EXHIBIT 10.2
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IMPLEMENTATION AGREEMENT
between
VIACOM INTERNATIONAL INC.
and
VIACOM INTERNATIONAL SERVICES INC.
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Dated as of July 24, 1995
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms.............................................. 1
ARTICLE II
CONVEYANCE; LACK OF CONSENTS OR REGULATORY APPROVALS;
RIGHT OF FIRST REFUSAL; DISASTERS
Section 2.1 Conveyance of Assets and Assumption of Liabilities:
Transfers to New VII, Recapitalization..................... 17
Section 2.2 Lack of Consents........................................... 18
Section 2.3 Lack of Regulatory Approvals............................... 19
Section 2.4 Right of First Refusal..................................... 21
Section 2.5 Lost Service Subscribers................................... 21
Section 2.6 Release of Old VII......................................... 22
Section 2.7 Receipt of Consents........................................ 22
Section 2.8 Execution of Other Instruments............................. 22
Section 2.9 Use of Viacom Name......................................... 22
Section 2.10 Name Change................................................ 23
Section 2.11 Bank Accounts.............................................. 23
Section 2.12 Intercompany Debt.......................................... 23
Section 2.13 Consents................................................... 23
Section 2.14 Books and Records.......................................... 23
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Section 2.15 Confidentiality............................................ 23
Section 2.16 Control of Litigation...................................... 24
Section 2.17 Security Interest.......................................... 24
ARTICLE III
ADJUSTMENTS
Section 3.1 Determination of Estimated Asset Value..................... 25
Section 3.2 Calculation of Adjustment Amounts.......................... 26
Section 3.3 Adjustment Payment......................................... 26
Section 3.4 Fixed Amount............................................... 27
Section 3.5 Proration.................................................. 27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEW VII
Section 4.1 Corporate Existence and Power.............................. 27
Section 4.2 Corporate Authorization.................................... 28
Section 4.3 Capitalization; Subsidiaries; Certificates of Incorporation
and By-Laws................................................ 28
Section 4.4 Governmental Authorization................................. 29
Section 4.5 Consents................................................... 29
Section 4.6 Non-Contravention.......................................... 29
Section 4.7 Binding Effect............................................. 30
Section 4.8 Financial Statements; Undisclosed Liabilities.............. 30
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Section 4.9 Systems; Local Authorizations and FCC Authorizations....... 30
Section 4.10 Absence of Changes......................................... 31
Section 4.11 Subsidiaries............................................... 31
Section 4.12 Assets..................................................... 32
Section 4.13 Intellectual Property...................................... 32
Section 4.14 Material Contracts......................................... 32
Section 4.15 Litigation................................................. 32
Section 4.16 Compliance with Legal Requirements......................... 32
Section 4.17 Employees.................................................. 33
Section 4.18 Finders' Fees.............................................. 34
Section 4.19 Real Property.............................................. 34
Section 4.20 Environmental Matters...................................... 34
Section 4.21 FCC and Copyright.......................................... 35
Section 4.22 Covenants not to Compete................................... 35
Section 4.23 Telecom Capital Expenditures............................... 35
Section 4.24 Accounts Receivable, Net................................... 36
Section 4.25 Number of Basic Subscribers................................ 36
Section 4.26 Adjustment Amounts......................................... 36
Section 4.27 Ranking of Payment Obligations............................. 36
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ARTICLE V
NONCOMPETITION
Section 5.1 Noncompetition ................................................ 36
ARTICLE VI
TERMINATION
Section 6.1 Termination ................................................... 37
Section 6.2 Effect of Termination ......................................... 37
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
Section 7.1 Survival ...................................................... 37
Section 7.2 Indemnification ............................................... 37
ARTICLE VIII
EMPLOYEE MATTERS
Section 8.1 Employment .................................................... 40
ARTICLE IX
TAX MATTERS
Section 9.1 Obligation of New VII to Indemnify ............................ 43
Section 9.2 Refunds ....................................................... 43
Section 9.3 Final Returns ................................................. 44
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Section 9.4 Conduct of Audits and Disputes ............................... 44
Section 9.5 Carrybacks ................................................... 45
Section 9.6 Designation of Agent for PCI Group ........................... 45
ARTICLE X
MISCELLANEOUS
Section 10.1 Expenses ..................................................... 46
Section 10.2 Headings ..................................................... 46
Section 10.3 Notices ...................................................... 46
Section 10.4 Assignment ................................................... 47
Section 10.5 Entire Agreement ............................................. 47
Section 10.6 Amendment; Waiver ............................................ 47
Section 10.7 Counterparts ................................................. 48
Section 10.8 Governing Law ................................................ 48
Section 10.9 Severability ................................................. 48
Section 10.10 Consent to Jurisdiction ...................................... 48
Section 10.11 Third Person Beneficiaries ................................... 48
Section 10.12 Representations and Warranties; Schedules .................... 48
Section 10.13 Specific Performance ......................................... 49
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EXHIBITS
Exhibit A - Approved Capital Expenditure Plan
Exhibit B - Front End Loaded Programming Payments
Exhibit C - ▇▇▇▇ of Sale, Instrument of Assumption and Provision of Benefits
Agreement
Exhibit D - Cable Division Subsidiaries
Exhibit E - Access Fee Conditions
Exhibit F - PVIT Assets
Exhibit G - PVIT ▇▇▇▇ of Sale
Exhibit H - Systems
Exhibit I - Transferred Assets
Exhibit J - Amended and Restated Certificate of Incorporation
Exhibit K - Term Sheet for Series A Senior Cumulative Exchangeable Preferred
Stock
SCHEDULES
Schedule 4.5 - Consents
Schedule 4.8 - Financial Statements
Schedule 4.9 - Systems: Local Authorizations and FCC Authorizations
Schedule 4.10 - Material Changes
Schedule 4.14 - Material Contracts
Schedule 4.15 - Litigation
Schedule 4.16 - Non-compliance with Legal Requirements
Schedule 4.17 - Employment Agreements; Labor Disputes; Labor Agreements;
Benefit Plans
Schedule 4.19 - Owned Real Property
Schedule 4.20 - Underground Storage Tanks
Schedule 4.21 - Equal Employment Opportunity Rules
Schedule 4.22 - Covenants not to Compete
IMPLEMENTATION AGREEMENT
Implementation Agreement, dated July 24, 1995 (this "Agreement") by and
among Viacom International Inc., a Delaware corporation ("Old VII") and Viacom
International Services Inc., a Delaware corporation ("New VII").
WHEREAS, Old VII is a wholly-owned subsidiary of Viacom Inc., a Delaware
corporation ("VI") and New VII is a wholly-owned subsidiary of Old VII; and
WHEREAS, VI desires to make an exchange offer to its shareholders in which
shares of VI Common Stock would be exchanged for Class A Common Stock of Old
VII; and
WHEREAS, VI has entered into a Parents Agreement, dated as of the date
hereof, with Tele-Communications, Inc., a Delaware corporation ("TCI"), and TCI
Communications, Inc., a Delaware corporation ("TCI Sub"), which contains certain
agreements of VI, TCI and TCI Sub regarding the Transaction; and
WHEREAS, in connection with the Exchange Offer, Old VII and New VII desire
to enter into the agreements set forth below;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
other agreements contained herein, the parties hereby agree as follows:
ARTICLE I
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DEFINITIONS
Section 1.1 Defined Terms. The following terms, as used in this Agreement,
shall have the following meanings (and such meanings shall be equally applicable
to both the singular and plural forms of the terms defined herein):
"Accounts Payable" shall mean the book value of all accounts payable of the
Company as of the Exchange Date (other than those constituting New Borrowing
Obligations) after giving effect to the Assumption of Liabilities, calculated in
accordance with GAAP on a basis consistent with the application of such
principles in the preparation of the Financial Statements.
"Accounts Receivable, Net" shall mean the book value of all accounts
receivable of the Company as of the Exchange Date net of the allowance for
doubtful accounts and advance ▇▇▇▇▇▇▇▇ (other than deferred customer revenue and
accounts receivable relating to payments of principal due from the Telecom
Partnerships referred to in clause (ii) of the definition of Telecom Capital
Expenditure Amount), calculated in accordance with GAAP on a basis consistent
with the application of such principles in the preparation of the Financial
Statements and after giving effect to the Conveyance of Assets.
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"Ad Interconnect Assets" shall mean all right, title and interest of Old
VII and each Cable Division Subsidiary in and to the Bay Cable Advertising and
Northwest Cable Advertising Partnerships described on Schedule 4.14.
"Adjustment Amounts" shall have the meaning specified in Section 3.2.
"Affiliate" of any Person at any time shall mean any other Person directly
or indirectly controlling, controlled by or under common control with such
Person at such time.
"Aggregate Loan Amount" shall have the meaning specified in the Parents
Agreement.
"Agents" shall have the meaning specified in the Subscription Agreement.
"Agreement" shall mean this Implementation Agreement, including the
Exhibits and Schedules hereto.
"Amended and Restated Certificate of Incorporation" shall have the meaning
specified in Section 2.1(c).
"Anticipated Commencement Date" shall have the meaning specified in the
Parents Agreement.
"Appraised Value" shall mean, with respect to any System (or portion
thereof) at any date of determination, an amount equal to the sum of (A) (x)
Cash Flow of such System (or portion thereof) for the twelve full calendar
months ending the calendar month ended prior to such date of determination,
multiplied by (y) ten, plus (B) the Specified Capital Expenditure Amount for
such System (or portion thereof). The Appraised Value of a System (or portion
thereof) shall be established by mutual agreement of Old VII and New VII. If Old
VII and New VII are unable to agree on the Appraised Value of a System (or
portion thereof), such Appraised Value will be determined by an Arbitrating
Firm, whose determination shall be binding upon the parties. The Arbitrating
Firm will render its determination within ten (10) Business Days of its
engagement. Each of New VII and Old VII shall be responsible for one-half the
fees and expenses of the Arbitrating Firm (which fees shall be negotiated in
good faith by New VII and Old VII). As used herein, "Cash Flow" of a System (or
portion thereof) for a period shall mean the operating income of such System (or
portion thereof) for such period, before provision for income taxes, interest
expense, depreciation and amortization, but including allocations for direct and
indirect operating expenses and overhead (excluding any allocation of VI
administrative overhead and any management fees), determined in accordance with
accounting principles applied on a basis consistent with the application of such
principles by Old VII prior to the Exchange Time.
"Approved Capital Expenditure Plan" shall mean the capital expenditure plan
for the Company, by System, which identifies Covered Capital Expenditures and
Line Extension and Other Capital Expenditures, attached as Exhibit A hereto,
together with the 1996 Capital Expenditure Plan (as defined in the Subscription
Agreement).
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"Arbitrating Firm" shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co. or, if it cannot serve
in such capacity, another "big six" independent public accounting firm (other
than KPMG Peat Marwick LLP and Price Waterhouse & Co. LLP and their respective
successors) selected by agreement of Old VII and New VII or, if they cannot
agree, chosen by lot from among the aforesaid firms.
"Asset Value" shall mean an amount equal to (i) the Fixed Amount, plus (ii)
the Capital Expenditure Amount, plus (iii) the Inventory Amount, plus (iv) the
Telecom Amount plus (v) an amount equal to Working Capital, if Working Capital
is a positive number, minus (vi) an amount, if any, equal to the amount by which
Working Capital is a negative number, minus (vii) the amount of the front-end
loaded programming payments set forth on Exhibit B, plus (viii) an amount equal
to interest on the sum of the foregoing amounts at the LIBOR Rate for the period
from (and including) September 1, 1995 to (but excluding) the Exchange Date.
"Assumption of Liabilities" shall have the meaning specified in Section
2.1(a).
"Balance Sheet Date" shall mean March 31, 1995.
"Banked Sick Leave Days" shall have the meaning specified in Section
8.1(f).
"Basic Subscriber" shall mean the sum of the following amounts for all
Franchise Areas:
(a) with respect to a Franchise Area, the number
of all private and residential customer accounts (regardless
of whether in a single-family home or in an individually
billed unit in a multiple-unit building) who are receiving
basic cable television service at the Basic Subscriber Rate
(but excluding "complimentary subscribers," "second
connects" and "additional outlets" as such terms are
customarily used in the cable television industry); plus
(b) with respect to a Franchise Area, the number
of private and residential customer accounts (regardless of
whether in a single-family home or in an individually billed
unit in a multiple unit building) who are receiving basic
cable television service at a discount to the Basic
Subscriber Rate because the account is or was to the
knowledge of New VII a "low income" and/or "senior citizen"
account in accordance with the Company's policy as of
January 1, 1995, determined as the quotient of the total
monthly basic service revenue derived from these customers
as of the date of determination thereof (excluding any
charges for taxes or nonrecurring items (including, without
limitation, nonrecurring charges for installation,
equipment, any outlet or connection or a pass-through charge
for sales taxes, line-itemized franchise fees and charges))
divided by the Basic Subscriber Rate; plus
(c) with respect to a Franchise Area, without
duplication of clauses (a) and (b) above, the number of
commercial and bulk billed accounts (including, without
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limitation, hotels, motels, apartment houses and
multi-family homes) that receive basic cable television
service, determined as the quotient of the total monthly
basic service revenue derived from the commercial and bulk
billed accounts as of the date of determination thereof
(excluding any charges for taxes or nonrecurring items
(including, without limitation, nonrecurring charges for
installation, equipment, any outlet or connection or a
pass-through charge for sales taxes, line-itemized franchise
fees and charges)) divided by the Basic Subscriber Rate.
"Basic Subscriber Rate" shall mean for each Franchise Area, the monthly
fees and charges for the provision of the "basic service" (as such term is
customarily used in the cable television industry and regardless of whether
customers taking basic service take any other tier of regulated or unregulated
service (excluding (i) any charges for installation fees and revenues derived
from the rental of converters, remote control devices and other like charges for
equipment and (ii) any charges for taxes or nonrecurring items (including,
without limitation, nonrecurring charges for installation, equipment, any outlet
or connection or a pass-through charge for sales taxes, line-itemized franchise
fees and charges))) charged to customers served by the Franchise Area, as of the
date of determination.
"Benefit Plans" shall have the meaning specified in Section 4.17(c)(i).
"▇▇▇▇ of Sale" shall mean a ▇▇▇▇ of Sale, Instrument of Assumption and
Provision of Benefits Agreement executed by Old VII, New VII and the Cable
Division Subsidiaries in the form of Exhibit C.
"Business" shall mean and include the business of each and all of the
Systems.
"Business Day" shall mean a day other than a Saturday, Sunday or other day
on which banks in New York City are required to or may be closed.
"Cable Act" shall mean the Cable Television Consumer Protection and
Competition Act of 1992, as amended, and the rules and regulations promulgated
thereunder.
"Cable Assets" shall mean (i) all right, title and interest of Old VII and
the Cable Division Subsidiaries in all assets, rights, privileges, interests,
claims and properties owned, used or held for use by Old VII and the Cable
Division Subsidiaries in the Business (including without limitation (aa) all
equity and other ownership interests of Old VII in the Cable Division
Subsidiaries, (bb) the Telecom Assets, (cc) the Ad Interconnect Assets and (dd)
all interest earned on the Cash Collateral Account) and (ii) all rights of Old
VII under the Transaction Documents with respect to periods after the Exchange
Date (including, without limitation, rights of Old VII under Section 7.2(b)
hereof).
"Cable Cash Balances" shall mean the ▇▇▇▇▇ cash, cash drawer and imprest
account balances of the Company, as of the Exchange Date, excluding the Loan
Proceeds.
"Cable Division Assets" shall have the meaning specified in Section 4.12.
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"Cable Division Subsidiaries" or "Cable" shall mean the Persons set out on
Exhibit D.
"Cable Group Bargaining Agreement" shall have the meaning specified in the
Subscription Agreement.
"Cable Group Contracts" shall mean all contracts, purchase orders and other
agreements of the Company to the extent relating to the Business.
"Cable Group Welfare Plans" shall have the meaning specified in Section
8.1(h).
