-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J9NgqEr8LW92fvAcbOshpRWN3yg9DCzpvD8dlj6anr4ri0CZUjylmXlH9WmJY64s hQjT5aBJ6YQymfTHCcWoYw== 0000732718-96-000034.txt : 19960812 0000732718-96-000034.hdr.sgml : 19960812 ACCESSION NUMBER: 0000732718-96-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: US WEST INC CENTRAL INDEX KEY: 0000732718 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 840926774 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08611 FILM NUMBER: 96607482 BUSINESS ADDRESS: STREET 1: 7800 E ORCHARD RD STREET 2: SUITE 480 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037936629 MAIL ADDRESS: STREET 1: 7800 EAST ORCHARD ROAD STREET 2: SUITE 480 CITY: ENGLEWOOD STATE: CO ZIP: 80111 10-Q 1 FORM 10-Q 2ND QTR 1996 87 ===================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-Q --------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number 1-8611 U S WEST, Inc.
A Delaware Corporation IRS Employer No. 84-0926774
7800 East Orchard Road, Englewood, Colorado 80111-2526 Telephone Number 303-793-6500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X_ No __ The number of shares of U S WEST, Inc.'s common stock outstanding (net of shares held in treasury), at July 31, 1996, was: U S WEST Communications Group Common Stock - 477,632,812 shares; U S WEST Media Group Common Stock - 473,866,707 shares ===================================================================== U S WEST, Inc. Form 10-Q TABLE OF CONTENTS
Item Page - ---- ---- PART I - FINANCIAL INFORMATION 1. U S WEST, Inc. Financial Information Consolidated Statements of Income - Three and Six Months Ended June 30, 1996 and 1995 3 Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 5 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 7 Notes to Consolidated Financial Statements 8 2. U S WEST, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 1. U S WEST Communications Group Financial Information Combined Statements of Income - Three and Six Months Ended June 30, 1996 and 1995 29 Combined Balance Sheets - June 30, 1996 and December 31, 1995 30 Combined Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 32 Notes to Combined Financial Statements 33 2. U S WEST Communications Group Management's Discussion and Analysis of Financial Condition and Results of Operations 36 1. U S WEST Media Group Financial Information Combined Statements of Operations - Three and Six Months Ended June 30, 1996 and 1995 46 Combined Balance Sheets - June 30, 1996 and December 31, 1995 47 Combined Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 49 Notes to Combined Financial Statements 50 2. U S WEST Media Group Management's Discussion and Analysis of Financial Condition and Results of Operations 55 PART II - OTHER INFORMATION 1. Legal Proceedings 67 4. Submission of Matters to a Vote of Security Holders 68 6. Exhibits and Reports on Form 8-K 69
Form 10-Q, Part I
CONSOLIDATED STATEMENTS OF INCOME U S WEST, Inc. (Unaudited) Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, Dollars in millions 1996 1995 1996 1995 - -------------------------------------------- ----------- ---------- ----------- ---------- Sales and other revenues $ 3,124 $ 2,894 $ 6,174 $ 5,722 Operating expenses: Employee-related expenses 1,098 997 2,141 1,975 Other operating expenses 609 559 1,200 1,069 Taxes other than income taxes 111 113 218 227 Depreciation and amortization 588 562 1,172 1,122 ----------- ---------- ----------- ---------- Total operating expenses 2,406 2,231 4,731 4,393 Income from operations 718 663 1,443 1,329 Interest expense 136 139 271 267 Equity losses in unconsolidated ventures 77 33 143 90 Gains on sales of rural telephone exchanges 49 15 49 78 Guaranteed minority interest expense 12 - 24 - Other income (expense) - net (23) 8 (46) 2 ----------- ---------- ----------- ---------- Income before income taxes and cumulative effect of change in accounting principle 519 514 1,008 1,052 Provision for income taxes 206 196 398 404 ----------- ---------- ----------- ---------- Income before cumulative effect of change in accounting principle 313 318 610 648 Cumulative effect of change in accounting principle - net of tax - - 34 - ----------- ---------- ----------- ---------- NET INCOME 313 318 644 648 Dividends on preferred stock 1 1 2 2 ----------- ---------- ----------- ---------- EARNINGS AVAILABLE FOR COMMON STOCK $ 312 $ 317 $ 642 $ 646 =========== ========== =========== ==========
See Notes to Consolidated Financial Statements. Form 10-Q, Part I
CONSOLIDATED STATEMENTS OF INCOME U S WEST, Inc. (Unaudited), continued Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, In thousands (except per share amounts) 1996 1995 1996 1995 - ----------------------------------------------- ----------- ---------- ---------- --------- COMMUNICATIONS GROUP EARNINGS PER COMMON SHARE: Income before cumulative effect of change in accounting principle $ 0.68 $ 0.62 $ 1.30 $ 1.29 Cumulative effect of change in accounting principle - - 0.07 - ----------- ---------- ---------- --------- COMMUNICATIONS GROUP EARNINGS PER COMMON SHARE $ 0.68 $ 0.62 $ 1.37 $ 1.29 =========== ========== ========== ========= COMMUNICATIONS GROUP DIVIDENDS PER COMMON SHARE $ 0.535 $ 0.535 $ 1.07 $ 1.07 =========== ========== ========== ========= COMMUNICATIONS GROUP AVERAGE COMMON SHARES OUTSTANDING 476,803 470,414 475,929 469,490 =========== ========== ========== ========= MEDIA GROUP EARNINGS (LOSS) PER COMMON SHARE ($0.03) $ 0.05 ($0.02) $ 0.08 =========== ========== ========== ========= MEDIA GROUP AVERAGE COMMON SHARES OUTSTANDING 473,593 470,414 473,298 469,490 =========== ========== ========== ========= U S WEST, Inc. EARNINGS PER COMMON SHARE $ - $ 0.67 $ - $ 1.37 =========== ========== ========== ========= U S WEST, Inc. AVERAGE COMMON SHARES OUTSTANDING - 470,414 - 469,490 =========== ========== ========== =========
See Notes to Consolidated Financial Statements. Form 10-Q, Part I
CONSOLIDATED BALANCE SHEETS U S WEST, Inc. (Unaudited) June 30, December 31, Dollars in millions 1996 1995 - ---------------------------------------- --------- ------------- ASSETS Current assets: Cash and cash equivalents $ 127 $ 192 Accounts and notes receivable - net 1,872 1,886 Inventories and supplies 220 227 Deferred tax asset 241 282 Prepaid and other 375 322 --------- ------------- Total current assets 2,835 2,909 --------- ------------- Gross property, plant and equipment 33,622 32,884 Accumulated depreciation 18,633 18,207 --------- ------------- Property, plant and equipment - net 14,989 14,677 Investment in Time Warner Entertainment 2,497 2,483 Intangible assets - net 1,761 1,798 Investments in international ventures 1,365 1,511 Net investment in assets held for sale 407 429 Other assets 1,435 1,264 --------- ------------- Total assets $ 25,289 $ 25,071 ========= =============
See Notes to Consolidated Financial Statements. Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS U S WEST, Inc. (Unaudited), continued Dollars in millions June 30, 1996 December 31, 1995 - --------------------------------------------------- --------------- ------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 1,735 $ 1,901 Accounts payable 760 975 Employee compensation 333 385 Dividends payable 256 254 Current portion of restructuring charge 205 282 Other 1,390 1,255 --------------- ------------------- Total current liabilities 4,679 5,052 --------------- ------------------- Long-term debt 7,360 6,954 Postretirement and other postemployment benefit obligations 2,414 2,433 Deferred taxes, credits and other 1,968 2,033 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company-guaranteed debentures 600 600 Preferred stock subject to mandatory redemption 51 51 Common shareowners' equity: Common shares 8,373 8,228 Cumulative deficit (9) (115) LESOP guarantee (109) (127) Foreign currency translation adjustments (38) (38) --------------- ------------------- Total common shareowners' equity 8,217 7,948 --------------- ------------------- Total liabilities and shareowners' equity $ 25,289 $ 25,071 =============== ===================
Contingencies (See Note C to the Consolidated Financial Statements) See Notes to Consolidated Financial Statements. Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS U S WEST, Inc. (Unaudited) Dollars in millions Six Months Ended June 30, 1996 1995 - ----------------------------------------------------------- -------- -------- OPERATING ACTIVITIES Net income $ 644 $ 648 Adjustments to net income: Depreciation and amortization 1,172 1,122 Equity losses in unconsolidated ventures 143 90 Gains on sales of rural telephone exchanges (49) (78) Cumulative effect of change in accounting principle (34) - Deferred income taxes and amortization of investment tax credits (50) 63 Changes in operating assets and liabilities: Restructuring payments (82) (180) Postretirement medical and life costs - net of cash (24) (144) fundings Accounts and notes receivable 21 (127) Inventories, supplies and other (45) (68) Accounts payable and accrued liabilities (55) 76 Other - net (10) 29 -------- -------- Cash provided by operating activities 1,631 1,431 -------- -------- INVESTING ACTIVITIES Expenditures for property, plant and equipment (1,509) (1,265) Investment in international ventures (139) (291) Proceeds from disposals of property, plant and equipment 104 112 Cash (to) from net investment in assets held for sale 93 (37) Other - net (74) (281) -------- -------- Cash (used for) investing activities (1,525) (1,762) -------- -------- FINANCING ACTIVITIES Net proceeds from issuance of short-term debt 340 1,103 Proceeds from issuance of long-term debt 330 - Repayments of long-term debt (476) (390) Dividends paid on common stock and preferred stock (469) (464) Proceeds from issuance of common stock 104 23 Purchases of treasury stock - (63) -------- -------- Cash (used for) provided by financing activities (171) 209 -------- -------- CASH AND CASH EQUIVALENTS Decrease (65) (122) Beginning balance 192 209 -------- -------- Ending balance $ 127 $ 87 ======== ========
See Notes to Consolidated Financial Statements. Form 10-Q - Part I U S WEST, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three and Six Months Ended June 30, 1996 and 1995 (Dollars in millions) (Unaudited) A. Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements have been prepared by U S WEST, Inc. ("U S WEST" or the "Company") pursuant to the interim reporting rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally accompanying financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of U S WEST's management, the Consolidated Financial Statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial information set forth therein. It is suggested that these Consolidated Financial Statements be read in conjunction with the 1995 U S WEST Consolidated Financial Statements and notes thereto included in U S WEST's proxy statement mailed to all shareowners on April 8, 1996. Earnings Per Common Share U S WEST Communications Group earnings per common share and dividends per common share and U S WEST Media Group earnings per common share for 1995 have been presented on a pro forma basis to reflect the Communications Group's and the Media Group's stock as if it had been outstanding since January 1, 1995. For periods prior to the November 1, 1995 recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST. New Accounting Standard Effective January 1, 1996, U S WEST adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and associated intangibles be written down to fair value whenever an impairment review indicates that the carrying value cannot be recovered on an undiscounted cash flow basis. SFAS No. 121 also requires that a company no longer record depreciation expense on assets held for sale. Form 10-Q - Part I U S WEST, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollars in millions, except per share amounts) (Unaudited) Adoption of SFAS No. 121 resulted in income of $34 (net of tax of $22) from the cumulative effect of reversing depreciation expense recorded in prior years related to rural telephone exchanges held for sale. Depreciation expense was reversed from the date the Company formally committed to a plan to dispose of the rural exchange assets through January 1, 1996. The income has been recorded as a cumulative effect of change in accounting principle in accordance with SFAS No. 121. The carrying value of the rural exchange assets was approximately $338 at December 31, 1995. As a result of adopting SFAS No. 121, depreciation expense for the three and six months ended June 30, 1996 was reduced by $8 ($5 after tax, or $0.01 per Communications Group share) and $16 ($10 after tax, or $0.02 per Communications Group share), respectively. In 1996, depreciation expense will decrease approximately $30 as a result of adopting SFAS No. 121. The combined effects of lower depreciation expense and the cumulative effect of adoption of the new standard will be directly offset by lower recognized gains on future rural exchange sales. B. Investment in Time Warner Entertainment On September 15, 1993, U S WEST acquired 25.51 percent pro-rata priority capital and residual equity interests in Time Warner Entertainment Company L.P. ("TWE"). Summarized operating results for TWE follow:
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 --------- --------- --------- --------- Revenues $ 2,608 $ 2,392 $ 5,093 $ 4,438 Operating expenses* 2,311 2,126 4,528 3,981 Interest and other - net** 202 185 358 361 --------- --------- --------- --------- Income before income taxes $ 95 $ 81 $ 207 $ 96 ========= ========= ========= ========= Net income $ 74 $ 56 $ 168 $ 60 ========= ========= ========= ========= * Includes depreciation and amortization of $294 and $275, and $582 and $501 for the three and six months ended June 30, 1996 and 1995, respectively. ** Includes corporate services of $18 and $15, and $35 and $30 for the three and six months ended June 30, 1996 and 1995, respectively.
Form 10-Q - Part I U S WEST, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollars in millions) (Unaudited) U S WEST accounts for its investment in TWE under the equity method of accounting. U S WEST's recorded share of TWE operating results represents allocated TWE net income or loss adjusted for the amortization of the excess of the fair market value over the book value of the partnership net assets. The Company's recorded share of TWE operating results was $5 and $2, and $14 and ($11) for the three and six months ended June 30, 1996 and 1995, respectively. C. Contingencies At U S WEST Communications, Inc. ("U S WEST Communications") there are pending regulatory actions in local regulatory jurisdictions that call for price decreases, refunds or both. In one such instance, the Utah Supreme Court has remanded a Utah Public Service Commission ("PSC") order to the PSC for reconsideration, thereby establishing two exceptions to the rule against retroactive ratemaking: 1) unforeseen and extraordinary events, and 2) misconduct. The PSC's initial order denied a refund request from interexchange carriers and other parties related to the Tax Reform Act of 1986. This action is still in the discovery process. If a formal filing - made in accordance with the remand from the Supreme Court - alleges that the exceptions apply, the range of possible risk is $0 to $155. On April 11, 1996, the Washington State Utilities and Transportation Commission ("WUTC" or the "Commission") acted on U S WEST Communications' 1995 rate request. In February 1995, U S WEST Communications sought to increase revenues by raising rates for basic residential services over a four-year period. The two major issues in this proceeding involve U S WEST Communications' requests for improved capital recovery and elimination of the imputation of Yellow Pages revenue. Instead of granting U S WEST Communications' request, the Commission ordered approximately $91.5 in annual revenue reductions, effective May 1, 1996. Based on the above ruling, U S WEST Communications filed a lawsuit with the King County Superior Court (the "Court") for an appeal of the order, a temporary stay of the ordered rate reduction and an authorization to implement a revenue increase. On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC. The Court granted the stay for a period of six months or until a decision is made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST Communications began collecting revenues subject to refund with interest. U S WEST Communications expects its appeal to be successful and plans not to accrue any of the amounts subject to refund. However, an adverse judgment on the appeal would have a significant impact on U S WEST Communications' future results of operations. Form 10-Q - Part I U S WEST, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollars in millions, except per share amounts) (Unaudited) D. Investment in International Ventures The Media Group has reviewed the financial and operating performance, market value and capital requirements of its international investment portfolio and has identified certain investments it believes are appropriate to sell or restructure under acceptable terms. As a result, in second-quarter 1996, the Media Group: 1) recorded a pretax charge of $31 associated with an international cable television investment to reflect the investment at fair value; and 2) is pursuing a restructuring whereby the Company increased its ownership in a cable television joint venture in the Czech Republic to 57.5 percent from 28.6 percent through the conversion of debt to additional equity. The outcome of this restructuring is uncertain. E. Debt Exchangeable for Common Stock On May 13, 1996, U S WEST issued $254 of Debt Exchangeable for Common Stock ("DECS") to Salomon Inc. due May 15, 1999, in the principal amount of $26.63 per note. The notes bear interest at 7.625 percent. Upon maturity, each DECS will be mandatorily redeemed by U S WEST for shares of Financial Security Assurance Holdings Ltd. ("FSA") held by U S WEST or the cash equivalent, at U S WEST's option. The number of shares to be delivered at maturity varies based on the per share market price of FSA. If the market price is $26.63 per share or less, one share of FSA will be delivered for each note; if the market price is between $26.63 and $32.48 per share, a fractional share is delivered so that the value at maturity is equal to $26.63; if the market value is greater than $32.48 per share, .8197 shares are delivered. The capital assets segment currently owns approximately 40 percent of the outstanding FSA common stock. The shares of FSA to be delivered upon maturity of the DECS, combined with the exercise of outstanding options held by Fund American Enterprises Holdings, Inc. to purchase FSA shares would, if consummated, result in a complete disposition of U S WEST's ownership in FSA. Form 10-Q - Part I U S WEST, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollars in millions) (Unaudited) F. Net Investment in Assets Held for Sale Effective January 1, 1995, the capital assets segment has been accounted for in accordance with Staff Accounting Bulletin No. 93, issued by the Securities Exchange Commission, which requires discontinued operations not disposed of within one year of the measurement date to be accounted for prospectively in continuing operations as "net investment in assets held for sale." The net realizable value of the assets will be reevaluated on an ongoing basis with adjustments to the existing reserve, if any, being charged to continuing operations. Prior to January 1, 1995, the entire capital assets segment was accounted for as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. Building sales and operating revenues of the capital assets segment were $21 and $31, and $51 and $107 for the three- and six-month periods ended June 30, 1996 and 1995, respectively. The components of net investment in assets held for sale follow:
Dollars in millions June 30, 1996 December 31, 1995 - ------------------------------------------------------ -------------- ------------------ ASSETS Cash and cash equivalents $ 22 $ 38 Finance receivables - net 941 953 Investment in real estate - net of valuation allowance 357 368 Bonds, at market value 141 149 Investment in FSA 294 384 Other assets 173 177 -------------- ------------------ Total assets $ 1,928 $ 2,069 ============== ================== LIABILITIES Debt $ 676 $ 796 Deferred income taxes 689 686 Accounts payable, accrued liabilities and other 146 148 Minority interests 10 10 -------------- ------------------ Total liabilities 1,521 1,640 -------------- ------------------ Net investment in assets held for sale $ 407 $ 429 ============== ==================
Form 10-Q - Part I U S WEST, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued (Dollars in millions) (Unaudited) During the second quarter of 1996, U S WEST received $98 from the sale of 3,750,000 shares of FSA common stock. These shares were sold to FSA, FSA management and Fund American Enterprises Holdings, Inc. This sale reduced the company's ownership in FSA to approximately 40 percent. Selected financial data for U S WEST Financial Services follows:
June 30, 1996 December 31, 1995 -------------- ------------------ Net finance receivables $ 926 $ 931 Total assets 1,076 1,085 Total debt 264 274 Total liabilities 1,015 1,024 Shareowner's equity 61 61
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions, except per share amounts) RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH 1995 Comparative details of income (loss) before cumulative effect of change in accounting principle for the three and six months ended June 30 follow:
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change ---------- --------- -------- ---------- --------- -------- Communications Group $ 324 $ 293 10.6 $ 618 $ 608 1.6 Media Group (11) 25 - (8) 40 - ---------- --------- -------- ---------- --------- -------- Income (loss) before cumulative effect of change in accounting principle $ 313 $ 318 (1.6) $ 610 $ 648 (5.9) ========== ========= ======== ========== ========= ======== Earnings (loss) per common share before cumulative effect of change in accounting principle: Communications Group $ 0.68 $ 0.62 9.7 $ 1.30 $ 1.29 0.8 Media Group (0.03) 0.05 - (0.02) 0.08 - - ------------------------------------ ---------- --------- -------- ---------- --------- --------
Communications Group Adjusted to exclude certain nonoperating items, the Communications Group's second-quarter 1996 income before cumulative effect of change in accounting principle was $289, an increase of $6, or 2.1 percent, compared with second quarter 1995. Second-quarter 1996 earnings per common share before cumulative effect of change in accounting principle ("earnings per share"), similarly adjusted, were $0.61, compared with $0.60 in 1995. The nonoperating adjustments include the 1996 current quarter, after-tax impact of $5 ($0.01 per share) from adopting SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and after-tax gains of $30 ($0.06 per share) and $10 ($0.02 per share) on the sales of rural telephone exchanges during second quarter 1996 and 1995, respectively. The Communications Group's income before cumulative effect of change in accounting principle for the six months ended June 30, 1996, adjusted to exclude certain nonoperating items, was $578, an increase of $19, or 3.4 percent compared with the same period in 1995. Earnings per share for the six months ended June 30, 1996, similarly adjusted, were $1.22, compared with $1.19 in the same period in 1995. The nonoperating adjustments include the 1996 current year-to-date after-tax impact of $10 ($0.02 per share) from adopting SFAS No. 121 and after-tax gains of $30 ($0.06 per share) and $49 ($0.10 per share) on the sales of rural telephone exchanges during the first six months of 1996 and 1995, respectively. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions, except per share amounts), continued Effective January 1, 1996, the Communications Group adopted SFAS No. 121 (See Footnote A) which, among other things, requires that companies no longer record depreciation expense on assets held for sale. Adoption of SFAS No. 121 resulted in a one-time gain of $34, or $0.07 per share, related to the cumulative effect of change in accounting principle. Increased income at the Communications Group is attributable to higher demand for services. Partially offsetting the effects of higher demand was an increase in costs incurred to address the requirements associated with accelerating business growth. Further offsetting the effects of higher demand were costs associated with continuing service-improvement initiatives, expenditures related to new business initiatives and flood conditions in the Pacific Northwest during the first quarter of 1996. Media Group Net income of the Media Group decreased $36 to a loss of $11 for the quarter and decreased $48 to a loss of $8 for the first six months of 1996. The decreases are primarily a result of an after-tax charge of $19 to reflect an international cable television investment at fair value and increased losses associated with unconsolidated international ventures. These decreases in net income were partially offset by improvement in the wireless communications business. Sales and Other Revenues An analysis of the change in U S WEST's consolidated sales and other revenues follows:
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change ---------- ---------- -------- ---------- ---------- -------- Communications Group $ 2,500 $ 2,338 6.9 $ 4,965 $ 4,656 6.6 Media Group 658 585 12.5 1,271 1,121 13.4 Intergroup eliminations (34) (29) (17.2) (62) (55) (12.7) ---------- ---------- -------- ---------- ---------- -------- Total $ 3,124 $ 2,894 7.9 $ 6,174 $ 5,722 7.9 ======================= ========== ========== ======== ========== ========== ========
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Communications Group Operating Revenues An analysis of changes in the Communications Group's operating revenues follows:
Higher (Higher) Increase Increase (Lower) Lower (Decrease) (Decrease) 1996 1995 Prices Refunds Growth Other Dollars Percentage ------ ------ -------- --------- -------- ------- ----------- ----------- Local service Second quarter $1,179 $1,076 $ 10 $ (1) $ 97 $ (3) $ 103 9.6 Six months 2,324 2,126 17 (5) 194 (8) 198 9.3 Interstate access Second quarter 626 591 (17) (7) 59 - 35 5.9 Six months 1,248 1,180 (33) (7) 110 (2) 68 5.8 Intrastate access Second quarter 189 184 (8) - 13 - 5 2.7 Six months 379 372 (15) - 24 (2) 7 1.9 Long-distance network Second quarter 278 294 (2) - (10) (4) (16) (5.4) Six months 568 593 (5) - (15) (5) (25) (4.2) Other services Second quarter 228 193 - - - 35 35 18.1 Six months 446 385 - - - 61 61 15.8 ------ ------ -------- --------- -------- ------- ----------- ----------- Total revenues Second quarter 2,500 2,338 (17) (8) 159 28 162 6.9 Six months $4,965 $4,656 $ (36) $ (12) $ 313 $ 44 $ 309 6.6 ====== ====== ======== ========= ======== ======= =========== ===========
Local service revenues increased principally as a result of higher demand for services. Total reported access lines increased 586,000, or 4.0 percent during the last 12 months, of which 228,000 is attributed to second lines. Second line installations increased 32 percent during the past year. Access line growth was 4.9 percent when adjusted for sales of approximately 124,000 rural telephone access lines during the last 12 months. Also contributing to the increase in local service revenues was expanded growth in new product and service offerings such as caller identification and call waiting. Local service revenues from new product and service offerings were approximately $44 for the second quarter, an increase of over 100 percent as compared to the same period in 1995. For the six-month period ended June 30, 1996, approximately $80 of local service revenues were generated from new product and service offerings, an increase of approximately 120 percent as compared to 1995. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Higher revenues from interstate access services resulted from access line growth and increases of 9.4 and 9.5 percent in interstate billed access minutes of use for the three- and six-month periods ended June 30, 1996. The increased volume of business was partially offset by the effects of price reductions and refunds. Intrastate access revenues increased slightly for the three- and six-month periods ended June 30, 1996, primarily due to higher demand offset largely by the effects of price reductions. Long-distance network revenues decreased by 5.4 and 4.2 percent for the three- and six-month periods ended June 30, 1996, respectively, compared with the same periods in 1995, primarily due to the effects of competition, rate reductions and the implementation of a multiple toll carrier plan (MTCP) in Iowa in May 1996. The MTCP allows independent telephone companies to act as toll carriers. The impact of the MTCP for the three- and six-month periods ended June 30, 1996 was long-distance revenue losses of $6, offset by increases in intrastate access revenues of $1 and decreases in other operating expenses (i.e. access expense) of $6. Excluding the effects of the MTCP, long-distance network revenues decreased 3.4 and 3.2 percent for the three- and six-month periods ended June 30, 1996. Erosion of long-distance revenue will continue due to the loss of exclusivity of 1+ dialing in Minnesota, which became effective in February 1996, and in Arizona, effective in April 1996. Revenues from other services increased for the three- and six-month periods ended June 30, 1996 primarily as a result of continued market penetration in voice messaging services, increases in inside wire services and sales of customer premise equipment. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Media Group Sales and Other Revenues An analysis of the Media Group's sales and other revenues follows:
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change --------- --------- -------- --------- --------- -------- Directory and information services: Domestic $ 279 $ 262 6.5 $ 550 $ 520 5.8 International 25 30 (16.7) 42 44 (4.5) --------- --------- -------- --------- --------- -------- 304 292 4.1 592 564 5.0 Wireless communications: Cellular service 267 207 29.0 506 393 28.8 Cellular equipment 23 21 9.5 48 37 29.7 --------- --------- -------- --------- --------- -------- 290 228 27.2 554 430 28.8 Cable and telecommunications 59 55 7.3 116 109 6.4 Other 5 10 (50.0) 9 18 (50.0) --------- --------- -------- --------- --------- -------- Sales and other revenues $ 658 $ 585 12.5 $ 1,271 $ 1,121 13.4 ============================ ========= ========= ======== ========= ========= ========
Media Group sales and other revenues increased 12.5 percent to $658 and 13.4 percent to $1,271 for the three- and six-month periods ended June 30, 1996, respectively. The increases were primarily a result of strong growth in cellular service revenue. Directory and Information Services Revenues related to Yellow Pages directory advertising increased approximately $19, or 7.5 percent, and $34, or 6.7 percent, in the three- and six-month periods ended June 30, 1996, respectively. The increases are largely a result of a 3.7 percent increase in revenue per local advertiser (primarily a result of price increases of approximately 4.0 percent) and a 1.9 percent increase in local advertisers. International directory publishing revenues decreased $5 and $2 in the three- and six-month periods ended June 30, 1996, respectively. The decreases are primarily a result of fewer directories published in 1996 compared with the same periods in 1995. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Wireless Communications Cellular service revenues increased $60, or 29.0 percent, and $113, or 28.8 percent, in the three- and six-month periods ended June 30, 1996, respectively. These increases are a result of a 46 percent increase in subscribers during the last twelve months partially offset by a 12 percent drop (on a same property basis) in average revenue per subscriber to $54.00 per month. The increase in subscribers relates to continued growth in demand for wireless services. Cellular equipment revenues increased $2, or 9.5 percent, and $11, or 29.7 percent, in the three- and six-month periods ended June 30, 1996, respectively. These increases are primarily a result of an increase in unit sales associated with a 35 percent increase in gross customer additions in the first six months of 1996, partially offset by a decrease in selling price per unit. In July 1994, U S WEST signed an agreement with AirTouch Communications, Inc. ("AirTouch") to combine their domestic cellular properties into a partnership in a multi-phased transaction. During Phase I, which commenced on November 1, 1995, the partners are operating their cellular properties separately. A Wireless Management Company has been formed and is providing centralized services to both companies on a contract basis. In Phase II, the partners will combine their domestic properties into a partnership, subject to obtaining certain authorizations. The parties are seeking to obtain regulatory and other approvals precedent to entering into Phase II. The recent passage of the Telecommunications Act of 1996 has removed significant regulatory barriers to completion of Phase II. Currently management expects the interests in the partnership will adjust from the previously disclosed 70 percent AirTouch and 30 percent U S WEST, to approximately 74 percent AirTouch and 26 percent U S WEST (assuming contribution of all domestic cellular properties). This adjustment reflects the planned acquisition of Cellular Communications, Inc. ("CCI") by AirTouch. The actual interests in the partnership at the commencement of Phase II depend, among other things, on the timing of the Phase II closing and the ability of the partners to combine their domestic properties. U S WEST's interest in the partnership will further adjust depending on the timing of the contribution of its PCS investment. The timing of such contribution is at U S WEST's discretion and will occur either at the closing of Phase II or a date selected by U S WEST, no later than mid-1998. U S WEST has the right to convert its joint venture interest in the domestic cellular properties into ownership of AirTouch common shares at an appraised private market value. In the event the value to be received by U S WEST exceeds 19.9 percent of AirTouch's outstanding common stock, U S WEST will receive the excess in the form of non-voting preferred stock. This right becomes exercisable upon the latter of: 1) completion of Phase II of the merger; 2) completion of the planned acquisition of CCI by AirTouch; and 3) contribution of both U S WEST's and AirTouch's interests in PrimeCo Personal Communications LP (formerly PCS PrimeCo) to the joint venture. The Company expects that these conditions will be met by the end of 1996 or early 1997. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Cable and Telecommunications Cable and telecommunications revenues increased $6, or 12.1 percent, and $11, or 11.1 percent, in the three- and six-month periods ended June 30, 1996, respectively. These increases give effect to a change in the method of recording franchise fees implemented in late 1995 as if it was in effect throughout 1995. A 5.1 percent increase in revenue per subscriber (primarily a result of price increases) and a 7.2 percent increase in subscribers during the last twelve months were the primary factors underlying the revenue increases. Costs and Expenses
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change ---------- --------- -------- ---------- --------- -------- Employee-related expenses $ 1,098 $ 997 10.1 $ 2,141 $ 1,975 8.4 Other operating expenses 609 559 8.9 1,200 1,069 12.3 Taxes other than income taxes 111 113 (1.8) 218 227 (4.0) Depreciation and amortization 588 562 4.6 1,172 1,122 4.5 Interest expense 136 139 (2.2) 271 267 1.5 Equity losses in unconsolidated ventures 77 33 - 143 90 58.9 Guaranteed minority interest 12 - - 24 - - expense Other income (expense) - net (23) 8 - (46) 2 - - ------------------------------- ---------- --------- -------- ---------- --------- --------
Employee-related expenses at the Communications Group increased $90 and $144 for the three- and six-month periods ended June 30, 1996, respectively, as compared to the same periods in 1995. The increases are primarily attributable to continued efforts to meet the requirements associated with accelerating business growth, service-improvement initiatives, and new business initiatives. Salaries and wages at the Communications Group increased employee-related expenses by approximately $34 and $58 for the three- and six-month periods ended June 30, 1996, respectively, primarily due to inflation-driven wage increases. Salaries and wages were reduced through restructuring; however, costs related to workforce additions needed to meet increased business growth and service-improvement initiatives at the Communications Group offset these benefits. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Overtime payments and contract labor at the Communications Group increased approximately $40 and $78 for the three- and six-month periods ended June 30, 1996, respectively, compared with 1995. The increase in contract labor is primarily due to increased network operations costs incurred to meet accelerating business growth and marketing organization costs associated with the implementation of new products and services. Additionally, approximately $15 of the six-month increase in overtime and contract labor was attributed to severe flooding in Washington and Oregon in the first quarter of 1996. Partially offsetting the increases in the Communications Group employee-related expenses was a reduction in the postretirement benefits accrual and lower travel and conference expenses. Employee-related expenses at the Media Group increased $11 and $22 for the three- and six-month periods ended June 30, 1996, primarily related to expansion of the domestic cellular subscriber base. Other operating expenses at the Communications Group increased during the three- and six-month periods ended June 30, 1996 primarily due to increased uncollectibles, higher advertising costs and greater materials and supplies expense. The increase is also attributable to higher costs associated with increased sales of unregulated customer premise equipment. Offsetting these increases was the implementation of the MTCP in Iowa in May 1996. Other operating expenses at the Media Group increased primarily due to the rapid expansion of the Media Group's domestic cellular subscriber base and increased costs related to implementing a new brand name. Taxes other than income taxes decreased primarily as a result of timing. Increased depreciation and amortization expense was attributable to the effects of a higher depreciable asset base at the Communications Group and expansion of the Media Group's domestic cellular network, partially offset by the effects of 1995 sales of rural telephone exchanges and the adoption of SFAS No. 121. Interest expense increased primarily due to higher interest rates associated with refinancing commercial paper in the latter part of 1995 combined with slightly higher debt levels. During the three-month period ended June 30, 1996, these increases were more than offset by an increase in the amount of capitalized interest related to the domestic PCS investment which contributed to the slight decrease in interest expense. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Equity losses increased $44 and $53 for the three- and six-month periods, respectively. The increases are predominantly a result of increased financing costs associated with expansion of the network at TeleWest. Start-up and other costs associated with new international investments and the domestic PrimeCo Personal Communications LP ("PrimeCo") investment also contributed to the increase in losses. The Media Group expects losses related to international ventures will be significant in 1996. Increased losses related to international investments were partially offset by increased earnings related to the investment in TWE due to improved results from the filmed entertainment, cable and programming-HBO divisions. Cable subscribers served by TWE increased 4.9 percent compared to a year ago excluding the impact of 1995 cable transactions. Guaranteed minority interest expense reflects the issuance of Preferred Securities in the third quarter of 1995. Other income (expense) decreased $31 and $48 for the three- and six-month periods, respectively. The decrease is primarily due to a pretax charge of $31 associated with an international cable television investment to reflect the investment at fair value. The decrease is also partially the result of first-quarter 1996 foreign exchange losses of $7. Liquidity and Capital Resources Operating Activities Cash provided by operations increased $200 in the first six months of 1996, compared with the same period in 1995. Business growth along with a decrease in the cash funding of postretirement benefits and lower restructuring expenditures contributed to the increase in cash provided by operations. Partially offsetting the increase were higher federal income tax payments associated with the Communications Group and the TWE partnership. Investing Activities Investments in international ventures were $139 for the first six months of 1996. Significant 1996 investments include additional capital contributions to the PCS investment in the United Kingdom, Mercury One 2 One ("One 2 One") and the purchase of a 23 percent interest in a venture to provide wireless service in Poland. Domestically, the Media Group invested $74 to fund the network build activities at PrimeCo. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued The Media Group has reviewed the financial and operating performance, market value and capital requirements of its international investment portfolio and has identified certain investments it believes are appropriate to sell or restructure under acceptable terms and expects that sales proceeds could approximate $400 in the next two years. The Company is pursuing a restructuring whereby the Company increased its ownership in a cable television joint venture in the Czech Republic to 57.5 percent from 28.6 percent through the conversion of debt to additional equity. The outcome of this restructuring is uncertain. In the first six months of 1996, the Communications Group received cash proceeds of $111 from the sale of certain rural telephone exchanges as compared to proceeds of $114 in the same period last year. Financing Activities Debt increased $240 at June 30, 1996, compared with December 31, 1995. The increases in debt, primarily a result of the domestic PCS investment, additional international investments and increased capital expenditures at the Communications Group, were partially offset by a reduction related to an investment in a cable television venture in the Netherlands. During second-quarter 1996, U S WEST issued $254 of exchangeable notes, or Debt Exchangeable for Common Stock ("DECS"), due May 15, 1999. Upon maturity, each DECS will be mandatorily redeemed by U S WEST for shares of Financial Security Assurance Holdings Ltd. ("FSA") held by U S WEST or the cash equivalent, at U S WEST's option. The capital assets segment currently owns approximately 40 percent of the outstanding FSA common stock. As of June 30, 1996, U S WEST guaranteed debt associated with its international investments in the principal amount of approximately $115. In addition, a wholly owned subsidiary of U S WEST has guaranteed debt associated with its international investment in the principal amount of approximately $190. Excluding debt associated with the capital assets segment, the Company's percentage of debt to total capital at June 30, 1996, was 50.6 percent compared with 50.7 percent at December 31, 1995. Including debt associated with the capital assets segment, Preferred Securities and other preferred stock, the Company's percentage of debt to total capital was 55.9 percent at June 30, 1996 and 56.4 percent at December 31, 1995. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued On February 27, 1996, U S WEST announced a definitive agreement to merge with Continental Cablevision, Inc. ("Continental"). Continental is the nation's third-largest cable operator. U S WEST will purchase all of Continental's stock for approximately $5.3 billion and will assume Continental's debt and other obligations, the market value of which amounted to approximately $6.4 billion as of March 31, 1996. Consideration for the $5.3 billion in equity will consist of approximately $1 billion in U S WEST preferred stock, convertible to Media Stock; and, at U S WEST's option, between $1 billion and $1.5 billion in cash, and $2.8 billion to $3.3 billion in shares of Media Stock. The transaction, which is expected to close by the end of 1996, or early 1997, is subject to a number of conditions and approvals. The number of Media shares to be delivered upon closing will be adjusted subject to a collar 15 percent above and 15 percent below $24.50, the share price upon which the transaction was based. If the share price of the Media Stock is trading below the floor price upon closing, management has stated it does not intend to increase the number of shares of Media Stock to be issued. In connection with U S WEST's announcement of the planned merger with Continental, Standard and Poor's lowered its rating on the U S WEST, Inc., U S WEST Capital Funding, Inc., a wholly owned financing subsidiary, and U S WEST Financial Services, Inc. a member of the capital assets segment, senior unsecured debt, commercial paper and Preferred Securities. The senior unsecured debt and Preferred Securities ratings were lowered to triple-B-plus from single-A-plus and the commercial paper rating was lowered to A-2 from A-1. The credit ratings for U S WEST, Inc., U S WEST Capital Funding, Inc. and U S WEST Financial Services, Inc. are being reviewed by Fitch, Moody's and Duff & Phelps which may result in a downgrading. Standard and Poor's also lowered U S WEST Communications' senior unsecured debt and commercial paper ratings in connection with U S WEST's announcement of the planned merger with Continental. The senior unsecured debt was lowered to A-plus from AA-minus and the commercial paper was lowered to A-1 from A-1-plus. The credit rating of U S WEST Communications' debt securities was reaffirmed by Moody's and is under review by Fitch. In connection with the Washington State Utilities and Transportation Commission's $91.5 rate reduction order (See "Contingencies"), U S WEST Communications' debt securities have been placed on rating watch by Duff & Phelps. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Restructuring Charge The Company's 1993 results reflected a $1 billion restructuring charge (pretax). The related restructuring plan (the "Restructuring Plan") is designed to provide faster, more responsive customer services while reducing the costs of providing these services. Following are schedules of the costs and planned workforce reductions included in the Restructuring Plan:
Actual Actual Actual Estimate Estimate Restructuring Plan Costs 1993 1994 1995 1996 1997 Total - ------------------------------ ------- ------- ------- --------- --------- ------ Cash expenditures: Employee separation (1) $ - $ 19 $ 76 $ 36 $ 129 $ 260 Systems development - 127 145 128 - 400 Real estate - 50 66 14 - 130 Relocation - 21 24 20 15 80 Retraining and other - 16 23 22 4 65 ------- ------- ------- --------- --------- ------ Total cash expenditures - 233 334 220 148 935 Asset write-down 65 - - - - 65 ------- ------- ------- --------- --------- ------ Total 1993 Restructuring Plan 65 233 334 220 148 1,000 Remaining 1991 plan employee costs (1) - 56 - - - 56 ------- ------- ------- --------- --------- ------ Total $ 65 $ 289 $ 334 $ 220 $ 148 $1,056 ------- ------- ------- --------- --------- ------ (1) Employee separation costs, including the balance of the 1991 restructuring reserve at December 31, 1993, aggregate $316.
Actual Actual Estimate(1) Estimate(1) ------ ------ ----------- ----------- Workforce Reductions 1994 1995 1996 1997 Total - -------------------- ------ ------ ----------- ----------- ------ Employee separations Managerial 497 682 202 1,357 2,738 Occupational 1,683 1,643 798 3,138 7,262 ------ ------ ----------- ----------- ------ Total 2,180 2,325 1,000 4,495 10,000 - -------------------- ====== ====== =========== =========== ====== (1) Certain of the workforce reductions scheduled for 1997 may occur in 1996. The Restructuring Plan is expected to be substantially complete by the end of 1997.
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Employee separation costs include severance payments, health-care coverage and postemployment education benefits associated with the planned reduction of 10,000 employees. System development costs include new systems and the application of enhanced system functionality to existing single-purpose systems to provide integrated, end-to-end customer service. Real estate costs include preparation costs for the new service centers. The Communications Group has consolidated its 560 customer service centers into 26 centers in 10 cities. The relocation and retraining costs are related to moving employees to the new service centers and retraining employees on the methods and systems required in the new, restructured mode of operation. Progress Under the Restructuring Plan: Following is a reconciliation of restructuring reserve activity during the first six months of 1996:
Reserve Balance First-Half Reserve Balance December 31, 1995 1996 Activity June 30, 1996 ------------------ -------------- ---------------- Employee separations Managerial $ 68 $ 12 $ 56 Occupational 97 9 88 ------------------ -------------- ---------------- Total separations 165 21 144 Systems development Service delivery 44 18 26 Service assurance 26 3 23 Capacity provisioning 42 17 25 All other 16 9 7 ------------------ -------------- ---------------- Total systems 128 47 81 Real estate 14 3 11 Relocation 35 2 33 Retraining and other 26 9 17 ------------------ -------------- ---------------- Total $ 368 $ 82 $ 286 ================== ============== ================
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued
Cumulative 1994 1995 First-Half Separations At Separations Separations 1996 Separations June 30, 1996 ----------- ----------- ---------------- -------------- Employee separations Managerial 497 682 190 1,369 Occupational 1,683 1,643 261 3,587 ----------- ----------- ---------------- -------------- Total 2,180 2,325 451 4,956 =========== =========== ================ ==============
Contingencies At U S WEST Communications, Inc. ("U S WEST Communications") there are pending regulatory actions in local regulatory jurisdictions that call for price decreases, refunds or both. In one such instance, the Utah Supreme Court has remanded a Utah Public Service Commission ("PSC") order to the PSC for reconsideration, thereby establishing two exceptions to the rule against retroactive ratemaking: 1) unforeseen and extraordinary events, and 2) misconduct. The PSC's initial order denied a refund request from interexchange carriers and other parties related to the Tax Reform Act of 1986. This action is still in the discovery process. If a formal filing - made in accordance with the remand from the Supreme Court - alleges that the exceptions apply, the range of possible risk is $0 to $155. On April 11, 1996, the Washington State Utilities and Transportation Commission ("WUTC" or the "Commission" ) acted on U S WEST Communications' 1995 rate request. In February 1995, U S WEST Communications sought to increase revenues by raising rates for basic residential services over a four-year period. The two major issues in this proceeding involve U S WEST Communications' requests for improved capital recovery and elimination of the imputation of Yellow Pages revenue. Instead of granting U S WEST Communications' request, the Commission ordered approximately $91.5 in annual revenue reductions, effective May 1, 1996. Based on the above ruling, U S WEST Communications filed a lawsuit with the King County Superior Court (the "Court") for an appeal of the order, a temporary stay of the ordered rate reduction and an authorization to implement a revenue increase. On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC. The Court granted the stay for a period of six months or until a decision is made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST Communications began collecting revenues subject to refund with interest. U S WEST Communications expects its appeal to be successful and plans not to accrue any of the amounts subject to refund. However, an adverse judgment on the appeal would have a significant impact on U S WEST Communications' future results of operations. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Regulatory Environment On August 1, 1996, the Federal Communications Commission ("FCC") established a framework of minimum national rules that will enable the states and the FCC to begin implementing the local competition provision of the Telecommunications Act of 1996. The FCC's order relies heavily on the states to develop specific rates and procedures consistent with the FCC's general rules. Included in the order are stipulations that require local exchange carriers ("LECs") to: a) provide interconnection to any requesting telecommunications carrier at any technically feasible point, equal in quality to that provided by the incumbent LEC; b) provide unrestricted access to network services on an unbundled basis; c) provide physical collocation of equipment necessary for interconnection at the incumbent LEC's premises, unless physical collocation is not practical for technical reasons or because of space limitations; and d) offer for resale any telecommunications services that the LEC provides at retail to subscribers who are not telecommunications carriers. The order also stipulates that commercial mobile radio service operators ("CMRS"), which include the Company's wireless operations, are entitled to reciprocal compensation arrangements and that a LEC may not charge a CMRS provider for terminating LEC-originated traffic. The FCC's order continues to provide for access charge recovery by LECs from interexchange carriers until it further evaluates the issues of access charge reform and universal service. U S WEST is evaluating the effects of the order. Other Items Some of the information presented in or in connection with this report constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors that could cause actual results to differ from expectations include: (I) greater than anticipated competition from new entrants into the local exchange and intralata toll markets, (ii) changes in demand for the Company's products and services, including optional custom calling features, (iii) higher than anticipated employee levels, capital expenditures, and operating expenses at the Communications Group as a result of unusually rapid in-region growth, (iv) the gain or loss of significant customers, (v) regulatory changes affecting the telecommunications industry, including changes that could have an impact on the competitive environment in the local exchange market, (vi) a change in economic conditions in the various markets served by the Company's operations that could adversely affect the level of demand for cable, wireless or other services offered by the Company, (vii) greater than anticipated competitive activity requiring new pricing for services, (viii) higher than anticipated start-up costs associated with new business opportunities, (ix) increases in fraudulent activity with respect to wireless services, (x) unexpected developments that could postpone or otherwise impede the Continental Cablevision transaction, or (xi) delays in the development of anticipated technologies, or the failure of such technologies to perform according to expectations. Form 10-Q, Part I
COMBINED STATEMENTS OF INCOME U S WEST COMMUNICATIONS GROUP (Unaudited) Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, --------- ---------- ---------- ---------- Dollars in millions 1996 1995 1996 1995 (except per share amounts) Operating revenues: Local service $ 1,179 $ 1,076 $ 2,324 $ 2,126 Interstate access service 626 591 1,248 1,180 Intrastate access service 189 184 379 372 Long-distance network services 278 294 568 593 Other services 228 193 446 385 --------- ---------- ---------- ---------- Total operating revenues 2,500 2,338 4,965 4,656 Operating expenses: Employee-related expenses 921 831 1,788 1,644 Other operating expenses 387 346 775 695 Taxes other than income taxes 100 105 197 211 Depreciation and amortization 518 502 1,035 1,001 --------- ---------- ---------- ---------- Total operating expenses 1,926 1,784 3,795 3,551 --------- ---------- ---------- ---------- Income from operations 574 554 1,170 1,105 Interest expense 110 106 221 207 Gains on sales of rural telephone 49 15 49 78 exchanges Other income (expense) - net 4 (3) (12) (16) --------- ---------- ---------- ---------- Income before income taxes and cumulative effect of change in 517 460 986 960 accounting principle Provision for income taxes 193 167 368 352 --------- ---------- ---------- ---------- Income before cumulative effect of change in accounting principle 324 293 618 608 Cumulative effect of change in accounting principle - net of tax - - 34 - --------- ---------- ---------- ---------- NET INCOME $ 324 $ 293 $ 652 $ 608 ========= ========== ========== ========== Earnings per common share: Income before cumulative effect $ 0.68 $ 0.62 $ 1.30 $ 1.29 of change in accounting principle Cumulative effect of change in - - 0.07 - --------- ---------- ---------- ---------- accounting principle Earnings per common share $ 0.68 $ 0.62 $ 1.37 $ 1.29 ========= ========== ========== ========== DIVIDENDS PER COMMON SHARE $ 0.535 $ 0.535 $ 1.07 $ 1.07 AVERAGE COMMON SHARES 476,803 470,414 475,929 469,490 OUTSTANDING (thousands)
See Notes to Combined Financial Statements. Form 10-Q, Part I
COMBINED BALANCE SHEETS U S WEST COMMUNICATIONS GROUP (Unaudited) June 30, December 31, Dollars in millions 1996 1995 - ---------------------------------------- --------- ------------- ASSETS Current assets: Cash and cash equivalents $ 55 $ 172 Accounts and notes receivable - net 1,567 1,617 Inventories and supplies 198 193 Deferred tax asset 221 259 Prepaid and other 83 51 --------- ------------- Total current assets 2,124 2,292 --------- ------------- Gross property, plant and equipment 31,709 31,178 Accumulated depreciation 17,981 17,649 --------- ------------- Property, plant and equipment - net 13,728 13,529 Other assets 870 764 --------- ------------- Total assets $ 16,722 $ 16,585 ========= =============
See Notes to Combined Financial Statements. Form 10-Q - Part I
COMBINED BALANCE SHEETS U S WEST COMMUNICATIONS GROUP (Unaudited), continued Dollars in millions June 30, 1996 December 31, 1995 - ----------------------------------------------- -------------- ------------------ LIABILITIES AND EQUITY Current liabilities: Short-term debt $ 1,160 $ 1,065 Accounts payable 675 851 Employee compensation 270 316 Dividends payable 256 254 Current portion of restructuring charge 202 270 Other 961 851 -------------- ------------------ Total current liabilities 3,524 3,607 -------------- ------------------ Long-term debt 5,671 5,689 Postretirement and other postemployment benefit obligations 2,328 2,351 Deferred taxes, credits and other 1,464 1,462 Communications Group equity 3,735 3,476 -------------- ------------------ Total liabilities and equity $ 16,722 $ 16,585 ============== ==================
Contingencies (See Note B to the Combined Financial Statements) See Notes to Combined Financial Statements. Form 10-Q - Part I
COMBINED STATEMENTS OF U S WEST COMMUNICATIONS GROUP CASH FLOWS (Unaudited) Dollars in millions Six Months Ended June 30, 1996 1995 - --------------------------------------------------------- -------- -------- OPERATING ACTIVITIES Net income $ 652 $ 608 Adjustments to net income: Depreciation and amortization 1,035 1,001 Gains on sales of rural telephone exchanges (49) (78) Cumulative effect of change in accounting principle (34) - Deferred income taxes and amortization of investment tax credits (3) 58 Changes in operating assets and liabilities: Restructuring payments (74) (172) Postretirement medical and life costs - net of cash fundings (30) (211) Accounts receivable 57 (108) Inventories, supplies and other (35) (52) Accounts payable and accrued liabilities (62) 29 Other - net (28) (23) -------- -------- Cash provided by operating activities 1,429 1,052 -------- -------- INVESTING ACTIVITIES Expenditures for property, plant and equipment (1,266) (1,093) Proceeds from sales of rural telephone exchanges 111 114 Payments for disposals of property, plant and equipment (7) (2) -------- -------- Cash (used for) investing activities (1,162) (981) -------- -------- FINANCING ACTIVITIES Net proceeds from issuance of short-term debt 260 589 Repayments of long-term debt (253) (139) Dividends paid on common stock (467) (462) Proceeds from issuance of common stock 76 - Advance to Media Group - (132) -------- -------- Cash (used for) financing activities (384) (144) -------- -------- CASH AND CASH EQUIVALENTS Decrease (117) (73) Beginning balance 172 116 -------- -------- Ending balance $ 55 $ 43 ======== ========
See Notes to Combined Financial Statements. Form 10-Q - Part I U S WEST COMMUNICATIONS GROUP NOTES TO COMBINED FINANCIAL STATEMENTS For the Three Months and Six Months Ended June 30, 1996 and 1995 (Dollars in millions) (Unaudited) A. Summary of Significant Accounting Policies Basis of Presentation The Combined Financial Statements have been prepared by U S WEST, Inc. ("U S WEST" or the "Company") pursuant to the interim reporting rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally accompanying financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of U S WEST's management, the Combined Financial Statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial information set forth therein. It is suggested that these Combined Financial Statements be read in conjunction with the 1995 U S WEST Consolidated Financial Statements, the U S WEST Communications Group Combined Financial Statements and the U S WEST Media Group Combined Financial Statements and notes thereto included in U S WEST's proxy statement mailed to all shareowners on April 8, 1996. Earnings Per Common Share Earnings per common share and dividends per common share for 1995 have been presented on a pro forma basis to reflect the Communications Group's stock as if it had been outstanding since January 1, 1995. For periods prior to the November 1, 1995 recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST. New Accounting Standard Effective January 1, 1996, U S WEST adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and associated intangibles be written down to fair value whenever an impairment review indicates that the carrying value cannot be recovered on an undiscounted cash flow basis. SFAS No. 121 also requires that a company no longer record depreciation expense on assets held for sale. Form 10-Q - Part I U S WEST COMMUNICATIONS GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in millions) (Unaudited) Adoption of SFAS No. 121 resulted in income of $34 (net of tax of $22) from the cumulative effect of reversing depreciation expense recorded in prior years related to rural telephone exchanges held for sale. Depreciation expense was reversed from the date the Company formally committed to a plan to dispose of the rural exchange assets through January 1, 1996. The income has been recorded as a cumulative effect of change in accounting principle in accordance with SFAS No. 121. The carrying value of the rural exchange assets was approximately $338 at December 31, 1995. As a result of adopting SFAS No. 121, depreciation expense for the three and six months ended June 30, 1996 was reduced by $8 ($5 after tax, or $0.01 per share) and $16 ($10 after tax, or $0.02 per share), respectively. In 1996, depreciation expense will decrease approximately $30 as a result of adopting SFAS No. 121. The combined effects of lower depreciation expense and the cumulative effect of adoption of the new standard will be directly offset by lower recognized gains on future rural exchange sales. B. Contingencies At U S WEST Communications, Inc. ("U S WEST Communications") there are pending regulatory actions in local regulatory jurisdictions that call for price decreases, refunds or both. In one such instance, the Utah Supreme Court has remanded a Utah Public Service Commission ("PSC") order to the PSC for reconsideration, thereby establishing two exceptions to the rule against retroactive ratemaking: 1) unforeseen and extraordinary events, and 2) misconduct. The PSC's initial order denied a refund request from interexchange carriers and other parties related to the Tax Reform Act of 1986. This action is still in the discovery process. If a formal filing - made in accordance with the remand from the Supreme Court - alleges that the exceptions apply, the range of possible risk is $0 to $155. On April 11, 1996, the Washington State Utilities and Transportation Commission ("WUTC" or the "Commission") acted on U S WEST Communications' 1995 rate request. In February 1995, U S WEST Communications sought to increase revenues by raising rates for basic residential services over a four-year period. The two major issues in this proceeding involve U S WEST Communications' requests for improved capital recovery and elimination of the imputation of Yellow Pages revenue. Instead of granting U S WEST Communications' request, the Commission ordered approximately $91.5 in annual revenue reductions, effective May 1, 1996. Based on the above ruling, U S WEST Communications filed a lawsuit with the King County Superior Court (the "Court") for an appeal of the order, a temporary stay of the ordered rate reduction and an authorization to implement a revenue increase. Form 10-Q - Part I U S WEST COMMUNICATIONS GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in millions) (Unaudited) On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC. The Court granted the stay for a period of six months or until a decision is made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST Communications began collecting revenues subject to refund with interest. U S WEST Communications expects its appeal to be successful and plans not to accrue any of the amounts subject to refund. However, an adverse judgment on the appeal would have a significant impact on U S WEST Communications' future results of operations. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions, except per share amounts) RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH 1995 Comparative details of income before cumulative effect of change in accounting principle for the three and six months ended June 30 follow:
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change --------- --------- ------- --------- --------- ------- Income before cumulative effect of change in $ 324 $ 293 10.6 $ 618 $ 608 1.6 ========= ========= ======= ========= ========= ======= accounting principle Earnings per common share before cumulative effect of change in $ 0.68 $ 0.62 9.7 $ 1.30 $ 1.29 0.8 ========= ========= ======= ========= ========= ======= accounting principle
Adjusted to exclude certain nonoperating items, the Communications Group's second-quarter 1996 income before cumulative effect of change in accounting principle was $289, an increase of $6, or 2.1 percent, compared with second quarter 1995. Second-quarter 1996 earnings per common share before cumulative effect of change in accounting principle ("earnings per share"), similarly adjusted, were $0.61, compared with $0.60 in 1995. The adjustments include the 1996 current quarter, after-tax impact of $5 ($0.01 per share) from adopting SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and after-tax gains of $30 ($0.06 per share) and $10 ($0.02 per share) on the sales of rural telephone exchanges during second quarter 1996 and 1995, respectively. The Communications Group's income before cumulative effect of change in accounting principle for the six months ended June 30, 1996, adjusted to exclude nonoperating items, was $578, an increase of $19, or 3.4 percent compared with the same period in 1995. Earnings per share for the six months ended June 30, 1996, similarly adjusted, were $1.22, compared with $1.19 in the same period in 1995. The adjustments include the 1996 current year-to-date after-tax impact of $10 ($0.02 per share) from adopting SFAS No. 121 and after-tax gains of $30 ($0.06 per share) and $49 ($0.10 per share) on the sales of rural telephone exchanges during the first six months of 1996 and 1995, respectively. Effective January 1, 1996, the Communications Group adopted SFAS No. 121 (See Footnote A), which among other things, requires that companies no longer record depreciation expense on assets held for sale. Adoption of SFAS No. 121 resulted in a one-time gain of $34, or $0.07 per share, related to the cumulative effect of change in accounting principle. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Increased income at the Communications Group is attributable to higher demand for services. Partially offsetting the effects of higher demand was an increase in costs incurred to address the requirements associated with accelerating business growth. Further offsetting the effects of higher demand were costs associated with continuing service-improvement initiatives, expenditures related to new business initiatives and flood conditions in the Pacific Northwest during the first quarter of 1996. Increased demand for the Communications Group's services resulted in growth in earnings before interest, taxes, depreciation, amortization and other ("EBITDA") of 3.4 and 4.7 percent for the three- and six-month periods ended June 30, 1996 respectively. EBITDA also excludes gains on sales of certain rural telephone exchanges in 1996 and 1995. The Communications Group believes EBITDA is an important indicator of the operational strength of the business. EBITDA, however, should not be considered as an alternative to operating or net income as an indicator of the performance of the Communications Group's business or as an alternative to cash flows from operating activities as a measure of liquidity, in each case determined in accordance with GAAP. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Operating Revenues An analysis of changes in the Communications Group's operating revenues follows:
Higher (Higher) Increase Increase (Lower) Lower (Decrease) (Decrease) 1996 1995 Prices Refunds Growth Other Dollars Percentage ------ -------- --------- --------- -------- ----------- ----------- ----------- Local service Second quarter $1,179 $ 1,076 $ 10 $ (1) $ 97 $ (3) $ 103 9.6 Six months 2,324 2,126 17 (5) 194 (8) 198 9.3 Interstate access Second quarter 626 591 (17) (7) 59 - 35 5.9 Six months 1,248 1,180 (33) (7) 110 (2) 68 5.8 Intrastate access Second quarter 189 184 (8) - 13 - 5 2.7 Six months 379 372 (15) - 24 (2) 7 1.9 Long-distance network Second quarter 278 294 (2) - (10) (4) (16) (5.4) Six months 568 593 (5) - (15) (5) (25) (4.2) Other services Second quarter 228 193 - - - 35 35 18.1 Six months 446 385 - - - 61 61 15.8 ------ -------- --------- --------- -------- ----------- ----------- ----------- Total revenues Second quarter 2,500 2,338 (17) (8) 159 28 162 6.9 Six months $4,965 $ 4,656 $ (36) $ (12) $ 313 $ 44 $ 309 6.6 ====== ======== ========= ========= ======== =========== =========== ===========
Local service revenues increased principally as a result of higher demand for services. Total reported access lines increased 586,000, or 4.0 percent during the last 12 months, of which 228,000 is attributed to second lines. Second line installations increased 32 percent during the past year. Access line growth was 4.9 percent when adjusted for sales of approximately 124,000 rural telephone access lines during the last 12 months. Also contributing to the increase in local service revenues was expanded growth in new product and service offerings such as caller identification and call waiting. Local service revenues from new product and service offerings were approximately $44 for the second quarter, an increase of over 100 percent as compared to the same period in 1995. For the six-month period ended June 30, 1996, approximately $80 of local service revenues were generated from new product and service offerings, an increase of approximately 120 percent as compared to 1995. Higher revenues from interstate access services resulted from access line growth and increases of 9.4 and 9.5 percent in interstate billed access minutes of use for the three- and six-month periods ended June 30, 1996. The increased volume of business was partially offset by the effects of price reductions and refunds. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Intrastate access revenues increased slightly for the three- and six-month periods ended June 30, 1996, primarily due to higher demand offset largely by the effects of price reductions. Long-distance network revenues decreased by 5.4 and 4.2 percent for the three- and six-month periods ended June 30, 1996, respectively, compared with the same periods in 1995, primarily due to the effects of competition, rate reductions and the implementation of a multiple toll carrier plan (MTCP) in Iowa in May 1996. The MTCP allows independent telephone companies to act as toll carriers. The impact of the MTCP for the three- and six-month periods ended June 30, 1996 was long-distance revenue losses of $6, offset by increases in intrastate access revenues of $1 and decreases in other operating expenses (i.e. access expense) of $6. Excluding the effects of the MTCP, long-distance network revenues decreased 3.4 and 3.2 percent for the three- and six-month periods ended June 30, 1996. Erosion of long-distance revenue will continue due to the loss of exclusivity of 1+ dialing in Minnesota, which became effective in February 1996, and in Arizona, effective in April 1996. Revenues from other services increased for the three- and six-month periods ended June 30, 1996 primarily as a result of continued market penetration in voice messaging services, increases in inside wire services sales of customer premise equipment. Costs and Expenses
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change --------- ---------- -------- ---------- ---------- -------- Employee-related expenses $ 921 $ 831 10.8 $ 1,788 $ 1,644 8.8 Other operating expenses 387 346 11.8 775 695 11.5 Taxes other than income taxes 100 105 (4.8) 197 211 (6.6) Depreciation and amortization 518 502 3.2 1,035 1,001 3.4 Interest expense 110 106 3.8 221 207 6.8 Other income (expense) - net 4 (3) - (12) (16) (25.0)
Employee-related expenses increased $90 and $144 for the three- and six-month periods ended June 30, 1996, respectively, as compared to the same periods in 1995. The increases are primarily attributable to continued efforts to meet the requirements associated with accelerating business growth, service-improvement initiatives and new business initiatives. FORM 10-Q - PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Salaries and wages increased employee-related expenses by approximately $34 and $58 for the three- and six-month periods ended June 30, 1996, respectively, primarily due to inflation-driven wage increases. Salaries and wages were reduced through restructuring; however, costs related to workforce additions needed to meet increased business growth and service-improvement initiatives offset these benefits. Overtime payments and contract labor increased approximately $40 and $78 for the second quarter and first half of 1996, respectively, compared with 1995. The increase in contract labor is primarily due to increased network operations costs incurred to meet accelerating business growth and marketing organization costs associated with the implementation of new products and services. Additionally, approximately $15 of the six-month increase in overtime and contract labor was attributed to severe flooding in Washington and Oregon in the first quarter of 1996. Partially offsetting the increases in employee-related expenses was a reduction in the postretirement benefits accrual and lower travel and conference expenses. The increase in other operating expenses for the three- and six-month periods ended June 30, 1996 is primarily due to increased uncollectibles, higher advertising costs and greater materials and supplies expense. The increase is also attributable to higher costs associated with increased sales of unregulated customer premise equipment. Offsetting these increases was the implementation of the MTCP in Iowa in May 1996. Taxes other than income taxes decreased primarily as a result of timing. Increased depreciation and amortization expense was attributable to the effects of a higher depreciable asset base, partially offset by the effects of 1995 sales of rural telephone exchanges and the adoption of SFAS No. 121. Interest expense increased due to the equal effects of slightly higher debt levels, as well as higher interest rates associated with refinancing commercial paper in the latter part of 1995. Liquidity and Capital Resources Cash provided by operations increased $377 to $1,429 in the first half of 1996 compared with 1995. The increase in operating cash flow is primarily due to growth in EBITDA, a decrease in the cash funding of postretirement benefits and lower restructuring expenditures partially offset by increased tax payments. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued During 1996, debt increased by $77 and the percentage of debt to total capital decreased from 66.0 percent at December 31, 1995, to 64.7 percent at June 30, 1996. The increase in debt is due to increased capital expenditures. The decrease in the percentage of debt to total capital is primarily attributable to increased net income and the issuance of equity. In the first six months of 1996, the Communications Group received cash proceeds of $111 from the sale of certain rural telephone exchanges as compared to proceeds of $114 in the same period last year. In connection with the Washington State Utilities and Transportation Commission's $91.5 rate reduction order (See "Contingencies"), U S WEST Communications' debt securities have been placed on rating watch by Duff & Phelps. U S WEST Communications' senior unsecured debt and commercial paper ratings have also been lowered by Standard and Poor's in connection with a February 27, 1996, announcement by U S WEST, Inc. of a planned merger with Continental Cablevision, Inc. The senior unsecured debt was lowered to A-plus from AA-minus and the commercial paper was lowered to A-1 from A-1-plus. The credit rating of U S WEST Communications' debt securities was reaffirmed by Moody's and is under review by Fitch. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Restructuring Charge The Communications Group's 1993 results reflected an $880 restructuring charge (pretax). The related restructuring plan (the "Restructuring Plan") is designed to provide faster, more responsive customer services while reducing the costs of providing these services. Following are schedules of the costs and planned workforce reductions included in the Restructuring Plan:
Actual Actual Estimate Estimate Restructuring Plan Costs 1994 1995 1996 1997 Total - -------------------------------------- ------- ------- --------- --------- ------ Cash expenditures: Employee separation (1) $ 19 $ 76 $ 33 $ 127 $ 255 Systems development 118 129 113 - 360 Real estate 50 66 14 - 130 Relocation 21 21 20 13 75 Retraining and other 8 23 22 7 60 ------- ------- --------- --------- ------ Total cash expenditures 216 315 202 147 880 Remaining 1991 plan employee costs (1) 56 - - - 56 ------- ------- --------- --------- ------ Total $ 272 $ 315 $ 202 $ 147 $ 936 ======= ======= ========= ========= ====== (1) Employee separation costs, including the balance of the 1991 restructuring reserve at December 31, 1993, aggregate $311.
