SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
USA NETWORKS, INC.
-----------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid: $
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
[LOGO]
March 25, 2002
Dear Stockholder:
As you may be aware, on December 16, 2001, USA entered into a transaction
agreement, pursuant to which, among other things, USA agreed to create a new
joint venture with Vivendi Universal, S.A. that will hold the USA Entertainment
Group, consisting of USA Cable, USA Films and Studios USA, and the film,
television and theme park businesses of Universal Studios, Inc., a subsidiary of
Vivendi.
In exchange for the contribution of the USA Entertainment Group to the joint
venture, USA will receive cash; preferred interests and a 5.44% common interest
in the joint venture; and the cancellation of securities currently exchangeable
into approximately 320.9 million USA shares. In connection with these
transactions, USA will also issue to Vivendi warrants to acquire approximately
60.5 million shares of USA common stock, which shares represent approximately
12.5% of USA's expected outstanding equity following completion of the
transactions. The accompanying proxy statement describes in detail the
transactions contemplated by the various transaction documents, including my
ownership interest and role in the joint venture.
Upon completion of the transactions, the new USA, which will be renamed "USA
Interactive," will be focused on integrating interactive assets across multiple
lines of business. We believe USA Interactive, with its strong balance sheet,
will be a leader in integrated interactivity. I'm enthusiastic about the
prospects for USA Interactive and continuing to build very significant value for
our stockholders.
In order to proceed with the transactions, we must receive the affirmative
vote of at least 66 2/3% of our outstanding shares not owned by Vivendi, Liberty
Media Corporation, myself or our affiliates. We have scheduled a special meeting
of our stockholders for this vote and a related vote under the rules of the
National Association of Securities Dealers, Inc. The special meeting will be
held on April 23, 2002, at 8:00 a.m., local time, at USA's offices at 8800
Sunset Boulevard, West Hollywood, California.
A SPECIAL COMMITTEE CONSISTING OF INDEPENDENT MEMBERS OF YOUR BOARD OF
DIRECTORS HAS CAREFULLY REVIEWED THE TRANSACTIONS AND UNANIMOUSLY RECOMMENDED TO
YOUR BOARD OF DIRECTORS APPROVAL OF THE TRANSACTIONS. BASED ON THAT
RECOMMENDATION, YOUR BOARD OF DIRECTORS, BY THE UNANIMOUS VOTE OF ALL DIRECTORS
(OTHER THAN DIRECTORS AFFILIATED WITH VIVENDI, NONE OF WHOM WAS PRESENT AT THE
BOARD MEETING), APPROVED THE TRANSACTIONS, AND RECOMMENDS THAT YOU APPROVE THE
PROPOSAL BEING SUBMITTED TO YOU FOR APPROVAL.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card. If you attend the special meeting, you may vote in person if you
wish, even though you have previously returned your proxy card. You may also
submit a proxy for your shares of USA stock by telephone or via the internet by
following the instructions on the enclosed proxy card.
Sincerely,
Barry Diller
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
This proxy statement is dated March 25, 2002 and was first mailed to USA
stockholders on or about March 25, 2002.
USA NETWORKS, INC.
CARNEGIE HALL TOWER
152 WEST 57TH STREET
NEW YORK, NEW YORK 10019
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, APRIL 23, 2002
------------------------
We will hold a special meeting of stockholders of USA Networks, Inc. at
8:00 a.m., local time, on Tuesday, April 23, 2002, at USA's offices at 8800
Sunset Boulevard, West Hollywood, California 90069 for the following purposes:
1. To vote on a proposal to approve the Transaction Agreement, dated as of
December 16, 2001, among Vivendi Universal, S.A., Universal
Studios, Inc., USA Networks, Inc., USANi LLC, Liberty Media Corporation
and Barry Diller, as well as each of the other related transaction
documents, including the Partnership Agreement, the Amended and Restated
Governance Agreement, the Amended and Restated Stockholders Agreement,
the Warrant Agreement and the Vivendi/Liberty Merger Agreement, and the
transactions contemplated thereby, all as further described in the
accompanying proxy statement.
2. To transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
We describe these items of business more fully in the accompanying proxy
statement.
Only holders of record of USA common stock, USA Class B common stock and USA
preferred stock at the close of business on March 12, 2002 will be entitled to
notice of, and will be entitled to vote at, the special meeting or any
adjournment or postponement of the special meeting.
BY ORDER OF THE BOARD OF DIRECTORS
JULIUS GENACHOWSKI
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
New York, New York
March 25, 2002
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, WE URGE
YOU TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOU CAN WITHDRAW YOUR PROXY, OR CHANGE YOUR VOTE, AT ANY TIME
BEFORE IT IS VOTED BY EXECUTING A LATER-DATED PROXY, BY VOTING BY BALLOT AT THE
SPECIAL MEETING, OR BY FILING AN INSTRUMENT OF REVOCATION WITH THE INSPECTORS OF
ELECTION IN CARE OF THE SECRETARY AT THE ABOVE ADDRESS. YOU MAY ALSO SUBMIT A
PROXY FOR YOUR SHARES OF USA STOCK THROUGH THE INTERNET OR BY TELEPHONE BY
VISITING THE WEBSITE, OR USING THE TOLL-FREE NUMBER, SHOWN ON YOUR PROXY CARD.
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
AT THE SPECIAL MEETING, WE WILL ASK YOU TO CONSIDER AND VOTE UPON A PROPOSAL
TO APPROVE THE TRANSACTION AGREEMENT AND EACH OF THE OTHER TRANSACTION DOCUMENTS
RELATED TO THE TRANSACTION AGREEMENT, AS WELL AS THE TRANSACTIONS CONTEMPLATED
BY THE TRANSACTION DOCUMENTS. HERE ARE SOME QUESTIONS AND ANSWERS RELATING TO
THE TRANSACTIONS.
Q: PLEASE BRIEFLY DESCRIBE THE TRANSACTIONS.
A: USA has agreed to the contribution of the USA Entertainment Group, comprising
all of USA's entertainment assets and businesses, to Vivendi Universal
Entertainment LLLP ("VUE"), a new entity to be created with Vivendi and which
Vivendi will control. VUE will also hold the film, television and theme park
businesses of Universal. VUE will be owned 5.44% by USA, 1.5% by Mr. Diller
and 93.06% by Vivendi.
In exchange for the USA Entertainment Group, USA will receive the following:
- approximately $1.62 billion in cash,
- a 5.44% common interest in VUE,
- a $750 million Class A preferred interest in VUE,
- a $1.75 billion Class B preferred interest in VUE, and
- the cancellation of approximately 320.9 million shares of USANi LLC, a
subsidiary of USA, comprising all of the LLC shares not owned by USA and
its subsidiaries. Following the transactions, USANi LLC will be wholly
owned by USA and its subsidiaries.
USA will also issue to Vivendi ten-year warrants to acquire 60.5 million
shares of USA common stock at various exercise prices. We describe the
transactions in more detail beginning on page 15.
Q: PLEASE DESCRIBE THE VALUE OF THE USA ASSETS BEING CONTRIBUTED TO VUE AND OF
THE CONSIDERATION RECEIVED BY USA.
A: As part of its evaluation of the transactions, Bear, Stearns & Co. Inc., the
financial advisor to the special committee of the USA board, valued the USA
Entertainment Group between $8.2 billion and $10.2 billion. Allen & Company
Incorporated, financial advisor to USA, separately valued the USA
Entertainment Group between $8.6 billion and $12.6 billion. These financial
advisor analyses also valued the USA warrants to be issued to Vivendi.
USA management has valued the different elements of the consideration it
will receive in the transactions as follows:
- $1.62 billion in cash,
- $1 billion for USA's common interest in VUE,
- $514 million for USA's Class A preferred interest in VUE,
- $1.43 billion for USA's Class B preferred interest in VUE, and
- $7.06 billion for the cancellation of the 320.9 million USANi LLC shares
received from Vivendi, based on a $22 USA share price
for total consideration to USA of $11.62 billion. The financial advisors to
the special committee and to USA also analyzed the value of the
consideration to be received by USA. Bear Stearns valued the consideration
to be received by USA between $10.6 billion and $11.8 billion. Allen & Co.
valued the consideration to be received by USA between $10.6 billion and
$12.8 billion.
Q: PLEASE DESCRIBE THE VALUE OF THE VIVENDI ASSETS BEING CONTRIBUTED TO VUE.
A: As part of its evaluation of the transactions, Bear Stearns valued the
Universal Entertainment Group being contributed by Vivendi to VUE between
$4.2 billion and $7.3 billion. Allen & Co. separately valued the Universal
Entertainment Group between $6.2 billion and $9.7 billion. All of the Bear
Stearns and Allen & Co. valuations are based on numerous assumptions and
analyses and are complex. We encourage you to read the description of the
analyses, which are included in this proxy statement beginning on pages 23
and 39.
Q: HOW WILL I BE AFFECTED BY THE TRANSACTIONS?
A: Each USA stockholder (other than Vivendi and Liberty) will continue to own
the same number of shares of USA stock that it
i
owned immediately prior to the transactions. Each share of USA common stock,
however, will represent a larger ownership percentage in USA, which will be a
smaller company following the transactions. Public stockholders currently own
38.7% of the outstanding equity and 12.0% of the outstanding voting power of
USA, in each case assuming full exchange of shares of USANi LLC and Home
Shopping Network for shares of USA. Immediately following the transactions,
based on the same assumption, USA's public stockholders will own 66.6% of the
outstanding equity and 30.6% of the outstanding voting power of USA.
Q: WHY IS USA ENTERING INTO THE TRANSACTIONS?
A: Your board of directors believes that the transactions will provide numerous
strategic benefits to USA, including receiving fair value for the USA
Entertainment Group, emphasizing our leadership role in integrated
interactivity and establishing an independent USA by eliminating or
substantially limiting veto rights of Vivendi and Liberty over our corporate
actions. We describe our reasons for the transactions in more detail
beginning on page 19.
Q: WHAT IS LIBERTY'S INVOLVEMENT IN THE TRANSACTIONS?
A: As part of the transactions, Liberty will transfer to Vivendi 25 million
shares of USA common stock, entities holding approximately 38.7 million
shares of USANi LLC, constituting all of Liberty's then remaining interest in
USANi LLC, and other assets in exchange for approximately 37.4 million
American Depositary Shares ("ADSs") representing Vivendi ordinary shares,
subject to adjustment.
Q: HOW WILL THE TRANSACTIONS AFFECT VIVENDI'S AND LIBERTY'S OWNERSHIP INTERESTS
IN USA?
A: As part of USA's consideration in the transactions, USANi LLC will cancel LLC
shares currently exchangeable into approximately 320.9 million USA common
shares. These 320.9 million LLC shares are comprised of approximately
282.2 million shares currently held by Vivendi and approximately 38.7 million
LLC shares to be acquired by Vivendi from Liberty, as described above, and
represent all of the interests of USANi LLC that are not then owned by USA or
its subsidiaries. Based on a $22.00 USA share price, the LLC shares are
currently exchangeable for USA shares valued at approximately $7.06 billion,
and currently represent 42.0% of the outstanding equity of USA, assuming full
exchange of shares of USANi LLC and Home Shopping Network for shares of USA.
Vivendi currently owns approximately 313.8 million USA shares, or 41.0% of
the outstanding equity of USA, assuming full exchange of shares of USANi LLC
and Home Shopping Network for shares of USA. Immediately following the
transactions, because Vivendi will have acquired 25 million USA shares from
Liberty as part of the transactions, as described above, and because USA will
have fewer shares outstanding following the transactions, based on the same
assumption, Vivendi will continue to own approximately 56.6 million USA
shares, or 12.7% of the outstanding equity of USA.
Liberty currently owns approximately 153.4 million USA shares, or 20.0% of
the outstanding equity of USA, including USA shares held by certain entities
in which Liberty owns substantially all of the equity interests but none of
the voting interests and assuming full exchange of shares of USANi LLC and
Home Shopping Network for shares of USA. Immediately following the
transactions, because USA will have fewer shares outstanding following the
transactions, based on the same assumptions, Liberty will continue to own
approximately 89.7 million USA shares, or 20.2% of the outstanding equity of
USA.
Q: WHO WILL HAVE VOTING CONTROL OF USA?
