authenticity or accuracy of the
representations and warranties herein or in any other certificate, report,
notice, consent, opinion, statement, or other document furnished or to be
furnished hereunder, and shall be entitled to rely upon any of the foregoing
believed by it to be genuine and correct and to have been signed and sent or
made by the proper Person. The Administrative Agent shall be under no duty or
responsibility to the Banks to ascertain or to inquire into the performance or
observance by the Borrowers or any Restricted Subsidiary or any other obligor
of any of the provisions hereof or of any document executed and delivered in
connection herewith. Each Bank acknowledges that it has taken and will
continue to take such action and to make such investigation as it deems
necessary to inform itself of the affairs of the Borrowers and the Restricted
Subsidiaries and each Bank acknowledges that it has made and will continue to
make its own independent investigation of the creditworthiness and the business
and operations of the Borrowers and the Restricted Subsidiaries and that, in
entering into this Agreement and in making its Loans, it has not relied and
will not rely upon any information or representations furnished or given by the
Administrative Agent or any other Bank.
(b) Each Bank expressly acknowledges that the Administrative Agent
has made no representations or warranties to it and that no act taken by the
Administrative Agent shall be deemed to constitute any representation or
warranty by the Administrative Agent to the Banks.
(c) If the Administrative Agent shall request instruction from the
Banks with respect to any act or action (including the failure to take an
action) in connection with the Loans under this Agreement or any Loan Document,
the Administrative Agent shall be entitled to refrain from such act or taking
such action unless and until the Administrative Agent shall have received
instructions from all of the Banks or the Majority Banks, as the case may be.
Without prejudice to the generality of the foregoing, (i) the Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper Person or Persons,
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and shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys, accountants, experts and other professional advisors
selected by it and (ii) no Bank shall have any right of action whatsoever
against the Administrative Agent as a result of the Administrative Agent acting
or (where so instructed) refraining from acting under this Agreement with
respect to the Loans in accordance with the instructions of all of the Banks or
the Majority Banks, as the case may be.
13.5. Knowledge of Default.
--------------------
It is expressly understood and agreed that the Administrative Agent
shall be entitled to assume that no Default has occurred and is continuing,
unless the officers of the Administrative Agent immediately responsible for
matters concerning this Agreement shall have been notified in writing by (a)
either Borrower, or (b) any Bank that such Bank considers that a Default has
occurred and is continuing and specifying the nature thereof.
13.6. Administrative Agent in Its Individual Capacity.
-----------------------------------------------
With respect to this Agreement, all Loans made by the Administrative
Agent and any renewals, extensions or deferrals of the payment thereof and any
Note issued to or held by the Administrative Agent, the Administrative Agent
shall have the same rights and powers hereunder as any Bank, and may exercise
the same as though it were not the Administrative Agent, and the term "Bank" or
"Banks" shall include the Administrative Agent in its individual capacity. The
Administrative Agent and each of its affiliates may accept deposits from, lend
money to and generally engage in any kind of banking, trust, financial advisory
or other business with the Borrowers, any Restricted Subsidiary or any
Affiliate of the Borrowers as if it were not performing the duties specified
herein, and may accept fees and other consideration from the Borrowers for
services in connection with this Agreement and otherwise without having to
account for the same to the Banks.
13.7. Payee of Note Treated as Owner.
------------------------------
The Administrative Agent and the Borrowers may deem and treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
an assignment or transfer becomes effective in accordance with Section 14.8 and
a written notice of the assignment or transfer thereof shall have been filed
with the Administrative Agent and the Borrowers. Any request, authority or
consent of any person or entity who, at the time of making such request or
giving such authority or consent, is the holder of any such Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of that
Note or of any Note or Notes issued in exchange therefor.
13.8. Resignation or Removal of Administrative Agent.
----------------------------------------------
If at any time the Administrative Agent deems it advisable, in its
sole discretion, it may submit to each of the Banks and the Borrowers a written
notification of its resignation as Administrative Agent under this Agreement,
such resignation to be effective on the thirtieth day after the date of such
notice, provided that a successor Administrative Agent has been appointed in
accordance herewith. In the event that the Administrative Agent shall have
breached any of its material obligations to the Banks hereunder, the Majority
Banks may remove the Administrative Agent effective on the date specified by
them, by written notice to the Administrative Agent and the Borrowers. Upon
any such resignation or removal, the Majority Banks shall have the right to
appoint a successor Administrative Agent, which successor Administrative Agent,
provided that no Event of Default shall have occurred and be continuing, shall
be reasonably satisfactory to the Borrowers. If no successor Administrative
Agent shall have been so
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appointed by the Majority Banks and accepted such appointment within 30 days
after the retiring Administrative Agent's giving of notice of resignation or
notification of the Administrative Agent of its removal, then the retiring
Administrative Agent may, on behalf of the Banks, appoint a successor
Administrative Agent, which successor Administrative Agent hereunder shall be
either a Bank or, if none of the Banks is willing to serve as successor
Administrative Agent, a major international bank having combined capital and
surplus of at least $500,000,000. Such successor Administrative Agent,
provided that no Event of Default shall have occurred and be continuing, shall
be reasonably satisfactory to the Borrowers. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement. The Borrowers
and the Banks shall execute such documents as shall be necessary to effect such
appointment. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Article 13 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and the Loan Documents. If at
any time there shall not be a duly appointed and acting Administrative Agent,
the Borrowers agree to make each payment due hereunder and under the Notes
directly to the Banks entitled thereto during such time.
13.9. The Arranging Agents.
--------------------
The Arranging Agents shall have only those duties and obligations as
expressly set forth in the Loan Documents in their capacity as Arranging
Agents. The Arranging Agents in such capacity shall be entitled to the same
protections, indemnities and rights, and subject to the same standards with
respect to their actions, inactions and duties, as the Administrative Agent.
13.10. The Agents.
----------
The Agents shall have no duties or obligations under the Loan
Documents in their capacity as Agents.
ARTICLE 14. MISCELLANEOUS.
-------------
14.1. Notices.
-------
All notices and other communications hereunder shall be given to the
parties hereto at the following addresses:
(a) if to a Borrower, at its address or addresses set forth on
Schedule 14.1;
(b) if to any Bank, at its address or addresses set forth on Schedule
2.1; and
(c) if to the Administrative Agent, at its address or addresses set
forth on Schedule 2.1;
or in any of the foregoing cases at such other address and/or to such other
Person as the Borrowers, any Bank or the Administrative Agent may hereafter
specify for that purpose
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by written notice to the Borrowers and the Administrative Agent. Such notices
and other communications will be effective only if and when given in writing,
signed by an authorized officer and shall be deemed to have been given three
(3) days after deposit in the mail, designated as certified mail, return
receipt requested, postage-prepaid, at the applicable address specified above,
or one (l) day after being entrusted to a reputable commercial overnight
delivery service, or when sent by telecopy addressed to the party to which such
notice is directed at its address determined as provided above (promptly
confirmed in writing).
14.2. Term of Agreement.
-----------------
The term of this Agreement shall be until the later of the Term Loan
Maturity Date and the payment in full of all amounts due hereunder, under the
Loans and the Notes, and the performance of all other obligations of the
Borrowers under the Loan Documents.
14.3. Copies of Certificates, Etc.
---------------------------
Whenever the Borrowers are required to deliver notices, certificates,
opinions, statements or other information hereunder to the Administrative Agent
or to the Administrative Agent for delivery to any Bank, they shall do so in
such number of copies as the Administrative Agent shall reasonably specify.
Whenever the Administrative Agent receives from either Borrower notices,
certificates, opinions, statements or other information hereunder for delivery
to any Bank, it shall promptly make such delivery, unless such Borrower is
required by the terms hereof to deliver such items to such Bank itself.
14.4. No Waivers; Rights Cumulative.
-----------------------------
No failure or delay by the Administrative Agent, any Bank or the
holder of any Note in exercising any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies in this Agreement are
cumulative and not exclusive of any rights or remedies provided by laws.
14.5. Changes, Waivers, Amendments, Etc.
---------------------------------
(a) Subject to the express provisions of subsection (b) below,
neither this Agreement, any Loan Document nor any provision hereof or thereof
may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought; provided, however, that the
Administrative Agent may from time to time acting alone revise Schedule 2.1 to
reflect changes in the Commitments or address of any Bank of which the
Administrative Agent has received notice pursuant to the terms of this
Agreement, and such revisions shall, absent manifest error, be binding on all
parties hereto.
(b) Any of the provisions of this Agreement or any Loan Document may
be waived, modified or amended by an agreement or agreements in writing entered
into by the Borrowers and the Majority Banks; provided, however, that no such
agreement, without the prior written consent of each Bank, shall (i) change the
principal amount of, or extend or advance the maturity of or the date for the
payment or required prepayment of principal of, or the payment of interest on,
any Loan, or extend or advance the date for the payment of any fee due
hereunder, or reduce the rate of interest on any Loan or the amount of any fee
due hereunder, or change the method of
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computing interest or any fee payable hereunder, (ii) change the requirement
that payments and prepayments of principal of, and payments of interest on, the
Notes be made pro rata to the Banks on the basis of the outstanding principal
amount of the Notes, or the outstanding amount of accrued but unpaid interest
thereon, (iii) change the requirement that all borrowings hereunder shall be
from the Banks pro rata in accordance with their respective applicable
Commitments, (iv) modify, amend or waive the provisions of Sections 2.1(c),
2.1(d), 2.1(e), 2.1(f), 2.1(g), 2.1(h), 2.1(i), Section 14.5(b), Section 14.8
or the definition of Majority Banks, (v) modify, amend or waive the provisions
of Article 7, (vi) expressly provide for discrimination between Banks except in
a manner consistent with the existing terms of this Agreement, (vii) release
any collateral except as permitted by the Loan Documents, or (viii) change the
amount of the Commitments of any Bank except as expressly provided for by this
Agreement. Each Bank and each holder of any Note then or thereafter
outstanding shall be bound by any waiver, modification or amendment authorized
by this Section 14.5(b), whether or not such Note is marked to make reference
thereto, and any consent by any holder of any Note pursuant to this Section
14.5(b) shall bind any subsequent holder of such Note, whether or not such Note
is so marked. Notwithstanding the above, no provision of this Agreement that
affects the rights, privileges or duties of the Administrative Agent or the
application of payments and proceeds provisions contained in the second
paragraph of Section 12.2 may be waived, modified or amended without the prior
written consent of the Administrative Agent.
14.6. Rights of Set-Off.
-----------------
(a) To the extent permitted by law, upon the occurrence of an
acceleration of any Loans or Notes, each Bank is hereby authorized, in addition
to any other right or remedy that any Bank may have by operation of law or
otherwise, at any time and from time to time, without notice to the Borrowers
(any such notice being expressly waived by the Borrowers), to exercise its
bankers' lien or right of set-off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit or the account
of either or both of the Borrowers or any Restricted Subsidiary against any and
all of the obligations of the Borrowers now or hereafter existing under this
Agreement and any Note, irrespective of whether or not such Bank shall have
made any demand under this Agreement or such Note and although such obligations
may be unmatured.
(b) Each Bank agrees promptly to notify the Administrative Agent and
the Borrowers after any such set-off and application; provided, however, that
the failure to give any such notice shall not affect the validity of such set-
off and application.
14.7. Integration and Severability.
----------------------------
This Agreement embodies the entire agreement and understanding among
all the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof. In case any one or more of the
provisions contained in this Agreement or in any Loan Document, or any
application thereof, shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
14.8. Assignments and Participations; Successors and Assigns.
------------------------------------------------------
(a) This Agreement and the Loan Documents shall be binding upon and
inure to the benefit of the Borrowers, the Administrative Agent, the Banks and
their respective successors and assigns, except that the Borrowers may not
assign any of their
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rights or transfer any of their duties hereunder, without the prior written
consent of each of the Banks.
(b) Any Bank may assign to one or more Eligible Assignees part of its
interest under any of its Notes, its Loans and its Commitments, provided that,
immediately after giving effect to such assignment, such Bank (including its
affiliates) shall have a Credit Exposure equal to at least 51% of its Credit
Exposure (adjusted to give effect to prior reductions of the Commitments
pursuant to Sections 2.1 and 2.2 and prior principal payments of the Term Loans
pursuant to Section 5.4), at the time such Bank first became a Bank hereunder.
(c) Any Bank may assign to one or more Eligible Assignees any of its
interest under its Notes, its Loans and its Commitments not otherwise permitted
under (b) above, provided that the Borrowers shall have consented to such
assignment (such consent to be within the sole discretion of the Borrowers).
(d) Each assignment by any Bank of any of its Notes, its Loans and
its Commitments shall be in a minimum aggregate principal amount of $5,000,000,
or such amount plus an integral multiple of $1,000,000 in excess thereof,
unless the Borrowers and the Administrative Agent consent otherwise, and (i)
shall be of a constant, and not a varying, percentage of the assigning Bank's
rights and obligations being assigned under this Agreement, (ii) the parties to
such assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance, together with any Note subject to such assignment and a processing
and recordation fee payable to the Administrative Agent of $3,000, and (iii)
the Borrowers shall issue a new Note or Notes to the Banks party to such
assignment against receipt of the existing Note of the assignor Bank in
accordance with Section 4.4(b) hereof. Upon such execution, delivery,
acceptance and recording, from and after the Effective Date, as defined in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder.
(e) Any Bank may participate any of its rights under its Notes, its
Loans, or its Commitments, provided that any grant of rights to a participant
with respect to the Loans by a Bank shall state that such rights exist only as
a result of the agreement between the participant and such Bank. The holder of
any such participation shall not be entitled to require such Bank to take or
omit to take any action under this Agreement except any action that would
extend the maturity of the Notes participated in by such participant or the
mandatory reductions of the Aggregate Revolving Commitments, reduce the
interest rate payable on the Notes or the Commitment Fee, increase the
Aggregate Revolving Commitments or the Aggregate Term Loan Commitments, forgive
the payment of principal or interest on the Notes or extend any payment date
with respect thereto, or release any collateral except as permitted by the Loan
Documents, in each case to the extent that it participates in such Notes,
Commitments or Commitment Fee.
(f) Notwithstanding (b) and (c) above, any Bank may assign any
interest in its Notes, its Loans or its Commitments (i) to an affiliate of such
Bank without restriction or (ii) pursuant to the provisions of Section 7.1 or
7.2.
(g) Any Bank that assigns or participates any of its rights under its
Notes, its Loans or its Commitments hereunder shall, as a condition to the
effectiveness of such assignment or participation, provide notice of such
transaction to the Borrowers and the Administrative Agent. No Bank shall, as
between the Borrowers and such Bank, be relieved of any of its obligations
hereunder as a result of any assignment or granting of participations in all or
any part of its Loans, its Notes or its Commitments, or other
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obligations owed to such Bank, except that a Bank shall be relieved of its
obligations hereunder to the extent of any assignment of all or any part of its
Loans, its Notes or its Commitments made pursuant to this Section 14.8. All
amounts payable to any Bank under Section 6.2(a) or Article 7 shall be
determined as if such Bank had not (i) sold any participations and (ii) made
any pledges or assignments pursuant to Section 14.8(h).
(h) Nothing contained in this Section 14.8 shall prevent or prohibit
any Bank from assigning or pledging all or any portion of its Loans and its
Notes to any Federal Reserve Bank as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any Operating
Circular issued by such Federal Reserve Bank; provided that no such assignment
or pledge shall relieve such Bank from its obligations hereunder.
(i) Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of
such party and all covenants, promises and agreements by or on behalf of the
Borrowers which are contained in this Agreement shall inure to the benefit of
the successors and assigns of the Banks.
(j) By executing and delivering an Assignment and Acceptance, the
assigning Bank thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and the
representations and warranties expressly set forth in the applicable Assignment
and Acceptance, the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, the Notes or any
other instrument or document furnished pursuant hereto or thereto; (ii) such
assignor Bank makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrowers or the performance or
observance by the Borrowers of any of their obligations under this Agreement or
the Notes; (iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Sections 10.7(a) and (c) (or if none of such financial
statements shall have then been delivered, then copies of the financial
statements referred to in Section 9.15 hereof) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the assigning Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; and (v) such assignee appoints and authorizes the Administrative
Agent as its agent pursuant to, and in accordance with, Article 13.
(k) The Administrative Agent shall maintain at its address at which
notices are to be given to it pursuant to Section 14.1 a copy of each
Assignment and Acceptance and a register for the recordation of the names and
addresses of the Banks and the Commitments of, and principal amount of the
Loans owing to, each Bank from time to time (the "Register"). The entries in
--------
the Register shall be conclusive, in the absence of manifest error, and the
Borrowers, the Administrative Agent and the Banks may treat each person whose
name is recorded in the Register as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrowers or
any Bank at any reasonable time and from time to time upon reasonable prior
notice.
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14.9. JURISDICTION; WAIVER OF JURY TRIAL.
-----------------------------------
IN CONSIDERATION OF THE AGREEMENT OF THE BANKS TO MAKE THE LOANS
HEREUNDER, EACH OF THE BORROWERS AGREES THAT ANY SUIT, ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT, THE BORROWINGS HEREUNDER, ANY NOTE OR ANY OTHER
LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK OR THE STATE OF NEW YORK, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT EACH OF THE BORROWERS IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURTS FOR THAT PURPOSE. EACH OF THE
BORROWERS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE BORROWERS AGREES THAT A FINAL JUDGMENT IN ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT, AFTER ALL APPROPRIATE
APPEALS, SHALL BE CONCLUSIVE AND BINDING UPON THE BORROWERS. EACH OF THE
BORROWERS AND THE BANKS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY RIGHT TO A JURY TRIAL.
14.10. Headings; Plurals.
-----------------
The headings of articles and sections herein are inserted for
convenience only and form no part of this Agreement. Unless the context
otherwise requires, words in the singular number include the plural, and words
in the plural include the singular.
14.11. Applicable Law.
--------------
This Agreement and the Loan Documents shall be governed by and
construed in accordance with the internal laws of the State of New York without
reference to its choice of law principles.
14.12. Counterparts; When Effective.
----------------------------
This Agreement and the Loan Documents may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when the
Administrative Agent has received counterparts hereof executed by the
Borrowers, the Administrative Agent, the Arranging Agents, the Agents and all
the Banks (such date herein referred to as the "Execution Closing Date"). The
----------------------
Administrative Agent will notify each of the other parties hereto of such
effectiveness as promptly as practicable, but in any event not later than the
Business Day following the Execution Closing Date. Complete sets of the
counterparts hereof will be lodged with each of the Borrowers and the
Administrative Agent and copies thereof provided to each Bank.
14.13. Payment of Expenses; Indemnity by Borrower.
------------------------------------------
(a) The Borrowers, whether or not the transactions hereby
contemplated shall be consummated, shall pay the reasonable fees and expenses
(including reasonable out-of-pocket expenses) of the Administrative Agent's
special
-84-
<PAGE>
counsel, Emmet, Marvin & Martin, LLP, and all other reasonable expenses arising
in connection with (i) negotiation, preparation, execution and delivery of this
Agreement and the Loan Documents, including schedules and exhibits, and (ii)
the preparation and review of the form of any document or instrument relevant
to this Agreement.
(b) The Borrowers agree to pay, on demand, the reasonable fees and
expenses (including reasonable attorneys' fees, legal expenses and out-of-
pocket expenses) of the Administrative Agent and the Banks incurred in
connection with any amendments, waivers, consents, supplements or other
modifications to this Agreement and the Loan Documents as may from time to time
hereafter be required (except for fees and expenses relating to the issuance of
new Notes by the Borrowers pursuant to Section 4.4(b) hereof and any assignment
or participation of interests in the Loans or any Commitments pursuant to
Section 14.8 hereof).
(c) The Borrowers further agree to pay, and to save the
Administrative Agent and the Banks harmless from all liability for, any stamp
or other taxes, together in each case with interest and penalties, if any, and
any income tax payable by the Administrative Agent or any Bank in respect of
any reimbursement therefor, which may be payable in connection with the
execution or delivery of this Agreement and the Loan Documents, the borrowings
hereunder or the issuance of the Notes. The Borrowers also agree to reimburse
the Administrative Agent and each Bank upon demand for all reasonable out-of-
pocket expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Administrative Agent or such Bank in connection with (x) the
negotiation of any restructuring or "work-out", whether or not consummated, of
any of the Borrowers' obligations hereunder and under the Loan Documents and
(y) the enforcement of any such obligations, including without limitation costs
and expenses incurred in any bankruptcy case or in investigating, preparing
for, defending against, or providing evidence, producing documents or taking
any other action in respect of any commenced or threatened litigation,
administrative proceeding or investigation under any federal securities law or
any other statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon any acts,
practices or omissions or alleged acts, practices or omissions of either
Borrower, any Restricted Subsidiary or any agent thereof.
(d) In consideration of the execution and delivery of this Agreement
by the Administrative Agent and each Bank and the extension of the Commitments,
the Borrowers hereby indemnify, exonerate and hold the Administrative Agent,
each Arranging Agent, each Agent, each Bank and each of their respective
officers, directors, employees and agents (collectively, the "Indemnified
-----------
Parties") free and harmless from and against any and all actions, causes of
- -------
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection herewith and therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements (collectively, the
"Indemnified Liabilities"), incurred by the Indemnified Parties or any of them
- ------------------------
as a result of, or arising out of, or relating to:
(i) any transaction (including, without limitation, the Transaction)
financed or to be financed in whole or in part, directly or indirectly,
with the proceeds of any Loan;
(ii) the entering into and performance of this Agreement or any Loan
Document by any of the Indemnified Parties (including any action brought by
or on behalf of the Borrowers as the result of any determination by the
Majority Banks pursuant to Article 8 not to fund any borrowing);
-85-
<PAGE>
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or willful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrowers hereby agree to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
14.14. Liability of VI
---------------
Notwithstanding any provision set forth herein or in any Loan
Document, the Banks hereby agree that they will not look to or assert any claim
against VI or any of its affiliates (other than, prior to the Transaction
Effective Date, Parent and the Restricted Subsidiaries and, on and after the
Transaction Effective Date, Parent Cable) for the payment of any amounts
payable hereunder or under the Loan Documents (including, without limitation,
any Obligations). The foregoing shall not apply to any claims arising out of
the VI Indemnity Agreement or any claims for damage resulting from any material
inaccuracy of any representation or statement made by VI or New VII in any
certificate delivered by VI or New VII as required by Section 8.1(j) or Section
8.3(f). VI and its affiliates are intended third party beneficiaries, and are
entitled to all rights and remedies of a third party beneficiary, of this
Section 14.14.
-86-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
VIACOM INTERNATIONAL INC. (name to
be changed to TCI Pacific
Communications, Inc. immediately
following the Transaction Effective
Date), as a Borrower
By: ______________________________
Name: ____________________________
Title: ___________________________
TCI PACIFIC, INC., as a Borrower
By: ______________________________
Name: ____________________________
Title: ___________________________
THE BANK OF NEW YORK,
as an Arranging Agent and as the
Administrative Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
NATIONSBANK OF TEXAS, N.A., individually
and as an Arranging Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
THE BANK OF NOVA SCOTIA, indi-
vidually and as an Arranging Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
CIBC INC., individually and as an Arranging Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
TORONTO-DOMINION (TEXAS), INC. individually and as
an Arranging Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
BANK OF MONTREAL, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
BANQUE NATIONALE DE PARIS, individually and as
an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
BARCLAYS BANK PLC, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
CHEMICAL BANK, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
CORESTATES BANK N.A., individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
CREDIT LYONNAIS NEW YORK BRANCH, individually and
as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
DEUTSCHE BANK AG, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
THE FUJI BANK, LIMITED, Los Angeles Agency,
individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
THE INDUSTRIAL BANK OF JAPAN, LIMITED, Los Angeles
Agency, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
THE LONG TERM CREDIT BANK OF JAPAN, LTD.,
Los Angeles Agency, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
MELLON BANK, N.A., individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
PNC BANK, NATIONAL ASSOCIATION, individually and
as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
ROYAL BANK OF CANADA, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
SOCIETE GENERALE, individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
THE SUMITOMO BANK, LIMITED, Los Angeles Branch,
individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
SWISS BANK CORPORATION, San Francisco Branch,
individually and as an Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
THE BANK OF NEW YORK COMPANY, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
ABN AMRO BANK, N.V., Chicago Branch
By: ______________________________
Name: ____________________________
Title: ___________________________
BANCA COMMERCIALE ITALIANA, New York Branch
By: ______________________________
Name: ____________________________
Title: ___________________________
THE MITSUBISHI BANK, LTD., Los Angeles Branch
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
BANK OF HAWAII
By: ______________________________
Name: ____________________________
Title: ___________________________
BAYERISCHE VEREINSBANK AG, Los Angeles Agency
By: ______________________________
Name: ____________________________
Title: ___________________________
BANK BRUSSELS LAMBERT, New York Branch
By: ______________________________
Name: ____________________________
Title: ___________________________
By: ______________________________
Name: ____________________________
Title: ___________________________
CITIBANK, N.A.
