<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D
Under the Securities Exchange Act of 1934
(Amendment No. 5)*
DMX Inc.
(Name of Issuer)
Common Stock, $.01 par value
------------------------------
(Title of Class of Securities)
23323Q104
---------
(CUSIP Number)
Stephen M. Brett, Esq., Executive Vice President and General
Counsel,
Tele-Communications, Inc.
Terrace Tower II, 5619 DTC Parkway, Englewood, CO 80111, (303-
267-5500)
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 6, 1997
----------------
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-
1(b) (3) or (4), check the following box: [ ].
Check the following box if a fee is being paid with this
statement [ ]. (A fee is not required only if the reporting
person: (1) has a previous statement on file reporting
beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of less than
five percent of such class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter disclosures provided in
a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Exchange Act") or
otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however,
see the Notes).
Exhibit Index is on Page 21
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Cusip No. 23323Q104
- -----------------------------------------------------------------
(1) Names of Reporting Persons S.S. or I.R.S.
Identification Nos. of Above Persons
TELE-COMMUNICATIONS, INC.
84 - 1260157
- -----------------------------------------------------------------
(2) Check the Appropriate Box if a Member of a Group
(a) [ ]
(b) [ ]
- -----------------------------------------------------------------
(3) SEC Use Only
- -----------------------------------------------------------------
(4) Source of Funds
WC, OO
- -----------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is
Required Pursuant to Items 2(d) or 2(e)
[ ]
- -----------------------------------------------------------------
(6) Citizenship or Place of Organization
Delaware
- -----------------------------------------------------------------
Number of (7) Sole Voting Power 27,100,687 Shares
Shares Bene- ---------------------------------------------
ficially (8) Shared Voting Power 0 Shares
Owned by ---------------------------------------------
Each Report- (9) Sole Dispositive Power 27,100,687 Shares
ing Person ---------------------------------------------
With (10) Shared Dispositive Power 0 Shares
- -----------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each
Reporting Person
27,100,687 Shares
- -----------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes
Certain Shares [ ]
- -----------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
45.5%
- -----------------------------------------------------------------
(14) Type of Reporting Person
HC, CO
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Cusip No. 23323Q104
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 5)
Statement of
TELE-COMMUNICATIONS, INC.
Pursuant to Section 13(d) of the
Securities Exchange Act of 1934
in respect of
DMX Inc.
(Commission File No. 0-18806)
ITEM 1. Security and Issuer
-------------------
Tele-Communications, Inc., a Delaware corporation
("TCI"), hereby amends and supplements its Statement on Schedule
13D (the "Statement"), with respect to the common stock, $.01 par
value (the "Common Stock"), of DMX Inc., a Delaware corporation
("DMX"). DMX's principal executive offices are located at 11400
W. Olympic Blvd., Suite 1100, Los Angeles, California 90064-
1507. Unless otherwise indicated, capitalized terms used but not
defined herein shall have the meanings assigned to such terms in
the Statement.
TCI is filing this amendment to the Statement as a
result of the execution of an Agreement and Plan of Merger, dated
as of February 6, 1997 (the "Merger Agreement"), among TCI, TCI
Music, Inc., a Delaware corporation and, prior to the proposed
merger, a wholly owned subsidiary of TCI ("MusicCo"), TCI Merger
Sub, Inc., a Delaware corporation and a wholly owned subsidiary
of MusicCo ("Merger Sub") and DMX. A description of the terms of
the proposed merger is contained in "ITEM 4. - Purpose of
----------
Transaction" set forth below.
- -----------
ITEM 2. Identity and Background
-----------------------
Item 2 of the Statement is hereby amended and
supplemented by adding the following information thereto:
Schedule 1 attached to this Amendment No. 5 to the
Statement contains the following information concerning each
director, executive officer or controlling person of TCI:
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Cusip No. 23323Q104
(i) name and residence or business address, (ii) principal occupation
or employment; and (iii) the name, principal business and address
of any corporation or other organization in which such employment
is conducted. Schedule 1 is incorporated herein by reference and
replaces the Schedule previously filed with the Statement.
To the knowledge of TCI, each of the persons named on
Schedule 1 (the "Schedule 1 Persons") is a United States citizen.
During the last five years, neither TCI nor any of the Schedule 1
Persons (to the knowledge of TCI) has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors). During the last five years, neither TCI nor any
of the Schedule 1 Persons (to the knowledge of TCI) has been a
party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and, as a result of such proceeding, is
or was subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any
violation with respect to such laws.
ITEM 3. Source and Amount of Funds or Other Consideration
-------------------------------------------------
Item 3 of the Statement is hereby amended and
supplemented by adding the following information thereto:
TCI is filing this amendment to the Statement as a
result of the execution of the Merger Agreement. A description
of the terms of the proposed merger is set forth in "ITEM 4. -
Purpose of Transaction" set forth below.
- ----------------------
TCI intends to use MusicCo Series A Common Stock, $0.01
par value per share, ("MusicCo Series A Common Stock") and the
issuance of certain rights as described in "Item 4 - Purpose of
Transaction" below to acquire all of the outstanding common stock
of DMX. TCI intends to use its Tele-Communications, Inc. Series
A TCI Group Common Stock, $1 par value per share ("TCI Group
Common Stock") and/or cash to purchase the MusicCo Series A
Common Stock delivered to TCI as a result of the exercise of such
rights. TCI intends to use its working capital to fund the loan
of $3.5 million to DMX.
ITEM 4. Purpose of Transaction
----------------------
Item 4 of the Statement is hereby amended and
supplemented by adding the following information thereto:
General
- -------
The Merger Agreement provides for the merger of Merger
Sub with and into DMX. As a result of the Merger, the separate
corporate existence of Merger Sub will cease and
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Cusip No. 23323Q104
DMX will be the surviving corporation. In the Merger, stockholders
of DMX will receive the consideration described below. The
Merger will become effective upon the filing of a Certificate of
Merger with the Secretary of State of the State of Delaware. Such
filing is anticipated to take place as soon as practicable after
the last of the conditions precedent to the Merger set forth in
the Merger Agreement have been satisfied or, where permissible,
waived. The following description of the Merger Agreement is
qualified in its entirety by reference to the complete text
of the Merger Agreement, which is incorporated by reference herein
and a copy of which (exclusive of exhibits and schedules) is
annexed to this Statement as Exhibit F.
Consideration to be Received in the Merger
- ------------------------------------------
General. Upon consummation of the Merger, each
outstanding share (including shares held directly by TCI or any
of its subsidiaries) of Common Stock will be converted into the
right to receive (i) one-half share and (ii) one right with
respect to each whole share of MusicCo Series A Common Stock (the
"Right"). Each Right gives the holder the right, under certain
conditions to require TCI to purchase one share of MusicCo
Series A Common Stock issued in the Merger at a price equal to
$4.00 if during the one-year period beginning on the effective
date of the Merger, the price of the MusicCo Series A Common
Stock does not equal or exceed $4.00 per share for a period of at
least 20 consecutive trading days. Such purchase price may be
paid at the election of TCI, in cash or shares of Series A TCI
Group Common Stock having an equivalent value or a combination
thereof. Upon the occurrence of certain events, each Right will
also represent the additional right to require TCI to purchase
equity interests of another entity or entities.
Fractional shares of MusicCo Series A Common Stock will
not be issued in the Merger. Holders of Common Stock otherwise
entitled to a fractional share of MusicCo Series A Stock will be
paid cash in an appropriate amount based upon the value of
MusicCo Series A Common Stock of $4.00 per share.
Summary of Rights Agreement. The Rights will be issued
pursuant to the Rights Agreement to be entered into among TCI,
MusicCo and The Bank of New York, as Rights Agent (the "Rights
Agreement"). The Rights will be evidenced by certificates for
shares of MusicCo Series A Common Stock and will not be separate
from the MusicCo Series A Common Stock. Accordingly, the Rights
will be transferable only in connection with the transfer of the
associated MusicCo Series A Common Stock. One Right will be
issued for each whole share of MusicCo Series A Common Stock that
is issued in connection with the Merger.
The following summary of the Rights Agreement does not
purport to be complete and is subject to and qualified in its
entirety by reference to all provisions of the Rights Agreement,
including the definitions of certain terms. Section references
below are to sections of the Rights Agreement and are included
for convenience of reference. The complete text of the Rights
Agreement has been filed as Exhibit G hereto and is incorporated
herein by reference.
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Rights Components. Each Right will initially entitle
its holder to require TCI to purchase one share of MusicCo
Series A Common Stock from such holder at the time, for the
consideration and subject to the terms and conditions of the
Rights Agreement (such right being referred to as the "MusicCo
Component" of a Right). If MusicCo makes a distribution to all
holders of shares of MusicCo Series A Common Stock of shares of
the Capital Stock of any entity or of rights or warrants
entitling such holders (for a period expiring within 45 days
after the effective date of such distribution) to purchase shares
of the Capital Stock of any entity, and if such distribution is
of the magnitude described below (a "Subject Distribution"), then
each Right will also entitle its holder to require TCI to
purchase shares of the class of Capital Stock ("Distributed
Entity Stock") of the entity ("Distributed Entity") distributed
or sold in such distribution, at the time, for the consideration
and subject to the terms and conditions of the Rights Agreement
(such right being referred to as the "Distributed Entity
Component" of a Right). (Section 6.04). Similarly, if a
Distributed Entity makes a Subject Distribution, each Right will
entitle its holder to require TCI to purchase shares of the
Capital Stock (also referred to as Distributed Entity Stock) of
the entity (also referred to as a Distributed Entity) distributed
or sold in such distribution, at the time, for the consideration
and subject to the terms and conditions of the Rights Agreement.
(Section 6.07). A new Distributed Entity Component of a Right
will be created with respect to the Distributed Entity Stock
distributed in each Subject Distribution by MusicCo or a
Distributed Entity. (Section 6.04). The number of shares of
Distributed Entity Stock that a holder of Rights will be entitled
to require TCI to purchase upon the valid exercise of the related
Distributed Entity Component of a Right (the "Underlying
Number"') will initially equal the number of shares of Capital
Stock of such entity distributed or sold in the Subject
Distribution divided by (i) the number of shares of MusicCo
Series A Common Stock or, (ii) in the case of a Subject
Distribution by a Distributed Entity, the number of shares of
Distributed Entity Stock of the Distributed Entity making the
Subject Distribution, outstanding on the record date for such
distribution. (Sections 6.04 and 6.07)
A distribution of the type described above will be a
Subject Distribution for purposes of the Rights Agreement if the
positive difference between (x) the Fair Market Value of such
entity (or, if less than 100% of the Capital Stock of such entity
is distributed or sold, that portion of the Fair Market Value of
such entity that is represented by the shares distributed or
sold), minus (y) the aggregate consideration paid for the shares
sold pursuant to such distributed rights and warrants (such
difference being referred to as the "Distribution Value"
(Section 1.01)), represents 10% or more of the sum of the
respective Fair Market Values immediately prior to such
distribution of MusicCo and, if any Subject Distributions had
previously been made, of each Distributed Entity (the aggregate
of such Fair Market Values being referred to as the
"Undistributed Value of MusicCo" (Section 1.01). (Sections 6.03
and 6.07). The determination of whether a distribution meets each
of the criteria referred to above and is therefore a Subject
Distribution will be made by the Board of Directors of MusicCo
(whose good faith determination will be conclusive). If MusicCo
or any Distributed Entity makes a distribution that individually
is not a Subject Distribution, but that would be a Subject
Distribution if aggregated with any other distribution or
distributions previously made by MusicCo or any Distributed
Entity that also were not Subject Distributions when made (and
were not thereafter deemed to be Subject
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Distributions by virtue of this sentence), then upon the making
of the later of such distributions each of such distributions
will be deemed to be a single Subject Distribution for the
purpose of any Right exercised thereafter. (Section 6.07).
The determination of whether any combination of distributions
would constitute a Subject Distribution pursuant to the Rights
Agreement will be made by the Board of Directors of MusicCo
(whose good faith determination will be conclusive) on the
basis of the Distribution Values of such distributions and the
Undistributed Value of MusicCo calculated in each case immediately
prior to the time the first of such distributions was made.
(Section 6.07).
Each MusicCo Component and each Distributed
Entity Component of a Right is sometimes referred to below as a
"Component" and each of MusicCo and each Distributed Entity is
sometimes referred to below as an "Applicable Entity." No
Component of a Right will be separable from any of the other
Components of such Right.
Exercise of Rights Generally; Consideration Payable.
During the period commencing at the opening of business on the
first anniversary of the date of the closing of the Merger and
ending at the close of business, on the 30th day after such date
(or the next business day thereafter if such date is not a
business day) (the "Exercise Period"), the holders of Rights may
irrevocably exercise all or any number of their Rights.
(Section 4.01). The Exercise Period for each Right is subject to
acceleration upon the occurrence of the events described below.
If the Rights have one or more Distributed Entity
Components at the time such Rights are exercisable, the holder
may irrevocably exercise such Right as to its MusicCo Component,
any or all of its Distributed Entity Components, or any
combination thereof (Section 4.01). Upon the valid exercise of
Rights in any Exercise Period (subject, in the case of an
accelerated Exercise Period, to the rescission of such
acceleration under the circumstances described below), the holder
will be entitled to sell to TCI (i) if the MusicCo Component of
any or all of such exercised Rights has been exercised, a number
of whole shares of MusicCo Series A Common Stock equal to the
number of whole Rights of which the MusicCo Component has been so
exercised and honored and (ii) if any Distributed Entity
Component of any or all of such exercised Rights have been
exercised, a number of whole shares of the Distributed Entity
Stock to which such Distributed Entity Component relates not in
excess of the product of the number of whole Rights of which such
Distributed Entity Component has been exercised and honored,
multiplied by the Underlying Number for such Distributed Entity
Component of a whole Right. (Section 4.04).
The amount to be paid by TCI for each share of MusicCo
Series A Common Stock and Distributed Entity Stock, upon the
valid exercise of a Right will equal (i) in the case of MusicCo
Series A Common Stock (x) $4.00 minus (y) the sum of the
aggregate per share amount of any MusicCo Dividends and (z) the
sum of the Per Share Value of the Distributed Entity of each
Distributed Entity, which will be determined on the basis of the
appraised Fair Market Value of each Applicable Entity as of the
last day of the most recent quarter ended prior to the Exercise
Period (or, in the case of an accelerated Exercise Period, prior
to the date of a
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Triggering Event) divided by the number of
shares of Capital Stock of the Applicable Entity (determined on a
fully-diluted basis) then outstanding. (Sections 1.01 and 4.05
and 4.16) and (ii) in the case of Distributed Entity Stock, the
Per Share Value of the Distributed Entity. The Fair Market Value
of the Applicable Entity will be determined on a going concern or
liquidation basis, whichever is greater, taking into account the
considerations described in the Rights Agreement.
(Section 1.01). In no event will the amount paid for a share of
MusicCo Series A Common Stock exceed $4.00.
TCI may choose to pay the purchase price upon exercise
of Rights in cash, in shares of Series A TCI Group Common Stock
having an equivalent value (based upon the Current Market Price
of such shares, determined in accordance with the Rights
Agreement), or in a combination of cash and shares of Series A
TCI Group Common Stock. (Sections 4.04 and 4.05). However, TCI
must pay cash unless (i) the Series A TCI Group Common Stock is
then quoted on the NASDAQ National Market System or listed for
trading on a national securities exchange and (ii) the issuance
of shares of Series A TCI Group Common Stock to be issued upon
the exercise of Rights is registered under the Act or such shares
are otherwise freely tradable by MusicCo stockholders receiving
such shares other than stockholders who were deemed to be
affiliates of TCI. (Sections 4.04 and 4.06). If TCI elects to
offer a combination of cash and shares of Series A TCI Group
Common Stock in consideration for the sale of MusicCo Series A
Common Stock and/or Distributed Entity Stock in any Exercise
Period, each holder of a Right exercised during the applicable
Exercise Period will receive his total consideration for the
shares of MusicCo Series A Common Stock sold in the same
proportions of cash and shares of Series A TCI Group Common Stock
as other holders exercising the MusicCo Component of their Rights
during that period and will receive his total consideration for
the shares of Distributed Entity Stock sold upon the exercise of
the related Distributed Entity Component of his Rights in the
same proportions of cash and shares of Series A TCI Group Common
Stock as other holders exercising such Distributed Entity
Component of their Rights during that period (subject to rounding
or other adjustments made by the Rights Agent and to the payment
of cash in lieu of fractional shares) (Section 4.12)). Promptly
following the end of an Exercise Period and the deposit by TCI
with the Rights Agent of the amount of cash and/or number of
shares of Series A TCI Group Common Stock required to make full
payment of the purchase price for the shares of MusicCo Series A
Common Stock and Distributed Entity Stock sold to TCI pursuant to
the Rights exercised in such Exercise Period, the Rights Agent
will mail to the holders the purchase price for the shares of
MusicCo Series A Common Stock and Distributed Entity Stock, if
any, sold by them. Payment of any cash purchase price and any
cash in lieu of fractional shares of Series A TCI Group Common
Stock will be made by check. (Section 4.11)).
Acceleration of Exercise Period. The Exercise Period
will be accelerated upon the occurrence of (a) a Significant
Corporate Transaction (as defined below), (b) any disposition by
TCI of equity securities of MusicCo if as a result of such
disposition TCI would cease to be the beneficial owner of at
least 30% in voting power of the outstanding equity securities of
MusicCo (a "Change in Control Transaction"), (c) certain
bankruptcy or similar proceedings by or against TCI or (d) the
liquidation or dissolution of TCI. (Section 4.17). A Significant
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Corporate Transaction is defined, in general, as the
merger or consolidation of, or the dissolution or liquidation of,
an Applicable Entity, the Fair Market Value of which represents a
greater percentage of the Undistributed Value of MusicCo than the
percentage thereof represented by the Fair Market Value of any
other Applicable Entity, as determined by the Board of Directors
of MusicCo (whose good faith determination will be conclusive) as
of the date the agreement of merger or consolidation is executed,
or the vote of the Board of Directors of such Applicable Entity
to dissolve or liquidate such Applicable Entity is taken.
(Section 1.01). Promptly following the execution of the
agreement of merger or consolidation, the vote of the directors
of the Applicable Entity or TCI to dissolve or liquidate, the
execution by TCI of a binding agreement to dispose of its MusicCo
equity securities, or the occurrence of any other event that
causes the acceleration of the Exercise Period, as the case may
be (each a "Triggering Event"), MusicCo or TCI (or if applicable,
the Applicable Entity) will give written notice thereof to the
other(s), with a copy to the Rights Agent. (Section 4.18). The
date as of which such Fair Market Value is determined will be the
last day of the fiscal quarter of MusicCo immediately preceding
the fiscal quarter in which the Triggering Event occurs.
(Section 4.18). The accelerated Exercise Period will begin from
30 to 60 days after the publication of the notice described
below, and will last for 20 business days. (Section 4.19). Any
Rights (including all Components thereof) not validly exercised
prior to the end of the accelerated Exercise Period will expire.
(Section 4.19). If the Exercise Period is accelerated due to a
proposed Significant Corporate Transaction or Change in Control
Transaction and such transaction is not consummated prior to the
expiration of the accelerated Exercise Period, TCI may defer
purchasing the shares of MusicCo Common Stock and Distributed
Entity Stock surrendered upon exercise of the Rights until
consummation of such transaction. (Section 4.13). If a proposed
Significant Corporate Transaction or Change in Control
Transaction is terminated or abandoned, the acceleration of the
Exercise Period will be deemed to have been rescinded and
annulled and any Rights that expired by virtue of the failure of
the holder to validly exercise them prior to the expiration of
the accelerated Exercise Period (or by virtue of the partial
exercise thereof during such accelerated Exercise Period) will be
reinstated. (Sections 4.13, 4.14 and 4.20).
Notice of Exercise Period and Consideration Payable.
TCI is required to publish a notice in The Wall Street Journal
between 20 and 30 days before an Exercise Period begins, stating
the number of Rights then outstanding; the purchase price
determined for such Exercise Period in accordance with the Rights
Agreement for each share of MusicCo Series A Common Stock; if the
Rights have one or more Distributed Entity Components, then as to
each such Component the number of shares of Distributed Entity
Stock to which such Component relates and the purchase price
determined for such Exercise Period in accordance with the Rights
Agreement for each share of such Distributed Entity Stock; and
the form of consideration (cash or shares of Series A TCI Group
Common Stock) TCI has elected to pay and, if both such forms have
been elected, the relative proportions thereof or any other basis
on which the relative amounts of cash to be paid and numbers of
shares of Series A TCI Group Common Stock to be issued shall be
determined. The Rights Agent is then required promptly to mail
to each registered holder of a Right, by first class mail, a copy
of such notice, together with a letter of transmittal to be used
to tender stock certificates and such other documents as TCI may be
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Cusip No. 23323Q104
required to deliver to such holder under federal and state
securities laws (Section 4.07). Failure to give the notice in
accordance with these provisions extends the Exercise Period for
a period of time equal to the delay in giving the notice.
Expiration of Rights. The Rights will expire upon
termination of the Exercise Period. Upon the exercise of any
Right, such Right (including any Component thereof not exercised
or not exercised in full) will expire and cease to be
exercisable. Upon the consummation of a Terminating Event (as
defined below) with respect to an Applicable Entity, the
Component of each Right (and fractional Right) that relates to
the Capital Stock of such Applicable Entity will expire and cease
to be exercisable. (Section 4.02). A Terminating Event is
defined, in general, as the merger or consolidation of, or the
liquidation or dissolution of, an Applicable Entity.
(Section 1.01). If a Terminating Event occurs with respect to an
Applicable Entity the Fair Market Value of which represents a
greater percentage of the Undistributed Value of MusicCo than the
percentage thereof represented by the Fair Market Value of any
other Applicable Entity, such Terminating Event would constitute
a Significant Corporate Transaction and the Exercise Period of
the Rights would be accelerated as described above under
"Acceleration of Exercise Period." Upon consummation of any
other Terminating Event, the Exercise Period would not be
accelerated and the value, if any, associated with the Component
related to the Applicable Entity undergoing the Terminating Event
would be lost.
Manner of Exercise. Only whole Rights may be
exercised. To exercise a Right, the holder must surrender to the
Rights Agent, at its designated office in New York, the
following, together with the duly completed and signed letter of
transmittal: (i) if the MusicCo Component is being exercised a
certificate or certificates, representing the shares of MusicCo
Series A Common Stock to be sold to TCI, duly endorsed and in
proper form for transfer with such endorsement guaranteed by a
bank or trust company or a broker who is a member of a national
securities exchange, (ii) if a Distributed Entity Component is
being exercised, a certificate or certificates representing the
shares of the applicable Distributed Entity Stock to be sold to
TCI, duly endorsed and in proper form for transfer with such
endorsement similarly guaranteed, and (iii) payment in United
States currency or an amount equal to any stamp or other tax or
governmental charge required to be paid in connection with the
transfer of such shares. (Section 4.08).
Adjustments to Rights. The Rights Agreement contains
anti-dilution provisions pursuant to which the number of Rights
outstanding and, if applicable, the Underlying Number for the
Distributed Entity Component of a Right, will be adjusted to
reflect any stock dividend on, or stock split, reverse stock
split or reclassification of, the MusicCo Series A Common Stock
or Distributed Entity Stock (Section 6.02). However, the anti-
dilution provisions will not protect holders of the Rights
against certain actions that could be taken by MusicCo or a
Distributed Entity that could decrease the amount payable upon
exercise of the Rights. For example, any issuance of MusicCo
Series A Common Stock or Distributed Entity Stock at a price
below what would be the Per Share Value of MusicCo or such
Distributed Entity if MusicCo or such Distributed Entity were
appraised at the time of such issuance, or any declaration of a cash
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Cusip No. 23323Q104
dividend by MusicCo or a Distributed Entity could decrease
the amount eventually payable by TCI upon exercise of the Rights.
The Rights Agreement does not restrict the taking of such actions
and the anti-dilution provisions are not triggered by them,
although the holder of a Right who also holds a share of MusicCo
Series A Common Stock or Distributed Entity Stock will not be
diluted by a dividend declared on any class of the MusicCo
Series A Common Stock or Distributed Entity Stock that he holds
since he will receive the dividend, thus offsetting any decrease
in the amount eventually payable by TCI to such holder upon the
exercise of his Rights. The DMX Board took into consideration
the ability of MusicCo or a Distributed Entity to take certain
actions as described above that might be dilutive to holders of
Rights when it approved the Merger and determined to recommend to
DMX stockholders that they vote to adopt the Merger Agreement.
Notwithstanding any adjustment to the number of Rights or to the
Underlying Number for the Distributed Entity Component of a
Right, or the creation of a Distributed Entity Component, each
certificate for MusicCo Series A Common Stock theretofore issued
or thereafter issuable may continue to express solely the number
of Rights as are stated on the Rights Certificates initially
issuable pursuant to the Rights Agreement. (Section 6.10).
Notices of each adjustment and of the creation of a Distributed
Entity Component will be given to the holders of Rights in
accordance with the Rights Agreement. (Section 6.09).
Transfers; Exchanges. Rights may not be transferred or
exchanged except in connection with transfers of the MusicCo
Series A Common Stock. The surrender for transfer of any
certificates evidencing MusicCo Series A Common Stock will
constitute a transfer of the Rights associated with such shares
of MusicCo Series A Common Stock represented by such certificate.
(Section 3.01).
No Recourse Against Others. Neither MusicCo nor any
Distributed Entity, nor any director, officer, employee or
stockholder, as such, of TCI MusicCo or any Distributed Entity
shall have any liability to the holders of the Rights for any
obligations of TCI under the Rights Agreement and the Rights or
for any claim based on, in respect of, or by reason of such
obligations or their creation. Each holder by accepting a
certificate for MusicCo Series A Common Stock will waive and
release such liability. The waiver and release are part of the
consideration for the issue of the Rights. (Section 8.07).
Amendment, Supplement, Waiver. TCI and the Rights
Agent may supplement or amend the Rights Agreement, without the
consent of any of the holders of the Rights, to cure ambiguities
or correct or supplement any defective or inconsistent provisions
in the Rights Agreement, or to make other changes that are not
inconsistent with the provisions of the Rights and that do not
adversely affect the holders of the Rights. In addition, the
Rights Agreement can be supplemented or amended or provisions of
it may be waived with the written approval of the holders of a
majority of the then outstanding Rights, except that each holder
affected must approve (a) any waiver of a default in payment by
TCI of the purchase price on exercise of a Right or (b) any
amendment to the provisions of the Rights Agreement governing the
exercise of the Rights, acceleration of the Exercise Period, the
determination of the purchase price upon
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exercise of a Right or the anti-dilution provisions, if such
amendment would adversely affect the rights of such holder
in any material respect. (Section 8.04).
Conditions to the Merger
- ------------------------
The respective obligations of DMX and TCI and MusicCo
to effect the Merger are subject to the satisfaction of certain
conditions, including (i) the Merger Agreement and the
transactions contemplated by the Merger Agreement shall have been
duly approved by the holders of Common Stock; (ii) the waiting
period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Act shall have expired, or been earlier
terminated and any other notices of approvals or consents
required by or of governmental entities, to the extent required
to be obtained under the Merger Agreement, shall have either
filed or obtained; and (iii) the Registration Statement shall
have become effective in accordance with the provisions of the
Act and any necessary state securities law approvals shall have
been obtained and no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the
Commission and remain in effect.
The obligation of DMX to consummate the transactions
contemplated by the Merger Agreement is also subject to the
satisfaction or waiver of the following conditions: (i) the
performance by TCI, MusicCo and Merger Sub, in all material
respects, of their respective agreements in the Merger Agreement
to be performed prior to the Effective Time and the accuracy of
the representations and warranties of each of them in all
material respects; and (ii) the transactions contemplated by the
Contribution Agreement to be entered into by TCI and MusicCo
(filed as Exhibit I hereto and incorporated herein by reference)
shall have been consummated.
The respective obligations of TCI, MusicCo and Merger
Sub to consummate the transactions contemplated by the Merger
Agreement are also subject to the satisfaction or waiver of the
following conditions: (i) the performance by DMX, in all material
respects, of the agreements of it in the Merger Agreement to be
performed by it by the Effective Time and the accuracy of DMX's
representations and warranties in all material respects;
(ii) receipt of all consents, orders or approvals of governmental
entities and third parties, to the extent required to be obtained
under the Merger Agreement; and (iii) the number of stockholders
exercising dissenter's rights does not exceed 10% of the Common
Stock outstanding as of the date of the Merger Agreement.
Governmental Approvals
- ----------------------
The only governmental consents and governmental filings
that TCI and DMX are aware of that must be obtained or made in
connection with the consummation of the Merger (other than in
connection with compliance with federal and state securities
laws) are filings with the Department of Justice and the FTC
under the Hart-Scott-Rodino Act with respect to the Merger.
12
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Cusip No. 23323Q104
Covenants
- ---------
DMX has agreed to conduct its business in the ordinary
course and to use its reasonable best efforts to preserve intact
its present business organization, and to preserve its
relationships with customers, suppliers and others having
business dealings with it. DMX has agreed that, except as
required or permitted by the Merger Agreement or consented to in
writing by TCI, it will not, prior to the Effective Time, (i)
sell or pledge any capital stock or other ownership interest in
any of its subsidiaries, (ii) amend or propose to amend the DMX
Charter or DMX Bylaws, (iii) split, combine or reclassify its
outstanding capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of, or other ownership
interests in, DMX, or declare, set aside or pay any dividend or
other distribution to stockholders of DMX, (iv) directly or
indirectly redeem, purchase or otherwise acquire any shares of
capital stock of, or other ownership interests in, DMX; (v) (a)
issue, deliver or sell any shares of, capital stock of, or other
ownership interests in, DMX, or any option, or warrant or other
right to acquire, or any security convertible into, shares of
capital stock of, or other ownership interests in, DMX,
(b) acquire, lease or dispose of any assets, other than in the
ordinary course of business consistent with past practice,
(c) create, assume or incur any additional indebtedness for
borrowed money or mortgage, pledge or subject to any lien any of
its assets or enter into any other material transaction other
than in the ordinary course of business consistent with past
practice, (d) make any payments with respect to any indebtedness
of DMX except for such payments that are scheduled to come due
prior to the Effective Time, (e) acquire any business or
business organization or division thereof that are material,
individually or in the aggregate to DMX taken as a whole or
(vi) agree to do any of the foregoing.
DMX further agreed that, except as consented to in
writing by TCI or required to comply with applicable law or
existing company benefit plans, it will not and will not permit
any of its subsidiaries to: (i) adopt or terminate or amend any
bonus, profit sharing, compensation, severance, termination,
stock option, pension, retirement, deferred compensation,
employment or other benefit plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer
or current or former employee, (ii) increase in any manner the
compensation or fringe benefit of any director, officer or
employee (except for normal increases in the ordinary course of
business consistent with past practice), (iii) grant any awards
under any bonus, incentive, performance or other compensation
plan or arrangement or benefit plan, (iv) take any action to fund
or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or
arrangement or benefit plan (except for such actions made in the
ordinary course of business consistent with past practice) or (v)
agree to do any of the foregoing.
DMX has further agreed that, without the consent of
TCI, it will not (i) take, or agree to take, any actions that
would (x) make any representation or warranty of DMX contained in
the Merger Agreement untrue or incorrect so as to cause the
condition with respect to DMX's
13
<PAGE>
Cusip No. 23323Q104
representations and warranties not to be fulfilled as of the
Effective Time or (y) result in any of the other conditions to
the obligations of TCI and TCIC in the Merger Agreement not being
satisfied as of the Effective Time.
No Solicitation of Transactions
- -------------------------------
The Merger Agreement provides that, subject to the
fiduciary duties of the DMX Board, none of DMX nor any of its
subsidiaries or any of their respective officers, directors,
representatives or agents will take any action to initiate the
submission of any Acquisition Proposal, enter into any agreement
with respect to any Acquisition Proposal or participate in
negotiations with any person in connection with any Acquisition
Proposal. "Acquisition Proposal" is defined in the Merger
Agreement to mean any proposed (i) merger, consolidation or
similar transaction involving DMX, (ii) sale, lease or other
disposition directly or indirectly by merger, consolidation,
share exchange or otherwise of all or any substantial part of the
assets of DMX or its subsidiaries, (iii) issuance, sale or other
disposition of securities representing 50% or more of the voting
power of Common Stock or (iv) any transaction in which any person
shall acquire beneficial ownership (as such term is defined in
Rule 13d-3 under the Exchange Act) or the right to acquire
beneficial ownership, or any "group" (as such term is defined
under the Exchange Act) shall have been formed that beneficially
owns or has the right to acquire beneficial ownership, of 50% or
more of the outstanding Common Stock.
Indemnification
- ---------------
The Merger Agreement provides that after the Effective
Time MusicCo will cause the Merger Sub to, and, should the Merger
Sub fail or be unable to do so, MusicCo will (i) indemnify,
defend, and hold harmless the officers and directors of DMX until
the expiration of the applicable statutes of limitation to the
fullest extent permitted by applicable law and the DMX Charter
and DMX Bylaws in effect on the date of the Merger Agreement, and
(ii) pay expenses in advance of the final disposition of any such
claim to the fullest extent permitted by and pursuant to
applicable law.
Termination; Amendment and Waiver
- ---------------------------------
The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before
or after approval by DMX's stockholders, (i) by mutual consent of
the DMX Board and the TCI Board, (ii) by either DMX or TCI (A) if
the Merger has not been consummated on or before July 31, 1997,
so long as the party seeking to terminate the Merger Agreement
has not breached its obligations under the Merger Agreement in
any material respect, or (B) if the stockholders of DMX shall not
have approved the Merger Agreement by such date, (iii) by DMX,
provided DMX has not breached any of its obligations thereunder in
14
<PAGE>
Cusip No. 23323Q104
any material respect, if any of the conditions to its
obligations to consummate the Merger have not been satisfied or
waived at such time as such condition is no longer capable of
satisfaction, or (iv) by TCI, provided TCI has not breached any
of its obligations thereunder in any material respect, if any of
the conditions to its obligation to consummate the Merger have
not been satisfied or waived at such time as such condition is no
longer capable of satisfaction.