"Cable Liabilities" shall mean all obligations and liabilities (other than
Pre-Closing Specified Liabilities) of Old VII and the Cable Division
Subsidiaries arising out of the operation of or with respect to the Business
(but not including any liability of Old VII arising out of the breach by Old
VII, on or prior to the Exchange Date, of any representation, warranty, covenant
or agreement of Old VII contained in the Subscription Agreement), together with
all obligations and liabilities (x) of Old VII under the Transaction Documents
with respect to periods after the Exchange Date, (y) constituting or arising
from the New Borrowing Obligations (including, without limitation, the payment
of principal, interest, premium, fees, expenses and indemnities) or (z) of Old
VII or any Cable Division Subsidiary arising with respect to periods after the
Exchange Date under employment agreements with any Continuing Employee.
"Cable Television Business" shall mean the business of owning and operating
a coaxial or fiber optic cable television signal distribution system.
"Capital Expenditure Amount" shall mean (i) the aggregate amount of all
Covered Capital Expenditures, plus (ii) the aggregate amount of the Covered Line
Extension and Other Capital Expenditures, plus (iii) without duplication of
clauses (i) and (ii) above, the aggregate amount of all capital expenditures
made by the Company during the period from January 20, 1995 through the Exchange
Date at the request of, or with the express written consent of (whether prior to
or after the date of this Agreement) TCI Sub, or (prior to the date of this
Agreement) RCS.
"Cash Collateral Account" shall have the meaning specified in the
Subscription Agreement.
"CERCLA" shall have the meaning specified in Section 4.20.
"Class A Common Stock" shall have the meaning specified in the Parents
Agreement.
"Class B Common Stock" shall have the meaning specified in the Subscription
Agreement.
"COBRA" shall have the meaning specified in Section 8.1(h).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
6
"Communications Act" shall mean the Communications Act of 1934 including
the Cable Communications Policy Act of 1984, and the Cable Television Consumer
Protection and Competition Act of 1992, each as amended, and all rules and
regulations promulgated thereunder, as amended (the "Rules and Regulations").
"Company" shall mean (x) Old VII after giving effect to the Conveyance of
Assets and Assumption of Liabilities and as if such conveyance and assumption
occurred immediately prior to the execution and delivery of this Agreement (with
the same effect as if the Conveyance of Assets and Assumption of Liabilities
occurred at the time they are to occur pursuant to Section 2.1) and (y) each of
the Cable Division Subsidiaries.
"Continuing Employee" shall have the meaning specified in the Subscription
Agreement.
"Conveyance of Assets" shall have the meaning specified in Section 2.1.
"Copyright Act" shall mean Title 17 of the United States Code, as amended,
and all rules and regulations promulgated thereunder, as amended.
"Covered Capital Expenditures" shall mean the sum of (i) the aggregate
amount of all capital expenditures made by the Company during the period from
January 1, 1995 through the Exchange Date relating to (a) upgrades and rebuilds
and associated items (including, without limitation, head-end sites and head-end
equipment to expand channel capacity, but excluding costs of repairing damage
caused by a Disaster that would not have been incurred if such Disaster had not
occurred) and (b) converter change-outs (including the purchase of converters
for such purpose), (ii) without duplication of clause (i) above, any capital
expenditure identified as a Covered Capital Expenditure in the Approved Capital
Expenditure Plan and (iii) a reasonable allocation of construction overhead
(other than capitalized interest) for such period related to such upgrades and
rebuilds (other than with respect to repairing damage caused by a Disaster).
"Covered Line Extension and Other Capital Expenditures" shall mean the sum
of (i) the aggregate amount of all Line Extension and Other Capital Expenditures
made by the Company during the period from February 23, 1995 through the
Exchange Date plus (ii) a reasonable allocation of construction overhead (other
than capitalized interest) for such period related to such Line Extension and
Other Capital Expenditures.
"Deferred Closing Date" shall have the meaning specified in Section 2.3(c).
"Delaware Corporation Law" shall mean the General Corporation Law of the
State of Delaware.
"Disaster" shall have the meaning specified in Section 2.5(a).
"Disclosing Party" shall have the meaning specified in Section 2.15.
"Dispute Notice" shall have the meaning specified in Section 3.2(c).
7
"Disqualified Person" shall have the meaning specified in Section 5.1.
"Employees" shall mean all employees of the Company with respect to the
Systems at the relevant time.
"Equipment" shall mean all equipment and other personal property of the
Company owned, used or held for use by the Company in connection with the
Business or the Systems.
"ERISA" shall have the meaning specified in Section 4.17(c)(i).
"ERISA Affiliate" shall have the meaning specified in Section 8.1(b).
"Estimate Statement" shall have the meaning specified in Section 3.1.
"Estimated Adjustment Amounts" shall have the meaning specified in Section
3.1.
"Estimated Asset Value" shall have the meaning specified in Section 3.1.
"Estimated Capital Expenditure Amount" shall have the meaning specified in
Section 3.1.
"Estimated Fixed Amount" shall have the meaning specified in Section 3.1.
"Estimated Inventory Amount" shall have the meaning specified in Section
3.1.
"Estimated Net Asset Value" shall mean an amount equal to the Estimated
Asset Value, minus $1,700,000,000 (one billion, seven hundred million dollars).
"Estimated Telecom Amount" shall have the meaning specified in Section 3.1.
"Estimated Working Capital" shall have the meaning specified in Section
3.1.
"Exchange Date" shall have the meaning specified in the Parents Agreement.
"Exchange Date Basic Subscribers" shall mean the average number of Basic
Subscribers for the nine (9) consecutive Thursdays (or such other day used by
the Company for accounts receivable cutoffs) ending on or immediately prior to
the Exchange Date, calculated by summing the number of Basic Subscribers as of
each such Thursday (or such other day) and dividing such sum by nine (9),
without, for these purposes, giving effect to the loss, if any, of Basic
Subscribers as a result of a Disaster (defined for these purposes without regard
to the number of Basic Subscribers affected).
"Exchange Offer" shall have the meaning specified in the Parents Agreement.
"Exchange Offer Conditions" shall have the meaning specified in the Parents
Agreement.
"Exchange Time" shall have the meaning specified in the Parents Agreement.
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"Expiration Time" shall have the meaning specified in the Parents
Agreement.
"FCC" shall mean the Federal Communications Commission.
"FCC Authorizations" shall mean all authorizations, approvals,
certifications, franchises, licenses and permits of the FCC granted to the
Company with respect to the Systems.
"Final Certificate" shall have the meaning set out in Section 3.2(b).
"Final Determination" shall mean (1) a decision, judgment, decree or other
order by any court of competent jurisdiction, which decision, judgment, decree
or other order has become final after all allowable appeals by either party to
the action have been exhausted (it being understood that for purposes of this
definition, the term "allowable appeals" means an appeal taken or required to be
taken under the provisions of the contest provisions with respect to the
applicable indemnification obligation and permitted by applicable law) or the
time for filing such appeal has expired, (2) a closing agreement entered into
under Section 7121 of the Code (or comparable state or local law) or any other
binding settlement agreement entered into in connection with an administrative
or judicial proceeding (including, without limitation, any settlement entered
into in accordance with the contest provisions with respect to the applicable
indemnification obligation), or (3) the expiration of the time for instituting a
claim for refund, or if such a claim was filed, the expiration of the time for
instituting suit with respect thereto.
"Financial Statements" shall have the meaning set out in Section 4.8(a).
"Fixed Amount" shall mean $2,000,000,000 (two billion dollars), subject to
adjustment pursuant to Section 3.4.
"Franchise Areas" shall mean the areas in which the Company is authorized
to provide cable television service under the Local Authorizations and the areas
served by any System in which the Company provides cable television service
without a Local Authorization.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"Governmental Authority" shall mean any federal, state, municipal or local
governmental authority or political subdivision thereof.
"Hazardous Materials" shall have the meaning specified in Section 4.20.
"Homes Passed" shall mean the sum of (a) each single family residence in
the Franchise Areas, and (b) each townhouse, condominium or dwelling unit which
is part of a building containing multiple dwelling units in the Franchise Areas,
but excluding single family residences and units in multiple dwelling unit
buildings which (i) are located more than 150 feet from an activated trunk or
feeder cable of a System, (ii) require an underground service stub in order to
be connected to activated trunk or feeder cable of a System or (iii) are located
in multiple dwelling unit buildings to which a System does not have a right of
access.
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"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder, as amended.
"Indemnified Party" shall have the meaning specified in Section 7.2(a).
"Indemnifying Party" shall have the meaning specified in Section 7.2(a).
"INS" shall mean the Immigration and Naturalization Service.
"Intangible Assets" shall mean subscriber lists and customer records of the
Systems, construction and engineering maps and data, schematics and blueprints,
books and financial records pertaining to the operation of the Business or the
Systems, and all correspondence and documents pertaining to subscribers,
Governmental Authorities and other third parties relevant to the Systems'
ongoing relationships with subscribers, Governmental Authorities and other third
parties, in each case then in the possession of the Company; and all trademarks,
trade names, service marks, copyrights and other intangible property used
primarily in the Business (other than Transferred Assets).
"Inventory" shall mean the inventory and supplies of the Company.
"Inventory Amount" shall mean the book value of all Inventory as of the
Exchange Date in accordance with GAAP on a basis consistent with the application
of such principles in the preparation of the Financial Statements after giving
effect to the Conveyance of Assets, multiplied by a fraction: (i) the numerator
of which is equal to the aggregate book value of all Inventory consumed during
the two-month period ending on the last day of the monthly accounting period
ending prior to the Exchange Date to the extent such Inventory was consumed in
connection with the Covered Capital Expenditures, Covered Line Extension and
Other Capital Expenditures, the Telecom Capital Expenditure Amount or capital
expenditures made by the Company at the request of, or with the express written
consent of, TCI Sub (or, prior to the date of this Agreement, RCS) and (ii) the
denominator of which is equal to the aggregate book value of all Inventory
consumed during such two-month period.
"knowledge" of New VII shall mean the knowledge of VI, Old VII, New VII, or
any Cable Division Subsidiary.
"Leased Real Property" shall mean leasehold interests of the Company in the
real property used in connection with any System.
"Legal Requirement" shall mean the requirements of any law, ordinance,
statute, rule, regulation, code, order, judgment, decree, injunction, franchise,
determination, approval, permit, license, authorization or other requirement of
any Governmental Authority.
"LIBOR Rate" shall mean a per annum fluctuating rate of interest equal to
the sum of (i) the London Interbank Offered Rate for one month published as such
from time to time in the Money Rates column of The Wall Street Journal (Eastern
Edition) (or, if the Wall Street Journal (Eastern Edition) is not published or
if such rate is for any other reason unavailable on any relevant date, the
highest offered rate for deposits in U.S. Dollars for the one month period which
appears on the Reuters Screen London Interbank Offered Rates Page at
10
approximately 11:00 a.m. (London time) on the relevant date) plus (ii) 1 1/4
percentage points. For all purposes of this Agreement, interest at the LIBOR
Rate shall be calculated on the basis of the actual number of days elapsed in
the relevant period over a year of 360 days, as applicable.
"Lien" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Line Extension and Other Capital Expenditures" shall mean any capital
expenditure made after January 20, 1995 (calculated on a basis consistent with
the Company's policies prior to the Exchange Date) for (i) extension of trunk
and feeder cable within the Franchise Areas to serve new commercial accounts,
new residential developments and/or additional residential dwelling units,
thereby adding new Homes Passed, (ii) initial connections from trunk and feeder
cable in the Franchise Areas to any single family residence, townhouse,
condominium or dwelling unit which is part of a building containing multiple
dwelling units or to any potential commercial or bulk-billed account which
relate to extensions covered in clause (i) above, (iii) the purchase of
converters (but without duplication of the amounts included in Covered Capital
Expenditures pursuant to clause (i)(b) of the definition thereof), (iv) fees or
similar payments made to owners or managers of multiple dwelling units (e.g.,
apartments or condominiums) in order to obtain access and the exclusive right to
serve such units in accordance with the conditions and limitations set forth in
Exhibit E and (v) without duplication of clauses (i), (ii), (iii) and (iv)
above, any capital expenditure identified as a Line Extension and Other Capital
Expenditure in the Approved Capital Expenditure Plan.
"Lender" shall have the meaning specified in the Subscription Agreement.
"Loan Documentation" shall have the meaning specified in the Subscription
Agreement.
"Loan Proceeds" shall have the meaning specified in the Subscription
Agreement.
"Loans" shall have the meaning specified in the Subscription Agreement.
"Local Authority" shall mean any Governmental Authority having jurisdiction
to grant a cable television franchise with respect to all or a portion of any
System.
"Local Authority Consent" shall mean any approval, authorization or consent
of a Local Authority necessary for a change in control of a Local Authorization
or otherwise in connection with the consummation of the Transaction.
"Local Authorizations" shall mean all authorizations, approvals,
franchises, licenses and permits of Local Authorities granted to the Company
which permit the operation of the Systems as amended, modified or supplemented.
"Losses" shall mean losses, liabilities, claims and reasonable expenses of
defense thereof (including, without limitation, expenses of investigation,
defense and fees and disbursements of counsel, but excluding compensation paid
to employees of the relevant Indemnified Party or its Affiliates), and Liens or
other obligations of any nature whatsoever, other than Losses to the extent
recoverable by the relevant Indemnified Party under any applicable insurance
policy, computed on an after-Tax basis.
11
"Lost Service Subscriber Cumulative Deemed Net Cash Flow" shall mean, for
any period after the Exchange Date during which an Exchange Date Basic
Subscriber is a Lost Service Subscriber, an amount equal to $13.16 for each
month (or $0.44 on a daily basis in the case of a portion of any month) that
such Exchange Date Basic Subscriber is a Lost Service Subscriber, subject to
reduction as provided in Section 2.5(b).
"Lost Service Subscribers" shall have the meaning set out in Section
2.5(a).
"Material Adverse Effect" shall mean a material adverse effect on the
business, financial condition or results of operations of the Business, any
System or the Company, except for:
(a) changes resulting from general economic,
financial or market conditions;
(b) changes in, or changes required in order to
comply with, applicable legislation or regulations affecting
U.S. cable television operators generally, including but not
limited to any adjustment in subscriber rates implemented in
a manner consistent with the rate regulations promulgated
under the Cable Act from time to time; and
(c) changes resulting from technological changes
generally applicable to the cable television industry.
"Material Contract" shall mean any contract of the Company that (i) is
material to the Business or any System or (ii) requires aggregate payments by a
party thereto in excess of $500,000. Material Contract shall not include any
Local Authorization or FCC Authorization.
"Net Asset Value" shall mean an amount equal to the Asset Value, minus the
amount of Loan Proceeds actually transferred to New VII pursuant to the
Conveyance of Assets.
"New Borrowing Obligations" shall have the meaning specified in the
Subscription Agreement.
"New VII" shall have the meaning specified in the preamble of this
Agreement.
"1993 Act" shall have the meaning specified in the Parents Agreement.
"1934 Act" shall have the meaning specified in the Parents Agreement.
"Non-Cable Assets" shall mean all right, title and interest of Old VII and
the Cable Division Subsidiaries in and to all of their assets, rights,
privileges, interests, claims and properties other than the Cable Assets,
provided that notwithstanding any other provision hereof, Non-Cable Assets shall
include (and Cable Assets shall not include), (i) the Transferred Assets, (ii)
12
all equity and other ownership interests of Old VII in its Subsidiaries (other
than the Cable Division Subsidiaries), (iii) all rights of Old VII under the
Transaction Documents with respect to periods prior to the Exchange Time (but
excluding any right to indemnification pursuant to Section 7.2 (b)) and (iv) all
rights of Old VII and its Subsidiaries under (x) employment agreements with
Non-Continuing Employees, (y) the lease dated December 27, 1985 between ▇.▇.
▇▇▇▇▇▇▇▇▇ and Viacom International, Inc., an Ohio corporation, as amended by
Lease Amendment No. 1 dated January 15, 1986 and (z) all Benefit Plans (other
than the Company's vacation and sick pay policies).
"Non-Cable FCC Authorizations" shall mean consents of the FCC under FCC
licenses and permits of Old VII and its Affiliates (other than the FCC
Authorizations) (x) to the transfer thereof to New VII in connection with the
Transaction or (y) to the change in control of Old VII in connection with the
Transaction.