By: ______________________________
Name: ____________________________
Title: ___________________________
THE DAI-ICHI KANGYO BANK, LTD., Los Angeles Agency
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
DRESDNER BANK AG, New York and Grand Cayman Branches
By: ______________________________
Name: ____________________________
Title: ___________________________
By: ______________________________
Name: ____________________________
Title: ___________________________
FIRST HAWAIIAN BANK
By: ______________________________
Name: ____________________________
Title: ___________________________
MEES PIERSON N.V., New York Agency
By: ______________________________
Name: ____________________________
Title: ___________________________
THE MITSUBISHI TRUST AND BANKING CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
THE NIPPON CREDIT BANK, LTD., Los Angeles Agency
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
By: PPM AMERICA, INC., as attorney in fact,
on behalf of Jackson National Life Insurance
Company
By: ______________________________
Name: ____________________________
Title: ___________________________
THE SAKURA BANK, LIMITED
By: ______________________________
Name: ____________________________
Title: ___________________________
THE SANWA BANK, LTD., Chicago Branch
By: ______________________________
Name: ____________________________
Title: ___________________________
THE SUMITOMO TRUST AND BANKING CO., LTD.,
New York Branch
By: ______________________________
Name: ____________________________
Title: ___________________________
THE TOKAI BANK, LIMITED, Los Angeles Agency
By: ______________________________
Name: ____________________________
Title: ___________________________
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
WESTDEUTSCHE LANDESBANK GIROZENTRALE, New York Branch
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
DRAFT 6/14/96
EXHIBIT 10.4(b)
CREDIT AGREEMENT
by and among
VIACOM INTERNATIONAL INC., as Borrower,
THE SIGNATORY BANKS HERETO,
THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA,
CIBC INC., NATIONSBANK OF TEXAS, N.A.
and THE TORONTO-DOMINION BANK,
as Arranging Agents,
and
THE BANK OF NEW YORK,
as Administrative Agent
FACILITY B
-------------------------
$300,000,000
-------------------------
Dated as of _____________, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS....................................................... 1
ARTICLE 2. LOANS; LOAN COMMITMENT AMOUNTS.................................... 16
2.1. Loans; Commitment Amounts............................................. 16
ARTICLE 3. INTEREST RATES ON LOANS........................................... 16
3.1. Interest Rate......................................................... 16
3.2. Interest Rate After Maturity.......................................... 16
ARTICLE 4. LOAN PROCEDURES, NOTES AND PAYMENT OF INTEREST.................... 17
4.1. [INTENTIONALLY OMITTED]............................................... 17
4.2. Borrowing Request..................................................... 17
4.3. Disbursement of Proceeds.............................................. 17
4.4. Notes................................................................. 18
4.5. Limitation on Interest Rate Options and Maximum Interest Rate......... 19
4.6. Interest Payment Periods.............................................. 20
4.7. Funding............................................................... 20
ARTICLE 5. PAYMENT, CONTINUATION OR CONVERSION, AND PRE
PAYMENT OF LOANS....................................................... 20
5.1. Payments.............................................................. 20
5.2. Late Payments......................................................... 21
5.3. Continuation or Conversion............................................ 21
5.4. Prepayments........................................................... 22
5.5. Application of Payments............................................... 23
5.6. Sharing of Payments................................................... 23
ARTICLE 6. FEES AND TAXES.................................................... 23
6.1. Commitment Fee........................................................ 23
6.2. Taxes and Duties; Counterclaims....................................... 24
6.3. Tax Forms............................................................. 24
ARTICLE 7. COST PROTECTION................................................... 25
7.1. Change in Circumstances; Reserve Costs................................ 25
7.2. Change in Legality.................................................... 26
7.3. Responsibility of Affected Bank....................................... 27
7.4. Cost of Funds........................................................ 27
ARTICLE 8. CONDITIONS OF LENDING AND RELEASE................................. 29
8.1. Conditions Precedent to First Funding................................. 29
8.2. [INTENTIONALLY OMITTED]............................................... 32
8.3. Release of Cash Collateral Account.................................... 32
8.4. Notice to Banks....................................................... 33
8.5. Tax Forms............................................................. 34
<PAGE>
ARTICLE 9. REPRESENTATIONS AND WARRANTIES................................... 34
9.1. Subsidiaries ........................................................ 34
9.2. Corporate Existence and Power........................................ 34
9.3. Corporate Authority.................................................. 34
9.4. Binding Agreement.................................................... 35
9.5. [INTENTIONALLY OMITTED].............................................. 35
9.6. No Conflicting Agreements............................................ 35
9.7. Taxes................................................................ 35
9.8. Compliance with Applicable Laws...................................... 36
9.9. Governmental Regulations............................................. 36
9.10. Property............................................................ 36
9.11. Federal Reserve Regulations; Use of Proceeds of Loans............... 37
9.12. ERISA............................................................... 37
9.13. Franchises, Etc..................................................... 37
9.14. Burdensome Obligations.............................................. 38
9.15. [INTENTIONALLY OMITTED]............................................. 38
9.16. FCC and Copyright Matters........................................... 38
9.17. Capital Stock of the Borrower....................................... 39
9.18. Use of Proceeds..................................................... 39
9.19. Business of the Borrower............................................ 39
9.20. Ranking of Loans; Joint and Several Liability....................... 39
9.21. No Misrepresentation................................................ 39
ARTICLE 10. [INTENTIONALLY OMITTED]......................................... 40
ARTICLE 11. [INTENTIONALLY OMITTED]......................................... 40
ARTICLE 12. EVENTS OF DEFAULT............................................... 40
12.1. Events of Default................................................... 40
12.2. Consequences of an Event of Default.................................. 43
12.3. Waiver of Defaults................................................... 43
ARTICLE 13. THE ADMINISTRATIVE AGENT AND ARRANGING AGENTS.................... 44
13.1. The Administrative Agent............................................. 44
13.2. Delegation of Duties, Etc............................................ 44
13.3. Indemnification...................................................... 44
13.4. Exculpatory Provisions............................................... 45
13.5. Knowledge of Default................................................. 46
13.6. Administrative Agent in Its Individual Capacity...................... 46
13.7. Payee of Note Treated as Owner....................................... 46
13.8. Resignation or Removal of Administrative Agent....................... 46
13.9. The Arranging Agents................................................. 47
ARTICLE 14. MISCELLANEOUS.................................................... 47
14.1. Notices.............................................................. 47
14.2. Term of Agreement.................................................... 48
14.3. Copies of Certificates, Etc.......................................... 48
14.4. No Waivers; Rights Cumulative........................................ 48
14.5. Changes, Waivers, Amendments, Etc.................................... 48
-ii-
<PAGE>
14.6. Rights of Set-Off................................................... 49
14.7. Integration and Severability........................................ 49
14.8. Assignments and Participations; Successors and Assigns.............. 50
14.9. JURISDICTION; WAIVER OF JURY TRIAL.................................. 52
14.10. Headings; Plurals................................................... 52
14.11. Applicable Law...................................................... 52
14.12. Counterparts; When Effective........................................ 52
14.13. Payment of Expenses; Indemnity by Borrower.......................... 53
14.14. Liability of VI..................................................... 54
EXHIBITS
- --------
Exhibit A Form of Borrowing Request, Payment Notice and Continuation
Notice
Exhibit B Form of Note
Exhibit C [INTENTIONALLY OMITTED]
Exhibit D [INTENTIONALLY OMITTED]
Exhibit E Form of Security Agreement
Exhibit F [INTENTIONALLY OMITTED]
Exhibit G Form of Assignment and Acceptance Agreement
Exhibit H-1 Form of Opinion of General Counsel to the Borrower and VI
Exhibit H-2 Form of Opinion of Regulatory Counsel to the Borrower
Exhibit I Form of Opinion of Special Counsel
Exhibit J [INTENTIONALLY OMITTED]
Exhibit K Form of TCIC Certificate
Exhibit L Form of Restated Certificate of Incorporation
Exhibit M Form of Parent Environmental Certificate
SCHEDULES
- ---------
Schedule 1.1(T) List of Transaction Documents
Schedule 2.1 List of Commitments/Lending Offices
Schedule 9.1 List of Subsidiaries
Schedule 9.6 List of Conflicting Agreements
Schedule 9.17 List of Capital Stock of the Borrowers
Schedule 14.1 List of Addresses for Notices
-iii-
<PAGE>
DRAFT 5/31/96
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and dated as of
---------
___________, 1996, by and among VIACOM INTERNATIONAL INC., a Delaware
corporation (the "Borrower"), the banks and other lenders from time to time
--------
party hereto, together with their respective successors and assigns as
determined pursuant to the terms hereof (each a "Bank" and collectively, the
----
"Banks"), THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA, CIBC INC., NATIONSBANK
------
OF TEXAS, N.A. and THE TORONTO-DOMINION BANK, as arranging agents (each an
"Arranging Agent" and collectively, the "Arranging Agents"), and THE BANK OF
---------------- ----------------
NEW YORK, as administrative agent for the Banks (in such capacity, the
"Administrative Agent"). Capitalized terms used herein are used with the
---------------------
meanings given such terms when they first appear or in Article 1 hereof.
RECITALS
A. The Borrower has requested that the Banks through their Applicable
Lending Offices extend credit to the Borrower in order to enable it to borrow
an aggregate principal amount of $300,000,000 on a term loan basis.
B. The Banks through their Applicable Lending Offices are willing to
extend such loans on the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1. DEFINITIONS.
-----------
For the purposes of this Agreement unless the context otherwise requires,
the following terms shall have the meanings indicated, all accounting terms not
otherwise defined herein shall have the respective meanings accorded to them
under GAAP and all terms defined in the New York Uniform Commercial Code and
not otherwise defined herein shall have the respective meanings accorded to
them therein.
"Accumulated Funding Deficiency" shall mean a funding deficiency described
------------------------------
in Section 302 of ERISA.
"Administrative Agent" shall have the meaning assigned to such term in the
--------------------
preamble hereto.
"Affected Bank" shall have the meaning assigned to such term in Section
-------------
7.2.
"Affected Principal Amount" shall mean: (a) in the event that the Borrower
-------------------------
shall fail for any reason to make a borrowing, continuation or conversion after
it shall have delivered to the Administrative Agent a Borrowing Request or
Continuation Notice, an amount equal to the amount requested pursuant to such
Borrowing Request or
<PAGE>
Continuation Notice; (b) in the event that notice shall be
given to the Borrower pursuant to Section 7.2(b) prior to the last day of the
applicable Interest Period, the principal amount of the borrowings affected;
and (c) in the event that the Borrower shall prepay or repay all or any part of
the principal amount of Loans prior to the last day of the Interest Period
applicable thereto, an amount equal to the principal amount so prepaid or
repaid.
"Affiliate" shall mean any Person directly or indirectly controlling,
---------
controlled by, or under direct or indirect common control with the Borrower,
excluding any Restricted Subsidiary. A Person shall be deemed to control a
corporation (hereinafter, "Control") if such Person (acting alone or with a
-------
group of Persons acting in concert) possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"Aggregate Commitments" shall mean the sum of the Commitments of all Banks
---------------------
set forth on Schedule 2.1, as the same may be adjusted from time to time
pursuant to the provisions of Sections 7.1, 7.2 and 12.8 and as otherwise
provided in this Agreement.
"Agreement" shall have the meaning set forth in the preamble hereof.
---------
"Applicable Lending Office" shall mean in relation to a Bank, its offices
-------------------------
for LIBOR Rate Loans and for Base Rate Loans specified in Schedule 2.1 hereto,
as the case may be, any of which offices may, upon 10 days' prior written
notice to the Administrative Agent and the Borrower and subject to the
provisions of Article 7, be changed by such Bank.
"Applicable Margin" shall mean with respect to the unpaid principal amount
-----------------
of the Loans which are subject to a LIBOR Rate Option, 0.500%, and with respect
to the unpaid principal amount of the Loans which are subject to a Base Rate
Option, 0.000%.
"Assignment and Acceptance" shall mean the Assignment and Acceptance in
-------------------------
the form of Exhibit D to this Agreement.
"Available Commitment" shall mean, during the Commitment Period, with
--------------------
respect to each Bank having a Commitment on the date of determination thereof,
the amount of the Commitment of such Bank on such date.
"Bank" and "Banks" shall have the meanings set forth in the preamble
---- -----
hereof.
"Base Rate" shall mean, as determined by the Administrative Agent on a
---------
daily basis (such determination to be conclusive absent manifest error), a rate
per annum equal
- 2 -
<PAGE>
to the higher of (i) the Prime Rate in effect on such day or (ii) the Federal
Funds Effective Rate in effect on such day plus .50 of 1% per annum. All
interest based on the Base Rate shall be calculated on the basis of a 365/366
day year for the actual number of days elapsed.
"Base Rate Loan" shall mean the portion of any Loan subject to a Base Rate
--------------
Option which bears interest at the Base Rate.
"Base Rate Option" shall mean the option granted to the Borrower pursuant
----------------
to Sections 3.1 and 4.1 to have interest on all or a portion of the outstanding
principal balance of the Loans computed with reference to the Base Rate.
"Borrowing Request" shall have the meaning assigned to such term in
-----------------
Section 4.1.
"Business Day" shall mean any day other than a Saturday, Sunday or other
------------
day on which banks in New York are authorized to close their regular banking
business and which, in the case of a LIBOR Rate Loan or LIBOR Interest Period,
is a Eurodollar Business Day.
"Cable Systems" shall mean all cable television facilities that are
-------------
operated and maintained by the Borrower or a Restricted Subsidiary pursuant to
the terms of the related licenses, franchises and permits issued under federal,
state or municipal laws from time to time in effect, which authorize a person
to receive or distribute, or both, by cable or otherwise, audio and visual
signals within a defined geographical area for the purpose of providing
entertainment or other services, together with all the property, tangible and
intangible, owned or used in connection with the services provided pursuant to
said licenses, franchises and permits, and each other cable television facility
from time to time operated by the Borrower and the Restricted Subsidiaries. A
Cable System means one of such Cable Systems.
"Capitalized Lease Obligations" shall mean all rental obligations which,
-----------------------------
under GAAP, are required to be capitalized on the books of the obligor, in each
case taking as the amount thereof the amount which would be treated as
indebtedness (net of interest expense) in accordance with GAAP.
"Cash Collateral Account" shall have the meaning assigned to such term in
-----------------------
Section 4.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
----
rules and regulations issued thereunder, as from time to time in effect.
"Commitment" shall mean the commitment of each Bank listed on Schedule 2.1
----------
under the heading "Commitment" to make a Loan hereunder through its Applicable
Lending Office as set forth in Schedule 2.1, as the same shall be adjusted from
time to time pursuant to Sections 7.1, 7.2 and 12.8 and as otherwise provided
in this Agreement.
- 3 -
<PAGE>
"Commitment Expiration Date" shall mean the earlier to occur of July 31,
--------------------------
1996 or the Funding Date.
"Commitment Fee" shall have the meaning assigned to such term in Section
--------------
6.1(a).
"Commitment Percentage" shall mean, with respect to each Bank, the
---------------------
percentage equivalent of the ratio which such Bank's Commitment bears to the
Aggregate Commitments, as such Bank's Commitment and the Aggregate Commitments
may be adjusted from time to time pursuant to the terms hereof.
"Commitment Period" shall mean the period commencing on the Execution
-----------------
Closing Date and ending on the Commitment Expiration Date.
"Communications Act" shall mean the Communications Act of 1934, as
------------------
amended, and the rules and regulations issued thereunder, as from time to time
in effect.
"Consolidated" shall mean (i) when used in connection with the
------------
determination of the standard for materiality, the Borrower and the Restricted
Subsidiaries taken as a whole and (ii) in all other cases, the aggregate for
two or more Persons of the amounts signified by such term for all such Persons,
in each case consolidated in accordance with GAAP.
"Continuation Notice" shall mean a request for continuation or conversion
-------------------
of a Loan as set forth in Section 5.3.
"Control" shall have the meaning assigned to such term in the second
-------
sentence of the definition of the term "Affiliate".
"Copyright Act" shall mean Title 17 of the United States Code, as amended,
-------------
and the rules and regulations issued thereunder, as from time to time in
effect.
"Credit Exposure": shall mean, with respect to any Bank at any time, the
---------------
Commitment or, if no Commitment, the outstanding Loan, as the case may be, of
such Bank at such time.
"Default" shall mean any Event of Default, and any event which, with the
-------
passage of time or giving of notice or both, would constitute an Event of
Default.
"Dollars" and the symbol "$" shall mean the lawful currency of the United
-------
States of America.
"Eligible Assignee" shall mean (i) a commercial bank organized under the
-----------------
laws of the United States, or any State thereof, and having total assets in
excess of $1,000,000,000; (ii) a commercial bank organized under the laws of
any other country, or a political subdivision of any such country, having total
assets in excess of $1,000,000,000 or the equivalent thereof; or (iii) any
other entity which is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business.
- 4 -
<PAGE>
"Eligible Institution" shall mean a bank organized under the laws of the
--------------------
United States of America or any state thereof or a country which is a member of
the Organization for Economic Cooperation and Development and (i) whose long
term debt rating is rated A- or better by Standard and Poor's Ratings Group or
A3 or better by Moody's Investor Services, Inc. and (ii) which has a combined
capital, surplus and undivided profits of not less than $500,000,000 or the
equivalent thereof in Dollars.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended, and the rules and regulations issued thereunder as from time to time
in effect. Any reference herein to any specific ERISA section or form shall
refer to such new or analogous section or form should such section or form be
modified, amended or replaced.
"ERISA Affiliate" shall mean each trade or business, including the
---------------
Borrower or any Restricted Subsidiary, whether or not incorporated, which
together with the Borrower or any Restricted Subsidiary would be treated as a
single employer under Section 4001(b) of ERISA.
"Eurodollar Business Day" shall mean any day on which banks are open for
-----------------------
dealings in dollar deposits in the London Interbank Market.
"Event of Default" shall mean any of the events specified as such in
----------------
Section 10.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations issued thereunder, as from time to time in
effect.
"Exchange Offer" shall have the meaning specified in the Parents
--------------
Agreement.
"Exchange Time" shall have the meaning specified in the Parents
-------------
Agreement.
"Execution Closing Date" shall have the meaning assigned to such term in
----------------------
Section 12.12.
"Expiration Time" shall have the meaning specified in the Parents
---------------
Agreement.
"Facility A" shall mean the Credit Agreement, dated as of the date hereof,
----------
among the Borrower (name to be changed to TCI Pacific Communications, Inc.
immediately following the Transaction Effective Date), and, on and after the
TCI Cosign Date, TCI Pacific, the banks and other lenders from time to time
party thereto, The Bank of New York, The Bank of Nova Scotia, CIBC Inc.,
NationsBank of Texas, N.A. and The Toronto-Dominion Bank, as arranging agents,
Bank of America National Trust and Savings Association, Bank of Montreal,
Banque Nationale de Paris, Barclays Bank PLC, Chemical Bank, CoreStates Bank,
N.A., Credit Lyonnais, Deutsche Bank AG, The Fuji Bank, Limited, The Industrial
Bank of Japan, Limited, The Long Term Credit Bank of Japan, Mellon Bank, N.A.,
PNC Bank, National Association, Royal Bank of Canada, Societe Generale, The
Sumitomo Bank, Ltd. and Swiss Bank Corporation, as agents and The Bank of New
York, as administrative agent, as the same may be amended, supplemented or
otherwise modified from time to time.
- 5 -
<PAGE>
"Facility A Cash Collateral Account" shall mean the cash collateral
----------------------------------
account maintained in connection with Facility A.
"Facility A Loans" shall mean the loans made under Facility A.
----------------
"Facility A Notes" shall mean the notes issued under Facility A.
----------------
"FCC" shall mean the Federal Communications Commission or any successor
---
thereto.
"Federal Funds Effective Rate" shall mean, for any period, a fluctuating
----------------------------
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers as published for
such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of New York or, if such rate is not
so published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected by it.
"Financial Officer" of any corporation shall mean its chief financial
-----------------
officer, senior vice president-finance, vice president-finance, finance
director, principal accounting officer, treasurer or assistant treasurer.
"Financial Statements" shall mean the Parent Cable Carve-Out 12/31/95
--------------------
Financial Statements, the Parent Cable Carve-Out 3/31/96 Financial Statements,
the Parent Cable Special Purpose 12/31/95 Financial Statements, the Parent
Cable Special Purpose 3/31/96 Financial Statements, the Parent Cable 5/31/96
Summary of Operations and the Pro-Forma Financial Statements.
"Funded Debt" shall mean, in respect of the Borrower and the Restricted
-----------
Subsidiaries, the aggregate outstanding amount of all Indebtedness for Borrowed
Money (excluding Parent Preferred Stock to the extent it would constitute
Indebtedness for Borrowed Money), all as determined on a Consolidated basis.
"Funding Date" shall mean the date on which the Loans are made hereunder
------------
and in no event later than July 31, 1996.
"GAAP" shall mean generally accepted accounting principles as from time to
----
time in effect which shall include the official interpretations thereof by the
Financial Accounting Standards Board, consistently applied.
"Governmental Body" shall mean any foreign, federal, state, municipal or
-----------------
other government, or any department, commission, board, bureau, agency, public
authority or instrumentality thereof or any court or arbitrator.
"Guaranty" of any Person shall mean and include as of any date as of which
--------
the amount thereof is to be determined, without duplication, (a) all
obligations of such Person to purchase any materials, supplies or other
property, or to obtain the services of any other Person, or for the sale or use
of any materials, supplies or other property, or the rendering of services, if
payment or performance under or in respect of the relevant
- 6 -
<PAGE>
contract or other property to be purchased, or services to be rendered, shall
be made regardless of whether or not delivery of such materials, supplies or
other property is ever made or tendered or such services are ever performed or
tendered or if payments for such materials, supplies or other property to be
sold or used, or payment for such services to be rendered shall be subordinated
to any Indebtedness of such Person owed to the purchaser or user of such
materials, supplies or other property, or the beneficiary of such services, (b)
all obligations of such Person to advance or supply funds to, or to purchase
property or services from, any other Person, if the purpose is to enable such
other Person to maintain working capital, net worth or any other balance sheet
condition or to pay debts, dividends or expenses of such other Person or to
assure such other Person or any third party against any liability or loss,
including, without limitation, obligations under any agreement or
understanding, oral or written, pursuant to which such Person is obligated to
advance funds to or on behalf of any other Person upon the happening of one or
more stated events, (c) all contracts for the rental or lease (as lessee) of
any real or personal property which provide that the payment obligations
thereunder are absolute and unconditional under conditions not customarily
found in commercial leases then in general use or require that the lessee
purchase or otherwise acquire securities or obligations of the lessor, and (d)
all guaranties, endorsements and other contingent obligations, direct or
indirect, on the part of such Person (other than endorsements of negotiable
instruments for collection in the ordinary course of business) for the payment,
discharge or satisfaction of Indebtedness of others, including any agreement,
contingent or otherwise, to (x) purchase such Indebtedness of others, or (y)
purchase or sell property or sell property or services primarily to permit the
debtor in respect of such Indebtedness of others to pay the same or the owner
of such Indebtedness of others to avoid loss, or (z) supply funds to or invest
in any such debtor.