In the event of termination of the Merger Agreement by
either DMX or TCI as provided above, the Merger Agreement will
become void and (except for the willful breach of the Merger
Agreement) there will be no liability or obligation on the part
of any of DMX, TCI, MusicCo or Merger Sub.
DMX, TCI, MusicCo and Merger Sub may agree to amend the
Merger Agreement by or pursuant to action taken by their
respective boards of directors, either before or after approval
by the stockholders of DMX of the Merger Agreement, except that
after such approval by the stockholders of DMX, no amendment may
be made that alters the indemnification provisions of the Merger
Agreement or changes the ratio at which Common Stock is to be
converted into MusicCo Series A Common Stock and Rights that in
any way materially adversely affects the rights of such
stockholders, without the further approval of such stockholders.
At any time prior to the Effective Time, DMX, TCI or MusicCo, by
or pursuant to action taken by their respective boards of
directors, may agree to extend the time specified in the Merger
Agreement for the performance of any of the obligations or other
acts of the other parties, waive any inaccuracies in the
representations and warranties of the other parties contained in
the Merger Agreement or in any document delivered pursuant to the
Merger Agreement or waive compliance with any of the agreements
or conditions contained in the Merger Agreement.
Loan Agreement
- --------------
On February 6, 1997, DMX and TCI entered into a Loan
and Security Agreement (the "Loan Agreement") wherein TCI agreed
to lend, from time to time until May 31, 1997, to DMX up to $3.5
million on the terms and conditions set forth in the Loan
Agreement. On that same date, DMX borrowed under the terms of
the Loan Agreement $1.2 million. The following summary of the
Loan Agreement does not purport to be complete and is subject to
and qualified in its entirety by reference to all provisions of
the Loan Agreement, including the definitions of certain terms.
The complete text of the Loan Agreement has been filed as
Exhibit H hereto and is hereby incorporated herein.
The loan made under the Loan Agreement (the "Loan")
shall bear interest from the date of closing on the outstanding
principal amount until repaid at the rate of 12 1/2% per annum.
Interest shall be computed for the actual number of days elapsed
on the basis of a 360-day year. DMX is required to pay the
interest and principal on the Loan in 36 equal monthly
installments, commencing on July 1, 1997, and thereafter on the
first day of each month until June 1, 2000. Amounts repaid by
DMX may not be reborrowed.
The obligation of TCI to make the Loan shall be subject
to the satisfaction, on the closing date and on each advance
date, as applicable, of certain conditions specified in Article 3
15
<PAGE>
Cusip No. 23323Q104
of the Loan Agreement. Further, the Loan Agreement contains
affirmative and negative covenants and customary events of
default.
Pursuant to the Loan Agreement, DMX granted to TCI a
security interest in all tuners, remote control devices and other
equipment designed for use by DMX's customers in receiving DMX's
music services, all agreements with commercial subscribers to
DMX's music services, including accounts receivable or other
rights to payment arising from goods sold or leased or services
rendered under such agreements, and all proceeds from the sale,
exchange, lease or other disposition of any of the above-listed
assets.
ITEM 6. Contracts, Arrangements, Understandings or
-------------------------------------------------
Relationships with Respect to
-----------------------------
Securities of the Issuer
------------------------
The information set forth in Item 4 above is
incorporated by reference into this Item 6.
ITEM 7. Material to be Filed as Exhibits
--------------------------------
F. Agreement and Plan of Merger dated as of February
6, 1997, among TCI, MusicCo, Merger Sub and DMX.
G. Form of Rights Agreement to be entered into by
TCI, MusicCo and The Bank of New York, as Rights Agent.
H. Loan and Security Agreement dated as of February
6, 1997, between TCI and DMX.
I. Form of Contribution Agreement to be entered into
by TCI and MusicCo.
16
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Cusip No. 23323Q104
SIGNATURE
After reasonable inquiry and to the best of my
knowledge and belief, I certify that the information set forth in
this Statement is true, complete and correct.
February 24, 1997 TELE-COMMUNICATIONS, INC.
/s/Stephen M. Brett
__________________________
Stephen M. Brett
Executive Vice President and
General Counsel
17
<PAGE>
Cusip No. 23323Q104
SCHEDULE 1
----------
Directors, Executive Officers & Controlling Persons
of
Tele-Communications, Inc. ("TCI")
DIRECTORS
Name Principal Occupation & Principal Business or
Business Address Organization in Which
---------------------- such Employment Is
Conducted
Tony Lee Coelho Director of TCI; Chairman of Investment Services
the Board & Chief Executive -------------------
Officer of ETC w/tci, Inc.;
Chairman & Chief Executive
Officer of Coelho Associates,
LLC
1325 Avenue of the Americas,
26th Floor
New York, New York 10019
Donne F. Fisher Consultant & Director of TCI Cable television &
5619 DTC Parkway telecommunications
Englewood, CO 80111 & programming services
John W. Gallivan Director of TCI; Chairman of Newspaper publishing
the Board
of Kearns-Tribune Corporation
400 Tribune Building
Salt Lake City, UT 84111
Paul A. Gould Director of TCI, Managing Investment banking
Director of services
Allen & Company Incorporated
711 5th Avenue
New York, New York 10022
Jerome H. Kern Director of TCI; Business Business Consulting; Law
Consultant; Special Counsel to
Baker & Botts, L.L.P.
5619 DTC Parkway
Englewood, CO 80111
Kim Magness Director of TCI & TCI Management of personal
Communications, Inc.; Manages investments
various personal investments;
4000 E. Belleview
Englewood, CO 80111
John C. Malone Chairman of the Board & Cable television &
Director of TCI telecommunications
5619 DTC Parkway & programming services
Englewood, CO 80111
18
<PAGE>
Cusip No. 23323Q104
Robert A. Naify Director of TCI; President & Motion Picture Industry
CEO of
Todd-AO Corporation;
172 Golden Gate Avenue
San Francisco, CA 94102
JC Sparkman Executive Vice President and Cable television &
Director of TCI telecommunications
5619 DTC Parkway & programming services
Englewood, CO 80111
EXECUTIVE OFFICERS
------------------
Name Principal Occupation & Principal Business or
Business Address Organization in Which
----------------------- such Employment Is
Conducted
---------------------
Peter R. Barton Executive Vice President of Cable television &
TCI telecommunications
5619 DTC Parkway & programming services
Englewood, CO 80111
Gary K. Bracken Senior Vice President & Cable television &
Controller telecommunications
of TCI Communications, Inc. & programming services
5619 DTC Parkway
Englewood, CO 80111
Stephen M. Brett Executive Vice President, Cable television &
Secretary telecommunications
& General Counsel of TCI & programming services
5619 DTC Parkway
Englewood, CO 80111
Brendan R. Executive Vice President & Cable television &
Clouston Chief Operating Officer of TCI telecommunications
5619 DTC Parkway & programming services
Englewood, CO 80111
Leo J. Hindery President of TCI Cable television &
5619 DTC Parkway telecommunications
Englewood, CO 80111 & programming services
Barry P. Marshall Executive Vice President of Cable television &
TCI Communications, Inc. telecommunications
5619 DTC Parkway & programming services
Englewood, CO 80111
Larry E. Romrell Executive Vice President of Cable television &
TCI telecommunications
5619 DTC Parkway & programming services
Englewood, CO 80111
19
<PAGE>
Cusip No. 23323Q104
Bernard W. Senior Vice President - Cable television &
Schotters, II Finance & Treasurer of TCI telecommunications
Communications, Inc. & programming services
5619 DTC Parkway
Englewood, CO 80111
Robert N. Thomson Senior Vice President - Cable television &
Government Affairs of TCI telecommunications
Communications, Inc. & programming services
5619 DTC Parkway
Englewood, CO 80111
Fred A. Vierra Executive Vice President of Cable television &
TCI telecommunications
5619 DTC Parkway & programming services
Englewood, CO 80111
20
<PAGE>
Cusip No. 23323Q104
EXHIBIT INDEX
-------------
- ----------------------------------------------------------------------
EXHIBIT EXHIBIT PAGE
NUMBER
- ----------------------------------------------------------------------
7(F) Agreement and Plan of Merger dated as of
February 6, 1997, among TCI, MusicCo, Merger
Sub and DMX.
7(G) Form of Rights Agreement to be entered into by
TCI, MusicCo and The Bank of New York, as
Rights Agent.
7(H) Loan and Security Agreement dated as of
February 6, 1997, between TCI and DMX.
7(I) Form of Contribution Agreement to be entered
into by TCI and MusicCo.
21
<PAGE>
AGREEMENT AND PLAN
OF MERGER
DATED AS OF
FEBRUARY 6, 1997
AMONG
TELE-COMMUNICATIONS, INC.,
TCI MUSIC, INC.,
TCI MERGER SUB, INC.
AND
DMX INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE IDEFINITIONS
Section 1.1 Definitions..............................................2
Section 1.2 Other Definitions........................................3
Section 1.3 Use of Terms.............................................4
ARTICLE II THE MERGER AND RELATED MATTERS
Section 2.1 The Merger...............................................5
Section 2.2 Effective Time of the Merger.............................6
ARTICLE III CONVERSION OF CAPITAL STOCK
Section 3.1 Conversion of Stock......................................6
Section 3.2 [Intentionally omitted]..................................6
Section 3.3 Exchange of Certificates.................................7
Section 3.4 Distribution With Respect to Shares Represented by
Unsurrendered Company Stock Certificates.................8
Section 3.5 No Fractional Shares.....................................9
Section 3.6 No Liability.............................................9
Section 3.7 Lost Certificates........................................9
Section 3.8 Dissenting Shares.......................................10
Section 3.9 Treatment of Stock Options and Other Company
Benefit Plans...........................................10
Section 3.10 Stockholders' Approval..................................10
Section 3.11 Closing of the Company's Transfer Books.................11
Section 3.12 Assistance in Consummation of the Merger................11
Section 3.13 Closing.................................................11
ARTICLE IV THE CONTRIBUTION; THE RIGHTS
Section 4.1 Contribution to MusicCo.................................11
Section 4.2 Consideration for Contribution..........................12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TCI, MUSICCO AND
MERGER SUB
Section 5.1 Organization and Qualification..........................12
Section 5.2 Capitalization..........................................12
Section 5.3 Authority Relative to this Agreement....................12
Section 5.4 No Breach; Required Consents............................13
Section 5.5 Governmental Consents and Approvals.....................13
Section 5.6 Operations of MusicCo and Merger Sub....................13
Section 5.7 No Broker...............................................13
<PAGE>
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 6.1 Organization and Qualification..........................14
Section 6.2 Capitalization..........................................14
Section 6.3 Subsidiaries............................................14
Section 6.4 Authority Relative to this Agreement....................15
Section 6.5 No Breach; Required Consents............................15
Section 6.6 Consents and Approvals..................................16
Section 6.7 Reports and Financial Statements........................16
Section 6.8 Compliance with Law; Litigation.........................17
Section 6.9 Title to Assets.........................................18
Section 6.10 Labor and Employee Matters..............................18
Section 6.11 ERISA...................................................18
Section 6.12 Approval................................................19
Section 6.13 Financial Advisor.......................................20
Section 6.14 Taxes...................................................20
Section 6.15 Environmental Laws......................................20
Section 6.16 Transactions with Affiliates............................21
ARTICLE VIICONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business of the Company......................21
Section 7.2 Conduct of Business of TCI..............................22
Section 7.3 Remedies for Breach..23
ARTICLE VIIIADDITIONAL AGREEMENTS
Section 8.1 Access and Information..................................23
Section 8.2 SEC Filings.............................................23
Section 8.3 Meeting of Stockholders of the Company..................27
Section 8.4 Compliance with the Securities Act......................27
Section 8.5 Listing.................................................27
Section 8.6 Reasonable Best Efforts.................................27
Section 8.7 Public Announcements....................................27
Section 8.8 Notification............................................27
Section 8.9 HSR Act Filings.........................................28
Section 8.10 Further Assurances......................................28
Section 8.11 Employee Benefits.......................................28
Section 8.12 No Solicitation.........................................29
Section 8.13 Indemnification of Executives...........................29
ARTICLE IXCONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's Obligation to
Effect the Merger......................................30
Section 9.2 Conditions to Obligation of the Company to
Effect the Merger......................................31
Section 9.3 Conditions to Obligations of TCI, MusicCo
and Merger Sub to Effect the Merger....................31
<PAGE>
ARTICLE XTERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination............................................32
Section 10.2 Effect of Termination..................................33
Section 10.3 Amendment..............................................33
Section 10.4 Waiver.................................................33
ARTICLE XIGENERAL PROVISIONS; DEFINITIONS
Section 11.1 Non-Survival of Representations, Warranties
and Agreements.........................................33
Section 11.2 Notices................................................33
Section 11.3 Fees and Expenses......................................34
Section 11.4 Specific Performance...................................34
Section 11.5 Third Party Beneficiaries..............................34
Section 11.6 Entire Agreement.......................................35
Section 11.7 Miscellaneous..........................................35
<PAGE>
EXHIBITS
- --------
Exhibit Description
- ------- -----------
A Form of Contribution Agreement
B Form of Rights Agreement
C Form of Opinion of TCI Counsel
D Form of Opinion of Company Counsel
SCHEDULES
- ---------
Schedule No. Description
- ------------ -----------
5.4 TCI Consents
6.2(b) Rights To Acquire Company Common Stock
6.3 Subsidiaries and Equity Affiliates
6.5 Company Consents
6.7(c) Certain Changes
6.7(d) Undisclosed Liabilities
6.8(a) Legal Requirements
6.8(b) Litigation
6.9 Liens
6.10 Employment Agreements
6.11(a) Company Benefit Plans
6.11(g) Benefits to Former Employees
6.14 Taxes
6.15 Environmental Matters
6.16 Affiliate Transactions
7.1 Conduct of Business Pending the Merger
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement")
dated as of February 6, 1997, by and among Tele-Communications,
Inc., a Delaware corporation ("TCI"), TCI Music, Inc., a Delaware
corporation and wholly owned subsidiary of TCI ("MusicCo"), TCI
Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of MusicCo ("Merger Sub") and DMX Inc., a Delaware
corporation (the "Company"):
RECITALS
--------
A. Pursuant to the form of Contribution Agreement
attached to this Agreement as Exhibit A (the "Contribution
Agreement"), (i) TCI will cause certain of its wholly owned
subsidiaries to contribute to MusicCo the right to receive a
substantial portion of the revenues attributable to the
distribution and sale by those subsidiaries of the Company's
digital music services and (ii) TCI will grant to each
stockholder who becomes a stockholder of MusicCo pursuant to the
Merger, with respect to each whole share of MusicCo stock
acquired by such stockholder in the Merger, one right (a "Right")
requiring TCI to purchase from the holder thereof, at such
holder's election, such stock for the price and at the time
specified in the form of Rights Agreement attached to this
Agreement as Exhibit B (the "Rights Agreement") in consideration
of the issuance of shares of Series B Common Stock, par value
$.01 per share, of MusicCo ("MusicCo Series B Common Stock") and
a promissory note in the amount of $40,000,000.
B. TCI and MusicCo have proposed that MusicCo will
acquire the Company in a transaction in which: (i)
simultaneously with the Contribution, Merger Sub will merge with
and into the Company, as a result of which the Company will
become a wholly owned subsidiary of MusicCo and the stockholders
of the Company immediately prior to such merger will become
stockholders of MusicCo; and (ii) TCI will issue to each
stockholder who becomes a stockholder of MusicCo pursuant to the
Merger, with respect to each whole share of MusicCo stock
acquired by such stockholder in the Merger, one Right.
C. The Boards of Directors of TCI, MusicCo,
Merger Sub and the Company have each determined that the Merger
is in the best interests of their respective corporations and
stockholders.
NOW, THEREFORE, in consideration of the foregoing
premises and the representations, warranties and agreements
contained in this Agreement the parties to this Agreement agree
as follows:
<PAGE>
ARTICLE 1
---------
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement,
-----------
the following terms with initial capital letters will have the
meanings set forth below:
"Affiliate" means, as to any Person, any other Person
which, directly or indirectly, controls, is under common control
with, or is controlled by, such Person. As used in this
definition, "control" (including, with its correlative meanings,
"controlling," "controlled by" and "under common control with")
means possession, directly or indirectly, of the power to direct
or cause the direction of management and policies of a Person
(whether through the ownership of voting securities, by contract
or otherwise).
"Code" means the Internal Revenue Code of 1986, as
amended.
"Environmental Law" means any applicable Legal
Requirement relating to the protection, preservation or
restoration of the environment (including, air, water vapor,
surface water, ground water, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural
resource).
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"GAAP" means generally accepted accounting principles
as in effect from time to time in the United States of America.
"Knowledge" means the actual present personal knowledge
of any director or any officer of the Company.
"Legal Requirement" means any statute, ordinance, code,
law, rule, regulation, order or other requirement, standard or
procedure enacted, adopted or applied by any Governmental Entity,
including judicial decisions applying common law or interpreting
any other Legal Requirement or any agreement entered into with a
Governmental Entity in resolution of a dispute or otherwise.
"Lien" means any lien, security interest, pledge,
charge, claim, option, right to acquire, restriction on transfer,
voting restriction or encumbrance of any nature.
-2-
<PAGE>
"Material Adverse Effect" means a material adverse
effect on the business, properties, assets, condition (financial
or otherwise), liabilities or operations of a Person and its
Subsidiaries, taken as a whole, or on the ability of such Person
to perform its obligations under this Agreement.
"MusicCo Series A Common Stock Value" means the product
of (a) $4.00 and (b) a fraction, the numerator of which is
59,586,594 and the denominator of which is the total number of
shares of MusicCo Series A Common Stock issuable to stockholders
of the Company at the Effective Time, assuming no Dissenting
Shares.
"NASDAQ" means the over-the-counter market of the
National Association of Securities Dealers, Inc.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any human being or any partnership,
limited liability company, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture,
Governmental Entity or other entity.
"SEC" means the United States Securities and Exchange
Commission.
"Subsidiary" means, with respect to any Person, any
corporation or partnership more than 50% of whose outstanding
voting securities or partnership interests, as the case may be,
are directly or indirectly owned by such Person.
Section 1.2 Other Definitions. The following terms
-----------------
are defined in the Sections indicated:
Term Section
---- -------
Acquisition Proposal 8.12
Agreement Preamble
Antitrust Division 8.9
Certificate of Incorporation
of the Company 2.1(a)
Certificate of Merger 2.2
Closing 3.13
Closing Date 3.13
-3-
<PAGE>
Company Preamble
Company Benefit Plans 6.11(a)
Company Common Stock 3.1(a)
Company Permits 6.8(a)
Company Stock Certificates 3.3(a)
Contribution 4.1
Contribution Agreement Recital A
DGCL 2.1
Dissenting Shares 3.8
Effective Time 2.2
Equity Affiliate 6.3
ERISA Affiliate 6.11(a)
Exchange Act 5.5
Exchange Agent 3.3(a)
Executive 8.13(a)
FTC 8.9
Governmental Entity 6.8(a)
HSR Act 5.5
Indemnified Party 8.2(h)(iii)
Indemnifying Party 8.2(h)(iii)
Joint Proxy Statement/Prospectus 8.2(a)
Losses 8.2(h)(i)
Meeting 8.3
Merger 2.1
Merger Sub Preamble
Most Recent Balance Sheet 6.7(c)
MusicCo Preamble
MusicCo Certificates 3.3(a)
MusicCo Series A Common Stock 3.1(a)
MusicCo Series B Common Stock Recital A
Other Filings 8.2(b)
Preliminary Joint Proxy Statement/
Prospectus 8.2(a)
Right Recital A
Rights Agreement Recital A
SEC Filings 8.2(c)
SEC Reports 6.7(a)
Securities Act 5.5
Surviving Corporation 2.1
-4-
<PAGE>
Tax 6.14
TCI Preamble
Termination Date 10.1(b)
Section 1.3 Use of Terms. Terms used with initial
------------
capital letters will have the meanings specified, applicable to
both singular and plural forms, for all purposes of this
Agreement. All pronouns (and any variations) will be deemed to
refer to the masculine, feminine or neuter, as the identity of
the Person may require. The singular or plural includes the
other, as the context requires or permits. The word include (and
any variation) is used in an illustrative sense rather than a
limiting sense. The word day means a calendar day. All
accounting terms not otherwise defined in this Agreement will
have the meanings ascribed to them under GAAP.
ARTICLE 2
---------
THE MERGER AND RELATED MATTERS
Section 2.1 The Merger. Subject to the terms and
----------
conditions of this Agreement and the Delaware General Corporation
Law (the "DGCL"), at the Effective Time: (i) Merger Sub will be
merged with and into the Company (the "Merger"); (ii) the
separate existence of Merger Sub will cease and the Company will
continue as the surviving corporation in the Merger (the
"Surviving Corporation"); and the name of the Surviving
Corporation will be DMX Inc. From and after the Effective Time,
and without any further action on the part of any Person, the
Merger will have all the effects provided by applicable Legal
Requirements, including Section 262 of the DGCL, the effects
described in Section 3.1 with respect to the capital stock of
Merger Sub and the Company and, subject to applicable Legal
Requirements, the following additional effects:
(a) Certificate of Incorporation. At the Effective
----------------------------
Time, the Amended and Restated Certificate of Incorporation of
the Company, as amended (the "Certificate of Incorporation of the
Company"), as in effect immediately prior to the Effective Time,
will become the Certificate of Incorporation of the Surviving
Corporation, and such Certificate of Incorporation may thereafter
be amended as provided therein and by the DGCL.
(b) Bylaws. At the Effective Time, the Bylaws of
------
Merger Sub, as in effect immediately prior to the Effective Time,
will become the Bylaws of the Surviving Corporation, and such
Bylaws may thereafter be amended or repealed in accordance with
their terms and the Certificate of Incorporation of the Surviving
Corporation and as provided by the DGCL.
(c) Directors. At the Effective Time, the directors
---------
of Merger Sub immediately
-5-
<PAGE>
prior to the Effective Time will become the directors of the
Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving
Corporation and the DGCL and until the earlier of such director's
resignation or removal or such director's successor is duly
elected and qualified, as the case may be.
(d) Officers. At the Effective Time, the officers of
--------
Merger Sub immediately prior to the Effective Time will become
the officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation and the DGCL and until the earlier of
such officer's resignation or removal or such officer's successor
is duly appointed and qualified, as the case may be.
(e) Properties and Liabilities. At the Effective
---------------------------
Time, all the properties, rights, privileges, powers and fran
chises of the Company and Merger Sub will vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company
and Merger Sub will become the debts, liabilities and duties of
the Surviving Corporation.
Section 2.2 Effective Time of the Merger. Subject
----------------------------
to the terms and conditions in this Agreement, the parties will
prepare, sign and acknowledge, in accordance with the DGCL, a
certificate of merger (the "Certificate of Merger") and deliver
the Certificate of Merger to the Secretary of State of the State
of Delaware for filing pursuant to the DGCL on the Closing Date.
The Merger will become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of
Delaware. As used in this Agreement, the "Effective Time" means
the time at which the Certificate of Merger is filed with the
Secretary of State of the State of Delaware.
ARTICLE 3
---------
CONVERSION OF CAPITAL STOCK
Section 3.1 Conversion of Stock. At the Effective
-------------------
Time, by virtue of the Merger and without any action on the part
of the holder of any shares of capital stock of any corporation:
(a) Each share of Common Stock, $.01 par value per
share, of the Company ("Company Common Stock") issued and out
standing immediately prior to the Effective Time (except shares
subject to Section 3.1(b) and, to the extent provided in Section
3.8, Dissenting Shares) will be converted into and will there
after evidence and become: (i) .5 of a share of Series A common
stock, $.01 par value per share, of MusicCo ("MusicCo Series A
Common Stock"); (ii) one Right with respect to each whole share
of MusicCo Series A Common Stock; and (iii) the right to receive
cash in lieu of fractional shares of MusicCo Series A Common
Stock and Rights in accordance with Section 3.5.
-6-
<PAGE>
(b) Each share of the capital stock of the Company
issued and outstanding immediately prior to the Effective Time
and owned directly or indirectly by the Company, if any, will be
canceled and retired, and no MusicCo Series A Common Stock,
Rights or other consideration will be delivered in exchange
therefor.
(c) Each share of Common Stock, $.01 par value per
share, of Merger Sub issued and outstanding immediately prior to
the Effective Time (except shares subject to Section 3.1(d)) will
be converted into and will thereafter evidence and become one
validly issued, fully paid, and nonassessable share of Common
Stock, $.01 par value per share, of the Surviving Corporation.
(d) Each share of the capital stock of Merger Sub
issued and outstanding immediately prior to the Effective Time
and owned directly or indirectly by Merger Sub, if any, will be
canceled and retired, and no Common Stock of the Surviving
Corporation or other consideration will be delivered in exchange
therefor.
Section 3.2 [Intentionally omitted]
Section 3.3 Exchange of Certificates.
------------------------
(a) Exchange Agent. Prior to the Closing Date, TCI
--------------
will select The Bank of New York or another bank or trust company
reasonably acceptable to the Company to act as exchange agent
(the "Exchange Agent") in connection with the surrender of
certificates that, prior to the Effective Time, evidenced
outstanding shares of Company Common Stock ("Company Stock
Certificates"). Prior to the Closing Date, MusicCo and TCI will
deposit with the Exchange Agent for exchange in accordance with
this Section 3.3 certificates evidencing the shares of MusicCo
Series A Common Stock and the Rights to be issued in the Merger
("MusicCo Certificates"), which shares of MusicCo Common Stock
and Rights will be deemed to be issued at the Effective Time. At
and following the Effective Time, MusicCo will deliver to the
Exchange Agent such cash as may be required from time to time to
make payments of cash in lieu of fractional shares in accordance
with Section 3.5.
(b) Exchange. As soon as practicable after the
--------
Effective Time, MusicCo will cause the Exchange Agent to mail to
each Person who was a holder of record of Company Common Stock at
the Effective Time: (i) a letter of transmittal (which will
specify that delivery will be effective, and risk of loss and
title to any Company Stock Certificates will pass, only upon
delivery of the Company Stock Certificates to the Exchange Agent
and will be in such form and will have such other provisions
that are specified by MusicCo and reasonably acceptable to the
Company); and (ii) instructions for use in effecting the
surrender of Company Stock Certificates in exchange for MusicCo
Certificates (together with any dividend or distribution with
respect thereto made after the Effective Time and any cash to be
paid in lieu of fractional shares pursuant to Section 3.5). Upon
surrender of a Company Stock Certificate for cancellation
-7-
<PAGE>
to the Exchange Agent or to such other agent or agents as may
be appointed by TCI, together with such letter of transmittal,
duly executed, and such other documents as may be required by the
Exchange Agent or such other agent, the holder of such Company
Stock Certificate will be entitled to receive in exchange
therefor MusicCo Certificates representing the number of whole
shares of MusicCo Series A Common Stock and one Right with
respect to each whole share of MusicCo Series A Common Stock
that such holder has the right to receive pursuant to this
Agreement (together with any dividend or distribution with respect
thereto made after the Effective Time and any cash to be paid in
lieu of fractional shares pursuant to Section 3.5) and the
Company Stock Certificate so surrendered will be canceled. In
the event of a transfer of ownership of Company Common Stock
that is not registered in the transfer records of the Company,
MusicCo Certificates representing the proper number of shares
of MusicCo Series A Common Stock and Rights may be issued to a
Person other than the Person in whose name the surrendered
Company Stock Certificate is registered if the Company Stock
Certificate representing such Company Common Stock is presented
to the Exchange Agent accompanied by all documents required to
evidence and effect such transfer and by evidence reasonably
satisfactory to MusicCo that any applicable stock transfer tax
has been paid. MusicCo will not directly or indirectly pay or
reimburse any Person for any transfer taxes of the type referred
to in the preceding sentence. If any MusicCo Certificates are
to be delivered to a Person other than the Person in whose
name the Company Stock Certificates surrendered in exchange
therefor are registered, it will be a condition to the delivery
of such MusicCo Certificates that the Company Stock Certificates
so surrendered are properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for
transfer, that such transfer otherwise is proper and that the
Person requesting such transfer pay to the Exchange Agent any
transfer or other taxes payable by reason of the foregoing or
establishes to the satisfaction of the Exchange Agent that such
taxes have been paid or are not required to be paid.
(c) Certificates Not Exchanged. After the Effective
--------------------------
Time, each outstanding Company Stock Certificate will, until
surrendered for exchange in accordance with this Section 3.3, be
deemed for all purposes to evidence ownership of the number of
whole shares of MusicCo Series A Common Stock and the whole
number of Rights into which the shares of Company Common Stock
(which, prior to the Effective Time, were represented thereby)
are converted in accordance with Section 3.1, together with the
right to receive any dividend or distribution with respect
thereto made after the Effective Time and any cash to be paid in
lieu of fractional shares pursuant to Section 3.5.
(d) Expenses. Except as otherwise expressly provided
--------
in this Agreement, MusicCo will pay all charges and expenses,
including those of the Exchange Agent, in connection with the
exchange of shares of MusicCo Series A Common Stock and Rights
for shares of Company Common Stock, except any charges or
expenses that are otherwise solely the liability of one or more
holders of Company Common Stock. Any MusicCo Certificates
deposited with the Exchange Agent that remain unclaimed by the
former stockholders of the Company after six months following the
Effective Time will be delivered to MusicCo upon its
-8-
<PAGE>
demand, and any former stockholders of the Company who have not
then complied with the instructions for exchanging their
Company Stock Certificates will thereafter look only to MusicCo
for exchange of Company Stock Certificates and for any dividend
or distribution with respect thereto made after the Effective
Time and any cash to be paid in lieu of fractional shares
pursuant to Section 3.5.
Section 3.4 Distribution With Respect to Shares
--------------------------------------
Represented by Unsurrendered Company Stock Certificates. No
- -----------------------------------------------------------
dividends or other distributions declared or made after the
Effective Time with respect to MusicCo Series A Common Stock with
a record date after the Effective Time will be paid to the holder
of any unsurrendered Company Stock Certificate with respect to
the shares of MusicCo Series A Common Stock issuable upon
surrender thereof until the holder of such Company Stock
Certificate surrenders such Company Stock Certificate in
accordance with Section 3.3. Subject to the effect of applicable
Legal Requirements, following surrender of any such Company Stock
Certificate, MusicCo will pay or cause to be paid, without
interest, to the record holder of MusicCo Certificates issued in
exchange therefor, (a) at the time of such surrender, the amount
of cash in lieu of fractional shares to which such holder is
entitled pursuant to Section 3.5 and the amount of dividends or
other distributions by MusicCo with a record date after the
Effective Time theretofore paid with respect to such whole shares
of MusicCo Series A Common Stock and (b) at the appropriate
payment date, the amount of dividends or other distributions by
MusicCo with a record date after the Effective Time but prior to
surrender of such Company Stock Certificate and a payment date
subsequent to such surrender payable with respect to such whole
shares of MusicCo Series A Common Stock.
Section 3.5 No Fractional Shares.
--------------------
(a) Cash Payment in Lieu of Fractional Shares. No
-------------------------------------------
certificates or scrip representing fractional shares of MusicCo
Series A Common Stock and Rights will be issued upon the
surrender of Company Stock Certificates pursuant to Section 3.3.
Such fractional share interests will not entitle the owner
thereof to any rights as a security holder of MusicCo. In lieu
of any such fractional shares of MusicCo Series A Common Stock
and any fractional Rights, each holder of Company Common Stock
entitled to receive shares of MusicCo Series A Common Stock and
Rights in the Merger, upon surrender of a Company Stock
Certificate for exchange pursuant to Section 3.3, will be
entitled to receive an amount in cash (without interest), rounded
to the nearest cent, determined by multiplying the MusicCo
Series A Common Stock Value by the fractional interest in MusicCo
Series A Common Stock and Rights to which such holder would
otherwise be entitled (after taking into account all shares of
Company Common Stock held of record by such holder immediately
prior to the Effective Time).
(b) Deposit with Exchange Agent. As soon as
---------------------------
practicable after the determination of the amount of cash,
if any, to be paid to holders of MusicCo Series A Common Stock
in lieu of any fractional share interests, MusicCo will
promptly deposit with the Exchange
-9-
<PAGE>
Agent cash in the required amounts and the Exchange
Agent will mail such amounts without interest to such holders;
provided however, that no such amount will be paid to any holder
with respect to any Company Stock Certificate prior to the
surrender by such holder of such Company Stock Certificate.
Section 3.6 No Liability. None of TCI, MusicCo,
------------
Merger Sub, the Company, the Surviving Corporation or the
Exchange Agent will be liable to any holder of shares of Company
Common Stock for any shares of MusicCo Series A Common Stock,
Rights, dividends or distributions with respect thereto or cash
payable in lieu of fractional shares delivered to a state
abandoned property administrator or other public official pursu
ant to any applicable abandoned property, escheat or similar law.
Section 3.7 Lost Certificates. If any Company Stock
-----------------
Certificate is lost, stolen or destroyed, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Company
Stock Certificate the shares of MusicCo Series A Common Stock and
Rights (and any dividend or distribution with respect thereto
made after the Effective Time and any cash payable in lieu of
fractional shares pursuant to Section 3.5) deliverable in respect
thereof as determined in accordance with the terms of this
Agreement, subject to the condition that the Person to whom the
MusicCo Series A Common Stock and Rights (and any dividend or
distribution with respect thereto made after the Effective Time
and any cash payable in lieu of fractional shares pursuant to
Section 3.5) are to be issued, shall have (a) delivered to
MusicCo an affidavit claiming such Company Stock Certificate to
be lost, stolen, or destroyed and (b) if required by MusicCo,
given MusicCo an indemnity satisfactory to MusicCo against any
claim that may be made against MusicCo with respect to the
Company Stock Certificate alleged to have been lost, stolen or
destroyed.