"Non-Cable Liabilities" means all obligations and liabilities of Old VII
and its Subsidiaries, other than (x) those constituting Cable Liabilities and
(y) those arising from or with respect to the operation of the business of Old
VII and the Cable Division Subsidiaries after the Exchange Date (other than
Pre-Closing Specified Liabilities), provided that notwithstanding any other
provision hereof, Non-Cable Liabilities shall include (and Cable Liabilities
shall not include) (i) the Old VII Debt (including without limitation principal,
interest, premium, fees, expenses and indemnities in connection therewith), (ii)
liability for the breach by Old VII, on or prior to the Exchange Date, of any
representation, warranty, covenant or agreement of Old VII contained in the
Subscription Agreement, (iii) liabilities for Taxes of the members of the Old
VII Subgroup for taxable years or portions thereof ending on or prior to the
Exchange Date, (iv) Pre-Closing Specified Liabilities and (v) liabilities and
obligations of Old VII and its Subsidiaries under (x) employment agreements with
Non-Continuing Employees, (y) the lease dated December 27, 1985 between ▇.▇.
▇▇▇▇▇▇▇▇▇ and Viacom International, Inc., an Ohio corporation, as amended by
Lease Amendment No. 1 dated January 15, 1986 and (z) all Benefit Plans (other
than the Company's vacation and sick pay policies).
"Non-Continuing Employee" shall have the meaning specified in the
Subscription Agreement.
"Number of Shares to be Exchanged" shall have the meaning set forth in the
Parents Agreement.
"Old VII" shall have the meaning specified in the preamble of this
Agreement.
"Old VII Debt" shall mean all indebtedness of Old VII for borrowed money
incurred prior to the Exchange Time (other than such indebtedness owed to VI
(which will not be outstanding at the Exchange Time as provided in Section 2.12)
or constituting or arising from New Borrowing Obligations).
"Old VII Subgroup" shall mean Old VII and the Cable Division Subsidiaries,
including any predecessor of any such corporation.
13
"Other Current Liabilities" shall mean all current liabilities (including,
but not limited to, current liabilities on account of Covered Capital
Expenditures and Covered Line Extension and Other Capital Expenditures, accrued
vacation pay for Continuing Employees, subscriber security deposits, customer
prepayments for service to be rendered after the Exchange Date and deferred
customer revenues (other than any deferred revenues arising out of any payments
of principal due from the Telecom Partnerships referred to in clause (ii) of the
definition of Telecom Capital Expenditure Amount), but excluding (i) Accounts
Payable, (ii) any advance ▇▇▇▇▇▇▇▇ subtracted in the calculation of Accounts
Receivable, Net) of the Company relating to the conduct of the Business as of
the Exchange Date after giving effect to the Assumption of Liabilities and (iii)
New Borrowing Obligations, calculated in accordance with GAAP on a basis
consistent with the application of such principles in the preparation of the
Financial Statements.
"Owned Real Property" shall mean all fee interests of the Company in the
real property used in connection with any System.
"Parents Agreement" shall mean the Parents Agreement, dated as of the date
hereof, among VI, TCI and TCI Sub.
"PCI Group" shall have the meaning specified in Section 9.6.
"PCI Subsidiaries" shall have the meaning specified in Section 9.6.
"Per Subscriber Amount" shall mean $1,763.67, provided that if the Fixed
Amount is adjusted pursuant to Section 3.4, the Per Subscriber Amount shall be
reduced to an amount equal to the product of $1,763.67, multiplied by a
fraction, the numerator of which is the new Fixed Amount (expressed as a number)
and the denominator of which is 2,000,000,000 (two billion).
"Permits" shall mean all authorizations, approvals, certifications,
franchises, licenses and permits of Governmental Authorities necessary to the
continued operation of, or owned, used or held for use by the Company in
connection with, the Business as conducted immediately prior to the Exchange
Time, including, without limitation, all Local Authorizations and all FCC
Authorizations.
"Permitted Liens" shall mean (i) Liens for Taxes not yet due and payable;
(ii) any carrier's, warehousemen's, mechanic's, materialmen's, repairmen's,
employees' or other like Lien arising in the ordinary course of business, to the
extent the obligation secured thereby constitutes Cable Liabilities or relates
to an obligation that was paid by the Company; (iii) easements, rights-of-way,
restrictions, encroachments and other similar encumbrances which do not
materially interfere with the use of the Cable Assets as presently used in the
Business; (iv) Liens arising under or specifically permitted by this Agreement
or as a result of any action by TCI Sub or any of its Affiliates; (v) rights of
first refusal in favor of, and restrictions imposed by, Governmental
Authorities; (vi) in the case of assets leased or licensed to the Company, the
rights of, and any Lien encumbering the interest of, the owner, lessor or
licensor of such assets, provided such Lien does not materially interfere with
14
the use of such asset as presently used in the Business; and (vii) Liens arising
under the Loan Documentation or otherwise securing New Borrowing Obligations.
"Person" shall mean and include an individual, a corporation, a partnership
(general, limited or limited liability), a joint venture, a limited liability
company, an association, a trust or any other organization or entity, including
a Governmental Authority.
"Pre-Closing Specified Liabilities" shall mean liabilities and obligations
of Old VII and the Cable Division Subsidiaries arising out of the operation of
or with respect to the Business on or prior to the Exchange Date, including
without limitation any obligations accruing prior to the Exchange Date under
retransmission consent agreements with respect to the Systems for carriage of
fX, ▇▇▇▇▇, ▇▇▇ TV, or America's Talking, but excluding Accounts Payable, Other
Current Liabilities or New Borrowing Obligations.
"Preferred Stock" shall have the meaning specified in the Parents
Agreement.
"Prepaid Expenses" shall mean the book value of prepaid expenses and
miscellaneous prepaids (in each case, only to the extent constituting a current
asset) of the Company as of the Exchange Date after giving effect to the
Conveyance of Assets calculated in accordance with GAAP, applied on a basis
consistent with the application of such principles in the preparation of the
Financial Statements, to the extent that such prepaid expenses will accrue to
the benefit of the Company immediately following the Exchange Time.
"Prime Rate" shall mean the per annum rate of interest published as such
from time to time in the Money Rates column of The Wall Street Journal (Eastern
Edition). For all purposes of this Agreement, interest at the Prime Rate shall
be calculated on the basis of the actual number of days elapsed in the relevant
period over a year of 365 or 366 days, as applicable.
"PVIT" shall mean PVI Transmission Inc., a Delaware corporation.
"PVIT Assets" shall mean the assets set forth on Exhibit F.
"PVIT ▇▇▇▇ of Sale" shall mean a ▇▇▇▇ of sale in the form of Exhibit G.
"RCS" shall mean RCS Pacific, L.P., a California limited partnership.
"Real Property" shall mean Owned Real Property or Leased Real Property.
"Replacement Welfare Plans" shall have the meaning specified in Section
8.1(h).
"Required Treatment" shall have the meaning specified in Section 9.3.
"Right of First Refusal" shall mean any right of first refusal of a Local
Authority in regard to or arising as a result of the Transaction.
"Right of First Refusal Franchise Area" shall have the meaning specified in
Section 2.4.
"Right of First Refusal Franchise Area Consideration" shall have the
meaning specified in Section 2.4.
15
"Right of First Refusal Local Authorization" shall have the meaning
specified in Section 2.4.
"Rules and Regulations" shall have the meaning specified in the definition
of Communications Act.
"Section 2.17 Secured Obligations" shall have the meaning specified in
Section 2.17.
"Share Purchase Closing" shall mean the "Closing", as such term is defined
in the Subscription Agreement.
"Shares" shall have the meaning specified in the Subscription Agreement.
"Shortfall Number" shall have the meaning specified in Section 3.4.
"626 Letters" shall mean written notices pursuant to Section 626(a)(1)(B)
of the Communications Act.
"Specified Capital Expenditure Amount" shall mean, with respect to a System
(or portion thereof), all capital expenditures made by the Company with respect
to such System (or portion thereof) after the Exchange Date (and not reflected
in Accounts Payable or Other Current Liabilities), calculated in accordance with
the accounting principles employed by Old VII on the date hereof.
"Specified Party" shall have the meaning specified in Section 5.1.
"Straddle Period" shall have the meaning specified in Section 9.1(c).
"Subsidiary" shall mean, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are directly or indirectly owned by such Person.
"System" shall mean each of the cable television systems listed on Exhibit
H.
"Tax Indemnified Party" shall have the meaning specified in Section 9.4(e).
"Tax Indemnifying Party" shall have the meaning specified in Section
9.4(e).
"Tax Return" shall mean any return, report, information return or other
document (including any related or supporting information) filed or required to
16
be filed with any taxing authority in connection with the determination,
assessment, collection, administration or imposition of any Taxes.
"Taxes" shall mean all taxes, fees, duties, imposts, levies, withholdings,
tax deficiencies, assessments, and charges, including, without limitation, all
net income, gross income, gross receipts, sales, use, value-added, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes and customs
duties of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts relating thereto, imposed by any
Governmental Authority (domestic or foreign). For purposes of determining any
Tax cost or Tax benefit to any Person, such amount shall be the actual cost or
benefit recognized by such Person at the time of actual payment of the
additional Tax or actual recognition of the Tax benefit. In the event that any
payment or other amount is required to be determined on an after-Tax basis, such
payment or other amount shall initially be determined without regard to any Tax
cost or Tax benefit not actually recognized currently, and appropriate
adjustments shall be made when and to the extent that such Tax cost or Tax
benefit is actually recognized.
"TCI" shall have the meaning specified in the preamble of this Agreement.
"TCI Sub" shall have the meaning specified in the preamble of this
Agreement.
"Telecom Agreements" shall mean all agreements of the Company relating to
the Telecom Partnerships, including, without limitation, the Telecom Partnership
Agreements.
"Telecom Amount" shall mean the sum of the Telecom Capital Account Amount
and the Telecom Capital Expenditure Amount.
"Telecom Assets" shall mean all right, title and interest of Old VII and
each Cable Division Subsidiary in and to (i) the Telecom Partnerships,
including, without limitation, under the Telecom Partnership Agreements, and
(ii) all interests in real property, all equipment and all other property of Old
VII and each Cable Division Subsidiary leased or licensed to, or held for, or
built for lease, license or use by, any Telecom Partnership.
"Telecom Capital Account Amount" shall mean the aggregate amount of all
Capital Contributions (as defined in the relevant Telecom Partnership Agreement)
by Old VII and its Affiliates to the Telecom Partnerships under the Telecom
Partnership Agreements as of the Exchange Date, minus the aggregate amount of
all distributions of capital made to Old VII or its Affiliates under the Telecom
Partnership Agreements.
"Telecom Capital Expenditure Amount" shall mean, without duplication of the
Telecom Capital Account Amount, (i) the aggregate amount of all capital
expenditures (including allocated overhead) made by the Company on or prior to
the Exchange Date on behalf of or for the benefit of any Telecom Partnership in
accordance with the allocation methods provided pursuant to the relevant Telecom
Partnership Agreement, less (ii) the principal portion of any payments received
from the Telecom Partnerships, provided that if the Exchange Date occurs on or
before December 31, 1995, the Telecom Capital Expenditure Amount shall not in
17
any event exceed $20,800,000, and if the Exchange Date occurs after December 31,
1995, such maximum amount shall be increased by the amount of additional capital
expenditures and capital contributions made by the Company after December 31,
1995 in accordance with the terms of the Telecom Partnership Agreements.
"Telecom Partnership Agreements" shall mean (i) the Partnership Agreement
creating TCG San Francisco (the "TCG San Francisco Partnership") dated as of
January 1, 1994, by and among Teleport Communications of San Francisco, Inc., a
Delaware corporation and the other parties listed on the signature pages
thereof, (ii) the Partnership Agreement creating TCG Seattle (the "TCG Seattle
Partnership") dated as of January 1, 1994, by and among Teleport Communications
of Seattle, Inc., a Delaware corporation and the other parties listed on the
signature pages thereof and (iii) the Limited Partnership Agreement of AVR of
Tennessee, L.P., a California limited partnership, dated as of November 15,
1993, by and among Viacom Telecom Inc., a Delaware corporation, and the other
parties signatories thereto (the "AVR Partnership").
"Telecom Partnerships" shall mean the TCG San Francisco Partnership, the
TCG Seattle Partnership and the AVR Partnership.
"Tele-Vue" shall mean Tele-Vue Systems, Inc., a Washington corporation.
"Terminated Unapproved Franchise Areas" shall have the meaning specified in
Section 2.3(d).
"Territory" shall have the meaning specified in Section 5.1.
"Transaction" shall have the meaning specified in the Parents Agreement.
"Transaction Documents" shall have the meaning specified in the Parents
Agreement.
"Transferred Assets" shall mean the following:
(a) Cash. Cash and cash equivalents (other than
the Cable Cash Balances).
(b) Loan Proceeds. The Loan Proceeds in an
aggregate amount equal to $1,700,000,000 (one billion, seven
hundred million dollars).
(c) Viacom Name. All rights in and to the names
"Viacom," "Viacom International" and "Viacom Cable" and
derivations thereof (subject to Section 2.9).
(d) Other Assets. The patent and other rights and
assets listed on Exhibit I.
(e) Tax Refunds. All rights of Old VII to any
refunds or credits of any Taxes (including any interest
relating thereto) with respect to taxable years or portions
thereof ending on or prior to the Exchange Date that are for
the account of New VII pursuant to Section 9.2.
18
"Unapproved Franchise Areas" shall mean Franchise Areas covered by
Unapproved Local Authorizations.
"Unapproved Franchise Assets" shall mean, with respect to all Unapproved
Franchise Areas, all Unapproved Local Authorizations and all related Real
Property and Equipment.
"Unapproved Local Authorizations" shall mean a Local Authorization (other
than Right of First Refusal Local Authorizations) as to which all Local
Authority Consents have not been obtained or do not remain in full force and
effect immediately prior to the Exchange Time.
"Untransferable Asset" shall have the meaning specified in the ▇▇▇▇ of
Sale.
"VI" shall have the meaning specified in the preamble of this Agreement.
"Viacom Pension Plan" shall have the meaning specified in Section 8.1(c).
"Viacom Plans" shall have the meaning specified in Section 8.1(b).
"VI Common Stock" shall have the meaning specified in the Parents
Agreement.
"VI Group" means VI and its subsidiaries, including any predecessor of any
such corporation.
"Working Capital" shall mean an amount equal to (a) Accounts Receivable,
Net, plus the amount of Prepaid Expenses, plus the amount of Cable Cash
Balances, plus the amount of deposits (as of the Exchange Date after giving
effect to the Conveyance of Assets) of the Company held by others to secure
performance of a Cable Liability by the Company, minus (b) the amount of
Accounts Payable, plus the amount of Other Current Liabilities.
ARTICLE II
----------
CONVEYANCE; LACK OF CONSENTS OR REGULATORY
APPROVALS; RIGHT OF FIRST REFUSAL; DISASTERS
Section 2.1 Conveyance of Assets and Assumption of Liabilities: Transfers
to New VII, Recapitalization. (a) Prior to the Exchange Time, Old VII shall (and
shall cause the Cable Division Subsidiaries to) execute and deliver to New VII
the ▇▇▇▇ of Sale (and such other documentation as Old VII and the Cable Division
Subsidiaries shall be required to execute pursuant thereto), pursuant to which
Old VII (and the Cable Division Subsidiaries) shall convey to New VII all of
19
their right, title and interest in and to all Non-Cable Assets (the "Conveyance
of Assets") and New VII shall execute and deliver the ▇▇▇▇ of Sale and thereby
assume and agree to perform when due in accordance with their terms the
Non-Cable Liabilities of Old VII and the Cable Division Subsidiaries (the
"Assumption of Liabilities").
(b) Prior to the Exchange Time, but after the occurrence of the Conveyance
of Assets and the Assumption of Liabilities, Old VII shall distribute to VI all
of the outstanding capital stock of New VII so that after such distribution New
VII will be a direct wholly-owned Subsidiary of VI.
(c) Prior to the Exchange Time, Old VII shall take all action necessary
under its certificate of incorporation and the Delaware Corporation Law to amend
and restate its certificate of incorporation so that it reads in full
substantially as set forth in Exhibit J, except that (i) the terms and
conditions of the Preferred Stock of Old VII shall be as specified by Old VII
with the consent of TCI Sub and consistent with the term sheet attached as
Exhibit K, (ii) the number of shares of Class A Common Stock and Preferred Stock
that are authorized shall in each case be a number equal to the Number of Shares
to be Exchanged and (iii) such changes as are necessary in order to ensure that
the Amended and Restated Certificate of Incorporation shall be accepted for
filing by the Secretary of State of Delaware, shall be made with the consent of
TCI Sub and New VII (such consents not to be unreasonably withheld) (the
"Amended and Restated Certificate of Incorporation").