For purposes of this Agreement, a Guaranty shall not include (i) any bond
obligation of, or any Guaranty of or letter of credit securing performance by,
the Borrower or any Restricted Subsidiary undertaken or incurred in the
ordinary course of its or their business (other than in connection with the
borrowing of money or obtaining of credit) as presently conducted for or on
behalf of the Borrower or a Restricted Subsidiary and (ii) a guaranty or other
obligation consisting of a pledge of such Person's interest in any Unrestricted
Subsidiary Equity, provided that recourse under any such guaranty or obligation
secured by such pledge shall be limited solely to such Person's interest in
such Unrestricted Subsidiary Equity so pledged.
"Implementation Agreement" shall mean the Implementation Agreement
------------------------
described in Schedule 1.1(T), as the same may be amended, supplemented or
otherwise modified.
"Indebtedness" shall mean, as of the date of determination, all
------------
liabilities, obligations and reserves, contingent or otherwise, including Money
Market Preferred Stock.
"Indebtedness for Borrowed Money" shall mean, as of the date of
-------------------------------
determination, without duplication, all Indebtedness (a) in respect of money
borrowed, (b) evidenced by a note, debenture or other like written obligation
to pay money (including, without limitation, the Notes), (c) in respect of
Capitalized Lease Obligations, (d) in respect of obligations under conditional
sales or other title retention agreements, (e) in respect of the par value or
other value of Money Market Preferred Stock as to which dividends and other
payments are calculated, (f) in respect of the deferred purchase price of
property or services purchased (other than amounts constituting trade payables
arising in the ordinary
- 7 -
<PAGE>
course), and (g) all Guaranties in respect of any of the foregoing. For
purposes of this Agreement, Indebtedness for Borrowed Money shall not include
(i) any bond obligation of, or any Guaranty of or letter of credit securing
performance by, the Borrower or any Restricted Subsidiary undertaken or
incurred in the ordinary course of its or their business (other than in
connection with the borrowing of money or obtaining of credit) as presently
conducted for or on behalf of the Borrower or a Restricted Subsidiary and (ii)
a guaranty or other obligation consisting of a pledge of such Person's interest
in any Unrestricted Subsidiary Equity, provided that recourse under any such
guaranty or obligation secured by such pledge shall be limited solely to such
Person's interest in such Unrestricted Subsidiary Equity so pledged.
"Indemnified Liabilities" shall have the meaning assigned to such term in
-----------------------
Section 12.13(d).
"Indemnified Parties" shall have the meaning assigned to such term in
-------------------
Section 12.13(d).
"Interest Deficit" shall have the meaning assigned to such term in Section
----------------
4.4(b).
"Interest Determination Date" shall mean with respect to any LIBOR Rate
---------------------------
Loans, the date which is two Eurodollar Business Days prior to the first day of
each LIBOR Interest Period.
"Interest Period" shall mean a LIBOR Interest Period.
---------------
"IRS" shall mean the Internal Revenue Service of the United States or any
---
successor thereto.
"IRS Ruling" shall mean _______________.
----------
"LIBID Rate" shall mean, with respect to a LIBOR Rate Loan for the
----------
relevant Interest Period, the rate per annum determined by the Administrative
Agent as follows:
(a) the Administrative Agent shall obtain the bid quotation(s) that
appear on the Reuter's Screen for Dollar deposits for a period comparable to
such Interest Period. If at least two such bid quotations appear on the
Reuter's Screen, the LIBID Rate shall be the arithmetic average (rounded up to
the nearest 1/16th of 1%) of such bid quotations, as determined by the
Administrative Agent;
(b) if the Reuter's Screen is not available or has been discontinued,
the LIBID Rate shall be the rate per annum that the Administrative Agent
determines to be the arithmetic average (rounded as aforesaid) of the per annum
rates of interest reported to the Administrative Agent by each Reference Bank
(or, if either Reference Bank fails to provide such quotation, on the basis of
the rate reported to the Administrative Agent by the remaining Reference Bank)
as the bid rate for deposits in Dollars given by such Reference Banks in the
London Interbank Market at 11:00 a.m., London time, on the date of
determination in the approximate amount of such Reference Bank's relevant LIBOR
Rate Loan and having a maturity approximately equal to the relevant Interest
Period; and
- 8 -
<PAGE>
(c) if the Administrative Agent is not able to obtain quotations for
the determination of the LIBID Rate pursuant to subsection (a) or (b) above,
the LIBID Rate shall be the rate per annum which the Administrative Agent in
good faith determines to be the arithmetic average (rounded as aforesaid) of
bid quotations for Dollar deposits in an amount comparable to the
Administrative Agent's share of the relevant amount in respect of which the
LIBID Rate is being determined for a period comparable to the relevant Interest
Period that leading banks in New York City selected by the Administrative Agent
are quoting at 11:00 a.m. on the date of determination in the New York
Interbank Market to major international banks.
Each determination by the Administrative Agent of the LIBID Rate shall be
conclusive in the absence of manifest error. All interest based on the LIBID
Rate shall be calculated on the basis of a 360-day year for the actual number
of days elapsed.
"LIBOR Interest Period" shall mean, with respect to any Loan subject to a
---------------------
LIBOR Rate Option, any seven day period selected by the Borrower, commencing on
a Eurodollar Business Day, provided that:
(a) no LIBOR Interest Period shall end later than the Maturity Date;
and
(b) if a LIBOR Interest Period so selected would otherwise end on a
date which is not a Eurodollar Business Day, such LIBOR Interest Period shall
be extended to the next succeeding Eurodollar Business Day, unless such next
succeeding Eurodollar Business Day would fall in the next calendar month, in
which case, such Interest Period shall end on the next preceding Eurodollar
Business Day.
"LIBOR Rate" shall mean, with respect to a LIBOR Rate Loan for the
----------
relevant LIBOR Interest Period, the rate per annum determined by the
Administrative Agent as follows:
(a) on the Interest Determination Date relating to such Interest
Period, the Administrative Agent shall obtain the offered quotation(s) that
appear on the Reuter's Screen for Dollar deposits for a period comparable to
such Interest Period. If at least two such offered quotations appear on the
Reuter's Screen, the LIBOR Rate shall be the arithmetic average (rounded up to
the nearest 1/16th of 1%) of such offered quotations, as determined by the
Administrative Agent;
(b) if the Reuter's Screen is not available or has been discontinued,
the LIBOR Rate shall be the rate per annum that the Administrative Agent
determines to be the arithmetic average (rounded as aforesaid) of the per annum
rates of interest reported to the Administrative Agent by each Reference Bank
(or, if any Reference Bank fails to provide such quotation, on the basis of the
rates reported to the Administrative Agent by the remaining Reference Banks) as
the rate at which deposits in Dollars are offered to such Reference Banks in
the London Interbank Market at 11:00 a.m., London time, on the Interest
Determination Date in the approximate amount of such Reference Bank's relevant
LIBOR Rate Loan and having a maturity approximately equal to the relevant LIBOR
Interest Period; and
- 9 -
<PAGE>
(c) if the Administrative Agent is not able to obtain quotations for
the determination of the LIBOR Rate pursuant to subsection (a) or (b) above,
the LIBOR Rate shall be the rate per annum which the Administrative Agent in
good faith determines to be the arithmetic average (rounded as aforesaid) of
the offered quotations for Dollar deposits in an amount comparable to the
Administrative Agent's share of the relevant amount in respect of which the
LIBOR Rate is being determined for a period comparable to the relevant LIBOR
Interest Period that leading banks in New York City selected by the
Administrative Agent are quoting at 11:00 a.m. on the Interest Determination
Date in the New York Interbank Market to major international banks.
Each determination by the Administrative Agent of the LIBOR Rate shall be
conclusive in the absence of manifest error. All interest based on the LIBOR
Rate shall be calculated on the basis of a 360-day year for the actual number
of days elapsed.
"LIBOR Rate Loan" shall mean the portion of any Loan subject to a LIBOR
---------------
Rate Option which bears interest at the LIBOR Rate.
"LIBOR Rate Option" shall mean the option granted to the Borrower pursuant
-----------------
to Sections 3.1 and 4.1 to have interest on all or a portion of the outstanding
principal balance of the Loans computed with reference to a LIBOR Rate.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind (including any agreement to give any of the
foregoing), any conditional sale or title retention agreement and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
of any jurisdiction.
"Loan" and "Loans" shall have the meanings assigned to such terms in
---- -----
Section 2.1(a).
"Loan Documents" shall mean this Agreement, the Notes, the Security
--------------
Agreement and the VI Indemnity Agreement.
"Majority Banks" shall mean, at any time when no Loans are outstanding,
--------------
Banks having Commitments equal to more than 50% of the Aggregate Commitments,
and at any time when Loans are outstanding, Banks with outstanding Loans having
an unpaid principal balance equal to more than 50% of all Loans outstanding,
excluding from such calculation Banks which have failed or refused to fund a
Loan and which are subject to the voting restrictions set forth in the last
sentence of Section 4.2(b) hereof.
"Margin Stock" shall have the meaning assigned to such term in Regulation
------------
U of the Board of Governors of the Federal Reserve System, as amended.
"Material Adverse Change" shall mean, at any time on or prior to the
-----------------------
Funding Date, a material adverse change in the business, financial condition or
results of operations of Parent Cable from that reflected in the Parent Cable
Carve-Out 12/31/95 Financial Statements, except for (a) changes in, or changes
required in order to comply with, any adjustment in subscriber rates
implemented in a manner consistent with the rate regulations promulgated under
the Cable Television Consumer Protection and Competition Act of 1992, as
amended, and (b) changes resulting from technological changes generally
applicable to the cable television industry. Notwithstanding the
- 10 -
<PAGE>
foregoing, the mere enactment of the Telecommunications Act of 1996 shall not
in and of itself be deemed to constitute a Material Adverse Change.
"Material Adverse Effect" shall mean, at any time on or prior to the
-----------------------
Funding Date, a material adverse effect in the business, financial condition or
results of operations of Parent Cable from that reflected in the Parent Cable
Carve-Out 12/31/95 Financial Statements, except for (a) changes in, or changes
required in order to comply with, any adjustment in subscriber rates
implemented in a manner consistent with the rate regulations promulgated under
the Cable Television Consumer Protection and Competition Act of 1992, as
amended, and (b) changes resulting from technological changes generally
applicable to the cable television industry. Notwithstanding the foregoing,
the mere enactment of the Telecommunications Act of 1996 shall not in and of
itself be deemed to constitute a Material Adverse Effect.
"Maturity" shall mean the Maturity Date.
--------
"Maturity Date" shall mean, in respect of any Note, the earliest of (i)
-------------
the receipt by the Borrower of the TCI Subscription, (ii) the date such Note
shall become due and payable, whether by acceleration or otherwise, or (iii)
ten Business Days after the Funding Date in the event that the Transaction
shall not have been consummated on or before such tenth Business Day.
"Minimum Condition" shall have the meaning specified in the Parents
-----------------
Agreement.
"Money Market Preferred Stock" shall mean preferred stock issued on terms
----------------------------
where the rate of dividend paid thereon is determined by either (i) reference
to a recognized financial index or (ii) through an auction mechanism conducted
by a recognized financial institution, provided that the Parent Preferred Stock
shall not constitute Money Market Preferred Stock.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA under which the Borrower or any ERISA Affiliate is
required to contribute on behalf of its employees.
"New VII" shall mean Viacom International Services Inc., a Delaware
-------
corporation.
"Note" and "Notes" shall have the meanings assigned to such terms in
---- -----
Section 4.3(a).
"Obligations" shall mean (i) all payment and performance obligations of
-----------
the Borrower under the Loan Documents, as they may be amended from time to
time, or as a result of making the Loans and (ii) the obligation to pay an
amount equal to the amount of all damages which the Administrative Agent, the
Arranging Agents and the Banks may suffer by reason of any breach by the
Borrower of any obligation, covenant or undertaking with respect to this
Agreement or any other Loan Document.
- 11 -
<PAGE>
"Parent" shall mean the Borrower as defined in the preamble hereto.
------
"Parent Cable" shall mean the Borrower and its Subsidiaries after giving
------------
effect to the Conveyance of Assets and Assumption of Liabilities (as each such
term is used in the Parents Agreement) and the distribution by the Borrower of
all of the common stock of New VII to VI as contemplated by the Transaction.
"Parent Cable Carve-Out 12/31/95 Financial Statements" shall have the
----------------------------------------------------
meaning assigned to such term in Facility A.
"Parent Cable Carve-Out 3/31/96 Financial Statements" shall have the
---------------------------------------------------
meaning assigned to such term in Facility A.
"Parent Cable Special Purpose 12/31/95 Financial Statements" shall have
----------------------------------------------------------
the meaning assigned to such term in Facility A.
"Parent Cable Special Purpose 3/31/96 Financial Statements" shall have
---------------------------------------------------------
the meaning assigned to such term in Facility A.
"Parent Cable 5/31/96 Summary of Operations" shall have the meaning
------------------------------------------
assigned to such term in Facility A.
"Parent Debt Release Agreements" shall have the meaning assigned to such
------------------------------
term in Section 8.1(o).
"Parent Preferred Stock" shall mean the Class A Senior Cumulative
----------------------
Exchangeable Preferred Stock of the Borrower (exchangeable into TCI Series A
Group Stock) into which the Class A common Stock of the Borrower will be
automatically converted as part of the Transaction on the Transaction Effective
Date, as the same may be amended, supplemented or otherwise modified from time
to time.
"Parents Agreement" shall mean the Parents Agreement described in
-----------------
Schedule 1.1(T), as the same may be amended, supplemented or otherwise
modified.
"Payment Notice" shall mean a notice of payment as set forth in Section
--------------
5.1.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA, or any Governmental Body
succeeding to the functions thereof.
"Person" shall mean and include any individual, firm, partnership, joint
------
venture, corporation, association, business enterprise trust, unincorporated
organization, government or department or agency thereof or other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan" shall mean any plan (other than a Multiemployer Plan) subject to
----
Title IV of ERISA maintained for employees of the Borrower or any ERISA
Affiliate (and any such plan no longer maintained by the Borrower or any of
its ERISA Affiliates to
- 12 -
<PAGE>
which the Borrower or any of its ERISA Affiliates has made or was required to
make any contributions within any of the preceding five years).
"Prime Rate" shall mean the prime commercial lending rate of the
----------
Administrative Agent as publicly announced in New York City to be in effect
from time to time, such rate to be adjusted on and as of the effective date of
any change in the Prime Rate. The Prime Rate is only one of the bases for
computing interest on loans made by the Banks, and by basing interest on the
unpaid principal amount of the Loans not subject to a LIBOR Rate Option on the
Prime Rate, the Banks have not committed to charge, and the Borrower has not in
any way bargained for, interest based on a lower or the lowest rate at which
the Banks may now or in the future make loans to other borrowers.
"Pro-Forma Financial Statements" shall have the meaning assigned to such
------------------------------
term in Facility A.
"Prohibited Transaction" shall mean any transaction described in Section
----------------------
406 of ERISA that is not exempt by reason of Section 408 of ERISA or the
transitional rules set forth in Section 414(c) of ERISA and any transaction
described in Section 4975(c) of the Code that is not exempt by reason of
Section 4975(c)(2) or Section 4975(d) of the Code or the transitional rules of
Section 2003(c) of ERISA.
"Property" shall mean, in respect of any Person, all types of real,
--------
personal or mixed property and all types of tangible or intangible property
owned or leased by such Person.
"Reference Banks" shall mean the Administrative Agent, NationsBank of
---------------
Texas, N.A. and The Toronto-Dominion Bank.
"Register" shall have the meaning assigned to such term in Section 12.8.
--------
"Regulation G" shall mean Regulation G of the Board of Governors of the
------------
Federal Reserve System, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of the
------------
Federal Reserve System, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of the
------------
Federal Reserve System, as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Remaining Interest Period" shall mean: (a) in the event that the Borrower
-------------------------
shall fail for any reason to make a borrowing, continuation or conversion after
it delivers to the Administrative Agent a Borrowing Request or Continuation
Notice, a period equal to the Interest Period that the Borrower elected (from
and including the first day of such Interest Period to but excluding the last
day of such Interest Period); (b) in the event that notice shall be given to
the Borrower pursuant to Section 7.2 prior to the last day of the Interest
Period applicable thereto, a period equal to the period from and including the
date of such notice to but excluding the last day of such Interest Period as
- 13 -
<PAGE>
if such Interest Period had not been so terminated; and (c) in the event that
the Borrower shall prepay or repay or give notice of prepayment of all or any
part of the principal amount of the Loans prior to the last day of the Interest
Period applicable thereto, a period equal to the period from and including the
date of such prepayment or repayment or date notified as the date of such
prepayment (whichever is earlier) to but excluding the last day of such
Interest Period.
"Reportable Event" shall mean any of the events set forth in Section
----------------
4043(b) of ERISA or the regulations thereunder, a withdrawal from a Plan
described in Section 4063 of ERISA, a cessation of operations described in
Section 4068(f) or 4062(c) of ERISA, an amendment to a Plan necessitating the
posting of security under Section 401(a)(29) of the Code and the Borrower's
failure to post such security thereafter or a failure to make a payment
required by Section 412(m) of the Code and Section 302(e) of ERISA when due.
"Restricted Subsidiary" shall mean each of the Subsidiaries designated as
---------------------
such on Schedule 9.1 hereto.
"Reuter's Screen" shall mean the display designated at page "LIBO" on the
---------------
Reuter Monitor System or such other display on the Reuter Monitor System as may
replace such page displaying the London interbank bid or offered rates, as the
case may be, as of 11:00 a.m., London time, on the day on which the relevant
determination is made.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Security Agreement" shall mean the Security Agreement substantially in
------------------
the form of Exhibit C hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Significant Default" shall mean the occurrence of any of the events
-------------------
described in Sections 10.1(a), (b), (g) or (h), unless the occurrence of such
event is waived in accordance with this Agreement.
"Single Employer Plan" shall mean any Plan which is not a Multiemployer
--------------------
Plan.
"Statutory Reserves" shall mean (a) with respect to a LIBOR Rate, the
------------------
quotient (expressed as a decimal, rounded to the nearest 1/100 of 1%) obtained
by dividing (i) the number one by (ii) one minus the aggregate of the reserve
percentages expressed as a decimal established by the Board of Governors of the
Federal Reserve System for Eurocurrency Liabilities as prescribed under
Regulation D of said Board of Governors.
"Stock" shall mean any and all shares, interests, participations or other
-----
equivalents (however designated) of corporate stock.
"Subscription Agreement" shall mean the Subscription Agreement described
----------------------
in Schedule 1.1(T), as the same may be amended, supplemented or otherwise
modified.
"Subsidiary" shall mean any corporation, association, partnership, joint
----------
venture or other business entity of which the Borrower and/or any Subsidiary of
the
- 14 -
<PAGE>
Borrower, directly or indirectly, either (a) in respect of a corporation,
owns or controls more than 50% of the outstanding Stock having ordinary voting
power to elect a majority of the board of directors or similar managing body,
irrespective of whether or not a class or classes shall or might have voting
power by reason of the happening of any contingency, or (b) in respect of an
association, partnership, joint venture or other business entity, is entitled
to share in more than 50% of the profits and losses, however determined.
"Taxes" shall have the meaning assigned to such term in Section 6.2.
-----
"TCI" shall mean Tele-Communications, Inc., a Delaware corporation.
---
"TCIC" shall mean TCI Communications, Inc., a Delaware corporation.
----
"TCI Cosign Date" shall mean the business day immediately succeeding the
---------------
Transaction Effective Date.
"TCI Holdings" shall mean TCI Holdings, Inc., a Colorado corporation.
------------
"TCIC Subscription" shall mean the purchase by TCIC from the Borrower on
-----------------
the Transaction Effective Date of 100 shares of the Class B common Stock of the
Borrower for a purchase price of $350 million pursuant to the Subscription
Agreement.
"TCI Pacific" shall mean TCI Pacific, Inc., a Delaware corporation.
-----------
"TCI Series A Group Stock" shall mean the Series A TCI Group Common
------------------------
Stock, $1.00 par value per share, of TCI.
"Termination Event" shall mean (a) a Reportable Event, (b) the institution
-----------------
of proceedings to terminate a Single Employer Plan by the PBGC under Section
4042 of ERISA, (c) the appointment by the PBGC of a trustee to administer any
Single Employer Plan, or (d) the existence of any other event or condition that
could reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment by the PBGC of a trustee to
administer, any Plan.
"Transaction" shall mean the Conveyance of Assets, the Assumption of
-----------
Liabilities, the Loans, the Exchange Offer, the sale of the Shares and all
other transactions contemplated by the Transaction Documents (as each such term
is used in the Parents Agreement).
"Transaction Cable Systems" shall mean the Bay Area System, the Dayton
-------------------------
System, the Nashville System, the Northern California System, the Puget Sound
System and the Salem System, as each such term is used in the Implementation
Agreement.
"Transaction Documents" shall mean the documents listed on Schedule
---------------------
1.1(T), in each case as amended, supplemented or otherwise modified from time
to time in accordance with Section 11.16 of Facility A.
- 15 -
<PAGE>
"Transaction Effective Date" shall mean the date on which the Transaction
--------------------------
shall have been consummated in accordance with the Transaction Documents.
"Unrestricted Subsidiary" shall mean any Subsidiary that is not designated
-----------------------
as a Restricted Subsidiary.
"Unrestricted Subsidiary Equity" shall mean any capital Stock of, or
------------------------------
limited partnership or debt interest in, an Unrestricted Subsidiary or a Person
that is not the Borrower or a Subsidiary.
"Untransferred Non-Cable Assets" shall mean Untransferable Assets as such
------------------------------
term is defined in the Implementation Agreement.
"VI" shall mean Viacom Inc., a Delaware corporation.
--
"VI Indemnity Agreement" shall have the meaning assigned to such term in
----------------------
Facility A.
"Zero-Rated Jurisdiction" shall mean any of the following countries each
-----------------------
of which has a treaty with the United States which, in general, as of the
Execution Closing Date, fully eliminates United States withholding tax on
interest, subject to compliance with treaty conditions: Austria, Denmark,
Finland, France, Federal Republic of Germany, Greece, Hungary, Iceland,
Ireland, Luxembourg, Netherlands, Norway, Poland, Sweden and the United
Kingdom.
All accounting terms not specifically defined herein shall be construed in
accordance with GAAP and practices consistent with those applied in the
preparation of the financial statements referred to herein and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with
such principles and practices, except as otherwise specified herein.
Unless otherwise specified, all references to times of day shall be to New
York City, New York time.
Each definition of an agreement or instrument in this Article 1 shall
include such agreement as amended from time to time in accordance with this
Agreement.
ARTICLE 2. LOANS; COMMITMENT AMOUNTS.
-------------------------
2.1. Loans; Commitment Amounts.
-------------------------
(a) Subject to the terms and conditions of this Agreement, each Bank
severally agrees to make a loan through its Applicable Lending Office to the
Borrower on the Funding Date (each a "Loan" and collectively the "Loans") in
---- -----
accordance with the provisions of this Agreement. The principal amount of each
Bank's Loan shall be an amount equal to the product of (a) such Bank's
Commitment Percentage (expressed as a fraction) and (b) the total amount of the
Loans requested; provided that in no event shall any Bank be obligated to make
a
- 16 -
<PAGE>
Loan in an amount greater than such Bank's Commitment. The Loans shall be
payable in full on the Maturity Date.
(b) The amount of each Bank's Commitment and the Commitment
Percentage of each Bank shall be as set forth on Schedule 2.1 hereto.
(c) Neither the Administrative Agent nor any Bank shall be
responsible for the obligations or Commitment of any other Bank hereunder, nor
will the failure of any Bank to comply with the terms of this Agreement relieve
any other Bank or the Borrower of their obligations under this Agreement and
the other Loan Documents.