Section 3.8 Dissenting Shares. Notwithstanding
------------------
anything in this Agreement to the contrary, shares of Company
Common Stock outstanding immediately prior to the Effective Time
that are held by holders of such shares who have not voted in
favor of the Merger or consented thereto in writing and who have
demanded appraisal rights with respect thereto in accordance with
Section 262 of the DGCL (the "Dissenting Shares") will not be
converted into or be exchangeable for the right to receive
MusicCo Series A Common Stock, Rights or any dividend or
distribution with respect thereto made after the Effective Time
or any cash payable in lieu of fractional shares pursuant to
Section 3.5, but holders of Dissenting Shares will be entitled to
receive payment of the fair value of their Dissenting Shares in
accordance with the provisions of the DGCL and this Section 3.8.
Any shares of Company Common Stock held by a stockholder who,
prior to the Effective Time, withdraws a demand for appraisal of
such shares or loses the right to appraisal as provided in the
DGCL will not be considered Dissenting Shares. The Company will
give MusicCo and TCI prompt notice of any written demands for
appraisal of any shares of Company Common Stock, attempted
withdrawals of such demand and any other notices or other
documents received by the Company pursuant to the DGCL
relating to stockholders' rights of appraisal. The Company
will make all payments required by the DGCL to
-10-
<PAGE>
be made in respect of Dissenting Shares, including any costs
assessed against the Company pursuant to Section 262 of the DGCL,
and none of TCI, MusicCo or any of their Affiliates will
directly or indirectly reimburse or otherwise provide funds
to the Company with respect to such payments.
Section 3.9 Treatment of Stock Options and Other
--------------------------------------
Company Benefit Plans. The Company will use its best efforts to
- ---------------------
cause each option that is outstanding prior to the Effective Time
that is not terminable pursuant to its terms upon consummation of
the transactions contemplated by this Agreement to be canceled
prior to or at the Effective Time and the Company will take all
action necessary to cause each such other option to be canceled
if not otherwise exercised prior to or at the Effective Time;
provided however that the Company will not pay any amount of cash
or other consideration to the holder of any option in
consideration of the cancellation or termination of such option;
and provided further that with respect to each such option that
remains outstanding after the Effective Time (other than as a
result of a breach by the Company of the provisions of this
Section) any Rights issued upon exercise of such option after the
Effective Time will terminate (or have terminated) at the time
set forth in the Rights Agreement. At or prior to the Effective
Time, DMX will terminate all Company Benefit Plans and the DMX
Inc. Employee Handbook.
Section 3.10 Stockholders' Approval. Subject to the
----------------------
fiduciary duty obligations under applicable Legal Requirements,
the Company will take all action necessary, in accordance with
applicable Legal Requirements and the Certificate of
Incorporation and Bylaws of the Company, to have this Agreement,
the Merger and the transactions contemplated by this Agreement
approved by the holders of capital stock of the Company. The
Company will notify TCI of the date set for any stockholder
action to be taken in connection with approval of the Merger not
later than 30 days prior to such date. The Board of Directors of
the Company will, subject to fiduciary duty obligations under
applicable Legal Requirements, recommend that holders of Company
Common Stock vote to adopt this Agreement and approve the Merger,
and will use reasonable best efforts to solicit from such holders
proxies in favor of such approval and adoption and take all other
action necessary or helpful to secure such favorable vote. Such
efforts will include causing the Joint Proxy Statement/Prospectus
to include the recommendation of the Board of Directors of the
Company that its stockholders approve the Merger and related
transactions; provided however, that the Board of Directors of
the Company may modify or withdraw its recommendation if it
determines, with the advice of outside counsel, that it may be
required to do so in the exercise of its fiduciary duties. Unless
the Company's Board of Directors releases TCI from such
obligation, TCI will cause all shares of Company Common Stock
beneficially owned (within the meaning of Rule 13d-3 under the
Exchange Act) by it on the record date for the Meeting to be
voted in favor of the Merger.
Section 3.11 Closing of the Company's Transfer Books.
---------------------------------------
At the Effective Time, the stock transfer books of the Company will
be closed and no transfer of shares of Company Common Stock will be
made thereafter. In the event that, after the Effective Time,Company
-11-
<PAGE>
Stock Certificates are presented to the Surviving
Corporation, they will be canceled and exchanged for the MusicCo
Certificates (and, if required, cash) as provided in Section
3.3(b) and Section 3.5.
Section 3.12 Assistance in Consummation of the
--------------------------------------
Merger. Each of TCI, MusicCo, Merger Sub and the Company will
- ------
provide all reasonable assistance to, and will cooperate with,
each other to bring about the consummation of the Merger as soon
as possible in accordance with the terms and conditions of this
Agreement. TCI will cause MusicCo and Merger Sub to perform all
of their respective obligations in connection with this
Agreement.
Section 3.13 Closing. The closing of the
-------
transactions contemplated by this Agreement (the "Closing") will
take place (i) at the offices of Sherman & Howard L.L.C.,
633 Seventeenth Street, Suite 3000, Denver, Colorado, at
9:00 A.M. local time on the date that is the first business day
after the day on which the last of the conditions set forth in
Article VIII (excluding delivery of opinions and certificates) is
fulfilled or waived or (ii) at such other place and time as TCI
and the Company agree in writing. The date on which the Closing
occurs is referred to in this Agreement as the "Closing Date."
ARTICLE 4
---------
THE CONTRIBUTION; THE RIGHTS
Section 4.1 Contribution to MusicCo. Subject to the
-----------------------
satisfaction of the conditions to the parties' obligations to
effect the Merger, as set forth in Article IX of this Agreement,
at the Closing, TCI will execute and deliver the Contribution
Agreement and the Rights Agreement substantially in the forms
attached as Exhibits A and B, respectively, and pursuant thereto,
issue the Rights in accordance with the terms and conditions of
the Rights Agreement and cause each TCI System Owner (as defined
in the Contribution Agreement) to assign and contribute to
MusicCo the right to receive Net DMX Revenues (as defined in the
Contribution Agreement) of such TCI System Owner pursuant to the
terms and conditions of the Contribution Agreement. The
foregoing transactions by TCI and the TCI System Owners pursuant
to the Contribution Agreement are referred to in this Agreement
as the "Contribution."
Section 4.2 Consideration for Contribution. In
-------------------------------
consideration for the Contribution, MusicCo will, concurrently
with the Contribution, issue and deliver to TCI, as designee of
the TCI System Owners, 125,000,000 validly issued, fully paid and
nonassessable shares of MusicCo Series B Common Stock and the
Company Note (as defined in the Contribution Agreement).
ARTICLE 5
---------
REPRESENTATIONS AND WARRANTIES OF TCI, MUSICCO AND MERGER SUB
-12-
<PAGE>
TCI, MusicCo and Merger Sub jointly and severally
represent and warrant to the Company as follows:
Section 5.1 Organization and Qualification. Each of
------------------------------
TCI, MusicCo and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority
to carry on its business as it is now being conducted. Each of
TCI, MusicCo and Merger Sub is duly qualified as a foreign
corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held
under lease or the nature of its activities make such
qualification necessary, except where the failure to be so
qualified will not, individually or in the aggregate, have a
Material Adverse Effect on it.
Section 5.2 Capitalization.
--------------
(a) As of the date of this Agreement, the authorized
capital stock of MusicCo consists of: (i) 495,000,000 shares of
common stock, par value $.01 per share, divided into the
following classes: 295,000,000 shares of common stock designated
as Series A Common Stock none of which are issued and outstanding
and 200,000,000 shares of common stock, designated as Series B
Common Stock one share of which is issued and outstanding; and
(ii) 5,000,000 shares of preferred stock, par value $.01 per
share, none of which are issued and outstanding.
(b) All shares of MusicCo Series A Common Stock to be
issued in connection with the Merger, when issued in accordance
with this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable.
(c) Merger Sub is a direct, wholly owned subsidiary of
MusicCo. MusicCo will own all the issued and outstanding stock
of (i) Merger Sub immediately prior to the Effective Time and
(ii) Surviving Corporation immediately after the Effective Time.
Section 5.3 Authority Relative to this Agreement.
-------------------------------------
Each of TCI, MusicCo and Merger Sub has all requisite corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement by TCI, MusicCo
and Merger Sub have been duly authorized by the Boards of
Directors of TCI, MusicCo and Merger Sub and by MusicCo as the
sole stockholder of Merger Sub, and no other corporate
proceedings on the part of TCI, MusicCo or Merger Sub are
necessary to authorize this Agreement and the transactions
contemplated by this Agreement. This Agreement constitutes a
valid and binding obligation of each of TCI, MusicCo and
Merger Sub enforceable against each of them in accordance with
its terms, except, (i) as enforcement may be limited by
bankruptcy, insolvency or other similar Legal Requirements
affecting the enforcement of creditors' rights generally,
(ii) as the availability of indemnification
-13-
<PAGE>
and other remedies may be limited by federal and state
securities laws and (iii) for limitations imposed by general
principles of equity.
Section 5.4 No Breach; Required Consents. The
-------------------------------
execution and delivery of this Agreement by TCI, MusicCo and
Merger Sub do not, and the consummation of the transactions
contemplated by this Agreement by TCI, MusicCo and Merger Sub
will not: (a) violate or conflict with the Certificate of
Incorporation or Bylaws of TCI, MusicCo or Merger Sub; (b) except
as set forth on Schedule 5.4, constitute a breach or default (or
an event that with notice or lapse of time or both would become a
breach or default) or give rise to any Lien, third-party right of
termination, cancellation, modification or acceleration under any
agreement or undertaking to which TCI, MusicCo or Merger Sub is a
party or by which any of them is bound, except where such breach,
default, Lien, third-party right of termination, cancellation,
modification or acceleration would not have a Material Adverse
Effect on TCI, MusicCo or Merger Sub; or (c) subject to obtaining
the approvals and making the filings described in Section 5.5,
constitute a violation of any applicable Legal Requirement,
except where such violation would not have a Material Adverse
Effect on TCI, MusicCo or Merger Sub.
Section 5.5 Governmental Consents and Approvals.
-------------------------------------
Neither the execution and delivery of this Agreement by TCI,
MusicCo and Merger Sub nor the consummation of the transactions
contemplated by this Agreement by TCI, MusicCo and Merger Sub
will require any filing or registration with, or authorization,
consent or approval of, any Governmental Entity, except those
required in connection, or in compliance, with the provisions of
(i) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) the Securities Act of 1933, as
amended (the "Securities Act"), (iii) the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and (iv) the
corporation, securities or blue sky laws or regulations, or
similar Legal Requirements, of various states of the United
States, and other than such filings, registrations,
authorizations, consents or approvals the failure of which to
make or obtain would not have a Material Adverse Effect on TCI,
MusicCo or Merger Sub or prevent the consummation of the
transactions contemplated by this Agreement.
Section 5.6 Operations of MusicCo and Merger Sub.
-------------------------------------
As of the date of this Agreement, each of MusicCo and Merger Sub
has engaged in no other business activities other than this
Agreement and the transactions contemplated by this Agreement and
has no material assets or liabilities other than its rights and
obligations under this Agreement.
Section 5.7 No Broker. No broker, finder or
----------
investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon
arrangements made by or on behalf of TCI, MusicCo or Merger Sub.
ARTICLE 6
---------
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<PAGE>
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to TCI, MusicCo and
Merger Sub as follows:
Section 6.1 Organization and Qualification. The
-------------------------------
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its business
as it is now being conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so
qualified would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
Section 6.2 Capitalization.
--------------
(a) The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock. As of
the date of this Agreement, 59,586,594 shares of Company Common
Stock were issued and outstanding.
(b) Except as set forth on Schedule 6.2(b), there are
no options, warrants, calls, subscriptions or other rights,
agreements or commitments of any kind, to which the Company or
any of its Subsidiaries is a party, relating to the issued or
unissued capital stock or other securities of the Company.
(c) All issued and outstanding shares of Company
Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable, are not subject to, and have not
been issued in violation of, any preemptive rights, and have not
been issued in violation of any federal or state securities laws
or any other Legal Requirement.
Section 6.3 Subsidiaries. The only Persons in which the
------------
Company directly or through one or more of its Subsidiaries holds
a 5% or greater equity interest (each an "Equity Affiliate")
are those listed on Schedule 6.3 to this Agreement, which
Schedule reflects the percentage and nature of the Company's
ownership of each Subsidiary and Equity Affiliate of the Company.
Each of the Company's Subsidiaries is a corporation or partnership
duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or formation and has
the corporate or partnership power to carry on its business as
it is now being conducted or currently proposed to be conducted.
Each of the Company's Subsidiaries is duly qualified as a
foreign corporation or partnership to do business, and is in good
standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its
activities makes such qualification necessary except where the
failure to be so qualified will not have a Material Adverse
Effect on such Subsidiary. All the outstanding shares of capital
stock of
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<PAGE>
each of the Company's Subsidiaries that is a corporation
are validly issued, fully paid and nonassessable. The shares of
capital stock or partnership or other ownership interests in each
of the Company's Subsidiaries or Equity Affiliates that are owned
by the Company or by a Subsidiary of the Company are owned free
and clear of any Liens, are not subject to and have not been
issued in violation of any preemptive rights and have not been
issued in violation of any federal or state securities laws or
any other Legal Requirement. Except as set forth on Schedule
6.3, there are not, as of the date hereof, and at the Effective
Time there will not be, any outstanding options, warrants, calls
or other rights, agreements or commitments of any character, to
which the Company or any of its Subsidiaries is a party, relating
to the issued or unissued capital stock, other securities or
partnership or other ownership interests in any of the
Subsidiaries or Equity Affiliates of the Company.
Section 6.4 Authority Relative to this Agreement.
-------------------------------------
The Company has all requisite corporate power and authority to
execute and deliver this Agreement and, subject to approval of
this Agreement by the holders of the Company Common Stock, to
consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly
authorized by the Company's Board of Directors, including at
least a majority of the Disinterested Directors (as defined in
the Certificate of Incorporation of the Company). Except for the
approval of the holders of Company Common Stock, no other
corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the transactions contemplated by
this Agreement. The Board of Directors of the Company has
received the opinion of Houlihan Lokey Howard & Zukin as
financial advisor to the Company, to the effect that, as of the
date of this Agreement, the consideration to be received in the
Merger by the Company's stockholders is fair from a financial
point of view. Subject to approval of the stockholders of the
Company in accordance with the DGCL, this Agreement constitutes a
valid and binding obligation of the Company enforceable in
accordance with its terms except (i) as enforcement may be
limited by bankruptcy, insolvency or other similar Legal
Requirements affecting the enforcement of creditors' rights
generally, (ii) as the availability of indemnification and other
remedies may be limited by federal and state securities laws and
(iii) for limitations imposed by general principles of equity.
Section 6.5 No Breach; Required Consents. The
-------------------------------
execution and delivery of this Agreement by the Company does not,
and the consummation of the transactions contemplated by this
Agreement by the Company will not: (a) subject to the approval
of holders of Company Common Stock, violate or conflict with the
Certificate of Incorporation or Bylaws of the Company; (b) except
as set forth on Schedule 6.5, constitute a breach or default (or
an event that with notice or lapse of time or both would become a
breach or default) or give rise to any Lien, third-party right of
termination, cancellation, modification or acceleration under any
agreement or undertaking to which the Company is a party or by
which it is bound, except where such breach, default, Lien, third-
party right of termination, cancellation, modification, or
acceleration would not have a Material Adverse Effect on the
Company; or (c) subject to obtaining the consents, approvals or
authorizations and making the filings or registrations described in
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<PAGE>
Section 6.6, constitute a violation of any Legal Requirement,
except where such violation would not have a Material Adverse
Effect on the Company.
Section 6.6 Consents and Approvals. Neither the
----------------------
execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated by this Agreement
by the Company will require any filing or registration with, or
authorization, consent or approval of, any Governmental Entity or
any other Person, except those required in connection, or in
compliance, with the provisions of (i) the HSR Act, (ii) the
Securities Act, (iii) the Exchange Act and (iv) the corporation,
securities or blue sky laws or regulations, or similar Legal
Requirements, of the various states of the United States, and
other than such other filings, registrations, authorizations,
consents or approvals the failure of which to make or obtain
would not have a Material Adverse Effect on the Company or
prevent the consummation of the transactions contemplated by this
Agreement.
Section 6.7 Reports and Financial Statements.
--------------------------------
(a) SEC Reports. The Company has filed all required
------------
forms, reports and documents required to be filed with the SEC
since October 1, 1994 (collectively, the "SEC Reports"). As of
their respective dates or effective dates and except as the same
may have been corrected, updated or superseded by means of a
subsequent filing with the SEC prior to the date of this
Agreement, none of the SEC Reports, including any financial
statements or schedules included or incorporated by reference
therein, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading. The Company has delivered to
TCI, in the forms filed with the SEC, all the SEC Reports.
(b) Financial Statements. The audited consolidated
---------------------
financial statements of the Company contained in the SEC Reports
comply in all material respects with applicable accounting re
quirements and with the published rules and regulations of the
SEC with respect thereto, were prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and present fairly the
Company's consolidated financial condition and the results of its
operations as of the relevant dates thereof and for the periods
covered thereby. The unaudited consolidated interim financial
statements of the Company contained in the SEC Reports comply in
all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect
thereto, were prepared on a basis consistent with prior interim
periods (except as required by applicable changes in GAAP or in
SEC accounting policies) and include all adjustments (consisting
only of normal recurring accruals) necessary for a fair presen
tation of the Company's consolidated financial condition and
results of operations for such periods.
(c) Absence of Certain Changes. Except as set forth
--------------------------
on Schedule 6.7(c), since
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<PAGE>
the date of the most recent balance sheet of the Company
included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996 (the "Most Recent Balance
Sheet"), there has not been any: (i) transaction, commitment,
dispute or other event or condition (financial or otherwise)
of any character (whether or not in the ordinary course of
business) that, individually or in the aggregate, has had, or
would have, a Material Adverse Effect on the Company (other
than as a result of changes in laws or regulations of general
applicability or any changes resulting from general economic,
financial, market or industry-wide conditions); (ii) any
declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with
respect to the capital stock of the Company; or (iii) entry into
any commitment or transaction material to the Company and its
Subsidiaries taken as a whole (including any borrowing or sale of
assets) except in the ordinary course of business consistent with
past practice.
(d) Absence of Undisclosed Liabilities. Except as
-----------------------------------
disclosed on Schedule 6.7(d), the Company does not have any
indebtedness, liability or obligation required by GAAP to be
reflected on a balance sheet that is not reflected or reserved
against in the Most Recent Balance Sheet other than liabilities,
obligations and contingencies that (i) were incurred after the
date of the Most Recent Balance Sheet in the ordinary course of
business or (ii) would not, in the aggregate, have a Material
Adverse Effect on the Company.
Section 6.8 Compliance with Law; Litigation.
-------------------------------
(a) Except as disclosed on Schedule 6.8(a), the
Company and its Subsidiaries hold all permits, licenses,
franchises, variances, exemptions, concessions, leases,
instruments, orders and approvals (the "Company Permits") of all
courts, administrative agencies or commissions or other
governmental authorities or instrumentalities, domestic or
foreign (each, a "Governmental Entity") required to be held under
applicable Legal Requirements, except such Company Permits the
failure of which to hold, individually or in the aggregate, does
not have and, in the future is not likely to have, a Material
Adverse Effect on the Company. To the Company's Knowledge, the
Company and its Subsidiaries are in compliance with the terms of
the Company Permits, except such failures to comply that,
individually or in the aggregate, would not have a Material
Adverse Effect on the Company. To the Company's Knowledge, the
businesses of the Company and its Subsidiaries are not being
conducted in violation of any Legal Requirement, except such
violations which, individually or in the aggregate, would not
have a Material Adverse Effect on the Company. No investigation
or review by any Governmental Entity with respect to the Company
or any of its Subsidiaries is pending, or, to the Knowledge of
the Company, threatened, nor has any Governmental Entity
indicated to the Company in writing an intention to conduct the
same, other than those the outcome of which would not have a
Material Adverse Effect on the Company.
(b) Except as set forth on Schedule 6.8(b) to this
Agreement, there is no suit, action or proceeding pending or, to
the Knowledge of the Company, threatened against or
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<PAGE>
affecting the Company or any of its Subsidiaries that has had or
is likely to have a Material Adverse Effect on the Company nor
is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company
or any of its Subsidiaries that has had or is likely to have
a Material Adverse Effect on the Company.
Section 6.9 Title to Assets. The Company has good
---------------
and merchantable title to all material assets reflected on the
Most Recent Balance Sheet, free and clear of any Lien except:
(a) landlord's Liens and Liens for property taxes not delinquent;
(b) statutory Liens that were created in the ordinary course of
business and do not materially detract from the value of such
assets or materially impair the use thereof in the operation of
the Company's business; (c) the Liens listed on Schedule 6.9;
(d) leased interests in property owned by others; and leased
interests in property leased to others; and (e) zoning, building
or similar restrictions, easements, rights-of-way, reservations
of rights, conditions, or other restrictions or encumbrances
relating to or affecting real property that do not, individually
or in the aggregate, materially interfere with the use of such
real property in the operation of the Company's business.
Section 6.10 Labor and Employee Matters. The Company
--------------------------
is not a party to any contract with any labor organization and
has not agreed to recognize any union or other collective
bargaining unit. As of the date of this Agreement, no union or
other collective bargaining unit has been certified as
representing any of the Company's employees. To the Company's
Knowledge, as of the date of this Agreement, there is no
representation or organizing effort pending or threatened against
or affecting or involving the Company. The Company and its
Subsidiaries are in compliance with all applicable Legal
Requirements relating to the employment of employees, including
any obligations relating to employment standards legislation, pay
equity, occupational health and safety, labor relations and human
rights legislation except for such failures to comply as do not
have, and are not likely to have, a Material Adverse Effect on
the Company. Schedule 6.10 sets forth all agreements or
arrangements with any employee of the Company, whether oral or in
writing, with respect to such employee's employment with the
Company other than agreements or arrangements otherwise disclosed
on Schedule 6.11(a).
Section 6.11 ERISA.
-----
(a) Schedule 6.11(a) sets forth all "employee benefit
plans," as defined in ERISA, and all other material employee
benefit arrangements, programs or payroll practices, including
severance pay, sick leave, vacation pay, salary continuation for
disability, deferred compensation, bonus, stock purchase,
hospitalization, medical insurance, life insurance, tuition
reimbursement, employee assistance and employee discounts, that
the Company or any trade or business (whether or not
incorporated) that is treated as a single employer with the
Company under Section 414(b), (c), (m) or (o) of the Code ("ERISA
Affiliate") maintains or has an obligation to make contributions
(the "Company Benefit Plans").
-19-
<PAGE>
(b) Neither the Company nor any ERISA Affiliate has
incurred any unsatisfied withdrawal liability, as defined in
Section 4201 of ERISA, with respect to any multiemployer plan,
nor has any of them incurred any liability due to the termination
or reorganization of any multiemployer plan, except any such
liability that would not have a Material Adverse Effect on the
Company. To the Knowledge of the Company, neither the Company
nor any of its ERISA Affiliates reasonably expects to incur any
liability due to a withdrawal from or termination or
reorganization of a multiemployer plan, except any such liability
that would not have a Material Adverse Effect on the Company.
(c) Each Company Benefit Plan that is intended to
qualify under Section 401 of the Code and the trust maintained
pursuant thereto has been determined to be exempt from federal
income taxation under Section 501 of the Code by the Internal
Revenue Service, and to the Knowledge of the Company, nothing has
occurred with respect to any such plan since such determination
that is likely to result in the loss of such exemption or the
imposition of any material liability, penalty or tax under ERISA
or the Code. Each Company Benefit Plan has at all times been
maintained in all material respects, by its terms and in
operation, in accordance with all applicable Legal Requirements.
(d) All contributions (including all employer
contributions and employee salary reduction contributions)
required to have been made under the Company Benefit Plans or
pursuant to applicable Legal Requirements (without regard to any
waivers granted under Section 412 of the Code) to any funds or
trusts established thereunder or in connection therewith have
been made by the due date thereof (including any valid extension
or grace period) and no accumulated funding deficiency exists
with respect to any of the Company Benefit Plans subject to
Section 412 of the Code.
(e) To the Knowledge of the Company, there have been
no violations of ERISA or the Code with respect to the filing of
applicable reports, documents and notices regarding the Company
Benefit Plans with the Secretary of Labor and the Secretary of
the Treasury or the furnishing of such reports, documents and
notices to the participants or beneficiaries of the Company
Benefit Plans, except such violations that, individually or in
the aggregate, would not have a Material Adverse Effect on the
Company.
(f) There are no pending actions, claims or lawsuits
that have been asserted or instituted against the Company Benefit
Plans, the assets of any of the trusts under such plans or the
plan sponsor or the plan administrator, or against any fiduciary
of the Company Benefit Plans, with respect to the operation of
such plans (other than routine benefit claims), nor does the
Company have Knowledge of facts that reasonably could be expected
to form the basis for any such action, claim or lawsuit, except
any such actions, claims or lawsuits that, individually or in the
aggregate, would not have a Material Adverse Effect on the
Company.
(g) Except as provided in Schedule 6.11(g)
and as may be required under
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<PAGE>
Section 4980B of the Code, neither the Company
nor any ERISA Affiliate maintains any Company Benefit Plan that
provides medical or welfare benefits to former employees.
Section 6.12 Approval.
--------
(a) The Board of Directors of the Company at a meeting
duly called and held: (i) determined that the Merger is advisable
and fair and in the best interests of the Company and its
stockholders; (ii) approved the Merger and this Agreement and the
transactions contemplated by this Agreement in accordance with
the provisions of Section 251 of the DGCL; (iii) recommended the
approval of this Agreement and the Merger by the holders of the
Company Common Stock and directed that the Merger be submitted
for consideration by the Company's stockholders at the Meeting;
and (iv) adopted a resolution having the effect of causing the
Company not to be subject (A) to the super majority voting
provisions of the Certificate of Incorporation of the Company and
(B) to the extent applicable, and if applicable, to the extent
permitted by applicable Legal Requirements, to Section 203 of the
DGCL.
(b) The vote of a majority of the outstanding shares
of Company Common Stock is the vote required for the adoption and
approval of this Agreement, the Merger, and the other
transactions contemplated by this Agreement.
Section 6.13 Financial Advisor. Except for Houlihan
-----------------
Lokey Howard & Zukin, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of
the Company. There has been delivered to TCI a true and complete
copy of the agreement pursuant to which Houlihan Lokey Howard &
Zukin has been retained to act as financial advisor to the
Company in connection with the Merger.
Section 6.14 Taxes. Except as set forth on Schedule
-----
6.14, the Company and each of its Subsidiaries have timely filed
all Tax returns required to be filed by any of them and have
timely paid (or the Company has paid on its behalf) or have
established an adequate reserve for the payment of, all Taxes
owed in respect of the periods covered by such returns. The
information contained in such Tax returns is complete and
accurate in all material respects. Except as set forth on
Schedule 6.14, neither the Company nor any Subsidiary of the
Company is delinquent in the payment of any material Tax or other
amount owed to any Governmental Entity. Except as set forth on
Schedule 6.14, there are no claims or investigations pending or,
to the Company's Knowledge, threatened against the Company for
past Taxes, except claims and investigations that would not have
a Material Adverse Effect on the Company, and adequate provision
for the claims or investigations set forth on Schedule 6.14 has
been made as reflected on the Most Recent Balance Sheet. Except
as set forth on Schedule 6.14, the Company has not waived or
extended any applicable statute of limitations relating to the
assessment of any Taxes that would be payable by the Company.
For the purposes of this Agreement, the term "Tax"
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<PAGE>
includes all federal, state, local and foreign income, profits,
estimated, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties and
assessments of any nature whatsoever together with all interest,
penalties and additions imposed with respect to such amounts.
Section 6.15 Environmental Laws. Except as described
------------------
on Schedule 6.15:
(a) each of the Company and its Subsidiaries is in
compliance in all respects with all Environmental Laws, except
where the failure to so comply would not have a Material Adverse
Effect on the Company; and
(b) no orders, directions or notices have been issued
pursuant to any Environmental Law and no Governmental Entity has
submitted to any of the Company and its Subsidiaries any request
for information pursuant to any Environmental Law.
Section 6.16 Transactions with Affiliates. Except as
----------------------------
set forth on Schedule 6.16, there is no lease, sublease,
indebtedness, contract, agreement, commitment, understanding or
other arrangement of any kind entered into by the Company with
any officer, director or stockholder of the Company or any
"affiliate" or "associate" of any of them (as those terms are
defined in the Exchange Act), except, in each case, for
compensation paid to directors and officers consistent with
previously established policies (including normal merit increases
in such compensation in the ordinary course of business),
reimbursements of ordinary and necessary expenses incurred in
connection with their employment and amounts paid pursuant to
Company Benefit Plans.
ARTICLE 7
---------
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business of the Company.
------------------------------------
Prior to the Effective Time, except as set forth on Schedule 7.1
to this Agreement, without the prior consent of TCI:
(a) The Company will conduct, and will cause each of
its Subsidiaries to conduct, its business in the ordinary course,
and will use, and will cause each of its Subsidiaries to use, its
reasonable best efforts to preserve intact its present business
organization and to preserve relationships with customers,
suppliers and others having business dealings with them.
(b) Except as required or permitted by this Agreement
the Company will not, and will not permit any of its Subsidiaries
to: (i) sell or pledge or agree to sell or pledge any capital
stock or other ownership interest in any of its Subsidiaries;
(ii) amend or propose to amend the Certificate or Articles of
Incorporation or Bylaws of the Company or any of its
Subsidiaries; (iii) split, combine or reclassify its outstanding
capital stock or issue or authorize or
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<PAGE>
propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of, or
other ownership interests in, the Company or any of its
Subsidiaries, or declare, set aside or pay any dividend or other
distribution to stockholders of the Company; (iv) directly or
indirectly redeem, purchase or otherwise acquire or agree
to redeem, purchase or otherwise acquire any shares of capital
stock of, or other ownership interests in, the Company or
any of its Subsidiaries; or (v) agree to do any of the foregoing.
(c) The Company will not, and will not permit any of
its Subsidiaries to: (i) issue, deliver or sell or agree to
issue, deliver or sell any shares of capital stock of, or other
ownership interests in, the Company or any of its Subsidiaries,
or any option, warrant or other right to acquire, or any security
convertible into, shares of capital stock of, or other ownership
interests in, the Company or any of its Subsidiaries, except as
required or permitted by this Agreement; (ii) acquire, lease or
dispose of any assets, other than in the ordinary course of
business consistent with past practice; (iii) create, assume or
incur any additional indebtedness for borrowed money or mortgage,
pledge or subject to any Lien any of its assets or enter into any
other material transaction other than in each case in the
ordinary course of business consistent with past practice; (iv)
make any payments with respect to any indebtedness of the Company
or its Subsidiaries except such payments that are scheduled to
come due prior to the Effective Time; (v) acquire by merging or
consolidating with, or by purchasing a substantial ownership
interest in, or by any other method, any business or any other
Person, in each case in this clause (v) that are material,
individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole; or (vi) agree to do any of the
foregoing.
(d) Except as required to comply with applicable Legal
Requirements or existing Company Benefit Plans or as otherwise
contemplated by this Agreement, the Company will not, and will
not permit any of its Subsidiaries to: (i) adopt or terminate or
amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred
compensation, employment or other Company Benefit Plan,
agreement, trust, fund or other arrangement for the benefit or
welfare of any director, officer or current or former employee;
(ii) increase in any manner the compensation or benefits of any
director, officer or employee (except normal increases in the
ordinary course of business consistent with past practice); (iii)
grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or Company Benefit Plan; (iv)
take any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement,
contract or arrangement or Company Benefit Plan (except in the
ordinary course of business consistent with past practice); or
(v) agree to do any of the foregoing.
(e) The Company will not take or agree to take, and
will cause its Subsidiaries not to take or agree to take, any
action that would: (i) make any representation or warranty of the
Company set forth in this Agreement untrue or incorrect so as to
cause the condition set forth in Section 9.3(a) of this Agreement
not to be fulfilled as of the Effective Time; or (ii) result in
any of the other conditions of this Agreement set forth in
Section 9.1 or Section 9.3 of this
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<PAGE>
Agreement not to be satisfied as of the Effective Time.
Section 7.2 Conduct of Business of TCI. Prior to
--------------------------
the Effective Time, except as contemplated or permitted by this
Agreement TCI will not take or agree to take, and will cause its
Subsidiaries not to take or agree to take, any action that would
(i) make any representation or warranty of TCI, MusicCo or
Merger Sub set forth in this Agreement untrue or incorrect so as
to cause the condition set forth in Section 9.2(a) of this
Agreement not to be fulfilled as of the Effective Time or (ii)
result in any of the other conditions set forth in Section 9.1 or
Section 9.2 of this Agreement not to be satisfied as of the
Effective Time.
Section 7.3 Remedies for Breach. The sole remedies
-------------------
(i) of TCI, MusicCo and Merger Sub for any breach by the
Company of Section 7.1(e), and (ii) of the Company for any breach
by TCI of Section 7.2, will be injunctive relief or termination
of this agreement pursuant to Article X.
ARTICLE 8
---------
ADDITIONAL AGREEMENTS
Section 8.1 Access and Information. Except as
-----------------------
otherwise required pursuant to a contractual obligation that
exists as of the date of this Agreement, each of the Company and
TCI and their respective Subsidiaries will afford to the other
and to the other's accountants, counsel and other representatives
full access during normal business hours (and at such other times
as the parties may mutually agree) throughout the period prior to
the Effective Time to all of its properties, books, contracts,
commitments, records and personnel. Each of the Company and TCI
will hold, and will cause their respective Subsidiaries to hold
in confidence all such information in accordance with the terms
of the Confidentiality Agreement dated October 2, 1996 between
TCI and the Company.
Section 8.2 SEC Filings.
