-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HJrEK7EtkakFvAMhMQntLQebrcCYMaOOa4UMh+FG+QR7yyZykioKcw6YKqzItBrO /R1Q95Upo7cxV+BTyCA6fg== 0000950134-95-001696.txt : 19950728 0000950134-95-001696.hdr.sgml : 19950728 ACCESSION NUMBER: 0000950134-95-001696 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950724 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950727 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELE COMMUNICATIONS INC /CO/ CENTRAL INDEX KEY: 0000925692 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 841260157 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20421 FILM NUMBER: 95556447 BUSINESS ADDRESS: STREET 1: 5619 DTC PARKWAY CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3032675500 MAIL ADDRESS: STREET 1: 5619 DTC PARKWAY CITY: ENGLEWOOD STATE: CO ZIP: 90111 FORMER COMPANY: FORMER CONFORMED NAME: TCI LIBERTY HOLDING CO DATE OF NAME CHANGE: 19940620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCI COMMUNICATIONS INC CENTRAL INDEX KEY: 0000096903 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 840588868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05550 FILM NUMBER: 95556448 BUSINESS ADDRESS: STREET 1: TERRACE TOWER II STREET 2: 5619 DTC PKWY CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3032675500 MAIL ADDRESS: STREET 1: TERRACE TOWER II STREET 2: 5619 DTC PKWY CITY: ENGLEWOOD STATE: CO ZIP: 80111 FORMER COMPANY: FORMER CONFORMED NAME: TELE COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: July 26, 1995 Date of Earliest Event Reported: July 24, 1995 TELE-COMMUNICATIONS, INC. AND TCI COMMUNICATIONS, INC. ------------------------------------------------------------------ (Exact name of Registrants as specified in their charters) State of Delaware ---------------------------------------------------- (State or other jurisdiction of incorporation) 0-20421 and 0-5550 84-1260157 and 84-0588868 -------------------------------- ----------------------------------- (Commission File Numbers) (I.R.S. Employer Identification Nos.) 5619 DTC Parkway Englewood, Colorado 80111 - --------------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (303) 267-5500 2 Item 5. Other Events. TCI Communications, Inc. (the "Company") and its sole shareholder, Tele-Communications, Inc. ("Parent"), have entered into certain agreements with Viacom Inc. ("Viacom") and certain subsidiaries of Viacom regarding the purchase by the Company of all of the common stock of a subsidiary of Viacom ("Cable Sub") which, at the time of purchase, will own Viacom's cable systems and related assets. Viacom's cable systems, at June 30, 1995, served an aggregate of approximately 1.2 million basic subscribers in the following areas: the Bay area of San Francisco, California; Seattle/Tacoma, Washington; Salem, Oregon; Nashville, Tennessee; and Dayton, Ohio. The transaction has been structured as a tax-free reorganization in which Cable Sub will initially transfer all of its non- cable assets, as well as all of its liabilities other than current liabilities, to a new subsidiary of Viacom ("New Viacom Sub"). Cable Sub will also transfer to New Viacom Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan Facility") to be arranged by the Company, Parent and Cable Sub. Following these transfers, Cable Sub will retain cable assets with an estimated value at closing of approximately $2.25 billion and the obligation to repay the Loan Proceeds borrowed under the Loan Facility. Repayment of the Loan Proceeds will be non-recourse to Viacom and New Viacom Sub. Viacom will offer to the holders of shares of Viacom Class A Common Stock and Viacom Class B Common Stock (collectively, "Viacom Common Stock") the opportunity to exchange (the "Exchange Offer") a portion of their shares of Viacom Common Stock for shares of Class A Common Stock, par value $100 per share, of Cable Sub ("Cable Sub Class A Stock"). The total number of shares of Cable Sub Class A Stock issuable in the Exchange Offer (the "Total Number") will be a number equal to (x) the estimated gross value of Cable Sub (which is estimated to be approximately $2.25 billion) minus the Loan Proceeds, divided by (y) $100 (the par value of the Cable Sub Class A Stock. The Exchange Offer will be conducted as a "dutch auction" in which stockholders of Viacom will be able to specify a minimum fraction of a share of Cable Sub Class A Stock that they are willing to receive in exchange for a share of Viacom Common Stock. The maximum exchange ratio that a Viacom stockholder will be permitted to specify will be equal to the equivalent of 112.5% of the average intraday sales prices for a share of Viacom Class B Common Stock, as reported on the American Stock Exchange, during the 20 trading-day period ending the date prior to the commencement of the Exchange Offer. The Exchange Offer will be subject to a number of conditions, including a condition (the "Minimum Condition") that sufficient tenders are made of Viacom Common Stock that permit the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange Offer to equal the Total Number. Immediately following the completion of the Exchange Offer, the Company will acquire from Cable Sub shares of Cable Sub Class B Common Stock in exchange for a capital contribution of $350 million. (which will be used to reduce Cable Sub's obligations under the Loan Facility). At the time of such contribution, the Cable Sub Class A Stock received by Viacom stockholders pursuant to the Exchange Offer will automatically convert into a series of senior cumulative exchangeable preferred stock (the "Exchangeable Preferred Stock") of Cable Sub with a stated value of $100 per share (the "Stated Value"). The terms of the Exchangeable Preferred Stock, including its dividend, redemption and exchange features, will be designed to cause the Exchangeable Preferred Stock to initially trade at the Stated Value. The Exchangeable Preferred Stock will be exchangeable, at the option of the holder commencing after the fifth anniversary of the date of issuance, for shares of Parent Class A Common Stock (or, in the event of a recapitalization or reclassification, the shares of common stock of Parent into which shares of such Class A Common Stock are converted) ("Parent Common Stock"). The Exchangeable Preferred Stock will also be redeemable, at the option of Cable Sub, after the fifth anniversary of the date of issuance, and will be subject to mandatory redemption on the tenth anniversary of the date of issuance at a price equal to the Stated Value per share plus accrued and unpaid dividends, payable in cash or, at the election of Cable Sub, in shares of Parent Common Stock. If insufficient tenders are made by Viacom stockholders in the Exchange Offer to permit the Minimum Condition to be satisfied, Viacom will extend the Exchange Offer for up to 15 business days and, during such extension, TCI and Viacom are to negotiate in good faith to determine mutually acceptable terms and conditions for the Exchangeable Preferred Stock and the Exchange Offer that each believes in good faith will cause the Minimum Condition to be fulfilled and that would cause the Exchangeable Preferred Stock to trade at a price equal to the Stated Value immediately following the expiration of the Exchange Offer. In the event the Minimum Condition is not thereafter met, TCI and Viacom will each have the right to terminate the transaction. 3 Upon the closing of the transaction, Cable Sub will have a capitalization consisting of approximately $1.35 billion of borrowings under the Loan Facility, Exchangeable Preferred Stock with a Stated Value of approximately $550 million and $350 million of paid-in capital for the Cable Sub Class B Common Stock. Consummation of the transaction is subject to a number of conditions, including receipt of a favorable letter ruling from the Internal Revenue Service that the transaction qualifies as a tax-free transaction, the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt of necessary consents of the Federal Communications Commission and local cable franchise authorities, and the satisfaction or waiver of all of the conditions of the Exchange Offer. Accordingly, no assurance can be given that the transaction will be consummated. The foregoing description of the proposed transaction with Viacom is qualified in its entirety by reference to (i) the Parents Agreement among Viacom, the Company and Parent, (ii) the Implementation Agreement between Cable Sub and New Viacom Sub and (iii) the Subscription Agreement among Cable Sub, the Company and Parent, which are attached as exhibits to this Form 8-K and incorporated herein by reference. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements None. (b) Pro Forma Financial Information None (c) Exhibits: (2.1) Parents Agreement, dated as of July 24, 1995, among Viacom, Inc., Tele-Communications, Inc. and TCI Communications, Inc. (2.2) Subscription Agreement, dated as of July 24, 1995, among Viacom International Inc., Tele-Communications, Inc. and TCI Communications, Inc. (2.3) Implementation Agreement, dated as of July 24, 1995, between Viacom International Inc. and Viacom International Services Inc. 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized. Date: July 26, 1995 TELE-COMMUNICATIONS, INC. (Registrant) By:/s/ Stephen M. Brett ------------------------------------- Stephen M. Brett Executive Vice President and Secretary TCI COMMUNICATIONS, INC. (Registrant) By:/s/ Stephen M. Brett ------------------------------------- Stephen M. Brett Senior Vice President and Secretary 5 EXHIBIT INDEX The following exhibits are filed herewith or are incorporated by reference herein (according to the number assigned to them in Item 601 of Regulation S-K) as noted: (2.1) Parents Agreement, dated as of July 24, 1995, among Viacom, Inc., Tele-Communications, Inc. and TCI Communications, Inc. (2.2) Subscription Agreement, dated as of July 24, 1995, among Viacom International Inc., Tele-Communications, Inc. and TCI Communications, Inc. (2.3) Implementation Agreement, dated as of July 24, 1995, between Viacom International Inc. and Viacom International Services Inc. EX-2.1 2 PARENTS AGREEMENT 1 Exhibit 2.1 - ------------------------------------------------------------------------------- PARENTS AGREEMENT among VIACOM INC., TELE-COMMUNICATIONS, INC. and TCI COMMUNICATIONS, INC. Dated as of July 24, 1995 - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS............................................................. 1 Section 1.1 Definitions............................................ 1 ARTICLE II THE EXCHANGE OFFER...................................................... 6 Section 2.1 Exchange Offer......................................... 6 Section 2.2 Number of Shares of Class A Common Stock............... 9 Section 2.3 Exchange Offer Mechanics............................... 9 Section 2.4 Recapitalization....................................... 11 ARTICLE III OTHER AGREEMENTS........................................................ 11 Section 3.1 Execution of Other Agreements.......................... 11 Section 3.2 Amendments of Implementation Agreement................. 11 Section 3.3 Designation of Agent for PCI Group..................... 12 Section 3.4 Prohibited Transactions................................ 12 Section 3.5 No Inconsistent Provisions............................. 12 Section 3.6 Operation of the Business.............................. 12 Section 3.7 Right of First Offer................................... 12 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF VI.................................... 13 Section 4.1 Corporate Existence and Power.......................... 13 Section 4.2 Corporate Authorization................................ 13 Section 4.3 Governmental Authorization............................. 13 Section 4.4 Consents............................................... 13 Section 4.5 Non-Contravention...................................... 14 Section 4.6 Binding Effect......................................... 14 Section 4.7 Finders' Fees.......................................... 14 Section 4.8 Exchange Offer......................................... 14 ARTICLE V REPRESENTATIONS AND WARRANTIES OF TCI AND TCI SUB................................................................. 14 Section 5.1 Corporate Existence and Power.......................... 14 Section 5.2 Corporate Authorization................................ 14 Section 5.3 Governmental Authorization............................. 15 Section 5.4 Consents............................................... 15 Section 5.5 Non - Contravention.................................... 15
-i- 3 TABLE OF CONTENTS (Continued)
Page Section 5.6 Binding Effect......................................... 15 Section 5.7 Finders' Fees.......................................... 15 ARTICLE VI CONDITIONS PRECEDENT.................................................... 16 Section 6.1 Conditions to Obligations of VI........................ 16 Section 6.2 Further Condition...................................... 17 ARTICLE VII TERMINATION............................................................. 17 Section 7.1 Termination............................................ 17 Section 7.2 Effect of Termination.................................. 18 ARTICLE VIII MISCELLANEOUS........................................................... 19 Section 8.1 Expenses............................................... 19 Section 8.2 Headings............................................... 19 Section 8.3 Notices................................................ 19 Section 8.4 Assignment............................................. 20 Section 8.5 Entire Agreement....................................... 20 Section 8.6 Amendment; Waiver...................................... 20 Section 8.7 Counterparts........................................... 20 Section 8.8 Governing Law.......................................... 20 Section 8.9 Severability........................................... 20 Section 8.10 Consent to Jurisdiction................................ 20 Section 8.11 Third Person Beneficiaries............................. 21 Section 8.12 Specific Performance................................... 21 Section 8.13 Survival............................................... 21
-ii- 4 EXHIBITS Exhibit A - Exchange Offer Conditions Exhibit B - Implementation Agreement SCHEDULES Schedule 5.4 - Consents Required by Contracts of TCI and TCI Sub -i- 5 PARENTS AGREEMENT Parents Agreement, dated as of July 24, 1995 (this "Agreement"), among Viacom Inc., a Delaware corporation ("VI"), Tele-Communications, Inc., a Delaware corporation ("TCI") and TCI Communications, Inc., a Delaware corporation ("TCI Sub"). WHEREAS, Viacom International Inc., a Delaware corporation ("Old VII") is a wholly-owned subsidiary of VI; and WHEREAS, VI desires to make an exchange offer to its shareholders pursuant to which shares of VI Common Stock would be exchanged for Class A Common Stock of Old VII; and WHEREAS, it is the intent of VI that prior to the consummation of the Exchange Offer Old VII will (i) convey all of the Non-Cable Assets to New VII and (ii) distribute its shares in New VII to VI; and WHEREAS, TCI Sub desires to purchase from Old VII shares of Class B Common Stock of Old VII immediately following the Exchange Time; and NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein between the parties referred to above, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. For purposes of this Agreement the following terms, when used in capitalized form, shall have the following meanings (and such meanings shall be equally applicable to both the singular and plural forms of the terms defined herein): "Affiliate" shall have the meaning specified in the Implementation Agreement. "Aggregate Loan Amount" shall have the meaning set forth in Section 6.1(vi). "Agreement" shall mean this Parents Agreement, including the Exhibits and Schedules hereto. "Amended and Restated Certificate of Incorporation" shall have the meaning specified in the Implementation Agreement. "Anticipated Commencement Date" shall have the meaning specified in Section 2.3(ii). "Assumption of Liabilities" shall have the meaning specified in the Implementation Agreement. 6 2 "Bill of Sale" shall have the meaning specified in the Implementation Agreement. "Business Day" shall have the meaning specified in the Implementation Agreement. "Cable Division Subsidiary" shall have the meaning specified in the Implementation Agreement. "Cash Collateral Account" shall have the meaning specified in the Subscription Agreement. "Class A Common Stock" shall mean the Class A Common Stock, par value $100, of Old VII, after giving effect to the filing of the Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware. "Communications Act" shall have the meaning specified in the Implementation Agreement. "Consented Subscribers" shall have the meaning specified in the Subscription Agreement. "Conversion Ratio" shall have the meaning specified in Section 2.3(ii). "Conversion Ratio Spread" shall have the meaning specified in Section 2.3(ii). "Conveyance of Assets" shall have the meaning specified in the Implementation Agreement. "Estimated Asset Value" shall have the meaning specified in the Implementation Agreement. "Estimated Exchange Date Basic Subscribers" shall have the meaning specified in the Subscription Agreement. "Exchange Date" shall mean the date on which the Exchange Time occurs. "Exchange Offer" shall mean an offer by VI to exchange Class A Common Stock for VI Common Stock on the basis set forth in Article II and subject to the Exchange Offer Conditions. "Exchange Offer Commencement Date" shall mean the date on which the Exchange Offer commences in accordance with the 1934 Act. "Exchange Offer Conditions" shall mean the conditions set forth on Exhibit A. "Exchange Ratio" shall have the meaning specified in Section 2.3. 7 3 "Exchange Time" shall mean, if the Exchange Offer is consummated, the first Business Day following announcement of the proration factor (which in no event shall be more than ten (10) Business Days after the Expiration Date), in accordance with the terms and conditions of the Exchange Offer and applicable SEC rules and regulations, at which time VI shall exchange share certificates of Class A Common Stock for share certificates of VI Common Stock pursuant to the Exchange Offer. "Expiration Date" shall mean the date on which the Expiration Time occurs in accordance with its terms. "Expiration Time" shall mean the time at which the Exchange Offer finally expires. "FCC Authorizations" shall have the meaning specified in the Implementation Agreement. "Final Exchange Ratio" shall have the meaning specified in Section 2.3(i). "Force Majeure Event" means any event described in paragraph (e) of the Exchange Offer Conditions. "Force Majeure Notice" shall have the meaning specified in Section 2.1(e). "Governmental Authority" shall have the meaning specified in the Implementation Agreement. "HSR Act" shall have the meaning specified in the Implementation Agreement. "Implementation Agreement" shall mean the Implementation Agreement, dated as of the date hereof, between New VII and Old VII, in the form of Exhibit B. "Inconsistent Terms" shall mean, with respect to the Loans or Loan Documentation, terms or conditions thereof that (i) are inconsistent with the terms of the Transaction Documents or the Preferred Stock or (ii) would require the grant of any security interest in an asset of VI or any of its Affiliates (other than (x) a grant by Old VII of a security interest in the Cash Collateral Account prior to the Exchange Time, (y) the pledge by Old VII or any Cable Division Subsidiary of stock in a Cable Division Subsidiary that is effective upon (but not before) the release of all funds to Old VII from the Cash Collateral Account or (z) pursuant to Section 2.17 of the Implementation Agreement, in each case consistent with the terms of the Transaction Documents). "InterMedia" shall mean InterMedia Partners IV, L.P., a California limited partnership. 8 4 "Intraday Price" shall mean, with respect to a day, the weighted average of the sale prices for all trades of shares of VI Class B Common Stock on such date, as reported by the ADP Financial Information Services reporting service. "Legal Requirement" shall have the meaning specified in the Implementation Agreement. "Loan Documentation" shall have the meaning specified in the Subscription Agreement. "Loan Proceeds" shall have the meaning specified in the Subscription Agreement. "Loans" shall have the meaning specified in the Subscription Agreement. "Local Authority" shall have the meaning specified in the Implementation Agreement. "Local Authorizations" shall have the meaning specified in the Implementation Agreement. "Minimum Condition" shall mean the condition that a number of shares of VI Common Stock shall have been validly tendered and not withdrawn prior to the expiration of the Exchange Offer that is sufficient to enable VI to exchange the Number of Shares to be Exchanged at the Final Exchange Ratio in accordance with the terms and conditions of the Exchange Offer. "ML&Co." shall have the meaning specified in Section 2.3(ii). "NASDAQ" shall mean the electronic inter-dealer quotation system operated by NASDAQ, Inc., a subsidiary of the National Association of Securities Dealers, Inc. "Negotiation Period" shall have the meaning specified in Section 3.7. "New VII" means Viacom International Services Inc., a Delaware corporation. "1933 Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as amended. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as amended. "Non-Cable Assets" shall have the meaning specified in the Implementation Agreement. "Non-Cable FCC Authorizations" shall have the meaning specified in the Implementation Agreement. 9 5 "Number of Shares to be Exchanged" shall have the meaning specified in Section 2.2. "Offered Business" shall have the meaning specified in Section 3.7. "Offering Materials" means the Offering Circular/Prospectus relating to the Exchange Offer included in the Registration Statement and each of the other documents mailed to stockholders of VI in connection with the Exchange Offer and, if a TCI Registration Statement is required pursuant to Section 2.1(b) to be declared effective prior to the commencement of the Exchange Offer, the Prospectus relating to the TCI Stock issuable upon conversion of the Preferred Stock included in such TCI Registration Statement. "Offer Period" shall have the meaning specified in Section 3.7. "Old VII" shall have the meaning specified in the preamble of this Agreement. "PCI Group" shall have the meaning specified in the Implementation Agreement. "PCI Subsidiaries" shall have the meaning specified in the Implementation Agreement. "Person" shall have the meaning specified in the Implementation Agreement. "Preferred Stock" shall mean the Series A Senior Cumulative Exchangeable Preferred Stock of Old VII, having the rights and privileges set forth in the term sheet set forth as Exhibit K to the Implementation Agreement, and having a yield and conversion ratio determined in accordance with Section 2.3 and having such other terms as are customary for such securities and consistent with such term sheet. "Price Notice" shall have the meaning specified in Section 3.7. "RCS" shall mean RCS Pacific, L.P., a California limited partnership. "Registration Statement" shall have the meaning specified in Section 2.1. "SEC" shall mean the Securities and Exchange Commission. "Share Purchase Closing" shall have the meaning specified in the Implementation Agreement. "Spread" shall have the meaning specified in Section 2.3. "Subscription Agreement" shall mean a Subscription Agreement, dated as of the date hereof, among Old VII, TCI and TCI Sub, provided that the definition of Subscription Agreement shall not include any amendment thereto entered into from and after the Exchange Time without the written consent of VI (which consent may be withheld for any reason). 10 6 "TCI Information" shall have the meaning specified in Section 2.1(f). "TCI Registration Statement" shall have the meaning specified in Section 2.1(b). "TCI Stock" shall mean (i) the Class A Common Stock, $1.00 par value per share, of TCI, or (ii) if the "Liberty Media Group Stock Proposal" (as such term is defined in the proxy statement/prospectus of TCI dated June 29, 1995) is adopted by the stockholders of TCI and the Distribution (as so defined) contemplated thereby is made, the Series A TCI Group Common Stock, $1.00 par value per share, of TCI. "TCI Sub" shall have the meaning specified in the preamble of this Agreement. "Tiebreaker Investment Bank" shall have the meaning specified in Section 2.3(ii). "Transaction" shall mean the Conveyance of Assets, the Assumption of Liabilities, the Loans, the Exchange Offer, the sale of the Shares (as such term is defined in the Subscription Agreement) and all other transactions contemplated by the Transaction Documents. "Transaction Documents" shall mean this Agreement, the Implementation Agreement, the Subscription Agreement, the Bill of Sale and any other agreements, documents, instruments and certificates dated as of the date hereof and executed and delivered by TCI or any of its Affiliates, on the one hand, and VI or any of its Affiliates, on the other hand, in connection with the transactions contemplated by the foregoing. "VI" shall have the meaning specified in the preamble of this Agreement. "VI Class B Common Stock" shall mean the Class B Common Stock, par value $0.01, of VI. "VI Common Stock" means the Class A Common Stock, par value $0.01 per share of VI, and the VI Class B Common Stock. "WP&Co." shall have the meaning specified in Section 2.3(ii). ARTICLE II THE EXCHANGE OFFER Section 2.1 Exchange Offer. (a) VI shall (i) cause Old VII to prepare and file with the SEC as promptly as practicable following the date hereof a registration statement on Form S-4 (or another appropriate form) under the 1933 Act with respect to the Exchange Offer (the "Registration Statement"); (ii) use its commercially reasonable efforts to have the Registration Statement declared effective by the SEC under the 1933 Act; and (iii) take all such action as may be required under state blue sky or securities laws in connection with the Exchange Offer. 11 7 (b) TCI agrees to prepare and file with the SEC, and use its commercially reasonable efforts to cause to be declared effective (which, if required by the SEC, shall be prior to the commencement of the Exchange Offer), a registration statement under the 1933 Act which will permit the exchange of TCI Stock for shares of Preferred Stock upon conversion thereof to be made in compliance with the 1933 Act and the rules and regulations of the SEC promulgated thereunder (the "TCI Registration Statement"). (c) Subject to the fulfillment of the conditions set forth in Section 6.1, promptly after both the Registration Statement and the TCI Registration Statement (if required pursuant to Section 2.1(b) to be declared effective prior to the commencement of the Exchange Offer) become effective, VI shall commence the Exchange Offer (and file with the SEC a Schedule 13E-4 under the 1934 Act relating to the Exchange Offer), cause the Offering Materials to be mailed to the record holders of its Common Stock and, subject to the terms and conditions of the Exchange Offer and this Agreement, take all action necessary to consummate the Exchange Offer. It is agreed that VI shall have no obligation to make a recommendation to its shareholders concerning the Exchange Offer. (d) VI shall accept for exchange, in accordance with the terms of the Exchange Offer, shares of VI Common Stock tendered prior to the Expiration Time and not theretofore withdrawn if all Exchange Offer Conditions shall have been satisfied or waived by VI in accordance with the terms of the Exchange Offer. VI agrees that it will not exercise its right to terminate the Exchange Offer as a result of the failure of an Exchange Offer Condition without a reasonable basis for believing that such Exchange Offer Condition has not been satisfied. (e) VI agrees that it will not accept for exchange shares of VI Common Stock tendered to it in the Exchange Offer and shall extend the Expiration Date (provided that the Expiration Date has not already been extended) if it receives written notice from TCI and TCI Sub to it prior to 5:00 P.M. on the date the Exchange Offer is scheduled to expire that they have determined that any Force Majeure Event has occurred (a "Force Majeure Notice"), provided that TCI and TCI Sub must have a reasonable basis for making such a determination. In the event that a Force Majeure Notice has been delivered to VI and no Force Majeure Event shall exist on the subsequent Expiration Date following extension of the Exchange Offer pursuant to Section 2.3(ii), VI may give written notice to such effect to TCI and TCI Sub prior to 5:00 p.m. on such subsequent Expiration Date, in which case such Force Majeure Notice shall be deemed to be withdrawn and of no further force and effect at 8:59 A.M. on the Business Day following the date such notice is delivered by VI. (f) TCI and TCI Sub agree to provide VI with such information with respect to TCI, TCI Sub, the Loans and, with respect to any period after the Exchange Time, Old VII or any Cable Division Subsidiary, as is necessary for VI to complete the Registration Statement in accordance with the requirements of the 1933 Act. TCI and TCI Sub covenant that the information supplied or to be supplied by TCI or TCI Sub in writing specifically for inclusion in, and which is included in, the Registration Statement or any amendment or supplement thereto, or the Offering Materials, which concerns TCI, TCI Sub, or the Loans or, with respect to any period after the Exchange Time, Old VII or any Cable Division Subsidiary (the "TCI Information"), will 12 8 not, at the respective times such documents are filed and at the Expiration Time, and, in the case of the Registration Statement or any amendment or supplement thereto, when the same becomes effective, and, in the case of the Offering Materials, at the time of mailing thereof to VI's stockholders, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or necessary to correct any statement in any earlier communication with respect to the Exchange Offer. For this purpose, any TCI Information included in any such document will be deemed to have been so supplied in writing specifically for inclusion therein if such document was available for review by TCI a reasonable time before such document was filed and not objected to in writing by TCI prior to the filing thereof. If at any time prior to the Exchange Date any event or circumstance relating to TCI, TCI Sub or any of their Affiliates or their officers or directors, the Loans or, with respect to any period after the Exchange Time Old VII or any Cable Division Subsidiary, should be discovered by TCI which should be set forth in an amendment or supplement to the Registration Statement or Offering Materials, as required by applicable law, TCI shall promptly inform VI. VI and its Affiliates, officers, directors, employees, agents, successors and assigns shall be indemnified and held harmless by TCI and TCI Sub (who shall be jointly and severally liable) for any and all liabilities, losses, damages, claims, costs and expenses (including, without limitation, attorneys' fees and expenses) actually suffered or incurred by them arising out of or resulting from any untrue statement of a material fact contained in the Registration Statement or the Offering Materials, or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, if the statement or omission was made in reliance upon and in conformity with the TCI Information. (g) VI covenants that the information in the Registration Statement and Offering Materials (other than the TCI Information) shall not, at the time (i) the Registration Statement is declared effective, (ii) the Offering Materials (or any amendment thereof or supplement thereto) is first mailed to the shareholders of VI, and (iii) at the Expiration Time contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If any time prior to the Exchange Date any event or circumstance relating to VI or any of its Affiliates or its officers or directors, should be discovered by VI which should be set forth in an amendment or a supplement to the Registration Statement or Offering Materials, as required by applicable law, VI shall promptly inform TCI and TCI Sub. TCI, TCI Sub and their Affiliates, officers, directors, employees, agents, successors and assigns shall be indemnified and held harmless by VI for any and all liabilities, losses, damages, claims, costs and expenses (including, without limitation, attorneys' fees and expenses) actually suffered or incurred by them arising out of or resulting from any untrue statement of a material fact contained in the Registration Statement or the Offering Materials, or any omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except to the extent that the statement or omission was made in reliance upon and in conformity with the TCI Information. 13 9 Section 2.2 Number of Shares of Class A Common Stock. The number of shares of Class A Common Stock that VI shall exchange for VI Common Stock in the Exchange Offer shall be a number (the "Number of Shares to be Exchanged") equal to (x) the Estimated Asset Value, minus $1,700,000,000 (one billion, seven hundred million dollars), divided by (y) $100 (the par value of the Class A Common Stock and the stated amount of the liquidation preference (before provision for accrued and unpaid dividends) of one share of the Preferred Stock.) Section 2.3 Exchange Offer Mechanics. (i) Unless otherwise agreed, the Exchange Offer shall be a "Dutch Auction" tender offer pursuant to which stockholders of VI who tender their shares of VI Common Stock shall be provided with the opportunity to state the minimum fraction of a share or shares of Class A Common Stock (an " Exchange Ratio") that such shareholder will accept in exchange for each share of such VI Common Stock accepted by VI for exchange pursuant to the Exchange Offer. The Exchange Offer shall state a maximum Exchange Ratio and a minimum Exchange Ratio, provided, that the maximum Exchange Ratio times $100 shall represent a price not less than 112.5% of the average of the Intraday Prices for a share of VI Class B Common Stock reported by the American Stock Exchange during the twenty trading day period ended the date prior to the Exchange Offer Commencement Date. The final Exchange Ratio shall be the smallest Exchange Ratio (within applicable SEC rules and regulations) equal to or less than the specified maximum Exchange Ratio (the "Final Exchange Ratio") that would result in the issuance of the Number of Shares to be Exchanged in exchange for the shares of VI Common Stock validly tendered prior to the Expiration Date, and, subject to satisfaction of all conditions to the Exchange Offer and to proration, VI shall accept for exchange at the Final Exchange Ratio all shares validly tendered and not withdrawn with respect to which an Exchange Ratio has been designated which is equal to or less than the Final Exchange Ratio. If there is no such Final Exchange Ratio, the Minimum Condition shall be deemed not met as of such expiration date. (ii) The terms of the Exchange Offer shall specify (a) that the yield on the Preferred Stock to be issued in exchange for the Class A Common Stock upon the Share Purchase Closing shall bear a dividend yield equal to (x) the yield on ten (10) year treasury bonds immediately prior to the commencement of the Exchange Offer, plus a specified spread (the "Spread") which shall not be greater than one and one-quarter (1.25) percentage points over such yield or (y) such higher dividend yield as may be specified by TCI as provided below and (b) the conversion ratio (the " Conversion Ratio") on the Preferred Stock for the conversion of the Preferred Stock into TCI Stock, which shall be based upon a percentage 14 10 premium of twenty-five percent (25%) (the "Conversion Ratio Spread") over the weighted average of the sale prices for all trades of shares of TCI Stock on NASDAQ during the twenty (20) trading days ending on the second Business Day (or such longer period as is required by the 1934 Act) prior to the expiration of the Exchange Offer. VI shall notify TCI Sub not less than fifteen (15) Business Days prior to the anticipated commencement date of the Exchange Offer (the " Anticipated Commencement Date") of such Anticipated Commencement Date. Merrill, Lynch & Co., Incorporated ("ML&Co.") and Wasserstein, Perella & Co. ("WP&Co.") shall use their best efforts to agree on the Spread not later than the fifth Business Day after the date of such notice. In the event that ML&Co. and WP&Co. are unable to agree on the Spread by such date, they shall immediately notify TCI Sub and VI of their respective positions with respect to the appropriate Spread and Smith Barney Inc. (the "Tiebreaker Investment Bank") shall select a Spread, which Spread shall be within the range of the two Spreads proposed by ML&Co. and WP&Co. Notwithstanding the foregoing, TCI shall have the right to specify a dividend yield that is higher than the dividend yield that would result from the Spread determined by ML&Co. and WP&Co. or the Tiebreaker Investment Bank, as the case may be, by giving VI written notice of such higher dividend yield by the third Business Day after the date of such determination of the Spread. Spreads shall be determined pursuant to this Section 2.3, such that, in the opinion of the entity proposing the Spread, if the Preferred Stock bears a dividend yield equal to the ten (10) year treasury bond yield plus such Spread, the Preferred Stock would be expected to trade at a price equal to the liquidation preference thereof immediately following the Exchange Date. ML&Co. and WP&Co. shall provide the Tiebreaker Investment Bank with full access to all significant information employed by them, and TCI and VI shall provide such other information that is reasonably requested in estimating the Spread. In the event that the Minimum Condition is not met on the first expiration date of the Exchange Offer, VI shall, not later than the last day permitted under the 1934 Act, extend the Exchange Offer for not less than ten (10) Business Days nor more than fifteen (15) Business Days (or such greater period as is required under the 1934 Act). During the period of the extension, TCI and VI shall negotiate in good faith in order to determine mutually acceptable terms and conditions for the Preferred Stock (including, without limitation, the dividend yield and Conversion Ratio) and the Exchange Offer (including, without limitation, the duration of any further extension thereof and the maximum Exchange Ratio) that each believes in good faith would cause the Minimum Condition to be fulfilled at the Expiration Date of a further extension of the Exchange Offer, and that would cause the Preferred Stock to trade at a price equal to the liquidation preference thereof immediately following the 15 11 Exchange Date. In the event that the parties agree with respect to such terms prior to the Expiration Date of such extension, the Exchange Offer shall be further extended to the extent mutually agreed and in accordance with the requirements of the 1934 Act. In the event that the Minimum Condition is not met at the expiration date of the Exchange Offer after such extension, either party shall have the right to terminate this Agreement pursuant to Section 7.1(f). (iii) VI shall be responsible for the fees and expenses of WP&Co. and TCI and TCI Sub shall be responsible for the fees and expenses of ML&Co., and each of VI, on the one hand, and TCI and TCI Sub, on the other hand, shall be responsible for one-half the fees and expenses of the Tiebreaker Investment Bank (which fees shall be negotiated in good faith by VI and TCI Sub). Section 2.4 Recapitalization. Subject to the fulfillment of the conditions set forth in Section 6.1, prior to the Exchange Time, VI shall cause Old VII to take the action contemplated by Section 2.1(c) of the Implementation Agreement and shall cause all of the capital stock of Old VII held by VI to be reclassified into a number of shares of Class A Common Stock equal to the Number of Shares to be Exchanged. ARTICLE III OTHER AGREEMENTS Section 3.1 Execution of Other Agreements. (a) Concurrently with the execution and delivery hereof, TCI and TCI Sub shall execute and deliver to Old VII the Subscription Agreement. (b) Concurrently with the execution and delivery hereof, VI shall cause (i) Old VII and New VII to execute and deliver to each other the Implementation Agreement and (ii) Old VII to execute and deliver to TCI and TCI Sub the Subscription Agreement. Section 3.2 Amendments of Implementation Agreement. VI agrees that prior to the Exchange Time it shall not cause or permit Old VII or New VII to amend or waive performance of any provision of the Implementation Agreement without the prior written consent of TCI or TCI Sub, provided that upon the written notice of TCI Sub delivered to VI, or upon written notice of VI delivered to TCI Sub, in either case within ninety (90) days of the date certifications under Section 617 of the Communications Act are delivered to the Local Authorities pursuant to Section 7.9(c)(iii) of the Subscription Agreement, to the effect that in its reasonable judgment consents of Local Authorities are required for the consummation of the Transaction that are not reflected on Schedule 4.9 of the Implementation Agreement, VI shall cause Old VII and New VII to amend Schedule 4.9 of the Implementation Agreement to indicate such additional Local Authorizations requiring the consent of the Local Authority for consummation of the Transaction. 