(d) The Commitment of each Bank and the Aggregate Commitments shall
terminate on the Commitment Expiration Date for the Commitments.
ARTICLE 3. INTEREST RATES ON LOANS.
-----------------------
3.1. Interest Rate.
-------------
Interest on the Loans shall be determined on the basis of interest
rate options selected by the Borrower from between the LIBOR Rate Option and
the Base Rate Option, it being understood that, subject to the provisions of
this Agreement, the Borrower may select different options to apply
simultaneously to different Loans or portions thereof, provided, however, that
the Borrower may not select the LIBOR Rate Option if a Default has occurred and
is continuing. The Loans shall bear interest (a) on the unpaid principal
amount of each Loan subject to a Base Rate Option at a rate per annum equal to
the Base Rate plus the Applicable Margin until the earlier of the occurrence of
an Event of Default under Section 10.1(a) or 10.1(b) or the Maturity Date, (b)
on the unpaid principal amount of each Loan subject to a LIBOR Rate Option at a
rate per annum equal to the applicable LIBOR Rate for the applicable Interest
Period plus the Applicable Margin from and including the first day of each
Interest Period to but excluding the last day of each such Interest Period
relating thereto until the earlier of the occurrence of an Event of Default
under Section 10.1(a) or 10.1(b) or the Maturity Date, and (c) from and after
the earlier of any Event of Default under Section 10.1(a) or 10.1(b) or the
Maturity Date, in accordance with Sections 3.2 or 5.2(b), as the case may be.
3.2. Interest Rate After Maturity.
----------------------------
From and after the Maturity Date, each Loan shall bear interest
(computed and adjusted in the same manner, and with the same effect, as
interest on such Loan prior to its Maturity), payable on demand, on the unpaid
principal amount thereof at the Base Rate plus the Applicable Margin plus 2%
per annum until paid, whether before or after entry of any judgment thereon.
- 17 -
<PAGE>
ARTICLE 4. LOAN PROCEDURES, NOTES AND PAYMENT OF INTEREST.
----------------------------------------------
4.1. Borrowing Request.
-----------------
The Borrower agrees to request the making of Loans hereunder (except
as provided in Section 5.3(b) for continuations or conversions) by delivery to
the Administrative Agent of a notice substantially in the form of Exhibit A
hereto (a "Borrowing Request"), which may be by telecopy or by telephone, in
-----------------
each case promptly confirmed in writing, and which shall be irrevocable. Any
failure by the Borrower to confirm any borrowing request given by telephone or
telecopy shall not invalidate any request so given. Such Borrowing Request
shall be delivered to the Administrative Agent no later than (a) 12:00 noon at
least three Business Days prior to the Funding Date in the case of Loans
subject to a LIBOR Rate Option or (b) on the Funding Date in the case of Loans
subject to a Base Rate Option. Such Borrowing Request shall specify (i) the
aggregate amount of Loans to be borrowed, (ii) the date on which the requested
Loans are to be made, (iii) the amount of Loans requested to be subject to a
Base Rate Option, and (iv) the amount of Loans requested to be subject to a
LIBOR Rate Option and the Interest Period therefor. The Administrative Agent
shall notify each Bank (by telecopy or by telephone promptly confirmed by
telecopy) of the receipt by it of the Borrowing Request (x) promptly on the
date of receipt with respect to a request for Base Rate Loans, and (y) prior to
5:00 p.m. on the third Business Day preceding the Funding Date with respect to
a request for LIBOR Rate Loans. Subject to the terms and conditions hereof,
each Bank shall make immediately available funds available to the
Administrative Agent not later than 1:00 p.m. on the Funding Date in an amount
equal to the product of (x) its Commitment Percentage (expressed as a
fraction), and (y) the principal amount of the Loans requested.
4.2. Disbursement of Proceeds.
------------------------
(a) The Administrative Agent shall disburse the proceeds of the Loans
at its office designated in Section 12.1 prior to 3:00 p.m. on the Funding
Date, by directly depositing the funds received from each Bank into a
collateral account (the "Cash Collateral Account") established and maintained
-----------------------
at the Administrative Agent's offices at One Wall Street, New York, New York,
or at such other offices in the City of New York as it shall designate from
time to time, under the sole dominion and control of the Administrative Agent
for the benefit of the Banks, designated as follows: The Bank of New York -
[__________], Account No. [____________], and the Borrower hereby irrevocably
directs the Administrative Agent to deposit such funds into the Cash Collateral
Account on such date unless the Administrative Agent shall determine that any
condition precedent set forth in Sections 4.1, 5.3 or 8.1, as applicable, has
not been fulfilled. The Administrative Agent shall not be required to disburse
the proceeds of any Loans until the Administrative Agent has received each
Bank's pro rata share of such Loans in immediately available funds.
(b) Unless the Administrative Agent shall have received prior notice
from a Bank (which notice shall be given promptly by telephone or telecopy, in
each
- 18 -
<PAGE>
case to be promptly confirmed in writing, provided that the failure to so
confirm in writing shall not invalidate any notice so given) that such Bank
will not make available to the Administrative Agent such Bank's Commitment
Percentage of the Loans requested by the Borrower, and provided that the
Administrative Agent shall have given such Bank timely notice of the Borrowing
Request in accordance with Section 4.1, the Administrative Agent may assume
that such Bank has made its applicable percentage available to the
Administrative Agent on the Funding Date and the Administrative Agent in
reliance upon such assumption, may (but shall not be obligated to) make
available to the Borrower on the Funding Date an amount corresponding to such
Bank's applicable percentage of the Loans made on such date. If and to the
extent such Bank shall not have so made such applicable percentage available to
the Administrative Agent, such Bank agrees to repay to the Administrative Agent
forthwith on demand such corresponding amount together with interest thereon,
(i) for each day from the date such amount is made available to the Borrower
until the earlier to occur of the date such amount is repaid to the
Administrative Agent or the second Business Day following the date such amount
was at a rate per annum equal to the Federal Funds Effective Rate for such day
and (ii) for each day thereafter until the date such amount is repaid to the
Administrative Agent, at a rate per annum equal to the Federal Funds Effective
Rate plus 1% for such day, and such Bank agrees to repay to the Administrative
Agent forthwith on demand such out of pocket administrative and investigative
expenses incurred by the Administrative Agent in connection with the
Administrative Agent's reasonable efforts to obtain such payments. If such
Bank shall repay to the Administrative Agent such corresponding amount,
together with accrued interest, such amount so repaid shall constitute such
Bank's Loan for purposes of this Agreement. In the event that, at any time when
the conditions to borrowing have been satisfied pursuant to Section 8.1, a Bank
for any reason fails or refuses to fund a Loan which it is obligated to fund
hereunder, and such failure or refusal shall have continued for five Business
Days, such non-funding Bank shall not be entitled (1) to vote regarding any
issue (other than an issue which requires the consent or approval of all of the
Banks) on which voting is required or advisable under this Agreement or any
other Loan Document, (2) to receive any payment of principal or interest from
the Borrower in respect of the Loan which such non-funding Bank failed or
refused to fund, or (3) to receive any Commitment Fees which have accrued after
the date such non-funding Bank failed or refused to fund until such time as (A)
such non-funding Bank has funded such Loan or (B) all of the other Banks who
funded their respective Loans have received their pro rata shares of all
principal and interest payable by the Borrower in respect of the Loan which
such non-funding Bank failed or refused to fund.
4.3. Notes.
-----
(a) The obligation of the Borrower to repay the Loans shall be
evidenced by (i) notes in the form of Exhibit B, signed by the Borrower (as
indorsed or modified from time to time, including all replacements thereof and
substitutions therefor, each a "Note" and collectively, the "Notes"), in each
---- -----
case, with appropriate insertions therein, dated the Funding Date, one (or more
if requested by a Bank) payable to the order of each Bank in the aggregate
principal amount of the Commitment of such Bank. Each Bank is hereby
irrevocably authorized by the Borrower to enter on the schedule attached to its
Note the principal amount and interest rate or rates of the Loan made by it,
each payment thereon, and the other information provided for on such schedule;
provided, however, that the failure to make any such entry with respect to a
Loan shall not limit or otherwise affect the obligation of the Borrower to
repay the same and, in all events, the principal amount owing by
- 19 -
<PAGE>
the Borrower in respect of each Bank's Note shall be the amount of the Loan
made by such Bank less all payments of principal thereon made by the Borrower.
Each Bank may attach one or more continuations to such schedule as and when
required. The aggregate unpaid principal balance of and the interest rates
applicable to the Loan set forth in the schedule attached to each Note shall be
presumptive evidence of the principal amount owing and unpaid thereon and the
interest rates applicable thereto, absent manifest error. Any amounts
outstanding under the Notes shall become due and payable on the Maturity Date.
(b) Upon surrender of any Note to the Borrower by reason of the
assignment by any Bank of its Note, Loan or Commitment or portion thereof in
accordance with the provisions of Section 12.8, the Borrower shall, at the cost
of such Bank, execute and deliver one or more new Notes of like tenor and of a
like aggregate principal amount in the name of the designated holder or holders
of such Note, Loan or Commitment or portions thereof. Upon receipt of written
notice from any holder or other evidence reasonably satisfactory to the
Borrower of the loss, theft, destruction or mutilation of the Note held by such
holder and, in the case of any such loss, theft or destruction, upon receipt of
an unsecured indemnity agreement, or in the case of any such mutilation, upon
surrender and cancellation of any such Note, the Borrower shall, at the cost of
such holder, make and deliver a new Note, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Note. Any such new Note or Notes shall
thereafter be considered a Note or Notes under this Agreement. Any such new
Note or Notes shall carry the rights to accrued and unpaid interest which were
carried by the Note or Notes so exchanged so that neither gain nor loss of
interest shall result from any such exchange.
4.4. Limitation on Interest Rate Options and Maximum Interest Rate.
-------------------------------------------------------------
(a) If, on or prior to the determination of an interest rate for any
LIBOR Rate Loan for any Interest Period, (i) the Administrative Agent
determines that for any reason appropriate quotations are not available to it
for purposes of determining the LIBOR Rate or (ii) the Majority Banks in good
faith notify the Administrative Agent that the LIBOR Rate applicable to such
Loans for such Interest Period would not adequately and fairly reflect the cost
to such Banks of making, maintaining or converting that portion of the
outstanding principal balance of their Loans proposed to be subject to a LIBOR
Rate Option for such Interest Period, the Administrative Agent shall promptly
give notice thereof to the Borrower and the Banks, and the Banks' obligation to
make, maintain or convert such LIBOR Rate Loans shall be suspended until such
time as such circumstance shall no longer exist and the applicable requests by
the Borrower shall be deemed requests for Base Rate Loans from the Banks unless
the Borrower specifically requests another interest rate option which remains
available to the Borrower pursuant to the terms hereof.
(b) If the provisions of this Agreement or any Note would at any time
require payment by the Borrower to the Administrative Agent on behalf of any
Bank of any amount of interest in excess of the maximum amount then permitted
by the law applicable to any Loan, the interest payments to the Administrative
Agent on behalf of such Bank shall be reduced to the extent necessary so that
such Bank shall not receive interest in excess of such maximum amount. If, as
a result of the foregoing such Bank shall receive interest payments under this
Agreement or its Note in an amount less than the amount otherwise provided
therein, such deficit (hereinafter called the "Interest Deficit") will, to the
----------------
fullest extent permitted by applicable law, cumulate and be carried
- 20 -
<PAGE>
forward (without interest) until the termination of this Agreement. Interest
otherwise payable to the Administrative Agent on behalf of such Bank under this
Agreement or its Note for any subsequent period shall be increased by the
maximum amount of the Interest Deficit that may be so added without causing
such Bank to receive interest in excess of the maximum amount then permitted by
the law applicable to the Loan, provided that at no time shall the aggregate
amount by which interest paid by the Borrower has been increased pursuant to
this sentence exceed the aggregate amount by which interest paid by the
Borrower has theretofore been reduced pursuant to this Section 4.4(b).
4.5. Interest Payment Periods.
------------------------
(a) Interest on the unpaid principal amount of each Base Rate Loan
and LIBOR Rate Loan shall be payable on the earlier to occur of the Transaction
Effective Date or Maturity.
(b) Interest on the unpaid principal amount of any Loan after such
Loan is due and payable shall be due and payable on demand.
(c) The Administrative Agent shall promptly notify the Borrower and
each Bank of the amount and the effective date of each adjustment in the
interest rate or rates applicable to the Loans, other than in respect of Base
Rate Loans, provided that no failure or delay in giving any such notice shall
affect or delay the making of any such adjustments or the obligations of the
Borrower to pay in a timely manner the interest due on such Loans.
4.6. Funding.
-------
Each Bank may, if it so elects, fulfill its obligation to make,
continue or convert LIBOR Rate Loans hereunder by causing one of its foreign
branches or affiliates (or an international banking facility created by such
Bank) to make or maintain such LIBOR Rate Loan; provided, however, that such
LIBOR Rate Loan shall nonetheless be deemed to have been made and to be held by
such Bank, and the obligation of the Borrower to repay such LIBOR Rate Loan
shall nevertheless be to such Bank, for the account of such foreign branch,
affiliate or international banking facility. Without limiting the
responsibility of the Banks to mitigate or eliminate the increased cost to such
Bank of making, funding or maintaining the Loan made by it in accordance with
Section 7.3 hereof, the Borrower hereby consents and agrees that, for purposes
of any determination to be made under Section 7.1, 7.2 or 7.4, it shall be
conclusively assumed that each Bank elected to fund all LIBOR Rate Loans by
purchasing Dollar deposits in its Applicable Lending Office in the London
Interbank Market.
ARTICLE 5. PAYMENT, CONTINUATION OR CONVERSION, AND PREPAYMENT OF LOANS.
------------------------------------------------------------
5.1. Payments.
--------
Each payment with respect to Loans, including each prepayment of
principal and interest on the Loans, and each payment of the Commitment Fee
shall be
- 21 -
<PAGE>
accompanied by a notice substantially in the form of Exhibit A (a "Payment
-------
Notice"), and shall be made by the Borrower to the Administrative
------
Agent at its office designated pursuant to Section 12.1, in funds immediately
available by 1:00 p.m., on the due date for such payment and shall be remitted
promptly by the Administrative Agent to the applicable Banks in funds
immediately available at their respective Applicable Lending Offices (a) pro
rata according to the average daily amount of such Bank's Available Commitment,
in the case of the Commitment Fee, and (b) pro rata according to the aggregate
outstanding principal balance of the Loans, in the case of principal and
interest due thereon. The failure of the Borrower to make any such payment by
such time shall not constitute a Default hereunder, provided that such payment
is received by the Administrative Agent in immediately available funds by 4:00
p.m. on such due date, but any such payment made after 1:00 p.m. on such due
date shall be deemed to have been made on the next Business Day for the purpose
of calculating interest on amounts outstanding on the Loans, unless the
Administrative Agent, in fact, was able to remit to each Bank its pro rata
share of such payment by 4:00 p.m. on such due date. If any payment hereunder
or under the Notes shall be due and payable on a day which is not a Business
Day, the due date thereof (except as otherwise provided in the definition of
LIBOR Interest Period) shall be extended to the next Business Day and interest
shall be payable at the applicable rate specified herein during such extension.
If any payment is made with respect to any portion of the unpaid principal
balance of any LIBOR Rate Loan prior to the last Business Day of the applicable
Interest Period, the Borrower shall indemnify each Bank against any loss or
expense suffered by such Bank as a result of such payment in accordance with
Section 7.4. The Borrower agrees to pay principal, interest, fees and all other
amounts due hereunder or under the other Loan Documents without setoff or
counterclaim or any deduction whatsoever, except for Taxes to the extent a Bank
fails to comply with the provisions of Sections 6.2(b) and 6.3.
5.2. Late Payments.
-------------
(a) Any payment of principal on any Note not paid on the date when
due and payable shall bear interest, to the extent permitted by law, at the
Base Rate, plus the Applicable Margin for Base Rate Loans plus 2% per annum
from the due date thereof until the date such payment is made. Any payment of
interest on any Note or any payment of any Commitment Fee or other fee or
payment payable by the Borrower hereunder and not paid within five days of the
date when due and payable shall bear interest, to the extent permitted by law,
at the Base Rate plus the Applicable Margin for Base Rate Loans for five days
and thereafter at the Base Rate plus the Applicable Margin plus 2% per annum
until the date such payment is made.
(b) Upon the occurrence of an Event of Default under Section 10.1(a)
or (b), each Note shall bear interest, payable on demand, on the unpaid
principal amount thereof at the Base Rate, plus the Applicable Margin for Base
Rate Loans, plus 2% per annum until paid, whether before or after entry of any
judgment thereon.
5.3. Continuation or Conversion.
--------------------------
(a) Subject to the terms and conditions of Section 7.2, the Borrower
may, at the conclusion of any Interest Period for any LIBOR Rate Loans and at
any time for any Base Rate Loans, and upon notice to the Administrative Agent
substantially in the form of Exhibit A (a "Continuation Notice"), elect to
-------------------
continue or to convert any Loans (or portion thereof) into LIBOR Rate Loans
with an Interest Period
- 22 -
<PAGE>
of equivalent or different length or to Base Rate Loans, as the case may be (in
a minimum amount of $5,000,000 or $1,000,000 integral multiples in excess
thereof in the case of a conversion of any Loans into a LIBOR Rate Loan);
provided, however, that no Loan may be converted to, or continued after the
expiration of its Interest Period as a LIBOR Rate Loan if a Default has
occurred and is continuing. The Borrower shall make the elections provided for
in this Section 5.3(a) by giving notice, which notice shall be irrevocable, by
telephone or telecopy, in each case promptly confirmed in writing to the
Administrative Agent by 1:00 p.m. at least three Business Days prior to the
commencement of the new Interest Period specified in such notice with respect
to the continuance of any Loans as LIBOR Rate Loans or the conversion of any
Loans to LIBOR Rate Loans. The Administrative Agent shall give notice to the
applicable Banks (by telecopy or by telephone promptly confirmed by telecopy)
promptly on the day it receives any Continuation Notice (or if received by the
Administrative Agent after 1:00 p.m., not later than the Business Day after
which it receives such notice) and, subject to the terms hereof, the Loans to
be continued or converted shall be (i) extended for a new LIBOR Interest Period
beginning on the last day of the previous Interest Period or (ii) converted to
Base Rate Loans or LIBOR Rate Loans, all as specified in the Continuation
Notice. Any such continued or converted Loans may, in accordance with the
provisions hereof, be continued or converted into additional Interest Periods.
Failure to confirm (in writing) any notice given by telephone or telecopy under
this Section shall not invalidate any notice so given.
(b) If the Borrower does not give notice by 1:00 p.m. to the
Administrative Agent at least three Business Days prior to the expiration of an
Interest Period for LIBOR Rate Loans as provided in Section 5.3(a), then the
principal amount of such Loans shall automatically be converted into Base Rate
Loans upon expiration of the applicable Interest Period.
5.4. Prepayments.
-----------
(a) Voluntary. Upon at least two Business Days', in the case of
---------
LIBOR Loans, irrevocable prior notice to the Administrative Agent (or in the
case of Base Rate Loans such notice shall have been given no later than 12:00
noon on the date of proposed prepayment) pursuant to a Payment Notice
specifying the amount and the date of prepayment, and which portion, if any, of
the Loans to be prepaid are LIBOR Rate Loans, the Borrower shall have the right
to prepay the Loans in whole at any time or in part from time to time (pro rata
to each Bank based on the proportion of its outstanding Loan to the aggregate
amount of Loans outstanding for all Banks) in aggregate principal amounts equal
to at least $5,000,000, or an integral multiple of $1,000,000 in excess
thereof, together with accrued interest on the amount being prepaid to the date
of such prepayment.
(b) General. Prepayments hereunder shall be without premium or
-------
penalty, provided however that with respect to the prepayment of Loans subject
to a LIBOR Rate Option, the Borrower shall compensate each Bank for its funding
costs, if any, at the time of any such prepayment in accordance with the terms
of Section 7.4. The Administrative Agent shall promptly notify each Bank (by
telecopy or by telephone confirmed by telecopy) of the contents of each notice
of prepayment. Failure to confirm any notice given by telephone under this
Section by telecopy shall not invalidate any notice so given.
- 23 -
<PAGE>
5.5. Application of Payments.
-----------------------
All payments to the Administrative Agent or the Banks under this
Agreement or the Notes (other than payments pursuant to Section 7.1, 7.2, 7.4,
or 12.13, which payments shall be applied as set forth in those respective
Sections) will be applied in the following order of priority: (a) to the
Commitment Fee then due and payable, (b) to any other amounts then due and
payable under this Agreement not otherwise listed in this Section 5.5, (c) to
the accrued interest then due and payable on the principal amount of the Loans,
(d) to the principal amount of the Loans then due and payable and (e) to the
prepayment of the Loans in accordance with the terms of this Agreement;
provided, however, that payments shall be applied in accordance with Section
10.2 under the circumstances described therein.
5.6. Sharing of Payments.
-------------------
Except where a provision of this Agreement provides or contemplates
non-pro rata treatment, if any Bank shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Loans made by it in excess of its pro rata share
of payments on account of the Loans received by the other Banks, then such Bank
shall forthwith purchase for cash, without recourse, from the other Banks
having Loans, such participations in the Loans made by them as shall be
necessary to cause such purchasing Bank to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Bank, such purchase from
each Bank shall be rescinded and each such Bank shall repay to the purchasing
Bank the purchase price to the extent of such recovery, together with an amount
equal to such Bank's pro rata share (according to the proportion of (a) the
amount of such Bank's required repayment to (b) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or payable by
the purchasing Bank in respect of the total amount so recovered. The Borrower
agrees that any Bank so purchasing a participation from another Bank pursuant
to this Section 5.6 may exercise all its rights of payment (including the right
of set-off) with respect to such participation as fully as if such Bank were
the direct creditor of the Borrower in the amount of such participation.
ARTICLE 6. FEES AND TAXES.
--------------
6.1. Commitment Fee.
--------------
(a) The Borrower agrees to pay to the Administrative Agent for the
account of each Bank, a fee (the "Commitment Fee") for the period from the
--------------
Execution Closing Date to but excluding the Funding Date, equal to .375 of 1%
per annum on the sum of the average daily Available Commitment of such Bank.
The Commitment Fee shall be computed on the basis of a 365/366 day year for the
actual number of days elapsed and shall be payable on the earlier of Maturity
or the date such Bank's Commitment is fully terminated.
(b) If any payment of the Commitment Fee shall be due and payable on
a day which is not a Business Day, the due date thereof shall be extended to
the
- 24 -
<PAGE>
next Business Day but such extension shall not affect the amount due as of
such payment date.
6.2. Taxes and Duties; Counterclaims.
-------------------------------
(a) So long as a Bank has complied with Sections 6.2(b) and 6.3, all
payments in respect of this Agreement, the Loans or the Notes shall be made by
the Borrower to such Bank without defense, setoff or counterclaim for Taxes (as
defined below) and free and clear of all present and future taxes, levies,
imposts, fees, duties and withholdings or other deductions whatsoever (other
than a tax based upon the net income of any Bank) (collectively, "Taxes"). So
-----
long as a Bank has complied with Sections 6.2(b) and 6.3, if any such Tax
becomes payable in respect of this Agreement or any Loan or Note, or any
amendment, modification or supplement hereof or thereof, the Borrower agrees to
pay the same together with any interest or penalties thereon plus an amount
which, after provision for such Tax, is necessary to yield and remit to such
Bank payments at the applicable rate set forth herein, and agrees to hold the
Administrative Agent and the Bank harmless with respect thereto. To the extent
the Borrower is obligated hereunder, the Borrower shall provide evidence that
such Taxes of any nature whatsoever in respect of this Agreement, any Loan, or
any Note shall have been paid to the appropriate taxing authorities by delivery
to the Bank on whose account such payment was made of the official tax receipts
or notarized copies of such receipts within 30 days after payment of any such
Tax. If the Borrower fails to make any such payments when due, the Borrower
shall indemnify the Banks and the Administrative Agent for any incremental
Taxes, interest or penalties that may become payable by any Bank or the
Administrative Agent as a result of any such failure.