Actual Actual Estimate (1) Estimate (1) Workforce Reductions 1994 1995 1996 1997 Total - -------------------- ------ ------ ------------ ------------ ------ Employee separations Managerial 497 682 202 1,357 2,738 Occupational 1,683 1,643 798 3,138 7,262 Total 2,180 2,325 1,000 4,495 10,000 ==================== ====== ====== ============ ============ ====== (1) Certain of the workforce reductions scheduled for 1997 may occur in 1996. The Restructuring Plan is expected to be substantially complete by the end of 1997.
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Employee separation costs include severance payments, health-care coverage and postemployment education benefits associated with the planned reduction of 10,000 employees. System development costs include new systems and the application of enhanced system functionality to existing single-purpose systems to provide integrated, end-to-end customer service. Real estate costs include preparation costs for the new service centers. The Communications Group has consolidated its 560 customer service centers into 26 centers in 10 cities. The relocation and retraining costs are related to moving employees to the new service centers and retraining employees on the methods and systems required in the new, restructured mode of operation. Progress Under the Restructuring Plan: Following is a reconciliation of restructuring reserve activity during the first six months of 1996:
Reserve Balance First-Half Reserve Balance December 31, 1995 1996 Activity June 30, 1996 ------------------ -------------- ---------------- Employee separations Managerial $ 63 $ 12 $ 51 Occupational 97 9 88 ------------------ -------------- ---------------- Total separations 160 21 139 Systems development Service delivery 44 18 26 Service assurance 26 3 23 Capacity provisioning 42 17 25 All other 1 1 - ------------------ -------------- ---------------- Total systems 113 39 74 Real estate 14 3 11 Relocation 33 2 31 Retraining and other 29 9 20 ------------------ -------------- ---------------- Total $ 349 $ 74 $ 275 ================== ============== ================
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued
First-Half Cumulative 1994 1995 1996 Separations At Separations Separations Separations June 30, 1996 ----------- ----------- ----------- -------------- Employee separations Managerial 497 682 190 1,369 Occupational 1,683 1,643 261 3,587 ----------- ----------- ----------- -------------- Total 2,180 2,325 451 4,956 =========== =========== =========== ==============
Contingencies There are pending regulatory actions in local regulatory jurisdictions that call for price decreases, refunds or both. In one such instance, the Utah Supreme Court has remanded a Utah Public Service Commission ("PSC") order to the PSC for reconsideration, thereby establishing certain exceptions to the rule against retroactive ratemaking: 1) unforeseen and extraordinary events, and 2) misconduct. The PSC's initial order denied a refund request from interexchange carriers and other parties related to the Tax Reform Act of 1986. This action is still in the discovery process. If a formal filing - made in accordance with the remand from the Supreme Court - alleges that the exceptions apply, the range of possible risk is $0 to $155. On April 11, 1996, the Washington State Utilities and Transportation Commission ("WUTC" or the "Commission") acted on U S WEST Communications' 1995 rate request. In February 1995, U S WEST Communications sought to increase revenues by raising rates for basic residential services over a four-year period. The two major issues in this proceeding involve U S WEST Communications' requests for improved capital recovery and elimination of the imputation of Yellow Pages revenue. Instead of granting U S WEST Communications' request, the Commission ordered approximately $91.5 in annual revenue reductions, effective May 1, 1996. Based on the above ruling, U S WEST Communications filed a lawsuit with the King County Superior Court (the "Court") for an appeal of the order, a temporary stay of the ordered rate reduction and an authorization to implement a revenue increase. On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC. The Court granted the stay for a period of six months or until a decision is made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST Communications began collecting revenues subject to refund with interest. U S WEST Communications expects its appeal to be successful and plans not to accrue any of the amounts subject to refund. However, an adverse judgment on the appeal would have a significant impact on U S WEST Communications' future results of operations. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Regulatory Environment On August 1, 1996, the Federal Communications Commission ("FCC") established a framework of minimum national rules that will enable the states and the FCC to begin implementing the local competition provision of the Telecommunications Act of 1996. The FCC's order relies heavily on the states to develop specific rates and procedures consistent with the FCC's general rules. Included in the order are stipulations that require local exchange carriers ("LECs") to: a) provide interconnection to any requesting telecommunications carrier at any technically feasible point, equal in quality to that provided by the incumbent LEC; b) provide unrestricted access to network services on an unbundled basis; c) provide physical collocation of equipment necessary for interconnection at the incumbent LEC's premises, unless physical collocation is not practical for technical reasons or because of space limitations; and d) offer for resale any telecommunications services that the LEC provides at retail to subscribers who are not telecommunications carriers. The order also stipulates that commercial mobile radio service operators ("CMRS"), which include the Company's wireless operations, are entitled to reciprocal compensation arrangements and that a LEC may not charge a CMRS provider for terminating LEC-originated traffic. The FCC's order continues to provide for access charge recovery by LECs from interexchange carriers until it further evaluates the issues of access charge reform and universal service. U S WEST is evaluating the effects of the order. Form 10-Q - Part I
COMBINED STATEMENTS OF OPERATIONS U S WEST MEDIA GROUP (Unaudited) Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, Dollars in millions 1996 1995 1996 1995 - --------------------------------------------- ---------- --------- ---------- --------- (except per share amounts) - --------------------------------------------- Sales and other revenues: Directory and information services $ 304 $ 292 $ 592 $ 564 Wireless communications 290 228 554 430 Cable and telecommunications 59 55 116 109 Other 5 10 9 18 ---------- --------- ---------- --------- Total sales and other revenues 658 585 1,271 1,121 Operating expenses: Cost of sales and other revenues 206 183 405 346 Selling, general and administrative 238 233 456 430 expenses Depreciation and amortization 70 60 137 121 ---------- --------- ---------- --------- Total operating expenses 514 476 998 897 Income from operations 144 109 273 224 Interest expense 26 33 50 60 Equity losses in unconsolidated 77 33 143 90 ventures Guaranteed minority interest expense 12 - 24 - Other income (expense) - net (27) 11 (34) 18 ---------- --------- ---------- --------- Income before income taxes 2 54 22 92 Provision for income taxes 13 29 30 52 ---------- --------- ---------- --------- NET INCOME (LOSS) $ (11) $ 25 $ (8) $ 40 ========== ========= ========== ========= Dividends on preferred stock 1 1 2 2 ---------- --------- ---------- --------- EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK $ (12) $ 24 $ (10) $ 38 ========== ========= ========== ========= EARNINGS (LOSS) PER COMMON SHARE ($0.03) $ 0.05 ($0.02) $ 0.08 ========== ========= ========== ========= AVERAGE COMMON SHARES OUTSTANDING (thousands) 473,593 470,414 473,298 469,490
See Notes to Combined Financial Statements. Form 10-Q - Part I
COMBINED BALANCE SHEETS U S WEST MEDIA GROUP (Unaudited) June 30, December 31, Dollars in millions 1996 1995 - ----------------------------------------- --------- ------------- ASSETS Current assets: Cash and cash equivalents $ 72 $ 20 Accounts and notes receivable 317 287 Deferred directory costs 254 247 Receivable from Communications Group 94 106 Other 80 81 --------- ------------- Total current assets 817 741 --------- ------------- Gross property, plant and equipment 1,913 1,706 Accumulated depreciation 652 558 --------- ------------- Property, plant and equipment - net 1,261 1,148 Investment in Time Warner Entertainment 2,497 2,483 Intangible assets - net 1,761 1,798 Investment in international ventures 1,365 1,511 Net investment in assets held for sale 407 429 Other assets 574 505 --------- ------------- Total assets $ 8,682 $ 8,615 ========= =============
See Notes to Combined Financial Statements. Form 10-Q - Part I
COMBINED BALANCE SHEETS U S WEST MEDIA GROUP (Unaudited), continued June 30, December 31, Dollars in millions 1996 1995 - -------------------------------------------- ---------- -------------- LIABILITIES AND EQUITY Current liabilities: Short-term debt $ 575 $ 836 Accounts payable 181 235 Deferred revenue and customer deposits 86 87 Other 419 411 ---------- -------------- Total current liabilities 1,261 1,569 ---------- -------------- Long-term debt 1,689 1,265 Deferred taxes, credits and other 599 658 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company-guaranteed 600 600 debentures Preferred stock subject to mandatory 51 51 redemption Media Group equity 4,591 4,599 Company LESOP guarantee (109) (127) ---------- -------------- Total equity 4,482 4,472 ---------- -------------- Total liabilities and equity $ 8,682 $ 8,615 ========== ==============
See Notes to Combined Financial Statements. Form 10-Q - Part I
COMBINED STATEMENTS OF CASH FLOWS U S WEST MEDIA GROUP (Unaudited) Dollars in million Six Months Ended June 30, 1996 1995 - --------------------------------------------------------- ------ ------ OPERATING ACTIVITIES Net income (loss) $ (8) $ 40 Adjustments to net income (loss): Depreciation and amortization 137 121 Equity losses in unconsolidated ventures 143 90 Deferred income taxes and amortization of investment tax credits (47) 5 Provision for uncollectibles 30 25 Changes in operating assets and liabilities: Accounts and notes receivable (48) (44) Deferred directory costs, prepaid and other (10) (16) Accounts payable and accrued liabilities (11) 47 Other adjustments - net 16 50 ------ ------ Cash provided by operating activities 202 318 ------ ------ INVESTING ACTIVITIES Expenditures for property, plant and equipment (243) (172) Investment in international ventures (139) (291) Investment in domestic PCS (74) (254) Cash (to) from net investment in assets held for sale 93 (37) Other - net - (27) ------ ------ Cash (used for) investing activities (363) (781) ------ ------ FINANCING ACTIVITIES Net proceeds from issuance of short-term debt 80 514 Repayments of long-term debt (223) (251) Proceeds from issuance of long-term debt 330 - Proceeds from issuance of common stock 28 21 Dividends paid on preferred stock (2) (2) Advance from Communications Group - 132 ------ ------ Cash provided by financing activities 213 414 CASH AND CASH EQUIVALENTS Increase (decrease) 52 (49) Beginning balance 20 93 ------ ------ Ending balance $ 72 $ 44 ====== ======
See Notes to Combined Financial Statements Form 10-Q - Part I U S WEST MEDIA GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in millions) (Unaudited) A. Summary of Significant Accounting Policies Basis of Presentation The Combined Financial Statements have been prepared by U S WEST, Inc. ("U S WEST" or the "Company") pursuant to the interim reporting rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally accompanying financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of U S WEST's management, the Combined Financial Statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the financial information set forth therein. It is suggested that these Combined Financial Statements be read in conjunction with the 1995 U S WEST Consolidated Financial Statements, the U S WEST Media Group Combined Financial Statements and the U S WEST Communications Group Combined Financial Statements and notes thereto included in U S WEST's proxy statement mailed to all shareowners on April 8, 1996. Earnings Per Common Share Earnings per common share for 1995 has been presented on a pro forma basis to reflect the Media Group's stock as if it had been outstanding since January 1, 1995. For periods prior to the November 1, 1995 recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST. Form 10-Q - Part I U S WEST MEDIA GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in millions) (Unaudited) B. Investment in Time Warner Entertainment On September 15, 1993, U S WEST acquired 25.51 percent pro-rata priority capital and residual equity interests in Time Warner Entertainment Company L.P. ("TWE"). Summarized operating results for TWE follow:
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 --------- --------- --------- --------- Revenues $ 2,608 $ 2,392 $ 5,093 $ 4,438 Operating expenses* 2,311 2,126 4,528 3,981 Interest and other - net** 202 185 358 361 --------- --------- --------- --------- Income before income taxes $ 95 $ 81 $ 207 $ 96 ========= ========= ========= ========= Net income $ 74 $ 56 $ 168 $ 60 ========= ========= ========= ========= * Includes depreciation and amortization of $294 and $275, and $582 and $501 for the three and six months ended June 30, 1996 and 1995, respectively. ** Includes corporate services of $18 and $15, and $35 and $30 for the three and six months ended June 30, 1996 and 1995, respectively.
U S WEST accounts for its investment in TWE under the equity method of accounting. U S WEST's recorded share of TWE operating results represents allocated TWE net income or loss adjusted for the amortization of the excess of the fair market value over the book value of the partnership net assets. The Company's recorded share of TWE operating results was $5 and $2, and $14 and ($11) for the three and six months ended June 30, 1996 and 1995, respectively. Form 10-Q - Part I U S WEST MEDIA GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in millions) (Unaudited) C. Investment in International Ventures The Media Group has reviewed the financial and operating performance, market value and capital requirements of its international investment portfolio and has identified certain investments it believes are appropriate to sell or restructure under acceptable terms. As a result, in second-quarter 1996, the Media Group: 1) recorded a pretax charge of $31 associated with an international cable television investment to reflect the investment at fair value; and 2) is pursuing a restructuring whereby the Company increased its ownership in a cable television joint venture in the Czech Republic to 57.5 percent from 28.6 percent through the conversion of debt to additional equity. The outcome of this restructuring is uncertain. D. Debt Exchangeable for Common Stock On May 13, 1996, U S WEST issued $254 of Debt Exchangeable for Common Stock ("DECS") to Salomon Inc. due May 15, 1999, in the principal amount of $26.63 per note. The notes bear interest at 7.625 percent. Upon maturity, each DECS will be mandatorily redeemed by U S WEST for shares of Financial Security Assurance Holdings Ltd. ("FSA") held by U S WEST or the cash equivalent, at U S WEST's option. The number of shares to be delivered at maturity varies based on the per share market price of FSA. If the market price is $26.63 per share or less, one share of FSA will be delivered for each note; if the market price is between $26.63 and $32.48 per share, a fractional share is delivered so that the value at maturity is equal to $26.63; if the market value is greater than $32.48 per share, .8197 shares are delivered. The capital assets segment currently owns approximately 40 percent of the outstanding FSA common stock. The shares of FSA to be delivered upon maturity of the DECS, combined with the exercise of outstanding options held by Fund American Enterprises Holdings, Inc. to purchase FSA shares would, if consummated, result in a complete disposition of U S WEST's ownership in FSA. Form 10-Q - Part I U S WEST MEDIA GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in millions) (Unaudited) E. Net Investment in Assets Held for Sale Effective January 1, 1995, the capital assets segment has been accounted for in accordance with Staff Accounting Bulletin No. 93, issued by the Securities Exchange Commission, which requires discontinued operations not disposed of within one year of the measurement date to be accounted for prospectively in continuing operations as "net investment in assets held for sale." The net realizable value of the assets will be reevaluated on an ongoing basis with adjustments to the existing reserve, if any, being charged to continuing operations. Prior to January 1, 1995, the entire capital assets segment was accounted for as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. Building sales and operating revenues of the capital assets segment were $21 and $31, and $51 and $107 for the three- and six-month periods ended June 30, 1996 and 1995, respectively. The components of net investment in assets held for sale follow:
June 30, December 31, Dollars in millions 1996 1995 - ------------------------------------------------------ --------- ------------- ASSETS Cash and cash equivalents $ 22 $ 38 Finance receivables - net 941 953 Investment in real estate - net of valuation allowance 357 368 Bonds, at market value 141 149 Investment in FSA 294 384 Other assets 173 177 --------- ------------- Total assets $ 1,928 $ 2,069 ========= ============= LIABILITIES Debt $ 676 $ 796 Deferred income taxes 689 686 Accounts payable, accrued liabilities and other 146 148 Minority interests 10 10 --------- ------------- Total liabilities 1,521 1,640 --------- ------------- Net investment in assets held for sale $ 407 $ 429 ========= =============
Form 10-Q - Part I U S WEST MEDIA GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in millions) (Unaudited) During the second quarter of 1996, U S WEST received $98 from the sale of 3,750,000 shares of FSA common stock. These shares were sold to FSA, FSA management and Fund American Enterprises Holdings, Inc. This sale reduced the Company's ownership in FSA to approximately 40 percent. Selected financial data for U S WEST Financial Services follows:
June 30, December 31, 1996 1995 --------- ------------- Net finance receivables $ 926 $ 931 Total assets 1,076 1,085 Total debt 264 274 Total liabilities 1,015 1,024 Shareowner's equity 61 61
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions) The following discussion is based on the U S WEST Media Group Combined Financial Statements prepared in accordance with GAAP. The discussion should be read in conjunction with the U S WEST, Inc. Consolidated Financial Statements. A discussion of the Media Group's operations on a proportionate basis follows the GAAP discussion. RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH 1995 Sales and Other Revenues
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change --------- --------- -------- --------- --------- -------- Directory and information services: Domestic $ 279 $ 262 6.5 $ 550 $ 520 5.8 International 25 30 (16.7) 42 44 (4.5) --------- --------- -------- --------- --------- -------- 304 292 4.1 592 564 5.0 --------- --------- -------- --------- --------- -------- Wireless communications: Cellular service 267 207 29.0 506 393 28.8 Cellular equipment 23 21 9.5 48 37 29.7 --------- --------- -------- --------- --------- -------- 290 228 27.2 554 430 28.8 --------- --------- -------- --------- --------- -------- Cable and telecommunications 59 55 7.3 116 109 6.4 Other 5 10 (50.0) 9 18 (50.0) --------- --------- -------- --------- --------- -------- Sales and other revenues $ 658 $ 585 12.5 $ 1,271 $ 1,121 13.4 ========= ========= ======== ========= ========= ========
Media Group sales and other revenues increased 12.5 percent to $658 and 13.4 percent to $1,271 for the three- and six-month periods ended June 30, 1996, respectively. The increases were primarily a result of strong growth in cellular service revenue. Directory and Information Services Revenues related to Yellow Pages directory advertising increased approximately $19, or 7.5 percent, and $34, or 6.7 percent, in the three- and six-month periods ended June 30, 1996, respectively. The increases are largely a result of a 3.7 percent increase in revenue per local advertiser (primarily a result of price increases of approximately 4.0 percent) and a 1.9 percent increase in local advertisers. International directory publishing revenues decreased $5 and $2 in the three- and six-month periods ended June 30, 1996, respectively. The decreases are primarily a result of fewer directories published in 1996 compared with the same periods in 1995. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Wireless Communications Cellular service revenues increased $60, or 29.0 percent, and $113, or 28.8 percent, in the three- and six-month periods ended June 30, 1996, respectively. These increases are a result of a 46 percent increase in subscribers during the last twelve months, partially offset by a 12 percent drop (on a same property basis) in average revenue per subscriber to $54.00 per month. The increase in subscribers relates to continued growth in demand for wireless services. Cellular equipment revenues increased $2, or 9.5 percent, and $11, or 29.7 percent, in the three- and six-month periods ended June 30, 1996, respectively. These increases are primarily a result of an increase in unit sales associated with a 35 percent increase in gross customer additions in the first six months of 1996, partially offset by a decrease in selling price per unit. Cable and Telecommunications Cable and telecommunications revenues increased $6, or 12.1 percent, and $11, or 11.1 percent, in the three- and six-month periods ended June 30, 1996, respectively. These increases give effect to a change in the method of recording franchise fees implemented in late 1995 as if it was in effect throughout 1995. A 5.1 percent increase in revenue per subscriber (primarily a result of price increases) and a 7.2 percent increase in subscribers during the last twelve months were the primary factors underlying the revenue increases. Income from Operations
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change ---------- ---------- -------- ---------- ---------- -------- Directory and information services: Domestic $ 115 $ 94 22.3 $ 225 $ 198 13.6 International (3) (1) - (11) (6) (83.3) ---------- ---------- -------- ---------- ---------- -------- 112 93 20.4 214 192 11.5 ---------- ---------- -------- ---------- ---------- -------- Wireless communications 59 43 37.2 109 76 43.4 Cable and telecommunications 8 4 100.0 16 8 100.0 Other (35) (31) (12.9) (66) (52) 26.9 ---------- ---------- -------- ---------- ---------- -------- Income from operations $ 144 $ 109 32.1 $ 273 $ 224 21.9 ========== ========== ======== ========== ========== ========
During the three- and six-month periods ended June 30, 1996, Media Group operating income increased 32.1 percent and 21.9 percent, to $144 and $273, respectively. EBITDA increased 26.6 percent and 18.8 percent, to $214 and $410, respectively, for the same periods. The increases were primarily a result of strong growth in wireless communications operations. The Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Media Group considers EBITDA an important indicator of the operational strength and performance of its businesses. EBITDA, however, should not be considered as an alternative to operating or net income as an indicator of the performance of the Media Group's businesses or as an alternative to cash flows from operating activities as a measure of liquidity, in each case determined in accordance with GAAP. Directory and Information Services During the three- and six-month periods ended June 30, 1996, operating income related to domestic directory and information services increased $18, or 19 percent, and $22, or 11 percent, respectively. For the same periods, EBITDA increased 19 percent, to $123, and 12 percent, to $241, respectively. These percent increases give effect to a 1996 change in the amount of Media Group corporate costs allocated to the domestic directory and information services businesses as if it was in effect throughout 1995. Improved operating results related to the Yellow Pages business combined with decreased spending in 1996, primarily related to exited product lines, and the effect of a charge of $8 and $14 included in the three- and six-month 1995 results related to the exit of these product lines have contributed to the increase in operating income and EBITDA. For the same periods, Yellow Pages revenue increases of $19 and $34 were partially offset by operating cost increases of $15 and $27, respectively. Operating cost increases were principally a result of approximately 11 percent and 16 percent increases in paper, printing, delivery and distribution costs for the three- and six-months periods, respectively. Increased operating costs led to a Yellow Pages EBITDA margin of 50 percent in 1996, compared with 52 percent in 1995, on a comparable basis. Operating income for international directory publishing operations decreased $2 and $5 during the three and six months ended June 30, 1996, respectively. The decreases were a result of increased operating expenses. Wireless Communications Cellular operating income increased 28.3 percent, to $59, and 32.9 percent, to $109, for the three- and six-month periods ended June 30, 1996, respectively. Cellular EBITDA increased 28.0 percent to $96 and 30.4 percent to $180 for the same periods. These percent increases give effect to a 1996 change in the amount of Media Group corporate costs allocated to the cellular business as if it was in effect throughout 1995. The 1996 second-quarter results include costs related to the anticipated merger with AirTouch including advertising and signage to implement a new brand name. The increase in operating income and EBITDA is a result of revenue increases associated with the rapidly expanding subscriber base combined with efficiency gains. The 1996 decline in revenue per subscriber of 12 percent, on a comparable basis, has been more than offset by decreases in the cost incurred to acquire a customer and the cost to support a customer. Support costs per subscriber decreased 19 percent and acquisition cost per subscriber added decreased 3 percent for the six-month period ended June 30, 1996. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued The cellular service EBITDA margins were 35.8 percent and 35.5 percent for the three- and six-month periods, respectively. In July 1994, U S WEST signed an agreement with AirTouch Communications, Inc. ("AirTouch") to combine their domestic cellular properties into a partnership in a multi-phased transaction. During Phase I, which commenced on November 1, 1995, the partners are operating their cellular properties separately. A Wireless Management Company has been formed and is providing centralized services to both companies on a contract basis. In Phase II, the partners will combine their domestic properties into a partnership, subject to obtaining certain authorizations. The parties are seeking to obtain regulatory and other approvals precedent to entering into Phase II. The recent passage of the Telecommunications Act of 1996 has removed significant regulatory barriers to completion of Phase II. Currently management expects the interests in the partnership will adjust from the previously disclosed 70 percent AirTouch and 30 percent U S WEST, to approximately 74 percent AirTouch and 26 percent U S WEST (assuming contribution of all domestic cellular properties). This adjustment reflects the planned acquisition of Cellular Communications, Inc. ("CCI") by AirTouch. The actual interests in the partnership at the commencement of Phase II depend, among other things, on the timing of the Phase II closing and the ability of the partners to combine their domestic properties. U S WEST's interest in the partnership will further adjust depending on the timing of the contribution of its PCS investment. The timing of such contribution is at U S WEST's discretion and will occur either at the closing of Phase II or a date selected by U S WEST, no later than mid-1998. U S WEST has the right to convert its joint venture interest in the domestic cellular properties into ownership of AirTouch common shares at an appraised private market value. In the event the value to be received by U S WEST exceeds 19.9 percent of AirTouch's outstanding common stock, U S WEST will receive the excess in the form of non-voting preferred stock. This right becomes exercisable upon the latter of: 1) completion of Phase II of the merger; 2) completion of the planned acquisition of CCI by AirTouch; and 3) contribution of both U S WEST's and AirTouch's interests in PrimeCo Personal Communications LP (formerly PCS PrimeCo) to the joint venture. The Company expects that these conditions will be met by the end of 1996 or early 1997. Cable and Telecommunications Cable and telecommunications operating income increased $4 and $8 for the three- and six-month periods, respectively. The increase in operating income is a result of revenue increases associated with expansion of the subscriber base and price increases. Other The decrease in other operating income is primarily a result of a decrease in the amount of Media Group corporate costs allocated to the Yellow Pages and cellular businesses and an increase in the amount of U S WEST corporate costs allocated to the Media Group. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Interest Expense and Other
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change ---------- --------- -------- ---------- --------- -------- Interest expense $ 26 $ 33 (21.2) $ 50 $ 60 (16.7) Equity losses in unconsolidated 77 33 - 143 90 58.9 ventures Guaranteed minority interest 12 - - 24 - - expense Other income (expense) - net (27) 11 - (34) 18 -
Interest expense decreased $7 and $10 for the three- and six-month periods, respectively, primarily because of an increase in interest capitalized related to the domestic PCS investment and a refinancing of commercial paper by issuing Company-obligated mandatorily redeemable preferred securities of a subsidiary trust holding solely Company-guaranteed debentures ("Preferred Securities"). U S WEST issued $600 of Preferred Securities in the third quarter of 1995. Equity losses increased $44 and $53 for the three- and six-month periods, respectively. The increases are predominantly a result of increased financing costs associated with expansion of the network at TeleWest. Start-up and other costs associated with new international investments and the domestic PrimeCo Personal Communications LP ("PrimeCo") investment also contributed to the increase in losses. The Media Group expects losses related to international ventures will be significant in 1996. Increased losses related to international investments were partially offset by increased earnings related to the investment in TWE due to improved results from the filmed entertainment, cable and programming-HBO divisions. Cable subscribers served by TWE increased 4.9 percent compared to a year ago excluding the impact of 1995 cable transactions. Guaranteed minority interest expense reflects the issuance of Preferred Securities in the third quarter of 1995. Other income (expense) decreased $38 and $52 for the three- and six-month periods, respectively. The decrease is primarily due to a pretax charge of $31 associated with an international cable television investment to reflect the investment at fair value. The decrease is also partially the result of first-quarter 1996 foreign exchange losses of $7. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Provision for Income Taxes
Three Three Six Six Months Months Months Months Ended Ended Ended Ended June 30, June 30, Percent June 30, June 30, Percent 1996 1995 Change 1996 1995 Change --------- --------- -------- ---------- ---------- -------- Provision for income taxes $ 13 $ 29 (55.2) $ 30 $ 52 (42.3) Effective tax rate - - - 136.4% 56.5% -
The increase in the effective tax rate reflects the impact of lower pretax income in relationship to goodwill amortization, primarily related to the acquisition of the Atlanta Systems, and foreign income taxes. These relationships could vary significantly during the year depending on the level of pretax income. Net Income Net income of the Media Group decreased $36 to a loss of $11 for the quarter and decreased $48 to a loss of $8 for the first six months of 1996. The decreases are primarily a result of the after-tax charge of $19 to reflect an international cable television investment at fair value and increased losses associated with unconsolidated international ventures. These decreases in net income were partially offset by improvement in the wireless communications business. Liquidity and Capital Resources Operating Activities Cash provided by operating activities of the Media Group decreased $116 in the first six months of 1996, compared with 1995. Higher federal income tax payments associated with the TWE partnership contributed to the decrease. Investing Activities Capital expenditures of the Media Group were $243 for the first six months of 1996. The majority of expenditures in 1996 were devoted to the enhancement and expansion of the cellular network and upgrade of the Atlanta cable systems to 750 megahertz capacity. Investments in international ventures were $139 for the first six months of 1996. Significant 1996 investments include additional capital contributions to the PCS investment in the United Kingdom, Mercury One 2 One ("One 2 One") and the purchase of a 23 percent interest in a venture to provide wireless service in Poland. Domestically, the Media Group invested $74 to fund the network build activities at PrimeCo. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued The Media Group has reviewed the financial and operating performance, market value and capital requirements of its international investment portfolio and has identified certain investments it believes are appropriate to sell or restructure under acceptable terms and expects that sales proceeds could approximate $400 in the next two years. The Company is pursuing a restructuring whereby the Company increased its ownership in a cable television joint venture in the Czech Republic to 57.5 percent from 28.6 percent through the conversion of debt to additional equity. The outcome of this restructuring is uncertain. Financing Activities Debt increased $163 at June 30, 1996, compared with December 31, 1995. Increases in debt, primarily a result of the domestic PCS investment and additional international investments, were partially offset by a reduction related to an investment in a cable television venture in the Netherlands. During second-quarter 1996, U S WEST issued $254 of exchangeable notes, or Debt Exchangeable for Common Stock ("DECS"), due May 15, 1999. Upon maturity, each DECS will be mandatorily redeemed by U S WEST for shares of Financial Security Assurance Holdings Ltd. ("FSA") held by U S WEST or the cash equivalent, at U S WEST's option. The capital assets segment currently owns approximately 40 percent of the outstanding FSA common stock. As of June 30, 1996, U S WEST guaranteed debt associated with its international investments in the principal amount of approximately $115. In addition, a wholly owned subsidiary of U S WEST has guaranteed debt associated with its international investment in the principal amount of approximately $190. Excluding debt associated with the capital assets segment, the Media Group's percentage of debt to total capital at June 30, 1996, was 30.6 percent compared with 29.1 percent at December 31, 1995. Including debt associated with the capital assets segment, Preferred Securities and other preferred stock, the Media Group's percentage of debt to total capital was 44.5 percent at June 30, 1996 and 44.2 percent at December 31, 1995. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued On February 27, 1996, U S WEST announced a definitive agreement to merge with Continental Cablevision, Inc. ("Continental"). Continental is the nation's third-largest cable operator. U S WEST will purchase all of Continental's stock for approximately $5.3 billion and will assume Continental's debt and other obligations, the market value of which amounted to approximately $6.4 billion as of March 31, 1996. Consideration for the $5.3 billion in equity will consist of approximately $1 billion in U S WEST preferred stock, convertible to Media Stock; and, at U S WEST's option, between $1 billion and $1.5 billion in cash, and $2.8 billion to $3.3 billion in shares of Media Stock. The transaction, which is expected to close by the end of 1996 or early 1997, is subject to a number of conditions and approvals. The number of Media shares to be delivered upon closing will be adjusted subject to a collar 15 percent above and 15 percent below $24.50, the share price upon which the transaction was based. If the share price of the Media Stock is trading below the floor price upon closing, management has stated it does not intend to increase the number of shares of Media Stock to be issued. In connection with U S WEST's announcement of the planned merger with Continental, Standard and Poor's lowered its rating on the U S WEST, Inc., U S WEST Capital Funding, Inc., a wholly owned financing subsidiary, and U S WEST Financial Services, Inc. a member of the capital assets segment, senior unsecured debt, commercial paper and Preferred Securities. The senior unsecured debt and Preferred Securities ratings were lowered to triple-B-plus from single-A-plus and the commercial paper rating was lowered to A-2 from A-1. The credit ratings for U S WEST, Inc., U S WEST Capital Funding, Inc. and U S WEST Financial Services, Inc. are being reviewed by Fitch, Moody's and Duff & Phelps which may result in a downgrading. The Media group expects that cash from operations will not be adequate to fund expected cash requirements in the foreseeable future. Additional financing will come primarily from new debt. Regulatory Environment On August 1, 1996, the Federal Communications Commission ("FCC") established a framework of minimum national rules that will enable the states and the FCC to begin implementing the local competition provision of the Telecommunications Act of 1996. Among other things, the order stipulates that commercial mobile radio service operators ("CMRS"), which includes the Media Group's wireless operations, are entitled to reciprocal compensation arrangements and that a local exchange carrier ("LEC") may not charge a CMRS provider for terminating LEC-originated traffic. U S WEST is evaluating the effects of the order. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued SELECTED PROPORTIONATE DATA The following table is not required by GAAP or intended to replace the Combined Financial Statements prepared in accordance with GAAP. It is presented supplementally because the Company believes that proportionate data facilitates the understanding and assessment of its Combined Financial Statements. The following table includes allocations of Media Group corporate activity. The table does not reflect financial data of the capital assets segment, which had net assets of $407 at June 30, 1996 and $429 at December 31, 1995. The financial information included below departs materially from GAAP because it aggregates the revenues and operating income of entities not controlled by the Media Group with those of the consolidated operations of the Media group.
Wireless Wireless Directory & Directory & Cable & Cable & Communi- Communi- Information Information Corp. Telecomm. Telecomm. cations cations Services Services and Dollars in millions Dom. (1) Int'l Dom. Int'l Dom. Int'l Other Total - ------------------------ ----------- ----------- --------- ---------- ------------ ------------- ------- ------- THREE MONTHS ENDED JUNE 30, 1996 Revenue $ 724 $ 50 $ 261 $ 99 $ 279 $ 45 $ 3 $1,461 Operating income (loss) 65 (41) 43 (19) 116 - (18) 146 Net income (loss) (5) (69) 25 (18) 68 (5) (7) (11) EBITDA (2) 175 (11) 78 (1) 124 4 (16) 353 Subscribers/Advertisers (thousands) 2,944 616 1,557 370 481 274 - 6,242 THREE MONTHS ENDED JUNE 30, 1995 Revenue $ 665 $ 26 $ 192 $ 65 $ 262 $ 30 $ 8 $1,248 Operating income (loss) 46 (22) 36 (25) 95 (2) (4) 124 Net income (loss) (10) (2) 17 (32) 59 (1) (6) 25 EBITDA (2) 151 (13) 61 (13) 101 - (2) 285 Subscribers/Advertisers (thousands) 2,808 237 988 241 472 161 - 4,907
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued SELECTED PROPORTIONATE DATA (CONTINUED)
Directory Directory Cable & Cable & Wireless Wireless & Info. & Info. Corp. Telecomm. Telecomm. Comm. Comm. .Serv. Serv. and Dollars in millions Dom. (1) Int'l (3) Dom. Int'l Dom. Int'l Other Total SIX MONTHS ENDED JUNE 30, 1996 Revenue $ 1,415 $ 100 $ 501 $ 187 $ 550 $ 77 $ 6 $2,836 Operating income (loss) 123 (72) 81 (41) 226 (7) (30) 280 Net income (loss) (8) (106) 42 (42) 134 (12) (16) (8) EBITDA (2) 340 (20) 147 - 241 - (25) 683 SIX MONTHS ENDED JUNE 30, 1995 Revenue $ 1,241 $ 50 $ 359 $ 125 $ 520 $ 44 $ 16 $2,355 Operating income (loss) 77 (43) 63 (46) 198 (9) (1) 239 Net income (loss) (28) (13) 32 (60) 121 (5) (7) 40 EBITDA (2) 275 (24) 112 (25) 210 (4) 4 548 - ------------------------ ----------- ----------- --------- ---------- ---------- ----------- ------- ------- (1) The proportionate results are based on the Media Group's 25.51 percent pro rata priority and residual equity interests in reported TWE results. The reported TWE results are prepared in accordance with GAAP and have not been adjusted to report TWE investments accounted for under the equity method on a proportionate basis. (2) Proportionate EBITDA represents the Media Group's equity interest in the entities multiplied by the entity's EBITDA. As such, proportionate EBITDA does not represent cash available to the Media Group. The Media Group considers EBITDA an important indicator of the operational strength and performance of its businesses. EBITDA, however, should not be considered as an alternative to operating or net income, as an indicator of the performance of the Media Group's businesses, or as an alternative to cash flows from operating activities as a measure of liquidity, in each case determined in accordance with GAAP. (3) Previously reported amounts have been reclassified to conform with the current presentation.
Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued PROPORTIONATE RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH 1995 Proportionate Media Group revenues increased 17 percent, to $1.5 billion, and 20 percent, to $2.8 billion, for the three- and six-month periods ended June 30, 1996, respectively. Proportionate EBITDA increased 24 percent, to $353, and 25 percent, to $683, for the same periods. Media Group management has stated its objective is to grow proportionate EBITDA at a rate of 20 percent annually in the next few years. Strong growth in domestic cable and telecommunications and wireless communications contributed to the increases. Subscribers/advertisers increased 27 percent to 6.2 million over the last twelve months. Strong growth in domestic wireless communications and international operations contributed to the increase in subscribers/advertisers. Cable and Telecommunications Proportionate revenues for the domestic cable and telecommunications operations increased 18 percent, to $724, and 20 percent, to $1.4 billion, for the three- and six-month periods, respectively. Proportionate EBITDA increased 22 percent, to $175, and 18 percent, to $340, for the same periods. These results reflect a 1996 change in the amount of Media Group corporate costs allocated to this segment as if it were in effect throughout 1995 and exclude the one-time impact of certain 1995 TWE transactions. Proportionate revenue and EBITDA growth is primarily due to improvements in TWE cable, programming and filmed entertainment operations and Media Group domestic cable overhead reductions. TWE cable growth is attributed to subscriber growth of 4.9 percent, on a comparable basis. International cable and telecommunications proportionate revenues essentially doubled to $50 and $100 for the three- and six-month periods, respectively. Proportionate EBITDA increased $1 to ($11), and $2 to ($20), on a comparable basis, for the same periods. Increases at TeleWest U.K. combined with new investments in the Netherlands, Czech Republic and Indonesia contributed significantly to the increase in proportionate revenues. Proportionate subscribers to the international cable properties grew to 616,000, a 160 percent increase from a year ago. This increase includes the effect of acquisitions in the Czech Republic and Netherlands. Second-quarter 1996 proportionate revenues, EBITDA and subscribers for the Company's cable operations in Norway, Sweden and Hungary have been removed from the proportionate results in conjunction with an after-tax charge of $19 to reflect the investment at fair value. Wireless Communications Proportionate revenues for the domestic cellular operations increased 36 percent, to $261, and 40 percent, to $501 for the three- and six-month periods, respectively. Proportionate EBITDA increased 34 percent, to $86, and 36 percent, to $161, for the same periods. These results reflect a 1996 change in the amount of Media Group corporate costs allocated to this segment as if it were in effect throughout 1995. Form 10-Q - Part I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions), continued Proportionate cellular service revenues increased 37 percent, to $239, and 39 percent, to $456, for the three- and six-month periods, respectively. The increases are due to a 47 percent increase in proportionate subscribers, on a same property basis, partially offset by a decrease in average revenue per subscriber. Proportionate revenues for the international wireless operations increased 52 percent, to $99, and 50 percent, to $187, for the three- and six-month periods, respectively. Proportionate EBITDA increased $12 to ($1) and $25 to break even for the same periods. Strong results from One 2 One and Westel 900, a Hungarian cellular operation, contributed to the increases in proportionate revenues and EBITDA. Proportionate subscribers to international wireless joint ventures in the United Kingdom, Hungary, the Czech Republic, Slovakia, Russia and Malaysia grew to 370,000 at June 30, 1996, a 54 percent increase from a year ago. One 2 One added 74,500 proportionate customers, a 51 percent increase. Directory and Information Services Proportionate revenues for domestic directory and information services increased 6 percent, to $279, and 6 percent, to $550 for the three- and six-month periods, respectively. Proportionate EBITDA increased 19 percent, to $124, and 12 percent, to $241, for the same periods. These results reflect a 1996 change in the amount of Media Group corporate costs allocated to this segment as if it were in effect throughout 1995. The increases are due to price and volume increases and include the effect of a second-quarter 1995 charge to exit certain product lines. Proportionate revenues for international directories businesses increased $15, to $45, and $33, to $77, for the three- and six-month periods, respectively. Proportionate EBITDA increased $4 for both the three- and six-month periods from a year ago. The increase in proportionate revenues and EBITDA is a result of a new investment in a Brazilian directories operation. Form 10-Q - Part II PART II - OTHER INFORMATION Item 1. Legal Proceedings U S WEST and its subsidiaries are subject to claims and proceedings arising in the ordinary course of business. While complete assurance cannot be given as to the outcome of any contingent liabilities, in the opinion of U S WEST, any financial impact to which U S WEST and its subsidiaries are subject is not expected to be material in amount to U S WEST's operating results or its financial position. On April 11, 1996, the Washington State Utilities and Transportation Commission ("WUTC" or the "Commission" ) acted on U S WEST Communications' 1995 rate request. In February 1995, U S WEST Communications sought to increase revenues by raising rates for basic residential services over a four-year period. The two major issues in this proceeding involve U S WEST Communications' requests for improved capital recovery and elimination of the imputation of Yellow Pages revenue. Instead of granting U S WEST Communications' request, the Commission ordered approximately $91.5 in annual revenue reductions, effective May 1, 1996. Based on the above ruling, U S WEST Communications filed a lawsuit with the King County Superior Court (the "Court") for an appeal of the order, a temporary stay of the ordered rate reduction and an authorization to implement a revenue increase. On April 29, 1996, the Court stayed the rate decreases ordered by the WUTC. The Court granted the stay for a period of six months or until a decision is made on U S WEST Communications' appeal. Effective May 1, 1996, U S WEST Communications began collecting revenues subject to refund with interest. U S WEST Communications expects its appeal to be successful and plans not to accrue any of the amounts subject to refund. However, an adverse judgment on the appeal would have a significant impact on U S WEST Communications' future results of operations. On September 22, 1995, U S WEST filed a lawsuit in Delaware Chancery Court to enjoin the proposed merger of Time Warner and Turner Broadcasting. On June 6, 1996, the Delaware Chancery Court denied U S WEST's petition to enjoin the proposed merger. Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of shareholders on June 7, 1996, shareholders voted as follows for the purpose of electing four individuals as directors of the Company:
Directors Votes in Favor Votes Withheld - ---------------------- -------------- -------------- CLASS I - ---------------------- Allen F. Jacobson 642,792,089 13,588,536 CLASS II - ---------------------- Pierson M. Grieve 642,957,370 13,423,255 Richard D. McCormick 642,793,407 13,587,218 Marilyn Carlson Nelson 643,181,665 13,198,960
Arthur Andersen LLP was confirmed as the Company's independent auditors with 649,130,095 votes in favor, 3,525,641 votes against and 3,389,360 votes abstaining. The shareholders voted as follows to approve the U S WEST Communications Group Long-Term Incentive Plan:
In Favor Against Abstained Not Voted - ----------- ---------- --------- ----------- 595,097,159 44,045,788 9,457,159 122,484,471
The shareholders also considered and rejected the following two shareholder proposals at the annual meeting:
Proposal In Favor Against Abstained Not Voted - -------------------------------------- ----------- ----------- ---------- ---------- Elimination of Classified Board 249,077,043 315,603,861 14,847,396 76,852,323 Renegotiation of Change-of- Conntrol Agreements for Executives 21,919,625 634,461,000 N/A N/A
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number
3.(ii) Bylaws of U S WEST, Inc. as adopted on November 1, 1995 and amended on August 2, 1996. 10 Agreement and Plan of Merger, dated as of February 27, 1996, and as amended and restated as of June 27, 1996, among U S WEST, Inc., Continental Merger Corporation, and Continental Cablevision, Inc. 11 Statement regarding computation of earnings per share of U S WEST, Inc. 12 Statement regarding computation of earnings to fixed charges ratio of U S WEST, Inc. 27 Financial Data Schedule
(b) Reports on Form 8-K filed during the second quarter
(i) Form 8-K report dated April 4, 1996, concerning changes in the registrant's certifying accountant; (ii) Form 8-K report dated May 1, 1996, concerning the releases of earnings issued on April 25, 1996 by U S WEST Communications Group, and on April 29, 1996 by U S WEST Media Group, for the first quarter ended March 31, 1996; and (iii) Form 8-K report dated June 6, 1996, concerning U S WEST's press release regarding its Time Warner litigation, issued June 6, 1996.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. U S WEST, Inc. By: /S/ Michael P. Glinsky _________________________________________ Michael P. Glinsky Executive Vice President and Chief Financial Officer August 9, 1996 EX-3.(II) 2 BYLAWS (..continued) 18 EXHIBIT 3.(II) BYLAWS OF U S WEST, INC. AS ADOPTED ON NOVEMBER 1, 1995 AND AMENDED ON AUGUST 2, 1996 BYLAWS OF U S WEST, INC. ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of U S WEST, Inc. (the "Corporation") in the State of Delaware shall be at 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801 and its registered agent at such address shall be The Corporation Trust Company, or such other office or agent as the Board of Directors of the Corporation (the "Board") shall from time to time select. SECTION 2. Other Offices. The Corporation may also have an office or offices, and keep the books and records of the Corporation, except as may otherwise be required by law, at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. Place of Meeting. All meetings of the stockholders of the Corporation shall be held at the office of the Corporation or at such other places, within or without the State of Delaware, as may from time to time be fixed by the Board. SECTION 2. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on the first Friday of June in each year, at an hour to be named in the notice of the meeting, unless such day should fall on a legal holiday in the State of Colorado, in which event the meeting shall be held on the next succeeding business day that is not a legal holiday, or on such date and at such hour as shall from time to time be fixed by the Board. Any previously scheduled annual meeting of the stockholders may be postponed by action of the Board taken prior to the time previously scheduled for such annual meeting of stockholders. SECTION 3. Special Meetings. Except as otherwise required by law or the Certificate of Incorporation of the Corporation (the "Certificate"), special meetings of the stockholders for any purpose or purposes may be called by the Chairman of the Board or a majority of the entire Board. Only such business as is specified in the notice of any special meeting of the stockholders shall come before such meeting. SECTION 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of the stockholders, whether annual or special, shall be given, either by personal delivery or by mail, not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to notice of the meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Each such notice shall state the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy without protesting, prior to or at the commencement of the meeting, the lack of proper notice to such stockholder, or who shall sign a written waiver of notice thereof, whether before or after such meeting. Notice of adjournment of a meeting of stockholders need not be given if the time and place to which it is adjourned are announced at such meeting, unless the adjournment is for more than 30 days or, after adjournment, a new record date is fixed for the adjourned meeting. SECTION 5. Quorum. Except as otherwise provided by law or by the Certificate, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders; provided, however, that in the case of any vote to be taken by classes, the holders of a majority of the votes entitled to be cast by the stockholders of a particular class shall constitute a quorum for the transaction of business by such class. SECTION 6. Adjournments. The chairman of the meeting or the holders of a majority of the votes entitled to be cast by the stockholders who are present in person or by proxy may adjourn the meeting from time to time whether or not a quorum is present. In the event that a quorum does not exist with respect to any vote to be taken by a particular class, the chairman of the meeting or the holders of a majority of the votes entitled to be cast by the stockholders of such class who are present in person or by proxy may adjourn the meeting with respect to the vote(s) to be taken by such class. At such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 7. Order of Business. (a) At each meeting of the stockholders, the Chairman of the Board or, in the absence of the Chairman of the Board, such person as shall be selected by the Board shall act as chairman of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. (b) At any annual meeting of stockholders, only such business shall be conducted as shall have been brought before the annual meeting (i) by or at the direction of the chairman of the meeting, (ii) pursuant to the notice provided for in this Section 4 of this Article II or (iii) by any stockholder who is a holder of record at the time of the giving of such notice provided for in this Section 7, who is entitled to vote at the meeting and who complies with the procedures set forth in this Section 7. (c) For business properly to be brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation (the "Secretary"). To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days prior to the date of an annual meeting of stockholders. To be in proper written form, a stockholder's notice to the Secretary shall set forth in writing as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and address of the stockholder proposing such business and all persons or entities acting in concert with the stockholder; (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and all persons or entities acting in concert with such stockholder; and (iv) any material interest of the stockholder in such business. The foregoing notice requirements shall be deemed satisfied by a stockholder if the stockholder has notified the Corporation of his or her intention to present a proposal at an annual meeting and such stockholder's proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such annual meeting; provided, however, that if such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. Notwithstanding anything in the bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 7. The chairman of an annual meeting shall, if the facts warrant, determine that business was not properly brought before the annual meeting in accordance with the provisions of this Section 7 and, if the chairman should so determine, the chairman shall so declare to the annual meeting and any such business not properly brought before the annual meeting shall not be transacted. SECTION 8. List of Stockholders. It shall be the duty of the Secretary or other officer who has charge of the stock ledger to prepare and make, at least 10 days before each meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in such stockholder's name. Such list shall be produced and kept available at the times and places required by law. SECTION 9. Voting. (a) Except as otherwise provided by law or by the Certificate, each stockholder of record of any class or series of capital stock of the Corporation shall be entitled at each meeting of stockholders to such number of votes for each share of such stock as may be fixed in the Certificate or in the resolution or resolutions adopted by the Board providing for the issuance of such stock, registered in such stockholder's name on the books of the Corporation: (1) on the date fixed pursuant to Section 6 of Article VII of these bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting; or (2) if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice of such meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) Each stockholder entitled to vote at any meeting of stockholders may authorize not in excess of three persons to act for such stockholder by proxy. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated for holding such meeting. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. (c) At each meeting of the stockholders, all corporate actions to be taken by vote of the stockholders (except as otherwise required by law and except as otherwise provided in the Certificate or these bylaws) shall be authorized by a majority of the votes cast by the stockholders entitled to vote thereon who are present in person or represented by proxy, and where a separate vote by class is required, a majority of the votes cast by the stockholders of such class who are present in person or represented by proxy shall be the act of such class. (d) Unless required by law or determined by the chairman of the meeting to be advisable, the vote on any matter, including the election of directors, need not be by written ballot. In the case of a vote by written ballot, each ballot shall be signed by the stockholder voting, or by such stockholder's proxy. SECTION 10. Inspectors. The chairman of the meeting shall appoint one or more inspectors to act at any meeting of stockholders. Such inspectors shall perform such duties as shall be specified by the chairman of the meeting. Inspectors need not be stockholders. No director or nominee for the office of director shall be appointed such inspector. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualification and Election. (a) Except as otherwise fixed by or pursuant to the provisions of Article V of the Certificate relating to the rights of the holders of any class or series of stock having preference over the common stock of the corporation as to dividends or upon liquidation, the number of directors of the Corporation shall be determined from time to time by the Board by the affirmative vote of directors constituting at least a majority of the entire Board; provided that the number thereof may not be less than six nor more than seventeen. (b) The directors, other than those who may be elected by the holders of shares of any class or series of stock having a preference over the common stock of the Corporation as to dividends or upon liquidation pursuant to the terms of Article V of the Certificate or any resolution or reso-lutions providing for the issuance of such stock adopted by the Board, shall be classified, with respect to the time for which they severally hold office, into three classes as nearly equal in number as possible, with each class to hold office until its successors are elected and qualified. Subject to the rights of the holders of any class or series of stock having a preference over the common stock of the Corporation as to dividends or upon liquidation, at each such annual meeting of the stockholders, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. (c) Each director shall be at least 21 years of age. Directors need not be stockholders of the Corporation. (d) In any election of directors held at a meeting of stockholders, the persons receiving a plurality of the votes cast by the stockholders entitled to vote thereon at such meeting who are present or represented by proxy, up to the number of directors to be elected in such election, shall be deemed elected. SECTION 3. Notification of Nomination. Subject to the rights of the holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, nominations for the election of directors may be made by the Board or by any stockholder who is a stockholder of record at the time of giving of the notice of nomination provided for in this Section 3 of this Article III and who is entitled to vote for the election of directors. Any stockholder of record entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if timely written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at an annual meeting of stockholders, not less than 60 days prior to the date of such annual meeting and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, not less than 15 days following the public announcement of the date of such special meeting. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination, of all persons or entities acting in concert with the stockholder, and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or entities acting in concert with the stockholder (naming such person or entities) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by the stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board; (e) the class and number of shares of the Corporation that are beneficially owned by the stockholder and all persons or entities acting in concert with the stockholder; and (f) the consent of each nominee to being named in a proxy statement as nominee and to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made after compliance with the foregoing procedure. Only such persons who are nominated in accordance with the procedures set forth in this Section 3 of this Article III shall be eligible to serve as directors of the Corporation. SECTION 4. Quorum and Manner of Acting. Except as otherwise provided by law, the Certificate or these bylaws, a majority of the entire Board shall constitute a quorum for the transaction of business at any meeting of the Board, and, except as so provided, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. The chairman of the meeting or a majority of the directors present may adjourn the meeting to another time and place whether or not a quorum is present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 5. Place of Meeting. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notice or waivers of notice thereof. SECTION 6. Regular Meetings. Regular meetings of the Board shall be held at such times and places as the Chairman of the Board or the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday under the laws of the place where the meeting is to be held, the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. SECTION 7. Special Meetings. Special meetings of the Board shall be held whenever called by the Chairman of the Board or by a majority of the directors. SECTION 8. Notice of Meetings. Notice of regular meetings of the Board or of any adjourned meeting thereof need not be given. Notice of each special meeting of the Board shall be given by overnight delivery service or mailed to each director, in either case addressed to such director at such director's residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such director at such place by telegraph or telecopy or be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any director who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to such director. Every such notice shall state the time and place but need not state the purpose of the meeting. SECTION 9. Rules and Regulations. The Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these bylaws for the conduct of its meetings and management of the affairs of the Corporation as the Board may deem proper. SECTION 10. Participation in Meeting by Means of Communication Equipment. Any one or more members of the Board or any committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 11. Action without Meeting. Any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting if all of the members of the Board or of any such committee consent thereto in writing and the writing or writings are filed with the minutes or proceedings of the Board or of such committee. SECTION 12. Resignations. Any director of the Corporation may at any time resign by giving written notice to the Board, the Chairman of the Board, the President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified therein, upon receipt thereof; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 13. Removal of Directors. Directors may be removed only as provided in Section 5 of Article VI of the Certificate. SECTION 14. Vacancies. Subject to the rights of the holders of any class or series of stock having a preference over the common stock of the Corporation as to dividends or upon liquidation, any vacancies on the Board resulting from death, resignation, removal or other cause shall only be filled by the Board by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board, or by a sole remaining director, and newly created directorships resulting from any increase in the number of directors shall be filled by the Board, or if not so filled, by the stockholders at the next annual meeting thereof or at a special meeting called for that purpose in accordance with Section 3 of Article II of these bylaws. Any director elected in accordance with the preceding sentence of this Section 14 of this Article III shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. SECTION 15. Compensation. Each director, in consideration of such person serving as a director, shall be entitled to receive from the Corporation such amount per annum and such fees for attend-ance at meetings of the Board or of committees of the Board, or both, as the Board shall from time to time determine. In addition, each director shall be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person's duties as a director. Nothing contained in this Section 15 of this Article III shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving proper compensation therefor. ARTICLE IV COMMITTEES OF THE BOARD OF DIRECTORS SECTION 1. Establishment of Committees of the Board of Directors; Election of Members of Committees of the Board of Directors; Functions of Committees of the Board of Directors. The Board may, in accordance with and subject to the General Corporation Law of the State of Delaware, from time to time establish committees of the Board to exercise such powers and authorities of the Board, and to perform such other functions, as the Board may from time to time determine. SECTION 2. Procedure; Meetings; Quorum. Regular meetings of committees of the Board, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of any committee of the Board shall be called at the request of a majority of the members thereof. Notice of each special meeting of any committee of the Board shall be given by overnight delivery service or mailed to each member, in either case addressed to such member at such member's residence or normal place of business, at least two days before the day on which the meeting is to be held or shall be sent to such members at such place by telegraph or telecopy or be given personally or by telephone, not later than the day before the meeting is to be held, but notice need not be given to any member who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to it or at its commencement, the lack of such notice to such member. Any special meeting of any committee of the Board shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat. Notice of any adjourned meeting of any committee of the Board need not be given. Any committee of the Board may adopt such rules and regulations not inconsistent with the provisions of law, the Certificate or these bylaws for the conduct of its meetings as such committee of the Board may deem proper. A majority of the members of any committee of the Board shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. Each committee of the Board shall keep written minutes of its proceedings and shall report on such proceedings to the Board. ARTICLE V OFFICERS SECTION 1. Number; Term of Office. The officers of the Corporation shall be such officers, which may include a Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, General Counsel and one or more Vice Presidents (including, without limitation, Assistant, Executive and Senior Vice Presidents) and a Treasurer, Secretary and Controller and such other officers or agents with such titles and such duties as the Board may from time to time determine, each to have such authority, functions or duties as provided in these bylaws or as the Board may from time to time determine, and each to hold office for such term as may be prescribed by the Board and until such person's successor shall have been chosen and shall qualify, or until such person's death or resignation, or until such person's removal in the manner hereinafter provided. One person may hold the offices and perform the duties of any two or more of said officers; provided, however, that no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Certificate or these bylaws to be executed, acknowledged or verified by two or more officers. The Board may from time to time authorize any officer to appoint and remove any such other officers and agents and to prescribe their powers and duties. The Board may require any officer or agent to give security for the faithful performance of such person's duties. SECTION 2. Removal. Any officer may be removed, either with or without cause, by the Board at any meeting thereof or, except in the case of any officer elected by the Board, by any superior officer upon whom such power may be conferred by the Board. SECTION 3. Resignation. Any officer may resign at any time by giving notice to the Board, the Chairman of the Board or the Secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal or any other cause may be filled for the unexpired portion of the term in the manner prescribed in these bylaws for election to such office. SECTION 5. Chairman of the Board; Powers and Duties. The Chairman of the Board shall be the chief exe-cutive officer of the Corporation. Subject to the control of the Board, the Chairman of the Board shall super-vise and direct generally all the business and affairs of the Corporation. The Chairman of the Board shall preside at all meetings of the stockholders and the Board. Any document may be signed by the Chairman of the Board or any other person who may be thereunto authorized by the Board or the Chairman of the Board. The Chairman of the Board may appoint such assistant officers as are deemed necessary. SECTION 6. President, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents; Powers and Duties. The President shall be the chief operating officer of the Corporation. The President and each Executive Vice President, each Senior Vice President, and each Vice President shall have such powers and perform such duties as may be assigned by the Board of Directors or the Chairman of the Board. In case of the absence or disability of the Chairman of the Board or a vacancy in the office, the President, an Executive Vice President, a Senior Vice President, or a Vice President designated by the Chairman of the Board or the Board shall exercise all the powers and perform all the duties of the Chairman of the Board. SECTION 7. Secretary and Assistant Secretaries; Powers and Duties. The Secretary shall attend all meetings of the stockholders and the Board and shall keep the minutes for such meetings in one or more books provided for that purpose. The Secretary shall be custodian of the corporate records, except those required to be in the custody of the Treasurer or the Controller, shall keep the seal of the Corporation, and shall execute and affix the seal of the Corporation to all documents duly authorized for execution under seal on behalf of the Corporation, and shall perform all of the duties incident to the office of Secretary, as well as such other duties as may be assigned by the Chairman of the Board or the Board. The Assistant Secretaries shall perform such of the Secretary's duties as the Secretary shall from time to time direct. In case of the absence or disability of the Secretary or a vacancy in the office, an Assistant Secretary designated by the Chairman of the Board or by the Secretary, if the office is not vacant, shall perform the duties of the Secretary. SECTION 8. Chief Financial Officer; Powers and Duties. The Chief Financial Officer shall be responsible for maintaining the financial integrity of the Corporation, shall prepare the financial plans for the Corporation, and shall monitor the financial performance of the Corporation and its subsidiaries, as well as performing such other duties as may be assigned by the Chairman of the Board or the Board. SECTION 9. Treasurer and Assistant Treasurers; Powers and Duties. The Treasurer shall have care and custody of the funds and securities of the Corporation, shall deposit such funds in the name and to the credit of the Corporation with such depositories as the Treasurer shall approve, shall disburse the funds of the Corporation for proper expenses and dividends, and as may be ordered by the Board, taking proper vouchers for such disbursements. The Treasurer shall perform all of the duties incident to the office of Treasurer, as well as such other duties as may be assigned by the Chairman of the Board or the Board. The Assistant Treasurers shall perform such of the Treasurer's duties as the Treasurer shall from time to time direct. In case of the absence or disability of the Treasurer or a vacancy in the office, an Assistant Treasurer designated by the Chairman of the Board or by the Treasurer, if the office is not vacant, shall perform the duties of the Treasurer. SECTION 10. General Counsel; Powers and Duties. The General Counsel shall be a licensed attorney at law and shall be the chief legal officer of the Corporation. The General Counsel shall have such power and exercise such authority and provide such counsel to the Corporation as deemed necessary or desirable to enforce the rights and protect the property and integrity of the Corporation, shall also have the power, authority, and responsibility for securing for the Corporation all legal advice, service, and counseling, and shall perform all of the duties incident to the office of General Counsel, as well as such other duties as may be assigned by the Chairman of the Board or the Board. SECTION 11. Controller and Assistant Controllers; Powers and Duties. The Controller shall be the chief accounting officer of the Corporation and shall keep and maintain in good and lawful order all accounts required by law and shall have sole control over, and ultimate responsibility for, the accounts and accounting methods of the Corporation and the compliance of the Corporation with all systems of accounts and accounting regulations prescribed by law. The Controller shall audit, to such extent and at such times as may be required by law or as the Controller may think necessary, all accounts and records of corporate funds or property, by whomsoever kept, and for such purposes shall have access to all such accounts and records. The Controller shall make and sign all necessary and proper accounting statements and financial reports of the Corporation, and shall perform all of the duties incident to the office of Controller, as well as such other duties as may be assigned by the Chairman of the Board or the Board. The Assistant Controllers shall perform such of the Controller's duties as the Controller shall from time to time direct. In case of the absence or disability of the Controller or a vacancy in the office, an Assistant Controller designated by the Chairman of the Board or the Controller, if the office is not vacant, shall perform the duties of the Controller. SECTION 12. Salaries. The salaries of all officers of the Corporation shall be fixed by or in the manner provided by the Board. If authorized by a resolution of the Board, the salary of any officer other than the Chairman of the Board may be fixed by the Chairman of the Board or a Committee of the Board. No officer shall be disqualified from receiving a salary by reason of also being a director of the Corporation. ARTICLE VI INDEMNIFICATION SECTION 1. Scope of Indemnification1. Scope of Indemnification1. Scope of Indemnification. (a) The Corporation shall indemnify an indemnified representative against any liability incurred in connection with any proceeding in which the indemnified representative may be involved as a party or otherwise, by reason of the fact that such person is or was serving in an indemnified capacity, except to the extent that any such indemnification against a particular liability is expressly prohibited by applicable law or where a judgment or other final adjudication adverse to the indemnified representative establishes, or where the Corporation determines, that his or her acts or omissions (i) were in breach of such person's duty of loyalty to the Corporation or its stockholders, (ii) were not in good faith or involved intentional misconduct or a knowing violation of law, or (iii) resulted in receipt by such person of an improper personal benefit. The rights granted by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification, contribution, or advancement of expenses may be entitled under any statute, certificate of incorporation, agreement, contract of insurance, vote of stockholders or disinterested directors, or otherwise. The rights of indemnification and advancement of expenses provided by or granted pursuant to this Article shall continue as to a person who has ceased to be an indemnified representative in respect of matters arising prior to such time and shall inure to the benefit of the heirs, executors, administrators and personal representatives of such a person. (b) If an indemnified representative is not entitled to indemnification with respect to a portion of any liabilities to which such person may be subject, the Corporation shall nonetheless indemnify such indemnified representative to the maximum extent for the remaining portion of the liabilities. (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the indemnified representative is not entitled to indemnification. (d) To the extent permitted by law, the payment of indemnification provided for by this Article, including the advancement of expenses pursuant to Section 2 of this Article VI, with respect to proceedings other than those brought by or in the right of the Corporation, shall be subject to the conditions that the indemnified representative shall give the Corporation prompt notice of any proceeding, that the Corporation shall have complete charge of the defense of such proceeding and the right to select counsel for the indemnified representative, and that the indemnified representative shall assist and cooperate fully in all matters respecting the proceeding and its defense or settlement. The Corporation may waive any or all of the conditions set forth in the preceding sentence. Any such waiver shall be applicable only to the specific payment for which the waiver is made and shall not in any way obligate the Corporation to grant such waiver at any future time. In the event of a conflict of interest between the indemnified representative and the Corporation that would disqualify the Corporation's counsel from representing the indemnified representative under the rules of professional conduct applicable to attorneys, it shall be the policy of the Corporation to waive any or all of the foregoing conditions subject to such limitations or conditions as the Corporation shall deem to be reasonable in the circumstances. (e) For purposes of this Article: (1) "indemnified capacity" means any and all past, present, or future services by an indemnified representative in one or more capacities as a director, officer, employee, or agent of the Corporation or, at the request of the Corporation, as a director, officer, employee, agent, fiduciary, or trustee of another corporation, partnership, joint venture, trust, employee benefit plan, or other entity or enterprise; any indemnified representative serving an affiliate of the Corporation in any capacity shall be deemed to be doing so at the request of the Corporation; (2) an "affiliate of the Corporation" means an entity that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Corporation; (3) "indemnified representative" means any and all directors, officers, and employees of the Corporation and any other person designated as an indemnified representative by the Board; (4) "liability" means any damage, judgment, amount paid in settlement, fine, penalty, punitive damage, excise tax assessed with respect to an employee benefit plan, or cost or expense of any nature (including, without limitation, expert witness fees, costs of investigation, litigation and appeal costs, attorneys' fees, and disbursements); and (5) "proceeding" means any threatened, pending, or completed action, suit, appeal, or other proceeding of any nature, whether civil, criminal, administrative, or investigative, whether formal or informal, whether external or internal to the Corporation, and whether brought by or in the right of the Corporation, a class of its security holders or otherwise. SECTION 2. Advancing Expenses. All reasonable expenses incurred in good faith by an indemnified representative in advance of the final disposition of a proceeding described in Section 1 of this Article VI shall be advanced to the indemnified representative by the Corporation. Before making any such advance payment of expenses, the Corporation shall receive an undertaking by or on behalf of the indemnified representative to repay such amount if it shall ultimately be determined that such indemnified representative is not entitled to be indemnified by the Corporation pursuant to this Article VI. No advance shall be made by the Corporation if a determination is reasonably and promptly made by a majority vote of disinterested directors, even if the disinterested directors constitute less than a quorum, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel in a written opinion, that, based upon the facts known to the Board or counsel at the time such determination is made, the indemnified representative has acted in such a manner as to permit or require the denial of indemnification pursuant to the provisions of Section 1 of this Article VI. ARTICLE VII CAPITAL STOCK SECTION 1. Share Ownership. (a) Holders of shares of stock of each class of the Corporation shall be recorded on the books of the Corporation and ownership of such stock shall be evidenced by a certificate or other form as shall be approved by the Board. Certificates representing shares of stock of each class shall be signed by, or in the name of, the Corporation by the Chairman of the Board or the President, any Vice President and by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer of the Corporation, and sealed with the seal of the Corporation, which may be a facsimile thereof. Any or all such signatures may be facsimiles if countersigned by a transfer agent or registrar. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue. (b) The stock ledger and blank share certificates shall be kept by the Secretary or by a transfer agent or by a registrar or by any other officer or agent designated by the Board. SECTION 2. Transfer of Shares. Transfers of shares of stock of each class of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by such holder's attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent for such stock, if any, and on surrender of the certificate or certificates, if any, for such shares properly endorsed or accompanied by a duly executed stock transfer power (or by proper evidence of succession, assignment or authority to transfer) and the payment of any taxes thereon; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. The person in whose name shares are registered on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation; provided, however, that whenever any transfer of shares shall be made for collateral security and not absolutely, and written notice thereof shall be given to the Secretary or to such transfer agent, such fact shall be stated in the entry of the transfer. No transfer of shares shall be valid as against the Corporation, its stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by law, until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. SECTION 3. Registered Stockholders and Addresses of Stockholders. (a) The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (b) Each stockholder shall designate to the Secretary or transfer agent of the Corporation an address at which notices of meetings and all other corporate notices may be delivered or mailed to such person, and, if any stockholder shall fail to designate such address, corporate notices may be delivered to such person by mail directed to such person at such person's post office address, if any, as the same appears on the stock record books of the Corporation or at such person's last known post office address. SECTION 4. Lost, Destroyed and Mutilated Certificates. The Corporation may issue to any holder of shares of stock the certificate for which has been lost, stolen, destroyed or mutilated a new certificate or certificates for shares, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction. The Board, or a committee designated thereby, or the transfer agents and registrars for the stock, may, in their discretion, require the owner of the lost, stolen or destroyed certificate, or such person's legal representative, to give the Corporation a bond in such sum and with such surety or sureties as they may direct to indemnify the Corporation and said transfer agents and registrars against any claim that may be made on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 5. Regulations. The Board may make such additional rules and regulations as it may deem expedient concerning the issue and transfer of certificates representing shares of stock of each class of the Corporation and may make such rules and take such action as it may deem expedient concerning the issue of certificates in lieu of certificates claimed to have been lost, destroyed, stolen or mutilated. SECTION 6. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment or any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. SECTION 7. Transfer Agents and Registrars. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. ARTICLE VIII SEAL The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the full name of the Corporation and the words and figures of "Corporate Seal Delaware", or such other words or figures as the Board may approve and adopt. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE IX FISCAL YEAR The fiscal year of the Corporation shall end on the 31st day of December in each year. ARTICLE X AMENDMENTS Any bylaw may be adopted, repealed, altered or amended by two-thirds of the entire Board at any meeting thereof. The stockholders of the Corporation shall have the power to amend, alter or repeal any provision of these bylaws only to the extent and in the manner provided in the Certificate. EX-10 3 AGREEMENT AND PLAN OF MERGER AS AMENDED 6/27/96 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of February 27, 1996, and as amended and restated as of June 27, 1996, among U S WEST, INC., a Delaware corporation ("Acquiror"), CONTINENTAL MERGER CORPORATION, a Delaware corporation and direct wholly owned subsidiary of Acquiror ("Company Sub"), and CONTINENTAL CABLEVISION, INC., a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, Acquiror and the Company have entered into an Agreement and Plan of Merger, dated as of February 27, 1996 (the "Original Agreement"), providing for the merger of the Company with and into Acquiror (the "Direct Merger"); WHEREAS, Acquiror and the Company desire to amend and restate the Original Agreement in its entirety to permit an alternate merger structure providing for the merger of the Company into Company Sub (the "Subsidiary Merger") and to make certain other amendments to the Original Agreement, and Company Sub desires to become a party thereto; WHEREAS, the board of directors of the Company has determined that the Direct Merger and the Subsidiary Merger would be fair to and in the best interests of its stockholders, and such board of directors has approved this Agreement and the transactions contemplated hereby and has recommended the adoption by the stockholders of the Company of this Agreement and the amendments to Section F of Article FOURTH (the "Conversion Charter Amendment") and Section H of Article FOURTH (the "Consideration Charter Amendment" and, together with the Conversion Charter Amendment, the "Charter Amendments"), substantially in the form contained in Exhibit A hereto, of the Company's Restated Certificate of Incorporation to be effected prior to the consummation of the Direct Merger or the Subsidiary Merger; WHEREAS, the board of directors of Acquiror has determined that the Direct Merger and the Subsidiary Merger, and the board of directors of Company Sub has determined that the Subsidiary Merger, would be fair to and in the best interests of their respective stockholders, and such boards of directors have approved this Agreement and the transactions con-templated hereby; WHEREAS, concurrently with the execution of the Original Agreement and in order to induce Acquiror to enter into the Original Agreement, certain stockholders of the Company executed and delivered an agreement pursuant to which, among other things, such Stockholders granted to Acquiror their proxy to vote all of the votes entitled to be cast by such stockholders in favor of the adoption of this Agreement and the Consideration Charter Amendment, which agreement is being amended in connection with the execution and delivery of this Agreement (as so amended, the "Stockholders' Agreement"); WHEREAS, for Federal income tax purposes, it is intended that the Direct Merger and the Subsidiary Merger shall each qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated there-under (the "Code"); and WHEREAS, Acquiror, Company Sub and the Company desire to make certain representations, warranties, covenants and agree-ments in connection with the transactions contemplated hereby and also to prescribe various conditions to the transactions contemplated hereby. NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agree-ments herein contained, the parties hereto agree as follows: DEFINITIONS Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Acquiror Region" shall mean Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such other Person. "Basic Cable Service" shall mean as to each System the tier of video programming service defined in 47 C.F.R. Section 76.901(a). "Board of Directors" shall mean the board of directors of the Company. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Cable Act" shall mean the Cable Communications Policy Act of 1984, as amended by the Cable Television Consumer Protection and Competition Act of 1992 and the Telecommunications Act of 1996. "Cable Programming Service" shall mean as to each System those video programming services defined in 47 C.F.R. Section 76.901(b). "Calculation Price" shall mean the Determination Price, Cap Price or Floor Price, as applicable, based upon which the Class A Common Conversion Number and Class B Common Conversion Number is determined in accordance with Section 3.1(d). "Cap Price" shall mean $28.175. "Cash Consideration Amount" shall equal $1 billion; provided, however, that the board of directors of Acquiror shall have the right, in its sole discretion, to increase the Cash Consideration Amount to a maximum of $1.5 billion so long as notice of such change is given to the Company no later than one Business Day prior to the Effective Time; provided, further, that the board of directors of Acquiror shall have the right to increase the Cash Consideration Amount above $1.5 billion in an amount equal to (x) the number of shares of Company Common Stock issued or to be issued in connection with any acquisition by the Company approved by Acquiror pursuant to Section 6.1 hereof multiplied by (y) the Share Price; and provided, further, that the Cash Consideration Amount may be reduced pursuant to Section 7.7(c). "CATV" shall mean any method, presently existing, for the transmission and/or exhibition (whether by microwave, fiber optics or coaxial cable) of broadband video signals other than by means of DBS, MMDS, broadcast television and in-home video players (and which is based on the expectation of payment by the recipient), and shall include without limitation cable television (basic and premium) and pay-per-view television. "Charter Amendments" shall have the meaning set forth in the third recital to this Agreement. "Class A Preferred Consideration Amount" shall mean the product of (x) the Class A Preferred Percentage multiplied by (y) the Share Price multiplied by (z) the number of shares of Class A Common Stock outstanding immediately prior to the Effective Time on a fully diluted basis. "Class A Preferred Conversion Number" shall mean the quotient of (x) the product of (A) the Class A Preferred Percentage multiplied by (B) the Share Price divided by (y) the Liquidation Value (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth). "Class A Preferred Percentage" shall mean the difference between (x) one and (y) the Class A Common Percentage. "Class B Aggregate Consideration Amount" shall mean the sum of the Cash Consideration Amount plus the Class B Preferred Consideration Amount plus the Class B Common Consideration Amount. "Class B Common Consideration Amount" shall mean the product of (x) the Class B Percentage multiplied by (y) the Common Consideration Net Amount. "Class B Common Percentage" shall mean the quotient (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth) of (x) the Class B Common Consideration Amount divided by (y) the sum of the Class B Common Consideration Amount and the Class B Preferred Consideration Amount. "Class B Percentage" shall mean the quotient (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth) of (i) the number of shares of Class B Common Stock outstanding immediately prior to the Effective Time on a fully diluted basis, including giving effect to the conversion of all outstanding shares of Company Preferred Stock but excluding any and all unvested and outstanding shares of Restricted Company Common Stock, divided by (ii) the number of shares of Company Common Stock outstanding immediately prior to the Effective Time on a fully diluted basis, including giving effect to the conversion of all outstanding shares of Company Preferred Stock but excluding any and all unvested and outstanding shares of Restricted Company Common Stock. "Class B Preferred Consideration Amount" shall mean the difference between (x) the Preferred Consideration Amount and (y) the Class A Preferred Consideration Amount. "Class B Preferred Conversion Number" shall mean the quotient of (x) the product of (A) the Class B Preferred Percentage multiplied by (B) the Share Price divided by (y) the Liquidation Value (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth). "Class B Preferred Percentage" shall mean the quotient (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next highest hundredth) of (x) the Class B Preferred Consideration Amount divided by (y) the sum of the Class B Common Consideration Amount and the Class B Preferred Consideration Amount. "Code" shall have the meaning set forth in the sixth recital to this Agreement. "Common Consideration Amount" shall equal the excess of (x) the Transaction Value over (y) the sum of the Preferred Consideration Amount and the Cash Consideration Amount. "Common Consideration Net Amount" shall equal the difference between (x) the Common Consideration Amount and (y) the RSPA Amount. "Common Percentage" shall mean the quotient (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth) of (x) the Common Consideration Net Amount divided by (y) the Transaction Value. "Communications Act" shall mean the Communications Act of 1934, as amended, 47 U.S.C. Sections 151, et seq., as amended by the Telecommunications Act of 1996. "Consideration Charter Amendment" shall have the meaning set forth in the third recital to this Agreement. "Conversion Charter Amendment" shall have the meaning set forth in the third recital to this Agreement. "Copyright Office" shall mean the United States Copyright Office of the Library of Congress or any successor agency that shall hold principal responsibility for administering the cable television compulsory license for retransmission of broadcast signals established pursuant to Section 111 of the Copyright Act, 17 U.S.C. Section 111. "DBS" shall mean a system providing direct-to-home in the broadcast satellite services authorized by the FCC. "Determination Price" shall mean the average of the Intra-Day Closing Prices for the Random Trading Days. "DGCL" shall mean the Delaware General Corporation Law. "Direct Merger" shall have the meaning set forth in the first recital to this Agreement. "DOJ" shall mean the Department of Justice. "Encumbrances" shall mean any and all mortgages, security interests, liens, claims, pledges, restrictions, leases, title exceptions, charges or other encumbrances. "Environmental Claim" means any notice of violation, action, claim, Environmental Lien, demand, abatement or other Order or direction (conditional or otherwise) by any Governmental Authority or any other Person for personal injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restrictions resulting from or based upon (i) the existence of an Environmental Release (including, without limitation, sudden or non-sudden accidental or non-accidental Environmental Releases) of, or exposure to, any Hazardous Material, noxious odor or illegal audible noise in, into or onto the environment (including, without limitation, the air, soil, surface water or groundwater) at, in, by, from or related to any property owned, operated or leased by the Company or its Subsidiaries or any activities or operations thereof; (ii) the transportation, storage, treatment or disposal of Hazardous Materials in connection with any property owned, operated or leased by the Company or its Subsidiaries or their operations or facilities; or (iii) the violation, or alleged violation, of any Environmental Law or Environmental Permit of or from any Governmental Authority relating to environmental matters connected with any property owned, leased or operated by the Company or any of its Subsidiaries. "Environmental Costs and Liabilities" means any and all losses, liabilities, obligations, damages, fines, penalties, judgments, actions, claims, costs and expenses (including, without limitation, fees, disbursements and expenses of legal counsel, experts, engineers and consultants and the costs of investigation and feasibility studies and Remedial Action) arising from or under any Environmental Law or contract, agreement or similar arrangement with any Governmental Authority or other Person required under any Environmental Law. "Environmental Law" means any Federal, state, local, or foreign law (including common law), statute, code, ordinance, rule, regulation or other legally enforceable requirement relating to the environment, natural resources, or public or employee health and safety as it relates to exposure to Hazardous Materials and includes, but is not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 33 U.S.C. Section 2601 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 et seq., the Oil Pollution Act of 1990, 33 U.S.C Section 2701 et seq. and the relevant portions of the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., as such laws have been amended or supplemented as of the date hereof, and the regulations promulgated pursuant thereto, and all analogous state or local statutes as of the date hereof. "Environmental Lien" means any lien arising under Environmental Laws. "Environmental Permit" means any permit, approval, authorization, license, variance, registration or permission required under any applicable Environmental Law. "Environmental Release" means any release, spill, emission, leaking, pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching, or migration on or into the indoor or outdoor environment or into or out of any property not authorized under any Environmental Permit and requiring notification under any applicable Environmental Law. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the applicable regulations promulgated thereunder. "ERISA Affiliate" shall mean any corporation or trade or business (whether or not incorporated) which are or have ever been treated as a single employer with or which are or have been under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "FCC" shall mean the Federal Communications Commission. "Final Order" shall mean an action or actions by any Governmental Authority or the FCC which has not been reversed, stayed, enjoined, set aside, annulled or suspended, and as to the FCC with respect to which the time for filing any request, petition or appeal of such action has expired and the time for the FCC to set aside its action on its own motion has passed, and as to any Franchise Consent, when the Franchise Consent has been or is deemed to be approved as provided in Section 617 of the Cable Act. "Floor Price" shall mean $20.825. "FTC" shall mean the Federal Trade Commission. "GAAP" shall mean generally accepted accounting principles in effect in the United States of America as of the date of the applicable determination. "Governmental Authority" shall mean any foreign, Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality. "Hazardous Material" means any substance, material or waste which is regulated by any Governmental Authority in jurisdictions in which the Company operates, including, without limitation, any material, substance or waste which is defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "contaminant," "toxic waste" or "toxic substance" under any provision of Environmental Law, which includes, but is not limited to, petroleum, petroleum products, asbestos, and polychlorinated biphenyls. "Homes Passed" shall mean the number of homes to which CATV service is currently available from the Company or the Subsidiaries, whether or not a given household subscribes to such service. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indebtedness" shall mean, with respect to any Person, any indebtedness, secured or unsecured, (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), and evidenced by bonds, notes, debentures or similar instruments or letters of credit, to the extent of the face value thereof (or, in the case of evidence of indebtedness issued at a discount, the current accredit value thereof) or (ii) representing the balance deferred and unpaid of the purchase price of property or services (other than accounts payable in the ordinary course of business) and shall also include, to the extent not otherwise included, (A) any capitalized lease obligations and (B) the face value of guaranties of items of other Persons which would be included within this definition for such other Persons (whether or not such items would appear upon the balance sheet of the guarantor). No item constituting Indebtedness under any of the definitions set forth above shall be counted twice by virtue of the fact that it constitutes "Indebtedness" under more than one of such definitions. "Intra-Day Closing Prices" shall mean the volume weighted average sale price of the Media Stock (regular way) as shown on the Composite Tape of the NYSE. "IRS" means the United States Internal Revenue Service. "Knowledge of the Company" and "to the Company's Knowledge" shall mean the actual knowledge of the executive officers (as identified in the Company SEC Documents), the Senior Vice President-Corporate & Legal Affairs and the regional Senior Vice Presidents, in each case of the Company after reasonable investigation and due inquiry. "Legal Proceedings" means any judicial, administrative or arbitral actions, suits, proceedings (public or private) or governmental proceedings. "Material Adverse Effect" shall mean, (i) with respect to the Company, any change or effect that is or is reasonably likely to be materially adverse to the business, results of operations, properties, assets, liabilities or condition (financial or otherwise) of the Company and its Subsidiaries taken as whole and (ii) with respect to Acquiror, any change or effect that is or is reasonably likely to be materially adverse to the business, results of operations, properties, assets, liabilities or condition (financial or otherwise) of either (x) the Media Group or (y) Acquiror and its Subsidiaries taken as a whole; provided, however, that Material Adverse Effect shall in each instance exclude any change or effect due to general economic or industry wide conditions. "Media Group" shall have the meaning set forth in Section 2.6.15 of Article V of the Restated Certificate of Incorporation of Acquiror as in effect as of the date hereof. "MMDS" shall mean a system operating in the Multichannel Multipoint Distribution Services authorized by the FCC. "NYSE" shall mean the New York Stock Exchange, Inc. "Original Agreement" shall have the meaning set forth in the first recital to this Agreement. "Person" shall mean an individual, corporation, partnership, trust or unincorporated organization or a government or any agency or political subdivision thereof. "Preferred Consideration Amount" shall equal $1 billion. "Random Trading Days" shall mean the 20 Trading Days selected by Acquiror by lot (through a method reasonably satisfactory to the Company) from the 30 Trading Days ending on the fourth Trading Day prior to the Closing Date. "Recently Acquired Systems" shall mean the Systems acquired by the Company or its Subsidiaries from Providence Journal Company, Cablevision of Chicago, Columbia of Michigan, Consolidated Cablevision of California and N-COM Limited Partnership II since August 1, 1995. "Registration Rights Agreement" shall mean the registration rights agreement, substantially in the form of Exhibit B hereto, to be entered into by Acquiror, Amos B. Hostetter, Jr. and the Amos B. Hostetter, Jr. 1989 Trust. "Remedial Action" means all actions required under any applicable Environmental Law or otherwise undertaken by any Governmental Authority, including, without limitation, any capital expenditures, required or undertaken to (i) clean up, remove, treat, or in any other way address any Hazardous Material; (ii) prevent the Environmental Release or threat of Environmental Release, or minimize the further Environmental Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies and investigations or post-remedial monitoring and care; or (iv) bring facilities on any property owned, operated or leased by the Company or its Subsidiaries and the facilities located and operations conducted thereon into compliance with all applicable Environmental Laws and Environmental Permits. "RSPA Amount" shall mean the product of (x) the number of shares of Restricted Company Common Stock that are unvested and outstanding immediately prior to the Effective Time multiplied by (y) the Share Price. "SEC" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Share Price" shall mean $30, decreased by the Per Share Adjustment Amount, if any, plus the Additional Amount, if any, in accordance with the terms of Section 3.7. "Stockholders' Agreement" shall have the meaning set forth in the fifth recital to this Agreement. "Subpart N of the FCC Rules" shall refer to the Subpart N of Part 76 of the FCC's rules (47 C.F.R. Sections 76.900 through 76.985), entitled "Cable Rate Regulation," added by order in Docket 92-266, adopted by the FCC on April 1, 1993, as such Subpart may be amended from time to time thereafter, as such rules were in effect on any particular date, and shall include successor provisions if recodified or otherwise modified. "Subscriber" shall mean a member of the general public who receives video programming services distributed by a System and does not further distribute it; provided, however, that the number of Subscribers in a multi-unit dwelling or commercial structure that obtains service on a "bulk rate" basis shall be determined by dividing the bulk rate charge by the rate for individual households subscribing to the same level of service as the multi-unit structure (e.g., if the basic subscription rate for individual households is $10 and the multi-unit dwelling or commercial structure paid a bulk fee of $100 for the same level of service, then that multi-unit dwelling or structure shall be counted as having 10 Subscribers). "Subsidiary" shall mean, with respect to any Person, (i) each corporation, partnership, joint venture or other legal entity of which such Person owns, either directly or indirectly, more than 50% of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or similar governing body of such corporation, partnership, joint venture or other legal entity, (ii) each partnership in which such Person or another Subsidiary of such Person is the sole general partner or sole managing partner and (iii) each limited liability company in which such Person or another Subsidiary of such Persons is the managing member or otherwise controls. "Subsidiary Merger" shall have the meaning set forth in the second recital to this Agreement. "Surviving Corporation" shall have the meaning set forth in Section 2.1. "Systems" shall mean the cable television systems listed in Section 4.12(a) of the Company Disclosure Letter. "Tax" or "Taxes" shall mean all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) and shall include any transferee liability in respect of Taxes. "Third Party" shall mean a party or parties unaffiliated with either the Company or Acquiror. "Trading Day" shall mean a day on which (i) the NYSE is open for the transaction of business and (ii) there is no suspension of trading of the Media Stock. "Transaction Documents" shall mean the Stockholders' Agreement and the Registration Rights Agreement. "Transaction Value" shall equal the product of (x) the Share Price multiplied by (y) the number of shares of Company Common Stock outstanding immediately prior to the Effective Time on a fully diluted basis, including giving effect to the conversion of all outstanding shares of Company Preferred Stock. "WARN" shall mean the Worker Adjustment and Retraining Notification Act and any similar state or local "plant closing" law. I.2 Terms Defined Elsewhere in the Agreement. For purposes of this Agreement, the following terms have the meanings set forth in the sections indicated:
Term Section - -------------------------------- ---------- Acceleration Event 7.14(c) Acquiror Certificates 3.2(b) Acquiror Consents 5.5 Acquiror Disclosure Letter 5.2(b) Acquiror SEC Documents 5.7(a) Acquiror Termination Notice 3.1(d)(ii) Acquisition Proposal 7.10(d) Additional Amount 3.7 Additional Payment 7.14(c) Additional Stockholders' Meeting 7.1(d) Allocation Determination 3.2(d) Applicable Laws 4.7(a) Articles 10.7 Benefit Plans 4.11(a) Cap Top-Up Intent Notice 3.1(d)(ii) Cash Cap 3.3(a) Cash Election 3.1(c)(ii) Certificate of Merger 2.3 Certificates 3.2(b) Class A Common Stock 3.1(c)(i) Class A Merger Consideration 3.1(c)(i) Class B Common Stock Election Conversion Number 3.1(d) Class B Common Stock 3.1(c)(ii) Class B Cash Consideration 3.1(c)(ii) Class B Merger Consideration 3.1(c)(ii) Class B Stock Consideration 3.1(c)(ii) Class B Stock Election 3.2(a) Closing 2.2 Closing Date 2.2 Communications Stock 5.2(a) Company Capital Stock 4.2(a) Company Certificate 3.1(c)(iii) Company Common Stock 3.1 Company Consents 4.6 Company Letter of Transmittal 3.2(c) Company Disclosure Letter 4.1(c) Company Preferred Stock 4.2(a) Company Representatives 7.10(a) Company SEC Documents 4.8(a) Company Termination Notice 3.1(d)(ii) Confidentiality Agreements 6.3(c) Conversion Number 3.1(d) Copyright Act 4.12(e) Designated Assets 7.7(b) Designated Asset Fair Market Value 7.7(c) Dissenting Shares 3.6 Effective Time 2.3 Election Deadline 3.2(d) Election Form 3.2(c) Equity Appreciation Rights Plans 4.11(i) Excess Cash Amount 3.3(c) Excise Tax 7.14(c) Exchange Agent 3.2(b) Exchange Fund 3.2(b) Exhibits 10.7 Floor Top-Up Intent Notice 3.1(d)(ii) Foreign Benefit Plans 4.11(b) Form S-4 5.5 Fractional Shares 3.4(c)(i) Franchise Consents 4.6 Franchises 4.12(a) Gains Taxes 4.6 Incremental Excise Tax 7.14(c) Indemnified Liabilities 7.11(b) Indemnified Parties 7.11(b) Initial Stockholders' Meeting 7.1(d) Liquidation Value 3.1(c)(i) License Consents 4.6 Material Franchises 4.12(c) Media Stock 3.1(c)(i) Merger 2.1 Merger Consideration 3.2(b) Non-Required Franchises 7.5(b) Non-Required Systems 7.5(b) Permits 4.7(a) Per Share Adjustment Amount 7.7(c) Prorated Cash Amount 3.3(b) Proxy Statement 4.6 Put Closing Date 9.4(c) Put Exercise Notice 9.4(b) Put Right 9.4(a) Put Shares 9.4(a) Requested Cash Amount 3.3(a) Required Franchise Consents 8.2(j) Restricted Company Common Stock 3.5 Rights Agreement 5.2(a) RSPA 3.5 Ruling 2.1 Sections 10.7 Series D Preferred Stock 3.1(c)(i) Social Contract Amendment 4.6 Social Contract Consents 4.6 Social Contract Order 4.6 Standard Election 3.1(c)(ii) Stock Election 3.1(c)(ii) Stockholder Approvals 4.1(b) Stockholders' Meeting 7.1(d) Tax Returns 4.10(a) Termination Date 9.1(d)
I.3 Other Definitional Provisions. (a) The words "hereof", "herein", and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (a) The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (b) The terms "dollars" and "$" shall mean United States dollars. II THE MERGER II.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, the Company shall be merged with and into Company Sub at the Effective Time (as defined in Section 2.3); provided, however, that if Acquiror, the Company and The Providence Journal Company shall not have received a ruling from the IRS satisfactory to each of them (the "Ruling") by the later of (i) the fifth Business Day after the date on which the last of the conditions set forth in Article VIII is fulfilled or waived, other than conditions requiring deliveries at the Closing and the condition set forth in Section 8.1(f) and (ii) November 15, 1996, upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL, the Company shall be merged with and into Acquiror at the Effective Time. As used herein, the "Merger" shall refer to the Subsidiary Merger or the Direct Merger, as applicable. At the Effective Time, the separate corporate existence of the Company shall cease, and Company Sub or Acquiror, as applicable, shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all of the rights, properties, liabilities and obligations of the Company in accordance with the DGCL. II.2 Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 9.1, the closing of the Merger (the "Closing") shall take place at 10:00 a.m., New York City time, the later of (i) the fifth Business Day after the date on which the last of the conditions set forth in Article VIII is fulfilled or waived, other than conditions requiring deliveries at the Closing and (ii) November 15, 1996 (the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, unless another date, time or place is agreed to in writing by the parties hereto. II.3 Effective Time. Subject to the provisions of this Agreement, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, as provided in the DGCL, as soon as practicable on or after the Closing Date. The Merger shall become effective upon such filing or at such time thereafter as is provided in the Certificate of Merger (the "Effective Time"). II.4 Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. II.5 Directors; Certificate of Incorporation; Bylaws. (a) If the Subsidiary Merger is effected, the directors of Company Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation and the officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, until their successors have been duly elected or appointed and qualified, or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and Bylaws. If the Direct Merger is effected, the directors of Acquiror and the officers of Acquiror immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation until their successors have been duly elected or appointed and qualified, or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and Bylaws. (a) If the Subsidiary Merger is effected, the Certificate of Incorporation of Company Sub as in effect immediately prior to the Effective Time shall be amended at the Effective Time so that Article I thereof reads in its entirety as follows: "The name of the corporation is Continental Cablevision, Inc." and, as so amended, such Certificate of Incorporation shall be the Certificate of Incorporation of the Surviving Corporation until thereafter duly amended in accordance with the terms thereof and the DGCL. If the Direct Merger is effected, the Restated Certificate of Incorporation of Acquiror as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation until thereafter duly amended in accordance with the terms thereof and the DGCL. (b) If the Subsidiary Merger is effected, the Bylaws of Company Sub as in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation until thereafter amended as provided by Applicable Law, the Certificate of Incorporation of the Surviving Corporation or such Bylaws. If the Direct Merger is effected, the Bylaws of Acquiror as in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation until thereafter amended as provided by Applicable Law, the Certificate of Incorporation of the Surviving Corporation or such Bylaws. III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES III.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Capital Stock (as defined in Section 4.2) or the holder of any shares of capital stock of Company Sub or Acquiror, as applicable: (a) Capital Stock of Company Sub or Acquiror. If the Subsidiary Merger is effected, each share of common stock, par value $.01 per share, of Company Sub issued and outstanding immediately prior to the Effective Time shall remain outstanding as one share of common stock, par value $.01 per share, of the Surviving Corporation. If the Direct Merger is effected, each share of each class of capital stock of Acquiror issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of the same class of capital stock of the Surviving Corporation. (b) Cancellation of Treasury Stock and Acquiror-Owned Stock. Each share of Company Capital Stock that is owned by the Company or any wholly owned Subsidiary of the Company and each share of Company Capital Stock that is owned by Acquiror or any wholly owned Subsidiary of Acquiror shall be canceled and retired and shall cease to exist and no consideration shall be delivered or deliverable in exchange therefor. (c) Conversion of Company Common Stock. (i) Subject to Sections 3.5 and 3.6, at the Effective Time, each issued and outstanding share (excluding shares cancelled pursuant to Section 3.1(b)) of Class A Common Stock, par value $.01 per share, of the Company ("Class A Common Stock") shall be converted into the right to receive (x) a number of shares of U S WEST Media Group Common Stock, par value $.01 per share, of Acquiror (the "Media Stock") equal to the Conversion Number (as determined in accordance with Section 3.1(d)) and (y) a number of shares of Series D Convertible Preferred Stock, par value $1.00 per share, of Acquiror (the "Series D Preferred Stock"), having the rights, preferences and terms set forth in the Certificate of Designation attached as Exhibit C hereto, with a liquidation value of $50 per share (the "Liquidation Value"), equal to the Class A Preferred Conversion Number (collectively, the "Class A Merger Consideration"). (ii) Subject to Sections 3.5 and 3.6, at the Effective Time each issued and outstanding share (excluding shares cancelled pursuant to Section 3.1(b)) of Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock" and, together with Class A Common Stock, "Company Common Stock"), shall be converted into, at the election of the holder thereof, one of the following (as adjusted pursuant to Section 3.3, the "Class B Merger Consideration"): (x) except as otherwise provided in Section 3.3, for each such share of Class B Common Stock with respect to which an election to receive cash has been effectively made and not revoked, pursuant to Sections 3.2(c), (d) and (e) (a "Cash Election"), the right to receive an amount in cash from Acquiror, without interest, equal to the Share Price (the "Class B Cash Consideration"); (y) except as otherwise provided in Section 3.3, for each such share of Class B Common Stock with respect to which an election to receive a combination of Media Stock and Series D Preferred Stock has been effectively made and not revoked, pursuant to Sections 3.2(c), (d) and (e) (a "Stock Election"), the right to receive (1) a number of shares of Media Stock equal to the Class B Common Stock Election Conversion Number (as determined in accordance with Section 3.1(d)) and (2) a number of shares of Series D Preferred Stock equal to the Class B Preferred Conversion Number (collectively, the "Class B Stock Consideration"); or (z) for each such share of Class B Common Stock with respect to which an election to receive a combination of cash, Media Stock and Series D Preferred Stock has been effectively made and not revoked, pursuant to Sections 3.2(c), (d) and (e) (a "Standard Election"), the right to receive (1) an amount in cash from Acquiror, without interest, equal to the product of the Share Price and a fraction, the numerator of which is equal to the Cash Consideration Amount and the denominator of which is equal to the Class B Aggregate Consideration Amount, (2) a number of shares of Media Stock equal to the Conversion Number (as determined in accordance with Section 3.1(d)) and (3) a number of shares of Series D Preferred Stock equal to the product of (x) the Share Price multiplied by (y) a fraction, the numerator of which is equal to the Class B Preferred Consideration Amount and the denominator of which is equal to the product of the Liquidation Value multiplied by the Class B Aggregate Consideration Amount (collectively, the "Class B Standard Consideration"). Each beneficial holder of shares of Class B Common Stock shall be entitled to make only one election (either a Cash Election, a Stock Election or a Standard Election) with respect to all of the shares of Class B Common Stock beneficially owned by such holder. (iii) As a result of the Merger and without any action on the part of the holder thereof, at the Effective Time all shares of Company Common Stock shall cease to be outstanding and shall be cancelled and retired and shall cease to exist, and each holder of shares of Company Common Stock shall thereafter cease to have any rights with respect to such shares of Company Common Stock, except the right to receive, without interest, the Class A Merger Consideration or Class B Merger Consideration, as applicable, and cash for fractional shares of Media Stock or Series D Preferred Stock in accordance with Section 3.6(c) upon the surrender of a certificate representing such shares of Company Common Stock (a "Company Certificate"). The Media Stock and Series D Preferred Stock comprising the Class A Merger Consideration and part of the Class B Merger Consideration, when issued to the holders of Company Common Stock, will be duly authorized, validly issued, fully paid, non-assessable and not subject to preemptive rights created by statute, Acquiror's Restated Certificate of Incorporation or Bylaws or any agreement to which Acquiror is a party or by which Acquiror is bound. (d) Certain Adjustments and Determinations. (i) If, between the date of this Agreement and the Effective Time, the outstanding shares of Media Stock, Series D Preferred Stock or Company Common Stock shall have been changed into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Conversion Number, Class B Common Stock Election Conversion Number, Class A Preferred Conversion Number and the Class B Preferred Conversion Number correspondingly shall be adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. (i) The Conversion Number and Class B Common Stock Election Conversion Number shall be determined in the following manner: (A) If the Determination Price is greater than or equal to the Floor Price and less than or equal to the Cap Price, (x) the Conversion Number shall be equal to the quotient of (1) the product of (I) the Common Percentage multiplied by (II) the Share Price divided by (2) the Determination Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth) and (y) the Class B Common Stock Election Conversion Number shall be equal to the quotient of (1) the product of (I) the Class B Common Percentage multiplied by (II) the Share Price divided by (2) the Determination Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth). (B) If the Determination Price is less than the Floor Price, (x) the Conversion Number shall be equal to the quotient of (1) the product of (I) the Common Percentage multiplied by (II) the Share Price divided by (2) the Floor Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth) and (y) the Class B Common Stock Election Conversion Number shall be equal to the quotient of (1) the product of (I) the Class B Common Percentage multiplied by (II) the Share Price divided by (2) the Floor Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth); provided, however, that in such event Acquiror shall have the right to give written notice to the Company (the "Floor Top-Up Intent Notice") that the board of directors of Acquiror elects to increase both (x) the Conversion Number to the quotient of (1) the product of (I) the Common Percentage multiplied by (II) the Share Price divided by (2) the Determination Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth) and (y) the Class B Common Stock Election Conversion Number to the quotient of (1) the product of (I) the Class B Common Percentage multiplied by (II) the Share Price divided by (2) the Determination Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth). The Floor Top-Up Intent Notice shall be delivered to the Company no later than 2:00 p.m. on the second Business Day prior to the Closing Date. If, in such case, Acquiror does not deliver a Floor Top-Up Intent Notice, the Company shall have the right to give written notice to Acquiror (the "Company Termination Notice") that the Company elects to terminate this Agreement. The Company Termination Notice shall be delivered to Acquiror no later than 2:00 p.m. on the Business Day prior to the Closing Date. (C) If the Determination Price is greater than the Cap Price, (x) the Conversion Number shall be equal to the quotient of (1) the product of (I) the Common Percentage multiplied by (II) the Share Price divided by (2) the Cap Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth) and (y) the Class B Common Stock Election Conversion Number shall be equal to the quotient of (1) the product of (I) the Class B Common Percentage multiplied by (II) the Share Price divided by (2) the Cap Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth); provided, however, that in such event, the Company shall have the right to give written notice to Acquiror (the "Cap Top-Up Intent Notice") that the Board of Directors elects to decrease both (x) the Conversion Number to the quotient of (1) the product of (I) the Common Percentage multiplied by (II) the Share Price divided by (2) the Determination Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth) and (y) the Class B Common Stock Election Conversion Number to the quotient of (1) the product of (I) the Class B Common Percentage multiplied by (II) the Share Price divided by (2) the Determination Price (rounded to the nearest hundredth, or if there shall not be a nearest hundredth, to the next lowest hundredth). The Cap Top-Up Intent Notice shall be delivered to Acquiror no later than 2:00 p.m. on the second Business Day prior to the Closing Date. If, in such case, the Company does not deliver a Cap Top-Up Intent Notice, Acquiror shall have the right to give written notice to the Company (the "Acquiror Termination Notice") that Acquiror elects to terminate this Agreement. The Acquiror Termination Notice shall be delivered to the Company no later than 2:00 p.m. on the Business Day prior to the Closing Date. III.2 Company Common Stock Elections; Exchange. (a) Each Person who, at the Effective Time, is a record holder of shares of Class B Common Stock (other than holders of shares of Class B Common Stock to be cancelled as set forth in Section 3.1(b) or subject to Section 3.5 or 3.6) shall have the right to submit an Election Form (as defined in Section 3.2(c)) specifying whether such Person desires to have all, but not less than all, of such shares converted into the right to receive either (i) the Class B Stock Consideration pursuant to the Stock Election, (ii) the Class B Cash Consideration pursuant to the Cash Election or (iii) the Class B Standard Consideration pursuant to the Standard Election. Holders of record of shares of Class B Common Stock who hold such shares as nominees, trustees or in other representative capacities (a "Representative") may submit multiple Election Forms, provided that such Representative certifies that each such Election Form covers all the shares of Class B Common Stock held by such Representative for a particular beneficial owner. (a) Promptly after the Allocation Determination (as defined in Section 3.2(d)), (i) Acquiror shall deposit (or cause to be deposited) with a bank or trust company to be designated by Acquiror and reasonably acceptable to the Company (the "Exchange Agent"), for the benefit of the holders of shares of Class B Common Stock, for exchange in accordance with this Article III, cash in the amount sufficient to pay the aggregate Class B Cash Consideration and (ii) Acquiror shall deposit (or cause to be deposited) with the Exchange Agent, for the benefit of holders of shares of Company Common Stock, certificates representing the shares of Media Stock and Series D Preferred Stock ("Acquiror Certificates") for exchange in accordance with this Article III (the cash and shares deposited pursuant to clauses (i) and (ii) being hereinafter referred to as the "Exchange Fund"). The Media Stock and Series D Preferred Stock into which Company Common Stock shall be converted pursuant to the Merger shall be deemed to have been issued at the Effective Time. (b) As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of Company Common Stock immediately prior to the Effective Time (excluding any shares of Company Common Stock which will be cancelled pursuant to Section 3.1(b) or which are subject to Section 3.5 or 3.6) (A) a letter of trans-mittal (the "Company Letter of Transmittal") (which shall specify that delivery shall be effected, and risk of loss and title to the Company Certificates shall pass, only upon delivery of such Company Certificates to the Exchange Agent and shall be in such form and have such other provisions as Acquiror shall specify) and (B) instructions for use in effecting the surrender of the Company Certificates in exchange for the Class A Merger Considera-tion or Class B Merger Consideration, as applicable, with respect to the shares of Company Common Stock formerly represented thereby. The Exchange Agent shall also mail to holders of Class B Common Stock, together with the items specified in the preceding sentence, an election form (the "Election Form") providing for such holders to make, with respect to all, but not less than all, of the shares of Class B Common Stock held of record by each such holder (subject to the last sentence of Section 3.2(a)), either a Cash Election, a Stock Election or a Standard Election. The Election Form shall include information as to the Share Price, the Class B Common Conversion Number, the Class B Preferred Conversion Number, the Class B Aggregate Consideration Amount and the Cash Consideration Amount and state the pricing terms of the Series D Preferred Stock. As of the Election Deadline (as hereinafter defined) all holders of Class B Common Stock immediately prior to the Effective Time that shall not have submitted to the Exchange Agent or shall have properly revoked an effective, properly completed Election Form shall be deemed to have made a Standard Election. (c) Any Cash Election, Stock Election or Standard Election (other than a deemed Standard Election) shall have been validly made only if the Exchange Agent shall have received by 5:00 p.m. New York, New York time on a date (the "Election Deadline") to be mutually agreed upon by Acquiror and the Company (which date shall not be later than the twentieth Business Day after the Effective Time), an Election Form properly completed and executed (with the signature or signatures thereof guaranteed to the extent required by the Election Form) by such holder accompanied by such holder's Company Certificates, or by an appropriate guarantee of delivery of such Company Certificates from a member of any registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States as set forth in such Election Form. Any holder of Class B Common Stock (other than a holder who has submitted an irrevocable election) who has made an election by submitting an Election Form to the Exchange Agent may at any time prior to the Election Deadline change such holder's election by submitting a revised Election Form, properly completed and signed that is received by the Exchange Agent prior to the Election Deadline. Any holder of Class B Common Stock may at any time prior to the Election Deadline revoke such holder's election by written notice to the Exchange Agent received by the Close of business on the day prior to the Election Deadline. As soon as practicable after the Election Deadline, the Exchange Agent shall determine the allocation of the cash portion of the Class B Merger Consideration and the stock portion of the Class B Merger Consideration and shall notify Acquiror of its determination (the "Allocation Determination"). (d) Upon surrender of a Company Certificate for cancellation to the Exchange Agent, together with the Company Letter of Transmittal, duly executed, and such other documents as Acquiror or the Exchange Agent shall reasonably request, the holder of such Company Certificate shall be entitled to receive promptly after the Election Deadline in exchange therefor (A) a certified or bank cashier's check in the amount equal to the cash, if any, which such holder has the right to receive pursuant to the provisions of this Article III (including any cash in lieu of fractional shares of Media Stock and Series D Preferred Stock pursuant to Section 3.4(c)), and (B) Acquiror Certificates representing that number of shares of Media Stock and Series D Preferred Stock, if any, which such holder has the right to receive pursuant to this Article III (in each case less the amount of any required withholding taxes, if any, determined in accordance with Section 3.4(g)), and the Company Certificate so surrendered shall forthwith be cancelled. Until surrendered as contemplated by this Section 3.3, each Company Certificate shall be deemed at any time after the Effective Time to represent only the right to receive the Class A Merger Consideration or Class B Merger Considera-tion, as applicable, with respect to the shares of Company Common Stock formerly represented thereby. (e) Acquiror shall have the right to make reason-able rules, not inconsistent with the terms of this Agree-ment, governing the validity of the Election Forms, the manner and extent to which Cash Elections or Stock Elections are to be taken into account in making the determinations prescribed by Section 3.3, the issuance and delivery of certificates for Media Stock and Series D Preferred Stock into which shares of Class B Common Stock are converted in the Merger, and the payment of cash for shares of Class B Common Stock converted into the right to receive cash in the Merger. III.3 Proration. (a) The aggregate amount of cash to be paid to holders of Class B Common Stock shall not exceed the Cash Consideration Amount. (a) In the event that the aggregate amount of cash represented by the Cash Elections received by the Exchange Agent (the "Requested Cash Amount") exceeds an amount equal to the excess of the Cash Consideration Amount over the aggregate amount of cash represented by the Standard Elections (such difference, the "Cash Cap"), each holder making a Cash Election shall receive, for each share of Class B Common Stock for which a Cash Election has been made, (x) cash in an amount equal to the product of the Class B Cash Consideration and a fraction, the numerator of which is the Cash Cap and the denominator of which is the Requested Cash Amount (such product, the "Prorated Cash Amount"), (y) a number of shares of Media Stock equal to the product of the Class B Common Percentage and a fraction, the numerator of which is equal to the Share Price minus the Prorated Cash Amount and the denominator of which is equal to the Calculation Price and (z) a number of shares of Series D Preferred Stock equal to the product of the Class B Preferred Percentage and a fraction, the numerator of which is equal to the Share Price minus the Prorated Cash Amount and the denominator of which is equal to the Liquidation Value. (b) In the event the Requested Cash Amount is less than the Cash Cap, each holder making a Stock Election (other than as set forth in Section 3.5) shall receive for each share of Class B Common Stock for which a Stock Election has been made, (x) cash in an amount equal to the quotient of (1) the excess of the Cash Cap over the Requested Cash Amount divided by (2) the number of shares of Class B Common Stock for which such Stock Elections have been made or have been deemed to have been made (such quotient, the "Excess Cash Amount"), (y) a number of shares of Media Stock equal to the product of the Class B Common Percentage and a fraction, the numerator of which is equal to the difference between the Share Price and the Excess Cash Amount and the denominator of which is equal to the Calculation Price and (z) a number of shares of Series D Preferred Stock equal to the product of the Class B Preferred Percentage and a fraction, the numerator of which is equal to the difference between the Share Price and the Excess Cash Amount and the denominator of which is equal to the Liquidation Value. III.4 Dividends, Fractional Shares, Etc. (a) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared after the Effective Time on Media Stock or Series D Preferred Stock shall be paid with respect to any whole shares of Media Stock or Series D Preferred Stock represented by a Company Certificate until such Company Certificate is surrendered for exchange as provided herein. Subject to the effect of Applicable Laws, following surrender of any such Company Certificate, there shall be paid to the holder of the Acquiror Certificates issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Media Stock and Series D Preferred Stock and not paid, less the amount of any withholding taxes which may be required thereon, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Media Stock and Series D Preferred Stock, less the amount of any withholding taxes which may be required thereon. (a) At or after the Effective Time, there shall be no transfers on the stock transfer books of the Company of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing any such shares are presented to the Surviving Corporation, they shall be cancelled and exchanged for certificates for the considera-tion, if any, deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Article III. Company Certificates surrendered for exchange by any Person constituting an "affiliate" of the Company for purposes of Rule 145(c) under the Securities Act shall not be exchanged until Acquiror has received a written agreement from such Person as provided in Section 7.13. (b) (i) No certificates or scrip evidencing fractional shares of Media Stock or Series D Preferred Stock shall be issued upon the surrender for exchange of Company Certificates, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Acquiror. In lieu of any such fractional shares, the Exchange Agent shall, on behalf of all holders of fractional shares of Media Stock and Series D Preferred Stock, as soon as practicable after the Effective Time, aggregate all such fractional interests (collectively, the "Fractional Shares") and, at Acquiror's option, such Fractional Shares shall be purchased by Acquiror or otherwise sold by the Exchange Agent as agent for the holders of such Fractional Shares, in either case at the then prevailing price on the NYSE, all in the manner provided hereinafter. Until the net proceeds of such sale or sales have been distributed to the holders of Fractional Shares, the Exchange Agent shall retain such proceeds in trust for the benefit of such holders. Acquiror shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including expenses and compensation of the Exchange Agent, incurred in connection with such sale of the Fractional Shares. (i) To the extent not purchased by Acquiror, the sale of the Fractional Shares by the Exchange Agent shall be executed on the NYSE or through one or more member firms of the NYSE and will be executed in round lots to the extent practicable. In either case, the Exchange Agent will determine the portion, if any, of the net proceeds of such sale to which each holder of Fractional Shares is entitled, by multiplying the amount of the aggregate net proceeds of the sale of the Fractional Shares, by a fraction, the numerator of which is the amount of Fractional Shares to which such holder is entitled and the denominator of which is the aggregate amount of Fractional Shares to which all holders of Fractional Shares are entitled. (ii) As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of Fractional Shares in lieu of such Fractional Shares, the Exchange Agent shall mail such amounts, without interest, to such holders; provided, however, that no such amount will be paid to any holder of such Fractional Shares prior to the surrender by such holder of the Company Certificates formerly representing such holder's shares of Company Common Stock. (c) Any portion of the Exchange Fund that remains undistributed to the holders of Company Common Stock for six months after the Effective Time shall be delivered to Acquiror, upon demand, and any holders of Company Common Stock who have not theretofore complied with this Article III shall thereafter look only to Acquiror for the Class A Merger Consideration or Class B Merger Consideration, as applicable, net cash proceeds from the sale of Fractional Shares and unpaid dividends and distributions on the Media Stock and Series D Preferred Stock to which they are entitled. All interest accrued in respect of the Exchange Fund shall inure to the benefit of and be paid to Acquiror. (d) None of Acquiror, Company Sub, the Company or the Exchange Agent shall be liable to any holder of shares of Company Common Stock for any cash, shares of Media Stock or Series D Preferred Stock, net cash proceeds from the sale of Fractional Shares or unpaid dividends or distributions with respect to Media Stock or Series D Preferred Stock from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Company Certificates shall not have been surrendered prior to seven years after the Effective Time (or immediately prior to such earlier date on which any cash, shares of Media Stock or Series D Preferred Stock, net cash proceeds from the sale of Fractional Shares or unpaid dividends or distributions with respect to Media Stock or Series D Preferred Stock in respect of such Company Certificates would otherwise escheat to or become the property of any Governmental Authority), any such cash, shares or unpaid dividends or distributions in respect of such Company Certificates shall, to the extent permitted by Applicable Laws, become the property of the Surviving Corporation; provided, however, that any holder of Company Common Stock shall thereafter have the right to demand from Acquiror any such cash, shares or unpaid dividends or distributions. (e) In the event that any Company Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Company Certificate to be lost, stolen or destroyed and, if required by Acquiror, the posting by such Person of a bond in such reasonable amount as Acquiror may direct as indemnity against any claim that may be made against it with respect to such Company Certificate, the Exchange Agent (or Acquiror, as the case may be) will issue in exchange for such lost, stolen or destroyed Company Certificate the Class A Merger Consideration or Class B Merger Consideration, as applicable, cash in lieu of fractional shares, and unpaid dividends and distributions on shares of Media Stock and Series D Preferred Stock deliverable in respect thereof pursuant to this Agreement. (f) Acquiror shall be entitled to, or shall be entitled to cause the Exchange Agent to, deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Acquiror or the Exchange Agent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Acquiror. III.5 Restricted Stock. To the extent any Company Common Stock that is unvested and outstanding immediately prior to the Effective Time is subject to the terms and conditions of a Restricted Stock Purchase Agreement ("RSPA") between the Company and any current or former employee of the Company ("Restricted Company Common Stock"), then (i) notwithstanding Sections 3.1(c) or 3.3, at the Effective Time all such shares of Restricted Company Common Stock shall be converted into the right to receive a number of shares of Media Stock equal to the quotient of (x) the Share Price divided by (y) the Calculation Price, (ii) the holder of such Restricted Company Common Stock shall not be entitled to receive any cash or Series D Preferred Stock pursuant to Section 3.3 and (iii) any Media Stock received with respect to such Restricted Company Common Stock shall be subject to the terms of such RSPA, as amended by an Amendment to Restricted Stock Purchase Agreement substantially in the form set forth in Section 3.5 of the Company Disclosure Letter. III.6 Dissenting Shares. Notwithstanding any other provisions of this Agreement to the contrary, shares of Company Common Stock that are outstanding immediately prior to the Effective Time and that are held by stockholders who shall have not voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive the Class A Merger Consideration or Class B Merger Consideration, as applicable. Such stockholders shall be entitled to receive payment of the appraised value of such shares of Company Common Stock held by them in accordance with the provisions of such Section 262, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares of Company Common Stock under such Section 262 shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Class A Merger Consideration or Class B Merger Consideration, as applicable, upon surrender in the manner provided in this Article III, of the Company Certificate or Company Certificates that formerly evidenced such shares of Class B Common Stock. III.7 Share Price Adjustment. If the Closing shall not have occurred on or prior to January 3, 1997, the Share Price shall be increased at a rate equal to 8% per annum from and including January 1, 1997 to and excluding the Closing Date calculated on the basis of the actual number of days in the period (such amount being the "Additional Amount"); provided, however, that no such amount shall be added to the Share Price if (i) the Closing has not occurred on or prior to January 3, 1997 and the last of the conditions set forth in Article VIII to be fulfilled is the condition set forth in Section 8.2(h) or the condition set forth in Section 8.1(a), other than, in each case as a result of any action taken or not taken by Acquiror or Company Sub or (ii) the Company has taken any action that would result in any of the conditions to the consummation of the Merger set forth herein not being satisfied at such time; provided, further, that upon satisfaction of the conditions described in clause (i) above if either such condition is the last condition to be fulfilled, the Additional Amount shall be added to the Share Price and shall be calculated commencing five Business Days after the date of such satisfaction. IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Acquiror as follows: IV.1 Organization and Authority of the Company. (a) Each of the Company and its Subsidiaries is a corporation or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization with all requisite power to enable it to own, lease and operate its assets and properties and to conduct its business as currently being conducted and is qualified and in good standing to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties owned or leased by it requires such qualification, except to the extent the failure so to qualify would not have a Material Adverse Effect with respect to the Company. Complete and correct copies of the Restated Certificate of Incorporation and Bylaws, each as amended to date, of the Company have been delivered to Acquiror. Such Restated Certificate of Incorporation and Bylaws are in full force and effect. (a) The Company has all requisite corporate power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder and, subject to (i) the adoption of this Agreement by the holders of a majority of the voting power of the outstanding shares of Company Capital Stock, voting as a single class and (ii) the adoption of the Consideration Charter Amendment by 66-2/3% of the voting power of the outstanding shares of Company Capital Stock voting as a single class and a majority of the voting power of each of the outstanding shares of the Class A Common Stock and the Class B Common Stock voting as separate classes (collectively, the "Stockholder Approvals"), to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and such Transaction Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company, subject, in the case of this Agreement, the Merger and the Consideration Charter Amendment, to the Stockholder Approvals. This Agreement and each Transaction Document to which the Company is a party has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) as the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (b) Section 4.1 of the letter from the Company, dated the date hereof, addressed to Acquiror (the "Company Disclosure Letter") sets forth, as of the date hereof, a true and complete list of all of the Company's Subsidiaries, including the jurisdiction of incorporation or organization of each Subsidiary and the percentage of each Subsidiary's outstanding capital stock or other ownership interest owned by the Company or another Subsidiary of the Company or by any other Person. All of the outstanding shares of capital stock of each Subsidiary have been validly issued and are fully paid and nonassessable and, except as set forth in Section 4.1 of the Company Disclosure Letter, are owned by the Company or a Subsidiary, free and clear of all Encumbrances. Except as set forth in Section 4.1 of the Company Disclosure Letter, the Company does not, directly or indirectly, own any capital stock of or other equity interests in any corporation, partnership or other Person and neither the Company nor any of its Subsidiaries is a member of or participant in a partnership, joint venture or similar Person. IV.2 Capitalization. (a) As of the date hereof, the authorized capital stock of the Company consists of: (i) 425,000,000 shares of Class A Common Stock, of which (A) 38,885,385 shares are issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights created by statute, the Company's Restated Certificate of Incorporation or Bylaws or any agreement to which the Company is a party or by which the Company is bound and (B) no shares are held in the treasury of the Company; (ii) 200,000,000 shares of Class B Common Stock, of which (A) 109,349,496 shares are issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights created by statute, the Company's Restated Certificate of Incorporation or Bylaws or any agreement to which the Company is a party or by which the Company is bound, (B) no shares are held in the treasury of the Company and (C) 28,571,450 shares are issuable upon conversion of Company Preferred Stock; and (iii) 200,000,000 shares of Preferred Stock, par value $.01 per share, of the Company, of which 1,142,858 shares have been designated Series A Participating Convertible Preferred Stock (the "Company Preferred Stock" and, together with the Company Common Stock, the "Company Capital Stock") and are issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights created by statute, the Company's Certificate of Incorporation or Bylaws or any agreement to which the Company is a party or by which the Company is bound. (a) Other than as described in this Section 4.2, or as listed in Section 4.2(b) of the Company Disclosure Letter, no shares of the capital stock of the Company are authorized, issued or outstanding, or reserved for any other purpose, and there are no options, warrants or other rights (including tag-along, right of first refusal, buy-sell, registration or similar rights), agreements, arrangements or commitments of any character to which the Company, any of its Subsidiaries or any Person in which the Company or its Subsidiaries own any interest is a party relating to the issued or unissued capital stock of the Company, any of its Subsidiaries or any such Person or obligating or which could obligate the Company or any of its Subsidiaries to grant, issue or sell any shares of capital stock of the Company, any of its Subsidiaries or any Person in which the Company or its Subsidiaries own any interest, by sale, lease, license or otherwise. Except as described in Section 4.2(b) of the Company Disclosure Letter, the Company has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote or that are convertible into or exercisable for securities having the right to vote with the stockholders of the Company on any matter. Except as set forth in Section 4.2(b) of the Company Disclosure Letter, there are, to the Knowledge of the Company, no voting trusts or other agreements or understandings with respect to the voting of Company Capital Stock. Except as set forth on Section 4.2 of the Company Disclosure Letter, none of the Company, its Subsidiaries or any Person in which the Company or its Subsidiaries own any interest is a party to any non-competition agreement or other agreement or arrangement which restrains, limits or impedes the current or contemplated business or operations of the Company or any of its Subsidiaries or would apply to Acquiror or any of its Affiliates following the Effective Time. IV.3 No Conflicts. Except as set forth in Section 4.3 of the Company Disclosure Letter, subject to obtaining the Company Consents (as defined in Section 4.6), the execution and delivery of this Agreement and each of the Transaction Documents to which the Company is a party by the Company do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or result in the creation of any Encumbrances upon any of the properties or assets of the Company or its Subsidiaries under any provision of (i) the Certificate of Incorporation, Bylaws or other organizational document of the Company or any Subsidiary, (ii) any note, bond, mortgage, indenture or deed of trust, deed to secure debt or any license, lease, contract, commitment, permit, concession, franchise, agreement or other binding arrangement to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties or assets are bound, including any Franchise, (iii) any judgment, order, writ, injunction or decree of any court, governmental body, administrative agency or arbitrator applicable to the Company or any Subsidiary or their respective properties or assets as of the date hereof or (iv) any law, statute, rule, regulation or judicial or administrative decision applicable to the Company or any Subsidiary, except in the case of clauses (ii) and (iv), such conflicts, violations and defaults, termination, cancellation and acceleration rights and entitlements and Encumbrances that in the aggregate would not hinder or impair the consummation of the transactions contemplated hereby or have a Material Adverse Effect with respect to the Company. IV.4 Vote Required. The Stockholder Approvals are the only votes of the holders of any class or series of Company Capital Stock necessary or required (under Applicable Law or otherwise) to approve this Agreement and the transactions contemplated hereby. IV.5 Board Recommendation; Opinion of Financial Advisor. (a) The Board of Directors, at a meeting duly called and held, has by unanimous vote of those directors present (who constituted 100% of the directors then in office) (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, are fair to and in the best interests of the stockholders of the Company and has approved the same, and (ii) resolved to recommend that the holders of the shares of Company Capital Stock adopt this Agreement and the transactions contemplated hereby, including the Merger. (a) The Company has received the opinions of (i) Lazard Freres & Co. LLC, dated February 27, 1996, to the effect that, as of the date hereof, the consideration to be received by the holders of shares of Company Capital Stock in the Merger is fair from a financial point of view to such holders and (ii) Allen & Company Incorporated, dated February 27, 1996, to the effect that, as of the date hereof, the consideration to be received by the holders of the Class A Common Stock in the Merger is fair from a financial point of view to such holders. A signed, true and complete copy of such opinions has been delivered to Acquiror. IV.6 Consents. Not later than 30 days after the date of this Agreement, the Company shall furnish to Acquiror a list of each Franchise as to which notice to, or the consent of, a Governmental Authority is required as a condition to the transfer of control or the right to control the Franchise in connection with the transactions contemplated hereby (all such notices and consents being "Franchise Consents"). Section 4.6 of the Company Disclosure Letter lists each FCC license held by the Company or any Subsidiary, other than private mobile radio service licenses, as to which FCC consent is required prior to the assignment or transfer of control of such license in connection with the transactions contemplated hereby (all such notices and consents being "License Consents"). Except for (i) the Franchise Consents and License Consents, (ii) as set forth in Section 4.6 of the Company Disclosure Letter, (iii) compliance with and filings under the HSR Act, (iv) the filing with the SEC of (A) a proxy statement under the Exchange Act relating to the meeting (or meetings) of the Company's stockholders to be held in connection with the Merger, the Charter Amendments and the other transactions contemplated by this Agreement (the "Proxy Statement"), (B) any registration statement required to be filed in connection with any action taken by the Company pursuant to Section 7.7 and (C) such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby, (v) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (vi) such filings and approvals as may be required by any applicable state securities, "blue sky" or takeover laws, (vii) such filings in connection with any state or local tax which is attributable to the beneficial ownership of the Company's or its Subsidiaries' real property, if any (collectively, "Gains Taxes"), and (viii) such filings as may be required with the FCC or any Governmental Authority to obtain their consent to the assumption by the Acquiror of the Social Contract (including all Systems and communities encompassed thereby) between the Company and the FCC, as approved by Memorandum Opinion and Order released August 3, 1995 (FCC 95-335) (the "Social Contract Order") and as may be modified thereafter by a proposed Social Contract Amendment that is substantially similar to that which the Company has provided to Acquiror (the "Social Contract Amendment") (such notice and consent being the "Social Contract Consents") (the items in clauses (i) through (vi) being collectively referred to herein as "Company Consents"), no consents, approvals, licenses, permits, orders or authorizations of, or registrations, declarations, notices or filings with, any Governmental Authority or any Third Party are required to be obtained or made by or with respect to the Company or any of its Subsidiaries on or prior to the Closing Date in connection with (A) the execution, delivery and performance of this Agreement or any of the Transaction Documents to which the Company is a party, the consummation of the transactions contemplated hereby and thereby or the taking by the Company of any other action contemplated hereby or thereby, (B) the continuing validity and effectiveness of (and prevention of any material default under or violation of the terms of) any Franchise or any other material, license, permit or authorization or any material contract, agreement or lease to which the Company or any Subsidiary is a party or (C) the conduct by the Company or any of its Subsidiaries of their respective businesses following the Closing as conducted on the date hereof, which, if not obtained or made in connection with clauses (A), (B) and (C), would have a Material Adverse Effect with respect to the Company. IV.7 Compliance; No Defaults. (a) Except as set forth in Section 4.7 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is in violation of, is, to the Knowledge of the Company, under investigation with respect to any violation of, has been given notice or been charged with violation of, or failed to comply with any statute, law, ordinance, rule, order or regulation of any Governmental Authority applicable to its business or operations ("Applicable Laws") (including but not limited to the Social Contract Order, as amended), except for violations and failures to comply that would not have a Material Adverse Effect with respect to the Company. Except as set forth in Section 4.7 of the Company Disclosure Letter, the Company and its Subsidiaries have all permits, licenses, variances, exemptions, orders and approvals of all Governmental Authorities ("Permits") which are material to the operation of the businesses of the Company and its Subsidiaries, taken as a whole. (a) Neither the Company nor any of its Subsidiaries is in default or violation (and no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) of any term, condition or provision of (i) its Certificate of Incorporation, as amended, or Bylaws or other comparable organizational document or (ii) any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is now a party or by which the Company or any of its Subsidiaries or any of their respective properties or assets may be bound, except in the case of clause (ii), for defaults or violations which in the aggregate would not have a Material Adverse Effect with respect to the Company. IV.8 SEC Documents; Undisclosed Liabilities. (a) The Company has made available to Acquiror a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by the Company with the SEC since January 1, 1993 (as such documents have since the time of their filing been amended, the "Company SEC Documents"), which are all the documents (other than preliminary proxy materials) that the Company was required to file with the SEC since such date. As of their respective dates, the Company SEC Documents (including any financial statements filed, to be filed or required to have been filed as a part thereof) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the SEC thereunder applicable to such Company SEC Documents, and none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial state-ments of the Company included in the Company SEC Documents comply as to form in all material respects with applicable accounting require-ments and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present (subject, in the case of the unaudited financial statements, to normal, recurring audit adjustments, which were not individually or in the aggregate material) the consolidated financial position of the Company and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. (a) Except as disclosed in the Company SEC Documents or in Section 4.8 or 4.9 of the Company Disclosure Letter, as of the date hereof, the Company and its Subsidiaries do not have any material indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due or asserted or unasserted) required by GAAP to be reflected on a consolidated balance sheet of the Company and its consolidated Subsidiaries or in the notes, exhibits or schedules thereto. IV.9 Litigation. Except as set forth in the Company SEC Documents or in Section 4.9 of the Company Disclosure Letter, there are no Legal Proceedings against or affecting the Company or any of its Subsidiaries or their respective properties or assets pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries, that individually or in the aggregate could (i) have a Material Adverse Effect with respect to the Company or (ii) as of the date hereof, prevent, materially hinder or delay the consummation of the transactions contemplated by this Agreement or the Transaction Documents or seek to limit the ownership or operation of the Company by Acquiror. Except as set forth in Section 4.9 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is a party or subject to or in default under any judgment, order, injunction or decree of any Governmental Authority applicable to it or to its respective properties or assets, which judgment, order, injunction, decree or default thereunder constitutes a Material Adverse Effect with respect to the Company. IV.10 Taxes. (a) Except as set forth in Section 4.10(a) of the Company Disclosure Letter, (i) all Federal, state, local and foreign Tax returns, declarations and reports ("Tax Returns") required to be filed by or on behalf of the Company or any of its Subsidiaries have been filed on a timely basis with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), except for Tax Returns as to which the failure to file would not individually or in the aggregate have a Material Adverse Effect with respect to the Company, and all such Tax Returns were true, correct and complete in all material respects; (ii) all amounts due and payable in respect of such Tax Returns (including interest and penalties) have been fully and timely paid or are or will be adequately provided for in the appropriate financial statements of the Company and its Subsidiaries, except for amounts the failure to pay would not have a Material Adverse Effect with respect to the Company; (iii) no waivers of statutes of limitations have been given or requested with respect to the Company or any of its Subsidiaries in connection with any Tax Returns covering the Company or any of its Subsidiaries with respect to any income or franchise Taxes or other material Taxes payable by any of them; and (iv) each of the Company and its Subsidiaries has duly