16 12 Section 3.3 Designation of Agent for PCI Group. TCI and TCI Sub hereby (i) acknowledge that the PCI Subsidiaries of Old VII which were formerly includible in the consolidated federal income tax returns of the PCI Group intend to apply to the Internal Revenue Service for permission to designate Paramount Pictures Corporation or another PCI Subsidiary as the agent for the PCI Group pursuant to Treas. Reg. Section 1.1502-77(d) and (ii) agree to cooperate in attempting to have such permission granted. Section 3.4 Prohibited Transactions. TCI shall not consummate any transaction in which all or a majority in value (as determined in good faith by the management of TCI) of its assets are distributed without fair consideration to its direct or indirect stockholders unless (x) the transferee of such assets or, if such assets represent principally an equity interest in an entity, such entity, assumes, by instrument reasonably satisfactory to VI, TCI's obligations under the Transaction Documents to which TCI is a party and (y) the equity of such transferee or entity has a fair market value immediately following such transaction of at least $1,500,000,000 (one billion five hundred million dollars). Section 3.5 No Inconsistent Terms. TCI Sub and TCI covenant and agree with VI that the Loan Documentation will not contain, and that the Loans will not be made on, any Inconsistent Terms. Section 3.6 Operation of the Business. TCI and TCI Sub shall not permit Old VII or any Cable Division Subsidiary to engage in any transaction on the Closing Date other than in the ordinary course of business and other than transactions, if any, required to take place on the Closing Date by the Parents Agreement, Implementation Agreement or Subscription Agreement. Section 3.7 Right of First Offer. In the event this Agreement is terminated pursuant to Section 7.1 solely as a result of the failure of the condition set forth in Section 6.1(iv), then if at any time during the period commencing on the date of such termination and ending on the date which is eighteen (18) months after the date of such termination (the "Offer Period") VI intends to sell all or substantially all of the Business, or all or substantially all of the Bay Area System or the Puget Sound System, or all or substantially all of the stock of any Subsidiary or Subsidiaries the assets of which consist primarily of all or substantially all of the Business, the Bay Area System or the Puget Sound System (in any such case, an "Offered Business"), VI shall deliver to TCI a written notice to such effect. If TCI notifies VI in writing of its desire to conduct negotiations regarding such sale within five Business Days of its receipt of such notice from VI, VI and TCI shall negotiate in good faith during the period ending on the sixtieth day after the date of such notice by VI (the "Negotiation Period") to reach an agreement for the sale of the Offered Business to TCI. During the Negotiation Period, VI shall notify TCI of the amount, and material terms, of the consideration VI would be willing to accept for a sale of the Offered Business (a "Price Notice") on one or more occasions. If a binding agreement for a sale of the Offered Business is not reached by the end of the Negotiation Period, for a period of 120 days following the termination of the Negotiation Period VI may sell (or enter into a binding agreement to sell) the Offered Business for an aggregate consideration equal to or greater than the fair market value of the consideration set forth in the Price Notice delivered by VI during the 17 13 Negotiation Period reflecting the lowest fair market value consideration, and, if such sale is consummated, TCI shall have no further rights under this Section 3.7. If (i) at the end of such 120 day period, a binding agreement for a sale of the Offered Business has not been reached or (ii) such a binding agreement has been reached and is terminated prior to its consummation during the Offer Period, VI shall not, for the remainder of the Offer Period, if any, sell or negotiate to sell any Offered Business without complying with the procedures set forth in this Section 3.7. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF VI VI represents and warrants to TCI and TCI Sub that: Section 4.1 Corporate Existence and Power. VI (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) is authorized to transact business and is in good standing in each state in which its ownership of assets or conduct of business requires such qualification, and (iii) has all corporate powers required to carry on its business as conducted on the date hereof, with such exceptions to clauses (i), (ii) and (iii) as would not materially and adversely affect the ability of VI to consummate the Transactions to be consummated by it. Section 4.2 Corporate Authorization. The performance by VI of this Agreement and the consummation by VI of the Transactions to be consummated by it are within the corporate powers of VI and have been duly authorized by all necessary corporate action on the part of VI. The approval of the stockholders of VI is not required in order to consummate the Transaction. Section 4.3 Governmental Authorization. The execution and delivery of this Agreement by VI, and the performance by VI of this Agreement, and the consummation by VI of the Transactions to be consummated by it pursuant hereto, require no material action by or in respect of, or material filing with, any Governmental Authority other than (x) compliance with any applicable requirements of the HSR Act, the FCC Authorizations, the Non-Cable FCC Authorizations and the Local Authorizations, (y) compliance with any applicable requirements of the 1933 Act and the 1934 Act and state blue sky and securities laws in connection with the Exchange Offer and (z) those that may be applicable as a result of the regulatory status of TCI, TCI Sub or their Affiliates. Section 4.4 Consents. Except as set forth on Schedule 4.5 to the Implementation Agreement, no consent by any Person under any contract as to which VI is a party or to which its assets are subject is required or necessary for the execution and delivery of this Agreement by VI, or the performance by VI of this Agreement, or the consummation by VI of the Transactions to be consummated by it pursuant hereto with such exceptions as would not materially and adversely affect the ability of VI to consummate the Transactions to be consummated by it. 18 14 Section 4.5 Non-Contravention. The execution, delivery and performance of this Agreement by VI, and the consummation by VI of the Transactions contemplated to be consummated by it pursuant hereto, do not or before the Exchange Date will not, (x) contravene the certificate of incorporation or bylaws of VI or (y) subject to obtaining the consents set forth in Schedules 4.5, 4.9, 4.14 and 4.16 of the Implementation Agreement and subject to obtaining, making or taking the actions and filings described in clauses (x), (y) and (z) of Section 4.3, result in, or constitute a breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under any applicable Legal Requirement or any judgment, injunction, order, decree, contract, license, lease, indenture, mortgage, loan agreement, note or other agreements or instrument as to which VI is a party or by which any of its properties may be bound, the effect of which would be to materially and adversely impair the ability of VI to consummate the Transactions to be consummated by it. Section 4.6 Binding Effect. This Agreement has been duly executed and delivered by VI, and this Agreement constitutes a valid and binding obligation of VI, enforceable against VI in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. Section 4.7 Finders' Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of VI or any of its Affiliates who might be entitled to any fee or commission from TCI or TCI Sub or any of their Affiliates in connection with the execution, delivery or performance of this Agreement or the consummation of the Transactions. Section 4.8 Exchange Offer. The Exchange Offer shall be conducted in compliance with the 1933 Act, the 1934 Act and any relevant state securities laws (provided that no representation is made in this Section 4.8 as to any non-compliance resulting from actions of TCI, TCI Sub or their Affiliates or from information included in (or omitted from) the Offering Materials or Registration Statement). ARTICLE V REPRESENTATIONS AND WARRANTIES OF TCI AND TCI SUB Each of TCI and TCI Sub jointly and severally represent and warrant to VI that: Section 5.1 Corporate Existence and Power. It is (i) a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware, (ii) is authorized to transact business and is in good standing in each state in which its ownership of assets or conduct of business requires such qualification, and (iii) has all corporate powers required to carry on its business as now conducted, with such exceptions as would not materially and adversely affect its ability to consummate the Transactions to be consummated by it. Section 5.2 Corporate Authorization. The execution, delivery and performance by it of this Agreement and the consummation by it of the Transactions to be consummated by it 19 15 are within its corporate powers and have been duly authorized by all necessary corporate action on its part. Section 5.3 Governmental Authorization. The execution, delivery and performance by it of this Agreement, and the consummation by it of the Transactions to be consummated by it, require no material action by or in respect of, or filing with, any governmental body, agency, official or authority other than compliance with any applicable requirements of the HSR Act, the Non- Cable FCC Authorizations, the FCC Authorizations, and the Local Authorizations. Section 5.4 Consents. Except as set out in Schedule 5.4, no consent by any Person under any contract to which it is a party or to which its assets are subject is required or necessary for the execution, delivery and performance by it of this Agreement or the consummation by it of the Transactions to be consummated by it, with such exceptions as would not materially and adversely affect its ability to consummate the Transactions to be consummated by it. Section 5.5 Non-Contravention. The execution, delivery and performance by it of this Agreement and the consummation by it of the Transactions contemplated to be consummated by it pursuant hereto do not and will not (x) contravene its certificate of incorporation or by-laws or (y) subject to obtaining, making or taking the actions and filings described in Section 5.3, result in a, or constitute a breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under any applicable Legal Requirement or any judgment, order, decree, contract, license, lease, indenture, mortgage, loan agreement, note, security agreement or other agreement or instrument, as to which it is a party or by which any of its properties may be bound, the effect of which would materially and adversely impair its ability to consummate the Transactions to be consummated by it. Section 5.6 Binding Effect. This Agreement has been duly executed and delivered by it and this Agreement constitutes its valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. Section 5.7 Finders' Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of TCI, TCI Sub, RCS, InterMedia or any of their Affiliates who might be entitled to any fee or commission from VI or any of its Affiliates in connection with the execution, delivery or performance of this Agreement or the consummation of the Transactions. 20 16 ARTICLE VI CONDITIONS PRECEDENT Section 6.1 Conditions to Obligations of VI. The obligations of VI to take the action required to be taken by it pursuant to Sections 2.1(c) and 2.4 are subject to the satisfaction of each of the following conditions, each of which may be waived by VI (except that the conditions contained in clauses (vii) and (viii) may not be waived without the prior consent of TCI Sub, such consent not to be unreasonably withheld): (i) HSR Act. Any applicable waiting period (and any extension thereof) under the HSR Act shall have expired or been terminated without the commencement or threat of any litigation by a Governmental Authority of competent jurisdiction to restrain the consummation of the Exchange Offer, Subscription Agreement or other material action contemplated by the Transaction in any material respect. (ii) Consented Subscribers. The number of Consented Subscribers shall be not less than 90% of Estimated Exchange Date Basic Subscribers. (iii) Absence of Injunction. No order, stay, judgment or decree shall have been issued by any court and be in effect restraining or prohibiting the consummation of the Transaction in any material respect. (iv) Tax Matters. VI shall be satisfied with the treatment of the Transaction for Federal income tax purposes. (v) Subscription Agreement. The Subscription Agreement shall remain in full force and effect and there shall be no condition to TCI's, TCI Sub's or Old VII's obligations thereunder that is incapable of being satisfied at the Expiration Time. (vi) Loans. The Loan Documentation shall have been duly executed and delivered by all parties thereto and shall remain in full force and effect and VI shall have received confirmation, in form and substance satisfactory to it, that Old VII shall be able to draw down Loan Proceeds in an aggregate principal amount equal to $1,700,000,000 (one billion, seven hundred million dollars) (the "Aggregate Loan Amount") thereunder on the Expiration Date prior to the Expiration Time and such Loan Proceeds that are equal to the Aggregate Loan Amount shall be available for transfer as a contribution to New VII without condition (but without limiting VI's obligation to provide the notice required for the release of funds from the Cash Collateral Account as specified in the definition of Cash Collateral Account) prior to the Exchange Time as contemplated in the Implementation Agreement. 21 17 (vii) FCC. All consents of the FCC listed on Schedule 4.9 of the Implementation Agreement and all Non-Cable FCC Authorizations shall have been obtained and shall remain in full force and effect. (viii) Registration Statements. The Registration Statement and, if the effectiveness of the TCI Registration Statement is required by the 1933 Act or the SEC prior to the consummation of the Exchange Offer, the TCI Registration Statement shall have been declared effective, and no stop order suspending the effectiveness of the Registration Statement or, if the effectiveness of the TCI Registration Statement is required by the 1933 Act or the SEC prior to the consummation of the Exchange Offer, the TCI Registration Statement, shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the SEC. Section 6.2 Further Condition. The obligations of VI to take the action required to be taken by it pursuant to Section 2.4 is subject to the further condition that VI shall have accepted shares of VI Common Stock for exchange in the Exchange Offer in accordance with Section 2.1(d). ARTICLE VII TERMINATION Section 7.1 Termination. This Agreement may be terminated at any time prior to the Expiration Time: (a) by written consent of VI, TCI and TCI Sub; (b) by TCI or TCI Sub, if any condition contained in Article VIII of the Subscription Agreement has become incapable of satisfaction (other than if such incapacity results from actions or omissions of TCI or TCI Sub that are in contravention of the provisions of the Transaction Documents); (c) by VI, if any condition contained in Sections 6.1 or 6.2 hereof or in Article IX of the Subscription Agreement has become incapable of satisfaction (other than if such incapacity results from actions or omissions of VI or its Affiliates that are in contravention of the provisions of the Transaction Documents); (d) by TCI or TCI Sub, (x) if the Expiration Time has not occurred on or prior to the date that is twelve (12) months from the date of this Agreement (other than as a result of (i) the failure by TCI or TCI Sub to consummate the transactions contemplated hereby when all conditions to their obligations contained in Article VIII of the Subscription Agreement have been satisfied or waived, (ii) the failure by TCI or TCI Sub or their Affiliates to duly comply with 22 18 their covenants and obligations in the Transaction Documents or (iii) the failure of a condition contained in Sections 6.1 or 6.2 hereof or in Articles VIII or IX of the Subscription Agreement resulting from actions or omissions of TCI or TCI Sub or their Affiliates that are in contravention of the provisions of the Transaction Documents) or (y) if the Exchange Offer has not commenced on or prior to the date that is eleven (11) months from the date of this Agreement (other than as a result of the failure of a condition contained in Section 6.1 hereof resulting from actions or omissions of TCI or TCI Sub or their Affiliates that are in contravention of the provisions of the Transaction Documents); (e) by VI, (x) if the Expiration Time has not occurred on or prior to the date that its twelve (12) months from the date of this Agreement (other than as a result of (i) the failure by VI to consummate the transactions contemplated hereby when all conditions to its obligations contained in Section 6.1 hereof or in Article IX of the Subscription Agreement have been satisfied or waived, (ii) the failure by VI or its Affiliates to duly comply with their covenants and obligations under the Transaction Documents or (iii) the failure of a condition contained in Sections 6.1 or 6.2 hereof or in Article VIII or IX of the Subscription Agreement resulting from actions or omissions of VI or its Affiliates that are in contravention of the provisions of the Transaction Documents) or (y) if the Exchange Offer has not commenced on or prior to the date that is eleven (11) months from the date of this Agreement (other than as a result of the failure of a condition contained in Section 6.1 hereof resulting from actions or omissions of VI or its Affiliates that are in contravention of the provisions of the Transaction Documents); or (f) by TCI, TCI Sub or VI if the Exchange Offer terminates or finally expires after one extension thereof without any shares of VI Common Stock having been accepted for exchange by VI thereunder in accordance with Section 2.1(d). If TCI, TCI Sub or VI terminates this Agreement pursuant to the provisions hereof, such termination will be effected by written notice to the other parties specifying the provision hereof pursuant to which such termination is made. Section 7.2 Effect of Termination. (a) Upon termination of this Agreement pursuant to Section 7.1 hereof, except as provided in clause (b) below: (i) this Agreement will forthwith become null and void, (ii) such termination will be the sole remedy with respect to any breach of any representation, warranty, covenant or agreement contained herein and (iii) no party hereto or any of their respective officers, directors, partners, employees, agents, consultants, shareholders or principals will have any liability or obligation hereunder or with respect hereto. (b) The provisions of clause (a) above notwithstanding, no party will be relieved of: (i) liability for any breach of Articles IV and V and (ii) liability for any breach of any material covenant or agreement contained herein or made pursuant hereto, provided, however, that no party to this Agreement shall be entitled to recover consequential damages in 23 19 respect of any breach of this Agreement or any other Transaction Document. The provisions of Sections 2.1(f), 2.1(g), 2.3(iii), 3.7, 7.2, 8.1, 8.8 and 8.10 will survive termination hereof. ARTICLE VIII MISCELLANEOUS Section 8.1 Expenses. Except as expressly set forth herein, the fees and expenses (including the fees of any lawyers, accountants, investment bankers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby whether or not the Transaction is consummated will be paid by the party incurring the same. Section 8.2 Headings. The section headings herein are for convenience of reference only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof. References to Sections and Exhibits, unless otherwise indicated, are references to Sections and Exhibits hereof. Section 8.3 Notices. Any notice or other communication required or permitted to be given hereunder will be in writing and will be mailed by prepaid registered or certified mail, timely deposited with an overnight courier such as Federal Express, or delivered against receipt, as follows: (a) In the case of TCI and TCI Sub, to: Tele-Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, CO 80111-3000 Attention: Chief Executive Officer, with a copy similarly addressed to the attention of General Counsel (b) In the case of VI to: Viacom Inc. 1515 Broadway New York, NY 10036 Attention: General Counsel with a copy to: Hughes Hubbard & Reed One Battery Park Plaza New York, NY 10004 Attention: Ed Kaufmann, Esq. 24 20 or to such other address as the party may have furnished in writing in accordance with the provisions of this Section 8.3. Any notice or other communication shall be deemed to have been given, made and received upon receipt. Either party may change the address to which notices are to be addressed by giving the other party notice in the manner herein set forth. Section 8.4 Assignment. This Agreement and all provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors, however, neither this Agreement nor any right, interest, or obligation hereunder may be assigned by any party hereto (other than by operation of law) without the prior written consent of the other parties, and any such assignment or purported assignment without such consent shall be void. Section 8.5 Entire Agreement. This Agreement together with the other Transaction Documents embody the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior written or oral commitments, arrangements or understandings with respect thereto. Section 8.6 Amendment; Waiver. (a) This Agreement may only be amended or modified in writing signed by the party against whom enforcement of any such amendment or modification is sought. (b) Any party hereto may, by an instrument in writing, waive compliance with any term or provision of this Agreement on the part of such other party hereto. The waiver by any party hereto of a breach of any term or provision of this Agreement will not be construed as a waiver of any subsequent breach. Section 8.7 Counterparts. This Agreement may be executed in two or more counterparts, all of which will be considered one and the same agreement and each of which will be deemed an original. All signatures need not be on one counterpart. Section 8.8 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE. Section 8.9 Severability. If any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement will not be affected thereby, and VI, TCI and TCI Sub will use their reasonable efforts to substitute one or more valid, legal and enforceable provisions which insofar as practicable implement the purposes and intent hereof. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. Section 8.10 Consent to Jurisdiction. Each party hereby submits to the non-exclusive jurisdiction of the courts of general jurisdiction of the States of New York and Colorado and the federal courts of the United States of America, located in the City of New 25 21 York, New York, and Denver, Colorado solely in respect of the interpretation and enforcement of the provisions of this Agreement and hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement of this Agreement that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that this Agreement may not be enforced in or by such courts or that its property is exempt or immune from execution, that the suit, action or proceeding is brought in an inconvenient forum, or that the venue of the suit, action or proceeding is improper. Service of process with respect thereto may be made upon any party by mailing a copy thereof by registered or certified mail, postage prepaid, to such party at its address as provided in Section 8.3 hereof, provided that service of process may be accomplished in any other manner permitted by applicable law. Section 8.11 Third Person Beneficiaries. This Agreement is not intended and shall not be construed to confer upon any Person (other than VI, TCI and TCI Sub) any rights or remedies hereunder. Section 8.12 Specific Performance. VI, TCI and TCI Sub recognize that any breach of any covenant or agreement contained in this Agreement may give rise to irreparable harm for which money damages would not be an adequate remedy, and accordingly agree that, in addition to other remedies, any non-breaching party will be entitled to enforce the agreements and covenants contained herein of TCI and TCI Sub or VI, as the case may be, by a decree of specific performance without the necessity of proving the inadequacy as a remedy of money damages. Section 8.13 Survival. The representations and warranties contained in or made pursuant to this Agreement shall terminate and be of no further force on and as of April 30, 1997. 26 22 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed in New York, New York, as of the day and year first above written. VIACOM INC. By: ------------------------------------- Name: Title: TELE-COMMUNICATIONS, INC. By: ------------------------------------- Name: Title: TCI COMMUNICATIONS, INC. By: ------------------------------------- Name: Title: EX-2.2 3 SUBSCRIPTION AGREEMENT 1 Exhibit 2.2 - ------------------------------------------------------------------------------- SUBSCRIPTION AGREEMENT among VIACOM INTERNATIONAL INC., TELE-COMMUNICATIONS, INC. and TCI COMMUNICATIONS, INC. Dated as of July 24, 1995. - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS........................................................................... 1 Section 1.1 Definitions......................................................... 1 ARTICLE II SUBSCRIPTION AND PURCHASE OF STOCK.................................................... 7 Section 2.1 Subscription, Issuance, Purchase and Sale of Stock.................. 7 Section 2.2 Payment of Purchase Price........................................... 7 ARTICLE III CERTAIN BORROWINGS.................................................................... 8 Section 3.1 Certain Borrowings.................................................. 8 ARTICLE IV CLOSING............................................................................... 9 Section 4.1 Closing............................................................. 9 ARTICLE V REPRESENTATIONS AND WARRANTIES OF TCI AND TCI SUB..................................... 9 Section 5.1 Corporate Existence and Power....................................... 9 Section 5.2 Corporate Authorization............................................. 9 Section 5.3 Governmental Authorization.......................................... 9 Section 5.4 Consents............................................................ 10 Section 5.5 Non-Contravention................................................... 10 Section 5.6 Binding Effect...................................................... 10 Section 5.7 Finders' Fees....................................................... 10 Section 5.8 Acquisition of Shares for Investment................................ 10 Section 5.9 Preferred Stock..................................................... 11 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF OLD VII............................................. 11 Section 6.1 Corporate Existence and Power....................................... 11 Section 6.2 Corporate Authorization............................................. 11 Section 6.3 Governmental Authorization.......................................... 11 Section 6.4 Consents............................................................ 11 Section 6.5 Non-Contravention................................................... 12 Section 6.6 Binding Effect...................................................... 12 Section 6.7 Finders' Fees....................................................... 12 Section 6.8 Shares.............................................................. 12
-i- 3 TABLE OF CONTENTS (continued)
Page ---- Section 6.9 Material Contracts.................................................. 12 Section 6.10 Tank Test Reports................................................... 13 Section 6.11 Forms I-9........................................................... 13 ARTICLE VII COVENANTS............................................................................. 13 Section 7.1 Conduct of the Business............................................. 13 Section 7.2 Telecom Partnerships................................................ 14 Section 7.3 Access to Information; Confidentiality.............................. 14 Section 7.4 Additional Financial Statements and Reports......................... 15 Section 7.5 Material Adverse Changes............................................ 15 Section 7.6 Local Authorization and Material Contract Amendments................ 16 Section 7.7 Telecom Partnership Leases.......................................... 16 Section 7.8 Hart-Scott-Rodino................................................... 16 Section 7.9 Efforts; Filing and Consents........................................ 16 Section 7.10 Notices of Certain Events........................................... 20 Section 7.11 Further Assurances.................................................. 21 Section 7.12 Confidentiality of Transaction...................................... 21 Section 7.13 TCI Undertaking as to TCI Sub's Obligations......................... 21 Section 7.14 Consummation of Transaction......................................... 21 Section 7.15 Estimated Exchange Time Basic Subscribers........................... 22 Section 7.16 Estimate Statement; List of Service................................. 22 Section 7.17 Approved Capital Expenditure Plan................................... 22 Section 7.18 Reimbursement of Capital Expenditures............................... 22 Section 7.19 Sale of Dayton and Nashville Systems................................ 23 Section 7.20 Employment.......................................................... 23 Section 7.21 1996 Capital Expenditure Plan....................................... 23 ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF TCI AND TCI SUB...................................... 24 Section 8.1 Funding Conditions.................................................. 24 Section 8.2 Closing Conditions.................................................. 25 Section 8.2.1 Representations and Warranties; Covenants........................... 25 Section 8.2.2 HSR Act............................................................. 25 Section 8.2.3 Consented Subscribers............................................... 25 Section 8.2.4 Required Consents................................................... 26 Section 8.2.5 Absence of Injunction............................................... 26 Section 8.2.6 Opinions............................................................ 26
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Page ---- Section 8.2.7 Exchange Offer...................................................... 26 Section 8.2.8 Resignation of Officers and Directors............................... 26 ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF OLD VII.............................................. 26 Section 9.1 Representations and Warranties; Covenants........................... 26 Section 9.2 HSR Act............................................................. 27 Section 9.3 Consented Subscribers............................................... 27 Section 9.4 Opinions............................................................ 27 Section 9.5 Consents............................................................ 27 Section 9.6 Absence of Injunction............................................... 27 Section 9.7 Exchange Offer...................................................... 27 ARTICLE X TERMINATION........................................................................... 27 Section 10.1 Termination......................................................... 27 Section 10.2 Effect of Termination............................................... 27 ARTICLE XI MISCELLANEOUS......................................................................... 28 Section 11.1 Legend.............................................................. 28 Section 11.2 Expenses............................................................ 28 Section 11.3 Headings............................................................ 28 Section 11.4 Notices............................................................. 28 Section 11.5 Assignment.......................................................... 29 Section 11.6 Entire Agreement.................................................... 29 Section 11.7 Amendment; Waiver................................................... 30 Section 11.8 Counterparts........................................................ 30 Section 11.9 Governing Law....................................................... 30 Section 11.10 Severability........................................................ 30 Section 11.11 Consent to Jurisdiction............................................. 30 Section 11.12 Third Person Beneficiaries.......................................... 30 Section 11.13 Specific Performance................................................ 31 Section 11.14 Survival............................................................ 31 Section 11.15 Preferred Stock Conversion.......................................... 31