(d) The obligations of Old VII contained in Sections 2.1(a), (b) and (c)
are subject to the fulfillment of each of the following conditions, each of
which may be waived by Old VII: (w) the conditions described in Section 6.1 of
the Parents Agreement (as if such conditions were set forth in full herein)
shall have been satisfied, (x) Old VII shall have received, to its satisfaction,
Loan Proceeds, in an aggregate principal amount at least equal to the Aggregate
Loan Amount, and such Loan Proceeds shall be available for transfer as a
contribution to New VII in the Conveyance of Assets without condition (but
without limiting VI's obligation to provide the notice required for the release
of funds from the Cash Collateral Account as specified in the definition of Cash
Collateral Account) and (y) VI shall have accepted shares of VI Common Stock for
exchange in the Exchange Offer in accordance with Section 2.1(d) of the Parents
Agreement.
(e) The parties acknowledge that the portion of the Old VII Debt that is
equal to the Loan Proceeds transferred to New VII in the Conveyance of Assets is
being assumed by New VII in consideration of the transfer to New VII of such
Loan Proceeds pursuant to the Conveyance of Assets.
Section 2.2 Lack of Consents. If the Transaction requires the consent of
another Person under any Cable Group Contract and such consent has not been
obtained prior to the Exchange Time or does not remain in full force and effect
at the Exchange Time, such failure to obtain such consent or failure of such
consent to be in full force and effect shall not itself constitute a breach of
any provision hereof. Prior to the Exchange Time, Old VII shall use its best
efforts to assign any such Cable Group Contract to New VII and New VII shall at
the Exchange Time assume all obligations of Old VII under any such assigned
Cable Group Contract with respect to periods from and after the Exchange Time.
20
New VII shall, with respect to each such Cable Group Contract, use its
reasonable commercial efforts (at the expense of New VII and at no out-of-pocket
expense to Old VII, but without New VII being required to provide any
consideration therefor) to: (i) keep each such Cable Group Contract in effect
and obtain such consent; (ii) provide to Old VII the benefits of each such Cable
Group Contract through subcontract or otherwise; (iii) cooperate in any
reasonable arrangement designed to provide such benefits to Old VII; and (iv)
enforce, at the request and sole expense of Old VII, any rights of New VII
included in the Cable Assets under or with respect to any such Cable Group
Contract against all other Persons (including termination of the foregoing in
accordance with the terms thereof upon the election of Old VII), in each case of
clauses (i)-(iv) to the extent that Old VII performs all obligations of New VII
under such Cable Group Contract. If all such consents under any such Cable Group
Contract are obtained after the Exchange Time, New VII shall promptly assign
such Cable Group Contract to Old VII and Old VII shall assume all obligations
under such Cable Group Contract with respect to periods following such
assignment, in each case without the payment of additional consideration by New
VII or Old VII.
Section 2.3 Lack of Regulatory Approvals. (a) If immediately prior to the
Exchange Time any Local Authority Consent has not been obtained or does not
remain in full force and effect immediately prior to the Exchange Time, such
failure to obtain such Local Authority Consent or such failure of such Local
Authority Consents to be in full force and effect shall not itself constitute a
breach of any provision hereof. Prior to the Exchange Time, all Unapproved Local
Authorizations and the related Unapproved Franchise Assets shall be transferred
to New VII.
(b) Old VII and New VII shall take such steps and enter into such
agreements, including management agreements (with Old VII as manager, but at no
cost to New VII), as may be reasonably necessary or appropriate so that Old VII
shall have the exclusive (as between Old VII and New VII) use and benefit of
(including, without limitation, cash flow), and burdens (including, without
limitation, payments, liabilities, Taxes, risk of loss and responsibility for
making capital expenditures) with respect to, the Unapproved Franchise Assets as
if the Unapproved Franchise Assets had not been transferred to New VII (and
remained with Old VII at and after the Exchange Time), until, with respect to
any Unapproved Local Authorization and the related Unapproved Franchise Assets,
the Deferred Closing Date or the termination of such agreements as contemplated
below in this Section 2.3. Such management agreements will provide that Old VII
will have all rights to manage and receive cash flow of the relevant Unapproved
Franchise Assets and to pledge such cash flow to the Lenders, including but not
limited to management of marketing, pricing, capital expenditures and
programming, provided that, with respect to any Unapproved Franchise Area, Old
VII will not take or omit to take any action, that could reasonably be expected
to delay the Deferred Closing Date with respect to such Unapproved Franchise
Area or make the occurrence thereof less likely, provided, however, that Old VII
shall be entitled to change subscriber rates in its sole discretion. Such
management agreements will also provide that Old VII will continue to make
capital expenditures with respect to each Unapproved Franchise Area as if all
Local Authority Consents had been obtained and such Unapproved Local
Authorizations and the related Unapproved Franchise Assets had not been
transferred to New VII as provided above. If and to the extent that New VII
receives cash flow with respect to the Unapproved Franchise Assets to which Old
21
VII is entitled pursuant to this Section 2.3(b), New VII shall be obligated to
pay to Old VII or, if requested by Old VII, to the Lenders, an amount equal to
the amount of such cash flow. The out-of-pocket costs and expenses of all such
arrangements shall be shared equally by Old VII and New VII (except that each
party shall be responsible for the fees and expenses of its own legal advisors).
(c) If following the Exchange Time, New VII is able to transfer to Old VII
(or a designee of Old VII) an Unapproved Local Authorization, New VII shall
promptly so notify Old VII (or, in the case of transfer to such a designee, Old
VII shall notify New VII) and, on the fifth Business Day after the date of such
notice (a "Deferred Closing Date"), New VII shall transfer to Old VII (or such
designee of Old VII), as the case may be, such Unapproved Local Authorization
and all related Unapproved Franchise Assets held on such Deferred Closing Date.
Old VII (or such designee of Old VII), as the case may be, shall assume, pay,
perform and discharge the liabilities and obligations arising after the Exchange
Date under or in respect of such related Unapproved Franchise Assets.
(d) With respect to any Unapproved Local Authorization, upon the earlier of
the second anniversary of the Exchange Date or the date on which a Local
Authority Consent has been denied in a final, unappealable order or ruling, if
New VII and Old VII have been unable, after good faith negotiations, to enter
into agreements providing in all material respects the economic equivalent to
Old VII of ownership of the related Unapproved Franchise Assets, then thereafter
either Old VII or New VII may, by written notice to the other, elect to
terminate all the agreements referred to in this Section 2.3 on a termination
date specified in such notice for such Unapproved Franchise Areas ("Terminated
Unapproved Franchise Areas"), which termination date may not be earlier than 90
days following the other's receipt of such notice. If New VII so requests, prior
to such termination Old VII and New VII shall enter into such agreements,
including without limitation service and management agreements for such
Terminated Unapproved Franchise Areas, on reasonable and customary commercial
terms, including reasonable and customary management fees (provided that such
service and management agreements shall be cancelable by Old VII without penalty
or other payment on not more than 180 days prior notice and shall be cancelable
by New VII without penalty or other payment on not more than thirty (30) days'
prior written notice to Old VII) as may be reasonably necessary so that New VII
shall have the use and benefit of, and burdens with respect to, and be able to
operate the related Unapproved Franchise Assets as if, from and after such
termination, the Transaction had not occurred. Upon such termination, New VII
shall pay to Old VII an amount equal to the Appraised Value at the time of such
termination of the Systems covered by such Terminated Unapproved Franchise Areas
and Old VII shall convey or cause to be conveyed to New VII for no additional
consideration all Permits, Cable Group Contracts and Intangible Assets related
to such Terminated Unapproved Franchise Areas. Notwithstanding the preceding
sentence, to the extent any Permit, Cable Group Contract or Intangible Asset is
used in the operation of Systems covered by Local Authorizations that are not
Unapproved Local Authorizations or Terminated Unapproved Local Authorizations,
Old VII shall not convey (or cause to be conveyed) such Permit, Cable Group
Contract or Intangible Asset to New VII and Old VII shall use its reasonable
commercial efforts or cause its Subsidiaries to use their reasonable efforts (at
the expense of New VII and at no out-of-pocket expense to Old VII) to: (i)
provide to New VII the benefits thereof through subcontract or otherwise; (ii)
cooperate in any reasonable arrangement to provide such benefits to New VII; and
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(iii) enforce, at the request and sole expense of New VII, any rights of the
Company included therein (to the extent they relate to such Permit, Cable Group
Contract or Intangible Asset).
Section 2.4 Right of First Refusal. If a Local Authority consummates its
exercise of a right of first refusal arising as a result of the Transaction in
respect of a Local Authorization (a "Right of First Refusal Local Authorization"
(the Franchise Areas covered by Right of First Refusal Local Authorizations
being referred to herein as "Right of First Refusal Franchise Areas")) on the
tenth Business Day after receipt by New VII of written notice from Old VII of
the consummation of the exercise by such Local Authority of its right of first
refusal with respect to such Right of First Refusal Local Authorization,
together with evidence reasonably satisfactory to New VII of the consideration
given by the Local Authority in exercising such right, New VII shall pay to Old
VII, an amount (which shall not be less than zero), if any, equal to (1) the
Appraised Value at the time of such consummation of that portion of the Systems
included in such Right of First Refusal Franchise Areas, minus (2) the Right of
First Refusal Franchise Area Consideration for such Right of First Refusal
Franchise Areas received by Old VII or any Affiliate thereof (or any transferee
or subsequent transferee thereof), less any out-of-pocket expenses (but in any
event excluding Taxes) incurred by Old VII (or such Affiliate thereof (or any
transferee or subsequent transferee thereof)) in connection with such
consummation of a right of first refusal. "Right of First Refusal Franchise Area
Consideration" shall mean, with respect to a Right of First Refusal Franchise
Area, an amount equal to the total consideration given by the Local Authority
and actually received by Old VII and any of its Affiliates (or any transferee or
subsequent transferee thereof) after the Exchange Time in connection with the
exercise of its right of first refusal.
Section 2.5 Lost Service Subscribers. (a) In the event that on or before
the Exchange Time any natural disaster has occurred that has damaged the
tangible assets of any one or more Systems sufficiently to cause more than
11,340 Basic Subscribers to be unable to receive cable television service at the
Exchange Time as a result of such damage (a "Disaster"; the aggregate number of
Exchange Date Basic Subscribers not receiving such service at the Exchange Date
as a result of such Disaster being referred to herein as "Lost Service
Subscribers"), New VII shall reimburse Old VII for Old VII's reasonable
out-of-pocket expenses (provided that such expenses shall be presumed to be
reasonable unless New VII establishes otherwise), computed on an after-Tax
basis, incurred in causing the damage caused by the Disaster to be repaired as
soon as reasonably practicable to the extent necessary to reconnect cable
television service (at a level not substantially more or less than the level of
service provided immediately prior to the Disaster) to the Lost Service
Subscribers.
(b) With respect to Lost Service Subscribers, within ten (10) Business Days
of the end of each month, New VII shall promptly reimburse Old VII for the
amount of Lost Service Subscriber Cumulative Deemed Net Cash Flow, computed on
an after-Tax basis, for each Lost Service Subscriber (but only for periods
during which such Lost Service Subscribers are not receiving, or not obligated
to pay the Basic Subscriber Rate (or a higher rate) for, cable television
service at a level not substantially less than the level of service provided
immediately prior to the Disaster) for periods prior to the date of the relevant
23
Disaster, provided that aggregate payments pursuant to this paragraph (b) for
any such Lost Service Subscriber shall not exceed the Per Subscriber Amount
applicable to such Lost Service Subscriber, plus interest at the LIBOR Rate on
the unreimbursed portion of the Per Subscriber Amount attributable to such Lost
Service Subscriber (calculated by deducting payments made by New VII from time
to time of Lost Service Subscriber Cumulative Deemed Net Cash Flow (but not
including interest) on account of such Lost Service Subscriber). Upon such
reimbursement with respect to a Lost Service Subscriber, Lost Service Subscriber
Cumulative Deemed Net Cash Flow for such Lost Service Subscriber shall be
reduced by the amount of such payment on account of Lost Service Subscriber
Cumulative Deemed Net Cash Flow (but not including interest).
Section 2.6 Release of Old VII. New VII will obtain the release of Old VII
from, or the substitution of New VII as obligor under (so that Old VII will have
no obligation under), all of Old VII's obligations to repay the Old VII Debt, or
shall cause the indenture pursuant to which such debt was issued to be amended
or supplemented so that Old VII will no longer be an obligor (so that Old VII
will have no obligation) thereunder, in each case effective concurrently with
the release of all funds from the Cash Collateral Account. New VII shall deliver
to Old VII copies of all documentation provided to the trustees under the
indentures governing Old VII's public debt in connection with its substitution
as obligor in place of Old VII thereunder, and Old VII and the Lenders shall be
entitled to rely on all legal opinions delivered to such indenture trustees in
connection with such substitution.
Section 2.7 Receipt of Consents. It is the intent of the parties that the
arrangements described in Sections 2.2 and 2.3 continue for the shortest
possible time, and to this end they agree to use reasonable commercial efforts
to obtain all consents (including Local Authority Consents) to the Transaction
referred to in said Sections as promptly as practicable following the Exchange
Time.
Section 2.8 Execution of Other Instruments. If, immediately prior to the
Exchange Time, PVIT has not transferred the PVIT Assets to Old VII or a Cable
Division Subsidiary, New VII shall cause PVIT to execute and deliver to Old VII
immediately prior to the Exchange Time the PVIT ▇▇▇▇ of Sale.
Section 2.9 Use of Viacom Name. Old VII may continue to use the names
"Viacom," "Viacom International" and "Viacom Cable" and derivations thereof on
trucks and buildings to the extent so used immediately prior to the Exchange
Time for a reasonable period after the Exchange Time, not to exceed ninety (90)
days in the case of trucks and thirty (30) days in the case of buildings;
provided, however, that Old VII will provide replacements for channel cards,
remote control stickers and other items containing any such name in the ordinary
course of business. Old VII acknowledges that following the Exchange Time, it
will have no rights in any such name (except the right of use set forth in this
Section 2.9), and Old VII agrees to use such names only in accordance with this
Section 2.9.
Section 2.10 Name Change. Prior to the Exchange Time, Old VII will change
its name to TCI Pacific Communications, Inc. (provided that such name is
available) in its state of incorporation and, to the extent practicable, in all
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states where it is qualified to do business, and New VII will change its name to
Viacom International Inc. Prior to and following the Exchange Time, the parties
will take all actions necessary to enable New VII to qualify to do business
under the name of Viacom International Inc. in those states in which it
determines to so qualify and to change the name of Old VII to TCI Pacific
Communications, Inc. (provided that such name is available) in all states where
it is qualified to do business. Old VII will from time to time and for no
additional consideration execute such instruments and consents as New VII shall
reasonably request to enable New VII to use such name. If the Exchange Time does
not occur, Old VII and New VII will reverse such name changes.
Section 2.11 Bank Accounts. Prior to the Anticipated Commencement Date, New
VII will identify each bank account of Old VII that it anticipates will be
active immediately following the Exchange Time.
Section 2.12 Intercompany Debt. At the Exchange Time, neither Old VII nor
any Cable Division Subsidiary will have any indebtedness for borrowed money to
VI and its Subsidiaries (other than to Cable Division Subsidiaries or Old VII).
Section 2.13 Consents. Each of Old VII and New VII agrees to use its
reasonable commercial efforts to obtain all consents necessary to consummate the
Conveyance of Assets and Assumption of Liabilities. New VII shall coordinate the
efforts to obtain such consents, and New VII shall be responsible for all costs,
expenses, liabilities, obligations and burdens with respect to such consents.
Section 2.14 Books and Records. After the Exchange Date, each of New VII
and Old VII shall, upon the other's reasonable request, in connection with the
preparation of tax returns, tax or accounting audits or for such other purpose
as such other party shall reasonably request, afford such other party and its
Agents who agree to be bound by the provisions of Section 2.15, access to the
books and records of it and its Affiliates (x) where the requesting party is Old
VII, to the extent such books and records relate to the operation of the
Business prior to the Exchange Date (including payment of any Taxes with respect
to the periods prior to the Exchange Date) and (y) where the requesting party is
New VII, to the extent such books and records relate to the operation of the
business of Old VII and its Subsidiaries prior to the Exchange Date.