and timely withheld from salaries, wages and other compensation of its employees and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods not barred by applicable statutes of limitations under all Applicable Laws, except for amounts as to which the failure to withhold or pay would not have a Material Adverse Effect with respect to the Company. (a) Except as set forth in Section 4.10(b) of the Company Disclosure Letter, all deficiencies asserted or assessments made in an amount in excess of $300,000 by the IRS or any other taxing authority of the Tax Returns of or covering the Company or any of its Subsidiaries have been fully paid or are or will be adequately provided for in the appropriate financial statements of the Company and its Subsidiaries. (b) Except as set forth in Section 4.10(c) of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries nor any other Person on behalf of the Company or any of its Subsidiaries: (i) has filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by the Company or any of its Subsidiaries; (ii) has executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law; or (iii) has agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or any of its Subsidiaries nor to the Knowledge of the Company (which for purposes of this Section 4.10 shall include the tax director) has the IRS proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company or any of its Subsidiaries. (c) Except as set forth in Section 4.10(d) of the Company Disclosure Letter, none of the assets of the Company and its Subsidiaries is property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of Section 168(h)(l) of the Code. (d) The Federal income Tax Returns of the Company and its Subsidiaries, any of their predecessors or any affiliated group of which the Company or any of its Subsidiaries is or was a member have been examined by the IRS, or the periods covered by such Tax Returns have been closed by applicable statute of limitations, for all periods through December 31, 1991, except to the extent such Tax Returns may be examined for the purpose of determining loss or credit carryforwards to a year not so closed. The state income or franchise Tax Returns of the Company and its Subsidiaries, any of their predecessors or any affiliated, combined or unitary group of which the Company or any of its Subsidiaries is or was a member have been examined by the relevant taxing authorities, or the periods covered by such Tax Returns have been closed by applicable statute of limitations, in each case through at least December 31, 1991, except to the extent such Tax Returns may be examined for the purpose of determining loss or credit carryforwards to a year not so closed. (e) Except as set forth in Section 4.10(f) of the Company Disclosure Letter, (i) no Tax audits or other administrative proceedings are pending with regard to any Taxes for which the Company or any of its Subsidiaries may be liable and (ii) no written notice of any such audit has been received by the Company or any of its Subsidiaries. (f) As of December 31, 1995, the Company had net operating loss carryforwards for Federal income tax purposes of no less than $900 million. (g) Except as set forth in Section 4.10(h) of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to or bound by any agreement providing for the allocation or sharing of Taxes. (h) Except as set forth in Section 4.10(i) of the Company Disclosure Letter, since January 1, 1989 neither the Company nor any of its Subsidiaries has been a member of, or was acquired from, any "affiliated group" (as defined in Section 1504 of the Code) other than (i) in a transaction in which the common parent of such affiliated group was acquired or (ii) the affiliated group in which the Company is the common parent. (i) Except as set forth in Section 4.10(j) of the Company Disclosure Letter, the performance of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any additional or subsequent event) result in any payment that would constitute an "excess parachute payment" within the meaning of Section 280G of the Code. (j) The Company and each of its Subsidiaries is not currently, has not been within the last five years and does not anticipate becoming a "United States real property holding corporation" within the meaning of Section 897(c) of the Code. IV.11 Employee Benefits. (a) Section 4.11(a) of the Company Disclosure Letter lists all "employee benefit plans," as defined in Section 3(3) of ERISA, and all other deferred compensation, bonus or other incentive compensation, stock purchase or other Equity Appreciation Rights Plans, severance pay, salary continuation for disability or other leave of absence, supplemental unemployment benefits, lay-off or reduction in force, change in control or educational assistance arrangements or policies for which the Company or any of its Subsidiaries has any material obligation or liability (each a "Benefit Plan" and collectively, the "Benefit Plans"), including, but not limited to, any individual benefit arrangement, policy or practice with respect to any current or former officer, employee or director of the Company or any of its Subsidiaries. (a) Section 4.11(b) of the Company Disclosure Letter lists, separately for each foreign country, all Benefit Plans covering employees of the Company and its Subsidiaries who are employed outside of the United States ("Foreign Benefit Plans"). (b) The Company and its Subsidiaries have delivered to Acquiror correct and complete copies of all Benefit Plans, and, where applicable, each of the following documents with respect to such plans: (i) any amendments, (ii) any related trust documents, (iii) the two most recently filed IRS Forms 5500 with all attachments thereto, (iv) the last IRS determination letter, (v) the most recent summary plan descriptions and summaries of material modifications, (vi) the last actuarial valuation report and (vii) written communications to employees to the extent the substance of the Benefit Plans described therein differs materially from the other documentation furnished under this Section. (c) Except as disclosed in Section 4.11(d) of the Company Disclosure Letter, none of the Benefit Plans is subject to Title IV of ERISA or Section 412 of the Code, and the Company and its ERISA Affiliates from time to time have not within the preceding six years had any obligation to make any contribution to a retirement plan subject to Title IV of ERISA or incurred any liability (contingent or otherwise) under Title IV of ERISA and neither the Company, its Subsidiaries nor any of its ERISA Affiliates has any actual or potential obligation or liability to any multiemployer plan (as defined in Section 4001(a)(3) of ERISA). (d) Each Benefit Plan, including any associated trust, intended to qualify under Section 401 of the Code does so qualify. (e) Except as disclosed on Section 4.11(f) of the Company Disclosure Letter and except as would not have a Material Adverse Effect with respect to the Company, the Benefit Plans have been maintained and administered in accordance with their terms and with the provisions of ERISA, the Code and other Applicable Laws. (f) There are no pending or, to the Company's Knowledge, overtly threatened actions, claims or lawsuits that have been asserted or instituted against any of the Benefit Plans, the assets of any of the trusts under such plans or the plan sponsor, plan administrator or fiduciary of any of the Benefit Plans with respect to the operation of such plans (other than routine benefit claims) that individually or in the aggregate could have a Material Adverse Effect with respect to the Company. (g) The Company and its Subsidiaries do not provide, and are not obligated to provide, retiree life insurance or retiree health benefits to any current or former employee after his or her termination of employment with the Company or any Subsidiary, except as may be required under Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA or as disclosed in Section 4.11(h) of the Company Disclosure Letter. (h) Except as disclosed in Section 4.11(i) of the Company Disclosure Letter and except with respect to payments under the Equity Appreciation Rights Plans that will be paid or satisfied by the Company on or prior to Closing of all estimated payments, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any employee (current or former) of the Company or any Subsidiary, (ii) increase any benefits otherwise payable under any Benefit Plan or (iii) result in the acceleration of the time of payment or the vesting of any benefits under any Benefit Plan. The Company has also delivered to Acquiror a schedule of all estimated payments to be made under each Equity Appreciation Rights Plan on or prior to the Closing. "Equity Appreciation Rights Plans" are all plans or arrangements maintained by the Company or any of its Subsidiaries that provide for a benefit based upon the issuance of stock, restricted stock, stock options, phantom stock or other equity appreciation rights or incentive awards, determined by the book, fair market or formula value of a share of stock of the Company. (i) Except as disclosed in Section 4.11(j) of the Company Disclosure Letter, (i) no employee of the Company or any Subsidiary will be entitled to any severance payments upon the sale of the Company or any Subsidiary, or any divisions or business units thereof, absent an employee's actual loss of employment and (ii) none of the executives of the Company or any Subsidiary are eligible to receive any payment under any severance pay, stay bonus or other retention plan, program or arrangement of the Company or any of its Subsidiaries. (j) Except as disclosed in Schedule 4.11(k) of the Company Disclosure Letter, the projected benefit obligation of the Company or any Subsidiary (as calculated using actuarial assumptions used to calculate liabilities under FAS 87 with respect to post-employment benefits accrued) under each Benefit Plan that is a defined benefit pension plan is fully funded by assets of such plan or by an adequate reserve on the applicable balance sheet of the Company or any Subsidiary. IV.12 Cable Television Franchises. (a) Section 4.12 of the Company Disclosure Letter sets forth a list of the Systems, and as to each such System, (i) the geographic area and FCC community unit(s) served, (ii) the name of the legal entity that owns such System and holds the applicable franchise, as well as the identity, ownership interest and relationship to the Company, if any, of each owner of any interest in such legal entity, (iii) as of December 31, 1995, the number of Homes Passed and Subscribers served by such System, and (iv) the names and addresses of the Governmental Authorities issuing the franchises and/or implementing such ordinances. By no later than 30 days after the date of this Agreement, the Company shall furnish to Acquiror a complete and accurate list and copy of all of the franchise agreements and similar governing agreements, instruments, resolutions, statutes and/or CATV-franchise-related ordinances that are used, necessary or required in order to operate, or to which the Company or its Subsidiaries are subject by reason of their operation of, the Systems (individually as to each System, its "Franchise" and collectively, the "Franchises"), and, as of December 31, 1995, the number of Homes Passed and Subscribers served by the Systems by Franchise. The Systems listed in Section 4.12 of the Company Disclosure Letter represent all of the "cable television systems", as defined in Section 602(7) of the Cable Act, owned and operated by the Company and its Subsidiaries in the United States. The Franchises and any related regulatory ordinances contain all material commitments, obligations and rights of the Company and its Subsidiaries with respect to each of the Governmental Authorities granting such Franchises, in connection with the construction, ownership and operation of the Systems. The Franchises enable the Company and its Subsidiaries to operate, and, subject to obtaining the Franchise Consents and License Consents, immediately following the Closing will enable the Surviving Corporation and its Subsidiaries to continue to operate all of the Systems as and where they are presently operated. To the Knowledge of the Company, each Franchise is valid under all Federal, state and local laws and is validly held by the Company or its Subsidiaries, as the case may be. The Company and its Subsidiaries have complied with the material terms and conditions of the Franchises and the same will not be subject to revocation or non-renewal as a result of the execution and delivery of this Agreement or the Transaction Documents, or the con-summation of the transactions contemplated hereby and thereby, subject to obtaining the Franchise Consents and License Consents. Except as set forth in Section 4.12 of the Company Disclosure Letter, there are no lawsuits, revocation proceedings or disputes pending with respect to any of the Franchises or Systems that would material affect the right of the Company or any Subsidiary to operate a System, and no Governmental Authority or other Person has notified the Company or any of its Subsidiaries in writing of its intention to conduct or initiate the same. Neither the Company nor any of its Subsidiaries has received any written notice that any such Franchise is under consideration to be revoked nor, except for Franchises that are subject to renewal negotiations, to be modified in any material respect. (a) Except as set forth in Section 4.12 of the Company Disclosure Letter, no Person other than certain municipalities (a list of which will be provided no later than 30 days after the date of this Agreement) has any right to acquire any interest in any of the Systems, or to designate any other person or entity to acquire any interest in any of the Systems (including, without limitation, any right of first refusal or similar right to purchase any interest in the Systems), which right has not been validly, properly and irrevocably (except for the right to revoke such waiver only if this Agreement is terminated pursuant to Article IX hereof) waived by the party entitled to assert such right. (b) Section 4.12 of the Company Disclosure Letter lists the date on which each Franchise will expire or has expired. Except as set forth in Section 4.12 of the Company Disclosure Letter, there are not now pending any proceedings of any Governmental Authority with respect to any proposal for renewal of any Franchise. There exists no fact or circumstance that makes it likely that any Franchise will not be renewed or extended on commercially reasonable terms. Except where the Company or its Subsidiaries are proceeding under informal renewal procedures as provided for by the Cable Act, the Company and its Subsidiaries have timely filed with the appropriate Governmental Authority all appropriate requests for renewal within 30 to 36 months under the Cable Act. Section 4.12 of the Company Disclosure Letter sets forth those Franchises serving 25,000 or more Subscribers ("Material Franchises") where the Company or a Subsidiary has not filed a written renewal notice pursuant to 626(a)(1) of the Cable Act. Except as set forth in Section 4.12 of the Company Disclosure Letter, as to any Franchise that has expired prior to the date hereof, the Company is currently operating such Franchise under duly authorized extensions, and the Company has no reason to believe that such extensions will not be renewed until such time as the Franchise itself has been renewed for an additional term. (c) To the Company's Knowledge, the Systems and all related businesses of the Company and its Subsidiaries are, and have been, operated in compliance with the Communications Act and all regulations of the FCC established pursuant thereto, and the Company and its Subsidiaries have submitted to the FCC all filings that are required under the rules, orders and regulations of the FCC or other Governmental Authorities with juris-diction. Except as set forth in Section 4.12 of the Company Disclosure Letter, the operation of the Systems has been, and is, in compliance with the rules and regulations of the FCC or other Governmental Authorities with jurisdiction and the Company and its Subsidiaries have not received any written notice from the FCC or other Governmental Authorities with juris-diction with respect to any material violation of its rules and regulations or from any other Governmental Authorities with jurisdiction with respect to any material violation of any Franchise. (d) To the Company's Knowledge, for each relevant semi-annual reporting period, the Company has timely filed with the United States Copyright Office all required Statements of Account in true and correct form in all material respects, and has paid when due all required copyright royalty fee payments in the correct amount, relating to the Systems' carriage of tele-vision broadcast signals and appropriately classifying the applicable tiers on which the Systems carry television broadcast signals. To the Company's Knowledge, carriage of all broadcast signals is in compliance with the Copyright Act of 1976, as amended (the "Copyright Act") and the rules and regulations of the Copyright Office and is eligible for the compulsory license under Section 111 of the Copyright Act. Except as set forth in Section 4.12 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries has received any inquiry from the Copyright Office or any Third Party challenging or questioning the information submitted in any Statement of Account or the amount of any royalty payment, for which the Company has not provided adequate reserves in its reasonable business judgment, nor are the Company or its Subsidiaries aware of any basis for such inquiry. Except as set forth in Section 4.12 of the Company Disclosure Letter, to the Company's Knowledge, no claim or copyright infringement has been made against the Company or any of its Subsidiaries that has not been settled, nor is any such claim pending or threatened. (e) Other than as set forth in Section 4.12 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is subject to any FCC proceeding challenging the rights of the Company or its Subsidiaries to carry or not carry any signal, nor has the Company or any of its Subsidiaries received any written notice or demand to carry or not carry any signal, the carriage or non-carriage of which could have a material adverse effect on any System. (f) The Systems (other than the Recently Acquired Systems) are, and have been, operated in material compliance with the Social Contract Order and the Company and its Subsidiaries have submitted to the FCC and any relevant Governmental Authority all forms, notices and other written material required thereunder for implementation of the Social Contract. Each such filing has been prepared and filed in compliance with the Social Contract Order and is complete and accurate in all material respects. Neither the Company nor any Subsidiary has received written notice from the FCC as to any non-compliance with the Social Contract Order. The Company shall use its reasonable best efforts to seek amendment of the Social Contract Order to bring the Recently Acquired Systems under terms substantially the same as those contained in the proposed Social Contract Amendment. (g) Section 4.12 of the Company Disclosure Letter lists each of the Governmental Authorities that (i) has been certified by the FCC pursuant to 47 C.F.R. 76.910 to regulate Basic Cable Service and associated equipment of a System or (ii) has petitioned the FCC to regulate the rates for Basic Cable Service and associated equipment pursuant to 47 C.F.R. 76.913; Section 4.12 of the Company Disclosure Letter also lists each complaint filed against Cable Programming Service rates on FCC Form 329 that has not been settled by the Social Contract Order. Of those listed, the Form 329 complaints pertaining to the Recently Acquired Systems would be settled by the proposed Social Contract Amendment. (h) To the extent that the Company's and/or its Subsidiaries' rates have not been settled pursuant to the Social Contract or would not be settled by the proposed Social Contract Amendment, the Company and/or its Subsidiaries are in compliance in all material respects with FCC rate requirements. (i) Except as set forth in Section 4.12 of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries (x) is under any investigation by the FCC or any Governmental Authority with respect to any of its rates for Basic Cable Service or any Cable Programming Service (including but not limited to rates for associated equipment) or (y) is a party to any proceeding before the FCC or any other Governmental Authority the collective outcome of which could result in the Company or any of its Subsidiaries being ordered to make refunds to Subscribers in excess of $2,000,000 (exclusive of potential Social Contract Amendment refunds) or reduce the rates currently charged to Subscribers when netted against any increases to which the Company is entitled. (j) Section 4.12 of the Company Disclosure Letter lists each System, and the Franchise(s) by which it is authorized, that is subject to effective competition (as that term is defined in Section 623(l)(1) of the Cable Act) and the basis for the Company's determination that the System operating under that Franchise is subject to effective competition. IV.13 Environmental Matters. Except as set forth in Section 4.13 of the Company Disclosure Letter: (i) the operations of the Company and its Subsidiaries are in material compliance with all applicable Environmental Laws; (ii) to the Company's Knowledge, all real property owned, operated or leased by the Company and its Subsidiaries are free from contamination by any Hazardous Material that is reasonably likely to result in Environmental Costs and Liabilities to the Company in excess of $2,000,000; (iii) to the Knowledge of the Company, the Company and its Subsidiaries have obtained and currently maintain all material Environmental Permits necessary for their operations and are in material compliance with such Environmental Permits; (iv) except to the extent such matters are the subject matter of other representations and warranties of the Company contained herein, there are no Legal Proceedings or Environ-mental Claims pending, or to the Knowledge of the Company, threatened against the Company or its Subsidiaries alleging the violation of any Environmental Law or asserting claims regarding Environmental Costs and Liabilities under any Environmental Law; (v) neither the Company nor its Subsidiaries nor to the Knowledge of the Company, any predecessor of the Company or its Subsidiaries or any owner of premises leased or operated by the Company or its Subsidiaries with respect to such property, has filed any formal notice under Federal, state, local or foreign law indicating past or present generation treatment, storage, or disposal of or reporting a Release of Hazardous Material into the environment; and (vi) to the Knowledge of the Company, there is not now, nor has there been in the past, on, in or under any real property owned, leased or operated by the Company or its Subsidiaries (A) any under-ground storage tanks, above-ground storage tanks, dikes or impoundments, (B) any friable asbestos-containing materials or (C) any polychlorinated biphenyls which, in each case, is material to the operation of its business at such real property. IV.14 Labor. (a) Except as set forth in Section 4.14(a)(1) of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to any labor or collective bargaining agreement and there are no labor or collective bargaining agreements that govern the terms and conditions of employment with the Company or its Subsidiaries with respect to employees of the Company or its Subsidiaries. Section 4.14(a)(2) of the Company Disclosure Letter lists all employment, management, consulting, management retention or other personal service, or compensation agreements or arrangements covering one or more non-employees (including severance, termination or change-of-control arrangements) and all material employment, management, consulting, management retention or other personal service, or compensation agreements or arrangements covering one or more employees (including severance, termination or change-of-control arrangements) in each case, entered into by the Company or any of its Subsidiaries and a copy of each such agreement has been delivered to Acquiror. (a) Except as set forth in Section 4.14(b) of the Company Disclosure Letter, no employees of the Company or any of its Subsidiaries are represented by any labor organization; no labor organization or group of employees of the Company or any of its Subsidiaries has made a pending demand against the Company or any Subsidiary for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending against or, to the knowledge of the Company, threatened to be brought or filed against the Company or any Subsidiary, with the National Labor Relations Board or other labor relations tribunal; there is no organizing activity involving the Company or any of the Subsidiaries pending or, to the Knowledge of the Company, threatened by any labor organization or group of employees of the Company or any its Subsidiaries. (b) There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations (in the case of arbitrations which if adversely decided would reasonably be expected to involve the payment of damages of more than $500,000) or (ii) material grievances or other material labor disputes pending or, to the Knowledge of the Company, threatened against or involving the Company or any of its Subsidiaries. There are no unfair labor practice charges, grievances or complaints pending or, to the Knowledge of the Company, threatened by or on behalf of any employee or group of employees of the Company or any of its Subsidiaries that individually or in the aggregate involve more than $500,000. (c) Except as set forth in Section 4.14(d) of the Company Disclosure Letter, there are no material complaints, charges or claims against the Company and its Subsidiaries pending or, to the Knowledge of the Company, threatened to be brought or filed with any Governmental Authority or in which an employee or former employee of the Company or any of its Subsidiaries is a party or a complainant based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by the Company or a Subsidiary of any individual, including any claim for workers' compensation or under the Occupational Safety and Health Act of 1970, as amended. In the aggregate, the complaints and charges set forth in Section 4.14(d) of the Company Disclosure Letter would not have, singly or in the aggregate, a Material Adverse Effect with respect to the Company even if each were resolved adversely to the Company and its Subsidiaries. (d) Hours worked by and payments made to employees of the Company and its Subsidiaries have not been in material violation of the Federal Fair Labor Standards Act or any other Applicable Law dealing with such matters. (e) The Company and its Subsidiaries are in material compliance with all Applicable Laws relating to the FCC-Equal Employment Opportunity Commission standards and employment or termination of employment of labor (including, but not limited to, leased workers and independent contractors), including all such Applicable Laws and WARN relating to wages, hours, collective bargaining, employment discrimination, civil rights, safety and health, workers' compensation, pay equity and the collection and payment of withholding and/or social security taxes and similar Taxes. IV.15 Absence of Changes or Events. Except as set forth in Section 4.15 of the Company Disclosure Letter or disclosed in the Company SEC Documents, since the date of the most recent audited financial statements included in the Company SEC Documents, the Company and its Subsidiaries have operated their respective businesses only in the ordinary and usual course and in substantially the same manner as previously conducted and there has not been: (i) any damage, destruction or loss with respect to the properties or assets of the Company or its Subsidiaries whether covered by insurance or not, which has had or would have, individually or in the aggregate, a Material Adverse Effect with respect to the Company; (ii) any change, occurrence or circumstance that had a Material Adverse Effect with respect to the Company; (iii) any change in the accounting principles, methods, practices or procedures followed by the Company in connection with the business of the Company or any change in the depreciation or amortization policies or rates theretofore adopted by the Company in connection with the business of the Company and its Subsidiaries; (iv) any declaration or payment of any dividends, or other distributions in respect of the outstanding shares of Capital Stock of the Company or any of its Subsidiaries (other than dividends declared or paid by wholly-owned Subsidiaries); (v) any split, combination or reclassification of the Company's capital stock or any issuance of shares of capital stock of the Company or any Subsidiary or any other change in the authorized capitalization of the Company or any Subsidiary, except as contemplated by this Agreement; (vi) any repurchase or redemption by the Company of shares of its capital stock or any issuance by the Company of any other securities in exchange or in substitution for shares of its capital stock except pursuant to employee benefit plans, programs or arrangements in existence on the date hereof, in the ordinary course of business consistent with past practice; or (vii) any grant or award of any options, warrants, conversion rights or other rights to acquire any shares of capital stock of the Company or any Subsidiary, except as contemplated by this Agreement or except pursuant to employee benefit plans, programs or arrangements in existence on the date hereof, in the ordinary course of business consistent with past practice. IV.16 Unlawful Payments and Contributions. Neither the Company nor, to the Knowledge of the Company, any of its directors, officers or any of its other employees or agents has (a) used any Company funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to political activity; (b) made any direct or indirect unlawful payment to any government official or employee from Company funds; (c) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, in connection with the Company's and its Subsidiaries' business; or (d) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any Person or entity with respect to matters pertaining to the Company. IV.17 Brokers and Intermediaries. Neither the Company nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement and the Transaction Documents, except that the Company has retained Lazard Freres & Co. LLC and Allen & Company Incorporated as its financial advisors, whose respective fees and expenses shall be paid by the Company. The Company has delivered to Acquiror a copy of the retention agreements related thereto. V REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND COMPANY SUB Acquiror and Company Sub represent and warrant to the Company that (provided that the representations and warranties set forth herein with respect to Company Sub shall be made as of June __, 1996): V.1 Organization and Authority. (a) Each of Acquiror, Company Sub, and Acquiror's other Subsidiaries is a corporation or partnership duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization with all requisite power to enable it to own, lease and operate its assets and properties and to conduct its business as currently being conducted and is qualified and in good standing to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties owned or leased by it requires such qualification, except to the extent the failure so to qualify would not have a Material Adverse Effect with respect to Acquiror. Complete and correct copies of the Certificates of Incorporation and Bylaws, each as amended to date, of Acquiror and Company Sub have been delivered to the Company. Such Certificates of Incorporation and Bylaws are in full force and effect. (a) Acquiror and Company Sub have all requisite corporate power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and such Transaction Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Acquiror and Company Sub. This Agreement and each Transaction Document to which it is a party has been duly executed and delivered by Acquiror and Company Sub and constitutes the legal, valid and binding obligation of each such party, enforceable against it in accordance with its terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and (ii) as the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. V.2 Capitalization. (a) As of the date hereof, the authorized capital stock of Acquiror consists of (i) 2,000,000,000 shares of U S WEST Communications Group Common Stock, par value $.01 per share ("Communications Stock"), of which 475,604,443 shares were issued and outstanding as of February 23, 1996, all of which are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights created by statute, Acquiror's Restated Certificate of Incorporation or any agreement to which Acquiror is a party or by which Acquiror is bound, (ii) 2,000,000,000 shares of Media Stock, of which 473,225,728 shares were issued and outstanding as of February 23, 1996, all of which are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights created by statute, Acquiror's Restated Certificate of Incorporation or any agreement to which Acquiror is a party or by which Acquiror is bound, and (iii) 200,000,000 shares of Preferred Stock, par value $1.00 per share, of which (A) 10,000,000 shares have been designated as Series A Junior Participating Cumulative Preferred Stock, none of which are issued and outstanding and all of which are reserved for issuance in connection with rights to purchase Communications Stock pursuant to the Amended and Restated Rights Agreement, dated as of October 31, 1995 (the "Rights Agreement"), by and between Acquiror and State Street Bank and Trust Company, as rights agent, (B) 10,000,000 shares have been designated as Series B Junior Participating Cumulative Preferred Stock, none of which are issued and outstanding and all of which are reserved for issuance in connection with rights to purchase Media Stock pursuant to the Rights Agreement, and (C) 50,000 shares have been designated as Series C Cumulative Redeemable Preferred Stock and are issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights created by statute, Acquiror's Restated Certificate of Incorporation or Bylaws or any agreement to which Acquiror is a party or by which Acquiror is bound. As of the date hereof, the Number of Shares Issuable with Respect to the InterGroup Interest (as defined in Section 2.6.19 of Article V of Acquiror's Restated Certificate of Incorporation) is zero. The authorized capital stock of Company Sub consists of _____ shares of common stock, par value $.01 per share, all of which have been validly issued, are fully paid and nonassessable and are owned by Acquiror, free and clear of any Encumbrance. (a) Other than as described in this Section 5.2, in the Acquiror SEC Documents or in Section 5.2 of the Letter from Acquiror, dated the date hereof, addressed to the Company (the "Acquiror Disclosure Letter"), no shares of the capital stock of Acquiror or Company Sub are authorized, issued or outstanding, or reserved for any other purpose, and there are no options, warrants or other rights (including registration rights), agreements, arrangements or commitments of any character to which Acquiror or Company Sub is a party relating to the issued or unissued capital stock of Acquiror or Company Sub or any obligation of Acquiror or Company Sub to grant, issue or sell any shares of capital stock of Acquiror or Company Sub by sale, lease, license or otherwise. Except as disclosed in the Acquiror SEC Documents or in Section 5.2 of the Acquiror Disclosure Letter, neither Acquiror nor Company Sub has any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote or which are convertible into or exercisable for securities having the right to vote with the stockholders of Acquiror or Company Sub on any matter. Except as set forth in Section 5.2 of the Acquiror Disclosure Letter there are no voting trusts or other agreements or understandings with respect to the voting of the capital stock of Acquiror or Company Sub. V.3 NoConflicts. Subject to obtaining the Acquiror Consents (as defined in Section 5.5), the execution and delivery by Acquiror and Company Sub of this Agreement and each of the Transaction Documents to which it is a party do not, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or to the increased, additional, accelerated or guaranteed rights or entitlements of any Person under, or result in the creation of any Encumbrances upon any of the properties or assets of Acquiror or Company Sub under, any provision of (i) the Certificate of Incorporation and Bylaws of Acquiror or Company Sub, (ii) any note, bond, mortgage, indenture or deed of trust, deed to secure debt or any license, lease, contract, commitment, permit, concession, franchise, agreement or other binding arrangement to which Acquiror or Company Sub is a party or by which any of their respective properties or assets may be bound or subject, (iii) any judgment, order, writ, injunction or decree of any court, governmental body, administrative agency or arbitrator applicable to Acquiror or Company Sub or their respective properties or assets, or (iv) any law, statute, rule, regulation or judicial or administrative decision applicable to Acquiror or Company Sub; except in the case of clauses (ii) and (iv), such conflicts, violations and defaults, termination, cancellation and acceleration rights and entitlements and Encumbrances that in the aggregate would not hinder or impair the consummation of the transactions contemplated hereby or have a Material Adverse Effect with respect to Acquiror. V.4 Stockholder Vote. At such time as all conditions to the Merger have otherwise been satisfied, no vote of the holders of any class or series of Acquiror's or Company Sub's capital stock not theretofore obtained will be necessary or required (under Applicable Law or otherwise) to approve this Agreement and the transactions contemplated hereby. V.5 Consents. Except for (i) as set forth in Section 5.5 of the Acquiror Disclosure Letter, (ii) compliance with and filings under the HSR Act, (iii) the filing with the SEC by Acquiror of a registration statement on Form S-4 registering under the Securities Act the shares of Media Stock and Series D Preferred Stock to be issued in the Merger (the "Form S-4"), the filing with the SEC by Acquiror of a registration statement on Form 8-A registering under the Exchange Act the Series D Preferred Stock and such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby, (iv) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (v) such filings and approvals as may be required by any applicable state securities, "blue sky" or takeover laws, (vi) such filings in connection with Gains Taxes, (vii) the filing by Acquiror of a Certificate of Designation with respect to the Series D Preferred Stock (as contemplated by Section 7.17) with the Secretary of State of the State of Delaware immediately prior to the Effective Time (the items in clauses (i) through (vii) being collectively referred to herein as "Acquiror Consents"), no consents, approvals, licenses, permits, orders or authorizations of, or registrations, declarations, notices or filings with, any Governmental Authority or any Third Party are required to be obtained or made by or with respect to Acquiror or Company Sub in connection with the execution, delivery and performance of this Agreement or any of the other agreements contemplated hereby to which it is a party or the consummation of the transactions contemplated hereby and thereby or the taking by Acquiror or Company Sub of any other action contemplated hereby or thereby, which, if not obtained or made, would have a Material Adverse Effect with respect to Acquiror. V.6 Compliance; No Defaults. (a) Except as set forth in Section 5.6 of the Acquiror Disclosure Letter, neither Acquiror nor any of its Subsidiaries is in violation of, is, to the knowledge of Acquiror, under investigation with respect to any violation of, has been given notice or been charged with violation of, or failed to comply with any Applicable Laws, except for violations and failures to comply that would not have a Material Adverse Effect with respect to Acquiror. Except as set forth in Section 5.6 of the Acquiror Disclosure Letter, Acquiror and its Subsidiaries have all Permits which are material to the operation of the businesses of Acquiror and its Subsidiaries. (a) Neither Acquiror nor any of its Subsidiaries is in default or violation (and no event has occurred which, with notice or the lapse of time or both, would constitute a default or violation) of any term, condition or provision of (i) its Certificate of Incorporation or Bylaws or other comparable organizational document or (ii) any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which Acquiror or any of its Subsidiaries is now a party or by which Acquiror or any of its Subsidiaries or any of their respective properties or assets may be bound, except in the case of clause (ii), for defaults or violations which in the aggregate would not have a Material Adverse Effect with respect to Acquiror. V.7 Acquiror SEC Documents; Undisclosed Liabilities. (a) Acquiror has filed all required reports, schedules, registration statements and definitive proxy statements with the SEC since January 1, 1993 (as such documents have since the time of their filing been amended, the "Acquiror SEC Documents"). As of their respective dates, the Acquiror SEC Documents (including any financial statements filed, to be filed or required to have been filed as a part thereof) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the SEC thereunder applicable to such Acquiror SEC Documents, and none of the Acquiror SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial state-ments of Acquiror included in the Acquiror SEC Documents comply as to form in all material respects with applicable accounting require-ments and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present (subject, in the case of the unaudited financial statements, to normal, recurring audit adjustments, which were not individually or in the aggregate material) the consolidated financial position of Acquiror and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. (a) Except as disclosed in the Acquiror SEC Documents or in Section 5.7 of the Acquiror Disclosure Letter, as of the date hereof, Acquiror and its Subsidiaries do not have any material indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due or asserted or unasserted) required by GAAP to be reflected on a consolidated balance sheet of Acquiror and its consolidated Subsidiaries or in the notes, exhibits or schedules thereto. V.8 Litigation. Except as set forth in the Acquiror SEC Documents or in Section 5.8 of the Acquiror Disclosure Letter, there are no Legal Proceedings against or affecting Acquiror or any of its Subsidiaries or their respective properties or assets pending or, to the knowledge of Acquiror, threatened, that individually or in the aggregate could (i) have a Material Adverse Effect with respect to Acquiror or (ii) prevent, hinder or materially delay the consummation of the transactions contemplated by this Agreement or the Transaction Documents. Except as set forth in Section 5.8 of the Acquiror Disclosure Letter, neither Acquiror nor any of its Subsidiaries is a party or subject to or in default under any judgment, order, injunction or decree of any Governmental Authority applicable to it or to its respective properties or assets, which judgment, order, injunction, decree or default thereunder constitutes a Material Adverse Effect with respect to Acquiror. V.9 Absence of Changes or Events. Except as disclosed in the Acquiror SEC Documents, since the date of the most recent audited financial statements included in the Acquiror SEC Documents, Acquiror and its Subsidiaries have conducted their business operations only in the ordinary course and there has not occurred (i) any change, occurrence or circumstance that had any Material Adverse Effect with respect to Acquiror or (ii) other events or conditions of any character that, individually or in the aggregate, have or would reasonably be expected to have, a Material Adverse Effect with respect to Acquiror or on the ability of Acquiror or Company Sub to perform their respective material obligations under this Agreement and the Transaction Documents to which it is a party. V.10 Brokers and Intermediaries. Neither Acquiror or Company Sub nor any of their respective officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement and the Transaction Documents, except that Acquiror has retained Lehman Brothers Inc., as its financial advisor, whose fees and expenses shall be paid by Acquiror. V.11 Ownership of Company Capital Stock. Neither Acquiror nor any of its Subsidiaries owns, directly or indirectly, any shares of Company Capital Stock. V.12 Operations of Company Sub. Company Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated by this Agreement. VI COVENANTS RELATING TO CONDUCT OF BUSINESS VI.1 Conduct of Business of the Company. Except as otherwise expressly permitted by the terms of this Agreement, from the date hereof to the Effective Time, the Company shall, and shall cause its Subsidiaries to, carry on their respective businesses in the ordinary course in substantially the same manner as presently conducted (including with respect to advertising, promotions and capital expenditures) and in compliance in all material respects with Applicable Laws, use their reasonable best efforts consistent with past practices to keep available the services of the present employees of the Company and its Subsidiaries and to preserve their relationships with customers, suppliers and others with whom the Company and its Subsidiaries deal to the end that their goodwill and ongoing businesses shall not be materially impaired in any material respect at the Closing Date. The Company shall not, and shall cause its Subsidiaries not to, take any action that would, or that is reasonably likely to, result in any of the representations and warranties of the Company set forth in Article IV being untrue in any material respect as of the date made or in any of the conditions to the consummation of the Merger set forth herein not being satisfied. In addition, and without limiting the generality of the foregoing, except as otherwise expressly permitted by the terms of this Agreement or as set forth in Section 6.1 of the Company Disclosure Letter, during the period from the date hereof to the Effective Time, the Company shall not (and shall cause its Subsidiaries not to), without the written consent of Acquiror, which decision regarding consents shall be made promptly (in light of its circumstances) after receipt of notice seeking such consent: (i) except for the Charter Amendments, amend its Certificate of Incorporation, Bylaws or other comparable organizational documents; (ii) subject to Sections 7.7 and 7.14(b), redeem or otherwise acquire any shares of its capital stock, or issue any capital stock or any option, warrant or right relating thereto or any securities convertible into or exchangeable for any shares of its capital stock, or split, combine or reclassify any of its capital stock or issue any securities in exchange or in substitution for shares of its capital stock; (iii) subject to Section 7.14(b), (A) grant or agree to grant to any employee any increase in wages or bonus, severance, profit sharing, retirement, deferred compensation, insurance or other compensation or benefits, or establish any new compensation or benefit plans or arrangements, or amend or agree to amend any existing Benefit Plans or Equity Appreciation Rights Plans, except as may be required under existing agreements or in the ordinary course of business consistent with past practices or (B) enter into any new RSPA or amend the terms of any existing RSPA or accelerate the vesting of any shares of Class B Common Stock issued thereunder; VI(xxiii) merge, amalgamate or consolidate with any other entity in any transaction in which the Company is not the surviving corporation (other than mergers between Subsidiaries of the Company), sell all or substantially all of its busi-ness or assets, or acquire all or substantially all of the business or assets of any other Person; (v) enter into or amend any employment, consulting, severance or similar agreement with any individual, except with respect to severance gifts or payments of a nominal nature to persons holding non-officer/executive level positions in the ordinary course of business consistent with past practice; (vi) subject to Section 7.7, declare, set aside or make any dividends, payments or distributions in cash, securities or property to the stockholders of the Company, whether or not upon or in respect of any share of Company Capital Stock; (vii) incur or assume any Indebtedness other than as specifically set forth in Section 6.1(vii) of the Company Disclosure Letter; (viii) voluntarily grant any material Encumbrance on any of its material assets, other than Encumbrances that are incurred in the ordinary course of business; (ix) make any change in any method of accounting or accounting practice or policy, except as required by Applicable Laws or by GAAP; (x) make or incur any capital expenditures that are not set forth in Section 6.1(x) of the Company Disclosure Letter or that, individually, are in excess of $25 million or, in the aggregate, in excess of $50 million; (xi) subject to Section 7.7, sell, lease, swap or otherwise dispose of any assets, other than (A) sales, leases, swaps or other dispositions of such assets not having a fair market value in excess of $15 million individually or $30 million in the aggregate (so long as the Company provides notice to Acquiror of any sale, lease, swap or other disposition of any asset having a fair market value of greater than $5 million) or (B) swaps of Systems or assets of Systems in order to facilitate the clustering of Systems or dispose of Systems located in the Acquiror Region; provided, however, that (1) such swaps shall not in the aggregate involve more than 500,000 Subscribers of the Company or its Subsidiaries, (2) any cable television systems acquired by the Company or any of its Subsidiaries in any such swap shall not be located in the Acquiror Region, (3) any cable television systems acquired by the Company in any such swap shall not be in a franchise area where there is a substantial overbuild with any other CATV system owned by the Company, Acquiror or any of their respective Affiliates, (4) the aggregate amount of cash paid by the Company or any of its Subsidiaries in any such swap shall not exceed $50 million in the aggregate, (5) any such swap shall require the approval of Acquiror, which approval shall not be unreasonably withheld and Acquiror shall be reasonably satisfied that the Company has received substantially equivalent value including cash or other assets and (6) to the extent that the Company or any Subsidiary must apply for the consent of the Governmental Authority as a condition to the transfer of control or assignment of any Franchise associated with any such swap, such application shall include an application to the Governmental Authority, and relevant information relating to the proposed transaction, requesting contemporaneous approval for the anticipated acquisition of the Company or its Subsidiary by Acquiror or Company Sub as contemplated herein and the transfer of control of said Franchise to the Surviving Corporation in accordance with the terms hereof; and provided, further, that any consent required from a Governmental Authority as a condition to consummating such swap shall be deemed a Required Franchise Consent; (xii) acquire or agree to acquire by merging or consolidating with, or by purchasing all or a substantial portion of the assets of or equity in, or by any other manner, any business of any Person or acquire or agree to acquire any assets (other than supplies, raw materials and inventory in the ordinary course, capital expenditures permitted by clause (x) above and asset swaps permitted by clause (xi) above); (xiii) abandon, avoid, dispose, surrender, fail to file for timely renewal, terminate or amend in any materially adverse manner the terms of any material Franchises, any FCC license that would have a material adverse effect on the operation of a System or the Social Contract Order, except as amended by virtue of the proposed Social Contract Amendment, or, with respect to any Material Franchise, fail to file for renewal pursuant to Section 626(a) of the Cable Act; (xiv) delete any programming service on the Systems or make material change in the programming services offered on the Systems other than in the ordinary course of business or as required by the Cable Act, the Social Contract Order or any amendments thereto; (xv) except as otherwise permitted by clauses (xi) and (xii), modify, amend, terminate, renew or fail to use reasonable efforts to renew any material contract or agreement necessary to continue the Company's business in the ordinary course or waive, release or assign any material rights or claims, other than in the ordinary course of business; (xvi) offer free or reduced-price service as an inducement to any Person, except in the ordinary course of business consistent with past practice; (xvii) except as permitted by Applicable Law, including the Social Contract Order and any amendments thereto, (A) except as disclosed to Acquiror in writing at least 30 days prior to any rate change, implement any rate change, retiering or repackaging of CATV programming offered by any of the Company's Subsidiaries, (B) except as disclosed in writing to Acquiror at least 30 days prior to any cost-of-service rate change, make any cost-of-service election under the rules and regulations adopted under the Cable Act, (C) determine a method of refund pursuant to 47 C.F.R. Section 76.942(d) or 76.961(c) or (D) amend any Franchise or agree to make any payments or commitments, including commitments to make future capital improvements or provide future services, in connection with any renewal of any Franchise other than that which the Company would make in the ordinary course of business; (xviii) enter into any agreement, understanding or commitment that restrains, limits or impedes the ability of the Company or Acquiror to compete with or conduct any business or line of business; (xix) invest or enter into any agreement, understanding or commitment, whether written or oral, by or on behalf of the Company or its Subsidiaries, to invest or provide additional capital in respect of assets, businesses or entities; provided, however, that the restrictions contained in this clause shall not apply to existing commitments as set forth in Section 6.1(xix) of the Company Disclosure Letter or to any investments not in excess of $10 million individually or $20 million in the aggregate; (xx) except as otherwise provided in clause (xix) above or Section 7.14, enter into any material contract or agreement with, or make any loan or advance to, any Affiliate (other than a wholly owned Subsidiary) of the Company or any stockholder or Affiliate thereof; (xxi) enter into, or amend the terms of, any agreement relating to interest rate swaps, caps or other hedging or derivative instruments relating to Indebtedness of the Company and its Subsidiaries, except as required under agreements relating to existing Indebtedness and Indebtedness permitted by clause (vii) above; (xxii) conduct its business in a manner or take, or cause to be taken, any other action (including, without limitation, effecting or agreeing to effect or announcing an intention or proposal to effect, any acquisition, business combination, merger, consolidation, restructuring or similar transaction) that would or might reasonably be expected to prevent Acquiror, Company Sub or the Company from consummating the transactions contemplated hereby in accordance with the terms of this Agreement (regardless of whether such action would otherwise be permitted or not prohibited hereunder), including, without limitation, any action which may limit the ability of Acquiror, Company Sub or the Company to consummate the transactions contemplated hereby as a result of antitrust or other regulatory concerns; (xxiii) purchase, sell or trade (or announce any intention or proposal to purchase, sell or trade) any shares of Media Stock, or take any other action a principal purpose of which is to affect the calculation of the Determination Price; or (xxiv) agree, whether in writing or otherwise, to do any of the foregoing. Prior to the date hereof, Acquiror delivered to the Company a list (which the Acquiror may update from time to time) designating certain individuals of Acquiror to whom the Company may direct requests for consents under this Section 6.1. VI.2 Conduct of Business of Acquiror and Company Sub. (a) Except as set forth in Section 6.2 of the Acquiror Disclosure Letter, from the date hereof to the Effective Time, Acquiror shall not (and shall cause its Subsidiaries not to): (i) issue shares of Media Stock or any option, warrant or right relating thereto or any securities convertible into or exchangeable for any shares of Media Stock at less than fair market value as determined by the board of directors of Acquiror (other than pursuant to the terms of existing options or benefit plans), or split, combine, redeem, convert or reclassify the Media Stock or issue any securities in exchange or in substitution for shares of Media Stock; (ii) amend its Certificate of Incorporation or Bylaws (other than the filing of a Certificate of Designation for the issuance of any series of Preferred Stock) in any manner adverse to the holders of Media Stock; (iii) declare, set aside or make any dividends or distributions in cash, securities or property to holders of Media Stock; (iv) conduct its business in a manner or take, or cause to be taken, any other action (including, without limitation, effecting or agreeing to effect or announcing an intention or proposal to effect, any acquisition, business combination, merger, consolida-tion, restructuring or similar transaction) that would or might reasonably be expected to prevent Acquiror, Company Sub or the Company from consummating the transactions contemplated hereby in accordance with the terms of this Agreement (regardless of whether such action would otherwise be permitted or not prohibited hereunder), including, without limitation, any action which may limit the ability of Acquiror, Company Sub or the Company to consummate the transactions contemplated hereby as a result of antitrust or other regulatory concerns; (v) take any action that would, or that is reason-ably likely to, result in any of the representa-tions and warranties of Acquiror or Company Sub set forth in Article V being untrue in any material respect as of the date made or any of the conditions to the Merger set forth herein not being satisfied; (vi) purchase, sell (other than through primary issuances) or trade (or announce any intention or proposal to purchase, sell or trade) any shares of Media Stock, or take any other action a principal purpose of which is to affect the calculation of the Determination Price, other than pursuant to benefit plans in the ordinary course of business; (vii) sell all or substantially all of the properties and assets of the Media Group (within the meaning of Section 2.4.1(B) of Article V of the Restated Certificate of Incorporation of Acquiror); or (viii) acquire, or agree to acquire, any shares of Company Capital Stock if, after giving effect to such acquisition and the purchase of the Put Shares pursuant to Section 9.4, Acquiror would beneficially own 10% or more of the Company Capital Stock. (b) During the period of time from the date hereof to the Effective Time, Company Sub shall not engage in any activities of any nature, except as provided in or contemplated by this Agreement. VI.3 Access to Information. (a) From the date hereof until the Closing Date, the Company shall permit Acquiror and its representatives to have full access to the management, facilities, suppliers, accounts, books, records (including, without limitation, budgets, forecasts and personnel files and records), contracts and other materials of the Company and its Subsidiaries reasonably requested by Acquiror or such representatives and to make available to Acquiror and its representatives the directors, officers, employees and independent accountants of the Company for interviews for the purpose, among other things, of verifying the information furnished to Acquiror, developing transition plans and integrating the operations of the Company and its Subsidiaries with the operations of Acquiror and its Subsidiaries and Affiliates. Such access shall be subject to existing confidentiality agreements and shall be conducted by Acquiror and its representatives during normal business hours, upon reasonable advance notice and in such a manner as not to interfere unreasonably with the business or operations of the Company and its Subsidiaries. (a) From the date hereof until the Closing Date, Acquiror and Company Sub shall permit the Company and its representatives to have full access to the management, facilities, suppliers, accounts, books, records (including, without limitation, budgets and forecasts), contracts and other materials of the Media Group reasonably requested by the Company or such representatives and to make available to the Company and its representatives the directors, officers, employees and independent accountants of the Media Group for interviews for the purpose, among other things, of verifying the information furnished to the Company. Such access shall be subject to existing confidentiality agreements and shall be conducted by the Company and its representatives during normal business hours, upon reasonable advance notice and in such a manner as not to interfere unreasonably with the business or operations of the Media Group. (b) Each of the Company, Acquiror and Company Sub agrees that it will not, and will cause each of their respective Affiliates and representatives not to, use any information obtained pursuant to this Section 6.3 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. The Confidentiality Agreement, dated as of September 26, 1994, as amended on January 11, 1996, between Acquiror and the Company and the Confidentiality Agreement, dated as of April 19, 1995, between Acquiror and the Company (the "Confidentiality Agreements") shall apply with respect to information furnished thereunder or hereunder and any other activities contemplated thereby. VII ADDITIONAL AGREEMENTS VII.1 Preparation of Form S-4 and the Proxy Statement; Stockholders' Meeting; Charter Amendments. (a) Promptly following the date of this Agreement, the Company shall prepare and file with the SEC the Proxy Statement and Acquiror shall prepare and file with the SEC the Form S-4, in which the Proxy Statement will be included as a prospectus. Each of the Company and Acquiror shall use its reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing. The Company shall use its reasonable best efforts to cause the Proxy Statement to be mailed to the Company's stockholders, as promptly as practicable after the Form S-4 is declared effective under the Securities Act. Acquiror shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified or consenting to service of process in any jurisdiction in which it has not previously so consented in any action other than one arising out of the offering of the Media Stock and the Series D Preferred Stock in such jurisdiction) required to be taken to qualify the Media Stock and Series D Preferred Stock to be issued in the Merger under any applicable state securities or "blue sky" laws prior to the Effective Time, and the Company shall furnish all information concerning the Company and the holders of the Company Capital Stock as may be reasonably requested in connection with any such action. (a) None of the information supplied or to be supplied by the Company, on the one hand, or Acquiror and Company Sub, on the other hand, for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Proxy Statement will, at the date it is first mailed to the stockholders of the Company or at the time of each Stockholders' Meeting (as defined in Section 7.1(d)), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement and the Form S-4 will comply as to form in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be. Notwithstanding the foregoing, (i) no representation is made by the Company with respect to statements made or incorporated by reference therein based on information supplied in writing by Acquiror and Company Sub specifically for inclusion or incorporation by reference in the Proxy Statement and (ii) no representation is made by Acquiror and Company Sub with respect to statements made or incorporated by reference therein based on information supplied in writing by the Company specifically for inclusion or incorporation by reference in the Form S-4. (b) The Company and Acquiror shall cooperate with each other and provide to each other all information necessary in order to prepare the Proxy Statement and the Form S-4. The Company and Acquiror shall notify each other promptly of the receipt of any comments from the SEC or its staff and of any requests by the SEC or its staff for amendments or supplements to the Form S-4 or the Proxy Statement or for additional information and shall supply the other parties with copies of all correspondence between the Company or any of its representatives, or Acquiror or any of its representatives, as the case may be, on the one hand, and the SEC or its staff, on the other hand, with respect thereto. The Company and Acquiror shall use their respective reasonable best efforts to respond to any comments of the SEC with respect to the Form S-4 and the Proxy Statement as promptly as practicable. If at any time prior to the Effective Time there shall occur (i) any event with respect to the Company or any of its Subsidiaries, or with respect to other information supplied by the Company for inclusion in the Proxy Statement or (ii) any event with respect to Acquiror or any of its Subsidiaries, or with respect to other information supplied by Acquiror for inclusion in the Form S-4, in either case which event is required to be described in an amendment of, or a supplement to, the Proxy Statement or Form S-4, such event shall be so described, and such amendment or supplement shall be promptly filed with the SEC and, as required by law, disseminated to the stockholders of the Company. Acquiror shall notify the Company promptly upon (i) the declaration by the SEC of the effectiveness of the Form S-4, (ii) the issuance or threatened issuance of any stop order or other order preventing or suspending the use of any prospectus relating to the Form S-4, (iii) any suspension or threatened suspension of the use of any prospectus relating to the Form S-4 in any state, (iv) any proceedings commenced or threatened to be commenced by the SEC or any state securities commission that might result in the issuance of a stop order or other order or suspension of use or (v) any request by the SEC to supplement or amend any prospectus relating to the Form S-4 after the effectiveness thereof. Acquiror and, to the extent applicable, the Company, shall use its reasonable best efforts to prevent or promptly remove any stop order or other order preventing or suspending the use of any prospectus relating to the Form S-4 and to comply with any such request by the SEC or any state securities commission to amend or supplement the Form S-4 or the prospectus relating thereto. (c) The Company shall, as promptly as practicable, duly call, give notice of, convene and hold a meeting of its stockholders (the "Initial Stockholders' Meeting") for the purpose of obtaining the Stockholder Approvals. The Company shall use its reasonable best efforts to hold such meeting as soon as practicable. In the event the Consideration Charter Amendment is not adopted at the Initial Stockholders' Meeting, the Company shall, as promptly as practicable follow-ing the date of the Initial Stockholders' Meeting, duly call, give notice of, convene and hold another meeting of its stockholders (the "Additional Stockholders' Meeting" and, together with the Initial Stockholders' Meeting, collectively, the "Stockholders' Meetings" and individually, a "Stockholders' Meeting") for the purpose of obtaining adoption of the Consideration Charter Amendment and any other Stockholder Approvals not previously obtained. The Company shall, as promptly as practicable after the date of the Initial Stockholders' Meeting, hold the Additional Stockholders' Meeting. Subject to the fiduciary duties of the Board of Directors under Applicable Laws and to Section 9.1(g), the Company shall, through the Board of Directors, recommend to its stockholders adoption of this Agreement, the Charter Amendments and the other transactions contemplated hereby and shall use its best efforts to solicit from stockholders proxies in favor of adoption of this Agreement and the Charter Amendments and to take all other action necessary to secure the Stockholder Approvals at the Initial Stockholders' Meeting or the Additional Stockholders' Meeting, as the case may be. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the first and third sentences of this Section 7.1(d) shall not be altered by the commence-ment, public proposal or communication to the Company of any Acquisition Proposal (as defined in Section 7.10). (d) Subject to receipt of the Stockholder Approvals, the Company shall take all actions necessary to cause a Certificate of Amendment containing the Consideration Charter Amendment to be executed, acknowledged and filed and to become effective no later than immediately prior to the Effective Time in accordance with the DGCL as soon as practicable after the approval thereof at a Stockholders' Meeting. (e) The Company shall make stock transfer records relating to the Company available to Acquiror to the extent reasonably necessary to effectuate the intent of this Agreement. VII.2 Letter of the Company's Accountants. The Company shall use its reasonable best efforts to cause to be delivered to Acquiror letters of (i) Deloitte & Touche LLP, the Company's independent public accountants and (ii) any other independent public accountants whose reports are included or incorporated by reference in the Form S-4, each dated a date within two business days before the date on which the Form S-4 shall become effective and addressed to Acquiror, in form and substance reasonably satisfactory to Acquiror and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. VII.3 Letter of Acquiror's Accountants. Acquiror shall use its reasonable best efforts to cause to be delivered to the Company a letter of Coopers & Lybrand L.L.P., Acquiror's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. VII.4 Reasonable Best Efforts. Subject to the terms and conditions of this Agreement, including, without limitation, Section 7.6, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under Applicable Laws and regulations to consummate and make effective the transactions contemplated by this Agreement (including the execution of the Transaction Documents to which they or any of their Affiliates are a party), subject to the Stockholder Approval, including (a) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Authorities and the making of it all necessary registrations and filings (including filings with Governmental Authorities, if any), and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Authorities, (b) the obtaining of all necessary consents, approvals or waivers from Third Parties and (c) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement and the Transaction Documents. In furtherance of the foregoing, Acquiror and the Company each shall furnish to the other such necessary information and reasonable assistance as the other may request in connection with obtaining any consents required to be obtained by it or its Subsidiaries hereunder. VII.5 Franchise and License Consents. (a) Without limiting the generality of Section 7.4, the Company and Acquiror shall each use their respective reasonable best efforts to obtain all Franchise Consents and License Consents, including taking the actions specified herein. In order to secure the Franchise Consents and License Consents from Governmental Authorities and the FCC, the Company shall proceed immediately in good faith and using its reasonable best efforts, to prepare, file and prosecute each Franchise Consent and License Consent from the relevant Governmental Authority and the FCC, with the full right of participation by Acquiror including, without limita-tion, the right of prior review and approval of correspondence or forms of transfer resolutions, applications, ordinances or agreements to be submitted to Governmental Authorities and the FCC (which approval shall not be unreasonably withheld or delayed) and to be represented at all meetings or hearings as may be scheduled to consider such submissions. The Company shall send notice of the transactions contemplated in this Agreement to all Governmental Authorities. The Company shall submit to each Governmental Authority whose consent is required a form of ordinance or resolution, as appropriate, relating to the transfer of the Franchise, which ordinance or resolution shall be in a form reasonably acceptable to Acquiror and the Company. The Company shall consult with Acquiror and promptly and regularly notify Acquiror with regard to all material developments of the Franchise Consent and License Consent process, and shall give Acquiror reasonable prior notice of all meetings scheduled with the Governmental Authorities and the FCC. Acquiror shall use its reasonable best efforts to promptly assist the Company and shall take such prompt and affirmative actions as may reasonably be necessary in obtaining such approvals and shall cooperate with the Company in the preparation, filing and prosecution of such applications as may reasonably be necessary, including the preparation, filing and prosecution of any joint applications required to be filed with the Governmental Authorities or the FCC, and agrees to use its reasonable best efforts to furnish all information as is reasonably or as is customarily required by the approving entity, and, if required by a Governmental Authority or the FCC upon reasonable notice, Acquiror shall have the obligation to be represented at such meetings or hearings as may be scheduled to consider such applications. Any administrative filing fees imposed or expenses for which reimbursement is required by the Governmental Authority in connection with obtaining the Franchise Consents or the License Consents shall be borne by the Company and each of the parties shall bear its own legal fees or other costs of professional advisors incurred in the filing and prosection of such applications. If, in connection with obtaining Franchise Consents or the License Consents from a Governmental Authority or the FCC, a Governmental Authority or the FCC impose new, material Franchise or license conditions as a condition to granting its consent, Acquiror and the Company shall negotiate jointly with such Governmental Authority or the FCC with respect to such conditions, with such conditions to be accepted only if consented to by Acquiror and the Company, which consent shall not be unreasonably withheld. Acquiror agrees that prior to the Closing Date, it will not, without the prior written consent of the Company, seek amendments, modifica-tions or other changes to Franchises and shall not institute any discussions with Governmental Authorities or the FCC without the prior written consent of the Company and without offering a representative of the Company an opportunity to participate or observe such discussions. To the extent such request would not, in the reasonable judgment of the Company, delay or impair the ability to obtain any Franchise Consents, any application to any Governmental Authority for any Franchise Consent necessary for the transfer of control of any Franchise shall request that the relevant Govern-mental Authority also agree that no further Franchise Consent shall be required for the subsequent transfer of control of, or assignment of, such Franchise to a specified Person identified in such application who is an Affiliate of Acquiror to which Acquiror intends to transfer or assign the Franchise immediately prior to Closing. In addition, the Company will use reasonable best efforts to obtain necessary transfers of all private mobile radio service licenses. (a) To the extent that any Franchise Consents listed in Section 4.6 of the Company Disclosure Letter have not been obtained by Final Order prior to Closing (such Franchises hereinafter referred to as the "Non-Required Franchises"), Acquiror and the Company shall enter into negotiations to determine the disposition of the Non-Required Franchises after Closing. In the event that the parties agree to transfer any part of a System which includes, in part, areas covered by a Non-Required Franchise (hereinafter the "Non-Required Systems"), the parties shall continue to be subject to Section 7.5(a) until such time as all Franchise Consents are obtained and the Non-Required Franchises are transferred to Acquiror. VII.6 Antitrust Notification. (a) The Company and Acquiror shall as promptly as practicable, but in no event later than 30 Business Days following the execution and delivery of this Agreement, file with the FTC and the DOJ the notification and report form required for the transactions contemplated hereby and any supplemental information requested in connection therewith pursuant to the HSR Act. Each of Acquiror and the Company shall furnish to each other's counsel such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing or submission that is necessary under the HSR Act. The Company and Acquiror acknowledge that more than one filing may be required under the HSR Act in order to consummate the transactions contemplated by this Agreement, and agree to cooperate and furnish to each other's counsel such necessary information and reasonable assistance as the other may request in connection with its preparation of any subsequent filing. (a) The Company and Acquiror shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and shall comply promptly with any such inquiry or request. (b) Each of the Company and Acquiror shall use its reasonable best efforts to obtain any clearance required under the HSR Act for the consummation of the Merger, which efforts, for purposes of this Agreement shall not, except as provided in Section 7.6(d), require Acquiror in order to obtain any consent or clearance from the DOJ or any other Governmental Authority to (i) hold separate, sell or otherwise dispose of any assets, including assets of the Company, the effect of any of which, in the reasonable judgment of Acquiror, would be to materially impair the value of the Merger to Acquiror or (ii) contest any suit brought or threatened by the FTC or DOJ or attempt to lift or rescind any injunction or restraining order obtained by the FTC or DOJ adversely affecting the ability of the parties hereto to consummate the transactions contemplated hereby. (c) For purposes of Section 7.6(c), "reasonable best efforts" shall include entry into a consent decree in any action brought by the DOJ or into a consent order with the FTC where such decree or order requires the divestiture of the Designated Assets and of the assets set forth in Section 7.6(d) of the Company Disclosure Letter, if and only if, such decree or order does not require, either absolutely or conditionally, the divestiture of any other assets or of the stock of any other corporation, or (except for reasonable and customary compliance and other requirements ancillary to the required divestiture) impose any additional requirement or limitation on Acquiror, on its ability to operate its current and contemplated businesses, or on its ability to acquire assets or stock in any corporation; and only if such decree or order provides that Acquiror shall have a period of at least 12 months to effect such divestiture itself and an additional 12 months to divest pursuant to a reasonable and customary trusteeship provision. VII.7 Certain Actions. (a) Except as otherwise specifically limited by this Agreement, each of the Company and Acquiror agrees to use its reasonable best efforts and to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to ensure that there shall be no regulatory impediments, pursuant to the Communications Act, the rules and regulations of the FCC, or otherwise, to the closing of the transactions contemplated hereby and the Company agrees not to acquire any assets or engage in any activities prior to the Closing of a type which Acquiror would be precluded from acquiring or engaging in pursuant to the Communications Act, the rules and regulations of the FCC or otherwise. (a) On or prior to the Closing Date, the Company shall sell, distribute to stockholders or otherwise dispose of the properties of the Company and its Subsidiaries listed in Section 7.7 of the Company Disclosure Letter (the "Designated Assets") in a manner acceptable to Acquiror, in its sole discretion. (b) Not later than one hundred and twenty (120) days following the date hereof, the Company and Acquiror shall agree to the fair market value of the Designated Assets (the "Designated Asset Fair Market Value"). In the event of a sale or other disposition of the Designated Assets for an amount less than the Designated Asset Fair Market Value, the Share Price shall be reduced by the quotient of (i) the excess of (x) the Designated Asset Fair Market Value over (y) the amount of consideration received by the Company in respect of such sale or disposition divided by (ii) the number of shares of Company Common Stock outstanding immediately prior to the Effective Time on a fully diluted basis, including giving effect to the conversion of all outstanding shares of Company Preferred Stock. In the event of a distribution of the Designated Assets to the stockholders of the Company, the Share Price shall be reduced by an amount equal to the quotient of (i) the Designated Asset Fair Market Value divided by (ii) the number of shares of Company Common Stock outstanding immediately prior to the Effective Time on a fully diluted basis, including giving effect to the conversion of all outstanding shares of Company Preferred Stock. The amount of any adjustment to the Share Price pursuant to this Section 7.7(c) shall be referred to as the "Per Share Adjustment Amount" and the Cash Consideration Amount shall be reduced by the Per Share Adjustment Amount multiplied by the number of shares of Company Common Stock outstanding immediately prior to the Effective Time on a fully diluted basis, including giving effect to the conversion of all outstanding shares of Company Preferred Stock. VII.8 Supplemental Disclosure. The Company shall confer on a regular and frequent basis with Acquiror, report on operational matters and promptly notify Acquiror of, and furnish Acquiror with, any information it may reasonably request with respect to, any event or condition or the existence of any fact that would cause any of the conditions to the obligations of Acquiror and Company Sub to consummate the Merger not to be completed, and Acquiror shall promptly notify the Company of, and furnish the Company any information it may reasonably request with respect to, any event or condition or the existence of any fact that would cause any of the conditions to the Company's obligation to consummate the Merger not to be completed. VII.9 Announcements. Prior to the Closing, none of the Company, Acquiror or Company Sub shall issue any press release or otherwise make any public statement with respect to this Agreement and the transactions contemplated hereby without the prior consent of the other parties (which consent shall not be unreasonably withheld), except as may be required by Applicable Law or stock exchange regulations (including, without limitation, pursuant to the United States Federal securities laws in connection with any registration statement or report filed thereunder), in which event the party required to make the release or announcement shall, if possible, allow the other party reasonable time to comment on such release or announcement in advance of such issuance. VII.10 No Solicitation. (a) From the date hereof until the Effective Time, the Company shall not, nor shall it permit any of its Subsidiaries to, nor shall it authorize or permit any of its officers, directors, employees, agents, investment bankers, attorneys, financial advisors or other representatives or those of any of its Subsidiaries (collectively, "Company Representatives") to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing information or assistance) or take other action to facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to, an Acquisition Proposal from any Third Party, or engage in any discussions or negotiations relating thereto or in furtherance thereof or accept or enter any agreement with respect to any Acquisition Proposal; provided, however, that, notwithstanding anything to the contrary in this Agreement, (i) prior to the approval of this Agreement by the Stockholders of the Company, the Company may engage in discussions or negotiations with, and may furnish information concerning the Company and its business, properties and assets to, a Third Party who, without any solicitation, initiation, encouragement, discussion or negotiation, directly or indirectly, by or with the Company or any Company Representatives, or in furtherance thereof makes a written, bona fide Acquisition Proposal that is not subject to any material contingencies relating to financing and that is reasonably capable of being financed and is financially superior to the consideration to be received by the Company's stockholders pursuant to the Merger (as determined in good faith by the Board of Directors after consultation with the Company's financial advisors) if (1) the Board of Directors determines in its good faith, after receipt of written advice of the Company's outside legal counsel, that such action is advisable for the Board of Directors to act in a manner consistent with its fiduciary duties under Applicable Law and (2) prior to furnishing information with respect to the Company and its Subsidiaries to, such Third Party, the Company shall receive from such Third Party an executed confidentiality agreement in reasonably customary form on terms not more favorable to such Person or entity than the terms contained in the Confidentiality Agreements, or (ii) the Board of Directors may take and disclose to the Company's stockholders a position with regard to a tender offer or exchange offer to the extent required by Rule 14e-2(a) under the Exchange Act. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any investment banker or financial advisor retained by the Company, whether or not such Person is purporting to act of behalf of the Company of any of its Subsidiaries or otherwise, shall constitute a breach of this Section 7.10 by the Company. (a) The Company shall promptly notify Acquiror orally and in writing of any Acquisition Proposal or any inquiry with respect to or which could lead to any Acquisition Proposal, within 24 hours of the receipt thereof, including the identity of the Third Party making any such Acquisition Proposal or inquiry and the material terms and conditions of any Acquisition Proposal, and if such Acquisition Proposal or inquiry is in writing, shall deliver to Acquiror a copy of such Acquisition Proposal or inquiry. The Company shall keep Acquiror informed of the status and details of any such Acquisition Proposal or inquiry. (b) The Company shall immediately cease and cause to be terminated any existing solicitation, initiation, encouragement, activity, discussion or negotiation with any parties conducted heretofore by the Company or any Company Representatives with respect to any of the foregoing. (c) As used in this Agreement, "Acquisition Proposal" shall mean any proposal or offer, other than a proposal or offer by Acquiror or any of its Affiliates, for a tender or exchange offer, merger, consolidation or other business combination involving the Company or any of its material Subsidiaries or any proposal to acquire in any manner a substantial equity interest in or a substantial portion of the assets of the Company or any of its material Subsidiaries; provided, however, that, the term "Acquisition Proposal" shall not include any acquisition by the Company or any of its Subsidiaries of any assets, businesses or entities in any transaction or series of related transactions in exchange for other assets, businesses or entities of any Third Party. VII.11 Indemnification; Directors' and Officers Insurance. (a) If the Subsidiary Merger is effected, the Certificate of Incorporation and Bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the Certificate of Incorporation and Bylaws of the Company on the date hereof, which provisions shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at any time prior to the Effective Time were directors or officers of the Company in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), unless such modification is required by law. If the Direct Merger is effected, the Restated Certificate of Incorporation and Bylaws of the Surviving Corporation at the Effective Time shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at any time prior to the Effective Time were directors or officers of the Company or its Subsidiaries in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), unless such modification is required by law. (a) From and after the Effective Time, Acquiror shall indemnify, defend and hold harmless each Person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer or director of the Company or any of its Subsidiaries (the "Indemnified Parties") against all losses, claims, damages, costs, expenses (including attorneys' fees and expenses), liabilities or judgments or amounts that are paid in settlement with the approval of the indemnifying party (which approval shall not be unreasonably withheld) of or in connection with any threatened or actual claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of the fact that such Person is or was a director or officer of the Company or any of its Subsidiaries or served as a director of any Third Party on behalf of the Company or any of its Subsidiaries whether pertaining to any matter existing or occurring at or prior to the Effective Time and whether asserted or claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities"), including, without limitation, all Indemnified Liabilities based in whole or in part on, or arising in whole or in part out of, or pertaining to this Agreement or the transactions contemplated hereby, in each case to the fullest extent a corporation is permitted under the DGCL to indemnify its own directors or officers as the case may be (and the Company or the Surviving Corporation, as the case may be, will pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the full extent permitted by law). (b) The provisions of this Section 7.11 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party, his or her heirs and his or her personal representatives and shall be binding on all successors and assigns of Acquiror. VII.12 NYSE Listing. Acquiror shall use its best efforts to cause the shares of Media Stock and Series D Preferred Stock to be issued in the Merger to be approved for listing on the NYSE, subject only to notice of official issuance, prior to the Effective Time. If, for any reason, Acquiror shall not be able to list the shares of the Series D Preferred Stock to be issued in the Merger on the NYSE, Acquiror shall use its best efforts to, prior to the Effective Date, list such shares on such other stock exchange, or cause such shares to be eligible for trading on such other trading facility, as the Company may request. VII.13 Affiliates. Prior to the Closing Date, the Company shall deliver to Acquiror a letter identifying all Persons who are, at the time this Agreement is submitted to the stockholders of the Company, "affiliates" of the Company for purposes of Rule 145 under the Securities Act. The Company shall use its best efforts to cause each such Person to deliver to Acquiror on or prior to the Closing Date a written agreement substantially in the form attached as Exhibit D. VII.14 Employee Benefits. (a) For a period of one year following the Effective Time, Acquiror shall, or shall cause the Surviving Corporation to, maintain in effect for employees of the Company and its Subsidiaries benefits (other than RSPAs or similar benefits) no less favorable in the aggregate than the benefits offered by the Company immediately prior to the Effective Time. Acquiror agrees to, or to cause the Surviving Corporation to, honor and perform all severance, employment and similar agreements of the Company disclosed in Section 4.11 of the Company Disclosure Letter and each RSPA and related Tax Liability Financing Agreement. (a) Following the date hereof, the Company shall, after consultation with Acquiror, be permitted to (i) forgive up to $35.7 million principal amount of outstanding loans made by the Company to employees to enable such employees to pay income Taxes incurred by such employees as a result of the purchase of shares of Company Common Stock by such employees pursuant to the RSPAs in accordance with the terms of an amendment to the Tax Liability Financing Agreement substantially in the form set forth in Section 7.14 of the Company Disclosure Letter; provided, however, that any loan to an employee of the Company who is, or reasonably can be expected to become, a "covered employee" (within the meaning of Section 162(m) of the Code) shall in no event be forgiven, in whole or in part, prior to the day following the Closing Date, (ii) issue up to 350,000 shares of Company Common Stock pursuant to RSPAs substantially in the form heretofore provided to Acquiror to employees of the Company or any of its Subsidiaries; so long as, in each case, such forgiveness or issuance acts as incentive for the purpose of retaining and motivating such employee to continue in the employment of the Company following the Effective Time and is implemented in a manner consistent with such purpose. (b) If, following the Effective Time, the termination of the employee's employment with the Company or any of its Subsidiaries results in the acceleration of the vesting of an award under any RSPA or the forgiveness of a loan related to an RSPA pursuant to a Tax Liability Financing Agreement (other than as a result of termination of employment by reason of the employee's death or disability) (an "Acceleration Event") and as a result of such Acceleration Event, the employee either (i) becomes subject to an excise tax (the "Excise Tax") under Section 4999 of the Code that such employee would not have been subject to without the occurrence of such Acceleration Event or (ii) the amount of the Excise Tax imposed on such employee is greater than the amount of the Excise Tax that would have been imposed without the occurrence of such Acceleration Event (the "Incremental Excise Tax"), Acquiror shall pay or shall cause to be paid to the employee, at the time specified below, an additional amount (the "Additional Payment") sufficient to (a) in the case of clause (i) above, reimburse the employee for the Excise Tax and in the case of clause (ii) above, reimburse the employee for the Incremental Excise Tax and (b) in either case, reimburse the employee for any federal, state or local income tax or any additional excise tax under Section 4999 of the Code payable with respect to any Additional Payment made pursuant to this Section 7.14(c). The Additional Payment provided for in this Section 7.14(c) shall be made no later than the due date for the Excise Tax or Incremental Excise Tax (as the case may be) imposed. In the event of any dispute in the calculations made pursuant to this Section 7.14(c), an independent big six accounting firm shall be selected to resolve any such dispute and the decision of such accounting firm shall be final and binding on the Company and the employee. The fees and costs of such accounting firm shall be shared equally among the Company and the employee. VII.15 Registration Rights Agreement. Acquiror shall execute and deliver to the other parties thereto the Registration Rights Agreement at or prior to the Closing. VII.16 Tax Treatment. Each of Acquiror, Company Sub and the Company shall use its reasonable best efforts to cause the Merger to qualify as a reorganization under the provisions of Section 368(a) of the Code and to obtain the opinions of counsel referred to in Sections 8.2(c) and 8.3(c). VII.17 Series D Preferred Stock. Prior to the Effective Time, Acquiror shall file with the Secretary of State of the State of Delaware a Certificate of Designation in the form of Exhibit C hereto with respect to the shares of Series D Preferred Stock issuable pursuant to Section 3.1. VII.18 Company Indebtedness. The Company shall assist Acquiror, and shall take such actions as Acquiror may reasonably request at Acquiror's sole expense in order to facilitate the amendment, repayment, redemp-tion, refinancing or other restructuring of outstand-ing Indebtedness of the Company on or after the Effective Time. VII.19 Authorization of Issuance of Merger Consideration. Acquiror shall obtain any authorizations and consents necessary, and shall take such further actions as may be required, for the issuance of the Media Stock and the Series D Preferred Stock to holders of Company Common Stock pursuant to the terms of this Agreement. VII.20 Attribution. Following the Effective Time, the board of directors of Acquiror shall attribute all of the assets and liabilities of the Company and its Subsidi-aries or, in the case of the Subsidiary Merger, of Company Sub and its subsidiaries to the Media Group pursuant to Sections 2.5.1 and 2.6.15 of Article V of the Restated Certificate of Incorpo-ration of Acquiror. VII.21 Further Assurances. Each of the parties hereto shall execute such documents and other instruments and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and consum-mate and evidence the transactions contemplated hereby or, at and after the Closing Date, to evidence the consumma-tion of the transactions contemplated by this Agreement. Upon the terms and subject to the conditions hereof, each of the parties hereto shall take or cause to be taken all actions and to do or cause to be done all other things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement and to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings. VII.22 Internal Revenue Service Ruling. Acquiror, the Company and The Providence Journal Company submitted to the IRS on June 12, 1996 a request for the Ruling. Acquiror and the Company shall provide each other and The Providence Journal Company with copies of all materials subsequently submitted to the IRS. Acquiror, the Company and The Providence Journal Company shall have the opportunity to participate in all meetings and conferences with IRS personnel, whether telephonically or in person. Each of Acquiror and the Company shall cooperate in seeking to obtain the Ruling, subject to Section 2.1. VIII CONDITIONS PRECEDENT VIII.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions: (a) Stockholder Approvals; Consideration Charter Amendment. The Company shall have obtained the Stockholder Approvals and a Certificate of Amendment containing the Consideration Charter Amendment shall have been executed, acknowledged and filed and shall have become effective in accordance with the DGCL. (b) HSR Act. (i) The waiting periods (and any extension thereof) applicable to the Merger under the HSR Act shall have expired or been terminated; (ii) neither the FTC nor DOJ shall have authorized the institution of enforcement proceedings (that have not been dismissed or otherwise disposed of) to delay, prohibit, or otherwise restrain the transactions contemplated by the Agreement; (iii) no such proceeding will be pending as of the Closing Date and (iv) other than as contemplated by Section 7.6(d), no injunction or order shall have been issued by a court of competent jurisdiction and remain in effect as of the Closing Date. (c) No Injunctions or Restraints. No statute, rule, regulation, injunction, restraining order or decree of any court or Governmental Authority of competent jurisdiction shall be in effect that restrains or prevents the transactions contemplated hereby. (d) Form S-4. The Form S-4 shall have been declared effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order, and any material "blue sky" and other state securities laws applicable to the issuance of the Media Stock and Series D Preferred Stock shall have been complied with. (e) NYSE Listing. The shares of Media Stock issuable to the Company's stockholders pursuant to this Agreement shall have been approved for listing on the NYSE, subject only to official notice of issuance. (f) Conversion of Company Preferred Stock; Certain Elections. The holders of shares of Company Preferred Stock shall have converted such shares into shares of Class B Common Stock, effective no later than immediately prior to the Effective Time. VIII.2 Conditions to Obligations of Acquiror and Company Sub. The obligations of Acquiror and Company Sub to effect the Merger are subject to the satisfaction of the following conditions, any or all of which may be waived in whole or in part by Acquiror: (a) Representations and Warranties. There shall be no breach of any representation or warranty of the Company made hereunder that, individually or together with all other such breaches, results in a Material Adverse Effect with respect to the Company. Acquiror shall have received a certificate from the Company dated the Closing Date signed by an authorized officer of the Company certifying to the fulfillment of this condition. (b) Agreements. The Company shall have performed and complied in all material respects with all of its undertakings, covenants, conditions and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing. Acquiror shall have received a certificate from the Company dated the Closing Date signed by an authorized officer of the Company and certifying to the fulfillment of this condition. VIII(dd) Tax Opinion. Acquiror shall have received an opinion of Weil, Gotshal & Manges LLP, dated the Closing Date, to the effect that (i) the Merger should be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code; (ii) each of Acquiror, the Company and, in the case of the Subsidiary Merger, Company Sub should be a party to the reorganization within the meaning of Section 368(b) of the Code; and (iii) no gain or loss should be recognized by the Company, Acquiror or, in the case of the Subsidiary Merger, Company Sub as a result of the Merger. In rendering such opinion, Weil, Gotshal & Manges LLP may receive and rely upon representations contained in certificates of the Company, Acquiror, certain stockholders of the Company and, in the case of the Subsidiary Merger, Company Sub. (d) Letters from Affiliates. Acquiror shall have received from each Person in the letter referred to in Section 7.13 an executed copy of an agreement substantially in the form of Exhibit D. (e) Consents. All Company Consents (other than Franchise Consents) and Acquiror Consents shall have been obtained, except where the failure to obtain any such consent would not have a Material Adverse Effect with respect to the Company or Acquiror, as the case may be. (f) Transaction Documents. Each of the Transaction Documents which were not executed on the date hereof shall have been duly authorized and executed by the parties thereto other than Acquiror. (g) Dissenting Shares. Acquiror shall have received evidence, in form and substance reasonably satisfactory to it, that the number of Dissenting Shares shall constitute no greater than 10% of the total number of shares of Company Common Stock (assuming conversion of the Company Preferred Stock) outstanding immediately prior to the Effective Time. (h) Other Actions. The Company shall have disposed of the Designated Assets as provided in Section 7.7. (i) Litigation. Except as described in Section 7.6(c), there shall not be pending or threatened by any Governmental Authority any suit, action or proceeding, (i) seeking to restrain or prohibit the Merger or seeking to obtain from Acquiror or the Company or any of their respective Subsidiaries in connection with the Merger any material damages, (ii) seeking to prohibit or limit the ownership or operation by Acquiror, the Company or any of their respective Subsidiaries of any material portion of the business or assets of Acquiror and its Subsidiaries taken as a whole or the Company and its Subsidiaries taken as a whole, or to compel Acquiror, the Company or any of their respective Subsidiaries to dispose of or hold separate any material portion of the business or assets of Acquiror and its Subsidiaries taken as a whole or the Company and its Subsidiaries taken as a whole, in each case as a result of the Merger or any of the other transactions contemplated by this Agreement or the Transaction Documents, (iii) seeking to impose limitations on the ability of Acquiror to acquire or hold, or exercise full rights of ownership of, any shares of capital stock of the Company, including the right to vote such shares on all matters properly presented to the stockholders of the Company or (iv) seeking to prohibit Acquiror from effectively controlling in any material respect any portion of the business or operations of the Company or any of its Subsidiaries taken as a whole, which, in each case, has a reasonable likelihood of success and if determined in a manner adverse to the Company or Acquiror, could reasonably be expected to result in a Material Adverse Effect with respect to Acquiror or the Company. (j) Franchise and License Consents. The Company shall have obtained, in accordance with the terms of Section 7.5, (i) all Franchise Consents required pursuant to this Section 8.2(j) (the "Required Franchise Consents"); (ii) all License Consents for each FCC license set forth in Section 4.6 of the Company Disclosure Letter and (iii) to the extent required by the FCC or any Governmental Authority with jurisdiction, the Social Contract Consent; provided, however, that each Franchise Consent and License Consent and the Social Contract Consent required to be obtained hereunder shall be a Final Order. The aggregate number of Subscribers covered by the Required Franchise Consents (i) as to which Franchise Consents are obtained in accordance with the terms of Section 7.5 and (ii) that do not require Franchise Consents, shall equal at least ninety percent (90%) of the total number of Subscribers covered by all Franchises and shall equal at least ninety-five percent (95%) of the total number of Subscribers covered by Franchises located within the thirty largest Metropolitan Statistical Areas (as ranked on the basis of the 1994 U.S. Census by Rand McNally) in which the Company or its Subsidiaries operates a Franchise, in each case as of March 31, 1996 based on the Company's month-end billing report as of such date, as adjusted to reflect any acquisitions or dispositions of Systems. The aggregate number of Required Franchise Consents (i) as to which Franchise Consents are obtained in accordance with the terms of Section 7.5 and (ii) that do not require Franchise Consents, shall equal at least eighty-five percent (85%) of the total number of Franchises as of the date hereof. (k) Corporate Proceedings and Documents. All corporate proceedings taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in all material respects to Acquiror and Acquiror's counsel, and Acquiror and Acquiror's Counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. VIII.3 Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is subject to the satisfaction of the following conditions, any or all of which may be waived in whole or in part by the Company: (a) Representations and Warranties. There shall be no breach of any representation or warranty of Acquiror and Company Sub made hereunder that, individually or together with all other such breaches, results in a Material Adverse Effect with respect to Acquiror. The Company shall have received a certificate dated the Closing Date signed by an authorized officer of Acquiror certifying to the fulfillment of this condition. (b) Agreements. Acquiror and Company Sub shall have performed and complied in all material respects with all of their respective undertakings, covenants, conditions and agreements required by this Agreement to be performed or complied with prior to or at the Closing. The Company shall have received a certificate dated the Closing Date signed by an authorized officer of Acquiror certifying to the fulfillment of this condition. (c) Tax Opinion. The Company shall have received an opinion of Sullivan & Worcester LLP, dated the Closing Date, to the effect that (i) the Merger should be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code; (ii) each of the Acquiror, the Company and, in the case of the Subsidiary Merger, Company Sub should be a party to the reorganization within the meaning of Section 368(b) of the Code; and (iii) gain, if any, realized should be recognized by a stockholder of the Company as a result of the Merger, but not in excess of the amount of cash received by such stockholder. In rendering such opinion, Sullivan & Worcester LLP, may receive and rely upon representations contained in certificates of Acquiror, the Company, certain stockholders of the Company and, in the case of the Subsidiary Merger, Company Sub. (d) Consents. All Company Consents (other than Franchise Consents) and Acquiror Consents shall have been obtained, except where the failure to obtain any such consent would not have a Material Adverse Effect with respect to the Company or Acquiror, as the case may be. (e) Transaction Documents. Each of the Transaction Documents shall have been duly authorized and executed by the parties thereto other than the Company. (f) Preferred Stock Listing. The shares of Series D Preferred Stock issuable to the Company's stockholders pursuant to this Agreement shall have been approved for listing on the NYSE or otherwise approved for listing or eligible for trading as provided in Section 7.12 hereof, subject only to official notice of issuance. (g) Corporate Proceedings and Documents. All corporate proceedings taken by Acquiror and Company Sub in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in all material respects to the Company and the Company's counsel, and the Company and the Company's counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (h) Franchise and License Consents. The Company shall have obtained, in accordance with the terms of Section 7.5, (i) all Franchise Consents required pursuant to this Section 8.3(h) (the "Company Required Franchise Consents"); (ii) all License Consents for each FCC license set forth in Section 4.6 of the Company Disclosure Letter and (iii) to the extent required by the FCC or any Governmental Authority with jurisdiction, the Social Contract Consent; provided, however, that each Franchise Consent and License Consent and the Social Contract Consent required to be obtained hereunder shall be a Final Order. The aggregate number of Subscribers covered by the Company Required Franchise Consents (i) as to which Franchise Consents are obtained in accordance with the terms of Section 7.5 and (ii) that do not require Franchise Consents, shall equal at least ninety percent (90%) of the total number of Subscribers covered by all Franchises and shall equal at least ninety-five percent (95%) of the total number of Subscribers covered by Franchises located within the thirty largest Metropolitan Statistical Areas (as ranked on the basis of the 1994 U.S. Census by Rand McNally) in which the Company or its Subsidiaries operates a Franchise, in each case as of March 31, 1996 based on the Company's month-end billing report as of such date, as adjusted to reflect any acquisitions or dispositions of Systems. The aggregate number of Company Required Franchise Consents (i) as to which Franchise Consents are obtained in accordance with the terms of Section 7.5 and (ii) that do not require Franchise Consents, shall equal at least eighty-five percent (85%) of the total number of Franchises as of the date hereof. IX TERMINATION AND AMENDMENT IX.1 Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the Stockholder Approvals: (a) by mutual written consent of the Company, on the one hand, and Acquiror, on the other hand, or by mutual action of their respective boards of directors; (b) by Acquiror, if any of the conditions set forth in Section 8.1 or 8.2 shall have become incapable of fulfillment, and shall not have been waived by Acquiror, or if the Company shall breach in any material respect any of its representations, warranties or obligations hereunder and such breach shall not have been cured in all material respects or waived and the Company shall not have provided reasonable assurance that such breach will be cured in all material respects on or before the Closing Date, but only if such breach, singly or together with all other such breaches, would have a Material Adverse Effect with respect to the Company; (c) by the Company, if any of the conditions set forth in Section 8.1 or 8.3 shall have become incapable of fulfillment, and shall not have been waived by the Company, or if Acquiror or Company Sub shall breach in any material respect any of its representations, warranties or obligations hereunder and such breach shall not have been cured in all material respects or waived and Acquiror shall not have provided reasonable assurance that such breach will be cured in all material respects on or before the Closing Date, but only if such breach, singly or together with all other such breaches, would have a Material Adverse Effect with respect to Acquiror; (d) by either the Company or Acquiror, if the Merger shall not have been consummated on or before August 31, 1997 (the "Termination Date"); provided, however, that if all the conditions set forth in Article VIII (other than the conditions set forth in Sections 8.1(a), 8.1(b), 8.1(c), 8.2(e), 8.2(h), 8.2(i) and 8.2(j)) have been satisfied at the Termination Date, either Acquiror or the Company may, by notice to the other prior to such date, extend the Termination Date to the latest date so extended by either party but in no event later than December 31, 1997; (e) by either the Company or Acquiror if the Stockholder Approvals shall not have been obtained by reason of the failure to obtain the required vote upon a vote held at the Stockholders' Meetings (including any postponements or adjournments thereof); provided, however, that if the Stockholder Approvals are not obtained at the Initial Stockholders' Meeting solely by reason of a failure to obtain approval of the Consideration Charter Amendment, then this Agreement shall not be terminable unless the Stockholder Approvals shall not have been obtained by reason of a failure to obtain the required vote upon a vote held at the Additional Stockholders' Meeting; (f) by Acquiror, if the Company shall have (i) withdrawn or modified, in a manner adverse to Acquiror, its approval or recommendation of this Agree-ment or any of the transactions contemplated hereby, (ii) failed to include such recommendation in the Proxy Statement, (iii) approved or recommended any Acquisition Proposal from a Third Party or (iv) resolved to do any of the foregoing; (g) by the Company, prior to the adoption of this Agreement by the stockholders of the Company, if the Board of Directors shall approve, and the Company shall enter into, a definitive agreement providing for the implementation of an Acquisition Proposal; provided, however, that (i) the Company is not then in breach of Section 7.10, (ii) prior to such termination, the Company has negotiated with Acquiror in good faith to make such adjustments in the terms and conditions of this Agreement as would enable the Company to proceed with the transactions contemplated hereby and (iii) the Board of Directors, has determined in good faith (on the basis of the terms of such Acquisition Proposal and the terms of this Agreement, after giving effect to any concessions offered by Acquiror pursuant to clause (ii) above), after receipt of written advice from the Company's outside legal counsel, that such termination is advisable for the Board of Directors to act in a manner consistent with its fiduciary duties to stockholders under Applicable Law and (iv) the Company shall provide to Acquiror prior written notice of such termination, which notice shall advise Acquiror of the matters described in clauses (ii) and (iii) above; (h) by the Company pursuant to Section 3.1(d)(ii)(B); or (i) by Acquiror pursuant to Section 3.1(d)(ii)(C). Notwithstanding the foregoing, a party shall not be permitted to terminate this Agreement pursuant to clause (b), (c) or (d) hereof if such party is in breach of any of its material representations, warranties, covenants or agreements contained in this Agreement. IX.2 Effect of Termination. In the event of termination by the Company or Acquiror pursuant to Section 9.1, written notice thereof shall promptly be given to the other parties and, except as otherwise provided herein, the transactions contemplated by this Agreement shall be terminated, without further action by any party. Notwithstanding the foregoing, nothing in this Section 9.2 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of the Company, on the one hand, and Acquiror and Company Sub, on the other hand, to compel specific performance of the other party of its or their obligations under this Agreement. IX.3 Fees and Expenses. In order to induce Acquiror to, among other things, enter into this Agreement, the Company agrees that if this Agreement is terminated (A) by Acquiror pursuant to Section 9.1(f) hereof, (B) by the Company pursuant to Section 9.1(g) hereof, or (C) by the Company or Acquiror pursuant to Section 9.1(e) hereof and the Board of Directors shall have materially modified or withdrawn its approval, determination or recommendation of this Agreement or any of the transactions contemplated hereby prior to the Initial Stockholders' Meeting or there shall have been an Acquisition Proposal and such proposal shall not have been withdrawn prior to the Initial Stockholders' Meeting and within one year thereafter the Company enters into a definitive agreement with respect to such Acquisition Proposal (including any definitive agreement relating to an Acquisition Proposal offered by the same proponent or its Affiliate as such Acquisition Proposal), then the Company shall promptly pay Acquiror a fee of $125 million, plus an amount equal to the actual reasonable fees and expenses paid or payable by or on behalf of Acquiror to its attorneys, accountants, environmental consultants, management consultants, and other consultants and advisors in connection with the negotiation, execution and delivery of this Agreement and the transactions contemplated hereby; provided, however, that payment for fees and expenses shall in no event exceed $15 million. Any payment required by this Section 9.3 shall be made in same day funds to Acquiror by the Company no later than five Business Days following termination of this Agreement by Acquiror or the Company, as the case may be. IX.4 Certain Purchase Obligations. (a) In order to induce the Company to, among other things, enter into this Agreement, Acquiror agrees that if this Agreement is terminated by the Company pursuant to Section 9.1(h), then the Company shall have the right, for a period of 30 days thereafter, to require Acquiror to purchase from the Company (the "Put Right") 5,650,000 shares of Series B Convertible Preferred Stock, par value $.01 per share, of the Company, having the rights, preferences and terms set forth in the Certificate of Designations attached as Exhibit E hereto (the "Put Shares") for an aggregate purchase price of $282.5 million. (a) Following termination by the Company of this Agreement pursuant to Section 9.1(h), the Company may exercise the Put Right by delivering to Acquiror a written notice of such exercise (the "Put Exercise Notice"), which shall specify a date not less than 90 days from the date of such notice for the closing of the purchase of the Put Shares by Acquiror. (b) The closing with respect to the purchase of the Put Shares shall take place on the earlier of (i) the date specified in the Put Exercise Notice and (ii) the second Business Day following the date on which the last of the conditions set forth in Section 9.4(d) is fulfilled or waived, unless another date, time or place is agreed to in writing by the parties hereto (the "Put Closing Date"). At such closing, the Company shall deliver to Acquiror certificates representing the Put Shares and Acquiror shall deliver to the Company $282.5 million by wire transfer of immediately available funds to an account designated by the Company. (c) The obligations of Acquiror to purchase the Put Shares shall be subject to the satisfaction prior to the Put Closing Date of the following conditions: (i) HSR Act. The waiting periods (and any extension thereof) applicable to the purchase of the Put Shares under the HSR Act shall have expired or been terminated and there shall be no authorized or pending action by a Governmental Authority seeking to restrain or prevent the purchase of the Put Shares. (ii) No Injunctions or Restraints. No statute, rule, regulation, injunction, restraining order or decree of any nature of any court or Governmental Authority shall be in effect that restrains or prevents the purchase of the Put Shares. (iii) Representations and Warranties. There shall be no breach of any representation or warranty of the Company made hereunder that, individually or together with all other such breaches, results in a Material Adverse Effect with respect to the Company. Acquiror shall have received a certificate from the Company dated the Put Closing Date signed by an authorized officer of the Company certifying to the fulfillment of this condition. (iv) Agreements. The Company shall have performed and complied in all material respects with all of its undertakings, covenants, conditions and agreements required by this Agreement to be performed or complied with by it prior to or at the Put Closing Date. Acquiror shall have received a certificate from the Company dated the Put Closing Date signed by an authorized officer of the Company and certifying to the fulfillment of this condition. (v) Franchise Consents. To the extent any Franchise(s) individually or collectively representing more than 5% of total Subscribers of the Company and its Subsidiaries require notice to, or the consent of, a Governmental Authority in connection with the purchase by Acquiror of the Put Shares, the consent of each such Governmental Authority shall have been obtained by the Company. (vi) Registration Rights Agreement. The Company and Acquiror shall have entered into a Registration Rights Agreement substantially in the form of Exhibit F hereto. (d) From and after the Put Closing Date, for so long as Acquiror owns any of the Put Shares, Acquiror shall not acquire, or agree to acquire, directly or indirectly, any shares of Company Capital Stock, or any rights or options to acquire shares of Company Capital Stock, if as a result of any such acquisition, Acquiror would beneficially own 10 percent or more of the Company Capital Stock. IX.5 Amendment. Subject to Applicable Law, this Agreement may be amended, modified or supplemented only by written agreement of Acquiror and the Company at any time prior to the Effective Time with respect to any of the terms contained herein; provided, however, that, after this Agreement is adopted by the Company's stockholders, no such amendment or modification shall (i) alter or change the amount or kind of consideration to be delivered to the stockholders of the Company or (ii) alter or change any of the terms and conditions of this Agreement, if such alteration or change would adversely affect the holders of any class of capital stock of the Company. IX.6 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective boards of directors, may, to the extent legally allowed: (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto; (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto; and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights nor in any way effect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every provision of this Agreement. No waiver of any breach of or non-compliance with this Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance. X GENERAL PROVISIONS X.1 Frustration of the Closing Conditions. None of the Company, Acquiror or Company Sub may rely on the failure of any condition precedent set forth in Article VIII to be satisfied if such failure was caused by such party's (or parties') failure to act in good faith or to use its reasonable best efforts to consummate the transactions contemplated by this Agreement in accordance with Section 7.4. X.2 Effectiveness of Representations, Warranties and Agreements. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Article IX, except that the agreements set forth in Articles I, II and III and Sections 7.11, 7.14 and 7.20 shall survive the Effective Time and those set forth in Sections 9.2, 9.3, 9.4 and Article X hereof shall survive termination. X.3 Expenses. Except as otherwise provided herein, including in Sections 7.5 and 9.3, each of the parties hereto shall pay the fees and expenses of its respective counsel, accountants and other experts and shall pay all other costs and expenses incurred by it in connection with the negotia-tion, preparation and execution of this Agreement and the Transaction Documents and the consummation of the transac-tions contemplated hereby and thereby; provided, however, that the Company shall pay, with funds of the Company and not with funds provided by Acquiror, any and all property or transfer Taxes imposed on the Company or any Gains Taxes. X.4 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware without reference to choice of law principles, including all matters of construction, validity and performance. X.5 Notices. Notices, requests, permissions, waivers, and other communications hereunder shall be in writing and shall be deemed to have been duly given if signed by the respective Persons giving them (in the case of any corporation the signature shall be by an officer thereof) and delivered by hand, deposited in the United States mail (registered or certified, return receipt requested), properly addressed and postage prepaid, or delivered by telecopy: If to the Company, to: Continental Cablevision, Inc. The Pilot House Lewis Wharf Boston, Massachusetts 02110 Telephone: (617) 742-9500 Telecopy: (617) 742-0530 Attention: Amos B. Hostetter, Jr. with a copy to: Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 Telephone: (212) 408-5100 Telecopy: (212) 541-5369 Attention: Dennis J. Friedman, Esq. and: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Telephone: (617) 338-2800 Telecopy: (617) 338-2880 Attention: Patrick K. Miehe, Esq. If to Acquiror or Company Sub, to: U S WEST, Inc. 7800 East Orchard Road Englewood, Colorado 80111 Telephone: (303) 793-6310 Telecopy: (303) 793-6707 Attention: General Counsel with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8000 Telecopy: (212) 310-8007 Attention: Dennis J. Block, Esq. Such names and addresses may be changed by notice given in accordance with this Section 10.5. X.6 Entire Agreement. This Agreement and the Transaction Documents (including the Exhibits attached hereto, all of which are a part hereof) contain the entire understanding of the parties hereto and thereto with respect to the subject matter contained herein and therein, supersede and cancel all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter. There are no restrictions, promises, representations, warranties, agreements or undertakings of any party hereto or to any of the Transaction Documents with respect to the transactions contemplated by this Agreement and the Transaction Documents other than those set forth herein or therein or made hereunder or thereunder. Notwithstanding the foregoing, the Confidentiality Agreements shall remain in full force and effect and shall survive any termination of this Agreement. X.7 Headings; References. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references herein to "Articles", "Sections" or "Exhibits" shall be deemed to be references to Articles or Sections hereof or Exhibits hereto unless otherwise indicated. X.8 Counterparts. This Agreement may be executed in one or more counterparts and each counterpart shall be deemed to be an original, but all of which shall constitute one and the same original. X.9 Parties in Interest; Assignment. Neither this Agreement nor any of the rights, interest or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties, except that Company Sub may assign, in its sole discretion, any or all of its rights, interests and obligations under this Agreement to any direct wholly owned subsidiary of Acquiror, but no such assignment shall relieve Company Sub of any of its obligations hereunder. Subject to the preceding sentence, this Agreement shall inure to the benefit of and be binding upon the Company, Acquiror and Company Sub and shall inure to the sole benefit of the Company, Acquiror and Company Sub and their respective successors and permitted assigns. Except as set forth in Section 7.11 and Section 7.14(c), nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies under or by reason of this Agreement. X.10 Severability; Enforcement. The invalidity of any portion hereof shall not affect the validity, force or effect of the remaining portions hereof. If it is ever held that any restriction hereunder is too broad to permit enforcement of such restriction to its fullest extent, each party agrees that a court of competent jurisdiction may enforce such restriction to the maximum extent permitted by law, and each party hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. X.11 Specific Performance. The parties hereto agree that the remedy at law for any breach of this Agreement will be inadequate and that any party by whom this Agreement is enforceable shall be entitled to specific performance in addition to any other appropriate relief or remedy. Such party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by Applicable Law, each party waives any objection to the imposition of such relief. X.12 Jurisdiction. Each party to this Agreement hereby irrevocably agrees that any legal action, suit or proceeding arising out of or relating to this Agreement, the Transaction Documents or any other agreements or transactions contemplated hereby shall be brought in the Chancery Court of the State of Delaware and each party hereto agrees not to assert, by way of motion, as a defense or otherwise, in any such action, suit or proceeding any claim that it is not subject personally to the jurisdiction of such court, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper or that this Agreement, any Transaction Document, any other agreement or transaction or the subject matter hereof or thereof may not be enforced in or by such court. Each party hereto further and irrevocably submits to the jurisdiction of such court in any action, suit or proceeding. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. U S WEST, INC. By:/s/ Charles M. Lillis Name: Charles M. Lillis Title: Executive Vice President; President and Chief Executive Officer of the U S WEST Media Group CONTINENTAL MERGER CORPORATION By:/s/ Charles M. Lillis Name: Charles M. Lillis Title: President CONTINENTAL CABLEVISION, INC. By:/s/ Amos B. Hostetter, Jr. Name: Amos B. Hostetter, Jr. Title: Chairman of the Board and Chief Executive Officer TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS
1.1 Definitions 2 1.2 Terms Defined Elsewhere in the Agreement 13 1.3 Other Definitional Provisions 16 ARTICLE II THE MERGER 2.1 The Merger 16 2.2 Closing 17 2.3 Effective Time 17 2.4 Effects of the Merger 17 2.5 Directors; Certificate of Incorporation; Bylaws 17 ARTICLE III EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES 3.1 Effect on Capital Stock 18 3.2 Company Common Stock Elections; Exchange Fund 23 3.3 Proration 26 3.4 Dividends, Fractional Shares, Etc 27 3.5 Restricted Stock 30 3.6 Dissenting Shares 31 3.7 Share Price Adjustment 31 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4.1 Organization and Authority of the Company 32 4.2 Capitalization 34 4.3 No Conflicts 35 4.4 Vote Required 36 4.5 Board Recommendation; Opinion of Financial Advisor 36 4.6 Consents 36 4.7 Compliance; No Defaults 38 4.8 SEC Documents; Undisclosed Liabilities 39 4.9 Litigation 40 4.10 Taxes 40 4.11 Employee Benefits. 43 4.12 Cable Television Franchises 45 4.13 Environmental Matters 50 4.14 Labor 51 4.15 Absence of Changes or Events 53 4.16 Unlawful Payments and Contributions 54 4.17 Brokers and Intermediaries 54 ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR 5.1 Organization and Authority 55 5.2 Capitalization 56 5.3 No Conflicts 57 5.4 Stockholder Vote 58 5.5 Consents 58 5.6 Compliance; No Defaults 59 5.7 Acquiror SEC Documents; Undisclosed Liabilities 59 5.8 Litigation 60 5.9 Absence of Changes or Events 61 5.10 Brokers and Intermediaries 61 5.11 Ownership of Company Capital Stock 61 5.12 Operations of Company Sub 61 ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS 6.1 Conduct of Business of the Company 62 6.2 Conduct of Business of Acquiror and Company Sub. 67 6.3 Access to Information 69 ARTICLE VII ADDITIONAL AGREEMENTS 7.1 Preparation of Form S-4 and the Proxy Statement; Stockholders' Meeting; Charter Amendments 70 7.2 Letter of the Company's Accountants 73 7.3 Letter of Acquiror's Accountants 73 7.4 Reasonable Best Efforts 74 7.5 Franchise and License Consents 74 7.6 Antitrust Notification 76 7.7 Certain Actions 77 7.8 Supplemental Disclosure 79 7.9 Announcements 79 7.10 No Solicitation 79 7.11 Indemnification; Directors' and Officers 81 Insurance 7.12 NYSE Listing 82 7.13 Affiliates 83 7.14 Employee Benefits 83 7.15 Registration Rights Agreement 84 7.16 Tax Treatment 84 7.17 Series D Preferred Stock 85 7.18 Company Indebtedness 85 7.19 Authorization of Issuance of Merger Consideration 85 7.20 Attribution 85 7.21 Further Assurances 85 7.22 Internal Revenue Service Ruling 86 ARTICLE VIII CONDITIONS PRECEDENT 8.1 Conditions to Each Party's Obligation to Effect 86 the Merger 8.2 Conditions to Obligations of Acquiror and 87 Company Sub 8.3 Conditions to Obligations of the Company 90 ARTICLE IX TERMINATION AND AMENDMENT 9.1 Termination 92 9.2 Effect of Termination 95 9.3 Fees and Expenses 95 9.4 Certain Purchase Obligations 96 9.5 Amendment 98 9.6 Extension; Waiver 98 ARTICLE X GENERAL PROVISIONS 10.1 Frustration of the Closing Conditions 99 10.2 Effectiveness of Representations, Warranties 99 and Agreements 10.3 Expenses 99 10.4 Applicable Law 99 10.5 Notices 99 10.6 Entire Agreement 101 10.7 Headings; References 101 10.8 Counterparts 101 10.9 Parties in Interest; Assignment 101 10.10 Severability; Enforcement 102 10.11 Specific Performance 102 10.12 Jurisdiction 102
EXHIBITS
Exhibit A Form of Charter Amendments Exhibit B Form of Registration Rights Agreement for Media Stock and Series D Preferred Stock Exhibit C Form of Certificate of Designation for Series D Convertible Preferred Stock Exhibit D Form of Affiliate Letter Exhibit E Form of Certificate of Designation for Put Shares Exhibit F Form of Registration Rights Agreement for Put Shares
AGREEMENT AND PLAN OF MERGER among U S WEST, INC., CONTINENTAL MERGER CORPORATION and CONTINENTAL CABLEVISION, INC. Dated as of February 27, 1996 And as amended and restated as of June 27, 1996 -1- EXHIBIT A CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF CONTINENTAL CABLEVISION, INC. Continental Cablevision, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation, at a meeting duly called and held on __________ __, 1996, accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, duly adopted resolutions setting forth proposed amendments to the Restated Certificate of Incorporation of the Corporation. The resolutions setting forth the proposed amendments are as follows: RESOLVED: That Section F of Article FOURTH of the Corporation's Restated Certificate of Incorporation be amended by adding a new paragraph immediately following the last sentence of said Section F to read as follows: Notwithstanding anything in this Section F to the contrary, so long as the Agreement and Plan of Merger, dated as of February 27, 1996, as the same may be amended from time to time (the "Merger Agreement"), between U S WEST, Inc., a Delaware corporation, and the Corporation, shall remain in effect, no share of Class B Common Stock may be converted into a share of Class A Common Stock pursuant to the immediately preceding paragraph; provided, however, that a fully paid share of Class B Common Stock may be converted into a share of Class A Common Stock pursuant to the immediately preceding paragraph in connection with (i) a bona fide transfer of such share of Class B Common Stock for the fair market value of such share at the time of such transfer, other than to a Permitted Transferee, or (ii) the enforcement by a secured party of its rights in and to such share of Class B Common Stock pursuant to a bona fide pledge of such share to secure obligations. If a holder of shares of Class B Common Stock elects to convert any such shares in connection with a bona fide transfer of such shares for the fair market value of such share at the time of such transfer, such holder shall certify in writing to the Corporation that such conversion is in connection with a bona fide transfer for and that such transfer is not being made to a Permitted Transferee. If a secured party with rights in and to shares of Class B Common Stock elects to convert any such shares in connection with the enforcement of such rights, such secured party shall certify in writing to the Corporation that such conversion is in connection with the enforcement of such secured party rights pursuant to a bona fide pledge of such stock to secure obligations. Such certifications shall be delivered to the Corporation at the same time as such holder or secured party delivers the notice of election and other instruments required by the immediately preceding paragraph. RESOLVED: That Section H of Article FOURTH of the Corporation's Restated Certificate of Incorporation be amended to read as follows: H. Other Rights. Except as otherwise required by the Delaware General Corporation Law or as otherwise provided in this Restated Certificate of Incorporation, and except as provided in the Merger Agreement, each share of Class A Common Stock and each share of Class B Common Stock shall have identical powers, preferences, rights and privileges. RESOLVED: That the foregoing amendments to the Restated Certificate of Incorporation of the Corporation are recommended to the stockholders for approval as being in the best interests of the Corporation and that said amendments be presented to the stockholders for their adoption and that a special meeting of the stockholders duly be called for that purpose. SECOND: The stockholders of the Corporation (including (i) the holders of the Class A Common Stock, the Class B Common Stock, and the Series A Participating Convertible Preferred Stock voting together as a single class, (ii) the holders of the Class A Common Stock voting together as a separate class (but only with regard to the proposed amendment to Section H of Article FOURTH of the Corporation's Restated Certificate of Incorporation) and (iii) the holders of the Class B Common Stock voting together as a separate class) approved said proposed amendments at a special meeting of stockholders for which written notice was given pursuant to Section 222 of the General Corporation Law of the State of Delaware. THIRD: That said amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by William T. Schleyer, its duly authorized officer, this ___ day of ___________, 1996. CONTINENTAL CABLEVISION, INC. By:____________________________ Name: William T. Schleyer Title: President -2- EXHIBIT B REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of _________ __, 1996, among U S WEST, INC. , a Delaware corporation ("Acquiror"), Amos B. Hostetter, Jr. ("Hostetter"), the Amos B. Hostetter, Jr. 1989 Trust (the "Trust") and the Hostetter Foundation (the "Foundation" and, together with Hostetter and the Trust, the "Stockholders"). W I T N E S S E T H: WHEREAS, Acquiror, CONTINENTAL MERGER CORPORATION, a Delaware corporation ("Sub"), and CONTINENTAL CABLEVISION, INC., a Delaware corporation (the "Company"), are parties to an Agreement and Plan of Merger, dated as of February 27, 1996, as amended and restated as of June 27, 1996 (as in effect on the date hereof, the "Merger Agreement"), pursuant to which either (i) the Company will merge with and into Acquiror, with Acquiror continuing as the surviving corporation or (ii) the Company will merge with and into Sub, with Sub continuing as the surviving corporation (as applicable, the "Merger"); and WHEREAS, Acquiror has agreed to provide registration rights to the Stockholders with respect to the stock to be received in connection with the Merger, subject to the terms and conditions set forth herein. NOW, THEREFORE, the parties hereby agree as follows: 1. Definitions. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Merger Agreement. For purposes of this Agreement, the following terms shall have the following meanings: "Blackout Period" shall mean any Section 6(a) Period and any Section 6(b) Period. "Closing Price", for any class of securities, shall mean the last reported sale price per share of such security, regular way, as shown on the Composite Tape of the NYSE, or, in case no such sale takes place on such day, the average of the closing bid and asked prices on the NYSE, or, if such security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted to trading, or, if it is not listed or admitted to trading on any national securities exchange, the last reported sale price per share of such security, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, in either case as reported by Nasdaq. "Current Market Price" for any class of securities on any applicable date shall mean the average of the daily Closing Prices per share of such security for the ten (10) consecutive Trading Days ending on the third Trading Day immediately preceding such date. "Effective Period" shall mean a period commencing on the date of this Agreement and ending on the earliest of (i) the first date as of which all Registrable Securities cease to be Registrable Securities, (ii) the sixth anniversary of the Closing Date and (iii) the date on which the aggregate number of Registrable Securities issued and outstanding (assuming conversion of all shares of Series D Preferred Stock held by the Holders) shall no longer exceed one tenth (1/10) of the aggregate number of Registrable Securities (adjusted appropriately to reflect any stock dividends, splits, combinations, exchange, reorganization, recapitalization or reclassification involving the Media Stock or Series D Preferred Stock or resulting from a merger or consolidation or similar transaction involving Acquiror or the like after the date hereof) outstanding on the date hereof. "Holder" shall mean each Stockholder listed on Schedule A hereto and each Permitted Assignee that becomes a holder of Registrable Securities, provided that if such Person is not a Stockholder listed on Schedule A hereto, such Permitted Assignee has agreed in writing to become a Holder hereunder and to be bound by the terms and conditions of this Agreement. "NASD" shall mean the National Association of Securities Dealers, Inc. "Nasdaq" shall mean the Nasdaq National Market. "NYSE" shall mean the New York Stock Exchange, Inc. "Permitted Assignee" shall mean (w) Hostetter, (x) Hostetter's lineal descendants, (y) a trust for the benefit of, the estate of, executors, personal representatives, administrators, guardians or conservators of any of the individuals referred to in the foregoing clauses (w) and (x) (but only in their capacity as such) and (z) charitable trusts and charitable foundations (in addition to the Foundation) formed by Hostetter or the Trust. "Prospectus" shall mean the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by any Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Registrable Securities" shall mean any and all of (i) the shares of Media Stock issued pursuant to the Merger, (ii) the shares of Series D Preferred Stock issued pursuant to the Merger, (iii) the shares of Media Stock or other securities of Acquiror issuable or issued upon conversion of the Series D Preferred Stock issued pursuant to the Merger and (iv) any securities issuable or issued or distributed in respect of any of the securities identified in clauses (i), (ii) or (iii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation or otherwise. Securities will cease to be Registrable Securities in accordance with Section 2 hereof. "Registration Expenses" means any and all expenses incident to performance of or compliance with this Agreement, including, without limitation, (i) all SEC, NASD and securities exchange registration and filing fees, (ii) all fees and expenses of complying with state securities or blue sky laws (including fees and disbursements of counsel for any underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all processing, printing, copying, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange pursuant to Section 7(h), (v) the fees and disbursements of counsel for Acquiror and of its independent public accountants and (vi) the reasonable fees and expenses of any special experts retained in connection with the requested registration, but excluding (x) underwriting discounts and commissions and transfer taxes, if any, and (y) any fees or disbursements of counsel to the Holders or any Holder. "Registration Statement" means any registration statement (including a Shelf Registration) of Acquiror referred to in Section 3 or 4, including any Prospectus, amendments and supplements to any such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in any such registration statement. "Related Securities" means any securities of Acquiror similar or identical to any of the Registrable Securities, including, without limitation, any class of capital stock of Acquiror and all options, warrants, rights and other securities convertible into, or exchangeable or exercisable for, any class of capital stock of Acquiror. "Section 6(a) Period" has the meaning specified in Section 6(a). "Section 6(b) Period" has the meaning specified in Section 6(b). "Shelf Registration" means a "shelf" registration statement on an appropriate form pursuant to Rule 415 under the Securities Act (or any successor rule that may be adopted by the SEC). "Trading Day", for any class of securities, shall mean, so long as such securities are listed or admitted to trading on the NYSE, a day on which the NYSE is open for the transaction of business, or, if such securities are not listed or admitted to trading on the NYSE, a day on which the principal national securities exchange on which such securities are listed is open for the transaction of business, or, if such securities are not so listed or admitted for trading on any national securities exchange, a day on which Nasdaq is open for the transaction of business. "underwritten registration or underwritten offering" shall mean an offering in which securities of Acquiror are sold to an underwriter for reoffering to the public. 2. Securities Subject to this Agreement. The securities entitled to the benefits of this Agreement are the Registrable Securities. For the purposes of this Agreement, as to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities when and to the extent that (i) a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) such Registrable Securities are distributed to the public pursuant to and in accordance with Rule 144 (or any similar provision then in force) under the Securities Act, (iii) such Registrable Securities have been otherwise transferred to a party that is not a Permitted Assignee, (iv) the Effective Period ends or (v) such Registrable Securities have ceased to be outstanding. 3. Piggy-Back Registration Rights. (a) Whenever Acquiror shall propose to file a Registration Statement under the Securities Act relating to the public offering of Media Stock for cash (other than pursuant to a Registration Statement on Form S-4 or Form S-8 or any successor forms thereto, or filed in connection with an exchange offer or an offering of securities solely to existing stockholders or employees of Acquiror and other than pursuant to a Registration Statement filed in connection with an offering by Acquiror of securities convertible into or exchangeable for Media Stock) for sale for its own account, Acquiror shall (i) give written notice at least fifteen Business Days prior to the filing thereof to each Holder then outstanding, specifying the approximate date on which Acquiror proposes to file such Registration Statement and the intended method of distribution in connection therewith, and advising such Holder of such Holder's right to have any or all of the Registrable Securities then held by such Holder included among the securities to be covered thereby and (ii) at the written request of any such Holder given to Acquiror at least two Business Days prior to the proposed filing date, include among the securities covered by such Registration Statement the number of Registrable Securities that such Holder shall have requested be so included. Subject to reduction in accordance with paragraph (b) of this Section 3, Acquiror shall cause the Registration Statement to include the Registrable Securities requested to be included in the Registration Statement for such offering in the case of Registrable Securities which are Media Stock, on the same terms and conditions as the shares of Media Stock included therein and in the case of Registrable Securities which are Series D Preferred Stock, on terms which would not conflict or interfere with in any material respect (including, without limitation, adversely affect the pricing of) the offering by Acquiror of Media Stock. (b) If the lead managing underwriter selected by Acquiror for an underwritten offering pursuant to Section 3(a) determines in writing that marketing factors require a limitation on the number of shares of Media Stock and/or Series D Preferred Stock (or other securities convertible into or exchangeable for Media Stock) to be offered and sold by stockholders of Acquiror in such offering, there shall be included in the offering, first, all securities proposed by Acquiror to be sold for its account and, second, only that number of shares of Media Stock and Series D Preferred Stock (and other securities convertible into or exchangeable for Media Stock), if any, requested to be included in such Registration Statement by stockholders of Acquiror that such lead managing underwriter reasonably and in good faith believes will not substantially interfere with (including, without limitation, adversely affect the pricing of) the offering of all the shares of Media Stock that the Company desires to sell for its own account. In such event and provided the managing underwriter has so notified Acquiror in writing, the number of shares of Media Stock and Series D Preferred Stock (and other securities of Acquiror convertible into or exchangeable for Media Stock) to be offered and sold by stockholders of Acquiror, including Holders of Registrable Securities, desiring to participate in such offering shall be allocated among such stockholders of Acquiror on a pro rata basis based upon the number of shares of Media Stock (assuming conversion of the Series D Preferred Stock and other securities convertible into or exchangeable for Media Stock held by such stockholders) each such stockholder beneficially owns. (c) Nothing in this Section 3 shall create any liability on the part of Acquiror to the Holders of Registrable Securities if Acquiror for any reason should decide not to file a Registration Statement proposed to be filed under Section 3(a) or to withdraw such Registration Statement subsequent to its filing, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by Acquiror of any notice hereunder or otherwise. (d) A request by Holders to include Registrable Securities in a proposed offering pursuant to Section 3(a) shall not be deemed to be a request for a demand registration pursuant to Section 4. 4. Demand Registration Rights. (a) Upon the written request (the "Initial Request") of Holders of at least a majority in number of the Registrable Securities (assuming conversion of all Series D Preferred Stock held by Holders) that Acquiror effect the registration with the SEC under and in accordance with the provisions of the Securities Act of all or part of such Holder's or Holders' Registrable Securities and specifying the aggregate number of shares of Registrable Securities requested to be so registered, Acquiror will promptly give written notice of such requested registration to all other Holders. Within 15 days after receipt of Acquiror's notice (such 15 day period being the "Additional Request Period"), each such other Holder shall notify Acquiror in writing as to whether such Holder wishes to have any or all of its Registrable Securities included in such requested registration. Thereupon, subject to Section 4(f), Acquiror shall use its best efforts to file a Registration Statement as expeditiously as practicable (the terms of any underwritten offering or other distribution to be determined by the Holders of a majority of the Registrable Securities so requested to be registered); provided, however, that Acquiror shall not be required to take any action pursuant to this Section 4: (i) if prior to the date of such request Acquiror shall have effected four registrations pursuant to this Section 4; (ii) if Acquiror has effected a registration pursuant to this Section 4 within the 90-day period next preceding such request; (iii) if Acquiror shall at the time have effective a Shelf Registration pursuant to which the Holder or Holders that requested registration could effect the disposition of such Registrable Securities pursuant to an underwritten offering or such other method of distribution requested by such Holder or Holders; (iv) if the Registrable Securities that Acquiror shall have been requested to register shall have a then current market value of less than $100,000,000, unless such registration request is for all remaining Registrable Securities; or (v) during the pendency of any Blackout Period; and provided, further, that Acquiror shall be permitted to satisfy its obligations under this Section 4(a) by amending (to the extent permitted by applicable law) any Shelf Registration previously filed by Acquiror under the Securities Act so that such Shelf Registration (as amended) shall permit the disposition (in accordance with the intended methods of disposition specified as aforesaid) of all of the Registrable Securities for which a demand for registration has been made under this Section 4(a). If Acquiror shall so amend a previously filed Shelf Registration, it shall be deemed to have effected a registration for purposes of this Section 4. (b) A registration requested pursuant to this Section 4 shall not be deemed to be effected for purposes of this Section 4: (i) if it has not been declared effective by the SEC or become effective in accordance with the Securities Act, (ii) if after it has become effective, such registration is materially interfered with by any stop order, injunction or similar order or requirement of the SEC or other governmental agency or court for any reason not attributable to any of the Holders and has not thereafter become effective, or (iii) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied or waived, other than by reason of a failure on the part of any of the Holders. (c) Should a Registration Statement filed pursuant to this Section 4 not become effective due to the failure of the Holders to perform their obligations under this Agreement or the inability of the Holders to reach agreement with the underwriters on price or other customary terms for such transaction, or in the event the Holders of a majority in number of the Registrable Securities (assuming conversion of all Series D Preferred Stock held by Holders) determine to withdraw or do not pursue a request for registration pursuant to this Section 4 (in each of the foregoing cases, provided that at such time Acquiror is in compliance in all material respects with its obligations under this Agreement), then (subject to the last sentence of this Section 4(c)) such registration shall be deemed to have been effected for purposes of this Section 4. In such event, the Holders of Registrable Securities who requested registration shall reimburse Acquiror for all its out-of-pocket expenses incurred in the preparation, filing and processing of the Registration Statement. If such reimbursement is made within 30 Business Days following a request therefor, such registration shall not be deemed to have been effected for purposes of this Section 4. (d) Acquiror will not include any securities that are not Registrable Securities in any Registration Statement (including a Shelf Registration referred to in the second proviso of Section 4(a)) filed pursuant to a demand made under this Section 4 without the prior written consent of the Holders of a majority in number of the Registrable Securities covered by such Registration Statement (including a Shelf Registration referred to in the second proviso of Section 4(a)). (e) If the lead managing underwriter of an underwritten offering made pursuant to this Section 4 shall advise Acquiror in writing (with a copy to the Holders of Registrable Securities participating in such offering) that, in its opinion, the number of Registrable Securities requested to be included in such registration exceeds the number which can be sold in such offering within a price range acceptable to the Holders of a majority in number of the Registrable shares requested to be included in such offering, Acquiror will reduce to the number which Acquiror is so advised can be sold in such offering within such price range the Registrable Securities requested to be included in such offering. If, as a result of any such reduction, the number of Registrable Securities requested to be included in such registration by the Holders of Registrable Securities participating in such offering is reduced by twenty-five percent (25%) or more, then notwithstanding anything to the contrary contained in this Agreement, a registration will not be deemed to have been effected for purposes of this Section 4; provided, however, that the provisions of this sentence shall only apply to the first request made by Holders for a registration pursuant to this Section 4. In the case of such a registration which would have been deemed to be a registration for purposes of this Section 4 but for the application of the immediately preceding sentence, Acquiror nonetheless shall pay the Registration Expenses in connection with such registration. (f) Prior to the filing by Acquiror of a Registration Statement pursuant to Section 4(a), Acquiror shall have the right, exercisable for the ten day period following the end of the Additional Request Period, upon written notice to the Holders requesting registration, to purchase for cash from such Holders on a pro rata basis all of the Registrable Securities which such Holders requested to be registered pursuant to such Registration Statement (the "Purchased Securities"). The exercise of such right shall constitute Acquiror's legal and binding commitment to purchase the Purchased Securities in accordance with this Section 4(f). The closing of the purchase by Acquiror of the Purchased Securities shall take place within 30 days of delivery of such notice and the purchase price per Purchased Security shall be equal to the Current Market Price of such Purchased Security on the date of the Initial Request, less the amount of any customary discounts and commissions that would be payable by Acquiror or a similar issuer in connection with an underwritten offering of similar securities (which discounts and commissions shall not exceed 5% of such Current Market Price). At the closing of the sale of the Purchased Securities, the Holders shall deliver to Acquiror certificates representing the Purchased Securities and Acquiror shall deliver to the Holders the purchase price of the Purchased Securities by wire transfer of immediately available funds. Following the purchase of the Purchased Shares by Acquiror, a registration shall be deemed to have been effected for purposes of this Section 4. 5. Selection of Underwriters. In connection with any offering pursuant to a Registration Statement filed pursuant to a demand made in accordance with Section 4, Acquiror shall have the right to select a managing underwriter or underwriters to administer the offering, so long as such managing underwriter or underwriters shall be reasonably satisfactory to Holders of a majority in number of the Registrable Securities to be included in such offering (assuming conversion of all Series D Preferred Stock held by Holders); provided, however, that such Holders shall have the right to select one co-managing underwriter, so long as such co-managing underwriter shall be reasonably satisfactory to Acquiror. The managing underwriter or underwriters selected by Acquiror shall be deemed reasonably satisfactory to Holders of a majority in number of the Registrable Securities to be included in such offering (assuming conversion of all Series D Preferred Stock held by Holders) unless such Holders sends a written notice of objection to Acquiror within 10 days of receipt of notice from Acquiror of the appointment of a managing underwriter or underwriters and the co-managing underwriter selected by such Holders shall be deemed to be reasonably satisfactory to Acquiror unless Acquiror sends a written notice of objection to such Holders within 10 days of receipt of notice from such Holders of the appointment of a co-managing underwriter. 6. Blackout Periods. (a) If Acquiror determines in good faith that the registration and distribution of Registrable Securities (or the use of the Registration Statement or related Prospectus) would interfere with any pending financing, acquisition, corporate reorganization or any other corporate development involving Acquiror or any of its subsidiaries (or would require premature disclosure thereof) and promptly gives the Holders of Registrable Securities written notice of such determination, Acquiror shall be entitled to (i) postpone the filing of the Registration Statement otherwise required to be prepared and filed by Acquiror pursuant to Section 3 or 4, or (ii) elect that the Registration Statement not be used, in either case for a reasonable period of time, but not to exceed 90 days (a "Section 6(a) Period"). Any such written notice shall contain a general statement of the reasons for such postponement or restriction on use and an estimate of the anticipated delay. Acquiror shall promptly notify each Holder of the expiration or earlier termination of a Section 6(a) Period. (b) If (i) during the Effective Period, Acquiror shall file a registration statement (other than in connection with the registration of securities issuable pursuant to an employee stock option, stock purchase or similar plan on Form S-8 or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act) with respect to any Related Securities and (ii) with reasonable written prior notice, (A) Acquiror (in the case of a non-underwritten offering pursuant to such registration statement) advises the Holders in writing that a sale or distribution of Registrable Securities would adversely affect such offering or (B) the managing underwriter or underwriters (in the case of an underwritten offering) advise Acquiror in writing (in which case Acquiror shall notify the Holders), that a sale or distribution of Registrable Securities would adversely impact such offering, then each Holder shall, to the extent not inconsistent with Applicable Law, refrain from effecting any sale or distribution of Registrable Securities, including sales pursuant to Rule 144 under the Securities Act, during the 10-day period prior to, and during the 90-day period beginning on, the effective date of such registration statement (a "Section 6(b) Period"). (c) The Effective Period and, in the case where the use of an effective Registration Statement is prohibited under Section 6(a), the period for which a Registration Statement shall be kept effective pursuant to Section 7(b), as the case may be, shall be extended by a number of days equal to the number of days of any Blackout Period occurring during such period. Except as provided below, the beginning of any Blackout Period shall be at least 120 days after the end of any prior Blackout Period; provided, however, that once during any consecutive 12 months during the Effective Period a Section 6(b) Period may begin on or within five days of the last day of a Section 6(a) Period. Notwithstanding anything to the contrary contained herein, the aggregate number of days included in all Blackout Periods during any consecutive 18 months during the Effective Period shall not exceed 180 days. (d) During the five day period prior to, and during the 30 day period commencing on, the effective date of a registration statement filed by Acquiror on behalf of Holders in connection with an underwritten offering pursuant to Section 4(a), Acquiror hereby agrees not to effect (except pursuant to employee benefit plans, the U S WEST Shareowner Investment Plan or a similar plan) any public sale or distribution of (i) Media Stock, if the Registrable Securities included in such registration include shares of Media Stock, and (ii) preferred stock convertible into Media Stock, if the Registrable Securities included in such registration include shares of Series D Preferred Stock. 