-iii- 5 EXHIBITS Exhibit A-1 - Old VII Opinion Exhibit A-2 - Old VII Communications Act Opinion Exhibit B - TCI Sub Opinion Exhibit C - Form of Section 617 Certification SCHEDULES Schedule 5.4 - Consents Required by Contracts of TCI and TCI Sub Schedule 7.1 - Absence of Changes Schedule 7.18 - Additional Capital Expenditures 6 SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT, dated as of July 24, 1995, by and among Viacom International Inc., a Delaware corporation ("Old VII"), Tele-Communications, Inc., a Delaware corporation ("TCI") and TCI Communications, Inc., a Delaware corporation ("TCI Sub"). WHEREAS, TCI Sub wishes to subscribe to and purchase from Old VII, and Old VII desires to issue and sell to TCI Sub 100 shares of Class B Common Stock; and WHEREAS, TCI Sub is a wholly-owned subsidiary of TCI and in order to induce Old VII to enter into this Agreement TCI is agreeing to cause TCI Sub to pay and perform all of TCI Sub's obligations under this Agreement; NOW THEREFORE, the parties hereto, in consideration of the premises and mutual promises hereinafter set forth and intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. The following terms, as used in this Agreement, shall have the following meanings (and such meanings shall be equally applicable to both the singular and plural forms of the terms defined herein): "Affiliate" shall have the meaning specified in the Implementation Agreement. "Agents" shall have the meaning specified in Section 7.3. "Aggregate Loan Amount" shall have the meaning specified in the Parents Agreement. "Agreement" shall mean this Subscription Agreement, including the Exhibits and Schedules hereto. "Amended and Restated Certificate of Incorporation" shall have the meaning specified in the Implementation Agreement. "Anticipated Commencement Date" shall have the meaning specified in the Parents Agreement. "Antitrust Laws" shall have the meaning specified in Section 7.9(b). 7 2 "Approved Capital Expenditure Plan" shall have the meaning specified in the Implementation Agreement. "Asset Value" shall have the meaning specified in the Implementation Agreement. "Basic Subscriber" shall have the meaning specified in the Implementation Agreement. "Basic Subscriber Rate" shall have the meaning specified in the Implementation Agreement. "Benefit Plans" shall have the meaning specified in the Implementation Agreement. "Business" shall have the meaning specified in the Implementation Agreement. "Business Day" shall have the meaning specified in the Implementation Agreement. "Cable Assets" shall have the meaning specified in the Implementation Agreement. "Cable Division Subsidiaries" shall have the meaning specified in the Implementation Agreement. "Cable Group" shall have the meaning specified in the Implementation Agreement. "Cable Group Bargaining Agreement" shall have the meaning specified in Section 7.20. "Cash Collateral Account" shall mean a cash collateral account maintained by Old VII at The Bank of New York into which the Loan Proceeds will be deposited in which the Lenders shall be granted a security interest to secure the Loans, the terms of which shall provide that upon notice from VI that it will consummate the Exchange Offer and that all Exchange Offer Conditions have been satisfied or waived, all funds held therein will be released without condition to Old VII on the Exchange Date immediately prior to the Conveyance of Assets and the Exchange Time for transfer to New VII as a contribution as contemplated by the Implementation Agreement. "Certificate" shall have the meaning specified in Section 4.1(c). "Class A Common Stock" shall have the meaning specified in the Parents Agreement. 8 3 "Class B Common Stock" means the Class B Common Stock, par value $0.01, of Old VII, after giving effect to the filing of the Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware. "Closing" shall have the meaning specified in Section 4.1(a). "Closing Date" shall have the meaning specified in Section 4.1(a). "Code" shall have the meaning specified in the Implementation Agreement. "Commitments to Lend" shall mean commitments of commercial banks or other lending institutions or other institutional investors reasonably acceptable to TCI Sub ("Lenders") to make the Loans in the Aggregate Loan Amount to Old VII on the Expiration Date prior to the Expiration Time. Without limitation of any other instruments that may constitute Commitments to Lend, Loan Documentation, when duly executed and delivered by the parties thereto, shall constitute Commitments to Lend. "Communications Act" shall have the meaning specified in the Implementation Agreement. "Company" shall have the meaning specified in the Implementation Agreement. "Consented Subscribers" shall mean the number of Basic Subscribers as of a date within ten days prior to the Exchange Date residing: (a) in those Franchise Areas for which Local Authority Consents have been obtained on or before such date and in respect of which the ordinances, resolutions or other appropriate governmental actions evidencing the grant of such Local Authority Consents shall not have imposed any material adverse change in the terms of the relevant Local Authorization, except for such material adverse changes as TCI Sub shall have expressly accepted or as otherwise agreed to by TCI Sub; and (b) in those Franchise Areas for which a Local Authority Consent is not required for the consummation of the Transaction. "Continuing Employee" shall have the meaning specified in Section 7.20. "Conveyance of Assets" shall have the meaning specified in the Implementation Agreement. "DOJ" shall mean the United States Department of Justice. "Estimated Exchange Date Basic Subscribers" shall have the meaning specified in Section 7.15. 9 4 "Estimate Statement" shall have the meaning specified in the Implementation Agreement. "Exchange Date" shall have the meaning specified in the Parents Agreement. "Exchange Date Basic Subscribers" shall have the meaning specified in the Implementation Agreement. "Exchange Offer" shall have the meaning specified in the Parents Agreement. "Exchange Offer Conditions" shall have the meaning specified in the Parents Agreement. "Exchange Time" shall have the meaning specified in the Parents Agreement. "Expiration Date" shall have the meaning specified in the Parents Agreement. "Expiration Time" shall have the meaning specified in the Parents Agreement. "FCC" shall have the meaning specified in the Implementation Agreement. "FCC Authorizations" shall have the meaning specified in the Implementation Agreement. "Franchise Areas" shall have the meaning specified in the Implementation Agreement. "FTC" shall mean the Federal Trade Commission. "GAAP" shall have the meaning specified in the Implementation Agreement. "Governmental Authority" shall have the meaning specified in the Implementation Agreement. "HSR Act" shall have the meaning specified in the Implementation Agreement. "Implementation Agreement" shall have the meaning specified in the Parents Agreement. "Inconsistent Terms" shall have the meaning specified in the Parents Agreement. "InterMedia" shall mean InterMedia Partners IV, L.P., a California limited partnership. "Legal Requirement" shall have the meaning specified in the Implementation Agreement. 10 5 "Lenders" shall have the meaning specified in the definition of "Commitments to Lend". "Loan Documentation" shall mean all agreements and other documentation containing terms and conditions that are reasonably acceptable to TCI Sub, which shall not contain any obligation of VI or any of its Affiliates other than Old VII (including guarantees by Old VII to be effective after the Closing), or after the Closing, a wholly-owned direct or indirect subsidiary of Old VII and containing no Inconsistent Terms and pursuant to which Lenders agree to make the Loans to Old VII on the Expiration Date prior to the Expiration Time. "Loan Proceeds" shall mean all amounts borrowed by Old VII as Loans. "Loans" shall mean loans by Lenders to Old VII, or after the Closing, a wholly-owned direct or indirect subsidiary of Old VII, pursuant to the Loan Documentation of an aggregate principal amount (after deduction of all interest, fees and other expenses paid or payable by Old VII in connection with the Loans or otherwise pursuant to the Commitments to Lend or Loan Documentation) at least equal to the Aggregate Loan Amount on terms and conditions that are reasonably acceptable to TCI Sub (which, without limitation, shall not contain any obligation of VI or any of its Affiliates other than Old VII or, after the Closing, a wholly-owned direct or indirect subsidiary of Old VII or include any Inconsistent Terms). "Local Authority Consent" shall have the meaning specified in the Implementation Agreement. "Local Authorizations" shall have the meaning specified in the Implementation Agreement. "Material Adverse Effect" shall have the meaning specified in the Implementation Agreement. "Material Contract" shall have the meaning specified in the Implementation Agreement. "Minimum Condition" shall have the meaning specified in the Parents Agreement. "New Borrowing Obligations" shall mean all liabilities and obligations of Old VII, the Cable Division Subsidiaries and, after the Closing, any wholly-owned direct or indirect subsidiary of Old VII under, with respect to or in connection with the Loan Documentation, the Commitments to Lend or otherwise to repay the Loans, including without limitation for the payment of principal, interest, premium, fees, expenses or indemnities in connection therewith. "New VII" shall have the meaning specified in the Implementation Agreement. "1995 Plan" shall have the meaning specified in Section 7.21. "1996 Capital Expenditure Plan" shall have the meaning specified in Section 7.21. 11 6 "1934 Act" shall have the meaning specified in the Parents Agreement. "1933 Act" shall have the meaning specified in the Parents Agreement. "Non-Cable FCC Authorizations" shall have the meaning specified in the Implementation Agreement. "Non-Continuing Employees" shall have the meaning specified in Section 7.20. "Offering Materials" shall have the meaning specified in the Parents Agreement. "Old VII" has the meaning specified in the preamble of this Agreement. "Old VII Bank Borrowing Condition" shall mean the Old VII Bank Borrowing Condition included in the Exchange Offer Conditions. "Parents Agreement" shall have the meaning specified in the Implementation Agreement. "Person" shall have the meaning specified in the Implementation Agreement. "Preferred Stock" shall have the meaning specified in the Parents Agreement. "Purchase Price" shall have the meaning specified in Section 2.1. "RCS" shall mean RCS Pacific, L.P., a California limited partnership. "Regulatory Approvals" shall have the meaning specified in Section 7.9(c). "SEC" shall have the meaning specified in the Parents Agreement. "Second Request" shall mean a request for additional information or documentary material pursuant to 16 C.F.R. ss. 803.20. "Shares" shall have the meaning specified in Section 2.1. "Social Contract" shall mean a negotiated settlement with the FCC resolving regulated rate disputes or challenges which imposes any obligations on the Company after the Exchange Date. "System" shall have the meaning specified in the Implementation Agreement. "TCI" shall have the meaning specified in the preamble of this Agreement. "TCI Stock" shall have the meaning specified in the Parents Agreement. "TCI Sub" shall have the meaning specified in the preamble of this Agreement. 12 7 "Telecom Agreements" shall have the meaning specified in the Implementation Agreement. "Telecom Capital Expenditure Amount" shall have the meaning specified in the Implementation Agreement. "Telecom Partnership Agreements" shall have the meaning specified in the Implementation Agreement. "Telecom Partnerships" shall have the meaning specified in the Implementation Agreement. "Transaction" shall have the meaning specified in the Parents Agreement. "Transaction Documents" shall have the meaning specified in the Parents Agreement. "Transferred Assets" shall have the meaning specified in the Implementation Agreement. "VI" shall mean Viacom Inc., a Delaware corporation. ARTICLE II SUBSCRIPTION AND PURCHASE OF STOCK Section 2.1 Subscription, Issuance, Purchase and Sale of Stock. Upon the terms and subject to the conditions set forth in this Agreement, TCI Sub hereby subscribes for and agrees to purchase, and Old VII agrees to sell, 100 shares of Class B Common Stock (the "Shares") for a purchase price of three hundred fifty million dollars ($350,000,000) (the "Purchase Price"). Upon the terms and subject to the conditions set forth in this Agreement, upon payment in full of the Purchase Price, Old VII hereby agrees to issue and sell 100 shares of Class B Common Stock to TCI Sub, and issue and deliver a certificate in the name of TCI Sub for 100 shares of Class B Common Stock. Section 2.2 Payment of Purchase Price. The Purchase Price shall be payable by wire transfer of immediately available funds to an account designated by written notice by Old VII to TCI Sub delivered at least forty-eight (48) hours prior to the Closing. 13 8 ARTICLE III CERTAIN BORROWINGS Section 3.1 Certain Borrowings. (a) As soon as practicable following the date hereof, TCI and TCI Sub shall cause Commitments to Lend (or other evidence of the willingness of Lenders to make the Loans that is acceptable to Old VII) to be delivered to Old VII. Old VII shall at such time execute and deliver the Commitments to Lend. TCI and TCI Sub shall be responsible for and pay any and all fees and expenses (including, but not limited to commitment fees) arising from the Commitments to Lend. (b) No less than ten Business Days prior to the Anticipated Commencement Date, TCI and TCI Sub shall procure the execution and delivery by Lenders of Loan Documentation. Old VII shall at such time execute and deliver such Loan Documentation. TCI Sub shall be responsible for and pay any and all fees and expenses arising from the Loan Documentation. (c) Subject to the fulfillment of the conditions set forth in Section 8.1, TCI and TCI Sub shall cause the Lenders under the Loan Documentation to make the Loans to Old VII on the Expiration Date prior to the Expiration Time and prior to the Conveyance of Assets. Old VII shall take any reasonable commercial action required to be taken by Old VII under the Loan Documentation in order to permit TCI and TCI Sub to cause the Loans to be so made on the Expiration Date prior to the Expiration Time and prior to the Conveyance of Assets, including the granting to the Lenders under the Loan Documentation of a security interest in the Cash Collateral Account and pledges of stock of the Cable Division Subsidiaries effective upon the release to Old VII of cash from the Cash Collateral Account. If the Closing does not occur within ten (10) Business Days after the Expiration Date, at the option of the Lenders, the Loans will be repaid in full from the Cash Collateral Account. (d) It is agreed by the parties hereto that (i) the Loan Proceeds will be conveyed to New VII pursuant to the Conveyance of Assets and that Old VII will retain responsibility for repayment of and will be liable and responsible for the Loans and (ii) following the Exchange Time, neither VI, New VII nor any of their Affiliates after the Exchange Time will have any liability, responsibility or obligation under or in connection with the Commitments to Lend, the Loan Documentation or otherwise for or with respect to the Loans or Loan Proceeds, including without limitation for payment of the principal, interest, fees (including Lender's attorneys' fees), expenses or indemnities, and TCI and TCI Sub shall indemnify and hold harmless New VII and its Affiliates from any such liability, responsibility or obligation. (e) Without limitation of TCI's and TCI Sub's obligations under Sections 3.1(a), (b) and (c) above, TCI and TCI Sub agree that in the event the Closing does not occur, they will be responsible for and pay (or, in the case of fees already paid, reimburse Old VII for) any and all fees and expenses (including, but not limited to, commitment fees, but not including principal and interest on principal) payable under or in connection with the Commitments to Lend, the Loan Documentation, the Loans or any action by Old VII pursuant to Sections 3.1(a), 14 9 (b) or (c) or by TCI or TCI Sub pursuant to Section 3.1(a), whether incurred before or after the date hereof and whether or not the Commitments to Lend or the Loan Documentation is entered into, and TCI and TCI Sub will indemnify and hold harmless Old VII from any and all such fees and expenses. ARTICLE IV CLOSING Section 4.1 Closing. (a) The issuance and purchase of the Class B Common Stock pursuant to Section 2.1 and the closing of the transactions herein set forth (the "Closing") shall take place at the offices of Hughes Hubbard & Reed, New York, New York on the Exchange Date immediately following the Exchange Time (the "Closing Date"). The Closing shall be deemed to be effective at the close of business on the Closing Date. (b) At the Closing, TCI Sub shall pay the Purchase Price to Old VII in the manner specified in Section 2.2. (c) At the Closing, Old VII shall deliver to TCI Sub a share certificate representing 100 shares of Class B Common Stock (the "Certificate") and a receipt executed by Old VII for the Purchase Price. ARTICLE V REPRESENTATIONS AND WARRANTIES OF TCI AND TCI SUB Each of TCI and TCI Sub jointly and severally represent and warrant to Old VII that: Section 5.1 Corporate Existence and Power. It (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware, (ii) is authorized to transact business and is in good standing in each state in which its ownership of assets or conduct of business requires such qualification, and (iii) has all corporate powers required to carry on its business as now conducted, with such exceptions as would not materially and adversely affect its ability to consummate the Transactions contemplated to be consummated by it pursuant hereto. Section 5.2 Corporate Authorization. The execution, delivery and performance by it of this Agreement and the consummation by it of the Transactions contemplated to be consummated by it pursuant hereto are within its corporate powers and have been duly authorized by all necessary corporate action on its part. Section 5.3 Governmental Authorization. The execution, delivery and performance by it of this Agreement, and the consummation by it of the Transactions 15 10 contemplated to be consummated by it pursuant hereto, require no material action by or in respect of, or filing with, any governmental body, agency, official or authority other than compliance with any applicable requirements of the HSR Act, the Non-Cable FCC Authorizations, the FCC Authorizations, and the Local Authorizations. Section 5.4 Consents. Except as set out in Schedule 5.4, no consent by any Person under any contract to which it is a party or to which its assets are subject is required or necessary for the execution, delivery and performance by it of this Agreement or the consummation by it of the Transactions contemplated to be consummated by it pursuant hereto, with such exceptions as would not materially and adversely affect its ability to consummate the Transactions contemplated to be consummated by it pursuant hereto. Section 5.5 Non-Contravention. The execution, delivery and performance by it of this Agreement and the consummation by it of the Transactions contemplated to be consummated by it pursuant hereto do not and will not (x) contravene its certificate of incorporation or by-laws or (y) subject to obtaining, making or taking actions and filings described in Section 5.3, result in or constitute a breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under any applicable Legal Requirement or any judgment, order, decree, contract, license, lease, indenture, mortgage, loan agreement, note, security agreement or other agreement or instrument as to which it is a party or by which any of its properties may be bound, the effect of which would materially and adversely impair its ability to consummate the Transactions contemplated to be consummated by it pursuant hereto. Section 5.6 Binding Effect. This Agreement has been duly executed and delivered by it and this Agreement constitutes its valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. Section 5.7 Finders' Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of TCI or TCI Sub (or InterMedia or RCS) or any of their Affiliates who might be entitled to any fee or commission from Old VII or any of the Cable Division Subsidiaries in connection with the execution, delivery or performance of this Agreement or the consummation of the Transactions contemplated hereby. Section 5.8 Acquisition of Shares for Investment. TCI Sub is acquiring the Shares for investment and not with a present view toward, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the Shares. TCI Sub agrees that the Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of (i) without registration under the 1933 Act, except pursuant to an exemption from such registration available under the 1933 Act, and (ii) except in accordance with any applicable provisions of state blue sky and securities laws. 16 11 Section 5.9 Preferred Stock. The issuance of shares of TCI Stock to Old VII upon exercise by the holders of Preferred Stock of their conversion rights as specified in the terms of the Preferred Stock has been authorized by all necessary corporate action on the part of TCI and TCI has available and has reserved sufficient shares of authorized and unissued TCI Stock to satisfy its obligation to issue shares of TCI Stock to Old VII upon conversion of the Preferred Stock. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF OLD VII Old VII represents and warrants to TCI Sub that: Section 6.1 Corporate Existence and Power. Old VII (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) is authorized to transact business and is in good standing in each state in which its ownership of assets or conduct of business requires such qualification, and (iii) has all corporate powers required to carry on its business as conducted on the date hereof, with such exceptions to clauses (ii) and (iii) as would not materially and adversely affect the ability of Old VII to consummate the Transactions contemplated to be consummated by it pursuant hereto. Section 6.2 Corporate Authorization. The Company has the corporate power to own its assets and carry on its business as currently conducted. The performance by Old VII of this Agreement and the consummation by Old VII of the Transactions contemplated to be consummated by it pursuant hereto are within the corporate powers of Old VII and have been duly authorized by all necessary corporate and shareholder action on the part of Old VII. Section 6.3 Governmental Authorization. The execution and delivery of this Agreement by Old VII, and the performance by Old VII of this Agreement, and the consummation by Old VII of the Transactions contemplated to be consummated by it pursuant hereto, require no material action by or in respect of, or material filing with, any Governmental Authority other than (x) compliance with any applicable requirements of the HSR Act, the FCC Authorizations, the Non-Cable FCC Authorizations and the Local Authorizations, (y) compliance with any applicable requirements of the 1933 Act and the 1934 Act and state blue sky and securities laws in connection with the Exchange Offer and (z) compliance with any requirements that may be applicable as a result of the regulatory status of TCI, Buyer or their Affiliates. Section 6.4 Consents. Except as set forth on Schedules 4.5, 4.9, 4.14 and 4.16 of the Implementation Agreement, no consent by any Person under any contract as to which Old VII is a party or to which its assets are subject is required or necessary for the execution and delivery of this Agreement by Old VII, or the performance by Old VII of this Agreement, or the consummation by Old VII of the Transactions contemplated to be consummated by it pursuant 17 12 hereto with such exceptions as would not materially and adversely affect the ability of Old VII to consummate the Transactions contemplated to be consummated by it pursuant hereto. Section 6.5 Non-Contravention. The execution, delivery and performance of this Agreement by Old VII, and the consummation by Old VII of the Transactions contemplated to be consummated by it pursuant hereto, do not or before the Exchange Date will not, (x) contravene the certificate of incorporation or bylaws of Old VII or (y) subject to obtaining the consents described in Schedules 4.5, 4.9, 4.14 and 4.16 of the Implementation Agreement, and subject to obtaining, making or taking the actions and filings described in clauses (x), (y) and (z) of Section 6.3, result in or constitute a breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under any applicable Legal Requirement or any judgment, injunction, order, decree, contract, license, lease, indenture, mortgage, loan agreement, note or other agreement or instrument as to which Old VII is a party or by which any of its properties may be bound, the effect of which would be to materially and adversely impair the ability of Old VII to consummate the Transactions contemplated to be consummated by it pursuant hereto. Section 6.6 Binding Effect. This Agreement has been duly executed and delivered by Old VII, and this Agreement constitutes a valid and binding obligation of Old VII, enforceable against Old VII in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. Section 6.7 Finders' Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Old VII or any of its Affiliates who might be entitled to any fee or commission from TCI or TCI Sub or, after the Exchange Time, Old VII, or any of their Affiliates in connection with the execution, delivery or performance of this Agreement or the consummation of the Transactions contemplated hereby. Section 6.8 Shares. The Shares, when paid for by and issued to TCI Sub in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and non-assessable, and will constitute all of the issued and outstanding shares of Class B Common Stock. Upon issuance of the Shares, Old VII will deliver to TCI Sub good and valid title to the Shares, free and clear of any Liens. Assuming that the representations and warranties of TCI and TCI Sub contained in Section 5.8 are true and correct in all respects at the Closing and that TCI Sub is an "accredited investor" (as such term is used in Regulation D under the 1933 Act), when issued to TCI Sub in accordance with the provisions hereof, the Shares will have been issued in accordance with the registration or qualification provisions of the 1933 Act and any relevant state securities laws or pursuant to valid exemptions therefrom. Section 6.9 Material Contracts. Old VII has made available to RCS or TCI Sub or representatives of RCS or TCI Sub, true and correct copies of all Material Contracts, including without limitation all Material Contracts that are programming agreements. 18 13 Section 6.10 Tank Test Reports. Old VII has delivered to TCI Sub or RCS copies of the most recent tank test reports relating to the tanks listed on Schedule 4.20 to the Implementation Agreement. Section 6.11 Forms I-9. Old VII has made available to TCI Sub or RCS true and complete copies of all Immigration and Naturalization Service Forms I-9 for all Continuing Employees. ARTICLE VII COVENANTS Section 7.1 Conduct of the Business. Subject to Section 7.2, and except for (v) any increase in the Basic Subscriber Rate or any other rate charged the Company's subscribers or otherwise contemplated by the Transaction Documents, (w) the incurrence of the New Borrowing Obligations, (x) the amendment of Old VII's Certificate of Incorporation contemplated by the Transaction Documents, (y) any change described in clause (a), (b) or (c) of the definition of Material Adverse Effect or described on Schedule 7.1 or (z) compliance with VI's obligations under the Parents Agreement or Old VII's obligations under the Implementation Agreement or any other event or action contemplated by the Transaction Documents, from the date hereof until the Exchange Date, Old VII shall cause the Company to conduct the Business only in the ordinary course of business consistent with past practices. Without limiting the generality of the foregoing, Old VII shall not permit the Company to do any of the following, without the consent of TCI Sub: (i) (w) enter into a Social Contract, (x) materially amend or, other than in accordance with its terms, terminate any Material Contract, or enter into any Material Contract outside of the ordinary course of business, (y) enter into any programming agreement with any programming service owned or operated by VI or any of its Subsidiaries or Affiliates, or (z) enter into any programming agreement that would require carriage of programming or is not terminable at any time by Old VII (without any out-of-pocket cost to Old VII), in each case following the date that is six months after the Closing Date; (ii) enter into any employment agreement providing for a term of employment other than as an employee at will, except as disclosed to TCI Sub (or RCS or InterMedia) on or prior to the date hereof; (iii) increase the rate of compensation or bonus payments to any employee of the Company, except in the ordinary course of 19 14 business and except for bonus payments in conjunction with the Transaction where the cost is borne by New VII or VI; (iv) sell or dispose of assets relating to the Business (other than Transferred Assets) except for sales or dispositions of assets in the ordinary course of business, provided that such assets (other than assets listed as vacant land on Schedule 4.19 of the Implementation Agreement) are replaced with other assets in the ordinary course of business; (v) amend the certificate of incorporation or by-laws (or other such governing instruments with different names) of Old VII or any Cable Division Subsidiary; (vi) issue or sell any shares of the capital stock of Old VII or any Cable Division Subsidiary (except for shares of the Class A Common Stock which are issued as contemplated by Section 2.4 of the Parents Agreement); (vii) incur any indebtedness for borrowed money outside the ordinary course of business (other than the New Borrowing Obligations); and (viii) extend the term of (or fail to exercise a right of termination with respect to) the Company's programming agreement with the Science Fiction Channel or Comedy Central. Section 7.2 Telecom Partnerships. Prior to the Exchange Date, Old VII shall cause the Company to make or cause to be made, when due and payable, all capital contributions required to be made by the Company under, and shall otherwise comply in all material respects with all material terms and conditions of, the Telecom Partnership Agreements. Old VII shall use commercially reasonable efforts prior to the Exchange Time to formalize and enter into agreements with each Telecom Partnership covering the lease, license or use by such Telecom Partnership of the plant, property and equipment of the Company relating to capital expenditures covered by the definition of Telecom Capital Expenditure Amount, to the extent such lease, license or use is not otherwise covered by the Telecom Agreements. Old VII shall not sell, transfer or assign its interest in the Telecom Partnerships. Section 7.3 Access to Information; Confidentiality. Old VII shall cause the Company to give TCI Sub, its counsel, financial advisors, accountants and other authorized representatives reasonable access during normal business hours to the offices, properties, books and records of the Company, and to furnish to TCI Sub, its counsel, financial advisors, accountants and authorized representatives such financial and operating data and other 20 15 information as such Persons may reasonably request. Prior to the Exchange Time, TCI Sub shall, and shall cause its Affiliates, and its and their respective officers, directors, employees, attorneys, financial advisors, accountants, authorized representatives and agents (collectively, "Agents"), to keep secret and retain in strictest confidence any and all confidential information relating to the Business or the Systems or otherwise not available to the general public (provided that such confidential information shall not include any information that (i) has become generally available to the public other than as a result of a disclosure by TCI Sub, its Affiliates or its Agents, (ii) has been independently developed by TCI Sub or such Affiliate of TCI Sub or (iii) was available to TCI Sub or an Affiliate of TCI Sub on a nonconfidential basis from a third party having no obligation of confidentiality to Old VII or any Affiliate of Old VII and which has not itself received such information directly or indirectly in breach of any such obligation of confidentiality), and shall not disclose such confidential information, and shall cause its Affiliates and Agents not to disclose such confidential information, to any Person other than TCI Sub, its Affiliates, or their respective Agents who have a need to know such confidential information, except as may be required by law or legal process (in which event TCI Sub shall so notify Old VII as promptly as practicable (and if possible, prior to making such disclosure) and, if requested by Old VII, shall seek confidential treatment of such information). Section 7.4 Additional Financial Statements and Reports. As soon as available, Old VII shall furnish TCI Sub with a consolidated balance sheet and related statement of income of the Company for all fiscal quarters ending after June 30, 1995 but prior to the Exchange Date certified by the Chief Financial Officer of Old VII to present fairly in all material respects in conformity with GAAP, the financial position and results of operations of the Company at and for the fiscal quarter then ended, except to the extent that such unaudited financial statements omit footnotes (and the disclosure contained therein) and are subject to normal quarter - end and/or year - end adjustments. Promptly following filing with the SEC, Old VII shall deliver copies of each Annual Report on Form 10 - K, Quarterly Report on Form 10 - Q, Current Report on Form 8 - K and definitive proxy statement filed by VI or Old VII with the SEC (in each case without exhibits) and each prospectus of VI or Old VII filed with the SEC under the 1933 Act (other than any prospectus related to securities offered to employees). Promptly after the preparation thereof, Old VII will deliver to TCI Sub (a) copies of (i) each final monthly profit and loss statement for the Business, (ii) each final monthly capital spending statement for the Business, and (iii) final monthly customer reports for the Business showing the number of limited, tier and premium households and (b) to the extent that any statement referred to in clause (a)(i), (a)(ii) or (a)(iii) above is available on a System or combined System basis, copies of such statement or report on such basis; provided, however, that Old VII does not and shall not be deemed to have made any representations or warranties as to any such statement or report. Section 7.5 Material Adverse Changes. Old VII shall promptly notify TCI Sub in writing of any material adverse developments affecting any System which become known to Old VII, including, without limitation: (a) any material adverse change in the condition, financial or otherwise, of any System; (b) any material damage, destruction or loss (whether or not covered by insurance) adversely affecting any Cable Asset or material to any System; (c) any material notice of violation, forfeiture or complaint under any Local Authorization; or 21 16 (d) anything which, if not corrected prior to the Exchange Date, will prevent Old VII from fulfilling any condition precedent described in Article VIII. Section 7.6 Local Authorization and Material Contract Amendments. (a) Old VII shall assist TCI Sub in obtaining modifications, renewals or extensions of the terms of Local Authorizations, as necessary to the extent Old VII determines that such modification, renewal or extension will not have an adverse effect on the transfer of such Local Authorization, so that all will have unexpired terms for at least five (5) years after the Exchange Date; provided that such modifications, renewals or extensions shall be upon terms reasonably satisfactory to TCI Sub and Old VII. (b) Old VII shall consider in good faith any request by TCI Sub that the Company seek to amend a Material Contract (other than any contract or agreement between Old VII and VI or Affiliates of VI), and Old VII shall, at TCI Sub's expense, seek to amend such Material Contract on the terms requested by TCI Sub so long as both such amendment and seeking such amendment would not in Old VII's good faith opinion have any adverse effect on the ability of the Company or any Affiliate of Old VII to consummate the Transaction. Section 7.7 Telecom Partnership Leases. Old VII shall use reasonable commercial efforts to cause each Telecom Partnership to enter into leases with respect to its communications plant as required by the Telecom Partnership Agreements. Section 7.8 Hart-Scott-Rodino. As soon as practicable (and in any event within ten (10) Business Days after the date of this Agreement), if required by applicable Legal Requirements, TCI Sub, and Old VII shall complete and file, or cause to be completed and filed, any notification and report required to be filed under the HSR Act in connection with the Transaction. TCI, TCI Sub and Old VII shall promptly take or cause to be taken any additional action that may be necessary, proper or advisable, will cooperate to prevent inconsistencies between their respective filings and will furnish to each other such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of necessary filings or submissions under the HSR Act. TCI Sub and Old VII shall use commercially reasonable efforts (including the filing of a request for early termination) to obtain the early termination of the waiting period under the HSR Act. TCI Sub and Old VII will each pay one-half of the fee payable in connection with the filing of such notification and report under the HSR Act. Section 7.9 Efforts; Filing and Consents. (a) General. Each of Old VII and TCI Sub shall take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary or advisable to consummate and make effective as promptly as practicable the Transaction and to cooperate with the other in connection with the foregoing, including using its reasonable commercial efforts: (i) to obtain all Local Authority Consents (but without Old VII being required to provide any consideration therefor); 22 17 (ii) to obtain (but without Old VII being required to provide any consideration therefor) all necessary consents from other parties to Material Contracts; (iii) to obtain (but without Old VII being required to provide any consideration