(b) In order to avoid United States withholding tax costs as in
effect on the Execution Closing Date, each Bank extending credit to the
Borrower hereunder shall book and maintain its Loan through:
(i) any entity that is incorporated in the United States and that
completes the appropriate Form W9; or
(ii) the branch or agency of an entity incorporated outside the
United States that completes and delivers to the Borrower in duplicate and
to the Administrative Agent a currently effective Form 4224 (or any
successor form) certifying that as of the Execution Closing Date such
entity is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes; or
(iii) an entity that is resident in a Zero-Rated Jurisdiction for
United States withholding tax purposes and that completes and delivers to
the Borrower and the Administrative Agent a currently effective Form 1001
(or any successor form) certifying that as of the Execution Closing Date
such entity is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes.
6.3. Tax Forms.
---------
On or prior to the Execution Closing Date, upon the request of the
Administrative Agent and from time to time thereafter if requested by the
Borrower or the Administrative Agent, and to the extent possible under the tax
laws and treaties
- 25 -
<PAGE>
then in effect, each Bank shall provide to the Administrative Agent and the
Borrower executed forms prescribed by the IRS certifying as to such Bank's
status for purposes of determining exemption from United States withholding
taxes with respect to all payments to be made to such Bank hereunder as
specified in Section 6.2(b), such forms, in the case of those delivered on or
prior to the Execution Closing Date, to be for the 1995 calendar year.
ARTICLE 7. COST PROTECTION.
---------------
7.1. Change in Circumstances; Reserve Costs.
--------------------------------------
In the event that any present or future applicable law, rule or
regulation, or any change therein or in the interpretation or administration
thereof, including any request, guideline, directive or policy (whether or not
having the force of law) by any Governmental Body charged with the
administration or interpretation thereof, or compliance by any Bank with any
request, guideline, directive or policy of any such Governmental Body:
(a) subjects any Bank through its Applicable Lending Office to any
tax, duty or other charge (including the imposition of any withholding tax so
long as such Bank has complied with Sections 6.2(b) and 6.3) with respect to
its Loan or any part of its Commitment (other than any tax on or measured by
the overall net income of such Bank); or
(b) changes the basis of taxation of payments to any Bank through its
Applicable Lending Office of principal of, or interest on, any Loan made by
such Bank with respect to its Commitment or of other amounts payable hereunder,
or any combination of the foregoing (other than any tax on or measured by the
overall net income of such Bank); or
(c) imposes, modifies or deems applicable any reserve, capital
adequacy, deposit or similar requirement against any assets held by, deposits
with or for the account of, or loans or commitments by, or any acquisition of
funds by or for the account of an office of any Bank or its holding company in
connection with any Loan, including, without limitation, Statutory Reserves; or
(d) imposes upon any Bank any other condition with respect to any
Loan, any part of such Bank's Commitment, or this Agreement;
and the result of any of the foregoing (taking such Bank's policies into
account) is to (x) increase the cost to such Bank of making, funding or
maintaining its Loan or any part of its Commitment hereunder or (y) reduce the
amount of any payment (whether of principal, interest or otherwise) received or
receivable by such Bank or (z) require such Bank or its holding company to
deposit any reserve, increase its capital or make any payment on or calculated
by reference to the Loan made or sum received by it, or any part of its
Commitment, in each case by an amount which such Bank in its sole judgment
reasonably deems material after conducting the review required by Section 7.3
hereof:
(i) such Bank shall promptly notify the Borrower and the
Administrative Agent of the happening of such event;
- 26 -
<PAGE>
(ii) such Bank shall promptly, and in any case within 90 days of the
date when it becomes aware of the happening of such an event, deliver to
the Borrower and the Administrative Agent a certificate, executed by an
authorized officer of such Bank and delivered by a relationship officer
thereof, stating the change which has occurred or the reserve requirements
or other conditions which have been imposed or the request, direction or
requirement with which such Bank has complied or will comply, together with
the date thereof, the amount of such increased costs, reduction or payment,
the way in which such amount has been calculated, and shall certify that
this is the Bank's standard method of calculating such amount, that such
amount is or will be calculated in a similar way for other borrowers of the
Bank under similar circumstances, that such requests are not inconsistent
with its treatment of other borrowers which are subject to similar
provisions, and that its method of allocating any such costs, reductions or
payments is fair and reasonable; and
(iii) the Borrower shall promptly pay to the Administrative Agent for
transfer to such affected Bank such amount or amounts set forth in such
certificate as will compensate such Bank for such additional costs,
reduction or payment.
The certificate of the affected Bank as to the additional amounts payable
pursuant to this Section 7.1 delivered to the Borrower shall contain in
reasonable detail the basis upon which such additional amounts have been
calculated and shall be presumed correct absent manifest error. The provisions
of this Section 7.1 shall be applicable to the Borrower and the affected Bank
regardless of any possible contention of invalidity or inapplicability of the
law, regulation or condition which has been imposed. Notwithstanding the
foregoing, the Borrower will not be required to reimburse any Bank for any
increased costs, reductions or payments under this Section 7.1 arising prior to
90 days preceding the date of request, unless the applicable law or regulation
is imposed retroactively. In the case of a law or regulation which is
retroactive in effect, such notice shall be provided to the Borrower not later
than 90 days from the date that such Bank reasonably should have learned of
such law or regulation, and the Borrower's obligation to compensate such Bank
for such increased cost or reduction is contingent upon the provision of such
timely notice (but any failure by such Bank to provide such timely notice shall
not affect the Borrower's reimbursement obligations with respect to (a) costs
or reduction incurred from the date as of which the law or regulation became
effective to the date that is 90 days after such Bank reasonably should have
learned of such law or regulation and (b) costs or reduction incurred following
the provision of such notice). No failure on the part of any Bank to demand
compensation under this Section 7.1 shall constitute a waiver of its right to
demand such compensation on any other occasion in connection with any other
similar or dissimilar event. If the affected Bank shall subsequently recoup
costs for which such Bank has theretofore been compensated by the Borrower,
such Bank shall remit to the Borrower the amount of the recoupment.
7.2. Change in Legality.
------------------
Notwithstanding anything to the contrary contained in this Agreement,
if any change in any present or future applicable law, rule or regulation or in
the interpretation or administration thereof by any Governmental Body charged
with the administration thereof, or compliance with any request, guideline,
policy or directive (whether
- 27 -
<PAGE>
or not having the force of law) of any such Governmental Body, shall make it
unlawful or impracticable in the sole judgment of any Bank (an "Affected Bank")
-------------
for such Bank to make, fund or maintain its Loan, or any part of its Commitment
hereunder, and such Bank determines that it is not reasonably possible to take
steps to avoid such illegality or impracticability without adverse cost or
consequences to such Bank, then by notice to the Borrower and the
Administrative Agent upon the request of such Bank, the Administrative Agent
shall (a) if such event occurs prior to the making of the Loans, declare such
Bank's Commitment terminated and it shall thereby be terminated and the Banks'
Commitment Fee thereafter payable shall be proportionately reduced or (b) if
such event occurs after the making of the Loans (i) request the Affected Bank
to use reasonable efforts (which efforts shall be undertaken) to transfer its
Loan to another of its branches or agencies (or to another Bank or major
international bank acceptable to the Borrower, notwithstanding the restrictions
on transfer set forth in Section 12.8 hereof) in order to remove any illegality
provided and to the extent such transfer is not inconsistent with such Affected
Bank's internal policies of general application and only if, as determined by
such Affected Bank in its sole discretion, the transfer of such Loan would not
otherwise materially adversely affect such Loan or such Affected Bank, and
provided further that if such transfer is inconsistent with such Affected
Bank's internal policies or would materially adversely affect such Loan or such
Affected Bank, such Affected Bank shall deliver a certificate, executed by an
authorized officer thereof and delivered by a relationship officer, stating the
nature of such internal policy and that such policy has been applied
consistently to similarly situated borrowers and loans, or that such transfer
would materially adversely affect such Loan or such Affected Bank, as the case
may be, and (ii) request the Borrower to make a good faith effort (which effort
shall be undertaken) to refinance the Affected Bank's Commitment in order to
remove any illegality; provided, however, that if the efforts requested to be
made by the Affected Bank and the Borrower in clause (i) and clause (ii) above
are not successful within a reasonable period of time, the Borrower shall pay
in full the then outstanding principal amount of such Bank's Loan together with
accrued interest thereon either (x) on the last day of the then current
Interest Period if such Loan is subject to a LIBOR Rate Option and if such Bank
may lawfully continue to fund and maintain such Loan to such day or (y)
immediately if such Bank may not lawfully continue to fund and maintain such
Loan to such day, in each case together with any amounts necessary to reimburse
such Bank for any loss incurred as a result thereof pursuant to Section 7.4. If
any Bank shall claim that the funding or maintenance of any Loan or any part of
its Commitment hereunder has become unlawful, such Bank shall deliver to the
Administrative Agent and the Borrower a letter from legal counsel to such Bank,
which may be in-house counsel to such Bank, describing the legal basis for the
determination of such illegality.
7.3. Responsibility of Affected Bank.
-------------------------------
Upon the occurrence of any change in circumstances pursuant to
Section 7.1 or 7.2 and subject to the provisions of such Sections, the Bank
affected by such change shall use its reasonable efforts to conduct a review of
alternative reasonable courses of action which may mitigate or eliminate the
increased cost to the Bank of making, funding or maintaining the Loan made by
it and its obligations in respect of its Commitment hereunder and shall engage
in any such alternative course of action which is considered reasonable under
the circumstances as they shall exist at such time; provided that such
alternative course of action will not result in any increased costs or
reduction of the amount of any payment receivable hereunder by such Bank or
cause such
- 28 -
<PAGE>
Bank, in its good faith judgment, to violate one or more of its
policies in order to avoid such increased cost or reduction.
7.4. Cost of Funds.
-------------
Notwithstanding anything contained in this Agreement to the contrary,
if: (a) the Borrower shall fail to borrow a Loan subject to a LIBOR Rate Option
on the First Funding Date after the Borrower shall have given notice to do so
(unless such failure is due to the notification to the Borrower by the
Administrative Agent pursuant to Section 4.4(a)(ii)), (b) the Borrower shall
fail to continue or convert on the day requested for a continuation of or
conversion to a LIBOR Rate Loan after it shall have given a Continuation Notice
(unless such failure is due to the notification to the Borrower by the
Administrative Agent pursuant to Section 4.4(a)(ii)), (c) the Borrower shall
fail to make any prepayment after having given notice thereof pursuant to
Section 5.4, (d) a notice shall be given to the Borrower pursuant to Section
7.2 prior to the last day of the Interest Period applicable to any LIBOR Rate
Loan or (e) any repayment or prepayment of the principal amount of any LIBOR
Rate Loan is made for any reason (including, without limitation, as a result of
acceleration or illegality) on a date which is prior to the last day of the
Interest Period applicable thereto, the Borrower agrees to indemnify each Bank
against, and to pay directly to such Bank promptly upon receipt of a request
therefor, the amount of any reasonable loss or expense (other than attorneys'
fees unless an Event of Default then exists) suffered by such Bank as a result
of such failure to borrow, continue or convert, termination or repayment,
including without limitation, an amount equal to:
D
---
A x (B-C) x 360
where:
"A" equals such Bank's pro rata share of the Affected Principal
Amount;
"B" equals, as applicable, the LIBOR Rate (expressed as a decimal)
applicable to such LIBOR Rate Loan;
"C" equals, as applicable, the LIBID Rate applicable to such Loan or
portion thereof (expressed as a decimal) in effect on or about the date of such
failure to borrow, continue or convert, termination, prepayment or repayment,
based on the applicable rates bid on or about such date, for deposits in an
amount equal approximately to such Bank's pro rata share of the Affected
Principal Amount with an Interest Period equal approximately to the period
commencing on the first day of the Remaining Interest Period and ending on the
last day of such Remaining Interest Period or ending on the last day of the
applicable Interest Period, as the case may be, as determined by such Bank
(which for purposes of this calculation shall not exceed "B");
"D" equals the number of days from and including the first day of the
Remaining Interest Period to but excluding the last day of such Remaining
Interest Period or the last day of the applicable Interest Period, as the case
may be;
- 29 -
<PAGE>
and any other reasonable out-of-pocket loss or expense (including any
reasonable internal processing charge customarily charged by such Bank)
suffered by such Bank in liquidating or employing deposits prior to maturity in
amounts which correspond to such Bank's pro rata share of such proposed Loan or
repayment. Each Bank shall provide to the Borrower a statement, accompanied
where applicable by any supporting documentation illustrating the computation
described above and explaining the amount of any such loss or expense, which
statements shall be presumed correct absent manifest error with respect to the
parties hereto.
ARTICLE 8. CONDITIONS OF LENDING AND RELEASE.
---------------------------------
8.1. Conditions Precedent to First Funding
-------------------------------------
The obligations of the Banks to make the Loans on the Funding Date shall
be subject to the satisfaction of the following conditions precedent (each in
form and substance satisfactory to the Administrative Agent) on or prior to the
Funding Date:
(a) The Administrative Agent shall have received the Notes, in each
case dated as of the Funding Date, duly executed by the duly authorized officer
or officers of the Borrower;
(b) The Administrative Agent shall have received the Security
Agreement, duly executed by the duly authorized officer or officers of the
Borrower, together with such UCC-1 financing statements and other documents as
the Administrative Agent shall reasonably request in order to perfect the
security interest granted thereunder;
(c) The Administrative Agent shall have received a Borrowing Request,
duly executed by the duly authorized officer or officers of the Borrower;
(d) The Administrative Agent shall have received the VI Indemnity
Agreement, duly executed by the duly authorized officer of officers of VI;
(e) The Administrative Agent shall have received certified copies,
each dated as of a recent date, of (i) the certificate of incorporation,
together with all amendments thereto (including the amended and restated
certificate of incorporation specifying the terms and conditions of the Parent
Preferred Stock in the form of Exhibit I), of the Borrower, certified by the
Secretary of State of Delaware and a certificate as to the good standing of the
Borrower from such Secretary of State, (ii) certificates of the Secretary of
State or other appropriate official of each state in which the Borrower
conducts business or owns assets certifying that the Borrower is in good
standing as a foreign corporation in such state, except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect and
(iii) all documents evidencing other necessary governmental approvals, if any,
with respect to this Agreement, the Notes and the Loan Documents;
(f) The Administrative Agent shall have received a certificate of the
secretary or an assistant secretary of the Borrower certifying (i) that
attached thereto
- 30 -
<PAGE>
are true and complete copies of the resolutions, in form and substance
satisfactory to the Administrative Agent, adopted by the board of directors of
the Borrower, and all other necessary corporate action evidencing approval of
the transactions contemplated by this Agreement, the Notes, the Loan Documents
and the Transaction, (ii) that attached thereto is a true and complete copy of
the bylaws of the Borrower, together with all amendments thereto, as in effect
on the date of such certificate, (iii) that the certificate of incorporation of
the Borrower has not been amended since the date of the certification thereto
furnished pursuant to Section 8.1(e) above and that no dissolution proceedings
with respect to the Borrower have been commenced or are contemplated and (iv)
as to the incumbency and specimen signature of each officer of the Borrower
executing this Agreement, the Notes or the Loan Documents;
(g) The Administrative Agent shall have received a certificate signed
by a duly authorized Financial Officer of the Borrower to the effect that, as
of the Funding Date, (i) no event has occurred, is continuing, or would result
from the incurrence of such Loans which constitutes a Default; (ii) the
representations and warranties contained in Article 9 are true and correct as
of the Funding Date; and (iii) no Material Adverse Change shall have occurred
at any time on or prior to the commencement of the Exchange Offer;
(h) The Administrative Agent shall have received a certificate from
the Borrower attaching a true and complete copy of each of the Transaction
Documents and a list and status report of all governmental approvals with
respect to the Transaction which have not been obtained;
(i) The Administrative Agent shall have received a certificate from
the Borrower, VI and New VII to the effect that (i) the Transaction Documents
are in full force and effect and each of the Borrower, VI and New VII is in
compliance in all material respects with all obligations on its part to be
performed under the Transaction Documents and to its knowledge TCI and TCIC are
in compliance in all material respects with all obligations on their part to be
performed under the Transaction Documents, (ii) the Minimum Condition is
expected to be satisfied at 12:00 Midnight on the Funding Date, (iii) the
Expiration Time is expected to occur, without further condition (other than the
satisfaction of the Minimum Condition and the making of the Loans in the
aggregate principal amount of $300 million under this Agreement and the deposit
of the proceeds thereof in the Cash Collateral Account and the making of the
Facility A Loans in the aggregate amount of $1.4 billion under Facility A and
the deposit of the proceeds thereof in the Facility A Cash Collateral Account),
on the Funding Date, (iv) all conditions to the consummation by the Borrower,
VI and New VII of the Transaction set forth in the Transaction Documents have
been satisfied (without amendment, modification or waiver, except for
amendments expressly contemplated by the Transaction Documents and amendments,
modifications or waivers permitted under Section 11.16 of Facility A) except
for the matters set forth on Exhibit J to Facility A, and (v) each of the
Borrower, VI and New VII is ready, willing and able to satisfy or cause to be
satisfied in the manner required by the Transaction Documents all matters set
forth on Exhibit J to Facility A on its part to be satisfied and to consummate
the Transaction and knows of no reason why it cannot satisfy or cause to be
satisfied in the manner required by the Transaction Documents any of such
matters on its part to be satisfied or why the Transaction cannot be fully
consummated in accordance with the Transaction Documents within 10 Business
Days following the Funding Date;
- 31 -
<PAGE>
(j) The Administrative Agent shall have received a certificate from
TCI and TCIC to the effect that (i) the Transaction Documents are in full force
and effect and each of TCI and TCIC is in compliance in all material respects
with all obligations on its part to be performed under the Transaction
Documents and to its knowledge the Borrower, VI and New VII are in compliance
in all material respects with all obligations on their part to be performed
under the Transaction Documents, (ii) all conditions to the consummation by TCI
and TCIC of the Transaction set forth in the Transaction Documents have been
satisfied (without amendment, modification or waiver, except for amendments
expressly contemplated by the Transaction Documents and amendments,
modifications or waivers permitted under Section 11.16 of Facility A) except
for the matters set forth on Exhibit J to Facility A, and (iii) each of TCI and
TCIC is ready, willing and able to satisfy or cause to be satisfied in the
manner required by the Transaction Documents all matters set forth on Exhibit J
to Facility A on its part to be satisfied and to consummate the Transaction and
knows of no reason why it cannot satisfy or cause to be satisfied in the manner
required by the Transaction Documents any of such matters on its part to be
satisfied or why the Transaction cannot be fully consummated in accordance with
the Transaction Documents within 10 Business Days following the Funding Date;
(k) The IRS Ruling shall have been issued by the IRS, shall not have
been amended, modified, repealed, waived or withdrawn and shall not contain any
significant conditions, representations or caveats not contained in the request
(or any supplement thereto) for such IRS Ruling, and the Administrative Agent
shall have received a copy of the IRS Ruling and a certificate from the
Borrower to such effect;
(l) TCIC shall have on the Funding Date and on the Transaction
Effective Date either (i) cash on hand or (ii) the availability to borrow, and
the ability to satisfy all preconditions to borrow, the necessary funds under
committed credit facilities, in each case in an amount equal to the amount
necessary to close the TCIC Subscription, and the Administrative Agent shall
have received a certificate from TCIC to such effect;
(m) No actual litigation, order, decree, injunction or other
proceeding shall exist which enjoins or seeks to enjoin (i) the consummation of
the Transaction, (ii) the Banks from making the Loans or releasing the proceeds
of the Loans from the Cash Collateral Account, or (iii) the Facility A Banks
from making the Facility A Loans or releasing the proceeds of the Facility A
Loans from the Facility A Cash Collateral Account, and the Administrative Agent
shall have received a certificate from the Borrower to such effect;
(n) No Material Adverse Change shall have occurred at any time on or
prior to the commencement of the Exchange Offer;
(o) New VII shall have obtained the release of the Borrower from or
the substitution of New VII as obligor under (so that the Borrower will have no
obligation under), all of the Borrower's obligations to repay the Old VII Debt
(as defined in the Implementation Agreement), or shall have caused the
agreement or indenture pursuant to which such debt was issued to be amended or
supplemented so that the Borrower will no longer be an obligor (so that the
Borrower will have no obligation) thereunder, in each case effective
concurrently with the release of all funds from the Cash Collateral Account and
the Facility A Cash Collateral Account, and a copy of each such release,
amendment or supplement shall have been delivered to the Administrative Agent
and shall be in all respects reasonably satisfactory to the Arranging
- 32 -
<PAGE>
Agents (such releases, amendments or supplements, the "Parent Debt Release
-------------------
Agreements");
----------
(p) The Administrative Agent shall have received the Parent Cable
Carve-Out 12/31/95 Financial Statements, the Parent Cable Special Purpose
12/31/95 Financial Statements, the Parent Cable Carve-Out 3/31/96 Financial
Statements, the Parent Cable Special Purpose 3/31/96 Financial Statements, the
Parent Cable 5/31/96 Summary of Operations and the Pro-Forma Financial
Statements;
(q) The Administrative Agent shall have received a certificate of a
Financial Officer of TCIC with respect to the financial projections delivered
by TCIC to the Banks in connection with this Agreement, such certificate to be
substantially in the form of Exhibit G hereto;
(r) The Administrative Agent shall have received a certificate of an
authorized officer of the Borrower with respect to environmental matters, such
certificate to be substantially in the form of Exhibit H hereto;
(s) The Administrative Agent shall have received opinions, dated the
Funding Date, of Philippe Dauman, general counsel to the Borrower, and Edward
N. Schor, regulatory counsel to the Borrower, in substantially the form
attached hereto as Exhibits E-1 and E-2, and the Borrower hereby instructs each
such counsel to prepare and deliver its opinion to the Administrative Agent;
(t) The Administrative Agent shall have received an opinion of Emmet,
Marvin & Martin, LLP special counsel to the Administrative Agent, in
substantially the form attached hereto as Exhibit F;
(u) The representations and warranties contained in Article 9 shall
be accurate and complete on and as of the Funding Date;
(v) Immediately before and after giving effect to the Loans on the
Funding Date, no Default shall exist;
(w) No Default or Event of Default shall have occurred and be
continuing under any Funded Debt having an outstanding aggregate principal
amount equal to or greater than $10,000,000; and
(x) All fees and expenses payable to the Administrative Agent, the
Arranging Agents and the Banks shall have been paid to the extent such fees and
expenses have become payable on or prior to the Funding Date.