A: Barry Diller, USA's chairman and chief executive officer, will continue to
have voting control of USA following completion of the transactions. In
connection with the transactions, Mr. Diller, Vivendi, Universal and Liberty
have reaffirmed existing stockholder arrangements relating to their voting of
USA shares. These arrangements
ii
provide that Mr. Diller will generally have a proxy over all USA shares owned
by Vivendi and Liberty as long as Mr. Diller is chief executive officer of
USA. Immediately following the transactions and assuming full exchange of
shares of Home Shopping Network for shares of USA, these shares will
represent 69.2% of the combined voting power of USA (69.4% if the shares
owned by Mr. Diller are added).
USA, Vivendi, Universal, Liberty and Mr. Diller also entered into an amended
and restated governance agreement as part of the transactions. This
agreement, among other things, eliminates Vivendi's veto rights over all
"fundamental matters" that currently require its prior consent, and
significantly limits the circumstances in which Liberty and Mr. Diller are
entitled to exercise veto rights. For a description of the limited veto
rights that Liberty and Mr. Diller would have following completion of the
transactions, see pages 67-68.
Q: WHEN DO YOU EXPECT TO COMPLETE THE TRANSACTIONS?
A: We are working to complete the transactions as soon as possible. We currently
expect to complete the transactions promptly following the special meeting.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: No. You will have no right under Delaware law to seek appraisal of the value
of your USA shares in connection with the transactions.
Q: ARE THERE ANY SIGNIFICANT DISADVANTAGES TO ME FROM THE TRANSACTIONS?
A: We do not think so. Your board of directors, based on a unanimous
recommendation of a special committee of all disinterested directors, has
approved the transactions, and believes they are in the best interests of
USA's stockholders.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meeting. You
may also submit a proxy for your shares of USA stock by telephone or via the
internet by following the instructions on the enclosed proxy card. The
meeting will take place on Tuesday, April 23, 2002. Because the vote required
to approve the proposed transactions is 66 2/3% of the outstanding
unaffiliated voting shares, failure to vote will have the effect of a vote
against the transactions.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before we vote your proxy at the
special meeting. You can do so in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy to The Bank
of New York at the address given below. Second, you can submit a later-dated
proxy relating to the same shares by mail, telephone or the internet. Third,
you can attend the special meeting and vote in person. You should send any
written notice or new proxy card to USA c/o The Bank of New York at the
following address: USA Networks, Inc., P.O. Box 11001, New York, New
York 10203-0001. You may request a new proxy card by calling our proxy
solicitor, MacKenzie Partners, Inc., at 1-800-322-2885 (toll-free).
Q: WHERE CAN I FIND ADDITIONAL INFORMATION?
A: You may obtain more information from various sources, as set forth under
"Where You Can Find More Information" on page 100.
iii
COMPARISON OF USA STRUCTURE/OWNERSHIP
The following diagrams illustrate in general terms how our corporate
structure and ownership would change as a result of the transactions. While the
diagrams reflect the economic substance of the changes, the actual legal and
corporate structures of USA are more complicated and we have rounded percentages
to the nearest tenth. Unless we indicate otherwise, the percentages below are
based on shares issued and outstanding (or expected to be issued and outstanding
after giving effect to the transactions), in each case assuming full exchange of
shares of USANi LLC and Home Shopping Network for shares of USA. In the tables
entitled "Ownership of USA," each party's equity percentage differs from that
party's percentage of voting power because USA currently has three classes of
stock: common stock, entitled to one vote per share, Class B common stock,
entitled to ten votes per share, and preferred stock, entitled to two votes per
share.
iv
CURRENT STRUCTURE/OWNERSHIP
--------------- --------------- -------------- -------------
| | | | | | | Vivendi/ |
| Liberty | | Public | | Mr. Diller | | Universal |
--------------- --------------- -------------- -------------
| \ \ \ / / |
| \ \ \ / / |
| \ \ \ / / |
| \ \ \ / / |
| \ \ \ / / |
| \ \ --------------------- / |
| 19.9% \ \ _ | USA |_/ |
| \ --------------------- |
| \ | 80.1% |
| __________________|___________________ |
| | \ | | |
| | -------------------- | |
| | | Home | | |
| | | Shopping | | |
| | | Network | | |
| | -------------------- | |
| | | | |
| | | | |
| | -------------------- | |
|______________________| USANi LLC |____________________|
| -------------------- |
| | |
|__________________|___________________|
| |
------------------- --------------------
| USA | | USA |
| Interactive(1) | | Entertainment(2) |
------------------ --------------------
(1) USA Interactive consists of the following:
ENTITY NAME PARENT EQUITY VOTING POWER
----------- ------ ------ ------------
Hotel Reservations Network.................................. USA 68.3% 97.0%
Ticketmaster................................................ USA 67.6 85.9
Expedia..................................................... USA 64.6 94.9
Precision Response Corporation.............................. USA 100 100
Home Shopping............................................... USANi LLC 100 100
Electronic Commerce Solutions............................... USANi LLC 100 100
Styleclick.................................................. USANi LLC 73.0 96.4
(2) USA Entertainment consists of the following:
ENTITY NAME PARENT EQUITY/VOTING POWER
----------- ------ -------------------
USA Cable................................................... USANi LLC 100%
Studios USA................................................. USANi LLC 100
USA Films................................................... USA 100
OWNERSHIP OF USA
VOTING
EQUITY POWER
---- ----
Mr. Diller........... .3% 88.0%*
Vivendi/Universal.... 41.0 0*
Liberty.............. 20.0 0*
Public............... 38.7 12.0
OWNERSHIP OF USANI LLC
VOTING
EQUITY POWER
---- ----
USA................... 44.9% 100%
Vivendi/Universal..... 47.4 0
Liberty............... 7.7 0
* The voting power reflects Mr. Diller's general right to vote USA shares
owned by Liberty and Universal. Mr. Diller has this right under a
Stockholders Agreement among Universal, Liberty, Mr. Diller, USA and
Vivendi. This agreement (as well as a Governance Agreement to which USA,
Universal, Liberty and Mr. Diller are parties) also provides Liberty,
Universal and Mr. Diller with veto rights over specified "fundamental
matters" relating to USA, notwithstanding Mr. Diller's general right to vote
these shares.
v
POST-TRANSACTION STRUCTURE/OWNERSHIP
--------------- --------------- -------------- -------------
| | | | | | | Vivendi/ |
| Liberty | | Public | | Mr. Diller | | Universal |
--------------- --------------- -------------- -------------
\ \ \ / \ / |
\ \ \ / \ / |
\ \ \ / \ / |
\ \ \ / \ / |
\ \ \ / / |
\ \ --------------------- / \ |
19.9% \ \ _ | USA |_/ \ |
\ --------------------- \ |
\ | 80.1% | \ \ |
\ ---------------- | \ -----------------
\ | Home | | \ | VUE |
\ | Shopping | | \_| |
| Network | | -----------------
---------------- | / \
| | / \
---------------- | / \
| USANi LLC | | / \
---------------- | / \
| | ------------------- --------------------
| | | USA | | Universal |
| | | Entertainment | | Entertainment(1) |
| | ------------------- --------------------
-----------------
| USA |
| Interactive |
----------------
(1) Includes Universal's film, television and theme park businesses.
OWNERSHIP OF USA OWNERSHIP OF VUE
EQUITY VOTING POWER EQUITY
------ ------------ ------
Mr. Diller......... .5% 69.4%* Vivendi/Universal.............. 93.06%**
Vivendi/Universal.. 12.7 0* USA............................ 5.44
Liberty............ 20.2 0* Mr. Diller..................... 1.50
Public............. 66.6 30.6
* The voting power reflects Mr. Diller's general right to vote USA shares
owned by Liberty and Universal. Mr. Diller will continue to have this right
under an Amended and Restated Stockholders Agreement among Vivendi,
Universal, Liberty and Mr. Diller. This agreement, as well as the Amended
and Restated Governance Agreement to which USA, Vivendi, Universal, Liberty
and Mr. Diller are parties, eliminates the veto rights of Universal, Liberty
and Mr. Diller over "fundamental matters" relating to USA (with very limited
exceptions for Liberty and Mr. Diller).
** By virtue of its 93.06% equity interest in VUE, Vivendi will be able to
exercise control over VUE subject to limited consent and veto rights of USA,
which we describe on page 61.
vi
TABLE OF CONTENTS
PAGE
--------
SUMMARY............................... 1
The Company....................... 1
Other Parties to the
Transactions.................... 1
Recommendation of the Special
Committee....................... 2
Recommendation to Stockholders.... 2
The Transaction Documents......... 2
Interests of Officers and
Directors in the Transactions... 4
Votes Required for the
Transactions Proposal........... 4
Opinions of Financial Advisors.... 4
Material Federal Income Tax
Consequences.................... 5
Selected Historical Financial
Data............................ 6
Selected Pro Forma Combined
Condensed Financial Data........ 8
Unaudited Comparative Per Share
Data for USA.................... 9
CAUTIONARY STATEMENT CONCERNING
FORWARD LOOKING STATEMENTS.......... 10
THE SPECIAL MEETING................... 11
General........................... 11
Date, Time and Place of the
Special Meeting; Record Date;
Adjournments.................... 11
Quorum............................ 11
Votes Required.................... 11
USA Voting Power.................. 12
How You Can Vote.................. 12
Cost of Solicitation.............. 13
Recommendation of our Board of
Directors....................... 13
THE TRANSACTIONS...................... 14
General........................... 14
Structure of the Transactions..... 15
Background of the Transactions.... 16
Reasons for the Transactions...... 19
Recommendation of the Special
Committee and the USA Board of
Directors....................... 22
PAGE
--------
Opinion of the Special Committee's
Financial Advisor............... 23
Opinion of USA's Financial
Advisor......................... 39
Additional Information About USA
After the Transactions.......... 48
Regulatory Approvals.............. 50
Litigation Relating to the
Transactions.................... 50
Absence of Dissenters' Rights..... 50
THE TRANSACTION DOCUMENTS............. 51
Transaction Agreement............. 51
Partnership Agreement............. 58
Amended and Restated Governance
Agreement....................... 65
Amended and Restated Stockholders
Agreement....................... 68
Warrant Agreement................. 71
Vivendi/Liberty Merger
Agreement....................... 72
INTERESTS OF OFFICERS AND DIRECTORS IN
THE TRANSACTIONS.................... 73
Certain Executive Officers........ 73
Vivendi Board Designees........... 73
Liberty Board Designees........... 73
Interests in USA Securities and
Options......................... 73
STOCK OWNERSHIP OF MANAGEMENT AND
DIRECTORS........................... 74
USA Common Stock.................. 74
USA Class B Common Stock.......... 79
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS OF USA......... 80
UNAUDITED FINANCIAL STATEMENTS OF THE
USA ENTERTAINMENT GROUP............. 88
STOCKHOLDER PROPOSALS................. 100
WHERE YOU CAN FIND MORE INFORMATION... 100
vii
APPENDICES
Appendix A: Transaction Agreement....................................... A-1
Appendix B: Partnership Agreement....................................... B-1
Appendix C: Amended and Restated Governance Agreement................... C-1
Appendix D: Amended and Restated Stockholders Agreement................. D-1
Appendix E: Warrant Agreement........................................... E-1
Appendix F: Vivendi/Liberty Merger Agreement............................ F-1
Appendix G: Opinion of Bear, Stearns & Co. Inc. ........................ G-1
Appendix H: Opinion of Allen & Company Incorporated..................... H-1
viii
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the proposal upon which you are being asked to vote, you should read this entire
document carefully, as well as those additional documents to which we refer you.
See "Where You Can Find More Information" on page 100. All references to "USA,"
"we," "our," or "us" in this proxy statement are to USA Networks, Inc. In this
proxy statement, we generally use "USA," "Vivendi," "Universal," and "Liberty"
to refer to those companies as well as their respective subsidiaries.
THE COMPANY
USA NETWORKS, INC.
152 West 57th Street
New York, New York 10019
(212) 314-7300
USA (Nasdaq: USAI) is a company focused on the new convergence of
information, direct selling and entertainment. USA is organized into two groups,
the Interactive Group and the Entertainment Group. The Interactive Group
consists of:
- Home Shopping Network (including HSN International and HSN.com),
- Ticketmaster, which operates Ticketmaster, Ticketmaster.com, Citysearch
and Match.com,
- Expedia,
- Hotel Reservations Network,
- Electronic Commerce Solutions,
- Precision Response Corporation, and
- Styleclick.