-----------
(a) The Company, MusicCo and TCI will prepare jointly,
and, as soon as reasonably practicable after the date of this
Agreement, file with the SEC a joint proxy statement/registration
statement (the "Preliminary Joint Proxy Statement/Prospectus")
comprising preliminary proxy materials of the Company under the
Exchange Act with respect to the Merger and a Registration
Statement on Form S-4 and preliminary prospectus of MusicCo and
TCI under the Securities Act with respect to the MusicCo Series A
Common Stock to be issued in the Merger and the Rights to be
granted pursuant to the Rights Agreement, and will thereafter use
their respective reasonable best efforts to respond to any
comments of the SEC with respect thereto and to cause a
definitive joint proxy statement/registration statement
(including all supplements and amendments thereto, the "Joint
Proxy Statement/Prospectus") and
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<PAGE>
proxy to be mailed to the Company's stockholders as promptly
as practicable.
(b) As soon as reasonably practicable after the date
hereof, the Company, MusicCo and TCI will prepare and file any
other filings relating to the Merger and the other transactions
contemplated hereby that are required to be filed by each under
the Exchange Act and other applicable Legal Requirements,
including, if required, in the case of TCI, a registration
statement on Form 8-A under the Exchange Act with respect to the
Rights and, in the case of MusicCo, a registration statement on
Form 8-B under the Exchange Act with respect to the MusicCo
Series A Common Stock (collectively "Other Filings"), and will
use their reasonable best efforts to respond to any comments of
the SEC or any other appropriate government official with respect
thereto.
(c) The Company, on the one hand, and MusicCo and TCI,
on the other, will cooperate with each other and provide all
information necessary in order to prepare the Preliminary Joint
Proxy Statement/Prospectus, the Joint Proxy Statement/Prospectus
and the Other Filings (collectively "SEC Filings") and will
provide promptly to the other party any information that such
party may obtain that could necessitate amending any such
document.
(d) Each of the Company and TCI will notify the other
promptly of the receipt of any comments from the SEC or its staff
or any other government official and of any requests by the SEC
or its staff or any other government official for amendments or
supplements to any of the SEC Filings or for additional
information and will supply the other with copies of all
correspondence between the Company or any of its representatives
or TCI or MusicCo or any of their respective representatives, as
the case may be, on the one hand, and the SEC or its staff or any
other government official, on the other hand, with respect
thereto. If at any time prior to the Effective Time, any event
occurs that should be set forth in an amendment of, or a
supplement to, any of the SEC Filings, the Company, MusicCo and
TCI promptly will prepare and file such amendment or supplement
and will distribute such amendment or supplement as required by
applicable Legal Requirements, including, in the case of an
amendment or supplement to the Joint Proxy Statement/Prospectus,
mailing such supplement or amendment to the Company's
stockholders.
(e) TCI covenants that the SEC Filings (other than any
information provided by the Company for inclusion in the SEC
Filings) (i) will comply in all material respects with the
Securities Act and the Exchange Act and (ii) will not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements contained therein, in light of the circumstances
under which they are made, not misleading.
(f) The Company covenants that the SEC Filings (other
than any information provided by TCI for inclusion in the SEC
Filings) (i) will comply in all material respects with the
Securities Act and the Exchange Act and (ii) will not contain any
untrue statement of a material
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<PAGE>
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
(g) Expenses. Each party will be responsible for all
--------
expenses incurred by it in complying with this Section 8.2,
including all registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel, applicable
blue-sky fees and expenses and the expense of any special audit
incident to or required by the registration or proxy solicitation
contemplated by this Agreement.
(h) Indemnification.
---------------
(i) TCI and MusicCo, jointly and severally, will
indemnify, defend, and hold harmless the Company, its officers,
directors, employees and agents and each other Person, if any,
who controls any of the foregoing within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act,
against any losses, claims, damages or liabilities (collectively,
"Losses"), joint or several, to which any of the foregoing may
become subject under the Securities Act or the Exchange Act or
otherwise, insofar as such Losses (or actions in respect thereof)
arise out of or are based upon (A) an untrue statement or alleged
untrue statement of a material fact contained in any SEC Filing,
or (B) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading, provided that such misstatement
or omission was based on or omitted from information provided by
TCI or MusicCo in writing for inclusion in the SEC Filings or was
made in reliance upon and in conformity with such information.
TCI promptly will reimburse the Company and each such officer,
director, employee, agent and controlling Person for any legal or
any other expenses reasonably incurred by any of them in
connection with investigating or defending any such Losses (or
action in respect thereof).
(ii) If this Agreement is terminated prior to the
consummation of the Merger, the Company will indemnify, defend
and hold harmless each of TCI, MusicCo and Merger Sub and their
officers and directors and each other Person, if any, who con
trols any of the foregoing within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any
Losses, joint or several, to which any of the foregoing may
become subject under the Securities Act or the Exchange Act or
otherwise, insofar as such Losses (or actions in respect thereof)
arise out of or are based upon (A) an untrue statement or alleged
untrue statement of a material fact contained in any SEC Filing
or (B) the omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, provided that the misstatement or omission
was based on or omitted from information provided by the Company
in writing for use in the SEC Filings or was made in reliance
upon and in conformity with such information. The Company
promptly will reimburse TCI, MusicCo and Merger Sub and each such
officer, director and controlling Person for any legal or any
other expenses reasonably
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<PAGE>
incurred by any of them in connection with investigating or
defending any such Losses (or action in respect thereof).
(iii) For purposes of this Section 8.2, (A)
"Indemnifying Party" means the Person having an obligation
hereunder to indemnify any other Person pursuant to this Section
8.2, (B) "Indemnified Party" means the Person having the right to
be indemnified pursuant to this Section 8.2 and (C) any
information concerning the Company that is included in any SEC
Filing that is provided to the Company or its counsel for review
within a reasonable period before filing or use thereof and to
which the Company has not provided written notice of objection to
MusicCo or TCI will be deemed to have been provided by the
Company for inclusion in such SEC Filing. Whenever any claim for
indemnification arises under this Section 8.2, the Indemnified
Party will promptly notify the Indemnifying Party in writing of
such claim and, when known, the facts constituting the basis for
such claim (in reasonable detail). Failure by the Indemnified
Party so to notify the Indemnifying Party will not relieve the
Indemnifying Party of any liability hereunder except to the
extent that such failure materially prejudices the Indemnifying
Party.
(iv) After such notice, if the Indemnifying Party
undertakes to defend any such claim, then the Indemnifying Party
will be entitled, if it so elects, to take control of the defense
and investigation with respect to such claim and to employ and
engage attorneys of its own choice to handle and defend such
claim, at the Indemnifying Party's cost, risk and expense, upon
notice to the Indemnified Party of such election, which notice
acknowledges the Indemnifying Party's obligation to provide
indemnification hereunder. The Indemnifying Party will not
settle any third-party claim that is the subject of indemnifica
tion without the written consent of the Indemnified Party, which
consent will not be unreasonably withheld; provided however, that
the Indemnifying Party may settle a claim without the Indemnified
Party's consent if the settlement (A) makes no admission or
acknowledgment of liability or culpability with respect to the
Indemnified Party, (B) includes a complete release of the Indem
nified Party and (C) does not require the Indemnified Party to
make any payment or forego or take any action. The Indemnified
Party will cooperate in all reasonable respects with the Indem
nifying Party and its attorneys in the investigation, trial and
defense of any lawsuit or action with respect to such claim and
any appeal arising therefrom (including the filing in the Indem
nified Party's name of appropriate cross claims and counter
claims) and the Indemnifying Party will reimburse the Indemnified
Party for all reasonable direct out-of-pocket expenses incurred
by the Indemnified Party in connection with such cooperation. The
Indemnified Party may, at its own expense, participate in any
investigation, trial and defense of such lawsuit or action
controlled by the Indemnifying Party and any appeal arising
therefrom. If, after receipt of a claim notice pursuant to
Section 8.2(h)(iii), the Indemnifying Party does not undertake to
defend any such claim, the Indemnified Party may, but will have
no obligation to, contest any lawsuit or action with respect to
such claim and the Indemnifying Party will be bound by the result
obtained with respect thereto by the Indemnified Party (including
the settlement thereof without the consent of the Indemnifying
Party). If there are one or more defenses available to the
Indemnified Party that
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<PAGE>
conflict with those available to the Indemnifying Party, the
Indemnified Party will have the right, at the expense of the
Indemnifying Party, to participate in the defense of the lawsuit
or action; provided however, that the Indemnified Party may not
settle such lawsuit or action without the consent of the
Indemnifying Party, which consent will not be unreasonably withheld.
(v) If the indemnification provided for in this
Section 8.2(h) is for any reason unavailable to the Indemnified
Party in respect of any Losses (or action in respect thereof)
then the Indemnifying Party will, in lieu of indemnifying the
Indemnified Party, contribute to the amount paid or payable by
the Indemnified Party as a result of such Losses (or action in
respect thereof), in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party on the one hand and
the Indemnified Party on the other with respect to the statement
or omission that resulted in such Losses (or action in respect
thereof) as well as any other relevant equitable considerations.
Relative fault with respect to an untrue or alleged untrue
statement or omission of a material fact will be determined by
reference to whether the untrue or alleged untrue statement or
omission of a material fact related to information supplied by
the Indemnifying Party on the one hand or the Indemnified Party
on the other, the intent of the parties and their relative knowl
edge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by the
Indemnified Party as a result of the Losses (or action in respect
thereof) referred to above will be deemed to include any legal or
other expenses reasonably incurred by the Indemnified Party in
connection with investigating, trying or defending any such
action or claim. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
Section 8.3 Meeting of Stockholders of the Company.
--------------------------------------
The Company will take all action necessary, in accordance with
the DGCL and the Certificate of Incorporation and Bylaws of the
Company, to duly call, give notice of, convene and hold a meeting
of its stockholders as promptly as practicable, to consider and
vote upon the adoption and approval of this Agreement (as a plan
of merger under Section 251 of the DGCL), the Merger and the
other transactions contemplated by this Agreement (the
"Meeting"), to the extent such approval is required by the DGCL
and the Certificate of Incorporation of the Company.
Section 8.4 Compliance with the Securities Act.
-------------------------------------
Prior to the Closing Date, the Company will cause to be delivered
to TCI a letter from the Company, identifying all Persons who
were, in its opinion, at the time of the Meeting, "affiliates" of
the Company as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act. TCI may cause the MusicCo
Certificates evidencing MusicCo Series A Common Stock issued to
such Persons to bear a legend referring to the applicability of
paragraphs (c) and (d) of Rule 145 under the Securities Act.
Section 8.5 Listing. TCI will use its reasonable
-------
best efforts to cause the shares of MusicCo Series A Common Stock
issued in connection with the Merger to be quoted on
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<PAGE>
NASDAQ, subject to official notice of issuance.
Section 8.6 Reasonable Best Efforts. Subject to the
-----------------------
fiduciary duty obligations of the Board of Directors of the
Company, each of the parties to this Agreement will use its
reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Legal
Requirements to consummate and make effective the transactions
contemplated by this Agreement in the most expeditious manner
practicable, including the satisfaction of all conditions to the
Merger.
Section 8.7 Public Announcements. No party to this
--------------------
Agreement will make any public announcements or otherwise
communicate with any news media with respect to this Agreement or
any of the transactions contemplated by this Agreement without
prior consultation with the other parties as to the timing and
contents of any such announcement as may be reasonable under the
circumstances; provided however, that nothing contained herein
will prevent any party from promptly making all filings with
Governmental Entities that may, in its reasonable judgment, be
required or advisable in connection with the execution and
delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement so long as such party
gives timely notice to the other parties of the anticipated
disclosure and cooperates with the other parties in designing
reasonable procedural and other safeguards to preserve, to the
maximum extent possible, the confidentiality of all information
furnished by the other parties pursuant to this Agreement.
Section 8.8 Notification. In the event of, or after
------------
obtaining knowledge of the occurrence or threatened occurrence
of, any fact or circumstance that would cause or constitute a
breach of any of its representations and warranties set forth
herein, each party to this Agreement promptly will give notice
thereof to the other parties and will use its best efforts to
prevent or remedy such breach.
Section 8.9 HSR Act Filings. TCI and the Company
---------------
will each make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act no later than 15 business days after
the date of this Agreement. Each such filing will request early
termination of the waiting period imposed by the HSR Act. The
Company and TCI each will use its reasonable best efforts to
respond as promptly as reasonably practicable to any inquiries
received from the Federal Trade Commission (the"FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust
Division") for additional information or documentation and to
respond as promptly as reasonably practicable to all inquiries
and requests received from any other Governmental Entity in
connection with antitrust matters; provided however, that nothing
contained herein will be deemed to preclude either the Company or
TCI from negotiating reasonably with any Governmental Entity
regarding the scope and content of any such requested information
or documentation. The Company and TCI each will use their
respective reasonable best efforts to overcome any objections
that may be raised by the FTC, the Antitrust Division or any
other Governmental Entity having jurisdiction over antitrust
matters. Notwithstanding the
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<PAGE>
foregoing, TCI will not be required to make any significant
change in the operations or activities of the business (or any
material assets employed therein) of TCI or any of its Affiliates
if TCI determines in good faith that such change would be
materially adverse to the operations or activities of the
business (or any material assets employed therein) of TCI or
any of its Affiliates.
Section 8.10 Further Assurances. Each of the parties
------------------
to this Agreement will execute such documents and other
instruments and take such further actions as may be reasonably
necessary or desirable to carry out the provisions of this
Agreement and to consummate the transactions contemplated by this
Agreement or, at and after the Closing Date, to evidence the
consummation of the transactions contemplated by this Agreement.
Upon the terms and subject to the conditions of this Agreement,
each of the parties to this Agreement will take or cause to be
taken all actions and to do or cause to be done all other things
necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this
Agreement and to obtain in a timely manner all necessary waivers,
consents and approvals and to effect all necessary registrations
and filings.
Section 8.11 Employee Benefits.
-----------------
(a) To the extent permitted under TCI's employee
benefits plans, each employee of the Surviving Corporation who
was an employee of the Company immediately prior to the Effective
Time (i) will receive credit for past service with the Company
for purposes of eligibility and vesting under the Surviving
Corporation's employee benefit plans, as defined in Section 3(3)
of ERISA, to the extent such service was credited under the
Company Benefit Plans on the Closing Date, (ii) will not be
subject to any waiting periods or limitations on benefits for pre-
existing conditions under the Surviving Corporation's employee
benefit plans, including any group health and disability plans,
except to the extent such employees were subject to such
limitations under the Company Benefit Plans and (iii) will
receive credit for past service with the Company for purposes of
eligibility and vesting under the Surviving Corporation's plans
and policies with respect to seniority benefits, including
vacation and sick leave.
Section 8.12 No Solicitation. Subject to the
----------------
fiduciary duties of the Board of Directors of the Company,
neither the Company nor any of its Subsidiaries or any of their
respective officers, directors, representatives or agents will
take any action to (i) initiate the submission of any Acquisition
Proposal, (ii) enter into any agreement with respect to any
Acquisition Proposal or (iii) participate in negotiations with
any Person in connection with any Acquisition Proposal. The
Company will promptly communicate to TCI any solicitation or
inquiry received by the Company and the terms of any proposal or
inquiry that it may receive in respect of any Acquisition
Proposal, or of any such information requested from it or of any
such negotiations or discussions being sought to be initiated
with it. Nothing in this Section 8.12 shall be construed as
prohibiting the Board of Directors of the Company from (i) making
any disclosure to the Company's stockholders, or (ii) responding
to any unsolicited proposal or inquiry by advising the Person
making such proposal or inquiry of the terms of this Section 8.12.
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<PAGE>
"Acquisition Proposal" means any proposed (i) merger,
consolidation or similar transaction involving the Company, (ii)
sale, lease or other disposition directly or indirectly by
merger, consolidation, share exchange or otherwise of all or any
substantial part of the assets of the Company or its
Subsidiaries, (iii) issue, sale or other disposition of
securities representing 50% or more of the voting power of the
Company Common Stock or (iv) transaction in which any Person
acquires beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of, or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or
has the right to acquire beneficial ownership of, 50% or more of
the outstanding Company Common Stock.
Section 8.13 Indemnification of Executives.
-----------------------------
(a) Indemnification. MusicCo will cause the Surviving
---------------
Corporation to, and, should the Surviving Corporation fail or be
unable to do so, MusicCo shall, indemnify, defend, and hold
harmless each person who is now, or has been at any time prior to
the date of this Agreement or who becomes prior to the Effective
Time, an officer or director of the Company (each, an
"Executive"), against all losses, expenses, damages, liabilities,
costs, judgments, and amounts paid in settlement in connection
with any claim, action, suit, proceeding, or investigation based
on or arising out of, in whole or in part, any actions or
omissions of such Executive as an officer or director of the
Company on or prior to the Effective Time, including actions or
omissions relating to any of the transactions contemplated by
this Agreement until the expiration of the applicable statutes of
limitation, to the fullest extent permitted under the DGCL and
the Certificate of Incorporation and Bylaws of the Company as in
effect on the date of this Agreement. MusicCo will cause the
Surviving Corporation to pay expenses in advance of the final
disposition of any such claim, action, suit, proceeding, or
investigation to each Executive to the fullest extent permitted
by applicable Legal Requirements upon receipt of any undertaking
required or contemplated by applicable Legal Requirements.
Without limiting the foregoing, in any case in which approval of
or a determination by the Surviving Corporation is required to
effectuate any indemnification, (i) the Executives will
conclusively be deemed to have met the applicable standards for
indemnification with respect to any actions or omissions of such
Executives as an officer or director of the Company on or prior
to the Effective Time relating to any of the transactions
contemplated by this Agreement (including actions relating to the
Company's European operations) and (ii) MusicCo shall cause the
Surviving Corporation to direct, at the election of any
Executive, that the determination of any such approval shall be
made by independent counsel selected by the Executive and
reasonably acceptable to MusicCo, it being agreed that Irell &
Manella LLP shall be acceptable to MusicCo. If any such claim,
action, suit, proceeding, or investigation is brought against any
Executive (whether arising before or after the Effective Time),
(i) the Executive may retain counsel satisfactory to him or her
that is reasonably acceptable, and (ii) MusicCo will pay or will
cause the Surviving Corporation to pay all reasonable fees and
expenses of such counsel for the Executive. Neither MusicCo nor
the Surviving Corporation shall have any obligation hereunder to
any Executive when and if a court of competent jurisdiction shall
ultimately determine, after exhaustion of all avenues of appeal,
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<PAGE>
that such Executive is not entitled to indemnification hereunder.
(b) Successors. If MusicCo or the Surviving
----------
Corporation or any of its successors or assigns (i) consolidates
with or merges into any other Person and will not be the
continuing or surviving Person of such consolidation or merger or
(ii) transfers all or substantially all of its properties and
assets to any Person, then and in each such case, proper
provisions will be made so that the successors and assigns of
MusicCo or the the Surviving Corporation assume the obligations
set forth in this Section 8.13.
ARTICLE 9
---------
CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's Obligation to
----------------------------------------
Effect the Merger. The respective obligations of each party to
- ------------------
effect the Merger will be subject to the fulfillment at or prior
to the Effective Time of the following conditions:
(a) This Agreement, the Merger and the transactions
contemplated by this Agreement shall have been duly approved by
the holders of the Company Common Stock.
(b) The waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been
earlier terminated and any other notices or approvals or consents
required by or of any Governmental Entity with respect to the
transactions contemplated by this Agreement noted with an
asterisk on Schedule 5.4 or Schedule 6.5 shall have been either
filed or obtained.
(c) The Registration Statement on Form S-4 that
includes the Joint Proxy Statement/Prospectus shall have become
effective in accordance with the provisions of the Securities Act
and any necessary state securities law approvals shall have been
obtained and no stop orders with respect thereto shall have been
issued by the SEC and remain in effect.
(d) No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any Legal Requirement that
remains in effect and has the effect of making the transactions
contemplated by this Agreement illegal or otherwise prohibiting
the transactions contemplated by this Agreement, or that
questions the validity or the legality of the transactions
contemplated by this Agreement and that could reasonably be
expected to materially and adversely affect the value of the
business of the Company, it being agreed that each party will use
its reasonable best efforts to have any such injunction lifted.
Section 9.2 Conditions to Obligation of the Company
---------------------------------------
to Effect the Merger. The obligation of the Company to effect
- ----------------------
the Merger will be subject to the fulfillment at or prior to the
Effective Time of the additional following conditions:
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<PAGE>
(a) TCI, MusicCo and Merger Sub shall have performed
in all material respects their agreements contained in this
Agreement required to be performed by them at or prior to the
Effective Time and the representations and warranties of TCI,
MusicCo and Merger Sub set forth in this Agreement if qualified
by materiality are true in all respects and if not so qualified
are true in all material respects when made and at and as of the
Effective Time as if made at and as of such time and the Company
shall have received a certificate of TCI, MusicCo and Merger Sub
executed on behalf of each such corporation by the President or a
Vice President of such corporation to that effect.
(b) MusicCo Series A Common Stock issued in connection
with the Merger shall have been authorized for quotation on
NASDAQ upon official notice of issuance.
(c) The Company shall have received the opinion of
counsel to TCI, MusicCo and Merger Sub (which counsel may be an
employee of TCI) substantially to the effect set forth in
Exhibit C.
(d) The transactions contemplated by the Contribution
Agreement shall have been consummated on the terms and conditions
set forth therein.
Section 9.3 Conditions to Obligations of TCI,
--------------------------------------
MusicCo and Merger Sub to Effect the Merger. The obligations of
- -------------------------------------------
TCI, MusicCo and Merger Sub to effect the Merger will be subject
to the fulfillment at or prior to the Effective Time of the
additional following conditions:
(a) The Company shall have performed in all material
respects its agreements contained in this Agreement required to
be performed by it at or prior to the Effective Time and, except
as contemplated or permitted by this Agreement, the
representations and warranties of the Company set forth in this
Agreement if qualified by materiality are true in all respects
and if not so qualified are true in all material respects when
made and at and as of the Effective Time as if made at and as of
such time, and TCI, MusicCo and Merger Sub shall have received a
certificate of the Company executed on behalf of the Company by
the President or an Executive Vice President of the Company to
that effect.
(b) Those consents of third parties noted with an
asterisk on Schedule 5.4 or Schedule 6.5 shall have been
obtained.
(c) The number of Dissenting Shares do not exceed 5%
of the issued and outstanding shares of Company Common Stock.
(d) There shall have been no material adverse change
in the financial condition, results of operations, assets,
liabilities or business of the Company since the date of
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<PAGE>
this Agreement.
(e) TCI and MusicCo shall have received the opinion of
Irell & Manella LLP substantially to the effect set forth in
Exhibit D.
ARTICLE 10
----------
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be
-----------
terminated at any time prior to the Effective Time, whether
before or after approval by the stockholders of the Company:
(a) by mutual consent of the Board of Directors of TCI
and the Board of Directors of the Company;
(b) by either TCI or the Company (i) if at the Meeting
(including any postponement or adjournment thereof), this
Agreement, the Merger and the transactions contemplated by this
Agreement are not approved and adopted by the affirmative vote
specified herein or (ii) so long as the terminating party has not
breached its obligations hereunder in any material respect, after
July 31, 1997 (the "Termination Date") if the Merger shall not
have been consummated on or before such date;
(c) by the Company, provided the Company has not
breached any of its obligations hereunder in any material
respect, if any of the conditions specified in Section 9.1 or
Section 9.2 have not been satisfied or waived by the Company (or,
in the case of Section 9.1, waived by the Company, TCI, MusicCo
and Merger Sub) at such time as such condition is no longer
capable of satisfaction; or
(d) by TCI, provided that none of TCI, MusicCo or
Merger Sub has breached any of its obligations hereunder in any
material respect, if any of the conditions specified in Section
9.1 or Section 9.3 have not been met or waived by TCI (or, in the
case of Section 9.1, waived by TCI, MusicCo, Merger Sub and the
Company) at such time as such condition is no longer capable of
satisfaction.
Section 10.2 Effect of Termination. In the event of
---------------------
termination of this Agreement by either TCI or the Company, as
provided above, this Agreement will forthwith become void and
(except for the willful breach of this Agreement by any party to
this Agreement) there will be no liability on the part of any of
the Company, TCI, MusicCo or Merger Sub.
Section 10.3 Amendment. This Agreement may be
---------
amended by the parties to this Agreement, by or pursuant to
action taken by all of their Boards of Directors, at any time
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<PAGE>
before or after approval of this Agreement by the stockholders of
the Company and prior to the Effective Time, but, after such
approval, no amendment will be made that alters the
indemnification provisions of Section 8.2 or changes the ratio at
which Company Common Stock is to be converted into MusicCo
Series A Common Stock as provided in Section 3.2 or that in any
way materially adversely affects the rights of such stockholders,
without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties to this Agreement.
Section 10.4 Waiver. At any time prior to the
------
Effective Time, the parties to this Agreement, by or pursuant to
action taken by their respective Boards of Directors, may (i)
extend the time for performance of any of the obligations or
other acts of the other parties to this Agreement, (ii) waive any
inaccuracies in the representations and warranties set forth in
this Agreement or in any documents delivered pursuant to this
Agreement and (iii) waive compliance with any of the agreements
or conditions set forth in this Agreement. Any agreement on the
part of a party to this Agreement to any such extension or waiver
will be valid if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE 11
----------
GENERAL PROVISIONS; DEFINITIONS
Section 11.1 Non-Survival of Representations,
----------------------------------
Warranties and Agreements. No representations and warranties
- ---------------------------
contained in this Agreement will survive beyond the Closing Date.
This Section 11.1 will not limit any covenant or agreement of the
parties to this Agreement that by its terms requires performance
after the Closing Date.
Section 11.2 Notices. All notices or other
-------
communications under this Agreement will be in writing and will
be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex or
other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company: 11400 West Olympic Boulevard
Suite 1100
Los Angeles, California 90064-1501
Attention: President
Telecopy No.: (310) 444-1717
With a copy to: Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067-4276
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<PAGE>
Attention: Alvin G. Segel, Esq.
Telecopy No.: (310) 203-7199
If to TCI, MusicCo or
Merger Sub: Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Attention: Legal Department
Telecopy No.: (303) 488-3217
With a copy to: Sherman & Howard L.L.C.
633 Seventeenth Street
Suite 3000
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy No.: (303) 298-0940
or to such other addresses as any party may have furnished to the
other parties in writing in accordance with this Section.
Section 11.3 Fees and Expenses. Whether or not the
-----------------
Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated
by this Agreement will be paid by the party incurring such
expenses. The Company's expenses relating to the transactions
contemplated by this Agreement, including fees of Irell & Manella
LLP, counsel to the Company, will be paid or accrued by the
Company prior to the Effective Time.
Section 11.4 Specific Performance. The parties to
--------------------
this Agreement agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
will be entitled to enforce specifically the terms and provisions
of this Agreement in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy
to which they are entitled at law or in equity.
Section 11.5 Third Party Beneficiaries. The parties
-------------------------
to this Agreement agree that the Company's stockholders,
officers, directors and employees are intended third party
beneficiaries of the terms of this Agreement, to the extent such
terms refer expressly to such Persons, with full rights hereunder
as if each of them were a party to this Agreement.
Section 11.6 Entire Agreement. This Agreement will
----------------
be of no force or effect until executed and delivered by all of
the parties to this Agreement.
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<PAGE>
Section 11.7 Miscellaneous. This Agreement
-------------
(including the documents and instruments referred to in this
Agreement) (a) when executed and delivered, constitutes the
entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter of this Agreement
(other than as provided in the Confidentiality Agreement dated as
of October 2, 1996, between the Company and TCI as the same may
be amended) and (b) will be governed in all respects, including
validity, interpretation and effect, by the laws of the State of
Delaware (without giving effect to the provisions thereof
relating to conflicts of law). This Agreement may be executed in
two or more counterparts which together will constitute a single
agreement. Any certificate delivered pursuant to this Agreement
will be made without personal liability on the part of the
officer or employee of the Person giving such certificate.
-37-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be signed by their respective officers thereunder
duly authorized all as of the date first written above.
TELE-COMMUNICATIONS, INC.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
TCI MUSIC, INC.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
TCI MERGER SUB, INC.
By:
------------------------------
Name:
-----------------------------
Title:
-----------------------------
DMX INC.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
-38-
<PAGE>
RIGHTS AGREEMENT
AGREEMENT, dated as of ______________________, 1997,
among TELE-COMMUNICATIONS, INC., a Delaware corporation ("TCI" or
the "Company"), TCI Music, Inc., a Delaware corporation
("MusicCo"), and ______________________________________, as
Rights Agent for the Company's rights issued pursuant hereto (the
"Rights").
Background
----------
Pursuant to the Agreement and Plan of Merger dated as
of February 6, 1997 (the "Merger Agreement"), the outstanding
shares of Common Stock of DMX Inc., were converted on the date of
this Agreement into shares of Series A Common Stock of MusicCo
upon effectiveness of the merger contemplated by the Merger
Agreement (the "Merger").
In connection with the Merger, TCI has agreed that if,
during the one-year period beginning on the date of the Merger,
the price of MusicCo's Series A Common Stock does not equal or
exceed $4.00 per share for a period of at least 20 consecutive
trading days, holders of MusicCo Series A Common Stock will have
the right, exercisable during the 30-day period beginning on the
first anniversary of the Merger, to require TCI to purchase such
Common Stock at a price of $4.00 per share, payable at TCI's
election in cash or shares of Tele-Communications, Inc. Series A
TCI Group Common Stock (or a combination thereof). Each Right
will entitle the registered holder thereof (the "Holders") to
sell one share of MusicCo Series A Common Stock (subject to
adjustment) to the Company for the consideration described herein
upon exercise thereof in accordance with the terms and conditions
of this Agreement.
The Company wishes the Rights Agent to act on behalf of
the Company, and the Rights Agent is willing so to act, in con
nection with the issuance, division, transfer, exchange and exer
cise of the Rights.
Agreement
---------
In consideration of the foregoing and for the purpose
of defining the terms and provisions of the Rights, the res
pective rights and obligations thereunder of the Company and the
holders and certain obligations of MusicCo, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Certain Definitions. As used herein, the
--------------------
following terms have the meanings assigned to them in this
Section 1.01 (or in the applicable Section to which reference is
made) and include the singular as well as the plural:
<PAGE>
"Aggregate Consideration Amount Per Distributed Entity
------------------------------------------------------
Share": As of any date of determination, the sum of the
- ------
Consideration Amount Per Distributed Entity Share for each
Distributed Entity then existing.
"Applicable Entity": As the context may require,
--------------------
MusicCo and each Distributed Entity, as applicable.
"Bankruptcy Event": Pursuant to or within the meaning
------------------
of any Bankruptcy Law, the Company:
(a) commences a voluntary case;
(b) consents to the entry of an order for relief
against it in an involuntary case;
(c) consents to the appointment of a Custodian of
it or for all or substantially all of its property (other than
for its subsidiaries or property of its subsidiaries);
(d) makes a general assignment for the benefit of
its creditors;
(e) admits in writing its inability to pay its
debts generally as they become due;
(f) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(i) is for relief against the
Company in an involuntary case;
(ii) appoints a Custodian of the Company
or for all or substantially all of its property (other
than its subsidiaries or property of its subsidiaries);
(iii) orders the liquidation of the
Company, and any such order or decree remains unstayed
and in effect for 90 days; or
(g) the Company takes any corporate action to
authorize any of the foregoing.
The term "Bankruptcy Law" means Title 11, U.S. Code or
any similar federal or state law for the relief of debtors. The
term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
"beneficial owner": A Person shall be deemed the
-------------------
"beneficial owner" of, and shall be deemed to "beneficially own,"
any securities of which such person has "beneficial ownership"
within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934 (or any
<PAGE>
successor statute or rule). Any Person's percentage beneficial
ownership of any class of securities shall be determined in
accordance with such rule.
"Business Day": Any day other than a Saturday, Sunday
--------------
or other day on which commercial banks in New York, New York or
Los Angeles, California are authorized or required to close.
"Capital Stock": With respect to each Applicable
----------------
Entity, any and all shares (however designated) of capital stock
or other equity interests of such Applicable Entity, now or
hereafter authorized, that, upon the liquidation of such
Applicable Entity, entitle the holder thereof to share, without
limitation as to amount, in the liquidating distribution of the
assets of such Applicable Entity to its stockholders. In
determining the number and kind of shares of Capital Stock of
each Applicable Entity outstanding for purposes of the
definitions of "Per Share Value" and "Fair Market Value", any
shares of capital stock or of other equity interests of such
Applicable Entity that, without payment of additional
consideration, are convertible into or exchangeable ("Convertible
Shares") for shares of any other class or series of corporate
stock or of other equity interests of such Applicable Entity
("Conversion Shares") shall be deemed to have been so converted
or exchanged if the aggregate amount that would be payable, if
such Applicable Entity were then being liquidated, to the holders
of such Conversion Shares exceeds the aggregate amount that would
be payable (determined on a class by class basis), if such
Applicable Entity were then being liquidated, to the holders of
the Convertible Shares. The calculation of the aggregate amount
payable upon liquidation of such Applicable Entity to holders of
Conversion Shares or Convertible Shares, as the case may be,
shall take into account any fixed amounts payable in liquidation
with respect to such shares and shall otherwise assume that
liquidating distributions will be made on the basis of the Fair
Market Value of such Applicable Entity (calculated, in the case
of the Conversion Shares, on a pro forma basis assuming the
issuance of such Conversion Shares).
"Certificates": As defined in Section 2.02.
--------------
"Change in Control Transaction": As defined in
----------------------------------
Section 4.17.
"Component": Each of the MusicCo Component and each
-----------
Distributed Entity Component, if any, of each Right.
"Consideration Amount Per Distributed Entity Share":
-----------------------------------------------------
The amount determined in accordance with Section 4.16.
"Consideration Amount Per MusicCo Share": The amount
----------------------------------------
determined in accordance with Section 4.16.
"Current Market Price": As defined in Section 4.05.
----------------------
"Deposit Date": As defined in Section 4.14.