- 33 -
<PAGE>
8.2. Release of Cash Collateral Account.
----------------------------------
The Administrative Agent shall release the funds held in the Cash
Collateral Account to the Borrower subject to the conditions precedent that:
(a) The Banks shall have received evidence satisfactory to them that
TCIC has cash on hand in an amount equal to the amount necessary to close the
TCIC Subscription and that TCIC is ready, willing and able to transfer such
cash to the Borrower immediately following the Exchange Time whereupon the
Borrower shall immediately repay the Obligations in full. The Administrative
Agent shall have received a certificate from TCI and TCIC that each of TCI and
TCIC is ready, willing and able to satisfy or cause to be satisfied in the
manner required by the Transaction Documents all matters set forth on Exhibit J
to Facility A on its part to be satisfied and to consummate the Transaction and
knows of no reason why it cannot satisfy or cause to be satisfied in the manner
required by the Transaction Documents any of such matters on its part to be
satisfied or why the Transaction cannot be fully consummated in accordance with
the Transaction Documents immediately following the release of the funds from
the Cash Collateral Account and the Facility A Cash Collateral Account;
(b) No order, decree or injunction shall be in effect which enjoins
the consummation of the Transaction or the release of the funds in the Cash
Collateral Account or the Facility A Cash Collateral Account;
(c) Immediately before and after giving effect thereto no Default
shall exist;
(d) No default or event of default shall have occurred and be
continuing under any Funded Debt having an outstanding aggregate principal
amount equal to or greater than $10,000,000;
(e) The representations and warranties set forth in Section 9.10
shall be true and correct;
(f) The Administrative Agent shall have received a certificate from
the Borrower, VI and New VII to the effect that (i) the Transaction Documents
are in full force and effect and each of the Borrower, VI and New VII is in
compliance in all material respects with all obligations on its part to be
performed under the Transaction Documents and to its knowledge TCI and TCIC are
in compliance in all material respects with all obligations on their part to be
performed under the Transaction Documents, (ii) all Exchange Offer conditions
shall have been satisfied (without amendment, modification or waiver except for
amendments expressly contemplated by the Transaction Documents and amendments,
modifications or waivers permitted under Section 11.16 of Facility A), (iii)
subject to the release of the funds in the Cash Collateral Account and the
Facility A Cash Collateral Account and the delivery of $1.7 billion of such
funds to the Borrower for transfer to New VII as part of the Conveyance of
Assets (as such term is defined in the Implementation Agreement), (x) the
Borrower, VI and New VII will immediately in accordance with the Transaction
Documents cause the Conveyance of Assets and Assumption of Liabilities (as each
such term is defined in the Implementation Agreement), take the actions
referred to in Items XI and XII of Exhibit J to Facility A and cause the
Exchange Time to occur and (y) subject to receipt of the Purchase Price (as
defined in the Subscription Agreement) from TCIC the Borrower will, and VI and
New VII expect that the Borrower will, deliver the
- 34 -
<PAGE>
Certificate (as defined in the Subscription Agreement) to TCIC, and (iv)
subject to the matters referred to in preceding clause (iii), there are no
conditions to the consummation of the Transaction that remain to be satisfied
and upon completion of such matters the Transaction will be consummated; and
(g) The Administrative Agent shall have received copies of the
opinions of counsel to VI, New VII and the Borrower and counsel to TCI and TCIC
delivered pursuant to the Transaction Documents.
8.3. Notice to Banks.
---------------
Promptly after the Administrative Agent receives all documents
required under Section 8.1 as a condition precedent to the obligation of the
Banks to make the Loans on the Funding Date, the Administrative Agent shall
give notice to the Banks at their Applicable Lending Offices that it has
received all such documents and that such documents are satisfactory to it.
8.4. Tax Forms.
---------
On or prior to the Execution Closing Date, each Bank shall provide
the Administrative Agent and the Borrower with tax forms prescribed by Section
6.3.
ARTICLE 9. REPRESENTATIONS AND WARRANTIES.
------------------------------
In order to induce the Banks to make the Loans on the First Funding Date,
the Borrower hereby represents and warrants to the Administrative Agent and the
Banks as to itself and, as the context may require, to each of its
Subsidiaries, as follows:
9.1. Subsidiaries.
------------
Except for changes otherwise permitted by this Agreement, Schedule
9.1 hereto sets forth a true and complete list of the Borrower's Subsidiaries
(excluding any Subsidiaries to be transferred to New VII on or prior to the
Transaction Effective Date as part of the consummation of the Transaction) on
the Execution Closing Date and on the Transaction Effective Date, specifying as
of the Execution Closing Date and as of the Transaction Effective Date whether
such Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary for
purposes of this Agreement. The outstanding shares of capital stock of each
Restricted Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable, and, except as otherwise indicated on Schedule
9.1 or otherwise permitted by this Agreement, all of the outstanding shares of
each class of the capital stock of each Restricted Subsidiary are owned,
directly or indirectly, beneficially and of record, by the Borrower free and
clear of all Liens.
9.2. Corporate Existence and Power.
-----------------------------
The Borrower and each Restricted Subsidiary is duly organized or
formed and validly existing in good standing under the laws of the state in
which it is incorporated or formed; each has the power to own its property and
to carry on its respective business as now being conducted; and is duly
qualified and is in good standing in each jurisdiction in which the nature of
the respective business conducted by it or the
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properties owned by it makes such qualification necessary, except where such
failure to qualify could not reasonably be expected to have a Material Adverse
Effect.
9.3. Corporate Authority.
-------------------
The Borrower has full legal power and corporate authority to enter
into, execute, deliver and perform the terms of this Agreement, the Loan
Documents and the Transaction Documents to which it is a party, to make the
borrowings contemplated hereby and pursuant to the Notes, to execute, deliver
and perform the terms of the Loans, the Loan Documents and the Transaction
Documents to which it is a party, and to incur the obligations provided for
herein and therein, all of which have been duly authorized by all proper and
necessary corporate actions and are in full compliance with its certificate of
incorporation and bylaws. No consent or approval of, notice to or filing with,
or other action by, shareholders, any Governmental Body or any other Person,
which has not already been obtained, is required to authorize, or is required
in connection with the execution, delivery and performance of this Agreement,
the Notes, the Loans, the Loan Documents or the Transaction Documents (except
as expressly contemplated in the Transaction Documents) to which it is a party,
or is required as a condition to the validity or enforceability of this
Agreement, the Notes, the Loans, the Loan Documents or the Transaction
Documents to which it is a party.
9.4. Binding Agreement.
-----------------
This Agreement, the Notes and the other Loan Documents to which the
Borrower is a party have been duly executed and delivered on behalf of the
Borrower and constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except that the remedy of specific performance
is within the discretion of the applicable court.
9.5. No Conflicting Agreements.
-------------------------
Neither the Borrower nor any Restricted Subsidiary is a party to any
contract or agreement or subject to any charter or other corporate restriction
that could reasonably be expected to have a Material Adverse Effect. Neither
the execution nor delivery by the Borrower of this Agreement, the borrowings
hereunder, nor performance or fulfillment of or compliance with the terms and
provisions of this Agreement or the other Loan Documents, will conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute
a default under, or result in any violation of, or result in the creation of
any Lien upon any of the properties or assets (after giving effect to the
consummation of the Transaction) of the Borrower or any Restricted Subsidiary
pursuant to its charter or bylaws, any award of any arbitrator or any agreement
(including any agreement with stockholders), instrument, order, judgment,
decree, statute, law, rule or regulation to which any of them is subject. The
use of the proceeds of the Loans made on the Funding Date will not conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Borrower or
any Restricted Subsidiary pursuant to (i) its
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<PAGE>
charter or bylaws, any award of any arbitrator, any agreement with
stockholders, any order, judgment or decree, or any statute, law, rule or
regulation to which any of them is subject or (ii) any other agreement or
instrument to which any of them is subject that could reasonably be expected to
have a Material Adverse Effect. Neither the Borrower nor any Restricted
Subsidiary is a party to, or otherwise subject to, any provision contained in
any instrument evidencing Indebtedness of any of them, any agreement relating
thereto or any other contract or agreement (including its charter) that limits
the amount of, or otherwise imposes restrictions on, the incurrence of
Indebtedness by the Borrower of the type to be evidenced by the Notes except as
set forth in Schedule 9.5 hereto and, as to the instruments, agreements or
contracts, if any, listed on Schedule 9.5 the Borrower and/or any Restricted
Subsidiary that is a party to any of the same has complied therewith, or
received any consents or waivers necessary for compliance therewith.
9.6. Taxes.
-----
The Borrower and each Restricted Subsidiary has filed or caused to be
filed all federal, state and other material local income tax returns required
to be filed, and has paid, or has made adequate provision for the payment of,
all taxes shown to be due and payable on said returns or in any assessments
made against it, and no tax Liens have been filed and no claims are being
asserted with respect to such taxes which are required by GAAP to be reflected
in the Pro-Forma Financial Statements and are not so reflected therein. The
charges, accruals and reserves on the books of the Borrower and each Restricted
Subsidiary with respect to all federal, state and other material local taxes
are considered by the management of the Borrower to be adequate, and the
Borrower has no knowledge of any material unpaid assessment, tax or other
governmental charge or levy which is or might be due and payable against it or
any Restricted Subsidiary or any Property (after giving effect to the
consummation of the Transaction) of the Borrower or any Restricted Subsidiary,
except such thereof as are being contested in good faith and by appropriate
proceedings diligently conducted, and for which adequate reserves have been set
aside in accordance with GAAP.
9.7. Compliance with Applicable Laws.
-------------------------------
Neither the Borrower nor any Restricted Subsidiary is in default with
respect to any judgment, order, writ, injunction, decree or decision of any
Governmental Body which default could reasonably be expected to have a Material
Adverse Effect. The Borrower and each Restricted Subsidiary is complying in all
material respects with all applicable statutes and regulations, including,
without limitation, the Communications Act and ERISA, of all Governmental
Bodies, including the FCC, a violation of which could reasonably be expected to
have a Material Adverse Effect.
9.8. Governmental Regulations.
------------------------
Neither the Borrower nor any Restricted Subsidiary nor any
corporation controlling the Borrower or any Restricted Subsidiary or under
common control with the Borrower or any Restricted Subsidiary is subject to
regulation under the Public Utility Holding Company Act of 1935, as amended,
the Federal Power Act, as amended, or the Investment Company Act of 1940, as
amended, or is subject to any statute or regulation which regulates the
incurrence of Indebtedness for Borrowed Money (other than Regulation X),
including, without limitation, statutes or regulations relative
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<PAGE>
to common or contract carriers or to the sale of electricity, gas, steam,
water, telephone, telegraph or other public utility services.
9.9. Property.
--------
The Borrower and each Restricted Subsidiary has good and marketable
title to all of its owned Property (after giving effect to the consummation of
the Transaction) other than personal property and good title to all of its
Property that is personal property (after giving effect to the consummation of
the Transaction), title to which is material to the Borrower or such Restricted
Subsidiary, except for title imperfections or defects which could not
reasonably be expected to have a Material Adverse Effect, and such Property is
subject to no Liens, except Liens permitted under Section 11.2 of Facility A.
The Borrower and each Restricted Subsidiary enjoys peaceful and undisturbed
possession under all material leases necessary for the use and operation of its
Property (after giving effect to the consummation of the Transaction), none of
which contains any provisions which could reasonably be expected to have a
Material Adverse Effect. All such leases are valid and subsisting and are in
full force and effect, and neither the Borrower nor any Restricted Subsidiary
is in default thereunder which default could reasonably be expected to have a
Material Adverse Effect.
9.10. Federal Reserve Regulations; Use of Proceeds of Loans.
-----------------------------------------------------
The Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying any Margin Stock. No part of the proceeds of the Loans will be
used, directly or indirectly, by the Borrower or any of its Subsidiaries for a
purpose which violates any law, rule or regulation of any Governmental Body,
including, without limitation, the provisions of Regulation G, Regulation U or
Regulation X. Neither the Borrower nor any agent acting on its behalf has taken
any action that might cause this Agreement or the Notes to violate Regulation
G, Regulation U or Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act.
Following application of the proceeds of the Loans, not more than 25% (or such
greater or lesser percentage as provided in the exclusions from the definition
of "Indirectly Secured" contained in Regulation G and Regulation U in effect on
the Funding Date) of the value of the assets (both of the Borrower alone and of
the Borrower and the Restricted Subsidiaries on a consolidated basis) subject
to the provisions of Section 11.2 of Facility A will be Margin Stock.
9.11. ERISA.
-----
(a) No Prohibited Transactions, Accumulated Funding Deficiencies,
withdrawals from Multiemployer Plans or Reportable Events have occurred with
respect to any Plans or Multiemployer Plans that, in the aggregate, could
subject the Borrower or any ERISA Affiliate to any material tax, penalty or
other liability where such tax, penalty or liability is not covered in full for
the benefit of the Borrower or such ERISA Affiliate, by insurance. As of the
date of this Agreement, neither the Borrower nor any ERISA Affiliate reasonably
expects to withdraw from a Multiemployer Plan where such withdrawal would
subject the Borrower or any ERISA Affiliate to any material tax, penalty or
other liability;
(b) No notice of intent to terminate a Plan under Section 4041(c) of
ERISA has been filed, nor has any Plan been terminated under Section 4041(c) of
- 38 -
<PAGE>
ERISA nor has the PBGC instituted proceedings to terminate, nor appointed a
trustee to administer, a Plan and no event has occurred or condition exists
which could reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment by the PBGC of a trustee to
administer, any Plan;
(c) The present value of all vested benefit liabilities (as defined
in Section 4001(a)(16) of ERISA) under all Plans does not exceed by a material
amount the assets of the Plans allocable to such vested benefits; and
(d) The execution, delivery and performance by the Borrower of this
Agreement and the borrowings hereunder and the use of the proceeds thereof will
not involve any Prohibited Transaction with respect to any Plan or
Multiemployer Plan.
9.12. Franchises, Etc.
---------------
The Borrower and each Restricted Subsidiary possesses all material
franchises, certificates, licenses, permits and other authorizations from
Governmental Bodies and all material patents, trademarks, service marks, trade
names, copyrights, licenses, easements, rights of way and other rights, use,
access or rental agreements and utility easements that are necessary for the
ownership of its properties and assets and the maintenance and operation of its
businesses as presently conducted (after giving effect to the consummation of
the Transaction), and is not in violation of any of the foregoing in any
material respect. No event has occurred which permits, or after notice or
lapse of time (except expiration of the stated term thereof), or both, would
permit, the revocation or termination of any such franchise, certificate,
permit, license, authorization or other right which could reasonably be
expected to have a Material Adverse Effect. All such franchises, certificates,
permits, licenses and other authority have been validly issued to the Borrower
or a Restricted Subsidiary, as the case may be, by the appropriate governmental
authority and, except for franchises, certificates, permits, licenses or other
authority which if not obtained could not reasonably be expected to have a
Material Adverse Effect, each such franchise, certificate, permit, license or
other authority is valid and subsisting. The Borrower and each Restricted
Subsidiary is operating its respective businesses (after giving effect to the
consummation of the Transaction) in material compliance with the terms and
conditions of such franchises, certificates, permits, licenses and other
authority.
9.13. Burdensome Obligations.
----------------------
Neither the Borrower nor any Restricted Subsidiary is a party to or
is bound by any franchise, agreement, deed, lease or other instrument, or
subject to any corporate restriction which, in the opinion of the management of
the Borrower, is so unusual or burdensome as in the foreseeable future could
reasonably be expected to have a Material Adverse Effect.
9.14. FCC and Copyright Matters.
-------------------------
The Borrower and each Restricted Subsidiary (a) has duly and timely
filed all cable television registration statements and other filings that are
required to be filed by the Borrower and each Restricted Subsidiary under the
Communications Act,
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<PAGE>
the failure to file of which could reasonably be expected to have a Material
Adverse Effect, and (b) is complying in all material respects with the
Communications Act, including, without limitation, the rules, regulations and
published policies of the FCC relating to the transmission of television, cable
and microwave signals, a violation of which could reasonably be expected to
have a Material Adverse Effect. Neither the Borrower nor any Restricted
Subsidiary has any knowledge that the Borrower or any Restricted Subsidiary has
not recorded or deposited with and paid to the United States Copyright Office,
the Register of Copyrights and the Copyright Royalty Tribunal all material
notices, statements of account, royalty fees and other documents and
instruments required under the Copyright Act with respect to its business
operations (after giving effect to the consummation of the Transaction), and,
to the knowledge of the Borrower, neither the Borrower nor any Restricted
Subsidiary is liable in any material respect to any Person for copyright
infringement under the Copyright Act as a result of its business operations
(after giving effect to the consummation of the Transaction). The Borrower and
each Restricted Subsidiary has filed or caused to be filed with the FCC all
reports, applications, documents, instruments and information required to be
filed pursuant to all FCC rules, regulations and requests the failure to file
of which could reasonably be expected to have a Material Adverse Effect.
9.15. Capital Stock of the Borrower.
-----------------------------
Except as otherwise permitted by the terms of this Agreement, the
ownership of the issued and outstanding capital stock of the Borrower is as set
forth on Schedule 9.15 at the relevant times set forth therein. The
outstanding shares of capital stock of the Borrower have been duly authorized
and validly issued and are fully paid and non-assessable. Except as disclosed
on Schedule 9.15, and except as otherwise permitted by the terms of this
Agreement, there are no outstanding options, rights or warrants for the
acquisition by any Person, directly or indirectly, of shares of the capital
stock (other than Money Market Preferred Stock) of the Borrower or of
securities or obligations convertible into such capital stock and there are no
sale agreements, proxies, voting trusts, powers of attorney or other agreements
binding upon the Borrower and any Person, directly or indirectly, with respect
to beneficial or record ownership, or voting rights with respect to, shares of
capital stock of the Borrower.
9.16. Use of Proceeds.
---------------
On the Funding Date, funds equal to the entire principal amount of
the Loans made on the Funding Date shall be directly deposited into the Cash
Collateral Account and such funds, subject to and in accordance with the terms
and conditions of this Agreement, shall be released to the Borrower on the
Transaction Effective Date to enable the Borrower to contribute such funds to
New VII.
9.17. Business of the Borrower.
------------------------
The Borrower and the Restricted Subsidiaries (after giving effect to
the consummation of the Transaction) are engaged primarily in the cable
television business, including pay cable service, which involves the
distribution primarily by cable of audio and video signals in defined
geographical areas, and in the business of acquiring, owning, expanding,
operating and maintaining Cable Systems, and in directly related media
activities, including, without limitation, data transmission services,
telephony and the production and distribution of programming.
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<PAGE>
9.18. Ranking of Loans; Joint and Several Liability.
---------------------------------------------
This Agreement and the other Loan Documents to which the Borrower is
a party, when executed, and the Loans, when borrowed, are and will be the
direct and general obligations of the Borrower. The Borrower's obligations
hereunder and under the other Loan Documents rank and will rank at least pari
passu in priority of payment to all other Indebtedness for Borrowed Money of
the Borrower. For purposes of this Section 9.18, the phrase "priority of
payment" refers to the order of payment or seniority of debt and not to the
presence or absence of security.
9.19. No Misrepresentation.
--------------------
(a) On the Funding Date, no representation or warranty contained in
this Agreement and no certificate, document, written statement or written
report furnished or to be furnished by or on behalf of the Borrower in
connection with this Agreement or the transactions contemplated hereby, taken
as a whole, contains any untrue statement of a material fact, or omits to state
a material fact required to be stated in order to make such representation,
warranty, certificate, document, statement or report not misleading in the
light of the circumstances under which they are made.
(b) As of the Funding Date, there is no fact peculiar to the Borrower
or any Restricted Subsidiary which could reasonably be expected to have a
Material Adverse Effect that has not been set forth in this Agreement or in the
other documents, certificates and written statements and reports furnished to
the Administrative Agent by or on behalf of the Borrower.
(c) Notwithstanding anything to the contrary contained in this
Section 19, the representations and warranties contained in this Section 19
shall not be deemed to apply to any financial projections provided by the
Borrower or any Restricted Subsidiary.
ARTICLE 10. EVENTS OF DEFAULT.
-----------------
10.1. Events of Default.
-----------------
The following shall each constitute an "Event of Default":
----------------
(a) The failure of the Borrower to make any scheduled payment or
prepayment (other than a voluntary prepayment pursuant to the terms of Section
5.4) of principal of the Loans on the date due and payable; or
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<PAGE>
(b) The failure of the Borrower to make payment of interest on any of
the Loans or the Commitment Fee or any other amount payable hereunder, other
than amounts described in Section 10.1(a), on any date when due and payable and
such failure shall continue unremedied for a period of five days after the same
shall become due; or
(c) The failure of the Borrower or any other obligor under any other
Loan Document (other than the Administrative Agent, the Arranging Agents or any
Bank) to observe or perform any other term, covenant or agreement contained in
this Agreement or any other Loan Document, and such failure shall have
continued unremedied for a period of 30 days after the Borrower shall have
become aware of such failure; or
(d) If at any time on or prior to the closing of the Transaction on
the Transaction Closing Date, the Borrower shall not be a wholly-owned, direct
or indirect Subsidiary of VI; or
(e) Any representation or warranty of the Borrower (or of any of its
officers on its behalf in connection with this Agreement or the Loans) made
herein or in any certificate, report, opinion (other than an opinion of
counsel) or other Loan Document shall prove to have been incorrect or
misleading (whether because of misstatement or omission) in any material
respect when made or deemed made or confirmed; or
(f) The Borrower or any Restricted Subsidiary shall fail (i) to pay,
or, if required to purchase or otherwise acquire, shall fail to purchase or
otherwise acquire, any part of the principal of, the premium, if any, or the
interest on, or any other payment of money due under, any Funded Debt having a
then outstanding aggregate principal amount of $10,000,000 or more, on or prior
to the expiration of any period of grace with respect thereto, whether or not
such default has been waived by the holders of such Indebtedness, or (ii) to
perform or observe any other agreement, term or condition contained in any
document evidencing or securing such Funded Debt, or in any agreement under
which any such Funded Debt was issued or created, which default has not been
waived in writing by the holders of such Funded Debt prior to the time the
Loans have become or been declared to be due and payable hereunder, if the
effect of such failure is (x) to cause, or permit the holders of such Funded
Debt (or a trustee on behalf of such holders) to cause, any payment in respect
of such Funded Debt to become due prior to its stated date of maturity, or (y)
to cause the Borrower or any Restricted Subsidiary to be required to purchase
or otherwise acquire such Funded Debt; or
(g) The Borrower or any Restricted Subsidiary shall (i) suspend or
discontinue its business, (ii) make an assignment for the benefit of creditors,
(iii) generally not be paying its debts as such debts become due, (iv) admit in
writing its inability to pay its debts as they become due, (v) file a voluntary
petition in bankruptcy, (vi) become insolvent (however such insolvency shall be
evidenced), (vii) file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment of debt, liquidation or
dissolution or similar relief under any present or
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<PAGE>
future statute, law or regulation of any jurisdiction, (viii) petition or apply
to any tribunal for any receiver, custodian or any trustee for it, or any
substantial part of its Property, (ix) be the subject of any such proceeding
filed against it that remains undismissed for a period of 60 days, (x) file any
answer admitting or not contesting the material allegations of any such
petition filed against it, or of any order, judgment or decree approving such
petition in any such proceeding, (xi) seek, approve, consent to or acquiesce in
any such proceeding, or in the appointment of any trustee, receiver, custodian,
liquidator or fiscal agent for it, or any substantial part of its Property, or
an order is entered appointing any such trustee, receiver, custodian,
liquidator or fiscal agent and such order remains unstayed and in effect for 60
days or (xii) take any formal action for the purpose of effecting any of the
foregoing or looking to the liquidation or dissolution of the Borrower or any
Restricted Subsidiary; or
(h) An order for relief is entered under the United States bankruptcy
laws or any other decree or order is entered by a court having jurisdiction
and, in the case of an order for relief entered against the Borrower or any
Restricted Subsidiary (and not voluntarily submitted by the Borrower or any
Restricted Subsidiary), continues unstayed and in effect for a period of 60
days (i) adjudging the Borrower or any Restricted Subsidiary a bankrupt or
insolvent, (ii) approving as properly filed a petition seeking reorganization,
liquidation, arrangement, adjustment or composition of, or in respect of the
Borrower or any Restricted Subsidiary under the United States bankruptcy laws
or any other applicable Federal or state law, (iii) appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Borrower or any Restricted Subsidiary or of any substantial
parts of the Property of any thereof or (iv) ordering the winding up or
liquidation of the affairs of the Borrower or any Restricted Subsidiary; in
each such case the Borrower, for itself and on behalf of each Restricted
Subsidiary, expressly authorizes the Administrative Agent to protect and defend
the Administrative Agent's or the Bank's rights in such case or proceeding; or
(i) One or more judgments or decrees in an aggregate amount in excess
of $1,500,000 shall be rendered against the Borrower and the Restricted
Subsidiaries, or any of them, and such judgments or decrees shall continue
unsatisfied and unstayed for a period of 60 days; or
(j) (i) A Termination Event with respect to a Plan shall occur, (ii)
any Person shall engage in any transaction involving any Plan which is
prohibited under Section 4975 of the Code or Section 406 of ERISA and not
exempt under Section 4975 of the Code or Section 408 of ERISA or by a class or
individual exemption issued by the Department of Labor, which results in
material liability of the Borrower or any ERISA Affiliate, (iii) an Accumulated
Funding Deficiency, whether or not waived, shall exist in a material amount
with respect to any Plan, (iv) the Borrower or any ERISA Affiliate shall be in
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments
due to a Multiemployer Plan resulting from the Borrower's or such ERISA
Affiliate's complete or partial withdrawal (as described in Section 4203 or
4205 of ERISA) from such Plan or (v) any other event or condition shall occur
or exist with respect to a Single Employer Plan or a Multiemployer Plan, except
that no event or condition referred to in any of the clauses (i) through (v)
shall constitute an Event of Default if it, together with all other events or
conditions at the time existing, would not subject the Borrower or any of its
Restricted Subsidiaries to any tax, penalty, Indebtedness for Borrowed Money or
liability which, alone or in the aggregate, would have a Material Adverse
Effect; or
- 43 -
<PAGE>
(k) Any of the following events shall occur with respect to any Plan:
(i) the institution of any steps by the Borrower, any ERISA Affiliate or any
other Person to terminate a Plan if, as a result of such termination, the
Borrower or any ERISA Affiliate could be required to make a contribution to
such Plan, or could reasonably expect to incur a liability or obligation to
such Plan in excess of $1,000,000; or (ii) a contribution failure occurs with
respect to any Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA; or
(l) The failure of (i) the Borrower, VI, TCI or TCIC to observe or
perform any material term, covenant or agreement contained in the Transaction
Documents, and such failure shall have continued unremedied for a period of 3
days after such party shall have become aware of such failure, (ii) any other
party to the Transaction Documents to observe or perform any term, covenant or
agreement contained in the Transaction Documents, if such failure could
reasonably be expected to have a Material Adverse Effect, and such failure
shall have continued unremedied for a period of 3 days after such party shall
have become aware of such failure, or (iii) any of the Transaction Documents
shall terminate or any party thereto shall elect to terminate any of the
Transaction Documents prior to the closing of the Transaction on the
Transaction Effective Date; or
(m) The occurrence of an Event of Default under and as defined in any
Loan Document; or
(n) The occurrence of an Event of Default under and as defined in
Facility A.