The Entertainment Group consists of:
- USA Cable, including USA Network, SCI FI Channel, TRIO, Newsworld
International, and Crime,
- Studios USA, which produces and distributes television programming, and
- USA Films, which produces and distributes films.
Following completion of the transactions, USA will be renamed "USA
Interactive."
OTHER PARTIES TO THE TRANSACTIONS
VIVENDI UNIVERSAL, S.A.
42 avenue de Friedland 75380
Paris Cedex 08, France
33 (1) 71 71 10 00
Vivendi is engaged in the Media and Communications business, and through its
subsidiary, Vivendi Environnement, the environmental services business.
Vivendi's Media and Communications business consists of Music, Publishing, TV
and Film, Telecoms and Internet operations. Vivendi Environnement is a 63% owned
subsidiary of Vivendi, which operates a global environmental services business.
UNIVERSAL STUDIOS, INC.
100 Universal City Plaza
Universal City, California 91608
(818) 777-1000
Universal, a subsidiary of Vivendi, produces and distributes motion pictures
worldwide in the theatrical, home video and television markets. Universal also
owns and operates the music business, theme parks, entertainment complexes and
specialty retail stores. In addition, Universal is the entity through which
Vivendi holds its equity interest in USA. Universal is owned 92.3% by Vivendi
and 7.7% by Matsushita Electric Industrial Co. Ltd.
LIBERTY MEDIA CORPORATION
12300 Liberty Boulevard
Englewood, Colorado 80112
(720) 875-5400
Liberty owns interests in a broad range of video programming, communications
and Internet businesses in the United States, Europe, South America and Asia.
USANI LLC
152 West 57th Street
New York, New York 10019
(212) 314-7300
USANi LLC is a Delaware limited liability company the interests of which are
owned 44.9%, 47.4% and 7.7% by USA, Vivendi and Liberty, respectively. The USANi
LLC interests held by Vivendi and Liberty are exchangeable for shares of USA on
a one-for-one basis. USANi LLC's primary businesses include USA Cable, Studios
USA, Home Shopping Network, Electronic Commerce Solutions and Styleclick. Under
the Governance Agreement and other agreements described in this document, USA
maintains control and management of USANi LLC, and the businesses held by USANi
LLC are managed by USA in substantially the same manner as they would be if USA
held them directly through wholly owned subsidiaries.
RECOMMENDATION OF THE SPECIAL COMMITTEE (page 22)
Your board of directors formed a special committee composed of all of USA's
directors who had no material relationship with Vivendi, Liberty, Mr. Diller or
their affiliates, or any personal interest in the transactions that diverges
from the interests of USA's stockholders generally, to consider the transactions
and to make a recommendation to your board of directors regarding the
transactions. We refer to these directors in this proxy statement as the
"disinterested directors." At a meeting called to consider the transactions, the
special committee unanimously:
- declared the Transaction Agreement, the other related transaction
documents and the transactions advisable;
- determined that the terms of the transactions are fair to and in the best
interests of the stockholders of USA, other than Vivendi, Liberty,
Mr. Diller and their affiliates; and
- recommended that the USA board of directors approve the Transaction
Agreement, the other related transaction documents and the transactions.
RECOMMENDATION TO STOCKHOLDERS (page 23)
Based on the recommendation of the special committee, your board of
directors believes that the Transaction Agreement, the other related transaction
documents and the transactions are advisable, fair to, and in the best interests
of, USA stockholders, and recommends, by the unanimous vote of all directors
(other than directors affiliated with Vivendi, none of whom was present at the
board meeting), that you vote FOR the transactions proposal.
THE TRANSACTION DOCUMENTS
The transaction documents are attached as Appendices A through F to this
proxy statement. We encourage you to read them carefully.
TRANSACTION AGREEMENT (page 51)
GENERAL
The Transaction Agreement is the legal document that governs the principal
transactions.
TERMINATION OF EXISTING AGREEMENTS
In connection with the transactions, USA and Universal have agreed to
terminate the following business arrangements upon (1) the completion of the
transactions or (2) the termination of the Transaction Agreement:
- Universal's exclusive international distribution of television programming
produced by USA; and
- USA's exclusive domestic distribution of television programming produced
by Universal.
USA TRADEMARK
The name "USA Networks" will be included among the assets contributed to
VUE, and USA and Vivendi have agreed to work together to determine the ownership
of the various logos and designs associated with the "USA Networks" name prior
to completion of the transactions.
2
PARTNERSHIP AGREEMENT (page 58)
The Partnership Agreement is the legal document that provides for USA's
economic interest in VUE, including its common and preferred interests and the
cash distribution to be paid to USA at the closing of the transactions. In
addition, the Partnership Agreement provides for Mr. Diller's 1.5% common
interest in VUE and contains Mr. Diller's agreement not to compete with VUE for
a minimum of 18 months.
AMENDED AND RESTATED GOVERNANCE AGREEMENT (page 65)
USA, Vivendi, Universal, Liberty and Mr. Diller have entered into an Amended
and Restated Governance Agreement that will become effective at the closing of
the transactions and supersede the existing Governance Agreement among the
parties.
The Amended and Restated Governance Agreement restricts Vivendi's ability to
acquire additional USA equity securities and its ability to transfer USA
securities. In addition, this agreement provides for continuing representation
on USA's board of directors by Vivendi and Liberty.
The agreement also eliminates Vivendi's right to veto specified "fundamental
matters," and significantly limits the circumstances in which Liberty and
Mr. Diller are entitled to exercise veto rights.
Finally, the agreement eliminates Vivendi's preemptive rights with respect
to USA common shares, while preserving Liberty's existing preemptive rights.
If the transactions are not completed, the existing Governance Agreement
will remain in effect.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (page 68)
Vivendi, Universal, Liberty and Mr. Diller have entered into an Amended and
Restated Stockholders Agreement, which will become effective at the closing of
the transactions and supersede the existing Stockholders Agreement.
Generally, the agreement governs the relationship among the stockholders,
including rights of first refusal for sales of USA securities, tag-along rights
for sales of USA securities by Liberty and Mr. Diller, restrictions on transfers
of USA securities and a standstill by Mr. Diller with respect to Vivendi. Under
this agreement, Mr. Diller generally has voting control over all of the USA
shares owned by Universal and Liberty.
If the transactions are not completed, the existing Stockholders Agreement
will remain in effect.
WARRANT AGREEMENT (page 71)
In connection with the transactions, USA has agreed to issue to Vivendi
warrants to purchase 60,467,735 shares of USA common stock under a Warrant
Agreement.
The warrants have a ten-year term from the closing of the transactions and
the following exercise prices.
- 24,187,094 shares at $27.50 per share;
- 24,187,094 shares at $32.50 per share; and
- 12,093,547 shares at $37.50 per share.
VIVENDI/LIBERTY MERGER AGREEMENT (page 72)
In connection with the transactions, Vivendi, Universal, Liberty and certain
of their affiliates have entered into an Agreement and Plan of Merger and
Exchange. While none of USA or its subsidiaries is a party to the
Vivendi/Liberty Merger Agreement, completion of the transactions contemplated by
the Transaction Agreement is conditioned on completion of certain of the
transactions contemplated by the Vivendi/Liberty Merger Agreement.
The Vivendi/Liberty Merger Agreement sets out the terms under which Liberty
will exchange with USA 7,079,726 LLC shares for 7,079,726 shares of USA common
stock. Subsequently, Liberty will transfer to Vivendi 25,000,000 shares of USA
common stock, entities holding Liberty's remaining 38,694,982 LLC
3
shares, as well as the assets and liabilities of Liberty Programming France
(which consist primarily of 4,921,250 shares of multiThematiques) in exchange
for 37,386,436 ADSs representing Vivendi ordinary shares, subject to adjustment.
INTERESTS OF OFFICERS AND DIRECTORS IN THE TRANSACTIONS (page 73)
Members of the management and board of directors of USA have interests in
the transactions that are different from, or in addition to, their interests as
USA stockholders.
Mr. Diller will become chairman and chief executive officer of VUE and will
receive an equity interest in VUE, which interest is subject to put and call
rights at a minimum price of $275 million. In February 2002, Mr. Diller assigned
to three executive officers of USA, Victor Kaufman, vice chairman and a director
of USA; Dara Khosrowshahi, executive vice president and chief financial officer;
and Julius Genachowski, executive vice president and general counsel, the right
to receive economic interests in a portion of the common interests in VUE that
Mr. Diller will receive upon closing of the transactions.
The USA board of directors includes representatives from Vivendi and
Liberty. The Vivendi representatives on the USA board of directors did not
participate in the meeting at which the USA board of directors approved the
transactions.
VOTES REQUIRED FOR THE TRANSACTIONS PROPOSAL (page 11)
Two separate votes are required to approve the transactions proposal:
- Under Delaware law, because Vivendi is considered an "interested
stockholder" under Section 203 of the Delaware General Corporation Law,
the transactions proposal must be approved by the affirmative vote of
66 2/3% of the outstanding USA common stock and USA preferred stock (both
in voting power and in number of shares), voting together as a single
class, excluding the shares held by Vivendi, Liberty, Mr. Diller and their
respective affiliates.
- Under the rules of the National Association of Securities Dealers, Inc.,
because USA will be issuing to Vivendi warrants to acquire shares of USA
common stock, which warrants, if exercised, would represent an increase in
outstanding USA common shares of at least 5%, approval of the transactions
proposal also requires the affirmative vote of a majority of the votes
cast at the special meeting by the holders of USA common stock, USA
Class B common stock and USA preferred stock, voting together as a single
class, including the shares held by Vivendi, Liberty, Mr. Diller and their
respective affiliates.
USA VOTING POWER
Each share of USA common stock entitles the holder to one vote per share,
each share of USA Class B common stock entitles the holder to ten votes per
share and each share of USA preferred stock entitles the holder to two votes per
share. As of March 12, 2002, the directors and executive officers of USA (other
than Mr. Diller and the Liberty and Vivendi designees to the USA board of
directors) beneficially owned approximately 2.4% of the total voting power of
USA. Mr. Diller, through shares owned by him as well as the irrevocable proxy
over shares held by Universal and Liberty granted to him under the Stockholders
Agreement, controls approximately 67.7% of the combined voting power of USA,
which is sufficient for stockholder approval of the transactions proposal for
purposes of the vote required under the rules of the National Association of
Securities Dealers. USA will not complete the transactions unless the
transactions proposal is approved both for purposes of Delaware law and the
rules of the National Association of Securities Dealers.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR (page 23)
In deciding to recommend the transactions to the USA board of directors, the
special
4
committee considered, among other things, advice from Bear Stearns, its
financial advisor. The special committee received an opinion from Bear Stearns
to the effect that, as of December 16, 2001, the consideration to be received by
USA in the transactions was fair, from a financial point of view, to the
stockholders of USA other than Vivendi, Liberty, Mr. Diller and their
affiliates. Bear Stearns' opinion is attached as Appendix G to this proxy
statement. We encourage you to read it carefully.
OPINION OF USA'S FINANCIAL ADVISOR (page 39)
In addition to the recommendation of the special committee, in deciding to
approve the transactions, USA's board of directors considered, among other
things, advice from Allen & Co., USA's financial advisor. USA's board of
directors received an opinion from Allen & Co. that as of December 16, 2001 the
consideration to be received by USA in the transactions was fair, from a
financial point of view, to USA. Allen & Co.'s opinion is attached as
Appendix H to this proxy statement. We encourage you to read it carefully.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Because your USA shares will not be exchanged in connection with the
transactions, you will not recognize any gain or loss for U.S. federal income
tax purposes as a result of the transactions. In addition, we do not anticipate
that USA will currently recognize any material amount of income or gain for U.S.
federal income tax purposes as a result of the transactions.
5
SELECTED HISTORICAL FINANCIAL DATA
In the table below, we provide you with selected historical consolidated
financial data of USA. USA prepared this information using the consolidated
financial statements of USA for each of the years in the five-year period ended
December 31, 2001. The financial statements for each of the five years in the
period ended December 31, 2001 have been audited by Ernst & Young LLP,
independent auditors. USA has not declared any cash dividends on USA common
shares and no shares of USA preferred stock were outstanding during the periods
presented.