--------------
"disposition": Any sale, conveyance, transfer or other
-------------
disposition by the Company of beneficial ownership of any
shares of Capital Stock of MusicCo during the term of
<PAGE>
this Agreement, but excluding (i) a pledge of Capital Stock
of MusicCo as collateral security for bona fide indebtedness,
(ii) a disposition of Capital Stock of MusicCo after giving
effect to which the Company continues to be the beneficial owner
of the Capital Stock so disposed of and (iii) a disposition of
Capital Stock of MusicCo in connection with a merger,
consolidation or combination of the Company with or into another
corporation. The term "dispose" means to make a disposition.
"Distributed Entity": Any entity the shares of Capital
--------------------
Stock of which are distributed or sold in a Subject Distribution.
The term "Distributed Entity Stock" means the class or series of
Capital Stock of each Distributed Entity that is distributed or
sold in a Subject Distribution.
"Distributed Entity Component": As defined in
--------------------------------
Section 6.04.
"Distribution Value": With respect to each
---------------------
distribution by an Applicable Entity to all holders of shares of
MusicCo Series A Common Stock or Distributed Entity Stock, as
the case may be, of shares of the Capital Stock of any entity or
of rights or warrants entitling such holders (for a period
expiring within 45 days after the effective date of such
distribution) to purchase shares of the Capital Stock of any
entity, the positive difference, if any, between (a) the Fair
Market Value of such entity or, if the shares of Capital Stock so
distributed or sold pursuant to the distributed rights or
warrants represent less than 100% of the outstanding shares of
Capital Stock of such entity, then the portion of the Fair Market
Value of such entity represented by the shares so distributed or
sold, and (b) the aggregate consideration paid for the shares
sold pursuant to the distributed rights or warrants, if any.
"Early Expiration Event": With respect to MusicCo
--------------------------
Series A Common Stock and the Capital Stock of each other
Applicable Entity, when the sum of the Fair Market Values of one
share of MusicCo Series A Common Stock and one share of the
Capital Stock of each other Applicable Entity shall have equaled
or exceeded $4.00 for at least 20 consecutive trading days.
"Excluded Stock": With respect to each Applicable
-----------------
Entity, any and all shares (however designated) of capital stock
or of other equity interests of such Applicable Entity now or
hereafter authorized that, upon the liquidation of such
Applicable Entity, do not entitle the holder thereof to share,
without limitation as to amount, in the liquidating distribution
of the assets of such Applicable Entity to its equity holders,
except that any of such shares that, without payment of
additional consideration, are convertible into or exchangeable
for shares of any other class or series of capital stock or of
other equity interests that are not so limited with respect to
participation in liquidating distributions shall not constitute
Excluded Stock if such shares would be deemed to have been so
converted in accordance with the definition of "Capital Stock".
"Exercise Period": As defined in Section 4.01, subject
-----------------
to Section 4.17.
"Fair Market Value": With respect to each Applicable
--------------------
Entity as of any date of determination, the fair market value of
such Applicable Entity on a going concern basis (as if such
Applicable Entity were being sold by a sale of stock or, if
applicable, of other equity
<PAGE>
interests) or on a liquidation basis (whichever method
would yield the highest valuation), (i) reduced by the aggregate
amount that would be payable, if such Applicable Entity were
then being liquidated, (x) on any Excluded Stock of the
Applicable Entity and (y) on any shares of its Capital Stock then
outstanding (or deemed to be outstanding in accordance with the
definition of "Capital Stock") that entitle their holders to
payment of a fixed amount upon liquidation in addition to their
participation in liquidating distributions payable with respect
to other shares of Capital Stock (but the reduction pursuant to
this clause (y) shall be limited to such fixed amount) and (ii)
increased by the aggregate exercise or conversion price payable
to such Applicable Entity upon the exercise or conversion of all
warrants, rights and options to purchase or acquire Capital Stock
of such Applicable Entity and convertible securities the exercise
or conversion of which is taken into account in determining the
Per Share Value of such Applicable Entity. The fair market value
of an Applicable Entity on a going concern basis shall take into
account such considerations (including but not limited to tax
considerations which are specific to a sale of stock or, if
applicable, of other equity interests) as would customarily
affect the price at which a willing seller would sell and a
willing buyer would buy a comparable business as a going concern
in an arm's length transaction. The fair market value of an
Applicable Entity on a liquidation basis shall take into account
tax liabilities that would be incurred in a liquidation assuming
the most tax efficient and practical plan of liquidation and all
other liabilities that would be required to be paid or reserved
against before the making of liquidating distributions to equity
holders.
"Holders": As defined in the preamble.
---------
"MusicCo Series A Common Stock": Series A Common
---------------------------------
Stock, par value $.01 per share of MusicCo, and Capital Stock of
any other class into which such Series A Common Stock may
thereafter have been changed. "MusicCo Series A Shares" means
shares of MusicCo Series A Common Stock.
"MusicCo Common Stock": Capital Stock of MusicCo
------------------------
including MusicCo Series A Common Stock.
"MusicCo Component": As defined in Section 6.04.
-------------------
"MusicCo Dividend": Any distribution of cash or
-------------------
property (other than securities specified in Section 6.03) on
MusicCo Series A Common Stock.
"Notice": As defined in Section 4.07.
--------
"Per Share Value": With respect to each Applicable
-------------------
Entity, the quotient of (x) the Fair Market Value of such
Applicable Entity as of the applicable date, divided by (y) the
total number of shares of Capital Stock of such Applicable Entity
outstanding (or deemed to be outstanding in accordance with the
definition of "Capital Stock") as of such date (or shares
equivalent to (i) in the case of MusicCo, MusicCo Common Stock,
or (ii) in the case of any Distributed Entity, Distributed Entity
Stock, if any shares of Capital Stock of such Applicable Entity
then outstanding or deemed to be outstanding entitle their
holders to participate in
<PAGE>
liquidating distributions on a basis different from that which
is applicable to shares of MusicCo Common Stock or Distributed
Entity Stock, as the case may be) plus the number of such
shares or share equivalents (to the extent not already treated
as outstanding pursuant to the definition of "Capital Stock")
issuable upon the exercise of outstanding warrants, rights and
options to purchase or acquire Capital Stock of such Applicable
Entity and the conversion of outstanding convertible securities
to the extent that any such exercise or conversion would result
in a profit to the holder of the related warrant, right, option
or convertible security given the Per Share Value so determined.
"Person": Any human being, corporation, partnership,
--------
limited liability company, trust, association or other entity.
"Rights": As defined in the preamble.
--------
"Significant Corporate Transaction": The occurrence of
-----------------------------------
a Terminating Event with respect to an Applicable Entity the Fair
Market Value of which represents a greater percentage of the
Undistributed Value of MusicCo than the percentage thereof
represented by the Fair Market Value of any other Applicable
Entity, as determined by the Board of Directors of MusicCo (whose
good faith determination will be conclusive) as of the date the
agreement of merger or consolidation is executed or the vote of
the Board of Directors of such Applicable Entity to dissolve or
liquidate such Applicable Entity is taken.
"Subject Distribution": As defined in Section 6.03.
----------------------
"TCI Series A Common Stock": As defined in
--------------------------------
Section 4.04.
"TCI Series A Shares": As defined in Section 4.04.
---------------------
"Terminating Event": Each of the following events:
--------------------
(a) an Applicable Entity is a constituent party in any merger or
consolidation (other than a merger or consolidation in which such
Applicable Entity is the surviving corporation and that does not
result in any reclassification or change in the outstanding
Capital Stock of such Applicable Entity, other than a change in
par value or a reclassification or other change to which
Article VI is applicable and other than a merger the sole purpose
of which is to change such Applicable Entity's domicile within
the United States) or (b) such Applicable Entity is dissolved or
liquidated.
"Triggering Event": As defined in Section 4.18.
------------------
"Underlying Number": As defined in Section 6.04.
-------------------
"Undistributed Value of MusicCo": As of any date as of
--------------------------------
which the determination thereof is to be made pursuant to
Section 6.03, the sum of the respective Fair Market Values of
MusicCo and of each Distributed Entity as of such date.
<PAGE>
"Valuation Date": The last day of the most recent
-----------------
quarter ended prior to the Exercise Period or, with respect to
any accelerated Exercise Period, the applicable date determined
in accordance with Section 4.17.
ARTICLE II
RIGHTS AGENT
2.01 Appointment of Rights Agent. The Company appoints
---------------------------
the Rights Agent to act as agent for the Company in accordance
with the terms set forth in this Agreement and the Rights Agent
accepts such appointment.
2.02 No Rights Certificates. The rights will be
------------------------
evidenced only by certificates for MusicCo Series A Shares
registered in the names of holders of MusicCo Series A Shares
("Certificates"), which Certificates will be deemed also to be
certificates for the Rights. As soon as practicable following
the Closing Date (as defined in the Merger Agreement), the Rights
Agent will send a summary of the terms of the Rights (the "Rights
Summary") by first-class, postage paid mail to each record Holder
of MusicCo Series A Shares as of the close of business on the
Closing Date (as defined in the Merger Agreement), at the address
of the Holder as shown on the records of MusicCo. The Rights
will be evidenced by certificates for MusicCo Series A Shares
together with the Rights Summary and the registered Holders of
MusicCo Series A Shares will also be registered Holders of the
associated Rights.
2.03 Registration. The Company and the Rights Agent
------------
shall be entitled to treat the registered Holders(s) of the
certificates representing MusicCo Series A Shares as the
absolute owner(s) of the Rights represented thereby
(notwithstanding any notation of ownership or other writing on
the Certificates made by anyone or any other notice to the
contrary) for all purposes and shall not be bound to recognize
any equitable or other claim to or interest in such Rights on the
part of any other Person.
ARTICLE III
TRANSFERS, EXCHANGES AND SUBSTITUTIONS
3.01 Transfers. The Rights will be transferable only
---------
in connection with the transfer of the associated MusicCo Series
A Shares. The surrender for transfer of any certificates
evidencing MusicCo Series A Shares, even without a copy of the
Rights Summary attached thereto, will also constitute a transfer
of the Rights associated with the MusicCo Series A Common Stock
represented by such certificate. Under no circumstances may any
Right be separated from, or transferred or assigned apart from,
the associated MusicCo Series A Share.
3.02 Legend. Certificates issued for MusicCo Series A
------
Shares on or after the date of this Agreement and before
expiration of the Rights, which MusicCo Series A Shares
initially were issued pursuant to the Merger Agreement, will be
deemed also to be certificates for the Rights, and will have
impressed, printed or stamped on them the following legend:
<PAGE>
This certificate also evidences and entitles the holder
to certain Rights as set forth in a Rights Agreement
between TCI Music, Inc. (the "Corporation"),
Tele-Communications, Inc., and ______________
_______________________ (the "Rights Agent") dated as
of __________________, 1997 (the "Rights Agreement"),
the terms of which are hereby incorporated by reference
and a copy of which is on file at the principal offices
of the Corporation. The Corporation will mail to the
holder of this certificate without charge a copy of the
Rights Agreement upon written request therefor.
ARTICLE IV
EXERCISE OF RIGHTS
4.01 Exercise Period. During the period commencing at
---------------
the opening of business on [date of first anniversary of closing]
and ending at the close of business, ___________ time, on the
30th day after such date or the succeeding Business Day if such
date is not a Business Day (the "Exercise Period"), and during
any accelerated Exercise Period required by Section 4.17, each
Holder of Rights may irrevocably exercise all or any number of
his Rights in accordance with Section 4.08. If the Rights have
one or more Distributed Entity Components at the time such Rights
are exercisable, the Holder may, in accordance with Section 4.08,
irrevocably exercise such Right as to its MusicCo Component, any
or all of its Distributed Entity Components, or any combination
thereof. Notwithstanding anything to the contrary herein, the
Exercise Period shall be conducted in compliance with all
applicable laws, including all federal and state securities laws.
The foregoing notwithstanding, if an Early Expiration Event shall
have occurred prior to the commencement of the Exercise Period,
the Rights shall expire as of the date of the Early Expiration
Event without ever becoming exercisable by the Holder.
4.02 Expiration. In the Exercise Period and, subject
----------
to Section 4.20, any accelerated Exercise Period, the Company
shall be obligated to honor in accordance with Section 4.08 any
and all exercises of the Rights then issued and outstanding. All
Rights (and fractions thereof) not theretofore exercised shall
expire and cease to be exercisable upon the expiration of the
Exercise Period (subject to earlier expiration pursuant to the
last sentence of the preceding Section and pursuant to
Section 4.17). Upon the exercise of any Right (or fraction
thereof), in whole or in part, such Right (including any
Component thereof not exercised or not exercised in full) shall
thereupon expire and cease to be exercisable. Upon the
consummation of a Terminating Event with respect to any
Applicable Entity, that Component of each Right (and fractional
Right) that relates to the Capital Stock of such Applicable
Entity shall expire and cease to be exercisable.
4.03 Extension.
---------
(a) If the Company for any reason fails to give
the Notice in accordance with Section 4.07, the Exercise Period
shall be extended for a period of time equal to the delay in
giving the Notice.
<PAGE>
(b) If the record date for a Subject Distribution
occurs prior to the Exercise Period, or an accelerated Exercise
Period, and the Distributed Entity Stock with respect to such
Subject Distribution is not delivered to stockholders entitled
thereto prior to the beginning of the applicable Exercise Period,
such Exercise Period shall be extended for a period of time equal
to the number of days from the beginning of such Exercise Period
and the date such Distributed Entity Stock is mailed to such
stockholders.
4.04 Consideration To Be Received Upon Exercise of
------------------------------------------------
Rights. Subject to Section 4.20, upon the valid exercise of
- -------
Rights, the Holder shall be entitled to receive from the Company,
at the Company's sole option (subject only to Section 4.05 and
Section 4.15), cash or shares of the Company's TCI Group Series A
Common Stock, $1.00 par value per share ("TCI Series A Common
Stock" or "TCI Series A Shares"), or any combination of cash and
TCI Series A Shares determined in such proportions or on such
other basis as the Company shall elect in the Notice given
pursuant to Section 4.07, in consideration of the sale to the
Company of:
(a) if the MusicCo Component of any or all of
such exercised Rights has been exercised, a number of whole
shares of MusicCo Series A Common Stock equal to the number of
whole Rights of which the MusicCo Component has been so exercised
and honored; and
(b) if any Distributed Entity Component of any or
all of such exercised Rights has been exercised, a number of
whole shares of the Distributed Entity Stock to which such
Distributed Entity Component relates not in excess of the product
of (i) the number of whole Rights of which such Distributed
Entity Component has been exercised and honored and (ii) the
Underlying Number for such Distributed Entity Component of a
whole Right.
4.05 Consideration Amount. The amount of cash or the
--------------------
number of TCI Series A Shares to be paid or delivered by the
Company shall be determined as follows (subject to adjustments
required by Section 4.11 in the determination of the number of
whole TCI Series A Shares to be delivered):
(a) for the number of such shares of MusicCo
Series A Common Stock that the Company has elected to purchase
for cash, an aggregate amount in cash equal to the product of (i)
the number of such shares and (ii) the Consideration Amount Per
MusicCo Series A Share for the applicable Exercise Period;
(b) for the number of such shares of MusicCo
Series A Common Stock that the Company has elected to purchase
for TCI Series A Shares an aggregate number of TCI Series A
Shares equal to the product of (i) the number of such shares of
MusicCo Series A Common Stock and (ii) the quotient of (A) the
Consideration Amount Per MusicCo Series A Share for the
applicable Exercise Period, divided by (B) the Current Market
Price of a TCI Series A Share;
<PAGE>
(c) for the number of such shares of Distributed
Entity Stock that the Company has elected to purchase for cash,
an aggregate amount in cash equal to the product of (i) the
number of such shares and (ii) the Consideration Amount Per
Distributed Entity Share for the applicable Exercise Period; and
(d) for the number of such shares of Distributed
Entity Stock that the Company has elected to purchase for TCI
Series A Shares, an aggregate number of TCI Series A Shares equal
to the product of (i) the number of such shares of Distributed
Entity Stock and (ii) the quotient of (A) the Consideration
Amount Per Distributed Entity Share for the applicable Exercise
Period, divided by (B) the Current Market Price of a TCI Series A
Share.
As used herein, the "Current Market Price" of a TCI
Series A Share shall be the average of the daily closing prices
for a share of TCI Series A Common Stock for 30 consecutive
trading days commencing 45 trading days before the date of
determination. The closing price for a share of TCI Series A
Common Stock is the last reported sale price on the National
Association of Securities Dealers, Inc. Automated Quotation
System (or the average of the quoted closing bid and asked prices
if no sale is reported) or if the TCI Series A Common Stock is
listed on an exchange, the closing sale price on the principal
exchange on which the TCI Series A Common Stock is listed (or the
average of the reported closing bid and asked prices if no sale
is reported). In the absence of one or more of such quotations,
the Board of Directors of the Company shall in good faith
determine the Current Market Price on the basis of such quotation
as it considers appropriate.
4.06 Condition to Delivery of TCI Series A Shares. The
--------------------------------------------
Company shall deliver TCI Series A Shares in full or partial
payment for the sale of shares of MusicCo Series A Common Stock
(or Distributed Entity Stock) only if such TCI Series A Shares
are then quoted on the National Association of Securities
Dealers, Inc. National Market System or listed on a national
securities exchange and have been registered with the Securities
and Exchange Commission on an appropriate form under the
Securities Act of 1933 or an exemption from such registration is
available and such shares are freely tradable. The Company may
not elect to deliver any other security of the Company or any
security of any other issuer.
4.07 Notice to Rights Holders. The Company shall
--------------------------
publish in The Wall Street Journal (national edition, or if The
Wall Street Journal shall cease publication, in another national
financial publication), not less than 20 nor more than 30 days
prior to the commencement of an Exercise Period, a notice (the
"Notice") as to: the number of Rights outstanding on the date of
such Notice; the Consideration Amount Per MusicCo Share for such
Exercise Period, if applicable, as to each Distributed Entity
Component of the Rights; the number of shares of Distributed
Entity Stock to which such Distributed Entity Component relates
and the applicable Consideration Amount Per Distributed Entity
Share for such Exercise Period; and the form of consideration
pursuant to Section 4.04 the Company has elected to deliver (and
if the Company has elected to deliver both such forms of
consideration, the relative proportions thereof or any other
basis on which the relative amounts of cash to be paid and
numbers of TCI Series A Shares to be issued shall be determined).
The Notice shall contain such other information as may be
required by applicable federal or state securities laws or
regulations. At,
<PAGE>
or immediately prior to the time of the publication of the
Notice, the Company will deliver to the Rights Agent such number
of copies as the Rights Agent may request of the Notice, of a
Letter of Transmittal to be used by Holders in tendering stock
certificates and of such other documents as the Company may
then be required to deliver to the Holders in accordance
with applicable federal and state securities laws and
regulations. The Rights Agent shall promptly mail by first class
mail, postage prepaid to the registered Holders of the
Certificates, at their respective addresses as they appear on the
register of Holders, a copy of the Notice, such Letter of
Transmittal and such other documents, if any. The Company will
also provide additional copies of the Letter of Transmittal to
any registered Holder requesting the same.
4.08 Exercise of Rights. Rights may be exercised (in
------------------
whole or as to any Component) upon surrender to the Rights Agent
at its office of the following, together with a duly completed
and signed Letter of Transmittal: (i) if the MusicCo Component
of any of such Rights is being exercised, a stock certificate or
certificates representing a number of shares of MusicCo Series A
Common Stock equal to or greater than the number of Rights of
which the MusicCo Component is being exercised, duly endorsed and
in proper form for transfer, guaranteed by a bank or trust
company or a broker who is a member of a national securities
exchange with such endorsements; (ii) if a Distributed Entity
Component of any of such Rights is being exercised, a stock
certificate or certificates representing a number of shares of
the Distributed Entity Stock to which the Distributed Entity
Component relates equal to or greater than the product of the
number of whole Rights of which such Distributed Entity Component
is being exercised, multiplied by the Underlying Number for such
Distributed Entity Component of a whole Right; and (iii) payment
in United States currency of an amount equal to any stamp or
other tax or governmental charge required to be paid in
connection with the transfer of such shares of MusicCo Series A
Common Stock or Distributed Entity Stock in connection with the
exercise of the Rights. The Rights Agent will hold such stock
certificates in trust for the Holder until payment shall have
been made in accordance with Section 4.12 hereof and, upon such
payment, shall, subject to Section 4.09 and 4.10, deliver such
stock certificates to the Company.
4.09 MusicCo Certificates. Rights may be exercised
--------------------
only in integral amounts. If the MusicCo Component of a Right is
being exercised and if the Holder shall tender certificates for
shares of MusicCo Series Common A Stock that are, in the
aggregate, greater than the number of Rights of which the MusicCo
Component is being exercised, the Holder shall also designate in
the Letter of Transmittal the stock certificates for the MusicCo
Series A Common Stock enclosed therewith and the number of
whole shares being surrendered from each such stock certificate.
In such event, the Rights Agent shall, as agent for such Holder,
deliver the stock certificates to the transfer agent for the
MusicCo Series A Common Stock (the "Transfer Agent", which term
shall include any subsequent transfer agent for any shares of
MusicCo's capital stock issued upon reclassification of the
MusicCo Series A Common Stock), with instructions to issue a new
stock certificate to the Company for the number of shares of
MusicCo Series A Common Stock surrendered to and accepted by the
Company and to issue a new stock certificate or certificates to
or in accordance with the instructions of such Holder for the
balance of such shares of MusicCo Series A Common Stock.
MusicCo hereby irrevocably authorizes and directs its present and
any future Transfer Agent to issue such new certificates in
accordance herewith. MusicCo will keep a copy of this Agreement
on file with the Transfer Agent.
<PAGE>
4.10 Distributed Entity Certificates. If a Distributed
--------------------------------
Entity Component of a Right is being exercised, then for each
Distributed Entity Component so exercised the Holder shall
designate in the Letter of Transmittal tendered upon exercise
thereof, the aggregate number of whole Shares of Distributed
Entity Stock to which such Distributed Entity Component relates
that are being surrendered upon the exercise of such Component of
the Rights (not in excess of the product of the number of whole
Rights of which such Distributed Entity Component is being
exercised, multiplied by the Underlying Number for such
Distributed Entity Component of a whole Right). If a Holder
shall tender certificates for shares of Distributed Entity stock
that are, in the aggregate, greater than the number of shares of
Distributed Entity Stock being so surrendered, the Holder shall
also designate in the Letter of Transmittal the stock
certificates for the Distributed Entity Stock enclosed therewith
and the number of whole shares of Distributed Entity Stock
surrendered from each such stock certificate. In such event, the
Rights Agent shall, as agent for the Holder, deliver the stock
certificates to the transfer agent for the Distributed Entity
Stock, with instructions to issue a new stock certificate to the
Company for the number of shares of Distributed Entity Stock
surrendered to and accepted by the Company and to issue a new
stock certificate or certificates to or in accordance with the
instructions of such Holder for the balance of such shares of
Distributed Entity Stock. Each Distributed Entity, by its
execution of a supplement to this Agreement as contemplated by
Section 6.07, irrevocably authorizes and directs the transfer
agent for the Distributed Entity Stock to issue such new
certificates in accordance herewith, and covenants and agrees to
keep a copy of this Agreement (as so supplemented) on file with
such transfer agent.
4.11 Notices. No later than the fifth Business Day
-------
after the end of the Exercise Period, the Rights Agent will
notify the Company and MusicCo of the following (as to each
Holder individually and as to all Holders in the aggregate): (i)
the number of Rights validly exercised in the Exercise Period;
(ii) the number of shares of MusicCo Series A Common Stock
surrendered upon such exercise; and (iii) as to each Distributed
Entity Component of the Rights that has been validly exercised,
the number of shares of the applicable Distributed Entity Stock
surrendered upon such exercise. Subject to Sections 4.13 and
4.14, on the later of (x) the tenth Business Day after the end of
the Exercise Period and (y) the fifth Business Day after receipt
of such notice from the Rights Agent, the Company shall deposit
with the Rights Agent the amount of cash or number of TCI Series
A Shares required to make full payment of the purchase price for
the shares of MusicCo Series A Common Stock and Distributed
Entity Stock being purchased by it pursuant to such exercised
Rights. In the case of payments in TCI Series A Shares, the
certificates evidencing the same shall be registered in the names
and denominations specified by the Rights Agent in its notice to
the Company. The Company shall not be required to issue
fractional TCI Series A Shares to any Holder after taking into
account all Rights exercised by such Holder. In lieu of
fractional TCI Series A Shares, the Company shall make payments
in cash for the value, based upon the Current Market Price, of
such fractional shares. The Rights Agent will promptly mail to
each Holder the purchase price for the shares of MusicCo Series
A Common Stock and Distributed Entity Stock sold by him. Payment
of any cash purchase price and any cash in lieu of fractional
interests shall be made by check.
<PAGE>
4.12 Payment. If the Company has elected in accordance
-------
with Section 4.04 to offer a combination of cash and TCI Series A
Shares in consideration for the sale of MusicCo Series A Common
Stock upon the valid exercise of the MusicCo Component of the
Rights during the Exercise Period, the Rights Agent shall pay or
deliver such consideration to all Holders who have validly
exercised the MusicCo Component of the Rights during the Exercise
Period pro rata with respect to the respective aggregate numbers
of Rights the MusicCo Component of which has been so exercised by
them (subject to rounding or other adjustments made by the Rights
Agent and the payment of cash as provided in Section 4.11 in lieu
of the issuance of fractional TCI Series A Shares). Similarly,
if the Company has elected in accordance with Section 4.04 to
offer a combination of cash and TCI Series A Shares in
consideration for the sale of shares of Distributed Entity Stock
upon the valid exercise of a Distributed Entity Component of the
Rights during the Exercise Period, the Rights Agent shall pay or
deliver such consideration to all Holders who have validly
exercised such Distributed Entity Component during such Exercise
Period pro rata with respect to the respective aggregate numbers
of shares of such Distributed Entity Stock surrendered by them
upon such exercise (subject to rounding or other adjustments made
by the Rights Agent and the payment of cash as provided in
Section 4.11 in lieu of the issuance of fractional TCI Series A
Shares).
4.13 Payment Deferral. Notwithstanding Section 4.17,
----------------
if the Exercise Period for each Right is accelerated due to a
proposed Significant Corporate Transaction or Change in Control
Transaction and such transaction has not been consummated prior
to the expiration of such accelerated Exercise Period, the
Company may defer depositing the cash or TCI Series A Shares
required to effect the purchase of the MusicCo Series A Common
Stock and Distributed Entity Stock surrendered upon exercise of
the Rights, pending receipt of an officers' certificate in
accordance with this Section 4.13. Notwithstanding anything to
the contrary contained herein, any such deferral of the purchase
of the surrendered shares of MusicCo Series A Common Stock and
Distributed Entity Stock shall be conducted in compliance with
all applicable laws, including federal and state securities laws.
Not less than 10 Business Days prior to the effective date of the
proposed Significant Corporate Transaction, unless a shorter
period is acceptable to the Company, the Applicable Entity shall
deliver an officers' certificate (an "Applicable Entity Officers'
Certificate") signed by its Chairman of the Board and its
President to the Company and the Rights Agent, certifying that
all conditions precedent to the consummation of the Significant
Corporate Transaction have been satisfied or waived and setting
forth the effective date of the proposed Significant Corporate
Transaction. Not less than 10 Business Days prior to the
effective date of the proposed Change in Control Transaction, the
Company shall deliver to the Rights Agent an officer's
certificate (a "Company Officer's Certificate") signed by its
Chairman of the Board, President or a Vice President, certifying
that all conditions precedent to the consummation of the Change
in Control Transaction have been satisfied or waived and setting
forth the effective date of the proposed Change in Control
Transaction. Promptly following receipt by the Company of an
Applicable Entity Officers' Certificate or the delivery by the
Company of a Company Officer's Certificate, as the case may be,
but in no event later than the effective date specified therein,
the Company shall make the deposit of cash or TCI Series A Shares
with the Rights Agent required by Section 4.11. Promptly
following such deposit, the Rights Agent shall distribute the
cash or TCI Series A Shares so deposited to the Persons entitled
to the same as provided in Section 4.11, and deliver the
certificates for the MusicCo Common
<PAGE>
Stock and Distributed Entity Stock to the Company as provided
in Section 4.08. If the Board of Directors of the Applicable
Entity determines to terminate or abandon the proposed
Significant Corporate Transaction or that such transaction
will otherwise not be consummated, the Applicable Entity
shall promptly following such determination deliver to the
Company and the Rights Agent an Applicable Entity Officers'
Certificate to such effect. If the proposed Change in
Control Transaction is terminated or abandoned or the Company
otherwise determines that such proposed transaction will not be
consummated, then the Company shall promptly so notify the Rights
Agent by delivering to the Rights Agent a Company Officer's
Certificate to such effect. Promptly following receipt by the
Rights Agent of such Applicable Entity Officers' Certificate or
Company Officer's Certificate, as the case may be, the Rights
Agent shall mail to each Holder by first class mail the
certificates evidencing the shares of MusicCo Series A Common
Stock, the shares of Distributed Entity Stock and the Rights
surrendered by such Holder to the Rights Agent in connection with
such accelerated Exercise Period and, if the Company has made a
deposit of cash or TCI Series A Shares with the Rights Agent in
connection with such accelerated Exercise Period, the Rights
Agent shall deliver the cash or TCI Series A Shares so deposited
to the Company.
4.14 Abandonment or Termination. Notwithstanding
----------------------------
Section 4.11, if the Exercise Period for each Right is
accelerated and the proposed transaction which resulted in the
acceleration is abandoned or terminated on or before the last day
(the "Deposit Date") on which the Company is required to make the
deposit pursuant to Section 4.11 of cash or TCI Series A Shares
to effect the purchase of shares of MusicCo Series A Common
Stock and Distributed Entity Stock surrendered in connection with
such accelerated Exercise Period, or the Company otherwise
determines in good faith on or before the Deposit Date that such
proposed transaction will not be consummated, then the Company
shall so notify the Rights Agent by delivering to the Rights
Agent an officer's certificate to such effect signed by its
Chairman of the Board, President or a Vice President promptly
following the termination or abandonment of such proposed
transaction or such determination by the Company, but in no event
later than the fifth Business Day following the Deposit Date.
Upon delivery of such officer's certificate, the Company shall be
relieved of its obligation to make the deposit otherwise required
by Section 4.11 or, if such deposit has theretofore been made,
shall be entitled to the return thereof. Promptly following
receipt of such officer's certificate, the Rights Agent shall
mail to each Holder the certificates evidencing the shares of
MusicCo Series A Common Stock, the shares of Distributed Entity
Stock and the Rights surrendered by such Holder to the Rights
Agent in connection with such accelerated Exercise Period and, if
the Company has made a deposit of cash or TCI Series A Shares
with the Rights Agent in connection with such accelerated
Exercise Period, the Rights Agent shall deliver the cash or TCI
Series A Shares so deposited to the Company.
4.15 Certain Covenants of the Company and Each
-----------------------------------------------
Applicable Entity. If the Company chooses to issue TCI Series A
- -----------------
Shares upon the exercise of any Component of the Rights, the
Company will pay all documentary stamp and other taxes, if any,
attributable to the exercise of the Rights, other than any such
taxes payable by the Holder as provided in Section 4.08. Each of
MusicCo and each Distributed Entity shall cooperate with and
assist the Company in the preparation and filing of all
applications, reports, statements, notices and other documents or
forms with, and use its reasonable best efforts to obtain and to
assist the Company
<PAGE>
in obtaining all consents and approvals of or waivers from,
all governmental and regulatory agencies and authorities
having jurisdiction (including, without limitation,
the Securities and Exchange Commission, Department of Justice and
Federal Trade Commission) and shall take such other actions,
including supplying all information necessary for any required
filing, as the Company may reasonably request, all as and to the
extent necessary or advisable in order for the Company to comply
with applicable laws, rules, regulations, orders and decrees in
connection with the performance of its obligations under this
Agreement and the Rights.
4.16 Consideration Amount. The Consideration Amount
--------------------
Per MusicCo Share shall be equal to the difference between
(i) $4.00 and (ii) the sum of the aggregate per share amount of
any MusicCo Dividends and the Aggregate Consideration Amount Per
Distributed Entity Share. The Consideration Amount Per
Distributed Entity Share shall be equal to the Per Share Value of
the applicable Distributed Entity as of the Valuation Date. The
Fair Market Value of each Distributed Entity as of such date
shall be determined in good faith by the Board of Directors of
MusicCo. Promptly following the determination of the Fair Market
Value of each Applicable Entity, MusicCo shall deliver to the
Company, with a copy to the Rights Agent, an officers'
certificate signed by the Chairman of the Board and the President
of MusicCo, certifying the Per Share Value of each Applicable
Entity and setting forth, in reasonable detail, the computation
thereof. Each Distributed Entity, by its execution of a
supplement to this Agreement as contemplated by Section 6.07,
covenants and agrees to provide MusicCo with such information
with respect to the Capital Stock of such Distributed Entity as
may be necessary to the computation of the Per Share Value of
such Distributed Entity. Anything in this Agreement to the
contrary notwithstanding, in no event will the sum of the
Consideration Amount Per MusicCo Share, the aggregate amount of
any MusicCo Dividends, and the Aggregate Consideration Amount Per
Distributed Entity Share for each Distributed Entity, exceed
$4.00.
4.17 Acceleration of Exercise Period. Subject to the
-------------------------------
last sentence of Section 4.01, if prior to the [anniversary date
of closing] (i) a Significant Corporate Transaction is proposed,
(ii) the Company proposes to make a disposition of all or any
number of the shares of Capital Stock of MusicCo beneficially
owned by it and as a result of such disposition the Company will
cease to be the beneficial owner of at least 30% (in voting
power) of the shares of Capital Stock of MusicCo then outstanding
(a "Change in Control Transaction"), (iii) a Bankruptcy Event
occurs or (iv) the Company is dissolved or liquidated, then the
Exercise Period for each Right shall be accelerated as provided
herein and the Company shall be obligated to honor all Rights
validly exercised in accordance with Section 4.08 prior to the
expiration of such accelerated Exercise Period.