Section 2.15 Confidentiality. Following the Exchange Time, each of Old VII
and New VII (the "Disclosing Party") shall, and shall cause its Affiliates, and
its and their respective Agents, to keep secret and retain in strictest
confidence any and all confidential information relating to the business of the
other party and its Affiliates or otherwise not available to the general public
in their possession or within their knowledge at the Exchange Time (provided
that such confidential information shall not include any information that (i)
has become generally available to the public other than as a result of a
disclosure by the Disclosing Party, its Affiliates or its Agents, (ii) has been
independently developed by the Disclosing Party or such Affiliate or Agent of
the Disclosing Party or (iii) was available to the Disclosing Party or an
Affiliate or Agent of the Disclosing Party on a nonconfidential basis from a
third party having no obligation of confidentiality to the other party or any
Affiliate of the other party and which has not itself received such information
25
directly or indirectly in breach of any such obligation of confidentiality), and
shall not disclose such confidential information, and shall cause its Affiliates
and Agents not to disclose such confidential information, to any Person, except
(x) as may be required by law or legal process (in which event the Disclosing
Party shall so notify the other party as promptly as practicable (and if
possible, prior to making such disclosure) and, if requested by the other party,
shall seek confidential treatment of such information) or (y) as counsel to such
party reasonably determines is required by the 1933 Act or the 1934 Act.
Section 2.16 Control of Litigation. Old VII shall have the sole right and
obligation to defend and direct the defense of, and to settle or compromise, any
demand, claim, litigation or proceeding arising in respect of (x) any Cable
Group Contract during the period from the Exchange Date until such Cable Group
Contract is assigned to Old VII as provided in Section 2.2 or (y) any Unapproved
Franchise Assets and Unapproved Local Authorizations, during the period from the
Exchange Date until the transfer thereof to Old VII pursuant to Section 2.3(c)
or the payment of the Appraised Value with respect thereto pursuant to Section
2.3(d). Old VII shall be responsible for all costs, expenses, obligations,
judgments and liabilities arising therefrom. New VII will cooperate with Old VII
in the exercise by Old VII of its rights under this Section 2.16.
Section 2.17 Security Interest. If the Lenders so request, New VII shall at
the request of Old VII execute such security agreements and financing statements
in form and substance reasonably satisfactory to Old VII, pursuant to which Old
VII or the Lenders shall be granted a perfected first priority lien and security
interest in all of New VII's right, title and interest in and to any Cable Group
Contract held by New VII pursuant to Section 2.2 and any Unapproved Franchise
Assets and (to the extent permitted by applicable law) Unapproved Local
Authorizations, in each case together with the proceeds thereof, securing New
VII's obligations under Sections 2.2 and 2.3 (the "Section 2.17 Secured
Obligations") and New VII shall make all filings and shall take all other
actions necessary or desirable to perfect and protect such security interest.
Such security interests in Unapproved Franchise Assets and Unapproved Local
Authorizations will terminate and be released upon the payment of the Appraised
Value with respect thereto pursuant to Section 2.3(d). Without limitation of the
foregoing, at the request of Old VII from time to time, New VII shall enter into
such other arrangements as Old VII shall reasonably request to secure
performance of the Section 2.17 Secured Obligations and to otherwise provide to
Old VII the rights and benefits to be provided to it pursuant to this Section
2.17. Old VII shall be responsible for all out-of-pocket costs incurred by New
VII in complying with New VII's obligations under this Section 2.17.
Notwithstanding any provisions of this Section 2.17 or the Transaction
Documents, New VII shall not be required to grant or maintain any lien or
security interest to or for the benefit of Old VII or the Lenders to the extent
such grant or maintenance would constitute a breach or default (including any
event that, with the passage of time or the giving of notice, or both, would
become a breach or default) under, or give rise to a right of acceleration
under, any loan agreement or indenture or other instrument governing
indebtedness to which VI or any Affiliate of VI is a party or by which VI or any
Affiliate of VI or their properties may be bound.
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ARTICLE III
ADJUSTMENTS
Section 3.1 Determination of Estimated Asset Value. Prior to the
Anticipated Commencement Date, Old VII shall determine in good faith its
estimates of the Capital Expenditure Amount (the "Estimated Capital Expenditure
Amount"), the Inventory Amount (the "Estimated Inventory Amount"), the Telecom
Amount (the "Estimated Telecom Amount"), Working Capital ("Estimated Working
Capital"), the Asset Value (the "Estimated Asset Value"), and the Fixed Amount
(the "Estimated Fixed Amount") based on information available to it at the time
it makes such estimates. The Estimated Capital Expenditure Amount, the Estimated
Inventory Amount, the Estimated Telecom Amount, Estimated Working Capital and
Estimated Fixed Amount are referred to herein as the "Estimated Adjustment
Amounts". At least forty-five (45) days prior to the Anticipated Commencement
Date of the Exchange Offer, Old VII shall deliver to New VII a statement setting
forth its preliminary estimates of the Adjustment Amounts and the Estimated
Asset Value as of the anticipated Exchange Date set forth in such statement.
Prior to the Anticipated Commencement Date, Old VII will deliver to New VII a
statement setting forth the Estimated Adjustment Amounts and the Estimated Asset
Value as of the anticipated Exchange Date (an "Estimate Statement"), which
statement shall: (i) contain the information in reasonable detail required to
calculate the Estimated Adjustment Amounts and the Estimated Asset Value; (ii)
be prepared in accordance with the requirements of this Agreement; and (iii) be
certified by an authorized officer of Old VII to be Old VII's good faith
estimate. In the event that the anticipated commencement date of the Exchange
Offer is postponed, Old VII shall if practicable and consistent with the timing
of the Exchange Offer and the provisions of Section 2.3 of the Parents
Agreement, re-estimate the Estimated Adjustment Amounts and deliver to New VII
an updated Estimate Statement. For purposes of this Agreement, the Estimated
Adjustment Amounts and the Estimated Asset Value shall be the amounts set forth
on the last Estimate Statement delivered by Old VII to New VII. Old VII shall
not be deemed to have made any representations or warranties as to the
statements delivered pursuant to this Section, except that they were prepared in
good faith. For purposes of determining "Covered Capital Expenditures" and "Line
Extension and Other Capital Expenditures", a capital expenditure shall be deemed
made at the time that a capital expenditure is recorded on the books of the
Company as such in the ordinary course in accordance with past practices and
consistent with GAAP.
Section 3.2 Calculation of Adjustment Amounts. (a) The Capital Expenditure
Amount, the Inventory Amount, Working Capital, the Telecom Amount, the Fixed
Amount and the amount of Loan Proceeds actually transferred to New VII in the
Conveyance of Assets are referred to herein collectively as the "Adjustment
Amounts."
(b) Not later than sixty (60) days after the Exchange Date, Old VII shall
deliver to New VII a statement showing Old VII's calculation of the actual
Adjustment Amounts and the Asset Value (the "Final Certificate"). Old VII shall
make available to New VII its accountants' work papers and such other
information relating to the calculation of the Adjustment Amounts and the Asset
Value as New VII shall reasonably request.
27
(c) In the event that New VII disputes Old VII's calculation of the
Adjustment Amounts and the Asset Value, New VII shall give written notice
thereof to Old VII within 30 days after the Final Certificate was delivered to
New VII which notice shall set forth the basis for such dispute in reasonable
detail (the "Dispute Notice"). The parties shall use all reasonable efforts to
resolve any such dispute, but if any such dispute cannot be resolved by the
parties within thirty (30) days after the date the Dispute Notice is given, all
unresolved disputes shall be referred to an Arbitrating Firm for resolution. The
parties shall seek to cause the Arbitrating Firm to make its determination
within sixty (60) days after referral of a dispute to it. The determination of
the Arbitrating Firm shall be conclusive and binding on each party. The fees of
the Arbitrating Firm shall be allocated and paid by New VII or Old VII, or
divided between them, on a basis determined by the Arbitrating Firm to be fair
taking into account the correctness of the positions asserted by each of them
with respect to the disputed matters resolved by the Arbitrating Firm.
(d) The Adjustment Amounts shall be the amounts set forth in the Final
Certificate unless a Dispute Notice is given with respect to the calculation
thereof, in which case only those Adjustment Amounts not in dispute shall be as
set forth in the Final Certificate. If a Dispute Notice is given, any Adjustment
Amount in dispute shall be deemed finally determined on the date that the
Arbitrating Firm gives written notice to Old VII and New VII of its
determination with respect to all disputes regarding the calculation thereof,
or, if earlier, the date on which New VII and Old VII agree in writing on the
amounts thereof, in which case any Adjustment Amount in dispute shall be
calculated in accordance with such determination or agreement.
Section 3.3 Adjustment Payment. If the Net Asset Value as finally
determined in accordance with Section 3.2 is greater than the amount of the
Estimated Net Asset Value, Old VII shall pay to New VII on the third Business
Day after such determination an amount in cash equal to such excess, plus an
amount equal to interest thereon from the Exchange Date to the date of payment
at the Prime Rate, compounded quarterly. If the Net Asset Value as finally
determined is less than the Estimated Net Asset Value, New VII shall pay to Old
VII on the third Business Day after such determination an amount in cash equal
to such deficiency plus an amount equal to interest thereon from the Exchange
Date to the date of payment at the Prime Rate, compounded quarterly. Payments of
cash pursuant to this Section 3.3 shall be made by wire transfer of immediately
available funds to an account in the United States designated by the party
entitled to payment to the party required to make the payment at least two (2)
Business Days prior to the date such payment is due.
Section 3.4 Fixed Amount. In the event that on the Exchange Date there are
less than 1,122,660 Basic Subscribers (the shortfall of Basic Subscribers below
1,122,660 is referred to herein as the "Shortfall Number"), for this purpose,
calculated without giving effect to the loss, if any, of Basic Subscribers as a
result of a Disaster (defined for these purposes without regard to the number of
Basic Subscribers affected), the Fixed Amount shall be reduced by an amount
equal to the product of (x) the Shortfall Number, multiplied by $1,763.67.
28
Section 3.5 Proration. Property taxes and assessments, payroll taxes,
utility charges, association dues, rents, pole rentals, applicable franchise,
copyright or other fees, sales and service charges and wages of Employees of the
Company who are Continuing Employees, and other operating income and expenses of
the Company shall be prorated as of 11:59 p.m. on the Exchange Date, with New
VII being responsible for periods prior to such time and Old VII being
responsible for periods from and after such time, but only to the extent such
items were not taken into account in calculating Working Capital. For purposes
of the foregoing, any settlement with BMI or ASCAP for payment of copyright or
royalty fees with respect to music performance rights in connection with the
Systems, to the extent relating to the period ended on or prior to the Exchange
Date, shall be reimbursed to Old VII by New VII on an after-Tax basis whether
such settlement is entered into before or after the Exchange Date and whether
such payments are paid or payable before or after the Exchange Date, but only to
the extent such items were not taken into account in calculating Working
Capital, provided that New VII shall have no responsibility for any settlement
after the Share Purchase Closing that is not consistent with settlement terms
reached by the cable television industry generally unless such settlement is
approved in advance by New VII, such approval not to be unreasonably withheld.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEW VII
New VII represents and warrants to Old VII (which representations and
warranties may be relied upon by Old VII regardless of any knowledge Old VII may
have as to such matters) that:
Section 4.1 Corporate Existence and Power. Each of Old VII, New VII and the
Cable Division Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, (ii) is authorized to transact business and is in good standing in
each state in which its ownership of assets or conduct of business requires such
qualification, and (iii) has all corporate powers required to carry on its
business as conducted on the date hereof, with such exceptions to clauses (i),
(ii) and (iii) as would not have a Material Adverse Effect or materially and
adversely affect the ability of the Company to consummate the Transaction.
Section 4.2 Corporate Authorization. Each of Old VII, New VII and the Cable
Division Subsidiaries has the corporate power to own its assets and to operate
the Systems operated by it. Old VII and New VII each have the corporate power to
enter into this Agreement and to consummate the Transactions contemplated to be
consummated by each of them. The execution and delivery by each of Old VII and
New VII of this Agreement and the consummation by each of them of the
Transactions contemplated to be consummated by each of them hereunder have been
duly authorized by all necessary corporate action on each of their parts.
Section 4.3 Capitalization; Subsidiaries; Certificates of Incorporation and
By-Laws. (a) As of the date hereof, the authorized capital stock of Old VII
29
consists of 100 shares of Common Stock, par value $0.10, of which 100 shares are
issued and outstanding. Immediately prior to the Exchange Time and the Share
Purchase Closing, the authorized capital stock of Old VII will consist of a
number of shares of Class A Common Stock equal to the Number of Shares to be
Exchanged, of which a number equal to the Number of Shares to be Exchanged shall
be issued and outstanding (and shall be owned of record (x) by VI immediately
prior to the Exchange Time and (y) by Persons who have exchanged shares of VI
Common Stock for such shares in the Exchange Offer (and their transferees and
further transferees) immediately prior to the Share Purchase Closing), 100
shares of Class B Common Stock, none of which will be issued and outstanding,
and a number of shares of Preferred Stock equal to the Number of Shares to be
Exchanged, none of which will be issued and outstanding. Except for the Exchange
Offer and any arrangement concerning the issuance by Old VII to VI of shares of
Class A Common Stock to be exchanged in the Exchange Offer as contemplated by
the Transaction Documents, there is no outstanding option, warrant, right
(including conversion or preemptive rights or rights of first refusal), call,
subscription or other agreement pending for the issuance of, or the granting of
rights to acquire from Old VII or VI, any capital stock of Old VII or securities
convertible into or exercisable for capital stock of Old VII.
(b) Exhibit D sets forth a true and correct list of the Cable Division
Subsidiaries as of the date of this Agreement. Old VII has good and, subject to
Permitted Liens, marketable title to all of the outstanding shares of capital
stock of Tele-Vue and Tele-Vue (either directly or through another Cable
Division Subsidiary) has good and, subject to Permitted Liens, marketable title
to all of the outstanding shares of capital stock of each Cable Division
Subsidiary (other than Tele-Vue), free and clear of all Liens. There is no
outstanding option, warrant, right, call, subscription or other agreement
providing for the issuance of, or the granting of rights to acquire from any
Cable Division Subsidiary, any capital stock of any Cable Division Subsidiary or
securities convertible into or exercisable for capital stock of any Cable
Division Subsidiary.
(c) At the Exchange Time, all issued and outstanding shares of Class A
Common Stock shall have been issued in accordance with the registration or
qualification provisions of the 1933 Act and any relevant state securities laws,
or pursuant to valid exemptions therefrom.
Section 4.4 Governmental Authorization. The execution and delivery of this
Agreement by Old VII and New VII, and the performance by Old VII and New VII of
this Agreement, and the consummation by Old VII and New VII of the Transactions
contemplated to be consummated by it pursuant hereto, require no material action
by or in respect of, or material filing with, any Governmental Authority other
than (x) compliance with any applicable requirements of the HSR Act, the FCC
Authorizations, the Non-Cable FCC Authorizations and the Local Authorizations
and (y) those that may be applicable as a result of the regulatory status of
TCI, TCI Sub or their Affiliates.
Section 4.5 Consents. Except as set out in Schedule 4.14, no material
consent by any Person under any Material Contract is required or necessary for
the execution and delivery of this Agreement by Old VII, or the performance by
30
Old VII of this Agreement, or the consummation of the Transactions contemplated
to be consummated by it pursuant hereto. Except as indicated in Schedules 4.5,
4.9, 4.14 and 4.16, no consent by any Person (other than a Governmental
Authority) is required or necessary for the execution and delivery of this
Agreement by Old VII or New VII, or the performance by Old VII or New VII of
this Agreement, or the consummation by Old VII or New VII of the Transaction,
with such exceptions as would not have a Material Adverse Effect.
Section 4.6 Non-Contravention. (a) The execution, delivery and performance
of this Agreement by Old VII and New VII, and the consummation by Old VII and
New VII of the Transactions contemplated to be consummated by each of them
pursuant hereto, do not or on or before the Exchange Date will not, (x)
contravene the certificate of incorporation or bylaws of Old VII or New VII or
(y) subject to obtaining the consents described in Schedules 4.5, 4.9, 4.14 and
4.16 and subject to obtaining, taking or making the actions and filings
described in clauses (x) and (y) of Section 4.4, result in the imposition of any
Lien (other than a Permitted Lien) upon any assets of the Company pursuant to,
or constitute a breach or default (including any event that, with the passage of
time or giving of notice, or both, would become a breach or default) under or
give rise to a right of termination, cancellation, first refusal or acceleration
(other than, a Right of First Refusal) under any applicable Legal Requirement or
any judgment, injunction, order, decree, contract, license, lease, indenture,
mortgage, loan agreement, note or other agreement or instrument as to which the
Company is a party or by which any of its properties may be bound, the effect of
which would be to materially impair the ability of Old VII to perform its
obligations under this Agreement.