You should read the selected historical financial information with the
historical financial statements and accompanying notes that USA has included in
its Form 8-K dated March 1, 2002 and incorporated by reference herein. You can
obtain this information by following the instructions we provide under "Where
You Can Find More Information" on page 100.
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997(1) 1998(2)(3) 1999(4) 2000(5) 2001(6)
---------- ----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $1,377,145 $ 2,759,896 $3,371,745 $ 4,601,492 $ 5,284,807
Operating profit.......................................... 105,753 249,904 269,914 56,326 233,825
Earnings (loss) from continuing operations................ 34,209 63,892 16,515 (88,588) (125,052)
Earnings (loss) before cumulative effect of accounting
change.................................................. 13,061 76,894 (27,631) (147,983) 392,795
Net earnings (loss)....................................... 13,061 76,894 (27,631) (147,983) 383,608
Basic earnings (loss) per common share from continuing
operations(7)........................................... 0.16 0.22 0.05 (0.25) (0.33)
Diluted earnings (loss) per common share from continuing
operations(7)........................................... 0.15 0.19 0.04 (0.25) (0.33)
Basic earnings (loss) per common share before cumulative
effect of accounting change(7).......................... 0.06 0.27 (0.08) (0.41) 1.05
Diluted earnings (loss) per common share before cumulative
effect of accounting change(7).......................... 0.06 0.21 (0.08) (0.41) 0.61
Basic earnings (loss) per common share(7)................. 0.06 0.27 (0.08) (0.41) 1.03
Diluted earnings (loss) per common share(7)............... 0.06 0.21 (0.08) (0.41) 0.60
BALANCE SHEET DATA (END OF PERIOD):
Working capital........................................... $ 60,941 $ 443,408 $ 381,046 $ 602,588 $ 1,380,936
Total assets.............................................. 2,670,796 8,316,190 9,233,227 10,473,870 11,703,052
Long-term obligations..................................... 461,264 812,221 585,780 577,958 578,683
Minority Interest......................................... 372,223 3,633,597 4,492,066 4,817,137 4,968,369
Stockholders' equity...................................... 1,447,354 2,571,405 2,769,729 3,439,871 3,945,501
OTHER DATA:
Net cash provided by (used in)
Operating activities...................................... $ 60,363 $ 256,929 $ 401,577 $ 372,507 $ 669,932
Investing activities...................................... (83,043) (1,201,912) (413,968) (524,556) 51,935
Financing activities...................................... 105,156 1,297,654 55,948 58,346 64,008
Net cash used in discontinued operations.................. 9,041 (20,488) (66,260) (82,563) (48,058)
Effect of exchange rate changes........................... -- (1,501) (123) (2,687) (3,663)
Adjusted EBITDA........................................... 198,373 496,612 627,745 810,695 893,713
As used in this document, the term Adjusted earnings before interest, income
taxes, depreciation and amortization ("Adjusted EBITDA") is defined as operating
profit plus (1) depreciation and amortization, (2) amortization of cable
distribution fees of $44.0 million, $36.3 million and $26.7 million in fiscal
years 2001, 2000 and 1999, respectively, (3) amortization of non-cash
distribution and marketing expense and (4) disengagement expenses of
$4.1 million in 2001. Adjusted EBITDA is presented here as a management tool and
as a valuation methodology. Adjusted EBITDA does not purport to represent cash
provided by operating activities. Adjusted EBITDA should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles. Adjusted EBITDA may not be
comparable to calculations of similarly titled measures presented by other
companies.
6
The table set forth below provides a reconciliation of the USA's Adjusted EBITDA
to its Operating Profit for each period presented:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997(1) 1998(2)(3) 1999(4) 2000(5) 2001(6)
---------- ----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Operating Profit............................................ $ 105,753 $ 249,904 $ 269,914 $ 56,326 $ 233,825
Depreciation and Amortization............................... 71,231 215,811 324,506 693,642 572,765
Amortization of cable distribution fees..................... 19,261 22,089 26,680 36,322 43,975
Amortization of non-cash distribution fees,
marketing, and compensation expense....................... 2,128 8,808 6,645 24,405 39,096
Disengagement expense....................................... -- -- -- -- 4,052
---------- ----------- ---------- ----------- -----------
ADJUSTED EBITDA............................................. $ 198,373 $ 496,612 $ 627,745 $ 810,695 $ 893,713
---------- ----------- ---------- ----------- -----------
(1) The consolidated statement of operations data include the operations of
Ticketmaster since the acquisition by USA of its controlling interest in
Ticketmaster on July 17, 1997.
(2) The consolidated statement of operations data include the operations of USA
Networks and Studios USA since their acquisition by USA from Universal on
February 12, 1998 and CitySearch since its acquisition by USA on
September 28, 1998.
(3) Net earnings for the year ended December 31, 1998 include a pre-tax gain of
$74.9 million related to USA's sale of its Baltimore television station
during the first quarter of 1998 and a pre-tax gain of $109.0 million
related to the CitySearch transaction during the fourth quarter of 1998.
(4) The consolidated statement of operations data include the operations of
Hotel Reservations Network, since its acquisition by USA on May 10, 1999 and
the operations of October Films and the domestic film distribution and
development business of Universal, which was previously operated by Polygram
Filmed Entertainment, referred to as USA Films, since their acquisition by
USA on May 28, 1999. Net earnings for the year ended December 31, 1999
include a pre-tax gain of $89.7 million related to the sale of securities.
(5) Includes a pre-tax gain of $104.6 million related to its acquisition of
Styleclick, a pre-tax gain of $3.7 million related to the Hotel Reservations
Network initial public offering, and a pre-tax charge of $145.6 million
related to impairment of Styleclick goodwill.
(6) Includes a gain of $517.8 million, net of tax, related to the sale of
capital stock of certain USA Broadcasting subsidiaries and an after-tax
expense of $9.2 million related to the cumulative effect of adoption as of
January 1, 2001 of SOP 00-2, Accounting By Producers or Distribution of
Films.
(7) Earnings (loss) per common share data and shares outstanding retroactively
reflect the impact of two-for-one stock splits of USA common stock and USA
Class B common stock made on February 24, 2000 and March 26, 1998. All share
numbers give effect to such stock splits.
7
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
In the table that follows, we provide you with unaudited selected pro forma
combined condensed financial information for USA giving effect to the
contribution of the USA Entertainment Group to VUE, USA's acquisition of Expedia
and other transactions completed by USA during the year ended December 31, 2001.
USA has not declared any cash dividends on USA common shares and no shares
of USA preferred stock were outstanding during the periods presented.
This unaudited selected pro forma combined condensed financial information
should be read in conjunction with the separate historical financial statements
and accompanying notes of USA that are incorporated by reference in this proxy
statement and the unaudited financial statements of the USA Entertainment Group
included in this proxy statement. It is also important that you read the
unaudited pro forma combined condensed financial information and accompanying
discussion that we have included in this proxy statement starting on page 80
under "Unaudited Pro Forma Combined Condensed Financial Statements of USA." You
should not rely on the unaudited selected pro forma financial information as an
indication of the results of operations or financial position that would have
been achieved if the transactions had taken place earlier or of the results of
operations or financial position of USA after the completion of the
transactions.
PRO FORMA
----------------------
YEAR ENDED
DECEMBER 31, 2001
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
Net revenues.............................................. $ 3,765,796
Operating loss............................................ (233,783)
Loss from continuing operations........................... (173,171)
LOSS PER SHARE FROM CONTINUING OPERATIONS
Basic..................................................... $ (0.43)
Diluted................................................... $ (0.43)
BALANCE SHEET DATA (END OF PERIOD)
Working capital........................................... $ 3,048,520
Total assets.............................................. 14,197,813
Long-term obligations..................................... 577,891
Minority interest......................................... 997,253
Common stock exchangeable for preferred interest.......... 1,428,530
Stockholders' equity...................................... 7,564,082
8
UNAUDITED COMPARATIVE PER SHARE DATA FOR USA
In the table below, we provide you with historical per share financial
information for USA as of December 31, 2001 and for the twelve months then
ended. We also provide you with pro forma per share financial information for
USA as of December 31, 2001 and for the twelve months then ended, giving effect
to the transactions with Vivendi and other transactions entered into by USA,
including the Expedia transaction. The pro forma financial information assumes
that the respective transactions had been completed on January 1, 2001 for
income statement purposes and on December 31, 2001 for balance sheet purposes.
USA has not declared any cash dividends during this period and no shares of
USA preferred stock were outstanding during the periods presented.
It is important that when you read this information, you read along with it
the separate financial statements and accompanying notes of USA that are
incorporated by reference in this proxy statement. It is also important that you
read the pro forma combined financial information and accompanying notes that we
have included in this proxy statement starting on page 80 under "Unaudited Pro
Forma Combined Condensed Financial Statements of USA." You should not rely on
the unaudited pro forma financial information as an indication of the results of
operations or financial position that would have been achieved if the
transactions had taken place earlier or the results of operations or financial
position of USA after the completion of the transactions.
USA ACTUAL PRO FORMA(1)
---------- ------------
BOOK VALUE PER SHARE
December 31, 2001........................................... 10.45 18.66
LOSS PER SHARE FROM CONTINUING OPERATIONS
Basic and diluted for the twelve months ended
December 31, 2001....................................... (0.33) (0.43)
------------------------
(1) Pro forma information gives effect to the acquisition by USA of Expedia and
the proposed transactions between USA and Vivendi as well as acquisitions
made by USA and Expedia in 2001. See "Unaudited Pro Forma Combined Condensed
Financial Statements of USA."
9
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
This proxy statement and the other documents incorporated in this proxy
statement by reference contain "forward-looking statements" within the meaning
of the securities laws. The "forward-looking statements" include, among other
things, statements relating to our anticipated financial performance, business
prospects, new developments, new merchandising strategies and similar matters,
and/or statements preceded by, followed by or that include the words "believes,"
"could," "expects," "anticipates," "estimates," "intends," "projects," or
similar expressions. We have based these forward-looking statements on our
current expectations and projections about future events, based on the
information currently available to us. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to risks, uncertainties and assumptions that may affect
the operations, performance, development and results of our business. You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date stated, or if no date is stated, as of the date of
this proxy statement. You should understand that the following important
factors, in addition to those discussed in the documents incorporated in this
document by reference, could affect our future results and could cause those
results to differ materially from those expressed in such forward-looking
statements:
- material adverse changes in economic conditions generally or in our
markets;
- future regulatory and legislative actions and conditions affecting our
operating areas;
- competition from others;
- successful integration of our divisions' management structures;
- product demand and market acceptance;
- the ability to protect proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms;
- the ability to expand into and successfully operate in foreign markets;
- obtaining and retaining key executives and employees; and
- other risks and uncertainties as may be detailed from time to time in our
public announcements and filings with the Securities and Exchange
Commission.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or any other
reason. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this proxy statement may not occur.
10
THE SPECIAL MEETING
GENERAL
We are mailing this proxy statement and the accompanying proxy card to
holders of USA common stock, USA Class B common stock and USA preferred stock in
connection with the solicitation of proxies by our board of directors for use at
the special meeting. We solicit proxies to give all stockholders on the record
date an opportunity to vote on matters that will come before the special
meeting. This procedure is necessary because stockholders live in all states and
abroad and many may not be able to attend the special meeting. You can vote or
let us vote your shares of USA common stock, USA Class B common stock and/or USA
preferred stock only if you are present in person or represented by proxy. A
proxy card is being provided to holders of USA common stock, USA Class B common
stock and USA preferred stock with this proxy statement. You may also submit a
proxy for your shares by telephone or via the internet. Information with respect
to the execution and revocation of proxies is provided under "--How You Can
Vote."
At the special meeting, we will ask holders of USA common stock, USA
Class B common stock and USA preferred stock eligible to vote to consider and
vote upon the approval of the transactions proposal. For more information, see
"The Transactions."