therefor) all consents, actions and authorizations that are required to be obtained under applicable Legal Requirements in order to consummate the Transaction; (iv) to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the Transaction; (v) to effect all necessary registrations and filings and submissions of information requested by Governmental Authorities; and (vi) to fulfill all conditions to this Agreement. Each of Old VII and TCI Sub shall, with respect to a threatened or pending action seeking a preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order that would adversely affect the ability of the parties and their Affiliates to consummate the Transaction, use its best efforts to prevent the entry, enactment or promulgation thereof, as the case may be. (b) Antitrust Matters. In furtherance and not in limitation of the foregoing, Old VII, TCI and TCI Sub shall use their reasonable commercial efforts to resolve such objections, if any, as may be asserted with respect to the Transaction under any antitrust or trade regulatory laws of any government or Governmental Authority ("Antitrust Laws"). If any such objection is made or any suit is instituted challenging any part of the Transaction as violative of any Antitrust Law, Old VII, TCI and TCI Sub shall use reasonable commercial efforts to take such reasonable action as may be required, as the case may be: (i) by the applicable government or Governmental Authority (including, without limitation, the FCC, DOJ or FTC) in order to promptly resolve such objections as such government or authority may have to such transactions under such Antitrust Law; or (ii) by any court or similar tribunal, in any suit brought by a private party or Governmental Authority challenging the transactions contemplated hereby as violative of any Antitrust Law, in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order 23 18 or other order that has the effect of preventing the consummation of any of such transactions. Each of Old VII, TCI and TCI Sub shall promptly inform the other of any material communication from the FCC, DOJ or FTC or any other Governmental Authority regarding any matter related to the Antitrust Laws as they bear upon the Transaction. If either Old VII, TCI or TCI Sub receives a request for additional information or documentary material (including without limitation a Second Request) from any Governmental Authority with respect to the Transaction, such party will, after consultation with the other, supply any such requested information or documentary material as promptly as practicable (it being understood that this obligation does not preclude a party from negotiating with such Governmental Authority regarding the scope of and content of such requested information provided such negotiations are conducted as promptly as practicable). (c) Consents Process. Old VII and TCI Sub shall use their best efforts (including, without limitation, by attendance at FCC or state regulatory hearings, City Council or similar or related meetings and hearings before state, local and county administrative bodies, by giving the other reasonable notice of the time and date of such meetings and hearings and by responding promptly to any requests by Governmental Authorities) to apply for and obtain, and shall cooperate and assist one another in applying for and obtaining, all requisite consents, actions and authorizations (including ordinances or resolutions approving transfers) of Governmental Authorities (the "Regulatory Approvals") required to be received by or on the part of Old VII, New VII, VI or TCI Sub in order to consummate the Transaction contemplated by this Agreement. Without limiting the foregoing, in respect of all such applications for such Regulatory Approvals: (i) Old VII will coordinate the efforts to obtain the necessary consents of the Local Authorities. In this role, Old VII shall submit all filings required by the Local Authorities after TCI Sub has reviewed and approved the same. TCI Sub will be responsible for negotiating with the Local Authorities the form of the Local Authorizations, which will be provided to Old VII for its prior review and approval. (ii) TCI Sub will coordinate the effort to obtain all FCC Authorizations. (iii) Form 394's or, with the consent of Old VII, amendments to Form 394's (which shall include all information required by the Local Authorities including pro forma and price allocations if required or requested) shall be completed by TCI Sub for each franchise, as identified in Schedule 4.9 to the Implementation Agreement, as requiring consent. The Form 394's (or amendments to Form 394's) shall be in form 24 19 and substance acceptable to Old VII and delivered to Old VII within twenty (20) Business Days from the date hereof (or within five (5) Business Days of any amendment of Schedule 4.9 to the Implementation Agreement that gives rise to the need to file such Form 394). Old VII shall be responsible for the filing of the Form 394's (or amendments to Form 394's) and shall file certifications under Section 617 of the Communications Act promptly after the date hereof for each Local Authorization not identified as requiring consent in Schedule 4.9 to the Implementation Agreement. Such certifications under Section 617 of the Communications Act shall be prepared by Old VII, shall be substantially in the form attached hereto as Exhibit C, and shall state that such Local Authority consent is not required for consummation of the Transaction. (iv) After the Form 394's (or amendments to Form 394's) are filed, TCI Sub and Old VII shall respond to all lawful requests from Local Authorities for additional information as soon as reasonably practicable after the receipt of such request. If TCI Sub receives requests which it deems to be unlawful, TCI Sub shall use its best efforts to seek to resolve the issues with the Local Authorities as soon as practicable. If a resolution cannot be reached within this time frame, Old VII and TCI Sub will agree upon appropriate administrative or judicial procedures to achieve such a clarification. (v) Old VII shall consult with TCI Sub in connection with proceedings relating to any renewal of a Local Authorization, and, insofar as Old VII is concerned, TCI Sub may participate in such proceedings, subject to Old VII's control. TCI Sub agrees to accept the Local Authorizations on their terms existing and in effect as of the date hereof, with such changes in the case of Local Authorizations that are renewed prior to the Closing Date as are not materially adverse to TCI Sub. (vi) Old VII and the Cable Division Subsidiaries and New VII and its Affiliates shall not be obligated to agree to any continuing obligation under any Local Authorization as a condition of any consent or approval to the consummation of the Transaction (provided that TCI Sub may agree on its 25 20 own behalf to such a continuing obligation so long as it would not have an effect on the calculation of the Asset Value). (vii) TCI Sub and Old VII shall each be responsible for its own out-of-pocket costs incurred in applying for and obtaining all of the Regulatory Approvals. (viii) TCI Sub and Old VII shall provide each other with informal weekly progress reports with respect to the status of obtaining the Regulatory Approvals consisting of such information as the parties may from time to time reasonably request. (ix) TCI Sub and Old VII shall provide to each other copies of all correspondence between any franchising authority, the FCC, any federal, city, state or local Governmental Authority or regulatory body having jurisdiction and their respective agents and advisers in connection with the Regulatory Approvals and the sender of such correspondence will provide to the other a copy in advance of its sending. (x) If any regulatory or judicial proceeding arises from a dispute relating to the process of obtaining the Regulatory Approvals, Old VII shall have the right to name the legal counsel to defend against such action subject to the consent of TCI Sub. Such expenses shall be borne by TCI Sub and Old VII in equal shares. If there should be any change in Legal Requirements applicable to obtaining Regulatory Approvals after the date hereof, the parties shall, to the extent necessary, adapt the procedures set forth in paragraphs (i) - (x) above to take into account such changes. Section 7.10 Notices of Certain Events. Each of TCI and TCI Sub, on the one hand, and Old VII, on the other hand, shall promptly notify the other of: (a) any notice or other communication received from any Person (other than with respect to consents identified on any Schedule to this Agreement, the Implementation Agreement or the Parents Agreement) alleging that the consent of such Person is or may be required in connection with the Transaction; (b) any notice or other communication from any governmental or regulatory agency or authority in connection with the Transaction; 26 21 (c) any actions, suits, claims, investigations or proceedings commenced, or to its knowledge threatened, against, relating to, involving or otherwise affecting Old VII, TCI, TCI Sub or their Affiliates, relating to the consummation of the Transaction; (d) any information known to such party that indicates that any representation and warranty contained herein will not be true and correct in any material respect as of the Exchange Time; and (e) the occurrence of any event known to such party which will result, or has a reasonable prospect of resulting, in the failure to satisfy a condition specified in Article VIII or IX hereof. Section 7.11 Further Assurances. From time to time after the Exchange Time and without further consideration, the parties will execute and deliver, or arrange for the execution and delivery of such other instruments of conveyance and transfer or other instruments or documents and take or arrange for such other actions as may reasonably be requested to complete more effectively the Transaction, to confirm the transfer to TCI Sub of title to the Shares as provided herein, and to vest in TCI Sub all rights of a record owner of the Shares. Old VII shall use its reasonable commercial efforts (but without Old VII being required to incur any out-of-pocket expenses or costs) to remove or clear any defects to its title to real property. Section 7.12 Confidentiality of Transaction. Prior to the Exchange Time, other than the release of information required by Lenders to Old VII or its Affiliates or by applicable law (including, but not limited to, the preparation and dissemination of the Offering Materials in the Exchange Offer), each party shall, and shall cause its respective Affiliates, directors, officers, agents and employees to, keep the existence and terms of this Agreement confidential, except as the disclosure thereof may be required by law or pursuant to any listing agreement with, or the rules or regulations of, any national securities exchange on which securities of such party or any such Affiliate are listed or traded or except as may be required to satisfy the "due diligence" inquiries of any purchaser or underwriter with respect to any securities of such party or Affiliate or of any lender to such party or Affiliate. Any press release concerning this Agreement or the Transaction must be jointly approved by the parties prior to its release. Section 7.13 TCI Undertaking as to TCI Sub's Obligations. TCI hereby agrees with Old VII to cause TCI Sub to pay when due all of TCI Sub's payment obligations under this Agreement and to perform when due all of TCI Sub's other obligations under this Agreement. Section 7.14 Consummation of Transaction. Each of TCI, TCI Sub and Old VII shall use reasonable commercial efforts to consummate and make effective as promptly as practicable the Transaction, and will not take any action that would cause the consummation of the Transaction to result in a violation of the Communications Act or the rules and regulations promulgated thereunder that would materially and adversely impair the ability of the parties and their Affiliates to consummate the Transaction. 27 22 Section 7.15 Estimated Exchange Time Basic Subscribers. Prior to the Anticipated Commencement Date, Old VII will determine in good faith its estimates of Exchange Date Basic Subscribers ("Estimated Exchange Date Basic Subscribers"). At least five (5) Business Days prior to the Anticipated Commencement Date, Old VII will deliver to TCI Sub a statement setting forth Estimated Exchange Date Basic Subscribers, which statement shall: (i) contain the information in reasonable detail required to calculate Estimated Exchange Date Basic Subscribers; (ii) be prepared in accordance with the requirements of this Agreement; and (iii) be certified by an authorized officer of Old VII to be Old VII's good faith estimate as of the date thereof. Old VII shall not be deemed to have made any representations or warranties as to the statements delivered pursuant to this Section, except that they were prepared in good faith. Section 7.16 Estimate Statement; List of Service. Old VII will, at the time it delivers an Estimate Statement or a statement described in the third sentence of Section 3.1 of the Implementation Agreement to New VII, deliver a copy thereof to TCI Sub. Old VII will, at the time it delivers to New VII a list setting forth the service accrued by each Continuing Employee pursuant to Section 8.1(b) of the Implementation Agreement, deliver a copy thereof to TCI Sub. Section 7.17 Approved Capital Expenditure Plan. Old VII shall make or cause to be made the capital expenditures called for by the Approved Capital Expenditure Plan in all material respects except that Old VII shall not be required to make or cause to be made (i) expenditures which were required by law at the time the Approved Capital Expenditure Plan was approved but are no longer so required, (ii) expenditures which TCI Sub has agreed in writing do not have to be made, (iii) expenditures which it is commercially unreasonable to make because the assumptions used in developing and underlying the Approved Capital Expenditure Plan prove to be incorrect in any material respect and (iv) expenditures which cannot be made for reasons not within Old VII's control (including, without limitation, unavailability of equipment, lack of access to real property, delays in orders being filled, unavailability of pole attachment agreements and force majeure). In the event clause (iii) above is applicable, Old VII and TCI Sub shall cooperate and negotiate in good faith to amend the Approved Capital Expenditure Plan to preserve for the parties, to the extent reasonably practicable and commercially reasonable, the economic benefits originally intended to be afforded by the expenditures not made as a consequence of clause (iii) above. Section 7.18 Reimbursement of Capital Expenditures. If this Agreement terminates without the Exchange Time having occurred, TCI Sub shall reimburse Old VII for the amount of additional capital expenditures that the Company shall have made after January 20, 1995 as a result of complying with RCS's or TCI Sub's rebuild standards as determined pursuant to the Approved Capital Expenditure Plan. The incremental costs per mile of such capital expenditures made prior to the date hereof are set forth under column A on Schedule 7.18 and of such capital expenditures made after the date hereof are set forth under column B on Schedule 7.18. TCI Sub shall promptly pay to Old VII the amount of all such expenditures as to which Old VII has provided to TCI Sub documentation establishing that such expenditures were made, provided that no such payment shall be required earlier than the fifth Business Day after the date of such termination, and the aggregate amount of such payments shall not exceed 28 23 $6,215,000 if the Exchange Date occurs on or prior to December 31, 1995 or $11,495,000 if the Exchange Date occurs after December 31, 1995, unless TCI Sub shall have approved the capital expenditures to which such reimbursements in excess of such amount relate. Notwithstanding any provision of any Transaction Document, Old VII shall not be required to make any capital expenditure in order to comply with RCS's or TCI Sub's rebuild standards if it would not be reimbursed for the incremental cost thereof pursuant to this Section 7.18 upon the termination of this Agreement without the Exchange Time having occurred. Section 7.19 Sale of Dayton and Nashville Systems. Old VII will cooperate with TCI Sub on a reasonable basis in seeking consents to the Transaction in a manner that will facilitate the sale or exchange by Old VII of the Dayton and Nashville Systems on or after the day following the Closing Date, provided that Old VII will not be required to cooperate with TCI Sub pursuant to this Section 7.19 to the extent such cooperation involves any out-of-pocket expenditure by Old VII or could in Old VII's judgment reasonably be expected to delay the Exchange Date. Section 7.20 Employment. (a) Not less than 120 days prior to the Exchange Date, Old VII shall provide to TCI Sub a list of all active employees of the Company as of a recent date showing then current job titles, work locations and rates of compensation. Within twenty-five (25) days after Old VII's delivery of such list, TCI Sub shall notify Old VII in writing of which employees TCI Sub or its Affiliates intend to retain as employees of the Company (the "Continuing Employees") and which employees TCI Sub and its Affiliates do not intend to retain as employees of the Company (the "Non - Continuing Employees") after the Exchange Time, provided, however, that TCI Sub shall not require the Company to and the Company shall not violate any applicable employment discrimination laws, any contractual or promissory rights of any employee or the terms of any collective bargaining agreement then in effect with respect to any employee of the Company covered by such agreement ("Cable Group Bargaining Agreement"). All employees of the Company immediately prior to the Exchange Time which are Non-Continuing Employees shall not be retained by the Company after the Exchange Time. (b) After the date Old VII provides to TCI Sub a list of active employees of the Company pursuant to paragraph (a) above, TCI Sub may, by notice to Old VII stating that TCI Sub is in good faith considering designating such an employee a Continuing Employee, request that it be given access to any employment agreement between such employee and Old VII or any Cable Division Subsidiary, in which case Old VII will offer TCI Sub access to such agreement. (c) Old VII has provided to TCI Sub true and complete copies of the most recent Internal Revenue Service Form 5500 with respect to each Benefit Plan which is tax qualified under Code Section 401(a) and which covers employees or former employees of the Company. Section 7.21 1996 Capital Expenditure Plan. Old VII and TCI Sub shall in good faith endeavor to agree on a capital expenditure plan for the Company for 1996 (the "1996 29 24 Capital Expenditure Plan"). If Old VII and TCI Sub cannot agree on a 1996 Capital Expenditure Plan by December 31, 1995, the 1996 Capital Expenditure Plan shall be prepared by Old VII and shall provide for quarterly aggregate capital expenditures not in excess of the amount required to be spent pursuant to the capital expenditure plan attached as Exhibit A to the Implementation Agreement (the "1995 Plan") plus an amount equal to the percentage growth in the consumer price index for 1995 (expressed as a decimal) multiplied by such amount, provided that such amount shall be allocated among different categories of expenditures in a manner consistent with the 1995 Plan with such changes as are consistent with the progress of rebuilds and other projects reflected thereon. ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF TCI AND TCI SUB Section 8.1 Funding Conditions. The obligations of TCI and TCI Sub to take the action required to be taken by them pursuant to Section 3.1(c) shall be subject to the satisfaction of each of the following conditions, each of which may be waived by TCI and TCI Sub: (i) HSR Act. Any applicable waiting period (and any extension thereof) under the HSR Act shall have expired or been terminated without the commencement or threat of any litigation by a Governmental Authority of competent jurisdiction to restrain the consummation of the Transaction contemplated by this Agreement in any material respect. (ii) Consented Subscribers. The number of Consented Subscribers shall be not less than 90% of Estimated Exchange Date Basic Subscribers. (iii) Absence of Injunction. No order, stay, judgment or decree shall have been issued by any court and be in effect restraining or prohibiting the consummation of the Transaction in any material respect. (iv) Conditions to Exchange Offer. All Exchange Offer Conditions (other than the Minimum Condition and the Old VII Bank Borrowing Condition) shall have been satisfied or waived. (v) Other Conditions. No condition contained in Section 8.2 shall have become incapable of satisfaction. 30 25 (vi) Certificate. Old VII shall have delivered to TCI Sub a certificate in which it certifies that to its knowledge the conditions set forth in Section 8.2 are reasonably likely to be satisfied. Section 8.2 Closing Conditions. The obligations of TCI Sub required to be performed by TCI Sub at the Closing are subject to the satisfaction, at or prior to the Expiration Time (or, in the case of the conditions set forth in Sections 8.2.1(c) and 8.2.7, the Closing), of each of the following conditions, each of which may be waived by TCI Sub: Section 8.2.1 Representations and Warranties; Covenants. (a) Each representation and warranty of Old VII contained in Article VI of this Agreement and each representation and warranty of New VII in Article IV of the Implementation Agreement that (i) is qualified by a reference therein to "Material Adverse Effect", shall be true and correct as of the Expiration Time as though such representation and warranty was made at and as of such time (except to the extent a different date is specified therein, in which case such representation and warranty will be true and correct as of such date), or (ii) is not so qualified, shall be true and correct as of the Expiration Time as though such representation and warranty were made at and as of such time (except to the extent a different date is specified therein, in which case such representation and warranty will be true and correct as of such date), with such exceptions that do not, individually or in the aggregate, result in a Material Adverse Effect, and except in the case of both clauses (i) and (ii) for changes occurring after the date of this Agreement (x) pursuant to the terms of Transaction Documents, (y) not prohibited by Section 7.1 or (z) consented to by RCS prior to the date hereof or by TCI Sub. (b) Each material covenant and obligation of Old VII and New VII required by this Agreement or the Implementation Agreement to be performed by it at or prior to the Expiration Time will have been duly performed and complied with in all material respects as of the Expiration Time. (c) Old VII shall have delivered the Certificate to TCI Sub. (d) TCI Sub shall have received a certificate, dated as of the Closing Date and duly executed by an executive officer of Old VII on behalf of Old VII, to the effect that the conditions set forth in Section 8.2.1(a) and Section 8.2.1(b) have been satisfied. Section 8.2.2 HSR Act. Any applicable waiting period (and any extension thereof) under the HSR Act will have expired or been terminated without the commencement or threat of any litigation by a Governmental Authority of competent jurisdiction to restrain the consummation of the transactions contemplated by this Agreement in any material respect. Section 8.2.3 Consented Subscribers. The number of Consented Subscribers shall be not less than 90% of Estimated Exchange Date Basic Subscribers. 31 26 Section 8.2.4 Required Consents. Notwithstanding the provisions of Sections 2.2 and 2.3 of the Implementation Agreement, all consents required to be obtained by VI or Old VII in connection with the transactions contemplated by this Agreement shall have been obtained and remain in full force and effect, with such exceptions as would not have a Material Adverse Effect. Section 8.2.5 Absence of Injunction. No order, stay, judgment or decree shall have been issued by any court and be in effect restraining or prohibiting the consummation of the Transaction in any material respect. Section 8.2.6 Opinions. Legal opinions of counsel to Old VII (who may be the general counsel or deputy general counsel of VI or any Affiliate thereof with respect to Exhibit A-1 only) given as of the time immediately prior to the Exchange Time and covering the substance of the matters set forth in Exhibits A-1 and A-2 shall be delivered to TCI Sub. Section 8.2.7 Exchange Offer. The Exchange Time shall have occurred. Section 8.2.8 Resignation of Officers and Directors. Old VII shall have delivered to TCI Sub the resignation of each of its directors and corporate officers, effective as of the Closing. ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF OLD VII The obligations of Old VII to be performed by Old VII at the Closing are subject to the satisfaction, at or prior to the Expiration Time (or, in the case of the conditions set forth in Sections 9.1(c) and 9.7, the Closing) of each of the following conditions, each of which may be waived by Old VII: Section 9.1 Representations and Warranties; Covenants. (a) Each representation and warranty of TCI and TCI Sub contained in Article V of this Agreement will be true and correct in all material respects as of the Expiration Time as though such representation and warranty was made at and as of such time (except to the extent a different date is specified therein, in which case such representation and warranty will be true and correct as of such date). (b) Each material covenant and obligation of each of TCI and TCI Sub required by this Agreement to be performed by it at or prior to the Expiration Time will have been duly performed and complied with in all material respects as of the Expiration Time. (c) TCI Sub shall have paid the Purchase Price to Old VII in the manner specified by Section 2.2. 32 27 (d) Old VII will have received a certificate, dated as of the Closing Date and duly executed by an executive officer of TCI Sub to the effect that the conditions set forth in Sections 9.1(a) and 9.1(b) have been satisfied. Section 9.2 HSR Act. Any applicable waiting period under the HSR Act (and any extension thereof) shall have expired or been terminated without the commencement or threat of any litigation by a Governmental Authority of competent jurisdiction to restrain the consummation of the Transaction contemplated by this Agreement in any material respect. Section 9.3 Consented Subscribers. The number of Consented Subscribers shall not be less than 90% of Estimated Exchange Date Basic Subscribers. Section 9.4 Opinions. A legal opinion of counsel to TCI and TCI Sub (who may be the general counsel or deputy general counsel of TCI, TCI Sub or any Affiliate thereof) covering the substance of the matters set forth on Exhibit B shall be delivered to Old VII. Section 9.5 Consents. All consents required to be obtained by TCI and TCI Sub in connection with the transactions contemplated hereby shall have been obtained and remain in full force and effect, with such exceptions as do not result in a material adverse effect on TCI's and TCI Sub's ability to consummate the transactions contemplated hereby. Section 9.6 Absence of Injunction. No order, stay, judgment or decree will have been issued by any court and be in effect restraining or prohibiting the consummation of the Transaction in any material respect. Section 9.7 Exchange Offer. The Exchange Time shall have occurred. ARTICLE X TERMINATION Section 10.1 Termination. This Agreement shall automatically terminate upon any termination of the Parents Agreement pursuant to Section 7.1 thereof. Section 10.2 Effect of Termination. (a) Upon termination of this Agreement pursuant to Section 10.1 hereof, except as provided in clause (b) below (i) this Agreement will forthwith become null and void, (ii) such termination will be the sole remedy with respect to any breach of any representation, warranty, covenant or agreement contained in or made pursuant to this Agreement and (iii) no party hereto or any of their respective officers, directors, employees, agents, consultants, shareholders or principals will have any liability or obligation hereunder or with respect hereto; provided, however, that no party to this Agreement shall be entitled to recover consequential damages in respect of any breach of this Agreement or any other Transaction Document. 33 28 (b) The provisions of clause (a) above notwithstanding, no party will be relieved of: (i) liability for any breach of representations and warranties of Articles V and VI (other than Sections 6.9, 6.10 and 6.11 hereof), and (ii) liability for any breach of any material covenant or agreement contained herein or made pursuant hereto (for purposes of this Section 10.2 the covenants and agreements of TCI and TCI Sub contained in Sections 2.2 and 3.1, and the obligations of Old VII contained in Section 2.1, will be deemed to be material). The provisions of Sections 3.1(e), 7.12, 7.13 (insofar as it applies to the provisions referred to in this sentence), 7.18, 10.2, 11.2, 11.9 and 11.11 will survive termination hereof. ARTICLE XI MISCELLANEOUS Section 11.1 Legend. The certificates representing the Shares shall bear the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. Section 11.2 Expenses. Except as expressly set forth herein, the fees and expenses (including the fees of any lawyers, accountants, investment bankers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby whether or not the transactions contemplated hereby are consummated will be paid by the party incurring the same. Section 11.3 Headings. The Section headings herein are for convenience of reference only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof. References to Sections and Exhibits, unless otherwise indicated, are references to Sections and Exhibits hereof. Section 11.4 Notices. Any notice or other communication required or permitted to be given hereunder will be in writing and will be mailed by prepaid registered or certified mail, timely deposited with an overnight courier such as Federal Express, or delivered against receipt, as follows: 34 29 (a) In the case of TCI or TCI Sub, to: Tele-Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, CO 80111-3000 Attention: Chief Executive Officer with a copy to: Tele-Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, CO 80111-3000 Attention: General Counsel (b) In the case of Old VII to: Viacom Inc. 1515 Broadway New York, NY 10036 Attention: General Counsel with a copy to: Hughes Hubbard & Reed One Battery Park Plaza New York, NY 10004 Attention: Ed Kaufmann, Esq. or to such other address as the party may have furnished in writing in accordance with the provisions of this Section 11.4. Any notice or other communication shall be deemed to have been given, made and received upon receipt. Either party may change the address to which notices are to be addressed by giving the other party notice in the manner herein set forth. Section 11.5 Assignment. This Agreement and all provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors, however, neither this Agreement nor any right, interest, or obligation hereunder may be assigned by any party hereto (other than by operation of law) without the prior written consent of the other parties, and any such assignment or purported assignment without such consent shall be void. Section 11.6 Entire Agreement. This Agreement and the other Transaction Documents embody the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior written or oral commitments, arrangements or understandings with respect thereto. 35 30 Section 11.7 Amendment; Waiver. (a) This Agreement may only be amended or modified in writing signed by the party against whom enforcement of any such amendment or modification is sought. (b) Any party hereto may, by an instrument in writing, waive compliance with any term or provision of this Agreement on the part of such other party hereto. The waiver by any party hereto of a breach of any term or provision of this Agreement will not be construed as a waiver of any subsequent breach. Section 11.8 Counterparts. This Agreement may be executed in two or more counterparts, all of which will be considered one and the same agreement and each of which will be deemed an original. All signatures need not be on one counterpart. Section 11.9 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE. Section 11.10 Severability. If any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement will not be affected thereby, and Old VII, TCI Sub and TCI will use their reasonable efforts to substitute one or more valid, legal and enforceable provisions which insofar as practicable implement the purposes and intent hereof. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. Section 11.11 Consent to Jurisdiction. Each party hereby submits to the non-exclusive jurisdiction of the courts of general jurisdiction of the States of New York and Colorado and the federal courts of the United States of America, located in the City of New York, New York, and Denver, Colorado solely in respect of the interpretation and enforcement of the provisions of this Agreement and hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement of this Agreement that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that this Agreement may not be enforced in or by such courts or that its property is exempt or immune from execution, that the suit, action or proceeding is brought in an inconvenient forum, or that the venue of the suit, action or proceeding is improper. Service of process with respect thereto may be made upon any party by mailing a copy thereof by registered or certified mail, postage prepaid, to such party at its address as provided in Section 11.4 hereof, provided that service of process may be accomplished in any other manner permitted by applicable law. Section 11.12 Third Person Beneficiaries. This Agreement is not intended and shall not be construed to confer upon any Person (other than TCI, TCI Sub and Old VII) any 36 31 rights or remedies hereunder, except that New VII shall be a third-party beneficiary of Section 3.1(d), entitled to enforce said Section as if it were a party hereto. Section 11.13 Specific Performance. Old VII, TCI and TCI Sub recognize that any breach of any covenant or agreement contained in this Agreement may give rise to irreparable harm for which money damages would not be an adequate remedy, and accordingly agree that, in addition to other remedies, any non-breaching party will be entitled to enforce the agreements and covenants contained herein of TCI and TCI Sub or Old VII, as the case may be, by a decree of specific performance without the necessity of proving the inadequacy as a remedy of money damages. Section 11.14 Survival. The representations and warranties contained in or made pursuant to this Agreement shall terminate and be of no further force on and as of April 30, 1997, except that the representation and warranty contained in Sections 5.7, 6.7 and 6.8 and the provisions of the last sentence of Section 3.1(a) shall survive indefinitely. Section 11.15 Preferred Stock Conversion. TCI shall contribute to Old VII or otherwise cause Old VII to have available sufficient shares to enable Old VII to issue to holders of the Preferred Stock, shares of TCI Stock upon exercise by the holders of the Preferred Stock of their conversion rights as specified in the terms of the Preferred Stock. TCI shall reserve and keep available at all times, out of its authorized and unissued stock, sufficient shares of TCI Stock to satisfy its obligations to Old VII in connection with such conversion of the Preferred Stock. TCI agrees to comply with its obligations specified herein and further agrees that any such TCI Stock, when issued, will be registered under the 1933 Act, and all state securities and blue sky laws applicable to such issuance shall have been complied with respect thereto. 37 32 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed in New York, New York, as of the day and year first above written. VIACOM INTERNATIONAL INC. By: ------------------------------------------ Name: Thomas E. Dooley Title: Executive Vice President Finance, Corporate Development and Communications TELE-COMMUNICATIONS, INC. By: ------------------------------------------ Name: Title: TCI COMMUNICATIONS, INC. By: ------------------------------------------ Name: Title: EX-2.3 4 IMPLEMENTATION AGREEMENT 1 Exhibit 2.3 - -------------------------------------------------------------------------------- IMPLEMENTATION AGREEMENT between VIACOM INTERNATIONAL INC. and VIACOM INTERNATIONAL SERVICES INC. Dated as of July 24, 1995 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS...................................................... 1 Section 1.1 Defined Terms............................................ 1 ARTICLE II CONVEYANCE; LACK OF CONSENTS OR REGULATORY APPROVALS; RIGHT OF FIRST REFUSAL; DISASTERS............................................... 18 Section 2.1 Conveyance of Assets and Assumption of Liabilities: Transfers to New VII, Recapitalization................... 18 Section 2.2 Lack of Consents......................................... 19 Section 2.3 Lack of Regulatory Approvals............................. 20 Section 2.4 Right of First Refusal................................... 22 Section 2.5 Lost Service Subscribers................................. 22 Section 2.6 Release of Old VII....................................... 23 Section 2.7 Receipt of Consents...................................... 23 Section 2.8 Execution of Other Instruments........................... 23 Section 2.9 Use of Viacom Name....................................... 23 Section 2.10 Name Change.............................................. 24 Section 2.11 Bank Accounts............................................ 24 Section 2.12 Intercompany Debt........................................ 24 Section 2.13 Consents................................................. 24 Section 2.14 Books and Records........................................ 24 Section 2.15 Confidentiality.......................................... 24 Section 2.16 Control of Litigation.................................... 25 Section 2.17 Security Interest........................................ 25 ARTICLE III ADJUSTMENTS...................................................... 26 Section 3.1 Determination of Estimated Asset Value................... 26 Section 3.2 Calculation of Adjustment Amounts........................ 27
-i- 3 TABLE OF CONTENTS (Continued)
Page Section 3.3 Adjustment Payment............................................ 27 Section 3.4 Fixed Amount.................................................. 28 Section 3.5 Proration..................................................... 28 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEW VII............................. 28 Section 4.1 Corporate Existence and Power................................. 28 Section 4.2 Corporate Authorization....................................... 29 Section 4.3 Capitalization; Subsidiaries; Certificates of Incorporation and By-Laws................................................... 29 Section 4.4 Governmental Authorization.................................... 30 Section 4.5 Consents...................................................... 30 Section 4.6 Non-Contravention............................................. 30 Section 4.7 Binding Effect................................................ 31 Section 4.8 Financial Statements; Undisclosed Liabilities................. 31 Section 4.9 Systems; Local Authorizations and FCC Authorizations.......... 31 Section 4.10 Absence of Changes............................................ 32 Section 4.11 Subsidiaries.................................................. 32 Section 4.12 Assets........................................................ 33 Section 4.13 Intellectual Property......................................... 33 Section 4.14 Material Contracts............................................ 33 Section 4.15 Litigation.................................................... 33 Section 4.16 Compliance with Legal Requirements............................ 33 Section 4.17 Employees..................................................... 34 Section 4.18 Finders' Fees................................................. 35 Section 4.19 Real Property................................................. 35 Section 4.20 Environmental Matters......................................... 35 Section 4.21 FCC and Copyright............................................. 36 Section 4.22 Covenants not to Compete...................................... 36 Section 4.23 Telecom Capital Expenditures.................................. 36 Section 4.24 Accounts Receivable, Net...................................... 37
-ii- 4 TABLE OF CONTENTS (Continued)
Page Section 4.25 Number of Basic Subscribers.............................. 37 Section 4.26 Adjustment Amounts....................................... 37 Section 4.27 Ranking of Payment Obligations........................... 37 ARTICLE V NONCOMPETITION................................................... 37 Section 5.1 Noncompetition........................................... 37 ARTICLE VI TERMINATION...................................................... 38 Section 6.1 Termination.............................................. 38 Section 6.2 Effect of Termination.................................... 38 ARTICLE VII SURVIVAL AND INDEMNIFICATION..................................... 38 Section 7.1 Survival................................................. 38 Section 7.2 Indemnification.......................................... 38 ARTICLE VIII EMPLOYEE MATTERS................................................. 41 Section 8.1 Employment............................................... 41 ARTICLE IX TAX MATTERS...................................................... 44 Section 9.1 Obligation of New VII to Indemnify....................... 44 Section 9.2 Refunds.................................................. 44 Section 9.3 Final Returns............................................ 45 Section 9.4 Conduct of Audits and Disputes........................... 45 Section 9.5 Carrybacks............................................... 46 Section 9.6 Designation of Agent for PCI Group....................... 46
-iii- 5 TABLE OF CONTENTS (Continued)
Page ARTICLE X MISCELLANEOUS.................................................... 47 Section 10.1 Expenses................................................. 47 Section 10.2 Headings................................................. 47 Section 10.3 Notices.................................................. 47 Section 10.4 Assignment............................................... 48 Section 10.5 Entire Agreement......................................... 48 Section 10.6 Amendment; Waiver........................................ 48 Section 10.7 Counterparts............................................. 49 Section 10.8 Governing Law............................................ 49 Section 10.9 Severability............................................. 49 Section 10.10 Consent to Jurisdiction.................................. 49 Section 10.11 Third Person Beneficiaries............................... 49 Section 10.12 Representations and Warranties; Schedules................ 49 Section 10.13 Specific Performance..................................... 50
-iv- 6 EXHIBITS Exhibit A - Approved Capital Expenditure Plan Exhibit B - Front End Loaded Programming Payments Exhibit C - Bill of Sale, Instrument of Assumption and Provision of Benefits Agreement Exhibit D - Cable Division Subsidiaries Exhibit E - Access Fee Conditions Exhibit F - PVIT Assets Exhibit G - PVIT Bill of Sale Exhibit H - Systems Exhibit I - Transferred Assets Exhibit J - Amended and Restated Certificate of Incorporation Exhibit K - Term Sheet for Series A Senior Cumulative Exchangeable Preferred Stock SCHEDULES Schedule 4.5 - Consents Schedule 4.8 - Financial Statements Schedule 4.9 - Systems: Local Authorizations and FCC Authorizations Schedule 4.10 - Material Changes Schedule 4.14 - Material Contracts Schedule 4.15 - Litigation Schedule 4.16 - Non-compliance with Legal Requirements Schedule 4.17 - Employment Agreements; Labor Disputes; Labor Agreements; Benefit Plans Schedule 4.19 - Owned Real Property Schedule 4.20 - Underground Storage Tanks Schedule 4.21 - Equal Employment Opportunity Rules Schedule 4.22 - Covenants not to Compete
-i- 7 IMPLEMENTATION AGREEMENT Implementation Agreement, dated July 24, 1995 (this "Agreement") by and among Viacom International Inc., a Delaware corporation ("Old VII") and Viacom International Services Inc., a Delaware corporation ("New VII"). WHEREAS, Old VII is a wholly-owned subsidiary of Viacom Inc., a Delaware corporation ("VI") and New VII is a wholly-owned subsidiary of Old VII; and WHEREAS, VI desires to make an exchange offer to its shareholders in which shares of VI Common Stock would be exchanged for Class A Common Stock of Old VII; and WHEREAS, VI has entered into a Parents Agreement, dated as of the date hereof, with Tele-Communications, Inc., a Delaware corporation ("TCI"), and TCI Communications, Inc., a Delaware corporation ("TCI Sub"), which contains certain agreements of VI, TCI and TCI Sub regarding the Transaction; and WHEREAS, in connection with the Exchange Offer, Old VII and New VII desire to enter into the agreements set forth below; NOW, THEREFORE, in consideration of the mutual promises, covenants and other agreements contained herein, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Defined Terms. The following terms, as used in this Agreement, shall have the following meanings (and such meanings shall be equally applicable to both the singular and plural forms of the terms defined herein): "Accounts Payable" shall mean the book value of all accounts payable of the Company as of the Exchange Date (other than those constituting New Borrowing Obligations) after giving effect to the Assumption of Liabilities, calculated in accordance with GAAP on a basis consistent with the application of such principles in the preparation of the Financial Statements. "Accounts Receivable, Net" shall mean the book value of all accounts receivable of the Company as of the Exchange Date net of the allowance for doubtful accounts and advance billings (other than deferred customer revenue and accounts receivable relating to payments of principal due from the Telecom Partnerships referred to in clause (ii) of the definition of Telecom Capital Expenditure Amount), calculated in accordance with GAAP on a basis consistent with the application of such principles in the preparation of the Financial Statements and after giving effect to the Conveyance of Assets. 8 2 "Ad Interconnect Assets" shall mean all right, title and interest of Old VII and each Cable Division Subsidiary in and to the Bay Cable Advertising and Northwest Cable Advertising Partnerships described on Schedule 4.14. "Adjustment Amounts" shall have the meaning specified in Section 3.2. "Affiliate" of any Person at any time shall mean any other Person directly or indirectly controlling, controlled by or under common control with such Person at such time. "Aggregate Loan Amount" shall have the meaning specified in the Parents Agreement. "Agents" shall have the meaning specified in the Subscription Agreement. "Agreement" shall mean this Implementation Agreement, including the Exhibits and Schedules hereto. "Amended and Restated Certificate of Incorporation" shall have the meaning specified in Section 2.1(c). "Anticipated Commencement Date" shall have the meaning specified in the Parents Agreement. "Appraised Value" shall mean, with respect to any System (or portion thereof) at any date of determination, an amount equal to the sum of (A) (x) Cash Flow of such System (or portion thereof) for the twelve full calendar months ending the calendar month ended prior to such date of determination, multiplied by (y) ten, plus (B) the Specified Capital Expenditure Amount for such System (or portion thereof). The Appraised Value of a System (or portion thereof) shall be established by mutual agreement of Old VII and New VII. If Old VII and New VII are unable to agree on the Appraised Value of a System (or portion thereof), such Appraised Value will be determined by an Arbitrating Firm, whose determination shall be binding upon the parties. The Arbitrating Firm will render its determination within ten (10) Business Days of its engagement. Each of New VII and Old VII shall be responsible for one-half the fees and expenses of the Arbitrating Firm (which fees shall be negotiated in good faith by New VII and Old VII). As used herein, "Cash Flow" of a System (or portion thereof) for a period shall mean the operating income of such System (or portion thereof) for such period, before provision for income taxes, interest expense, depreciation and amortization, but including allocations for direct and indirect operating expenses and overhead (excluding any allocation of VI administrative overhead and any management fees), determined in accordance with accounting principles applied on a basis consistent with the application of such principles by Old VII prior to the Exchange Time. "Approved Capital Expenditure Plan" shall mean the capital expenditure plan for the Company, by System, which identifies Covered Capital Expenditures and Line Extension and Other Capital Expenditures, attached as Exhibit A hereto, together with the 1996 Capital Expenditure Plan (as defined in the Subscription Agreement). 9 3 "Arbitrating Firm" shall mean Arthur Andersen & Co. or, if it cannot serve in such capacity, another "big six" independent public accounting firm (other than KPMG Peat Marwick LLP and Price Waterhouse & Co. LLP and their respective successors) selected by agreement of Old VII and New VII or, if they cannot agree, chosen by lot from among the aforesaid firms. "Asset Value" shall mean an amount equal to (i) the Fixed Amount, plus (ii) the Capital Expenditure Amount, plus (iii) the Inventory Amount, plus (iv) the Telecom Amount plus (v) an amount equal to Working Capital, if Working Capital is a positive number, minus (vi) an amount, if any, equal to the amount by which Working Capital is a negative number, minus (vii) the amount of the front-end loaded programming payments set forth on Exhibit B, plus (viii) an amount equal to interest on the sum of the foregoing amounts at the LIBOR Rate for the period from (and including) September 1, 1995 to (but excluding) the Exchange Date. "Assumption of Liabilities" shall have the meaning specified in Section 2.1(a). "Balance Sheet Date" shall mean March 31, 1995. "Banked Sick Leave Days" shall have the meaning specified in Section 8.1(f). "Basic Subscriber" shall mean the sum of the following amounts for all Franchise Areas: (a) with respect to a Franchise Area, the number of all private and residential customer accounts (regardless of whether in a single-family home or in an individually billed unit in a multiple-unit building) who are receiving basic cable television service at the Basic Subscriber Rate (but excluding "complimentary subscribers," "second connects" and "additional outlets" as such terms are customarily used in the cable television industry); plus (b) with respect to a Franchise Area, the number of private and residential customer accounts (regardless of whether in a single-family home or in an individually billed unit in a multiple unit building) who are receiving basic cable television service at a discount to the Basic Subscriber Rate because the account is or was to the knowledge of New VII a "low income" and/or "senior citizen" account in accordance with the Company's policy as of January 1, 1995, determined as the quotient of the total monthly basic service revenue derived from these customers as of the date of determination thereof (excluding any charges for taxes or nonrecurring items (including, without limitation, nonrecurring charges for installation, equipment, any outlet or connection or a pass-through charge for sales taxes, line-itemized franchise fees and charges)) divided by the Basic Subscriber Rate; plus (c) with respect to a Franchise Area, without duplication of clauses (a) and (b) above, the number of commercial and bulk billed accounts (including, without limitation, hotels, motels, apartment houses and multi-family homes) that 10 4 receive basic cable television service, determined as the quotient of the total monthly basic service revenue derived from the commercial and bulk billed accounts as of the date of determination thereof (excluding any charges for taxes or nonrecurring items (including, without limitation, nonrecurring charges for installation, equipment, any outlet or connection or a pass-through charge for sales taxes, line-itemized franchise fees and charges)) divided by the Basic Subscriber Rate. "Basic Subscriber Rate" shall mean for each Franchise Area, the monthly fees and charges for the provision of the "basic service" (as such term is customarily used in the cable television industry and regardless of whether customers taking basic service take any other tier of regulated or unregulated service (excluding (i) any charges for installation fees and revenues derived from the rental of converters, remote control devices and other like charges for equipment and (ii) any charges for taxes or nonrecurring items (including, without limitation, nonrecurring charges for installation, equipment, any outlet or connection or a pass-through charge for sales taxes, line-itemized franchise fees and charges))) charged to customers served by the Franchise Area, as of the date of determination. "Benefit Plans" shall have the meaning specified in Section 4.17(c)(i). "Bill of Sale" shall mean a Bill of Sale, Instrument of Assumption and Provision of Benefits Agreement executed by Old VII, New VII and the Cable Division Subsidiaries in the form of Exhibit C. "Business" shall mean and include the business of each and all of the Systems. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which banks in New York City are required to or may be closed. "Cable Act" shall mean the Cable Television Consumer Protection and Competition Act of 1992, as amended, and the rules and regulations promulgated thereunder. "Cable Assets" shall mean (i) all right, title and interest of Old VII and the Cable Division Subsidiaries in all assets, rights, privileges, interests, claims and properties owned, used or held for use by Old VII and the Cable Division Subsidiaries in the Business (including without limitation (aa) all equity and other ownership interests of Old VII in the Cable Division Subsidiaries, (bb) the Telecom Assets, (cc) the Ad Interconnect Assets and (dd) all interest earned on the Cash Collateral Account) and (ii) all rights of Old VII under the Transaction Documents with respect to periods after the Exchange Date (including, without limitation, rights of Old VII under Section 7.2(b) hereof). "Cable Cash Balances" shall mean the petty cash, cash drawer and imprest account balances of the Company, as of the Exchange Date, excluding the Loan Proceeds. "Cable Division Assets" shall have the meaning specified in Section 4.12. 11 5 "Cable Division Subsidiaries" or "Cable" shall mean the Persons set out on Exhibit D. "Cable Group Bargaining Agreement" shall have the meaning specified in the Subscription Agreement. "Cable Group Contracts" shall mean all contracts, purchase orders and other agreements of the Company to the extent relating to the Business. "Cable Group Welfare Plans" shall have the meaning specified in Section 8.1(h). "Cable Liabilities" shall mean all obligations and liabilities (other than Pre-Closing Specified Liabilities) of Old VII and the Cable Division Subsidiaries arising out of the operation of or with respect to the Business (but not including any liability of Old VII arising out of the breach by Old VII, on or prior to the Exchange Date, of any representation, warranty, covenant or agreement of Old VII contained in the Subscription Agreement), together with all obligations and liabilities (x) of Old VII under the Transaction Documents with respect to periods after the Exchange Date, (y) constituting or arising from the New Borrowing Obligations (including, without limitation, the payment of principal, interest, premium, fees, expenses and indemnities) or (z) of Old VII or any Cable Division Subsidiary arising with respect to periods after the Exchange Date under employment agreements with any Continuing Employee. "Cable Television Business" shall mean the business of owning and operating a coaxial or fiber optic cable television signal distribution system. "Capital Expenditure Amount" shall mean (i) the aggregate amount of all Covered Capital Expenditures, plus (ii) the aggregate amount of the Covered Line Extension and Other Capital Expenditures, plus (iii) without duplication of clauses (i) and (ii) above, the aggregate amount of all capital expenditures made by the Company during the period from January 20, 1995 through the Exchange Date at the request of, or with the express written consent of (whether prior to or after the date of this Agreement) TCI Sub, or (prior to the date of this Agreement) RCS. "Cash Collateral Account" shall have the meaning specified in the Subscription Agreement. "CERCLA" shall have the meaning specified in Section 4.20. "Class A Common Stock" shall have the meaning specified in the Parents Agreement. "Class B Common Stock" shall have the meaning specified in the Subscription Agreement. "COBRA" shall have the meaning specified in Section 8.1(h). "Code" shall mean the Internal Revenue Code of 1986, as amended. 12 6 "Communications Act" shall mean the Communications Act of 1934 including the Cable Communications Policy Act of 1984, and the Cable Television Consumer Protection and Competition Act of 1992, each as amended, and all rules and regulations promulgated thereunder, as amended (the "Rules and Regulations"). "Company" shall mean (x) Old VII after giving effect to the Conveyance of Assets and Assumption of Liabilities and as if such conveyance and assumption occurred immediately prior to the execution and delivery of this Agreement (with the same effect as if the Conveyance of Assets and Assumption of Liabilities occurred at the time they are to occur pursuant to Section 2.1) and (y) each of the Cable Division Subsidiaries. "Continuing Employee" shall have the meaning specified in the Subscription Agreement. "Conveyance of Assets" shall have the meaning specified in Section 2.1. "Copyright Act" shall mean Title 17 of the United States Code, as amended, and all rules and regulations promulgated thereunder, as amended. "Covered Capital Expenditures" shall mean the sum of (i) the aggregate amount of all capital expenditures made by the Company during the period from January 1, 1995 through the Exchange Date relating to (a) upgrades and rebuilds and associated items (including, without limitation, head-end sites and head-end equipment to expand channel capacity, but excluding costs of repairing damage caused by a Disaster that would not have been incurred if such Disaster had not occurred) and (b) converter change-outs (including the purchase of converters for such purpose), (ii) without duplication of clause (i) above, any capital expenditure identified as a Covered Capital Expenditure in the Approved Capital Expenditure Plan and (iii) a reasonable allocation of construction overhead (other than capitalized interest) for such period related to such upgrades and rebuilds (other than with respect to repairing damage caused by a Disaster). "Covered Line Extension and Other Capital Expenditures" shall mean the sum of (i) the aggregate amount of all Line Extension and Other Capital Expenditures made by the Company during the period from February 23, 1995 through the Exchange Date plus (ii) a reasonable allocation of construction overhead (other than capitalized interest) for such period related to such Line Extension and Other Capital Expenditures. "Deferred Closing Date" shall have the meaning specified in Section 2.3(c). "Delaware Corporation Law" shall mean the General Corporation Law of the State of Delaware. "Disaster" shall have the meaning specified in Section 2.5(a). "Disclosing Party" shall have the meaning specified in Section 2.15. "Dispute Notice" shall have the meaning specified in Section 3.2(c). 13 7 "Disqualified Person" shall have the meaning specified in Section 5.1. "Employees" shall mean all employees of the Company with respect to the Systems at the relevant time. "Equipment" shall mean all equipment and other personal property of the Company owned, used or held for use by the Company in connection with the Business or the Systems. "ERISA" shall have the meaning specified in Section 4.17(c)(i). "ERISA Affiliate" shall have the meaning specified in Section 8.1(b). "Estimate Statement" shall have the meaning specified in Section 3.1. "Estimated Adjustment Amounts" shall have the meaning specified in Section 3.1. "Estimated Asset Value" shall have the meaning specified in Section 3.1. "Estimated Capital Expenditure Amount" shall have the meaning specified in Section 3.1. "Estimated Fixed Amount" shall have the meaning specified in Section 3.1. "Estimated Inventory Amount" shall have the meaning specified in Section 3.1. "Estimated Net Asset Value" shall mean an amount equal to the Estimated Asset Value, minus $1,700,000,000 (one billion, seven hundred million dollars). "Estimated Telecom Amount" shall have the meaning specified in Section 3.1. "Estimated Working Capital" shall have the meaning specified in Section 3.1. "Exchange Date" shall have the meaning specified in the Parents Agreement. "Exchange Date Basic Subscribers" shall mean the average number of Basic Subscribers for the nine (9) consecutive Thursdays (or such other day used by the Company for accounts receivable cutoffs) ending on or immediately prior to the Exchange Date, calculated by summing the number of Basic Subscribers as of each such Thursday (or such other day) and dividing such sum by nine (9), without, for these purposes, giving effect to the loss, if any, of Basic Subscribers as a result of a Disaster (defined for these purposes without regard to the number of Basic Subscribers affected). "Exchange Offer" shall have the meaning specified in the Parents Agreement. "Exchange Offer Conditions" shall have the meaning specified in the Parents Agreement. "Exchange Time" shall have the meaning specified in the Parents Agreement. 14 8 "Expiration Time" shall have the meaning specified in the Parents Agreement. "FCC" shall mean the Federal Communications Commission. "FCC Authorizations" shall mean all authorizations, approvals, certifications, franchises, licenses and permits of the FCC granted to the Company with respect to the Systems. "Final Certificate" shall have the meaning set out in Section 3.2(b). "Final Determination" shall mean (1) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all allowable appeals by either party to the action have been exhausted (it being understood that for purposes of this definition, the term "allowable appeals" means an appeal taken or required to be taken under the provisions of the contest provisions with respect to the applicable indemnification obligation and permitted by applicable law) or the time for filing such appeal has expired, (2) a closing agreement entered into under Section 7121 of the Code (or comparable state or local law) or any other binding settlement agreement entered into in connection with an administrative or judicial proceeding (including, without limitation, any settlement entered into in accordance with the contest provisions with respect to the applicable indemnification obligation), or (3) the expiration of the time for instituting a claim for refund, or if such a claim was filed, the expiration of the time for instituting suit with respect thereto. "Financial Statements" shall have the meaning set out in Section 4.8(a). "Fixed Amount" shall mean $2,000,000,000 (two billion dollars), subject to adjustment pursuant to Section 3.4. "Franchise Areas" shall mean the areas in which the Company is authorized to provide cable television service under the Local Authorizations and the areas served by any System in which the Company provides cable television service without a Local Authorization. "GAAP" shall mean generally accepted accounting principles applied on a consistent basis. "Governmental Authority" shall mean any federal, state, municipal or local governmental authority or political subdivision thereof. "Hazardous Materials" shall have the meaning specified in Section 4.20. "Homes Passed" shall mean the sum of (a) each single family residence in the Franchise Areas, and (b) each townhouse, condominium or dwelling unit which is part of a building containing multiple dwelling units in the Franchise Areas, but excluding single family residences and units in multiple dwelling unit buildings which (i) are located more than 150 feet from an activated trunk or feeder cable of a System, (ii) require an underground service stub in order to be connected to activated trunk or feeder cable of a System or (iii) are located in multiple dwelling unit buildings to which a System does not have a right of access. 15 9 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder, as amended. "Indemnified Party" shall have the meaning specified in Section 7.2(a). "Indemnifying Party" shall have the meaning specified in Section 7.2(a). "INS" shall mean the Immigration and Naturalization Service. "Intangible Assets" shall mean subscriber lists and customer records of the Systems, construction and engineering maps and data, schematics and blueprints, books and financial records pertaining to the operation of the Business or the Systems, and all correspondence and documents pertaining to subscribers, Governmental Authorities and other third parties relevant to the Systems' ongoing relationships with subscribers, Governmental Authorities and other third parties, in each case then in the possession of the Company; and all trademarks, trade names, service marks, copyrights and other intangible property used primarily in the Business (other than Transferred Assets). "Inventory" shall mean the inventory and supplies of the Company. "Inventory Amount" shall mean the book value of all Inventory as of the Exchange Date in accordance with GAAP on a basis consistent with the application of such principles in the preparation of the Financial Statements after giving effect to the Conveyance of Assets, multiplied by a fraction: (i) the numerator of which is equal to the aggregate book value of all Inventory consumed during the two-month period ending on the last day of the monthly accounting period ending prior to the Exchange Date to the extent such Inventory was consumed in connection with the Covered Capital Expenditures, Covered Line Extension and Other Capital Expenditures, the Telecom Capital Expenditure Amount or capital expenditures made by the Company at the request of, or with the express written consent of, TCI Sub (or, prior to the date of this Agreement, RCS) and (ii) the denominator of which is equal to the aggregate book value of all Inventory consumed during such two-month period. "knowledge" of New VII shall mean the knowledge of VI, Old VII, New VII, or any Cable Division Subsidiary. "Leased Real Property" shall mean leasehold interests of the Company in the real property used in connection with any System. "Legal Requirement" shall mean the requirements of any law, ordinance, statute, rule, regulation, code, order, judgment, decree, injunction, franchise, determination, approval, permit, license, authorization or other requirement of any Governmental Authority. "LIBOR Rate" shall mean a per annum fluctuating rate of interest equal to the sum of (i) the London Interbank Offered Rate for one month published as such from time to time in the Money Rates column of The Wall Street Journal (Eastern Edition) (or, if the Wall Street Journal (Eastern Edition) is not published or if such rate is for any other reason unavailable on any relevant date, the highest offered rate for deposits in U.S. Dollars for the one month period 16 10 which appears on the Reuters Screen London Interbank Offered Rates Page at approximately 11:00 a.m. (London time) on the relevant date) plus (ii) 1-1/4 percentage points. For all purposes of this Agreement, interest at the LIBOR Rate shall be calculated on the basis of the actual number of days elapsed in the relevant period over a year of 360 days, as applicable. "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. "Line Extension and Other Capital Expenditures" shall mean any capital expenditure made after January 20, 1995 (calculated on a basis consistent with the Company's policies prior to the Exchange Date) for (i) extension of trunk and feeder cable within the Franchise Areas to serve new commercial accounts, new residential developments and/or additional residential dwelling units, thereby adding new Homes Passed, (ii) initial connections from trunk and feeder cable in the Franchise Areas to any single family residence, townhouse, condominium or dwelling unit which is part of a building containing multiple dwelling units or to any potential commercial or bulk-billed account which relate to extensions covered in clause (i) above, (iii) the purchase of converters (but without duplication of the amounts included in Covered Capital Expenditures pursuant to clause (i)(b) of the definition thereof), (iv) fees or similar payments made to owners or managers of multiple dwelling units (e.g., apartments or condominiums) in order to obtain access and the exclusive right to serve such units in accordance with the conditions and limitations set forth in Exhibit E and (v) without duplication of clauses (i), (ii), (iii) and (iv) above, any capital expenditure identified as a Line Extension and Other Capital Expenditure in the Approved Capital Expenditure Plan. "Lender" shall have the meaning specified in the Subscription Agreement. "Loan Documentation" shall have the meaning specified in the Subscription Agreement. "Loan Proceeds" shall have the meaning specified in the Subscription Agreement. "Loans" shall have the meaning specified in the Subscription Agreement. "Local Authority" shall mean any Governmental Authority having jurisdiction to grant a cable television franchise with respect to all or a portion of any System. "Local Authority Consent" shall mean any approval, authorization or consent of a Local Authority necessary for a change in control of a Local Authorization or otherwise in connection with the consummation of the Transaction. "Local Authorizations" shall mean all authorizations, approvals, franchises, licenses and permits of Local Authorities granted to the Company which permit the operation of the Systems as amended, modified or supplemented. "Losses" shall mean losses, liabilities, claims and reasonable expenses of defense thereof (including, without limitation, expenses of investigation, defense and fees and disbursements of counsel, but excluding compensation paid to employees of the relevant Indemnified Party or its Affiliates), and Liens or other obligations of any nature whatsoever, 17 11 other than Losses to the extent recoverable by the relevant Indemnified Party under any applicable insurance policy, computed on an after-Tax basis. "Lost Service Subscriber Cumulative Deemed Net Cash Flow" shall mean, for any period after the Exchange Date during which an Exchange Date Basic Subscriber is a Lost Service Subscriber, an amount equal to $13.16 for each month (or $0.44 on a daily basis in the case of a portion of any month) that such Exchange Date Basic Subscriber is a Lost Service Subscriber, subject to reduction as provided in Section 2.5(b). "Lost Service Subscribers" shall have the meaning set out in Section 2.5(a). "Material Adverse Effect" shall mean a material adverse effect on the business, financial condition or results of operations of the Business, any System or the Company, except for: (a) changes resulting from general economic, financial or market conditions; (b) changes in, or changes required in order to comply with, applicable legislation or regulations affecting U.S. cable television operators generally, including but not limited to any adjustment in subscriber rates implemented in a manner consistent with the rate regulations promulgated under the Cable Act from time to time; and (c) changes resulting from technological changes generally applicable to the cable television industry. "Material Contract" shall mean any contract of the Company that (i) is material to the Business or any System or (ii) requires aggregate payments by a party thereto in excess of $500,000. Material Contract shall not include any Local Authorization or FCC Authorization. "Net Asset Value" shall mean an amount equal to the Asset Value, minus the amount of Loan Proceeds actually transferred to New VII pursuant to the Conveyance of Assets. "New Borrowing Obligations" shall have the meaning specified in the Subscription Agreement. "New VII" shall have the meaning specified in the preamble of this Agreement. "1993 Act" shall have the meaning specified in the Parents Agreement. "1934 Act" shall have the meaning specified in the Parents Agreement. "Non-Cable Assets" shall mean all right, title and interest of Old VII and the Cable Division Subsidiaries in and to all of their assets, rights, privileges, interests, claims and properties other than the Cable Assets, provided that notwithstanding any other provision hereof, Non-Cable Assets shall include (and Cable Assets shall not include), (i) the Transferred Assets, 18 12 (ii) all equity and other ownership interests of Old VII in its Subsidiaries (other than the Cable Division Subsidiaries), (iii) all rights of Old VII under the Transaction Documents with respect to periods prior to the Exchange Time (but excluding any right to indemnification pursuant to Section 7.2 (b)) and (iv) all rights of Old VII and its Subsidiaries under (x) employment agreements with Non-Continuing Employees, (y) the lease dated December 27, 1985 between A.L. McCormick and Viacom International, Inc., an Ohio corporation, as amended by Lease Amendment No. 1 dated January 15, 1986 and (z) all Benefit Plans (other than the Company's vacation and sick pay policies). "Non-Cable FCC Authorizations" shall mean consents of the FCC under FCC licenses and permits of Old VII and its Affiliates (other than the FCC Authorizations) (x) to the transfer thereof to New VII in connection with the Transaction or (y) to the change in control of Old VII in connection with the Transaction. "Non-Cable Liabilities" means all obligations and liabilities of Old VII and its Subsidiaries, other than (x) those constituting Cable Liabilities and (y) those arising from or with respect to the operation of the business of Old VII and the Cable Division Subsidiaries after the Exchange Date (other than Pre-Closing Specified Liabilities), provided that notwithstanding any other provision hereof, Non-Cable Liabilities shall include (and Cable Liabilities shall not include) (i) the Old VII Debt (including without limitation principal, interest, premium, fees, expenses and indemnities in connection therewith), (ii) liability for the breach by Old VII, on or prior to the Exchange Date, of any representation, warranty, covenant or agreement of Old VII contained in the Subscription Agreement, (iii) liabilities for Taxes of the members of the Old VII Subgroup for taxable years or portions thereof ending on or prior to the Exchange Date, (iv) Pre-Closing Specified Liabilities and (v) liabilities and obligations of Old VII and its Subsidiaries under (x) employment agreements with Non-Continuing Employees, (y) the lease dated December 27, 1985 between A.L. McCormick and Viacom International, Inc., an Ohio corporation, as amended by Lease Amendment No. 1 dated January 15, 1986 and (z) all Benefit Plans (other than the Company's vacation and sick pay policies). "Non-Continuing Employee" shall have the meaning specified in the Subscription Agreement. "Number of Shares to be Exchanged" shall have the meaning set forth in the Parents Agreement. "Old VII" shall have the meaning specified in the preamble of this Agreement. "Old VII Debt" shall mean all indebtedness of Old VII for borrowed money incurred prior to the Exchange Time (other than such indebtedness owed to VI (which will not be outstanding at the Exchange Time as provided in Section 2.12) or constituting or arising from New Borrowing Obligations). "Old VII Subgroup" shall mean Old VII and the Cable Division Subsidiaries, including any predecessor of any such corporation. 19 13 "Other Current Liabilities" shall mean all current liabilities (including, but not limited to, current liabilities on account of Covered Capital Expenditures and Covered Line Extension and Other Capital Expenditures, accrued vacation pay for Continuing Employees, subscriber security deposits, customer prepayments for service to be rendered after the Exchange Date and deferred customer revenues (other than any deferred revenues arising out of any payments of principal due from the Telecom Partnerships referred to in clause (ii) of the definition of Telecom Capital Expenditure Amount), but excluding (i) Accounts Payable, (ii) any advance billings subtracted in the calculation of Accounts Receivable, Net) of the Company relating to the conduct of the Business as of the Exchange Date after giving effect to the Assumption of Liabilities and (iii) New Borrowing Obligations, calculated in accordance with GAAP on a basis consistent with the application of such principles in the preparation of the Financial Statements. "Owned Real Property" shall mean all fee interests of the Company in the real property used in connection with any System. "Parents Agreement" shall mean the Parents Agreement, dated as of the date hereof, among VI, TCI and TCI Sub. "PCI Group" shall have the meaning specified in Section 9.6. "PCI Subsidiaries" shall have the meaning specified in Section 9.6. "Per Subscriber Amount" shall mean $1,763.67, provided that if the Fixed Amount is adjusted pursuant to Section 3.4, the Per Subscriber Amount shall be reduced to an amount equal to the product of $1,763.67, multiplied by a fraction, the numerator of which is the new Fixed Amount (expressed as a number) and the denominator of which is 2,000,000,000 (two billion). "Permits" shall mean all authorizations, approvals, certifications, franchises, licenses and permits of Governmental Authorities necessary to the continued operation of, or owned, used or held for use by the Company in connection with, the Business as conducted immediately prior to the Exchange Time, including, without limitation, all Local Authorizations and all FCC Authorizations. "Permitted Liens" shall mean (i) Liens for Taxes not yet due and payable; (ii) any carrier's, warehousemen's, mechanic's, materialmen's, repairmen's, employees' or other like Lien arising in the ordinary course of business, to the extent the obligation secured thereby constitutes Cable Liabilities or relates to an obligation that was paid by the Company; (iii) easements, rights-of-way, restrictions, encroachments and other similar encumbrances which do not materially interfere with the use of the Cable Assets as presently used in the Business; (iv) Liens arising under or specifically permitted by this Agreement or as a result of any action by TCI Sub or any of its Affiliates; (v) rights of first refusal in favor of, and restrictions imposed by, Governmental Authorities; (vi) in the case of assets leased or licensed to the Company, the rights of, and any Lien encumbering the interest of, the owner, lessor or licensor of such assets, provided such Lien does not materially interfere with the use of such asset as presently used in 20 14 the Business; and (vii) Liens arising under the Loan Documentation or otherwise securing New Borrowing Obligations. "Person" shall mean and include an individual, a corporation, a partnership (general, limited or limited liability), a joint venture, a limited liability company, an association, a trust or any other organization or entity, including a Governmental Authority. "Pre-Closing Specified Liabilities" shall mean liabilities and obligations of Old VII and the Cable Division Subsidiaries arising out of the operation of or with respect to the Business on or prior to the Exchange Date, including without limitation any obligations accruing prior to the Exchange Date under retransmission consent agreements with respect to the Systems for carriage of fX, ESPN2, Bay TV, or America's Talking, but excluding Accounts Payable, Other Current Liabilities or New Borrowing Obligations. "Preferred Stock" shall have the meaning specified in the Parents Agreement. "Prepaid Expenses" shall mean the book value of prepaid expenses and miscellaneous prepaids (in each case, only to the extent constituting a current asset) of the Company as of the Exchange Date after giving effect to the Conveyance of Assets calculated in accordance with GAAP, applied on a basis consistent with the application of such principles in the preparation of the Financial Statements, to the extent that such prepaid expenses will accrue to the benefit of the Company immediately following the Exchange Time. "Prime Rate" shall mean the per annum rate of interest published as such from time to time in the Money Rates column of The Wall Street Journal (Eastern Edition). For all purposes of this Agreement, interest at the Prime Rate shall be calculated on the basis of the actual number of days elapsed in the relevant period over a year of 365 or 366 days, as applicable. "PVIT" shall mean PVI Transmission Inc., a Delaware corporation. "PVIT Assets" shall mean the assets set forth on Exhibit F. "PVIT Bill of Sale" shall mean a bill of sale in the form of Exhibit G. "RCS" shall mean RCS Pacific, L.P., a California limited partnership. "Real Property" shall mean Owned Real Property or Leased Real Property. "Replacement Welfare Plans" shall have the meaning specified in Section 8.1(h). "Required Treatment" shall have the meaning specified in Section 9.3. "Right of First Refusal" shall mean any right of first refusal of a Local Authority in regard to or arising as a result of the Transaction. 21 15 "Right of First Refusal Franchise Area" shall have the meaning specified in Section 2.4. "Right of First Refusal Franchise Area Consideration" shall have the meaning specified in Section 2.4. "Right of First Refusal Local Authorization" shall have the meaning specified in Section 2.4. "Rules and Regulations" shall have the meaning specified in the definition of Communications Act. "Section 2.17 Secured Obligations" shall have the meaning specified in Section 2.17. "Share Purchase Closing" shall mean the "Closing", as such term is defined in the Subscription Agreement. "Shares" shall have the meaning specified in the Subscription Agreement. "Shortfall Number" shall have the meaning specified in Section 3.4. "626 Letters" shall mean written notices pursuant to Section 626(a)(1)(B) of the Communications Act. "Specified Capital Expenditure Amount" shall mean, with respect to a System (or portion thereof), all capital expenditures made by the Company with respect to such System (or portion thereof) after the Exchange Date (and not reflected in Accounts Payable or Other Current Liabilities), calculated in accordance with the accounting principles employed by Old VII on the date hereof. "Specified Party" shall have the meaning specified in Section 5.1. "Straddle Period" shall have the meaning specified in Section 9.1(c). "Subsidiary" shall mean, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by such Person. "System" shall mean each of the cable television systems listed on Exhibit H. "Tax Indemnified Party" shall have the meaning specified in Section 9.4(e). "Tax Indemnifying Party" shall have the meaning specified in Section 9.4(e). "Tax Return" shall mean any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any taxing 22 16 authority in connection with the determination, assessment, collection, administration or imposition of any Taxes. "Taxes" shall mean all taxes, fees, duties, imposts, levies, withholdings, tax deficiencies, assessments, and charges, including, without limitation, all net income, gross income, gross receipts, sales, use, value-added, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes and customs duties of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts relating thereto, imposed by any Governmental Authority (domestic or foreign). For purposes of determining any Tax cost or Tax benefit to any Person, such amount shall be the actual cost or benefit recognized by such Person at the time of actual payment of the additional Tax or actual recognition of the Tax benefit. In the event that any payment or other amount is required to be determined on an after-Tax basis, such payment or other amount shall initially be determined without regard to any Tax cost or Tax benefit not actually recognized currently, and appropriate adjustments shall be made when and to the extent that such Tax cost or Tax benefit is actually recognized. "TCI" shall have the meaning specified in the preamble of this Agreement. "TCI Sub" shall have the meaning specified in the preamble of this Agreement. "Telecom Agreements" shall mean all agreements of the Company relating to the Telecom Partnerships, including, without limitation, the Telecom Partnership Agreements. "Telecom Amount" shall mean the sum of the Telecom Capital Account Amount and the Telecom Capital Expenditure Amount. "Telecom Assets" shall mean all right, title and interest of Old VII and each Cable Division Subsidiary in and to (i) the Telecom Partnerships, including, without limitation, under the Telecom Partnership Agreements, and (ii) all interests in real property, all equipment and all other property of Old VII and each Cable Division Subsidiary leased or licensed to, or held for, or built for lease, license or use by, any Telecom Partnership. "Telecom Capital Account Amount" shall mean the aggregate amount of all Capital Contributions (as defined in the relevant Telecom Partnership Agreement) by Old VII and its Affiliates to the Telecom Partnerships under the Telecom Partnership Agreements as of the Exchange Date, minus the aggregate amount of all distributions of capital made to Old VII or its Affiliates under the Telecom Partnership Agreements. "Telecom Capital Expenditure Amount" shall mean, without duplication of the Telecom Capital Account Amount, (i) the aggregate amount of all capital expenditures (including allocated overhead) made by the Company on or prior to the Exchange Date on behalf of or for the benefit of any Telecom Partnership in accordance with the allocation methods provided pursuant to the relevant Telecom Partnership Agreement, less (ii) the principal portion of any payments received from the Telecom Partnerships, provided that if the Exchange Date occurs on or before December 31, 1995, the Telecom Capital Expenditure Amount shall not in 23 17 any event exceed $20,800,000, and if the Exchange Date occurs after December 31, 1995, such maximum amount shall be increased by the amount of additional capital expenditures and capital contributions made by the Company after December 31, 1995 in accordance with the terms of the Telecom Partnership Agreements. "Telecom Partnership Agreements" shall mean (i) the Partnership Agreement creating TCG San Francisco (the "TCG San Francisco Partnership") dated as of January 1, 1994, by and among Teleport Communications of San Francisco, Inc., a Delaware corporation and the other parties listed on the signature pages thereof, (ii) the Partnership Agreement creating TCG Seattle (the "TCG Seattle Partnership") dated as of January 1, 1994, by and among Teleport Communications of Seattle, Inc., a Delaware corporation and the other parties listed on the signature pages thereof and (iii) the Limited Partnership Agreement of AVR of Tennessee, L.P., a California limited partnership, dated as of November 15, 1993, by and among Viacom Telecom Inc., a Delaware corporation, and the other parties signatories thereto (the "AVR Partnership"). "Telecom Partnerships" shall mean the TCG San Francisco Partnership, the TCG Seattle Partnership and the AVR Partnership. "Tele-Vue" shall mean Tele-Vue Systems, Inc., a Washington corporation. "Terminated Unapproved Franchise Areas" shall have the meaning specified in Section 2.3(d). "Territory" shall have the meaning specified in Section 5.1. "Transaction" shall have the meaning specified in the Parents Agreement. "Transaction Documents" shall have the meaning specified in the Parents Agreement. "Transferred Assets" shall mean the following: (a) Cash. Cash and cash equivalents (other than the Cable Cash Balances). (b) Loan Proceeds. The Loan Proceeds in an aggregate amount equal to $1,700,000,000 (one billion, seven hundred million dollars). (c) Viacom Name. All rights in and to the names "Viacom," "Viacom International" and "Viacom Cable" and derivations thereof (subject to Section 2.9). (d) Other Assets. The patent and other rights and assets listed on Exhibit I. (e) Tax Refunds. All rights of Old VII to any refunds or credits of any Taxes (including any interest relating thereto) with respect to taxable years or 24 18 portions thereof ending on or prior to the Exchange Date that are for the account of New VII pursuant to Section 9.2. "Unapproved Franchise Areas" shall mean Franchise Areas covered by Unapproved Local Authorizations. "Unapproved Franchise Assets" shall mean, with respect to all Unapproved Franchise Areas, all Unapproved Local Authorizations and all related Real Property and Equipment. "Unapproved Local Authorizations" shall mean a Local Authorization (other than Right of First Refusal Local Authorizations) as to which all Local Authority Consents have not been obtained or do not remain in full force and effect immediately prior to the Exchange Time. "Untransferable Asset" shall have the meaning specified in the Bill of Sale. "VI" shall have the meaning specified in the preamble of this Agreement. "Viacom Pension Plan" shall have the meaning specified in Section 8.1(c). "Viacom Plans" shall have the meaning specified in Section 8.1(b). "VI Common Stock" shall have the meaning specified in the Parents Agreement. "VI Group" means VI and its subsidiaries, including any predecessor of any such corporation. "Working Capital" shall mean an amount equal to (a) Accounts Receivable, Net, plus the amount of Prepaid Expenses, plus the amount of Cable Cash Balances, plus the amount of deposits (as of the Exchange Date after giving effect to the Conveyance of Assets) of the Company held by others to secure performance of a Cable Liability by the Company, minus (b) the amount of Accounts Payable, plus the amount of Other Current Liabilities. ARTICLE II CONVEYANCE; LACK OF CONSENTS OR REGULATORY APPROVALS; RIGHT OF FIRST REFUSAL; DISASTERS Section 2.1 Conveyance of Assets and Assumption of Liabilities: Transfers to New VII, Recapitalization. (a) Prior to the Exchange Time, Old VII shall (and shall cause the Cable Division Subsidiaries to) execute and deliver to New VII the Bill of Sale (and such other documentation as Old VII and the Cable Division Subsidiaries shall be required to execute pursuant thereto), pursuant to which Old VII (and the Cable Division Subsidiaries) shall convey to New VII all of their right, title and interest in and to all Non-Cable Assets (the "Conveyance of Assets") and New VII shall execute and deliver the Bill of Sale and thereby assume and agree to 25 19 perform when due in accordance with their terms the Non-Cable Liabilities of Old VII and the Cable Division Subsidiaries (the "Assumption of Liabilities"). (b) Prior to the Exchange Time, but after the occurrence of the Conveyance of Assets and the Assumption of Liabilities, Old VII shall distribute to VI all of the outstanding capital stock of New VII so that after such distribution New VII will be a direct wholly-owned Subsidiary of VI. (c) Prior to the Exchange Time, Old VII shall take all action necessary under its certificate of incorporation and the Delaware Corporation Law to amend and restate its certificate of incorporation so that it reads in full substantially as set forth in Exhibit J, except that (i) the terms and conditions of the Preferred Stock of Old VII shall be as specified by Old VII with the consent of TCI Sub and consistent with the term sheet attached as Exhibit K, (ii) the number of shares of Class A Common Stock and Preferred Stock that are authorized shall in each case be a number equal to the Number of Shares to be Exchanged and (iii) such changes as are necessary in order to ensure that the Amended and Restated Certificate of Incorporation shall be accepted for filing by the Secretary of State of Delaware, shall be made with the consent of TCI Sub and New VII (such consents not to be unreasonably withheld) (the "Amended and Restated Certificate of Incorporation"). (d) The obligations of Old VII contained in Sections 2.1(a), (b) and (c) are subject to the fulfillment of each of the following conditions, each of which may be waived by Old VII: (w) the conditions described in Section 6.1 of the Parents Agreement (as if such conditions were set forth in full herein) shall have been satisfied, (x) Old VII shall have received, to its satisfaction, Loan Proceeds, in an aggregate principal amount at least equal to the Aggregate Loan Amount, and such Loan Proceeds shall be available for transfer as a contribution to New VII in the Conveyance of Assets without condition (but without limiting VI's obligation to provide the notice required for the release of funds from the Cash Collateral Account as specified in the definition of Cash Collateral Account) and (y) VI shall have accepted shares of VI Common Stock for exchange in the Exchange Offer in accordance with Section 2.1(d) of the Parents Agreement. (e) The parties acknowledge that the portion of the Old VII Debt that is equal to the Loan Proceeds transferred to New VII in the Conveyance of Assets is being assumed by New VII in consideration of the transfer to New VII of such Loan Proceeds pursuant to the Conveyance of Assets. Section 2.2 Lack of Consents. If the Transaction requires the consent of another Person under any Cable Group Contract and such consent has not been obtained prior to the Exchange Time or does not remain in full force and effect at the Exchange Time, such failure to obtain such consent or failure of such consent to be in full force and effect shall not itself constitute a breach of any provision hereof. Prior to the Exchange Time, Old VII shall use its best efforts to assign any such Cable Group Contract to New VII and New VII shall at the Exchange Time assume all obligations of Old VII under any such assigned Cable Group Contract with respect to periods from and after the Exchange Time. New VII shall, with respect to each 26 20 such Cable Group Contract, use its reasonable commercial efforts (at the expense of New VII and at no out-of-pocket expense to Old VII, but without New VII being required to provide any consideration therefor) to: (i) keep each such Cable Group Contract in effect and obtain such consent; (ii) provide to Old VII the benefits of each such Cable Group Contract through subcontract or otherwise; (iii) cooperate in any reasonable arrangement designed to provide such benefits to Old VII; and (iv) enforce, at the request and sole expense of Old VII, any rights of New VII included in the Cable Assets under or with respect to any such Cable Group Contract against all other Persons (including termination of the foregoing in accordance with the terms thereof upon the election of Old VII), in each case of clauses (i)-(iv) to the extent that Old VII performs all obligations of New VII under such Cable Group Contract. If all such consents under any such Cable Group Contract are obtained after the Exchange Time, New VII shall promptly assign such Cable Group Contract to Old VII and Old VII shall assume all obligations under such Cable Group Contract with respect to periods following such assignment, in each case without the payment of additional consideration by New VII or Old VII. Section 2.3 Lack of Regulatory Approvals. (a) If immediately prior to the Exchange Time any Local Authority Consent has not been obtained or does not remain in full force and effect immediately prior to the Exchange Time, such failure to obtain such Local Authority Consent or such failure of such Local Authority Consents to be in full force and effect shall not itself constitute a breach of any provision hereof. Prior to the Exchange Time, all Unapproved Local Authorizations and the related Unapproved Franchise Assets shall be transferred to New VII. (b) Old VII and New VII shall take such steps and enter into such agreements, including management agreements (with Old VII as manager, but at no cost to New VII), as may be reasonably necessary or appropriate so that Old VII shall have the exclusive (as between Old VII and New VII) use and benefit of (including, without limitation, cash flow), and burdens (including, without limitation, payments, liabilities, Taxes, risk of loss and responsibility for making capital expenditures) with respect to, the Unapproved Franchise Assets as if the Unapproved Franchise Assets had not been transferred to New VII (and remained with Old VII at and after the Exchange Time), until, with respect to any Unapproved Local Authorization and the related Unapproved Franchise Assets, the Deferred Closing Date or the termination of such agreements as contemplated below in this Section 2.3. Such management agreements will provide that Old VII will have all rights to manage and receive cash flow of the relevant Unapproved Franchise Assets and to pledge such cash flow to the Lenders, including but not limited to management of marketing, pricing, capital expenditures and programming, provided that, with respect to any Unapproved Franchise Area, Old VII will not take or omit to take any action, that could reasonably be expected to delay the Deferred Closing Date with respect to such Unapproved Franchise Area or make the occurrence thereof less likely, provided, however, that Old VII shall be entitled to change subscriber rates in its sole discretion. Such management agreements will also provide that Old VII will continue to make capital expenditures with respect to each Unapproved Franchise Area as if all Local Authority Consents had been obtained and such Unapproved Local Authorizations and the related Unapproved Franchise Assets had not been transferred to New VII as provided above. If and to the extent that New VII receives cash flow with respect to the Unapproved Franchise Assets to which Old VII is entitled pursuant to 27 21 this Section 2.3(b), New VII shall be obligated to pay to Old VII or, if requested by Old VII, to the Lenders, an amount equal to the amount of such cash flow. The out-of-pocket costs and expenses of all such arrangements shall be shared equally by Old VII and New VII (except that each party shall be responsible for the fees and expenses of its own legal advisors). (c) If following the Exchange Time, New VII is able to transfer to Old VII (or a designee of Old VII) an Unapproved Local Authorization, New VII shall promptly so notify Old VII (or, in the case of transfer to such a designee, Old VII shall notify New VII) and, on the fifth Business Day after the date of such notice (a "Deferred Closing Date"), New VII shall transfer to Old VII (or such designee of Old VII), as the case may be, such Unapproved Local Authorization and all related Unapproved Franchise Assets held on such Deferred Closing Date. Old VII (or such designee of Old VII), as the case may be, shall assume, pay, perform and discharge the liabilities and obligations arising after the Exchange Date under or in respect of such related Unapproved Franchise Assets. (d) With respect to any Unapproved Local Authorization, upon the earlier of the second anniversary of the Exchange Date or the date on which a Local Authority Consent has been denied in a final, unappealable order or ruling, if New VII and Old VII have been unable, after good faith negotiations, to enter into agreements providing in all material respects the economic equivalent to Old VII of ownership of the related Unapproved Franchise Assets, then thereafter either Old VII or New VII may, by written notice to the other, elect to terminate all the agreements referred to in this Section 2.3 on a termination date specified in such notice for such Unapproved Franchise Areas ("Terminated Unapproved Franchise Areas"), which termination date may not be earlier than 90 days following the other's receipt of such notice. If New VII so requests, prior to such termination Old VII and New VII shall enter into such agreements, including without limitation service and management agreements for such Terminated Unapproved Franchise Areas, on reasonable and customary commercial terms, including reasonable and customary management fees (provided that such service and management agreements shall be cancelable by Old VII without penalty or other payment on not more than 180 days prior notice and shall be cancelable by New VII without penalty or other payment on not more than thirty (30) days' prior written notice to Old VII) as may be reasonably necessary so that New VII shall have the use and benefit of, and burdens with respect to, and be able to operate the related Unapproved Franchise Assets as if, from and after such termination, the Transaction had not occurred. Upon such termination, New VII shall pay to Old VII an amount equal to the Appraised Value at the time of such termination of the Systems covered by such Terminated Unapproved Franchise Areas and Old VII shall convey or cause to be conveyed to New VII for no additional consideration all Permits, Cable Group Contracts and Intangible Assets related to such Terminated Unapproved Franchise Areas. Notwithstanding the preceding sentence, to the extent any Permit, Cable Group Contract or Intangible Asset is used in the operation of Systems covered by Local Authorizations that are not Unapproved Local Authorizations or Terminated Unapproved Local Authorizations, Old VII shall not convey (or cause to be conveyed) such Permit, Cable Group Contract or Intangible Asset to New VII and Old VII shall use its reasonable commercial efforts or cause its Subsidiaries to use their reasonable efforts (at the expense of New VII and at no out-of-pocket expense to Old VII) to: (i) provide to New VII the benefits thereof through subcontract or otherwise; (ii) cooperate in any 28 22 reasonable arrangement to provide such benefits to New VII; and (iii) enforce, at the request and sole expense of New VII, any rights of the Company included therein (to the extent they relate to such Permit, Cable Group Contract or Intangible Asset). Section 2.4 Right of First Refusal. If a Local Authority consummates its exercise of a right of first refusal arising as a result of the Transaction in respect of a Local Authorization (a "Right of First Refusal Local Authorization" (the Franchise Areas covered by Right of First Refusal Local Authorizations being referred to herein as "Right of First Refusal Franchise Areas")) on the tenth Business Day after receipt by New VII of written notice from Old VII of the consummation of the exercise by such Local Authority of its right of first refusal with respect to such Right of First Refusal Local Authorization, together with evidence reasonably satisfactory to New VII of the consideration given by the Local Authority in exercising such right, New VII shall pay to Old VII, an amount (which shall not be less than zero), if any, equal to (1) the Appraised Value at the time of such consummation of that portion of the Systems included in such Right of First Refusal Franchise Areas, minus (2) the Right of First Refusal Franchise Area Consideration for such Right of First Refusal Franchise Areas received by Old VII or any Affiliate thereof (or any transferee or subsequent transferee thereof), less any out-of-pocket expenses (but in any event excluding Taxes) incurred by Old VII (or such Affiliate thereof (or any transferee or subsequent transferee thereof)) in connection with such consummation of a right of first refusal. "Right of First Refusal Franchise Area Consideration" shall mean, with respect to a Right of First Refusal Franchise Area, an amount equal to the total consideration given by the Local Authority and actually received by Old VII and any of its Affiliates (or any transferee or subsequent transferee thereof) after the Exchange Time in connection with the exercise of its right of first refusal. Section 2.5 Lost Service Subscribers. (a) In the event that on or before the Exchange Time any natural disaster has occurred that has damaged the tangible assets of any one or more Systems sufficiently to cause more than 11,340 Basic Subscribers to be unable to receive cable television service at the Exchange Time as a result of such damage (a "Disaster"; the aggregate number of Exchange Date Basic Subscribers not receiving such service at the Exchange Date as a result of such Disaster being referred to herein as "Lost Service Subscribers"), New VII shall reimburse Old VII for Old VII's reasonable out-of-pocket expenses (provided that such expenses shall be presumed to be reasonable unless New VII establishes otherwise), computed on an after-Tax basis, incurred in causing the damage caused by the Disaster to be repaired as soon as reasonably practicable to the extent necessary to reconnect cable television service (at a level not substantially more or less than the level of service provided immediately prior to the Disaster) to the Lost Service Subscribers. (b) With respect to Lost Service Subscribers, within ten (10) Business Days of the end of each month, New VII shall promptly reimburse Old VII for the amount of Lost Service Subscriber Cumulative Deemed Net Cash Flow, computed on an after-Tax basis, for each Lost Service Subscriber (but only for periods during which such Lost Service Subscribers are not receiving, or not obligated to pay the Basic Subscriber Rate (or a higher rate) for, cable television service at a level not substantially less than the level of service provided immediately prior to the Disaster) for periods prior to the date of the relevant Disaster, provided that aggregate 29 23 payments pursuant to this paragraph (b) for any such Lost Service Subscriber shall not exceed the Per Subscriber Amount applicable to such Lost Service Subscriber, plus interest at the LIBOR Rate on the unreimbursed portion of the Per Subscriber Amount attributable to such Lost Service Subscriber (calculated by deducting payments made by New VII from time to time of Lost Service Subscriber Cumulative Deemed Net Cash Flow (but not including interest) on account of such Lost Service Subscriber). Upon such reimbursement with respect to a Lost Service Subscriber, Lost Service Subscriber Cumulative Deemed Net Cash Flow for such Lost Service Subscriber shall be reduced by the amount of such payment on account of Lost Service Subscriber Cumulative Deemed Net Cash Flow (but not including interest). Section 2.6 Release of Old VII. New VII will obtain the release of Old VII from, or the substitution of New VII as obligor under (so that Old VII will have no obligation under), all of Old VII's obligations to repay the Old VII Debt, or shall cause the indenture pursuant to which such debt was issued to be amended or supplemented so that Old VII will no longer be an obligor (so that Old VII will have no obligation) thereunder, in each case effective concurrently with the release of all funds from the Cash Collateral Account. New VII shall deliver to Old VII copies of all documentation provided to the trustees under the indentures governing Old VII's public debt in connection with its substitution as obligor in place of Old VII thereunder, and Old VII and the Lenders shall be entitled to rely on all legal opinions delivered to such indenture trustees in connection with such substitution. Section 2.7 Receipt of Consents. It is the intent of the parties that the arrangements described in Sections 2.2 and 2.3 continue for the shortest possible time, and to this end they agree to use reasonable commercial efforts to obtain all consents (including Local Authority Consents) to the Transaction referred to in said Sections as promptly as practicable following the Exchange Time. Section 2.8 Execution of Other Instruments. If, immediately prior to the Exchange Time, PVIT has not transferred the PVIT Assets to Old VII or a Cable Division Subsidiary, New VII shall cause PVIT to execute and deliver to Old VII immediately prior to the Exchange Time the PVIT Bill of Sale. Section 2.9 Use of Viacom Name. Old VII may continue to use the names "Viacom," "Viacom International" and "Viacom Cable" and derivations thereof on trucks and buildings to the extent so used immediately prior to the Exchange Time for a reasonable period after the Exchange Time, not to exceed ninety (90) days in the case of trucks and thirty (30) days in the case of buildings; provided, however, that Old VII will provide replacements for channel cards, remote control stickers and other items containing any such name in the ordinary course of business. Old VII acknowledges that following the Exchange Time, it will have no rights in any such name (except the right of use set forth in this Section 2.9), and Old VII agrees to use such names only in accordance with this Section 2.9. Section 2.10 Name Change. Prior to the Exchange Time, Old VII will change its name to TCI Pacific Communications, Inc. (provided that such name is available) in its state of incorporation and, to the extent practicable, in all states where it is qualified to do business, 30 24 and New VII will change its name to Viacom International Inc. Prior to and following the Exchange Time, the parties will take all actions necessary to enable New VII to qualify to do business under the name of Viacom International Inc. in those states in which it determines to so qualify and to change the name of Old VII to TCI Pacific Communications, Inc. (provided that such name is available) in all states where it is qualified to do business. Old VII will from time to time and for no additional consideration execute such instruments and consents as New VII shall reasonably request to enable New VII to use such name. If the Exchange Time does not occur, Old VII and New VII will reverse such name changes. Section 2.11 Bank Accounts. Prior to the Anticipated Commencement Date, New VII will identify each bank account of Old VII that it anticipates will be active immediately following the Exchange Time. Section 2.12 Intercompany Debt. At the Exchange Time, neither Old VII nor any Cable Division Subsidiary will have any indebtedness for borrowed money to VI and its Subsidiaries (other than to Cable Division Subsidiaries or Old VII). Section 2.13 Consents. Each of Old VII and New VII agrees to use its reasonable commercial efforts to obtain all consents necessary to consummate the Conveyance of Assets and Assumption of Liabilities. New VII shall coordinate the efforts to obtain such consents, and New VII shall be responsible for all costs, expenses, liabilities, obligations and burdens with respect to such consents. Section 2.14 Books and Records. After the Exchange Date, each of New VII and Old VII shall, upon the other's reasonable request, in connection with the preparation of tax returns, tax or accounting audits or for such other purpose as such other party shall reasonably request, afford such other party and its Agents who agree to be bound by the provisions of Section 2.15, access to the books and records of it and its Affiliates (x) where the requesting party is Old VII, to the extent such books and records relate to the operation of the Business prior to the Exchange Date (including payment of any Taxes with respect to the periods prior to the Exchange Date) and (y) where the requesting party is New VII, to the extent such books and records relate to the operation of the business of Old VII and its Subsidiaries prior to the Exchange Date. Section 2.15 Confidentiality. Following the Exchange Time, each of Old VII and New VII (the "Disclosing Party") shall, and shall cause its Affiliates, and its and their respective Agents, to keep secret and retain in strictest confidence any and all confidential information relating to the business of the other party and its Affiliates or otherwise not available to the general public in their possession or within their knowledge at the Exchange Time (provided that such confidential information shall not include any information that (i) has become generally available to the public other than as a result of a disclosure by the Disclosing Party, its Affiliates or its Agents, (ii) has been independently developed by the Disclosing Party or such Affiliate or Agent of the Disclosing Party or (iii) was available to the Disclosing Party or an Affiliate or Agent of the Disclosing Party on a nonconfidential basis from a third party having no obligation of confidentiality to the other party or any Affiliate of the other party and which 31 25 has not itself received such information directly or indirectly in breach of any such obligation of confidentiality), and shall not disclose such confidential information, and shall cause its Affiliates and Agents not to disclose such confidential information, to any Person, except (x) as may be required by law or legal process (in which event the Disclosing Party shall so notify the other party as promptly as practicable (and if possible, prior to making such disclosure) and, if requested by the other party, shall seek confidential treatment of such information) or (y) as counsel to such party reasonably determines is required by the 1933 Act or the 1934 Act. Section 2.16 Control of Litigation. Old VII shall have the sole right and obligation to defend and direct the defense of, and to settle or compromise, any demand, claim, litigation or proceeding arising in respect of (x) any Cable Group Contract during the period from the Exchange Date until such Cable Group Contract is assigned to Old VII as provided in Section 2.2 or (y) any Unapproved Franchise Assets and Unapproved Local Authorizations, during the period from the Exchange Date until the transfer thereof to Old VII pursuant to Section 2.3(c) or the payment of the Appraised Value with respect thereto pursuant to Section 2.3(d). Old VII shall be responsible for all costs, expenses, obligations, judgments and liabilities arising therefrom. New VII will cooperate with Old VII in the exercise by Old VII of its rights under this Section 2.16. Section 2.17 Security Interest. If the Lenders so request, New VII shall at the request of Old VII execute such security agreements and financing statements in form and substance reasonably satisfactory to Old VII, pursuant to which Old VII or the Lenders shall be granted a perfected first priority lien and security interest in all of New VII's right, title and interest in and to any Cable Group Contract held by New VII pursuant to Section 2.2 and any Unapproved Franchise Assets and (to the extent permitted by applicable law) Unapproved Local Authorizations, in each case together with the proceeds thereof, securing New VII's obligations under Sections 2.2 and 2.3 (the "Section 2.17 Secured Obligations") and New VII shall make all filings and shall take all other actions necessary or desirable to perfect and protect such security interest. Such security interests in Unapproved Franchise Assets and Unapproved Local Authorizations will terminate and be released upon the payment of the Appraised Value with respect thereto pursuant to Section 2.3(d). Without limitation of the foregoing, at the request of Old VII from time to time, New VII shall enter into such other arrangements as Old VII shall reasonably request to secure performance of the Section 2.17 Secured Obligations and to otherwise provide to Old VII the rights and benefits to be provided to it pursuant to this Section 2.17. Old VII shall be responsible for all out-of-pocket costs incurred by New VII in complying with New VII's obligations under this Section 2.17. Notwithstanding any provisions of this Section 2.17 or the Transaction Documents, New VII shall not be required to grant or maintain any lien or security interest to or for the benefit of Old VII or the Lenders to the extent such grant or maintenance would constitute a breach or default (including any event that, with the passage of time or the giving of notice, or both, would become a breach or default) under, or give rise to a right of acceleration under, any loan agreement or indenture or other instrument governing indebtedness to which VI or any Affiliate of VI is a party or by which VI or any Affiliate of VI or their properties may be bound. 32 26 ARTICLE III ADJUSTMENTS Section 3.1 Determination of Estimated Asset Value. Prior to the Anticipated Commencement Date, Old VII shall determine in good faith its estimates of the Capital Expenditure Amount (the "Estimated Capital Expenditure Amount"), the Inventory Amount (the "Estimated Inventory Amount"), the Telecom Amount (the "Estimated Telecom Amount"), Working Capital ("Estimated Working Capital"), the Asset Value (the "Estimated Asset Value"), and the Fixed Amount (the "Estimated Fixed Amount") based on information available to it at the time it makes such estimates. The Estimated Capital Expenditure Amount, the Estimated Inventory Amount, the Estimated Telecom Amount, Estimated Working Capital and Estimated Fixed Amount are referred to herein as the "Estimated Adjustment Amounts". At least forty-five (45) days prior to the Anticipated Commencement Date of the Exchange Offer, Old VII shall deliver to New VII a statement setting forth its preliminary estimates of the Adjustment Amounts and the Estimated Asset Value as of the anticipated Exchange Date set forth in such statement. Prior to the Anticipated Commencement Date, Old VII will deliver to New VII a statement setting forth the Estimated Adjustment Amounts and the Estimated Asset Value as of the anticipated Exchange Date (an "Estimate Statement"), which statement shall: (i) contain the information in reasonable detail required to calculate the Estimated Adjustment Amounts and the Estimated Asset Value; (ii) be prepared in accordance with the requirements of this Agreement; and (iii) be certified by an authorized officer of Old VII to be Old VII's good faith estimate. In the event that the anticipated commencement date of the Exchange Offer is postponed, Old VII shall if practicable and consistent with the timing of the Exchange Offer and the provisions of Section 2.3 of the Parents Agreement, re-estimate the Estimated Adjustment Amounts and deliver to New VII an updated Estimate Statement. For purposes of this Agreement, the Estimated Adjustment Amounts and the Estimated Asset Value shall be the amounts set forth on the last Estimate Statement delivered by Old VII to New VII. Old VII shall not be deemed to have made any representations or warranties as to the statements delivered pursuant to this Section, except that they were prepared in good faith. For purposes of determining "Covered Capital Expenditures" and "Line Extension and Other Capital Expenditures", a capital expenditure shall be deemed made at the time that a capital expenditure is recorded on the books of the Company as such in the ordinary course in accordance with past practices and consistent with GAAP. Section 3.2 Calculation of Adjustment Amounts. (a) The Capital Expenditure Amount, the Inventory Amount, Working Capital, the Telecom Amount, the Fixed Amount and the amount of Loan Proceeds actually transferred to New VII in the Conveyance of Assets are referred to herein collectively as the "Adjustment Amounts." (b) Not later than sixty (60) days after the Exchange Date, Old VII shall deliver to New VII a statement showing Old VII's calculation of the actual Adjustment Amounts and the Asset Value (the "Final Certificate"). Old VII shall make available to New VII its accountants' work papers and such other information relating to the calculation of the Adjustment Amounts and the Asset Value as New VII shall reasonably request. 33 27 (c) In the event that New VII disputes Old VII's calculation of the Adjustment Amounts and the Asset Value, New VII shall give written notice thereof to Old VII within 30 days after the Final Certificate was delivered to New VII which notice shall set forth the basis for such dispute in reasonable detail (the "Dispute Notice"). The parties shall use all reasonable efforts to resolve any such dispute, but if any such dispute cannot be resolved by the parties within thirty (30) days after the date the Dispute Notice is given, all unresolved disputes shall be referred to an Arbitrating Firm for resolution. The parties shall seek to cause the Arbitrating Firm to make its determination within sixty (60) days after referral of a dispute to it. The determination of the Arbitrating Firm shall be conclusive and binding on each party. The fees of the Arbitrating Firm shall be allocated and paid by New VII or Old VII, or divided between them, on a basis determined by the Arbitrating Firm to be fair taking into account the correctness of the positions asserted by each of them with respect to the disputed matters resolved by the Arbitrating Firm. (d) The Adjustment Amounts shall be the amounts set forth in the Final Certificate unless a Dispute Notice is given with respect to the calculation thereof, in which case only those Adjustment Amounts not in dispute shall be as set forth in the Final Certificate. If a Dispute Notice is given, any Adjustment Amount in dispute shall be deemed finally determined on the date that the Arbitrating Firm gives written notice to Old VII and New VII of its determination with respect to all disputes regarding the calculation thereof, or, if earlier, the date on which New VII and Old VII agree in writing on the amounts thereof, in which case any Adjustment Amount in dispute shall be calculated in accordance with such determination or agreement. Section 3.3 Adjustment Payment. If the Net Asset Value as finally determined in accordance with Section 3.2 is greater than the amount of the Estimated Net Asset Value, Old VII shall pay to New VII on the third Business Day after such determination an amount in cash equal to such excess, plus an amount equal to interest thereon from the Exchange Date to the date of payment at the Prime Rate, compounded quarterly. If the Net Asset Value as finally determined is less than the Estimated Net Asset Value, New VII shall pay to Old VII on the third Business Day after such determination an amount in cash equal to such deficiency plus an amount equal to interest thereon from the Exchange Date to the date of payment at the Prime Rate, compounded quarterly. Payments of cash pursuant to this Section 3.3 shall be made by wire transfer of immediately available funds to an account in the United States designated by the party entitled to payment to the party required to make the payment at least two (2) Business Days prior to the date such payment is due. Section 3.4 Fixed Amount. In the event that on the Exchange Date there are less than 1,122,660 Basic Subscribers (the shortfall of Basic Subscribers below 1,122,660 is referred to herein as the "Shortfall Number"), for this purpose, calculated without giving effect to the loss, if any, of Basic Subscribers as a result of a Disaster (defined for these purposes without regard to the number of Basic Subscribers affected), the Fixed Amount shall be reduced by an amount equal to the product of (x) the Shortfall Number, multiplied by $1,763.67. 34 28 Section 3.5 Proration. Property taxes and assessments, payroll taxes, utility charges, association dues, rents, pole rentals, applicable franchise, copyright or other fees, sales and service charges and wages of Employees of the Company who are Continuing Employees, and other operating income and expenses of the Company shall be prorated as of 11:59 p.m. on the Exchange Date, with New VII being responsible for periods prior to such time and Old VII being responsible for periods from and after such time, but only to the extent such items were not taken into account in calculating Working Capital. For purposes of the foregoing, any settlement with BMI or ASCAP for payment of copyright or royalty fees with respect to music performance rights in connection with the Systems, to the extent relating to the period ended on or prior to the Exchange Date, shall be reimbursed to Old VII by New VII on an after-Tax basis whether such settlement is entered into before or after the Exchange Date and whether such payments are paid or payable before or after the Exchange Date, but only to the extent such items were not taken into account in calculating Working Capital, provided that New VII shall have no responsibility for any settlement after the Share Purchase Closing that is not consistent with settlement terms reached by the cable television industry generally unless such settlement is approved in advance by New VII, such approval not to be unreasonably withheld. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEW VII New VII represents and warrants to Old VII (which representations and warranties may be relied upon by Old VII regardless of any knowledge Old VII may have as to such matters) that: Section 4.1 Corporate Existence and Power. Each of Old VII, New VII and the Cable Division Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) is authorized to transact business and is in good standing in each state in which its ownership of assets or conduct of business requires such qualification, and (iii) has all corporate powers required to carry on its business as conducted on the date hereof, with such exceptions to clauses (i), (ii) and (iii) as would not have a Material Adverse Effect or materially and adversely affect the ability of the Company to consummate the Transaction. Section 4.2 Corporate Authorization. Each of Old VII, New VII and the Cable Division Subsidiaries has the corporate power to own its assets and to operate the Systems operated by it. Old VII and New VII each have the corporate power to enter into this Agreement and to consummate the Transactions contemplated to be consummated by each of them. The execution and delivery by each of Old VII and New VII of this Agreement and the consummation by each of them of the Transactions contemplated to be consummated by each of them hereunder have been duly authorized by all necessary corporate action on each of their parts. Section 4.3 Capitalization; Subsidiaries; Certificates of Incorporation and By-Laws. (a) As of the date hereof, the authorized capital stock of Old VII consists of 35 29 100 shares of Common Stock, par value $0.10, of which 100 shares are issued and outstanding. Immediately prior to the Exchange Time and the Share Purchase Closing, the authorized capital stock of Old VII will consist of a number of shares of Class A Common Stock equal to the Number of Shares to be Exchanged, of which a number equal to the Number of Shares to be Exchanged shall be issued and outstanding (and shall be owned of record (x) by VI immediately prior to the Exchange Time and (y) by Persons who have exchanged shares of VI Common Stock for such shares in the Exchange Offer (and their transferees and further transferees) immediately prior to the Share Purchase Closing), 100 shares of Class B Common Stock, none of which will be issued and outstanding, and a number of shares of Preferred Stock equal to the Number of Shares to be Exchanged, none of which will be issued and outstanding. Except for the Exchange Offer and any arrangement concerning the issuance by Old VII to VI of shares of Class A Common Stock to be exchanged in the Exchange Offer as contemplated by the Transaction Documents, there is no outstanding option, warrant, right (including conversion or preemptive rights or rights of first refusal), call, subscription or other agreement pending for the issuance of, or the granting of rights to acquire from Old VII or VI, any capital stock of Old VII or securities convertible into or exercisable for capital stock of Old VII. (b) Exhibit D sets forth a true and correct list of the Cable Division Subsidiaries as of the date of this Agreement. Old VII has good and, subject to Permitted Liens, marketable title to all of the outstanding shares of capital stock of Tele-Vue and Tele-Vue (either directly or through another Cable Division Subsidiary) has good and, subject to Permitted Liens, marketable title to all of the outstanding shares of capital stock of each Cable Division Subsidiary (other than Tele-Vue), free and clear of all Liens. There is no outstanding option, warrant, right, call, subscription or other agreement providing for the issuance of, or the granting of rights to acquire from any Cable Division Subsidiary, any capital stock of any Cable Division Subsidiary or securities convertible into or exercisable for capital stock of any Cable Division Subsidiary. (c) At the Exchange Time, all issued and outstanding shares of Class A Common Stock shall have been issued in accordance with the registration or qualification provisions of the 1933 Act and any relevant state securities laws, or pursuant to valid exemptions therefrom. Section 4.4 Governmental Authorization. The execution and delivery of this Agreement by Old VII and New VII, and the performance by Old VII and New VII of this Agreement, and the consummation by Old VII and New VII of the Transactions contemplated to be consummated by it pursuant hereto, require no material action by or in respect of, or material filing with, any Governmental Authority other than (x) compliance with any applicable requirements of the HSR Act, the FCC Authorizations, the Non-Cable FCC Authorizations and the Local Authorizations and (y) those that may be applicable as a result of the regulatory status of TCI, TCI Sub or their Affiliates. Section 4.5 Consents. Except as set out in Schedule 4.14, no material consent by any Person under any Material Contract is required or necessary for the execution and delivery of this Agreement by Old VII, or the performance by Old VII of this Agreement, or the 36 30 consummation of the Transactions contemplated to be consummated by it pursuant hereto. Except as indicated in Schedules 4.5, 4.9, 4.14 and 4.16, no consent by any Person (other than a Governmental Authority) is required or necessary for the execution and delivery of this Agreement by Old VII or New VII, or the performance by Old VII or New VII of this Agreement, or the consummation by Old VII or New VII of the Transaction, with such exceptions as would not have a Material Adverse Effect. Section 4.6 Non-Contravention. (a) The execution, delivery and performance of this Agreement by Old VII and New VII, and the consummation by Old VII and New VII of the Transactions contemplated to be consummated by each of them pursuant hereto, do not or on or before the Exchange Date will not, (x) contravene the certificate of incorporation or bylaws of Old VII or New VII or (y) subject to obtaining the consents described in Schedules 4.5, 4.9, 4.14 and 4.16 and subject to obtaining, taking or making the actions and filings described in clauses (x) and (y) of Section 4.4, result in the imposition of any Lien (other than a Permitted Lien) upon any assets of the Company pursuant to, or constitute a breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under or give rise to a right of termination, cancellation, first refusal or acceleration (other than, a Right of First Refusal) under any applicable Legal Requirement or any judgment, injunction, order, decree, contract, license, lease, indenture, mortgage, loan agreement, note or other agreement or instrument as to which the Company is a party or by which any of its properties may be bound, the effect of which would be to materially impair the ability of Old VII to perform its obligations under this Agreement. (b) The Company is not in breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under any Material Contract or contract by which any of its assets may be bound, the effect of which would be to impair the ability of the Company in any material respect to operate any System as presently operated. Section 4.7 Binding Effect. This Agreement has been duly executed and delivered by Old VII and New VII, and this Agreement constitutes a valid and binding obligation of Old VII and New VII, enforceable against Old VII and New VII in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. Section 4.8 Financial Statements; Undisclosed Liabilities. (a) The unaudited consolidated balance sheets of the Company at December 31, 1994 and March 31, 1995 and the unaudited consolidated income statements of the Company for the year ended December 31, 1994 and the three-month period ended March 31, 1995 set forth on Schedule 4.8 hereto (the "Financial Statements"), fairly present in all material respects in conformity with GAAP, the financial position of the Company as of the dates thereof and the results of operations of the Company for the periods then ended, except that such Financial Statements omit footnotes (and the disclosure contained therein) and are subject to normal, quarter-end and/or year-end adjustments, and the financial information set forth in such unaudited consolidated balance sheet 37 31 at December 31, 1994 and such unaudited consolidated income statement for the year ended December 31, 1994 was incorporated in the audited consolidated financial statements of Viacom Inc. at and for the year ended December 31, 1994. (b) Except for obligations and liabilities (w) set forth on the unaudited consolidated balance sheet of the Company at March 31, 1995, (x) arising in the ordinary course of the Business since March 31, 1995, (y) described on Schedule 4.8 or (z) for which New VII must indemnify Old VII pursuant to Section 7.2(b), the Company has no obligations or liabilities of any kind, absolute or contingent, that would be required under GAAP to be reflected on the consolidated balance sheet of the Company. Section 4.9 Systems; Local Authorizations and FCC Authorizations. (a) (i) Schedule 4.9 sets forth a complete list for each System of the Local Authorizations (other than any such authorization, approval, certification, franchise, license or permit which is not material to the ownership or operation of a System) in effect as of the date hereof and indicates for each System those Local Authorizations requiring the consent of the Local Authority for consummation of the Transaction. (ii) Each Local Authorization (x) is in all material respects validly held by Old VII or a Cable Division Subsidiary in accordance with and as required by the terms thereof and according to all applicable Legal Requirements and (y) is in all material respects in full force and effect and has not been revoked or canceled and Old VII or the applicable Cable Division Subsidiary is in material compliance therewith. To the knowledge of New VII and except as set forth on Schedule 4.9, no proceeding to revoke, cancel or modify in any manner any such Local Authorization has been initiated or threatened in writing. All 626 Letters for the Systems required to be filed in connection with renewal of Local Authorizations have been timely filed. (iii) Except as otherwise indicated on Schedule 4.9, (aa) Schedule 4.9 sets forth a list, for each Franchise Area, of the date (or, if applicable, the range of possible expiration dates) of expiration of each material Local Authorization with respect thereto; (bb) no other material Local Authorization is required by law in connection with the operation and maintenance of the Systems; and (cc) to the knowledge of New VII, (x) there are no operating cable television systems (other than the Systems) providing cable television programming to a material number of households in the Franchise Area and (y) no entity has been awarded a valid cable television franchise which enables such entity to provide cable television service to a material number of households in the Franchise Area. (b) Schedule 4.9 contains a complete list as of the Company's accounting cutoff date ending immediately prior to May 31, 1995 (except that clause (ii) is reported as of March 31, 1995), with respect to each System, of (i) the number of Basic Subscribers as shown on the System's monthly subscriber report, (ii) the number of pay customers by each pay service as shown in the Company's records, (iii) the approximate length of installed plant, and (iv) the approximate number of Homes Passed. (c) Schedule 4.9 contains a complete list of all FCC Authorizations in effect as of the date hereof and all consents of the FCC necessary in connection with the Transaction. 38 32 (d) (i) No System is in material violation of and the Company has not received written notice of any claimed violation of, any FCC Authorization; (ii) Each such FCC Authorization is validly existing and in full force and effect in all material respects; and (iii) Each System has all material FCC Authorizations required for its operation of the Systems. To the knowledge of New VII, no proceeding to revoke, cancel or modify in any manner any such FCC Authorization has been initiated or threatened in writing and the applicable member of the Company is in material compliance with all such FCC Authorizations. (e) Schedule 4.9 sets forth the Basic Subscriber Rate for each Franchise Area as of the date indicated therein. Section 4.10 Absence of Changes. Except as described in Schedule 4.10 or as contemplated or permitted by the Transaction Documents, since the Balance Sheet Date, (i) the Company has operated the Business in the ordinary course, consistent with past practices, (ii) there have been no changes in the Business which, individually or in the aggregate, have resulted in a Material Adverse Effect and (iii) there has been no issuance or sale of any shares of Old VII's capital stock. Section 4.11 Subsidiaries. At the date of this Agreement, Old VII is a wholly-owned Subsidiary of VI. Section 4.12 Assets. The Company has good and, subject to the matters referred to in item 4 of Schedule 4.19 and Permitted Liens, marketable title to, or a valid leasehold or license interest in, all tangible assets purported to be owned, leased or licensed by the Company, including, without limitation, all Inventory, Real Property and Equipment but excluding the Transferred Assets and the PVIT Assets (the "Cable Division Assets"), free and clear of all Liens other than Permitted Liens. The PVIT Bill of Sale is sufficient to transfer to Old VII good and, subject to Permitted Liens, marketable title to the PVIT Assets. The Cable Division Assets, the Transferred Assets and the PVIT Assets are in all material respects sufficient to operate the Business as currently conducted. Except for the Transferred Assets and the PVIT Assets, the Cable Division Assets constitute all material operating assets owned, leased or licensed by VI or any of its Subsidiaries and used primarily in the Cable Television Business of VI and its Subsidiaries. Any asset owned by VI or any Subsidiary of VI which is primarily used in the Business but is not held by the Company on the date of this Agreement will be transferred to the Company on or before the Exchange Time. Section 4.13 Intellectual Property. To the knowledge of New VII, the conduct of the Business does not infringe upon the patents, trademarks, trade names or other intellectual property rights of any Person, with such exceptions as would not result in a Material Adverse Effect. Section 4.14 Material Contracts. (a) Schedule 4.14 lists all Material Contracts in effect on the date hereof. (b) Except as disclosed in Schedule 4.14, the Company is not in material default or breach of any Material Contract and, to the knowledge of New VII, (i) there exists no 39 33 state of facts which after notice or lapse of time or both would constitute such a material default or breach and (ii) no other party to such Material Contract is in default or breach thereunder. (c) Except as set forth on Schedule 4.14, the real property and personal property which are the subject of leases that constitute Cable Group Contracts are currently used in the construction, operation or maintenance of the Business or constitute Telecom Agreements. Section 4.15 Litigation. Except as set out in Schedule 4.15, there are no actions, suits or proceedings pending and, to the knowledge of New VII, there are no claims, grievances, governmental investigations, actions, suits or proceedings threatened, against or affecting the Company with respect to the Business at law or in equity or before or by any Governmental Authority, or before or by an arbitrator or arbitration board which would have a Material Adverse Effect. Except as set out in Schedule 4.15, there are no judgments, decrees or orders outstanding against the Company with respect to the Business or any System. . Except as set forth on Schedule 4.16, (i) the Company is in compliance with all applicable Legal Requirements and (ii) the Business is being conducted in compliance with all applicable Legal Requirements, with such exceptions to clauses (i) and (ii) as would not have a Material Adverse Effect. Section 4.17 Employees. (a) Employment Agreements. Schedule 4.17 contains a list of all written employment agreements between the Company and Employees. The consummation of the Transaction will not result in Old VII or any Affiliate of Old VII becoming obligated to make any severance payments, to accrue any severance costs with respect to or to pay any stay-on bonuses to any Continuing Employee or Non-Continuing Employee. Except as set forth in Schedule 4.17, neither Old VII nor any Cable Division Subsidiary has made any commitment or representation to any Continuing Employee with respect to continuing employment nor will it make any such representation. (b) Collective Agreements. Except as set out in Schedule 4.17, neither the Company nor any Affiliate of the Company is a party to any material labor or employment dispute or is bound by or a party to any collective bargaining agreement relating to Employees and no trade union, council of trade unions, employee bargaining agent or affiliated bargaining agent for any of the Employees (i) holds bargaining rights with respect to any Employees by way of certification, interim certification, voluntary recognition, designation or successor rights; or (ii) has, to the knowledge of New VII, applied or indicated an intention to apply to be certified as the bargaining agent of any of the Employees. (c) Employee Benefit Plans/ERISA. (i) Schedule 4.17 lists each stock option, stock purchase, disability, vacation pay, incentive, bonus, severance pay, deferred compensation, supplemental income or other employee benefit plan, policy or arrangement or agreement and each other "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by or contributed to by VI, the Company or any ERISA Affiliate of the Company, including all amendments thereto (collectively referred to as "Benefit Plans"), covering current or former employees of the Company or dependents or survivors of employees or former employees of the Company. 40 34 (ii) Except as set forth on Schedule 4.17, each Benefit Plan is in substantial compliance with all applicable laws and regulatory requirements, and has been administered substantially in accordance with its terms. To the knowledge of New VII, there are no circumstances relating to any Benefit Plan intended to be tax-qualified under Section 401(a) of the Code that would likely be treated by the IRS as a disqualifying event. No material liabilities, other than for payment of benefits in the ordinary course, have been incurred nor, to the knowledge of New VII, do any facts exist which are reasonably likely to result in any material liability (whether or not asserted as of the date hereof) of the Company arising by virtue of any event, act or omission occurring prior to the Exchange Date with respect to any Benefit Plan. To the knowledge of New VII, no liens under Code Section 412(n) or ERISA Section 4068(a) exists, no accumulated funding deficiency under Code Section 412(a) exists and no liabilities under ERISA Section 4069(a) or Section 4201(a) have been incurred with respect to any employee benefit plan (within the meaning of Section 3(3) of ERISA) of the Company or any member of an ERISA affiliated group (as defined under Section 414(b), (c) and (m) of the Code) which would have a Material Adverse Effect, nor do any facts exist which are reasonably likely to result in the assertion of such liens or liabilities. (iii) None of VI, Old VII, New VII or any ERISA Affiliate thereof has any present or future obligation to make any payment to or with respect to any present or former employee of the Company pursuant to any retiree medical benefit plan or other retiree welfare benefit plan (in each case except as required by law), and no condition exists that would prevent the Company from amending or terminating any Benefit Plan providing retiree welfare benefits to employees of the Company. (d) Immigration. The Company has in all material respects properly verified the identity and authorization to work in the United States and has completed and retained INS forms I-9 for all Continuing Employees where required by the Immigration Reform and Control Act of 1986 and related statutes. Section 4.18 Finders' Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Old VII, any Cable Division Subsidiary or any of their Affiliates who might be entitled to any fee or commission from Old VII or any of its Affiliates in connection with the execution, delivery or performance of this Agreement or the Transactions. Section 4.19 Real Property. (a) Schedule 4.19 lists the address of each parcel of Owned Real Property. (b) Except as set forth in Schedule 4.19, all Owned Real Property is used or useful in the Business. (c) The Company has possession and the right to occupy the real property which is the subject of each lease of Leased Real Property that constitutes a Material Contract. (d) The Company has not received written notice from any party to any instrument affecting any material parcel of Real Property that such party intends to terminate or 41 35 cancel the same, with such exceptions as would not be reasonably expected to have a Material Adverse Effect. Section 4.20 Environmental Matters. There is no past or present event, condition or circumstance (i) which constitutes a material violation by the Company of any Legal Requirements now in effect relating to pollution or protection of the environment from contamination (other than violations as to which Old VII will be indemnified by New VII pursuant to Section 7.2(b)), including any material Legal Requirements relating to the use, treatment, storage, disposal, transport or handling of, or the spill, deposit, emission, discharge, migration, release or threatened release of, contaminants, substances, wastes or pollutants, including petroleum and "hazardous substances" as that term is defined under the Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA") (collectively, "Hazardous Materials"), into the environment or (ii) which has or will give rise to any material liability of the Company (other than liabilities as to which Old VII will be indemnified by New VII pursuant to Section 7.2(b)), including any material liability under CERCLA or other similar state law, based on, arising out of or related to the use, treatment, storage, disposal, transport of, or handling or the spill, deposit, emission, discharge, migration, release or threatened release of, any Hazardous Material into the environment; provided that the representations in this Section 4.20, insofar as they apply to the underground storage tanks listed on Schedule 4.20, shall apply without any limitation as to materiality. Attached hereto as Schedule 4.20 is a true and correct list of all underground storage tanks located on the Real Property. Section 4.21 FCC and Copyright. (a) The Company is in compliance with the Rules and Regulations concerning Cumulative Leakage Index, as defined by the Rules and Regulations. (b) The Company has made all material submissions (including, without limitation, registration statements) required under the Communications Act applicable to the conduct and operation of the Business and the Systems. The Company and the Systems are in compliance in all material respects with the Communications Act. The Company has provided all material notices to subscribers and maintained in all material respects all public files required under the Communications Act. Except as set forth in Schedule 4.21, the Company is certified as in compliance with the FCC's equal employment opportunity rules to the extent required to be so certified under such rules. Each System is in material compliance with all "must carry" requirements and has received all retransmission consents, except such as are being contested. (c) The Company has deposited with the United States Copyright Office all statements of account and other documents and instruments, and paid all royalties, supplemental royalties, fees and other sums to the United States Copyright Office required under the Copyright Act with respect to the business and operations of each System as are sufficient to obtain, hold and maintain the compulsory copyright license for cable television systems prescribed in section 111 of the Copyright Act. 42 36 (d) The Company and each System are in compliance in all material respects with the Copyright Act, except as to potential copyright liability arising from the performance, exhibition or carriage of any music on each System. The Company and each System are entitled to hold and do now hold the compulsory copyright license described in section 111 of the Copyright Act. Section 4.22 Covenants not to Compete. Except as set forth on Schedule 4.22, the Company is not bound by covenants not to compete which will apply to the Company after the Effective Time. Schedule 4.22 lists all material covenants not to compete which will be enforceable by the Company after the Exchange Time. Section 4.23 Telecom Capital Expenditures. As of June 30, 1995, the portion of Telecom Capital Expenditure Amount expended prior thereto did not exceed $11,500,000. Section 4.24 Accounts Receivable, Net. The Company's allowance for customer doubtful accounts as of the Exchange Time will be in an amount not less than the total of all disconnected subscriber account balances, all amounts billed to subscribers for unrecovered converters and all accounts receivable aged over 120 days from the invoice or billing date, determined on a basis consistent with the Financial Statements. Section 4.25 Number of Basic Subscribers. At the date of this Agreement, there are, and as of February 23, 1995, there were at least 1,134,000 Basic Subscribers (for this purpose, calculated without giving effect to the loss, if any, of Basic Subscribers as a result of a Disaster (defined for these purposes without regard to the number of Basic Subscribers affected)). Section 4.26 Adjustment Amounts. As of June 30, 1995, Covered Capital Expenditures were $38,709,000, Covered Line Extension and Other Capital Expenditures were $9,091,000, capital expenditures made for which TCI Sub would be required to reimburse Old VII pursuant to Section 7.18 of the Subscription Agreement were $368,000, and access/exclusivity fees incurred in accordance with Exhibit E were $320,188. Section 4.27 Ranking of Payment Obligations. On the Exchange Date, New VII's obligations to make payments to Old VII pursuant to Sections 2.3, 2.4, 2.5(b), 7.2, 9.1 and 9.2 shall rank no lower than pari passu in right of payment with New VII's obligations to repay its senior unsecured bank debt. ARTICLE V NONCOMPETITION Section 5.1 Noncompetition. If the Share Purchase Closing occurs, so long as Old VII, TCI, TCI Sub or any Person to whom the Company initially transfers the Nashville System or Dayton System following the Share Purchase Closing in accordance with Section 7.19 of the Subscription Agreement (a "Specified Party") owns and operates a cable television system 43 37 in a Franchise Area (determined as of the Exchange Date but not including any Unapproved Franchise Area unless and until the Deferred Closing Date, if any, with respect to such Unapproved Franchise Area), New VII agrees that, with respect to each such Franchise Area, from and after the Share Purchase Closing until the earlier of (i) the third anniversary of the Exchange Date or (ii) the date such Specified Party no longer owns and operates such Franchise Area, New VII shall not, and New VII shall not permit any of its Subsidiaries or any Subsidiaries of VI to, (x) directly engage in Cable Television Business in such Franchise Area or (y) indirectly engage in Cable Television Business in such Franchise Area through ownership of an equity interest in any Disqualified Person. For purposes of the preceding sentence (i) New VII and Subsidiaries of VI shall not be deemed to be engaged in Cable Television Business as a result of the ownership of 10% or less of the equity interests of any Person and (ii) no Person shall be deemed to be a Disqualified Person until the first anniversary of the later of (a) the date New VII and Subsidiaries of VI own in excess of 10% of the equity interests of such Person and (b) the date such Person becomes a Disqualified Person. The "Territory" shall consist, at any time, of all Franchise Areas (determined as of the Exchange Date) in which a Specified Party owns and operates a cable television system at such time, provided that any Unapproved Franchise Area shall not in any event be deemed to be part of the Territory unless and until the Deferred Closing Date, if any, with respect to such Unapproved Franchise Area. A "Disqualified Person" shall mean a Person, (i) 25% or more of whose revenues are derived from Cable Television Business within the Territory or (ii) whose Cable Television Business has active plant passing 100,000 or more of the homes in the Franchise Areas in the Territory, taken as a whole. ARTICLE VI TERMINATION Section 6.1 Termination. This Agreement shall automatically terminate upon any termination of the Parents Agreement pursuant to Section 7.1 thereof. Section 6.2 Effect of Termination. Upon termination of this Agreement pursuant to Section 6.1 hereof: (i) this Agreement will forthwith become null and void, (ii) such termination will be the sole remedy with respect to any breach of any representation, warranty, covenant or agreement contained in or made pursuant to this Agreement and (iii) no party hereto or any of their respective officers, directors, employees, agents, consultants, shareholders or principals will have any liability or obligation hereunder or with respect hereto, provided, however, that no party to this Agreement shall be entitled to recover consequential damages in respect to any breach of this Agreement or any other Transaction Document. 44 38 ARTICLE VII SURVIVAL AND INDEMNIFICATION Section 7.1 Survival. The representations, warranties, covenants and agreements contained in or made pursuant to this Agreement shall survive the Exchange Time, but the representations and warranties contained or made pursuant to this Agreement shall terminate and be of no further force on and as of April 30, 1997 except that the representations and warranties made by New VII in Sections 4.3, 4.12, 4.17(c), 4.20 and 4.22 shall survive indefinitely. Section 7.2 Indemnification. (a) The party seeking indemnification pursuant to this Section 7.2 is referred to as the "Indemnified Party" and the party from whom indemnification is sought under this Section 7.2 is referred to as the "Indemnifying Party." (b) If the Exchange Time occurs, notwithstanding any negligence or misconduct on the part of Old VII prior to the Exchange Time, New VII shall indemnify and hold harmless Old VII against and in respect of any and all Losses (w) constituting or arising out of any Lien attaching after the Exchange Date on (i) any Unapproved Franchise Assets prior to the date the Appraised Value with respect thereto is paid to Old VII pursuant to Section 2.3(d), or (ii) any Cable Group Contract assigned to New VII pursuant to Section 2.2, in each case of clauses (i) and (ii) while title to such Unapproved Franchise Asset or Cable Group Contract is held by New VII (other than Liens constituting, securing or arising out of Cable Liabilities or arising as a result of actions of Old VII or its Affiliates after the Exchange Date), (x) which may be incurred by Old VII by reason of (i) the breach of any representation and warranty of New VII contained in Article IV of this Agreement as if such representations and warranties were made as of the Exchange Date (except to the extent a different date is specified therein in which case such representation and warranty shall be deemed to be made as of such date), or (ii) the breach of any covenant or agreement of New VII contained in this Agreement (other than in Article IX) or the Bill of Sale, or (iii) the breach at or prior to the Exchange Date of any covenant or agreement of Old VII contained in this Agreement (other than in Article IX) or (y) constituting Non-Cable Liabilities. (c) If the Exchange Time occurs, Old VII shall indemnify and hold harmless New VII against any and all Losses (w) constituting or arising out of any Lien attaching after the Exchange Date on any Non-Cable Asset while it is an Untransferable Asset (other than Liens constituting, securing or arising out of Non-Cable Liabilities or arising as a result of actions of New VII or its Affiliates after the Exchange Date), (x) which may be incurred by New VII by reason of a breach after the Exchange Date of a covenant or agreement of Old VII contained in this Agreement (other than in Article IX) or the Bill of Sale, (y) constituting Cable Liabilities or (z) constituting Accounts Payable, Other Current Liabilities or New Borrowing Obligations. (d) Notwithstanding anything to the contrary in this Agreement (i) the aggregate liability of an Indemnifying Party pursuant to this Article VII in respect of all Losses (together with any liability of such Indemnifying Party and its Affiliates for breaches of other Transaction Documents, other than Section 3.1(d)(ii) of the Subscription Agreement and Sections 2.1(f) and 2.1(g) of the Parents Agreement) shall not exceed the Asset Value (provided 45 39 that this clause (i) shall not limit the liability of New VII pursuant to Sections 7.2(b)(y), and (ii) no party shall be entitled to recover consequential damages pursuant to this Section 7.2 or otherwise in respect of any breach of this Agreement or any other Transaction Document. (e) No claim for indemnification shall be made by any party pursuant to Section 7.2(b) or 7.2(c) with respect to a breach of a representation or warranty contained herein or made pursuant hereto or contained in the Subscription Agreement and constituting a Non-Cable Liability (i) unless notice of such claim (describing the basic facts or events, the existence or occurrence of which constitute or have resulted in the alleged breach of a representation or warranty made in this Agreement) has been given to the Indemnifying Party during the survival period set forth in Section 11.14 of the Subscription Agreement or Section 7.1, as the case may be; and (ii) except as to liability for breach of a representation or warranty set forth in Sections 6.7 and 6.8 of the Subscription Agreement and Sections 4.3, 4.12, 4.17(c), 4.18 ,4.20, 4.22, 4.25 and 4.26 only, until the Losses that would be recoverable under such claims aggregate in excess of 1/2 of 1% of the Asset Value, after which event the Indemnified Party shall be entitled to be indemnified for only such Losses as are in excess of 1/2 of 1% of the Asset Value. (f) The Indemnified Party shall give prompt written notice to the Indemnifying Party of any claim for indemnification under Section 7.2(b) or (c) relating to a claim or demand of a third party with respect to which it is seeking indemnification hereunder. The failure to give such prompt notice shall not relieve the Indemnifying Party of its indemnity obligations hereunder with respect thereto, except to the extent (and only to the extent) that the Indemnifying Party is materially prejudiced by such failure. The Indemnifying Party shall have the right to defend and to direct the defense against any such claim or demand, in its name or in the name of the Indemnified Party, as the case may be, at the expense of the Indemnifying Party, and with the counsel selected by the Indemnifying Party, provided that (x) the Indemnifying Party may not settle or compromise any such claim or demand without the consent of the Indemnified Party (which consent may not be unreasonably withheld) if injunctive or other equitable relief would be imposed against the Indemnified Party as a result thereof and (y) if the Indemnifying Party fails to defend against any claim or demand as to which the Indemnifying Party is required to indemnify the Indemnified Party pursuant to this Article VII, the Indemnified Party may defend against such claim or demand at the expense of the Indemnifying Party. Notwithstanding anything in this Agreement, to the contrary, the Indemnified Party shall cooperate with the Indemnifying Party, and keep the Indemnifying Party fully informed in the defense of such claim or demand. The Indemnified Party shall have the right to participate in the defense of any claim or demand with counsel employed by it at the expense of the Indemnified Party. The Indemnifying Party shall have no indemnification obligations with respect to any such claim or demand which shall be settled by the Indemnified Party without the prior written consent of the Indemnifying Party. (g) If the Exchange Time occurs, the rights of the parties under Sections 7.2 and 10.13 shall be the exclusive remedies of the parties with respect to breaches of representations, warranties, covenants and agreements contained in this Agreement (other than in Article IX hereof). Old VII, on behalf of itself and its Affiliates from time to time, hereby irrevocably waives and releases New VII and its Affiliates, effective as of and immediately after 46 40 the Exchange Time, from any statutory or other right of contribution or indemnity (except as set forth in this Section 7.2 or in Article IX) with respect to the Company's ownership of the Cable Assets or operation of, or otherwise relating to, the Systems. (h) In the event that an Indemnifying Party shall be obligated to indemnify an Indemnified Party pursuant to Section 7.2(b) or (c), the Indemnifying Party shall, upon payment of such indemnity, be subrogated to all rights of the Indemnified Party with respect to claims to which such indemnification relates. (i) Any payment made by Old VII to New VII pursuant to Sections 3.3, 3.5 or 7.2 hereof or pursuant to Article IX shall be treated as an increase in the assets contributed by Old VII to New VII pursuant to Section 2.1. Any payment by New VII to Old VII pursuant to Sections 2.5, 3.3, 3.4, 3.5 or 7.2 hereof or pursuant to Article IX shall be treated as a reduction in the assets contributed by Old VII to New VII pursuant to Section 2.1. (j) New VII shall not consummate any transaction in which all or a majority in value (as determined in good faith by the management of New VII) of its assets are distributed without fair consideration to its direct or indirect stockholders unless (x) the transferee of such assets or, if such assets represent principally an equity interest in an entity, such entity, assumes, by instrument reasonably satisfactory to Old VII, New VII's obligations under this Article VII and (y) the equity of such transferee or entity has a fair market value immediately following such transaction of at least $1,500,000,000 (one billion five hundred million dollars). ARTICLE VIII EMPLOYEE MATTERS Section 8.1 Employment. (a) Old VII shall take such action as may be necessary to terminate the employment of each Non-Continuing Employee prior to the Exchange Time provided, however, that the Company will not be required to violate the terms of a Cable Group Bargaining Agreement or any employment discrimination laws. All Continuing Employees who are actively employed, whether or not actively at work, at the Exchange Time, and who continue employment with the Company or a transferee of assets of the Company or with the manager of the Systems shall be paid at rates of compensation which are the same or substantially similar to their compensation prior to the Exchange Time and other terms and conditions substantially similar to those of other similarly situated employees of TCI, a transferee of assets of the Company or the manager of the Systems or in accordance with applicable Cable Group Bargaining Agreements, as applicable, and no interruption in employment shall be deemed to have occurred by virtue of the Transaction. (b) Employee Benefits - Generally. Effective as of the Exchange Time, Continuing Employees shall cease active participation in any Benefit Plan or program or executive plan or arrangement sponsored and/or maintained by New VII (the "Viacom Plans"), and, except as specifically set forth herein, Old VII will have no obligations with respect to Viacom Plans and VI shall have no obligations with respect to any benefits plan established or 47 41 maintained by Old VII or the Cable Group for Continuing Employees after the Exchange Time. Subject to the provisions of this Section 8.1 as to any particular benefit, as of the Exchange Time and for at least one year thereafter employee benefits shall be provided to Continuing Employees which are substantially similar to those provided to similarly situated employees of TCI Sub or a transferee of assets of the Company or of the manager of the Systems and, with respect to collective bargaining unit employees are consistent with Cable Group Bargaining Agreements. All prior service of Continuing Employees with the Company and any member of a controlled group of corporations or trades or businesses or an affiliated service group with the Company prior to the Exchange Time, within the meaning of Code Sections 414(b), (c), or (m), respectively ("ERISA Affiliates"), shall be recognized by the Company for all benefit plan purposes (other than benefit accrual under a defined benefit plan), to the extent recognized under the comparable Viacom Plan as in effect on the date of this Agreement. On or before the Exchange Time, Old VII shall provide New VII with a list setting forth the service accrued by each Continuing Employee. Old VII maintains a vacation and sick pay plan for employees; all other Benefit Plans are or will prior to the Exchange Date be Viacom Plans. (c) Defined Benefit Pension Plan. As soon as practicable after the Exchange Time, New VII shall prepare and deliver to Old VII a schedule listing the Continuing Employees who were participants in the Viacom Pension Plan (formerly the Pension Plan for Divisional Employees of Viacom International Inc.) or any successor thereto (the "Viacom Pension Plan") as of the Exchange Time. New VII shall cause all Continuing Employees to become 100% vested in their accrued benefits under the Viacom Pension Plan, and to be paid such benefits in accordance with the terms of the Viacom Pension Plan, as amended from time to time, and Old VII shall not have any responsibility with respect thereto. Old VII shall cooperate with New VII and VI to provide such current information regarding Continuing Employees on an ongoing basis as may be necessary to facilitate payment of pension benefits to such employees from the Viacom Pension Plan. (d) 401(k) Plan. New VII shall cause all Continuing Employees to be 100% vested in their Viacom Investment Plan accounts as of the Exchange Time. After the Exchange Time, such reasonable actions necessary to cooperate with New VII shall be taken by Old VII to facilitate ongoing administration by New VII of the Viacom Investment Plan with respect to Continuing Employees' accounts, including, without limitation, providing current information to New VII with respect to Continuing Employees, including notifying New VII of the termination of employment or retirement of such employees and of any change of address or marital status of which Old VII has received notice; administering Investment Savings Plan loan repayments through payroll deductions for employees with outstanding Viacom Investment Plan loan balances as of the Exchange Time and remitting such payments to the plan trustee; distributing information provided by VI regarding the Viacom Investment Plan to Continuing Employees; and taking any other action as may be reasonably requested by New VII. (e) Severance Obligations. Old VII shall not be responsible for any severance obligations to Non-Continuing Employees. Except as may be provided pursuant to the terms of 48 42 any severance plan for the Company's employees as in effect immediately prior to the Exchange Time, Old VII agrees that New VII shall not be responsible for any obligations of the Company, including severance obligations, arising by virtue of termination of employment after the Exchange Time of any Continuing Employee. (f) Sick Leave. Each Continuing Employee shall continue to be eligible for sick leave, including accrued and unused sick leave days to which such employee was entitled under the applicable personal sick leave policy applicable to the Company's employees ("Banked Sick Leave Days") as of the Exchange Time; provided, however, that any Continuing Employee who participates in a Short-Term Disability Plan maintained by Old VII, TCI Sub or a transferee of assets of the Company or the manager of the Systems shall be eligible to retain no more than ten (10) Banked Sick Leave Days as of the Exchange Date. (g) Vacation. With respect to the computation year that includes the Exchange Date, Continuing Employees shall be eligible for paid vacation (as next described) as follows: The amount of a Continuing Employee's vacation for the remainder of the computation year shall be not less than the maximum number of days (up to a maximum of twenty-eight (28) but in any event not less than zero) accrued for the computation year under the applicable vacation policy adopted by Old VII for Continuing Employees after the Exchange Time (based on the employee's service and subject to Section 8.1(b)) less the vacation days used for the same period as an employee of the Company prior to the Exchange Time. In addition, each Continuing Employee shall receive the additional vacation, if any, that such employee would have been entitled to as of the Exchange Time under the applicable vacation policy applicable to the Company's employees in effect immediately prior to the Exchange Time. (h) Welfare Plans. Subject to relevant provisions of applicable Cable Group Bargaining Agreements, each Continuing Employee shall be covered as of the Exchange Time under the terms of any medical, dental, vision, prescription drug, life insurance plans or other welfare benefit plans (within the meaning of Section 3(1) of ERISA), which are either, at the option of TCI Sub, a transferee of assets of the Company or the manager of the Systems, as applicable, (i) the same or substantially similar to the coverage of such employees prior to the Exchange Time or (ii) maintained by TCI Sub, a transferee of assets of the Company (only as to the employees of such transferees) or the manager of the Systems for its similarly situated employees ("Replacement Welfare Plans"). Notwithstanding the preceding sentence, any waiting periods or pre-existing condition limitations in such Replacement Welfare Plans shall be waived unless coverage would have been denied on a similar basis under welfare plans applicable to employees of the Company immediately prior to the Exchange Time (the "Cable Group Welfare Plans") and deductibles, maximum benefit restrictions and "out-of-pocket" maximums shall be coordinated so that (i) Continuing Employees receive credit towards any deductibles under Replacement Welfare Plans for deductibles paid under the Cable Group's Welfare Plans during the relevant plan year in which the Exchange Date occurs, and (ii) Continuing Employees receive credit for eligible claims incurred under the Cable Group's Welfare Plans during the plan year in which the Exchange Time occurs toward any "out-of-pocket" maximums under Replacement Welfare Plans. As soon as practicable after the Exchange Time, New VII shall prepare and deliver to Old VII the information needed for 49 43 Old VII to comply with the preceding sentence. New VII will be responsible for all eligible unpaid claims incurred by Continuing Employees prior to the Exchange Time and timely submitted for reimbursement in accordance with the Cable Group Welfare Plan. Continuation health care coverage shall be provided by the Company to all Continuing Employees and their qualified beneficiaries, who incur a qualifying event after the Exchange Time in accordance with the continuation health care coverage requirements of Section 4980B of the Code and Sections 601 through 608 of ERISA ("COBRA"). New VII shall be responsible for providing continuation coverage to the extent required by law to any employee who is a Non-Continuing Employee and the qualified beneficiary of any such employee who incurs a qualifying event under COBRA on or prior to the Exchange Date. (i) Employment Taxes. New VII and Old VII agree to follow the procedures set forth in Section 5 of Rev. Proc. 84-77 with respect to any Continuing Employee. (j) WARN. Prior to the Exchange Time, Old VII shall comply with the Worker Adjustment and Retraining Notification Act and any comparable state law and New VII shall be responsible for any failure of Old VII to comply with such laws provided that TCI Sub has provided the list of Continuing Employees to VI as required by Section 7.20 of the Subscription Agreement. (k) No Third Party Beneficiaries. Nothing in this Section 8.1 or elsewhere in this Agreement shall be deemed to make any employee of the Company a third party beneficiary of this Agreement. ARTICLE IX TAX MATTERS Section 9.1 Obligation of New VII to Indemnify. (a) Except as may otherwise be agreed by the parties, New VII has assumed and shall be liable for, and shall indemnify and hold the Old VII Subgroup harmless from and against, all liability for Taxes of any member of the VI Group (including the members of the Old VII Subgroup) for taxable years or portions thereof ending on or prior to the Exchange Date on an after-Tax basis including without limitation any Tax arising as a result of the failure of the Transaction to qualify for the Tax treatment that satisfied the condition set forth in Section 6.1(iv) of the Parents Agreement. (b) All Taxes of any member of the Old VII Subgroup for which New VII is not required to indemnify the Old VII Subgroup pursuant to Section 9.1(a) shall be the obligation of the Old VII Subgroup, and Old VII shall be liable for, and shall indemnify and hold the members of the VI Group harmless from and against, all such liabilities on an after-Tax basis. (c) For purposes of this Agreement, each Tax liability for a taxable year that includes, but does not end on, the Exchange Date (a "Straddle Period") shall be 50 44 allocated between the period ending on the Exchange Date and the period beginning the day after the Exchange Date by allocating Tax liability as if each such period were a taxable year. Section 9.2 Refunds. Any refunds of Taxes or any credit against Taxes (when and to the extent applied by any member of the Old VII Subgroup against any tax liability that New VII has not assumed pursuant to Section 9.1(a) resulting in a tax benefit to any member of the Old VII Subgroup that it otherwise would not have realized in the absence of such credit), to the extent actually used, (in each case, including any interest relating thereto) of any member of the Old VII Subgroup with respect to taxable years or portions thereof ending on or prior to the Exchange Date shall be for the account of New VII (and in the case of refunds or credits of Old VII, have been or shall be assigned to New VII), and any other refunds of Taxes or credits against Taxes to the extent actually used of any member of the Old VII Subgroup shall be for the account of Old VII. Any refunds or credits with respect to Straddle Periods shall be allocated under the principles set forth in Section 9.1(c). Old VII shall promptly forward to, or reimburse New VII for, any such refunds or credits and interest due New VII after receipt thereof, and New VII shall promptly forward to, or reimburse Old VII for, any such refunds or credits and interest due Old VII after receipt thereof. In either case, the party entitled to such refund or credit shall reimburse the other party to the extent of any net Tax cost imposed on such other party in connection with the receipt of such refund or credit. Each party hereto shall cooperate with the other party as reasonably requested in making such filings as may be necessary and appropriate to seek any such refunds or credits. Section 9.3 Final Returns. New VII shall prepare any Tax Returns to be filed which relate to any period ending on or prior to the Exchange Date. All such Tax Returns shall be prepared in a manner consistent with prior years and (to the extent applicable) shall report the Transaction in accordance with the treatment of the Transaction that satisfied the condition set forth in Section 6.1(iv) of the Parents Agreement (the "Required Treatment"). New VII and Old VII shall jointly prepare and control any Tax Return of any member of the Old VII Subgroup for Straddle Periods in a manner consistent with prior years and reporting the Transaction in accordance with the Required Treatment. Each party shall promptly respond to all reasonable requests by the other party for information necessary to prepare and file any such Tax Returns. Section 9.4 Conduct of Audits and Disputes. (a) Contest Rights. A party who has "contest rights" with respect to an asserted Tax liability or a refund claim shall have the right (but not the obligation), at its own expense, to negotiate, settle or contest such asserted Tax liability or refund claim, in its own name or in the name of the other party or its affiliates, as appropriate, all in accordance with the terms of this Section 9.4. Such contest rights shall include, but not be limited to, the determination (x) whether any action shall initially be by way of judicial or administrative proceedings, or both, (y) whether any such asserted Tax liability shall be contested by resisting payment thereof or by paying the same and seeking a refund thereof and (z) if judicial action is undertaken, the court or other judicial body before which such action shall be commenced. (b) Claims Controlled by New VII. Subject to paragraphs (d), (e) and (f) hereof, New VII (and not Old VII) shall have the right to control the contest with respect to 51 45 any asserted Tax liability or refund claim of any member of the Old VII Subgroup to the extent that New VII is required to indemnify against such asserted Tax liability pursuant to Section 9.1(a) or is entitled to such refund or credit pursuant to Section 9.2. Old VII and its affiliates shall have no right to participate in any such contest undertaken by New VII. (c) Claims Controlled by Old VII. Subject to paragraphs (d), (e) and (f) hereof, Old VII (and not New VII) shall have the right to control the contest with respect to any asserted Tax liability or refund claim of any member of the Old VII Subgroup to the extent that Old VII is required to indemnify against such asserted Tax liability pursuant to Section 9.1(b) or is entitled to such refund or credit pursuant to Section 9.2. New VII and its affiliates shall have no right to participate in any such contest undertaken by Old VII. (d) Contests Involving Multiple Issues. If any contest shall involve issues with respect to which both New VII and Old VII have contest rights hereunder, the parties will cooperate in any such contest, and will endeavor to permit each party to control the contest of issues for which it has such contest rights. In the event there is a disagreement among the parties over matters (such as choice of forum) relating to issues the contest of which are controlled by more than one party, such disagreement shall be resolved in favor of the party who controls the contest of the issues therein which, in the aggregate, would result in the largest Tax liability if resolved unfavorably or the largest Tax refund if resolved favorably. (e) Notice; Cooperation. If any member of the Old VII Subgroup or the VI Group (in either case the "Tax Indemnified Party") receives any written communication from a taxing authority regarding any actual or proposed assessment, official inquiry or proceeding that could give rise to an official determination with respect to any Tax liability or Tax refund claim for any period for which New VII or Old VII, respectively (the "Tax Indemnifying Party"), may be liable (in the case of a liability) or may be entitled (in the case of a refund claim) pursuant to this Agreement, such Tax Indemnified Party (i) shall within 30 days of receipt of such written communication so notify such Tax Indemnifying Party in writing, (ii) shall request in such notice that such Tax Indemnifying Party notify it in writing if it intends to exercise its contest rights hereunder, and (iii) shall, prior to and for at least 30 days after so notifying such Tax Indemnifying Party (or, if less, within a period ending 5 days, including extensions, prior to the date on which the Tax Indemnified Party is required to take action pursuant to such written communication), refrain from making any payment of any Tax claimed and forebear from any settlement negotiations or compromises with respect to such proposed adjustment. The Tax Indemnifying Party agrees to notify the Tax Indemnified Party in writing within such 30 days period if it intends to exercise its contest rights hereunder with respect to the asserted Tax liabilities or the Tax refund claim. The parties hereto agree to cooperate with each other in connection with any examination process with respect to any asserted Tax liability or Tax refund claim and shall make available on a reasonable basis to each other any personnel, books, records or other documents necessary or appropriate for participation in such process. (f) Payment After Final Determination. If any contest is undertaken pursuant to this Section 9.4, then the Tax Indemnifying Party shall have no indemnification obligation with respect to the subject matter of such contest until there occurs a Final Determination. 52 46 Section 9.5 Carrybacks. No losses or credits of any member of the Old VII Subgroup arising in taxable years beginning after the Exchange Date may be carried back to taxable years ending on or prior to the Exchange Date. Section 9.6 Designation of Agent for PCI Group. Old VII and New VII hereby (i) acknowledge that certain direct and indirect subsidiaries of Old VII (the "PCI Subsidiaries") which were formerly includible in the consolidated federal income tax returns of the affiliated group of which Paramount Communications Inc. was the common parent (the "PCI Group") intend to apply to the Internal Revenue Service for permission to designate Paramount Pictures Corporation or another PCI Subsidiary as the agent for the PCI Group pursuant to Treas. Reg. ss. 1.1502-77(d) and (ii) agree to cooperate in attempting to have such permission granted. ARTICLE X MISCELLANEOUS Section 10.1 Expenses. Except as expressly set forth herein, the fees and expenses (including the fees of any lawyers, accountants, investment bankers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby whether or not the Transaction is consummated will be paid by the party incurring the same. Section 10.2 Headings. The section headings herein are for convenience of reference only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof. References to Sections, Schedules and Exhibits, unless otherwise indicated, are references to Sections, Schedules and Exhibits hereof. Section 10.3 Notices. Any notice or other communication required or permitted to be given hereunder will be in writing and will be mailed by prepaid registered or certified mail, timely deposited with an overnight courier such as Federal Express, or delivered against receipt, as follows: to: Viacom Inc. 1515 Broadway New York, NY 10036 Attention: General Counsel with a copy to: Hughes Hubbard & Reed One Battery Park Plaza New York, NY 10004 Attention: Ed Kaufmann, Esq. 53 47 and TCI Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, CO 80111-3000 Attention: Chief Executive Officer with a copy to: Tele-Communications, Inc. Terrace Tower II 5619 DTC Parkway Englewood, CO 80111-3000 Attention: General Counsel or to such other address as the party may have furnished in writing in accordance with the provisions of this Section 10.3. Any notice or other communication shall be deemed to have been given, made and received upon receipt. Either party may change the address to which notices are to be addressed by giving the other party notice in the manner herein set forth. Section 10.4 Assignment. This Agreement and all provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors, however, neither this Agreement nor any right, interest, or obligation hereunder may be assigned by any party hereto (other than by operation of law) without the prior written consent of the other parties, and any such assignment or purported assignment without such consent shall be void, provided, however, that Old VII may pledge its rights hereunder effective on or after the Exchange Date to the Lenders pursuant to the Loan Documentation to secure the New Borrowing Obligations (and no exercise by the Lenders of their rights as such pledgees shall violate this Section 10.4). Section 10.5 Entire Agreement. This Agreement and the other Transaction Documents embody the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior written or oral commitments, arrangements or understandings with respect thereto. Section 10.6 Amendment; Waiver. (a) This Agreement may only be amended or modified in writing signed by the party against whom enforcement of any such amendment or modification is sought. (b) Any party hereto may, by an instrument in writing, waive compliance with any term or provision of this Agreement on the part of such other party hereto. The waiver by any party hereto of a breach of any term or provision of this Agreement will not be construed as a waiver of any subsequent breach. 54 48 Section 10.7 Counterparts. This Agreement may be executed in two or more counterparts, all of which will be considered one and the same agreement and each of which will be deemed an original. All signatures need not be on one counterpart. Section 10.8 Governing Law. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE. Section 10.9 Severability. If any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement will not be affected thereby, and New VII and Old VII will use their reasonable efforts to substitute one or more valid, legal and enforceable provisions which insofar as practicable implement the purposes and intent hereof. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. Section 10.10 Consent to Jurisdiction. Each party hereby submits to the non-exclusive jurisdiction of the courts of general jurisdiction of the States of New York and Colorado and the federal courts of the United States of America, located in the City of New York, New York, and Denver, Colorado solely in respect of the interpretation and enforcement of the provisions of this Agreement and hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement of this Agreement that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that this Agreement may not be enforced in or by such courts or that its property is exempt or immune from execution, that the suit, action or proceeding is brought in an inconvenient forum, or that the venue of the suit, action or proceeding is improper. Service of process with respect thereto may be made upon any party by mailing a copy thereof by registered or certified mail, postage prepaid, to such party at its address as provided in Section 10.3 hereof, provided that service of process may be accomplished in any other manner permitted by applicable law. Section 10.11 Third Person Beneficiaries. This Agreement is not intended and shall not be construed to confer upon any Person (other than Old VII and New VII) any rights or remedies hereunder. Section 10.12 Representations and Warranties; Schedules. Neither the specification of any dollar amount in the representations and warranties set forth in Article IV or elsewhere herein nor the indemnification provisions of Article VII nor the inclusion of any items in any Schedule will be deemed to constitute an admission by New VII, or otherwise imply, that any such amounts or the items so included are material for the purposes of this Agreement. All documents or information disclosed in the Schedules are intended to be disclosed for all purposes under this Agreement and will also be deemed to be incorporated by reference in each Schedule to which they may be relevant without further disclosure. 55 49 Section 10.13 Specific Performance. New VII and Old VII recognize that any breach of any covenant or agreement contained in this Agreement may give rise to irreparable harm for which money damages would not be an adequate remedy, and accordingly agree that, in addition to other remedies, any non-breaching party will be entitled to enforce the agreements and covenants contained herein of New VII and Old VII, as the case may be, by a decree of specific performance without the necessity of proving the inadequacy as a remedy of money damages. 56 50 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed in New York, New York, as of the day and year first above written. VIACOM INTERNATIONAL INC. By: --------------------------- Name: Title: VIACOM INTERNATIONAL SERVICES INC. By: --------------------------- Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----