(b) The Company is not in breach or default (including any event that, with
the passage of time or giving of notice, or both, would become a breach or
default) under any Material Contract or contract by which any of its assets may
be bound, the effect of which would be to impair the ability of the Company in
any material respect to operate any System as presently operated.
Section 4.7 Binding Effect. This Agreement has been duly executed and
delivered by Old VII and New VII, and this Agreement constitutes a valid and
binding obligation of Old VII and New VII, enforceable against Old VII and New
VII in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by the principles governing the
availability of equitable remedies.
Section 4.8 Financial Statements; Undisclosed Liabilities. (a) The
unaudited consolidated balance sheets of the Company at December 31, 1994 and
March 31, 1995 and the unaudited consolidated income statements of the Company
for the year ended December 31, 1994 and the three-month period ended March 31,
1995 set forth on Schedule 4.8 hereto (the "Financial Statements"), fairly
present in all material respects in conformity with GAAP, the financial position
of the Company as of the dates thereof and the results of operations of the
Company for the periods then ended, except that such Financial Statements omit
footnotes (and the disclosure contained therein) and are subject to normal,
quarter-end and/or year-end adjustments, and the financial information set forth
31
in such unaudited consolidated balance sheet at December 31, 1994 and such
unaudited consolidated income statement for the year ended December 31, 1994 was
incorporated in the audited consolidated financial statements of Viacom Inc. at
and for the year ended December 31, 1994.
(b) Except for obligations and liabilities (w) set forth on the unaudited
consolidated balance sheet of the Company at March 31, 1995, (x) arising in the
ordinary course of the Business since March 31, 1995, (y) described on Schedule
4.8 or (z) for which New VII must indemnify Old VII pursuant to Section 7.2(b),
the Company has no obligations or liabilities of any kind, absolute or
contingent, that would be required under GAAP to be reflected on the
consolidated balance sheet of the Company.
Section 4.9 Systems; Local Authorizations and FCC Authorizations. (a) (i)
Schedule 4.9 sets forth a complete list for each System of the Local
Authorizations (other than any such authorization, approval, certification,
franchise, license or permit which is not material to the ownership or operation
of a System) in effect as of the date hereof and indicates for each System those
Local Authorizations requiring the consent of the Local Authority for
consummation of the Transaction.
(ii) Each Local Authorization (x) is in all material respects validly held
by Old VII or a Cable Division Subsidiary in accordance with and as required by
the terms thereof and according to all applicable Legal Requirements and (y) is
in all material respects in full force and effect and has not been revoked or
canceled and Old VII or the applicable Cable Division Subsidiary is in material
compliance therewith. To the knowledge of New VII and except as set forth on
Schedule 4.9, no proceeding to revoke, cancel or modify in any manner any such
Local Authorization has been initiated or threatened in writing. All 626 Letters
for the Systems required to be filed in connection with renewal of Local
Authorizations have been timely filed.
(iii) Except as otherwise indicated on Schedule 4.9, (aa) Schedule 4.9 sets
forth a list, for each Franchise Area, of the date (or, if applicable, the range
of possible expiration dates) of expiration of each material Local Authorization
with respect thereto; (bb) no other material Local Authorization is required by
law in connection with the operation and maintenance of the Systems; and (cc) to
the knowledge of New VII, (x) there are no operating cable television systems
(other than the Systems) providing cable television programming to a material
number of households in the Franchise Area and (y) no entity has been awarded a
valid cable television franchise which enables such entity to provide cable
television service to a material number of households in the Franchise Area.
(b) Schedule 4.9 contains a complete list as of the Company's accounting
cutoff date ending immediately prior to May 31, 1995 (except that clause (ii) is
reported as of March 31, 1995), with respect to each System, of (i) the number
of Basic Subscribers as shown on the System's monthly subscriber report, (ii)
the number of pay customers by each pay service as shown in the Company's
records, (iii) the approximate length of installed plant, and (iv) the
approximate number of Homes Passed.
(c) Schedule 4.9 contains a complete list of all FCC Authorizations in
effect as of the date hereof and all consents of the FCC necessary in connection
with the Transaction.
32
(d) (i) No System is in material violation of and the Company has not
received written notice of any claimed violation of, any FCC Authorization; (ii)
Each such FCC Authorization is validly existing and in full force and effect in
all material respects; and (iii) Each System has all material FCC Authorizations
required for its operation of the Systems. To the knowledge of New VII, no
proceeding to revoke, cancel or modify in any manner any such FCC Authorization
has been initiated or threatened in writing and the applicable member of the
Company is in material compliance with all such FCC Authorizations.
(e) Schedule 4.9 sets forth the Basic Subscriber Rate for each Franchise
Area as of the date indicated therein.
Section 4.10 Absence of Changes. Except as described in Schedule 4.10 or as
contemplated or permitted by the Transaction Documents, since the Balance Sheet
Date, (i) the Company has operated the Business in the ordinary course,
consistent with past practices, (ii) there have been no changes in the Business
which, individually or in the aggregate, have resulted in a Material Adverse
Effect and (iii) there has been no issuance or sale of any shares of Old VII's
capital stock.
Section 4.11 Subsidiaries. At the date of this Agreement, Old VII is a
wholly-owned Subsidiary of VI.
Section 4.12 Assets. The Company has good and, subject to the matters
referred to in item 4 of Schedule 4.19 and Permitted Liens, marketable title to,
or a valid leasehold or license interest in, all tangible assets purported to be
owned, leased or licensed by the Company, including, without limitation, all
Inventory, Real Property and Equipment but excluding the Transferred Assets and
the PVIT Assets (the "Cable Division Assets"), free and clear of all Liens other
than Permitted Liens. The PVIT ▇▇▇▇ of Sale is sufficient to transfer to Old VII
good and, subject to Permitted Liens, marketable title to the PVIT Assets. The
Cable Division Assets, the Transferred Assets and the PVIT Assets are in all
material respects sufficient to operate the Business as currently conducted.
Except for the Transferred Assets and the PVIT Assets, the Cable Division Assets
constitute all material operating assets owned, leased or licensed by VI or any
of its Subsidiaries and used primarily in the Cable Television Business of VI
and its Subsidiaries. Any asset owned by VI or any Subsidiary of VI which is
primarily used in the Business but is not held by the Company on the date of
this Agreement will be transferred to the Company on or before the Exchange
Time.
Section 4.13 Intellectual Property. To the knowledge of New VII, the
conduct of the Business does not infringe upon the patents, trademarks, trade
names or other intellectual property rights of any Person, with such exceptions
as would not result in a Material Adverse Effect.
Section 4.14 Material Contracts. (a) Schedule 4.14 lists all Material
Contracts in effect on the date hereof.
(b) Except as disclosed in Schedule 4.14, the Company is not in material
default or breach of any Material Contract and, to the knowledge of New VII, (i)
33
there exists no state of facts which after notice or lapse of time or both would
constitute such a material default or breach and (ii) no other party to such
Material Contract is in default or breach thereunder.
(c) Except as set forth on Schedule 4.14, the real property and personal
property which are the subject of leases that constitute Cable Group Contracts
are currently used in the construction, operation or maintenance of the Business
or constitute Telecom Agreements.
Section 4.15 Litigation. Except as set out in Schedule 4.15, there are no
actions, suits or proceedings pending and, to the knowledge of New VII, there
are no claims, grievances, governmental investigations, actions, suits or
proceedings threatened, against or affecting the Company with respect to the
Business at law or in equity or before or by any Governmental Authority, or
before or by an arbitrator or arbitration board which would have a Material
Adverse Effect. Except as set out in Schedule 4.15, there are no judgments,
decrees or orders outstanding against the Company with respect to the Business
or any System.
Section 4.16 Compliance with Legal Requirements. Except as set forth on
Schedule 4.16, (i) the Company is in compliance with all applicable Legal
Requirements and (ii) the Business is being conducted in compliance with all
applicable Legal Requirements, with such exceptions to clauses (i) and (ii) as
would not have a Material Adverse Effect.
Section 4.17 Employees. (a) Employment Agreements. Schedule 4.17 contains a
list of all written employment agreements between the Company and Employees. The
consummation of the Transaction will not result in Old VII or any Affiliate of
Old VII becoming obligated to make any severance payments, to accrue any
severance costs with respect to or to pay any stay-on bonuses to any Continuing
Employee or Non-Continuing Employee. Except as set forth in Schedule 4.17,
neither Old VII nor any Cable Division Subsidiary has made any commitment or
representation to any Continuing Employee with respect to continuing employment
nor will it make any such representation.
(b) Collective Agreements. Except as set out in Schedule 4.17, neither the
Company nor any Affiliate of the Company is a party to any material labor or
employment dispute or is bound by or a party to any collective bargaining
agreement relating to Employees and no trade union, council of trade unions,
employee bargaining agent or affiliated bargaining agent for any of the
Employees (i) holds bargaining rights with respect to any Employees by way of
certification, interim certification, voluntary recognition, designation or
successor rights; or (ii) has, to the knowledge of New VII, applied or indicated
an intention to apply to be certified as the bargaining agent of any of the
Employees.
(c) Employee Benefit Plans/ERISA. (i) Schedule 4.17 lists each stock
option, stock purchase, disability, vacation pay, incentive, bonus, severance
pay, deferred compensation, supplemental income or other employee benefit plan,
policy or arrangement or agreement and each other "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), maintained by or contributed to by VI, the Company
or any ERISA Affiliate of the Company, including all amendments thereto
(collectively referred to as "Benefit Plans"), covering current or former
employees of the Company or dependents or survivors of employees or former
employees of the Company.
34
(ii) Except as set forth on Schedule 4.17, each Benefit Plan is in
substantial compliance with all applicable laws and regulatory requirements, and
has been administered substantially in accordance with its terms. To the
knowledge of New VII, there are no circumstances relating to any Benefit Plan
intended to be tax-qualified under Section 401(a) of the Code that would likely
be treated by the IRS as a disqualifying event. No material liabilities, other
than for payment of benefits in the ordinary course, have been incurred nor, to
the knowledge of New VII, do any facts exist which are reasonably likely to
result in any material liability (whether or not asserted as of the date hereof)
of the Company arising by virtue of any event, act or omission occurring prior
to the Exchange Date with respect to any Benefit Plan. To the knowledge of New
VII, no liens under Code Section 412(n) or ERISA Section 4068(a) exists, no
accumulated funding deficiency under Code Section 412(a) exists and no
liabilities under ERISA Section 4069(a) or Section 4201(a) have been incurred
with respect to any employee benefit plan (within the meaning of Section 3(3) of
ERISA) of the Company or any member of an ERISA affiliated group (as defined
under Section 414(b), (c) and (m) of the Code) which would have a Material
Adverse Effect, nor do any facts exist which are reasonably likely to result in
the assertion of such liens or liabilities.
(iii) None of VI, Old VII, New VII or any ERISA Affiliate thereof has any
present or future obligation to make any payment to or with respect to any
present or former employee of the Company pursuant to any retiree medical
benefit plan or other retiree welfare benefit plan (in each case except as
required by law), and no condition exists that would prevent the Company from
amending or terminating any Benefit Plan providing retiree welfare benefits to
employees of the Company.
(d) Immigration. The Company has in all material respects properly verified
the identity and authorization to work in the United States and has completed
and retained INS forms I-9 for all Continuing Employees where required by the
Immigration Reform and Control Act of 1986 and related statutes.
Section 4.18 Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Old VII, any Cable Division Subsidiary or any of their Affiliates who
might be entitled to any fee or commission from Old VII or any of its Affiliates
in connection with the execution, delivery or performance of this Agreement or
the Transactions.
Section 4.19 Real Property. (a) Schedule 4.19 lists the address of each
parcel of Owned Real Property.
(b) Except as set forth in Schedule 4.19, all Owned Real Property is used
or useful in the Business.
(c) The Company has possession and the right to occupy the real property
which is the subject of each lease of Leased Real Property that constitutes a
Material Contract.
(d) The Company has not received written notice from any party to any
instrument affecting any material parcel of Real Property that such party
35
intends to terminate or cancel the same, with such exceptions as would not be
reasonably expected to have a Material Adverse Effect.
Section 4.20 Environmental Matters. There is no past or present event,
condition or circumstance (i) which constitutes a material violation by the
Company of any Legal Requirements now in effect relating to pollution or
protection of the environment from contamination (other than violations as to
which Old VII will be indemnified by New VII pursuant to Section 7.2(b)),
including any material Legal Requirements relating to the use, treatment,
storage, disposal, transport or handling of, or the spill, deposit, emission,
discharge, migration, release or threatened release of, contaminants,
substances, wastes or pollutants, including petroleum and "hazardous substances"
as that term is defined under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA") (collectively, "Hazardous
Materials"), into the environment or (ii) which has or will give rise to any
material liability of the Company (other than liabilities as to which Old VII
will be indemnified by New VII pursuant to Section 7.2(b)), including any
material liability under CERCLA or other similar state law, based on, arising
out of or related to the use, treatment, storage, disposal, transport of, or
handling or the spill, deposit, emission, discharge, migration, release or
threatened release of, any Hazardous Material into the environment; provided
that the representations in this Section 4.20, insofar as they apply to the
underground storage tanks listed on Schedule 4.20, shall apply without any
limitation as to materiality. Attached hereto as Schedule 4.20 is a true and
correct list of all underground storage tanks located on the Real Property.
Section 4.21 FCC and Copyright. (a) The Company is in compliance with the
Rules and Regulations concerning Cumulative Leakage Index, as defined by the
Rules and Regulations.
(b) The Company has made all material submissions (including, without
limitation, registration statements) required under the Communications Act
applicable to the conduct and operation of the Business and the Systems. The
Company and the Systems are in compliance in all material respects with the
Communications Act. The Company has provided all material notices to subscribers
and maintained in all material respects all public files required under the
Communications Act. Except as set forth in Schedule 4.21, the Company is
certified as in compliance with the FCC's equal employment opportunity rules to
the extent required to be so certified under such rules. Each System is in
material compliance with all "must carry" requirements and has received all
retransmission consents, except such as are being contested.
(c) The Company has deposited with the United States Copyright Office all
statements of account and other documents and instruments, and paid all
royalties, supplemental royalties, fees and other sums to the United States
Copyright Office required under the Copyright Act with respect to the business
and operations of each System as are sufficient to obtain, hold and maintain the
compulsory copyright license for cable television systems prescribed in section
111 of the Copyright Act.
36
(d) The Company and each System are in compliance in all material respects
with the Copyright Act, except as to potential copyright liability arising from
the performance, exhibition or carriage of any music on each System. The Company
and each System are entitled to hold and do now hold the compulsory copyright
license described in section 111 of the Copyright Act.
Section 4.22 Covenants not to Compete. Except as set forth on Schedule
4.22, the Company is not bound by covenants not to compete which will apply to
the Company after the Effective Time. Schedule 4.22 lists all material covenants
not to compete which will be enforceable by the Company after the Exchange Time.
Section 4.23 Telecom Capital Expenditures. As of June 30, 1995, the portion
of Telecom Capital Expenditure Amount expended prior thereto did not exceed
$11,500,000.
Section 4.24 Accounts Receivable, Net. The Company's allowance for customer
doubtful accounts as of the Exchange Time will be in an amount not less than the
total of all disconnected subscriber account balances, all amounts billed to
subscribers for unrecovered converters and all accounts receivable aged over 120
days from the invoice or billing date, determined on a basis consistent with the
Financial Statements.
Section 4.25 Number of Basic Subscribers. At the date of this Agreement,
there are, and as of February 23, 1995, there were at least 1,134,000 Basic
Subscribers (for this purpose, calculated without giving effect to the loss, if
any, of Basic Subscribers as a result of a Disaster (defined for these purposes
without regard to the number of Basic Subscribers affected)).