4.18 Consideration on Acceleration. For purposes of
-----------------------------
determining the Consideration Amount Per MusicCo Share and the
Consideration Amount Per Distributed Entity Share payable in
connection with the accelerated Exercise Period, the applicable
Valuation Date shall be the last day of the fiscal quarter of
MusicCo immediately preceding the fiscal quarter in which (i) in
the case of a Significant Corporate Transaction, the agreement of
merger or consolidation is executed, or the vote of the Board of
Directors of the Applicable Entity to dissolve or liquidate the
Applicable Entity is taken or (ii) in the case of a Change in
Control Transaction, a binding agreement to make the related
disposition is entered into by the Company
<PAGE>
or, if such disposition is to be effected pursuant to a
dividend or distribution to the stockholders of the Company or
otherwise than pursuant to a binding agreement, the vote of
the Board of Directors of the Company approving the making of
such dividend, distribution or other disposition is taken, or
(iii) in the case of a Bankruptcy Event, the Bankruptcy Event
occurs, or (iv) in the case of the dissolution or liquidation
of the Company, the vote of the Board of Directors of the Company
to dissolve or liquidate the Company is taken. (The execution
of such agreement by the Applicable Entity or the taking of such
vote by the Board of Directors of the Applicable Entity in
connection with a Significant Corporate Transaction, the giving
to the Acceptance Notice by MusicCo in the case of a MusicCo
Purchase Transaction, the execution of such binding agreement
Company or the taking of such vote by the Board of the Company
in connection with a Change in Control Transaction, the
occurrence of a Bankruptcy Event or the taking of such vote by
the Board of Directors of the Company to dissolve or liquidate
the Company, are each referred to as a "Triggering Event").
Promptly following the occurrence of a Triggering Event, the
applicable of MusicCo or the Company shall give written notice
thereof to the other (or in the case of a Triggering Event
for a Significant Corporate Transaction with respect to
which a Distributed Entity is the Applicable Entity,
such Applicable Entity shall give such notice to the Company and
MusicCo), with a copy to the Rights Agent. Publication of the
Notice contemplated by Section 4.07 shall be made as promptly as
practicable (in light of applicable requirements of federal and
state securities laws and regulations) following the final
determination of the Consideration Amount Per MusicCo Share and
the Consideration Amount Per Distributed Entity Share. In the
case of a Significant Corporate Transaction, the Applicable
Entity shall furnish the Rights Agent with such number of copies
as the Rights Agent may request of the proxy or information
statement and other material to be delivered to the Applicable
Entity's stockholders in connection with the stockholders'
meeting to approve the Significant Corporate Transaction. The
Rights Agent shall distribute such material to the registered
Holders of the Certificates by first class mail, postage prepaid,
at their respective addresses as they appear on the Register of
Holders prior to or contemporaneously with the publication of the
Notice, and such publication shall be delayed, if necessary,
until such material has been delivered to the Rights Agent.
4.19 Exercise Period on Acceleration. The accelerated
--------------------------------
Exercise Period shall commence at the opening of business on not
earlier than the 30th day, nor later than the 60th day, following
the publication of the Notice, and shall expire at the close of
business, ___________ time, on the 20th Business Day after the
commencement thereof (or such later date as may be required by
applicable Federal or state securities laws and regulations).
Subject to Section 4.20 below, all Rights (and fractions thereof)
(including all Components of such Rights (and of all fractional
Rights)) not validly exercised prior to the expiration of such
accelerated Exercise Period shall thereupon expire and cease to
be exercisable thereafter.
4.20 Rescission. If a proposed Significant Corporate
----------
Transaction or Change in Control Transaction that causes an
accelerated Exercise Period is terminated or abandoned before
consummation or the Company otherwise determines in good faith on
or before the Deposit Date that such proposed transaction will
not be consummated, then in any such event such acceleration of
the Exercise Period and all exercises of Rights during such
accelerated Exercise Period shall, without any requirement of
action by any party, be deemed rescinded and annulled,
<PAGE>
and any Rights that have expired by virtue of the failure of the
Holder to validly exercise the same prior to the expiration of such
accelerated Exercise Period (or by virtue of the partial exercise
thereof during such accelerated Exercise Period) shall thereupon
be reinstated. The Rights Agent, upon receipt of the officers'
certificate contemplated by the applicable of Section 4.13 or
4.14, shall make the distributions to the Holders and the Company
required by the last sentence of the applicable of such Sections.
ARTICLE V
PURCHASE AND CANCELLATION OF RIGHTS
5.01 Purchase of Rights by the Company. The Company
---------------------------------
shall have the right to purchase or otherwise acquire Rights by
purchasing the associated MusicCo Series A Common Stock or
Distributed Entity Stock at such times, in such manner and for
such consideration as it may determine.
ARTICLE VI
ADJUSTMENT OF RIGHTS
6.01 Adjustment of Rights. The number of Rights
----------------------
represented by each Certificate shall be subject to adjustment
from time to time upon the happening of certain events as
hereinafter provided.
6.02 Mechanical Adjustment. If MusicCo shall: (a) pay
---------------------
a dividend or make a distribution on the outstanding shares of
MusicCo Series A Common Stock in shares of MusicCo Common Stock,
(b) subdivide the outstanding shares of MusicCo Series A Common
Stock into a larger number of shares, (c) combine the outstanding
shares of MusicCo Series A Common Stock into a smaller number of
shares or (d) issue any shares of its Capital Stock by
reclassification of the outstanding shares of MusicCo Common
Stock (including any such reclassification in connection with a
consolidation or merger in which MusicCo is the surviving
corporation), the number of Rights outstanding immediately prior
to the date such dividend or distribution is paid or made or the
effective date of such subdivision, combination or
reclassification shall be adjusted to the aggregate number of
shares of MusicCo Series A Common Stock (or shares of MusicCo's
Capital Stock issued in such reclassification) outstanding
immediately after the taking of such action. Such adjustment
shall be made successively whenever any event listed above shall
occur. If a reclassification described in clause (d) above
occurs, each reference in this Agreement and the Certificates to
a share of MusicCo Series A Common Stock shall be deemed to
refer to the number and kind of shares of MusicCo's Capital Stock
that a Holder of one share of MusicCo Series A Common Stock
would hold immediately following such reclassification. If
MusicCo takes any action requiring an adjustment to the number of
Rights prior to payment in full of the Consideration Amount Per
MusicCo Share upon exercise thereof, such Consideration Amount
Per MusicCo Share shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of
<PAGE>
Rights outstanding immediately prior to such action and the
denominator of which is the number of Rights outstanding as a
result of the taking of such action.
6.03 Adjustment for Distributions of MusicCo
----------------------------------------------
Securities. If (i) MusicCo makes a distribution to all Holders
- ----------
of shares of MusicCo Series A Common Stock of shares of the
Capital Stock of any entity or of rights or warrants entitling
them (for a period expiring within 45 days after the effective
date of such distribution) to purchase shares of the Capital
Stock of any entity and (ii) the Distribution Value of such
distribution represents 10% or more of the Undistributed Value of
MusicCo immediately prior to such distribution, then the
provisions of this Section 6.03 shall apply to such distribution
(a "Subject Distribution"). The determination of whether a
distribution meets each of the criteria referred to in the
immediately preceding sentence and is therefore a Subject
Distribution shall be made by the Board of Directors of MusicCo
(whose good faith determination will be conclusive). In making
any determination of Fair Market Value for purposes of
determining the Distribution Value of such distribution and the
Undistributed Value of MusicCo, the Board of Directors of MusicCo
shall apply the same criteria as are applicable to a
determination of the Fair Market Value of MusicCo and each
Distributed Entity in accordance with Section 4.16.
6.04 Subject Distribution Adjustment. If MusicCo makes
-------------------------------
a Subject Distribution, then following the effective date
referred to below, each whole Right shall represent, in addition
to the right to sell to the Company one share of MusicCo Series
A Common Stock (the "MusicCo Component"), the right (the
"Distributed Entity Component") to sell to the Company at the
time, for the consideration and subject to the terms and
conditions set forth in this Agreement, that number of shares of
Distributed Entity Stock obtained by multiplying one by a
fraction, the numerator of which is the aggregate number of
shares of Distributed Entity Stock distributed in the Subject
Distribution or sold pursuant to the rights or warrants
distributed in the Subject Distribution, and the denominator of
which is the aggregate number of shares of MusicCo Series A
Common Stock outstanding on the record date for such
distribution. The number of shares of Distributed Entity Stock
(or fraction thereof) to which the Distributed Entity Component
of each whole Right applies (the "Underlying Number") shall be
determined as of and be effective (retroactively in the case of a
distribution that pursuant to Section 6.03 is subsequently deemed
to be a Subject Distribution) as of the effective date of the
distribution in the case of a distribution of shares of
Distributed Entity Stock, and shall be determined as of and be
effective (retroactively in the case of a distribution that
pursuant to Section 6.03 is subsequently deemed to be a Subject
Distribution) as of the day following the distribution of rights
or warrants in the case of a distribution of rights or warrants
to purchase Distributed Entity Stock (the applicable of such
dates herein referred to as the "effective date"). In the case
of fractional Rights, the Underlying Number for the Distributed
Entity Component of such fractional Right shall equal the same
fraction of the Underlying Number for the Distributed Entity
Component of a whole Right. The foregoing provisions shall apply
to each Subject Distribution and a new Distributed Component will
be created with respect to the Distributed Entity Stock
distributed in each such Subject Distribution. No Component of a
Right shall be separable from the Components of such Right.
<PAGE>
6.05 Adjustment to Underlying Number. If MusicCo takes
-------------------------------
any action requiring an adjustment to the number of Rights
pursuant to Section 6.02 at a time when each Right has one or
more Distributed Entity Components, then the Underlying Number
for each Distributed Entity Component of each Right after giving
effect to such adjustment to the number of Rights shall equal the
number obtained by multiplying the Underlying Number for such
Distributed Entity Component immediately before giving effect to
such adjustment by a fraction the numerator of which is one and
the denominator of which is the number (or fraction) to which one
whole Right is adjusted as a result of the taking of such action
by MusicCo.
6.06 Distributed Entity Adjustment. If a Distributed
-----------------------------
Entity shall (i) pay a dividend or make a distribution on the
outstanding shares of Distributed Entity Stock in shares of
Distributed Entity Stock, (ii) subdivide the outstanding shares
of Distributed Entity Stock into a larger number of shares, (iii)
combine the outstanding shares of Distributed Entity Stock into a
smaller number of shares or (iv) issue any shares of its Capital
Stock by reclassification of the outstanding shares of
Distributed Entity Stock (including any such reclassification in
connection with a merger or consolidation in which the
Distributed Entity is the surviving corporation), then the
Underlying Number for the applicable Distributed Entity Component
of each Right immediately prior to the date such dividend or
distribution is paid or made or the effective date of such
subdivision, combination or reclassification shall be adjusted
(to the nearest one-hundredth of a share), effective immediately
after the applicable of such dates, by multiplying the Underlying
Number for such Distributed Entity Component immediately prior to
such adjustment by a fraction the numerator of which is the
aggregate number of shares of Distributed Entity Stock (or shares
of the Distributed Entity's Capital Stock issued in such
reclassification) outstanding immediately after the taking of
such action, and the denominator of which is the aggregate number
of shares of Distributed Entity Stock outstanding immediately
prior to the taking of such action. Such adjustment to the
Underlying Number shall be made successively whenever any event
listed above shall occur. If a reclassification described in
clause (iv) above occurs, each reference in this Agreement to a
share of Distributed Entity Stock shall be deemed to refer to the
number and kind of shares of the Capital Stock of the Distributed
Entity that a holder of one share of Distributed Entity Stock
would hold immediately following such reclassification. If a
Distributed Entity takes any action requiring an adjustment to
the Underlying Number for the applicable Distributed Entity
Component of each Right prior to payment in full of the
Consideration Amount Per Distributed Entity Share upon exercise
thereof, such Consideration Amount Per Distributed Entity Share
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the Underlying Number for such Distributed
Entity Component immediately before giving effect to such
adjustment and the denominator of which is the Underlying Number
for such Distributed Entity Component immediately after giving
effect to such adjustment.
6.07 Distributions by Distributed Entity. If (i) a
-----------------------------------
Distributed Entity makes a distribution to all holders of shares
of Distributed Entity Stock of shares of the Capital Stock of any
entity or of rights or warrants entitling them (for a period
expiring within 45 days after the effective date of such
distribution) to purchase shares of the Capital Stock of any
entity and (ii) the Distribution Value of such distribution
represents 10% or more of the Undistributed Value of MusicCo
immediately prior to such distribution, then such distribution
shall be a Subject
<PAGE>
Distribution, the entity the shares of Capital Stock of which
are distributed or sold in such Subject Distribution shall
be a Distributed Entity, and the class of Capital Stock of
the Distributed Entity that is distributed or sold in the
Subject Distribution shall be Distributed Entity Stock, with the
same effect for all purposes of this Agreement as if MusicCo had
made such distribution, except that the Underlying Number for the
Distributed Entity Component of each whole Right created pursuant
to Section 6.04 by virtue of such Subject Distribution shall
be the number obtained by multiplying one by a fraction the
numerator of which is the aggregate number of shares of Capital
Stock of such entity distributed or sold in the Subject
Distribution and the denominator of which is the aggregate
number of shares of Distributed Entity Stock of the Distributed
Entity making the Subject Distribution outstanding on the record
date for such distribution. The determination of whether a
distribution meets each of the criteria referred to in the
immediately preceding sentence and is therefore a Subject
Distribution shall be made by the Board of Directors of MusicCo
(whose good faith determination will be conclusive). The
Distribution Value of any such distribution shall be made in good
faith by the Board of Directors of MusicCo. If MusicCo or any
Distributed Entity makes a distribution which individually is not
a Subject Distribution solely by virtue of clause (ii) of the
first sentence of Section 6.03 or this Section 6.07, but would be
a Subject Distribution if aggregated with any other distribution
or distributions previously made by MusicCo or any Distributed
Entity that also were not Subject Distributions when made solely
by virtue of that clause (ii) (and were not thereafter deemed to
be Subject Distributions pursuant to this sentence), then upon
the making of the later of such distributions such distributions
shall be deemed to be a single Subject Distribution. The
determination of whether any combination of distributions would
constitute a Subject Distribution pursuant to the immediately
preceding sentence shall be made by the Board of Directors of
MusicCo (whose good faith determination will be conclusive) on
the basis of the Distribution Values of such distributions and
the Undistributed Value of MusicCo calculated in each case
immediately prior to the time the first of such distributions was
made.
6.08 MusicCo Covenants. MusicCo covenants and agrees
------------------
with the Company and the Rights Agent and, in the case of clause
(i) and clause (iv) solely with respect to the obligations
relating to clause (i), below, for the benefit of the Holders,
as follows:
(i) neither it nor any Distributed Entity will
distribute to all Holders of MusicCo Series A Common
Stock rights or warrants to purchase the Capital Stock
of any entity that would expire more than 45 days after
the effective date of such distribution;
(ii) neither it nor any Distributed Entity will
make a distribution to all Holders of any class of its
Capital Stock of any entity or of rights or warrants to
purchase the Capital Stock of any entity at any time
during the period (or the record date or effective date
of which is at any time during the period) commencing
with the Exercise Period and ending with the date on
which the Company (or its assignee) becomes the record
owner of the shares surrendered in such Exercise
Period, nor will it or any Distributed Entity, without
the prior written consent of the Company, make, pay or
declare to all Holders of any class of its Capital
Stock any other dividend or distribution or take any
other action at any time during the period (or the
record date or effective date of which is at any
<PAGE>
time during the period) commencing with the Exercise
Period and ending with the date on which the Company (or
its assignee) becomes the record owner of the shares
surrendered in such Exercise Period, the reasonably
foreseeable effect of which would be to reduce or
otherwise adversely affect the Fair Market Value or the
Per Share Value of MusicCo or such Distributed Entity,
other than the actions specifically enumerated in
Sections 6.02 through Section 6.06 for which an express
adjustment to the Consideration Amount Per MusicCo
Share and Consideration Amount Per Distributed Entity
Share payable by the Company is provided;
(iii) without the prior written consent of the
Company, neither MusicCo nor any Distributed Entity
will, at any time during the term of this Agreement,
take or recommend to their respective shareholders any
action the reasonably foreseeable effect of which would
be to adversely affect the relative rights, powers or
preferences of the shares of MusicCo Common Stock or
Distributed Entity Stock to be acquired by the Company
upon the exercise of Rights or the exercise by the
Company of such rights, powers and preferences and of
full rights of ownership of such shares; and
(iv) prior to making any distribution of the
Capital Stock of any entity or of rights or warrants
to purchase the Capital Stock of any entity, the
Applicable Entity making such distribution will cause
such entity to execute and deliver a supplement to this
Agreement pursuant to which such entity shall accept
and agree to be bound by and comply with the provisions
of this Agreement that relate to such entity (or will
relate to such entity if it is thereafter deemed to be
a Distributed Entity pursuant to this Article VI) and
shall agree to cooperate with the Board of Directors of
MusicCo and provide such Board with such information as
it may from time to time reasonably request in
connection with its determination of the Distributed
Value of any distribution and the Undistributed Value
of MusicCo from time to time in accordance with this
Article VI and the definition of Significant Corporate
Transaction.
6.09 Notice of Adjustment. Whenever MusicCo takes any
--------------------
action that would require an adjustment to the number of Rights
represented by each Certificate (and the consequent adjustment of
the Underlying Number for each Distributed Entity Component, if
any) or the Consideration Amount Per MusicCo Share, or that would
require the creation of a Distributed Entity Component, and
whenever any Distributed Entity takes any action that would
require an adjustment to the Underlying Number of the applicable
Distributed Entity Component or the Consideration Amount Per
Distributed Entity Share, or that would require the creation of a
Distributed Entity Component, the Applicable Entity shall
promptly notify the Company and MusicCo in writing (with a copy
to the Rights Agent) of the action taken and of all information
relevant to the computation pursuant to this Article VI of the
required adjustments to the number of Rights, the Underlying
Number, the Consideration Amount Per MusicCo Share or the
Consideration Amount Per Distributed Entity Share, as the case
may be, and in the case of the creation of a Distributed Entity
Component, all information relevant to the computation of the
<PAGE>
Underlying Number of such Distributed Entity Component. Promptly
thereafter, the Company shall deliver to the Rights Agent a
certificate of a firm of independent public accountants (who may
be the regular accountants employed by MusicCo or the Company)
setting forth, as applicable:
(i) If an action requiring an adjustment to the
number of Rights is taken, the number of Rights
represented by a Certificate before and after such
adjustment and, if applicable, the Consideration Amount
Per MusicCo Share and the Underlying Number for each
Distributed Entity Component of a Right, in each case
before and after such adjustment.
(ii) If an action requiring the creation of a
Distributed Entity Component is taken, the Underlying
Number for the Distributed Entity Component of each
Right so created.
(iii) If an action requiring an adjustment to
the Underlying Number of a Distributed Entity Component
is taken, the Underlying Number of such Distributed
Entity Component before and after such adjustment and,
if applicable, the Consideration Amount Per Distributed
Entity Share before and after such adjustment. Such
certificate shall also contain a brief statement of the
facts requiring such adjustment and the computation by
which such adjustment was made, or, if applicable, the
facts requiring the creation of such Distributed Entity
Component and the computation of such Underlying
Number. The Company shall also cause the Rights Agent
to send promptly by first class mail, postage prepaid,
to each Holder notice of such adjustment or adjustments
or of the creation of such Distributed Entity
Component. The certificate delivered to the Rights
Agent pursuant to this Section 6.09 shall be conclusive
evidence of the correctness of the matters set forth
therein in the absence of manifest error. The Rights
Agent shall be entitled to rely on such certificate and
shall be under no duty or responsibility with respect
to any such certificate, except to exhibit the same,
from time to time, to any Holder desiring an inspection
thereof during regular business hours. The Rights
Agent shall not at any time be under any duty or
responsibility to any Holder to determine whether any
facts exist that may require any adjustment or the
creation of any Distributed Entity Component hereunder,
or with respect to the nature or extent of any such
adjustment when made or of any such Distributed Entity
Component when created, or with respect to the method
employed in making such adjustment or calculating the
Underlying Number of such Distributed Entity Component.
6.10 Statement on Certificates. Irrespective of any
-------------------------
adjustments in the number of Rights represented by each Certifi
cate or the creation of any Distributed Entity Component or any
adjustments to the Underlying Number thereof, Certificates
theretofore or thereafter issued may continue to express solely
the number of Rights as are stated in the Certificates initially
issuable pursuant to this Agreement.
<PAGE>
6.11 No Rights as Stockholders. Nothing contained in
-------------------------
this Agreement or in the Certificates shall be construed as
conferring upon the Holders or their transferees any rights
whatsoever as stockholders of MusicCo or the Company or any
Distributed Entity.
ARTICLE VII
RIGHTS AGENT
7.01 Inspection of Rights Agreement. The Rights Agent
------------------------------
shall keep copies of this Agreement and any notices given or
received hereunder available for inspection by the Holders during
normal business hours at its Office. The Company shall supply
the Rights Agent from time to time with such numbers of copies of
this Agreement as the Rights Agent may request.
7.02 Merger or Consolidation or Change of Name of
------------------------------------------------
Rights Agent. Any corporation into which the Rights Agent may be
- ------------
merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights
Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Rights Agent, shall be the
successor to the Rights Agent hereunder without the execution,
filing or delivery of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would
be eligible for appointment as a successor Rights Agent under the
provision of Section 7.16 hereof. If at the time such successor
to the Rights Agent shall succeed to the agency created by this
Agreement, any of the Certificates shall have been countersigned
but not delivered, any such successor to the Rights Agent may
adopt the countersignature of the original Rights Agent and
deliver such Certificates so countersigned, and if at any time
any of the Certificates shall not have been countersigned, any
successor to the Rights Agent may countersign such Certificates
either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such
Certificates shall have the full force provided in such
Certificates and in this Agreement. If at any time the name of
the Rights Agent shall be changed and at such time any of the
Certificates shall have been countersigned but not delivered, the
Rights Agent may adopt the countersignatures under its prior name
and deliver such Certificates so countersigned; and if at any
time any of the Certificates shall not have been countersigned,
the Rights Agent may countersign such Certificates either in its
prior name or in its changed name; and in all such cases such
Certificates shall have the full force provided in the
Certificates and in this Agreement.
7.03 Concerning the Rights Agent. The Rights Agent
---------------------------
undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, by all of which the
Company and the Holders, by their acceptance of Certificates
shall be bound.
7.04 Correctness of Statements. The statements con
-------------------------
tained herein and in the Certificates shall be taken as state
ments, of the Company, and the Rights Agent assumes no
responsibility for the correctness of any of the same except such
as describe the Rights Agent or actions taken by it. The Rights
Agent assumes no responsibility with respect to the distribution
of the Certificates except as herein otherwise provided.
<PAGE>
7.05 Breach of Covenants. The Rights Agent shall not
-------------------
be responsible for any failure of the Company, MusicCo or any
Distributed Entity to comply with any of the covenants or
conditions contained in this Agreement or in the Certificates to
be complied with or satisfied by the Company, MusicCo or any
Distributed Entity.
7.06 Performance of Duties. The Rights Agent may
----------------------
execute and exercise any of the rights or powers hereby vested in
it or perform any duty hereunder either itself or by or through
its attorneys, agents and employees.
7.07 Reliance on Counsel. The Rights Agent may consult
-------------------
at any time with legal counsel reasonably satisfactory to it (who
may be counsel for the Company) and the Rights Agent shall incur
no liability or responsibility to the Company or to any Holder in
respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of
such counsel.
7.08 Proof of Actions Taken. Whenever in the perfor
----------------------
mance of its duties under this Agreement the Rights Agent shall
deem it necessary or desirable that any fact or matter be proved
or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed
conclusively to be proved and established by a certificate signed
by the Chairman of the Board, the President or a Vice President
of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for
any action taken, suffered or omitted in good faith by it under
the provisions of this Agreement in reliance upon such
certificate.
7.09 Compensation, Indemnity and Reimbursement. The
-----------------------------------------
Company agrees to pay the Rights Agent reasonable compensation
for all services rendered by the Rights Agent in the performance
of its duties under this Agreement, to reimburse the Rights Agent
for all expenses, taxes and governmental charges and other
charges of any kind and nature incurred by the Rights Agent in
the performance of its duties under this Agreement, and to indem
nify the Rights Agent and save it harmless against any and all
claims and liabilities, including judgments, costs and counsel
fees, for anything done or omitted by the Rights Agent in the
performance of its duties under this Agreement except as a result
of the Rights Agent's negligence or bad faith.
7.10 Legal Proceedings. The Rights Agent shall be
------------------
under no obligation to institute any action, suit or legal pro
ceeding or to take any other action likely to involve expense
unless the Company shall furnish the Rights Agent with reasonable
security and indemnity for any costs and expenses that may be
incurred in taking such action, but this provision shall not
affect the power of the Rights Agent to take such action as the
Rights Agent may consider proper, whether with or without any
such security or indemnity. All rights of action under this
Agreement or under any of the Rights may be enforced by the
Rights Agent without the possession of any of the Certificates or
the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by
the Rights Agent shall be brought in its name as Rights Agent.
<PAGE>
7.11 Other Transactions in Securities of Company. The
-------------------------------------------
Rights Agent in its individual and other capacities and any
stockholder, director, officer or employee of the Rights Agent
may buy, sell or deal in any of the Rights, or other securities
of the Company, MusicCo or any Distributed Entity or become
pecuniarily interested in any transaction in which the Company,
MusicCo or any Distributed Entity may be interested or contract
with or lend money to the Company, MusicCo or any Distributed
Entity or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the
Company, MusicCo or any Distributed Entity or for any other
Person, including without limitation, acting as transfer agent or
registrar for other securities issued by the Company, MusicCo or
any Distributed Entity.
7.12 Liability of Rights Agent. The Rights Agent shall
-------------------------
act hereunder solely as agent, and its duties shall be determined
solely by the provisions hereof. The Rights Agent shall not be
liable for anything that it may do or refrain from doing in
connection with this Agreement except for its own negligence or
bad faith.
7.13 Reliance on Documents. The Rights Agent will not
---------------------
incur any liability or responsibility to the Company or to any
Holder for any action taken in reliance on any notice, reso
lution, waiver, consent, order, certificate, or other paper,
document or instrument reasonably believed by it to be genuine
and to have been signed, sent or presented by the proper parties.
7.14 Validity of Agreement. The Rights Agent shall not
---------------------
be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof (except the due
execution and delivery hereof by the Rights Agent) or in respect
of the validity or execution of any Certificate (except its
countersignature thereof).
7.15 Instructions from Company. The Rights Agent is
-------------------------
hereby authorized and directed to accept instructions with res
pect to the performance of its duties hereunder from any two of
the Chairman of the Board, the President or a Vice President of
the Company, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be
liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer or
officers.
7.16 Change of Rights Agent. The Rights Agent may
-----------------------
resign and be discharged from its duties under this Agreement by
giving to the Company 30 days' prior notice in writing. The
Rights Agent may be removed by like notice to the Rights Agent
from the Company and by notice to the Holders. If the Rights
Agent shall resign or be removed or shall otherwise become incap
able of acting, the Company shall appoint a successor to the
Rights Agent. If the Company shall fail to make such appointment
within a period of 30 days after such removal or after it has
been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by any Holder (who
shall with such notice submit his Certificate for inspection by
the Company), then any Holder may apply to any court of competent
jurisdiction for the appointment of a successor to the Rights
Agent. Pending appointment of a successor to the Rights Agent,
the duties of the Rights Agent shall be carried out by the
Company. Any successor Rights Agent, whether appointed by the
Company or such a court, shall be a bank
<PAGE>
or trust company, in good standing, incorporated under the laws
of the United States of America or any state thereof and having
at the time of its appointment as Rights Agent a combined capital
and surplus of at least $50,000,000. After appointment, the
successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the former
Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute
and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Failure to give any notice provided
for in this Section 7.16, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal
of the Rights Agent or the appointment of the successor Rights
Agent, as the case may be. In the event of such resignation
or removal the successor Rights Agent shall mail, by first class
mail, postage prepaid, to each Holder, written notice of such
removal or resignation and the name and address of such successor
Rights Agent.
ARTICLE VIII
MISCELLANEOUS
8.01 Obtaining of Governmental Approvals. The Company
-----------------------------------
will from time to time take all action that may be necessary to
obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities
acts filings under federal and state securities laws and
regulations that may be or become required in connection with the
issuance, sale, transfer and delivery of the Certificates, the
exercise of the Rights and the purchase of MusicCo Common Stock
or Distributed Entity Stock upon exercise of the Rights.
8.02 Notices. Any notice or other communication
-------
required or permitted to be given pursuant to this Agreement to
the Company, MusicCo or the Rights Agent, shall be in writing and
shall be deemed given and received on the date delivered in
person or by telecopy (answer back received) or 24 hours after
delivery to a courier service which guarantees overnight delivery
or five days after the date mailed by registered or certified
mail, return receipt requested, postage prepaid, to the intended
recipient at the address specified below:
If to the Company:
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
Telecopier No.: (303) 488-3217
Attention:
With a copy similarly addressed to the
attention of the Legal Department
<PAGE>
If to MusicCo:
Telecopier No.: ________________________
Attention: President
With a copy similarly addressed to the
attention of the Legal Department
If to the Rights Agent:
Telecopier No.: ________________________
Attention:
Any party may from time to time change the address to
which notices to it are to be given or mailed hereunder by notice
given to the other parties in the manner provided above.
Any notice or other communication pursuant to this
Agreement to the Holders shall be in writing and shall be mailed
first class mail, postage prepaid, or otherwise delivered, to
such Holders at their respective addresses on the Register of
Holders of the Rights Agent.
8.03 Amendments Without Consent of Holders. The
-----------------------------------------
Company and the Rights Agent may from time to time supplement or
amend this Agreement without the approval of any Holder, in order
to cure any ambiguity or to correct or supplement any provision
contained herein that may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard
to matters or questions arising hereunder that the Company and
the Rights Agent may deem necessary or desirable and that shall
not be inconsistent with the provisions of the Rights and that
shall not adversely affect the interests of the Holders.
8.04 Amendments With Consent of Holders. The Company
----------------------------------
and the Rights Agent may from time to time amend or supplement
this Agreement without notice to any Holder but with the written
consent of the Holders (other than the Company or its
subsidiaries, or the officers, directors or affiliates of the
Company or any a its subsidiaries (other than MusicCo)) of a
majority in number of the outstanding Rights. The Holders of a
majority of the outstanding
<PAGE>
Rights may waive compliance by the Company with any provision
of this Agreement without notice to any Holder. Without the
consent of each Holder affected, however, an amendment,
supplement or waiver may not:
(a) alter or modify the terms of the definition
of Early Expiration Event in Section1.01, Sections 2.03, 4.01,
4.16, 4.17, 4.18, 4.19, 4.20, or Article VI hereof in any way
that adversely affects the rights of any Holder in any material
respect; or
(b) waive a default in payment of the purchase
price for the MusicCo Common Stock and Distributed Entity Stock
to be purchased upon exercise of any Rights.
It shall not be necessary for the consent of the Hol
ders under this Section to approve the particular form of any
proposed supplement, but it shall be sufficient if such consent
approves the substance thereof.
8.05 Successors. All covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights
Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
8.06 Applicable Law. This Agreement shall be governed
--------------
by and construed in accordance with the internal laws of the
State of Delaware, without giving effect to principles of
conflict of laws.
8.07 Benefits of this Agreement; Limitation of
-----------------------------------------------
Liability. Nothing in this Agreement shall be construed to give
- ----------
to any Person other than the Company, the Rights Agent and the
Holders any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Rights Agent and the Holders.
Neither MusicCo nor any Distributed Entity, nor any director,
officer, employee or stockholder, as such, of the Company,
MusicCo or any Distributed Entity shall have any liability
hereunder to the Holders for any obligations of the Company under
this Agreement and the Rights or for any claim based on, in
respect of or by reason of such obligations or their creation.
Each Holder by accepting a Certificate waives and releases such
liability, such waiver and release being part of the
consideration for the issue of the Rights.
8.08 Counterparts. This Agreement may be executed in
------------
any number of counterparts and each of such counterpart shall for
all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same
instrument.
8.09 Captions. The captions of the Sections and
--------
subsections of this Agreement have been inserted for convenience
only and shall have no substantive effect.
8.10 Termination. This Agreement shall terminate at
-----------
such time as the outstanding Rights are no longer exercisable
under the terms of this Agreement and the parties to this
Agreement shall have discharged all of their duties hereunder
<PAGE>
8.11 Severability. In case any one or more of the
------------
provisions contained in this Agreement or in the Rights shall for
any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall
not affect any other provisions of this Agreement or of such
Rights, but this Agreement and such Rights shall be construed as
if such invalid or illegal or unenforceable provision had never
been contained herein or therein.
8.12 Calculation of Time Periods. All periods of time
---------------------------
referred to in this Agreement (other than references to Business
Days) shall include all calendar days; provided that if the date
or last date to perform the act or give any notice with respect
to this Agreement shall fall on a day that is not a Business Day,
such act or notice may be timely performed or given if performed
or given on the next succeeding Business Day.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first
above written.
TELE-COMMUNICATIONS, INC.
By:
Name:
Title:
TCI MUSIC, INC.