DATE, TIME AND PLACE OF THE SPECIAL MEETING; RECORD DATE; ADJOURNMENTS
The special meeting is scheduled to be held at 8:00 a.m., local time, on
Tuesday, April 23, 2002, at USA's offices at 8800 Sunset Boulevard, West
Hollywood, California 90069. Our board of directors has fixed the close of
business on March 12, 2002 as the record date for determination of holders of
USA common stock, USA Class B common stock and USA preferred stock entitled to
notice of and to vote at the special meeting. On the record date, there were
outstanding 341,218,693 shares of USA common stock, 63,033,452 shares of USA
Class B common stock and 13,124,902 shares of USA preferred stock. Adjournments
may be made for the purpose of, among other things, soliciting additional
proxies. An adjournment may be made from time to time by the holders of shares
representing a majority of the votes present in person or by proxy at the
meeting without further notice other than by an announcement made at the
meeting. No proxies voted against approval of the transactions will be voted in
favor of adjournment of the meeting for the purpose of soliciting additional
proxies.
QUORUM
The presence, either in person or by proxy, of the holders of USA's
securities representing a majority of USA's voting power entitled to vote is
necessary to constitute a quorum at the special meeting. Shares of USA common
stock, USA Class B common stock or USA preferred stock represented by a properly
executed proxy will be treated as present at the special meeting for purposes of
determining a quorum, without regard to whether the proxy is marked as casting a
vote or abstaining. See "--How You Can Vote" for more information.
VOTES REQUIRED
The transactions proposal requires stockholder approval under the Delaware
General Corporation Law and under the rules of the National Association of
Securities Dealers, as further described below.
THE VOTE REQUIRED UNDER DELAWARE LAW
Because Vivendi is considered an "interested stockholder" under Section 203
of the Delaware General Corporation Law as a result of its acquisition of The
Seagram Company Ltd. in December 2000 (which held 42.5% of USA's equity on a
fully diluted basis at that time), the parties have agreed to obtain approval of
the transactions proposal by the affirmative vote of 66 2/3% of the
11
outstanding USA common stock and USA preferred stock (by vote and by number),
voting together as a single class, excluding the shares held by Vivendi,
Liberty, Mr. Diller and their respective affiliates. Due to the fact that all of
the outstanding shares of USA Class B common stock are held by Vivendi, Liberty,
Mr. Diller or their respective affiliates, votes cast in respect of any shares
of USA Class B common stock will not be counted for or against approval of the
transactions proposal for purposes of the vote required under the Delaware
General Corporation Law.
THE VOTE REQUIRED UNDER NASD
Under the rules of the National Association of Securities Dealers, because,
in connection with the transactions, USA will be issuing to Vivendi (which owns
in excess of 5% of the outstanding USA common shares) equity warrants to acquire
USA common stock, which warrants, if exercised, would represent an increase in
outstanding USA common shares of at least 5%, approval of the transactions
proposal requires the affirmative vote of a majority of the votes cast at the
special meeting by the holders of USA common stock, USA Class B common stock and
USA preferred stock, voting together as a single class, including any shares
held by Vivendi, Liberty, Mr. Diller and their respective affiliates.
USA VOTING POWER
Each share of USA common stock entitles the holder to one vote per share,
each share of USA Class B common stock entitles the holder to ten votes per
share and each share of USA preferred stock entitles the holder to two votes per
share. As of March 12, 2002, the directors and executive officers of USA (other
than Mr. Diller and the Liberty and Vivendi designees to the USA board of
directors) beneficially owned approximately 2.4% of the total voting power of
USA. Mr. Diller, through shares owned by him as well as the irrevocable proxy
over shares held by Universal and Liberty, granted to him under the Stockholders
Agreement, controls approximately 67.7% of the combined voting power of USA,
which is sufficient for stockholder approval of the transactions for purposes of
the National Association of Securities Dealers. USA will not complete the
transactions unless the transactions are approved both for purposes of Delaware
law and the rules of the National Association of Securities Dealers.
HOW YOU CAN VOTE
If you attend the special meeting, you may vote by ballot. However, many
stockholders may be unable to attend the special meeting. Therefore, our board
of directors is soliciting proxies so that each holder of USA common stock, USA
Class B common stock and USA preferred stock at the close of business on the
record date has the opportunity to vote on the transactions proposal.
Stockholders of record may vote your shares of USA common stock, USA
Class B common stock or USA preferred stock in any of four ways:
- Submitting a Proxy by Mail. If you choose to submit your proxy by mail,
simply mark your proxy, date and sign it, and return it in the
postage-paid envelope provided.
- Submitting a Proxy by Telephone. Submit a proxy for your shares by
telephone proxy by using the toll-free telephone number provided on your
proxy card. Telephone proxy voting is available 24 hours a day.
- Submitting a Proxy by Internet. Submit your proxy via the internet. The
web site for internet proxy voting is on your proxy card, and internet
proxy voting is also available 24 hours a day.
- Voting in Person. Vote by appearing and voting in person at the special
meeting.
Street name holders may submit a proxy by telephone or the internet if their
bank or broker makes those methods available, in which case the bank or broker
will enclose the instructions with this
12
proxy statement. If you submit a proxy by telephone or via the internet you
should not return your proxy card. Instructions on how to submit a proxy by
telephone or via the internet are located on the proxy card enclosed with this
proxy statement.
If you submit a proxy without specifying a choice, we will vote your shares
in favor of the transactions proposal. Abstentions marked on your proxy card and
broker non-votes are voted neither FOR nor AGAINST, but we count these shares in
determining a quorum for the proposals. Abstentions and broker non-votes have
the effect of a vote against the transactions proposal for purposes of Delaware
law. Abstentions and broker non-votes have no effect on the vote for the
transactions proposal for purposes of the rules of the National Association of
Securities Dealers.
A stockholder who has given a proxy may revoke it at any time before it is
exercised at the special meeting by (1) delivering to The Bank of New York a
written notice, bearing a date later than the proxy, stating that the proxy is
revoked, (2) submitting a later-dated proxy relating to the same shares by mail,
telephone or the internet prior to the vote at the special meeting, or
(3) attending the special meeting and voting in person (although attendance at
the special meeting will not, by itself, revoke a proxy). You should send any
written notice or new proxy card to USA c/o The Bank of New York at the
following address: USA Networks, Inc., P.O. Box 11001, New York, New York
10203-0001 or follow the instructions provided on your proxy card to submit a
proxy by telephone or via the internet. You may request a new proxy card by
calling our proxy solicitor, MacKenzie Partners, Inc., at 1-800-322-2885
(toll-free).
IF YOU HOLD YOUR SHARES THROUGH A BANK OR BROKER, FOLLOW THE VOTING
INSTRUCTIONS ON THE FORM YOU RECEIVE FROM YOUR BANK OR BROKER.
YOUR VOTE IS IMPORTANT. WE URGE YOU TO SUBMIT YOUR PROXY BY TELEPHONE,
INTERNET OR BY SIGNING AND RETURNING THE ACCOMPANYING PROXY CARD WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. Failure to vote will have the effect of
a vote against the transactions proposal for purposes of Delaware law. If you do
attend the special meeting, you may vote by ballot, thereby cancelling any proxy
previously given.
COST OF SOLICITATION
We have retained MacKenzie Partners, Inc. for a fee of $17,500, plus
additional charges related to telephone calls and other services, to assist in
the solicitation of proxies. The cost of soliciting proxies will be borne by
USA. In addition to solicitations by mail, the officers, directors and a number
of regular employees of USA and its subsidiaries may solicit proxies in person
or by telephone.
RECOMMENDATION OF OUR BOARD OF DIRECTORS
YOUR BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTIONS ARE IN YOUR BEST
INTERESTS AND USA'S BEST INTERESTS AND RECOMMENDS, BY THE UNANIMOUS VOTE OF ALL
DIRECTORS (OTHER THAN DIRECTORS AFFILIATED WITH VIVENDI, NONE OF WHOM WAS
PRESENT AT THE BOARD MEETING), THAT YOU VOTE FOR THE TRANSACTIONS PROPOSAL.
13
THE TRANSACTIONS
The description of the material terms of the transactions set forth below is
not intended to be a complete description of the transactions. We qualify this
description by reference to the transaction documents, which we have attached as
appendices to this proxy statement. We encourage all stockholders to read these
documents in their entirety.
GENERAL
USA has agreed to contribute the USA Entertainment Group, comprising all of
USA's entertainment assets and businesses, to VUE, a new entity to be created
with Vivendi. VUE will also hold the film, television and theme park businesses
of Universal. VUE will be owned 5.44% by USA, 1.5% by Mr. Diller and 93.06% by
Vivendi and will be controlled by Vivendi. In exchange for the USA Entertainment
Group, USA will receive cash, common and preferred interests in VUE and the
cancellation of approximately 320.9 million USANi LLC shares that are currently
exchangeable into shares of USA. In connection with the transactions, USA has
also agreed to issue to Vivendi ten-year warrants to acquire shares of USA
common stock. In addition, Liberty will exchange with USA approximately
7 million LLC shares for shares of USA common stock, following which Liberty
will transfer to Vivendi 25 million USA shares, entities holding Liberty's
remaining interest in USANi LLC and other assets, in exchange for ADSs
representing Vivendi ordinary shares.
VALUE OF USA ASSETS BEING CONTRIBUTED TO VUE AND CONSIDERATION RECEIVED BY
USA
As part of its evaluation of the transactions, Bear Stearns, the financial
advisor to the special committee, valued the USA Entertainment Group between
$8.2 billion and $10.2 billion. Allen & Co., financial advisor to USA,
separately valued the USA Entertainment Group between $8.6 billion and
$12.6 billion. These financial advisor analyses also valued the USA warrants to
be issued to Vivendi, as well as the VUE entity as a whole.
USA management has valued the different elements of the consideration it
will receive in the transactions as follows:
- $1.62 billion in cash,
- $1 billion for USA's common interest in VUE,
- $514 million for USA's Class A preferred interest in VUE,
- $1.43 billion for USA's Class B preferred interest in VUE, and
- $7.06 billion for the cancellation of the 320.9 million USANi LLC shares
received from Vivendi, based on a $22 USA share price
for total consideration to USA of $11.62 billion. The financial advisors to the
special committee and to USA also analyzed the value of the consideration to be
received by USA. Bear Stearns valued the consideration to be received by USA
between $10.6 billion and $11.8 billion. Allen & Co. valued the consideration to
be received by USA between $10.6 billion and $12.8 billion.
VALUE OF VIVENDI ASSETS BEING CONTRIBUTED TO VUE
As part of its evaluation of the transactions, Bear Stearns, the financial
advisor to the special committee, valued the Universal Entertainment Group being
contributed by Vivendi to VUE between $4.2 billion and $7.3 billion. Allen &
Co., the financial advisor to the USA board, separately valued the Universal
Entertainment Group between $6.2 billion and $9.7 billion.
All of the Bear Stearns and Allen & Co. valuations described above are based
on numerous assumptions and analyses and are complex. We encourage you to read
the description of the analyses,
14
which are included under "--Opinion of the Special Committee's Financial
Advisor" and "--Opinion of USA's Financial Advisor."
STRUCTURE OF THE TRANSACTIONS
The transactions will occur as follows:
- Vivendi and USA will create VUE in which Vivendi and its subsidiaries, USA
and its subsidiaries and Mr. Diller will have common ownership interests
of 93.06%, 5.44% and 1.5%, respectively.
- USA and its subsidiaries will contribute their ownership interest in the
USA Entertainment Group, consisting of USA Cable, USA Films and Studios
USA, to VUE.
- Universal will contribute the Universal Entertainment Group, consisting of
Universal's film, television and theme park businesses, as well as the
remaining interest in the USA Entertainment Group that it receives in
exchange for cancellation of its LLC shares (as described below), to VUE.
- As members of VUE, USA and its subsidiaries will receive the following at
the closing of the transactions:
-- approximately $1.62 billion in cash, debt-financed by VUE, which will
be subject to tax-deferred treatment by USA for a 15-year period;
-- a $750 million face value Class A preferred interest in VUE, with a 5%
annual paid-in-kind dividend and a 20-year term, to be settled in cash
at its then face value at maturity;
-- a $1.75 billion face value Class B preferred interest in VUE, with a
1.4% annual paid-in-kind dividend, a 3.6% annual cash dividend,
callable and puttable after 20 years, to be settled by Universal at its
then face value with a maximum of approximately 56.6 million USA common
shares, provided that Universal may substitute cash in lieu of shares
of USA common stock (but not 13,430,000 shares of USA Class B common
stock), at its election;
-- a 5.44% common interest in VUE, generally callable by Universal after
five years and puttable by USA after eight years, which may be settled
in either Vivendi stock or cash, at Universal's election.