Section 4.26 Adjustment Amounts. As of June 30, 1995, Covered Capital
Expenditures were $38,709,000, Covered Line Extension and Other Capital
Expenditures were $9,091,000, capital expenditures made for which TCI Sub would
be required to reimburse Old VII pursuant to Section 7.18 of the Subscription
Agreement were $368,000, and access/exclusivity fees incurred in accordance with
Exhibit E were $320,188.
Section 4.27 Ranking of Payment Obligations. On the Exchange Date, New
VII's obligations to make payments to Old VII pursuant to Sections 2.3, 2.4,
2.5(b), 7.2, 9.1 and 9.2 shall rank no lower than pari passu in right of payment
with New VII's obligations to repay its senior unsecured bank debt.
ARTICLE V
---------
NONCOMPETITION
Section 5.1 Noncompetition. If the Share Purchase Closing occurs, so long
as Old VII, TCI, TCI Sub or any Person to whom the Company initially transfers
the Nashville System or Dayton System following the Share Purchase Closing in
accordance with Section 7.19 of the Subscription Agreement (a "Specified Party")
37
owns and operates a cable television system in a Franchise Area (determined as
of the Exchange Date but not including any Unapproved Franchise Area unless and
until the Deferred Closing Date, if any, with respect to such Unapproved
Franchise Area), New VII agrees that, with respect to each such Franchise Area,
from and after the Share Purchase Closing until the earlier of (i) the third
anniversary of the Exchange Date or (ii) the date such Specified Party no longer
owns and operates such Franchise Area, New VII shall not, and New VII shall not
permit any of its Subsidiaries or any Subsidiaries of VI to, (x) directly engage
in Cable Television Business in such Franchise Area or (y) indirectly engage in
Cable Television Business in such Franchise Area through ownership of an equity
interest in any Disqualified Person. For purposes of the preceding sentence (i)
New VII and Subsidiaries of VI shall not be deemed to be engaged in Cable
Television Business as a result of the ownership of 10% or less of the equity
interests of any Person and (ii) no Person shall be deemed to be a Disqualified
Person until the first anniversary of the later of (a) the date New VII and
Subsidiaries of VI own in excess of 10% of the equity interests of such Person
and (b) the date such Person becomes a Disqualified Person. The "Territory"
shall consist, at any time, of all Franchise Areas (determined as of the
Exchange Date) in which a Specified Party owns and operates a cable television
system at such time, provided that any Unapproved Franchise Area shall not in
any event be deemed to be part of the Territory unless and until the Deferred
Closing Date, if any, with respect to such Unapproved Franchise Area. A
"Disqualified Person" shall mean a Person, (i) 25% or more of whose revenues are
derived from Cable Television Business within the Territory or (ii) whose Cable
Television Business has active plant passing 100,000 or more of the homes in the
Franchise Areas in the Territory, taken as a whole.
ARTICLE VI
----------
TERMINATION
Section 6.1 Termination. This Agreement shall automatically terminate upon
any termination of the Parents Agreement pursuant to Section 7.1 thereof.
Section 6.2 Effect of Termination. Upon termination of this Agreement
pursuant to Section 6.1 hereof: (i) this Agreement will forthwith become null
and void, (ii) such termination will be the sole remedy with respect to any
breach of any representation, warranty, covenant or agreement contained in or
made pursuant to this Agreement and (iii) no party hereto or any of their
respective officers, directors, employees, agents, consultants, shareholders or
principals will have any liability or obligation hereunder or with respect
hereto, provided, however, that no party to this Agreement shall be entitled to
recover consequential damages in respect to any breach of this Agreement or any
other Transaction Document.
38
ARTICLE VII
-----------
SURVIVAL AND INDEMNIFICATION
Section 7.1 Survival. The representations, warranties, covenants and
agreements contained in or made pursuant to this Agreement shall survive the
Exchange Time, but the representations and warranties contained or made pursuant
to this Agreement shall terminate and be of no further force on and as of April
30, 1997 except that the representations and warranties made by New VII in
Sections 4.3, 4.12, 4.17(c), 4.20 and 4.22 shall survive indefinitely.
Section 7.2 Indemnification. (a) The party seeking indemnification pursuant
to this Section 7.2 is referred to as the "Indemnified Party" and the party from
whom indemnification is sought under this Section 7.2 is referred to as the
"Indemnifying Party."
(b) If the Exchange Time occurs, notwithstanding any negligence or
misconduct on the part of Old VII prior to the Exchange Time, New VII shall
indemnify and hold harmless Old VII against and in respect of any and all Losses
(w) constituting or arising out of any Lien attaching after the Exchange Date on
(i) any Unapproved Franchise Assets prior to the date the Appraised Value with
respect thereto is paid to Old VII pursuant to Section 2.3(d), or (ii) any Cable
Group Contract assigned to New VII pursuant to Section 2.2, in each case of
clauses (i) and (ii) while title to such Unapproved Franchise Asset or Cable
Group Contract is held by New VII (other than Liens constituting, securing or
arising out of Cable Liabilities or arising as a result of actions of Old VII or
its Affiliates after the Exchange Date), (x) which may be incurred by Old VII by
reason of (i) the breach of any representation and warranty of New VII contained
in Article IV of this Agreement as if such representations and warranties were
made as of the Exchange Date (except to the extent a different date is specified
therein in which case such representation and warranty shall be deemed to be
made as of such date), or (ii) the breach of any covenant or agreement of New
VII contained in this Agreement (other than in Article IX) or the ▇▇▇▇ of Sale,
or (iii) the breach at or prior to the Exchange Date of any covenant or
agreement of Old VII contained in this Agreement (other than in Article IX) or
(y) constituting Non-Cable Liabilities.
(c) If the Exchange Time occurs, Old VII shall indemnify and hold harmless
New VII against any and all Losses (w) constituting or arising out of any Lien
attaching after the Exchange Date on any Non-Cable Asset while it is an
Untransferable Asset (other than Liens constituting, securing or arising out of
Non-Cable Liabilities or arising as a result of actions of New VII or its
Affiliates after the Exchange Date), (x) which may be incurred by New VII by
reason of a breach after the Exchange Date of a covenant or agreement of Old VII
contained in this Agreement (other than in Article IX) or the ▇▇▇▇ of Sale, (y)
constituting Cable Liabilities or (z) constituting Accounts Payable, Other
Current Liabilities or New Borrowing Obligations.
(d) Notwithstanding anything to the contrary in this Agreement (i) the
aggregate liability of an Indemnifying Party pursuant to this Article VII in
respect of all Losses (together with any liability of such Indemnifying Party
and its Affiliates for breaches of other Transaction Documents, other than
Section 3.1(d)(ii) of the Subscription Agreement and Sections 2.1(f) and 2.1(g)
of the Parents Agreement) shall not exceed the Asset Value (provided that this
39
clause (i) shall not limit the liability of New VII pursuant to Sections
7.2(b)(y), and (ii) no party shall be entitled to recover consequential damages
pursuant to this Section 7.2 or otherwise in respect of any breach of this
Agreement or any other Transaction Document.
(e) No claim for indemnification shall be made by any party pursuant to
Section 7.2(b) or 7.2(c) with respect to a breach of a representation or
warranty contained herein or made pursuant hereto or contained in the
Subscription Agreement and constituting a Non-Cable Liability (i) unless notice
of such claim (describing the basic facts or events, the existence or occurrence
of which constitute or have resulted in the alleged breach of a representation
or warranty made in this Agreement) has been given to the Indemnifying Party
during the survival period set forth in Section 11.14 of the Subscription
Agreement or Section 7.1, as the case may be; and (ii) except as to liability
for breach of a representation or warranty set forth in Sections 6.7 and 6.8 of
the Subscription Agreement and Sections 4.3, 4.12, 4.17(c), 4.18 ,4.20, 4.22,
4.25 and 4.26 only, until the Losses that would be recoverable under such claims
aggregate in excess of 1/2 of 1% of the Asset Value, after which event the
Indemnified Party shall be entitled to be indemnified for only such Losses as
are in excess of 1/2 of 1% of the Asset Value.
(f) The Indemnified Party shall give prompt written notice to the
Indemnifying Party of any claim for indemnification under Section 7.2(b) or (c)
relating to a claim or demand of a third party with respect to which it is
seeking indemnification hereunder. The failure to give such prompt notice shall
not relieve the Indemnifying Party of its indemnity obligations hereunder with
respect thereto, except to the extent (and only to the extent) that the
Indemnifying Party is materially prejudiced by such failure. The Indemnifying
Party shall have the right to defend and to direct the defense against any such
claim or demand, in its name or in the name of the Indemnified Party, as the
case may be, at the expense of the Indemnifying Party, and with the counsel
selected by the Indemnifying Party, provided that (x) the Indemnifying Party may
not settle or compromise any such claim or demand without the consent of the
Indemnified Party (which consent may not be unreasonably withheld) if injunctive
or other equitable relief would be imposed against the Indemnified Party as a
result thereof and (y) if the Indemnifying Party fails to defend against any
claim or demand as to which the Indemnifying Party is required to indemnify the
Indemnified Party pursuant to this Article VII, the Indemnified Party may defend
against such claim or demand at the expense of the Indemnifying Party.
Notwithstanding anything in this Agreement, to the contrary, the Indemnified
Party shall cooperate with the Indemnifying Party, and keep the Indemnifying
Party fully informed in the defense of such claim or demand. The Indemnified
Party shall have the right to participate in the defense of any claim or demand
with counsel employed by it at the expense of the Indemnified Party. The
Indemnifying Party shall have no indemnification obligations with respect to any
such claim or demand which shall be settled by the Indemnified Party without the
prior written consent of the Indemnifying Party.
(g) If the Exchange Time occurs, the rights of the parties under Sections
7.2 and 10.13 shall be the exclusive remedies of the parties with respect to
breaches of representations, warranties, covenants and agreements contained in
this Agreement (other than in Article IX hereof). Old VII, on behalf of itself
and its Affiliates from time to time, hereby irrevocably waives and releases New
40
VII and its Affiliates, effective as of and immediately after the Exchange Time,
from any statutory or other right of contribution or indemnity (except as set
forth in this Section 7.2 or in Article IX) with respect to the Company's
ownership of the Cable Assets or operation of, or otherwise relating to, the
Systems.
(h) In the event that an Indemnifying Party shall be obligated to indemnify
an Indemnified Party pursuant to Section 7.2(b) or (c), the Indemnifying Party
shall, upon payment of such indemnity, be subrogated to all rights of the
Indemnified Party with respect to claims to which such indemnification relates.
(i) Any payment made by Old VII to New VII pursuant to Sections 3.3, 3.5 or
7.2 hereof or pursuant to Article IX shall be treated as an increase in the
assets contributed by Old VII to New VII pursuant to Section 2.1. Any payment by
New VII to Old VII pursuant to Sections 2.5, 3.3, 3.4, 3.5 or 7.2 hereof or
pursuant to Article IX shall be treated as a reduction in the assets contributed
by Old VII to New VII pursuant to Section 2.1.
(j) New VII shall not consummate any transaction in which all or a majority
in value (as determined in good faith by the management of New VII) of its
assets are distributed without fair consideration to its direct or indirect
stockholders unless (x) the transferee of such assets or, if such assets
represent principally an equity interest in an entity, such entity, assumes, by
instrument reasonably satisfactory to Old VII, New VII's obligations under this
Article VII and (y) the equity of such transferee or entity has a fair market
value immediately following such transaction of at least $1,500,000,000 (one
billion five hundred million dollars).
ARTICLE VIII
------------
EMPLOYEE MATTERS
Section 8.1 Employment. (a) Old VII shall take such action as may be
necessary to terminate the employment of each Non-Continuing Employee prior to
the Exchange Time provided, however, that the Company will not be required to
violate the terms of a Cable Group Bargaining Agreement or any employment
discrimination laws. All Continuing Employees who are actively employed, whether
or not actively at work, at the Exchange Time, and who continue employment with
the Company or a transferee of assets of the Company or with the manager of the
Systems shall be paid at rates of compensation which are the same or
substantially similar to their compensation prior to the Exchange Time and other
terms and conditions substantially similar to those of other similarly situated
employees of TCI, a transferee of assets of the Company or the manager of the
Systems or in accordance with applicable Cable Group Bargaining Agreements, as
applicable, and no interruption in employment shall be deemed to have occurred
by virtue of the Transaction.
(b) Employee Benefits - Generally. Effective as of the Exchange Time,
Continuing Employees shall cease active participation in any Benefit Plan or
program or executive plan or arrangement sponsored and/or maintained by New VII
(the "Viacom Plans"), and, except as specifically set forth herein, Old VII will
have no obligations with respect to Viacom Plans and VI shall have no
41
obligations with respect to any benefits plan established or maintained by Old
VII or the Cable Group for Continuing Employees after the Exchange Time. Subject
to the provisions of this Section 8.1 as to any particular benefit, as of the
Exchange Time and for at least one year thereafter employee benefits shall be
provided to Continuing Employees which are substantially similar to those
provided to similarly situated employees of TCI Sub or a transferee of assets of
the Company or of the manager of the Systems and, with respect to collective
bargaining unit employees are consistent with Cable Group Bargaining Agreements.
All prior service of Continuing Employees with the Company and any member of a
controlled group of corporations or trades or businesses or an affiliated
service group with the Company prior to the Exchange Time, within the meaning of
Code Sections 414(b), (c), or (m), respectively ("ERISA Affiliates"), shall be
recognized by the Company for all benefit plan purposes (other than benefit
accrual under a defined benefit plan), to the extent recognized under the
comparable Viacom Plan as in effect on the date of this Agreement. On or before
the Exchange Time, Old VII shall provide New VII with a list setting forth the
service accrued by each Continuing Employee. Old VII maintains a vacation and
sick pay plan for employees; all other Benefit Plans are or will prior to the
Exchange Date be Viacom Plans.
(c) Defined Benefit Pension Plan. As soon as practicable after the Exchange
Time, New VII shall prepare and deliver to Old VII a schedule listing the
Continuing Employees who were participants in the Viacom Pension Plan (formerly
the Pension Plan for Divisional Employees of Viacom International Inc.) or any
successor thereto (the "Viacom Pension Plan") as of the Exchange Time.
New VII shall cause all Continuing Employees to become 100% vested in their
accrued benefits under the Viacom Pension Plan, and to be paid such benefits in
accordance with the terms of the Viacom Pension Plan, as amended from time to
time, and Old VII shall not have any responsibility with respect thereto. Old
VII shall cooperate with New VII and VI to provide such current information
regarding Continuing Employees on an ongoing basis as may be necessary to
facilitate payment of pension benefits to such employees from the Viacom Pension
Plan.
(d) 401(k) Plan. New VII shall cause all Continuing Employees to be 100%
vested in their Viacom Investment Plan accounts as of the Exchange Time. After
the Exchange Time, such reasonable actions necessary to cooperate with New VII
shall be taken by Old VII to facilitate ongoing administration by New VII of the
Viacom Investment Plan with respect to Continuing Employees' accounts,
including, without limitation, providing current information to New VII with
respect to Continuing Employees, including notifying New VII of the termination
of employment or retirement of such employees and of any change of address or
marital status of which Old VII has received notice; administering Investment
Savings Plan loan repayments through payroll deductions for employees with
outstanding Viacom Investment Plan loan balances as of the Exchange Time and
remitting such payments to the plan trustee; distributing information provided
by VI regarding the Viacom Investment Plan to Continuing Employees; and taking
any other action as may be reasonably requested by New VII.
(e) Severance Obligations. Old VII shall not be responsible for any
severance obligations to Non-Continuing Employees. Except as may be provided
42
pursuant to the terms of any severance plan for the Company's employees as in
effect immediately prior to the Exchange Time, Old VII agrees that New VII shall
not be responsible for any obligations of the Company, including severance
obligations, arising by virtue of termination of employment after the Exchange
Time of any Continuing Employee.
(f) Sick Leave. Each Continuing Employee shall continue to be eligible for
sick leave, including accrued and unused sick leave days to which such employee
was entitled under the applicable personal sick leave policy applicable to the
Company's employees ("Banked Sick Leave Days") as of the Exchange Time;
provided, however, that any Continuing Employee who participates in a Short-Term
Disability Plan maintained by Old VII, TCI Sub or a transferee of assets of the
Company or the manager of the Systems shall be eligible to retain no more than
ten (10) Banked Sick Leave Days as of the Exchange Date.