10.2. Consequences of an Event of Default.
-----------------------------------
Upon the occurrence or at any time during the continuance of an Event
of Default, the Administrative Agent, at the written request of the Majority
Banks, shall notify the Borrower that the Aggregate Commitments have been
terminated and/or that the Loans (plus any prepayment premium due hereunder)
have been declared immediately due and payable, whereupon the Loans shall be
and become immediately due and payable; provided, however, that upon the
occurrence of an Event of Default with respect to the Borrower under Section
10.1(g) or (h) the Aggregate Commitments shall automatically terminate and the
Loans shall become immediately due and payable, without declaration or notice
to the Borrower. To the fullest extent permitted by law, except for the notice
provided for in the preceding sentence, the Borrower hereby expressly waives
any presentment, demand, protest, notice of protest or other notice of any
kind. To the fullest extent permitted by law, the Borrower hereby further
expressly waives and covenants not to assert any appraisement, valuation, stay,
extension, redemption or similar laws, now or at any time hereafter in force
which might delay, prevent or otherwise impede the performance or enforcement
of this Agreement, the Notes, the Intercompany Debt Subordination Agreement,
the Loans or any of the other Loan Documents.
In the event that the Aggregate Commitments shall have been
terminated or the Loans shall have been declared due and payable pursuant to
the provisions of this Section 10.2, the Banks and the Borrower agree that any
funds received from
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<PAGE>
or on behalf of the Borrower by any of the Banks in respect of the Obligations
shall be remitted to the Administrative Agent and shall be applied by the
Administrative Agent in payment of the Loans and the Obligations of the
Borrower in the following manner and order: (a) first, to reimburse the
Administrative Agent and the Banks for any expenses due from the Borrower
pursuant to the expense reimbursement and indemnification provisions of this
Agreement; (b) second, to the payment, pro rata according to the Aggregate
Commitments, of the Commitment Fee due under this Agreement; (c) third, to the
payment of any other fees, expenses or amounts (other than the principal of and
interest on the Loans) payable by the Borrower to the Administrative Agent or
any of the Banks under or in connection with this Agreement; (d) fourth, to the
payment of any interest due on the Loans, pro rata according to the aggregate
outstanding principal balance of the Loans; (e) fifth, to the payment, pro rata
according to the aggregate outstanding principal balance of the Loans, and (f)
sixth, any remaining funds shall be paid to whomsoever shall be entitled
thereto or as a court of competent jurisdiction shall direct.
10.3. Waiver of Defaults.
------------------
Except as otherwise specifically provided by the provisions of this
Agreement, including without limitation Section 12.5, the Administrative Agent
shall, only if authorized in writing by the Majority Banks, by written notice
to the Borrower, at any time and from time to time, waive in whole or in part,
absolutely or conditionally, any Default that shall have occurred or that may
be expected to occur hereunder, under the Notes or under any of the other Loan
Documents. Any such waiver shall be for such period and subject to such
conditions or limitations as shall be specified in any such notice, and no
single or partial waiver by the Administrative Agent or the Majority Banks of
any right, power or remedy shall preclude other or further exercise thereof or
any exercise of any other rights, powers or remedies. In the case of any such
waiver, the rights and obligations of the Borrower and the Banks under this
Agreement, the Notes and the other Loan Documents shall be otherwise
unaffected, and any Default so waived shall be deemed to be cured and not
continuing to the extent and on the conditions or limitations set forth in such
waiver, but no such waiver shall extend to any subsequent or other Default, or
impair any right, remedy or power consequent upon any such other Default.
ARTICLE 11. THE ADMINISTRATIVE AGENT AND ARRANGING AGENTS.
---------------------------------------------
11.1. The Administrative Agent.
------------------------
The Bank of New York is hereby irrevocably designated the
Administrative Agent by each of the other Banks to perform such duties on
behalf of the other Banks and itself, and to have such powers as are set forth
herein and as are reasonably incidental thereto. In performing its functions
and duties under this Agreement and the Loan Documents, the Administrative
Agent shall act solely as agent of the Banks and does not assume and shall not
be deemed to have assumed any obligation toward or relationship of agency or
trust hereunder or thereunder with or for the Borrower. The duties of the
Administrative Agent shall be mechanical and administrative in nature; the
Administrative Agent shall not have by reason of this Agreement or any Loan
Document a fiduciary relationship with any Bank, and nothing in this Agreement
or any Loan Document, expressed or implied, is intended or shall be so
construed to impose upon the
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Administrative Agent any obligations in respect of this Agreement, the Loan
Documents, the Loans or the other instruments and agreements referred to herein
except as expressly set forth herein or therein.
11.2. Delegation of Duties, Etc.
-------------------------
The Administrative Agent may execute any of its duties and perform
any of its powers hereunder by or through agents or employees and shall be
entitled to consult with legal counsel and any accountant or other professional
selected by it. The Administrative Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
11.3. Indemnification.
---------------
The Banks agree to indemnify the Administrative Agent, in its
capacity as such, and its directors, officers, employees or agents, to the
extent not reimbursed promptly by the Borrower, pro rata according to their
respective Loan outstanding or, if no Loans are outstanding, according to their
respective Commitment, from and against any and all claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by or asserted against any of them in any way relating to or
arising out of this Agreement or any Loan Document or any action taken or
omitted to be taken or suffered in good faith by any of them hereunder or
thereunder, provided that no Bank shall be liable for any portion of any of the
foregoing items resulting from the gross negligence or willful misconduct of
the Administrative Agent or any of its directors, officers, employees or
agents. Without limiting the foregoing, each Bank agrees to reimburse the
Administrative Agent promptly upon demand for its pro rata share of any out-of-
pocket expenses (including reasonable counsel fees and disbursements) incurred
by the Administrative Agent in connection with the preparation, execution,
administration or enforcement of, legal advice in respect of rights or
responsibilities under, or amendment, modification or waiver of any provision
of, this Agreement or any Loan Document, to the extent that the Administrative
Agent is not promptly reimbursed for such expenses by the Borrower. If the
Administrative Agent is subsequently reimbursed by the Borrower for such
expenses, the Administrative Agent shall remit to the Banks their pro rata
shares of such reimbursement.
11.4. Exculpatory Provisions.
----------------------
(a) Neither the Administrative Agent nor any of its officers,
directors, employees or agents shall be liable for any action taken or omitted
to be taken or suffered in good faith by it hereunder or in connection
herewith, except that the Administrative Agent shall be liable for its own
gross negligence or willful misconduct. Neither the Administrative Agent nor
any of its directors, officers, employees or agents, shall be liable in any
manner for the effectiveness, enforceability, collectability, genuineness,
perfection, validity, sufficiency or the due execution of this Agreement or any
Loan Document or for the due authorization, authenticity or accuracy of the
representations and warranties herein or in any other certificate, report,
notice, consent, opinion, statement, or other document furnished or to be
furnished hereunder, and shall be entitled to rely upon any of the foregoing
believed by it to be genuine and correct and to have been signed and sent or
made by the proper Person. The Administrative Agent shall be under no duty or
responsibility to the Banks to ascertain or to inquire into the performance or
observance by the Borrower or any Restricted Subsidiary or any other
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<PAGE>
obligor of any of the provisions hereof or of any document executed and
delivered in connection herewith. Each Bank acknowledges that it has taken and
will continue to take such action and to make such investigation as it deems
necessary to inform itself of the affairs of the Borrower and the Restricted
Subsidiaries and each Bank acknowledges that it has made and will continue to
make its own independent investigation of the creditworthiness and the business
and operations of the Borrower and the Restricted Subsidiaries and that, in
entering into this Agreement and in making its Loans, it has not relied and
will not rely upon any information or representations furnished or given by the
Administrative Agent or any other Bank.
(b) Each Bank expressly acknowledges that the Administrative Agent
has made no representations or warranties to it and that no act taken by the
Administrative Agent shall be deemed to constitute any representation or
warranty by the Administrative Agent to the Banks.
(c) If the Administrative Agent shall request instruction from the
Banks with respect to any act or action (including the failure to take an
action) in connection with the Loans under this Agreement or any Loan Document,
the Administrative Agent shall be entitled to refrain from such act or taking
such action unless and until the Administrative Agent shall have received
instructions from all of the Banks or the Majority Banks, as the case may be.
Without prejudice to the generality of the foregoing, (i) the Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper Person or Persons, and
shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys, accountants, experts and other professional advisors
selected by it and (ii) no Bank shall have any right of action whatsoever
against the Administrative Agent as a result of the Administrative Agent acting
or (where so instructed) refraining from acting under this Agreement with
respect to the Loans in accordance with the instructions of all of the Banks or
the Majority Banks, as the case may be.
11.5. Knowledge of Default.
--------------------
It is expressly understood and agreed that the Administrative Agent
shall be entitled to assume that no Default has occurred and is continuing,
unless the officers of the Administrative Agent immediately responsible for
matters concerning this Agreement shall have been notified in writing by (a)
the Borrower, or (b) any Bank that such Bank considers that a Default has
occurred and is continuing and specifying the nature thereof.
11.6. Administrative Agent in Its Individual Capacity.
-----------------------------------------------
With respect to this Agreement, all Loans made by the Administrative
Agent and any renewals, extensions or deferrals of the payment thereof and any
Note issued to or held by the Administrative Agent, the Administrative Agent
shall have the same rights and powers hereunder as any Bank, and may exercise
the same as though it were not the Administrative Agent, and the term "Bank" or
"Banks" shall include the Administrative Agent in its individual capacity. The
Administrative Agent and each of its affiliates may accept deposits from, lend
money to and generally engage in any kind of banking, trust, financial advisory
or other business with the Borrower, any Restricted Subsidiary or any Affiliate
of the Borrower as if it were not performing the duties specified herein, and
may accept fees and other consideration from the
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<PAGE>
Borrower for services in connection with this Agreement and otherwise without
having to account for the same to the Banks.
11.7. Payee of Note Treated as Owner.
------------------------------
The Administrative Agent and the Borrower may deem and treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
an assignment or transfer becomes effective in accordance with Section 12.8 and
a written notice of the assignment or transfer thereof shall have been filed
with the Administrative Agent and the Borrower. Any request, authority or
consent of any person or entity who, at the time of making such request or
giving such authority or consent, is the holder of any such Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of that
Note or of any Note or Notes issued in exchange therefor.
11.8. Resignation or Removal of Administrative Agent.
----------------------------------------------
If at any time the Administrative Agent deems it advisable, in its
sole discretion, it may submit to each of the Banks and the Borrower a written
notification of its resignation as Administrative Agent under this Agreement,
such resignation to be effective on the thirtieth day after the date of such
notice, provided that a successor Administrative Agent has been appointed in
accordance herewith. In the event that the Administrative Agent shall have
breached any of its material obligations to the Banks hereunder, the Majority
Banks may remove the Administrative Agent effective on the date specified by
them, by written notice to the Administrative Agent and the Borrower. Upon any
such resignation or removal, the Majority Banks shall have the right to appoint
a successor Administrative Agent, which successor Administrative Agent,
provided that no Event of Default shall have occurred and be continuing, shall
be reasonably satisfactory to the Borrower. If no successor Administrative
Agent shall have been so appointed by the Majority Banks and accepted such
appointment within 30 days after the retiring Administrative Agent's giving of
notice of resignation or notification of the Administrative Agent of its
removal, then the retiring Administrative Agent may, on behalf of the Banks,
appoint a successor Administrative Agent, which successor Administrative Agent
hereunder shall be either a Bank or, if none of the Banks is willing to serve
as successor Administrative Agent, a major international bank having combined
capital and surplus of at least $500,000,000. Such successor Administrative
Agent, provided that no Event of Default shall have occurred and be continuing,
shall be reasonably satisfactory to the Borrower. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement. The Borrower
and the Banks shall execute such documents as shall be necessary to effect such
appointment. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Article 11 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Administrative Agent under this Agreement and the Loan Documents. If at
any time there shall not be a duly appointed and acting Administrative Agent,
the Borrower agrees to make each payment due hereunder and under the Notes
directly to the Banks entitled thereto during such time.
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<PAGE>
11.9. The Arranging Agents.
--------------------
The Arranging Agents shall have only those duties and obligations as
expressly set forth in the Loan Documents in their capacity as Arranging
Agents. The Arranging Agents in such capacity shall be entitled to the same
protections, indemnities and rights, and subject to the same standards with
respect to their actions, inactions and duties, as the Administrative Agent.
ARTICLE 12. MISCELLANEOUS.
-------------
12.1. Notices.
-------
All notices and other communications hereunder shall be given to the
parties hereto at the following addresses:
(a) if to the Borrower, at its address or addresses set forth on
Schedule 12.1;
(b) if to any Bank, at its address or addresses set forth on Schedule
2.1; and
(c) if to the Administrative Agent, at its address or addresses set
forth on Schedule 2.1;
or in any of the foregoing cases at such other address and/or to such other
Person as the Borrower, any Bank or the Administrative Agent may hereafter
specify for that purpose by written notice to the Borrower and the
Administrative Agent. Such notices and other communications will be effective
only if and when given in writing, signed by an authorized officer and shall be
deemed to have been given three (3) days after deposit in the mail, designated
as certified mail, return receipt requested, postage-prepaid, at the applicable
address specified above, or one (l) day after being entrusted to a reputable
commercial overnight delivery service, or when sent by telecopy addressed to
the party to which such notice is directed at its address determined as
provided above (promptly confirmed in writing).
12.2. Term of Agreement.
-----------------
The term of this Agreement shall be until the later of the Maturity
Date and the payment in full of all amounts due hereunder, under the Loans and
the Notes, and the performance of all other obligations of the Borrower under
the Loan Documents.
12.3. Copies of Certificates, Etc.
---------------------------
Whenever the Borrower is required to deliver notices, certificates,
opinions, statements or other information hereunder to the Administrative Agent
or to the Administrative Agent for delivery to any Bank, they shall do so in
such number of
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<PAGE>
copies as the Administrative Agent shall reasonably specify. Whenever the
Administrative Agent receives from the Borrower notices, certificates,
opinions, statements or other information hereunder for delivery to any Bank,
it shall promptly make such delivery, unless the Borrower is required by the
terms hereof to deliver such items to such Bank itself.
12.4. No Waivers; Rights Cumulative.
-----------------------------
No failure or delay by the Administrative Agent, any Bank or the
holder of any Note in exercising any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies in this Agreement are
cumulative and not exclusive of any rights or remedies provided by laws.
12.5. Changes, Waivers, Amendments, Etc.
---------------------------------
(a) Subject to the express provisions of subsection (b) below,
neither this Agreement, any Loan Document nor any provision hereof or thereof
may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought; provided, however, that the
Administrative Agent may from time to time acting alone revise Schedule 2.1 to
reflect changes in the Commitment or address of any Bank of which the
Administrative Agent has received notice pursuant to the terms of this
Agreement, and such revisions shall, absent manifest error, be binding on all
parties hereto.
(b) Any of the provisions of this Agreement or any Loan Document may
be waived, modified or amended by an agreement or agreements in writing entered
into by the Borrower and the Majority Banks; provided, however, that no such
agreement, without the prior written consent of each Bank, shall (i) change the
principal amount of, or extend or advance the maturity of or the date for the
payment or required prepayment of principal of, or the payment of interest on,
any Loan, or extend or advance the date for the payment of any fee due
hereunder, or reduce the rate of interest on any Loan or the amount of any fee
due hereunder, or change the method of computing interest or any fee payable
hereunder, (ii) change the requirement that payments and prepayments of
principal of, and payments of interest on, the Notes be made pro rata to the
Banks on the basis of the outstanding principal amount of the Notes, or the
outstanding amount of accrued but unpaid interest thereon, (iii) change the
requirement that all borrowings hereunder shall be from the Banks pro rata in
accordance with their respective Commitment, (iv) modify, amend or waive the
provisions of Section 2.1(c), Section 12.5(b), Section 12.8 or the definition
of Majority Banks, (v) modify, amend or waive the provisions of Article 7, (vi)
expressly provide for discrimination between Banks except in a manner
consistent with the existing terms of this Agreement, (vii) release any
collateral except as permitted by the Loan Documents, or (viii) change the
amount of the Commitment of any Bank except as expressly provided for by this
Agreement. Each Bank and each holder of any Note then or thereafter
outstanding shall be bound by any waiver, modification or amendment authorized
by this Section 12.5(b), whether or not such Note is marked to make reference
thereto, and any consent by any holder of any Note pursuant to this Section
12.5(b) shall bind any subsequent holder of such Note, whether or not such Note
is so marked. Notwithstanding the above, no provision of this Agreement that
affects the rights, privileges or duties of the
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<PAGE>
Administrative Agent or the application of payments and proceeds provisions
contained in the second paragraph of Section 10.2 may be waived, modified or
amended without the prior written consent of the Administrative Agent.
12.6. Rights of Set-Off.
-----------------
(a) To the extent permitted by law, upon the occurrence of an
acceleration of any Loans or Notes, each Bank is hereby authorized, in addition
to any other right or remedy that any Bank may have by operation of law or
otherwise, at any time and from time to time, without notice to the Borrower
(any such notice being expressly waived by the Borrower), to exercise its
bankers' lien or right of set-off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit or the account
of the Borrower or any Restricted Subsidiary against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
any Note, irrespective of whether or not such Bank shall have made any demand
under this Agreement or such Note and although such obligations may be
unmatured.
(b) Each Bank agrees promptly to notify the Administrative Agent and
the Borrower after any such set-off and application; provided, however, that
the failure to give any such notice shall not affect the validity of such set-
off and application.
12.7. Integration and Severability.
----------------------------
This Agreement embodies the entire agreement and understanding among
all the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof. In case any one or more of the
provisions contained in this Agreement or in any Loan Document, or any
application thereof, shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
12.8. Assignments and Participations; Successors and Assigns.
------------------------------------------------------
(a) This Agreement and the Loan Documents shall be binding upon and
inure to the benefit of the Borrower, the Administrative Agent, the Banks and
their respective successors and assigns, except that the Borrower may not
assign any of its rights or transfer any of its duties hereunder, without the
prior written consent of each of the Banks.
(b) Any Bank may assign to one or more Eligible Assignees part of its
interest under its Note, its Loan and its Commitment, provided that,
immediately after giving effect to such assignment, such Bank (including its
affiliates) shall have a Credit Exposure equal to at least 51% of its Credit
Exposure, and prior principal payments of the Loans pursuant to Section 5.4, at
the time such Bank first became a Bank hereunder.
(c) Any Bank may assign to one or more Eligible Assignees any of its
interest under its Note, its Loan and its Commitment not otherwise permitted
under (b) above, provided that the Borrower shall have consented to such
assignment (such consent to be within the sole discretion of the Borrower).
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<PAGE>
(d) Each assignment by any Bank of any of its Note, its Loan and its
Commitment shall be in a minimum aggregate principal amount of $5,000,000, or
such amount plus an integral multiple of $1,000,000 in excess thereof, unless
the Borrower and the Administrative Agent consent otherwise, and (i) shall be
of a constant, and not a varying, percentage of the assigning Bank's rights and
obligations being assigned under this Agreement, (ii) the parties to such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance, together with any Note subject to such assignment and a processing
and recordation fee payable to the Administrative Agent of $3,000, and (iii)
the Borrower shall issue a new Note or Notes to the Banks party to such
assignment against receipt of the existing Note of the assignor Bank in
accordance with Section 4.3(b) hereof. Upon such execution, delivery,
acceptance and recording, from and after the Effective Date, as defined in each
Assignment and Acceptance, the assignee thereunder shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder.
(e) Any Bank may participate any of its rights under its Note, its
Loan, or its Commitment, provided that any grant of rights to a participant
with respect to the Loan by a Bank shall state that such rights exist only as a
result of the agreement between the participant and such Bank. The holder of
any such participation shall not be entitled to require such Bank to take or
omit to take any action under this Agreement except any action that would
extend the maturity of the Note participated in by such participant, reduce the
interest rate payable on the Note or the Commitment Fee, increase the
Aggregate Commitments, forgive the payment of principal or interest on the Note
or extend any payment date with respect thereto, or release any collateral
except as permitted by the Loan Documents, in each case to the extent that it
participates in such Note, Commitment or Commitment Fee.
(f) Notwithstanding (b) and (c) above, any Bank may assign any
interest in its Note, its Loan or its Commitment (i) to an affiliate of such
Bank without restriction or (ii) pursuant to the provisions of Section 7.1 or
7.2.
(g) Any Bank that assigns or participates any of its rights under its
Note, its Loan or its Commitment hereunder shall, as a condition to the
effectiveness of such assignment or participation, provide notice of such
transaction to the Borrower and the Administrative Agent. No Bank shall, as
between the Borrower and such Bank, be relieved of any of its obligations
hereunder as a result of any assignment or granting of participations in all or
any part of its Loan, its Note or its Commitment, or other obligations owed to
such Bank, except that a Bank shall be relieved of its obligations hereunder to
the extent of any assignment of all or any part of its Loan, its Note or its
Commitment made pursuant to this Section 12.8. All amounts payable to any Bank
under Section 6.2(a) or Article 7 shall be determined as if such Bank had not
(i) sold any participations and (ii) made any pledges or assignments pursuant
to Section 12.8(h).
(h) Nothing contained in this Section 12.8 shall prevent or prohibit
any Bank from assigning or pledging all or any portion of its Loan and its Note
to any Federal Reserve Bank as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that no such assignment or pledge
shall relieve such Bank from its obligations hereunder.
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<PAGE>
(i) Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of
such party and all covenants, promises and agreements by or on behalf of the
Borrower which are contained in this Agreement shall inure to the benefit of
the successors and assigns of the Banks.
(j) By executing and delivering an Assignment and Acceptance, the
assigning Bank thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim and the
representations and warranties expressly set forth in the applicable Assignment
and Acceptance, the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, the Note or any
other instrument or document furnished pursuant hereto or thereto; (ii) such
assignor Bank makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of their obligations under this Agreement or
the Note; (iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the Financial Statements, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
assignee will, independently and without reliance upon the assigning Bank and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; and (v) such assignee appoints and authorizes the
Administrative Agent as its agent pursuant to, and in accordance with, Article
11.