By:
Name:
Title:
THE BANK OF NEW YORK, as Rights Agent
By:
Name:
Title:
<PAGE>
LOAN AND SECURITY AGREEMENT
BETWEEN
DMX INC.,
a Delaware corporation,
as Borrower
AND
TELE-COMMUNICATIONS, INC.,
a Delaware corporation,
as Lender
DATED AS OF FEBRUARY 6, 1997
$3,500,000
LOAN AND SECURITY AGREEMENT
---------------------------
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 Definitions1
ARTICLE 2 Loan and Note3
2.1 Loan3
2.2 Interest4
(a) Interest4
(b) Computation of Interest4
2.3 Payments4
(a) Payment of Loan4
(b) Optional Prepayment4
(c) Payments5
ARTICLE 3 Conditions Precedent5
3.1 Note5
3.2 Reports, Certificates and Other Information5
3.3 No Existing Default5
<PAGE>
3.4 Representations and Warranties Correct; Compliance
with Covenants5
3.5 No Material Adverse Effect5
3.6 Affiliation Agreement5
3.7 Verification of Use of Proceeds6
ARTICLE 4 Representations and Warranties of Borrower6
4.1 Due Organization6
4.2 Chief Executive Office6
4.3 Corporate Power6
4.4 Authorization6
4.5 Representative Authorization6
4.6 Binding Nature6
4.7 Litigation and Contingent Liabilities6
4.8 No Event of Default7
4.9 Compliance With Laws7
4.10 Absence of Conflicts7
4.11 Accurate and Complete Disclosure7
4.12 Title and Authority7
4.13 Filings7
4.14 No Other Names7
4.15 Priority of Security Interest7
ARTICLE 5 Affirmative Covenants8
5.1 Accounting Records8
5.2 Corporate Existence8
5.3 Qualifications To Do Business8
5.4 Compliance With Laws8
5.5 Taxes and Other Liabilities8
5.6 Conduct of Business8
5.7 Use of Proceeds8
5.8 Records of Accounts Receivable9
5.9 Protection of Security9
5.10 Continuing Obligations of Borrower9
5.11 Indemnification9
ARTICLE 6 Negative Covenants9
6.1 No Merger, etc9
6.2 Type of Business9
6.3 Indebtedness9
6.4 Dividends10
6.5 Loans and Investments10
6.6 Sale of Assets10
6.7 No Other Lien10
<PAGE>
ARTICLE 7 Events of Default10
7.1 Events of Default10
(a) Payments11
(b) Other Covenants11
(c) Warranties11
(d) Bankruptcy11
(e) Cross-Default11
7.2 Acceleration11
7.3 Other Remedies11
ARTICLE 8 Security Interest12
8.1 Grant of Security Interest12
8.2 Collections12
8.3 Remedies upon Default13
8.4 Application of Proceeds14
8.5 Locations of Collateral; Place of Business15
ARTICLE 9 Miscellaneous15
9.1 Successors and Assigns15
9.2 No Implied Waiver15
9.3 Amendments; Waivers16
9.4 Severability16
9.5 Notices16
9.6 Interpretation17
9.7 Governing Law17
9.8 Counterparts17
9.9 Headings17
9.10 Terms17
9.11 Additional Waivers18
(a) Bankruptcy18
(b) Statutes of Limitation.18
(c) Demands for Performance.18
(d) No Set-off.18
9.12 Further Assurances18
9.13 Expenses19
9.14 Jurisdiction and Venue19
9.15 Waiver of Jury Trial19
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit Description
- ----------------- -----------
A Form of Promissory Note
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule Description
- ------------------ -----------
8.5 Location of Collateral
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT is entered into
as of February 6, 1997, between DMX Inc., a Delaware
corporation ("Borrower"), and TELE-COMMUNICATIONS, INC., a
Delaware corporation ("Lender").
RECITAL
Lender desires to lend to Borrower, and Borrower
desires to borrow from Lender, up to $3,500,000 on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
---------
Definitions
-----------
In addition to any terms defined elsewhere in this
Agreement, the following terms have the meanings indicated
for purposes of this Agreement:
<PAGE>
1.1 "Acceleration" means that the Loan (i) shall
not have been paid at the Maturity Date or (ii) shall have
become due and payable prior to the Maturity Date pursuant
to Section 7.2.
1.2 "Advance Date" has the meaning set forth in
Section 2.1.
1.3 "Affiliate" means, with respect to any
Person, any other Person Controlling, Controlled by or under
common Control with such Person; Control for this purpose
means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and
policies of a Person, whether through the ownership of
voting securities or voting interests, by contract or
otherwise.
1.4 "Agreement" means this Loan and Security
Agreement, as amended from time to time.
1.5 "Business Day" means a day when banks in Los
Angeles, California, New York, New York and Denver, Colorado
are open for business.
1.6 "Closing Date" means the date first above
written.
1.7 "Collateral" has the meaning set forth in
Section 8.1.
1.8 "Commitment Period" has the meaning set forth
in Section 2.1(a).
1.9 "Commitment Termination Date" means May 31,
1997.
1.10 "Event of Default" has the meaning set forth
in Article 7.
1.11 "Exchange Act" means the Securities
Exchange Act of 1934, as amended.
1.12 "GAAP" means generally accepted accounting
principles as in effect in the United States, as set forth
in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a
significant segment of the accounting profession, which
principles are applicable to the circumstances as of the
date of determination.
1.13 "Indebtedness" means, with respect to any
Person, without duplication, (a) all obligations of such
Person for borrowed money, or with respect to advances of
any kind (including repurchase obligations), (b) all
obligations of such Person evidenced by bonds, debentures,
notes or similar instruments, (c) all obligations of such
Person under conditional sale or other title retention
agreements relating to property purchased by such Person,
(d) all obligations of such Person incurred or assumed as the
<PAGE>
deferred purchase price of property or services (other
than accounts payable to suppliers incurred in the ordinary
course of business and paid in the ordinary course of
business of such Person), (e) all indebtedness of others
secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person,
whether or not the obligations secured thereby have been
assumed, (f) all capitalized lease obligations of such
Person, (g) all guaranties of such Person and (h) all
obligations of such Person as an account party in respect of
letters of credit and bankers acceptances.
1.14 "Legal Requirements" means all legal
requirements in effect from time to time including all laws,
statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, permits, licenses,
authorizations, certificates, orders, franchises, determina
tions, approvals, notices, demand letters, directions and
requirements of all governments, departments, commissions,
boards, courts, authorities and agencies, foreseen or unfore
seen, ordinary or extraordinary, including any change in any
law, regulation or the interpretation thereof by any
governmental authority (whether or not having the force of
law).
1.15 "Lien" means any lien, security
interest, pledge, mortgage, deed of trust, encumbrance,
right of first refusal or other right to purchase or any
right or claim in the nature of any of the foregoing.
1.16 "Loan" means the loan by Lender to Borrower
of the principal sum of up to $3,500,000 as described in
Section 2.1.
1.17 "Material Adverse Effect" means a material
adverse effect on (i) the business, assets, operations,
prospects or financial condition of Borrower, (ii) the
ability of Borrower to pay the Obligations in accordance
with their terms or (iii) the enforceability of Borrower's
obligations under this Agreement.
1.18 "Maturity" means any date on which the Loan
or any portion thereof, or any interest, fee, expense or
other payment becomes due and payable, whether as stated or
by virtue of mandatory prepayment, by Acceleration or
otherwise.
1.19 "Maturity Date" means June 1, 2000, or such
earlier date as all Outstanding Principal and accrued but
unpaid interest on the Note becomes due.
1.20 "Note" has the meaning set forth in Section
2.1.
1.21 "Obligations" means the Loan and any other
loans, advances, debts, interest, liabilities, obligations,
fees, expenses, covenants and duties owing to Lender by
Borrower, of any kind or nature, present or future, whether
or not evidenced by any note, guaranty or other instrument,
arising under this Agreement.
<PAGE>
1.22 "Outstanding Principal" means, as determined
from time to time, the unpaid principal amount of the Loan
made by Lender to Borrower pursuant to this Agreement.
1.23 "Person" means any human being or any
corporation, partnership, trust, association or other entity
or organization, including any governmental authority.
1.24 "Potential Default" means any event or
condition which with notice, passage of time or a
determination by Lender, or any combination of the
foregoing, would constitute an Event of Default.
ARTICLE 2
---------
Loan and Note
-------------
2.1 Loan.
----
(a) Subject to the terms and conditions of
this Agreement, at any time and from time to time during the
period (the "Commitment Period") beginning on the Closing
Date and ending on the Commitment Termination Date, Lender
shall make the Loan to Borrower in the principal amount of
up to $3,500,000. Borrower shall use the proceeds of the
Loan solely for the purposes described in Section 5.7.
(b) Subject to satisfaction of the
conditions set forth in Article 3, during the Commitment
Period Lender shall disburse proceeds of the Loan to
Borrower on each date (an "Advance Date") that is designated
by Borrower by a notice requesting such disbursement given
to Lender at least three Business Days before such Advance
Date. Such notice shall state the principal amount
requested to be disbursed and must be accompanied by (i) a
certificate of Borrower signed on its behalf by its Chief
Executive Officer or Chief Financial Officer certifying that
the conditions to the obligation of Lender to make such
advance, as set forth in Article 3, will be satisfied as of
the Advance Date and (ii) the items prescribed by Section
3.7 to the extent applicable to such advance.
(c) Borrower's obligation to repay the Loan
shall be evidenced by a promissory note of Borrower (the
"Note") in the form attached as Exhibit A. On the Closing
Date, Borrower shall deliver to Lender the Note, executed by
Borrower.
2.2 Interest.
--------
(a) Interest. The Loan shall bear interest
from the Closing Date on the Outstanding Principal until
such amount is repaid at the rate of 12 1/2% per annum.
Borrower shall, on the Commitment Termination Date, pay
Lender all accrued interest on Outstanding Principal
accrued through such date. Any payment of principal,
interest or any fee, expense or other payment payable
by Borrower hereunder that is not paid
<PAGE>
when due shall bear interest from the due date thereof until
the date such payment is made in full at the rate of 15% per
annum.
(b) Computation of Interest. Interest shall
be computed for the actual number of days elapsed on the
basis of a 360-day year. If the amount of interest payable
on any interest payment date in respect of the immediately
preceding interest computation period would exceed the
maximum amount permitted by applicable Legal Requirements to
be charged by Lender, the amount of interest payable on such
interest payment date shall automatically be reduced to such
maximum permissible amount. If the amount of interest
payable in respect of any interest computation period is
reduced pursuant to the foregoing sentence and the amount of
interest payable for Lender's account in respect of any
subsequent interest computation period would be less than
the maximum amount permitted by applicable Legal
Requirements to be charged by Lender, then the amount of
interest payable in respect of such subsequent interest
computation period shall be automatically increased to such
maximum permissible amount; provided that at no time shall
the aggregate amount by which interest paid has been
increased exceed the aggregate amount by which interest paid
has theretofore been reduced.
2.3 Payments.
--------
(a) Payment of Loan. Borrower (i) shall pay
---------------
interest accrued on the Loan as provided in Section 2.2(a)
and (ii) shall pay the Outstanding Principal as of the
Commitment Termination Date and all interest thereon in 36
equal monthly installments, commencing on July 1, 1997 and
thereafter on the first day of each month until the Maturity
Date. All payments on the Loan shall be applied first to
the payment of unpaid interest and the balance, if any, to
Outstanding Principal. Amounts repaid by Borrower may not
be reborrowed.
(b) Optional Prepayment. Borrower may, at
-------------------
any time, prepay the Loan in whole or in part, without
penalty or premium.
(c) Payments. All payments made to Lender
--------
under this Agreement, whether for interest, principal, fees,
expenses or late charges shall be made in immediately
available funds by wire transfer to the account designated
by Lender or, if no such account is designated, by delivery
to Lender at Lender's address for notices as set forth in
this Agreement and shall be made prior to noon Colorado time
on the date of the scheduled payment. All payments received
after noon Colorado time shall be considered to have been
received on the next Business Day. If the due date of any
payment falls on a day that is not a Business Day, such
payment shall instead be due the next succeeding Business
Day.
ARTICLE 3
---------
Conditions Precedent
--------------------
<PAGE>
The obligation of Lender to make the Loan (or any
advance thereof) shall be subject to the satisfaction, on
the Closing Date and on each Advance Date, as applicable, of
each of the following conditions:
3.1 Note. Lender shall have received the Note
----
duly executed and delivered by Borrower.
3.2 Reports, Certificates and Other Information.
-------------------------------------------
Lender shall have received such instruments or documents as
Lender may reasonably request relating to the existence and
good standing of Borrower, the authority for execution,
delivery and performance of this Agreement or the creation
and perfection of the security interest set forth in Article
8 hereof.
3.3 No Existing Default. No Event of Default or
-------------------
Potential Default shall exist.
3.4 Representations and Warranties Correct;
------------------------------------------
Compliance with Covenants. The representations and
- -----------------------------
warranties set forth in Article 4 shall be true and correct
in all material respects and Borrower shall have complied in
all material respects with its covenants and agreements in
this Agreement.
3.5 No Material Adverse Effect. Since December
--------------------------
31, 1996, no event shall have occurred that has had, or
reasonably could be expected to have, a Material Adverse
Effect, other than with respect to, or as a result of, the
disposition of Borrower's European operations.
3.6 Affiliation Agreement. Borrower and
----------------------
Satellite Services, Inc. shall have entered into an
affiliation agreement (or an amendment to the affiliation
agreement currently in effect) providing, among other
things, for the inclusion of Borrower's music services in
the digital cable television services offered by Lender's
Affiliates.
3.7 Verification of Use of Proceeds. Borrower
-------------------------------
shall have provided to Lender invoices, purchase orders or
other evidence reasonably satisfactory to Lender as to
compliance by Borrower with its covenant in Section 5.7 as
to each advance of the Loan.
ARTICLE 4
---------
Representations and Warranties of Borrower
------------------------------------------
To induce Lender to enter into this Agreement and
to make the Loan, Borrower makes the following
representations and warranties to Lender:
4.1 Due Organization. Borrower is a corporation
----------------
duly organized, validly existing and in good standing under
the laws of Delaware.
<PAGE>
4.2 Chief Executive Office. The chief executive
----------------------
office of Borrower is at 11400 West Olympic Boulevard, Suite
1100, Los Angeles, California 90064-1507.
4.3 Corporate Power. Borrower has all corporate
---------------
power necessary to own and operate its properties and to
carry on its business as now conducted and to execute and
deliver, and to perform its obligations under, this
Agreement, the Note and the other instruments and agreements
to be executed and delivered by Borrower pursuant to this
Agreement.
4.4 Authorization. All corporate action on the
-------------
part of Borrower necessary for the execution, delivery and
performance of this Agreement has been duly taken and is in
full force and effect.
4.5 Representative Authorization. The officer
----------------------------
executing this Agreement on behalf of Borrower is fully
authorized to execute and deliver the same.
4.6 Binding Nature. This Agreement is a legal,
--------------
valid and binding obligation of Borrower, enforceable in
accordance with its terms, except as affected by bankruptcy,
insolvency or similar laws and by general equitable
principles.
4.7 Litigation and Contingent Liabilities. There
--------------------------------------
is no action, suit, investigation or proceeding pending or,
to the knowledge of Borrower, threatened in writing against
or affecting Borrower, or any of its property by or before
any court, arbitrator or administrative or governmental
authority, the adverse determination of which reasonably
could be expected to have a Material Adverse Effect, except
for the purported class action lawsuit entitled Brickell
--------
Partners v. Jerold H. Rubinstein, Donne F. Fisher, Leo J.
- ------------------------------------------------------------
Hindery, Jr., James R. Shaw, Sr., Kent Burkhart, J.C.
- ------------------------------------------------------------
Sparkman, Menon Bhaskar, DMX Inc., and Tele-Communications,
- ------------------------------------------------------------
Inc. (Civil Action No. 15206) filed in the Delaware Chancery
- ----
Court.
4.8 No Event of Default. No Event of Default has
-------------------
occurred and is continuing or would result from the execu
tion, delivery and performance by Borrower of this
Agreement.
4.9 Compliance With Laws. Borrower is in
----------------------
compliance with all Legal Requirements applicable to its
assets and business with only such exceptions as in the
aggregate would not be reasonably likely to have a Material
Adverse Effect. No approvals by, or filings with, any
governmental authority are required to be obtained or made
in connection with the execution and delivery of this
Agreement or the Note, the consummation of the transactions
herein or therein contemplated or the performance of or
compliance with the terms and conditions hereof or thereof.
4.10 Absence of Conflicts. The execution,
----------------------
delivery or performance of this Agreement or the Note
will not (a) violate any Legal Requirement, (b) conflict
with or result in a breach of or a default under any
agreement or instrument to which Borrower
<PAGE>
is a party or by which any of
its properties is bound or (c) result in the creation or
imposition of a Lien upon any property (now owned or
hereafter acquired) of Borrower (except for the security
interest granted pursuant to Article 8).
4.11 Accurate and Complete Disclosure. No repre
--------------------------------
sentation or warranty made by Borrower in this Agreement is
false or misleading in any material respect (including by
omission of material information necessary to make such
representation, warranty or statement not misleading).
4.12 Title and Authority. Borrower has
---------------------
rights in and good title to the Collateral and has full
power and authority to grant to Lender a security interest
in the Collateral pursuant to this Agreement and to execute,
deliver and perform its obligations in accordance with this
Agreement, without the consent or approval of any other
Person other than any consent or approval which has been
obtained.
4.13 Filings. Fully executed Uniform
-------
Commercial Code financing statements containing a
description of the Collateral have been filed of record in
every governmental office in which such filing is necessary
to establish a legal, valid and perfected security interest
in favor of Lender in respect of any Collateral (other than
Collateral that is equipment located at premises occupied by
subscribers to Borrower's music services) in which a
security interest may be perfected by filing in the United
States and its territories and possessions, and no further
or subsequent filing, refiling, recording, rerecording,
registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with
respect to the filing of Uniform Commercial Code
continuation statements.
4.14 No Other Names. Borrower uses no name
--------------
other than "DMX Inc."
4.15 Priority of Security Interest. The
---------------------------------
Collateral is and will be owned by Borrower free and clear
of any Lien other than the security interest granted hereby.
The security interest granted to Lender in Article 8 is a
legal, valid and perfected first priority security interest
subject to no prior Lien of any nature.
ARTICLE 5
---------
Affirmative Covenants
---------------------
Unless Lender shall otherwise agree, Borrower
shall comply with the following provisions so long as any
Obligation is outstanding:
5.1 Accounting Records. Borrower shall maintain
------------------
adequate books and accounts in accordance with GAAP.
Within 45 days after the end of each of the first
three quarters of each fiscal year, Borrower shall deliver
to Lender a copy of consolidated financial statements
for such quarter (consisting of at least a balance
sheet and related statements of operations, cash flows
and stockholders equity), and within 90 days after
<PAGE>
the end of each fiscal year Borrower shall deliver a copy of
audited consolidated financial statements for such fiscal
year (consisting of at least a balance sheet and related
statements of operations, cash flows and stockholders
equity). All such financial statements shall be prepared in
accordance with GAAP applied on a basis consistent with
prior periods (except as otherwise noted therein) and,
to the extent applicable, Regulation S-X under the Exchange
Act.
5.2 Corporate Existence. Borrower shall preserve
-------------------
and maintain its corporate existence and all its licenses,
privileges and franchises and other rights necessary or
desirable in the normal course of its businesses, except to
the extent that the failure to preserve and maintain its
corporate existence and such rights would not be reasonably
likely to have a Material Adverse Effect.
5.3 Qualifications To Do Business. Borrower
-------------------------------
shall qualify to do business and shall be and remain in good
standing in each jurisdiction in which the nature of its
business requires it to be so qualified, or in which failure
to be so qualified and in good standing would be reasonably
likely to have a Material Adverse Effect.
5.4 Compliance With Laws. Borrower shall comply
--------------------
with all applicable Legal Requirements, except where the
failure to do so would not have a Material Adverse Effect.
5.5 Taxes and Other Liabilities. Borrower shall
---------------------------
pay and discharge when due (including any grace period) any
and all Indebtedness and all taxes and assessments except as
may be subject to good faith contest or as to which a bona
fide dispute may arise.
5.6 Conduct of Business. Borrower shall conduct
-------------------
its business only in the ordinary course.
5.7 Use of Proceeds. Borrower shall use the
----------------
proceeds of the Loan only (i) to purchase (or to reimburse
the Company for its purchase, after September 30, 1996, of)
tuners, including remote controls and related equipment, for
use by its commercial and residential customers in receiving
Borrower's music services and (ii) to pay commissions owed
in connection with the obtaining of commercial customers for
Borrower's music services.
5.8 Records of Accounts Receivable. Borrower
-------------------------------
shall keep or cause to be kept records of all accounts
receivable included in the Collateral which are accurate in
all material respects. Borrower shall at all times keep all
records of such accounts receivable and the other Collateral
at its chief executive office located at 11400 West Olympic
Boulevard, Suite 1100, Los Angeles, California 90064-1507.
5.9 Protection of Security. Borrower shall, at
----------------------
its own cost and expense, take any and all actions necessary
to defend title to the Collateral against all
<PAGE>
Persons and to defend the security interest of Lender in the
Collateral and the priority thereof, against any adverse
Lien of any nature whatsoever.
5.10 Continuing Obligations of Borrower.
-------------------------------------
Borrower shall observe and perform all the material
conditions and obligations to be observed and performed by
it under each material contract, agreement, interest or
obligation relating to the Collateral, all in accordance
with the terms and conditions thereof.
5.11 Indemnification. Borrower shall indemnify
---------------
and hold Lender and Lender's directors, officers, employees,
affiliates, attorneys and agents (collectively, the "Indem
nitees") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel) which may be
imposed on, incurred by or asserted against such Indemnitees
in any manner relating to or arising out of this Agreement
or the making of the Loan (collectively, the "Indemnified
Matters"); provided, however, that Borrower shall have no
obligation to an Indemnitee under this Section 5.11 with
respect to Indemnified Matters to the extent such Indemni
fied Matters were caused by or resulted from the gross
negligence or willful misconduct of an Indemnitee.
ARTICLE 6
---------
Negative Covenants
------------------
Unless Lender shall otherwise agree, Borrower
shall comply with the following provisions so long as any
Obligation is outstanding:
6.1 No Merger, etc. Borrower shall not effect or
--------------
enter into any agreement to effect, any merger,
consolidation, reorganization, recapitalization or similar
transaction other than as contemplated by the proposal made
by Lender to the Company on August 30, 1996.
6.2 Type of Business. Borrower shall not engage
----------------
in any material respect in any business other than the
businesses in which it currently is engaged.
6.3 Indebtedness. Borrower shall not incur,
------------
assume or suffer to exist any Indebtedness, except (a) the
Loan, (b) Indebtedness for borrowed money and capital lease
obligations outstanding as of the Closing Date and reflected
in the most recent balance sheet of Borrower delivered to
Lender and (c) Indebtedness for goods or services incurred
in the ordinary course of business.
6.4 Dividends. Without the prior written consent
---------
of Lender, Borrower shall not make or pay, or become or
remain liable to make or pay, any distribution of any nature
(whether in cash, property, securities or otherwise) on
account of or in respect of any equity interest in Borrower
or on account of the purchase, redemption, retirement or
acquisition of any such equity interest.
<PAGE>
6.5 Loans and Investments. Borrower shall not at
---------------------
any time make or have outstanding any loan or advance to, or
purchase, acquire or own any stock, bonds, notes or
securities of, or any partnership or other ownership
interest in, or make any capital contribution to, any other
Person, or purchase or acquire any assets (whether with cash
or in exchange for other assets) or make any other
investment in any Person or agree, become or remain liable
to do any of the foregoing, except:
(a) investments and loans described in any
of its periodic reports filed pursuant to the Exchange Act
prior to the date of this Agreement;
(b) trade credit extended to subcontractors
or suppliers, under usual and customary terms in the
ordinary course of business; and
(c) loans and advances on a short-term basis
to employees and officers of Borrower in the ordinary course
of Borrower's business for expenses of such businesses.
6.6 Sale of Assets. Borrower shall not at any
--------------
time sell, lease, assign or otherwise dispose of any of its
assets to any Person, whether pursuant to a sale, lease,
assignment, transfer or other disposition of capital stock,
assets or other property, in one transaction or in any
series of related transactions, except for sales of
inventory and equipment in the ordinary course of business
of Borrower or the leasing of equipment and other property
in the ordinary course of business of Borrower.
6.7 No Other Lien. Except for the security
---------------
interest herein granted to Lender, Borrower shall not
create, incur, assume or suffer to exist any Lien of any
kind on the Collateral.
ARTICLE 7
---------
Events of Default
-----------------
7.1 Events of Default. Each of the following
------------------
shall constitute an Event of Default under this Agreement:
(a) Payments. Borrower shall fail to pay
--------
when due, whether at Maturity or otherwise, any principal,
interest, fees, expenses or other payment due under this
Agreement or the Note, and such failure shall continue
uncured for two Business Days after the due date.
(b) Other Covenants. Borrower shall fail in
---------------
any material respect to perform any of its obligations under
this Agreement other than any obligation to pay money, and
such failure shall continue uncured for a period of 30 days.
<PAGE>
(c) Warranties. Any warranty or
----------
representation made by Borrower shall be untrue in any
material respect.
(d) Bankruptcy. Borrower shall institute a
----------
voluntary case seeking liquidation or reorganization under
Chapter 7 or Chapter 11 of the United States Bankruptcy
Code, or shall consent to the institution of an involuntary
case thereunder against it; Borrower shall file a petition
initiating or shall otherwise institute any similar proceed
ing under any other applicable federal or state law, or
shall consent thereto; or Borrower shall apply for, or by
consent or acquiescence there shall be an appointment with
respect to Borrower of, a receiver, liquidator,
sequestrator, trustee or other officer with similar powers,
or Borrower shall make an assignment for the benefit of
creditors; or Borrower shall admit in writing its inability
to pay its debts generally as they become due; or, if an
involuntary case shall be commenced seeking the liquidation
or reorganization of Borrower under Chapter 7 or Chapter 11
of the United States Bankruptcy Code, or any similar
proceeding shall be commenced against Borrower under any
other applicable law, and (i) the petition commencing the
involuntary case is not timely controverted, (ii) the
petition commencing the involuntary case is not dismissed
within 45 days after its filing, (iii) an interim trustee is
appointed to take possession of all or a portion of the
property, to operate all or any part of the business of
Borrower or (iv) an order for relief or a decree or order of
a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee
or other officer shall have been issued or entered therein.
(e) Cross-Default. Borrower shall be in
-------------
default of any obligation (other than the Obligations) under
any agreement or instrument for the payment of Indebtedness
in excess of $100,000 and such Indebtedness shall continue
uncured for more than 10 days.
7.2 Acceleration. If any Event of Default
------------
described in Section 7.1(d) shall occur, all Obligations
shall become immediately due and payable, all without notice
of any kind. If any other Event of Default shall occur,
Lender may declare all Obligations to be due and payable,
whereupon all Obligations shall immediately become due and
payable, all as so declared by Lender and without
presentment, demand, protest or other notice of any kind.
Any such declaration made pursuant to this Section 7.2 may
be rescinded by Lender.
7.3 Other Remedies. If any Event of Default
---------------
shall occur and be continuing, Lender shall have, in addi
tion to the remedies set forth in this Agreement, all other
remedies available at law or in equity.
ARTICLE 8
---------
Security Interest
-----------------
<PAGE>
8.1 Grant of Security Interest. To secure the
--------------------------
prompt payment and performance of the Obligations, Borrower
hereby grants to Lender a security interest in all of
Borrower's right, title and interest in the following
(collectively, the "Collateral"):
(a) all tuners, remote control devices and
other equipment designed for use by Borrower's customers in
receiving Borrower's music services;
(b) all agreements with commercial
subscribers to Borrower's music services, including accounts
receivable or other rights to payment arising from goods
sold or leased or services rendered under such agreements;
and
(c) all proceeds from the sale, exchange,
lease or other disposition of any asset that constitutes
Collateral.
8.2 Collections.
-----------
(a) So long as no Event of Default
shall have occurred and be continuing, Borrower shall have
the right to collect all accounts receivable included in the
Collateral in the ordinary course of its business; provided
that Borrower shall, if Lender shall so request, (i) arrange
for remittances on any such accounts receivable to be made
directly to lock boxes or blocked accounts designated by
Lender or in such other manner as Lender may direct, and
(ii) promptly deposit all payments received by Borrower on
account of such accounts receivable, whether in the form of
cash, checks, notes, drafts, bills of exchange, money orders
or otherwise, in one or more accounts designated by Lender
in precisely the form received (but with any endorsements of
Borrower necessary for deposit or collection), subject to
withdrawal by Lender only, as hereinafter provided, and
until they are deposited, such payments shall be deemed to
be held in trust by Borrower for and as Lender's property
and shall not be commingled with Borrower's other funds.
(b) Upon the occurrence and during the
continuance of an Event of Default, Lender shall have the
right, as the agent of Borrower, with power of substitution
for Borrower and in Borrower's name, Lender's name or
otherwise, for the use and benefit of Lender (i) to receive,
endorse, assign or deliver any and all notes, acceptances,
checks, drafts, money orders or other evidences of payment
relating to the Collateral or any part thereof; (ii) to
demand, collect, receive payment of, give receipt for and
give discharges and releases of all or any of the
Collateral; (iii) to sign the name of Borrower on any
invoice or bill of lading relating to any of the Collateral;
(iv) to send verifications of accounts receivable to any
customer; (v) to commence and prosecute any and all suits,
actions or proceedings at law or in equity in any court of
competent jurisdiction to collect or otherwise realize on
all or any of the Collateral or to enforce any rights in
respect of any Collateral; (vi) to settle, compromise,
adjust or defend any actions, suits or proceedings relating
to or pertaining to all or any of the Collateral; (vii) to
notify, or to require Borrower to notify, the account
debtors obligated on any accounts receivable to make payment
thereof directly to Lender; and (viii) to use, sell, assign,
<PAGE>
transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do
all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as
though Lender were the absolute owner of the Collateral for
all purposes; provided that nothing herein contained shall
be construed as requiring or obligating Lender to make any
commitment or to make any inquiry as to the nature or
sufficiency of any payment received by Lender, or to present
or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys
due or to become due in respect thereof or any property
covered thereby, and no action taken by Lender or omitted to
be taken with respect to the Collateral or any part thereof
shall give rise to any defense, counterclaim or offset in
favor of Borrower or to any claim or action against Lender
in the absence of the gross negligence or wilful misconduct
of Lender. The appointment of Lender as the agent of
Borrower for the purposes set forth in this Section 8.2 is
coupled with an interest and is irrevocable. The provisions
of this Section 8.2 shall in no event relieve Borrower of
any of its obligations under this Agreement with respect to
the Collateral or any part thereof or impose any obligation
on Lender to proceed in any particular manner with respect
to the Collateral or any part thereof, or in any way limit
the exercise by Lender of any other or further right which
it may have on the date of this Agreement or hereafter,
whether hereunder or by law or otherwise.
8.3 Remedies upon Default.
---------------------
(a) Upon the occurrence and during the
continuance of an Event of Default, Borrower shall deliver
each item of Collateral to Lender on demand, and it is
agreed that Lender shall have the right to take any or all
of the following actions at the same or different times:
(i) with or without legal process and with or without
previous notice or demand for performance, to take
possession of the Collateral and without liability for
trespass (as to the property of Borrower) to enter any
premises where the Collateral may be located for the purpose
of taking possession of or removing the Collateral; and (ii)
generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other
applicable Legal Requirements. Without limiting the
generality of the foregoing, Lender shall have the right,
subject to the applicable Legal Requirements, to sell or
otherwise dispose of all or any part of the Collateral, at
public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future
delivery as Lender shall deem appropriate. As to any
Collateral constituting a security, Lender shall be
authorized at any such sale (if it reasonably deems it
advisable to do so) to restrict the prospective bidders or
purchasers to Persons who will represent and agree that they
are purchasing the Collateral for their own account for
investment and not with a view to the distribution or sale
thereof. Upon consummation of any sale Lender shall have
the right to assign, transfer and deliver to the purchaser
or purchasers thereof the Collateral so sold. Each
purchaser at any sale of Collateral shall hold the property
sold absolutely, free from any claim or right on the part of
Borrower, and Borrower hereby waives (to the extent
permitted by applicable Legal Requirements) all rights of
redemption, stay and appraisal which Borrower now has or
<PAGE>
may at any time in the future have under any Legal
Requirement now existing or hereafter enacted.
(b) Lender shall give Borrower at least
10 days' written notice (which Borrower agrees is reasonable
notice within the meaning of Section 9-504(3) of the Uniform
Commercial Code) of Borrower's intention to make any sale of
Collateral. Such notice, in the case of a public sale,
shall state the time and place for such sale and, in the
case of a sale at a broker's board or on a securities
exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or
portion thereof, will first be offered for sale at such
board or exchange. Any such public sale shall be held at
such time or times within ordinary business hours and at
such place or places as Lender may fix and state in the
notice (if any) of such sale. At any such sale, the
Collateral, or portion thereof, to be sold may be sold in
one lot as an entirety or in separate parcels, as Lender may
determine. Lender shall not be obligated to make any sale
of any Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of such
Collateral shall have been given. Lender may, without
notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and
place to which the same was so adjourned. In case any sale
of all or any part of the Collateral is made on credit or
for future delivery, the Collateral so sold may be retained
by Lender until the sale price is paid by the purchaser or
purchasers thereof, but Lender shall not incur any liability
in case any such purchaser or purchasers shall fail to take
up and pay for the Collateral so sold and, in case of any
such failure, such Collateral may be sold again upon like
notice. At any public sale, Lender may bid for or purchase,
free (to the extent permitted by applicable Legal
Requirements) from any right of redemption, stay or
appraisal on the part of Borrower (all such rights being
also hereby waived and released to the extent permitted by
applicable Legal Requirements), the Collateral or any part
thereof offered for sale and may make payment on account
thereof by using any claim then due and payable to Lender
from Borrower as a credit against the purchase price, and
Lender may, upon compliance with the terms of sale, hold,
retain and dispose of such property without further
accountability to Borrower therefor. As an alternative to
exercising the power of sale herein conferred upon it,
Lender may proceed by a suit or suits at law or in equity to
foreclose on and to sell the Collateral or any portion
thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a
proceeding by a court-appointed receiver. In any event,
Lender shall have the right to claim and collect from
Borrower any deficiency remaining after sale of any
Collateral.