(g) Vacation. With respect to the computation year that includes the
Exchange Date, Continuing Employees shall be eligible for paid vacation (as next
described) as follows: The amount of a Continuing Employee's vacation for the
remainder of the computation year shall be not less than the maximum number of
days (up to a maximum of twenty-eight (28) but in any event not less than zero)
accrued for the computation year under the applicable vacation policy adopted by
Old VII for Continuing Employees after the Exchange Time (based on the
employee's service and subject to Section 8.1(b)) less the vacation days used
for the same period as an employee of the Company prior to the Exchange Time. In
addition, each Continuing Employee shall receive the additional vacation, if
any, that such employee would have been entitled to as of the Exchange Time
under the applicable vacation policy applicable to the Company's employees in
effect immediately prior to the Exchange Time.
(h) Welfare Plans. Subject to relevant provisions of applicable Cable Group
Bargaining Agreements, each Continuing Employee shall be covered as of the
Exchange Time under the terms of any medical, dental, vision, prescription drug,
life insurance plans or other welfare benefit plans (within the meaning of
Section 3(1) of ERISA), which are either, at the option of TCI Sub, a transferee
of assets of the Company or the manager of the Systems, as applicable, (i) the
same or substantially similar to the coverage of such employees prior to the
Exchange Time or (ii) maintained by TCI Sub, a transferee of assets of the
Company (only as to the employees of such transferees) or the manager of the
Systems for its similarly situated employees ("Replacement Welfare Plans").
Notwithstanding the preceding sentence, any waiting periods or pre-existing
condition limitations in such Replacement Welfare Plans shall be waived unless
coverage would have been denied on a similar basis under welfare plans
applicable to employees of the Company immediately prior to the Exchange Time
(the "Cable Group Welfare Plans") and deductibles, maximum benefit restrictions
and "out-of-pocket" maximums shall be coordinated so that (i) Continuing
Employees receive credit towards any deductibles under Replacement Welfare Plans
for deductibles paid under the Cable Group's Welfare Plans during the relevant
plan year in which the Exchange Date occurs, and (ii) Continuing Employees
receive credit for eligible claims incurred under the Cable Group's Welfare
Plans during the plan year in which the Exchange Time occurs toward any
"out-of-pocket" maximums under Replacement Welfare Plans. As soon as practicable
after the Exchange Time, New VII shall prepare and deliver to Old VII the
information needed for Old VII to comply with the preceding sentence. New VII
43
will be responsible for all eligible unpaid claims incurred by Continuing
Employees prior to the Exchange Time and timely submitted for reimbursement in
accordance with the Cable Group Welfare Plan. Continuation health care coverage
shall be provided by the Company to all Continuing Employees and their qualified
beneficiaries, who incur a qualifying event after the Exchange Time in
accordance with the continuation health care coverage requirements of Section
4980B of the Code and Sections 601 through 608 of ERISA ("COBRA"). New VII shall
be responsible for providing continuation coverage to the extent required by law
to any employee who is a Non-Continuing Employee and the qualified beneficiary
of any such employee who incurs a qualifying event under COBRA on or prior to
the Exchange Date.
(i) Employment Taxes. New VII and Old VII agree to follow the procedures
set forth in Section 5 of Rev. Proc. 84-77 with respect to any Continuing
Employee.
(j) WARN. Prior to the Exchange Time, Old VII shall comply with the Worker
Adjustment and Retraining Notification Act and any comparable state law and New
VII shall be responsible for any failure of Old VII to comply with such laws
provided that TCI Sub has provided the list of Continuing Employees to VI as
required by Section 7.20 of the Subscription Agreement.
(k) No Third Party Beneficiaries. Nothing in this Section 8.1 or elsewhere
in this Agreement shall be deemed to make any employee of the Company a third
party beneficiary of this Agreement.
ARTICLE IX
----------
TAX MATTERS
Section 9.1 Obligation of New VII to Indemnify. (a) Except as may otherwise
be agreed by the parties, New VII has assumed and shall be liable for, and shall
indemnify and hold the Old VII Subgroup harmless from and against, all liability
for Taxes of any member of the VI Group (including the members of the Old VII
Subgroup) for taxable years or portions thereof ending on or prior to the
Exchange Date on an after-Tax basis including without limitation any Tax arising
as a result of the failure of the Transaction to qualify for the Tax treatment
that satisfied the condition set forth in Section 6.1(iv) of the Parents
Agreement.
(b) All Taxes of any member of the Old VII Subgroup for which New VII is
not required to indemnify the Old VII Subgroup pursuant to Section 9.1(a) shall
be the obligation of the Old VII Subgroup, and Old VII shall be liable for, and
shall indemnify and hold the members of the VI Group harmless from and against,
all such liabilities on an after-Tax basis.
(c) For purposes of this Agreement, each Tax liability for a taxable year
that includes, but does not end on, the Exchange Date (a "Straddle Period")
44
shall be allocated between the period ending on the Exchange Date and the period
beginning the day after the Exchange Date by allocating Tax liability as if each
such period were a taxable year.
Section 9.2 Refunds. Any refunds of Taxes or any credit against Taxes (when
and to the extent applied by any member of the Old VII Subgroup against any tax
liability that New VII has not assumed pursuant to Section 9.1(a) resulting in a
tax benefit to any member of the Old VII Subgroup that it otherwise would not
have realized in the absence of such credit), to the extent actually used, (in
each case, including any interest relating thereto) of any member of the Old VII
Subgroup with respect to taxable years or portions thereof ending on or prior to
the Exchange Date shall be for the account of New VII (and in the case of
refunds or credits of Old VII, have been or shall be assigned to New VII), and
any other refunds of Taxes or credits against Taxes to the extent actually used
of any member of the Old VII Subgroup shall be for the account of Old VII. Any
refunds or credits with respect to Straddle Periods shall be allocated under the
principles set forth in Section 9.1(c). Old VII shall promptly forward to, or
reimburse New VII for, any such refunds or credits and interest due New VII
after receipt thereof, and New VII shall promptly forward to, or reimburse Old
VII for, any such refunds or credits and interest due Old VII after receipt
thereof. In either case, the party entitled to such refund or credit shall
reimburse the other party to the extent of any net Tax cost imposed on such
other party in connection with the receipt of such refund or credit. Each party
hereto shall cooperate with the other party as reasonably requested in making
such filings as may be necessary and appropriate to seek any such refunds or
credits.
Section 9.3 Final Returns. New VII shall prepare any Tax Returns to be
filed which relate to any period ending on or prior to the Exchange Date. All
such Tax Returns shall be prepared in a manner consistent with prior years and
(to the extent applicable) shall report the Transaction in accordance with the
treatment of the Transaction that satisfied the condition set forth in Section
6.1(iv) of the Parents Agreement (the "Required Treatment"). New VII and Old VII
shall jointly prepare and control any Tax Return of any member of the Old VII
Subgroup for Straddle Periods in a manner consistent with prior years and
reporting the Transaction in accordance with the Required Treatment. Each party
shall promptly respond to all reasonable requests by the other party for
information necessary to prepare and file any such Tax Returns.
Section 9.4 Conduct of Audits and Disputes. (a) Contest Rights. A party who
has "contest rights" with respect to an asserted Tax liability or a refund claim
shall have the right (but not the obligation), at its own expense, to negotiate,
settle or contest such asserted Tax liability or refund claim, in its own name
or in the name of the other party or its affiliates, as appropriate, all in
accordance with the terms of this Section 9.4. Such contest rights shall
include, but not be limited to, the determination (x) whether any action shall
initially be by way of judicial or administrative proceedings, or both, (y)
whether any such asserted Tax liability shall be contested by resisting payment
thereof or by paying the same and seeking a refund thereof and (z) if judicial
action is undertaken, the court or other judicial body before which such action
shall be commenced.
(b) Claims Controlled by New VII. Subject to paragraphs (d), (e) and (f)
hereof, New VII (and not Old VII) shall have the right to control the contest
45
with respect to any asserted Tax liability or refund claim of any member of the
Old VII Subgroup to the extent that New VII is required to indemnify against
such asserted Tax liability pursuant to Section 9.1(a) or is entitled to such
refund or credit pursuant to Section 9.2. Old VII and its affiliates shall have
no right to participate in any such contest undertaken by New VII.
(c) Claims Controlled by Old VII. Subject to paragraphs (d), (e) and (f)
hereof, Old VII (and not New VII) shall have the right to control the contest
with respect to any asserted Tax liability or refund claim of any member of the
Old VII Subgroup to the extent that Old VII is required to indemnify against
such asserted Tax liability pursuant to Section 9.1(b) or is entitled to such
refund or credit pursuant to Section 9.2. New VII and its affiliates shall have
no right to participate in any such contest undertaken by Old VII.
(d) Contests Involving Multiple Issues. If any contest shall involve issues
with respect to which both New VII and Old VII have contest rights hereunder,
the parties will cooperate in any such contest, and will endeavor to permit each
party to control the contest of issues for which it has such contest rights. In
the event there is a disagreement among the parties over matters (such as choice
of forum) relating to issues the contest of which are controlled by more than
one party, such disagreement shall be resolved in favor of the party who
controls the contest of the issues therein which, in the aggregate, would result
in the largest Tax liability if resolved unfavorably or the largest Tax refund
if resolved favorably.
(e) Notice; Cooperation. If any member of the Old VII Subgroup or the VI
Group (in either case the "Tax Indemnified Party") receives any written
communication from a taxing authority regarding any actual or proposed
assessment, official inquiry or proceeding that could give rise to an official
determination with respect to any Tax liability or Tax refund claim for any
period for which New VII or Old VII, respectively (the "Tax Indemnifying
Party"), may be liable (in the case of a liability) or may be entitled (in the
case of a refund claim) pursuant to this Agreement, such Tax Indemnified Party
(i) shall within 30 days of receipt of such written communication so notify such
Tax Indemnifying Party in writing, (ii) shall request in such notice that such
Tax Indemnifying Party notify it in writing if it intends to exercise its
contest rights hereunder, and (iii) shall, prior to and for at least 30 days
after so notifying such Tax Indemnifying Party (or, if less, within a period
ending 5 days, including extensions, prior to the date on which the Tax
Indemnified Party is required to take action pursuant to such written
communication), refrain from making any payment of any Tax claimed and forebear
from any settlement negotiations or compromises with respect to such proposed
adjustment. The Tax Indemnifying Party agrees to notify the Tax Indemnified
Party in writing within such 30 days period if it intends to exercise its
contest rights hereunder with respect to the asserted Tax liabilities or the Tax
refund claim. The parties hereto agree to cooperate with each other in
connection with any examination process with respect to any asserted Tax
liability or Tax refund claim and shall make available on a reasonable basis to
each other any personnel, books, records or other documents necessary or
appropriate for participation in such process.
(f) Payment After Final Determination. If any contest is undertaken
pursuant to this Section 9.4, then the Tax Indemnifying Party shall have no
46
indemnification obligation with respect to the subject matter of such contest
until there occurs a Final Determination.
Section 9.5 Carrybacks. No losses or credits of any member of the Old VII
Subgroup arising in taxable years beginning after the Exchange Date may be
carried back to taxable years ending on or prior to the Exchange Date.
Section 9.6 Designation of Agent for PCI Group. Old VII and New VII hereby
(i) acknowledge that certain direct and indirect subsidiaries of Old VII (the
"PCI Subsidiaries") which were formerly includible in the consolidated federal
income tax returns of the affiliated group of which Paramount Communications
Inc. was the common parent (the "PCI Group") intend to apply to the Internal
Revenue Service for permission to designate Paramount Pictures Corporation or
another PCI Subsidiary as the agent for the PCI Group pursuant to Treas. Reg.
ss. 1.1502-77(d) and (ii) agree to cooperate in attempting to have such
permission granted.
ARTICLE X
---------
MISCELLANEOUS
Section 10.1 Expenses. Except as expressly set forth herein, the fees and
expenses (including the fees of any lawyers, accountants, investment bankers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the Transaction is consummated
will be paid by the party incurring the same.
Section 10.2 Headings. The section headings herein are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. References to
Sections, Schedules and Exhibits, unless otherwise indicated, are references to
Sections, Schedules and Exhibits hereof.
Section 10.3 Notices. Any notice or other communication required or
permitted to be given hereunder will be in writing and will be mailed by prepaid
registered or certified mail, timely deposited with an overnight courier such as
Federal Express, or delivered against receipt, as follows:
to:
Viacom Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇ ▇▇▇▇▇▇▇▇, Esq.
47
and
TCI Communications, Inc.
Terrace Tower II
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
with a copy to:
Tele-Communications, Inc.
Terrace Tower II
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: General Counsel
or to such other address as the party may have furnished in writing in
accordance with the provisions of this Section 10.3. Any notice or other
communication shall be deemed to have been given, made and received upon
receipt. Either party may change the address to which notices are to be
addressed by giving the other party notice in the manner herein set forth.
Section 10.4 Assignment. This Agreement and all provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors, however, neither this Agreement nor any right, interest, or
obligation hereunder may be assigned by any party hereto (other than by
operation of law) without the prior written consent of the other parties, and
any such assignment or purported assignment without such consent shall be void,
provided, however, that Old VII may pledge its rights hereunder effective on or
after the Exchange Date to the Lenders pursuant to the Loan Documentation to
secure the New Borrowing Obligations (and no exercise by the Lenders of their
rights as such pledgees shall violate this Section 10.4).
Section 10.5 Entire Agreement. This Agreement and the other Transaction
Documents embody the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby and supersede all prior written
or oral commitments, arrangements or understandings with respect thereto.
Section 10.6 Amendment; Waiver. (a) This Agreement may only be amended or
modified in writing signed by the party against whom enforcement of any such
amendment or modification is sought.
(b) Any party hereto may, by an instrument in writing, waive compliance
with any term or provision of this Agreement on the part of such other party
hereto. The waiver by any party hereto of a breach of any term or provision of
this Agreement will not be construed as a waiver of any subsequent breach.
48
Section 10.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
each of which will be deemed an original. All signatures need not be on one
counterpart.
Section 10.8 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER
PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO
MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE.
Section 10.9 Severability. If any one or more of the provisions of this
Agreement is held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement will
not be affected thereby, and New VII and Old VII will use their reasonable
efforts to substitute one or more valid, legal and enforceable provisions which
insofar as practicable implement the purposes and intent hereof. To the extent
permitted by applicable law, each party waives any provision of law which
renders any provision of this Agreement invalid, illegal or unenforceable in any
respect.
Section 10.10 Consent to Jurisdiction. Each party hereby submits to the
non-exclusive jurisdiction of the courts of general jurisdiction of the States
of New York and Colorado and the federal courts of the United States of America,
located in the City of New York, New York, and Denver, Colorado solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and hereby waives, and agrees not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement of this
Agreement that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in such courts or that this Agreement
may not be enforced in or by such courts or that its property is exempt or
immune from execution, that the suit, action or proceeding is brought in an
inconvenient forum, or that the venue of the suit, action or proceeding is
improper. Service of process with respect thereto may be made upon any party by
mailing a copy thereof by registered or certified mail, postage prepaid, to such
party at its address as provided in Section 10.3 hereof, provided that service
of process may be accomplished in any other manner permitted by applicable law.
Section 10.11 Third Person Beneficiaries. This Agreement is not intended
and shall not be construed to confer upon any Person (other than Old VII and New
VII) any rights or remedies hereunder.
Section 10.12 Representations and Warranties; Schedules. Neither the
specification of any dollar amount in the representations and warranties set
forth in Article IV or elsewhere herein nor the indemnification provisions of
Article VII nor the inclusion of any items in any Schedule will be deemed to
constitute an admission by New VII, or otherwise imply, that any such amounts or
the items so included are material for the purposes of this Agreement. All
documents or information disclosed in the Schedules are intended to be disclosed
for all purposes under this Agreement and will also be deemed to be incorporated
by reference in each Schedule to which they may be relevant without further
disclosure.
49
Section 10.13 Specific Performance. New VII and Old VII recognize that any
breach of any covenant or agreement contained in this Agreement may give rise to
irreparable harm for which money damages would not be an adequate remedy, and
accordingly agree that, in addition to other remedies, any non-breaching party
will be entitled to enforce the agreements and covenants contained herein of New
VII and Old VII, as the case may be, by a decree of specific performance without
the necessity of proving the inadequacy as a remedy of money damages.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in New York, New York, as of the day and year first above written.
VIACOM INTERNATIONAL INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
VIACOM INTERNATIONAL SERVICES INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President