(k) The Administrative Agent shall maintain at its address at which
notices are to be given to it pursuant to Section 12.1 a copy of each
Assignment and Acceptance and a register for the recordation of the names and
addresses of the Banks and the Commitment of, and principal amount of the Loan
owing to, each Bank from time to time (the "Register"). The entries in the
--------
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Banks may treat each person whose
name is recorded in the Register as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Bank at any reasonable time and from time to time upon reasonable prior
notice.
12.9. JURISDICTION; WAIVER OF JURY TRIAL.
-----------------------------------
IN CONSIDERATION OF THE AGREEMENT OF THE BANKS TO MAKE THE LOANS
HEREUNDER, THE BORROWER AGREES THAT ANY SUIT, ACTION OR PROCEEDING WITH RESPECT
TO THIS AGREEMENT, THE BORROWINGS HEREUNDER, ANY NOTE OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK OR THE STATE OF NEW YORK, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT THE BORROWER IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF SUCH COURTS FOR THAT PURPOSE. THE BORROWER IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT,
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<PAGE>
ACTION OR PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT, AFTER ALL APPROPRIATE APPEALS,
SHALL BE CONCLUSIVE AND BINDING UPON THE BORROWER. THE BORROWER AND THE BANKS
HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO
A JURY TRIAL.
12.10. Headings; Plurals.
-----------------
The headings of articles and sections herein are inserted for
convenience only and form no part of this Agreement. Unless the context
otherwise requires, words in the singular number include the plural, and words
in the plural include the singular.
12.11. Applicable Law.
--------------
This Agreement and the Loan Documents shall be governed by and
construed in accordance with the internal laws of the State of New York without
reference to its choice of law principles.
12.12. Counterparts; When Effective.
----------------------------
This Agreement and the Loan Documents may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when the
Administrative Agent has received counterparts hereof executed by the Borrower,
the Administrative Agent, the Arranging Agents and all the Banks (such date
herein referred to as the "Execution Closing Date"). The Administrative Agent
----------------------
will notify each of the other parties hereto of such effectiveness as promptly
as practicable, but in any event not later than the Business Day following the
Execution Closing Date. Complete sets of the counterparts hereof will be
lodged with the Borrower and the Administrative Agent and copies thereof
provided to each Bank.
12.13. Payment of Expenses; Indemnity by Borrower.
------------------------------------------
(a) The Borrower, whether or not the transactions hereby contemplated
shall be consummated, shall pay the reasonable fees and expenses (including
reasonable out-of-pocket expenses) of the Administrative Agent's special
counsel, Emmet, Marvin & Martin, LLP, and all other reasonable expenses arising
in connection with (i) negotiation, preparation, execution and delivery of this
Agreement and the Loan Documents, including schedules and exhibits, and (ii)
the preparation and review of the form of any document or instrument relevant
to this Agreement.
(b) The Borrower agrees to pay, on demand, the reasonable fees and
expenses (including reasonable attorneys' fees, legal expenses and out-of-
pocket expenses) of the Administrative Agent and the Banks incurred in
connection with any amendments, waivers, consents, supplements or other
modifications to this Agreement and the Loan Documents as may from time to time
hereafter be required (except for fees and expenses relating to the issuance of
new Notes by the Borrower pursuant to
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<PAGE>
Section 4.3(b) hereof and any assignment or participation of interests in the
Loans or any Commitments pursuant to Section 12.8 hereof).
(c) The Borrower further agrees to pay, and to save the
Administrative Agent and the Banks harmless from all liability for, any stamp
or other taxes, together in each case with interest and penalties, if any, and
any income tax payable by the Administrative Agent or any Bank in respect of
any reimbursement therefor, which may be payable in connection with the
execution or delivery of this Agreement and the Loan Documents, the borrowings
hereunder or the issuance of the Notes. The Borrower also agrees to reimburse
the Administrative Agent and each Bank upon demand for all reasonable out-of-
pocket expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Administrative Agent or such Bank in connection with (x) the
negotiation of any restructuring or "work-out", whether or not consummated, of
any of the Borrower's obligations hereunder and under the Loan Documents and
(y) the enforcement of any such obligations, including without limitation costs
and expenses incurred in any bankruptcy case or in investigating, preparing
for, defending against, or providing evidence, producing documents or taking
any other action in respect of any commenced or threatened litigation,
administrative proceeding or investigation under any federal securities law or
any other statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon any acts,
practices or omissions or alleged acts, practices or omissions of the Borrower,
any Restricted Subsidiary or any agent thereof.
(d) In consideration of the execution and delivery of this Agreement
by the Administrative Agent and each Bank and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds the Administrative Agent,
each Arranging Agent, each Bank and each of their respective officers,
directors, employees and agents (collectively, the "Indemnified Parties") free
-------------------
and harmless from and against any and all actions, causes of action, suits,
losses, costs, liabilities and damages, and expenses incurred in connection
herewith and therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
-----------
Liabilities"), incurred by the Indemnified Parties or any of them as a result
-----------
of, or arising out of, or relating to:
(i) any transaction (including, without limitation, the
Transaction) financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of any Loan;
(ii) the entering into and performance of this Agreement or
any Loan Document by any of the Indemnified Parties (including any
action brought by or on behalf of the Borrower as the result of any
determination by the Majority Banks pursuant to Article 8 not to fund
any borrowing);
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or willful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
- 55 -
<PAGE>
12.14. Liability of VI
---------------
Notwithstanding any provision set forth herein or in any Loan Document,
the Banks hereby agree that they will not look to or assert any claim against
VI or any of its affiliates (other than, prior to the Transaction Effective
Date, the Borrower and the Restricted Subsidiaries and, on and after the
Transaction Effective Date, Parent Cable) for the payment of any amounts
payable hereunder or under the Loan Documents (including, without limitation,
any Obligations). The foregoing shall not apply to any claims arising out of
the VI Indemnity Agreement or any claims for damage resulting from any material
inaccuracy of any representation or statement made by VI or New VII in any
certificate delivered by VI or New VII as required by Section 8.1(i) or Section
8.2(f). VI and its affiliates are intended third party beneficiaries, and are
entitled to all rights and remedies of a third party beneficiary, of this
Section 12.14.
- 56 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
VIACOM INTERNATIONAL INC., as
Borrower
By: ______________________________
Name: ____________________________
Title: ___________________________
THE BANK OF NEW YORK,
as an Arranging Agent and as the
Administrative Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
NATIONSBANK OF TEXAS, N.A., individually
and as an Arranging Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
THE BANK OF NOVA SCOTIA, individually
and as an Arranging Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
CIBC INC., individually and as an Arranging Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
THE TORONTO-DOMINION BANK, indi-
vidually and as an Arranging Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
THE BANK OF NEW YORK COMPANY, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
<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 included in Item 8 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. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
June 18, 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
June 18, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 4 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
June 18, 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,
June 18, 1996.
<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 JUNE 24, 1996
THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME ON JULY 22, 1996, UNLESS THE EXCHANGE OFFER IS
EXTENDED.
TO: THE BANK OF NEW YORK, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand or Overnight Courier:
TENDER & EXCHANGE DEPARTMENT (FOR ELIGIBLE INSTITUTIONS ONLY) TENDER & EXCHANGE DEPARTMENT
P.O. BOX 11248 (212) 815-6213 101 BARCLAY STREET
CHURCH STREET STATION RECEIVE AND DELIVER WINDOW
NEW YORK, NY 10286-1248 CONFIRM FACSIMILE BY TELEPHONE: NEW YORK, NY 10286
(FOR CONFIRMATION ONLY)
(800) 361-9781
</TABLE>
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 June 24, 1996
(the "Offering Circular - Prospectus") of Viacom Inc., a Delaware corporation
("Viacom"), the Prospectus, dated June 24, 1996, of Tele-Communications, Inc.,
a Delaware corporation, 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 6,193,447 shares of VII Cable Class A Common Stock having
a par value of $100 per share and an aggregate par value of $619,344,700 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 July 22, 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; (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. Holders whose shares of Viacom Common Stock are accepted for
exchange shall be entitled to receive certificates representing the shares of
VII Cable Preferred Stock into which the shares of VII Cable Class A Common
Stock they receive in exchange are immediately and automatically convertible
upon the consummation of the Stock Issuable ("VII Cable Certificate(s)").
2
<PAGE>
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 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 by tendering stockholders 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. This Letter of Transmittal is also to be used by
participants in Viacom Inc. employee benefit plans to direct the trustee under
such plans to tender shares of Viacom Common Stock in the accounts of such
participants in such plans. See Instruction 6.
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 on page 20.
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. A holder of shares of Viacom Common
Stock 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 Common Stock.
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.
<TABLE>
<CAPTION>
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.
- -----------------------------------------------------------------------------------------
<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 in the undersigned's 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 IN YOUR ACCOUNT UNDER THE VIP AND
COMPLETE THE FOLLOWING:
Number of shares (do not indicate "all") of Viacom Class A Common
Stock tendered from VIP: .
Number of shares (do not indicate "all") 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 IN YOUR ACCOUNT UNDER THE
PVIT/PDI PLAN AND COMPLETE THE FOLLOWING:
Number of shares (do not indicate "all") of Viacom Class A Common
Stock tendered from PVIT/PDI Plan: .
Number of shares (do not indicate "all") 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 IN YOUR ACCOUNT UNDER THE
MISSOURI PLAN AND COMPLETE THE FOLLOWING:
Number of shares (do not indicate "all") of Viacom Class A Common
Stock tendered from Missouri Plan: .
Number of shares (do not indicate "all") 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: Mail:
(check appropriate box(es)): (check appropriate box(es)):
[_] VII Cable Certificate(s) to: [_] VII Cable Certificate(s) to:
[_] Fractional Share Check to: [_] Fractional Share Check to:
[_] Viacom Certificate(s) to: [_] Viacom Certificate(s) to:
Name(s) __________________________ Name(s) __________________________
(PLEASE PRINT) (PLEASE PRINT)
__________________________________ __________________________________
(PLEASE PRINT) (PLEASE PRINT)
Address __________________________ 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: ____________________________________________________________________
(NOT TO BE COMPLETED BY PARTICIPANTS IN VIACOM INC. EMPLOYEE BENEFIT PLANS)
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.
This Letter of Transmittal is also to be used by participants in Viacom Inc.
employee benefit plans to direct the trustee under such plans to tender shares
of Viacom Common Stock in the accounts of such participants in such plans. See
Instruction 6. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL IS AT THE
OPTION AND RISK OF THE PLAN PARTICIPANT, BUT, EXCEPT AS OTHERWISE PROVIDED
BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR
CONFIRMED BY 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 (other than participants in Viacom Inc. employee benefit plans)
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
11
<PAGE>
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, and guaranteed by an Eligible Institution in the form
set forth in such Notice, 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 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 tendering holder of 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 holder of
shares of Viacom Common Stock 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
12
<PAGE>
of VII Cable Class A Common Stock at which Shares of Viacom Common Stock are
being Tendered for Exchange" on page 5 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 holder of shares of Viacom Common Stock
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.
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
13
<PAGE>
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" (Box #5) or "Special Delivery Instructions" (Box #6), 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 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 (the "Account") under any of the Plans pursuant to the Exchange Offer
must so indicate by completing Box #2, Box #3 and 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 shares of a class of
Viacom Common Stock, but does not indicate the number of shares of such class
of Viacom Common Stock to be tendered or does not otherwise fully and properly
complete this Letter of Transmittal, the shares of such class of Viacom Common
Stock in that Participant's account will not be tendered. If a Participant of
a Plan authorizes the tender of a number of shares of a class of Viacom Common
Stock which exceeds the number of shares of such class of Viacom Common Stock
that are in the account of such Participant in such Plan on June 14, 1996 (the
"Specified Date"), the number of shares of such class of Viacom Common Stock
tendered shall be equal to the number of shares of such class of Viacom Common
Stock that are in such account on the Specified Date. If a Participant of a
Plan authorizes the tender of less than all of the shares of a class of Viacom
Common Stock that are in the account of such Participant in such Plan on the
Specified Date, any shares not tendered will remain in such account and any
additional shares of such class of Viacom Common Stock that are allocated to
such account after such date will not be tendered. IF YOU DO NOT WISH TO
TENDER ANY SHARES OF VIACOM COMMON STOCK, DO NOT RETURN THIS LETTER OF
TRANSMITTAL. If a Participant authorizes the tender of shares of Viacom Common
Stock held in his or her Plan account 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 shares of Viacom Common Stock
that are accepted for exchange. Any shares of Viacom Common Stock tendered but
not exchanged will be returned to the Participant's VIP, PVIT/PDI Plan or
Missouri Plan account, as the case may be.
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 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 is to be made to, or (in the circumstances permitted by
the Exchange Offer) if 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
14
<PAGE>
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, the amount of any such transfer
taxes whether imposed on the registered holder or such other person 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
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 on 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
15
<PAGE>
satisfy the Exchange Agent that a 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 Certification 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 Certification 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 federal income 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.
16
<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
SUBSTITUTE DATING BELOW.
---------------------
FORM W-9
DEPARTMENT OF ------------------------------------------------------
THE TREASURY PART 2--Awaiting TIN [_]
INTERNAL ------------------------------------------------------
REVENUE CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
SERVICE CERTIFY THAT (1) the number shown on this form is
my correct taxpayer identification number (or I am
waiting for a number to be issued to me) and (2) I
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.
------------------------------------------------------
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 A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND 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
- --------------------------------------------------------------------------------
17
<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
8. Sole The owner(4)
proprietorship
account
- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
-
<S> <C>
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.
(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.
18
<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.
. An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1).
. 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)(5) 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. 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
19
<PAGE>
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)
20
<PAGE>
NAME(S) AND ADDRESS(ES)
OF REGISTERED HOLDER(S)
<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 June 24, 1996 (the "Offering Circular - Prospectus"), and
the Prospectus, dated June 24, 1996, of Tele-Communications, Inc., a Delaware
corporation, 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 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 WINDOW
NEW YORK, NY 10286-1248 NEW YORK, NY 10286
Confirmation of Facsimile
Transmission ONLY:
(800) 361-9781
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 June 24, 1996 (the "Offering Circular -
Prospectus"), the Prospectus, dated June 24, 1996, of Tele-Communications,
Inc., a Delaware corporation, 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. A holder of shares of Viacom Common
Stock 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 Common Stock.
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:
- -------------------------------------
-------------------------------------
Name(s) of Certificate No(s). (if applicable):
Record Holders: _____________________
-------------------------------------
- -------------------------------------
-------------------------------------
Address(es): ________________________
Total Number of Shares Represented
by Viacom Common Stock
Certificate(s):
- -------------------------------------
- -------------------------------------
(Zip Code) -------------------------------------
Area Code and Tel. No(s).: IF SHARES OF VIACOM COMMON STOCK
WILL BE TENDERED BY BOOK-ENTRY
TRANSFER, CHECK ONE BOX AND PROVIDE
ACCOUNT NUMBER
- -------------------------------------
Dated: ______________________________
[_] The Depository Trust Company
[_] 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.
June 24, 1996
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
Reference is made to the enclosed Offering Circular - Prospectus, dated June
24, 1996 (the "Offering Circular - Prospectus"), of Viacom Inc., a Delaware
corporation ("Viacom"), the Prospectus, dated June 24, 1996 (the "TCI
Prospectus"), of Tele-Communications, Inc., a Delaware corporation, 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 6,193,447 shares of VII Cable Class A Common Stock
having a par value of $100 per share and an aggregate par value of
$619,344,700 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 and the TCI Prospectus, which should be read by you in their
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 July 22, 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 TCI Prospectus;
3. 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;
4. 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;
5. 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
6. 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 JULY 22, 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 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
JULY 22, 1996, UNLESS THE EXCHANGE OFFER IS EXTENDED.
June 24, 1996
To Our Clients:
Enclosed for your consideration is the Offering Circular - Prospectus, dated
June 24, 1996 (the "Offering Circular - Prospectus"), of Viacom Inc., a
Delaware corporation ("Viacom"), the Prospectus, dated June 24, 1996 (the "TCI
Prospectus"), of Tele-Communications, Inc., a Delaware corporation, 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 6,193,447 shares of VII Cable Class A Common Stock having
a par value of $100 per share and an aggregate par value of $619,344,700 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 July 22, 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 July 22, 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 June 24, 1996 (the "Offering Circular -
Prospectus"), of Viacom Inc., a Delaware corporation, the Prospectus, dated
June 24, 1996 (the "TCI Prospectus"), of Tele-Communications, Inc., 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 6,193,447 shares of VII Cable Class A Common Stock having
a par value of $100 per share and an aggregate par value of $619,344,700 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. A holder of shares of Viacom Common
Stock 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 Common Stock.
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:* -------------------------------------
SIGNATURE(S)
____________________________ SHARES -------------------------------------
-------------------------------------
Account Number: _____________________
PLEASE TYPE OR PRINT NAME(S) HERE
Dated: _______________________ , 1996 -------------------------------------
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
<PAGE>
EXHIBIT 99.5
[VIACOM INC. LETTERHEAD]
June 24, 1996
TO VIACOM EMPLOYEE BENEFIT PLAN PARTICIPANTS:
IMMEDIATE ATTENTION REQUIRED -
VIACOM INC./VIACOM INTERNATIONAL INC.
EXCHANGE OFFER
ENCLOSED ARE MATERIALS THAT REQUIRE YOUR IMMEDIATE ATTENTION. The enclosed
materials include the Offering Circular - Prospectus of Viacom Inc. ("Viacom")
dated June 24, 1996 (the "Offering Circular - Prospectus"), the Prospectus
dated June 24, 1996 ("TCI Prospectus") of Tele-Communications, Inc. and the
related Letter of Transmittal (the "Letter of Transmittal"), which together
describe Viacom's offer to its stockholders (the "Exchange Offer") to exchange
a specified number of shares of a company that will own the cable operations
currently owned by Viacom and which will become a wholly owned subsidiary of
Tele-Communications, Inc. for shares of Viacom Class A Common Stock and/or
Viacom Class B Common Stock (collectively, the "Viacom Common Stock"). As this
opportunity to tender shares of Viacom Common Stock in the Exchange Offer
extends to participants in the Viacom Investment Plan, the Savings and
Investment Plan for Employees of PVI Transmission Inc. and Paramount (PDI)
Distribution Inc. and the Savings and Investment Plan for Collective
Bargaining Employees of Viacom Broadcasting of Missouri, Inc. (each, a
"Plan"), you should read all of the enclosed materials carefully.
If you wish to tender shares of Viacom Common Stock that are in your Plan
account, you must complete a Letter of Transmittal. A Letter of Transmittal
properly completed by each Plan participant who wishes to tender into the
Exchange Offer will serve as a direction to Putnam Fiduciary Trust Company, as
trustee of the Plan ("Putnam"), to tender shares of Viacom Common Stock that
are in the Plan account of such Plan participant as indicated on the Letter of
Transmittal. Only Putnam can tender Plan participants' shares of Viacom Common
Stock in the Exchange Offer.
The Exchange Offer will expire at 12:00 midnight, New York City time, on
July 22, 1996, unless extended. Accordingly, The Bank of New York, as Exchange
Agent for the Exchange Offer, must receive your completed Letter of
Transmittal prior to such time. If your Letter of Transmittal is not received
by this deadline, or if it is not fully and properly completed, none of the
shares of Viacom Common Stock allocated to your Plan account will be tendered
in the Exchange Offer.
Instruction No. 6 to the Letter of Transmittal explains how the Letter of
Transmittal should be completed by Plan participants who wish to tender shares
of Viacom Common Stock in the Exchange Offer. Specifically, such Plan
participants should complete Box #2, Box #3 and Box #7 of the Letter of
Transmittal by doing the following:
1. Box #2--checking the box that indicates the fraction of a share of VII
Cable Class A Common Stock (as such term is defined in the Offering
Circular - Prospectus) at which you desire to tender your shares of Viacom
Common Stock. See Instruction No. 3 to the Letter of Transmittal for
further information in this regard;
2. Box #3--checking the first box and indicating in the spaces provided
the number of shares of Viacom Class A Common Stock and/or Viacom Class B
Common Stock, as the case may be, to be tendered from your Plan account
(you may tender less than all of your shares but you may not complete this
space by indicating that you wish to tender "all" of your shares); and
3. Box #7--providing all of the information required in this box.
You should not complete any other boxes on the Letter of Transmittal.
Properly completed Letters of Transmittal should be returned to the Exchange
Agent, The Bank of New York, in the envelope provided.
<PAGE>
You do not have to tender shares of Viacom Common Stock in the Exchange
Offer. If you do not want Putnam to tender any of the shares of Viacom Common
Stock in your Plan account in the Exchange Offer, do not complete the Letter
of Transmittal.
Even if you validly direct Putnam to tender shares of Viacom Common Stock in
your Plan account in the Exchange Offer, some or all of the shares you
tendered may not be accepted for exchange by Viacom even if the Exchange Offer
is consummated. See "The Exchange Offer - Terms of the Exchange Offer" in the
Offering Circular - Prospectus. Acceptance of any shares by Viacom is subject
to the conditions described in "The Exchange Offer - Conditions to
Consummation of the Exchange Offer" in the Offering Circular - Prospectus.
Your direction to Putnam to tender shares of Viacom Common Stock in your
Plan account will be final unless withdrawn by 12:00 midnight, New York City
time, on July 22, 1996, unless extended. See "The Exchange Offer - Withdrawal
Rights" in the Offering Circular - Prospectus. To be effective, a notice of
withdrawal of your direction must be in writing and must be received by The
Bank of New York as follows:
The Bank of New York
Tender and Exchange Department
PO Box 11248
Church Street Station
New York, NY 10286-1248
Your notice must include your name, address, Social Security number, and the
number of shares in your Plan account. Upon receipt of your notice by The Bank
of New York, your previous direction will be deemed canceled. You may direct
the re-tendering of any shares of Viacom Common Stock in your Plan account by
repeating the previous instructions for directing the tendering set forth
herein.
NO RECOMMENDATION
NONE OF VIACOM, VIACOM INTERNATIONAL INC., THE BOARD OF DIRECTORS OF VIACOM
NOR THE BOARD OF DIRECTORS OF VIACOM INTERNATIONAL INC. MAKES ANY
RECOMMENDATION TO ANY HOLDER OF SHARES OF VIACOM COMMON STOCK WHETHER TO
TENDER OR REFRAIN FROM TENDERING SHARES OF VIACOM'S CLASS A COMMON STOCK
AND/OR CLASS B COMMON STOCK PURSUANT TO THE EXCHANGE OFFER. EACH HOLDER OF
SHARES OF VIACOM COMMON STOCK MUST MAKE HIS OR HER OWN DECISION WHETHER TO
TENDER SHARES OF VIACOM'S CLASS A COMMON STOCK AND/OR CLASS B 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 THE OFFERING
CIRCULAR - PROSPECTUS AND THE TCI PROSPECTUS THAT WILL BE DELIVERED TO HOLDERS
OF SHARES OF VIACOM COMMON STOCK AND CONSULTING WITH HIS OR HER ADVISORS BASED
ON HIS OR HER OWN FINANCIAL POSITION AND REQUIREMENTS. THIS LETTER DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES MENTIONED HEREIN. HOLDERS OF SHARES OF VIACOM COMMON STOCK ARE
URGED TO READ THE OFFERING CIRCULAR - PROSPECTUS AND THE TCI PROSPECTUS.
FURTHER INFORMATION
If you have any questions about completion of the Letter of Transmittal,
please contact the Information Agent, Georgeson & Company Inc., at the address
indicated on the back page of the Letter of Transmittal.
Your ability to instruct the Trustee concerning whether or not to tender
shares in your Plan account is an important part of your rights as a Plan
participant. Please consider this letter and the enclosed materials carefully
and then, if you wish to tender shares of Viacom Common Stock in the Exchange
Offer, return your Letter of Transmittal promptly.
Very truly yours,
William Roskin
2