7. Registration Procedures. If and whenever Acquiror is required to use its best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, Acquiror shall, as expeditiously as possible: (a) prepare and file with the SEC a Registration Statement with respect to such Registrable Securities on any form for which Acquiror then qualifies or that counsel for Acquiror shall deem appropriate, and which form shall be available for the sale of the Registrable Securities in accordance with the intended methods of distribution thereof, and use its best efforts to cause such Registration Statement to become and remain effective; (b) prepare and file with the SEC amendments and post-effective amendments to such Registration Statement and such amendments and supplements to the Prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration or as may be required by the rules, regulations or instructions applicable to the registration form utilized by Acquiror or by the Securities Act for a Shelf Registration or otherwise necessary to keep such Registration Statement effective for at least 90 days and cause the Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to otherwise comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement until the earlier of (x) such 90th day and (y) such time as all Registrable Securities covered by such Registration Statement have ceased to be Registrable Securities (it being understood that Acquiror at its option may determine to maintain such effectiveness for a longer period, whether pursuant to a Shelf Registration or otherwise); provided, however, that a reasonable time before filing a Registration Statement or Prospectus, or any amendments or supplements thereto (other than reports required to be filed by it under the Exchange Act), Acquiror shall furnish to the Holders, the managing underwriter and their respective counsel for review and comment, copies of all documents proposed to be filed and shall not file any such documents (other than as aforesaid) to which any of them reasonably object prior to the filing thereof; (c) furnish to each Holder of such Registrable Securities and to any underwriter in connection with an underwritten offer such number of conformed copies of such Registration Statement and of each amendment and post-effective amendment thereto (in each case including all exhibits) and such number of copies of any Prospectus or Prospectus supplement and such other documents as such Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities by such Holder or underwriter (Acquiror hereby consenting to the use (subject to the limitations set forth in the last paragraph of this Section 7) of the Prospectus or any amendment or supplement thereto in connection with such disposition); (d) use its best efforts to register or qualify such Registrable Securities covered by such Registration Statement under such other securities or "blue sky" laws of such jurisdictions as each Holder shall reasonably request, except that Acquiror shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 7(d), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; (e) notify each Holder of any such Registrable Securities covered by such Registration Statement, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act within the appropriate period mentioned in Section 7(b), of Acquiror's becoming aware that the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and at the request of any such Holder, prepare and furnish to such Holder a reasonable number of copies of an amendment or supplement to such Registration Statement or related Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (f) notify each Holder covered by such Registration Statement at any time: (i) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or any order preventing the use of a related Prospectus, or the initiation (or any overt threats) of any proceedings for such purposes; (iv) of the receipt by Acquiror of any written notification of the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation (or overt threats) of any proceeding for that purpose); and (v) if at any time the representations and warranties of Acquiror contemplated by paragraph (i)(1) below cease to be true and correct in all material respects; (g) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders an earnings statement that shall satisfy the provisions of Section 11(a) of the Securities Act, provided that Acquiror shall be deemed to have complied with this paragraph if it has complied with Rule 158 of the Securities Act; (h) use its best efforts to cause all such Registrable Securities to be listed on any securities exchange on which the class of Registrable Securities being registered is then listed, if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange, and to provide a transfer agent and registrar for such Registrable Securities covered by such Registration Statement no later than the effective date of such Registration Statement; (i) enter into agreements (including an underwriting agreement in the form customarily entered into by Acquiror in a comparable underwritten offering) and take all other appropriate and all commercially reasonable actions in order to expedite or facilitate the disposition of such Registrable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by Acquiror to underwriters in comparable underwritten offerings; (ii) obtain opinions of counsel to Acquiror and updates thereof (which counsel and opinions shall be reasonably satisfactory (in form, scope and substance) to the managing underwriters, if any, and the Holders of a majority in number of the Registrable Securities being sold) addressed to such Holders and the underwriters covering the matters customarily covered in opinions requested in comparable underwritten offerings by Acquiror; (iii) obtain "cold comfort" letters and updates thereof from Acquiror's independent certified public accountants addressed to the selling Holders of Registrable Securities and the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by independent accountants in connection with comparable underwritten offerings on such date or dates as may be reasonably requested by the managing underwriter; (iv) provide the indemnification in accordance with the provisions and procedures of Section 10 hereof to all parties to be indemnified pursuant to such Section; and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in number of the Registrable Securities being sold and the managing underwriters, if any, to evidence compliance with clause (f) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by Acquiror; (j) cooperate with the Holders of Registrable Securities covered by such Registration Statement and the managing underwriter or underwriters to facilitate, to the extent reasonable under the circumstances, the timely preparation and delivery of certificates (not bearing any restrictive legends) representing the securities to be sold under such Registration Statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such Holders may request and/or in a form eligible for deposit with the Depository Trust Company; (k) make available for inspection by any Holder included in such Registration Statement, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the "Inspectors"), reasonable access to appropriate officers of Acquiror and Acquiror's subsidiaries to ask questions and to obtain information reasonably requested by such Inspector and all financial and other records and other information, pertinent corporate documents and properties of any of Acquiror and its subsidiaries and affiliates (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility; provided, however, that the Records that Acquiror determines, in good faith, to be confidential and which it notifies the Inspectors in writing are confidential shall not be disclosed to any Inspector unless such Inspector signs a confidentiality agreement reasonably satisfactory to Acquiror or either (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission of a material fact in such Registration Statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; provided, further, that any decision regarding the disclosure of information pursuant to subclause (i) shall be made only after consultation with counsel for the applicable Inspectors; and provided, further, that each Holder agrees that it will, promptly after learning that disclosure of such Records is sought in a court having jurisdiction, give notice to Acquiror and allow Acquiror, at Acquiror's expense, to undertake appropriate action to prevent disclosure of such Records; and (l) in the event of the issuance of any stop order suspending the effectiveness of the Registration Statement or of any order suspending or preventing the use of any related Prospectus or suspending the qualification of any Registrable Securities included in the Registration Statement for sale in any jurisdiction, Acquiror will use all commercially reasonable efforts promptly to obtain its withdrawal. Acquiror may require each Holder as to which any registration is being effected to furnish Acquiror with such information regarding such Holder and pertinent to the disclosure requirements relating to the registration and the distribution of such securities as Acquiror may from time to time reasonably request in writing. Each Holder agrees that, upon receipt of any notice from Acquiror of the happening of any event of the kind described in Section 7(e), such Holder shall forthwith discontinue disposition of Registrable Securities pursuant to the Prospectus or Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 7(e), and, if so directed by Acquiror, such Holder will deliver to Acquiror (at Acquiror's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event Acquiror shall give any such notice, the Effective Period and the period mentioned in Section 7(b) shall be extended by the number of days during the period from the date of the giving of such notice pursuant to Section 7(e) and through the date when each seller of Registrable Securities covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 7(e). 8. Registration Expenses. Acquiror shall pay all Registration Expenses in connection with all registrations of Registrable Securities pursuant to Sections 3 and 4 and each Holder shall pay (x) all fees and expenses of counsel to such Holder and any counsel to the Holders and (y) all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Registration Statement. 9. Rule 144. Acquiror agrees that it shall timely file the reports required to be filed by it under the Securities Act or the Exchange Act (including, without limitation, the reports under sections 13 and 15 (d) of the Exchange Act referred to in paragraph (c)(1) of Rule 144 under the Securities Act), and shall take such further actions as any Holder may reasonably request, all to the extent required to enable Holders to sell Registrable Securities, from time to time, pursuant to the resale limitations of (a) Rule 144 under the Securities Act, as such rule may be hereafter amended, or (b) any similar rules or regulations hereafter adopted by the SEC. Upon the written request of any Holder, Acquiror shall deliver to such Holder a written statement verifying that it has complied with such requirements. 10. Indemnification; Contribution. (a) Indemnification by Acquiror. Acquiror agrees to indemnify and hold harmless each Holder included in any registration of Registrable Securities pursuant to this Agreement, its trustees, officers and directors and each Person who controls such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and any agent or investment adviser thereof against all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees and expenses) incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation arising out of or based upon (i) any untrue or alleged untrue statement of material fact contained in any Registration Statement, any Prospectus or preliminary Prospectus, or any amendment or supplement to any of the foregoing or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus or a preliminary Prospectus, in light of the circumstances then existing) not misleading, except in each case insofar as the same arise out of or are based upon, any such untrue statement or omission made in reliance on and in conformity with information with respect to such Holder furnished in writing to Acquiror by such Holder or its counsel expressly for use therein. In connection with an underwritten offering, Acquiror will indemnify the underwriters thereof, their officers, directors and agents and each Person who controls such underwriters (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders. Notwithstanding the foregoing provisions of this Section 10(a), Acquiror will not be liable to any Holder, any Person who participates as an underwriter in the offering or sale of Registrable Securities or any other Person, if any, who controls such Holder or underwriter (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), under the indemnity agreement in this Section 10(a) for any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense that arises out of such Holder's or other Person's failure to send or deliver a copy of a final Prospectus to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of the Registrable Securities to such Person if such statement or omission was corrected in such final Prospectus and Acquiror has previously furnished copies thereof to such Holder in accordance with this Agreement. (b) Indemnification by Holders of Registrable Securities. In connection with the any registration of Registrable Securities pursuant to this Agreement, each Holder included in such registration shall furnish to Acquiror and any underwriter in writing such information, including the name, address and the amount of Registrable Securities held by such Holder, as Acquiror or any underwriter reasonably requests for use in the Registration Statement relating to such registration or the related Prospectus and agrees to indemnify and hold harmless Acquiror, all other Holders and any underwriter, each such party's officers and directors and each Person who controls each such party (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and any agent or investment adviser thereof against all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees and expenses) incurred by each such party pursuant to any actual or threatened action, suit, proceeding or investigation arising out of or based upon (i) any untrue or alleged untrue statement of material fact contained in any Registration Statement, any Prospectus or preliminary Prospectus, or any amendment or supplement to any of the foregoing or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus or a preliminary Prospectus, in light of the circumstances then existing) not misleading, but only to the extent that any such untrue statement or omission is made in reliance on and in conformity with information with respect to such Holder furnished in writing to Acquiror or any underwriter by such Holder or its counsel specifically for inclusion therein. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such indemnified party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such indemnified party may claim indemnification or contribution pursuant to this Section 10 (provided that failure to give such notification shall not affect the obligations of the indemnifying party pursuant to this Section 10 except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure). In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under these indemnification provisions for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding the foregoing, if (i) the indemnifying party shall not have employed counsel reasonably satisfactory to such indemnified party to take charge of the defense of such action within a reasonable time after notice of commencement of such action (so long as such failure to employ counsel is not the result of an unreasonable determination by such indemnified party that counsel selected pursuant to the immediately preceding sentence is unsatisfactory), or (ii) the actual or potential defendants in, or targets of, any such action include both the indemnifying party and such indemnified party and such indemnified party shall have reasonably concluded that there may be legal defenses available to it which are different from or additional to those available to the indemnifying party which, if the indemnifying party and such indemnified party were to be represented by the same counsel, could result in a conflict of interest for such counsel or materially prejudice the prosecution of the defenses available to such indemnified party, then such indemnified party shall have the right to employ separate counsel, in which case the fees and expenses of one counsel or firm of counsel (plus one local or regulatory counsel or firm of counsel) selected by a majority in interest of the indemnified parties shall be borne by the indemnifying party and the fees and expenses of all other counsel retained by the indemnified parties shall be paid by the indemnified parties. No indemnified party shall consent to entry of any judgment or enter into any settlement without the consent (which consent, in the case of an action, suit, claim or proceeding exclusively seeking monetary relief, shall not be unreasonably withheld) of each indemnifying party. (d) Contribution. If the indemnification from the indemnifying party provided for in this Section 10 is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the actions which resulted in such losses, claims, damages, liabilities and expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 10(c), any legal and other fees and expenses reasonably incurred by such indemnified party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 10(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 10(d), no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Holder were offered to the public exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. If indemnification is available under this Section 10, the indemnifying parties shall indemnify each indemnified party to the fullest extent provided in Section 10(a) or (b), as the case may be, without regard to the relative fault of such indemnifying parties or indemnified party or any other equitable consideration provided for in this Section 10(d). (e) The provisions of this Section 10 shall be in addition to any liability which any party may have to any other party and shall survive any termination of this Agreement. The indemnification provided by this Section 10 shall remain in full force and effect irrespective of any investigation made by or on behalf of an indemnified party, so long as such indemnified party does not act in a fraudulent, reckless or grossly negligent manner. 11. Participation in Underwritten Offerings. No Holder may participate in any underwritten offering hereunder unless such Holder (a) in the case of a registration pursuant to Section 3, agrees to sell such Holder's securities on the basis provided in any underwriting arrangements approved by Acquiror in its reasonable discretion and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 12. Miscellaneous. (a) Remedies. Each Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. (b) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless Acquiror has obtained the written consent of Holders of at least a majority in number of the Registrable Securities then outstanding. (c) Notices. Notices, requests, permissions, waivers, and other communications hereunder shall be in writing and shall be deemed to have been duly given if signed by the respective Persons giving them (in the case of any corporation the signature shall be by an officer thereof) and delivered by hand, deposited in the United States mail (registered or certified, return receipt requested), properly addressed and postage prepaid, or delivered by telecopy: If to a Holder, to: Amos B. Hostetter, Jr. c/o CONTINENTAL CABLEVISION, INC. The Pilot House, Lewis Wharf Boston, Massachusetts 02110 Telephone: (617) 742-9500 Telecopy: (617) 742-0530 Attention: Amos B. Hostetter, Jr. with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, Massachusetts 02109 Telephone: (617) 338-2800 Telecopy: (617) 338-2880 Attention: Patrick K. Miehe, Esq. If to Acquiror, to: U S WEST, INC. 7800 East Orchard Road Englewood, Colorado 80111 Telephone: (303) 793-6310 Telecopy: (303) 793-6707 Attention: General Counsel with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8000 Telecopy: (212) 310-8007 Attention: Dennis J. Block, Esq. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors of each of the parties; provided, however, that any successor to a Holder shall have agreed in writing to become a Holder under this Agreement and to be bound by the terms and conditions hereof and to become a Stockholder under the Stockholders Agreement and to be bound by the terms and conditions thereof. This Agreement and the provisions of this Agreement that are for the benefit of the Holders shall not be assignable by any Holder to any Person and any such purported assignment shall be null and void. (e) Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. (f) Descriptive Headings. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. (h) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holder shall be enforceable to the fullest extent permitted by law. (i) Entire Agreement. This Agreement is intended by the parties as a final expression and a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter hereof. There are no restrictions, promises, warranties or undertakings with respect to the subject matter hereof, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. U S WEST, INC. By: __________________________________ Name: Title: ________________________________________ Amos B. Hostetter, Jr. THE AMOS B. HOSTETTER, JR. 1989 TRUST By:_____________________________________ Name: Amos B. Hostetter, Jr. Title: Trustee By:_____________________________________ Name: Timothy P. Neher Title: Trustee THE HOSTETTER FOUNDATION By:_____________________________________ Name: Title: (..continued) 44 EXHIBIT C CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, OF SERIES D CONVERTIBLE PREFERRED STOCK OF U S WEST, INC. _____________________ Pursuant to Section 151 of the General Corporation Law of the State of Delaware _____________________ U S WEST, INC., a corporation organized and existing by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that the following resolution was duly adopted by action of the Board of Directors of the Corporation at a meeting duly held on February 26, 1996. RESOLVED that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of Section 3 of Article V of the Restated Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), and Section 151(g) of the General Corporation Law of the State of Delaware, such Board of Directors hereby creates, from the authorized shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the Corporation authorized to be issued pursuant to the Certificate of Incorporation, a series of Preferred Stock, and hereby fixes the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of the shares of such series as follows: The series of Preferred Stock hereby established shall consist of 20,000,000 shares designated as Series D Convertible Preferred Stock. The rights, preferences and limitations of such series shall be as follows: 1. Definitions. Unless otherwise defined herein, terms used herein shall have the meanings assigned to them in Section 2.6 of Article V of the Certificate of Incorporation and the following terms shall have the indicated meanings: 1.1 "Board of Directors" shall mean the Board of Directors of the Corporation or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action. 1.2 "Capital Stock" shall mean any and all shares of corporate stock of a Person (however designated and whether representing rights to vote, rights to participate in dividends or distributions upon liquidation or otherwise with respect to the Corporation, or any division or subsidiary thereof, or any joint venture, partnership, corporation or other entity). 1.3 "Certificate" shall mean the certificate of the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of Series D Convertible Preferred Stock filed with respect to this resolution with the Secretary of State of the State of Delaware pursuant to Section 151 of the General Corporation Law of the State of Delaware. 1.4 "Closing Price" shall mean the last reported sale price of the Media Stock (or such other class or series of common stock into which shares of this Series are then convertible), regular way, as shown on the Composite Tape of the NYSE, or, in case no such sale takes place on such day, the average of the closing bid and asked prices on the NYSE, or, if the Media Stock (or such other class or series of common stock) is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such stock is listed or admitted to trading, or, if it is not listed or admitted to trading on any national securities exchange, the last reported sale price of the Media Stock (or such other class or series of common stock), or, in case no such sale takes place on such day, the average of the closing bid and asked prices, in either case as reported by Nasdaq. 1.5 "Communications Stock" shall mean the class of U S WEST Communications Group Common Stock, par value $.01 per share, of the Corporation or any other class of stock resulting from (x) successive changes or reclassifications of such stock consisting solely of changes in par value, or from par value to no par value or (y) a subdivision or combination, and in any such case including any shares thereof authorized after the date of the Certificate, together with any associated rights to purchase other securities of the Corporation which are at the time represented by the certificates representing such shares. 1.6 "Conversion Date" shall have the meaning set forth in Section 3.5. 1.7 "Conversion Price" shall have the meaning set forth in Section 3.1 hereof. 1.8 "Conversion Rate" shall have the meaning set forth in Section 3.1 hereof. 1.9 "Converting Holder" shall have the meaning set forth in Section 3.5 hereof. 1.10 "Current Market Price" on any applicable record date, Conversion Date or Redemption Date referred to in Section 3 or Section 4 shall mean the average of the daily Closing Prices per share of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) for the ten (10) consecutive Trading Days ending on the third Trading Day immediately preceding such record date, Conversion Date or Redemption Date. 1.11 "Dividend Payment Date" shall have the meaning set forth in Section 2.1 hereof. 1.12 "Effective Time" shall mean the effective time of the Merger. 1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. 1.14 "Exchange Rate" for each share of this Series called for exchange shall be a number of shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) equal to the quotient of (x) the sum of (I) the Liquidation Value plus (II) the amount of accrued and unpaid dividends on such share of Series D Stock to the Redemption Date divided by (y) the product of (I) .95 multiplied by (II) the Current Market Price on the Redemption Date. 1.15 "Extraordinary Cash Distributions" shall mean, with respect to any consecutive 12-month period, all cash dividends and cash distributions on the outstanding shares of Media Stock during such period (other than cash dividends or cash distributions for which a prior adjustment to the Conversion Rate was previously made) to the extent such cash dividends and cash distributions exceed, on a per share of Media Stock basis, 10% of the average daily Closing Price of the Media Stock over such period. 1.16 "Junior Stock" shall mean the Media Stock, the Communications Stock and the shares of any other class or series of stock of the Corporation which, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall be junior to the Series D Stock in respect of the right to receive dividends or to participate in any distribution of assets other than by way of dividends. 1.17 "Liquidation Value" shall have the meaning set forth in Section 6.2 hereof. 1.18 "Media Group Disposition Redemption" shall have the meaning set forth in Section 4.1 hereof. 1.19 "Media Group Disposition Dividend" shall have the meaning set forth in Section 4.1 hereof. 1.20 "Media Group Special Dividend" shall have the meaning set forth in Section 4.1 hereof. 1.21 "Media Group Special Events" shall have the meaning set forth in Section 4.1 hereof. 1.22 "Media Group Subsidiary Redemption" shall have the meaning set forth in Section 4.1 hereof. 1.23 "Media Stock" shall mean the class of U S WEST Media Group Common Stock, par value $.01 per share, of the Corporation or any other class of stock resulting from (x) successive changes or reclassifications of such stock consisting solely of changes in par value, or from par value to no par value or (y) a subdivision or combination, and in any such case including any shares thereof authorized after the date of the Certificate, together with any associated rights to purchase other securities of the Corporation which are at the time represented by the certificates representing such shares. 1.24 "Media Group Tender or Exchange Offer" shall have the meaning set forth in Section 4.1 hereof. 1.25 "Merger" shall mean either (i) the merger of Continental Cablevision, Inc., a Delaware corporation, with and into Continental Cablevision, Inc. or (ii) the merger of Continental Merger Corporation, a Delaware corporation, with and into the Corporation, pursuant to the terms of the Merger Agreement. 1.26 "Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of February 27, 1996, as amended and restated as of June 27, 1996, among the Corporation, Continental Merger Corporation, a Delaware corporation, and Continental Cablevision, Inc., a Delaware corporation. 1.27 "Nasdaq" shall mean the Nasdaq National Market. 1.28 "NYSE" shall mean the New York Stock Exchange, Inc. 1.29 "Parity Stock" shall mean the Series A Stock, the Series B Stock, the Series C Stock and the shares of any other class or series of stock of the Corporation (other than Junior Stock) which, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall, in the event that the stated dividends thereon are not paid in full, be entitled to share ratably with the Series D Stock in the payment of dividends, including accumulations, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full, or shall, in the event that the amounts payable thereon on liquidation are not paid in full, be entitled to share ratably with the Series D Stock in any distribution of assets other than by way of dividends in accordance with the sums which would be payable in such distribution if all sums payable were discharged in full; provided, however, that the term "Parity Stock" shall be deemed to refer (i) in Section 6 hereof, to any stock which is Parity Stock in respect of the distribution of assets; and (ii) in Sections 5.1 and 5.2 hereof, to any stock which is Parity Stock in respect of either dividend rights or the distribution of assets and which, pursuant to the Certificate of Incorporation or any instrument in which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall so designate, is entitled to vote with the holders of Series D Stock. 1.30 "Person" shall mean an individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization or other entity. 1.31 "Preferred Stock" shall mean the class of Preferred Stock, par value $1.00 per share, of the Corporation authorized at the date of the Certificate, including any shares thereof authorized after the date of the Certificate. 1.32 "Record Date" shall have the meaning set forth in Section 2.1 hereof. 1.33 "Redemption Date" shall mean the date on which the Corporation shall effect the redemption or exchange of all or any part of the outstanding shares of this Series pursuant to Section 4.1. 1.34 "Redemption Price" for each share of this Series called for redemption shall be equal to the sum of (x) the Liquidation Value plus (y) an amount equal to the accrued and unpaid dividends on such share of Series D Stock to the Redemption Date. 1.35 "Redemption Rescission Event" shall mean the occurrence of (a) any general suspension of trading in, or limitation on prices for, securities on the principal national securities exchange on which shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) are registered and listed for trading (or, if shares of Media Stock (or such other class or series of common stock) are not registered and listed for trading on any such exchange, in the over-the-counter market) for more than six-and-one-half (6 ) consecutive trading hours, (b) any decline in either the Dow Jones Industrial Average or the Standard & Poor's Index of 500 Industrial Companies (or any successor index published by Dow Jones & Company, Inc. or Standard & Poor's Corporation) by either (i) an amount in excess of 10%, measured from the close of business on any Trading Day to the close of business on the next succeeding Trading Day during the period commencing on the Trading Day preceding the day notice of any redemption or exchange of shares of this Series is given (or, if such notice is given after the close of business on a Trading Day, commencing on such Trading Day) and ending at the Redemption Date or (ii) an amount in excess of 15% (or, if the time and date fixed for redemption or exchange is more than 15 days following the date on which notice of redemption or exchange is given, 20%), measured from the close of business on the Trading Day preceding the day notice of such redemption or exchange is given (or, if such notice is given after the close of business on a Trading Day, from such Trading Day) to the close of business on any Trading Day on or prior to the Redemption Date, (c) a declaration of a banking moratorium or any suspension of payments in respect of banks by Federal or state authorities in the United States or (d) the commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which in the reasonable judgment of the Corporation could have a material adverse effect on the market for the Media Stock (or such other class or series of common stock into which shares of this Series are then convertible). 1.36 "Rescission Date" shall have the meaning set forth in Section 4.5 hereof. 1.37 "Senior Stock" shall mean the shares of any class or series of stock of the Corporation which, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall be senior to the Series D Stock in respect of the right to receive dividends or to participate in any distribution of assets other than by way of dividends. 1.38 "Series A Stock" shall mean the series of Preferred Stock authorized and designated as Series A Junior Participating Cumulative Preferred Stock at the date of the Certificate, including any shares thereof authorized and designated after the date of the Certificate. 1.39 "Series B Stock" shall mean the series of Preferred Stock authorized and designated as Series B Junior Participating Cumulative Preferred Stock at the date of the Certificate, including any shares thereof authorized and designated after the date of the Certificate. 1.40 "Series C Stock" shall mean the series of Preferred Stock authorized and designated as Series C Cumulative Redeemable Preferred Stock at the date of the Certificate, including any shares thereof authorized and designated after the date of the Certificate. 1.41 "Series D Stock" and "this Series" shall mean the series of Preferred Stock authorized and designated as the Series D Convertible Preferred Stock, including any shares thereof authorized and designated after the date of the Certificate. 1.42 "Surrendered Shares" shall have the meaning set forth in Section 3.5 hereof. 1.43 "Trading Day" shall mean, so long as the Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) is listed or admitted to trading on the NYSE, a day on which the NYSE is open for the transaction of business, or, if the Media Stock (or such other class or series of common stock) is not listed or admitted to trading on the NYSE, a day on which the principal national securities exchange on which the Media Stock (or such other class or series of common stock) is listed is open for the transaction of business, or, if the Media Stock (or such other class or series of common stock) is not so listed or admitted for trading on any national securities exchange, a day on which Nasdaq is open for the transaction of business. 2. Dividends. 2.1 The holders of the outstanding Series D Stock shall be entitled to receive dividends, as and when declared by the Board of Directors out of funds legally available therefor, and any dividends declared by the Board of Directors out of funds legally available therefor in accordance with Section 3.6(d). Each dividend shall be at the annual rate equal to ____% per share of Series D Stock (which is equivalent to $__________ quarterly and $__________ annually per share). All dividends shall be payable in cash on or about the first day of February, May, August and November in each year, beginning on the first such date that is more than 15 days after the Effective Time, as fixed by the Board of Directors, or such other dates as are fixed by the Board of Directors (each a "Dividend Payment Date"), to the holders of record of Series D Stock at the close of business on or about the 15th day of the month next preceding such first day of February, May, August and November, as the case may be, as fixed by the Board of Directors, or such other dates as are fixed by the Board of Directors (each a "Record Date"). Such dividends shall accrue on each share cumulatively on a daily basis, whether or not there are unrestricted funds legally available for the payment of such dividends and whether or not earned or declared, from and after the day immediately succeeding the Effective Time and any such dividends that become payable for any partial dividend period shall be computed on the basis of the actual days elapsed in such period. All dividends that accrue in accordance with the foregoing provisions shall be cumulative from and after the day immediately succeeding the Effective Time. The per share dividend amount payable to each holder of record of Series D Stock on any Dividend Payment Date shall be rounded to the nearest cent. The dividend rate per share of this Series shall be appropriately adjusted from time to time to reflect any split or combination of the shares of this Series. 2.2 Except as hereinafter provided in this Section 2.2 and except for redemptions by the Corporation pursuant to Sections 4.1(b), 4.1(c) or 4.1(d), unless all dividends on the outstanding shares of Series D Stock and any Parity Stock that shall have accrued through any prior Dividend Payment Date shall have been paid, or declared and funds set apart for payment thereof, no dividend or other distribution (payable other than in shares of Junior Stock) shall be paid to the holders of Junior Stock or Parity Stock, and no shares of Series D Stock, Parity Stock or Junior Stock shall be purchased, redeemed or otherwise acquired by the Corporation or any of its subsidiaries (except by conversion into or exchange for Junior Stock), nor shall any monies be paid or made available for a purchase, redemption or sinking fund for the purchase or redemption of any Series D Stock, Junior Stock or Parity Stock. When dividends are not paid in full upon the shares of this Series and any Parity Stock, all dividends declared upon shares of this Series and all Parity Stock shall be declared pro rata so that the amount of dividends declared per share on this Series and all such Parity Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the shares of this Series and all such Parity Stock bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Series which may be in arrears. 3. Conversion Rights. 3.1 (a) Subject to Section 3.1(b), each holder of a share of this Series shall have the right at any time to convert such share into a number of shares of Media Stock equal to [ ] shares of Media Stock for each share of this Series, subject to adjustment as provided in this Section 3 (such rate, as so adjusted from time to time, is herein called the "Conversion Rate"; and the "Conversion Price" at any time shall mean the Liquidation Value per share divided by the Conversion Rate in effect at such time (rounded to the nearest one hundredth of a cent)) (a) The right of a holder of a share of this Series called for redemption or exchange pursuant to Sections 4.1(a) or 4.1(c) to convert such share into Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) pursuant to Section 3.1(a) shall terminate at the close of business on the Redemption Date unless the Corporation defaults in the payment of the Redemption Price or Exchange Rate or, in the case of a redemption or exchange pursuant to Section 4.1(a), the Corporation exercises its right to rescind such redemption or exchange pursuant to Section 4.5, in which case such right of conversion shall not terminate at the close of business on such date. The right of a holder of a share of this Series called for redemption pursuant to Section 4.1(b): (i) in connection with a Media Group Subsidiary Redemption, a Media Group Tender or Exchange Offer or a Media Group Disposition Redemption involving a Disposition of all (not merely substantially all) of the properties and assets attributed to the Media Group, to convert such share into Media Stock pursuant to Section 3.1(a) shall terminate at the close of business on the Redemption Date; (ii) in connection with a Media Group Disposition Dividend or Media Group Special Dividend, to convert such share into Media Stock pursuant to Section 3.1(a) shall terminate at the close of business on the record date for determining holders entitled to receive such dividend; and (iii) in connection with a Media Group Disposition Redemption involving a Disposition of substantially all (but not all) of the properties and assets attributed to the Media Group, to convert such share into Media Stock shall terminate at the close of business on the date on which shares of Media Stock are selected to be redeemed in such Media Group Disposition Redemption, unless, in any of the foregoing cases, the Corporation defaults in the payment of the Redemption Price or the conditions to such redemption set forth in the last sentence of Section 4.1(b) shall not have been satisfied, in which event such right of conversion shall not terminate at the close of business on such date. In the event the Corporation converts all of the outstanding shares of Media Stock into shares of Communications Stock (or, if the Communications Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Media Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization), the right of a holder of a share of this Series called for redemption pursuant to Section 4.1(d) in connection with an event substantially similar to a Media Group Special Event to convert such share into Communications Stock (or such other class or series of common stock) shall terminate on a date comparable to the date specified in the preceding sentence with respect to a Media Group Special Event substantially similar to such event. 3.2 If any shares of this Series are surrendered for conversion subsequent to the Record Date preceding a Dividend Payment Date but on or prior to such Dividend Payment Date (except shares called for redemption or exchange on a Redemption Date between such Record Date and Dividend Payment Date and with respect to which such redemption or exchange has not been rescinded), the registered holder of such shares at the close of business on such Record Date shall be entitled to receive the dividend, if any, payable on such shares on such Dividend Payment Date notwithstanding the conversion thereof. Except as provided in this Section 3.2, no adjustments in respect of payments of dividends on shares surrendered for conversion or any dividend on the Media Stock issued upon conversion shall be made upon the conversion of any shares of this Series. 3.3 The Corporation may, but shall not be required to, in connection with any conversion of shares of this Series, issue a fraction of a share of Media Stock, and if the Corporation shall determine not to issue any such fraction, the Corporation shall, subject to Section 3.6(g), make a cash payment (rounded to the nearest cent) equal to such fraction multiplied by the Closing Price of the Media Stock on the last Trading Day prior to the date of conversion. 3.4 Any holder of shares of this Series electing to convert such shares into Media Stock shall surrender the certificate or certificates for such shares at the office of the transfer agent or agents therefor (or at such other place in the United States as the Corporation may designate by notice to the holders of shares of this Series) during regular business hours, duly endorsed to the Corporation or in blank, or accompanied by instruments of transfer to the Corporation or in blank, or in form satisfactory to the Corporation, and shall give written notice to the Corporation at such office that such holder elects to convert such shares of this Series. The Corporation shall, as soon as practicable and in any event within five Trading Days (subject to Section 3.6(g)) after such surrender of certificates for shares of this Series, accompanied by the written notice above prescribed issue and deliver at such office to the holder for whose account such shares were surrendered, or to his nominee, (i) certificates representing the number of shares of Media Stock to which such holder is entitled upon such conversion and (ii) if less than the full number of shares of this Series represented by such certificate or certificates is being converted, a new certificate of like tenor representing the shares of this Series not converted. 3.5 Conversion shall be deemed to have been made immediately prior to the close of business as of the date that certificates for the shares of this Series to be converted, and the written notice prescribed in Section 3.4, are received by the transfer agent or agents for this Series (such date being referred to herein as the "Conversion Date"). The Person entitled to receive the Media Stock issuable upon such conversion shall be treated for all purposes as the record holder of such Media Stock as of the close of business on the Conversion Date and such conversion shall be at the Conversion Rate in effect on such date. Notwithstanding anything to the contrary contained herein, in the event the Corporation shall have rescinded a redemption or exchange of shares of this Series pursuant to Section 4.5, any holder of shares of this Series that shall have surrendered shares of this Series for conversion following the day on which notice of the redemption or exchange shall have been given but prior to the later of (a) the close of business on the Trading Day next succeeding the date on which public announcement of the rescission of such redemption or exchange shall have been made and (b) the date which is three Trading Days following the mailing of the notice of rescission required by Section 4.5 (a "Converting Holder") may rescind the conversion of such shares surrendered for conversion by (i) properly completing a form prescribed by the Corporation and mailed to holders of shares of this Series (including Converting Holders) with the Corporation's notice of rescission, which form shall provide for the certification by any Converting Holder rescinding a conversion on behalf of any beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of shares of this Series that the beneficial ownership (within the meaning of such Rule) of such shares shall not have changed from the date on which such shares were surrendered for conversion to the date of such certification and (ii) delivering such form to the Corporation no later than the close of business on that date which is fifteen (15) Trading Days following the date of the mailing of the Corporation's notice of rescission. The delivery of such form by a Converting Holder shall be accompanied by (x) any certificates representing shares of Media Stock issued to such Converting Holder upon a conversion of shares of this Series that shall be rescinded by the proper delivery of such form (the "Surrendered Shares"), (y) any securities, evidences of indebtedness or assets (other than cash) distributed by the Corporation to such Converting Holder by reason of such Converting Holder's being a record holder of the Surrendered Shares and (z) payment in New York Clearing House funds or other funds acceptable to the Corporation of an amount equal to the sum of (I) any cash such Converting Holder may have received in lieu of the issuance of fractional shares upon conversion and (II) any cash paid or payable by the Corporation to such Converting Holder by reason of such Converting Holder being a record holder of the Surrendered Shares. Upon receipt by the Corporation of any such form properly completed by a Converting Holder and any certificates, securities, evidences of indebtedness, assets or cash payments required to be returned or made by such Converting Holder to the Corporation as set forth above, the Corporation shall instruct the transfer agent or agents for shares of Media Stock and shares of this Series to cancel any certificates representing the Surrendered Shares (which Surrendered Shares shall be deposited in the treasury of the Corporation) and reissue certificates representing shares of this Series to such Converting Holder (which shares of this Series shall, notwithstanding their surrender for conversion, be deemed to have been outstanding at all times). The Corporation shall, as promptly as practicable, and in no event more than five (5) Trading Days, following the receipt of any such properly completed form and any such certificates, securities, evidences of indebtedness, assets or cash payments required to be so returned or made, pay to the Converting Holder or as otherwise directed by such Converting Holder any dividend or other payment made on such shares of this Series during the period from the time such shares shall have been surrendered for conversion to the rescission of such conversion. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any form submitted to the Corporation to rescind the conversion of shares of this Series, including questions as to the proper completion or execution of any such form or any certification contained therein, shall be resolved by the Corporation, whose good faith determination shall be final and binding. The Corporation shall not be required to deliver certificates for shares of Media Stock while the stock transfer books for such stock or for this Series are duly closed for any purpose (but not for a period in excess of two Trading Days) or during any period commencing at a Redemption Rescission Event and ending at either (i) the time and date at which the Corporation's right of rescission shall expire pursuant to Section 4.5 if the Corporation shall not have exercised such right or (ii) the close of business on that day which is fifteen (15) Trading Days following the date of the mailing of a notice of rescission pursuant to Section 4.5 if the Corporation shall have exercised such right of rescission, but certificates for shares of Media Stock shall be delivered as soon as practicable after the opening of such books or the expiration of such period. 3.6 The Conversion Rate shall be adjusted from time to time as follows for events occurring after the Effective Time: (a) In case the Corporation shall, at any time or from time to time, (i) pay a dividend or make a distribution in shares of Media Stock, (ii) combine the outstanding shares of Media Stock into a smaller number of shares, or (iii) subdivide or reclassify the outstanding shares of Media Stock, then the Conversion Rate in effect immediately before such action shall be adjusted so that immediately following such event the holders of the Series D Stock shall be entitled to receive upon conversion thereof the kind and amount of shares of capital stock of the Corporation which they would have owned or been entitled to receive upon or by reason of such event if such shares of Series D Stock had been converted immediately before the record date (or, if no record date, the effective date) for such event. An adjustment made pursuant to this Section 3.6(a) shall become effective immediately after the opening of business on the day next following the record date in the case of a dividend or distribution and shall become effective immediately after the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification. For the purposes of this Section 3.6(a), if holders of Media Stock are entitled to elect the kind or amount of securities receivable upon the payment of any such divided, subdivision, combination or reclassification, each holder of Series D Stock shall be deemed to have failed to exercise any such right of election (provided that if the kind or amount of securities receivable upon such dividend, distribution, subdivision, combination or reclassification is not the same for each nonelecting share, then the kind and amount of securities receivable upon such dividend, distribution, subdivision, combination or reclassification for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). (b) If the Corporation shall issue rights, warrants or options to all holders of Media Stock entitling them (for a period not exceeding 45 days from the record date referred to below) to subscribe for or purchase shares of Media Stock at a price per share less than the Current Market Price (determined as of the record date for the determination of stockholders entitled to receive such rights, warrants or options), then, in any such event, the Conversion Rate shall be adjusted by multiplying the Conversion Rate in effect immediately prior to the opening of business on such record date by a fraction, the numerator of which shall be the number of shares of Media Stock outstanding on such record date plus the maximum number of additional shares of Media Stock offered for subscription pursuant to such rights, warrants or options, and the denominator of which shall be the number of shares of Media Stock outstanding on such record date plus the maximum number of additional shares of Media Stock which the aggregate offering price of the maximum number of shares of Media Stock so offered for subscription or purchase pursuant to such rights, warrants or options would purchase at such Current Market Price (determined by multiplying such maximum number of shares by the exercise price of such rights, warrants or options (plus any other consideration received by the Corporation upon the issuance or exercise of such rights, warrants or options) and dividing the product so obtained by such Current Market Price). Such adjustment shall become effective at the opening of business on the day next following the record date for the determination of stockholders entitled to receive such rights, warrants or options. To the extent that shares of Media Stock are not delivered after the expiration of such rights, warrants or options, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the record date for the determination of stockholders entitled to receive such rights, warrants or options been made upon the basis of delivery of only the number of shares of Media Stock actually delivered and the amount actually paid therefor. In determining whether any rights, warrants or options entitle the holders to subscribe for or purchase shares of Media Stock at a price per share less than such Current Market Price, there shall be taken into account any consideration received by the Corporation upon issuance and upon exercise of such rights, warrants or options. The value of such consideration, if other than cash, shall be determined by the good faith business judgment of the Board of Directors, whose determination shall be conclusive. (c) If the Corporation shall pay a dividend or make a distribution to all holders of outstanding shares of Media Stock, of capital stock, cash, evidences of its indebtedness or other assets of the Corporation (but excluding (x) any cash dividends or distributions (other than Extraordinary Cash Distributions) and (y) dividends or distributions referred to in Section 3.6(a)), then the Conversion Rate shall be adjusted by multiplying the Conversion Rate in effect immediately prior to the opening of business on the record date for the determination of stockholders entitled to receive such dividend or distribution by a fraction, the numerator of which shall be the Current Market Price (determined as of such record date), and the denominator of which shall be such Current Market Price less either (A) the fair market value (as determined by the good faith business judgment of the Board of Directors, whose determination shall be conclusive), as of such record date, of the portion of the capital stock, assets or evidences of indebtedness to be so distributed applicable to one share of Media Stock or (B), if applicable, the amount of the Extraordinary Cash Distribution to be distributed per share of Media Stock. The adjustment pursuant to the foregoing provisions of this Section 3.6(c) shall become effective at the opening of business on the day next following the record date for the determination of stockholders entitled to receive such dividend or distribution. (d) In lieu of making an adjustment to the Conversion Rate pursuant to Sections 3.6(a), 3.6(b) or 3.6(c) above for a dividend or distribution or an issue of rights, warrants or options, the Corporation may distribute out of funds legally available therefor to the holders of shares of this Series, or reserve for distribution out of funds legally available therefor with each share of Media Stock delivered to a person converting a share of this Series pursuant to this Section 3, such dividend or distribution or such rights, warrants or options; provided, however, that in the case of such a reservation, on the date, if any, on which a person converting a share of this Series would no longer be entitled to receive such dividend or distribution or receive or exercise such rights, warrants or options, such dividend or distribution shall be deemed to have occurred, or such rights, warrants or options shall be deemed to have issued, and the Conversion Rate shall be adjusted as provided in Section 3.6(a), 3.6(b) or 3.6(c), as the case may be (with such termination date being the relevant date of determination for purposes of determining the Current Market Price). (e) The Corporation shall be entitled to make such additional increases in the Conversion Rate, in addition to the adjustments required by subsections 3.6(a) through 3.6(c), as shall be determined by the Board of Directors to be necessary in order that any dividend or distribution in Media Stock, any subdivision, reclassification or combination of shares of Media Stock or any issuance of rights or warrants referred to above, shall not be taxable to the holders of Media Stock for United States Federal income tax purposes. (f) To the extent permitted by applicable law, the Corporation may from time to time increase the Conversion Rate by any amount for any period of time if the period is at least 20 Trading Days, the increase is irrevocable during such period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Corporation, which determination shall be conclusive. (g) In any case in which this Section 3.6 shall require that any adjustment be made effective as of or immediately following a record date, the Corporation may elect to defer (but only for five (5) Trading Days following the occurrence of the event which necessitates the filing of the statement referred to in Section 3.9(a)) issuing to the holder of any shares of this Series converted after such record date (i) the shares of Media Stock and other capital stock of the Corporation issuable upon such conversion over and above the shares of Media Stock and other capital stock of the Corporation issuable upon such conversion on the basis of the Conversion Rate prior to adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction thereof pursuant to Section 3.3; provided, however, that the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (h) All calculations under this Section 3 shall be made to the nearest cent, one-hundredth of a share or, in the case of the Conversion Rate, one hundred-thousandth. Notwithstanding any other provision of this Section 3, the Corporation shall not be required to make any adjustment of the Conversion Rate unless such adjustment would require an increase or decrease of at least 1.00000% of such Conversion Rate. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1.00000% in such rate. Any adjustments under this Section 3 shall be made successively whenever an event requiring such an adjustment occurs. (i) If the Corporation shall take a record of the holders of Media Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter and before the distribution to stockholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the Conversion Rate then in effect shall be required by reason of the taking of such record. (j) Subject to Section 3.6(e) hereof, no adjustment shall be made pursuant to this Section 3.6 with respect to any share of Series D Stock that is converted prior to the time such adjustment otherwise would be made. 3.7 In case of (a) any consolidation or merger to which the Corporation is a party, other than a merger or consolidation in which the Corporation is the surviving or continuing corporation and which does not result in any reclassification of, or change (other than a change in par value or from par value to no par value or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) or (b) any sale or conveyance of all or substantially all of the property and assets of the Corporation, then lawful provision shall be made as part of the terms of such transaction whereby the holder of each share of Series D Stock which is not converted into the right to receive stock or other securities and property in connection with such transaction shall have the right thereafter, during the period such share shall be convertible, to convert such share into the kind and amount of shares of stock or other securities and property receivable upon such consolidation, merger, sale or conveyance by a holder of the number of shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) into which such shares of this Series could have been converted immediately prior to such consolidation, merger, sale or conveyance, subject to adjustment which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. If holders of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) are entitled to elect the kind or amount of securities or other property receivable upon such consolidation, merger, sale or conveyance, all adjustments made pursuant to this Section 3.7 shall be based upon (i) the election, if any, made in writing to the Secretary of the Corporation by the record holder of the largest number of shares of Series D Stock prior to the earlier of (x) the last date on which a holder of Media Stock (or such other class or series of common stock) may make such an election and (y) the date which is five (5) Trading Days prior to the record date for determining the holders of Media Stock (or such other class or series of common stock) entitled to participate in the transaction (or if no such record date is established, the effective date of such transaction) or (ii) if no such election is timely made, an assumption that each holder of Shares of this Series failed to exercise such rights of election (provided that if the kind or amount of securities or other property receivable upon such consolidation, merger, sale or conveyance is not the same for each nonelecting share, then the kind and amount of securities or other property receivable upon such consolidation, merger, sale or conveyance for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). Concurrently with the mailing to holders of Media Stock (or such other class or series of common stock) of any document pursuant to which such holders may make an election regarding the kind or amount of securities or other property that will be receivable by such holder in any transaction described in clause (a) or (b) of the first sentence of this Section 3.7, the Corporation shall mail a copy thereof to the holders of shares of the Series D Stock. The Corporation shall not enter into any of the transactions referred to in clauses (a) or (b) of the first sentence of this Section 3.7 unless, prior to the consummation thereof, effective provision shall be made in a certificate or articles of incorporation or other constituent document or written instrument of the Corporation or the entity surviving the consolidation or merger, if other than the Corporation, or the entity acquiring the Corporation's assets, unless, in either case, such entity is a direct or indirect subsidiary of another entity, in which case such provision shall be made in the certificate or articles of incorporation or other constituent document or written instrument of such other entity (any such entity or other entity being the "Surviving Entity") so as to assume the obligation to deliver to each holder of shares of Series D Stock such stock or other securities and property and otherwise give effect to the provisions set forth in this Section 3.7. The provisions of this Section 3.7 shall apply similarly to successive consolidations, mergers, sales or conveyances. 3.8 After the date, if any, on which all outstanding shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) are converted into or exchanged for shares of another class or series of common stock of the Corporation, each share of this Series shall thereafter be convertible into or exchangeable for the number of shares of such other class or series of common stock receivable upon such conversion or exchange by a holder of that number of shares or fraction thereof of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) into which one share of this Series was convertible immediately prior to such conversion or exchange. From and after any such conversion or exchange, Conversion Rate adjustments as nearly equivalent as may be practicable to the adjustments pursuant to Sections 3.6 and 3.7 which, prior to such exchange, were made in respect of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) shall instead be made pursuant to such Sections 3.6 and 3.7 in respect of shares of such other class or series of common stock. 3.9 (a) Whenever the Conversion Rate is adjusted as provided in this Section 3, the Corporation (or, in the case of Section 3.7, the Corporation or the Surviving Entity, as the case may be, shall forthwith place on file with its transfer agent or agents for this Series a statement signed by a duly authorized officer of the Corporation or the Surviving Entity, as the case may be, stating the adjusted Conversion Rate determined as provided herein. Such statements shall set forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment. Promptly after the adjustment of the Conversion Rate, the Corporation or the Surviving Entity, as the case may be, shall mail a notice thereof to each holder of shares of this Series. Whenever the Conversion Rate is increased pursuant to Section 3.6(f), such notice shall be mailed to each holder of shares of this Series as promptly as possible after the Corporation shall have determined to effect such increase and, in any event, at least 15 Trading Days prior to the date such increased Conversion Rate takes effect, and such notice shall state such increased Conversion Rate and the period during which it will be in effect. Where appropriate, the notice required by this Section 3.9(a) may be given in advance and included as part of the notice required pursuant to Section 3.9(b) or 3.9(c). (a) Subject to the provisions of Section 3.9(c), if: (i) the Corporation takes any action that would require an adjustment of the Conversion Rate pursuant to Sections 3.6 through 3.8; (ii) there shall be any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all or substantially all of the assets of the Corporation; or (iii) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, then the Corporation shall, as promptly as possible, but at least 10 Trading Days prior to the record date or other date set for definitive action if there shall be no record date, cause notice to be filed with the transfer agent or agents for this Series and given to each record holder of outstanding shares of this Series stating the action or event for which such notice is being given and the record date for and the anticipated effective date of such action or event. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the related transaction. (b) If the Corporation intends to convert all of the outstanding shares of Media Stock into shares of Communications Stock (or, if the Communications Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Media Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization) (as provided in Section 2.4 of Article V of the Certificate of Incorporation), then the Corporation shall, not later than the 35th Trading Day and not earlier than the 45th Trading Day prior to the date of such conversion, cause notice to be filed with the transfer agent or agents for this Series and given to each record holder of shares of this Series, setting forth: (1) a statement that all outstanding shares of Media Stock shall be converted; (2) the date of such conversion; (3) the per share number of shares of Communications Stock (or such other class or series of common stock) to be received with respect to each share of Media Stock, including details as to the calculation thereof; (4) the place or places where certificates for shares of Media Stock, properly endorsed or assigned for transfer (unless the Corporation shall waive such requirement), are to be surrendered for delivery of certificates for shares of Communications Stock (or such other class or series of common stock); (5) the number of shares of Media Stock outstanding and the number of shares of Media Stock into or for which outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, including the number of outstanding shares of this Series and the Conversion Price; (6) a statement to the effect that, subject to Section 2.4.5(I) of Article V of the Certificate of Incorporation, dividends on shares of such Media Stock shall cease to be paid as of the date of such conversion; (7) that a holder of shares of this Series shall be entitled to receive shares of Communications Stock (or such other class or series of common stock) pursuant to such conversion if such holder converts shares of this Series on or prior to the date of such conversion; and (8) a statement as to what such holder will be entitled to receive pursuant to the terms of Section 3.8 if such holder thereafter properly converts shares of this Series. In addition, from and after any conversion of Media Stock effected in accordance with Section 2.4 of Article V of the Certificate of Incorporation, if (x) a class or series of common stock of the Corporation exists in addition to the class or series of common stock into which the Media Stock was converted and (y) the Corporation intends to convert the class or series of common stock into which the Media Stock was converted into another such class or series of common stock of the Corporation, then the Corporation shall give notice comparable to the notice described in the preceding sentence of its intention to effect such a conversion. In the event of any conflict between the notice provisions of this Section 3.9(c) and Section 3.9(b), the notice provisions of this Section 3.9(c) shall govern. 3.10 There shall be no adjustment of the Conversion Rate in case of the issuance of any stock of the Corporation in a reorganization, acquisition or other similar transaction except as specifically set forth in this Section 3. If any action or transaction would require adjustment of any Conversion Rate established hereunder pursuant to more than one paragraph of this Section 3, only the adjustment which would result in the largest increase of such Conversion Rate shall be made. 3.11 The Corporation shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued stock, for the purpose of effecting the conversion of the shares of this Series, such number of its duly authorized shares of Media Stock (or, if applicable, any other shares of Capital Stock of the Corporation) as shall from time to time be sufficient to effect the conversion of all outstanding shares of this Series into such Media Stock (or such other shares of Capital Stock) at any time; provided, however, that nothing contained herein shall preclude the Corporation from satisfying its obligations in respect of the conversion of the shares by delivery of purchased shares of Media Stock (or such other shares of Capital Stock) that are held in the treasury of the Corporation. All shares of Media Stock (or such other shares of Capital Stock of the Corporation) which shall be deliverable upon conversion of the shares of this Series shall be duly and validly issued, fully paid and nonassessable. For purposes of this Section 3, the number of shares of Media Stock or any other class or series of common stock of the Corporation at any time outstanding shall not include any shares of Media Stock or such other class or series of common stock then owned or held by or for the account of Corporation or any subsidiary of the Corporation. 3.12 If any shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) which would be issuable upon conversion of shares of this Series hereunder require registration with or approval of any governmental authority before such shares may be issued upon conversion, the Corporation will in good faith and as expeditiously as possible cause such shares to be duly registered or approved, as the case may be. The Corporation will endeavor to list the shares of (or depositary shares representing fractional interests in) Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) required to be delivered upon conversion of shares of this Series prior to such delivery upon the principal national securities exchange upon which the outstanding Media Stock (or such other class or series of common stock) is listed at the time of such delivery. 3.13 The Corporation shall pay any and all issue, stamp, documentation, transfer or other taxes that may be payable in respect of any issue or delivery of shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) on conversion of shares of this Series pursuant hereto. The Corporation shall not, however, be required to pay any tax which is payable in respect of any transfer involved in the issue or delivery of Media Stock (or such other class or series of common stock) in a name other than that in which the shares of this Series so converted were registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Corporation the amount of such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. 4. Redemption or Exchange. 4.1 (a) Except as provided in Section 4.1(b), the shares of this Series shall not be redeemable by the Corporation prior to the third anniversary of the Effective Time. The Corporation may, at its sole option, subject to Section 2.2 hereof, from time to time on and after the third anniversary of the Effective Time and prior to the fifth anniversary of the Effective Time, exchange shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) for all or any part of the outstanding shares of this Series at the Exchange Rate; provided, however, that such an exchange may only be effected if the Closing Price shall be greater than the product of (x) the Conversion Price multiplied by (y) 1.35, on 20 of the 30 Trading Days immediately prior to the date of the notice delivered by the Corporation pursuant to Section 4.3(a) to holders of shares of this Series to be exchanged. The Corporation may, at its sole option, subject to Section 2.2 hereof, from time to time on and after the fifth anniversary of the Effective Time, at its election either: (i) redeem, out of funds legally available therefor, all or any part of the outstanding shares of this Series at the Redemption Price; (ii) exchange shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) for all or any part of the outstanding shares of this Series at the Exchange Rate; or (iii) effect a combination of the options described in the foregoing clauses (i) and (ii) (in which event each holder of shares of this Series which are selected for redemption and exchange pursuant to Section 4.2 shall receive the same proportion of cash and shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) (except for cash paid in lieu of fractional shares) paid to other holders of shares of this Series selected for redemption and exchange). (a) The Corporation shall redeem, out of funds legally available therefor, all of the outstanding shares of this Series, at the Redemption Price, if any of the following events with respect to the Media Group occur (such events being collectively referred to herein as the "Media Group Special Events"): (i) (A) the Corporation redeems all of the outstanding shares of Media Stock in exchange for shares of common stock of the Media Group Subsidiaries as provided in Section 2.4.3 of Article V of the Certificate of Incorporation (the "Media Group Subsidiary Redemption") or (B) following a Disposition of all or substantially all of the properties and assets attributed to the Media Group, the Corporation either (1) pays a dividend on the Media Stock in an amount equal to the product of the Outstanding Media Fraction multiplied by the Fair Value of the Net Proceeds of such Disposition as provided in Section 2.4.1(A)(1)(a) of Article V of the Certificate of Incorporation (the "Media Group Disposition Dividend"), or (2) redeems shares of Media Stock for an amount equal to the product of the Outstanding Media Fraction multiplied by the Fair Value of the Net Proceeds of such Disposition as provided in Section 2.4.1(A)(1)(b) of Article V of the Certificate of Incorporation (the "Media Group Disposition Redemption"); or (ii) the Corporation pays a dividend on, or the Corporation or any of its subsidiaries consummates a tender offer or exchange offer for, shares of Media Stock and the aggregate amount of such dividend or the consideration paid in such tender offer or exchange offer is an amount equal to the Fair Value of all or substantially all of the properties and assets attributed to the Media Group (the "Media Group Special Dividend" or the "Media Group Tender or Exchange Offer", respectively); provided, however, that the calculation of the Fair Value of all or substantially all of the properties and assets attributed to the Media Group shall be made without giving effect to any money borrowed by the Corporation or any of its subsidiaries in connection with such dividend or tender offer or exchange offer, as the case may be. The Redemption Date for shares of this Series to be redeemed by the Corporation pursuant to this Section 4.1(b) shall be, if the applicable Media Group Special Event is (I) the Media Group Subsidiary Redemption, the date of such exchange, (II) the Media Group Disposition Dividend or the Media Group Special Dividend, the date of payment of such dividend, (III) the Media Group Disposition Redemption, the date of such redemption or (IV) the Media Group Tender or Exchange Offer, the date such tender offer or exchange offer is consummated. Notwithstanding anything to the contrary contained in this Section 4.1(b), any redemption pursuant to this Section 4.1(b) shall be conditioned upon the actual redemption of Media Stock for shares of common stock of the Media Group Subsidiaries, payment of the Media Group Disposition Dividend or the amount due as a result of the Media Group Disposition Redemption (in each case in the required kind of capital stock, cash, securities and/or other property), payment of the Media Group Special Dividend or the consummation of the Media Group Tender or Exchange Offer, as the case may be. (b) The Corporation shall, on the twentieth anniversary of the Effective Time, at its election either: (i) redeem, out of funds legally available therefor, all of the outstanding shares of this Series at the Redemption Price; (ii) exchange shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) for all of the outstanding shares of this Series at the Exchange Rate; or (iii) effect a combination of the options described in the foregoing clauses (i) and (ii) (in which event each holder of shares of this Series shall receive the same proportion of cash and shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) (except for cash paid in lieu of fractional shares) paid to other holders of shares of this Series). (c) The Corporation shall redeem, out of funds legally available therefore, all of the outstanding shares of this Series at the Redemption Price, if (i) the Corporation converts all of the outstanding shares of Media Stock into shares of Communications Stock (or, if the Communications Stock is not Publicly Traded at such time and shares of any other class or series of common stock of the Corporation (other than Media Stock) are then Publicly Traded, of such other class or series of common stock as has the largest Market Capitalization) as provided in Section 2.4 of Article V of the Certificate of Incorporation and (ii) at any time following such conversion (A) an event substantially similar to any Media Group Special Event occurs in respect to the Communications Stock (or such other class or series of common stock) and (B) at the time of such event shares of another class or series of common stock of the Corporation (other then Communications Stock or such other class or series of common stock) are then Publicly Traded. The Redemption Date for, and the conditions to, any such redemption shall be determined in a manner consistent with the Redemption Date and conditions set forth in Section 4.1(b) for a redemption resulting from a substantially similar Media Group Special Event. (d) The Corporation shall be entitled to effect an exchange of shares of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible) for shares of Series D Stock pursuant to Section 4.1(a) or 4.1(c) only to the extent Media Stock (or such other class or series of common stock) shall be available for issuance (including delivery of previously issued shares of Media Stock (or such other class or series) held in the Corporation's treasury on the Redemption Date). The Corporation may, but shall not be required to, in connection with any exchange of shares of this Series pursuant to Section 4.1(a) or 4.1(c), issue a fraction of a share of Media Stock (or such other class or series of common stock into which shares of this Series are then convertible), and if the Corporation shall determine not to issue any such fraction, the Corporation shall make a cash payment (rounded to the nearest cent) equal to such fraction multiplied by the Closing Price of the Media Stock (or such other class or series of common stock) on the last Trading Day prior to the Redemption Date. 4.2 In the event that fewer than all of the outstanding shares of this Series are to be redeemed and/or exchanged pursuant to Section 4.1(a), subject to clause (iii) of the third sentence of Section 4.1(a), the aggregate number of shares of this Series held by each holder which will be redeemed and/or exchanged shall be determined by the Corporation by lot or pro rata or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable, and the certificate of the Corporation's Secretary or an Assistant Secretary filed with the transfer agent or transfer agents for this Series in respect of such determination by the Board of Directors shall be conclusive. 4.3 (a) If the Corporation determines to redeem and/or exchange shares of this Series pursuant to Section 4.1(a) or 4.1(c), the Corporation shall, not later than the 15th Trading Day nor earlier than the 60th Trading Day prior to the Redemption Date, cause notice to be filed with the transfer agent or agents for this Series and to be given to each record holder of the shares to be redeemed and/or exchanged, setting forth: (1) the Redemption Date; (2) in the case of a redemption or exchange pursuant to Section 4.1(c), that all shares of this Series outstanding on the Redemption Date shall be redeemed and/or exchanged by the Corporation; (3) in the case of a redemption or exchange pursuant to Section 4.1(a), the total number of shares of this Series to be redeemed and/or exchanged and, if fewer than all the shares held by such holder are to be redeemed and/or exchanged, the aggregate number of such shares which will be redeemed and/or exchanged; (4) the Redemption Price and/or the manner in which the Exchange Rate will be calculated prior to the Redemption Date; (5) that, if applicable, the Corporation shall determine on or prior to the second Trading Day preceding the Redemption Date the percentage of such holder's shares to be redeemed and the percentage of such holder's shares to be exchanged; (6) that shares of this Series called for redemption or exchange may be converted at any time prior to the Redemption Date (unless the Corporation (i) shall, in the case of a redemption, default in payment of the Redemption Price or, in the case of an exchange, fail to exchange the shares of this Series for the applicable number of shares of Media Stock or (ii) shall, in the case of a redemption pursuant to Section 4.1(a), exercise its right to rescind such redemption or exchange pursuant to Section 4.5, in which case such right of conversion shall not terminate at such time and date); (7) the applicable Conversion Price; (8) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price and/or the Exchange Rate, as the case may be; and (9) that dividends on the shares to be redeemed and/or exchanged will cease to accrue on the Redemption Date. Promptly, following the Redemption Date, the Corporation shall cause notice to be filed with the transfer agent or agents for this Series and to be given to each record holder of the shares to be redeemed and/or exchanged setting forth the percentage of such holder's shares which the Corporation has elected to redeem and the percentage of such holder's shares which the Corporation has elected to exchange. (a) If the Corporation determines to effect a Media Group Subsidiary Redemption, the Corporation shall, not later than the 30th Trading Day and not earlier than the 45th Trading Day prior to the Redemption Date, cause notice to be filed with the transfer agent or agents for this Series and given to each record holder of shares of this Series, setting forth: (1) the Redemption Date (which, pursuant to the penultimate sentence of Section 4.1(b), shall be the same as the date specified in clause (8) below); (2) that all shares of this Series outstanding on the Redemption Date shall be redeemed by the Corporation; (3) the Redemption Price; (4) that the redemption of the shares of this Series shall be conditioned upon the consummation of the Media Group Subsidiary Redemption; (5) the place or places where certificates for shares of this Series, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for payment of the Redemption Price; (6) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date; (7) a statement that all shares of Media Stock outstanding on the date of the Media Group Subsidiary Redemption shall be redeemed in exchange for shares of common stock of the Media Group Subsidiaries; (8) the date of such Media Group Subsidiary Redemption; (9) the Outstanding Media Fraction on the date of such notice; (10) the place or places where certificates for shares of Media Stock, properly endorsed or assigned for transfer (unless the Corporation shall waive such requirement), are to be surrendered for delivery of certificates for shares of the Media Group Subsidiaries; (11) a statement to the effect that, subject to Section 2.4.5(I) of Article V of the Certificate of Incorporation, dividends on the Media Stock shall cease to be paid as of the Redemption Date; (12) the number of shares of Media Stock outstanding and the number of shares of Media Stock into or for which outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, including the number of outstanding shares of this Series and the Conversion Price; and (13) that a holder of shares of this Series shall be entitled to receive shares of common stock of the Media Group Subsidiaries upon the Media Group Subsidiary Redemption in lieu of the Redemption Price only if such holder converts such shares of this Series on or prior to the Redemption Date. (b) If the Corporation determines to effect a Media Group Disposition Dividend, the Corporation shall, not later than the 30th Trading Day following the consummation of the Disposition by the Corporation of all or substantially all of the properties and assets attributed to the Media Group, cause notice to be filed with the transfer agent or agents for this Series and given to each record holder of shares of this Series, setting forth: (1) the anticipated Redemption Date (which, pursuant to the penultimate sentence of Section 4.1(b), shall be the same as the date specified in clause (8) below); (2) that all shares of this Series outstanding on the Redemption Date shall be redeemed by the Corporation; (3) the Redemption Price; (4) that the redemption of the shares of this Series shall be conditioned upon the payment of the Media Group Disposition Dividend; (5) the place or places where certificates for shares of this Series, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for payment of the Redemption Price; (6) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date; (7) the record date for determining holders of Media Stock entitled to receive the Media Group Disposition Dividend, which shall be not earlier than the 40th Trading Day and not later than the 50th Trading Day following the consummation of such Disposition; (8) the anticipated date of payment of the Media Group Disposition Dividend (which shall not be more than 85 Trading Days following the consummation of such Disposition); (9) the type of property to be paid as such dividend in respect of the outstanding shares of Media Stock; (10) the Net Proceeds of such Disposition; (11) the Outstanding Media Fraction on the date of such notice; (12) the number of outstanding shares of Media Stock and the number of shares of Media Stock into or for which outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, including the number of outstanding shares of this Series and the Conversion Price in effect at such time; and (13) that a holder of shares of this Series shall be entitled to receive such dividend in lieu of the Redemption Price only if such holder properly converts such shares on or prior to the record date referred to in clause (7) of this sentence and that shares of this Series shall not be convertible after such record date. (c) If the Corporation determines to effect a Media Group Disposition Redemption following a Disposition of all (not merely substantially all) of the properties and assets attributed to the Media Group (in accordance with Section 2.4.1(A)(1)(b)(i) of Article V of the Certificate of Incorporation), the Corporation shall, not later than the 35th Trading Day and not earlier than the 45th Trading Day prior to the Redemption Date, cause notice to be filed with the transfer agent or agents for this Series and given to each record holder of shares of this Series, setting forth: (1) the Redemption Date (which, pursuant to the penultimate sentence of Section 4.1(b), shall be the same as the date specified in clause (8) below); (2) that all shares of this Series outstanding on the Redemption Date shall be redeemed by the Corporation; (3) the Redemption Price; (4) that the redemption of shares of this Series shall be conditioned upon the consummation of the Media Group Disposition Redemption; (5) the place or places where certificates for shares of this Series, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for payment of the Redemption Price; (6) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date; (7) that all shares of Media Stock outstanding on the date of such Media Group Disposition Redemption shall be redeemed; (8) the date of such Media Group Disposition Redemption (which shall not be more than 85 Trading Days following the consummation of such Disposition); (9) the type of property in which the redemption price for the shares of Media Stock to be redeemed is to be paid; (10) the Net Proceeds of such Disposition; (11) the Outstanding Media Fraction on the date of such notice; (12) the place or places where certificates for shares of Media Stock, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for delivery of cash and/or securities or other property; (13) the number of outstanding shares of Media Stock and the number of shares of Media Stock into or for which such outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, including the number of outstanding shares of this Series and the Conversion Price in effect at such time; (14) that a holder of shares of this Series shall be entitled to participate in the Media Group Disposition Redemption in lieu of participating in the redemption of the shares of this Series only if such holder properly converts such shares of this Series on or prior to the Redemption Date; and (15) that, except as otherwise provided by Section 2.4.5(I) of Article V of the Certificate of Incorporation, dividends on shares of Media Stock shall cease to be paid as of the Redemption Date. (d) If the Corporation determines to effect a Media Group Disposition Redemption following a Disposition of substantially all (but not all) of the properties and assets attributed to the Media Group (in accordance with Section 2.4.1(A)(1)(b)(ii) of Article V of the Certificate of Incorporation), the Corporation shall, not later than the 30th Trading Day following the consummation of such Disposition, cause notice to be filed with the transfer agent or agents for this Series and given to each record holder of shares of this Series, setting forth: (1) the anticipated Redemption Date (which, pursuant to the penultimate sentence of Section 4.1(b), shall be the same as the date specified in clause (8) below); (2) that all shares of this Series outstanding on the Redemption Date shall be redeemed by the Corporation; (3) the Redemption Price; (4) that the redemption of shares of this Series shall be conditioned upon the consummation of the Media Group Disposition Redemption; (5) the place or places where certificates for shares of this Series, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for payment of the Redemption Price; (6) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date; (7) a date not earlier than the 40th Trading Day and not later than the 50th Trading Day following the consummation of such Disposition on which shares of Media Stock shall be selected for redemption pursuant to such Media Group Disposition Redemption; (8) the anticipated date of such Media Group Disposition Redemption (which shall not be more than 85 Trading Days following the consummation of such Disposition); (9) the type of property in which the redemption price for the shares of Media Stock to be redeemed is to be paid; (10) the Net Proceeds of such Disposition; (11) the Outstanding Media Fraction; (12) the number of shares of Media Stock outstanding and the number of shares of Media Stock into or for which outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, including the number of outstanding shares of this Series and the Conversion Price in effect at such time; (13) that a holder of shares of this Series shall be eligible to participate in such selection for redemption pursuant to such Media Group Disposition Redemption in lieu of participating in the redemption of shares of this Series only if such holder properly converts such shares of this Series on or prior to the date referred to in clause (7) of this sentence and that shares of this Series shall not be convertible after such date; and (14) a statement that the Corporation will not be required to register a transfer of any shares of Media Stock for a period of 15 Trading Days next preceding the date referred to in clause (7) of this sentence. (e) If the Corporation determines to effect a Media Group Special Dividend, the Corporation shall, not later than the 45th Trading Day and not earlier than the 60th Trading day prior to the date of payment of such dividend, cause notice to be filed with transfer agent or agent for this Series and given to each record holder of shares of this Series, setting forth: (1) the anticipated Redemption Date (which, pursuant to the penultimate sentence of Section 4.1(b), shall be the same as the date specified in clause (8) below); (2) that all shares of this Series outstanding on the Redemption Date shall be redeemed by the Corporation; (3) the Redemption Price; (4) that the redemption of the shares of this Series shall be conditioned upon the payment of the Media Group Special Dividend; (5) the place or places where certificates for shares of this Series, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for payment of the Redemption Price; (6) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date; (7) the record date for determining holders of Media Stock entitled to receive the Media Group Special Dividend, which shall be not earlier than the 20th Trading Day prior to the date of payment of such dividend; (8) the anticipated date of payment of the Media Group Special Dividend; (9) the type of property to be paid as such dividend in respect of the outstanding shares of Media Stock; (10) the Outstanding Media Fraction on the date of such notice; (11) the number of outstanding shares of Media Stock and the number of shares of Media Stock into or for which outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, including the number of outstanding shares of this Series and the Conversion Price in effect at such time; and (12) that a holder of shares of this Series shall be entitled to receive such dividend in lieu of the Redemption Price only if such holder properly converts such shares on or prior to the record date referred to in clause (7) of this sentence and that shares of this Series shall not be convertible after such record date. (f) If the Corporation or any of its subsidiaries determines to effect a Media Group Tender or Exchange Offer, the Corporation shall, on the date of the public announcement of such tender offer or exchange offer by the Corporation or any of its subsidiaries but in any event not later than the 35th Trading Day prior to such redemption, cause notice to be filed with the transfer agent or agent for this Series and given to each record holder of shares of this Series, setting forth: (1) the anticipated Redemption Date (which, pursuant to the penultimate sentence of Section 4.1(b), shall be the same as the date specified in clause (7) below); (2) that all shares of this Series outstanding on the Redemption Date shall be redeemed by the Corporation; (3) the Redemption Price; (4) that the redemption of shares of this Series shall be conditioned upon the consummation of the Media Group Tender or Exchange Offer; (5) the place or places where certificates for shares of this Series, properly endorsed or assigned for transfer (unless the Corporation waives such requirement), are to be surrendered for payment of the Redemption Price; (6) that dividends on the shares to be redeemed will cease to accrue on the Redemption Date; (7) the anticipated date of consummation of such Media Group Tender or Exchange Offer; (8) the type of consideration to be paid by the Corporation or its subsidiary in such Media Group Tender Offer or Exchange Offer for shares of Media Stock; (9) the date on which such Media Group Tender or Exchange Offer commenced, the date on which such Media Group Tender or Exchange Offer is scheduled to expire unless extended and any other material terms thereof (or the material terms of any amendment thereto); (10) the Outstanding Media Fraction on the date of such notice; (11) the number of outstanding shares of Media Stock and the number of shares of Media Stock into or for which such outstanding Convertible Securities are then convertible, exchangeable or exercisable and the conversion, exchange or exercise price thereof, including the number of outstanding shares of this Series and the Conversion Price in effect at such time; and (12) that a holder of shares of this Series shall be entitled to participate in the Media Group Tender or Exchange Offer in lieu of participating in the redemption of the shares of this Series only if such holder properly converts such shares of this Series on or prior to the Redemption Date and then complies with the terms and conditions of the Media Group Tender or Exchange Offer and that such holder shall be permitted to tender or exchange shares of Media Stock upon conversion of shares of this Series by notice of guaranteed delivery so long as physical certificates are tendered as soon as practicable after physical receipt thereof. (g) In the event the Corporation shall redeem shares of this Series pursuant to Section 4.1(d), notice of such redemption shall be given by the Corporation at a time, and such notice shall contain information, comparable to the time or information, as the case may be, specified in Sections 4.3(b) through (g) with respect to a notice of a redemption pursuant to Section 4.1(b) resulting from a substantially similar Media Group Special Event. 4.4 If notice of redemption or exchange shall have been given by the Corporation as provided in Section 4.3, from and after the Redemption Date, dividends on the shares of this Series so called for redemption or exchange shall cease to accrue, such shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation with respect to shares so called for redemption or exchange (except, in the case of a redemption, the right to receive from the Corporation the Redemption Price without interest and, in the case of an exchange, the right to receive from the Corporation the Exchange Rate without interest) shall cease (including any right to receive dividends otherwise payable on any Dividend Payment Date that would have occurred after the Redemption Date), unless (a) the Corporation, in the case of a redemption, defaults in the payment of the Redemption Price and, in the case of an exchange, the Corporation fails to exchange the shares of this Series for the applicable number of shares of Media Stock, (b) in the case of a redemption or exchange pursuant to Section 4.1(a), the Corporation exercises its right to rescind such redemption or exchange pursuant to Section 4.5 or (c) in the case of a redemption pursuant to Section 4.1(b) or 4.1(d), the conditions to such redemption shall not have been satisfied, in which case such rights shall not terminate at the close of business on such date. On or before the Redemption Date, the Corporation shall deposit with a bank or trust company doing business in New York, as paying agent, in the case of a redemption, money sufficient to pay the Redemption Price on the Redemption Date, and in the case of an exchange, certificates representing the shares of Media Stock to be exchanged on the Redemption Date, in trust, with irrevocable instructions that such money or shares be applied to the redemption or exchange of shares of this Series so called for redemption or exchange. Any money or certificates so deposited with any such paying agent which shall not be required for such redemption or exchange because of the exercise of any right of conversion, rescission or otherwise (including if the conditions to a redemption pursuant to Section 4.1(b) or 4.1(d) are not satisfied) shall be returned to the Corporation forthwith. Upon surrender (in accordance with the notice of redemption or exchange) of the certificate or certificates for any shares of this Series to be so redeemed or exchanged (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice of redemption or exchange shall so state), such shares shall be redeemed by the Corporation at the Redemption Price or exchanged by the Corporation at the Exchange Rate, as applicable (unless, in the case of a redemption or exchange pursuant to Section 4.1(a), the Corporation shall have exercised its right to rescind such redemption or exchange pursuant to Section 4.5 or, in the case of a redemption pursuant to Section 4.1(b) or 4.1(d), the conditions to such redemption shall not have been satisfied). In case fewer than all the shares represented by any such certificate are to be redeemed or exchanged, a new certificate shall be issued representing the unredeemed and unexchanged shares (or fractions thereof as provided in Section 7.4), without cost to the holder thereof. Subject to applicable escheat laws, any moneys or shares so set aside by the Corporation and unclaimed at the end of two years from the Redemption Date shall revert to the general funds of the Corporation, after which reversion the holders of such shares so called for redemption or exchange shall look only to the Corporation for the payment of the Redemption Price or the Exchange Rate, as the case may be, without interest. Any interest accrued on any funds so deposited shall be paid to the Corporation from time to time. 4.5 If notice of redemption or exchange pursuant to Section 4.1(a) shall have been given by the Corporation pursuant to Section 4.3(a), in the event that a Redemption Rescission Event shall occur following the date of such notice but at or prior to the Redemption Date, the Corporation may, at its sole option, at any time prior to the earlier of (i) the close of business on that day which is five (5) Trading Days following such Redemption Rescission Event and (ii) the Redemption Date, rescind such redemption or exchange by making a public announcement of such rescission (the date on which such public announcement shall have been made being hereinafter referred to as the "Rescission Date"). The Corporation shall be deemed to have made such announcement if it shall issue a release to the Dow Jones News Service and Reuters Information Services or any successor news wire service. From and after the making of such announcement, the Corporation shall have no obligation to effect such redemption or exchange or to pay the Redemption Price or Exchange Rate therefor and all rights of holders of shares of this Series shall be restored as if notice of redemption or exchange had not been given. The Corporation shall give notice of any such rescission by first-class mail, postage prepaid, mailed as promptly as practicable, but in no event later than the close of business on that date which is five (5) Trading Days following the Rescission Date to each record holder of shares of this Series at the close of business on the Rescission Date and to any other Person or entity that was a record holder of shares of this Series and that shall have surrendered shares of this Series for conversion following the giving of notice of the subsequently rescinded redemption or exchange. Each notice of rescission shall (w) state that such redemption or exchange has been rescinded, (x) state that any Converting Holder shall be entitled to rescind the conversion of shares of this Series surrendered for conversion following the day on which notice of such redemption or exchange was given but on or prior to the later of (I) the close of business on the Trading Day next succeeding the date on which public announcement of the rescission of such redemption or exchange shall have been made and (II) the date which is three Trading Days following the mailing of the Corporation's notice of rescission, (y) be accompanied by a form prescribed by the Corporation to be used by any Converting Holder rescinding the conversion of shares so surrendered for conversion (and instructions for the completion and delivery of such form, including instructions with respect to payments that may be required to accompany such delivery in accordance with Section 3.5) and (z) state that such form must be properly completed and received by the Corporation no later than the close of business on a date that shall be fifteen (15) Trading Days following the date of the mailing of such notice of rescission. 5. Voting. The shares of this Series shall have no voting rights except as required by law or as set forth below. 5.1 (a) So long as any shares of this Series remain outstanding, unless a greater percentage shall then be required by law, the Corporation shall not, without the affirmative vote at a meeting or the written consent with or without a meeting of the holders of shares of this Series representing at least a majority of the shares of this Series then outstanding (i) authorize any Senior Stock or reclassify any Junior Stock or Parity Stock as Senior Stock, or (ii) amend, alter or repeal any of the provisions of the Certificate or the Certificate of Incorporation, so as in any such case to materially and adversely affect the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the shares of this Series; provided, however, that an amendment which effects a split of this Series or which effects a combination of the shares of this Series into a fewer number of Shares shall not be deemed to have any such material adverse effect. (a) No vote or consent of holders of shares of this Series shall be required for (i) the creation of any indebtedness of any kind of the Corporation, (ii) the authorization or issuance of any class of Junior Stock (including any class or series of common stock of the Corporation) or Parity Stock, (iii) the authorization, designation or issuance of additional shares of Series D Stock or (iv) subject to Section 5.1(a), the authorization or issuance of any other shares of Preferred Stock. 5.2 (a) If and whenever at any time or times dividends payable on shares of this Series shall have been in arrears and unpaid in an aggregate amount equal to or exceeding the amount of dividends payable thereon for six quarterly dividend periods, then the number of directors constituting the Board of Directors shall be automatically increased by two and the holders of shares of this Series, together with the holders of any shares of any Parity Stock as to which in each case dividends are in arrears and unpaid in an aggregate amount equal to or exceeding the amount of dividends payable thereon for six quarterly dividend periods, shall have the exclusive right, voting separately as a class with such other series, to elect two directors of the Corporation. (a) Such voting right may be exercised initially either by written consent or at a special meeting of the holders of the Preferred Stock having such voting right, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at each such annual meeting until such time as all dividends in arrears on the shares of this Series shall have been paid in full and all dividends payable on the shares of this Series on four subsequent consecutive Dividend Payment Dates shall have been paid in full on such dates or funds shall have been set aside for the payment thereof, at which time such voting right and the term of the directors elected pursuant to Section 5.2(a) shall terminate. (b) At any time when such voting right shall have vested in holders of shares of such series of Preferred Stock described in Section 5.2(b), and if such right shall not already have been exercised by written consent, a proper officer of the Corporation may call, and, upon the written request, addressed to the Secretary of the Corporation, of the record holders of either (i) shares representing twenty-five percent (25%) of the voting power of the shares then outstanding of the Series D Stock or (ii) shares representing twenty-five percent (25%) of the voting power of shares of all series of Preferred Stock having such voting right, shall call, a special meeting of the holders of Preferred Stock having such voting right. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation, or, if none, at a place designated by the Board of Directors. Notwithstanding the provisions of this Section 5.2(c), no such special meeting shall be called during a period within 60 days immediately preceding the date fixed for the next annual meeting of stockholders. (c) At any meeting held for the purpose of electing directors at which the holders of such Preferred Stock shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of shares representing more than fifty percent (50%) in voting power of the then outstanding shares of such Preferred Stock having such right shall be required and shall be sufficient to constitute a quorum of such class for the election of directors by such class. (d) Any director elected by holders of Preferred Stock pursuant to the voting right created under this Section 5.2 shall hold office until the next annual meeting of stockholders (unless such term has previously terminated pursuant to Section 5.2(b)) and any vacancy in respect of any such director shall be filled only by vote of the remaining director so elected, or if there be no such remaining director, by the holders of such Preferred Stock entitled to elect such director or directors by written consent or at a special meeting called in accordance with the procedures set forth in Section 5.2(c), or, if no special meeting is called or written consent executed, at the next annual meeting of stockholders. (e) In exercising the voting rights set forth in this Section 5.2, each share of this Series shall have a number of votes equal to its Liquidation Value. 6. Liquidation Rights. 6.1 Upon the dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of this Series shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders, in preference to the holders of, and before any payment of distribution shall be made on, Junior Stock, the Liquidation Value in effect at such time, plus an amount equal to all accrued and unpaid dividends to the date of final distribution. 6.2 The Liquidation Value shall initially be equal to $50 per share of Series D Stock. The Liquidation Value shall be subject to adjustment from time to time to appropriately give effect to any split or combination of the shares of this Series. 6.3 Neither the sale, exchange or other conveyance (for cash, shares of stock, securities or other consideration) of all or substantially all the property and assets of the Corporation nor the merger or consolidation of the Corporation into or with any other corporation, or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section 6. 6.4 After the payment to the holders of the shares of this Series of full preferential amounts provided for in this Section 6, the holders of this Series as such shall have no right or claim to any of the remaining assets of the Corporation. 6.5 In the event the assets of the Corporation available for distribution to the holders of shares of this Series upon any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 6.1, no such distribution shall be made on account of any shares of any Parity Stock upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the shares of this Series, ratably, in proportion to the full distributable amounts for which holders of all Parity Stock are entitled upon such dissolution, liquidation or winding up. 7. Other Provisions. 7.1 All notices from the Corporation to the holders shall be given by first class mail, postage prepaid, to the holders of shares of this Series at their last address as it shall appear on the stock register. With respect to any notice to a holder of Shares of this Series required to be provided hereunder, neither failure to mail such notice, nor any defect therein or in the mailing thereof, shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice or affect the legality or validity of any distribution, right, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any such action. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice. 7.2 All notices and other communications from a holder of shares of this Series shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the Corporation at the following address (or at such other address as the Corporation shall specify in a notice pursuant to Section 7.1): U S WEST, Inc., 7800 East Orchard Road, Englewood, Colorado 80111, Attention: General Counsel. 7.3 Any shares of this Series which have been converted, redeemed, exchanged or otherwise acquired by the Corporation shall, after such conversion, redemption, exchange or acquisition, as the case may be, be retired and promptly cancelled and the Corporation shall take all appropriate action to cause such shares to obtain the status of authorized but unissued shares of Preferred Stock, without designation as to series, until such shares are once more designated as part of a particular series by the Board of Directors. The Corporation may cause a certificate setting forth a resolution adopted by the Board of Directors that none of the authorized shares of this Series are outstanding to be filed with the Secretary of State of the State of Delaware. When such certificate becomes effective, all references to Series D Stock shall be eliminated from the Certificate of Incorporation and the shares of Preferred Stock designated hereby as Series D Stock shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as part of any new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. 7.4 The shares of this Series shall be issuable in whole shares or in any fraction of a whole share or any integral multiple of such fraction. 7.5 The Corporation shall, to the fullest extent permitted by law, be entitled to recognize the exclusive right of a Person registered on its records as the holder of shares of this Series, and such record holder shall be deemed the holder of such shares for all purposes. 7.6 All notice periods referred to in the Certificate shall commence on the date of the mailing of the applicable notice. 7.7 Subject to applicable law, any determinations made in the exercise of the good faith business judgment of the Board of Directors under any provision of the Certificate shall be final and binding on all stockholders of the Corporation, including the holders of shares of this Series. 7.8 Certificates for shares of this Series shall bear such legends as the Corporation shall from time to time deem appropriate. IN WITNESS WHEREOF, U S WEST, INC. has caused this certificate to be signed and attested this [ ] day of [ ], 1996. U S WEST, INC. By:__________________________ Name: Title: . The dividend rate (the "Dividend Rate") shall be equal to the sum of 4.375% (the "Base Dividend Rate") plus the Adjustment Amount (as defined below). If the Calculation Price (as defined in the Merger Agreement) is less than $24.50, the Corporation shall have the right, in its sole discretion, to (i) increase the Base Dividend Rate to 6.00% and (ii) increase the Conversion Rate pursuant to footnote 2. The Base Dividend Rate shall be subject to adjustment in the following manner: (i) If the Adjustment Amount is less than seven basis points in absolute terms, then the Adjustment Amount shall be deemed to be zero and the Dividend Rate shall equal the Base Dividend Rate. (Ii) If the Adjustment Amount is greater than or equal to seven basis points in absolute terms, then the Dividend Rate shall be equal to the Base Dividend Rate plus the Adjustment Amount, rounded to the nearest multiple of 0.125%. "Adjustment Amount" shall be equal to the product of (x) the sum of (1) the Change In Weighted Average Yield plus (2) the Change In Credit Spread multiplied by (y) the Discount Factor. "Change In Weighted Average Yield" shall equal the sum (whether positive or negative) of the following, based upon the average market closing levels of Treasury securities for the 10 Trading Days ending 5 Trading Days prior to the Effective Time: (i) the change (whether positive or negative) since February 27, 1996 in basis points in 3-year Treasury yields x 0.25; (ii) the change (whether positive or negative) since February 27, 1996 in basis points in 5-year Treasury yields x 0.25; (iii) the change (whether positive or negative) since February 27, 1996 in basis points in 10-year Treasury yields x 0.25; and (iv) the change (whether positive or negative) since February 27, 1996 in basis points in 20-year Treasury yields x 0.25. "Change In Credit Spread" shall equal (whether positive or negative) the average credit spread measured in basis points on U S WEST Financing I's 7.96% Trust Originated Preferred Securities (based upon the closing market price expressed as a stripped current yield) over the 30-year Treasury "pricing bond" for the 10 Trading Days ending 5 Trading Days prior to the Effective Time minus 159.5 basis points. "Discount Factor" shall equal 0.55. For example, if (i) the Base Dividend Rate is 4.375%, (ii) the average 3-year Treasury, 5-year Treasury, 10-year Treasury and 20-year Treasury yields are each 20 basis points lower at the Effective Time than they are on February 27, 1996 and (iii) the Change In Credit Spread is fifty basis points, then the Adjustment Amount shall equal 16.5 basis points ((-20 basis points + fifty basis points) x 0.55). Because such Adjustment Amount is greater than seven basis points, the Dividend Rate would be equal to the Base Dividend Rate plus the Adjustment Amount (or 4.540%), rounded to the yield which is at the nearest multiple of 0.125% (or 4.500%). . The Conversion Rate shall be equal to the quotient of (x) $50 divided by (y) the product of (I) 1.25 multiplied by (II) the Calculation Price (as defined in the Merger Agreement). If the Calculation Price is less than $24.50, the Corporation shall have the right, in its sole discretion, to (i) set the Conversion Rate equal to the quotient of (x) $50 divided by (y) the product of (I) 1.40 multiplied by (II) the Calculation Price and (ii) increase the Base Dividend Rate in accordance with footnote 1. (..continued) 4 EXHIBIT D [Form of Affiliate Letter] U S WEST, Inc. 7800 East Orchard Road Englewood, Colorado 80111 Ladies and Gentlemen: I have been advised that as of the date of this letter I may be deemed to be an "affiliate" of Continental Cablevision, Inc., a Delaware corporation (the "Company"), as such term is (i) defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) used in and for purposes of Accounting Series Releases 130 and 135, as amended, of the Commission. Pursuant to the terms of the Agreement and Plan of Merger, dated as of February 27, 1996, as amended and restated as of June 27, 1996 (as amended from time to time, the "Merger Agreement"), among U S WEST, Inc., a Delaware corporation ("Acquiror"), CONTINENTAL MERGER CORPORATION, a Delaware corporation ("Sub"), and the Company, either (i) the Company will be merged with and into Acquiror, with Acquiror continuing as the surviving corporation or (ii) the Company will be merged with and into Sub, with Sub continuing as the surviving corporation (as applicable, the "Merger"). Pursuant to the Merger, each share of Class A Common Stock, par value $.01 per share, of the Company owned by me, if any, and each share of Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock") owned by me will be converted into the right to receive, at my election, either (i) cash (in the case of shares of Class B Common Stock only) or (ii) shares of U S WEST Media Group Common Stock, par value $.01 per share, of Acquiror (the "Media Stock") and shares of Series D Convertible Preferred Stock, par value $1.00 per share, of Acquiror (the "Series D Preferred Stock"). I represent, warrant and covenant to Acquiror that, with respect to all Media Stock and Series D Preferred Stock received by me as a result of the Merger: 1. I shall not make any sale, transfer or other disposition of Media Stock or Series D Preferred Stock in violation of the Securities Act or the Rules and Regulations. 2. I have carefully read this letter and the Merger Agreement and discussed the requirements of such documents and any other applicable limitations upon my ability to sell, transfer or otherwise dispose of Media Stock or Series D Preferred Stock to the extent I felt necessary, with my counsel or counsel for the Company. 3. I have been advised that the issuance of Media Stock and Series D Preferred Stock to me pursuant to the Merger has been registered with the Commission under the Securities Act. However, I have also been advised that, since at the time the Merger Agreement was submitted for a vote of the stockholders of the Company, I may be deemed to have been an "affiliate" of the Company and the distribution by me of Media Stock and Series D Preferred Stock has not been registered under the Act, I may not sell, transfer or otherwise dispose of Media Stock and Series D Preferred Stock issued to me in the Merger unless (i) such sale, transfer or other disposition has been registered under the Securities Act or is made in conformity with Rule 145 under the Securities Act, or (ii) in the opinion of counsel reasonably acceptable to Acquiror, or pursuant to a "no action" letter obtained by me from the staff of the Commission, such sale, transfer or other disposition is otherwise exempt from registration under the Securities Act. 4. I understand, that, except as may be provided in a registration rights agreement, if any, to be entered into by Acquiror and me as contemplated by the Merger Agreement, Acquiror is under no obligation to register under the Securities Act the sale, transfer or other disposition of Media Stock or Series D Preferred Stock by me or on my behalf or to take any other action necessary in order to make compliance with an exemption from such registration available. 5. I understand that Acquiror will give stop transfer instructions to Acquiror's transfer agents with respect to the Media Stock and Series D Preferred Stock and that the certificates for the Media Stock and Series D Preferred Stock issued to me, or any substitutions therefor, will bear a legend substantial to the following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT, DATED _________ __, 1996, BETWEEN THE REGISTERED HOLDER HEREOF AND U S WEST, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF U S WEST, INC." 6. I also understand that unless the transfer by me of my Media Stock or Series D Preferred Stock has been registered under the Securities Act or is a sale made in conformity with the provisions of Rule 145, Acquiror reserves the right to place the following legend on the certificates issued to any transferee: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933." It is understood and agreed that the legends set forth in paragraphs 5 and 6 above shall be removed by delivery of substitute certificates without such legend if such legend is not required for purposes of the Securities Act. It is understood and agreed that such legends and the stop orders referred to above will be removed if (i) two years shall have elapsed from the date I acquired Media Stock and Series D Preferred Stock received in the Merger and the provisions of Rule 145(d)(2) are then available to me, (ii) three years shall have elapsed from the date I acquired Media Stock and Series D Preferred Stock received in the Merger and the provisions of Rule 145(d)(3) are then available to me, or (iii) Acquiror has received either an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Acquiror, or a "no-action" letter obtained by me from the staff of the Commission, to the effect that the restrictions imposed by Rule 145 under the Securities Act no longer apply to me. Execution of this letter should not be considered an admission on my part that I am an "affiliate" of the Company as described in the first paragraph of this letter or as a waiver of any rights that I may have to object to any claim that I am such an affiliate on or after the date of this letter. Sincerely, ________________________________ Name: Accepted this __ day of ________ __, 1996: U S WEST, INC. By:_________________________ Name: Title: (Cont'd from preceding page) (Cont'd on following page) 28 EXHIBIT E CONTINENTAL CABLEVISION, INC. CERTIFICATE OF DESIGNATION OF SERIES B CONVERTIBLE PREFERRED STOCK SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH SERIES OF PREFERRED STOCK Pursuant to Section 151 of the General Corporation Law of the State of Delaware, Continental Cablevision, Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors of the Corporation by Article FOURTH of the Restated Certificate of Incorporation of the Corporation (as in effect on the date hereof and as amended from time to time in accordance with its terms, the "Restated Certificate of Incorporation"), and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation on ______, 199_, adopted the following resolution creating a series of Preferred Stock designated as Series B Convertible Preferred Stock: RESOLVED that, pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Restated Certificate of Incorporation, a series of the class of authorized Preferred Stock, par value $.01 per share, of the Corporation is hereby created and that the designation and number of shares thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof are as follows: Section 1. Designation and Number. (a) The shares of such series shall be designated as "Series B Convertible Preferred Stock" (the "Series B Preferred Stock" or "this Series"). The number of shares initially constituting the Series B Preferred Stock shall be 5,650,000, which number may be decreased (but not increased) by the Board of Directors without a vote of stockholders; provided, however, that such number may not be decreased below the number of then outstanding shares of Series B Preferred Stock. Notwithstanding any other provision in this Certificate of Designation, the Corporation shall not be required to issue fractional shares of the Series B Preferred Stock. Section 2. Ranking. The Series B Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution or winding up, rank pari passu with the Series A Preferred Stock and prior to or pari passu with all other classes and series of the Corporation's preferred stock (other than preferred stock that is not convertible into or exchangeable for any class or series of the Corporation's equity securities or for any other property, including without limitation securities other than the Corporation's equity securities referred to herein) and prior to all classes of the Common Stock, par value $.01 per share, of the Corporation (the "Common Stock"). Section 3. Dividends and Distributions. (a) The holders of shares of Series B Preferred Stock shall be entitled to receive as and when declared by the Board of Directors out of funds legally available therefor, cash dividends at the rate (the "Dividend Rate") of ___________ ___________________ percent (_____%) per annumThe Base Dividend Rate shall be subject to adjustment in the following manner: (i) If the Adjustment Amount is less than seven basis points in absolute terms, then the Adjustment Amount shall be deemed to be zero and the Dividend Rate shall equal the Base Dividend Rate. (ii) If the Adjustment Amount is greater than or equal to seven basis points in absolute terms, then the Dividend Rate shall be equal to the Base Dividend Rate plus the Adjustment Amount (whether positive or negative), rounded to the nearest multiple of 0.125%. "Adjustment Amount" shall be equal to the product of (x) the sum of (1) the Change In Weighted Average Yield plus (2) the Credit Spread multiplied by (y) the Discount Factor. "Average Credit Spread" shall be equal to the average of the difference between the closing bid-side yield of the Corporation's 8.30% senior unsecured notes due 2006 and the 10-year Treasury yield, calculated for each of the 10 Trading Days after announcement of the termination of the transactons contemplated by the Merger Agreement (as defined in Section 12). "Change In Weighted Average Yield" shall equal the sum (whether positive or negitive) of the following, based upon the average market closing levels of Treasury securities for the 10 Trading Days after announcement of the termination of the transactons contemplated by the Merger Agreement: (i) the change (whether positive or negative) since February 27, 1996 in basis points in 3-year Treasury yields x 0.25; (ii) the change (whether positive or negative) since February 27, 1996 in basis points in 5-year Treasury yields x 0.25; (iii) the change (whether positive or negative) since February 27, 1996 in basis points in 10-year Treasury yields x 0.25; and (iv) the change (whether positive or negative) since February 27, 1996 in basis points in 20-year Treasury yields x 0.25. "Credit Spread" shall equal the difference between (A) the product of 1.87234 multiplied by the Average Credit Spread minus (B) 440 basis points. "Discount Factor" shall equal 0.55. For example, if (i) the Base Dividend Rate is 5.875%, (ii) the average 3-year Treasury, 5-year Treasury, 10-year Treasury and 20-year Treasury yields are each 20 basis points lower at closing than they are currently and (iii) the Average Credit Spread is 260 basis points, the Credit Spread would be equal to 47 basis points ((260 x 1.87234) - 440). The resulting Adjustment Amount would be equal to 14.85 basis points ((-20 + 47) x 0.55). Because such Adjustment Amount is greater than seven basis points, the Dividend Rate would be equal to the Base Dividend Rate plus the Adjustment Amount (or 6.0235%), rounded to the yield which is at the nearest multiple of 0.125% (or 6.00%)., through and including the date on which such Series B Preferred Stock is no longer issued and outstanding, which dividends shall be payable in equal quarterly installments on,, and each year (each such date, regardless of whether any dividends have been paid or declared and set aside for payment on such date, being a "Dividend Payment Date") to holders of record as they appear on the stock books on such record dates as are fixed by the Board of Directors, but only when, as and if declared by the Board of Directors out of funds at the time legally available for the payment of dividends. For purposes of calculation of such cash dividends, the Series B Preferred Stock shall be valued at the Stated Value (as defined in Section 12). Such dividends shall begin to accrue on outstanding shares of Series B Preferred Stock from the date of issuance and shall be deemed to accrue from day to day whether or not earned or declared until paid; provided, however, that dividends accrued or deemed to have accrued for any period shorter than the full three-month period between Dividend Payment Dates shall be computed based on the actual number of days elapsed in the three-month period for which such dividends are payable. Dividends on the Series B Preferred Stock shall be cumulative. The Dividend Rate per share of Series B Preferred Stock shall be appropriately adjusted from time to time to reflect any split or combination of the shares of the Series B Preferred Stock. (b) No dividends or other distributions, other than dividends or other distributions payable solely in shares of capital stock ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series B Preferred Stock (or cash in lieu of fractional shares with respect to such dividends or distributions) and liquidating distributions which are subject to the provisions of Section 8 hereof, shall be paid or set aside for payment on, and no purchase, redemption or other acquisition shall be made of, any shares of capital stock of the Corporation (other than any class or series of Preferred Stock that, in accordance with Section 2 hereof, (i) ranks senior to the Series B Preferred Stock or (ii) is Parity Stock (as defined in Section 12), so long as any dividend payments per share on Parity Stock as a percentage of accrued and unpaid dividends per share on Parity Stock do not exceed contemporaneous dividend payments per share on the Series B Preferred Stock as a percentage of accrued and unpaid dividends per share on the Series B Preferred Stock), unless and until all accrued and unpaid dividends on the Series B Preferred Stock for any prior quarterly dividend period shall have been declared and paid or a sum sufficient for the payment thereof set aside for such purposes. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series B Preferred Stock which may be in arrears. (c) Any reference to "distribution" contained in this Section 3 shall not be deemed to include any stock dividend or distributions made in connection with any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. (d) The holders of shares of Series B Preferred Stock shall not be entitled to receive any dividends or other distributions with respect to such shares except as provided herein. Section 4. Voting. (a) The holders of record of shares of Series B Preferred Stock shall have no voting rights except as required by law or as set forth below; provided, however, that the rights set forth in Section 4(c) hereof may be exercised only to the extent that such exercise would not result in a Legal Prohibition or any violation of applicable law or regulation. (b) (i) So long as any shares of Series B Preferred Stock remain outstanding, unless a greater percentage shall then be required by law, the Corporation shall not, without the affirmative vote at a meeting or the written consent with or representing at least 51% of the shares of Series B Preferred Stock then outstanding (A) authorize any Senior Stock or reclassify any Junior Stock or Parity Stock as Senior Stock or (B) amend, alter or repeal any of the provisions of the Certificate or the Restated Certificate of Incorporation, so as in any such case to materially and adversely affect the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the Series B Preferred Stock; provided, however, that an amendment which effects a split of Series B Preferred Stock or which effects a combination of the shares of Series B Preferred Stock into a fewer number of shares shall not be deemed to have any such material adverse effect. (ii) No vote or consent of holders of shares of Series B Preferred Stock shall be required for (A) the creation of any indebtedness of any kind of the Corporation, (B) the authorization or issuance of any class of Junior Stock (including any class or series of common stock of the Corporation) or Parity Stock, (C) the authorization, designation or issuance of additional shares of Series B Preferred Stock or (D) subject to Section 4(b)(i), the authorization or issuance of any other shares of Preferred Stock. (c) (i) If and whenever at any time or times dividends payable on shares of this Series shall have been in arrears and unpaid in an aggregate amount equal to or exceeding the amount of dividends payable thereon for six quarterly dividend periods, then the number of directors constituting the Board of Directors shall be automatically increased by two and the holders of shares of Series B Preferred Stock, together with the holders of any shares of any Parity Stock as to which in each case dividends are in arrears and unpaid in an aggregate amount equal to or exceeding the amount of dividends payable thereon for six quarterly dividend periods, shall have the exclusive right, voting separately as a class with the holders of any such Parity Stock, to elect two directors of the Corporation. (ii) Such voting right may be exercised initially either by written consent or at a special meeting of the holders of Preferred Stock having such voting right, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at each such annual meeting until such time as all dividends in arrears on the shares of this Series shall have been paid in full and all dividends payable on the shares on this Series on four subsequent consecutive Dividend Payment Dates shall have been paid in full on such dates or funds shall have been set aside for the payment thereof, at which time such voting right and the term of the directors elected pursuant to Section 4(c)(i) shall terminate. (iii) At any time when such voting right shall have vested in holders of shares of such series of Preferred Stock described in Section 4(c)(ii), and if such right shall not already have been exercised by written consent, a proper officer of the Corporation may call, and, upon the written request, addressed to the Secretary of the Corporation, of the record holders of either (A) shares representing twenty-five percent (25%) of the voting power of the shares then outstanding of Series B Preferred Stock or (B) shares representing twenty-five percent (25%) of the voting power of shares of all series of Preferred Stock having such voting right, shall call, a special meeting of the holders of all such series of Preferred Stock having such voting right. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation, or, if none, at a place designated by the Board of Directors. Notwithstanding the provisions of this Section 4(c)(iii), no such special meeting shall be called during a period within 60 days immediately preceding the date fixed for the next annual meeting of stockholders. (iv) At any meeting held for the purpose of electing directors at which the holders of such Preferred Stock shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of shares representing more than fifty percent (50%) in voting power of the then outstanding shares of such Preferred Stock having such right shall be required and shall be sufficient to constitute a quorum of such class for the election of directors by such class. (v) Any director elected by holders of such Preferred Stock pursuant to the voting right created under this Section 4(c) shall hold office until the next annual meeting of stockholders (unless such term has previously terminated pursuant to Section 4(c)(ii)) and any vacancy in respect of any such director shall be filled only by vote of the remaining director so elected, or if there be no such remaining director, by the holders of such Preferred Stock entitled to elect such director or directors by written consent or at a special meeting called in accordance with the procedures set forth in Section 4(c)(iii), or, if no special meeting is called or written consent executed, at the next annual meeting of stockholders. (vi) In exercising the voting rights set forth in this Section 4(c), each share of Series B Preferred Stock shall have one vote per share. Section 5. Certain Restrictions. (a) Whenever dividends or distributions payable on shares of Series B Preferred Stock as provided in Section 3 for any prior quarterly dividend period are not paid in full, thereafter and until all such unpaid dividends or distributions payable, whether or not declared, on the outstanding shares of Series B Preferred Stock shall have been paid in full or declared and set apart for payment, the Corporation shall not: (i) redeem, purchase or otherwise acquire for consideration any shares of Junior Stock or Parity Stock pursuant to any mandatory redemption, put, sinking fund or other similar obligation; provided that (A) the Corporation may at any time redeem, purchase or otherwise acquire shares of Junior Stock or Parity Stock, in exchange for any shares of Common Stock or for other capital stock of the Corporation ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series B Preferred Stock and (B) the Corporation may accept shares of any Parity Stock for conversion; or (ii) redeem or purchase or otherwise acquire for consideration any shares of Series B Preferred Stock; provided that the Corporation may accept shares of Series B Preferred Stock surrendered for conversion into shares of capital stock of the Corporation pursuant to Section 9. (b) The Corporation shall not permit any Subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of capital stock of the Corporation or to make or extend any loan or advance specified in clause (iii) of Section 5(a) unless the Corporation could, pursuant to paragraph (a) of this Section 5, purchase such shares at such time and in such manner or make or extend such loan or advance at such time, as the case may be. Section 6. Redemption or Exchange. (a) The Corporation shall not have any right to redeem any shares of Series B Preferred Stock prior to the third anniversary of the Issue Date (as defined in Section 12). The Corporation may, at its sole option, subject to Section 3(b) hereof, from time to time on and after the third anniversary of the Issue Date, at its election either: (i) redeem, out of funds legally available therefor, all or any part of the outstanding shares of the Series B Preferred Stock at the Redemption Price (as defined in Section 12); (ii) subject to Section 6(f) hereof, exchange shares of Class A Common Stock (or such other class or series of common stock into which shares of this Series are then convertible) for all or any part of the outstanding shares of this Series at the Exchange Price (as defined in Section 12); or (iii) subject to Section 6(f) hereof, effect a combination of the options described in the foregoing clauses (i) and (ii) (in which event each holder of shares of this Series which are selected for redemption and exchange pursuant to Section 6(e) shall receive the same proportion of cash and shares of Class A Common Stock (or such other class or series of common stock into which shares of this Series are then convertible) (except for cash paid in lieu of fractional shares) paid to other holders of shares of this Series selected for redemption and exchange); provided, however, that shares of Series B Preferred Stock shall not be redeemable by the Corporation prior to the fifth anniversary of the Issue Date unless the Current Market Price (as defined in Section 12) shall be greater than the product of (x) the Conversion Price (as defined in Section 9) multiplied by (y) 1.35 , on at least 20 of the 30 Trading Days immediately prior to the date of the notice delivered by the Corporation to holders of shares of Series B Preferred Stock to be redeemed pursuant to paragraph (d) of this Section 6. (b) Not more than 60 nor less than 15 Trading Days prior to the Redemption Date, the Corporation shall, if the Series B Preferred Stock is listed on any national securities exchange or traded in the over-the-counter market, give notice by publication in a newspaper of general circulation in the Borough of Manhattan, The City of New York, that the Corporation has elected in accordance with paragraph (a) of this Section 6 to redeem and/or exchange any or all shares of the Series B Preferred Stock. The notice shall also specify (i) the percentage of the Series B Preferred Stock to be redeemed and/or exchanged, if less than all, (ii) if more than one form of consideration has been elected by the Corporation, the portion of such shares to be redeemed and the portion of such shares to be exchanged, (iii) the Redemption Price and the manner in which the Exchange Price shall be calculated prior to the Redemption Date, and (iv) the procedures to be followed to receive payment of the Redemption Price and/or the Exchange Price, as the case may be; and, a similar notice shall be mailed concurrently to each record holder of shares of Series B Preferred Stock, at such holder's address as it appears on the transfer books of the Corporation; provided, however, that if the Series B Preferred Stock is owned of record by 50 or fewer holders or groups of affiliated holders, the Corporation shall publicly announce the information contained in the notice by issuance of a press release and such notice shall be mailed in not more than 60 or less than 15 Trading Days prior to the Redemption Date, and shall set forth the information contained above. (c) On or before the Redemption Date, the Corporation shall deposit for the benefit of the holders of shares of Series B Preferred Stock, in the case of a redemption, the funds necessary for such redemption and, in the case of an exchange, certificates representing the shares of Class A Common Stock to be exchanged, with a bank or trust company in the Borough of Manhattan, The City of New York, or in the City of Boston, in either case having a capital and surplus of at least $2,000,000,000. Any moneys or certificates so deposited by the Corporation and unclaimed at the end of two years from the date designated for such redemption or exchange shall be released from any such deposit and revert to the general funds of the Corporation. After such conversion, any such bank or trust company shall, upon demand, pay over to the Corporation such unclaimed amounts or certificates, as the case may be, and thereupon such bank or trust company shall be relieved of all responsibility in respect thereof and any holder of shares of Series B Preferred Stock to be redeemed shall look only to the Corporation for the payment of the Redemption Price. In the event that moneys or certificates are deposited pursuant to this paragraph (c) in respect of shares of Series B Preferred Stock that are converted in accordance with the provisions of Section 9, such moneys or certificates, as the case may be, shall, upon such conversion, be released from any such deposit and revert to the Corporation. After such reversion, any such bank or trust company shall pay over to the Corporation such moneys or certificates and shall be relieved of all responsibility to the holders of such converted shares in respect thereof. Any interest accrued on funds deposited pursuant to this paragraph (c) shall be paid from time to time to the Corporation. (d) Notice of redemption or exchange having been given as aforesaid, upon the deposit of funds or certificates, as the case may be, pursuant to paragraph (c) in respect of shares of Series B Preferred Stock to be redeemed or exchanged pursuant to this Section 6, notwithstanding that any certificates for such shares to be redeemed or exchanged shall not have been surrendered for cancellation, from and after the Redemption Date (i) the shares represented thereby shall no longer be deemed outstanding, (ii) the rights to receive dividends thereon shall cease and terminate and dividends on the Series B Preferred Stock shall cease to accrue and (iii) all rights of the holders of shares of Series B Preferred Stock to be redeemed or exchange shall cease and terminate, excepting only the right to receive the Redemption Price and/or Exchange Price therefor, without any interest thereon. (e) In the event that fewer than all of the outstanding shares of this Series are to be redeemed and/or exchanged pursuant to Section 6(a), subject to clause (iii) of the second sentence of section 6(a), the aggregate number of shares of this Series held by each holder which will be redeemed and/or exchanged shall be determined by the Corporation by lot or pro rata or by any other method as may be determined by the Board of Directors in its sole discretion to be equitable, and the certificate of the Corporation's Secretary or an Assistant Secretary filed with the transfer agent or transfer agents for this Series in respect of such determination by the Board of Directors shall be conclusive. (f) Notwithstanding anything contained herein to the contrary, the Corporation shall not be permitted to exchange any shares of Class A Common Stock (or such other class or series of common stock into which shares of this Series are convertible) for all or any part of the outstanding shares of this Series if such stock which the Corporation seeks to exchange for shares of this Series is not listed or admitted for trading on any national securities exchange or the Nasdaq National Market. In connection with the exchange of any shares of this Series, the Corporation may, but shall not be required to, issue a fraction of a share of Class A Common Stock (or such other class or series of common stock into which shares of this Series are then convertible) and, if the Corporation shall determine not to issue such fraction, the Corporation shall pay a cash payment (rounded to the nearest cent) equal to such fraction multiplied by the Current Market Price per share of Class A Common Stock (or such other class or series of common stock into which shares of this Series are then convertible) on the last Trading Day prior to the Redemption Date. Notwithstanding the foregoing, this Section 6(f) shall in no way restrict or limit the Corporation's right to redeem all or any part of the outstanding shares of this Series for cash at the Redemption Price. Section 7. Reacquired Shares. Any shares of Series B Preferred Stock converted, redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares of Series B Preferred Stock shall upon their cancellation, and upon the filing of an appropriate certificate with the Secretary of State of the State of Delaware, become authorized but unissued shares of Preferred Stock, par value $.01 per share, of the Corporation and may be reissued as part of another series of Preferred Stock, par value $.01 per share, of the Corporation subject to the conditions or restrictions on issuance set forth herein. Section 8. Liquidation, Dissolution or Winding Up. (a) Upon the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, no distribution shall be made (i) to the holders of shares of Junior Stock upon liquidation, dissolution or winding up unless, prior thereto, the holders of shares of Series B Preferred Stock, subject to Section 9, shall have received the Liquidation Preference (as defined in Section 12 with respect to each share, or (ii) to the holders of shares of Parity Stock upon liquidation, dissolution or winding up, except distributions made ratably on all such Parity Stock and the Series B Preferred Stock in proportion to the total amounts to which the holders of all shares of such Parity Stock and the Series B Preferred Stock are entitled upon such liquidation, dissolution or winding up. (b) Neither the consolidation, merger or other business combination of the Corporation with or into any other Person or Persons nor the sale of all or substantially all the assets of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 8. Section 9. Conversion. (a) Each holder of shares of Series B Preferred Stock may, at its option at any time and from time to time, upon surrender of the certificates therefor, convert any or all of its shares of Series B Preferred Stock into Common Stock as follows. The number of fully paid and nonassessable shares of Class A Common Stock deliverable on conversion of a share of Series B Preferred Stock is referred to as the "Conversion Ratio". The Conversion Ratio shall initially be equal to the quotient of $50 per share divided by the Conversion Price and shall be subject to adjustment from time to time pursuant to paragraph (f) of this Section 9. The "Conversion Price" shall be equal to the product of 1.25 multiplied by the greater of: (i) $20 per share, (ii) if shares of Class A Common Stock are publicly traded on the New York Stock Exchange, then over the fifteen Trading Days beginning the first Trading Day after the announcement of the termination of the Merger Agreement (the "Measurement Period"), (a) if the average of the daily volume of Class A Common Stock traded during the Measurement Period exceeds or is equal to 100,000 shares per day, the average of the Current Market Price of Class A Common Stock over the Measurement Period, or (b) if the average of the daily volume of Class A Common Stock traded during the Measurement Period is less than 100,000 shares per day, the product of .925 multiplied by the average of the Current Market Price of Class A Common Stock over the Measurement Period, or (iii) if shares of Class A Common Stock are publicly traded on the Nasdaq National Market, over the Measurement Period, (a) if the average of the daily volume of Class A Common Stock traded during the Measurement Period exceeds or is equal to 200,000 shares per day, the average of the Current Market Price of Class A Common Stock over the Measurement Period, or (b) if the average of the daily volume of Class A Common Stock traded during the Measurement Period is less than 200,000 shares per day, the product of .925 multiplied by the average of the Current Market Price of Class A Common Stock over the Measurement Period. (b) Conversion of the Series B Preferred Stock may be effected by any such holder upon the surrender to the Corporation at the principal office of the Corporation in the Commonwealth of Massachusetts (the "Transfer Agent") or at the office of any agent or agents of the Corporation, as may be designated by the Board of Directors of the Corporation, of the certificate for such Series B Preferred Stock to be converted at any time after the Issue Date accompanied by a written notice stating that such holder elects to convert all or a specified whole number of such shares in accordance with the provisions of this Section 9 and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all issue, stamp, documentation and transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Corporation will pay any and all issue, stamp, documentation, transfer and other taxes (other than taxes based on gross or net income) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series B Preferred Stock pursuant hereto. As promptly as practicable, and in any event within five Business Days after the surrender of such certificate or certificates and the receipt of such notice relating thereto and, if such notice shall specify a name or names other than that of such holder, (a) payment of all transfer taxes (or the demonstration to the satisfaction of the Corporation that such taxes have been paid), and (b) unless such issuance is registered under the Securities Act and all applicable state securities laws, the holder of the applicable shares of Series B Preferred Stock which are to be converted into Class A Common Stock hereunder shall have furnished to the Corporation evidence satisfactory to it that such issuance is exempt from registration under the Securities Act and all applicable state securities laws, the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and non assessable full shares of Class A Common Stock to which the holder of shares of Series B Preferred Stock being converted shall be entitled and (ii) if less than the full number of shares of Series B Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares being converted. Such conversion shall be deemed to have been made at the close of business on the date of receipt of such notice and of such surrender of the certificate or certificates representing the shares of Series B Preferred Stock to be converted so that the rights of the holder thereof as to the shares being converted shall cease except for the right to receive shares of Class A Common Stock in accordance herewith, and the person entitled to receive the shares of Class A Common Stock shall be treated for all purposes as having become the record holder of such shares of Class A Common Stock at such time. The Corporation shall not be required to convert, and no surrender of shares of Series B Preferred Stock shall be effective for that purpose, while the transfer books of the Corporation for the Common Stock are closed for any purpose (but not for any period in excess of 2 days); but the surrender of shares of Series B Preferred Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date such shares of Series B Preferred Stock were surrendered, and at the Conversion Ratio in effect at the date of such surrender. (c) In case any shares of Series B Preferred Stock are to be redeemed pursuant to Section 6, the right of conversion under this Section 9 shall cease and terminate as to the shares of Series B Preferred Stock to be redeemed at the close of business on the second Business Day next preceding the Redemption Date unless the Corporation shall default in the payment of the Redemption Price. (d) In connection with the conversion of any shares of Series B Preferred Stock, no fractions of shares of Class A Common Stock shall be issued, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Current Market Price per share of Class A Common Stock on the Trading Day on which such shares of Series B Preferred Stock are deemed to have been converted. If more than one share of Series B Preferred Stock shall be surrendered for conversion by the same holder at the same time, the number of full shares of Class A Common Stock issuable on conversion thereof shall be computed on the basis of the total number of shares of Series B Preferred Stock so surrendered. (e) The Corporation shall at all times reserve and keep available for issuance upon the conversion of the Series B Preferred Stock, such number of its authorized but unissued shares of Class A Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Series B Preferred Stock, and shall take all action required to increase the authorized number of shares of Class A Common Stock if necessary to permit the conversion of all outstanding shares of Series B Preferred Stock. (f) The Conversion Ratio shall be subject to adjustment from time to time as follows: (i) In case the Corporation shall (i) declare a dividend or make a distribution on the outstanding shares of its Common Stock in shares of its Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision or combination shall be proportionately adjusted so that the holder of any shares of Series B Preferred Stock surrendered for conversion after such time shall be entitled to receive the aggregate number of shares of Class A Common Stock which the holder would have owned or been entitled to receive had such shares of Series B Preferred Stock been converted immediately prior to such record date or effective date and the resulting Common Stock had been subject to such dividend, distribution, subdivision or combination. An adjustment made pursuant to this clause (i) shall become effective (x) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or (y) in the case of any such subdivision, combination, consolidation or reclassification, at the close of business on the day upon which such corporate action becomes effective. If the Corporation shall issue rights, warrants or options to all holders of Class A Common Stock entitling them (for a period not exceeding 45 days from the record date referred to below) to subscribe for or purchase shares of Class A Common Stock at a price per share less than the Current Market Price (determined over the Value Period (as defined in Section 12) as of the date of determination of stockholders entitled to receive such rights, warrants or options), then, in any such event, the Conversion Ratio shall be adjusted by multiplying the Conversion Ratio in effect immediately prior to the opening of business on such record date by a fraction, the numerator of which shall be the number of shares of Class A Common Stock outstanding on such record date plus the maximum number of additional shares of Class A Common Stock offered for subscription pursuant to such rights, warrants or options, and the denominator of which shall be the number of shares of Class A Common Stock outstanding on such record date plus the maximum number of additional shares of Class A Common Stock which the aggregate offering price of the maximum number of shares of Class A Common Stock so offered for subscription or purchase pursuant to such rights, warrants or options would purchase at such Current Market Price (determined by multiplying such maximum number of shares by the exercise price of such rights, warrants or options (plus any other consideration received by the Corporation upon the issuance or exercise of such rights, warrants or options) and dividing the product so obtained by such Current Market Price). Such adjustment shall become effective at the opening of business on the day next following the record date for the determination of stockholders entitled to receive such rights, warrants or options. To the extent that shares of Class A Common Stock are not delivered after the expiration of such rights, warrants or options, the Conversion Ratio shall be readjusted to the Conversion Ratio which would then be in effect had the adjustments made upon the record date for the determination of stockholders entitled to receive such rights, warrants or options been made upon the basis of delivery of only the number of shares of Class A Common Stock actually delivered and the amount actually paid therefor. In determining whether any rights, warrants or options entitle the holders to subscribe for or purchase shares of Class A Common Stock at a price per share less than such Current Market Price, there shall be taken into account any consideration received by the Corporation upon issuance and upon exercise of such rights, warrants or options. The value of such consideration, if other than cash, shall be determined by the good faith business judgment of the Board of Directors, whose determination shall be conclusive. (iii) If the Corporation shall pay a dividend or make a distribution to all holders of outstanding shares of Class A Common Stock, of capital stock, cash, evidences of its indebtedness or other assets of the Corporation (but excluding (x) any cash dividends or distributions (other than Extraordinary Cash Distributions) and (y) dividends or distributions referred to in Section 9(f)(i)), then the Conversion Ratio shall be adjusted by multiplying the Conversion Ratio in effect immediately prior to the opening of business on the record date for the determination of stockholders entitled to receive such dividend or distribution by a fraction, the numerator of which shall be the Current Market Price (determined over the Value Period as of such record date), and the denominator of which shall be such Current Market Price less either (A) the fair market value (as determined by the good faith business judgment of the Board of Directors, whose determination shall be conclusive), as of such record date, of the portion of the capital stock assets or evidences of indebtedness to be so distributed applicable to one share of Class A Common Stock or (B), if applicable, the amount of the Extraordinary Cash Distribution to be distributed per share of Class A Common Stock. The adjustment pursuant to the foregoing provisions of this Section 9(f)(iii) shall become effective at the opening of business on the day next following the record date for the determination of stockholders entitled to receive such dividend or distribution. (iv) In lieu of making an adjustment to the Conversion Ratio pursuant to Sections 9(f)(i), 9(f)(ii) or 9(f)(iii) above for a dividend or distribution or an issue or rights, warrants or options, the Corporation may distribute to the holders of shares of Series B Preferred Stock, or reserve for distribution with each share of Class A Common Stock delivered to a person converting a share of Series B Preferred Stock pursuant to this Section 9, such dividend or distribution or such rights, warrants or options; provided, however, that in the case of such a reservation, on the date, if any, on which a person converting a share of Series B Preferred Stock would no longer be entitled to receive such dividend or distribution or to receive or exercise such rights, warrants or options, such dividend or distribution shall be deemed to have occurred, or such rights, warrants or options shall be deemed to have issued, and the Conversion Ratio shall be adjusted as provided in Section 9(f)(i), 9(f)(ii) or 9(f)(iii), as the case may be (with such termination date being the relevant date of determination for purposes of determining the Current Market Price). (v) The Corporation shall be entitled to make such additional increases in the Conversion Ratio, in addition to those required by subsections 9(f)(i) thorough 9(f)(iii), as shall be determined by the Board of Directors to be necessary in order that any dividend or distribution in Class A Common Stock, any subdivision, reclassification or combination of shares of Class A Common Stock or any issuance of rights or warrants referred to above, shall not be taxable to the holders of Class A Common Stock for United States Federal income tax purposes. (vi) To the extent permitted by applicable law, the Corporation may from time to time increase the Conversion Ratio by any amount for any period of time if the period is at least 20 Trading Days, the increase is irrevocable during such period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Corporation, which determination shall be conclusive. (vii) In any case in which this Section 9(f) shall require that any adjustment be made effective as of or immediately following a record date, the Corporation may elect to defer (but only for five (5) Trading Days following the occurrence of the event which necessitates the filing of the statement referred to in Section 10) issuing to the holder of any shares of this Series converted after such record date (i) the shares of Class A Common Stock and other capital stock of the Corporation issuable upon such conversion over and above the shares of Class A Common Stock and other capital stock of the Corporation issuable upon such conversion on the basis of the Conversion Ratio prior to adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction thereof pursuant to Section 9(d); provided, however, that the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (viii) For purposes of this paragraph (f), the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Corporation or a Subsidiary of the Corporation. (xi) The certificate of any firm of independent public accountants of recognized standing selected by the Board of Directors of the Corporation (which may be the firm of independent public accountants regularly employed by the Corporation) shall be presumptively correct for any computation made under this paragraph (f). (x) If the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter and before the distribution to stockholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the number of shares of Common Stock issuable upon exercise of the right of conversion granted by this paragraph (f) or in the Conversion Ratio then in effect shall be required by reason of the taking of such record. (g) In case of any capital reorganization or reclassification of outstanding shares of Common Stock (other than a reclassification covered by paragraph (f)(i) of this Section 9), or in case of any consolidation or merger of the Corporation with or into another corporation, or in case of any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety (each of the foregoing being referred to as a "Transaction"), each share of Series B Preferred Stock then outstanding shall thereafter be convertible into, in lieu of the Class A Common Stock issuable upon such conversion prior to the consummation of such Transaction, the kind and amount of shares of stock and other securities and property (including cash) receivable upon the consummation of such Transaction by a holder of that number of shares of Class A Common Stock into which one share of Series B Preferred Stock was convertible immediately prior to such Transaction (including, on a pro rata basis, the cash, securities or property received by holders of Class A Common Stock in any tender or exchange offer that is a step in such Transaction). In any such case, if necessary, appropriate adjustment (as determined by the Board of Directors) shall be made in the application of the provisions set forth in this Section 9 with respect to rights and interests thereafter of the holders of shares of Series B Preferred Stock to the end that the provisions set forth herein for the protection of the conversion rights of the Series B Preferred Stock shall thereafter be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of the shares of Series B Preferred Stock remaining outstanding. In case securities or property other than Class A Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this Section 9 shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property. Notwithstanding anything contained herein to the contrary, the Corporation will not effect any Transaction unless, prior to the consummation thereof, the Surviving Person (as defined in Section 12) thereof shall assume, by written instrument mailed to each record holder of shares of Series B Preferred Stock at the addresses of each as shown on the books of the Corporation maintained by the Transfer Agent thereof if such shares are held by 50 or fewer holders or groups of affiliated holders or to each Transfer Agent for the shares of Series B Preferred Stock at the addresses of each as shown on the books of the Corporation maintained by the Transfer Agent thereof, if such shares are held by a greater number of holders, the obligation to deliver to such holder such cash and such securities to which, in accordance with the foregoing provisions, such holder is entitled and such Surviving Person shall have mailed to each record holder of shares of Series B Preferred Stock at the addresses of each as shown on the books of the Corporation maintained by the Transfer Agent thereof, if such shares are held by 50 or fewer holders or groups of affiliated holders, or to each Transfer Agent for the shares of Series B Preferred Stock, if such shares are held by a greater number of holders, an opinion of independent counsel for such Person stating that such assumption agreement is a valid, binding and enforceable agreement of the Surviving Person (subject to customary exceptions). (h) In case at any time or from time to time the Corporation shall pay any dividend or make any other distribution to the holders of its Common Stock, or shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other right, or there shall be any capital reorganization or reclassification of the Common Stock of the Corporation or consolidation or merger of the Corporation with or into another corporation, or any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation, then, in any one or more of said cases the Corporation shall give at least 10 days' prior written notice (the time of mailing of such notice shall be deemed to be the time of giving thereof) to the record holders of the Series B Preferred Stock at the addresses of each as shown on the books of the Corporation maintained by the Transfer Agent thereof of the date on which (i) the books of the Corporation shall close or a record shall be taken for such stock dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, sale or conveyance, dissolution, liquidation or winding up shall take place, as the case may be, provided that in the case of any Transaction to which paragraph (g) of this Section 9 applies the Corporation shall give at least 30 days' prior written notice as aforesaid. Such notice shall also specify the date as of which the holders of the Common Stock and of the Series B Preferred Stock of record shall participate in said dividend, distribution or subscription rights or shall be entitled to exchange their Common Stock or Series B Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or conveyance or participate in such dissolution, liquidation or winding up, as the case may be. Failure to give such notice shall not invalidate any action so taken. (i) The Corporation will at no time effect conversion of any Series B Preferred Stock pursuant to this Section 9, and any purported conversion of any Series B Preferred Stock shall be null and void, if such conversion would result in the violation of a Legal Prohibition (as defined in Section 12). (j) All calculations under this Section 9 shall be made to the nearest cent or to the nearest one one-hundredth of a share of Common Stock as the case may be. Notwithstanding any other provision of this Section 9, the Corporation shall not be required to make any adjustment of the Conversion Ratio unless such adjustment would require an increase or decrease of at least 1.00% of such Conversion Ratio. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1.00% in the Conversion Ratio. Any adjustments under this Section 9 shall be made successively whenever an event requiring such an adjustment occurs. (k) Upon the surrender of certificates representing shares of Series B Preferred Stock in accordance with the terms hereof, the Person converting or exchanging shall be deemed to be the holder of record at such time of the shares of Class A Common Stock and other securities or property issuable on such conversion or exchange and all rights with respect to the shares of Series B Preferred Stock surrendered shall forthwith terminate except the right to receive the shares of Class A Common Stock or other securities or property issuable on such conversion or exchange, as the case may be. If any shares of Series B Preferred Stock are surrendered for conversion or exchange subsequent to the record date preceding a Dividend Payment Date but on or prior to such Dividend Payment Date (except shares called for redemption or exchange on a Redemption Date between such record date and Dividend Payment Date), the registered holder of such shares at the closed of business on such record date shall be entitled to receive the dividend, if any, payable on such shares on such Dividend Payment Date notwithstanding the conversion thereof. Except as provided in this Section 9, no adjustments in respect of payments of dividends on shares surrendered for conversion or exchange or any dividend on the Common Stock issued upon conversion or exchange shall be made upon the conversion or exchange of any shares of this Series. (l) The Corporation will endeavor to list the shares of (or depositary shares representing fractional interests in) Class A Common Stock required to be delivered upon conversion of shares of Series B Preferred Stock prior to such delivery upon the principal national securities exchange upon which the outstanding Class A Common Stock is listed at the time of such delivery. Section 10. Reports as to Adjustments. Upon any adjustment of the Conversion Ratio then in effect and any increase or decrease in the number of shares of Common Stock issuable upon the operation of the conversion set forth in Section 9, then, and in each such case, the Corporation shall promptly deliver to the Transfer Agent of the Series B Preferred Stock and Common Stock a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Conversion Ratio then in effect following such adjustment and the increased or decreased number of shares issuable upon the conversion set forth in Section 9. The Corporation shall also promptly after the making of such adjustment give written notice to the record holders of the Series B Preferred Stock at the address of each holder as shown on the books of the Corporation maintained by the Transfer Agent thereof, which notice shall state the Conversion Ratio then in effect, as adjusted, and the increased or decreased number of shares issuable upon the exercise of the right of conversion granted by Section 9, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment. Where appropriate, such notice to record holders of the Series B Preferred Stock may be given in advance and included as part of the notice required under the provisions of Section 9(h). Section 11. Certain Covenants. Any record holder of Series B Preferred Stock may proceed to protect and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this Certificate of Designation or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 12. Definitions. For the purposes of this Certificate of Designation of Series B Convertible Preferred Stock, the following terms shall have the meanings indicated: "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Certificate" shall mean the certificate of the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of Series B Preferred Stock filed with respect to this Certificate of Designation with the Secretary of State of the State of Delaware pursuant to Section 151 of the General Corporation Law of the State of Delaware. "Class A Common Stock" and "Class B Common Stock" each shall have the meaning assigned to such term in the Corporation's Restated Certificate of Incorporation. "Common Stock" shall mean either the Class A Common Stock or the Class B Common Stock. "Current Market Price", when used with reference to shares of Common Stock or other securities on any date, shall mean the closing price per share of Common Stock or such other securities on such date and, when used with reference to shares of Common Stock or other securities for any period shall mean the average of the daily closing prices per share of Common Stock or such other securities for such period. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock or such other securities are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting systems with respect to securities listed on the principal national securities exchange on which the Common Stock or such other securities are listed or admitted to trading or, if the Common Stock or such other securities are not listed or admitted to trading on any national securities exchange, the last quoted sale price or, if not so quoted, the average of the high bid and low asked prices, as reported by the Nasdaq National Market or such other system then in use, or, if on any such date the Common Stock or such other securities are not quoted by any such organization, the average of the closing bid and asked prices as furnished by the primary professional market maker making a market in the Common Stock or such other securities as selected by the Board of Directors of the Corporation. If the Common Stock is not publicly held or so listed or publicly traded, "Current Market Price" shall mean the amount as determined by investment bankers mutually agreeable to the Corporation and the holders of a majority of the outstanding shares of Series B Preferred Stock (the fees and expenses of which shall be paid by the Corporation) equal to the net proceeds that would be expected to be received by a stockholder of the Corporation from the sale of such shares of Common Stock in an underwritten public offering after being reduced by pro forma expenses and underwriting discounts and commissions. If securities other than Common Stock are not publicly held or so listed or publicly traded, "Current Market Price" shall mean the Fair Market Value per share of such other securities as determined by an independent investment banking firm mutually agreeable to the Corporation and the holders of a majority of the outstanding shares of Series B Preferred Stock (the fees and expenses of which shall be paid by the Corporation). "Dividend Payment Date" shall have the meaning set forth in Section 3(a) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Exchange Price" for each share of this Series called for exchange shall be a number of shares of Class A Common Stock (or such other class or series of common stock into which shares of this Series are then convertible) equal to the quotient of (x) the sum of (I) the Stated Value plus (II) the amount of accrued or unpaid dividends on this Series to the Redemption Date divided by (y) the product of (I) .95 multiplied by (II) the Current Market Price determined over the Value Period as of the Redemption Date. "Extraordinary Cash Distributions" shall mean, with respect to any consecutive 12-month period, all cash dividends and cash distributions on the outstanding shares of Series B Preferred Stock during such period (other than cash dividends or cash distributions for which a prior adjustment to the Conversion Ratio was previously made) to the extent such cash dividends and cash distributions exceed, on a per share of Series B Preferred Stock basis, 10% of the average daily Closing Price of the Series B Preferred Stock over such period. "Fair Market Value" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction. "Issue Date" shall mean the date on which shares of Series B Preferred Stock are issued. "Junior Stock" shall mean any capital stock of the Corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock. "Legal Prohibition" shall mean any law, statute, rule, regulation or judicial or administrative decision which would prohibit a holder of Series B Preferred Stock from owning such number of shares of Common Stock which such holder would receive upon converting the Series B Preferred Stock or which would require the Corporation to dispose of any assets or terminate any business activity as a result of a holder of the Series B Preferred Stock owning such number of shares of Common Stock which such holder would receive upon converting the Series B Preferred Stock. "Liquidation Preference" with respect to a share of the Series B Preferred Stock shall mean an amount equal to the Stated Value plus an amount per share equal to all unpaid dividends accrued thereon to the date of final distribution to the holder thereof (without interest). "Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of February 27, 1996, between the Corporation and U S WEST, Inc., a Delaware Corporation. "Parity Stock" shall mean the Series A Participating Convertible Preferred Stock and any other capital stock of the Corporation (other than Junior Stock) ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock. "Person" shall mean any individual, firm, trust, partnership, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. "Preferred Stock" shall mean the class of Preferred Stock, par value $0.01 per share, of the Corporation authorized at the date of the Certificate, including any shares thereof authorized after the date of the Certificate. "Redemption Date" shall mean the date on which the Corporation shall effect the redemption or exchange, as the case may be, of all or any part of the outstanding shares of the Series B Preferred Stock pursuant to Section 6 hereof. "Redemption Price" in respect of a share of Series B Preferred Stock shall mean the Stated Value as of the Redemption Date, plus an amount per share equal to all unpaid dividends thereon, whether or not declared, to the date of redemption (without interest). "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Stock" shall mean the shares of any class or series of stock of the Corporation which, by the terms of the Restated Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Restated Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall be senior to the Series B Preferred Stock in respect of the right to receive dividends or to participate in any distribution of assets other than by way of dividends. "Stated Value" in respect of the Series B Preferred Stock shall initially be $50 per share, as appropriately adjusted from time to time to reflect any split or combination of the shares of the Series B Preferred Stock. "Subsidiary" of any Person means any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. "Surviving Person" shall mean the continuing or surviving Person of a merger, consolidation or other corporate combination, the Person receiving a transfer of all or a substantial part of the properties and assets of the Corporation, or the Person consolidating with or merging into the Corporation in a merger, consolidation or other corporate combination in which the Corporation is the continuing or surviving person, but in connection with which the Series B Preferred Stock or Common Stock of the Corporation is exchanged, converted or reinstated into the securities of any other Person or cash or other property; provided, however, if such Surviving Person is a direct or indirect Subsidiary of a Person, the parent entity also shall be deemed to be a Surviving Person. "Trading Day" means a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a Business Day. "Transaction" has the meaning specified in Section 9(g). "Value Period" shall mean the ten (10) consecutive Trading Days ending on the third Trading Day immediately preceding the applicable date. IN WITNESS WHEREOF, Continental Cablevision, Inc. has caused this Certificate to be duly executed in its corporate name as of the th day of [ ] CONTINENTAL CABLEVISION, INC. By Attest: ____________________ The Dividend Rate shall be subject to an adjustment such that the final Dividend Rate equals the sum of 5.875%, (the "Base Dividend Rate") plus the Adjustment Amount (as defined below). EXHIBIT F REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and entered into as of _________ __, 199_ among Continental Cablevision, Inc., a Delaware corporation (the "COMPANY"), and U S WEST, Inc., a Delaware corporation (the "HOLDER"). RECITALS A. This Agreement is being entered into in connection with, and pursuant to section [_.__] of, the Agreement and Plan of Merger, dated as of February 27, 1996, between the Company and the Holder (the "MERGER AGREEMENT"). B. The Company has heretofore entered into (i) a Registration Rights Agreement dated as of June 22, 1992 with Corporate Partners, L.P. and certain other signatories thereto and (ii) an amendment thereto dated as of July 15, 1992 (said Registration Rights Agreement and amendment are hereinafter referred to as the "CP AGREEMENT"). C. The Company has heretofore entered into a Registration Rights Agreement dated as of July 15, 1992 with Boston Ventures Limited Partnership III and certain other signatories thereto (said Registration Rights Agreement is hereinafter referred to as the "BV AGREEMENT"). D. The Company has heretofore entered into a Registration Rights Agreement dated as of October 5, 1995 with The Providence Journal Company, as Representative, and certain other signatories thereto (said Registration Rights Agreement is hereinafter referred to as the "PROJO AGREEMENT"). E. It is intended by the Company and the Holder that this Agreement shall become effective immediately upon the issuance to the Holder of the [_________] shares of Series D Convertible Preferred Stock, par value $.01 per share, of the Company to be issued pursuant to Section [_.__] of the Merger Agreement (the "PREFERRED SECURITIES"). AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holder, intending to be legally bound, each hereby agrees as follows: ARTICLE 1. REGISTRATION UNDER SECURITIES ACT Section 1.01 Registration Upon Request. (a) Request. Subject to the provisions of this Agreement (including Section 4.11 hereof), upon the written request of the Holder requesting that the Company effect the registration under the Securities Act of Registrable Securities (as hereinafter defined), which request shall specify in reasonable detail the number of Registrable Securities to be registered and the intended method of distribution thereof, the Company shall use its best efforts to register under the Securities Act (a "DEMAND REGISTRATION"), including by means of a shelf registration pursuant to Rule 415 under the Securities Act if so requested in such request and if the Company is then eligible to use such a registration, as expeditiously as may be practicable, the Registrable Securities which the Company has been requested to register by the Holder, all to the extent requisite to permit the disposition of such Registrable Securities in accordance with the plan of distribution set forth in the applicable registration statement. In the case of such Demand Registration, the Holder must request registration of Registrable Securities representing not less than such number of Registrable Securities the Expected Proceeds of which, on the date of the aforementioned written request, would equal at least $100 million unless such registration request is for all remaining Registrable Securities. (b) Registration of Other Securities. Whenever the Company shall effect a registration pursuant to this Section 1.01 in connection with an underwritten offering by the Holder of Registrable Securities, no securities (other than Registrable Securities) shall be included among the securities covered by such registration if the managing underwriter, if any, of such offering shall have advised the Holder and the Company in writing of its belief that the inclusion of such other securities would substantially interfere with such offering. (c) Registration Statement Form. Registrations under this Section 1.01 shall be on such appropriate registration form of the Commission as shall be selected by the Company and available to it under the Securities Act. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the Holder and counsel to the Company, is reasonably required to be included therein under the Securities Act. (d) Limitations on Registration; Expenses. The Company will not be required to effect more than two (2) Demand Registrations pursuant to this Section 1.01. Subject to the provisions of Sections 1.01(h) and 1.02(b) hereof, the Company shall pay the Registration Expenses in connection with such Demand Registration. (e) Effective Registration Statement. Subject to the provisions of Section 1.01(i) hereof, a registration requested pursuant to this Section 1.01 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, (ii) if after it has become effective, such registration is materially interfered with by any stop order, injunction or similar order or requirement of the Commission or other governmental agency or court for any reason not attributable to any of the Holder and has not thereafter become effective, or (iii) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied or waived, other than by reason of a failure on the part of the Holder. (f) Selection of Underwriters. In the case of such Demand Registration, the selection of any managing underwriter(s) shall be made by the Company (with the consent of the Holder, which consent shall not be unreasonably withheld), provided, however, that (i) the Holder shall be entitled to select (with the consent of the Company, which consent shall not be unreasonably withheld) one (1) managing underwriter other than the lead managing underwriter, and (ii) the selection of the underwriters (other than the managing underwriter(s)) shall be made by the mutual agreement of the Company and the Holder. (g) Certain Requirements in Connection with Registration Rights. In the case of such Demand Registration, if the Holder has determined to enter into one or more underwriting agreements in connection therewith, no Person may participate in such Demand Registration unless such Person agrees to sell his or its securities on the basis provided in the underwriting arrangements and completes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents which are reasonable and customary under the circumstances. (h) Priority in Demand Registration. If the managing underwriter of any underwritten offering shall advise the Company in writing (with a copy to the Holder) that, in its opinion, the number of Registrable Securities requested to be included in such registration exceeds the number which can be sold in such offering within a price range acceptable to the Holder, the Company will reduce to the number which the Company is so advised can be sold in such offering within such price range (the "Actual Number of Securities to be Registered"), the Registrable Securities requested to be included in such registration. If, as a result of any such reduction, the number of Registrable Securities requested to be included in such registration by the Holder of the Registrable Securities is reduced by twenty-five percent (25%) or more, then notwithstanding anything to the contrary contained in this Agreement, a Demand Registration in connection with such registration will not be deemed to have been effected under Section 1.01(e) hereof; provided, however, that the provisions of this sentence shall apply to and be operative in respect of only the first request in writing made by the Holder under this Section 1.01 for the registration of Registrable Securities. In the case of such a registration which would have been deemed to be a Demand Registration under Section 1.01(e) hereof but for the application of the immediately preceding sentence of this Section 1.01(h), (i) the Company nonetheless shall pay the Registration Expenses of the Holder in connection with such registration, and (ii) no securities other than Registrable Securities shall be covered by such registration. (i) Certain Other Matters. For purposes of Section 1.01(e)(i) hereof, should a Demand Registration not become effective due to the failure of the Holder to perform its obligations under this Agreement or the inability of the Holder to reach agreement with the underwriters on price or other customary terms for such transaction, or in the event the Holder withdraws or does not pursue the request for the Demand Registration (in each of the foregoing cases, provided that at such time the Company is in compliance in all material respects with its obligations under this Agreement), then, except as otherwise provided in the last sentence of this Section 1.01(i), such Demand Registration shall be deemed to have been effected. In such event, the Holder shall reimburse the Company for all of the Registration Expenses (other than the Registration Expenses referred to in clause (a) of the definition of Registration Expenses) incurred by the Company in the preparation, filing and processing of such registration. If such reimbursement is made within thirty (30) business days following a request therefor, a Demand Registration shall not be deemed to have been effected for purposes of this Section 1.01. Section 1.02 Incidental Registration. (a) Rights to Include. Subject to the provisions of this Agreement (including Section 4.11 hereof)and the rights of the holders of the CP/BV Registrable Securities under the BV Agreement or the CP Agreement, if at any time the Company proposes to register the offering for cash of any shares of Class A Common Stock under the Securities Act on Form S-1, S-2 or S-3 (or any successor or similar form thereto) for the account of the Company, the Company shall furnish prompt written notice to the Holder of its intention to effect such registration and the intended method of distribution in connection therewith. Upon the written request of the Holder made to the Company within fifteen (15) business days after the delivery of the aforementioned notice by the Company, which request shall specify the number of shares of Registrable Securities intended to be registered, the Company shall include such Registrable Securities in such registration, subject however to the following sentence of this Section 1.02(a) and to the provisions of Section 1.02(c) hereof. If the Company shall thereafter determine in its sole discretion not to register or to delay the registration of such securities, the Company may, at its election, provide written notice of such determination to the Holder and, (i) in the case of a determination not to effect a registration, shall thereupon be relieved of the obligation to register such Registrable Securities (but, under such circumstances, the Company shall pay any Registration Expenses reasonably incurred by the Holder until such time as the Holder received the Company's written notice) and, (ii) in the case of a determination to delay a registration, shall thereupon be permitted to delay registering any Registrable Securities for the same period as the delay in respect of securities being registered for the Company's own account. No incidental registration effected pursuant to this Section 1.02 shall be deemed to have been effected or otherwise relieve the Company of any of its obligations to the Holder pursuant to Section 1.01 hereof. (b) In connection with any incidental registration as provided in Section 1.02(a) hereof, the Company shall pay the Registration Expenses for the registration in question. (c) Priority in Incidental Registrations. If the lead managing underwriter of any underwritten offering shall inform the Company by letter of its belief that the number of Registrable Securities requested to be included in such registration would substantially interfere with (including without limitation adversely affect the pricing of) such offering, then the Company will include in such registration, to the extent of the number and type which the Company is so advised can be sold in (or during the time of) such offering without such substantial interference, FIRST, all securities proposed by the Company to be sold for its own account, SECOND, subject to the provisions of Section 4.11 hereof, all securities of the Company ranking senior to or on a parity with (as to rights to dividends and upon liquidation) the Company's Series A Participating Convertible Preferred Stock ("Senior Securities") and CP/BV Registrable Securities requested to be included in such registration (such securities to be included in such registration pro rata on the basis of the Expected Proceeds from the sale thereof), and THIRD, any other securities of the Company requested to be included in such registration. Section 1.03 Registration Procedures. If and whenever the Company is required by the provisions of this Agreement to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, the Company shall, as expeditiously as practicable: (a) In the case of a Demand Registration, use its best efforts to prepare and file with the Commission and obtain the effectiveness of a registration statement on such form as is available for the sale of Registrable Securities by the Holder in accordance with the plan of distribution set forth in such registration statement; provided, however, if a request for registration pursuant to Section 1.01 hereof is made within sixty (60) days before the end of the Company's fiscal year and the Company is not then eligible to effect a registration under the Securities Act by use of Form S-3 (or other comparable short-form registration statement), the Company shall be entitled to delay the filing of such registration statement until the earlier of (i) such time as the Company receives audited financial statements for such fiscal year and (ii) the expiration of 90 days after the last day of such fiscal year; and provided, further, that if the Company shall furnish to the Holder a certificate signed by the President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed on the date filing would be required under this Agreement because such registration would require premature disclosure of any acquisition, corporate reorganization or other material transaction involving the Company and that it is therefore essential to defer taking action with respect to the filing of such registration statement, then the Company may direct that such request for registration be delayed for a period not to exceed ninety (90) days, such right to delay a request to be exercised by the Company not more than once in any 12-month period. (b) Prepare and file with the Commission such amendments, post-effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for up to ninety (90) days (unless the Registrable Securities registered thereunder have been sold or disposed of prior to the expiration of such 90-day period); and to comply with the provisions of the Securities Act applicable to the Company with respect to the disposition of all securities covered by such registration statement during such time as such registration statement is effective. (c) Furnish to the Holder and each underwriter of the Registrable Securities being sold, as the Holder and such underwriter may reasonably request in order to facilitate the disposition of Registrable Securities in accordance with the plan of distribution set forth in such registration statement, (i) such number of copies (including manually executed and conformed copies) of such registration statement and of each such amendment thereof and supplement thereto (including all annexes, appendices, schedules and exhibits), (ii) such number of copies of the prospectus used in connection with such registration statement (including each preliminary prospectus and the final prospectus filed pursuant to Rule 424(b) under the Securities Act), and (iii) such other documents incident thereto. (d) Use its best efforts to register or qualify the Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions in which an exemption is not available as the Holder and the managing underwriter shall reasonably request, and do any and all other reasonable acts and things which may be necessary or advisable to permit the offering and disposition of Registrable Securities in such jurisdictions in accordance with the plan of distribution set forth in the registration statement; provided, however, the Company shall not be required to qualify generally to do business as a foreign corporation, subject itself to taxation, or consent to general service of process, in any jurisdiction wherein it would not, but for the requirements of this Section 1.03, be obligated to do so. (e) Use its best efforts to cause the Registrable Securities covered by such registration statement to be registered with, or approved by, such other public, governmental or regulatory authorities as may be necessary in the reasonable judgment of counsel for the Holder and the Company to facilitate the disposition of such Registrable Securities in accordance with the plan of distribution set forth in such registration statement. (f) Notify the Holder and the managing underwriter, if any, promptly and, if requested by any such Person, confirm such notification in writing, (i) when a prospectus or any prospectus supplement has been filed with the Commission, and, with respect to such registration statement or any post-effective amendment thereto, when the same has been declared effective by the Commission, (ii) of any request by the Commission for amendments or supplements to such registration statement or related prospectus, or any written request by the Commission for additional information, (iii) of the issuance by the Commission of any stop order or the receipt of notice of the initiation of any proceedings for such or a similar purpose (and the Company shall make every reasonable effort to obtain the withdrawal of any such order at the earliest possible moment and the Holder shall cooperate in all reasonable respects in such efforts), (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the receipt of notice of the initiation or threatening of any proceeding for such purpose (and the Company shall make every reasonable effort to obtain the withdrawal of any such suspension at the earliest possible moment and the Holder shall cooperate in all reasonable respects in such efforts), (v) of the occurrence of any event during the period when a prospectus with respect to the Registrable Securities is required to be delivered under the Securities Act which requires the making of any changes to such registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (and the Company shall promptly prepare and furnish to the Holder and any managing underwriter a reasonable number of copies of a supplemented or amended prospectus or preliminary prospectus such that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus or preliminary prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading), and (vi) of the Company's determination that the filing of a post- effective amendment to such registration statement shall be necessary or appropriate. The Holder shall be deemed to have agreed by its acquisition of Registrable Securities that upon the receipt of any notice from the Company of the occurrence of any event of the kind described in clause (v) of this Section 1.03(f), the Holder shall forthwith discontinue the Holder's offer and disposition of Registrable Securities until the Holder shall have received copies of an appropriately supplemented or amended prospectus or preliminary prospectus and, if so directed by the Company, shall deliver to the Company, at its expense, all copies (other than permanent file copies) of the prospectus or preliminary prospectus covering such Registrable Securities which are then in the Holder's possession. In the event the Company shall provide any notice of the type referred to in the preceding sentence, the 90-day period mentioned in Section 1.03(b) hereof shall be extended by the number of days from and including the date such notice is provided to and including the date when each seller of any Registrable Securities covered by such registration statement and the managing underwriter shall have received copies of the corrected prospectus contemplated by clause (v) of this Section 1.03(f), plus an additional seven (7) days. The underwriters or, if there are no underwriters, the Holder shall deliver such supplemented or amended prospectus or preliminary prospectus to all purchasers or offerees of the Registrable Securities sold by it to which such delivery may be required or advisable under the Securities Act and any applicable state securities or "blue sky" laws. (g) Otherwise use its best efforts in connection with each registration and offering of Registrable Securities hereunder to comply with all applicable rules and regulations of the Commission, as the same may hereafter be amended, including section 11(a) of the Securities Act and Rule 158 thereunder. (h) Use its best efforts to cause all such Registrable Securities covered by such registration statement to be listed on each securities exchange on which the same class of securities issued by the Company are then listed, if the listing of such Registrable Securities is then permitted under the rules and regulations of such exchange and, if requested by the Holder, cause all such Registrable Securities that are of a different class or series than those Company securities already listed or traded to be listed on one (but not more than one) securities exchange reasonably requested by the Holder. (i) Engage and provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement. (j) Furnish to the Holder a signed counterpart of an opinion from counsel to the Company, and a "cold comfort" letter from the Company's independent certified public accounting firm covering such matters of the type customarily covered by such opinions and "cold comfort" letters as any managing underwriter and the Holder shall reasonably request. (k) Subject to confidentiality restrictions reasonably required by the Company, at reasonable times and upon reasonable notice, and as necessary to permit a reasonable investigation with respect to the Company and its business in connection with the preparation and filing of such registration statement, make available for inspection by the Holder, by any managing underwriter or other underwriters participating in any disposition of Registrable Securities, and by any attorney, accountant or other agent, representative or advisor retained by any such seller or underwriters, all pertinent financial and other records and corporate documents of the Company; and cause all of the Company's officers, directors and employees to discuss pertinent aspects of the Company's business with the Holder and any such underwriter, accountant, agent, representative or advisor in connection with such registration statement; provided, however, that the Company shall not be obligated pursuant to this Section 1.03(k) to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. (l) Permit the Holder, if the Holder, in the judgment of its counsel, might be deemed to be a "control person" of the Company (within the meaning of section 15 of the Securities Act or section 20 of the Exchange Act), to participate in the preparation of such registration statement and include therein material, furnished to the Company in writing which, in the reasonable judgment of the Holder and its counsel, is required to be included therein; and (m) If any registration statement refers to the Holder by name or otherwise as the holder of any securities of the Company, and if the Holder reasonably believes it is or may be deemed to be a control person in relation to, or an Affiliate of, the Company, then the Holder shall have the right to require (i) the insertion in such registration statement of language, in form and substance reasonably satisfactory to the Holder, to the effect that the ownership by the Holder of such securities is not to be construed as and is not intended to be a recommendation by the Holder of the investment quality of, or the relative merits and risks attendant to the purchase of, the Company's securities covered thereby, and that such ownership does not imply that the Holder will assist in meeting any future financial or operating requirements of the Company, or (ii) in the case where the reference to the Holder by name or otherwise is not required by the Securities Act or any similar federal or state statute then in effect, the deletion of the reference to the Holder. Section 1.04 Underwritten Offerings. (a) Requested Underwritten Offerings. If requested by the underwriters for any underwritten offering by the Holder of Registrable Securities pursuant to a Demand Registration, the Company and the Holder will use their best efforts to enter into an underwriting agreement with such underwriters for such offering, such agreement (i) to be reasonably satisfactory in substance and form to the Company, the Holder and the underwriters and (ii) to contain such representations and warranties by the Company and such other terms as are reasonable and customary in the circumstances on the part of an issuer in agreements of that type, including, without limitation, indemnities to the effect and to the extent provided in Article 2 hereof. The Holder shall cooperate with the Company in the negotiation of the underwriting agreement, and shall be party to such underwriting agreement and may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of the Holder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of the Holder. The Company shall notify the Holder if at any time the representations and warranties contemplated by such underwriting agreement cease to be true and correct in all material respects. The Holder shall not be required to make any representations or warranties to or agreements with the Company other than representations, warranties or agreements regarding the Holder, the Holder's Registrable Securities and the Holder's intended method of distribution as otherwise required by law. (b) Incidental Underwritten Offerings. If the Company proposes to register any of its securities under the Securities Act as contemplated by Section 1.02 hereof and such securities are distributed by or through one or more underwriters, the Holder of Registrable Securities to be distributed by such underwriters shall be party to the underwriting agreement between the Company and such underwriters and may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of the Holder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of the Holder. The Company shall notify the Holder if at any time the representations and warranties contemplated by such underwriting agreement cease to be true and correct in all material respects. The Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding the Holder, the Holder's Registrable Securities and the Holder's intended method of distribution or as otherwise required by law. (c) Limitations on Sale or Distribution of Other Securities. Anything herein to the contrary notwithstanding (including Section 1.01(a) hereof), if the Company shall file a registration statement with respect to any of the Company's securities, whether or not for its own account, by means of an underwritten offering, the Holder agrees not to effect any public sale or distribution of any Registrable Securities, including any resale pursuant to Rule 144 under the Securities Act, and to use the Holder's best efforts not to effect any such public sale or distribution (other than as part of such underwritten offering) of any other securities which, with notice, lapse of time and/or payment of monies, are exchangeable or exercisable for or convertible into any Registrable Securities, during the 15-day period prior to, and during the 120-day period (or such longer period as shall have been requested by the managing underwriters) commencing on, the effective date of the registration statement filed with the Commission in connection with such underwritten offering. (d) In order to ensure compliance with the provisions of Section 1.04(c) hereof, the Company hereby agrees to notify the Holder as to the status and proposed effective date of any registration statement of the Company which is filed with the Commission. (e) The Company hereby agrees not to effect, except pursuant to employee benefit plans, any public sale or distribution of any securities of the same class as (or otherwise similar to) the Registrable Securities, or any securities which, with notice, lapse of time and/or payment of monies, are exchangeable or exercisable for or convertible into any such securities during the 15-day period prior to, and during the 90-day period commencing on, the effective date of a registration statement filed with the Commission in connection with an underwritten offering effected pursuant to Section 1.01 of this Agreement, except to the extent otherwise required by the CP Agreement, the BV Agreement or the ProJo Agreement. (f) Without limiting the generality of the foregoing, the provisions of Section 1.04(c) hereof shall not apply to the Holder if the Holder is prevented by statute or other applicable regulation from agreeing to such provisions. Section 1.05 Certain Agreements of the Company and Holder. (a) The Holder, in connection with any registration of Registrable Securities, shall furnish to the Company such information regarding the Holder and the plan of distribution proposed by the Holder as the Company may reasonably request and as shall reasonably be required in connection with any registration, qualification or compliance referred to in this Agreement. In the case of a Demand Registration, the Company agrees that any plan of distribution included in the registration statement (which plan relates to the Holder) shall be as reasonably specified by the Holder. If requested by the Company, information with respect to the Holder required, in the opinion of counsel for the Company, to be included pursuant to the Securities Act in any registration statement or prospectus for an offering of Registrable Securities shall be furnished to the Company promptly by the Holder in writing in a form specifically and expressly for use in such registration statement or prospectus. (b) If at the time of any transfer of any Registrable Securities, such Registrable Securities shall not have been theretofore registered under the Securities Act, the Company may require, as a condition of allowing such transfer, that the Holder or the Holder's transferee furnish to the Company (i) such information as is necessary in order to establish that such transfer may be made without registration under the Securities Act; and (ii) at the expense of the Holder or the Holder's transferee, an opinion of legal counsel designated by the Holder or the Holder's transferee to the effect that such transfer may be made without registration under the Securities Act, except that nothing contained in this Section 1.05(b) shall relieve the Company from complying with any request for registration, qualification or compliance made pursuant to the other provisions of this Agreement. (c) The Holder agrees that it will keep confidential and will not disclose or divulge any confidential, proprietary or secret information that the Holder may obtain from the Company, and that the Company has marked "Confidential", "Proprietary" or "Secret" or has otherwise identified as being such, pursuant to financial information, reports and other materials and discussions with officers, directors, employees or agents made available by the Company as required hereunder unless such information is or becomes known to the Holder from a Person other than the Company (other than as a result of a breach of a duty of confidentiality owed to the Company by such Person) or is or becomes publicly known other than as a result of a breach of this provision, or unless the Company gives its written consent to the Holder's release of such information, except that no such written consent shall be required (and the Holder shall be free to release such information) if such information is to be provided to the Holder's counsel or accountant, or to an officer, director, employee, advisor or partner of the Holder, provided that the Holder shall inform the recipient of the confidential nature of such information, and shall require the recipient to treat the information as confidential to the same extent as the Holder. (d) The Holder agrees to perform any further acts and to execute and deliver any further documents that may reasonably be requested or necessary to confirm, or to carry out, the provisions of this Agreement (including the provisions of Article 2 of this Agreement). ARTICLE 2. INDEMNIFICATION Section 2.01 Indemnification. (a) With respect to each registration of Registrable Securities pursuant to this Agreement, the Company hereby indemnifies, to the fullest extent permitted by law, the Holder, its officers and directors, if any, and each Person, if any, who controls the Holder within the meaning of section 15 of the Securities Act and section 20 of the Exchange Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and reasonable expenses (under the Securities Act, common law and otherwise), joint or several, caused by (i) any untrue statement or alleged untrue statement of a material fact contained in the applicable registration statement or prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light (in the case of a prospectus) of the circumstances under which they were made, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading if used prior to the effective date of such registration statement (unless such statement or omission is corrected in the final prospectus and the Company has previously furnished copies thereof to the Holder included in such registration which is seeking such indemnification and to the underwriters of the registration in question); provided, however, that such indemnification shall not extend to any such losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses which are caused (x) by any untrue statement or alleged untrue statement contained in, or by any omission or alleged omission from, information furnished in writing to the Company by the Holder or any underwriter thereof specifically and expressly for use in any such registration statement or prospectus or (y) any failure by the Holder or any underwriter to deliver a prospectus or preliminary prospectus (or amendment or supplement thereto) as and when required under the Securities Act after such prospectus has been timely furnished by the Company. (b) In the case of an underwritten offering in which the registration statement covers Registrable Securities, the Company agrees to indemnify the underwriters, their officers and directors, if any, and each Person, if any, who controls such underwriters within the meaning of section 15 of the Securities Act and section 20 of the Exchange Act, to the extent customary in the circumstances for an issuer in an underwritten public offering. (c) In connection with any written information furnished to the Company or any underwriter of any underwritten offering specifically and expressly for use in a registration statement with respect to the Holder, the Holder hereby indemnifies severally (but not jointly), to the fullest extent permitted by law, the Company, its officers and directors and each Person, if any, who controls the Company within the meaning of section 15 of the Securities Act and section 20 of the Exchange Act, against any losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses caused by (i) any untrue statement or alleged untrue statement of a material fact contained in the applicable registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light (in the case of a prospectus) of the circumstances under which they were made, not misleading; provided, however, that the indemnification set forth in this Section 2.01(c) shall only apply if, and the Holder shall be liable hereunder if and only to the extent that, any such loss, claim, damage or liability arises solely out of or is based solely upon an untrue statement or alleged untrue statement or omission or alleged omission, made in reliance upon and in conformity with information pertaining to the Holder, which is furnished in writing to the Company or any underwriter of any underwritten offering by the Holder expressly for use in any such registration statement or prospectus. (d) In the case of an underwritten offering of Registrable Securities, the Holder shall agree to indemnify such underwriters, their officers and directors, if any, and each Person, if any, who controls such underwriters within the meaning of section 15 of the Securities Act and section 20 of the Exchange Act, to the extent customary in the circumstances for a selling stockholder in an underwritten public offering. Section 2.02 Notices of Claims. (a) Any Person seeking indemnification under the provisions of this Article 2 shall, promptly after receipt by such Person of notice of the existence of such claim or of the commencement of any action, suit, claim or proceeding, notify each party against whom indemnification is to be sought in writing of the existence or commencement thereof; provided, however, the failure so to notify an indemnifying party shall not relieve the indemnifying party from any liability which it may have under this Article 2 or from any liability which the indemnifying party may otherwise have (except if and to the extent that it has been prejudiced in any material respect by such failure). In case any such action, suit, claim or proceeding is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party, except as otherwise provided in Section 2.02(c) hereof. Upon delivery of such notice by the Company (if it is the indemnifying party) to such indemnified party and approval of such counsel by such indemnified party, the Company will not be liable under this Article 2 for any legal or other expenses subsequently incurred by the Holder in connection with the defense of such action, suit, claim or proceeding, except as otherwise provided in Section 2.02(b) hereof. (b) Notwithstanding the foregoing, the indemnified party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such suit, action, claim or proceeding, (ii) the indemnifying party shall not have employed counsel (reasonably satisfactory to the indemnified party) to take charge of the defense of such action, suit, claim or proceeding within a reasonable time after notice of commencement of the action, suit, claim or proceeding, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to the indemnifying party which, if the indemnifying party and the indemnified party were to be represented by the same counsel, could result in a conflict of interest for such counsel or materially prejudice the prosecution of the defenses available to such indemnified party. If any of the events specified in clauses (ii) or (iii) of the preceding sentence shall have occurred or such clauses shall otherwise be applicable, then the fees and expenses of one counsel or firm of counsel, plus one local or regulatory counsel or firm of counsel, selected by a majority in interest of the indemnified parties shall be borne by the indemnifying party. (c) If, in any case, the indemnified party employs separate counsel, the indemnifying party shall not have the right to direct the defense of such action, suit, claim or proceeding on behalf of the indemnified party. (d) Anything in this Article 2 to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement or compromise of, or consent to entry of any judgment with respect to, any action, suit, claim or proceeding effected without its prior written consent (which consent in the case of an action, suit, claim or proceeding exclusively seeking monetary relief shall not be unreasonably withheld). Such indemnification shall remain in full force and effect irrespective of any investigation made by or on behalf of an indemnified party. Section 2.03 Contribution. (a) If the indemnification from the indemnifying party as provided in this Article 2 is unavailable or is otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party shall, to the fullest extent permitted by law, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations, subject to the provisions of Section 2.03(b) hereof. The relative fault of such indemnifying party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made, or relates to information supplied by such indemnifying party, and the parties, relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 2.02 hereof, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Article 2 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 2.03(a). Notwithstanding the provisions of this Section 2.03, no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and offered to the public exceeds the amount of any damages for which such underwriter has otherwise been held liable by reason of such untrue statement or alleged untrue statement or omission or alleged omission; and the Holder shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities offered to the public exceeds the amount of any damages for which the Holder has otherwise been held liable by reason of such untrue statement or alleged untrue statement or omission or alleged omission. (b) No Person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (c) If indemnification is available under this Article 2, the indemnifying parties shall indemnify each indemnified party to the fullest extent provided in Section 2.01 and Section 2.02 hereof without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 2.03. Section 2.04 Indemnification Payments. The indemnification and contribution required by this Article 2 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. ARTICLE 3. CERTAIN DEFINITIONS As used herein, the following terms have the following respective meanings: "Affiliate" shall have the meaning specified for "affiliate" in Rule 12b-2 under the Exchange Act. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Class A Common Stock" shall mean Class A Common Stock, par value $.01 per share, of the Company. "CP/BV Registrable Securities" shall mean the securities of the Company which are defined as "Registrable Securities" under either the CP Agreement or the BV Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Expected Proceeds" shall mean, as of any date, the aggregate proceeds that would be expected to be received by a holder of securities from the sale of such securities in an offering made on such date (without being reduced by any pro forma expenses or underwriting discounts). The determination of Expected Proceeds shall be made (a) if the offering is intended to be made in an underwritten public offering, then by the intended managing underwriter of such offering or (b) if the offering is not intended to be made in an underwritten public offering, then by investment bankers mutually agreeable to the Company and the Holder, the fees and expenses of which shall be paid by the Company. "Person" shall mean a corporation, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. "Register", "registered" and "registration" shall mean a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement. "Registrable Securities" shall mean, subject to the provisions of Sections 4.02(b) and 4.11 hereof, any and all shares of Class A Common Stock issued or issuable upon conversion of the Preferred Securities. As to any particular Registrable Securities, such securities shall cease to constitute Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with the methods contemplated by the registration statement, (ii) such securities (or the Preferred Securities that are convertible into such securities) shall have been sold in satisfaction of all applicable conditions to the resale provisions of Rule 144 under the Securities Act (or any successor provision thereto), (iii) such securities (or the Preferred Securities that are convertible into such securities) shall have been otherwise transferred except to a permitted assignee pursuant to Section 4.02(b) hereof, or (iv) such securities shall have been issued upon conversion of the Preferred Securities and thereafter shall have ceased to be issued and outstanding. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with Article 1, including, without limitation, (a) any allocation of salaries and expenses of Company personnel or other general overhead expenses of the Company, or other expenses for the preparation of historical and pro forma financial statements or other data normally prepared by the Company in the ordinary course of business; (b) all registration, application, filing, listing, transfer and registrar fees; (c) all NASD fees and fees and expenses of registration or qualification of Registrable Securities under state securities or "blue sky" laws pursuant to Section 1.03(d) hereof; (d) all word processing, duplicating and printing expenses, messenger and delivery expenses; (e) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of customary "cold comfort" letters required by or incident to such performance and compliance; and (f) any fees and disbursements of underwriters and broker-dealers customarily paid by issuers or sellers of securities; provided, however, Registration Expenses shall exclude, and the sellers of the Registrable Securities being registered shall pay, the fees and disbursements of counsel to such sellers, and underwriting discounts and commissions and transfer taxes in respect of the Registrable Securities being registered and, to the extent such laws prohibit the Company from paying such expenses on behalf of the Holder, expenses of registering or qualifying Registrable Securities under state securities or blue sky laws. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. ARTICLE 4. MISCELLANEOUS Section 4.01 Rule 144. If the Company shall have filed with the Commission and obtained the effectiveness of a registration statement covering the Company's equity securities pursuant to the requirements of section 12 of the Exchange Act or pursuant to the requirements of the Securities Act, the Company agrees that it shall timely file the reports required to be filed by it under the Securities Act or the Exchange Act (including, without limitation, the reports under sections 13 and 15(d) of the Exchange Act referred to in paragraph (c)(1) of Rule 144 under the Securities Act), and shall take such further actions as the Holder may reasonably request, all to the extent necessary to enable the Holder to sell Registrable Securities, from time to time, pursuant to the resale limitations of (a) Rule 144 under the Securities Act, as such rule may be hereafter amended, or (b) any similar rules or regulations hereafter adopted by the Commission. Upon the written request of the Holder, the Company shall deliver to the Holder a written statement verifying that it has complied with such requirements. Section 4.02 Assignment. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the Company and the Holder and, with respect to the Company, its respective successors and assigns. (b) The rights of the Holder to cause the Company to register Registrable Securities under Sections 1.01 and 1.02 hereof may not be assigned or otherwise conveyed, whether directly or indirectly or by operation of law or otherwise, to any Person, including any transferee or assignee of any of the Preferred Securities or the Registrable Securities; provided, however, that the Holder shall have the right to assign, on one and only one occasion (whether by instrument of assignment, operation of law or otherwise), to a third party any of its rights to require the Company to register Registrable Securities under Section 1.01 or 1.02 hereof in connection with a transfer by the Holder of more than fifty percent (50%) of the aggregate number of Registrable Securities (adjusted appropriately to reflect any stock dividends, splits, combinations, exchange, reorganization, recapitalization or reclassification involving the Class A Common Stock or resulting from a merger or consolidation or similar business combination transaction involving the Company after the date hereof) issuable at the date hereof upon conversion of the Preferred Securities, provided that such third party shall have executed and delivered to the Company a written agreement, in form and substance reasonably satisfactory to the Company, by which such third party shall have agreed to become party to and bound by the terms and conditions of this Agreement as though it were the Holder. Section 4.03 Notices. Except as otherwise provided below, whenever it is provided in this Agreement that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon the Company, the Holder, or whenever the Company or the Holder desires to provide to or serve upon any Person any other communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or sent by registered or certified mail (return receipt requested, postage prepaid), or by overnight mail, courier, or delivery service or by telecopy and confirmed by telecopy answerback, addressed as follows: (a) If to the Company, to: Attention: Vice President and Treasurer - With a copy to - Sullivan & Worcester One Post Office Square Boston, Massachusetts 02109 Telephone: (617) 338-2800 Telecopy: (617) 338-2880 Attention: Patrick K. Miehe, Esq. (B) If to the Holder, to: - With a copy to - Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8000 Telecopy: (212) 310-8007 Attention: Dennis J. Block, Esq. or at such other address as may be substituted by it by notice delivered as provided herein. The furnishing of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly delivered, furnished or served on (i) the date on which personally delivered, with receipt acknowledged, (ii) the date on which telecopied and confirmed by telecopy answerback, (iii) the next business day if delivered by overnight or express mail, courier or delivery service, or (iv) three business days after the same shall have been deposited in the United States mail, as the case may be. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. Section 4.04 Entire Agreement; Amendment. This Agreement represents the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes any and all prior oral and written agreements, arrangements and understandings among the parties hereto with respect to such subject matter; and can be amended, supplemented or changed, and any provision hereof can be waived, only by a written instrument making specific reference to this Agreement signed by the Company and the Holder. Section 4.05 Paragraph Headings, etc. The paragraph headings contained in this Agreement are for general reference purposes only and shall not affect in any manner the meaning, interpretation or construction of the terms or other provisions of this Agreement. The terms "including", "includes" and "included" shall not be limiting. Section 4.06 Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of The Commonwealth of Massachusetts, applicable to contracts to be made, executed, delivered and performed wholly within such state and, in any case, without regard to the conflicts of law principles of such state. Section 4.07 Severability. If at any time subsequent to the date hereof, any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. Section 4.08 Equitable Remedies. The parties hereto agree that irreparable harm would occur in the event that any of the agreements and provisions of this Agreement were not performed fully by the parties hereto in accordance with their specific terms or conditions or were otherwise breached, and that money damages are an inadequate remedy for breach of this Agreement because of the difficulty of ascertaining and quantifying the amount of damage that will be suffered by the parties hereto in the event that this Agreement is not performed in accordance with its terms or conditions or is otherwise breached. It is accordingly hereby agreed that the parties hereto shall be entitled to an injunction or injunctions to restrain, enjoin and prevent breaches of this Agreement by the other parties and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to and not in lieu of, any other rights and remedies to which the other parties are entitled to at law or in equity. Section 4.09 No Waiver. The failure of any party at any time or times to require performance of any provision hereof shall not affect the right at a later time to enforce the same. No waiver by any party of any condition, and no breach of any provision, term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation or warranty of this Agreement. Section 4.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same original instrument. Section 4.11 Special Limitation and Termination of Registration Rights. Anything in this Agreement to the contrary notwithstanding: (a) The obligations of the Company to the Holder with respect to its rights of registration provided for in Sections 1.01 and 1.02 hereof shall cease and terminate upon the earlier of (i) six (6) years after the date hereof and (ii) the date on which the aggregate number of Registrable Securities issued and outstanding (or issuable and which would be outstanding upon conversion of the Preferred Securities) shall no longer exceed one third (1/3) of the aggregate number of shares (adjusted appropriately downward or upward to reflect any stock dividends, splits, combinations, exchange, reorganization, recapitalization or reclassification involving Class A Common Stock of the Company or pursuant to a merger or consolidation or similar transaction involving the Company or the like after the date hereof) of Registrable Securities issuable at the date hereof upon conversion of the Preferred Securities. (b) The rights of registration provided for in Sections 1.01 and 1.02 hereof are subject to and limited by the terms and provisions of Article XIII of the Restated By-Laws of the Company effective as of May 14, 1992, as amended through the date hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. CONTINENTAL CABLEVISION, INC. By:________________________________ Name: Title: U S WEST, INC. By:________________________________ Name: Title: EX-11 4 EXHIBIT 11 EPS USW EXHIBIT 11 U S WEST, Inc. Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, 1996 1995 EARNINGS PER COMMON SHARE: (1) --------- ---------- Net income $ - $318,040 Less preferred dividends - 854 Net income available for common ---------- ---------- share calculation $ - $317,186 ========== ========== Weighted average common shares outstanding - 470,414 ========== ========== Earnings per common share $ - $0.67 ========== ========== Six Months Ended June 30, 1996 1995 EARNINGS PER COMMON SHARE: (1) --------- ---------- Net income $ - $647,676 Less preferred dividends - 1,681 Net income available for common ---------- ---------- share calculation $ - $645,995 ========== ========== Weighted average common shares outstanding - 469,490 ========== ========== Earnings per common share $ - $1.37 ========== ========== (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock.
EXHIBIT 11 U S WEST, Inc. Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, EARNINGS PER COMMON AND COMMON 1996 1995 EQUIVALENT SHARE: (1) --------- ---------- Net income $ - $318,040 Less preferred dividends - 854 Net income available for common ---------- ---------- share calculation $ - $317,186 ========== ========== Weighted average common shares outstanding - 470,414 Incremental shares from assumed exercise of stock options - 612 ---------- ---------- Total common shares - 471,026 ========== ========== Earnings per common and common equivalent share $ - $0.67 ========== ========== Six Months Ended June 30, EARNINGS PER COMMON AND COMMON 1996 1995 EQUIVALENT SHARE: (1) --------- ---------- Net income $ - $647,676 Less preferred dividends - 1,681 Net income available for common ---------- ---------- share calculation $ - $645,995 ========== ========== Weighted average common shares outstanding - 469,490 Incremental shares from assumed exercise of stock options - 515 ---------- ---------- Total common shares - 470,005 ========== ========== Earnings per common and common equivalent share $ - $1.37 ========== ========== (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock.
EXHIBIT 11 U S WEST, Inc. Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, EARNINGS PER COMMON SHARE - ASSUMING 1996 1995 FULL DILUTION: (1) --------- ---------- Net income $ - $318,040 Interest on Covertible Liquid Yield Option Notes (LYONS) - 5,586 ---------- ---------- Adjusted income - 323,626 Less preferred dividends - 854 Adjusted net income available for common ---------- ---------- share calculation $ - $322,772 ========== ========== Weighted average common shares outstanding - 470,414 Incremental shares from assumed exercise of stock options - 664 Shares issued upon conversion of LYONS - 9,876 ---------- ---------- Total common shares - 480,954 ========== ========== Earnings per common share - assuming full dilution $ - $0.67 ========== ========== (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock.
EXHIBIT 11 U S WEST, Inc. Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Six Months Ended June 30, EARNINGS PER COMMON SHARE - ASSUMING 1996 1995 FULL DILUTION: (1) --------- ---------- Net income $ - $647,676 Interest on Covertible Liquid Yield Option Notes (LYONS) - 11,163 ---------- ---------- Adjusted income - 658,839 Less preferred dividends - 1,681 Adjusted net income available for common ---------- ---------- share calculation $ - $657,158 ========== ========== Weighted average common shares outstanding - 469,490 Incremental shares from assumed exercise of stock options - 668 Shares issued upon conversion of LYONS - 9,885 ---------- ---------- Total common shares - 480,043 ========== ========== Earnings per common share - assuming full dilution $ - $1.37 ========== ========== (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock.
EX-11 5 EXHIBIT 11 EPS COM. GRP. EXHIBIT 11 U S WEST COMMUNICATIONS GROUP Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, 1996 1995* EARNINGS PER COMMON SHARE (1) --------- ---------- Net income for per share calculation $323,958 $292,586 ========== ========== Weighted average common shares outstanding 476,803 470,414 ========== ========== Earnings per common share $0.68 $0.62 ========== ========== Six Months Ended June 30, 1996 1995* EARNINGS PER COMMON SHARE (1) --------- ---------- Income before cumulative effect of change in accounting principle $618,253 $607,852 Cumulative effect of change in accounting principle - net of tax 34,158 - ---------- ---------- Net income for per share calculation $652,411 $607,852 ========== ========== Weighted average common shares outstanding 475,929 469,490 ========== ========== Income before cumulative effect of change in accounting principle $1.30 $1.29 Cumulative effect of change in accounting principle - net of tax 0.07 - ---------- ---------- Earnings per common share $1.37 $1.29 ========== ========== * Pro forma (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 has been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
EXHIBIT 11 U S WEST COMMUNICATIONS GROUP Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, EARNINGS PER COMMON AND COMMON 1996 1995* EQUIVALENT SHARE: (1) --------- ---------- Net income for per share calculation $323,958 $292,586 ========== ========== Weighted average common shares outstanding 476,803 470,414 Incremental shares from assumed exercise of stock options 1,658 612 ---------- ---------- Total common shares 478,461 471,026 ========== ========== Earnings per common and common equivalent share $0.68 $0.62 ========== ========== Six Months Ended June 30, EARNINGS PER COMMON AND COMMON 1996 1995* EQUIVALENT SHARE: (1) --------- ---------- Income before cumulative effect of change in accounting principle $618,253 $607,852 Cumulative effect of change in accounting principle - net of tax 34,158 - ---------- ---------- Net income for per share calculation $652,411 $607,852 ========== ========== Weighted average common shares outstanding 475,929 469,490 Incremental shares from assumed exercise of stock options 1,721 515 ---------- ---------- Total common shares 477,650 470,005 ========== ========== Income before cumulative effect of change in accounting principle $1.29 $1.29 Cumulative effect of change in accounting principle - net of tax 0.07 - Earnings per common and common ---------- ---------- equivalent share $1.36 $1.29 ========== ========== * Pro forma (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 has been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
EXHIBIT 11 U S WEST COMMUNICATIONS GROUP Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, EARNINGS PER COMMON SHARE - ASSUMING 1996 1995* FULL DILUTION: (1) --------- ---------- Net income $323,958 $292,586 Interest on Convertible Liquid Yield Option Notes (LYONS) 3,137 3,074 ---------- ---------- Adjusted net income for per share calculation $327,095 $295,660 ========== ========== Weighted average common shares outstanding 476,803 470,414 Incremental shares from assumed exercise of stock options 1,658 664 Shares issued upon conversion of LYONS 9,620 9,876 ---------- ---------- Total common shares 488,081 480,954 ========== ========== Earnings per common share - assuming full dilution $0.67 $0.61 ========== ========== * Pro forma (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 has been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
EXHIBIT 11 U S WEST COMMUNICATIONS GROUP Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Six Months Ended June 30, EARNINGS PER COMMON SHARE - ASSUMING 1996 1995* FULL DILUTION: (1) --------- ---------- Income before cumulative effect of change in accounting principle $618,253 $607,852 Interest on Convertible Liquid Yield Option Notes (LYONS) 6,299 6,119 ---------- ---------- Adjusted income before cumulative effect of change in accounting principle 624,552 613,971 Cumulative effect of change in accounting principle - net of tax 34,158 - ---------- ---------- Adjusted net income for per share calculation $658,710 $613,971 ========== ========== Weighted average common shares outstanding 475,929 469,490 Incremental shares from assumed exercise of stock options 1,722 668 Shares issued upon conversion of LYONS 9,627 9,885 ---------- ---------- Total common shares 487,278 480,043 ========== ========== Adjusted income before cumulative effect of change in accounting principle $1.28 $1.28 Cumulative effect of change in accounting principle - net of tax 0.07 - Earnings per common share - ---------- ---------- assuming full dilution $1.35 $1.28 ========== ========== * Pro forma (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 has been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
EX-11 6 EXHIBIT 11 EPS MEDIA GRP. EXHIBIT 11 U S WEST MEDIA GROUP Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, 1996 1995* EARNINGS PER COMMON SHARE: (1) --------- ---------- Net income (loss) ($10,992) $25,454 Less preferred dividends 855 854 Earnings (loss) available for common ---------- ---------- share calculation ($11,847) $24,600 ========== ========== Weighted average common shares outstanding 473,593 470,414 ========== ========== Earnings (loss) per common share ($0.03) $0.05 ========== ========== Six Months Ended June 30, 1996 1995* --------- ---------- EARNINGS PER COMMON SHARE: (1) ($8,075) $39,824 Net income (loss) 1,709 1,681 Less preferred dividends ---------- ---------- Earnings (loss) available for common ($9,784) $38,143 share calculation ========== ========== 473,298 469,490 Weighted average common shares outstanding ========== ========== Earnings (loss) per common share ($0.02) $0.08 ========== ========== * Pro forma (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 has been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
EXHIBIT 11 U S WEST MEDIA GROUP Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, EARNINGS PER COMMON AND COMMON 1996 1995* EQUIVALENT SHARE: (1) --------- ---------- Net income (loss) ($10,992) $25,454 Less preferred dividends 855 854 Earnings (loss) available for common ---------- ---------- share calculation ($11,847) $24,600 ========== ========== Weighted average common shares outstanding 473,593 470,414 Incremental shares from assumed exercise of stock options 1,138 612 ---------- ---------- Total common shares 474,731 471,026 ========== ========== Earnings (loss) per common and common equivalent share ($0.03) $0.05 ========== ========== Six Months Ended June 30, EARNINGS PER COMMON AND COMMON 1996 1995* EQUIVALENT SHARE: (1) --------- ---------- Net income (loss) ($8,075) $39,824 Less preferred dividends 1,709 1,681 Earnings (loss) available for common ---------- ---------- share calculation ($9,784) $38,143 ========== ========== Weighted average common shares outstanding 473,298 469,490 Incremental shares from assumed exercise of stock options 1,287 515 ---------- ---------- Total common shares 474,585 470,005 ========== ========== Earnings (loss) per common and common equivalent share ($0.02) $0.08 ========== ========== (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 has been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc.
EXHIBIT 11 U S WEST MEDIA GROUP Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Three Months Ended June 30, EARNINGS PER COMMON SHARE - ASSUMING 1996 1995* FULL DILUTION: (1) (2) --------- ---------- Net income (loss) ($10,992) $25,454 Less preferred dividends 855 854 Earnings (loss) available for common ---------- ---------- share calculation ($11,847) $24,600 ========== ========== Weighted average common shares outstanding 473,593 470,414 Incremental shares from assumed exercise of stock options 1,137 664 ---------- ---------- Total common shares 474,730 471,078 ========== ========== Earnings (loss) per common share - assuming full dilution ($0.03) $0.05 ========== ========== * Pro forma (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 has been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc. (2) The effects of converting the Liquid Yield Option Notes (LYONS) are excluded from the fully diluted earnings per common share calculation due to their anti-dilutive effect.
EXHIBIT 11 U S WEST MEDIA GROUP Computation of Earnings Per Common Share (In Thousands, Except Per Share Amounts)
Six Months Ended June 30, EARNINGS PER COMMON SHARE - ASSUMING 1996 1995* FULL DILUTION: (1) (2) --------- ---------- Net income (loss) ($8,075) $39,824 Less preferred dividends 1,709 1,681 Earnings (loss) available for common ---------- ---------- share calculation ($9,784) $38,143 ========== ========== Weighted average common shares outstanding 473,298 469,490 Incremental shares from assumed exercise of stock options 1,286 668 ---------- ---------- Total common shares 474,584 470,158 ========== ========== Earnings (loss) per common share - assuming full dilution ($0.02) $0.08 ========== ========== * Pro forma (1) Effective November 1, 1995, each share of U S WEST, Inc. common stock was converted into one share each of U S WEST Communications Group common stock and U S WEST Media Group common stock. Earnings per common share for 1995 has been presented on a pro forma basis to reflect the two classes of stock as if they had been outstanding since January 1, 1995. For periods prior to the recapitalization, the average common shares outstanding are assumed to be equal to the average common shares outstanding for U S WEST, Inc. (2) The effects of converting the Liquid Yield Option Notes (LYONS) are excluded from the fully diluted earnings per common share calculation due to their anti-dilutive effect.
EX-12 7 EXHIBIT 12 EFC USW EXHIBIT 12 U S WEST, Inc. RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Dollars in Millions)
Quarter Ended 6/30/96 6/30/95 - ------------------------------------------------ --------- --------- Income before income taxes and cumulative effect of change in accounting principle $519 $514 Interest expense (net of amounts capitalized) 136 139 Interest factor on rentals (1/3) 25 27 Equity losses in unconsolidated ventures 42 2 Guaranteed minority interest expense 12 - --------- --------- Earnings $734 $682 Interest expense 157 153 Interest factor on rentals (1/3) 25 27 Guaranteed minority interest expense 12 - Preferred stock dividends 1 2 --------- --------- Fixed charges $195 $182 Ratio of earnings to fixed charges 3.76 3.75 - ------------------------------------------------ --------- --------- Year-to-Date 6/30/96 6/30/95 - ------------------------------------------------ --------- --------- Income before income taxes and cumulative effect of change in accounting principle $1,008 $1,052 Interest expense (net of amounts capitalized) 271 267 Interest factor on rentals (1/3) 47 49 Equity losses in unconsolidated ventures 67 28 Guaranteed minority interest expense 24 - --------- --------- Earnings $1,417 $1,396 Interest expense 316 292 Interest factor on rentals (1/3) 47 49 Guaranteed minority interest expense 24 - Preferred stock dividends 3 3 --------- --------- Fixed charges $390 $344 Ratio of earnings to fixed charges 3.63 4.06 - ------------------------------------------------ --------- ---------
EX-12 8 EXHIBIT 12 EFC FSI EXHIBIT 12 U S WEST Financial Services, Inc. RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Thousands)
Quarter Ended 6/30/96 6/30/95 - -------------------------------------------------------------------- Income before income taxes $7,423 $4,567 Interest expense 5,333 7,419 Interest factor on rentals (1/3) 14 14 -------------------- Earnings $12,770 $12,000 Interest expense 5,333 7,419 Interest factor on rentals (1/3) 14 14 -------------------- Fixed charges $5,347 $7,433 Ratio of earnings to fixed charges 2.39 1.61 - -------------------------------------------------------------------- Year-to-Date 6/30/96 6/30/95 - -------------------------------------------------------------------- Income before income taxes $8,723 $5,380 Interest expense 10,711 16,569 Interest factor on rentals (1/3) 31 31 -------------------- Earnings $19,465 $21,980 Interest expense 10,711 16,569 Interest factor on rentals (1/3) 31 31 -------------------- Fixed charges $10,742 $16,600 Ratio of earnings to fixed charges 1.81 1.32 - --------------------------------------------------------------------
EX-27 9 FDS 2ND QTR. 1996
5 0000732718 U S WEST, INC. 1,000,000 3-MOS 6-MOS DEC-31-1996 DEC-31-1996 JUN-30-1996 JUN-30-1996 127 127 0 0 1,872 1,872 0 0 220 220 2,835 2,835 33,622 33,622 18,633 18,633 25,289 25,289 4,679 4,679 7,360 7,360 651 651 0 0 8,373 8,373 (156) (156) 25,289 25,289 3,124 6,174 3,124 6,174 0 0 0 0 2,406 4,731 0 0 136 271 519 1,008 206 398 313 610 0 0 0 0 0 34 313 644 .68 1.37 .67 1.35
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