8.4 Application of Proceeds. Lender shall apply
-----------------------
the proceeds of any collection or sale of the Collateral as
follows:
FIRST, to the payment of all reasonable costs and
expenses incurred by Lender in connection with such
collection or sale or otherwise in connection with this
Agreement or any of the Obligations, including all
court costs and the reasonable fees and expenses of its
agents and legal counsel, the repayment of all
<PAGE>
advances made by Lender hereunder on behalf of Borrower
and any other reasonable costs or expenses incurred by
Lender in connection with the exercise of any right
or remedy hereunder;
SECOND, to the payment in full of the Obligations,
in accordance with this Agreement; and
THIRD, to Borrower, its successors or assigns, or
as a court of competent jurisdiction may otherwise
direct.
Lender shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in
accordance with this Agreement. Upon any sale of the
Collateral by Lender (including, pursuant to a power of sale
granted by statute or under a judicial proceeding), the
receipt of Lender or of the officer making the sale shall be
a sufficient discharge to the purchaser or purchasers of the
Collateral so sold and such purchaser or purchasers shall
not be obligated to see to the application of any part of
the purchase money paid over to Lender or such officer or be
answerable in any way for the misapplication thereof.
8.5 Locations of Collateral; Place of Business.
------------------------------------------
(a) Borrower hereby represents and warrants that
all the tangible Collateral (other than Collateral that is
equipment located at premises occupied by subscribers to
Borrower's music services) is located at the locations
listed on Schedule 8.5. Borrower shall not establish, or
permit to be established, any other location for Collateral
unless all filings under the Uniform Commercial Code or
otherwise which are required by this Agreement to be made
with respect to the Collateral have been made and Lender has
a valid, legal and perfected first priority security
interest in the Collateral.
(b) At such time or times as Lender may request,
Borrower shall promptly prepare and deliver to Lender a
schedule or schedules in form satisfactory to Lender,
certified on behalf of Borrower by the president or a vice
president of Borrower, showing the identity, amount and
location of any and all Collateral.
(c) Borrower shall not change, or permit to be
changed, the location of its chief executive office unless
all filings under the Uniform Commercial Code or otherwise
which are required by this Credit Agreement to be made have
been made and Lender has a valid, legal and perfected first
priority security interest.
ARTICLE 9
---------
Miscellaneous
-------------
9.1 Successors and Assigns. The terms and provisions
----------------------
of this Agreement shall be binding upon, and the benefits
thereof shall inure to, the parties hereto and their
<PAGE>
respective successors and assigns, except that Borrower may
not assign or transfer any of its rights or obligations
hereunder without the prior written consent of Lender.
9.2 No Implied Waiver. No delay or omission to
-------------------
exercise any right, power or remedy accruing to Lender upon
any breach or default of Borrower under this Agreement shall
impair any such right, power or remedy of Lender, nor shall
it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar
breach or default occurring thereafter, nor shall any waiver
of any single breach or default be deemed a waiver of any
other breach or default occurring theretofore or thereafter.
9.3 Amendments; Waivers. No amendment, modification
-------------------
or waiver of any provision of this Agreement shall be
effective unless the same shall be in writing and signed and
delivered by each party to be bound thereby. Any amendment,
modification or waiver hereunder shall be effective only in
the specific instance and for the specific purpose for which
given.
9.4 Severability. If any provision of this Agreement,
------------
or the application of such provision to any Person or
circumstance, is found by a court of competent jurisdiction
to be unenforceable for any reason, such provision may be
modified or severed from this Agreement to the extent
necessary to make such provision enforceable against such
Person or in such circumstance. Neither the
unenforceability of such provision nor the modification or
severance of such provision will affect (i) the
enforceability of any other provision of this Agreement or
(ii) the enforceability of such provision against any Person
or in any circumstance other than those against or in which
such provision is found to be unenforceable.
9.5 Notices. Any notice which Borrower or Lender may
-------
be required or may desire to give to the other under any
provision of this Agreement shall be in writing, and shall
be deemed to have been duly given if (a) personally
delivered (including delivery by Federal Express or other
nationally recognized overnight courier) or (b) sent by
telecopy as follows:
To Borrower:
DMX Inc.
11400 West Olympic Boulevard
Suite 1100
Los Angeles, California 90064-1507
Attention: President
Telecopy No.: (310) 444-1717
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars
<PAGE>
Suite 900
Los Angeles, California 90067-7199
Attention: Alvin G. Segel, Esq.
Telecopy No.: (310) 203-7199
To Lender:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: General Counsel
Telecopy No.: (303) 488-3245
With a copy to:
Sherman & Howard L.L.C.
633 Seventeenth Street
Suite 3000
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy No.: (303) 298-0940
Any party may change the address to which all notices,
requests and other communications are to be sent to it by
giving written notice of such address change to the other
parties in conformity with this paragraph, but such change
shall not be effective until notice of such change has been
received by the other parties.
9.6 Interpretation. This Agreement, together with the
--------------
exhibits and schedules to this Agreement, is the final
expression of their agreement with respect to the subject
matter hereof and is intended as a complete statement of the
terms and conditions of such agreement.
9.7 Governing Law. The validity, construction and
--------------
effect of this Agreement shall be governed by the laws of
the State of Colorado, without regard to its laws regarding
choice of applicable law.
9.8 Counterparts. This Agreement may be executed in
------------
any number of counterparts each of which shall be an
original with the same effect as if the signatures thereto
and hereto were upon the same instrument.
9.9 Headings. Captions, headings and the table of
--------
contents in this Agreement are for convenience only, and are
not to be deemed part of this Agreement.
9.10 Terms. Terms used with initial capital letters
-----
will have the meanings specified, applicable to both singular
and plural forms, for all purposes of this Agreement.
<PAGE>
All pronouns (and any variation) will be deemed
to refer to the masculine, feminine or neuter, as the
identity of the Person may require. The singular or plural
includes the other, as the context requires or permits. The
word include (and any variation) is used in an illustrative
sense rather than a limiting sense. The word day means a
calendar day. The word year means a calendar year.
9.11 Additional Waivers.
------------------
(a) Bankruptcy. In the event that Borrower
----------
becomes insolvent or files a petition for reorganization,
arrangement, composition, discharge or similar relief under
any present or future provision of the Bankruptcy Code, or
if such a petition be filed against Borrower, and in any
such proceedings some or all of the Obligations shall be
terminated or rejected or any of the Obligations of Borrower
modified or abrogated, Borrower agrees that its liability
hereunder shall not thereby be affected or modified, and
such liability shall continue in full force and effect as if
no such action or proceeding had occurred and shall continue
to be effective or reinstated, as the case may be, if any
payment of any of the Obligations must be returned by Lender
upon such insolvency, bankruptcy or reorganization, or
otherwise, as though such payment had not been made.
(b) Statutes of Limitation. Borrower waives the
----------------------
benefit of any statute of limitations affecting its
liability hereunder or the enforcement thereof, to the
extent permitted by law. Borrower understands that Lender
would not make the Loan in the absence of the foregoing
covenant by Borrower and the other covenants of Borrower in
this Agreement.
(c) Demands for Performance. Borrower
---------------------------
acknowledges that repeated and successive demands may be
made and payments or performance made hereunder in response
to such demands as and when, from time to time, Borrower may
default in its performance of the Obligations.
Notwithstanding any such performance hereunder, this
Agreement shall remain in full force and effect and shall
apply to any and all subsequent defaults by Borrower in
payment or performance of the Obligations.
(d) No Set-off. Borrower waives any defense
-----------
arising by reason of any disability of Borrower. Borrower
waives any setoff, defense or counterclaim which Borrower
may have or claim to have against Lender. Borrower shall
not have any right of subrogation, and hereby waives any
right to enforce any remedy which Lender now has or may
hereafter have against Borrower, and waives any and all
statutory or other rights to participate in any security now
or hereafter held by Lender.
9.12 Further Assurances. Borrower, at its
-------------------
expense, shall execute, acknowledge, deliver and cause to be
duly filed all such further instruments and documents and take
all such actions as Lender may from time to time reasonably
request for the better assuring and preserving of the security
interests and the rights and remedies created hereby,
including the payment of any fees and taxes required in
connection with the execution and delivery of this Agreement,
the granting of the security interests created hereby and
<PAGE>
the filing of any financing statements or other documents
in connection herewith. If any amount payable under or
in connection with any of the Collateral shall be or become
evidenced by any promissory note or other instrument,
such note or instrument shall be immediately pledged and
delivered to Lender, duly endorsed in a manner satisfactory
to Lender. Borrower shall notify Lender of any change in its
corporate name or in the location of its chief executive
office, its chief place of business or the office where it
keeps its records relating to the accounts receivable
owned by it. Borrower shall promptly notify Lender if any
material portion of the Collateral is damaged or destroyed.
9.13 Expenses. Borrower shall pay all reasonable and
--------
documented out-of-pocket costs and expenses, including
reasonable fees and documented disbursements of Lender's
counsel, in connection with an Event of Default or Potential
Default, the enforcement of this Agreement or the Note and
collection and other proceedings resulting therefrom.
Borrower shall indemnify Lender against any transfer taxes,
documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and
delivery of this Agreement or the Note.
9.14 Jurisdiction and Venue. The parties hereby
----------------------
irrevocably agree that any legal action or proceeding with
respect to this Agreement may be brought in (i) the Superior
Court of Los Angeles County, California, (ii) the United
States District Court, Central District of California, (iii)
any court of the State of Colorado having jurisdiction over
the subject matter of such action or proceeding or (iv) the
United States District Court, District of Colorado, and by
execution and delivery of this Agreement, each party hereby
irrevocably consents and submits to each such jurisdiction
and hereby irrevocably waives any and all objections which
it may have as to venue in any of the above courts.
Borrower and Lender hereby waive personal service or any and
all process, and consent that all such services of process
be made by registered or certified mail directed to the
addresses provided for in this Agreement and service so made
shall be deemed to be completed five Business Days after the
same shall have been deposited in the United States mail,
postage prepaid.
9.15 Waiver of Jury Trial. EACH PARTY HEREBY WAIVES
--------------------
ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, OR ANY DEALINGS
BETWEEN BORROWER AND LENDER RELATING TO THE SUBJECT MATTER
OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. The scope
of this waiver is intended to be all encompassing of any and
all disputes that may be filed in any court and that relate
to the subject matter of this transaction, including contract
claims, tort claims, breach of duty claims, and all other
common law and statutory claims. Each party acknowledges
that this waiver is a material inducement to enter into a
business relationship, that Lender has already relied on
this waiver in entering into this Agreement, and that each
party will continue to rely on this waiver in any future
dealings with the other. Each party further warrants and
represents that he or it has reviewed this waiver with his
or its legal counsel, and that he and or it knowingly and
voluntarily waives his or its jury trial rights following
consultation with legal counsel. THIS WAIVER IS
<PAGE>
IRREVOCABLE AND MAY BE MODIFIED ONLY IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENT,
RENEWAL, SUPPLEMENT OR MODIFICATION OF OR TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
DMX INC., a Delaware corporation
By:
Title:
TELE-COMMUNICATIONS, INC., a
Delaware corporation
By:
Title:
Schedule 8.5
------------
Location of Collateral
----------------------
Location Type of Collateral
- ------------- ------------------
11400 West Olympic Boulevard, Suite 1100 tuners, remote control
Los Angeles, California 90064-1507 devices and other
equipment designed for
use by Borrower's
customers in receiving
Borrower's music services
15235 Alton Parkway, Suite 100, same
Building 18
Irvine, California 92714
Exhibit A
---------
NOTE
----
$3,500,000____________, 1997
<PAGE>
Denver, Colorado
FOR VALUE RECEIVED, DMX Inc., a Delaware corporation
("Borrower"), promises to pay to the order of
Tele-Communications, Inc., a Delaware corporation
("Lender"), at 5619 DTC Parkway, Englewood, Colorado 80111,
in lawful money of the United States of America and in
immediately available funds, the principal sum of up to
Three Million Five Hundred Thousand Dollars ($3,500,000).
This Note is made pursuant to the Loan and Security
Agreement (the "Loan Agreement") dated as of ____________,
1997, between Lender and Borrower, and all terms defined in
the Loan Agreement shall have the same meanings when used
herein. Interest shall accrue on the Outstanding Principal
at the rate prescribed by the Loan Agreement.
All interest on Outstanding Principal accrued from the
date hereof through and including May 31, 1997 shall be due
and payable on May 31, 1997. Thereafter, Outstanding
Principal as of May 31, 1997 and accrued and unpaid interest
thereon shall be due and payable in 36 equal monthly
installments on the first day of each calendar month,
beginning July 1, 1997. In any event, all Outstanding
Principal and all accrued and unpaid interest shall be due
and payable on the Maturity Date. All payments made on this
Note shall be credited first to accrued interest and second
to the reduction of principal.
This Note is subject to the terms and conditions of the
Loan Agreement, to which reference is hereby made for a
statement of such terms and conditions, including the
security provisions thereof, and those under which this Note
shall be paid prior to its due date or its due date
accelerated.
This Note shall be deemed to be made under and shall be
construed in accordance with and governed by the laws of the
State of Colorado.
DMX INC., a Delaware corporation
By:
Title:
<PAGE>
CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is made
on the ____ day of __________________ 1997, by and between
Tele-Communications, Inc., a Delaware corporation ("TCI"), and
TCI Music, Inc., a Delaware corporation (the "Company").
RECITALS
TCI desires to cause various of its indirect wholly
owned subsidiaries to contribute to the Company the right to
receive a substantial portion of the revenues attributable to the
distribution and sale by those subsidiaries of digital music
services of DMX Inc., a Delaware corporation ("DMX"), to
residential and commercial subscribers of such subsidiaries. In
consideration of such contribution and of the agreement of TCI to
grant to stockholders of DMX the right to require TCI to purchase
shares of the Company issued to them pursuant to the Agreement
and Plan of Merger dated as of February 6, 1997, to which TCI,
the Company and DMX are parties, the Company desires to deliver
to TCI shares of the Company's Series B Common Stock and a
promissory note in the amount of $40,000,000.
In consideration of the mutual covenants set forth in
this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties
agree as follows:
I. DEFINITIONS
As used in this Agreement, terms with initial capital
letters will have the meanings ascribed to them below, unless
the context clearly requires otherwise:
Affiliate means, with respect to any Person, any other
---------
Person Controlling, Controlled by, or under common Control with,
such Person.
Business Day means any day other than a Saturday or
-------------
Sunday or a day on which banks in New York, New York or Denver,
Colorado are authorized to be closed.
Closing has the meaning set forth in Section 2.1.
-------
Company has the meaning set forth in the preamble to
-------
this Agreement.
Company Note means a promissory note in the principal
-------------
amount of $40,000,000 payable to the order of TCI , which
promissory note (i) will bear interest at 10% per annum, payable
(and, to the extent not paid, compounded) semiannually, (ii) will
provide for the payment of unpaid principal and accrued interest
not earlier than 180 days after the Closing and (iii) will
include such other terms and conditions as TCI and the Company
may agree.
<PAGE>
Control means, with respect to any Person, the
-------
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of the
Controlled Person, whether by the ownership of voting securities,
by contract or otherwise.
DMX has the meaning set forth in the Recitals to this
---
Agreement.
DMX Affiliation Agreement means an affiliation
----------------------------
agreement between DMX and Satellite Services, Inc., a Wholly
Owned Subsidiary of TCI (including its successors and assigns,
"SSI"), pursuant to which TCI System Owners are granted rights to
distribute and sell DMX Services, as such agreement may from time
to time be in effect.
DMX Revenues means all revenues of a TCI System Owner,
------------
as determined in accordance with GAAP, that are attributable to
the distribution and sale of DMX Services, including charges for
DMX Services and equipment rental, installation and other charges
payable by subscribers to DMX Services. In calculating DMX
Revenues, revenues attributable to the distribution and sale of
DMX Services on a tier or as part of a package that includes
other audio or video programming services and as to which there
is no separate charge for DMX Services will be deemed to be equal
to the license fees payable to DMX on account of such sales, as
prescribed by the DMX Affiliation Agreement.
DMX Services means the digital music services offered
-------------
for sale to the public by DMX.
Fiscal Year means a year beginning January 1 and ending
-----------
December 31.
GAAP means generally accepted accounting principles as
----
in effect from time to time in the United States, applied on a
basis consistent with that applied by TCI in the preparation of
its financial statements.
Merger means the merger of TCI Music Merger Sub, Inc.
------
with and into DMX pursuant to the Merger Agreement.
Merger Agreement means the Agreement and Plan of
-----------------
Merger, dated as of February 6, 1997, among DMX, the Company, TCI
and TCI Music Merger Sub, Inc.
Music Business means the business of acquiring,
---------------
producing, packaging or compiling audio or video programming the
content of which is primarily music or music-related, and the
marketing and sale of such programming by any method of
distribution.
Net DMX Revenues means, for any period of
--------------------
determination, all DMX Revenues of a TCI System Owner for such
period, minus (i) the Retained Percentage for such period and
(ii) license fees for such period that are payable to DMX
pursuant to the DMX Affiliation Agreement.
<PAGE>
Person means a human being or a corporation, general or
------
limited partnership, limited or unlimited liability company,
trust, association, unincorporated organization, governmental
authority or other entity.
Residential DMX Revenues means, for any period of
--------------------------
determination, that portion of DMX Revenues of a TCI System Owner
for such period that is attributable to the distribution and sale
of DMX Services to residential subscribers.
Retained Percentage means, for any period of
---------------------
determination, an amount equal to 10% of Residential DMX Revenues
of a TCI System Owner for such period, subject to adjustment as
provided in Section 8.2.
Shares means 125,000,000 shares of Series B Common
------
Stock, par value $.01 per share, of the Company.
TCI System Owner means each Wholly Owned Subsidiary of
----------------
TCI that offers DMX Services to its subscribers.
Termination Date has the meaning set forth in Section
----------------
2.3.
Wholly Owned Subsidiary means, with respect to any
-------------------------
Person, any other Person in which all the outstanding stock or
other ownership interests are owned, directly or indirectly, by
such Person, including with respect to such Person any other
Person that pursuant to the preceding clause would be a Wholly
Owned Subsidiary of any other Wholly Owned Subsidiary.
TCI has the meaning set forth in the preamble to this
---
Agreement.
II. CONTRIBUTION OF NET DMX REVENUES; ISSUANCE OF SHARES
2.1 Rights Agreement; Assignment of Net DMX Revenues
------------------------------------------------
to the Company. At the closing of the transactions contemplated
- ---------------
by this Agreement (the "Closing"):
(a) TCI will execute and deliver a Rights
Agreement, in the form prescribed by the Merger Agreement,
granting to stockholders of DMX who are entitled to receive
shares of stock of the Company pursuant to the Merger Agreement
the right to require TCI to purchase such shares, subject to the
terms and conditions of such Rights Agreement.
(b) TCI will cause each Person that is a TCI
System Owner as of the date of this Agreement to assign and
contribute to the Company, effective as of the Closing, the right
to receive Net DMX Revenues of such TCI System Owner for a period
beginning on the effective date of such assignment and ending on
the Termination Date. Payments of Net DMX Revenues will be
remitted to the Company as provided in Section 8.3.
(c) The Company will deliver to TCI, as the
designee of the TCI System Owners, (i) the Shares and (ii) the
Company Note.
<PAGE>
2.2 New TCI System Owners. Promptly after any Person
---------------------
becomes a TCI System Owner, TCI will cause such TCI System Owner
to assign to the Company the right to receive such TCI System
Owner's Net DMX Revenues.
2.3 Effective Term of Assignment. Anything in this
----------------------------
Agreement to the contrary notwithstanding, the Company's right to
receive Net DMX Revenues of any TCI System Owner pursuant to this
Agreement will continue in effect until the first to occur of the
following dates (the "Termination Date"): (i) the date such TCI
System Owner ceases to be a TCI System Owner and (ii) December
31, 2006.
III. REPRESENTATIONS AND WARRANTIES OF TCI
TCI represents and warrants to the Company that:
3.1 Organization, Good Standing and Authority. Each
------------------------------------------
of TCI and the TCI System Owners is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate
power and authority to enter into and to perform its obligations
under this Agreement and the other agreements to be executed and
delivered by it pursuant to this Agreement.
3.2 Authorization and Validity; Consents; No Conflicts.
---------------------------------------------------
The execution and delivery by each of TCI and the TCI
System Owners of, and the performance by each of them of its
obligations under, this Agreement and the other agreements to be
executed and delivered by it pursuant to this Agreement have been
duly authorized by all requisite corporate action of TCI or such
TCI System Owner. This Agreement constitutes, and when executed
and delivered by it pursuant to this Agreement, the other
agreements to be executed and delivered by it pursuant to this
Agreement will constitute, the legal, valid and binding
obligations of each of TCI and the TCI System Owners, enforceable
in accordance with their terms, except as such enforceability may
be affected by applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally
or by general equitable principles. No consent or approval of,
notice to, or filing with, any other Person is required in
connection with the execution, delivery and performance by TCI or
any of the TCI System Owners of this Agreement or any other
agreement to be executed and delivered by it pursuant to this
Agreement, or the consummation by it of the transactions
contemplated hereby or thereby, the failure of which to be
obtained, given or made would have a material adverse effect on
TCI and the TCI System Owners, taken as a whole, or on their
ability to perform their obligations under this Agreement. The
execution and delivery by TCI or any of the TCI System Owners of,
and the performance by each of them of its obligations under,
this Agreement and any other agreement to be executed and
delivered by it pursuant to this Agreement will not violate its
certificate or articles of incorporation or bylaws or any
material agreement to which it is a party or by which it is bound
or affected.
3.3 Investment Intent. TCI is acquiring the Shares
-----------------
for investment only and acknowledges that they may not be sold
without registration under the Securities Act of 1933, as
amended, and applicable state securities laws, or unless an
exemption therefrom is available, and
<PAGE>
agrees that a legend to the foregoing effect may be placed on
the certificate representing the Shares.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization, Good Standing and Authority. The
-----------------------------------------
Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority
to enter into and to perform its obligations under this Agreement
and the other agreements to be executed and delivered by it
pursuant to this Agreement.
4.2 Authorization and Validity; Consents; No Conflicts.
--------------------------------------------------
The execution and delivery by the Company of, and the
performance by it of its obligations under, this Agreement and
the other agreements to be executed and delivered by it pursuant
to this Agreement have been duly authorized by all requisite
corporate action of the Company. This Agreement constitutes, and
when executed and delivered by the Company pursuant to this
Agreement, the other agreements to be executed and delivered by
it pursuant to this Agreement will constitute, its legal, valid
and binding obligations, enforceable in accordance with their
terms, except as such enforceability may be affected by
applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally or by general
equitable principles. No consent or approval of, notice to, or
filing with, any other Person is required in connection with the
execution, delivery and performance by the Company of this
Agreement or any other agreement to be executed and delivered by
the Company pursuant to this Agreement, or the consummation by it
of the transactions contemplated hereby or thereby, the failure
of which to be obtained, given or made would have a material
adverse effect on the Company or on its ability to perform its
obligations under this Agreement. The execution and delivery by
the Company of, and the performance by it of its obligations
under, this Agreement and any other agreement to be executed and
delivered by it pursuant to this Agreement will not violate its
certificate of incorporation or bylaws or any material agreement
to which it is a party or by which it is bound or affected.
4.3 No Lien on Shares. When issued and delivered by
-----------------
it at the Closing, the Shares to be issued by the Company
hereunder will be validly issued, fully paid and nonassessable
and will be owned by TCI (or, if applicable, TCI 's designee)
free and clear of any lien, charge, encumbrance, security
interest or any other similar right of any third party.
V. CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the
transactions contemplated by this Agreement to take place at the
Closing are subject to satisfaction or the waiver by it, at or
prior to the Closing, of each of the following conditions:
5.1 Truth of Representations and Warranties. All
-----------------------------------------
representations and warranties of TCI set forth in this
Agreement, if qualified by a reference to materiality, are true
and, if not so qualified, are true in all material respects,
in each case at the time of the Closing
<PAGE>
with the same effect as if made at that time, except for changes
permitted or contemplated by this Agreement.
5.2 Performance of Agreements. All agreements of TCI
--------------------------
set forth in this Agreement that are required to be performed by
it at or before the Closing have been performed in all material
respects.
5.3 Merger Completed. The Merger is completed
-----------------
contemporaneously with the Closing.
VI. CONDITIONS TO OBLIGATIONS OF TCI
The obligations of TCI to consummate the transactions
contemplated by this Agreement to take place at the Closing are
subject to satisfaction or the waiver by it, at or prior to the
Closing, of each of the following conditions:
6.1 Truth of Representations and Warranties. All
-----------------------------------------
representations and warranties of the Company set forth in this
Agreement, if qualified by a reference to materiality, are true
and, if not so qualified, are true in all material respects, in
each case at the time of the Closing with the same effect as if
made at that time, except for changes permitted or contemplated
by this Agreement.
6.2 Performance of Agreements. All agreements of the
--------------------------
Company set forth in this Agreement that are required to be
performed by it at or before the Closing have been performed in
all material respects.
6.3 Merger Completed. The Merger is completed
-----------------
contemporaneously with the Closing.
VII. CLOSING
7.1 Closing. The Closing will take place on the date
-------
of this Agreement, contemporaneously with the Merger.
7.2 Items Delivered by TCI System Owners. At the
-------------------------------------
Closing, TCI will cause each TCI System Owner to deliver to the
Company (i) an assignment transferring the rights of such TCI
System Owner in and to its Net DMX Revenues and (ii) such other
assignments, bills of sale or other instruments as are sufficient
to transfer to the Company all the legal and beneficial
interests in such rights.
7.3 Items Delivered by the Company. At the Closing:
------------------------------
(a) The Company will deliver to the TCI System
Owners (or their designee) immediately available funds in the
amount prescribed by Section 2.1(c) of this Agreement or, if so
elected by TCI, the Company Note.
<PAGE>
(b) The Company will deliver to TCI one or more
duly executed certificates representing the Shares.
VIII. COVENANTS
8.1 Right to Compete.
----------------
(a) TCI and any Affiliate of TCI may engage in or
possess interests in one or more other businesses or ventures of
any nature of description, without regard to whether any of such
businesses or ventures are or may be deemed to be competitive in
any way with any business of the Company or any person in which
the Company has an interest. Without limiting the generality of
the foregoing, none of TCI or any of its Affiliates or any
director, officer or employee of TCI or any of its Affiliates
(including any such director, officer or employee who serves as a
director, officer or employee of the Company) will be obligated
to present to the Company any particular investment or business
opportunity, regardless of whether such opportunity is of a
character that the Company could pursue it if it were presented
to the Company, but instead, TCI and its Affiliates will have the
right to take such opportunity for their own account or for the
account of any other Person without any obligation whatsoever to
the Company.
(b) Although the Company and TCI agree to be
bound by the provisions of subsection (a) of this Section for
purposes of defining their respective legal rights and
obligations, TCI acknowledges that, subject to such provisions,
TCI intends to use commercially reasonable efforts to expand the
involvement of the Company in the Music Business and to cause the
Company to pursue future business activities in the Music
Business.
8.2 Adjustment of Retained Percentage. Beginning at
---------------------------------
least 60 days before the third anniversary of the Merger, and
every third anniversary thereafter, TCI, acting on behalf of the
TCI System Owners, and the Company will engage in good faith
negotiations concerning the adjustment of the Retained
Percentage, taking into account, among other things, total sales
of DMX Services by TCI System Owners and the need to provide
appropriate incentives to the TCI System Owners and their
personnel to maximize sales of DMX Services. Notwithstanding the
foregoing, the Retained Percentage prescribed by this Agreement
or as most recently adjusted by agreement of the parties will
continue to be applicable until a new agreement adjusting the
Retained Percentage has been reached.
8.3 Payment of Net DMX Revenues.
---------------------------
(a) Net DMX Revenues will be remitted to the
Company monthly in arrears for each calendar month. Each monthly
payment will be made by the end of the calendar month immediately
following the calendar month for which Net DMX Revenues are being
remitted. At the time of each payment, the Company will be given
a statement setting forth in reasonable detail TCI's calculation
of Net DMX Revenues for the month in question.
<PAGE>
(b) TCI will keep and maintain (or will cause to
be kept and maintained) books and records (the "System Books and
Records") with respect to revenues from the sale of DMX Services
by TCI System Owners, which books and records will be accurate
and complete in all material respects. Upon at least 15 Business
Days' prior notice and during TCI's normal business hours, the
Company (or its authorized employees, agents, accountants and
representatives) will have the right, at the expense of the
Company, to examine and audit the System Books and Records and
such other evidence of the DMX Revenues of the TCI System Owners
as the Company may reasonably request to the extent reasonably
necessary to verify the accuracy of TCI's calculation of Net DMX
Revenues. The rights granted to the Company in this Section
8.3(b) may be exercised not more frequently than once a year and
the period as to which such right is exercised will be limited to
a period beginning not more than two years before the date such
notice is given and ending as of the end of the most recent
calendar month for which information regarding DMX Revenues is
available.
(c) After receipt of a statement setting forth
the calculation of the Net DMX Proceeds in accordance with
Section 8.3(b), the Company will have two years within which to
notify TCI of any disagreement with respect to TCI's calculation
of the Net DMX Revenues set forth in that statement, which
notice will specify in reasonable detail the basis for such
disagreement.
(d) If the Company notifies TCI that it agrees
with TCI's calculation of Net DMX Revenues for any period, that
calculation will be final and conclusive as of the date of
delivery of such notification. If the Company fails to provide
notice of disagreement with any calculation by TCI of Net DMX
Revenues within the two-year period prescribed by Section 8.3(c),
TCI's calculation will be final and conclusive as of the end of
such period.
(e) If within such two-year period the Company
provides notice of disagreement with TCI's calculation of Net DMX
Revenues for any month, the Company and TCI will negotiate in
good faith to resolve any such dispute for a period of 30 days
following receipt of such notice of disagreement. If the dispute
is not resolved within such period, the dispute will be referred
to KPMG Peat Marwick (or, if such accounting firm is for any
reason unwilling or unable to act in such capacity, such other
nationally recognized accounting firm as may be designated by
KPMG Peat Marwick), which accounting firm will render its
decision (together with a reasonably detailed explanation
therefor) as soon as possible following submission of the dispute
to it, which decision will be final and conclusive. The fees and
expenses of the accounting firm relating to services rendered
pursuant to this Section 8.3(e) will be paid by the Company and
TCI in equal shares.
IX. MISCELLANEOUS
9.1 Notices. All notices, requests, demands and other
-------
communications called for or contemplated hereunder will be in
writing and will be deemed to have been duly given if delivered
in person or by United States certified or registered mail,
prepaid, addressed to the parties, their permitted successors in
interest or assignees, or sent by courier or telecopier:
<PAGE>
To TCI at :
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Brendan Clouston
Telecopy: (303) 488-3200
with a copy similarly addressed, Attention: Legal Department
and another copy to:
Sherman & Howard L.L.C.
3000 First Interstate Tower North
633 Seventeenth Street
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy: (303) 298-0940
To the Company at:
TCI Music, Inc.
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: President
Telecopy: (303) 267-5376
Any party may change the address to which notices are required to
be sent by giving notice of such change in the manner provided in
this Section. All notices will be deemed to have been received
on the date of delivery or on the third Business Day after the
mailing thereof, except that any notice of a change of address
will be effective only upon actual receipt.
9.2 Expenses. Whether or not the transactions
--------
contemplated hereby are consummated, each of the parties will
bear the fees and expenses relating to its compliance with the
various provisions of this Agreement, and each of the parties
will pay all of its own expenses (including all attorneys' fees
and expenses) incurred in connection with this Agreement, the
transactions contemplated hereby, the negotiations leading to the
same and the preparation made for carrying the same into effect.
9.3 Modification; Waiver. This Agreement may be
--------------------
modified or terminated by mutual agreement only by a writing
signed by each of the parties, and no provision or condition
herein may be waived other than by a writing signed by the party
waiving such provision or condition.
<PAGE>
9.4 Headings. Article and Section headings in this
--------
Agreement are for the sole purpose of convenient reference and in
no way define, limit or prescribe the scope or intent of this
Agreement or any part hereof, and such headings will not be
considered in interpreting or construing this Agreement.
9.5 Assignment. Neither party may assign any of its
----------
rights under this Agreement or delegate its duties hereunder
unless it obtains the prior written consent of the other party,
which consent may be withheld at such party's absolute
discretion. Notwithstanding the preceding sentence, any party
may assign its rights under this Agreement to any Affiliate of
such party without the consent of any other party.
9.6 Counterparts. This Agreement may be executed in
------------
any number of counterparts, each of which may be deemed to be an
original, and all of which taken together will constitute one
instrument.
9.7 Additional Documents. At the Closing and from
--------------------
time to time after Closing, at either party's request and without
further consideration, the other party will execute and deliver
(or cause to be executed and delivered) such other instruments of
conveyance and transfer and will take such other actions as may
reasonably be required effectively to carry out the transactions
contemplated by this Agreement.
9.8 Other. This Agreement constitutes the entire
-----
agreement of the parties regarding the subject matter hereof, and
all prior or contemporaneous agreements, understandings,
representations and statements, oral or written, are merged into
this Agreement. This Agreement will be binding upon and inure to
the benefit of the parties and, subject to the limitations set
forth in Section 9.5, their respective successors and assigns.
The provisions of this Agreement are for the exclusive benefit of
the parties and their permitted successors and assigns, and no
other Person is intended to be a third-party beneficiary or to
have any rights by virtue of this Agreement.
9.9 Governing Law. This Agreement will be governed by
-------------
the laws of the State of Colorado, without regard to the
conflicts of laws rules thereof.
9.10 Interpretation. Terms used with initial capital
--------------
letters will have the meanings specified, applicable to
both singular and plural forms, for all purposes of this
Agreement. All pronouns (and any variation) will be deemed to
refer to the masculine, feminine or neuter, as the identity of
the Person may require. The singular or plural includes the
other, as the context requires or permits. The word "include"
(and any variation) is used in an illustrative sense rather than
a limiting sense. The word "day" means a calendar day, and if
the last day for the giving of any notice or the taking of any
other action is a day that is not a Business Day, the time for
giving such notice or taking such action will be deemed extended
to the next Business Day.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
<PAGE>
TELE-COMMUNICATIONS, INC.
By:
Name:
Title:
TCI MUSIC, INC.
By:
Name:
Title:
