<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2275
THE SEAGRAM COMPANY LTD.
(Exact name of registrant as specified in its charter)
Canada None
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Peel Street, Montreal, Quebec, Canada H3A 1S9
(Address of principal executive offices) (Zip Code)
514-849-5271
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
As of January 31, 1998, there were 345,103,409 common shares without nominal or
par value issued and outstanding.
<PAGE> 2
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income and
Retained Earnings -
Quarter and Six Months Ended
December 31, 1997 and 1996 1
Consolidated Balance Sheet -
December 31, 1997 and June 30, 1997 2
Consolidated Statement of Cash Flows -
Six Months Ended December 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
</TABLE>
<PAGE> 3
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(United States dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 3,541 $ 3,749 $ 6,480 $ 6,693
Cost of revenues 2,128 2,298 3,874 4,016
Selling, general and administrative expenses 1,159 1,050 2,047 1,991
--------- --------- --------- ---------
OPERATING INCOME 254 401 559 686
Interest, net and other 85 66 138 73
--------- --------- --------- ---------
169 335 421 613
Provision for income taxes 135 172 245 278
Minority interest 6 2 15 8
--------- --------- --------- ---------
NET INCOME 28 161 161 327
Retained earnings at beginning of period 7,969 8,413 8,259 8,389
Dividends paid (57) (61) (116) (117)
Shares purchased and retired (343) (63) (707) (149)
--------- --------- --------- ---------
Retained earnings at end of period $ 7,597 $ 8,450 $ 7,597 $ 8,450
========= ========= ========= =========
Earnings per share - Basic $ 0.08 $ 0.43 $ 0.45 $ 0.88
========= ========= ========= =========
- Diluted $ 0.08 $ 0.43 $ 0.45 $ 0.87
========= ========= ========= =========
Dividends paid per share $ 0.165 $ 0.165 $ 0.33 $ 0.315
========= ========= ========= =========
Weighted average shares outstanding (thousands) 348,631 370,159 353,765 370,452
Dilutive potential common shares (thousands) 2,423 5,029 3,097 4,258
--------- --------- --------- ---------
Adjusted weighted average shares outstanding (thousands) 351,054 375,188 356,862 374,710
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(United States dollars in millions)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments at cost $ 379 $ 504
Receivables, net 2,524 1,931
Inventories 2,792 2,974
Film costs, net of amortization 287 387
Deferred income taxes 514 521
Prepaid expenses and other current assets 455 402
-------- --------
TOTAL CURRENT ASSETS 6,951 6,719
-------- --------
Common stock of DuPont 988 1,034
Common stock of Time Warner 1,659 1,291
Investment in USA Networks, held for sale 2,502 794
Film costs, net of amortization 1,106 991
Artists' contracts, advances and other entertainment assets 634 645
Deferred charges and other assets 725 714
Property, plant and equipment, net 3,141 3,125
Investments in unconsolidated companies 1,346 1,303
Excess of cost over fair value of assets acquired 4,205 4,236
-------- --------
$ 23,257 $ 20,852
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and indebtedness payable within one year $ 3,142 $ 255
Accrued royalties and participations 693 726
Payables and accrued liabilities 2,182 2,077
Income and other taxes 392 314
-------- --------
TOTAL CURRENT LIABILITIES 6,409 3,372
-------- --------
Long-term indebtedness 2,188 2,494
Accrued royalties and participations 492 339
Deferred income taxes 2,552 2,461
Other credits 868 913
Minority interest 1,864 1,851
Shareholders' Equity
Shares without par value (344,857,406 and 365,280,735 shares, respectively) 776 809
Cumulative currency translation adjustments (479) (427)
Cumulative gain on equity securities, net of tax 990 781
Retained earnings 7,597 8,259
-------- --------
TOTAL SHAREHOLDERS' EQUITY 8,884 9,422
-------- --------
$ 23,257 $ 20,852
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(United States dollars in millions)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 161 $ 327
------- -----
Adjustments to reconcile net income to net cash provided
Depreciation and amortization of assets 178 179
Amortization of excess of cost over fair value of assets acquired 122 96
Gain on sale of DuPont warrants, pre-tax -- (60)
Gain on sale of Putnam, pre-tax -- (64)
Minority interest charged to income 15 8
Sundry (55) 42
Changes in assets and liabilities
Receivables (597) (629)
Inventories 151 130
Film costs, net of amortization (21) (217)
Prepaid expenses and other current assets (55) 1
Artists' contracts, advances and other entertainment assets (8) (7)
Payables and accrued liabilities 221 216
Income and other taxes 79 235
Deferred income taxes (14) (33)
Other credits (54) 20
------- -----
(38) (83)
------- -----
Net cash provided by operating activities 123 244
------- -----
INVESTING ACTIVITIES
Acquisition of 50% interest in USA Networks (1,700) --
Capital expenditures (186) (226)
Proceeds from sale of DuPont warrants -- 500
Proceeds from sale of Putnam -- 330
Acquisition of Multimedia Entertainment assets -- (54)
Sundry (90) (3)
------- -----
Net cash (used for) provided by investing activities (1,976) 547
------- -----
FINANCING ACTIVITIES
Dividends paid (116) (117)
Issuance of shares upon exercise of stock options and conversion of LYONs 13 56
Shares purchased and retired (753) (157)
Increase in long-term indebtedness 12 4
Decrease in long-term indebtedness -- (8)
Increase (decrease) in short-term borrowings and indebtedness payable within one year 2,572 (517)
------- -----
Net cash provided by (used for) financing activities 1,728 (739)
------- -----
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ (125) $ 52
======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in
accordance with the requirements of Form 10-Q and, therefore, do not include all
information and notes necessary for a presentation of results of operations,
financial position and cash flows in conformity with generally accepted
accounting principles. These statements should be read in conjunction with the
consolidated financial statements and related notes in the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1997. In the opinion
of the Company, the unaudited interim financial statements include all
adjustments, comprising only normal recurring adjustments, necessary for a fair
presentation of operating results. Results of operations for the six months are
not necessarily indicative of those expected for the fiscal year.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
2. Purchase of USA Networks and proposed combination with HSN, Inc. ("HSNi")
On September 22, 1997, the Company and Viacom Inc. ("Viacom") announced their
agreement to resolve all litigation regarding jointly-owned USA Networks. Under
the terms of the agreement, Universal Studios, Inc. ("Universal"), on October
21, 1997, acquired Viacom's 50% interest in USA Networks, including the Sci-Fi
Channel, for $1.7 billion in cash. The acquisition has been accounted for under
the purchase method of accounting. The cost of the acquisition has been
allocated on the basis of the estimated fair market value of the assets acquired
and liabilities assumed. This valuation resulted in $1.6 billion of unallocated
excess of cost over fair value of assets acquired, included in "Investment in
USA Networks, held for sale" on the balance sheet, and will be amortized over 40
years.
The minority shareholder in Universal, Matsushita Electric Industrial Co., Ltd.
("Matsushita") declined to contribute the additional capital required to fund
their proportionate share of this acquisition. As a result, the Company's
ownership of Universal has increased from 80 percent to 84 percent.
The unaudited condensed pro forma results of operations data presented below
assume the USA Networks acquisition occurred at the beginning of each period
presented. These pro forma results of operations were prepared based upon the
historical consolidated statements of operations of the Company and of USA
Networks for the six months ended December 31, 1997 and 1996, adjusted to
reflect purchase accounting. The unaudited pro forma information is not
necessarily indicative of the combined results of operations of the Company and
USA Networks that would have resulted if the transactions had occurred on the
dates previously indicated, nor is it necessarily indicative of future operating
results of the Company.
Pro Forma Income Statement Data
(millions, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Revenues $6,793 $7,001
------ ------
Net income $141 $304
====== ======
EARNINGS PER SHARE:
Basic $0.40 $0.82
------ ------
Diluted $0.40 $0.81
------ ------
</TABLE>
4
<PAGE> 7
On October 20, 1997, Universal and HSNi announced that Universal will contribute
the majority of its television assets, including all of the domestic operations
and 50% of the international operations of USA Networks, to HSNi in a
transaction in which Universal will receive a combination of shares of HSNi
common stock and interest in a subsidiary of HSNi which are exchangeable for
HSNi common stock plus approximately $1.3 billion in cash. The resulting
effective 45.8% interest in HSNi will be accounted for under the equity method.
HSNi intends to change its corporate name to USA Networks, Inc. The transaction
is subject to HSNi shareholder approval, which is expected to occur at an HSNi
shareholder meeting scheduled for February 11, 1998. Subject to this approval,
the transaction is expected to close as early as February 12, 1998.
3. Sale of the Warrants of E.I. du Pont de Nemours ("DuPont")
On July 24, 1996, DuPont repurchased the 156 million equity warrants owned by
the Company for $500 million in cash. The Company had received the warrants in
April, 1995 when DuPont redeemed 156 million shares of its common stock owned by
the Company. The warrants were valued at $440 million at the date of the 1995
transaction. The results for the six months ended December 31, 1996 include a
$60 million pre-tax gain ($39 million after-tax) from the sale of the warrants.
The pre-tax gain is included in Interest, net and other on the consolidated
statement of income and retained earnings.
4. Investment in DuPont
At December 31, 1997, the Company owned 16.4 million shares of the outstanding
common stock of DuPont. The Company accounts for the investment at market value.
The underlying historical book value of the DuPont shares is $187 million.
5. Investment in Time Warner Inc. ("Time Warner")
At December 31, 1997, the Company owned 26.8 million shares of the outstanding
common stock of Time Warner. The Company accounts for the investment at market
value. The total cost of the investment was $937 million.
On February 5, 1998, the Company sold 15 million of its Time Warner shares for
pre-tax proceeds of approximately $960 million. The gain on the sale of the
shares was approximately $430 million (approximately $280 million after tax).
6. Supplementary Financial Statement Information
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
---- ----
(millions)
<S> <C> <C>
INVENTORIES
Beverages $ 2,489 $ 2,704
Materials, supplies and other 303 270
------- -------
$ 2,792 $ 2,974
======= =======
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost $ 4,563 $ 4,435
Accumulated depreciation (1,422) (1,310)
------- -------
$ 3,141 $ 3,125
======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
EXCISE TAXES (included in revenues and cost of revenues) $ 260 $ 284 $ 422 $ 465
----- ----- ----- -----
</TABLE>
5
<PAGE> 8
7. Long-Term Debt and Debt Guarantees
Joseph E. Seagram & Sons, Inc. ("JES"), the Company's U.S. spirits and wine
subsidiary, has outstanding debt securities guaranteed by the Company. JES
issued Liquid Yield Option Notes (LYONs), which are zero coupon notes with no
interest payments due until maturity on March 5, 2006. Each $1,000 face amount
LYON may be converted, at the option of the holder, into 18.44 of the Company's
common shares (319,788 shares at December 31, 1997). The Company has guaranteed
the LYONs on a subordinated basis.
In addition, the Company has unconditionally guaranteed JES's 8 3/8% Debentures
due February 15, 2007, 7% Debentures due April 15, 2008, 8 7/8% Debentures due
September 15, 2011, 9.65% Debentures due August 15, 2018, and 9% Debentures due
August 15, 2021.
Summarized financial information for JES and its subsidiaries follows:
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Revenues $1,077 $1,042 $1,995 $1,983
Cost of revenues $ 814 $ 797 $1,519 $1,512
Net income $ 3 $ 19 $ 36 $ 84
</TABLE>
Consolidated Balance Sheet information for JES follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
---- ----
(millions)
<S> <C> <C>
Current assets $1,497 $ 957
Noncurrent assets 14,018 12,666
------- ---------
$15,515 $ 13,623
======= =========
Current liabilities $ 2,528 $ 671
Noncurrent liabilities 3,828 3,809
Shareholder's equity 9,159 9,143
------- ---------
$15,515 $13,623
======= =========
</TABLE>
8. Earnings Per Share and Common Shares
At December 31, 1997, there were 32,842,481 common shares potentially issuable
upon the conversion of the LYONs described in Note 7 and the exercise of
outstanding employee stock options. The dilutive effect on the Company's
earnings per share from the assumed issuance of these shares is reflected in
Diluted earnings per share on the income statement.
In the six months ended December 31, 1997, the Company canceled 20,948,200
common shares which were purchased on the open market and issued 524,871 shares
upon the exercise of employee stock options and the conversion of LYONs.
The Company has adopted FAS 128, Earnings per Share, effective with the quarter
and six months ended December 31, 1997. The prior year earnings per share
amounts have been restated in accordance with FAS 128.
6
<PAGE> 9
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The Company operates two core, global segments: beverages and entertainment. The
Company's beverage businesses are engaged principally in the production and
marketing of distilled spirits, wines, fruit juices, coolers, beers and mixers.
The Company's entertainment unit, Universal Studios, Inc., produces and
distributes motion picture, television and home video products; produces and
distributes recorded music; and operates theme parks and retail stores.
The discussion of business unit performance includes attributed revenues which
reflect the Company's proportionate share of the revenues of the Company's
equity companies and attributed earnings before interest, taxes, depreciation
and amortization ("EBITDA") for the Company's operations which reflects the
proportionate share of the EBITDA of the Company's equity companies. The
adjustment for equity companies eliminates the Company's proportionate share of
the EBITDA in order to reflect equity income as calculated under generally
accepted accounting principles. Financial analysts generally consider EBITDA to
be an important measure of comparative operating performance. However, EBITDA
should be considered in addition to, not as a substitute for operating income,
net income, cash flows and other measures of financial performance in accordance
with generally accepted accounting principles.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Reported Revenues $ 3,541 $ 3,749 $ 6,480 $ 6,693
======= ======= ======= =======
Attributed Revenues $ 3,901 $ 4,036 $ 7,170 $ 7,307
======= ======= ======= =======
Beverages - EBITDA
Spirits and Wine $ 253 $ 315 $ 444 $ 497
Fruit Juices and Other 72 65 141 128
------- ------- ------- -------
Beverages EBITDA before Charge for Asia
Spirits and Wine Operations 325 380 585 625
Charge for Asia Spirits and Wine Operations (60) -- (60) --
------- ------- ------- -------
Total Beverages EBITDA 265 380 525 625
Adjustment for Equity Companies (2) (2) (4) (5)
Depreciation and Amortization (59) (55) (114) (110)
------- ------- ------- -------
Beverages - Operating Income 204 323 407 510
Entertainment - EBITDA
Filmed Entertainment 113 65 271 217
Music Entertainment 47 45 65 52
Recreation and Other 39 40 102 115
Gain on Sale of Putnam -- 64 -- 64
------- ------- ------- -------
Total Entertainment EBITDA 199 214 438 448
Adjustment for Equity Companies (41) (23) (68) (47)
Depreciation and Amortization (95) (81) (186) (165)
------- ------- ------- -------
Entertainment - Operating Income 63 110 184 236
Corporate Expenses (13) (32) (32) (60)
------- ------- ------- -------
TOTAL OPERATING INCOME $ 254 $ 401 $ 559 $ 686
======= ======= ======= =======
</TABLE>
7
<PAGE> 10
The Company's results were severely impacted by the economic and currency crises
in Asia which hampered business performance and resulted in a $60 million charge
to Spirits and Wine operations in the second quarter. Reported revenues for the
quarter and six months ended December 31, 1997 declined six percent and three
percent, respectively, due to declines in Spirits and Wine revenues resulting
from the extremely difficult market conditions in Asia, the unfavorable impact
of foreign exchange, and the absence of the contribution from Putnam (the
publishing operation that was sold in December 1996) in the current year, partly
offset by gains in Filmed Entertainment, Music, Recreation and Other and at The
Tropicana Beverage Group. Operating income for the quarter fell 37 percent to
$254 million and was 19 percent lower for the six months, at $559 million. The
deterioration of the Spirits and Wine results in Asia offset strong growth in
the North America Spirits and Wine business, Tropicana, and Universal.
Attributed revenues for the second quarter, at $3.9 billion, were three percent
lower than in the prior year while EBITDA declined 22 percent to $464 million.
For the six months, attributed revenues showed a two percent decline, but grew
one percent if the Putnam contribution is excluded from the prior year. EBITDA
for the six months decreased ten percent to $963 million. Excluding the charge
for the Spirits and Wine operations in Asia and the prior year contribution from
Putnam, EBITDA for the quarter was flat year-on-year at $524 million and
increased four percent to over $1.0 billion for the six months.
Beverage Operations
In the quarter ended December 31, 1997, the Beverages segment contributed $2.03
billion to reported revenues and $204 million to operating income versus $2.12
billion of reported revenues and $323 million of operating income in the prior
year. Six months reported revenues for the Beverages segment were $3.59 billion
while operating income was $407 million compared to prior year reported revenues
of $3.71 billion and operating income of $510 million.
Spirits and Wine
In the second quarter, reported and attributed revenues both declined seven
percent. Excluding the unfavorable impact of foreign exchange, reported revenues
declined three percent. Revenues in Asia were down over 50 percent reflecting
the impact of foreign exchange, the buyback of inventory from a major
distributor in Greater China to reduce at-risk receivables, lower shipments in
order to reduce distributor inventories, particularly in Greater China, and
diminished consumer demand, particularly in the Duty Free market, which was
affected by reduced travel in the region. Revenues in North America increased
six percent in the quarter but revenues in Europe and Latin America were down
six percent and two percent, respectively. Excluding the foreign exchange
impact, Europe's revenues would have increased slightly, driven by improvement
in the U.K., Spain and Italy. Revenues in Latin America were affected by
economic problems in Brazil and Venezuela. Based on current market conditions
in Asia, the Company expects a shortfall in fiscal year 1998 Spirits and Wine
earnings similar, in percentage terms, to the decline in second quarter results.
Spirits and Wine volumes fell two percent as the performance of global brands
was mixed. Key North American brands were very strong led by Captain Morgan, up
11 percent, and Crown Royal, up 22 percent following a timing-related decline in
the first quarter. For the six months, Crown Royal shipments increased nine
percent. Absolut continues to grow with four percent higher volume in the
quarter. Several global brands showed declines due to the market conditions in
Asia, including Chivas Regal, Martell and Royal Salute.
Excluding the charge for operations in Asia, EBITDA declined $62 million for the
quarter, to $253 million. This reduction is attributable to the situation in
Asia and reflects the decline in revenues as well as lower margins as demand
shifts from imported products to less expensive, locally-produced products.
EBITDA for North America increased 13 percent driven by higher revenues and
margin increases from improved mix and sustained price increases.
In the quarter, the Company recorded a $60 million charge related to operations
in Asia. The charge includes approximately $30 million for increased bad debt
reserves, $15 million for severance and related costs, and the balance reflects
other asset write-downs.
8
<PAGE> 11
Fruit Juices and Other
Reported and attributed revenues for Fruit Juices and Other were up four percent
in the quarter and two percent for six months. Revenue growth in the quarter and
six months was affected by an unfavorable foreign exchange variance. In the six
months, revenue growth was also impacted by difficult comparisons with the prior
year in North America which included an extra week of sales due to the change in
the fiscal year end. Excluding the impact of these two items, reported revenues
would have increased six percent in both the second quarter and six months. The
flagship brand, Tropicana Pure Premium, experienced 13 percent volume growth in
the quarter in North America. Tropicana's share of the total U.S. chilled orange
juice market was 42 percent and its share of the not-from-concentrate orange
juice market was 72 percent. Both of these share percentages were ahead of the
second quarter last year. Internationally, volume increased 13 percent
reflecting growth in Europe and Asia Pacific.
EBITDA for Fruit Juices and Other increased 11 percent in the quarter to $72
million reflecting the strong performance of Tropicana Pure Premium in North
America. Overall, Fruit Juices and Other margins increased in the quarter to
13.6 percent from 12.8 percent in the prior year as a result of improved mix.
Entertainment
In the second quarter, reported and attributed revenues decreased seven percent
and two percent, respectively. For the six months ended December 31, 1997,
reported revenues fell three percent while attributed revenues increased one
percent. Excluding the contribution of Putnam in the prior year, attributed
revenues increased five percent in the quarter and seven percent in the six
months. Despite improved results in all segments, operating income declined $47
million to $63 million for the quarter and $52 million to $184 million for the
six months due to the inclusion of the Putnam operations and gain on sale of
Putnam in the prior year results, and to higher amortization expense in the
current year. Excluding Putnam from the prior year results, operating income
increased $21 million for the quarter and $33 million for the six months.
As a result of the sale of Universal's book publishing business in December
1996, the Entertainment segment's operations are presented in three components:
Filmed Entertainment, Music Entertainment and Recreation and Other. Recreation
and Other principally includes recreation operations, retail stores and new
media ventures as well as publishing results through December 16, 1996.
Filmed Entertainment
Reported and attributed revenues for the quarter increased one percent and seven
percent, respectively. For the six months, reported revenues rose nine percent
while attributed revenues increased 11 percent. The second quarter and six
months results include an additional $77 million of revenues due to the
incremental 50 percent of USA Networks acquired from Viacom on October 21, 1997.
EBITDA rose 74 percent or $48 million in the quarter. Excluding the $29 million
incremental contribution from USA Networks, EBITDA increased 29 percent
reflecting the strong domestic video releases of both The Lost World: Jurassic
Park and Liar, Liar, offset by the poor box office performance of For Richer Or
Poorer and The Jackal. In addition, there were higher earnings from television
which largely resulted from syndicated talk shows and Hercules: The Legendary
Journeys and Xena: Warrior Princess. Improved contribution from USA Networks
resulted from higher advertising and affiliate revenues and lower make-good
requirements.
Music Entertainment
Reported and attributed revenues decreased five percent and three percent,
respectively, in the quarter as compared to the prior year. For the six months,
reported revenues declined two percent while attributed revenues were up one
percent. EBITDA increased $2 million compared with a very strong quarter last
year. The growth results from strong sales of releases by Aqua, Chumbawamba,
Erykah Badu and Smashmouth. Margins continue to improve, reflecting better mix
and lower manufacturing costs.
9
<PAGE> 12
Recreation and Other
For the second quarter, reported and attributed revenues decreased 15 percent
and eight percent, respectively. For the six months, reported and attributed
revenues were, respectively, 26 percent and 19 percent below the prior year.
Excluding the results of Putnam from the prior year, reported and attributed
revenues increased six percent and 11 percent, respectively, in the quarter and
one percent and three percent for the six months. EBITDA for the second quarter
showed a $5 million improvement excluding the Putnam contribution from the prior
year. This improvement is largely due to the Florida theme park where attendance
increased one percent and per capita spending rose two percent. Both attendance
and spending at the Hollywood theme park declined one percent. As expected, the
theme park comparisons with the prior year are difficult as the prior period
benefited from the opening of Jurassic Park - The Ride in Hollywood and
Terminator-2: 3-D in Florida in 1996.
Corporate Expenses and Interest, Net and Other
Corporate expenses were $13 million in the current quarter as compared to $32
million in the prior year and $32 million for six months compared to $60 million
last year. The decreases in both the quarter and six months are primarily due to
reduced reengineering expenses and lower costs associated with stock-based
compensation as a result of the decline in the market value of the Company's
shares during the period. Interest, net and other for the quarter was $85
million and included net interest expense of $93 million, which was partially
offset by $8 million in dividend income from the DuPont and Time Warner
investments. In the prior year, Interest, net and other was $66 million which
was comprised of net interest expense of $75 million offset by $9 million of
dividend income from DuPont and Time Warner. Interest, net and other for the six
months was $138 million as compared to $73 million for the prior year which
included a $60 million pre-tax gain on the sale of DuPont warrants. The increase
in interest expense in the quarter versus the prior year is due primarily to a
higher average debt balance, which reflects the funding of the Company's
purchase of the incremental 50 percent interest in USA Networks on October 21,
1997 and the ongoing share repurchase program.
Net Income
In the second quarter, net income was $28 million or $0.08 per share compared
with net income of $161 million, or $0.43 per share, in the prior year.
Excluding the $50 million after-tax charge for Spirits and Wine operations in
Asia, net income was $78 million or $0.22 per share. For the six months, net
income was $161 million or $0.45 per share compared to $327 million or $0.88 per
share in the prior year. Excluding the after-tax charge for the Spirits and Wine
operations in Asia and the after-tax gain on the sale of DuPont warrants from
the prior year, net income for the six months was $211 million or $0.59 per
share compared to $288 million or $0.78 per share last year.
The effective tax rate for the six months ended December 31, 1997 was 58 percent
as compared to an effective tax rate of 45 percent in the prior year. The
increase is due to a higher effective tax rate on ongoing operations of 53
percent reflecting reduced earnings in the relatively low tax jurisdictions in
Asia. In addition, the charge for Spirits and Wine operations in Asia will
result in only limited tax benefits resulting in a further increase in the
effective rate, to 58 percent. The effective tax rate for the second quarter is
80 percent. The tax provision recorded in the first quarter was at an effective
rate of 44 percent; the second quarter tax provision reflects the adjustment of
the first quarter provision to the new full-year tax rate of 53 percent on
ongoing operations.
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<PAGE> 13
Liquidity and Capital Resources
Current assets increased to $7.0 billion at December 31, 1997, as compared to
$6.7 billion at June 30, 1997, due primarily to higher receivables resulting
from the cyclical nature of both the Entertainment and Spirits and Wine
businesses. Current liabilities at December 31, 1997 were $6.4 billion compared
to $3.4 billion at June 30, 1997 due primarily to an increase in short-term
borrowings to fund the $1.7 billion acquisition of the incremental share in USA
Networks and share repurchases of $753 million. Shareholders' equity was $8.9
billion at December 31, 1997 compared to $9.4 billion at June 30, 1997. The
decline was caused primarily by charges to the equity accounts upon the
repurchase of shares. Net debt was $5.0 billion compared to $2.2 billion at June
30, 1997 reflecting an increase in short term borrowings primarily to finance
the acquisition of the incremental interest in USA Networks as well as share
repurchases in the first six months of the fiscal year.
Net cash of $123 million was provided by operating activities in the six months
ended December 31, 1997, compared to $244 million in the prior year period.
Reduced film production costs partially offset the impact of the net income
decline in the current year.
Cash used for investing activities was $2.0 billion in the six months ended
December 31, 1997 primarily due to the $1.7 billion acquisition of the remaining
50 percent of USA Networks. In addition, capital expenditures were $186 million.
In the prior year, cash provided by investing activities of $547 million
reflected proceeds of $500 million on the sale of the DuPont warrants, proceeds
of $330 million on the sale of Putnam, offset by capital expenditures of $226
million and the acquisition of Multimedia Entertainment for $54 million. The
Company's liquidity is enhanced by its investment in Time Warner stock which had
a market value of $1.7 billion on December 31, 1997 (26.8 million shares). On
February 5, 1998, the Company sold 15 million of the Time Warner shares, with a
December 31, 1997 market value of approximately $929 million, for pre-tax
proceeds of approximately $960 million. After-tax proceeds of approximately $800
million will be used for general corporate purposes, including repayment of
debt. As previously indicated, the Company does not view its remaining
investment in Time Warner as a strategic asset.
Financing activities in the six months ended December 31, 1997 reflect an
increase in short-term borrowings of $2.6 billion used to finance the
acquisition of the incremental interest in USA Networks and the repurchase of
the Company's shares for $753 million, and to pay dividends of $116 million. In
the comparable prior year period, financing activities reflected a decrease in
short-term borrowings due to the receipt of proceeds from the sale of the DuPont
warrants and the sale of Putnam offset by the Company's repurchase of shares at
a cost of $157 million and dividend payments totaling $117 million.
The Company's financial condition remains strong. Management believes that its
strong financial position provides it with sufficient financial flexibility to
meet future financial obligations.
Cautionary Statement Concerning Forward-Looking Statements
The statements in this Form 10-Q relating to matters that are not historical
facts are forward-looking statements that are not guarantees of future
performance and involve risks and uncertainties, including but not limited to
future global economic conditions, foreign exchange rates, the actions of
competitors and other factors beyond control of the Company.
11
<PAGE> 14
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the litigation entitled Digital Distribution Inc. d/b/a
Compact Disc Warehouse v. CEMA Distribution, Sony Music Entertainment,
Inc. Warner Elektra Atlantic Corporation, UNI Distribution Corporation,
Bertelsmann Music Group, Inc. and Polygram Group Distribution, Inc., No. 95-3596
JSL described on page 9 of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 (the "Form 10-K"). Upon reinstatement of this
litigation by the Ninth Circuit as described in the Form 10-K, a number of
related actions were filed, which all arise out of the same claims and subject
matter. These related actions are captioned: Chandu Dani d/b/a Compact Disc
Warehouse and Record Revolution, et at., v. EMI Music Distribution (formerly
known as CEMA Distribution); Sony Music Entertainment, Inc.; Warner Elektra
Atlantic Corporation; Universal Music & Video Distribution Corporation (formerly
known as UNI Distribution, Inc.); Bertelsmann Music Group, Inc.; and Polygram
Group Distribution, Inc., No. CV 97-7226 (JSL), filed on September 30, 1997 in
the U.S. District Court for the Central District of California; Third Street
Jazz and Rock Holding Corporation, et al., v. EMI Music Distribution (formerly
known as CEMA Distribution); Sony Music Entertainment, Inc.; Warner Elektra
Atlantic Corporation; Universal Music & Video Distribution Corporation (formerly
known as UNI Distribution Corporation); Bertelsmann Music Group, Inc.; and
Polygram Group Distribution, Inc., No. CV 97-8864 JSL (VAPx), filed October 21,
1997 in the U.S. District Court for the Central District of California; T. Obie,
Inc. d/b/a/ Chestnut Hill Compact Disc v. EMI Music Distribution (formerly known
as CEMA Distribution); Sony Music Entertainment, Inc. Warner Elektra Atlantic
Corporation; Universal Music & Video Distribution Corporation (formerly known as
UNI Distribution Corporation); Bertelsmann Music Group, Inc.; and Polygram Group
Distribution, Inc., No. 97 Civ. 7764 LMM, filed October 21, 1997 in the U.S.
District Court for the Southern District of New York; Nathan Muchnick, Inc. et
al. v. Sony Music Entertainment, Inc.; Polygram Group Distribution, Inc.;
Bertelsmann Music Group, Inc.; Universal Music & Video Distribution, Inc.;
Warner Elektra Atlantic Corporation; (formerly known as UNI Distribution
Corporation); and EMI Music Distribution, Inc./Capitol Records, Inc., No. 98
Civ. 0612, filed on January 28, 1998 in the U.S. District Court for the Southern
District of New York.
On January 16, 1998, the Competition Directorate of the Commission of the
European Communities issued a Statement of Objections in response to the
application of the United International Pictures ("UIP") for a renewal of its
exemption from Article 85(1) of the Treaty of Rome with respect to UIP's
theatrical distribution activities within the European Union.
UIP is a partnership that is owned equally by Universal, Metro-Goldwyn-Mayer
and Paramount Pictures Corporation. It was created in 1981 for the purpose of
achieving cost savings in the distribution of motion pictures to theaters
internationally, including Europe. In 1989, after lengthy proceedings, the
European Commission granted UIP an exemption from Article 85(1) with respect to
UIP's theatrical distribution activities within the European Union. Article
85(1) of the Treaty of Rome prohibits certain agreements and concerted
practices which prevent, restrict or distort trade within the European Union.
In 1993, prior to the stated expiration of the 1989 exemption, UIP filed an
application to extend this exemption. The Statement of Objections, issued in
response to the request to renew the exemption, indicates that, although a
final decision has not been made, the Commission is of the preliminary opinion
that the exemption granted to UIP in 1989 should not be extended.
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<PAGE> 15
UIP and its partners, including Universal, dispute the preliminary views of the
Commission as expressed in the Statement of Objections and will provide
evidence to the Commission in order to persuade the Commission that the
exemption should be extended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index filed with this Form 10-Q is on page 14.
(b) Current Reports on Form 8-K
1. A Current Report on Form 8-K dated October 21, 1997 to report under item 5
and file under item 7 a press release announcing that Universal will
contribute the majority of its television assets, including all of the
domestic operations and 50% of the international operations of USA Networks,
to HSNi in the transaction described in Note 2 to the financial statements.
2. A Current Report on Form 8-K dated February 5, 1998 to report under item 5
and file under item 7 a press release announcing the sale of 15 million
shares of Time Warner.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE SEAGRAM COMPANY LTD.
------------------------
(Registrant)
By: /s/ Robert W. Matschullat
-------------------------------
Robert W. Matschullat
Vice Chairman and Chief Financial Officer
(Principal Financial Officer)
Dated: February 11, 1998
14
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
10 Investment Agreement among Universal Studios, Inc. for itself
and on behalf of certain of its subsidiaries, HSN, Inc., Home
Shopping Network, Inc. and Liberty Media Corporation, for
itself and on behalf of certain of its subsidiaries dated as
of October 19, 1997, as amended and restated as of December
18, 1997.
12(a) Computation of Ratio of Earnings to Fixed Charges
- The Seagram Company Ltd.
12(b) Computation of Ratio of Earnings to Fixed Charges
- Joseph E. Seagram & Sons, Inc.
27 Financial Data Schedule
</TABLE>
15
<PAGE> 1
EXHIBIT 10
================================================================================
INVESTMENT AGREEMENT
AMONG
UNIVERSAL STUDIOS, INC.,
FOR ITSELF AND ON BEHALF OF CERTAIN OF ITS SUBSIDIARIES
HSN, INC.,
HOME SHOPPING NETWORK, INC.
AND
LIBERTY MEDIA CORPORATION,
FOR ITSELF AND ON BEHALF OF CERTAIN OF ITS SUBSIDIARIES
DATED AS OF OCTOBER 19, 1997,
AS AMENDED AND RESTATED AS OF DECEMBER 18, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1. THE TRANSACTIONS
1.1. Formation of LLC...................................................... A-6
1.2. Formation of Investor Newcos.......................................... A-6
1.3. Parent and Sub Contributions.......................................... A-6
1.4. Assumption of Liabilities............................................. A-6
1.5. Closing............................................................... A-6
1.6. Parent Shares......................................................... A-8
1.7. Investor's Preemptive Right........................................... A-8
1.8. Holder's Preemptive Right............................................. A-11
1.9. Holder To Exchange LLC Shares......................................... A-11
1.10. Issuance of LLC Shares to Parent or Sub............................... A-12
1.11. Business of the LLC................................................... A-12
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF INVESTOR
2.1. Organization, Standing, and Authority................................. A-13
2.2. Authorization and Binding Obligation.................................. A-13
2.3. Absence of Conflicting Agreements; Consents........................... A-13
2.4. Licenses.............................................................. A-14
2.5. Real Property......................................................... A-14
2.6. [Intentionally omitted]............................................... A-14
2.7. Contracts............................................................. A-14
2.8. Intangible Property................................................... A-15
2.9. Financial Statements.................................................. A-15
2.10. Personnel............................................................. A-16
2.11. Claims and Legal Actions.............................................. A-17
2.12. Compliance with Laws.................................................. A-17
2.13. Transactions with Affiliates; Completeness of Assets.................. A-17
2.14. Cable Subscribers..................................................... A-18
2.15. Ownership of the Partnership.......................................... A-18
2.16. Investment............................................................ A-18
2.17. Conduct of Business................................................... A-18
2.18. Brokers............................................................... A-19
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PARENT
3.1. Organization and Good Standing........................................ A-19
3.2. Capitalization........................................................ A-19
3.3. Due Authorization; Execution and Delivery............................. A-20
3.4. Absence of Breach; No Conflict........................................ A-21
3.5. Shares to Be Issued................................................... A-21
3.6. Investment Purpose.................................................... A-21
3.7. Brokers............................................................... A-21
3.8. Commission Documents; Financial Information........................... A-21
3.9. Approvals............................................................. A-22
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
3.10. Personnel............................................................. A-22
3.11. Conduct of Business................................................... A-23
3.12. Licenses.............................................................. A-24
3.13. Claims and Legal Actions.............................................. A-24
3.14. Compliance with Laws.................................................. A-24
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF HOLDER
4.1. Organization, Standing, and Authority................................. A-24
4.2. Authorization and Binding Obligation.................................. A-25
4.3. Absence of Conflicting Agreements; Consents........................... A-25
ARTICLE 5. INTERCOMPANY TRANSFER OF FUNDS
5.1. General............................................................... A-25
5.2. Transfers from LLC.................................................... A-25
5.3. Transfers to LLC...................................................... A-25
5.4. Other Transactions.................................................... A-25
5.5. Interest.............................................................. A-26
ARTICLE 6. INVESTOR EXCHANGE OPTIONS; DISTRIBUTIONS;
STOCK DIVIDENDS, SPLITS, ETC.
6.1. Exchange Options...................................................... A-26
6.2. Distributions to LLC Stockholders..................................... A-27
6.3. Tax Treatment......................................................... A-28
6.4. Anti-dilution......................................................... A-28
ARTICLE 7. TRANSFERABILITY; ISSUANCE TO OTHER PARTIES
7.1. No Transfer of Shares of the LLC...................................... A-29
7.2. Transfer by Investor or Holder........................................ A-29
ARTICLE 8. TAX MATTERS
8.1. Tax Representations................................................... A-29
8.2. Tax Indemnification by Investor....................................... A-29
8.3. Tax Indemnification by Parent......................................... A-29
8.4. Allocation of Certain Taxes........................................... A-29
8.5. Filing Responsibility................................................. A-30
</TABLE>
3
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<TABLE>
<CAPTION>
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<S> <C> <C>
8.6. Refunds............................................................... A-30
8.7. Cooperation and Exchange of Information............................... A-30
8.8. Section 754 Election.................................................. A-31
8.9. Certificate of Non-Foreign Status..................................... A-31
8.10. Definitions........................................................... A-31
ARTICLE 9. ADDITIONAL COVENANTS
9.1. Annual or Special Meeting............................................. A-32
9.2. HSR Filings........................................................... A-32
9.3. Related Agreements.................................................... A-32
9.4. Other Businesses...................................................... A-32
9.5. Information and Access................................................ A-33
9.6. Reservation........................................................... A-33
9.7. Further Action........................................................ A-33
9.8. [Intentionally omitted]............................................... A-33
9.9. Employees............................................................. A-33
9.10. Investor Give-Back Provision.......................................... A-35
9.11. Disclosure Schedules.................................................. A-35
9.12. Financing............................................................. A-36
9.13. Representations and Warranties........................................ A-36
9.14. Spinoff of Regulated Subsidiaries..................................... A-36
9.15. Partnership Interest Purchase Agreement............................... A-36
9.16. USA Network Cash...................................................... A-36
9.17. Consents.............................................................. A-37
9.18. Viacom Non-Competition Covenant....................................... A-37
9.19. Ownership of Licenses................................................. A-37
ARTICLE 10. CONDITIONS
10.1. Conditions to Investor's Obligations.................................. A-37
10.2. Conditions to Parent's Obligations.................................... A-38
10.3. Conditions to Holder's Obligations and Option......................... A-39
ARTICLE 11. SURVIVAL AND INDEMNIFICATION
11.1. Survival.............................................................. A-39
11.2. Indemnification by Investor, Holder or Parent......................... A-40
11.3. Third-Party Claims.................................................... A-41
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 12. TERMINATION; LIQUIDATION
12.1. Termination by Mutual Written Consent................................. A-41
12.2. Termination by Parent or Investor..................................... A-41
12.3. Termination by Parent................................................. A-42
12.4. Termination by Investor............................................... A-42
12.5. Termination Following Closing......................................... A-42
12.6. Effect of Termination................................................. A-42
ARTICLE 13. GENERAL
13.1. Definitions........................................................... A-43
13.2. Efforts to Proceed Promptly........................................... A-48
13.3. Maintenance of Business............................................... A-49
13.4. Notices............................................................... A-49
13.5. Specific Enforcement.................................................. A-50
13.6. Severability.......................................................... A-50
13.7. Entire Agreement...................................................... A-50
13.8. Amendment; Waiver..................................................... A-50
13.9. Headings; References.................................................. A-50
13.10. Expenses.............................................................. A-50
13.11. Counterparts.......................................................... A-51
13.12. Governing Law......................................................... A-51
13.13. Public Announcement................................................... A-51
13.14. No Third Party Beneficiaries.......................................... A-51
Exhibit A Governance Agreement
Exhibit B LLC Operating Agreement
Exhibit C 1. Domestic and International Distribution Agreements
2. Studio Facilities Agreement
3. Ancillary Business Agreements
4. International Joint Venture Agreement
5. Transition Services Agreement
</TABLE>
5
<PAGE> 6
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (the "Agreement") dated as of October 19, 1997, as
amended and restated as of December 18, 1997, among UNIVERSAL STUDIOS, INC., for
itself and on behalf of certain of its Subsidiaries ("Investor"), HSN, INC.
("Parent"), HOME SHOPPING NETWORK, INC. ("Sub"), a direct subsidiary of Parent,
and LIBERTY MEDIA CORPORATION, for itself and on behalf of certain of its
Subsidiaries ("Holder") (Investor, Holder, Parent and Sub, collectively, the
"Parties"). The Parties agree to consummate the following transactions (the
"Transactions") upon the terms and subject to the conditions set forth herein.
Capitalized terms used herein without definition have the meanings ascribed to
such terms in Article 13 hereof.
ARTICLE 1.
THE TRANSACTIONS
1.1. Formation of LLC. On or prior to the Closing Date, Parent agrees to
cause Sub to, and Sub agrees to, organize a new Delaware limited liability
company (the "LLC"). Upon formation of the LLC pursuant to this Section 1.1, the
LLC shall become a party to this Agreement, shall be bound by all the terms and
conditions hereunder and shall constitute a "Party" hereunder.
1.2. Formation of Investor Newcos. On or prior to the Closing Date,
Investor agrees to organize and form one or more holding companies, or to
designate one or more existing companies reasonably acceptable to Parent (each,
an "Investor Newco" and collectively, the "Investor Newcos") solely for the
purpose of acquiring an equity interest in LLC. Investor agrees that except as
contemplated hereby, during the term of this Agreement it shall be the sole
owner of all of the outstanding equity interest of Investor Sub and each
Investor Newco, and it shall cause Investor Sub and each Investor Newco not to
(i) engage in any other business, except the Transactions contemplated hereby,
or (ii) incur any liability.
1.3. Parent and Sub Contributions. On or before the Closing, Parent and
Sub shall, subject to Section 1.11(b), contribute, transfer, assign and convey
(collectively, "Contribute") or cause to be Contributed to the LLC, (i) all of
the assets, rights and businesses owned, held or conducted by Parent and Sub
described on Schedule 1.3 ("Contributed Businesses"), (ii) the portion of the
Acquired Partnership Interest described in Section 1.5(b)(ii) and (iii) an
agreement to contribute the stock or assets of an agreed-upon Subsidiary of
Parent (the "Excluded Sub") as promptly as practicable consistent with tax
efficiencies, in exchange for an aggregate number of LLC Shares to be issued to
Parent or Sub equal to the Parent LLC Shares Number.
1.4. Assumption of Liabilities. On or before the Closing, the LLC will
assume, and agree to pay and discharge, as and when they become due, or
otherwise take subject to, all liabilities of Parent and Sub, other than the
liabilities set forth on Schedule 1.4 (collectively, the "Assumed Liabilities").
1.5. Closing. (a) Subject to the conditions set forth below, the closing
of the transactions contemplated hereby (the "Closing") shall take place at the
offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New
York 10019 at 10:00 a.m. on the date three days after satisfaction or waiver of
all of the conditions to the Parties' respective obligations to consummate the
transactions contemplated hereby (other than those requiring the delivery of
documents or the taking of other action at the Closing) or such earlier date as
may be agreed upon by the parties. The date on which the Closing is consummated
is hereinafter called the "Closing Date".
(b) At the Closing, USA Networks Partner, Inc. ("Investor Sub") shall sell
(i) to the LLC a portion of the Acquired Partnership Interest in exchange for
(A) a payment of cash equal to the Cash Amount (but such payment shall not
exceed $1.43 billion) to an account specified by Investor Sub in writing not
less than three days prior to the Closing, and (B) a number of LLC Shares equal
to the Acquired LLC Amount, and (ii) to Parent the remainder of the Acquired
Partnership Interest in exchange for 6.75 million shares of Parent Class B Stock
(provided, however that if FCC Regulations prevent Investor from acquiring 6.75
million shares of Parent Class B Stock, then any amount in excess of such amount
so permitted shall consist of Parent Common Stock, and provided, further, that
Parent shall cooperate with Investor to provide Investor with the
6
<PAGE> 7
same voting power that it would have in the absence of FCC Regulations at such
time, if any, as FCC Regulations would permit, including, without limitation,
agreeing to exchange Parent Common Stock for Parent Class B Stock) (the "Parent
Stock Number"), issued to Investor Sub.
(c) At the Closing, Investor shall Contribute or cause to be Contributed to
the LLC by the Investor Newcos, (i) the Owned Partnership Interest and (ii) all
of the assets, rights and businesses owned, held or conducted by Investor and
its Subsidiaries in its one-hour as well as certain half-hour domestic
television production business and domestic television distribution business,
including and excluding, as the case may be, those described on Schedule 1.5
(the "UT Contributed Business"), and the LLC will assume, and agree to pay and
discharge, as and when they become due, or otherwise take the UT Contributed
Business subject to, all liabilities of the UT Contributed Business set forth on
Schedule 1.5 excluding any liabilities for Taxes except as provided in Article 8
hereof (the "Assumed UT Liabilities") in exchange for a number of LLC Shares
equal to the Owned LLC Amount and issued in such names and denominations as
Investor shall request in writing not less than three days prior to the Closing.
(d) To the extent that the Cash Amount exceeds the amount of cash paid
under Section 1.5(b), such excess shall be distributed in cash pro rata to the
Investor Newcos in proportion to their LLC Shares and indebtedness of the LLC
shall be allocated to such Investor Newcos in the amount of such distribution
for purposes of Sections 707 and 752 of the Code.
(e) Notwithstanding the foregoing, LLC may, at its option, substitute LLC
Shares valued at $40 per share for up to $75 million in cash payable pursuant to
paragraph (b) above. In addition, at the Closing, the LLC shall reduce the cash
to be paid or distributed to Investor and the Investor Newcos pursuant to
Sections 1.5(b) and 1.5(d) by $300 million, which amount shall be paid or
distributed or applied to reduce any amount payable by Universal in connection
with the exercise of its preemptive rights on or prior to the Holder Closing (as
defined below), as the case may be, together with interest thereon from the date
of the Closing to the date of Payment at a rate per annum equal to the average
rate of borrowing of Investor's ultimate parent company plus 50 basis points,
upon the earlier of the Holder Closing or June 30, 1998, provided that Investor,
in its sole discretion, may elect to waive the interest described in this
sentence after considering various factors that (and to the extent) Investor
deems appropriate. Amounts to be distributed at Closing pursuant to Section
1.5(d) shall be reduced before amounts payable under Section 1.5(b) are reduced.
(f) (i) No later than June 30, 1998, the parties shall consummate a
transaction relating to Holder as follows:
(A) Subject to the provisions of this Section, Holder agrees to
purchase, for cash, 7.5 million in the aggregate of LLC Shares and/or of
Parent Common Shares at an initial purchase price of $40 per share, which
price shall increase by 7.5% per annum from the date of the Closing through
the date of the closing of the Holder transaction described in this
paragraph (the "Holder Closing"). The Holder Closing (with respect to the
cash and shares described in this subparagraph) shall be subject only to
the conditions that (i) the LLC or Parent, as the case may be, delivers
properly evidenced LLC shares and/or Parent Common Shares, duly authorized
and issued against payment therefor; (ii) the condition set forth in
Section 10.1(a) was satisfied as of the Closing; (iii) the conditions
described in Sections 10.1(b)-(j) are satisfied (as applied to the Holder,
the Holder Closing and the transactions described by this Section mutatis
mutandis) and (iv) the Closing has occurred. Holder shall be entitled to
reduce the number of LLC Shares (valued for this purpose at $40 per share)
to be acquired pursuant to this subparagraph (A) by the product of 0.45 and
the Holder Asset Value.
(B) Following the date hereof, Parent and Holder shall discuss the
possibility of a contribution by Holder at the Holder Closing of assets
acceptable to Parent, Holder and Investor in exchange for LLC Shares. If
the Parties (including Investor) reach agreement on the terms of any such
contribution (including on appropriate and reasonable representations,
warranties, covenants or other terms and conditions with respect to such
contribution), this Agreement shall be amended to provide for such
contribution, subject to the conditions so agreed upon. The purchase price
for each LLC Share acquired
7
<PAGE> 8
by Holder pursuant to this subparagraph (B) shall be $40 (the aggregate
value (at $40 per share) of the LLC Shares issued to Holder pursuant to
this subparagraph being the "Holder Asset Value").
(C) Shares acquired by Holder at the Holder Closing shall be issued in
such names and denominations as Holder shall request in writing not less
than three days prior to the Closing. Holder shall be entitled to acquire
any such LLC Shares through one or more newly-formed Subsidiaries on terms
comparable to the Investor Newcos as set forth in Section 1.2, mutatis
mutandis, above (each, a "Holder Newco"), as agreed upon by Parent and
Holder.
(ii) Investor shall not have any preemptive right with respect to the first
7.5 million LLC Shares and/or Parent Common Shares issued to Holder at the
Holder Closing. Investor shall have a preemptive right (at 45% and at $40 per
LLC Share) with respect to shares issued to Holder in excess of such amount.
Investor's preemptive right shall be mandatory to the extent that Holder elects
to reduce the number of shares purchased under Section 1.5(f)(i)(A), with
respect to the net related asset contribution by Holder under Section
1.5(f)(i)(B) that resulted in such reduction (e.g., if Holder elects with
respect to a nominal $100 million asset contribution to reduce the shares
purchased for cash by $45 million, Investor shall have a mandatory preemptive
right with respect to 1,375,000 shares ($55 million divided by $40)).
(iii) It is contemplated that Holder's total net contribution to the LLC or
Parent pursuant to this Section 1.5 would be in an amount that, assuming
Universal exercises its preemptive right with respect to such contribution,
would result in Holder's aggregate equity beneficial ownership interest
(including all LLC Shares and Parent Common Shares acquired by Holder pursuant
to this Section 1.5) in Parent (based on the Assumptions) not exceeding 25%.
Subject to tax efficiencies and regulatory requirements, Holder agrees to
acquire Parent Common Shares to the extent possible.
1.6. Parent Shares. (a) Nothing set forth in this Agreement shall be
construed to prevent Parent from issuing additional Parent Common Shares or any
other capital stock to any other person or entity.
(b) From and after the Closing Date, at such time that Parent shall issue
any additional Parent Common Shares (including, without limitation, upon
exercise of options or warrants or conversion of convertible securities, other
than shares of Parent Common Stock issued either upon conversion of shares of
Parent Class B Stock or upon issuance of Parent Common Shares pursuant to
Holder's Contingent Shares or Exchange Shares), Parent or Sub shall purchase
from the LLC a number of LLC Shares equal to the number of Parent Common Shares
issued, at a price per share equal to the Issue Price received by Parent for
such Parent Common Shares issued. Parent shall pay the LLC for such LLC Shares
with the same form of consideration as Parent or Sub receives in connection with
the issuance of such Parent Common Shares.
(c) From and after the Closing Date, at such time that Parent shall
repurchase or redeem any Parent Common Shares, Parent or Sub shall sell to the
LLC a number of LLC Shares equal to the number of Parent Common Shares so
repurchased or redeemed, for an amount per share equal to the Redemption Price
per Parent Common Share paid by Parent for the Parent Common Shares so
repurchased or redeemed. The LLC shall pay Parent for such LLC Shares with the
same form of consideration as Parent or Sub pays in connection with the
repurchase or redemption of such Parent Common Shares, or if such form of
consideration is not available to the LLC, with cash.
1.7. Investor's Preemptive Right. (a) (i) In the event that after the
Closing Date (and in addition to the mandatory and optional preemptive rights of
Investor pursuant to Section 1.5(f)(ii)), Parent issues or proposes to issue
(other than pursuant to an Excluded Issuance) (I) any Parent Common Shares
(including Parent Common Shares issued upon exercise, conversion or exchange of
options, warrants and convertible securities, but excluding (w) shares of Parent
Common Stock issued upon conversion of shares of Parent Class B Stock, (x)
Parent Common Shares issued upon exercise of the Exchange Options with respect
to LLC Shares issued to Investor Sub, the Investor Newcos, Holder and the Holder
Newcos, (y) Contingent Shares and Exchange Shares issued in accordance with the
Holder Exchange Agreement and (z) shares of Parent Common Stock issued pursuant
to a public offering described in clause (ii) of the definition of "Stock
Amount") or (II) LLC Shares (other than to Parent and its Affiliates, or to
Investor and its Affiliates), and such issuance in clause (I) or (II), together
with any prior issuances of less than 1% with respect to which
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Investor had no rights under this Section 1.7(a)(i), shall be in excess of 1% of
the total number of Parent Common Shares (based on the Assumptions) outstanding
after giving effect to such issuance, Parent shall give written notice to
Investor not later than five business days after the issuance (an "Additional
Issuance"), specifying the number of Parent Common Shares issued or to be issued
and the Issue Price (if known) per share. Investor shall have the right (but,
subject to the provisions of paragraphs (ii) and (iii) of this Section 1.7(a),
not the obligation) to cause Investor Sub and/or one or more Investor Newcos to
purchase for cash a number (but not less than such number) of shares of Parent
Common Stock, or at the request of the Investor, LLC Shares, or any combination
thereof, so that Investor Sub and the Investor Newcos shall collectively
maintain the identical percentage equity beneficial ownership interest (but not
in excess of 45%) or such other percentage equity beneficial ownership as in
effect from time to time pursuant to the standstill provisions contained in the
Governance Agreement (defined below) (but without giving effect to the
exceptions to the thresholds therein)) (it being agreed that under no
circumstances shall the preemptive rights granted to Investor under this Section
1.7 permit Investor to maintain a percentage equity beneficial ownership
interest in excess of 57.5%) in Parent that Investor Sub and Investor Newcos
collectively owned immediately prior to the notice from Parent to Investor
described in the first sentence of this paragraph (assuming that all Parent
Common Shares issuable upon the exercise of Exchange Options with respect to LLC
Shares have been issued and all Contingent Shares and Exchange Shares not yet
issued are outstanding, with such assumptions being referred to herein as the
"Assumptions") after giving effect to such Additional Issuance and to shares of
Parent Common Stock and/or LLC Shares that are to be issued to the Investor
Newcos pursuant to this Section 1.7(a) and to Holder in accordance with Section
1.8 below by sending an irrevocable written notice to Parent not later than
fifteen business days after receipt of such notice (or, if later, two business
days following the determination of the Issue Price) from Parent that it elects
to cause one or more Investor Newcos to purchase all of such shares of Parent
Common Stock or LLC Shares, as the case may be (the "Additional Shares"). The
closing of the purchase of Additional Shares shall be the later of ten business
days after the delivery of the notice of election by Investor and five business
days after receipt of any necessary regulatory approvals.
(ii) Notwithstanding anything to the contrary contained in paragraph (i) of
this Section 1.7(a), Investor shall be required to exercise its preemptive right
in full (a "Mandatory Purchase Event") for (A) Additional Issuances caused by
the conversion of Sub's 5 7/8% Convertible Subordinated Debentures due March 1,
2006 ("Sub Convertible Debt") into Parent Common Stock, at a cash Issue Price to
Investor of $40 per Additional Share, (B) Additional Issuances within 4 months
of the Closing Date in the aggregate amount of up to $200 million in Parent
Common Stock at a cash Issue Price to Investor of $40 per Additional Share and
(C) the transactions described in Section 1.5(f)(i), to the extent described in
Section 1.5(f)(ii). The closing of the purchase of Additional Shares shall be
the later of (x) ten business days after the delivery to Investor of a written
notice by Parent ("Mandatory Purchase Notice") specifying that an Additional
Issuance has occurred and that such Additional Issuance was caused by a
Mandatory Purchase Event and (y) five business days after receipt of any
necessary regulatory approvals, including under FCC regulations.
(iii) Notwithstanding anything to the contrary contained in paragraph (i)
of this Section 1.7(a), a Mandatory Purchase Event also shall occur by reason of
Additional Issuances in the aggregate amount up to 6.3 million Parent Common
Shares in connection with the purchase of additional equity in the Excluded Sub,
whether by exchange offer, merger or otherwise (a "Merger Transaction"), at a
cash Issue Price to Investor of $40 per Additional Share. If the Company issues
more than 6.3 million Parent Common Shares in the Merger Transaction, such
excess Additional Issuances shall not be deemed to be a Mandatory Purchase
Event, and Investor shall have the right but not the obligation to exercise its
preemptive right in respect of such excess in accordance with paragraph (i) of
this Section 1.7(a). The closing of the purchase referred to in this paragraph
(iii) shall occur on the later to occur of (v) the events specified in clauses
(x) and (y) of paragraph (ii) above and (w) in accordance with paragraph (i)
above.
(iv) Notwithstanding anything to the contrary contained in paragraphs (i)
through (iii) above, in the event that as a result of any Additional Issuance
and the issuance of Parent Common Stock to the Investor Newcos pursuant to
Section 1.7(a) and to Holder pursuant to Section 1.8, Investor's percentage
voting power in Parent (based on the Assumptions) would be below 67 percent, the
Investor Newcos shall have the right to
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purchase Parent Class B Stock pursuant to Section 1.7(a) in lieu of the number
of shares of Parent Common Stock permitted to be purchased pursuant to Section
1.7(a) in order to maintain 67 percent voting power in Parent (based on the
Assumptions); provided that if such percentage voting power in Parent has been
reduced due to the failure of Investor to elect to exercise previously its
rights pursuant to Section 1.7(a), Investor Sub and the Investor Newcos shall
only be permitted to maintain such lower percentage voting power.
(v) Subject to subparagraph (vi) below, when calculating the percentage
ownership of Parent that Investor Sub and the Investor Newcos beneficially own
in connection with determining the percentage for a preemptive right event (or
an event covered by paragraph (c) below), (A) prior to the Standstill
Termination Date (as defined in the Governance Agreement)), transfers of Parent
Securities shall be taken into account, but acquisitions by Investor of such
securities shall not be included, other than in the case of acquisitions from
Parent or otherwise pursuant to this Section 1.7, and (B) after the Standstill
Termination Date, acquisitions and dispositions of Parent Securities by Investor
at such times and in such amounts permitted under the Governance Agreement shall
be taken into account in calculating the applicable percentage for the exercise
of the rights under this Section 1.7.
(vi) Notwithstanding any other provision of this Agreement or the
Governance Agreement, Investor's percentage for purposes of the preemptive
rights (and for Parent's ability to redeem or purchase Investor's LLC Shares)
(A) shall be 45% for the period from and after the Closing through the Holder
Closing and (B) shall not take into account the effects of the exercise by
Parent of its option described in Section 1.5(e).
(b) In the event that Parent or any of its Affiliates purchases or redeems,
or proposes to purchase or redeem, any Parent Common Shares (other than shares
of Parent Class B Stock that may be deemed to be purchased or redeemed upon
conversion into shares of Parent Common Stock) following the Closing Date, and
such purchase or redemption, together with any prior purchases or redemptions of
less than 1% with respect to which Investor had no rights under this Section
1.7(b), shall be in excess of 1% of the total number of Parent Common Shares
(based on the Assumptions) outstanding prior to such purchase or redemption,
Parent shall give written notice to Investor not later than five business days
prior to the purchase or redemption, specifying the number of Parent Common
Shares to be purchased or redeemed and the purchase or redemption price (the
"Redemption Price") (if known) per share. Parent shall have the right to cause
the LLC to purchase for cash a number of LLC Shares from, at Investor's Option,
Investor Sub and/or the Investor Newcos so that Investor Sub and the Investor
Newcos shall collectively beneficially own no greater than a 45 percent equity
beneficial ownership (adjusted to reflect Section 1.5(e)) or such other
percentage as in effect from time to time pursuant to the standstill provisions
contained in the Governance Agreement attached hereto as Exhibit A (or any
successor agreement, the "Governance Agreement") (but without giving effect to
the exceptions to the thresholds therein) (based on the Assumptions) after
giving effect to such purchases or redemptions of Parent Common Shares by Parent
and to purchases from Investor Sub and the Investor Newcos pursuant to this
Section 1.7(b), at a price per share equal to the Redemption Price, by sending
an irrevocable written notice to Investor not later than five business days
prior to the purchase or redemption that it elects to cause the LLC to purchase
all of such number of LLC Shares or, at Investor's election or to the extent
required under applicable FCC Regulations (but only to the extent of the
percentage increase in Investor's beneficial ownership of Parent Common Shares
that would otherwise result from such event), Parent Common Shares. The closing
of such purchase of LLC Shares and/or Parent Common Shares, as the case may be,
shall be simultaneous with the purchase or redemption of Parent Common Shares.
(c) In the event that there should occur (i) an event, circumstance or
condition with respect to which Investor has been granted a preemptive right
under Section 1.7(a) hereof but Investor is not permitted by law, rule or
regulation from exercising such right, or (ii) another event, circumstance or
condition (but not of the type included or excluded from the preemptive right in
Section 1.7(a)) occurs (excluding sales or transfers of Parent Common Shares or
LLC Shares by Investor and its Affiliates) that results in the percentage of
equity beneficial ownership in Parent of Investor (based on the Assumptions)
being reduced, then, subject to the last sentence of this paragraph (c), Parent
shall promptly agree to sell, at Investor's election, to Investor Sub and/or one
or more of the Investor Newcos a number (but not less than such number) of
shares of Parent Common Stock or, at the request of Investor, LLC Shares (or a
combination thereof) so that Investor, Investor Sub and the Investor Newcos
shall collectively maintain the identical percentage equity beneficial
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ownership interest described in Section 1.7(a) with respect to an event that
would give rise to a preemptive right. The purchase price for the shares of
Parent Common Stock or LLC Shares shall be the Issue Price (if such event,
circumstance or condition is identifiable and such Issue Price is measurable) or
the Fair Market Value of the Parent Common Stock (or LLC Shares, based on the
Fair Market Value of the Parent Common Stock and the then-applicable Exchange
Rate (as defined in the Exchange Agreement)). The purchase price shall be paid
in cash. The other procedures described in Section 1.7(a) regarding the exercise
and consummation of Investor's preemptive right shall apply to Investor's
purchase under this paragraph. In the event that Parent does not promptly (upon
receipt of any required regulatory approvals or consents so long as there is a
reasonable prospect of such approvals or consents being obtained) sell to
Investor shares of Parent Common Stock or LLC Shares, then Investor shall be
permitted to purchase in the open market, in broker transactions, a number of
shares of Parent Common Stock that Investor would have purchased from Parent
hereunder. If an event, circumstance or condition described in the first
sentence of this paragraph shall occur and Investor elects not to exercise the
purchase right contained herein within a reasonable period of time, then
Investor's preemptive right percentage shall be reduced as though such event
were an event as to which the preemptive right in Section 1.7(a) arose and
Investor elected not to exercise such right.
1.8. Holder's Preemptive Right. (a) Subject to paragraphs (b) and (c) of
this Section 1.8, in the event that Parent issues any Parent Common Shares or
LLC Shares (other than to Parent and its Affiliates or Holder and its
Affiliates) under the circumstances set forth in Section 1.7(a)(i) above
applicable to Investor, Holder shall be entitled to purchase, or cause one or
more Holder Newcos to purchase, for cash a number (but not less than such
number) of shares of Parent Common Stock so that the Holder and the Holder
Newcos shall collectively maintain the identical percentage equity beneficial
ownership interest in Parent that Holder and the Holder Newcos collectively
owned immediately prior to the notice from Parent described in Section 1.7(a)
(which shall be in substance the same as the notice provided to Investor
pursuant to Section 1.7(a) and subject to the terms thereof but shall be
addressed to Holder) of a contemplated Additional Issuance (but not in excess of
the percentage equity beneficial ownership interest in Parent that Holder and
the Holder Newcos collectively owned immediately following the Closing or
following Holder's contribution pursuant to Section 1.5(f)) on the same terms
and conditions specified therein and in Section 1.7(c); provided, that Holder
shall only be entitled to purchase LLC Shares if and to the extent the total
number of Parent Common Shares then owned directly or indirectly by Holder would
exceed the Holder Limit after giving effect to the closing of the purchase of
Parent Common Stock by Holder, in which event at such closing, Holder shall be
entitled to purchase a number of LLC Shares at the Issue Price equal to such
excess in lieu of the purchase of shares of Parent Common Stock.
(b) No Additional Issuance shall be a Mandatory Preemptive Event for
Holder. Additional Issuances in Section 1.7(a)(ii) and (iii), Additional
Issuances (i) caused by the conversion of Sub Convertible Debt as described in
Section 1.7(a)(ii) or (ii) in the aggregate amount up to 6.3 million Parent
Common Shares in connection with a Merger Transaction as described in Section
1.7(a)(iii) shall be governed by the terms applicable to permissive exercise of
the preemptive right under Section 1.7(a)(i), provided that (i) the Issue Price
to Holder shall be $40 per share in cash of Parent Common Stock and (ii) any
such issuance shall, in any event, be subject to the proviso set forth in the
last sentence of Section 1.8(a).
(c) The purchase or redemption of any Parent Common Shares by Parent or any
of its Affiliates shall not result in an increase in the percentage of Parent
equity that Holder may be entitled to acquire pursuant to the preemptive right
in paragraph (a) above. For purposes of exercise of Holder's preemptive right
pursuant to this Secton 1.8 prior to the Holder Closing, Holder shall be deemed
to own (and there shall be deemed to be outstanding) an additional 7.5 million
LLC Shares.
1.9. Holder To Exchange LLC Shares. Following the issuance or expiration
of all Contingent Shares and prior to the exchange of any Exchange Shares
pursuant to Article 2 of the Holder Exchange Agreement, Holder shall be
required, subject to the terms and conditions described in Section 6.1(a) or as
may be set forth in the Exchange Agreement (including the future condition with
respect to a Holder Newco that such exchange is tax-free to Holder on terms
similar to those contained in the Holder Exchange Agreement), to consummate
transactions under the Exchange Agreement having the effect of exchanging that
number of LLC Shares for shares of Parent Common Stock equal to the then
Available Parent Amount (the "Holder
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Mandatory Exchange"); provided, however, (i) if applicable, any such exchange
shall only be exercised as to all shares held by any individual Holder Newco and
(ii) that Parent shall have the option, which may be exercised at any time (or
from time to time) after the issuance or expiration of all Contingent Shares, to
suspend the Holder Mandatory Exchange and/or Holder's right to exchange shares
of Sub for Parent Common Shares under the Holder Exchange Agreement, in either
case in connection with future issuances of Parent Common Shares, in order to
permit Parent to purchase or redeem (in each case in compliance with applicable
law, including without limitation, FCC Regulations) up to 10 million Parent
Common Shares, which suspension shall remain in effect so long as Parent
continues to make diligent efforts to effect such purchase or redemption and to
complete such repurchases as promptly as reasonably practicable. Holder and
Parent agree to take appropriate action to amend the Holder Exchange Agreement
to reflect the provisions of this Section 1.9 (which shall not include a waiver
or consent by Holder of any conditions to an exchange thereunder or of any other
rights of Holder under such agreement other than the re-ordering of the order of
the exchanges contemplated by the Exchange Agreement and the Holder Exchange
Agreement and to reflect the Parent option described above). Capitalized terms
used and not defined in this paragraph shall have the meanings ascribed to them
in the Holder Exchange Agreement.
1.10. Issuance of LLC Shares to Parent or Sub. Neither Parent nor Sub
shall, and Parent and Sub shall cause the LLC not to, issue any LLC Shares to
Parent or Sub or any of their Affiliates, except pursuant to and in accordance
with the terms of this Agreement.
1.11. Business of the LLC. (a) From and after the Closing, Parent and Sub
shall conduct, subject to this clause (a) and clause (b) below, all future
business, whether now existing or hereafter created, in the LLC, other than the
Excluded Businesses, the Excluded Sub (but subject to Section 1.3) or any other
business which Parent reasonably determines should be conducted in a separate
company or corporate entity for regulatory or significant tax reasons (such
business to be deemed an Excluded Business), provided that at such time, if any,
as such regulatory or significant tax restrictions no longer exist (it being
agreed that Parent shall use all reasonable best efforts to (i) avoid businesses
being deemed Excluded Businesses and (ii) eliminate the tax or regulatory
restrictions as soon as practicable with respect to any such Excluded
Businesses), such businesses shall not be Excluded Businesses and shall be
conducted in the LLC as promptly as reasonably practicable following the
elimination of such restrictions and compliance with applicable regulatory
requirements, and provided further that Parent shall not be restricted in any
manner, except as expressly set forth herein, including the Exhibits hereto,
from causing the LLC to engage in any transaction with any third party or Parent
or any subsidiary of Parent, including, without limitation, subsidiaries which
engage in Excluded Businesses (the "Regulated Subsidiaries").
(b) If any consent or approval is required in connection with, or the terms
or operation of law do not permit, the contribution to the LLC of any agreement,
lease, right, permit, franchise, authorization or other property or asset
relating to the Contributed Businesses or the UT Contributed Business, other
than the Regulated Subsidiaries (a "Consent Asset"), each of Parent, Sub,
Investor and each Investor Newco, as the case may be, agrees to use its
reasonable efforts to obtain any necessary consents or approvals for the
transfer of all Consent Assets contemplated to be transferred to the LLC;
provided that notwithstanding such efforts, if such consent or approval is not
obtained prior to the Closing and such Consent Asset is not contributed, each of
Parent, Sub, Investor and the Investor Newcos, as the case may be, in lieu of
contributing (or causing the contribution of) such Consent Asset, may hold such
Consent Asset for the use and benefit of the LLC (any Consent Asset so held is
referred to herein as a "Beneficial Asset"). In such event, Parent, Sub,
Investor or an Investor Newco, as the case may be, shall take all reasonable
actions necessary so that the LLC shall be afforded the full economic benefits
intended to be conferred by such Beneficial Asset, subject to the LLC satisfying
all of the transferor's liabilities in connection with such Beneficial Asset and
all of such transferor's duties, obligations and responsibilities incident
thereto, including without limitation, by assigning to the LLC the right to
receive all cash flow derived from such Beneficial Asset on and after the
Closing, such cash flow to be paid to the LLC as soon as reasonably practicable
but in no event more than 45 days after the end of each fiscal quarter of the
entity holding such Beneficial Asset. Following the Closing, Parent, Sub,
Investor and the Investor Newcos each agrees to continue to use its reasonable
efforts to obtain any consent or approval necessary to effectuate the
contribution to the LLC of any Consent Asset not contributed to the LLC on the
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Closing, and shall take all reasonable action to effectuate the contributions of
such Consent Asset after such consent or approval is obtained.
(c) For purposes of Section 1.11(b), the Excluded Sub shall be treated as a
Beneficial Asset until such time as Parent Contributes the stock or assets of
the Excluded Sub to the LLC in accordance with the terms of Section 1.3.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to Parent and the LLC as follows:
2.1. Organization, Standing, and Authority. (a) Each of Investor and
Investor Sub is and, upon formation in accordance with Section 1.2 hereof, each
Investor Newco will be, a corporation duly organized, validly existing, and in
good standing under the laws of their respective jurisdictions of incorporation.
Each of Investor and Investor Sub has and, upon formation in accordance with
Section 1.2 hereof, each Investor Newco will have, all requisite corporate power
and authority (i) to own, lease, and use as now owned, leased, and used by them
all of their respective assets, (ii) to conduct the business and operations of
the UT Contributed Business as now conducted by Investor, and (iii) to execute
and deliver this Agreement and the documents contemplated hereby (to the extent
a party to this Agreement or such documents), and to perform and comply with all
of the terms, covenants, and conditions to be performed and complied with by
them hereunder and thereunder. Investor, Investor Sub and each Investor Newco
are, or will be, qualified to transact business in each jurisdiction in which
the nature of their businesses makes such qualification necessary, except where
failure to be so qualified would not have a Material Adverse Effect on Investor
and its Subsidiaries considered as a whole.
(b) The Partnership is a partnership duly organized, validly existing, and
in good standing under the laws of the State of New York. The partnership
agreement (as amended, and together with all other documents governing the
operation of the Partnership, the "Partnership Agreement") has previously been
provided to Parent, and is in full force and effect. The Partnership has all
requisite power and authority (i) to own, lease, and use as now owned, leased,
and used by it all of its assets, and (ii) to conduct the business and
operations of the Partnership as now conducted by it. The Partnership is
qualified to transact business in each jurisdiction in which the nature of its
business makes such qualification necessary except where failure to be so
qualified would not have a Material Adverse Effect on the Partnership.
2.2. Authorization and Binding Obligation. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated hereby, and each of the agreements contemplated hereby, by Investor
(with respect to such agreements to which it is a party) have been duly
authorized by all necessary corporate action on the part of Investor. The
performance of this Agreement and the consummation of the transactions
contemplated hereby and each of the agreements contemplated hereby by Investor
Sub and each Investor Newco (with respect to such agreements to which it is a
party) will be duly authorized by all necessary corporate action on the part of
such entity. This Agreement has been duly executed and delivered by Investor and
constitutes the legal, valid, and binding obligation of Investor enforceable
against Investor in accordance with its terms, except to the extent limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting creditors' rights generally and by general equity principles
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
2.3. Absence of Conflicting Agreements; Consents. Except as set forth on
Schedule 2.3 and except for any filings, notices, applications and other
information as may be required to be made or supplied pursuant to the HSR Act or
the Exchange Act, the execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated hereby by Investor, Investor
Sub and the Investor Newcos (with or without the giving of notice, the lapse of
time, or both): (a) do not require any notices, reports or other filings with
any public or governmental authority to be made by Investor, Investor Sub, any
Investor Newco or the Partnership; (b) do not require the consent of any third
party (including any governmental or
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regulatory authority) (other than consents that would not, if not given, have a
Material Adverse Effect on the UT Contributed Business and the Partnership
considered as a whole); (c) will not conflict with any provision of the
Certificate of Incorporation, By-Laws, Partnership Agreement or other
organizational document, as the case may be, of Investor, Investor Sub, any
Investor Newco or the Partnership; (d) will not violate or result in a breach
of, or contravene any law, judgment, order, ordinance, injunction, decree, rule,
regulation, or ruling of any court or governmental instrumentality applicable to
any of Investor, Investor Sub, any Investor Newco or the Partnership; (e) will
not violate, conflict with, or result in a breach of any terms of, constitute
grounds for termination of, constitute a default under, or result in the
acceleration of any performance required by the terms of, any mortgage,
indenture, lease, contract, agreement, instrument, license, or permit to which
any of Investor, Investor Sub, any Investor Newco or the Partnership is a party
or by which any of Investor, Investor Sub, any Investor Newco or the Partnership
or their respective properties may be bound; and (f) will not create any claim,
liability, mortgage, lien, pledge, condition, charge, encumbrance, or other
security interest (collectively, "Liens") upon any of the assets owned by
Investor, Investor Sub, any Investor Newco or the Partnership, except, in the
case of clauses (a), (d), (e) or (f), for violations, breaches, contraventions,
conflicts, termination or acceleration or Liens which would not have a Material
Adverse Effect on the Partnership and the UT Contributed Business considered as
a whole, or would impair, in any material respect, the ability of Investor to
perform its obligations under this Agreement and the other documents
contemplated hereby.
2.4. Licenses. Schedule 2.4 is a true and complete list as of the date of
this Agreement of all material Licenses of the Partnership and the UT
Contributed Business. Each material License has been validly issued, and the UT
Contributed Business or the Partnership is the authorized legal holder thereof.
The material Licenses are in full force and effect, and the conduct of the
business and operations of the UT Contributed Business and the Partnership is in
accordance therewith in all material respects. As of the date of this Agreement,
there is no proceeding pending or, to Investor's knowledge, threatened, seeking
the revocation or limitation of any material Licenses. Each of the UT
Contributed Business and the Partnership is the holder of all material Licenses
necessary to enable it to continue to conduct its respective business as now
conducted.
2.5. Real Property. Schedule 2.5 contains a complete and accurate
description of all the Real Property providing individually for annual lease
payments in excess of $1 million (the "Material Real Property") of the UT
Contributed Business and the Partnership, and the respective interests of the UT
Contributed Business and the Partnership therein (including street address,
legal description, owner, and the use thereof). No fee estates are included in
the Material Real Property. Except as set forth on Schedule 2.5, the UT
Contributed Business or the Partnership has good title to all Material Real
Property, free and clear of all Liens or other restrictions on the Material Real
Property, except for Permitted Liens. Except for that portion of the Material
Real Property subject to leases where the Partnership is lessor or sublessor (as
identified on Schedule 2.5), the UT Contributed Business or the Partnership is
in possession of the Material Real Property. As of the date of this Agreement
there are no pending or, to the knowledge of Investor, threatened condemnation
or appropriation proceedings against any of the Material Real Property. The UT
Contributed Business or the Partnership has full legal and practical access to
all Material Real Property. With respect to each leasehold or subleasehold
interest included in the Material Real Property, the UT Contributed Business or
the Partnership has enforceable rights to nondisturbance and quiet enjoyment,
and no third party holds any interest in the leased premises with the right to
foreclose upon the UT Contributed Business' or the Partnership's leasehold or
subleasehold interest.
2.6. [Intentionally omitted]
2.7. Contracts. Schedule 2.7 is a true and complete list of all Contracts
of the UT Contributed Business and the Partnership as of the date of this
Agreement, which (i) at the time entered into, were outside the ordinary course
of business as then conducted by the business comprising the UT Contributed
Business or the Partnership, as applicable, or (ii) are (a) cable television
system affiliation agreements ("Affiliation Agreements") or other Contracts
providing for payments to or from the Partnership to cable television system
operators in excess of $1 million in any twelve month period, (b) Contracts
(other than with writer producers) with respect to the production, development,
broadcast, or distribution, of television programs with respect to which the UT
Contributed Business or the Partnership, as applicable, has a commitment to pay
in excess of
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$10 million ("Programming Agreements"), (c) agreements with writer producers
with respect to which the UT Contributed Business or the Partnership, as
applicable, has a commitment to pay in excess of $2 million per year, and (d)
agreements to buy or sell advertising where the required payments to or from the
UT Contributed Business or the Partnership, as applicable, are in excess of $10
million (the Contracts described in the foregoing clauses (i) and (ii),
collectively the "Material Contracts"). Investor has delivered or made available
to Parent true and complete copies of all Material Contracts. Except as
disclosed on Schedule 2.7, all of the Material Contracts are in full force and
effect and are valid and binding agreements of the Investor and, to the
knowledge of the Investor, the other parties thereto, enforceable in accordance
with their terms. Except as disclosed on Schedule 2.7, to the knowledge of
Investor, no party is in default in any material respect under any of the
Material Contracts, nor does any condition exist that with notice or the lapse
of time or both would constitute such a default. Except for the need to obtain
the consents listed on Schedule 2.3, the transactions contemplated hereby will
not affect the validity or enforceability of any of the Material Contracts.
Except as disclosed on Schedule 2.7, as of the date of this Agreement, no party
to any Material Contract has informed Investor or, to Investor's knowledge, its
Affiliates or the Partnership, of its intention (a) to terminate such Material
Contract or amend the material terms thereof, (b) to refuse to renew the
Material Contract upon expiration of its term, or (c) to renew the Material
Contract upon expiration only on terms and conditions that are more onerous to
the Partnership or the UT Contributed Business, as the case may be, than those
now existing.
2.8. Intangible Property. Schedule 2.8 is a list of (a) any intellectual
property asset (other than such property licensed to the UT Contributed Business
or the Partnership, as applicable), with a value, as reflected on the balance
sheet of the UT Contributed Business or the Partnership of $2.5 million or more
and (b) all material patents, trademarks, trade names, service marks, brand
marks, brand names, proprietary computer programs, proprietary databases,
industrial design, copyrights or any pending application therefor (collectively,
(a) and (b), the "Intangible Property") of the UT Contributed Business and the
Partnership and indicates, with respect to each such item of Intangible
Property, whether it is registered or unregistered, the owner thereof and, if
applicable, the name of the licensor and licensee thereof. Except as set forth
on Schedule 2.8, to the knowledge of Investor, no other person has any claim of
ownership or right of use with respect thereto. The use of such Intangible
Property by the UT Contributed Business or the Partnership does not, and
immediately after the Closing will not, conflict with, infringe upon, violate,
or interfere with or constitute an appropriation of any right, title, interest,
or goodwill, including any intellectual property right, patent, trademark, trade
name, service mark, brand mark, brand name, computer program, database,
industrial design, copyright, or any pending application therefor of any other
Person (except for such conflicts, infringements, violations or appropriations
as would not have a Material Adverse Effect on the Partnership and the UT
Contributed Business considered as a whole), and, to the knowledge of Investor,
there have been no claims made, and the UT Contributed Business or the
Partnership has not received any written notice, that any such item of
Intangible Property is invalid or conflicts with the asserted rights of any
Person (other than such invalidity or conflicts as would not have a Material
Adverse Effect on the Partnership and the UT Contributed Business considered as
whole). Except as set forth on Schedule 2.8, neither the UT Contributed Business
nor the Partnership is party to or bound by any material contract, license, or
other agreements relating to such Intangible Property other than those entered
into in the ordinary course of the business. As of the Closing, none of Investor
or its Affiliates shall have any rights to, or ownership interest in, any of the
trademarks or trade names relating to the "USA Networks," "USA Network,"
"Sci-Fi" and "Sci-Fi Channel" names and the related trade names and trademarks,
logos, brand marks and brandnames, including those listed on Schedule 2.8,
except pursuant to the International Joint Venture Agreement attached hereto as
Exhibit C.4 (or any successor agreement). Prior to the Closing, Investor shall
effect any assignments or other filings in order to satisfy the representation
contained in the preceding sentence.
2.9. Financial Statements. Investor has furnished Parent with true and
complete copies of unaudited balance sheets and income statements for the
Partnership as at and for the fiscal years ended December 31, 1996 and December
31, 1995, and as at and for the eight months ended August 31, 1997
(collectively, the "Investor Financial Statements"). The Investor Financial
Statements present fairly as of their respective dates, in all material
respects, the consolidated financial position of the Partnership as at the dates
thereof and the consolidated results of its operations and its consolidated cash
flows for each of the respective periods, in
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conformity with GAAP, except that the eight-month financial statements referred
to above are subject to normal year-end adjustments, none of which are expected
to be material.
Except as and to the extent expressly set forth in the Investor Financial
Statements, (i) as of August 31, 1997, the Partnership did not have any material
liabilities or obligations (whether absolute, contingent, accrued or otherwise)
and (ii) since the August 31, 1997 balance sheet the Partnership has not
incurred any such material liabilities or obligations other than in the ordinary
course of business.
2.10. Personnel. (a) Schedule 2.10 contains a true and complete list as
of the date of this Agreement of all active employees of the UT Contributed
Business and the Partnership who are currently engaged in the respective
businesses and operations of the UT Contributed Business and the Partnership
(including any employee on vacation, leave of absence, short-term disability, or
layoff with recall rights, but excluding retired employees of the UT Contributed
Business and any employee on long-term disability) (collectively, the "Business
Employees"). Schedule 2.10 also contains a true and complete list of all
material employee benefit plans or arrangements that cover any Business Employee
and any material employee benefit plans or arrangements that cover any former
employee of the Partnership, including any employment, severance, or other
similar contract, arrangement, or policy and each plan or arrangement (written
or oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, or retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation rights,
stock purchases, or other forms of incentive compensation or post-retirement
insurance, compensation, or benefits (collectively, "Benefit Arrangements").
Schedule 2.10 denotes all Benefit Arrangements sponsored or maintained by the
Partnership ("Partnership Plans").
(b) Except as set forth on Schedule 2.10(b), (i) no Benefit Arrangement is
an "employee pension benefit plan," as defined in Section 3(2) of ERISA (a
"Pension Plan"), that is subject to Title IV of ERISA or Section 412 of the
Code, and no Benefit Arrangement provides post-retirement welfare benefits,
except as required by law and (ii) neither Investor nor the Partnership has
incurred or expects to incur any liability or lien under Title IV of ERISA or
Section 412 of the Code, which liability or lien would be reasonably expected to
have a Material Adverse Effect on the Partnership and the UT Contributed
Business considered as a whole.
(c) Without limiting the generality of Section 2.10(b) and except as set
forth on Schedule 2.10(c), no Benefit Arrangement is a "multiemployer pension
plan," as defined in Section 3(37) of ERISA and neither Investor nor the
Partnership has incurred or expects to incur any liability or lien with respect
to any multiemployer pension plan which liability or lien would be reasonably
expected to have a Material Adverse Effect on the Partnership and the UT
Contributed Business considered as a whole.
(d) Except as set forth on Schedule 2.10(d), none of Investor, any of its
Affiliates, the Partnership or any entity required to be combined with any of
the foregoing entities under Section 414(b), Section 414(c), Section 414(m), or
Section 414(o) of the Code (an "ERISA Affiliate") has incurred, or expects to
incur solely as a result of the consummation of the Transactions (including any
termination of employment in connection therewith), any cost, fee, expense,
liability, claim, suit, obligation, or other damage with respect to any Pension
Plan or any Benefit Arrangement that could give rise to the imposition of any
liability, cost, fee, expense, or obligation on the LLC or any of its
Affiliates, which would be reasonably expected to have a Material Adverse Effect
on the Partnership and the UT Contributed Business considered as a whole, and,
to Investor's knowledge, no facts or circumstances exist that could give rise to
any such cost, fee, expense, liability, claim, suit, obligation, or other
damage, which would be reasonably expected to have a Material Adverse Effect on
the Partnership and the UT Contributed Business considered as a whole. Except as
set forth on Schedule 2.10(d), neither the execution and delivery of this
Agreement nor the consummation of the Transactions (including any terminations
of employment in connection therewith) will (i) increase any benefits otherwise
payable under any Benefit Arrangement, which would be reasonably expected to
have a Material Adverse Effect on the Partnership and the UT Contributed
Business considered as a whole or (ii) result in the acceleration of the time of
payment or vesting of any such payment, which would be reasonably expected to
have a Material Adverse Effect on the Partnership and the UT Contributed
Business considered as a whole.
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(e) Investor will deliver or make available to Parent, within ten days
hereafter, true and complete copies of each of the following documents:
(i) Each Benefit Arrangement (and, if applicable, related trust
agreements) and all amendments thereto, and (if applicable) each summary
plan description together with any summary of material modifications;
(ii) Each written Benefit Arrangement and written descriptions thereof
that have been distributed to Business Employees or any former employee of
the Partnership, (including descriptions of the number and level of
employees covered thereby); and
(iii) Each employee handbook or similar document describing any
Benefit Arrangement.
(f) Except as set forth on Schedule 2.10, no controversies, disputes, or
proceedings are pending or, to Investor's knowledge, threatened, between
Investor, any of its Affiliates, or the Partnership and any Business Employee or
any former employee of the Partnership, which would be reasonably expected to
have a Material Adverse Effect on the Partnership and the UT Contributed
Business considered as a whole. Except as set forth on Schedule 2.10(f), no
labor union or other collective bargaining unit represents or, to Investor's
knowledge, claims to represent any of the Business Employees or any former
employees of the Partnership and, to Investor's knowledge, there is no union
campaign being conducted to solicit cards from employees to authorize a union to
request a National Labor Relations Board Certification election with respect to
any of the Business Employees.
(g) Except where any such failure would not be reasonably expected to have
a Material Adverse Effect on the Partnership and the UT Business considered as a
whole, all Benefit Arrangements (i) comply in all material respects with
applicable law, including but not limited to ERISA and the Code, and (ii) have
been administered in all material respects in accordance with their terms, and
all required contributions have been made to such Benefit Arrangements. Except
as set forth on Schedule 2.10(g), all Partnership Plans that are intended to be
qualified under Section 401(a) of the Code have received a favorable
determination letter from the Internal Revenue Service, and neither Investor nor
the Partnership has knowledge of any events that would cause such letter to be
revoked.
2.11. Claims and Legal Actions. Except as set forth in Schedule 2.11,
there are no judicial, administrative or arbitral actions, suits, claims,
inquiries, investigations or proceedings in respect of the UT Contributed
Business or the Partnership (whether of a public or private nature) pending or,
to the knowledge of Investor, threatened against the UT Contributed Business or
the Partnership which, individually or in the aggregate, would have a Material
Adverse Effect on the UT Contributed Business and the Partnership considered as
a whole.
2.12. Compliance with Laws. Each of the UT Contributed Business and the
business of the Partnership has been and is presently being conducted in
compliance with all applicable laws, except for any noncompliance that would not
have a Material Adverse Effect on the UT Contributed Business and the
Partnership considered as a whole, or impair or hinder the ability of Investor,
Investor Sub or any Investor Newco to perform in any material respect their
respective obligations under this Agreement and the documents and agreements
contemplated hereunder.
2.13. Transactions with Affiliates; Completeness of Assets. (a) Except as
set forth on Schedule 2.13(a) or pursuant to agreements on arms-length terms,
there are no material agreements relating to the business or operations of the
UT Contributed Business or the Partnership between the UT Contributed Business
or the Partnership, on the one hand, and Investor or any of its Affiliates, on
the other hand, and (b) except as set forth on Schedule 2.13(b), neither the UT
Contributed Business nor the Partnership has engaged in any material business
arrangement or relationship with Investor or any of its Affiliates. With respect
to the UT Contributed Business, neither Investor nor any of its Affiliates owns
any right, tangible or intangible, relating to the shows listed on Schedule 2.13
and related agreements (other than as expressly contemplated by this Agreement
to be entered into between two or more of the Parties) and, with respect to the
Partnership, neither Investor nor any of its Affiliates owns any asset, property
or right, tangible or
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intangible, that is primarily used in the business or operations of the
Partnership, other than, in each case, such assets, properties and rights that
are being Contributed to the LLC in accordance with this Agreement.
2.14. Cable Subscribers. Schedule 2.14 sets forth, with respect to each
cable television system operator with which the Partnership has an Affiliation
Agreement, under the column "Network Subsidiary" the number of cable system
subscribers to such cable television system operator as most recently reported
to the Partnership. Schedule 2.14 also designates those cable television system
operators that, to Investor's knowledge, make the USA Networks available to
subscribers without an Affiliation Agreement.
2.15. Ownership of the Partnership. Investor owns directly or indirectly
all of the issued and outstanding Owned Partnership Interest and following
Closing of the transactions contemplated by the Partnership Interest Purchase
Agreement (for purposes of this Section 2.15, the term Closing shall have the
meaning set forth in the Partnership Interest Purchase Agreement), Investor Sub
will own, directly or indirectly, all of the issued and outstanding Acquired
Partnership Interest which, together, constitute 100% of the ownership interest
in the Partnership, subject to no Liens. There exist no other outstanding
options, convertible securities or other rights to acquire partnership or other
interests in the Partnership. Immediately upon the Closing, the LLC will own a
100% ownership interest in the Partnership, subject to no Liens other than any
Liens created by Parent or LLC. Except as set forth on Schedule 2.15, the
Partnership has no subsidiaries and owns no interest in any other entity.
2.16. Investment. Each of Investor, Investor Sub and each Investor Newco
(a) understands that the LLC Shares and Parent Common Shares to be issued to it
pursuant to this Agreement have not been, and will not be, registered under the
Securities Act or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, and (b) to the extent it or any of its Affiliates
acquires any of the LLC Shares or Parent Common Shares issued pursuant to this
Agreement, it or such Affiliate will be acquiring such shares solely for its own
account for investment purposes, and not with a view to the distribution
thereof.
2.17. Conduct of Business. Since August 31, 1997, the UT Contributed
Business and the business of the Partnership have been conducted in all material
respects in the ordinary course and there has not occurred any event or
condition having, or that would have, a Material Adverse Effect on the UT
Contributed Business and the business of the Partnership considered as a whole.
Without limiting the generality of the foregoing, other than as is disclosed on
Schedule 2.17 hereto, since August 31, 1997 there has not occurred:
(a) any change or agreement to change the character or nature of the
business of the UT Contributed Business or the Partnership in any material
respect;
(b) any purchase, sale, transfer, assignment, conveyance or pledge of
the assets or properties of the UT Contributed Business or the Partnership,
except in the ordinary course of business and except for the purchase of
the Acquired Partnership Interest pursuant to the Partnership Interest
Purchase Agreement;
(c) any waiver or modification by Investor, the Partnership or any of
their respective Subsidiaries, in respect of the UT Contributed Business or
the Partnership, of any right or rights of substantial value, or any
payment, direct or indirect, in satisfaction of any liability, in each
case, having a Material Adverse Effect on the UT Contributed Business and
the Partnership considered as a whole;
(d) any loan, advance or capital expenditure by the UT Contributed
Business, the Partnership or any of its Subsidiaries, except for loans,
advances and capital expenditures made in the ordinary course of business;
(e) any change in the accounting principles, methods, practices or
procedures followed in connection with the UT Contributed Business or the
Partnership or any change in the depreciation or amortization policies or
rates theretofore adopted in connection with the UT Contributed Business or
the Partnership;
(f) other than sweeping cash in the ordinary course of business, any
declaration or payment of any dividends, or other distributions in respect
of the outstanding equity interest of the Partnership;
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(g) any issuance of any equity interest of the Partnership;
(h) any grant or award of any options, warrants, conversion rights or
other rights to acquire any equity interest of the Partnership by the
Partnership;
(i) except for any changes made as a result of the consummation of the
purchase pursuant to the Partnership Interest Purchase Agreement, which
changes shall be consistent with the methods employed by other
Subsidiaries, any change in the methods of collecting receivables or paying
payables with respect to the Partnership; or
(j) any agreement with respect to any of the foregoing.
2.18. Brokers. No broker, finder or investment banker (other than
Goldman, Sachs & Co., the fees of which shall be the responsibility of Investor)
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Investor or its Affiliates.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Investor and the LLC and, to the extent
Holder acquires any additional LLC Shares in accordance with this Agreement,
Holder, as follows:
3.1. Organization and Good Standing. Parent is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
is duly qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business transacted by
it or the character or location of the properties owned or leased by it requires
such qualification, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect on Parent and its Subsidiaries
considered as a whole. Each of Parent and Sub has full corporate power and
authority (i) to own, lease and use as now owned, leased and used by it all of
its assets, (ii) to conduct the business and operations of Parent as now
conducted by it, and (iii) to execute and deliver this Agreement and the
documents contemplated hereby (to the extent a party to this Agreement or such
documents), and to perform and comply with all of the terms, covenants and
conditions to be performed and complied with by it hereunder and thereunder. The
copies of Parent's certificate of incorporation (the "Parent Certificate") and
by-laws (as amended and/or restated through the date hereof), heretofore
delivered to Investor, are true, complete and correct copies thereof. Upon
formation, the LLC will be a limited liability company duly organized, validly
existing and in good standing under the laws of Delaware and will be duly
qualified to transact business as a foreign corporation and will be in good
standing in each jurisdiction in which the nature of the business transacted by
it or the character or location of the properties owned or leased by it requires
such qualification, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect on the LLC. The LLC will have
full corporate power and authority to execute and deliver this Agreement and the
documents contemplated hereby, and to perform and comply with all of the terms,
covenants and conditions to be performed and complied with by it hereunder and
thereunder. Except as set forth on Schedule 3.1, each of the Subsidiaries of
Parent is duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization and has the power and
authority to own or lease its properties and to conduct its business as now
conducted, except as would not result in any Material Adverse Effect on Parent
and its Subsidiaries considered as a whole. All outstanding shares of the
capital stock of each of Parent's Subsidiaries have been validly issued and are
fully paid and nonassessable. Except as set forth in the Parent Form 10-K or
Schedule 3.1 or as contemplated by this Agreement, there are no outstanding
options, warrants, rights, agreements or commitments of any nature whatsoever of
any third party to subscribe for or purchase any equity security of any of
Parent's Subsidiaries or to cause any of such Subsidiaries to issue any such
equity security.
3.2. Capitalization. (a) The authorized capitalization of Parent as of
the date hereof consists of: 150,000,000 shares of Common Stock, $.01 par value
per share ("Parent Common Stock"), 30,000,000 shares
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of Parent Class B Common Stock, $.01 par value per share ("Parent Class B
Stock"), and 15,000,000 shares of preferred stock, $.01 par value per share, of
Parent ("Parent Preferred Stock"), of which, as of August 8, 1997, there were
43,526,372 shares of Parent Common Stock outstanding, 12,227,647 shares of
Parent Class B Stock outstanding and no shares of Parent Preferred Stock
outstanding. All such shares outstanding on the date hereof are, duly
authorized, validly issued and fully paid and nonassessable. Other than (a)
options to purchase an aggregate of approximately 11,572,649 shares of Parent
Common Stock issued pursuant to employee benefit plans and agreements of Parent
as of the date hereof and options granted by Parent on the date hereof as set
forth on Schedule 3.2, (b) rights to acquire shares of Parent Class B Stock and
Parent Common Stock under this Agreement, (c) Contingent Shares entitling Holder
to acquire 589,161 shares of Parent Class B Stock and Exchange Shares entitling
Holder to acquire 399,136 shares of Parent Class B Stock and 7,905,016 shares of
Parent Common Stock, each under agreements (the "Holder Agreements") described
in a Joint Proxy Statement/ Prospectus dated November 20, 1996 filed by Parent
with the Commission on Form S-4 (the "Parent Form S-4"), (d) 28,449,846 shares
of Parent Common Stock issuable upon conversion of the Savoy Debentures (each
such term as defined in the Parent Form S-4), and (e) shares of Parent Common
Stock issuable under the Stock Exchange Agreement between Paul Allen and Parent
dated May 20, 1997 and the letter agreement by and between Parent and Fred Rosen
dated May 20, 1997 (the Stock Exchange Agreement and the letter agreement
together, the "TKTM Agreements"), as of the date hereof, there are no
outstanding options, warrants, rights, puts, calls, commitments, or other
contracts, arrangements, or understandings issued by or binding upon Parent
requiring or providing for, and there are no outstanding debt or equity
securities of Parent which upon the conversion, exchange or exercise thereof
would require or provide for, the issuance by Parent of any new or additional
shares of Parent Common Stock (or any other securities of Parent) which, with
notice, lapse of time and/or payment of monies, are or would be convertible into
or exercisable or exchangeable for Parent Common Shares. There are no preemptive
or other similar rights available to the existing holders of Parent Common Stock
or other securities of Parent except as contemplated by this Agreement.
(b) As of the Closing Date, the authorized capitalization of the LLC will
consist of a number of LLC Shares, consisting of one or more classes of
interests as set forth in the LLC Operating Agreement. As of the Closing Date,
other than contemplated by this Agreement, there will be no outstanding or
authorized options, warrants, rights, puts, calls, commitments, or other
contracts, arrangements, or understandings issued by or binding upon the LLC
requiring or providing for, and there are no outstanding debt or equity
securities of the LLC which upon the conversion, exchange or exercise thereof
would require or provide for, the issuance by the LLC of any new or additional
LLC Shares (or any other securities of LLC, which, with notice, lapse of time
and/or payment of monies, are or would be convertible into or exercisable or
exchangeable for LLC Shares). As of the Closing Date, there will be no
preemptive or other similar rights available to the holders of LLC Shares or
other securities of the LLC except as contemplated by this Agreement.
3.3. Due Authorization; Execution and Delivery. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by Parent's board of directors
(including such authorization as may be required so that no state anti-takeover
statute or similar statute or regulation including, without limitation, Section
203 of the Delaware General Corporation Law, is or becomes operative with
respect to this Agreement or the transactions contemplated hereby or with
respect to Investor and its affiliates (as defined in Section 203) as of October
19, 1997) and, when authorized by the Requisite Stockholder Vote and the
Certificate Amendment is filed with the Delaware Secretary of State, no other
corporate proceedings on the part of Parent are necessary to authorize this
Agreement and to consummate the transactions contemplated hereby. The
performance of this Agreement and the consummation of the transaction
contemplated hereby by LLC (with respect to such agreements to which it is a
party) will be duly authorized by all necessary corporate action on the part of
LLC. This Agreement has been duly executed and delivered by Parent and Sub and
constitutes the legal, valid and binding obligation of Parent and Sub,
enforceable against Parent and Sub in accordance with its terms, except to the
extent limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting creditors' rights generally and by general equity
principles regardless of whether such enforceability is considered in a
proceeding in equity or at law.
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3.4. Absence of Breach; No Conflict. Except as set forth on Schedule 3.4
hereto, the execution, delivery, and performance of this Agreement by Parent,
and the consummation by Parent of the transactions contemplated hereby, (a) will
not require the consent of any third party (including any governmental or
regulatory authority) (other than consents that would not, if not given, have a
Material Adverse Effect on Parent and its Subsidiaries considered as a whole);
(b) will not conflict with any provision of the Certificate of Incorporation,
By-Laws or limited liability company agreement, as the case may be, of Parent,
Sub or the LLC; (c) will not violate or result in a breach of, or contravene any
law, judgment, order, ordinance, injunction, decree, rule, regulation, or ruling
of any court or governmental instrumentality applicable to any of Parent, Sub or
the LLC; (d) will not violate, conflict with, or result in a breach of any terms
of, constitute grounds for termination of, constitute a default under, or result
in the acceleration of any performance required by the terms of, any mortgage,
indenture, lease, contract, agreement, instrument, license, or permit to which
any of Parent, Sub or the LLC is a party or by which any of Parent, Sub or the
LLC or their respective properties may be bound; and (e) will not create any
Liens upon any of the assets owned by any of Parent, Sub or the LLC, except, in
the case of clause (c), (d) or (e), for violations, breaches, contraventions,
conflicts, termination or acceleration or Liens which would not have a Material
Adverse Effect on Parent and its Subsidiaries considered as a whole, or would
impair, in any material respect, the ability of Parent to perform its
obligations under this Agreement and the other documents contemplated hereby.
3.5. Shares to Be Issued. The LLC Shares and the Parent Common Shares to
be issued pursuant to the transactions contemplated hereby, when authorized by
the Requisite Stockholder Vote and issued in accordance with Articles 1 and 6,
will be duly authorized and legally and validly issued, fully paid and
nonassessable.
3.6. Investment Purpose. Parent is acquiring the Partnership solely for
the purpose of investment and not with view to, or for offer or sale in
connection with, any distribution thereof. Parent acknowledges and understands
that the Partnership may not be sold except in compliance with the registration
requirements of the Securities Act, unless an exemption therefrom is available.
3.7. Brokers. Other than Allen & Company Incorporated, the fees of which
shall be the responsibility of Parent, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or its Affiliates.
3.8. Commission Documents; Financial Information. The Parent Form 10-K in
respect of the fiscal year ended December 31, 1996 (the "Parent Form 10-K"), and
each report, schedule, proxy, information statement or registration statement
(including all exhibits and schedules thereto and documents incorporated by
reference therein) filed by Parent with the Commission following the date
thereof and on or before the Closing Date are collectively referred to as the
"Parent Commission Documents." As of their respective filing dates, the Parent
Commission Documents complied (or will comply) in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder applicable to such Parent Commission Documents, and as of their
respective dates none of the Parent Commission Documents contained (or will
contain) any untrue statement of a material fact or omitted (or will omit) to
state a 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. The financial statements of Parent included in the Parent
Commission Documents comply (or will comply) as of their respective dates as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto (except
as may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q promulgated by the Commission), and
present fairly (or will present fairly) as of their respective dates, in all
material respects, the consolidated financial position of Parent and its
Subsidiaries as at the dates thereof and the consolidated results of their
operations and their consolidated cash flows for each of the respective periods,
in conformity with GAAP, except that interim financial statements are subject to
normal year-end adjustments, none of which are expected to be material. As used
in this Agreement, the consolidated balance sheet of Parent and its Subsidiaries
at June 30, 1997 included in the Parent Form 10-Q filed with the Commission in
respect of the fiscal quarter ended June 30,
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1997 is hereinafter referred to as the "Parent Balance Sheet," and June 30, 1997
is hereinafter referred to as the "Parent Balance Sheet Date."
Except as and to the extent expressly set forth in the Parent Balance
Sheet, (i) as of June 30, 1997, Parent did not have any material liabilities or
obligations (whether absolute, contingent, accrued or otherwise) and (ii) since
the date of the Parent Balance Sheet, Parent has not incurred any material
liabilities or obligations other than in the ordinary course of business or as
contemplated by the transactions contemplated hereby.
3.9. Approvals. Except (a) as set forth on Schedule 3.9(a) hereof, (b)
for any filings, notices, applications and other information as may be required
to be made or supplied pursuant to the HSR Act or the Exchange Act, (c) for
filing of the Certificate Amendment with the Delaware Secretary of State, and
(d) the filing of documents relating to Holder's investment in, and relationship
with, Parent and Mr. Diller, no notices, reports or other filings are required
to be made by Parent, or any of its Subsidiaries (including the LLC) with, nor
are any consents, registrations, applications, approvals, permits, licenses or
authorizations required to be obtained by Parent or any of its Subsidiaries
(including the LLC) from, any public or governmental authority or other third
party in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby (other than consents that
would not, if not given, have a Material Adverse Effect on Parent and its
Subsidiaries considered as a whole) or impair the ability of Parent or Sub to
perform its respective obligations under this Agreement and the other documents
contemplated hereby.
3.10. Personnel. (a) Schedule 3.10 contains a true and complete list of
all material employee benefit plans or arrangements that cover any employee of
Parent and its Subsidiaries (the "Parent Employees") including any employment,
severance, or other similar contract, arrangement, or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, or retirement benefits or
for deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, stock purchases, or other forms of incentive compensation
or post-retirement insurance, compensation, or benefits (collectively, "Parent
Benefit Arrangements").
(b) No Parent Benefit Arrangement is an "employee pension benefit plan," as
defined in Section 3(2) of ERISA (a "Parent Pension Plan"), that is subject to
Title IV of ERISA or Section 412 of the Code, and no Parent Benefit Arrangement
provides postretirement welfare benefits, except as required by law. Neither
Parent nor any of its Subsidiaries has incurred or expects to incur any
liability or lien under Title IV of ERISA or Section 412 of the Code, which
liability or lien would be reasonably expected to have a Material Adverse Effect
on Parent and its Subsidiaries considered as a whole.
(c) Without limiting the generality of Section 3.10(b) except as set forth
on Schedule 3.10(c), neither Parent nor any of its Subsidiaries nor any entity
required to be combined with Parent or any of its Subsidiaries under Section
414(b), Section 414(c), Section 414(m), or Section 414(o) of the Code (a "Parent
ERISA Affiliate") is a "multiemployer pension plan," as defined in Section 3(37)
of ERISA and neither Parent nor any of its Subsidiaries has incurred or expects
to incur any liability or lien with respect to any multiemployer pension plan
which liability or lien would be reasonably expected to have a Material Adverse
Effect on Parent and its Subsidiaries considered as a whole.
(d) Except as set forth on Schedule 3.10(d), none of Parent, any of its
Subsidiaries, or any Parent ERISA Affiliate has incurred, or expects to incur
solely as a result of the consummation of the Transactions (including any
termination of employment in connection therewith), any cost, fee, expense,
liability, claim, suit, obligation, or other damage with respect to any Parent
Pension Plan, or any Parent Benefit Arrangement that could give rise to the
imposition of any liability, cost, fee, expense, or obligation on the LLC or any
of its Affiliates, which would be reasonably expected to have a Material Adverse
Effect on the Parent and its Subsidiaries considered as a whole, and, to
Parent's knowledge, no facts or circumstances exist that could give rise to any
such cost, fee, expense, liability, claim, suit, obligation, or other damage,
which would be reasonably expected to have a Material Adverse Effect on Parent
and its Subsidiaries considered as a whole. Except as set forth on Schedule
3.10(d), neither the execution and delivery of this Agreement nor the
consummation of the Transactions (including any terminations of employment in
connection therewith) will
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(i) increase any benefits otherwise payable under any Parent Benefit
Arrangement, which would be reasonably expected to have a Material Adverse
Effect on the Parent and its Subsidiaries considered as a whole or (ii) result
in the acceleration of the time of payment or vesting of any such payment, which
would be reasonably expected to have a Material Adverse Effect on Parent and its
Subsidiaries considered as a whole.
(e) Parent will deliver or make available to Investor, within ten days
hereafter true and complete copies of each of the following documents:
(i) Each Parent Benefit Arrangement (and, if applicable, related trust
agreements) and all amendments thereto, and (if applicable) each summary
plan description together with any summary of material modifications;
(ii) Each written Parent Benefit Arrangement and written descriptions
thereof that have been distributed to Parent Employees (including
descriptions of the number and level of employees covered thereby); and
(iii) Each employee handbook or similar document describing any Parent
Benefit Arrangement applicable to Parent Employees.
(f) Except as set forth on Schedule 3.10, no controversies, disputes, or
proceedings are pending or, to Parent's knowledge, threatened, between Parent,
any of its Subsidiaries, or any Parent Employee, which would be reasonably
expected to have a Material Adverse Effect on Parent and its Subsidiaries
considered as a whole. Except as set forth on Schedule 3.10(f), no labor union
or other collective bargaining unit represents or, to Parent's knowledge, claims
to represent any of the Parent Employees and, to Parent's knowledge, there is no
union campaign being conducted to solicit cards from employees to authorize a
union to request a National Labor Relations Board Certification election with
respect to any of the Parent Employees.
(g) Except where any such failure would not be reasonably expected to have
a Material Adverse Effect on Parent and its Subsidiaries considered as a whole,
all Benefit Arrangements (i) comply in all material respects with applicable
law, including but not limited to ERISA and the Code, and (ii) have been
administered in all material respects in accordance with their terms, and all
required contributions have been made to such Parent Benefit Arrangements.
Except as set forth on Schedule 3.10(g), all Parent Pension Plans that are
intended to be qualified under Section 401(a) of the Code have received a
favorable determination letter from the Internal Revenue Service, and Parent has
no knowledge of any events that would cause such letter to be revoked.
3.11. Conduct of Business. Except as disclosed in the Parent Commission
Documents, since the Parent Balance Sheet Date, Parent and its Subsidiaries
have, in all material respects, conducted their business operations in the
ordinary course and there has not occurred any event or condition having or that
would have a Material Adverse Effect on Parent and its Subsidiaries considered
as a whole. Without limiting the generality of the foregoing, other than as is
disclosed in the Parent Commission Documents filed prior to the date hereof or
on Schedule 3.11 hereto, since the Parent Balance Sheet Date there has not
occurred:
(a) any change or agreement to change the character or nature of the
business of Parent or any of its Subsidiaries in any material respects;
(b) any purchase, sale, transfer, assignment, conveyance or pledge of
the assets or properties of Parent or its Subsidiaries;
(c) any waiver or modification by Parent or any Parent Subsidiary of
any right or rights of substantial value, or any payment, direct or
indirect, in satisfaction of any liability, in each case, having a Material
Adverse Effect on Parent and its Subsidiaries considered as a whole;
(d) any loan, advance or capital expenditure by Parent or any of its
Subsidiaries, except for loans, advances and capital expenditures made in
the ordinary course of business;
(e) any change in the accounting principles, methods, practices or
procedures followed by Parent in connection with the business of Parent or
any change in the depreciation or amortization policies or rates
theretofore adopted by Parent in connection with the business of Parent and
its Subsidiaries;
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(f) any declaration or payment of any dividends, or other
distributions in respect of the outstanding shares of capital stock of
Parent or any Parent Subsidiary (other than dividends declared or paid by
wholly-owned Subsidiaries);
(g) other than pursuant to the Holder Agreements, the TKTM Agreements
or in connection with the exercise of employee stock options or the
conversion of outstanding convertible debt instruments, any issuance of any
shares of capital stock of Parent or any Parent Subsidiary or any other
change in the authorized capitalization of the Company or any Parent
Subsidiary, except as contemplated by this Agreement;
(h) any grant or award of any options, warrants, conversion rights or
other rights to acquire any shares of capital stock of Parent or any Parent
Subsidiary, except as contemplated by this Agreement or except pursuant to
employee benefit plans, programs or arrangements in the ordinary course of
business; or
(i) any agreement with respect to any of the foregoing.
3.12. Licenses. Except as set forth on Schedule 3.12, each material
License of Parent and its Subsidiaries has been validly issued, and Parent or
its Subsidiaries are the authorized legal holder thereof. The material Licenses
are in full force and effect, and the conduct of the business and operations of
Parent and its Subsidiaries is in accordance therewith in all material respects.
As of the date of this Agreement, there is no proceeding pending or, to Parent's
knowledge, threatened, seeking the revocation or limitation of any material
Licenses. Each of Parent and its Subsidiaries is the holder of all material
Licenses necessary to enable it to continue to conduct its respective business
as now conducted.
3.13. Claims and Legal Actions. Except as set forth in Schedule 3.13,
there are no judicial, administrative or arbitral actions, suits, claims,
inquiries, investigations or proceedings in respect of Parent or its
Subsidiaries (whether of a public or private nature) pending or, to the
knowledge of Parent, threatened against Parent or its Subsidiaries, which,
individually or in the aggregate, would have a Material Adverse Effect on Parent
and its Subsidiaries considered as a whole.
3.14. Compliance with Laws. Except as set forth on Schedule 3.14, each of
Parent and its Subsidiaries has been and is presently being conducted in
compliance with all applicable laws, except for any noncompliance that would not
have a Material Adverse Effect on Parent and its Subsidiaries considered as a
whole or impair or hinder the ability of Parent and its Subsidiaries to perform
in any material respect their respective obligations under this Agreement and
the documents and agreements contemplated hereunder.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF HOLDER
Holder represents and warrants to Parent, Investor and the LLC as follows:
4.1. Organization, Standing, and Authority. Holder is and, upon formation
in accordance with Section 1.5(f) hereof, each Holder Newco will be, a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation. Holder has and, upon formation in
accordance with Section 1.5(f) hereof, each Holder Newco will have, all
requisite corporate power and authority (i) to own, lease, and use as now owned,
leased, and used by them all of their respective assets, (ii) to conduct the
business and operations of Holder as now conducted by Holder, and (iii) to
execute and deliver this Agreement and the documents contemplated hereby (to the
extent a party to this Agreement or such documents), and to perform and comply
with all of the terms, covenants, and conditions to be performed and complied
with by them hereunder and thereunder. Holder and each Holder Newco is qualified
to transact business in each jurisdiction in which the nature of their
businesses makes such qualification necessary except where failure to be so
qualified would not have a Material Adverse Effect on Holder and its
Subsidiaries considered as a whole.
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4.2. Authorization and Binding Obligation. The execution, delivery, and
performance of this Agreement, and each of the agreements contemplated hereby,
and the consummation of the transactions contemplated hereby by Holder (with
respect to such agreements to which it is a party) has been duly authorized by
all necessary corporate action on the part of Holder. The performance of this
Agreement and each of the Agreements contemplated hereby and the consummation of
the transactions contemplated hereby by each Holder Newco, if any (with respect
to such agreements to which it is a party), will be duly authorized by all
necessary corporate action on the part of each Holder Newco. This Agreement has
been duly executed and delivered by Holder and constitutes the legal, valid, and
binding obligation of Holder, enforceable against Holder in accordance with its
terms, except to the extent limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting creditors' rights generally
and by general equity principles regardless of whether such enforceability is
considered in a proceeding in equity or at law.
4.3. Absence of Conflicting Agreements; Consents. Subject to obtaining
the consents listed on Schedule 4.3 and for any filings, notices, applications
and other information as may be required to be made or supplied pursuant to the
HSR Act or the Exchange Act, the execution, delivery, and performance of this
Agreement and the documents contemplated hereby by Holder and the Holder Newcos
(with or without the giving of notice, the lapse of time, or both): (a) do not
require any notices, reports or other filings to be made by Holder or any Holder
Newco with any public or governmental authority; (b) do not require the consent
of any third party (including any governmental or regulatory authority); (c)
will not conflict with any provision of the Certificate of Incorporation or
By-Laws of Holder or any Holder Newco, if any; and (d) will not violate or
result in a breach of, or contravene any law, judgment, order, ordinance,
injunction, decree, rule, regulation, or ruling of any court or governmental
instrumentality applicable to Holder or any Holder Newco except, in the case of
clauses (a), (b) and (d), for violations, breaches, contraventions or conflicts,
which would not have a Material Adverse Effect on Holder or would impair, in any
material respect, the ability of Holder to perform its obligations under this
Agreement and the other documents contemplated hereby.
ARTICLE 5.
INTERCOMPANY TRANSFER OF FUNDS
5.1. General. Parent shall cause the LLC to keep records of all movement
of funds between the LLC, on the one hand, and Parent and its Subsidiaries, on
the other hand. Parent shall cause all Excess Cash held by Parent and its
Subsidiaries from time to time (but not less frequently than the last business
day of each month) to be transferred to LLC in accordance with the terms of this
Article 5.
5.2. Transfers from LLC. Subject to Section 5.4, all transfers of funds
from the LLC to Parent and its Subsidiaries (other than distributions on, or
redemptions of, the LLC Shares or payment of interest on indebtedness owed or
assumed by the LLC) shall either be (i) evidenced by a demand note from the
recipient of such funds payable to LLC or (ii) applied to repay indebtedness
owed by LLC to such recipient.
5.3. Transfers to LLC. Subject to Section 5.4, all transfers of funds
from Parent and its Subsidiaries (other than contributions of capital in
connection with the acquisition of the LLC Shares or payment of interest on
indebtedness owed to the LLC) shall either be (i) evidenced by a demand note
from the LLC payable to the transferor of such funds or (ii) applied to repay
indebtedness owed by such transferor to the LLC.
5.4. Other Transactions. The provisions of Sections 5.2 and 5.3 shall not
apply to the payment of funds in respect of (i) the acquisition or disposition
of rights, property and interests by or to the LLC, on the one hand, and by or
to Parent and its Subsidiaries, on the other hand, (ii) the rights, property and
interests referred to in clause (i) of this Section 5.4, (iii) the Beneficial
Assets (which shall be contributed to the LLC in accordance with Section
1.11(b)) or the Excluded Sub (which shall be contributed to the LLC in
accordance with Section 1.3), or (iv) the issuance of Parent Common Shares in
which case additional LLC Shares shall be issued to Parent at the Issue Price.
Parent shall cause any transactions between the LLC, on the one hand, and the
Regulated Subsidiaries, on the other hand, to be on terms, in the aggregate,
which are
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no less favorable to the LLC than the terms which the LLC would have received in
a transaction with an unaffiliated third party.
5.5. Interest. The outstanding demand notes referred to in Sections 5.2
and 5.3 shall bear interest at the Interest Rate from time to time and interest
shall be payable monthly in arrears.
ARTICLE 6.
INVESTOR EXCHANGE OPTIONS; DISTRIBUTIONS;
STOCK DIVIDENDS, SPLITS, ETC.
6.1. Exchange Options. (a) Subject to the following provisions and, in
the case of Holder, to Section 1.9, Parent hereby grants, effective as of the
Closing, (i) to Investor and Holder the right (the "Exchange Options"),
exercisable from time to time by written notice given to Parent with the number
of Exchange Options to be exercised, to cause the exchange of each outstanding
LLC Share held by Investor Sub, each Investor Newco or Holder or each Holder
Newco, as the case may be, for one Parent Common Share (it being agreed and
understood that as of the Closing Date the Parent Common Shares underlying such
Exchange Options for Investor shall consist of 40 million shares of Parent Class
B Stock (less any shares of Parent Class B Stock issued to Investor pursuant to
Section 1.5(b) and not including any shares of Parent Class B Stock issued to
Investor that are subsequently converted by Investor into shares of Parent
Common Stock in order to acquire additional shares of Parent Common Stock
pursuant to Sections 1.01(b) and (c) of the Governance Agreement or to otherwise
acquire Parent Common Shares permitted to be acquired pursuant to the Governance
Agreement or the Stockholders Agreement), and the remainder in shares of Parent
Common Stock and for Holder shall consist solely of shares of Parent Common
Stock) in accordance with the terms of the Exchange Agreement, it being
understood that the applicable Parties shall negotiate in good faith and enter
into an Exchange Agreement (the "Exchange Agreement") on such terms and
conditions customary to such agreements and with a general view to the terms of
the Holder Exchange Agreement. In lieu of exchanging LLC Shares for Parent
Common Shares, Investor may, at its option, either (a) merge Investor Sub and/or
one or more Investor Newcos with and into Parent (or any wholly owned
Subsidiary) pursuant to which each share of Investor Sub's or each such Investor
Newco's common stock will be converted into a number of Parent Common Shares
equal to the quotient of (i) the number of LLC Shares owned by Investor Sub or
such Investor Newco divided by (ii) the number of shares of common stock of
Investor Sub or such Investor Newco issued and outstanding or (b) cause the
exchange by Parent for each outstanding share of common stock of Investor Sub
and/or one or more Investor Newcos of a number of Parent Common Shares equal to
the quotient of (i) the number of LLC Shares owned by Investor Sub or such
Investor Newco divided by (ii) the number of shares of common stock of Investor
Sub or such Investor Newco issued and outstanding. To the extent applicable,
Holder (and each Holder Newco) shall have the same right described in the
immediately preceding sentence. Exchanges pursuant to the exercise of Exchange
Options shall be consummated within five business days of Parent's reasonable
satisfaction that there have been obtained, received or effected (and all
applicable waiting and termination periods, if any, including any extensions
thereof, under any applicable law, statute, regulation or rule shall have
expired or terminated) all authorizations, consents, approvals, licenses,
franchises, permits and certificates by or of, and shall have made all filings
and effected all notifications, registrations and qualifications with, all
federal, state and local governmental and regulatory authorities necessary for
the consummation of the exchange.
(b) (i) Subject to applicable law, each of Investor Sub, the Investor
Newcos and Holder and the Holder Newcos agree to immediately exercise the
Exchange Options in the manner set forth in Section 6.1(a) with respect to all
LLC Shares held by it simultaneously with the consummation of a merger,
consolidation or amalgamation between Parent and another entity (other than an
Affiliate of Parent) in which Parent is acquired by such other entity or a
person who controls such entity, or a sale of all or substantially all of the
assets of Parent to another entity, other than a subsidiary of Parent (a "Sale
Transaction"); provided that if such Sale Transaction can be effected as a
tax-free exchange involving a merger or exchange of shares of Investor Sub, the
Investor Newcos, Holder or Holder Newcos, as the case may be, the Sale
Transaction shall be structured in such manner in lieu of Investor Sub, the
Investor Newcos, Holder or the Holder Newcos, as
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the case may be, exercising the Exchange Options and, in lieu of receiving
Parent Common Shares upon exercise of the Exchange Options, such persons shall
be entitled to receive the type and amount of consideration that such persons
would have received had they exercised the Exchange Options immediately prior to
the Sale Transaction unless such structure would materially adversely affect the
ability of Parent to consummate such Sale Transaction.
(ii) To the extent that Investor Sub, an Investor Newco, Holder or a Holder
Newco is not permitted by law (including FCC Regulations) to take the actions
described in paragraph (b)(i) above, in connection with a Sale Transaction, the
Exchange Options shall be converted into the right to receive for each Parent
Common Share (the "Exchange Options Shares") issuable under the Exchange
Options, the same consideration per share to be received by the holders of
Parent Common Stock in the Sale Transaction.
(c) If a tender offer has been commenced for Parent Common Stock (other
than by Parent or a subsidiary of Parent) and, to the extent permissible under
the terms of the Governance Agreement, either Investor or Holder wishes to
tender their respective LLC Shares or the stock of Investor Sub, the Investor
Newcos or the Holder Newcos, as the case may be, in such tender offer, Investor
or Holder may at its option, either: (i) simultaneously tender its Exchange
Options Shares to the exchange agent in such tender offer and exercise such
Exchange Options in accordance with the provisions of Section 6.1(a) and the
terms of the Exchange Agreement; provided that any such exercise of the Exchange
Options shall be conditioned on, and subject to, the consummation of such tender
offer; provided, further, that in the event that fewer than all tendered
Exchange Options Shares are purchased in the tender offer, the exchange shall
only occur with respect to such Exchange Options Shares that are purchased in
the tender offer and the remaining Exchange Options Shares shall be returned to
Investor or Holder, as the case may be, or (ii) transfer such LLC Shares or the
stock of Investor Sub, the Investor Newcos or the Holder Newcos, as the case may
be, to a person or entity (the "Transferee") which is not considered to be a
foreign owner for purposes of the Communications Act of 1934, as amended, and
the FCC alien ownership rules and who would otherwise be permitted to lawfully
hold the Parent Common Shares underlying the Exchange Option and who agrees to
be bound by the terms of this Agreement and such Transferee shall exercise such
Exchange Option immediately prior to the closing of the tender offer solely for
purposes of participating in such tender offer and pay the proceeds to Investor
or Holder, as the case may be. In the case of clause (ii) above, in the event
that less than all the LLC Shares are purchased in such tender offer or the
tender offer is not consummated, at Parent's election, either (x) Transferee
shall exchange with Parent the portion of the LLC Shares not purchased in the
tender offer for a number of LLC Shares equal to the number of shares not so
purchased and a new exchange option (which shall have the same terms as the
original Exchange Option) for each such LLC Share and Parent shall deliver such
shares and issue such replacement Exchange Options to Transferee and Transferee
shall transfer such LLC Shares and Exchange Option to Investor or Holder, as the
case may be, or (y) permit Investor or Holder, as the case may be, to hold the
portion of the LLC Shares not purchased in the tender offer.
(d) Except as set forth above and subject to Section 6.1(e), the Exchange
Options shall not be transferable by Investor Sub, any Investor Newco, Holder or
any Holder Newco.
(e) Without limiting the foregoing, Parent shall cooperate with Investor
Sub, the Investor Newcos and the Holder Newcos to ensure that, by virtue of
holding LLC Shares, neither Investor nor Holder is disadvantaged in connection
with a Sale Transaction or tender or exchange offer.
6.2. Distributions to LLC Stockholders. Simultaneously with (or in the
case of clause (b)(ii) below, not later than five business days after the
determination of Fair Market Value of the property distributed) the making of
any distributions of cash or property on the shares of Parent Common Stock or
consummation of a tender offer by Parent or any of its Subsidiaries for shares
of Parent Common Stock (a "Self Tender Offer"), the LLC shall make distributions
on the LLC Shares in the following manner:
(a) for each cash dividend paid by Parent on its Parent Common Shares,
LLC shall pay an identical dividend per share on each LLC Share;
(b) for distributions of property (including, without limitation,
stock, options or other securities of Subsidiaries of Parent), other than
cash, on Parent Common Shares, the LLC shall (i) in the case of
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distributions of property other than distributions of stock, options to
purchase stock or other securities in a Regulated Subsidiary, make an
equivalent distribution of property per share on the LLC Shares and (ii) in
the case of distributions of assets, shares, options or other securities of
Regulated Subsidiaries, distribute in cash to the LLC stockholders for each
LLC Share an amount equal to the Fair Market Value per Parent Common Share
of the distribution made on Parent Common Shares or, if the parties agree,
an appropriate adjustment to the exchange ratio; provided that the
distributions on the LLC Shares pursuant to this clause (b) may be made in
the form of a demand note of the LLC. Notwithstanding the previous
sentence, Parent shall use its best efforts to make such distributions in
cash with respect to LLC Shares; and
(c) in connection with a Self Tender Offer, not later than five
business days after receipt of notice from Parent of a proposed Self Tender
Offer, Investor and Holder shall each give irrevocable written notice of
the number (the "Tender Number") of Exchange Options Shares, if it owned
such shares of Parent Common Stock, it would want to have purchased in such
tender offer (which number shall be no greater than the product of the
percentage of the total outstanding LLC Shares owned by Investor, Investor
Sub and the Investor Newcos or Holder and the Holder Newcos, as the case
may be, and the number of shares of Parent Common Stock offered to be
purchased in such Self Tender Offer), and the LLC shall make a distribution
to the Investor or Holder, as the case may be, on the LLC Shares equal (in
the aggregate) to the Tender Number times the average price per share paid
in the Self Tender Offer in redemption of a number of LLC Shares equal to
its respective Tender Number. In connection with a Self Tender Offer for
shares of Parent Common Stock, simultaneously with the consummation of the
tender offer a number of LLC Shares held by Sub or Parent equal to the
number of shares of Parent Common Stock purchased in the tender offer shall
be redeemed at the average price per share paid in the Self Tender Offer.
(d) The adjustments described in this section shall take into account
(i) any related distributions to holders of LLC Shares in connection with a
distribution by the LLC to Parent related to such event, and (ii) changes
in the exchange rate for the LLC Shares, with the intention being that a
holder of LLC Shares shall receive or be entitled to receive what such
holder would have received had it exchanged LLC Shares for Parent Common
Shares immediately prior to such event (including any related distributions
to holders of LLC Shares).
6.3. Tax Treatment. The Parties intend that LLC be treated as a
partnership for United States federal income tax purposes and agree to take no
actions inconsistent with such treatment.
6.4. Anti-dilution. If Parent: (i) pays a dividend or makes a
distribution on Parent Common Shares in Parent Common Shares; (ii) subdivides
its outstanding shares of Parent Common Shares into a greater number of shares;
(iii) combines its outstanding Parent Common Shares into a smaller number of
shares; (iv) makes a distribution on Parent Common Shares in shares of its
capital stock, other than Parent Common Shares, or rights, options or warrants
to purchase or acquire Parent Common Shares; (v) issues by reclassification of
its common stock any shares of its capital stock; or (vi) takes any other action
not described above (other than actions pursuant to which Investor or Holder has
rights pursuant to Sections 1.7, 1.8, 6.1 and/or 6.2) which would cause Investor
Sub, each Investor Newco, Holder or each Holder Newco (based on the Assumptions)
not to have an identical percentage equity ownership interest of Parent
following such action, then the LLC simultaneously shall effect a comparable
transaction on the LLC Shares or an appropriate adjustment to the Exchange
Options, in which case appropriate adjustments will be made, mutatis mutandis,
to Article 1 and Section 6.1 as well as any other provision of this Agreement
requiring appropriate adjustments, so that after such transaction, Investor Sub,
each Investor Newco, Holder and each Holder Newco, will have an identical
percentage beneficial equity ownership interest of Parent and the LLC as it had
before such transaction (based on the Assumptions).
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ARTICLE 7.
TRANSFERABILITY; ISSUANCE TO OTHER PARTIES
7.1. No Transfer of Shares of the LLC. Except in connection with the
exercise of the Exchange Options (including a transfer pursuant to Section
6.1(b) or 6.1(c)), or the hypothecation, pledge or creation of a lien or
security interest in LLC Shares by Parent, except as specifically contemplated
by this Agreement or the Governance Agreement, none of Parent, Sub, Investor,
Investor Sub, any Investor Newco, Holder or any Holder Newco shall directly or
indirectly transfer, pledge or create a lien or security interest in their
respective LLC Shares to any other person or entity and any attempt to make or
create such transfer, pledge, lien or security interest shall be null and void
and of no force and effect.
7.2. Transfer by Investor or Holder. Except as permitted pursuant to
Section 6.1 hereof, Investor shall not sell or otherwise transfer any of its
shares in Investor Sub or any Investor Newco and Holder shall not sell or
otherwise transfer any of its shares in any Holder Newco. Parent shall not sell
or otherwise transfer any of its shares in Sub.
ARTICLE 8.
TAX MATTERS
8.1. Tax Representations. (a) Investor represents and warrants to Parent
and the LLC that all material Returns required to be filed for taxable periods
ending on or prior to the Closing Date by, or with respect to any activities of
the Partnership and the UT Contributed Business have been or will be filed in
accordance with all applicable laws, and all Taxes due have been or will be
paid, except where the failure to so file or so pay would not, in the aggregate,
have a Material Adverse Effect on the Partnership and the UT Contributed
Business considered as a whole.
(b) Parent represents and warrants to Investor, Holder and the LLC that all
material Returns required to be filed for taxable periods ending on or prior to
the Closing Date by Parent and its Subsidiaries have been or will be filed in
accordance with all applicable laws, and all Taxes due have been or will be
paid, except where the failure to so file or so pay would not, in the aggregate,
have a Material Adverse Effect to Parent and its Subsidiaries considered as a
whole.
8.2. Tax Indemnification by Investor. Investor shall be liable for, and
shall hold Parent and the LLC and any successor thereto or Affiliates thereof
harmless from and against the following Taxes:
(a) any and all Taxes with respect to the Partnership or the UT
Contributed Business for any taxable period ending (or deemed pursuant to
Section 8.4 to end) on or before the Closing Date; and
(b) any several liability under Treasury Regulation Section 1.1502-6
or under any comparable or similar provision under state, local or foreign
laws or regulations for periods ending on or prior to the Closing Date.
8.3. Tax Indemnification by Parent. Parent shall be liable for, and shall
hold Investor harmless from and against, the following Taxes with respect to the
Partnership and the UT Contributed Business: (a) any and all Taxes (other than
Taxes attributable to the transactions contemplated by this Agreement or the
ownership of LLC Shares by Investor or Investor Newco) for any taxable period
beginning (or deemed pursuant to Section 8.4 to begin) on or after the Closing
Date, due or payable with respect to the Partnership or the UT Contributed
Business, and (b) any and all Taxes not incurred in the ordinary course of
business attributable to the acts or omissions of Parent after the Closing.
8.4. Allocation of Certain Taxes. (a) The Parties agree that if any
entity transferred to the LLC is permitted but not required under applicable
foreign, state or local Income Tax laws to treat the day before the Closing Date
or the Closing Date as the last day of a taxable period, such day shall be
treated as the last day of a taxable period.
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(b) For purposes hereof, in the case of any Taxes that are imposed on a
periodic basis and are payable for a period that begins before the Closing Date
and ends after the Closing Date, the portion of such Tax that shall be deemed to
be payable for the portion of the period ending on the Closing Date shall (i) in
the case of any Taxes, other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Taxes for the entire period (or, in
the case of such Taxes determined on an arrears basis, the amount of such Taxes
for the immediately preceding period), whether actually paid before, during, or
after such period, multiplied by a fraction the numerator of which is the number
of calendar days in the period ending on (and including) the Closing Date and
the denominator of which is the number of calendar days in the entire period,
and (ii) in the case of any Taxes based upon or related to income or receipts
(including but not limited to withholding Taxes), be deemed equal to the amount
which would be payable if the taxable year ended on the close of business on the
Closing Date. Any credits for such a period shall be prorated, based upon the
fraction employed in clause (i) of the preceding sentence. Such clause (i) shall
be applied with respect to Taxes for such period relating to capital (including
net worth or long-term debt) or intangibles by reference to the level of such
items on the Closing Date. In the event that Investor or any of its Affiliates
has prepaid any Taxes referred to herein to the extent that such Taxes exceed
Investor's share of such Taxes under this Section 8.4, Parent shall pay Investor
the amount of such excess within thirty (30) days of the Closing Date upon
receipt from Investor at the Closing of a statement detailing such prepayments.
Such statement and the calculations contained therein shall be reviewed within
such 30-day period by a nationally recognized accounting firm selected by and
paid for by Parent and the determination of such accounting firm shall be final.
8.5. Filing Responsibility. (a) Investor shall prepare and file or shall
cause to be prepared and filed the following Returns (and no other Returns) with
respect to the Partnership and the UT Contributed Business:
(i) all Tax Returns for any taxable period ending on or before the
Closing Date other than Returns subject to Section 8.4(b); and
(ii) all other Returns required to be filed (taking into account
extensions) prior to the Closing Date.
(b) With respect to any Income Tax Return for taxable periods beginning
before the Closing Date and ending after the Closing Date, Parent shall consult
with Investor concerning such Return and shall report all items with respect to
the period ending on the Closing Date in accordance with the instructions of
Investor, unless otherwise agreed by Investor and Parent. Parent shall provide
Investor a copy of its proposed Return at least 30 days prior to the filing of
such Return, and Investor may provide comments to Parent, which comments shall
be delivered to Parent within 15 days of receiving such copies from Parent.
8.6. Refunds. (a) Investor shall be entitled to any refunds or credits of
Taxes attributable to or arising in taxable periods ending (or deemed pursuant
to Section 8.4 to end) on or before the Closing Date with respect to the
Partnership or the UT Contributed Business.
(b) Parent shall promptly forward to Investor or reimburse Investor for any
refunds or credits due Investor (pursuant to the terms of this Article) after
receipt thereof, and Investor shall promptly forward to Parent or reimburse
Parent for any refunds or credits due Parent (pursuant to the terms of this
Article) after receipt thereof.
8.7. Cooperation and Exchange of Information. (a) As soon as practicable,
but in any event within thirty (30) days after Investor's request, from and
after the Closing Date, Parent shall provide Investor with such cooperation and
shall deliver to Investor such information and data concerning the pre-Closing
operations of the Partnership and the UT Contributed Business and make available
such knowledgeable employees of the Partnership and the UT Contributed Business
as Investor may reasonably request, in order to enable Investor to complete and
file all Returns which it may be required to file with respect to the operations
and business of the Partnership and the UT Contributed Business through the
Closing Date or to respond to audits by any Taxing Authorities with respect to
such operations and to otherwise enable Investor to satisfy its internal
accounting, tax and other legitimate requirements. Such cooperation and
information shall include provision of powers of attorney for the purpose of
signing Returns and defending audits and promptly forwarding copies of
appropriate notices and forms or other communications received from or sent to
any
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Taxing Authority which relate to the Partnership and the UT Contributed
Business, and providing copies of all relevant Returns, together with
accompanying schedules and related workpapers, documents relating to rulings or
other determinations by any Taxing Authority and records concerning the
ownership and tax basis of property, which Parent or its Affiliates may possess.
Parent shall make its employees and facilities available on a mutually
convenient basis to provide explanation of any documents or information provided
hereunder.
(b) For a period of seven (7) years after the Closing Date or such longer
period as may be required by law, Parent shall, and shall cause its Affiliates
to, retain, and neither destroy nor dispose of, all Returns, books and records
(including computer files) of, or with respect to the activities of, the
Partnership and the UT Contributed Business for all taxable periods ending on or
prior to the Closing Date. Thereafter, Parent shall not destroy or dispose of
any such Returns, books or records unless it first offers such Returns, books
and records to Investor in writing at Investor's expense and Investor fails to
accept such offer within sixty (60) days of its being made.
(c) Parent and Investor and their respective Affiliates shall cooperate in
the preparation of all Returns relating in whole or in part to taxable periods
ending on or before or including the Closing Date that are required to be filed
after such date. Such cooperation shall include, but not be limited to,
furnishing prior years' Returns or return preparation packages illustrating
previous reporting practices or containing historical information relevant to
the preparation of such Returns, and furnishing such other information within
such party's possession requested by the party filing such Returns as is
relevant to their preparation. In the case of any state, local or foreign joint,
consolidated, combined, unitary or group relief system Returns, such cooperation
shall also relate to any other taxable periods in which one party could
reasonably require the assistance of the other party in obtaining any necessary
information.
(d) Investor shall have the right, at its own expense, to control any audit
or examination by any Taxing Authority ("Tax Audit"), initiate any claim for
refund, contest, resolve and defend against any assessment, notice of
deficiency, or other adjustment or proposed adjustment relating to any and all
Taxes for any taxable period ending on or before the Closing Date with respect
to the Partnership or the UT Contributed Business. Parent shall have the right,
at its own expense, to control any other Tax Audit, initiate any other claim for
refund, and contest, resolve and defend against any other assessment, notice of
deficiency, or other adjustment or proposed adjustment relating to all other
Taxes with respect to the Partnership or the UT Contributed Business. Investor
shall furnish Parent and its Affiliates with its cooperation in a manner
comparable to that described in paragraph (a) of this Section to effect the
purposes of this Section.
8.8. Section 754 Election. Investor shall cause an appropriate Investor
Newco to make an election for the taxable year of the Partnership that includes
the Closing Date under Section 754 of the Internal Revenue Code of 1986, as
amended, and shall not revoke or cause or permit any Investor Newco to revoke
such election.
8.9. Certificate of Non-Foreign Status. The Investor Sub that sells the
Acquired Partnership Interest to the LLC under Section 1.5(b) shall deliver to
the LLC at or prior to the Closing, a certificate of non-foreign status meeting
the requirements of Treasury Regulation Section 1.1445-2(b)(2).
8.10. Definitions. For purposes of this Article, the following terms
shall have the meanings ascribed to them below:
(a) "Income Taxes" means all taxes based upon or measured by income.
(b) "Returns" means returns, reports and forms required to be filed
with any domestic or foreign taxing authority.
(c) "Taxes" means (i) all taxes (whether federal, state, local or
foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, sales, use, occupation, value added, ad
valorem, transfer, franchise, withholding, payroll, employment, excise, or
property taxes, together with any interest or penalties imposed with
respect thereto and (ii) any obligations under any agreements or
arrangements with respect to any Taxes described in clause (i) above.
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(d) "Taxing Authority" means any government authority having
jurisdiction over the assessment, determination, collection, or other
imposition of Tax.
ARTICLE 9.
ADDITIONAL COVENANTS
9.1. Annual or Special Meeting. (a) As soon as practicable following the
execution of this Agreement, Parent shall prepare and file with the Securities
and Exchange Commission (the "Commission") preliminary proxy materials, in form
and substance reasonably satisfactory to Investor, with respect to the matters
described below. Parent agrees to use its reasonable best efforts, after
consultation with the other Parties hereto, to respond promptly to any comments
of the Commission and to cause the proxy materials approved by the Commission to
be mailed to its stockholders at the earliest practicable time. Parent shall
notify Investor promptly of the receipt of any comments from the Commission or
its staff and of any request by the Commission or its staff for any amendments
or supplements to the proxy materials. The proxy materials shall comply in all
material respects with all applicable requirements of law. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
proxy statement, Parent shall promptly inform Investor and Holder of such
occurrence and cooperate in filing with the Commission or its staff and/or the
mailing to stockholders of Parent, such amendment or supplement. Such proxy
materials shall include the recommendation of the Transactions of the Board of
Directors of Parent.
(b) Parent shall take all steps necessary in accordance with its
certificate of incorporation and by-laws to call, give notice of, convene and
hold a meeting of its stockholders as soon as practicable after the filing of
definitive proxy materials relating to such meeting, for the purpose of (a)
approving and adopting an amendment to the certificate of incorporation of
Parent (the "Certificate Amendment") reasonably acceptable to Investor to (i)
increase the number of authorized Parent Common Shares necessary to effect the
transactions contemplated hereby, and (ii) avoid the loss or non-renewal of a
broadcast or similar license as a result of shareholder alien ownership in
violation of FCC Regulations or applicable law and (b) authorizing the issuance
of Parent Common Shares in accordance with this Agreement under the Bylaws of
the NASD.
9.2. HSR Filings. Following the date hereof, Investor and Parent shall
file promptly any forms required under applicable law and take any other action
reasonably necessary in connection with obtaining the expiration or termination
of the waiting periods under the HSR Act applicable to the Transactions.
9.3. Related Agreements. Prior to the Closing, the Parties shall in good
faith negotiate, to the extent not already provided for in the attached
definitive agreements and otherwise consistent with the terms therein and in the
stockholders agreement among Investor, Holder and Mr. Diller, dated as of the
date hereof, any additional terms with respect to the Governance Agreement, the
LLC Operating Agreement, the Ancillary Business Agreements, the Stockholders
Agreement and the Exchange Agreement; provided, that the agreements attached
hereto and the stockholders agreement referred to in this sentence shall
otherwise be binding and definitive.
9.4. Other Businesses. (a) Neither anything contained in this Agreement,
nor the ownership of Parent Common Shares, LLC Shares or Exchange Options
Shares, shall (i) restrict Investor or Holder or any of their respective
Affiliates from engaging in or owning an interest in any business which competes
with Parent, any Subsidiaries of Parent, or the LLC, or (ii) restrict Parent,
any Subsidiaries of Parent, or the LLC from engaging in or owning an interest in
any business which competes with Investor or Holder or any of their respective
Affiliates.
(b) Following the date hereof, Parent, LLC and Investor shall negotiate in
good faith the terms of a transition services agreement to the extent not set
forth in Exhibit C.5. (the "Transition Services Agreement") between LLC and
Investor or one of its Affiliates to be executed and delivered on the Closing
Date pursuant to which Investor or such Affiliate will agree to provide LLC with
services currently performed by Investor or its Affiliates and as requested by
Parent on behalf of the Partnership or the UT Contributed Business following the
Closing Date (i) until the 6 month anniversary of the Closing Date, on the basis
of fully allocated cost to Investor or such Affiliate of such services and (ii)
following the 6 month anniversary of the Closing Date, such
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cost plus 5%, and subject to such termination provisions, all as may be agreed
upon by Parent, LLC and Investor. In the event that the parties cannot agree on
the terms of the Transition Services Agreement prior to the Closing, the Closing
shall not be delayed, the term sheet attached hereto shall be definitive and the
parties shall in their good faith promptly reach agreement with respect to such
matters (and in the interim such term sheet shall govern the provision of any
services).
9.5. Information and Access. (a) From the date hereof and continuing
until the Closing, each of Investor, as to itself and its Subsidiaries and
Affiliates, and Parent, as to itself and its Subsidiaries, agrees that it shall
afford and, with respect to clause (b) below, shall cause its independent
auditors to afford, (a) to the officers, independent auditors, counsel and other
representatives of the other reasonable access to its properties, books, records
(including Tax Returns filed and those in preparation) and personnel in order
that the other may have a full opportunity to make such investigation as it
reasonably desires to make of the other, and (b) to the independent auditors of
the other, reasonable access to the audit work papers and other records of its
independent auditors. No investigation pursuant to this Section 9.5 shall affect
or otherwise obviate or diminish any representations and warranties of any party
or conditions to the obligations of any party. Except as required by law or
stock exchange or NASD regulation, any information furnished pursuant to this
Section 9.5 (including any information furnished to the other prior to the date
hereof) shall be held in confidence (except for such information as has
otherwise been made public (other than by reason of a violation of this Section
9.5)).
(b) From and after the Closing, each of LLC and Investor, as to itself and
its Subsidiaries and Affiliates, agrees that it shall afford to the officers,
independent auditors, counsel and other representatives of the other reasonable
access to its books, records and personnel for reasonable business purposes, for
example in order that the party requesting access can prepare tax and other
filings with respect to any periods prior to Closing, or respond to, negotiate,
settle or litigate any claims related to the UT Contributed Business or the
Partnership for which the requesting party has any liability hereunder.
9.6. Reservation. Parent hereby covenants to Investor and Holder that it
shall reserve and keep available out of its authorized but unissued Parent
Common Shares (including any Parent Common Shares held by Parent in its
corporate treasury), such number of its duly authorized Parent Common Shares as
shall be sufficient to issue upon the exercise of all of the Exchange Options,
if any, held by each such party. All Parent Common Shares to be issued pursuant
to this Agreement shall, upon issuance, be duly qualified for quotation for
trading on NASDAQ.
9.7. Further Action. (a) Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement.
(b) In the event that at any time or from time to time (whether prior to or
after the Closing), any Party (or its Affiliates), shall receive or otherwise
possess any asset that is intended to be Contributed, assigned or otherwise
transferred at the Closing to another Party hereto, such Party shall promptly
use all reasonable efforts (but, with respect to matters covered by Section
9.17, such efforts shall not include the expenditure of funds other than for
incidental expenses) to transfer, or cause to be transferred, such asset to the
Party so entitled thereto. Prior to any such transfer, the Party (or its
Affiliates) possessing such asset shall hold such asset (and all earnings
generated by such asset from and after the Closing) in trust for any such other
Party.
9.8. [Intentionally omitted]
9.9. Employees. (a) Except as otherwise agreed to by Parent and Investor,
the active participation of Business Employees in Benefit Arrangements that are
not Partnership Plans shall cease as of the Closing Date, and no additional
benefits shall accrue thereunder for such Business Employees.
(b) From the date hereof to the Closing, except in the ordinary course of
business consistent with past practice or as required by law or other
contractual obligations existing on the date hereof, or as set forth in Schedule
9.9(b), neither the UT Contributed Business nor the Partnership shall (i)
increase the base
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compensation of or enter into any new bonus or incentive arrangement with any of
the Business Employees, (ii) pay or agree to pay any pension, retirement
allowance or similar employee benefit to any Business Employee or former
employees of the Partnership, (iii) enter into any new employment, severance,
consulting, or other compensation agreement with any Business Employee or (iv)
commit itself to any additional employee benefit or compensation arrangement
with respect to Business Employees or former employees of the Partnership.
(c) Following the Closing Date, the LLC shall use its reasonable best
efforts to develop or maintain employee benefit plans which, among other things,
treat similarly situated employees of the Contributed Businesses, the
Partnership and the UT Contributed Business on a substantially equivalent basis,
taking into account all relevant factors, including, without limitation, duties,
geographic location, tenure, qualifications and abilities. In view of the
changed nature of the benefit programs which may be applicable to certain of
such employees after the Closing Date, the LLC shall use its reasonable best
efforts to develop equitable transition rules relating to the benefits to be
provided to one or more groups of such employees.
(d) The parties hereto intend that there shall be continuity of employment
with respect to all of the Business Employees and Parent Employees. LLC shall
offer employment, commencing on the Closing Date, to all Business Employees
(other than employees of the Partnership) and Parent Employees, including any
active employee as of the Closing Date who is hired by Investor and its
Affiliates or Parent and its Affiliates after the date of this Agreement, and
excluding any Business Employee or Parent Employee who is terminated for any
reason from employment with Investor and its Affiliates or Parent and its
Affiliates prior to the Closing Date (any such employee who accepts such offer
is hereinafter referred to as a "Continued Employee"), on substantially the same
terms (including salary, job responsibility and location) as those provided to
such employees immediately prior to the Closing Date.
(e) LLC will (i) waive all limitations as to preexisting conditions,
exclusions and waiting periods with respect to participation and coverage
requirements applicable to Continued Employees under any welfare plan that such
employees may be eligible to participate in after the Closing Date, to the
extent that such conditions would have been waived under the corresponding
welfare plan in which any such employee participated in immediately prior to the
Closing Date, (ii) provide each Continued Employee with credit for any
co-payments and deductibles paid prior to the Closing Date, for the calendar
year in which the Closing Date occurs, in satisfying any applicable deductible
or out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Closing Date, and (iii) provide each
Continued Employee with credit for all service for purposes of eligibility,
vesting and the calculation of severance benefits (but not for benefit accruals
under any other benefit plan) with the Investor and its affiliates or Parent and
its Subsidiaries, as applicable, under each employee benefit plan, program, or
arrangement of the LLC or its affiliates in which such employees are eligible to
participate in after the Closing Date; provided, however, that in no event shall
the employees be entitled to any credit to the extent that it would result in a
duplication of benefits with respect to the same period of service.
(f) Parent and Investor agree to cooperate reasonably and in good faith to
lower any costs that may be borne by Parent, Investor or the LLC as a result of
the contemplated Transactions (e.g., severance costs, and multiemployer
withdrawal liability to the extent agreed by Parent and Investor in good faith)
and to cooperate on other transition matters relating to the Continued Employees
and their benefits; provided, however, that nothing in this provision shall
require the LLC to continue to contribute to any benefit plans or arrangements
that existed prior to the Closing Date.
(g) Notwithstanding anything contained herein to the contrary, from and
after the Closing Date, Investor and its Affiliates shall jointly and severally
indemnify and hold harmless Parent, Parent's Affiliates and the LLC and its
Affiliates (other than Investor and its Affiliates) from any joint and several
"Controlled Group Liability" of Investor or its Affiliates. For this purpose,
"Controlled Group Liability" shall mean any and all claims, losses, expenses,
costs or obligations arising out of or relating to (i) Title IV of ERISA; (ii)
Section 302 of ERISA; (iii) Sections 412 and 4971 of the Code; and (iv) the
continuation coverage requirements of Section 601 et seq. of ERISA and Section
4980B of the Code, with respect to any plan or program of Investor or its
Affiliates which is not a Benefit Arrangement and which becomes a liability of
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Parent, Parent's Affiliates or the LLC solely as a result of the purchase of the
UT Contributed Business pursuant to the Transaction.
9.10. Investor Give-Back Provision. (a) Within 15 business days after the
preparation of the Statement or, if the accuracy of the Statement is contested
by Investor, within 15 business days after any differences have been resolved in
the manner set forth below, Investor shall pay to the LLC, in the manner
described below, an amount, if positive, equal to (i) $150 million minus (ii)
U-TV's EBITDA for the Determination Period; provided, however, that in no event
shall Investor be required to pay more than $75 million pursuant to this
Section. Any payment required to be made pursuant to this Section shall be made
by wire transfer of same day funds to an account or accounts specified in
writing by the LLC to Investor at least two business days prior to the date of
any such payment.
(b) For purposes of this Agreement, "U-TV's EBITDA" shall mean the sum of
(a) the net income of the Current Programs (but excluding Current Programs that
are half-hour situation comedies) and made for television movies included in the
UT Contributed Business (including future made for television movies) (the "U-TV
Assets"), as determined in accordance with generally accepted accounting
principles as applied in the United States as of the date hereof and consistent
with accounting policies and procedures applied historically by Investor, plus
the sum of depreciation, amortization (excluding television production and
distribution amortization) income tax expense and interest expense related to
the U-TV Assets and (b) to the extent not included in the previous clause,
distribution fees received by the LLC pursuant to the Distribution Agreements.
In calculating U-TV's EBITDA, U-TV's EBITDA shall not be reduced by more than
$17 million of marketing costs (which are a "below the contribution line" cost),
$13 million of development costs and $30 million of selling, general and
administrative costs; provided that U-TV's EBITDA shall not be reduced by any
allocated corporate overhead expenses (although selling, general and
administrative costs shall include expenses paid by the corporate office on
behalf of U-TV). For purposes of calculating U-TV's EBITDA, sales by the LLC to
USA Networks, Inc. shall not be eliminated and shall be determined pursuant to
the agreements in effect on the date hereof. U-TV's EBITDA shall be prepared on
a U-TV historical basis excluding the effects of purchase accounting and any
severance costs in connection with the Transactions and shall otherwise be
determined based on the practices and principles used by Investor in the
consolidated audited financial statements as at and for the year ended June 30,
1997. Neither Parent nor the LLC shall (i) amend any Contract existing on the
date of this Agreement relating to the U-TV Assets to cause any revenue that
would otherwise be recognized in the Determination Period to be recognized after
the end of the Determination Period or (ii) prepay, accelerate or incur any
expense that would ordinarily be paid, due or incurred after the end of the
Determination Period to be paid, incurred or accrued during the Determination
Period; provided that in the event that any such Contract were so amended, or
expense so accelerated, for purposes of this Section, U-TV's EBITDA shall
include such revenue as if recognized in such period and shall exclude such
expense or prepayment.
(c) U-TV's EBITDA for the three year periods ending on December 31, 1998,
December 31, 1999 and December 31, 2000 (such three year period, the
"Determination Period") shall be determined annually by Parent and shall be set
forth in a Statement of U-TV's EBITDA (the "Statement"). Each Statement shall be
accompanied by a certificate prepared by Ernst & Young LLP, or another
nationally recognized independent public accountant chosen by Parent, to the
effect that such Statement was prepared in accordance with this Agreement. A
copy of each such Statement and the certificate shall be delivered to Investor
no later than 120 days after the end of such period. Investor shall have the
option, at its expense, to have each Statement reviewed by a different major
independent certified public accounting firm of its choice within 60 calendar
days after receipt thereof. If any material differences exist between such
accounting firms in the determination of the Statement, the items in dispute
shall be submitted to a mutually acceptable third major firm of independent
certified public accountants for its determination, which shall be binding on
Investor and the LLC. The fees of such third accounting firm shall be shared
equally by Investor and the LLC.
9.11. Disclosure Schedules. The parties acknowledge that for business
reasons, none of the parties has been able to deliver to the other party the
final schedules referred to in Articles 1, 2 and 3 of this Agreement. On or
before November 10, 1997, Investor shall deliver to Parent and Parent shall
deliver to Investor such final schedules or any additional schedules that either
party determines shall be necessary or appropriate. Each
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of Parent and Investor shall have five business days to review such final
schedules and to notify the other party in writing of any objections to the
items listed in such schedules. If either Parent or Investor fails to so notify
Investor or Parent of any objections within such five-business-day period, then
such final schedules shall be deemed to have been accepted by Parent and
Investor. After the delivery by Parent or Investor of notice of objection to the
other party, Parent and Investor shall have five days to consult with each other
with respect to any such objections and, during such period, shall negotiate in
good faith to resolve any disagreements with respect to any such objections.
Upon expiration of such five-day period, either objecting party may terminate
this Agreement on five business days' written notice if the Board of Directors
of such objecting party determines in its reasonable good faith judgment that
the net adverse effect of the total mix of the additional information which was
not otherwise known to it prior to the date of this Agreement, individually or
in the aggregate, would materially decrease the economic benefit of the
Transactions to such party (after giving effect to any increases in value that
are attributable to positive aspects of any additional information made known to
such party after the date of this Agreement).
9.12. Financing. Parent shall use its best efforts to cause financing
necessary to consummate the transactions contemplated hereby to be obtained.
9.13. Representations and Warranties. From the date hereof until the
Closing Date, no Party will take any action that would cause a breach of the
representation and warranty of such Party as set forth in Articles 2 or 3, as
the case may be, under the heading "Conduct of Business." In addition, from the
date hereof through the Closing Date, Parent shall not take any action that
would constitute a Fundamental Change pursuant to the Governance Agreement.
9.14. Spinoff of Regulated Subsidiaries. Upon the occurrence of the CEO
Termination Date (as defined in the Governance Agreement) or BD becoming
Disabled (as defined in the Governance Agreement) and as long as Investor has
the right to appoint at least two directors of Parent pursuant to the Governance
Agreement (or would, after such time that Mr. Diller has exercised the Diller
Put, as defined in the Stockholders Agreement, beneficially own at least such
amount of Parent Common Shares including shares subject to the Diller Put), at
the request of Investor, Parent shall, subject to applicable law (including FCC
regulations) and subject to the agreement, dated as of October 19, 1997, among
Holder, Investor and Parent, distribute the Regulated Subsidiaries
(collectively, the "Spinoff Company") in a distribution to the stockholders of
Parent (the "Spinoff"). Upon receipt of such notice, Parent shall effect the
Spinoff as promptly as practicable on terms and conditions that are reasonably
satisfactory to Investor. Prior to effecting the Spinoff, Parent shall enter
into ten-year affiliation agreements with the Spinoff Company that will provide
that the Spinoff Company shall broadcast programming produced by Parent on
customary terms and conditions, including arm's-length payment obligations. The
foregoing provisions shall not be deemed to amend the Holder Exchange Agreement
or waive any rights or obligations of Holder under the Holder Exchange
Agreement.
9.15. Partnership Interest Purchase Agreement. Investor shall perform its
obligations in all material respects under the terms of the Partnership Interest
Purchase Agreement.
9.16. USA Network Cash. Notwithstanding any other provision of this
Agreement, following the date hereof, Investor and its Affiliates shall only
sweep cash and shall manage payables and receivables relating to the business of
the Partnership in the ordinary course of business and consistent with past
practices. At the Closing, Investor shall cause to remain in the Partnership as
of the Closing Date $5 million. If, at the end of the 30-day period following
the Closing (the "Post Closing Period"), the cash flow of the Partnership during
the Post Closing Period (adding back cash expenditures for furniture, fixtures
and equipment and extraordinary items) is (a) less than zero, then Investor
shall contribute to the LLC an additional $5 million, (b) between zero and $5
million, then Investor shall contribute an amount equal to $5 million minus the
cash flow or (c) more than $5 million, then Investor shall have no further
obligation to contribute additional cash to the LLC. During the Post Closing
Period, Parent will operate the Partnership in a manner consistent with past
practice for matters relating to cash and shall not intentionally take or fail
to take any action for purposes of
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affecting the foregoing calculation. In determining the cash flow during the
Post Closing Period, as well as the $5 million to remain in the Partnership as
of the Closing, the following rules shall also govern:
(i) payments (net of attorneys' fees, accountants' fees and other
related costs, if any) received prior to the Closing by the Partnership
relating to that certain settlement of carriage fees between the
Partnership and Comcast Corporation ("Comcast Payments") shall be divided
equally between the Investor and the Partnership, with the Partnership
portion remaining in the Partnership at the Closing but not included for
purposes of the initial $5 million;
(ii) Comcast Payments received after the Closing shall be for the
benefit of the Partnership only and shall not be included in measuring the
cash flow during the Post Closing Period; and
(iii) payments by the Partnership to the former owners of the Sci-Fi
Channel in respect of deferred purchase price pursuant to agreements in
place prior to the date hereof shall (A) be included (to the extent of 50%
of such payments) in determining the initial $5 million and (B) shall not
be deducted in measuring the cash flow during the Post Closing Period.
9.17. Consents. Promptly following the date hereof, Investor shall make
diligent efforts to identify those Material Contracts, assets and other rights
that are included in the UT Contributed Business or the Partnership and the
transfer of which to the LLC pursuant to this Agreement may in the reasonable
judgment of Investor require the consent, approval, waiver or other action by a
third party or otherwise would have been required to have been included as an
exception to Section 2.3(a) ("Consents"). Parent in consultation with Investor
shall thereafter identify those Consents which Parent elects to attempt to
obtain prior to the Closing Date. Investor shall use all reasonable best efforts
to obtain (but shall not be obligated to expend any funds in connection
therewith other than incidental expenses) such Consents.
9.18. Viacom Non-Competition Covenant. Investor shall take all reasonable
efforts to enforce Article 7 ("Article 7") of the Partnership Interest Purchase
Agreement for the benefit of the LLC, including, without limitation, promptly
providing to Viacom Inc., at the written request of Parent or the LLC, a notice
of violation in accordance with Section 7.1(f) thereof, and shall not amend,
reduce, modify or waive any rights of Investor under Article 7 without the prior
written consent of Parent. Investor shall promptly advise Parent of any
knowledge it may have of breaches of Article 7 and shall consult closely with
Parent regarding any actions to be taken in connection therewith. Investor and
Parent shall enter into appropriate agreements regarding the conduct of any
disputes relating to Article 7, including with respect to reimbursement of
expenses and management of the dispute, all of which shall be consistent with
the terms of Article 7 and Investor's rights thereunder. In the event that
Investor merges, consolidates or otherwise effects a transaction with a third
party that results in such party succeeding to Investor's rights under Article
7, Investor shall obtain the written agreement of such party that it will comply
with Investor's obligations under this Section.
9.19. Ownership of Licenses. Parent agrees that, so long as FCC
Regulations or other applicable law prohibits or limits the foreign ownership of
entities that directly hold broadcast licenses (in a manner that differs from
such prohibitions or limitations if held indirectly), it will not directly hold
such licenses and shall do so through subsidiaries or other controlled
affiliates.
ARTICLE 10.
CONDITIONS
10.1. Conditions to Investor's Obligations. The obligations hereunder of
Investor to consummate the Transactions, are subject to the satisfaction, at or
before the Closing, of each of the following conditions. These conditions are
for the sole benefit of Investor and may be waived by Investor (in whole or in
part) at any time in its sole discretion.
(a) Subject to the final disclosure schedules delivered pursuant to
Section 9.11, the representations and warranties of Parent contained in
Article 3 which are not qualified as to materiality shall be true and
correct in all material respects and the representations and warranties
contained in Article 3 which are qualified as to materiality shall be true
and correct, in each case, as of the date when made and as of the
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Closing Date, as though made on such date (except that representations and
warranties made as of a specific date need be true and correct only as of
such date), and Investor shall have received a certificate attesting
thereto signed by a duly authorized officer or agent of Parent.
(b) Each of Parent, Sub and LLC shall have performed, satisfied and
complied with, in all material respects, all covenants, agreements, and
conditions required by this Agreement to be performed, satisfied or
complied with by it on or prior to the Closing Date, and Investor shall
have received a certificate attesting thereto signed by a duly authorized
officer or agent of Parent, Sub and LLC.
(c) The waiting periods under the HSR Act applicable to the
Transactions shall have expired or have been terminated.
(d) No temporary, preliminary or permanent injunction or any order by
any federal or state court of competent jurisdiction shall have been issued
which prohibits or otherwise seeks to prohibit, restrain, enjoin or delay
the consummation of any of the transactions contemplated by this Agreement.
(e) Parent stockholders shall have approved the transactions
contemplated hereunder by the Requisite Stockholder Vote and the
Certificate Amendment shall have been duly filed and become effective.
(f) There shall be no action, suit, investigation or proceeding
pending with, or to the knowledge of Investor, threatened by, any public or
governmental authority, against or affecting Parent or Investor or their
respective properties or rights, before any court, arbitrator or
administrative or governmental body which (a) seeks to restrain, enjoin or
prevent the consummation of the transactions contemplated by this
Agreement, or (b) challenges the validity or legality of any transactions
contemplated by this Agreement or seeks to recover damages or to obtain
other relief in connection with any such transactions.
(g) BD shall not have ceased serving Parent as its Chief Executive
Officer.
(h) Parent shall have duly obtained, received or effected (and all
applicable waiting and termination periods, if any, including any
extensions thereof, under any applicable law, statute, regulation or rule
shall have expired or terminated) all authorizations, consents, approvals,
licenses, franchises, permits and certificates by or of, and shall have
made all filings and effected all notifications, registrations and
qualifications with, all federal, state and local governmental and
regulatory authorities necessary for the consummation of the transactions
contemplated hereby.
(i) All corporate and other proceedings to be taken by Parent and Sub
in connection with the transactions contemplated by this Agreement and all
documents reflecting or evidencing such proceedings shall be reasonably
satisfactory in scope, form and substance to Investor and its legal
counsel, and Investor and its legal counsel shall have received all such
duly executed counterpart originals or certified or other copies of such
documents and instruments as they may reasonably request.
(j) Investor Sub shall have acquired the Acquired Partnership Interest
in accordance with the terms of the Partnership Interest Purchase
Agreement.
10.2. Conditions to Parent's Obligations. The obligations of Parent and
Sub hereunder to consummate the Transactions are subject to the satisfaction, at
or before the Closing, of each of the following conditions. These conditions are
for the sole benefit of Parent and Subsidiary and may be waived (in whole or in
part) at any time in their sole discretion.
(a) Subject to the final disclosure schedules delivered pursuant to
Section 9.11, the representations and warranties of Investor and the
Investor Newcos contained in Article 2 hereof shall be true and correct in
all material respects and the representations and warranties contained in
Article 2 which are qualified as to materiality shall be true and correct,
in each case, as of the date when made and as of the Closing Date, as
though made on such date (except that representations and warranties made
as of a specific date need be true and correct only as of such date), and
Parent shall have received a certificate attesting thereto signed by
Investor.
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(b) Each of Investor and each Investor Newco shall have performed,
satisfied and complied with, in all material respects, all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with on or prior to the Closing Date, and Parent
shall have received a certificate attesting thereto signed by Investor and
Investor Newco.
(c) There shall be no action, suit, investigation or proceeding
pending with, or to the knowledge of Parent, threatened by, any public or
governmental authority, against or affecting the UT Contributed Business or
the Partnership or their respective properties or rights, before any court,
arbitrator or administrative or governmental body which (a) seeks to
restrain, enjoin or prevent the consummation of the transactions
contemplated by this Agreement, or (b) challenges the validity or legality
of any transactions contemplated by this Agreement or seeks to recover
damages or to obtain other relief in connection with any such transactions.
(d) No temporary, preliminary or permanent injunction or any order by
any federal or state court of competent jurisdiction shall have been issued
which prohibits or otherwise seeks to prohibit, restrain, enjoin or delay
the consummation of any of the transactions contemplated by this Agreement.
(e) Investor and its Subsidiaries and the Partnership, as applicable,
shall have duly obtained, received or effected (and all applicable waiting
and termination periods, if any, including any extensions thereof, under
any applicable law, statute, regulation or rule, shall have expired or
terminated) all authorizations, consents, approvals, licenses, franchises,
permits and certificates by or of, and shall have made all filings and
effected all notifications, registrations and qualifications with, all
federal, state and local governmental and regulatory authorities necessary
for the consummation of the transactions.
(f) The waiting periods under the HSR Act applicable to the
Transactions shall have expired or have been terminated.
(g) Parent's stockholders shall have approved the transactions
contemplated hereunder by the Requisite Stockholder Vote and the
Certificate Amendment shall have been duly filed and become effective.
(h) All corporate and other proceedings to be taken by Investor and
the Investor Newcos in connection with the transactions contemplated by
this Agreement and all documents reflecting or evidencing such proceedings
shall be reasonably satisfactory in scope, form and substance to Parent and
its legal counsel, and Parent and its legal counsel shall have received all
such duly executed counterpart originals or certified or other copies of
such documents and instruments as they may reasonably request.
(i) Debt or equity financing shall have been obtained, on terms
reasonably acceptable to Parent, sufficient to pay the Cash Amount.
10.3. Conditions to Holder's Obligations and Option. Subject to the
provisions of Section 1.5(f)(i)(A) (which specifies the only conditions
applicable to a purchase by Holder of LLC Shares for cash), Holder's obligation
to contribute assets at the Holder Closing shall be subject to the satisfaction,
at or before the closing, of appropriate conditions, to be mutually agreed upon
and based on Sections 10.1 (other than Section 10.1(a)) and 10.2.
ARTICLE 11.
SURVIVAL AND INDEMNIFICATION
11.1. Survival. All representations, warranties and covenants and
agreements (other than those described in the penultimate sentence of this
paragraph) of the parties contained in this Agreement, including indemnity or
indemnification agreements contained herein, or in any Schedule hereto, or any
certificate, document or other instrument delivered in connection herewith shall
survive the Closing until March 31, 1999. No Action or proceeding may be brought
with respect to any of the representations and warranties, or any of the
covenants or agreements which survive until March 31, 1999 unless written notice
thereof, setting forth in reasonable detail the claimed misrepresentation or
breach of warranty or breach of covenant or agreement,
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shall have been delivered to the party alleged to have breached such
representation or warranty or such covenant or agreement prior to March 31,
1999. Notwithstanding the foregoing, Investor's indemnification obligations in
respect of any breach of the representations and warranties set forth in Article
8 hereof, or any related Schedule, or other certificate, document or instrument
delivered in connection therewith, shall survive the Closing until the sixth
anniversary of the Closing. Those covenants or agreements that contemplate or
may involve actions to be taken or obligations in effect after the Closing shall
survive in accordance with their terms. Other than as set forth herein,
indemnification pursuant to this Article shall be the exclusive remedy for any
breach of representations and warranties in this Agreement by either party.
11.2. Indemnification by Investor, Holder or Parent. (a) From and after
the Closing Date, Investor and its Subsidiaries shall jointly and severally
indemnify and hold harmless (i) Parent, Parent's Affiliates, each of their
respective directors, officers, employees and agents, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"Parent Indemnified Parties") from and against any and all damages, claims,
losses, expenses, costs, obligations, and liabilities including, without
limiting the generality of the foregoing, liabilities for all reasonable
attorneys' fees and expenses (including, but not limited to, attorney and expert
fees and expenses incurred to enforce the terms of this Agreement) net of tax
benefits and any recovery from any third party including, without limitation,
insurance proceeds and taking into account tax costs (collectively, "Loss and
Expenses") suffered, directly or indirectly (other than through any equity
interest in the LLC) by any Parent Indemnified Party, and (ii) the LLC and its
managers, officers, employees and agents, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "LLC
Indemnified Parties") from and against any and all Loss and Expenses suffered,
directly or indirectly by any LLC Indemnified Party by reason of, or arising out
of, (x) any breach of representation or warranty (without regard to any
materiality standard contained therein) made by Investor or any Investor Newco
pursuant to this Agreement (but excluding a breach of the representation
contained in Section 2.3(b) relating to a Consent), (y) any failure by Investor
or any Investor Newco to perform or fulfill any of its covenants or agreements
set forth in this Agreement (other than Sections 9.10 and 9.16), or (z) any
failure by Investor and its Subsidiaries to comply with the covenant contained
in Section 9.16 or to pay, perform or discharge any liabilities of the UT
Contributed Business other than the Assumed UT Liabilities but only (with
respect to items described in Sections 11.2(a)(x) and 11.2(a)(y)) to the extent
that the aggregate amount of all such Loss and Expenses of all such Parent
Indemnified Parties exceeds $50 million.
(b) From and after the Closing Date, Holder and its Subsidiaries shall
jointly and severally indemnify and hold harmless (i) the Parent Indemnified
Parties from and against any and all Loss and Expenses suffered, directly or
indirectly (other than through any equity interest in the LLC) by any Parent
Indemnified Party, and (ii) the LLC Indemnified Parties from and against any and
all Loss and Expenses suffered, directly or indirectly by any LLC Indemnified
Party, by reason of, or arising out of, (x) any breach of representation or
warranty (without regard to any materiality standard contained therein) made by
Holder pursuant to this Agreement, or (y) any failure by Holder to perform or
fulfill any of its covenants or agreements set forth in this Agreement but only
to the extent that the aggregate amount of all such Loss and Expenses of all
such Parent Indemnified Parties exceeds $50 million.
(c) From and after the Closing Date, Parent and its Subsidiaries shall
jointly and severally indemnify and hold harmless (i) Investor, Investor's
Affiliates, each of their respective directors, officers, employees and agents,
and each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Investor Indemnified Parties"), and (ii) Holder, Holder's
Affiliates, each of their respective directors, officers, employees and agents
and each of the heirs, executors, successors and assigns of any of the
foregoing, (collectively, the "Holder Indemnified Parties") from and against any
and all Loss and Expenses suffered, directly or indirectly by any Investor
Indemnified Parties, and (ii) the Holder Indemnified Parties from and against
any and all Loss and Expenses suffered, directly or indirectly by any Holder
Indemnified Party, by reason of, or arising out of, (x) any breach of
representation or warranty (without regard to any materiality standard contained
therein) made by Parent pursuant to this Agreement, (y) any failure by Parent to
perform or fulfill any of its covenants or agreements set forth in this
Agreement, or (z) any failure by Parent and its Subsidiaries to pay, perform or
discharge any liabilities (I) of the Contributed Businesses other than the
Assumed Liabilities or (II) of the Regulated Subsidiaries, but only (with
respect to items described in
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Sections 11.2(c)(x) and 11.2(c)(y)) to the extent that the aggregate amount of
all such Loss and Expenses of all such Investor Indemnified Parties and Holder
Indemnified Parties exceeds $50 million.
(d) Except with respect to third-party claims being defended in good faith
or claims for indemnification with respect to which there exists a good faith
dispute, the indemnifying party shall satisfy its obligations hereunder within
30 days of receipt of the indemnified party's notice of a claim under this
Article 11.
(e) The provisions of this Section 11.2 shall not affect the obligations
and benefits of the parties set forth in Sections 8.2 and 8.3 of this Agreement.
11.3. Third-Party Claims. If a claim by a third party is made against an
indemnified party (i.e., a Parent Indemnified Party, Investor Indemnified Party,
Holder Indemnified Party or LLC Indemnified Party), and if such indemnified
party intends to seek indemnity with respect thereto under this Article, such
indemnified party shall promptly notify the indemnifying party in writing of
such claims setting forth such claims in reasonable detail. The indemnifying
party shall have twenty (20) days after receipt of such notice to undertake,
through counsel of its own choosing and at its own expense, the settlement or
defense thereof, and the indemnified party shall cooperate with it in connection
therewith; provided, however, that the indemnified party may participate in such
settlement or defense through counsel chosen by such indemnified party, provided
that the fees and expenses of such counsel shall be borne by such indemnified
party unless the indemnified party shall have reasonably determined that
representation by the same counsel would be inappropriate under the applicable
standards of appropriate conduct due to actual or potential differing interests
between them, and in that event, the fees and expenses of such counsel shall be
paid by the indemnifying party. If the indemnifying party assumes such defense,
the indemnified party shall have the right to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed by
the indemnifying party, it being understood that the indemnifying party shall
control such defense. In the event that the indemnifying party assumes such
defense, the indemnified party shall cooperate with the indemnifying party in
such defense and make available to the indemnifying party, at the indemnifying
party's expense, all pertinent records, materials and information in its
possession or under its control relating thereto as is reasonably required by
the indemnifying party. The indemnified party shall not pay or settle any claim
which the indemnifying party is contesting without the prior written consent of
the indemnifying party, which consent shall not be unreasonably withheld. The
indemnifying party shall not settle any claim unless it contains an
unconditional release of the indemnified party from any and all liability with
respect to such third party claim without the prior written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the indemnified party shall have the right to pay
or settle any such claim, provided that in such event it shall waive any right
to indemnity therefor by the indemnifying party. If the indemnifying party does
not notify the indemnified party within twenty (20) days after the receipt of
the indemnified party's notice of a claim of indemnity hereunder that it elects
to undertake the defense thereof, the indemnified party shall have the right to
contest, settle or compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement.
ARTICLE 12.
TERMINATION; LIQUIDATION
12.1. Termination by Mutual Written Consent. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason, at any time prior to the Closing Date, by the mutual written consent of
the Parties.
12.2. Termination by Parent or Investor. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned by action of Parent or
Investor if and to the extent that (a) the Closing shall not have occurred at or
prior to 5:00 p.m., Eastern time, on June 30, 1998; provided, however, that the
right to terminate this Agreement under this Section 12.2 shall not be available
to any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing Date to occur on
or before such date; or (b) any court or governmental authority of competent
jurisdiction shall have issued an order, decree, writ or ruling or taken any
other action, or there shall be in
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effect any statute, rule or regulation permanently restraining, enjoining or
otherwise prohibiting the Transactions.
12.3. Termination by Parent. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by action of Parent, at any
time prior to the Closing Date, if (a) Investor or its Affiliates shall have
failed to comply in any material respect with any of the covenants or agreements
contained in this Agreement to be complied with or performed by Investor and its
Affiliates at or prior to such date of termination, and Investor shall not,
within a reasonable period of time after notice of such failure, have cured or
commenced prompt and diligent measures which would promptly cure such failure,
(b) there shall have been a misrepresentation or breach by Investor with respect
to any representation or warranty made by it in this Agreement which would
entitle Parent not to consummate the Transactions and such misrepresentation or
breach cannot be cured prior to the Closing Date or (c) on or before the close
of business on November 17, 1997 if Parent shall not be reasonably satisfied
with the results of its due diligence investigation of the Partnership and the
UT Contributed Business and shall have determined, in its reasonable good faith
judgment, that the net adverse effect of the total mix of the additional
information not otherwise known to it prior to the date of this Agreement,
individually or in the aggregate, would materially decrease the economic benefit
of the Transactions to Parent (after giving effect to any increases in value
that are attributable to positive aspects of any additional information first
made known to Parent after the date of this Agreement).
12.4. Termination by Investor. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by action of Investor, at any
time prior to the Closing Date, if (a) Parent or its Subsidiaries shall have
failed to comply in any material respect with any of the covenants or agreements
contained in this Agreement to be complied with or performed by Parent and its
Affiliates at or prior to such date of termination and Parent shall not, within
a reasonable period of time after notice of such failure, have cured or
commenced prompt and diligent measures which would promptly cure such failure,
(b) there shall have been a misrepresentation or breach by Parent with respect
to any representation or warranty made by it in this Agreement which would
entitle Investor not to consummate the Transactions and such misrepresentation
or breach cannot be cured prior to the Closing Date, (c) BD shall have ceased
serving Parent as its Chief Executive Officer, (d) the Fair Market Value (as
defined in the Stock Exchange Agreement, dated May 20, 1997, between Paul Allen
("Allen") and Parent) during any seven out of the nine consecutive trading days
ending on the third trading day immediately prior to the Closing Date would not
have resulted in the extinguishment of Parent's obligation to issue additional
Parent Common Stock to Allen or (e) on or before the close of business on
November 17, 1997 if Investor shall not be reasonably satisfied with the results
of its due diligence investigation of the Contributed Businesses and shall have
determined, in its reasonable good faith judgment, that the net adverse effect
of the total mix of the additional information not otherwise known to it prior
to the date of this Agreement, individually or in the aggregate, would
materially decrease the economic benefit of the Transactions to Investor (after
giving effect to any increases in value that are attributable to positive
aspects of any additional information first made known to Investor after the
date of this Agreement).
12.5. Termination Following Closing. If not earlier terminated, the
provisions of this Agreement (other than Sections 1.6(a), 1.7, 1.8, 1.9, Article
8, Sections 9.4, 9.5, 9.6, 9.7, 9.9(c), (e), (f), (g), 9.10, 9.14, 9.18 and 9.19
and Articles 11 and 13 (other than Sections 13.2 and 13.3)) shall terminate on
the date all of the Exchange Options are exercised.
12.6. Effect of Termination. In the event of termination of this
Agreement as provided herein prior to the Closing, this Agreement shall be of no
further force or effect, except (a) as provided in the last sentence of Section
9.5, this Section 12.6 and Article 13, each of which shall survive termination
of this Agreement, and (b) nothing herein shall relieve any party from liability
for any breach of this Agreement.
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ARTICLE 13.
GENERAL
13.1. Definitions. The capitalized terms used herein shall have the
respective meanings assigned to such terms set forth below (such definitions to
be equally applicable to both the singular and plural forms of the terms
defined) :
(a) "Acquired LLC Amount" shall mean a number of LLC Shares
(if any) equal to 35.75 million less the quotient obtained by dividing the
amount of cash (if any) payable pursuant to Section 1.5(b)(i)(A) by 40;
(b) "Acquired Partnership Interest" shall mean that certain
50% partnership interest in the Partnership acquired by Investor Sub
pursuant to the Partnership Interest Purchase Agreement;
(c) "Additional Issuance" shall have the meaning set forth in
Section 1.7(a)(i);
(d) "Additional Shares" shall have the meaning set forth in
Section 1.7(a)(i);
(e) "Affiliate" shall mean, with respect to any person, any
direct or indirect subsidiary of such person, and any other person that
directly, or through one or more intermediaries, is controlled by or is
under common control with such first person, and, if such a person is an
individual, any member of the immediate family (including parents, spouse
and children) of such individual and any trust whose principal beneficiary
is such individual or one or more members of such immediate family and any
person who is controlled by any such member or trust. As used in this
definition, "control" (including, with correlative meanings, "controlled
by" and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise);
(f) "Affiliation Agreements" shall have the meaning set forth
in Section 2.7;
(g) "Agreement" shall have the meaning set forth in the
Preamble;
(h) "Allen" shall have the meaning set forth in Section 12.4;
(i) "Ancillary Business Agreements" shall mean the agreements
attached as Exhibit C hereto (or any successor agreements);
(j) "Assumed Liabilities" shall have the meaning set forth in
Section 1.4;
(k) "Assumed UT Liabilities" shall have the meaning set forth
in Section 1.5;
(l) "Assumptions" shall have the meaning set forth in Section
1.7(a)(i);
(m) "Available Parent Amount" shall mean, as of a given date of
determination, the number equal to the difference between (x) the Holder
Limit, and (y) the number of Parent Common Shares then Owned (for purposes
of the FCC Regulations) by such holder of LLC Shares, giving effect to the
voting power of the stock Owned or to be Owned by such holder (and
including, with respect to Holder, all Parent Common Shares, held by the
entities known as "BDTV Entities");
(n) "BD" shall mean Barry Diller;
(o) "Beneficial Asset" shall have the meaning set forth in
Section 1.11;
(p) "Benefit Arrangements" shall have the meaning set forth in
Section 2.10(a);
(q) "Business Employees" shall have the meaning set forth in
Section 2.10(a);
(r) "Cash Amount" shall mean a dollar amount equal to the
difference between (i) $4,075,000,000 and (ii) the product of (x) $40 and
(y) the Stock Amount;
(s) "Certificate Amendment" shall have the meaning set forth
in Section 9.1(b);
(t) "Closing" shall have the meaning set forth in Section 1.5;
(u) "Closing Date" shall have the meaning set forth in Section
1.5;
(v) "Code" shall mean the Internal Revenue Code of 1986, as
amended;
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(w) "Consent Asset" shall have the meaning set forth in Section
1.11;
(x) "Consents" shall have the meaning set forth in Section
9.17;
(y) "Contingent Shares" shall have the meaning set forth in
the Holder Exchange Agreement;
(z) "Continued Employee" shall have the meaning set forth in
Section 9.9(d);
(aa) "Contracts" shall mean all executory written agreements,
contracts, commitments, understandings and other instruments or
arrangements;
(bb) "Contribute" shall have the meaning set forth in Section
1.3;
(cc) "Contributed Businesses" shall have the meaning set forth
in Section 1.3;
(dd) "Current Programs" shall mean the "Current Programs" as
defined in Schedule 1.5 and, for purposes of Section 9.10, shall include
all other programming included in the UT Contributed Business produced
during the Determination Period (other than half-hour situation comedies)
and derived from, or which continues, a "Current Program" for purposes of
Section 9.10;
(ee) "Determination Period" shall have the meaning set forth in
Section 9.10(c);
(ff) "disabled" shall have the meaning as to be defined in the
definitive Governance Agreement;
(gg) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(hh) "ERISA Affiliate" shall have the meaning set forth in
Section 2.10(d);
(ii) "Excess Cash" shall mean cash held by an entity
(including from the proceeds of borrowings) on the last business day of
each month which is reasonably determined by such entity not to be needed
by such entity to fund its operations or repay indebtedness owed by such
entity during the immediately succeeding month;
(jj) "Exchange Act" shall mean the Securities Exchange Act of
1934 and the regulations promulgated thereunder, each as amended;
(kk) "Exchange Agreement" shall have the meaning set forth in
Section 6.1(a);
(ll) "Exchange Options" shall have the meaning set forth in
Section 6.1(a);
(mm) "Exchange Options Shares" shall have the meaning set forth
in Section 6.1(b)(ii);
(nn) "Exchange Shares" shall mean the Silver King Exchange
Shares as defined in the Holder Exchange Agreement;
(oo) "Excluded Businesses" shall mean, at any time, the
businesses of Parent and its Subsidiaries other than the Contributed
Businesses;
(pp) "Excluded Issuance" shall mean any issuance of Parent
Common Stock (i) in a Sale Transaction, or (ii) which is "restricted stock"
or the ownership of which is otherwise subject to forfeiture ("Restricted
Stock"), provided that for purposes of this definition any stock covered by
the provisions of clause (ii) shall be deemed to have been issued on the
date (the "Lapse Date") the restrictions on such stock lapse or on which
the stock is no longer subject to forfeiture;
(qq) "Excluded Sub" shall have the meaning set forth in Section
1.3;
(rr) "Fair Market Value" for a security publicly traded in the
over-the-counter market (on either NASDAQ-NMS or NASDAQ) or on a recognized
exchange shall be the average closing price of such security for the three
trading days ending on the applicable day (or, if such day is not a trading
day,
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<PAGE> 45
the trading day immediately preceding the applicable day), and for all
other securities or property "Fair Market Value" shall be determined, by a
nationally recognized investment banking firm which has not been engaged by
Parent, Investor, Holder (if Holder or a Holder Newco then holds LLC
Shares), the holder of stock of any Investor Newco (or Holder Newco, if
applicable) or their Affiliates for the prior three years selected by (i)
Parent and (ii) Investor and Holder (to the extent Holder at such time
holds LLC Shares); provided that, if Parent and Investor (or Investor and
Holder, if applicable) cannot agree on such an investment banking firm
within 10 business days, such investment banking firm shall be selected by
a panel designated in accordance with the rules of the American Arbitration
Association. The fees, costs and expenses of the American Arbitration
Association and the investment banking firm so selected shall be borne
equally by the LLC and Investor (or Investor and Holder, if applicable);
(tt) "FCC" shall mean the U.S. Federal Communications
Commission;
(uu) "FCC Regulations" shall have the meaning set forth in the
Holder Exchange Agreement;
(vv) "GAAP" shall mean United States generally accepted
accounting principles;
(ww) "Governance Agreement" shall have the meaning set forth in
Section 9.3;
(xx) "Holder" shall have the meaning set forth in the Preamble;
(yy) "Holder Agreements" shall have the meaning set forth in
Section 3.2;
(zz) "Holder Exchange Agreement" shall mean the Exchange
Agreement, dated as of December 20, 1996, by and between Parent and Holder;
(aaa) "Holder Indemnified Parties" shall have the meaning set
forth in Section 11.2(c);
(bbb) "Holder Limit" shall mean the maximum number of Parent
Common Shares which the holder of the LLC Shares would, under the FCC
Regulations then in effect, then be permitted to Own (in accordance with
FCC Regulations);
(ccc) "Holder Mandatory Exchange" shall have the meaning set
forth in Section 1.9;
(ddd) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations promulgated
thereunder;
(eee) "Intangible Property" shall have the meaning set forth in
Section 2.8;
(fff) "Interest Rate" shall mean (i) with respect to demand
notes representing loans which were funded from the proceeds of
indebtedness owed to entities other than Parent, its Subsidiaries and the
LLC, the interest rate on such indebtedness, (ii) with respect to demand
notes representing loans the proceeds of which are invested in interest
bearing instruments issued by entities other than Parent, its Subsidiaries
and the LLC, the blended rate on such instruments and (iii) with respect to
demand notes representing all other loans, 30-day LIBOR from time to time
as determined on the first business day of each month in accordance with
the credit agreement of Parent in effect from time to time (or if none is
in effect, the last effective credit agreement) plus the applicable margin
set forth in such credit agreement;
(ggg) "Investor" shall have the meaning set forth in the
Preamble;
(hhh) "Investor Financial Statements" shall have the meaning set
forth in Section 2.9;
(iii) "Investor Indemnified Parties" shall have the meaning set
forth in Section 11.2(c);
(jjj) "Investor Newco" shall have the meaning set forth in
Section 1.2;
(kkk) "Investor Sub" shall have the meaning set forth in Section
1.5;
(lll) "Issue Price" shall mean the price per share equal to (i)
except as otherwise provided in clause (iii) below, in connection with an
underwritten offering of shares of Parent Common Shares, the initial price
at which the stock is offered to the public or other investors, (ii) in
connection with other
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<PAGE> 46
sales of Parent Common Shares for cash (other than sales covered by clause
(iii) below), the cash price paid for such stock, (iii) in connection with
the issuance of Parent Common Shares for cash within 4 months of the
Closing, $40 per share, (iv) in connection with the deemed issuances of
Restricted Stock, the Fair Market Value of the stock on the Lapse Date (as
defined in the definition of "Excluded Issuance" below), (v) in connection
with the issuance of Parent Common Shares as consideration in an
acquisition by Parent (other than a Merger Transaction), the average of the
Fair Market Value of the stock for the five trading days ending on the
third trading day immediately preceding the closing of the acquisition and
in case of a Merger Transaction, $40 per share, (vi) in connection with a
compensatory issuance of shares of Parent Common Stock, in the case of
Parent and its Affiliates, the amount received per share by Parent, and
with respect to Investor and Holder and their respective Affiliates, the
Fair Market Value of the Parent Common Stock, and (vii) in all other cases,
including, without limitation, in connection with the issuance of Parent
Common Shares pursuant to an option, warrant or convertible security (other
than in connection with the conversion of the Sub Convertible Debt, in
which case the Issue Price shall be $40 per share, or in connection with
issuances described in clause (vi) above), the Fair Market Value of the
Parent Common Shares on the date of issuance;
(mmm) "LLC" shall have the meaning set forth in Section 1.1;
(nnn) "LLC Indemnified Parties" shall have the meaning set forth
in Section 11.2(a);
(ooo) "LLC Operating Agreement" shall mean the LLC Operating
Agreement attached as Exhibit B hereto (or any successor agreement);
(ppp) "LLC Shares" shall mean shares representing a proportionate
interest in the capital and profits and losses of the LLC;
(qqq) "Licenses" means all licenses, permits, construction
permits, registrations, and other authorizations issued by any federal,
state, or local governmental authorities for use in connection with the
conduct of the business or operations of the relevant business, and all
applications therefor, together with any renewals, extensions,
modifications, or additions thereto between the date of this Agreement and
the Closing Date;
(rrr) "Liens" shall have the meaning set forth in Section 2.3;
(sss) "Loss and Expenses" shall have the meaning set forth in
Section 11.2(a);
(ttt) "Mandatory Purchase Event" shall have the meaning set
forth in Section 1.7(a)(ii);
(uuu) "Mandatory Purchase Notice" shall have the meaning set
forth in Section 1.7(a)(ii);
(vvv) "Material Adverse Effect" shall mean any event,
occurrence, fact, condition, change or effect that is materially adverse to
the business, operations, results of operations, prospects, condition
(financial or otherwise), properties (including intangible properties),
assets (including intangible assets) or liabilities of the relevant
business, taken as a whole;
(www) "Material Contracts" shall have the meaning set forth in
Section 2.7;
(xxx) "Material Real Property" shall have the meaning set forth
in Section 2.5;
(yyy) "Merger Transaction" shall have the meaning set forth in
Section 1.7(a)(iii);
(zzz) "NASD" shall mean the National Association of Securities
Dealers;
(aaaa) "Owned LLC Amount" shall mean a number of LLC Shares equal
to the difference between (i) the Stock Amount and (ii) 6.75 million plus
the Acquired LLC Amount;
(bbbb) "Owned Partnership Interest" shall mean that certain
partnership interest in the Partnership owned by Investor since the
inception of the Partnership;
(cccc) "Parent" shall have the meaning set forth in the Preamble;
(dddd) "Parent Balance Sheet" shall have the meaning set forth in
Section 3.8;
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<PAGE> 47
(eeee) "Parent Balance Sheet Date" shall have the meaning set
forth in Section 3.8;
(ffff) "Parent Benefit Arrangements" shall have the meaning set
forth in Section 3.10;
(gggg) "Parent Certificate" shall have the meaning set forth in
Section 3.1;
(hhhh) "Parent Class B Stock" shall have the meaning set forth in
Section 3.2;
(iiii) "Parent Commission Documents" shall have the meaning set
forth in Section 3.8;
(jjjj) "Parent Common Shares" shall mean shares of Parent Common
Stock and Parent Class B Stock;
(kkkk) "Parent Common Stock" shall have the meaning set forth in
Section 3.2;
(llll) "Parent Employees" shall have the meaning set forth in
Section 3.10(a);
(mmmm) "Parent ERISA Affiliate" shall have the meaning set forth in
Section 3.10(c);
(nnnn) "Parent Form S-4" shall have the meaning set forth in
Section 3.2;
(oooo) "Parent Form 10-K" shall have the meaning set forth in
Section 3.8;
(pppp) "Parent Indemnified Parties" shall have the meaning set
forth in Section 11.2(a);
(qqqq) "Parent LLC Shares Number" shall mean the aggregate number
of outstanding Parent Common Shares as of the fifth business day prior to
the Closing Date (assuming that all Parent Common Shares issuable pursuant
to the Contingent Shares and Exchange Shares have been issued and any
Parent Common Shares issued pursuant to a public offering consummated
between the fifth business day prior to Closing Date and the Closing Date
are outstanding) less 8.25 million;
(rrrr) "Parent Pension Plan" shall have the meaning set forth in
Section 3.10(b);
(ssss) "Parent Preferred Stock" shall have the meaning set forth
in Section 3.2;
(tttt) "Parent Securities" shall mean Parent Common Shares and
LLC Shares;
(uuuu) "Parent Stock Number" shall mean 6.75 million;
(vvvv) "Parties" shall have the meaning set forth in the Preamble;
(wwww) "Partnership" shall mean USA Networks, a New York
partnership;
(xxxx) "Partnership Agreement" shall have the meaning set forth in
Section 2.1;
(yyyy) "Partnership Interest Purchase Agreement" shall mean the
Partnership Interest Purchase Agreement by and among Universal Studios,
Inc., Universal City Studios, Inc., Viacom, Inc. and Eighth Century
Corporation, dated as of September 22, 1997;
(zzzz) "Partnership Plans" shall have the meaning set forth in
Section 2.10(a);
(aaaaa) "Pension Plan" shall have the meaning set forth in Section
2.10(b);
(bbbbb) "Permitted Liens" shall mean, collectively, (1) all
statutory or other liens for taxes or assessments which are not yet due or
the validity of which is being contested in good faith by appropriate
proceedings, (2) all mechanics', materialmen's, carriers', workers' and
repairers' liens, and other similar liens imposed by law, incurred in the
ordinary course of business, which allege unpaid amounts that are less than
30 days delinquent or which are being contested in good faith by
appropriate proceedings, and (3) all other Liens which do not materially
detract from or materially interfere with the marketability, value or
present use of the asset subject thereto or affected thereby;
(ccccc) "Post Closing Period" shall have the meaning set forth in
Section 9.16;
(ddddd) "Programming Agreements" shall have the meaning set forth
in Section 2.7;
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<PAGE> 48
(eeeee) "Real Property" shall mean real estate and buildings and
other improvements thereon and leases and leasehold interests, leasehold
improvements, fixtures and trade fixtures;
(fffff) "Redemption Price" shall have the meaning set forth in
Section 1.7(b);
(ggggg) "Regulated Subsidiaries" shall have the meaning set forth
in Section 1.11;
(hhhhh) "Requisite Stockholder Vote" shall mean the affirmative vote
of (x) the holders of a majority of the outstanding shares of Parent Common
Stock and Parent Class B Stock, voting as separate classes, to the
amendment to Parent's certificate of incorporation increasing the
authorized capital stock, and (y) the holders of a majority of the voting
power represented by the outstanding Parent Common Shares, voting together
as a single class, voting at the special meeting (provided a quorum is
present under the NASD by-laws) for the issuance of shares of Parent Common
Stock in accordance with this Agreement;
(iiiii) "Sale Transaction" shall have the meaning set forth in
Section 6.1(b);
(jjjjj) "Securities Act" shall mean the Securities Act of 1933
and the regulations promulgated thereunder, each as amended;
(kkkkk) "Self Tender Offer" shall have the meaning set forth in
Section 6.2;
(lllll) "Spinoff" shall have the meaning set forth in Section
9.14;
(mmmmm) "Spinoff Company" shall have the meaning set forth in Section
9.14;
(nnnnn) "Statement" shall have the meaning set forth in Section
9.10;
(ooooo) "Stock Amount" shall mean an amount equal to 45% of the sum
of (i) the aggregate number of Parent Common Shares outstanding as of the
fifth business day prior to the Closing Date (assuming that all Parent
Common Shares issuable pursuant to the Contingent Shares and Exchange
Shares have been issued), (ii) any shares issued pursuant to a public
offering consummated between the fifth business day prior to the Closing
Date and the Closing Date, (iii) 7.5 million and (iv) the Stock Amount;
(ppppp) "Sub" shall have the meaning set forth in the Preamble;
(qqqqq) "Sub Convertible Debt" shall have the meaning set forth in
Section 1.7(a)(ii);
(rrrrr) "Subsidiaries" shall mean, with respect to any person,
each of the direct or indirect subsidiary of such person;
(sssss) "Tax Audit" shall have the meaning set forth in Section
8.7;
(ttttt) "Tender Number" shall have the meaning set forth in
Section 6.2(c);
(uuuuu) "TKTM Agreements" shall have the meaning set forth in
Section 3.2;
(vvvvv) "Transactions" shall have the meaning set forth in the
Preamble;
(wwwww) "Transferee" shall have the meaning set forth in Section 6.1;
(xxxxx) "Transition Services Agreement" shall have the meaning set
forth in Section 9.4;
(yyyyy) "Unit" shall mean one LLC Share and one Preferred Share;
(zzzzz) "UT Contributed Business" shall have the meaning set forth
in Section 1.5;
(aaaaaa) "U-TV Assets" shall have the meaning set forth in Section
9.10(b);
(bbbbbb) "U-TV's EBITDA" shall have the meaning set forth in Section
9.10(b).
13.2. Efforts to Proceed Promptly. Each of the Parties agrees to use
their respective reasonable best efforts to take all such action (including,
without limitation, executing such other agreements and instruments, and making
such filings, including filings required under the HSR Act) as may be necessary
or appropriate in
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<PAGE> 49
order to effectuate the Transactions as promptly as practicable. Each Party to
this Agreement agrees to execute, acknowledge, deliver, file and record such
further certificates, amendments, instruments, agreements and documents and to
do all such other acts and things, as may be required by law or as, in the
opinion of the Parties, may be necessary or advisable to carry out the intent
and purposes of this Agreement. Each Party agrees that it will act diligently
and in good faith to carry out its respective obligations under this Agreement.
13.3. Maintenance of Business. Between the date of this Agreement and the
Closing, Parent and Sub agree that they shall continue to operate their
businesses in the customary and ordinary manner. Between the date of this
Agreement and the Closing, Investor agrees to operate the UT Contributed
Business in the customary and ordinary manner and to cause the Partnership to
operate its business in the customary and ordinary manner.
13.4. Notices. Any notices, requests, demands or other communications to
be given by a Party hereunder shall be in writing and shall be deemed to have
been duly given when delivered personally or by facsimile transmission, in
either case with receipt acknowledged, or three days after being sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed (until another address is supplied by notice duly given hereunder) as
follows:
If given to Parent or Sub:
HSN, Inc.
1 HSN Drive
St. Petersburg, Florida 33729
Attention: General Counsel
Telephone: (813) 572-8585
Facsimile: (813) 573-0866
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon, Esq.
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
If given to the Holder:
Liberty Media Corporation
8101 East Prentice Avenue
Suite 500
Englewood, Colorado 80111
Attention: President
Telephone: (303) 721-5400
Facsimile: (303) 841-7344
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
Suite 2900
New York, New York 10022-6030
Attention: Frederick H. McGrath, Esq.
Telephone: (212) 705-5000
Facsimile: (212) 705-5125
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If given to Investor or the Investor Newcos:
Universal Studios, Inc.
100 Universal City Plaza
Universal City, California 91608
Attention: Karen Randall, Esq.
Telephone: (818) 777-7100
Facsimile: (818) 866-3444
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: John Finley, Esq.
Telephone (212) 455-2000
Facsimile: (212) 455-2502
13.5. Specific Enforcement. The Parties hereto recognize and agree that,
in the event that any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached, immediate
irreparable injury would be caused for which there is no adequate remedy at law.
It is accordingly agreed that in the event of a failure by a party to perform
its obligations under this Agreement, the nonbreaching party shall be entitled
to specific performance through injunctive relief to prevent breaches of the
provisions of this Agreement and to enforce specifically the provisions of this
Agreement in any action instituted in any court having subject matter
jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity.
13.6. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable. The exercise of any rights or obligations
hereunder shall be subject to such reasonable delay as may be required to
prevent a party from incurring any liability under the federal securities laws,
and the parties agree to cooperate in good faith in respect thereof.
13.7. Entire Agreement. This Agreement, the schedules and exhibits hereto
and any documents delivered hereunder constitute the entire agreement between
the parties and supersede any prior agreement or understanding between the
parties with respect to the subject matter hereof. Except as specifically set
forth herein, nothing in this Agreement shall constitute a waiver, amendment or
termination of the terms of any Holder Agreement.
13.8. Amendment; Waiver. Except as provided otherwise herein, this
Agreement may not be amended nor may any rights hereunder be waived except by an
instrument in writing signed by Investor and Parent, and Holder (but only to the
extent that any such amendment would adversely affect the rights and obligations
of Holder). Parent hereby agrees with Holder that it will not enter into or
permit any material amendment to, or waiver or modification of material rights
or obligations under, this Agreement (including the exhibits attached hereto)
without the prior written consent of Holder, which shall not be unreasonably
withheld.
13.9. Headings; References. Article headings are inserted for convenience
and reference purposes only, and are not and shall not be deemed to be a part of
this Agreement or affect any meaning or interpretation hereof. References herein
to "the date hereof," "the date of this Agreement," and similar references are
to October 19, 1997.
13.10. Expenses. Each Party shall pay all of its own legal and accounting
fees and other expenses incurred in connection with the negotiation, preparation
and execution of the Transactions and any agreements associated therewith.
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13.11. Counterparts. This Agreement may be executed in one or more
counterpart copies and by facsimile; each of which shall be considered an
original, but together shall constitute one agreement.
13.12. Governing Law. This Agreement and all matters collateral hereto
shall be governed by and construed in accordance with the laws of the State of
New York except as and to the extent such laws are superseded by the Federal
laws of the United States, including the rules, regulations and published
policies of the FCC.
13.13. Public Announcement. So long as this Agreement is in effect, each
of Parent and Investor agree to consult with the others before issuing any press
release or otherwise making any public statement with respect to the
Transactions; and neither Parent nor Investor (or their respective Affiliates)
will issue any press release or make any such public statement with respect to
the Transactions without the consent of the other Party, except as may be
required by law (including, without limitation, disclosure required in public
filings required to be made by Parent or any Affiliates of Investor) or the
requirements of any securities exchange.
13.14. No Third Party Beneficiaries. Nothing contained in this Agreement
is intended to or shall confer upon any person other than the Parties any rights
or remedies hereunder.
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* * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
HSN, INC.
/s/ BARRY DILLER
--------------------------------------
By: Barry Diller
Title: Chairman of the Board and
Chief Executive Officer
HOME SHOPPING NETWORK, INC.
/s/ JAMES G. HELD
--------------------------------------
By: James G. Held
Title: President and Chief Executive
Officer
UNIVERSAL STUDIOS, INC.,
for itself and on behalf of certain of
its Subsidiaries
/s/ BRIAN C. MULLIGAN
--------------------------------------
By: Brian C. Mulligan
Title: Senior Vice President
LIBERTY MEDIA CORPORATION
/s/ ROBERT R. BENNETT
--------------------------------------
By: Robert R. Bennett
Title: President
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================================================================================
EXHIBIT A TO THE INVESTMENT AGREEMENT
FORM OF
GOVERNANCE AGREEMENT
AMONG
HSN, INC.,
UNIVERSAL STUDIOS, INC.,
LIBERTY MEDIA CORPORATION
AND
BARRY DILLER
DATED AS OF OCTOBER 19, 1997
================================================================================
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
STANDSTILL AND VOTING
SECTION 1.01. Acquisition of Voting Securities.............................. B-4
SECTION 1.02. Restrictions on Transfer...................................... B-6
SECTION 1.03. Further Restrictions on Conduct............................... B-7
SECTION 1.04. Reports....................................................... B-7
SECTION 1.05. Transferees................................................... B-8
ARTICLE II
BOARD OF DIRECTORS AND RELATED MATTERS
SECTION 2.01. Initial Composition of Board of Directors..................... B-8
SECTION 2.02. Proportionate Representation.................................. B-8
SECTION 2.03. Management of the Business.................................... B-9
SECTION 2.04. Fundamental Changes........................................... B-10
SECTION 2.05. Notice of Events.............................................. B-11
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company................. B-12
SECTION 3.02. Representations and Warranties of the Stockholders............ B-12
ARTICLE IV
DEFINITIONS
SECTION 4.01. "Affiliate"................................................... B-12
SECTION 4.02. "Assumptions"................................................. B-12
SECTION 4.03. "BDTV Entities"............................................... B-12
SECTION 4.04. "Beneficial Ownership" or "Beneficially Own".................. B-12
SECTION 4.05. "CEO"......................................................... B-13
SECTION 4.06. "CEO Termination Date"........................................ B-13
SECTION 4.07. "Commission".................................................. B-13
SECTION 4.08. "Consenting Party"............................................ B-13
SECTION 4.09. "Demand Registration"......................................... B-13
SECTION 4.10. "Disabled".................................................... B-13
SECTION 4.11. "Equity Securities"........................................... B-13
SECTION 4.12. "Exchange Act"................................................ B-13
SECTION 4.13. "Exchange Agreement".......................................... B-13
SECTION 4.14. "FCC Regulations"............................................. B-13
SECTION 4.15. "Independent Director"........................................ B-13
SECTION 4.16. "Liberty Director"............................................ B-14
</TABLE>
2
<PAGE> 55
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4.17. "Ownership Percentage"........................................ B-14
SECTION 4.18. "Permitted Business Combination".............................. B-14
SECTION 4.19. "Permitted Investment Percentage"............................. B-14
SECTION 4.20. "Permitted Transferee"........................................ B-14
SECTION 4.21. "Person"...................................................... B-14
SECTION 4.22. "Public Stockholder".......................................... B-14
SECTION 4.23. "Right of First Refusal"...................................... B-14
SECTION 4.24. "Satisfactory Nominee"........................................ B-15
SECTION 4.25. "Seagram"..................................................... B-15
SECTION 4.26. "Securities Act".............................................. B-15
SECTION 4.27. "Shares"...................................................... B-15
SECTION 4.28. "Stockholders Agreement"...................................... B-15
SECTION 4.29. "Stockholders Group".......................................... B-15
SECTION 4.30. "Subsidiary".................................................. B-15
SECTION 4.31. "Third Party Transferee"...................................... B-15
SECTION 4.32. "13D Group"................................................... B-15
SECTION 4.33. "Total Equity Securities"..................................... B-15
SECTION 4.34. "Transfer".................................................... B-16
SECTION 4.35. "Universal Director".......................................... B-16
SECTION 4.36. "Voting Securities"........................................... B-16
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Notices....................................................... B-16
SECTION 5.02. Amendments; No Waivers........................................ B-17
SECTION 5.03. Successors and Assigns........................................ B-17
SECTION 5.04. Governing Law; Consent to Jurisdiction........................ B-18
SECTION 5.05. Counterparts; Effectiveness................................... B-18
SECTION 5.06. Specific Performance.......................................... B-18
SECTION 5.07. Registration Rights........................................... B-18
SECTION 5.08. Termination................................................... B-19
SECTION 5.09. Severability.................................................. B-19
SECTION 5.10. Cooperation................................................... B-19
SECTION 5.11. Entire Agreement.............................................. B-19
</TABLE>
3
<PAGE> 56
GOVERNANCE AGREEMENT
Agreement dated as of October 19, 1997 among HSN, Inc., a Delaware
corporation ("HSNi" or the "Company"), Universal Studios, Inc., for itself and
on behalf of the members of its Stockholders Group ("Universal"), Liberty Media
Corporation, for itself and on behalf of the members of its Stockholders Group
("Liberty"), and Mr. Barry Diller ("Mr. Diller") for himself and on behalf of
the members of his Stockholders Group. Capitalized terms used herein without
definition have the meanings ascribed to such terms in the Transaction Agreement
(as hereinafter defined).
WHEREAS, HSNi, Universal and Liberty are parties to an Investment Agreement
dated as of the date hereof (the "Transaction Agreement") pursuant to which,
among other things, subject to the terms and conditions contained in the
Transaction Agreement, Universal will acquire Beneficial Ownership (as defined
in Article IV hereof) of Parent Common Shares and LLC Shares (together, the
"Shares"), representing 45% (or such greater percentage as may result under
Section 1.5(e) or 1.5(f) of the Transaction Agreement) of the Total Equity
Securities immediately following the Closing (such percentage, the "Initial
Percentage") (the Initial Percentage or such Ownership Percentage as may be
permitted under the terms of this Agreement to be Beneficially Owned by
Universal from time to time being referred to herein as the "Permitted
Investment Percentage"), in exchange for the transfer of the UT Contributed
Business and the Partnership;
WHEREAS, under the terms of the Transaction Agreement, Liberty may at the
Closing (or from time to time thereafter) acquire additional LLC Shares and/or
Parent Common Stock; and
WHEREAS, HSNi, Universal, Liberty and Mr. Diller desire to establish in
this Agreement certain terms and conditions concerning the acquisition and
disposition of securities of the Company by Universal, and certain additional
provisions concerning Universal's, Liberty's and Mr. Diller's relationships with
the Company, none of which shall become effective until the Closing.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
Company, Universal, Liberty and Mr. Diller hereby agree, effective as of the
Closing, as follows:
ARTICLE I
STANDSTILL AND VOTING
SECTION 1.01. Acquisition of Voting Securities. (a) Until the fourth
anniversary of the Closing (the "Standstill Termination Date"), Universal
covenants and agrees that, except with the prior approval of the HSNi Board of
Directors (or the CEO so long as Mr. Diller is the CEO), neither Universal nor
its Affiliates will Beneficially Own any Equity Securities except for (i) the
Shares and (ii) additional Equity Securities of the Company acquired in
accordance with Article 1 of the Transaction Agreement. Notwithstanding anything
to the contrary contained in this Agreement (including the definition of
Permitted Investment Percentage), any Equity Securities purchased from Liberty
and Mr. Diller not in violation of the Stockholders Agreement shall be excluded
from the calculation of Universal's Ownership Percentage for purposes of
determining whether the Permitted Investment Percentage has been exceeded.
(b) Following the Standstill Termination Date, subject to applicable law
(including FCC Regulations), the Permitted Investment Percentage shall be
increased to 50.1 percent, and Universal may acquire Beneficial Ownership of an
additional amount of Equity Securities so long as its Ownership Percentage does
not exceed the Permitted Investment Percentage as so increased.
(c) In addition to the foregoing, subject to compliance with applicable law
(including FCC Regulations), (i) on the first anniversary of the Standstill
Termination Date, the Permitted Investment Percentage shall be increased to 57.5
percent, and Universal may acquire Beneficial Ownership of an additional amount
of Equity Securities so long as its Ownership Percentage does not exceed the
Permitted Investment Percentage as so increased (but in no event shall Universal
acquire more than 1.5 percent of the Total Equity Securities in any 12-month
period) and (ii) at any time following the CEO Termination Date, Universal may
propose to the Company's Board of Directors (and, subject to Section 2.04,
thereafter effect) the acquisition by
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Universal or its Affiliates of the then outstanding Equity Securities not owned
by Universal in a Permitted Business Combination.
(d) Except as expressly provided herein, neither Universal nor any
Affiliate thereof shall permit any entity in which it Beneficially Owns,
directly or indirectly, in excess of 50% of the outstanding voting securities
(regardless of whether Universal or such Affiliate acquires Beneficial Ownership
of such entity after the date of this Agreement) to Beneficially Own any Equity
Securities. Notwithstanding the foregoing, the acquisition (whether by merger,
consolidation or otherwise) by Universal or an Affiliate thereof of any entity
that Beneficially Owns Equity Securities shall not constitute a violation of the
Permitted Investment Percentage; provided that a significant purpose of any such
transaction is not to avoid the provisions of this Agreement; and provided
further that the provisions of paragraph (e) below are complied with.
(e) Except as set forth in the next sentence, if at any time Universal
becomes aware that it and its Affiliates Beneficially Own more than the
Permitted Investment Percentage (including by virtue of acquisitions referred to
in paragraph (d) above), then Universal shall as soon as is reasonably
practicable (but in no manner that would require Universal to incur liability
under Section 16(b) of the Exchange Act) take all action necessary to reduce the
amount of Equity Securities Beneficially Owned by such Persons to an amount not
greater than the Permitted Investment Percentage. If the Ownership Percentage of
Universal and its Affiliates exceeds the Permitted Investment Percentage solely
by reason of repurchases of Equity Securities by the Company, then, subject to
the provisions of the Transaction Agreement, Universal shall not be required to
reduce the amount of Equity Securities Beneficially Owned by such Persons.
(f) If prior to the Standstill Termination Date, Mr. Diller no longer
serves as CEO (provided that if Mr. Diller no longer serves as CEO but continues
to hold a proxy from Universal in respect of Parent Common Shares under the
Stockholders Agreement, Mr. Diller shall not be deemed to no longer serve as CEO
until the later of (i) such time as he no longer serves as CEO and (ii) such
time as Mr. Diller no longer holds the Universal proxy, with the later of such
times being referred to as the "CEO Termination Date") or becomes Disabled, the
Standstill Termination Date shall be deemed to occur effective as of the CEO
Termination Date or such date that Mr. Diller becomes Disabled.
(g) The restrictions on additional purchases of Equity Securities described
in this Section 1.01 shall terminate: (i) if any Person or group (other than
Universal or its Affiliates) Beneficially Owns more than 33 1/3% of the
outstanding Total Equity Securities; provided that this clause (i) shall not
apply (x) to Beneficial Ownership by Liberty and its Affiliates, if Universal
amends, modifies or waives the standstill obligations of Liberty under Section
2.1 of the Stockholders Agreement in a manner that would cause such Beneficial
Ownership by Liberty and its Affiliates not to be a violation of Liberty's
standstill obligations under Section 2.1 of the Stockholders Agreement or
Universal does not attempt in good faith to enforce such standstill provisions,
(y) to any Equity Securities Beneficially Owned by Mr. Diller but in which he
does not have a pecuniary interest or (z) if such Equity Securities were
acquired from the Company; and provided, however, that in calculating the
33 1/3% of the Total Equity Securities of any Person or group, any Equity
Securities transferred to such Person or group by Universal, Liberty or Mr.
Diller in accordance with the terms of the Stockholders Agreement shall be
disregarded if Universal elected not to purchase such Equity Securities after
being provided a reasonable opportunity to buy such Equity Securities or (ii) if
any Person or group (other than the Company, Universal or its Affiliates)
commences a tender or exchange offer for more than a majority of the outstanding
Total Equity Securities, provided that such termination of the foregoing
restriction shall only occur if (x) the Company's Board of Directors does not
recommend against the tender or exchange offer within the time frame under the
Exchange Act that the Board of Directors must legally respond and (y) in the
case of a tender or exchange offer by Liberty or its Affiliates in breach of its
or their standstill obligations under Section 2.1 of the Stockholders Agreement,
in addition to (x) above, Universal is unsuccessful after good faith efforts in
enforcing its rights against Liberty under Section 2.1 of the Stockholders
Agreement and, then, the foregoing restriction shall terminate only to the
extent necessary to permit Universal to commence a competing tender or exchange
offer; provided that if Universal has used such good faith efforts, such
restriction shall terminate no later than six business days prior to the
expiration date of a tender offer or exchange offer that has a reasonable
possibility of being consummated.
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(h) The Company agrees that to the extent that regulatory restrictions
prevent Universal from acquiring the levels of ownership permitted under Article
I of this Agreement, the Company will cooperate in good faith with Universal in
order to permit Universal to increase its Ownership Percentage. Such cooperation
may include without limitation exchanging additional LLC Shares with Universal
for Parent Common Shares. Notwithstanding the foregoing, the Company shall not
be required to take any action that would or could reasonably be expected to
have substantial adverse tax, accounting or financial consequences to the
Company or its Subsidiaries (including the LLC).
SECTION 1.02. Restrictions on Transfer. (a) Prior to the Standstill
Termination Date, subject to the terms of the Stockholders Agreement, Universal
will not Transfer any Equity Securities except for: (i) Transfers of Parent
Common Stock in a widely dispersed public offering pursuant to exercise of the
registration rights set forth in Section 5.07 hereof; (ii) Transfers of Parent
Common Stock pursuant to Rule 144 under the Securities Act, provided that no
such Transfers under this clause (ii) are made to any Person (including its
Affiliates and any Person or entities which are, to Universal's knowledge after
inquiry of the Company, part of any 13D Group that includes such transferee or
any of its Affiliates) that, after giving effect to such Transfer, would, to the
knowledge of Universal, Beneficially Own Equity Securities representing more
than 5% of the Total Equity Securities (other than a Permitted Transferee);
(iii) Transfers of Equity Securities and/or LLC Shares (x) in accordance with
Sections 6.1(c) and 6.1(e) of the Transaction Agreement or the terms of the
Exchange Agreement pursuant to any tender or exchange offer to acquire Parent
Common Stock that the Company's Board of Directors does not recommend against
within the time frame under the Exchange Act that the Board of Directors must
legally respond or (y) as contemplated by Section 6.1(b) of the Transaction
Agreement or the terms of the Exchange Agreement; (iv) Transfers of Parent
Common Stock to Matsushita Electric Industrial Co., Ltd. and to the public
stockholders of Seagram by means of a pro rata dividend or other pro rata
distribution; (v) Transfers of Parent Common Stock to any Permitted Transferee;
(vi) Transfers of Parent Common Stock in an aggregate amount up to 5% of the
Total Equity Securities to any institutional or financial investors, not
exercisable more often than on two occasions in any six-month period, under an
exemption from the Securities Act or pursuant to registration rights from the
Company; (vii) Transfers of Equity Securities and/or LLC Shares to the Company
or a Subsidiary of the Company pursuant to a self tender offer or otherwise by
the Company; (viii) pledges of (or granting security interests in) Parent Common
Stock in connection with bona fide financings with a financial institution
(provided that such financial institution agrees that, upon exercise of its
rights, the Parent Common Stock would continue to be subject to the restrictions
on transfer contained herein); and (ix) Transfers of Equity Securities and/or
LLC Shares by Universal to any of its controlled Affiliates, provided that such
Affiliate becomes a signatory to this Agreement.
(b) If the CEO Termination Date has occurred or Mr. Diller becomes
Disabled, the Universal transfer restrictions set forth in paragraph (a) of this
Section 1.02 shall terminate immediately, subject to a Right of First Refusal in
favor of the Company (which Right of First Refusal shall apply so long as
Universal Beneficially Owns, directly or indirectly, Equity Securities
representing 20% or more of the Total Equity Securities irrespective of the
occurrence of the Standstill Termination Date and Mr. Diller's status with the
Company but secondary to the rights of first refusal provided for in the
Stockholders Agreement), provided that the Right of First Refusal shall not be
applicable to any Transfers that would be permitted prior to the Standstill
Termination Date.
(c) No Transfers of the LLC Shares by Universal or Liberty to
non-Affiliates thereof shall be permitted, except as permitted pursuant to
Section 6.1 of the Transaction Agreement and the Exchange Agreement or between
each other and their respective Affiliates (subject to the terms of the
Stockholders Agreement). Universal and Liberty, as the case may be, must
exchange LLC Shares for Parent Common Shares prior to permitted Transfers,
except (i) as permitted pursuant to Section 6.1 of the Transaction Agreement and
the terms of the Exchange Agreement and (ii) for Transfers between Liberty and
Universal and their respective Affiliates not in violation of the Stockholders
Agreement to the extent that the applicable Transferee could not in accordance
with applicable law directly own the Parent Common Shares into which such LLC
Shares are exchangeable. To the extent provided for by the Stockholders
Agreement, (x) so long as the CEO Termination Date has not occurred and Mr.
Diller has not become Disabled, prior to permitted Transfers,
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Universal and Liberty must offer Mr. Diller (or his designee) the opportunity to
exchange Parent Class B Stock owned by Universal or Liberty, as the case may be,
for Parent Common Stock, and (y) to the extent that, in accordance with the
Stockholders Agreement or otherwise, Mr. Diller (or his designee) does not
exchange Parent Common Stock for Parent Class B Stock (or if the CEO Termination
Date has occurred or Mr. Diller is Disabled), Parent Class B Stock to be
transferred by Universal must be converted into Parent Common Stock unless the
transferee agrees to be bound by the restrictions contained in Article I herein
then applicable to Universal to the extent that the transferee Beneficially Owns
at least 10% of the voting power of the outstanding Voting Securities.
SECTION 1.03. Further Restrictions on Conduct. Universal covenants and
agrees that until the CEO Termination Date or such time as Mr. Diller becomes
Disabled:
(a) except by virtue of Universal's representation on the Board of
Directors of the Company and as otherwise contemplated under this Agreement
and the other agreements contemplated by the Transaction Agreement or as
otherwise permitted by the Board of Directors of the Company or the CEO so
long as Mr. Diller is CEO, neither Universal nor any Affiliate thereof will
otherwise act, alone or in concert with others, to seek to affect or
influence the control of the management or Board of Directors of the
Company or the business, operations or policies of the Company (it being
agreed that this paragraph shall not prohibit Universal, its Affiliates and
their respective employees from engaging in ordinary course business
activities with the Company);
(b) other than to a Permitted Transferee, neither Universal nor any
Affiliate thereof shall deposit any Equity Securities or LLC Shares in a
voting trust or subject any Equity Securities or LLC Shares to any proxy,
arrangement or agreement with respect to the voting of such securities or
other agreement having similar effect, except for agreements or
arrangements with a Permitted Designee reasonably acceptable to the other
Stockholders and not inconsistent with or for the purpose of evading the
terms of this Agreement or the Stockholders Agreement;
(c) other than as is permitted by this Agreement, neither Universal
nor any Affiliate thereof shall propose any merger, tender offer or other
business combination involving the Company or any of its Affiliates
(including the LLC); provided, that discussions relating to the possibility
of such a proposal in which Mr. Diller participates shall not be deemed to
be a breach of this covenant;
(d) neither Universal nor any Affiliate thereof shall initiate or
propose any stockholder proposal or make, or in any way participate in,
directly or indirectly, any "solicitation" of "proxies" to vote, or seek to
influence any Person with respect to the voting of, any Equity Securities,
or became a "participant" in a "solicitation" (as such terms are defined in
Regulation 14A under the Exchange Act) in opposition to the recommendation
of the majority of the directors of the Company with respect to any matter
except (i) in response to a solicitation by a third party and (ii) to
facilitate a tender or exchange offer by Universal or an Affiliate
permitted under Section 1.01(g)(ii) of this Agreement;
(e) other than as is contemplated by this Agreement, the Transaction
Agreement, the Stockholders Agreement and the other agreements contemplated
by the Transaction Agreement, neither Universal nor any Affiliate thereof
shall join a partnership, limited partnership, syndicate or other group, or
otherwise act in concert with any other Person (other than a Permitted
Transferee), for the purpose of acquiring, holding, voting or disposing of
Equity Securities or LLC Shares, or otherwise become a "person" within the
meaning of Section 13(d)(3) of the Exchange Act; and
(f) neither Universal nor any Affiliate thereof shall, directly or
indirectly, request that the Company or its Board of Directors amend or
waive any of the provisions of this Section 1.03.
SECTION 1.04. Reports. Universal shall deliver to the Company, promptly
after any acquisition or Transfer of Equity Securities representing more than a
1% change in the Ownership Percentage, an accurate written report specifying the
amount and class of Equity Securities acquired or Transferred in such
transaction and the amount of each class of Equity Securities owned by Universal
and its Affiliates after giving effect to such transaction; provided, however,
that no such report need be delivered with respect to any such acquisition or
Transfer of Equity Securities by Universal or its Affiliates that is reported in
a statement on Schedule 13D
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filed with the Commission and delivered to the Company by Universal in
accordance with Section 13(d) of the Exchange Act. The Company shall be entitled
to rely on such reports and statements on Schedule 13D for all purposes of this
Agreement.
SECTION 1.05. Transferees. No Third Party Transferee shall have any
rights or obligations under this Agreement, except as specifically provided for
in this Agreement and except that if such Third Party Transferee shall acquire
Beneficial Ownership of more than 5% of the outstanding Total Equity Securities
upon consummation of any Transfer or series of related Transfers from a
Stockholder, to the extent such Stockholder assigns such right in connection
with a Transfer, such Third Party Transferee shall have the right to initiate
one or more Demand Registrations pursuant to Section 5.07 or any registration
rights agreement that replaces or supersedes Section 5.07 (and shall be entitled
to such other rights that a Stockholder would have applicable to such Demand
Registration), subject to the obligations of such Stockholder applicable to such
demand (and the number of Demand Registrations to which such Stockholder is
entitled under Section 5.07 hereof shall be correspondingly decreased).
ARTICLE II
BOARD OF DIRECTORS AND RELATED MATTERS
SECTION 2.01. Initial Composition of Board of Directors. Prior to the
Closing, the HSNi Board of Directors shall take such action as is required under
applicable law to cause to be elected to the HSNi Board of Directors, effective
upon the Closing, four Satisfactory Nominees, of whom no more than one shall be
an Independent Director proposed by Universal and the remainder of whom shall be
Universal Directors, each of whom shall be identified by Universal prior to the
mailing of the proxy statement referred to in Section 9.1 of the Transaction
Agreement.
SECTION 2.02. Proportionate Representation. (a) Following the Closing,
the Company shall use its best efforts to cause the composition of the HSNi
Board to continue to reflect the proportionate representation of Universal
Directors and Independent Director set forth in Section 2.02(b).
(b) Following the Closing, the Company shall take such action as may be
required under applicable law to include in the slate of nominees recommended by
the HSNi Board of Directors and to otherwise cause to be elected to the HSNi
Board of Directors the number of Satisfactory Nominees that Universal shall be
entitled to nominate pursuant to this paragraph (b). The number of Satisfactory
Nominees which Universal shall be entitled to nominate at any annual meeting of
the Company's stockholders following the Closing shall be as follows:
X = the amount of Equity Securities Beneficially Owned by Universal
and its controlled Affiliates as of the record date for such
annual meeting
Y = Total Equity Securities as of such date
<TABLE>
<CAPTION>
NUMBER OF
SATISFACTORY
NOMINEES
------------
<S> <C> <C>
If X is equal to or more than .40Y = 4
If X is less than .40Y but equal to or more than .30Y = 3
If X is less than .30Y but equal to or more than .20Y = 2
If X is less than .20Y but equal to or more than .10Y = 1
If X is less than .10Y = 0
</TABLE>
; provided that, following the CEO Termination Date or such time as Mr. Diller
becomes Disabled, the number of Satisfactory Nominees (without regard to the
proviso in the definition thereof) that Universal shall have the right to
nominate at any meeting of the Company's stockholders at which directors are to
be elected shall be at least the number of Satisfactory Nominees (without regard
to the proviso in the definition thereof) resulting from the provisions set
forth above.
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Whenever necessary to maintain the proportionality required by the formulas
set forth above, one or more, as appropriate, Satisfactory Nominees who would
otherwise stand for election at the next annual meeting of the Company's
stockholders (as agreed to by Universal and HSNi) shall not be included as a
nominee on the HSNi Board of Directors' slate of directors.
(c) Other than as set forth in paragraph (b) above, the Company shall cause
each Satisfactory Nominee to be included in the slate of nominees recommended by
the Board of Directors to the Company's stockholders for election as directors
at each annual meeting of the stockholders of the Company and shall use all
reasonable efforts to cause the election of each such Satisfactory Nominee,
including soliciting proxies in favor of the election of such persons. Within a
reasonable time prior to the filing with the Commission of its proxy statement
or information statement with respect to each meeting of stockholders at which
directors are to be elected, the Company shall, to the extent such Person is
entitled to representation on the Company's Board of Directors in accordance
with this Agreement, provide Universal and Liberty, as applicable, with the
opportunity to review and comment on the information contained in such proxy or
information statement applicable to the director nominees designated by such
Person.
(d) In the event that a vacancy is created at any time by the death,
disability, retirement, resignation or removal (with or without cause) of any
Satisfactory Nominee or Liberty Director, Universal or Liberty, as the case may
be, shall have the right to designate a replacement Satisfactory Nominee or
Liberty Director to fill such vacancy, and the Company agrees to use its best
efforts to cause such vacancy to be filled with the replacement Satisfactory
Nominee or Liberty Director so designated. Upon the written request of Universal
or Liberty, each Stockholder shall vote (and cause each of the members of its
Stockholders Group (as defined in the Stockholders Agreement) to vote, if
applicable), or act by written consent with respect to, all Equity Securities
Beneficially Owned by it and otherwise take or cause to be taken all actions
necessary to remove the director designated by such requesting party and to
elect any replacement director designated by such party as provided in the first
sentence of this Section 2.02(d).
(e) Except as permitted by the HSNi Board of Directors, the parties agree
that the HSNi directors who are Satisfactory Nominees shall not participate in
any action taken by the HSNi Board of Directors or the Company relating to any
business transaction between the Company and Universal (including its
Affiliates), or relating to this Agreement or the Transaction Agreement,
including, without limitation, any amendment, modification or waiver hereof or
thereof.
(f) Following the Closing, the parties agree that, at such time as
representation on the HSNi Board of Directors by representatives of Liberty is
not prohibited, the Company shall take such action as may be required under
applicable law and the HSNi Certificate of Incorporation and By-laws to include
two Liberty Directors in the slate of nominees recommended by the Board of
Directors and to otherwise cause to be elected to the HSNi Board of Directors
two Liberty Directors and, thereafter, to use all reasonable efforts to cause
the election of two Liberty Directors, with the provisions of paragraphs (c) and
(d) of this Section 2.02 applicable to Universal to apply, mutatis mutandis, to
Liberty. Liberty shall have the right to nominate up to two Liberty Directors so
long as the number of Equity Securities Beneficially Owned by Liberty is at
least equal to 100% of the number of Equity Securities Beneficially Owned by
Liberty immediately prior to the Closing (appropriately adjusted to reflect any
stock splits and the like) (so long as the Ownership Percentage of Liberty is at
least equal to the lesser of (x) 17% of the Total Equity Securities and (y) the
percentage that is five percentage points less than the percentage of the Total
Equity Securities Beneficially Owned by Liberty immediately following the
Closing). Liberty shall have the right to nominate one Liberty Director so long
as Liberty Beneficially Owns a number of Equity Securities at least equal to
two-thirds of the number of Equity Securities Beneficially Owned by it
immediately prior to the Closing (appropriately adjusted to reflect any stock
splits and the like) (so long as Liberty's Ownership Percentage is at least
equal to 5% of the Total Equity Securities).
SECTION 2.03. Management of the Business. Following the Closing and
except as indicated in Section 2.04 below, as required by Delaware law or the
Certificate of Incorporation of the Company and the By-Laws or as contemplated
by the Transaction Agreement and the agreements contemplated thereby, Mr.
Diller, so long as he is CEO and has not become Disabled, will continue to have
full authority to operate
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the day-to-day business affairs of the Company to the same extent as prior to
the Closing. The Executive Committee (or any similar committee) of the Board
will not be used in a manner that usurps the overall responsibility of the
Company's Board of Directors under Delaware law to manage or direct the business
and affairs of the Company.
SECTION 2.04. Fundamental Changes. So long as (a) in the case of
Universal, the Ownership Percentage of Universal is at least 20 percent (or, in
the event that Universal has not transferred to a non-Affiliate Equity
Securities representing more than one-half of the Initial Percentage, 15
percent), (b) in the case of Liberty, Liberty Beneficially Owns at least
two-thirds of the number of Equity Securities Beneficially Owned by it
(including the Contingent Shares, the Exchange Shares and through its equity
ownership of BDTV Entities) immediately prior to the Closing (appropriately
adjusted to reflect any stock splits and the like) (so long as such Ownership
Percentage equals at least 5% of the Total Equity Securities), and (c) in the
case of Mr. Diller, Mr. Diller Beneficially Owns at least five million Parent
Common Shares with respect to which he has a pecuniary interest (appropriately
adjusted to reflect any stock splits and the like) and the CEO Termination Date
has not occurred and Mr. Diller has not become Disabled, neither the Company nor
any Subsidiary (including the LLC) shall take any of the actions set forth below
without the prior approval of Mr. Diller, Universal and/or Liberty (each, a
"Stockholder"), as applicable:
(i) Any transaction not in the ordinary course of business, launching
new or additional channels or engaging in any new field of business, in any
case, which will result in, or will have a reasonable likelihood of
resulting in, such Stockholder or any Affiliate thereof being required
under law to divest itself of all or any part of its Equity Securities or
LLC Shares, or interests therein, or any other material assets of such
Person, or which will render such Person's continued ownership of such
securities, shares, interests or assets illegal or subject to the
imposition of a fine or penalty or which will impose material additional
restrictions or limitations on such Person's full rights of ownership
(including, without limitation, voting) thereof or therein.
(ii) Acquisition or disposition (including pledges), directly or
indirectly, by the Company or any of its Subsidiaries (including the LLC)
of any assets (including debt and/or equity securities) or business (by
merger, consolidation or otherwise), provided that the transactions
contemplated by the Transaction Agreement, including the matters
contemplated by Section 9.14 thereof (to the extent conducted in all
material respects in accordance with the letter agreement relating to such
matters dated as of the date hereof among Liberty, Universal and the
Company, as such agreement may be amended or modified), shall not require
the prior approval of Liberty pursuant to this Section 2.04, the grant or
issuance of any debt or equity securities of the Company or any of its
Subsidiaries (including the LLC, other than, in any of the foregoing, as
contemplated by the Transaction Agreement and the Exchange Agreement or the
Contingent Shares and the Exchange Shares), the redemption, repurchase or
reacquisition of any debt or equity securities of the Company or any of its
Subsidiaries (including the LLC, other than as contemplated by the
Transaction Agreement and the Exchange Agreement or the Contingent Shares
and the Exchange Shares) by the Company or any such Subsidiary (including
the LLC), or the incurrence of any indebtedness, or any combination of the
foregoing, in any such case, in one transaction or a series of transactions
in a six-month period, with a value of 10% or more of the market value of
the Total Equity Securities at the time of such transaction, provided that
the prepayment, redemption, repurchase or conversion of prepayable,
callable, redeemable or convertible securities (including LLC Shares) in
accordance with the terms thereof shall not be a transaction subject to
this paragraph.
(iii) For a five-year period following the Closing, disposition of any
interest in the Partnership or, other than in the ordinary course of
business, its assets, directly or indirectly (by merger, consolidation or
otherwise), provided that matters set forth in this clause (iii) will not
constitute a "Fundamental Change" with respect to Liberty and shall not
require its approval unless it otherwise would constitute a "Fundamental
Change" under one of the other items of this Section 2.04 with respect to
which Liberty's consent is required.
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(iv) Disposition or issuance (including pledges), directly or
indirectly, by the Company of any LLC Shares except as contemplated by the
Transaction Agreement, the Governance Agreement, the Stockholders Agreement
and the Exchange Agreement or pledges in connection with financings.
(v) Voluntarily commencing any liquidation, dissolution or winding up
of the Company or any material Subsidiary (including the LLC).
(vi) Any material amendments (other than as contemplated by the
Transaction Agreement and the Stockholders Agreement) to the Certificate of
Incorporation or Bylaws of the Company (including the issuance of blank
check preferred stock containing super voting rights or class votes on any
matter (except to the extent such class vote is required by Delaware law or
to the extent the holder of such preferred stock may have the right to
elect directors upon the occurrence of a default in payment of dividends or
a redemption price)) or to the operating agreement or bylaws of the LLC.
(vii) Engagement by the Company or the LLC in any line of business
other than media, communications and entertainment products, services and
programming, and electronic retailing, or other businesses engaged in by
the Company as of the date hereof or as contemplated by the Transaction
Agreement, provided, that neither the Company nor the LLC shall engage in
theme park, arcade or film exhibition businesses so long as Universal is
restricted from competing in such lines of business under non-compete or
similar agreements in effect on the date hereof and such agreements would
be applicable to the Company and/or the LLC, as the case may be, by virtue
of Universal's ownership therein, provided that the matters set forth in
the foregoing proviso shall not constitute a "Fundamental Change" with
respect to Liberty and shall not require its approval.
(viii) Settlement of any litigation, arbitration or other proceeding
which is other than in the ordinary course of business and which involves
any material restriction on the conduct of business by the Company or such
Stockholder or any of their respective Affiliates or the continued
ownership of assets by the Company or such Stockholder or any of their
respective Affiliates.
(ix) Engagement in any transaction (other than those contemplated by
the Transaction Agreement) between the Company and its Affiliates
(excluding Mr. Diller, Universal and Liberty), on the one hand, and Mr.
Diller, Universal or Liberty, and their respective Affiliates, on the other
hand, subject to exceptions relating to the size of the proposed
transaction and except for those transactions which are otherwise on an
arm's-length basis.
(x) Adopting any stockholder rights plan (or any other plan or
arrangement that could reasonably be expected to disadvantage any
stockholder on the basis of the size or voting power of its shareholding)
that would adversely affect such Stockholder.
(xi) Entering into any agreement with any holder of Equity Securities
or LLC Shares in such stockholder's or interest holder's capacity as such,
as the case may be, which grants such stockholder approval rights similar
in type and magnitude to those set forth in this Section 2.04.
(xii) Entering into any transaction that could reasonably be expected
to impede the Company's ability to engage in the Spinoff or cause it to be
taxable.
SECTION 2.05. Notice of Events. In the event that (a) the Company intends
to engage in a transaction of a type that is described in any of paragraphs (i)
through (xii) of Section 2.04, and (b) the Company does not intend to seek
consent from those parties that are required to consent to a Fundamental Change
(a "Consenting Party") due to the Company's good faith belief that the specific
provisions of such paragraphs do not require such consent but that reasonable
people acting in good faith could differ as to whether consent is required
pursuant to such paragraphs, the Company shall notify the Consenting Parties as
to the material terms of the transaction (including the Company's estimate of
the timing thereof) by written notice delivered as far in advance of engaging in
such transaction as is reasonably practicable unless such transaction was
previously publicly disclosed.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company. The Company
represents and warrants to Mr. Diller, Universal and Liberty that (a) the
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, (b) the execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions contemplated
hereby, (c) this Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, and, assuming
this Agreement constitutes a valid and binding obligation of each Stockholder,
is enforceable against the Company in accordance with its terms, (d) neither the
execution, delivery or performance of this Agreement by the Company constitutes
a breach or violation of or conflicts with the Company's Certificate of
Incorporation or By-laws or any material agreement to which the Company is a
party and (e) none of such material agreements would impair in any material
respect the ability of the Company to perform its obligations hereunder.
SECTION 3.02. Representations and Warranties of the Stockholders. Each
Stockholder, as to itself (and, in the case of Mr. Diller, as applicable),
represents and warrants to the Company and the other Stockholders that (a) it is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and he or it, as the case may be, has
the power and authority (corporate or otherwise) to enter into this Agreement
and to carry out his or its obligations hereunder, (b) the execution and
delivery of this Agreement by such Stockholder and the consummation by such
Stockholder of the transactions contemplated hereby have been duly authorized by
all necessary action on the part of such Stockholder and no other proceedings on
the part of such Stockholder are necessary to authorize this Agreement or any of
the transactions contemplated hereby, (c) this Agreement has been duly executed
and delivered by the Stockholder and constitutes a valid and binding obligation
of the Stockholder, and, assuming this Agreement constitutes a valid and binding
obligation of the Company, is enforceable against the Stockholder in accordance
with its terms, (d) neither the execution, delivery or performance of this
Agreement by such Stockholder constitutes a breach or violation of or conflicts
with its certificate of incorporation or by-laws (or similar governing
documents) or any material agreement to which such Stockholder is a party and
(e) none of such material agreements would impair in any material respect the
ability of such Stockholder to perform its obligations hereunder.
ARTICLE IV
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
SECTION 4.01. "Affiliate" shall have the meaning set forth in Rule 12b-2
under the Exchange Act (as in effect on the date of this Agreement). For
purposes of this definition, Matsushita Electric Industrial Co., Ltd. ("MEI" )
shall not be considered an Affiliate of Universal or any Subsidiary of Universal
so long as MEI does not materially increase its influence over Universal
following the date hereof, and natural persons (other than, in the case of
Universal, any descendant of Samuel Bronfman who is a director or executive
officer of Seagram) shall not be deemed to be Affiliates.
SECTION 4.02. "Assumptions" shall have the meaning set forth in the
definition of Total Equity Securities.
SECTION 4.03. "BDTV Entities" shall have the meaning specified in the
Stockholders Agreement.
SECTION 4.04. "Beneficial Ownership" or "Beneficially Own" shall have the
meaning given such term in Rule 13d-3 under the Exchange Act and a Person's
Beneficial Ownership of Parent Common Shares or
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LLC Shares shall be calculated in accordance with the provisions of such Rule;
provided, however, that for purposes of determining Beneficial Ownership, (a) a
Person shall be deemed to be the Beneficial Owner of any Equity Securities
(including any Contingent Shares or Exchange Shares) which may be acquired by
such Person (disregarding any legal impediments to such Beneficial Ownership),
whether within 60 days or thereafter, upon the conversion, exchange or exercise
of any warrants, options (which options held by Mr. Diller shall be deemed to be
exercisable), rights or other securities (including LLC Shares) issued by the
Company or any Subsidiary thereof, (b) no Person shall be deemed to Beneficially
Own any Equity Securities solely as a result of such Person's execution of this
Agreement (including by virtue of holding a proxy with respect to such Equity
Securities), the Transaction Agreement or the Stockholders Agreement, or with
respect to which such Person does not have a pecuniary interest, and (c) Liberty
shall be deemed to be the Beneficial Owner of the proportionate number of Parent
Common Shares represented by Liberty's equity interest in a BDTV Entity (as
defined in the Stockholders Agreement); provided, further, that for purposes of
calculating Beneficial Ownership, the number of outstanding Parent Common Shares
shall be deemed to include the number of Parent Common Shares that would be
outstanding if all outstanding LLC Shares were exchanged for Parent Common
Shares pursuant to the Exchange Agreement and all Contingent Shares and Exchange
Shares were issued.
SECTION 4.05. "CEO" shall mean the Chief Executive Officer of HSNi or any
successor entity.
SECTION 4.06. "CEO Termination Date" shall have the meaning specified in
Section 1.01(f) of this Agreement.
SECTION 4.07. "Commission" shall mean the Securities and Exchange
Commission.
SECTION 4.08. "Consenting Party" shall have the meaning set forth in
Section 2.05 of this Agreement.
SECTION 4.09. "Demand Registration" shall have the meaning set forth in
Section 5.07(b) of this Agreement.
SECTION 4.10. "Disabled" shall mean the disability of Mr. Diller after the
expiration of more than 180 consecutive days after its commencement which is
determined to be total and permanent by a physician selected by Universal (or,
if the Universal Termination Date has occurred, by Liberty) and reasonably
acceptable to Mr. Diller, provided that Mr. Diller shall be deemed to be
disabled only following the expiration of 90 days following receipt of a written
notice from the Company and such physician specifying that a disability has
occurred if within such 90-day period he fails to return to managing the
business affairs of the Company. Total disability shall mean mental or physical
incapacity that prevents Mr. Diller from managing the business affairs of the
Company.
SECTION 4.11. "Equity Securities" shall mean the equity securities of the
Company calculated on a Parent Common Stock equivalent basis, including the
Parent Common Shares, the Contingent Shares and the Exchange Shares and those
shares issuable upon exchange of the LLC Shares and upon exercise, conversion or
redemption of other securities of the Company not otherwise included in this
definition.
SECTION 4.12. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission promulgated
thereunder.
SECTION 4.13. "Exchange Agreement" shall mean the Exchange Agreement dated
as of October 19, 1997 by and among the Company, Universal and Liberty.
SECTION 4.14. "FCC Regulations" shall mean as of any date, all applicable
federal communications statutes and all rules, regulations, orders, decrees and
written policies (including opinions and orders of the Federal Communications
Commission applicable to the stockholder or the Company and its subsidiaries) as
then in effect, and any interpretations or waivers thereof or modifications
thereto.
SECTION 4.15. "Independent Director" shall mean a person independent of
and not an affiliate of Universal or Seagram, who is not an officer or director
of Universal or Seagram. No person proposed as an
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Independent Director shall serve as a director unless such individual has such
business or technical experience, stature and character as is commensurate with
service on the board of a publicly held enterprise.
SECTION 4.16. "Liberty Director" shall mean (a) any officer or director of
either Telecommunications, Inc. ("TCI") or Liberty designated by Liberty to
serve on the Company's Board of Directors, provided that the Company's Board of
Directors is not unable, in the exercise of its fiduciary responsibilities, to
recommend that the Company's stockholders elect such individual to serve on the
Company's Board of Directors, or (b) any other Person designated by Liberty who
is reasonably acceptable to the Company.
SECTION 4.17. "Ownership Percentage" means, with respect to any
Stockholder, at any time, the ratio, expressed as a percentage, of (i) the Total
Equity Securities Beneficially Owned by such Stockholder (disregarding any legal
impediments to such Beneficial Ownership) and its Affiliates to (ii) the sum of
(x) the Total Equity Securities and (y) with respect to such Stockholder, any
Parent Common Shares included in clause (i) that are issuable upon conversion,
exchange or exercise of Equity Securities that are not included in clause (x).
SECTION 4.18. "Permitted Business Combination" shall mean (x) a tender or
exchange offer by Universal or an Affiliate for all Parent Common Shares that is
accepted by a majority of the Company's Public Stockholders or (y) a merger
(other than a merger following a tender or exchange offer complying with (x)
above) involving the Company and Universal or any Affiliate thereof or successor
thereto that is approved, in addition to any vote required by law, by a majority
of the Company's Public Stockholders so long as, in the case of (x) and (y)
above, a committee of HSNi directors (excluding any Persons who are Satisfactory
Nominees and Liberty Directors pursuant to the terms of this Agreement, as it
may be amended, modified or waived from time to time, and any other directors
who have a conflict of interest) determines that the tender offer, exchange
offer or merger, as the case may be, is fair to the Company's stockholders
(other than Universal and its Affiliates).
SECTION 4.19. "Permitted Investment Percentage" shall have the meaning set
forth in the preambles to this Agreement.
SECTION 4.20. "Permitted Transferee" shall mean Liberty or Mr. Diller and
the members of their respective Stockholder Groups.
SECTION 4.21. "Person" shall mean any individual, partnership, joint
venture, corporation, trust, unincorporated organization, government or
department or agency of a government.
SECTION 4.22. "Public Stockholder" shall mean any stockholder of the
Company that, together with its Affiliates (a) has sole or shared voting power
with respect to Voting Securities representing no more than 10% of the voting
power on the applicable vote or (b) has sole or shared power to dispose of
Equity Securities representing no more than 10% of the Equity Securities to be
tendered or exchanged in any applicable tender or exchange offer, as the case
may be.
SECTION 4.23. "Right of First Refusal" shall mean the right of the Company
(or its designee) to purchase Equity Securities Beneficially Owned by Universal
under the circumstances and upon the terms described below and in Section
1.02(b) of this Agreement. In the event that Universal desires to sell Equity
Securities Beneficially Owned by it to which the Right of First Refusal applies
and it has received a bona fide offer from a third party to purchase such Equity
Securities, Universal shall provide the Company with written notice (the "Sales
Notice") of the terms of such third party offer (including price, conditions,
the identity of such third party and the written contract providing for such
sale). The Company (or its designee) shall be entitled to, by written notice
delivered by the Company to Universal within 10 business days following receipt
of the Sales Notice (or in the case of a third party tender offer or exchange
offer, not later than five business days prior to the expiration date of such
offer, provided that all conditions to such offer (other than with respect to
the number of Equity Securities tendered) shall have been satisfied or waived
and the Sales Notice shall have been provided at least ten business days prior
to the expiration date of such offer), agree to purchase the Equity Securities
that are the subject of the Sales Notice for cash on the terms of the third
party offer if such offer is for cash or, if not for cash, the Fair Market Value
of the consideration to be paid pursuant to such third party offer, which notice
shall include the date scheduled for the closing of such purchase, which date
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shall be no later than 60 days following delivery of such election notice. If
the Company does not deliver to Universal the written notice required hereunder,
agreeing to the purchase of the Equity Securities subject to the Sales Notice,
Universal shall be entitled to consummate the sale to the third party identified
in, and on the terms and subject to the conditions set forth in, the Sales
Notice, provided such sale is consummated within 90 days after the latest of (a)
the expiration of the foregoing response time periods or (b) the receipt by
Universal of the election notice or, in the case of (a) or (b), if later (i)
five business days following receipt of all required regulatory approvals;
provided that the closing shall only be delayed pending receipt of required
regulatory approvals if (x) Universal and the proposed third party transferee
are using all reasonable efforts to obtain the required regulatory approvals and
(y) there is a reasonable prospect of receiving such regulatory approvals or
(ii) the expiration or termination of a third party tender or exchange offer if
the intended method of sale set forth in the Sales Notice were such third party
tender or exchange offer.
SECTION 4.24. "Satisfactory Nominee" shall mean each person who is either
a Universal Director or an Independent Director proposed by Universal, provided
that in no case shall there be more than one Independent Director.
SECTION 4.25. "Seagram" shall mean The Seagram Company Ltd.
SECTION 4.26. "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission promulgated thereunder.
SECTION 4.27. "Shares" shall have the meaning set forth in the preambles
to this Agreement.
SECTION 4.28. "Stockholders Agreement" shall mean the stockholders
agreement dated as of the date hereof among Liberty, Universal and Mr. Diller.
SECTION 4.29. "Stockholders Group" shall mean (a) in respect of Universal,
the Universal Stockholders Group (as defined in the Stockholders Agreement), (b)
in respect of Liberty, the Liberty Stockholders Group (as defined in the
Stockholders Agreement) and (c) in respect of Diller, the Diller Stockholders
Group (as defined in the Stockholders Agreement).
SECTION 4.30. "Subsidiary" shall mean, as to any Person, any corporation
at least a majority of the shares of stock of which having general voting power
under ordinary circumstances to elect a majority of the Board of Directors of
such corporation (irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency) is, at the time as of which the determination is
being made, owned by such Person, or one or more of its Subsidiaries or by such
Person and one or more of its Subsidiaries.
SECTION 4.31. "Third Party Transferee" shall have the meaning ascribed to
such term in the Stockholders Agreement.
SECTION 4.32. "13D Group" shall mean any group of Persons acquiring,
holding, voting or disposing of Voting Securities which would be required under
Section 13(d) of the Exchange Act and the rules and regulations thereunder (as
in effect, and based on legal interpretations thereof existing, on the date
hereof) to file a statement on Schedule 13D with the Commission as a "person"
within the meaning of Section 13(d)(3) of the Exchange Act if such group
Beneficially Owned Voting Securities representing more than 5% of any class of
Voting Securities then outstanding.
SECTION 4.33. "Total Equity Securities" at any time shall mean, subject to
the next sentence, the total number of the Company's outstanding equity
securities calculated on a Parent Common Stock equivalent basis (assuming (the
"Assumptions") that all Contingent Shares, Exchange Shares and Parent Common
Shares issuable in respect of the LLC Shares have been issued). Any Equity
Securities Beneficially Owned by a Person that are not outstanding Voting
Securities but that, upon exercise, conversion or exchange, would become Voting
Securities (other than the Contingent Shares, the Exchange Shares and the LLC
Shares, which shall be deemed to be outstanding Equity Securities for all
purposes), shall be deemed to be outstanding for the purpose of computing Total
Equity Securities and the percentage of the Equity Securities owned by such
Person but shall not be deemed to be outstanding for the purpose of computing
Total Equity Securities and the percentage of the Equity Securities owned by any
other Person.
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SECTION 4.34. "Transfer" shall mean, directly or indirectly, to sell,
transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either
voluntarily or involuntarily, or to enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, assignment,
pledge, encumbrance, hypothecation or similar disposition of, any Parent Common
Shares Beneficially Owned by such Stockholder or any interest in any Parent
Common Shares Beneficially Owned by such Stockholder, provided, however, that, a
merger or consolidation in which a Stockholder is a constituent corporation
shall not be deemed to be the Transfer of any Parent Common Shares Beneficially
Owned by such Stockholder (provided, that a significant purpose of any such
transaction is not to avoid the provisions of this Agreement). For purposes of
this Agreement, the conversion of Parent Class B Stock into Parent Common Stock
shall not be deemed to be a Transfer.
SECTION 4.35. "Universal Director" shall mean any officer or director of
Universal or Seagram designated by Universal to serve on the Company's Board of
Directors, provided that the Company's Board of Directors is not unable, in the
exercise of its fiduciary responsibilities to the Company's stockholders, to
recommend that the Company's stockholders elect such individual to serve on the
Company's Board of Directors.
SECTION 4.36. "Voting Securities" shall mean at any particular time the
shares of any class of capital stock of the Company which are then entitled to
vote generally in the election of directors.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy) and shall be given,
if to Universal, to:
Universal Studios, Inc.
100 Universal City Plaza
Universal City, California 91608
Attention: Karen Randall
Telephone: (818) 777-7100
Facsimile: (818) 866-3444
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: John G. Finley
Telephone: (212) 455-2000
Facsimile: (212) 455-2502
if to Liberty, to:
Liberty Media Corporation
8101 East Prentice Avenue
Suite 500
Englewood, Colorado 80111
Attention: President
Telephone: (303) 721-5400
Facsimile: (303) 841-7344
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with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
Suite 2900
New York, New York 10022-6030
Attention: Frederick H. McGrath
Telephone: (212) 705-5000
Facsimile: (212) 705-5125
if to Mr. Diller, to:
Barry Diller
1940 Coldwater Canyon Drive
Beverly Hills, California 90210
Telephone: (310) 246-1411
Facsimile: (310) 247-9153
if to the Company, to:
HSN, Inc.
1 HSN Drive
St. Petersburg, Florida 33729
Attention: General Counsel
Telephone: (813) 572-8585
Facsimile: (813) 573-0866
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
or such address or facsimile number as such party may hereafter specify for the
purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective when delivered personally, telegraphed,
or telecopied, or, if mailed, five business days after the date of the mailing.
SECTION 5.02. Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the party whose rights or
obligations hereunder are affected by such amendment, or in the case of a
waiver, by the party or parties against whom the waiver is to be effective.
Approval by Liberty of any amendment to this Agreement (or any waiver of any
provision hereof) shall be required only if it relates to Section 1.05, Article
II or, provided Liberty Beneficially Owns at least 12 1/2% of the Total Equity
Securities, Sections 1.01 and 1.03(c) of this Agreement, or if such amendment or
waiver would adversely affect any rights of Liberty provided hereunder or under
the Stockholders Agreement. Any amendment or waiver by the Company shall be
authorized by a majority of the Board of Directors (excluding for this purpose
any director who is a Satisfactory Nominee or Liberty Director as provided for
in this Agreement).
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 5.03. Successors and Assigns. Except as provided in Section 1.05,
neither this Agreement nor any of the rights or obligations under this Agreement
shall be assigned, in whole or in part (except by
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operation of law pursuant to a merger of Universal or Liberty with another
Person a significant purpose of which is not to avoid the provisions of this
Agreement), by any party without the prior written consent of the other parties
hereto. Subject to the foregoing, the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
SECTION 5.04. Governing Law; Consent to Jurisdiction. This Agreement
shall be construed in accordance with and governed by the internal laws of the
State of Delaware, without giving effect to the principles of conflicts of laws.
Each of the parties hereto hereby irrevocably and unconditionally consents to
submit to the non-exclusive jurisdiction of the courts of the State of Delaware,
for any action, proceeding or investigation in any court or before any
governmental authority ("Litigation") arising out of or relating to this
Agreement and the transactions contemplated hereby and further agrees that
service of any process, summons, notice or document by U.S. mail to its
respective address set forth in this Agreement shall be effective service of
process for any Litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of Delaware, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such Litigation brought in any such court has
been brought in an inconvenient forum. Each of the parties irrevocably and
unconditionally waives, to the fullest extent permitted by applicable law, any
and all rights to trial by jury in connection with any Litigation arising out of
or relating to this Agreement or the transactions contemplated hereby.
SECTION 5.05. Counterparts; Effectiveness. This Agreement may be signed
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.
This Agreement shall become effective when each party hereto shall have received
counterparts thereof signed by the other parties hereto.
SECTION 5.06. Specific Performance. The Company, Mr. Diller, Universal
and Liberty each acknowledges and agrees that the parties' respective remedies
at law for a breach or threatened breach of any of the provisions of this
Agreement would be inadequate and, in recognition of that fact, agrees that, in
the event of a breach or threatened breach by the Company, Universal or Liberty
of the provisions of this Agreement, in addition to any remedies at law, Mr.
Diller, Universal, Liberty and the Company, respectively, without posting any
bond shall be entitled to obtain equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available.
SECTION 5.07. Registration Rights. (a) Universal, Liberty and Mr. Diller
shall be entitled to customary registration rights relating to Parent Common
Stock (including the ability to transfer registration rights in connection with
the sale or other disposition of Parent Common Stock as set forth in this
Agreement).
(b) If requested by a Stockholder, the Company shall be required promptly
to cause the Parent Common Stock owned by such Stockholder or its Affiliates to
be registered under the Securities Act in order to permit such Stockholder or
such Affiliate to sell such shares in one or more (but not more than (i) in the
case of Universal, six, (ii) in the case of Liberty, four and (iii) in the case
of Mr. Diller, two) registered public offerings (each, a "Demand Registration").
Each Stockholder shall also be entitled to customary piggyback registration
rights. If the amount of shares sought to be registered by a Stockholder and its
Affiliates pursuant to any Demand Registration is reduced by more than 25%
pursuant to any underwriters' cutback, then such Stockholder may elect to
request the Company to withdraw such registration, in which case, such
registration shall not count as one of such Stockholder's Demand Registrations.
If a Stockholder requests that any Demand Registration be an underwritten
offering, then such Stockholder shall select the underwriter(s) to administer
the offering, provided that such underwriter(s) shall be reasonably satisfactory
to the Company. If a Demand Registration is an underwritten offering and the
managing underwriter advises the Stockholder initiating the Demand Registration
in writing that in its opinion the total number or dollar amount of securities
proposed to be sold in such offering is such as to materially and adversely
affect the success of such offering, then the Company will include in such
registration, first, the securities of the initiating Stockholder, and,
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thereafter, any securities to be sold for the account of others who are
participating in such registration (as determined on a fair and equitable basis
by the Company). In connection with any Demand Registration or inclusion of a
Stockholder's or its Affiliate's shares in a piggyback registration, the
Company, such Stockholder and/or its Affiliates shall enter into an agreement
containing terms (including representations, covenants and indemnities by the
Company and such Stockholder), and shall be subject to limitations, conditions,
and blackout periods, customary for a secondary offering by a selling
stockholder. The costs of the registration (other than underwriting discounts,
fees and commissions) shall be paid by the Company. The Company shall not be
required to register such shares if a Stockholder would be permitted to sell the
Parent Common Stock in the quantities proposed to be sold and at such time
within a three-month period under Rule 144 of the Securities Act or under
another comparable exemption therefrom.
(c) If the Company and a Stockholder cannot agree as to what constitutes
customary terms within 10 days of such Stockholder's request for registration
(whether in a Demand Registration or a piggyback registration), then such
determination shall be made by a law firm of national reputation mutually
acceptable to the Company and such Stockholder.
SECTION 5.08. Termination. Except as otherwise provided in this Section,
this Agreement shall terminate (a) prior to the Closing upon any termination of
the Transaction Agreement in accordance with its terms and (b) thereafter, (i)
as to Universal, at such time that Universal Beneficially Owns Equity Securities
representing less than 10% of the Total Equity Securities, (ii) as to Liberty,
at such time that Liberty Beneficially Owns Equity Securities representing less
than 5% of the Total Equity Securities and (iii) as to Mr. Diller, at such time
that the CEO Termination Date has occurred or at such time as he becomes
Disabled. In respect of "Fundamental Changes," such provisions shall terminate
as to Mr. Diller, Universal and Liberty as set forth therein, and a
Stockholder's registration rights shall terminate when such Stockholder can sell
all its shares under Rule 144 under the Securities Act, except as provided in
Section 1.05 of this Agreement.
SECTION 5.09. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, provided that
the parties hereto shall negotiate in good faith to attempt to place the parties
in the same position as they would have been in had such provision not been held
to be invalid, void or unenforceable.
SECTION 5.10. Cooperation. Each of Universal, Liberty and Mr. Diller
covenants and agrees with the other to use its reasonable best efforts to cause
the Company to fulfill the Company's obligations under this Agreement.
SECTION 5.11. Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement, the Stockholders Agreement, the Liberty Exchange
Agreement, the agreement relating to the Contingent Shares, the Transaction
Agreement and each of the other agreements contemplated by the Transaction
Agreement (including the letter agreement referenced in Section 2.04 hereof)
embody the complete agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, that may have related to the subject matter hereof in any way
(including, without limitation, effective upon the Closing, all stockholders
agreements relating to HSNi (other than the Stockholders Agreement) between
Liberty and Mr. Diller). Without limiting the generality of the foregoing, to
the extent that any of the terms hereof are inconsistent with the rights or
obligations of any party under any other agreement with any other party, the
terms of this Agreement shall govern.
19
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
HSN, INC.
By:
--------------------------------------
Title:
UNIVERSAL STUDIOS, INC.
By:
--------------------------------------
Title:
LIBERTY MEDIA CORPORATION
By:
--------------------------------------
Title:
--------------------------------------
Barry Diller
20
<PAGE> 1
Exhibit 12(a)
THE SEAGRAM COMPANY LTD.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Transition
Six Months Ended Year Ended Period Ended
December 31, June 30, June 30,
1997 1996 1997 1996
----- ----- ------- -----
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes and $ 421 $ 613 $ 899 $ 65
minority interest
Add (deduct):
Equity in net earnings of less than 50%
owned companies (19) (11) (32) (4)
Dividends from less than 50% owned 4 1 12 9
companies
Fixed charges 191 198 398 183
Interest capitalized, net of amortization (--) -- (2) (4)
----- ----- ------- -----
Earnings available for fixed charges $ 597 $ 801 $ 1,275 $ 249
----- ----- ------- -----
Fixed Charges:
Interest Expense $ 153 $ 163 $ 326 $ 151
Proportionate share of 50% owned
companies' fixed charges 9 8 16 8
Portion of rent expense deemed to
represent interest factor 29 27 56 24
----- ----- ------- -----
Fixed Charges $ 191 $ 198 $ 398 $ 183
----- ----- ------- -----
Ratio of Earnings to Fixed Charges 3.1x 4.05x 3.2x 1.4x
===== ===== ======= =====
</TABLE>
<PAGE> 1
Exhibit 12(b)
JOSEPH E. SEAGRAM & SONS, INC.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Transition
Six Months Ended Year Ended Period Ended
December 31, June 30, June 30,
1997 1996 1997 1996
---- ---- ----- ----
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes and minority $ 57 $129 $ 151 ($30)
interest
Add (deduct):
Fixed charges 91 90 176 72
Interest capitalized, net of amortization -- -- (1) --
---- ---- ----- ----
Earnings available for fixed charges $148 $219 $ 326 $ 42
---- ---- ----- ----
Fixed charges:
Interest Expense $ 83 $ 82 $ 159 $ 65
Portion of rent expense deemed to
represent interest factor 8 8 17 7
---- ---- ----- ----
Fixed Charges $ 91 $ 90 $ 176 $ 72
---- ---- ----- ----
Ratio of Earnings to Fixed Charges 1.6x 2.4x 1.9x --(a)
==== ==== ===== ====
</TABLE>
(a) Fixed charges exceeded earnings by $30 million for the transition period
ended June 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE SEAGRAM COMPANY LTD. FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 379
<SECURITIES> 0
<RECEIVABLES> 2,524
<ALLOWANCES> 0
<INVENTORY> 2,792
<CURRENT-ASSETS> 6,951
<PP&E> 4,563
<DEPRECIATION> (1,422)
<TOTAL-ASSETS> 23,257
<CURRENT-LIABILITIES> 6,253
<BONDS> 2,344
0
0
<COMMON> 776
<OTHER-SE> 8,108
<TOTAL-LIABILITY-AND-EQUITY> 23,257
<SALES> 0
<TOTAL-REVENUES> 6,480
<CGS> 3,874
<TOTAL-COSTS> 3,874
<OTHER-EXPENSES> 2,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> 421
<INCOME-TAX> 245
<INCOME-CONTINUING> 161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