By virtue of its 93.06% equity interest in VUE, Vivendi will be able to
exercise control over VUE, subject to limited consent and veto rights of
USA, which we describe under "The Transaction Documents--Partnership
Agreement--Negative Covenants."
- In exchange for Vivendi agreeing to enter into certain commercial
arrangements and for other valuable consideration, USA will issue to
Vivendi ten-year warrants to acquire shares of USA common stock as
follows:
-- 24,187,094 shares at $27.50 per share;
-- 24,187,094 shares at $32.50 per share; and
-- 12,093,547 shares at $37.50 per share.
- Liberty will exchange 7,079,726 LLC shares for shares of USA common stock,
after which the current USA exchange agreement relating to the LLC shares
will immediately terminate. Liberty will then transfer to Vivendi
25,000,000 shares of USA common stock, entities holding 38,694,982 LLC
shares, as well as the assets and liabilities of Liberty Programming
France (which consist primarily of 4,921,250 shares of multiThematiques),
in exchange for 37,386,436 ADSs representing Vivendi ordinary shares,
subject to adjustment.
15
- USANi LLC will cancel LLC shares currently exchangeable into 320,856,512
USA common shares, representing all of the LLC shares then owned by
Vivendi (including all the LLC shares acquired from Liberty as described
above), in exchange for the distribution to Vivendi of partial interests
in the following subsidiaries of USANi LLC, which comprise part of the USA
Entertainment Group:
-- USA Cable
-- Studios USA LLC
-- USA Networks Partner LLC
- Mr. Diller will receive a common interest in VUE with a 1.5% profit
sharing percentage in return for his agreeing to specified non-competition
provisions and agreeing to serve as the chairman and chief executive
officer of VUE.
- USA and Mr. Diller have generally agreed that they will not compete with
Vivendi's television and filmed entertainment businesses (including VUE)
for a minimum of 18 months.
BACKGROUND OF THE TRANSACTIONS
Beginning in September 2001, management of USA and Vivendi spoke informally
regarding their companies and discussed, at a general level, whether there was
any interest in a possible strategic transaction involving the entertainment
assets of each of USA and Universal. USA was interested in pursuing a possible
strategic transaction involving its entertainment assets, in large part, because
management believed that the USA Entertainment Group required larger scale in
order to compete effectively in the rapidly consolidating entertainment
industry. These discussions evolved into discussions in which senior management
from USA and Vivendi discussed creating a joint venture between USA and Vivendi,
with USA contributing the USA Entertainment Group and Vivendi contributing the
Universal Entertainment Group.
In early November 2001, USA's management contacted the disinterested members
of the USA board of directors, as well as Wachtell, Lipton, Rosen & Katz
("Wachtell"), special counsel to USA, and Allen & Co., USA's financial advisor,
to inform them of the preliminary discussions that USA and Vivendi were having.
USA's management had multiple discussions with its advisors to review possible
transaction structures. Under certain of the proposals under discussion, Vivendi
would have purchased a portion of the USA shares owned by Mr. Diller at a
premium to market. However, Mr. Diller concluded that the long-term prospects
for USA following the transactions made it unattractive for him to sell any
portion of his USA shares even at a premium to current market, and therefore
determined not to sell any of his USA shares.
Subsequently, management of Vivendi and USA also separately contacted
Liberty's management to inform them of the ongoing discussions. Under the
existing Governance Agreement, each of Liberty, Vivendi and Mr. Diller has veto
rights over the proposed transactions or any other disposition by USA of its
entertainment businesses.
From the beginning, each party to the negotiations had certain preconditions
to proceeding. On Vivendi's part, Vivendi insisted that Mr. Diller must agree to
non-competition provisions with the entertainment businesses (non-competition
provisions were also required from USA), to manage VUE, with Vivendi ultimately
in control, under terms that would sufficiently incentivize him in managing VUE,
and to a personal standstill with Vivendi (including a prohibition on
Mr. Diller's involvement with others in any actions to acquire control of
Vivendi). On USA's part, in addition to seeking to ensure that any transaction
was financially in the best interests of USA and its stockholders, USA insisted
that both Vivendi and Liberty agree to relinquish their veto rights over
"fundamental matters" as set forth in the current Governance Agreement, that any
transaction must provide full value for USA's contribution to the joint venture
and have minimal "outs", and that any transaction must achieve
16
long-term tax deferral of gain for USA while also permitting USA to receive a
substantial amount of cash immediately. On Liberty's part, Liberty insisted that
Vivendi purchase Liberty's interest in and assume its liabilities in connection
with multiThematiques, S.A., a French venture in which Vivendi already
participates, at a negotiated price, that it retain "fundamental matter" veto
rights if USA became a highly leveraged entity in the future and that the
transactions contemplated by the Transaction Agreement and those contemplated by
the Vivendi/Liberty Merger Agreement be conditioned upon each other. On
Mr. Diller's part, Mr. Diller insisted that he retain voting control of USA
through the proxies on USA shares owned by Vivendi and Liberty, that
"fundamental matter" veto rights of Vivendi and Liberty be eliminated and that
his agreement to manage VUE be "at will."
Later in November 2001, USA, Vivendi and their respective advisors held
extensive discussions regarding the terms and structure of a proposed
transaction. These discussions grew increasingly frequent and substantive in
nature. Also, the disinterested directors informally held discussions and
contacted independent legal and financial advisors to represent them should the
parties' discussions reach a point that a special committee became necessary or
advisable. USA and Vivendi began to exchange drafts of various transaction
documents during the first week of December 2001.
On December 4, 2001, USA's board of directors formally appointed a special
committee to participate in the negotiation of the transactions, evaluate the
transactions on behalf of USA and its public stockholders and make a
recommendation to USA's board of directors regarding the transactions. The
special committee consisted of William Savoy, Anne Busquet, General H. Norman
Schwarzkopf and Paul Allen, each of whom was determined to be an independent
director for purposes of evaluating the transactions as none of them had any
material relationship with Vivendi, Liberty, Mr. Diller or their affiliates, or
any personal interest in the transactions that diverges from the interests of
USA's stockholders generally. The special committee retained Morris, Nichols,
Arsht & Tunnell ("Morris Nichols") as its legal advisor and Bear Stearns as its
financial advisor. The special committee met formally on December 4,
December 11, December 14 and December 16, 2001, and in between meeting dates
members of the special committee participated directly and through their
advisors in an ongoing review of the developing transactions.
On December 4, 2001, at the first meeting of the special committee, USA's
management provided the special committee with background information regarding
the transactions, presented management's views of the transactions and described
a variety of unresolved issues with respect to the transactions. In addition,
representatives from Wachtell described the negotiations to date. Next, members
of management and representatives from Wachtell left the meeting, and Allen &
Co. updated the special committee on the status of the negotiations. Allen & Co.
also informed the special committee, which was subsequently confirmed by Bear
Stearns, that Vivendi had informed USA that it would not consent to any proposed
transaction involving a sale of USA or the USA Entertainment Group to a third
party. Following its presentation, representatives from Allen & Co. left the
meeting, and representatives from Morris Nichols described the fiduciary duties
of the members of the special committee. Next, representatives from Bear Stearns
discussed the financial issues regarding the transactions and described the due
diligence that Bear Stearns had conducted to date.
The special committee convened again on December 11, 2001 to receive an
update on the status of the parties' negotiations and discuss legal and
financial issues with its advisors. The committee discussed particular terms of
the transactions, including the indemnification provisions contained in the
draft Transaction Agreement (under which USA would indemnify Vivendi for
breaches of USA's representations and warranties) and an expense reimbursement
proposed to be payable to Vivendi in the event that the transactions were
abandoned at Vivendi's behest as a result of the USA board of directors or any
committee of the USA board of directors withdrawing or modifying its approval or
recommendation of the transactions, which would be capped at $30 million.
Members of the special committee expressed their views that USA's
indemnification obligations should be limited and articulated concern that a
$30 million cap on the expense reimbursement was too high. Members of the
special committee also discussed a proposed provision that, with some
modifications, in effect would
17
have required USA to assume an obligation similar to that of Universal under the
terms of the existing Stockholders Agreement to purchase shares of USA common
stock owned by Mr. Diller during the one-year period following such time as
Mr. Diller no longer serves as chief executive officer of USA, which we refer to
as the "Diller Put."
Under the terms of the existing Stockholders Agreement, the Diller Put
obligation is required to be assumed by any party that acquired the USA shares
held by Universal, which under the proposed transactions may be deemed to be
acquired by USA. The Diller Put has a one-year term, and the per share price is
determined based on the market price of USA common stock either prior to the
announcement that Mr. Diller no longer serves as chief executive officer of USA
or prior to the exercise of the Diller Put, depending on when Mr. Diller
exercised the Diller Put. Under the proposal, in lieu of being obligated to
purchase Mr. Diller's shares as required under the Stockholders Agreement as a
condition to the transfer by Universal of its USA stock interest to USA, USA
would have been required to make Mr. Diller whole for any market discount he
suffered upon a sale of his shares based on the pre-announcement price as set
forth in the Stockholders Agreement. Following discussions between the advisors
to the special committee and Wachtell, the proposal relating to the Diller Put
was withdrawn, and Mr. Diller waived the requirement for USA to assume
Universal's obligation under the Diller Put.
The special committee next met on December 14, 2001 to receive an update and
consider the status of the negotiations, including the outstanding issues
between USA, Vivendi and Liberty. Representatives from Wachtell indicated that
Vivendi had agreed to reduce the $30 million cap on the expense reimbursement to
up to $15 million in documented expenses and that, also in response to concerns
expressed by the special committee, Mr. Diller had agreed to withdraw the
proposal relating to the Diller Put and waive the requirement that USA assume
Universal's obligation under the Diller Put, which proposal was estimated by
Bear Stearns to have had a value of $300 to $400 million. During the
December 11, 2001 meeting, the special committee also focused on the scope and
duration of the proposed non-compete for USA and Mr. Diller (which at that time
was proposed by Vivendi to remain in effect from the closing of the transactions
until 18 months following the time that USA no longer held a common interest in
VUE). At the special committee's request, Mr. Diller discussed his intended
management role with USA, assuming completion of the transactions. Next,
representatives from Wachtell left the meeting, and Bear Stearns reviewed the
status of the transactions and certain financial analyses. Following the
presentation by Bear Stearns, representatives from Morris Nichols reviewed the
$15 million expense reimbursement provision and other open legal points. The
special committee agreed that the $15 million expense reimbursement provision
was reasonable.
Over the course of the discussions/negotiations, the special committee's
legal and financial advisors, for the most part, communicated the special
committee's views to USA's legal and financial advisors who negotiated those
points and others directly with Vivendi's legal and financial advisors. The
special committee's legal and financial advisors at times also engaged in direct
discussions/negotiations with Vivendi's legal and financial advisors. In
addition, Mr. Savoy, on behalf of the special committee, on occasion discussed
matters directly with Mr. Diller. While neither USA management nor the special
committee participated in negotiations relative to the financial terms of the
Vivendi/Liberty transaction, USA was concerned that, given that the USA/Vivendi
transaction would be conditioned on the Vivendi/Liberty transaction,
consummation of the Vivendi/Liberty transaction must be highly certain, and USA
did negotiate to obtain assurance on that point. The discussions among all
parties culminated on the weekend of December 15-16, 2001, during which time the
transaction agreements were finalized.
On December 16, 2001, the special committee held a meeting to consider the
transactions. At the meeting, USA management reported to the special committee
on the course of negotiations relating to the transactions, discussed with the
special committee the potential benefits and risks of the transactions, and
responded to questions from the members of the special committee. In addition,
representatives from Wachtell reviewed with the members of the special committee
the principal terms and conditions of each of the transaction documents,
including the Transaction Agreement, the
18
Partnership Agreement, the Amended and Restated Governance Agreement, the
Amended and Restated Stockholders Agreement, the Warrant Agreement and the
Vivendi/Liberty Merger Agreement, as well as tax, regulatory and other legal
matters relating to the transactions. Representatives from Wachtell also
reported that Vivendi had agreed, in response to the special committee's
concerns regarding USA's indemnification obligations for breaches of USA's
representations and warranties, to increase the deductible to $150 million with
respect to those obligations.
Next, Bear Stearns discussed various analyses relating to the transactions
and responded to questions from the directors regarding the manner and
conclusion of its analyses. Following its presentation, Bear Stearns rendered an
oral opinion that, as of December 16, 2001, the consideration to be received by
USA in the transactions was fair, from a financial point of view, to the
stockholders of USA other than Vivendi, Liberty, Mr. Diller and their
affiliates. The special committee subsequently received the written opinion of
Bear Stearns confirming its oral opinion at the special committee meeting.
Following discussion by the special committee, and subject to finalization of
the necessary documentation, the special committee unanimously declared the
Transaction Agreement advisable; determined that the terms of the transactions
are fair to and in the best interests of the stockholders of USA, other than
Vivendi, Liberty, Mr. Diller and their affiliates; and recommended that the USA
board of directors approve the transactions and declare the advisability of the
Transaction Agreement.
On December 16, 2001, following the meeting of the special committee, USA's
board of directors (other than directors affiliated with Vivendi) held a special
meeting to consider the transactions. At the meeting, USA management reported to
the USA board of directors on the course of negotiations relating to the
transactions, discussed with the directors the potential benefits and risks of
the transactions, and responded to questions from the directors. In addition,
representatives from Wachtell reviewed with the USA board of directors the
principal terms and conditions of each of the transaction documents, including
the Transaction Agreement, the Partnership Agreement, the Amended and Restated
Governance Agreement, the Amended and Restated Stockholders Agreement, the
Warrant Agreement and the Vivendi/Liberty Merger Agreement, as well as tax,
regulatory and other legal matters relating to the transactions. Wachtell also
noted for USA's board that the parties had come to agreement on the terms of the
non-compete applicable to USA and Mr. Diller as reflected in the definitive
documents.
Next, Allen & Co. discussed various analyses relating to the transactions
and responded to questions from the directors regarding the manner and
conclusion of its analyses. Following its presentation, Allen & Co. rendered an
oral opinion that, as of December 16, 2001, the consideration to be received by
USA pursuant to the transactions was fair, from a financial point of view, to
USA. The USA board of directors subsequently received the written opinion of
Allen & Co. confirming their oral opinion at the USA board meeting. Following
discussion by the board of directors, and subject to finalization of the
necessary documentation, the board of directors determined that the transactions
are advisable, fair to, and in the best interests of, the USA stockholders and
recommended, by the unanimous vote of all directors (other than directors
affiliated with Vivendi, none of whom was present at the board meeting), that
the USA stockholders approve the transactions.
On December 16, 2001, the parties executed the Transaction Agreement, the
Amended and Restated Governance Agreement and the Amended and Restated
Stockholders Agreement, and Vivendi, Liberty and certain of their respective
affiliates executed the Vivendi/Liberty Merger Agreement, copies of which are
attached as Appendices A, C, D and F to this proxy statement. On December 17,
2001, USA issued a press release announcing the execution of the Transaction
Agreement.
REASONS FOR THE TRANSACTIONS
In view of the wide variety of factors considered in connection with their
evaluation of the transactions, the special committee and the USA board of
directors did not find it practicable to, and
19
did not, quantify or otherwise attempt to assign relative weights to the
specific factors each considered in reaching its determinations.
We do not intend for the following discussion of the information and factors
considered by the special committee and the USA board of directors to be
exhaustive. We believe the discussion includes all material factors that the
special committee and the USA board of directors considered.
USA SPECIAL COMMITTEE
In reaching its decision to recommend that the USA board of directors
approve the Transaction Agreement, the related transaction documents and the
transactions and declare the advisability of the same, the special committee
consulted with USA's management as well as its legal counsel and its financial
advisor and carefully considered the following material factors:
- PREMIUM TRANSACTION. The consideration that USA will receive for the USA
Entertainment Group represents a significant premium to the consideration
of $4.075 billion that USA paid in 1998 for substantially all of the
businesses comprising the USA Entertainment Group. The consideration
received by USA includes USANi LLC shares currently exchangeable for USA
common shares owned by Vivendi (including those Universal received in
1998) that have appreciated in value significantly since 1998. For an
analysis of the value of the consideration to be received by USA in the
transactions, please see "--Opinion of the Special Committee's Financial
Advisor--Valuation of Consideration to be Received by USA in the
Transactions" and "--Opinion of USA's Financial Advisor--Valuation of the
Transactions."
- PARTICIPATION IN THE FUTURE OF VUE. USA will have the opportunity to
participate, through its 5.44% common interest, in the future of VUE.
- BEAR STEARNS' FAIRNESS OPINION. Bear Stearns provided an oral opinion,
subsequently confirmed in writing, to the effect that, as of December 16,
2001, the consideration to be received by USA in the transactions is fair,
from a financial point of view, to the stockholders of USA other than
Vivendi, Liberty, Mr. Diller and their affiliates.
- LIMITED CONDITIONS TO CONSUMMATION. The obligation of Vivendi to
consummate the transactions is subject to a limited number of conditions,
with no financing condition. Moreover, Vivendi has the financial resources
to consummate the transactions expeditiously.
- STRATEGIC ALTERNATIVES. USA's management advised the special committee
that in order to remain fully competitive in a rapidly consolidating
industry, the USA Entertainment Group would need to grow through
acquisitions and that although it continuously evaluates potential
acquisition targets, USA's management had not identified entertainment
assets of the size, caliber and fit necessary to meaningfully improve the
competitive position of the USA Entertainment Group that were available at
a reasonable price. USA management advised the special committee that a
sale of the USA Entertainment Group made strategic sense. Furthermore, in
determining to recommend the transactions, the special committee took into
account the fact that USA could not effect a sale of the USA Entertainment
Group or any substantial acquisition on behalf of the USA Entertainment
Group without the prior approval of Vivendi and Liberty and that either
Vivendi or Liberty could effectively veto any such transaction under the
terms of the current Governance Agreement and the current Stockholders
Agreement. The special committee also considered Vivendi's position that
Vivendi would veto any proposed transaction involving a sale of USA or the
USA Entertainment Group to a third party.
- CONCENTRATED EMPHASIS ON INTEGRATED INTERACTIVITY. The transactions
present an opportunity for USA to emphasize its leadership role in
integrated interactivity, including ticketing, online travel, online
dating, teleservices, electronic retailing and other interactive commerce
services, where USA can engage in multiple forms of electronic commerce at
scale, and which USA believes to be an area of faster growth opportunities
than the business of the USA Entertainment Group.
20
The transactions will give USA Interactive greater financial and operating
strength to help realize growth opportunities in the future in electronic
commerce, including through acquisitions.
- ESTABLISHING AN INDEPENDENT USA. The transactions will significantly
increase the independence of USA. The Amended and Restated Governance
Agreement, which will become effective at the closing of the transactions,
eliminates altogether the veto rights that Vivendi currently has with
respect to USA's actions. Moreover, the Amended and Restated Governance
Agreement significantly limits the veto rights that Liberty and
Mr. Diller will have with respect to USA's actions. In particular,
following completion of the transactions, most of Liberty's and
Mr. Diller's veto rights, including with respect to significant
acquisitions and dispositions by USA and amendments to USA's charter, will
exist only if USA's debt to income ratio equals or exceeds 4:1 for a
continuous twelve-month period. Currently, Vivendi, Liberty and
Mr. Diller possess veto rights irrespective of whether or not USA
satisfies any financial ratio test. Accordingly, upon completion of the
transactions, USA believes that it will have a great deal more flexibility
to pursue its growth.
- OTHER BUSINESS ARRANGEMENTS. USA and Universal agreed to enter into a
series of strategic and commercial alliances with one another covering
each party's transactional and internet businesses and to negotiate in
good faith to arrange for VUE to provide to USA programming distribution
for the Home Shopping Network and other USA transactional services.
- SIMPLIFICATION OF USA'S CAPITAL STRUCTURE. The transactions will allow USA
to simplify and streamline its capital structure by eliminating all of the
currently exchangeable LLC shares held by Universal, Liberty and their
affiliates. USANi LLC has been a non-wholly owned subsidiary of USA since
its formation in connection with the Universal transaction in 1998 (in
which USA acquired the television entertainment assets of Universal). USA
management advised the special committee that it believed these changes
would significantly benefit USA by facilitating greater understanding by
the financial community of USA and its stock value.
- POSSIBLE CONFLICTS OF INTEREST. The special committee took into account
the possible conflicts of interest of certain directors and members of
management of USA as well as Vivendi and Liberty. For a discussion of
these possible conflicts of interest, see "Interests of Officers and
Directors in the Transactions."
- ROLE OF MR. DILLER. Following completion of the transactions, Mr. Diller
will serve as chairman and chief executive officer of each of USA and VUE.
- DECREASED DIVERSIFICATION AND SMALLER SIZE. Following completion of the
transactions, USA will be a smaller and less diversified company. As a
more focused company, USA's earnings will be more closely tied to a less
diversified portfolio of assets and as a result USA securities may be
subject to greater volatility.
Each of the factors described above was considered by the special committee
to be a positive factor relating to the transactions, other than "--POSSIBLE
CONFLICTS OF INTEREST," which was considered negatively, and "--DECREASED
DIVERSIFICATION AND SMALLER SIZE," which was not considered by the special
committee negatively or positively. This discussion of the information and
factors which the special committee considered in making its decision is not
intended to be exhaustive but includes all material factors considered by the
special committee. In view of the wide variety of factors considered in
connection with its evaluation of the transaction and the complexity of these
matters, the special committee did not find it useful to, and did not attempt
to, quantify, rank or otherwise assign relative weights to these factors. In
addition, the individual members of the special committee may have given
different weight to different factors.
The special committee believed that, overall, the potential benefits of the
transaction to USA and its stockholders outweighed the risks.
21
USA BOARD OF DIRECTORS
In reaching its decision to recommend that USA stockholders approve the
transactions proposal, the USA board of directors consulted with USA's
management as well as its legal counsel and its financial advisor and carefully
considered the following material factors:
- The conclusions and recommendation of the special committee;
- The factors referred to above as having been taken into account by the
special committee; and
- USA's board of directors having received an opinion from Allen & Co. that,
as of December 16, 2001, the consideration to be received by USA in the
transactions was fair, from a financial point of view, to USA.
Each of the factors described above was considered by USA's board to be a
positive factor relating to the transactions, other than "--USA SPECIAL
COMMITTEE--POSSIBLE CONFLICTS OF INTEREST" which was considered negatively, and
"--USA SPECIAL COMMITTEE--DECREASED DIVERSIFICATION AND SMALLER SIZE," which was
not considered by the USA board of directors negatively or positively. This
discussion of the information and factors considered by the USA board of
directors in making its decision is not intended to be exhaustive but includes
all material factors which the USA board of directors considered. In view of the
wide variety of factors considered in connection with its evaluation of the
transaction and the complexity of these matters, the USA board of directors did
not find it useful to, and did not attempt to, quantify, rank or otherwise
assign relative weights to these factors. In addition, the individual members of
the USA board of directors may have given different weight to different factors.
The USA board of directors believed that, overall, the potential benefits of
the transaction to USA and its stockholders outweighed the risks.
The USA board of directors, including the members of the special committee,
believes that the transactions are procedurally fair because, among other
things:
- The special committee consisted of independent directors appointed to
represent the interests of USA's stockholders, other than Vivendi,
Liberty, Mr. Diller and their affiliates;
- The special committee retained and was advised by it own independent legal
counsel;
- The special committee retained and was advised by Bear Stearns, as its
independent financial advisor, to assist in evaluating a potential
transaction with Vivendi; and
- Under Delaware law, because Vivendi is considered an "interested
stockholder," the parties agreed to obtain approval of the transactions
proposal by the affirmative vote of 66 2/3% of the outstanding USA voting
stock, excluding any shares held by Vivendi, Liberty, Mr. Diller and their
affiliates.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE USA BOARD OF DIRECTORS
SPECIAL COMMITTEE
On December 16, 2001, the special committee:
- declared the Transaction Agreement, the other related transaction
documents and the transactions advisable;
22
- determined that the terms of the transactions are fair to and in the best
interests of USA's stockholders, other than Vivendi, Liberty, Mr. Diller
and their affiliates; and
- recommended that the USA board of directors approve the Transaction
Agreement, the other related transaction documents and the transactions,
and that the USA board of directors declare the advisability of the same.
USA BOARD OF DIRECTORS
On December 16, 2001, the USA board of directors:
- approved the Transaction Agreement, the other related transaction
documents and the transactions, and declared the advisability of the same;
- determined that the terms of the Transaction Agreement, the related
transaction documents and the transactions are fair to and in the best
interests of the USA stockholders;
- directed that the Transaction Agreement, the related transaction documents
and the transactions be submitted to a vote at a meeting of USA's
stockholders to be held as promptly as practicable following the date of
the Transaction Agreement; and
- recommended that USA's stockholders approve the Transaction Agreement, the
other related transaction documents and the transactions.
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR
Bear Stearns has rendered a fairness opinion to the special committee of the
board of directors of USA in connection with the transactions. Bear Stearns is
an internationally recognized investment banking firm that has substantial
experience in transactions similar to the transactions. Bear Stearns, as part of
its investment banking business, is continuously engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and other transactions. The
special committee retained Bear Stearns based on its qualifications, expertise
and reputation in providing advice to companies with respect to transactions
similar to the transactions and because it is familiar with USA's business.
In connection with Bear Stearns' engagement, the special committee requested
that Bear Stearns evaluate whether the consideration to be received by USA in
the transactions is fair, from a financial point of view, to the stockholders of
USA other than Vivendi, Liberty, Mr. Diller and their affiliates. The
consideration to be received in the transactions includes:
- (1) a total of approximately 320.9 million LLC shares (which are currently
exchangeable for USA common shares) held by Universal (including LLC
shares that will be acquired by Universal from Liberty prior to the
closing of the transactions), which will be cancelled by USA,
- (2) 5.44% of the outstanding common interests in VUE,
- (3) a Class A preferred interest in VUE with an initial face value of
$750 million,
- (4) a Class B preferred interest in VUE with an initial face value of
$1.75 billion, and
- (5) a cash distribution from VUE of approximately $1.62 billion.
On December 16, 2001 Bear Stearns delivered its oral opinion to the special
committee that, as of December 16, 2001, the consideration to be received in the
transactions was fair, from a financial point of view, to the stockholders of
USA other than Vivendi, Liberty, Mr. Diller and their affiliates. Bear Stearns
subsequently confirmed its oral opinion by delivery of its written opinion dated
December 16, 2001.
23
The full text of the written opinion of Bear Stearns, dated December 16,
2001, which contains the assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached as Appendix G
to this proxy statement and is incorporated by reference in this proxy
statement. You should read the opinion carefully in its entirety. The opinion
was directed to the special committee for its information in connection with its
consideration of the transactions and relates only to whether the consideration
to be received by USA in the transactions is fair, from a financial point of
view, to the stockholders of USA other than Vivendi, Liberty, Mr. Diller and
their affiliates.
In the course of performing its review and analyses for rendering its
opinion, Bear Stearns has:
- reviewed the drafts dated December 16, 2001 of (1) the Transaction
Agreement, (2) the form of the Partnership Agreement, and (3) the form of
the Warrant Agreement, which we collectively refer to as the "transaction
agreements";
- reviewed the terms and conditions of proposed agreements involving
Vivendi, Universal, Mr. Diller and Liberty, including the drafts dated
December 16, 2001 of (1) the Amended and Restated Stockholders Agreement,
(2) the Amended and Restated Governance Agreement, and (3) the
Vivendi/Liberty Merger Agreement;
- reviewed (1) the Investment Agreement, dated as of October 19, 1997, as
amended and restated as of December 18, 1997, among Universal, USA, Home
Shopping Network, Inc. and Liberty, (2) the Governance Agreement, dated as
of October 19, 1997, among USA, Universal, Liberty and Mr. Diller,
(3) the Stockholders Agreement, dated as of October 19, 1997 among
Universal, Liberty, Mr. Diller, USA and Vivendi (as successor in interest
to The Seagram Company Ltd.), (4) the Amended and Restated Limited
Liability Company Agreement of USANi LLC, dated as of February 12, 1998,
among the members of USANi LLC, and (5) the Spinoff Agreement, dated as of
October 19, 1997, between Liberty and Universal;
- reviewed USA's Annual Reports to Stockholders and Annual Reports on
Form 10-K for the years ended December 31, 1998 through 2000, its
Quarterly Reports on Form 10-Q for the periods ended March 31, 2001,
June 30, 2001 and September 30, 2001, and its Reports on Form 8-K for the
three years ended December 16, 2001;
- reviewed Ticketmaster's Annual Reports to Stockholders and Annual Reports
on Form 10-K for the years ended December 31, 1998 through 2000, its
Quarterly Reports on Form 10-Q for the periods ended March 31, 2001,
June 30, 2001 and September 30, 2001, its Reports on Form 8-K for the
three years ended December 16, 2001, and the Information Statement
relating to the combination of Ticketmaster Corporation and Ticketmaster
Online-Citysearch, Inc. (the predecessor to Ticketmaster) on January 31,
2001;
- reviewed Hotel Reservations Network, Inc.'s Annual Report to Stockholders
and Annual Report on Form 10-K for the year ended December 31, 2000, its
Quarterly Reports on Form 10-Q for the periods ended March 31, 2001,
June 30, 2001 and September 30, 2001, its Reports on Form 8-K for the
period from March 2, 2000 to December 16, 2001, and Registration Statement
on Form S-1 relating to Hotel Reservations Network, Inc.'s initial public
offering completed on March 1, 2000;
- reviewed Styleclick, Inc.'s Annual Report to Stockholders and Annual
Report on Form 10-K for the year ended December 31, 2000, its Quarterly
Reports on Form 10-Q for the periods ended March 31, 2001, June 30, 2001
and September 30, 2001, its Reports on Form 8-K for the period from
August 11, 2000 to December 16, 2001, the Registration Statement on
Form S-4 relating to the acquisition of a controlling interest in
Styleclick, Inc. by USA on June 27, 2001 and the Amended and Restated
Agreement and Plan of Merger, dated as of March 23, 2000, by and among
Styleclick.com Inc., Internet Shopping Network LLC, and USANi Sub LLC;
24
- reviewed Expedia, Inc.'s Annual Reports to Stockholders and Annual Reports
on Form 10-K for the fiscal years ended June 30, 1999 through 2000 and the
Amended and Restated Agreement and Plan of Recapitalization and Merger,
dated as of July 15, 2001, among USA, Expedia, Inc., Taipei, Inc.,
Microsoft Corporation and Microsoft E-Holdings, Inc., and the Registration
Statement on Form S-4 relating to the transactions contemplated by the
Expedia Merger Agreement;
- reviewed Vivendi's Annual Reports to Stockholders for the years ended
December 31, 1998 through 2000, Annual Report on Form 20-F for the year
ended December 31, 2000, Reports on Form 6-K filed on or prior to
December 16, 2001 and Registration Statement on Form F-4 relating to the
combination of Vivendi, Canal Plus S.A. and The Seagram Company Ltd. on
December 8, 2000;
- reviewed certain operating and financial information provided by
management of USA, including (1) management's forecast for the year ended
December 31, 2001, projections for the two years ending December 31, 2003
and management's guidance for the calendar years ending 2004 through 2006
relating to USA Network, the SCI FI Channel and HSN's U.S. and German
operations, (2) management's forecast for the year ended December 31,
2001, projections for the three years ending December 31, 2004 and
guidance from management for calendar year 2005 and thereafter relating to
Studios USA, (3) management's forecast for the year ended December 31,
2001, management's budget for the year ended December 31, 2002 and
management's financial summary of each film over its projected life, which
we refer to as "Ultimates," as of December 4, 2001 relating to USA Films,
(4) management's forecast for the year ended December 31, 2001,
management's business plan for the four years ending December 31, 2005
relating to the Newsworld International and Trio cable networks and
management's guidance for December 31, 2005 Newsworld International
subscribers and December 31, 2006 Trio subscribers, and (5) management's
forecast for the year ended December 31, 2001 and projections for the two
years ending December 31, 2003 relating to Ticketmaster, Expedia, Hotel
Reservations Network, and Precision Response Corporation (which, including
HSN, make up the "USA Interactive Group");
- reviewed certain operating and financial information provided by
management of Vivendi, including management's forecast for the year ended
December 31, 2001 and projections for the three years ending December 31,
2004 provided by management of Vivendi relating to the businesses and
prospects of the Universal Entertainment Group;
- met with certain members of USA's senior management to discuss the
expected effects of the separation of the USA Entertainment Group and the
USA Interactive Group;
- met with certain members of USA's and Vivendi's senior management to
discuss the businesses, operations, historical and projected financial
results and future prospects of the USA Entertainment Group and the USA
Interactive Group and the Universal Entertainment Group, respectively;
- reviewed the historical prices, trading multiples and trading volumes of
the shares of common stock of USA, Ticketmaster, Hotel Reservations
Network, Styleclick and Expedia;
- reviewed publicly available financial data, stock market performance data
and trading multiples of companies that Bear Stearns deemed generally
comparable to USA's constituent businesses and the Universal Entertainment
Group;
- reviewed various Wall Street research reports for USA, its constituent
businesses and Universal;
- performed discounted cash flow analyses based on the projections for
certain USA businesses and the Universal Entertainment Group that were
furnished to Bear Stearns;
25
- reviewed the pro forma financial results, financial condition and
capitalization of USA and VUE giving effect to the transactions;
- reviewed the terms and conditions of (1) the Class A preferred interest
and the Class B preferred interest in VUE and (2) the warrants to be
issued to Vivendi in connection with the transactions; and
- conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
Bear Stearns relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections provided to Bear Stearns by USA and Vivendi.
With respect to the projected financial results of the USA Entertainment Group,
the USA Interactive Group, and the Universal Entertainment Group, Bear Stearns
has assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective senior management
teams of USA and Vivendi as to the expected future performance of the USA
Entertainment Group and the USA Interactive Group and the Universal
Entertainment Group, respectively. Bear Stearns has not assumed any
responsibility for the independent verification of any such information or of
the projections provided to Bear Stearns, and Bear Stearns has further relied
upon the assurances of the senior management of USA and Vivendi that they are
unaware of any facts that would make the information and projections provided to
Bear Stearns incomplete or misleading.
In arriving at its opinion, Bear Stearns has not performed or obtained any
independent appraisal of the assets or liabilities (contingent or otherwise) of
the USA Entertainment Group, the USA Interactive Group and the Universal
Entertainment Group, nor has Bear Stearns been furnished with any such
appraisals. Bear Stearns has relied, with the consent of the special committee,
on the statements made by Vivendi indicating that it would not consent to any
proposed transaction involving a sale of USA or the USA Entertainment Group to a
third party, and Bear Stearns was not requested to solicit, and Bear Stearns did
not solicit, interest from any third party with respect to an acquisition of USA
or the USA Entertainment Group. Bear Stearns has assumed, without independent
verification, that for U.S. federal income tax purposes, any gain realized by
USA, USANi LLC, or VUE upon consummation of the transactions will be tax
deferred, and in particular no gain or loss will be recognized by USA, USANi LLC
or VUE as a result of (1) the distribution of the USANi Distributed Interests
(as defined in the Transaction Agreement) by USANi LLC to Universal, (2) the
issuance to Vivendi of equity warrants to acquire USA common stock, (3) the
cancellation of the LLC shares (including the shares received from Liberty) held
by Universal, (4) the contribution of the USA Entertainment Group to VUE,
(5) USA's receipt of the Class A preferred interest, the Class B preferred
interest and the common interests of VUE, and (6) the receipt by USA of
approximately $1.62 billion of cash as a distribution from VUE, other than the
potential recognition of an insignificant amount of income or gain pursuant to
Section 751 of the Internal Revenue Code of 1986, as amended. Bear Stearns has
assumed that the transactions will be consummated in a timely manner and in
accordance with the terms of the transaction agreements without any limitations,
restrictions, conditions, amendments or modifications, regulatory or otherwise,
that collectively would have a material effect on the USA Entertainment Group,
the USA Interactive Group, the Universal Entertainment Group or VUE. Bear
Stearns has been informed by USA and has assumed, without independent
verification, that, following the transactions, USA will not be deemed to be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
26
Bear Stearns does not express any opinion as to the price or range of prices
at which the shares of USA common stock may trade subsequent to the announcement
of the transactions or as to the price or range of prices at which the shares of
USA common stock may trade subsequent to the completion of the transactions.
Bear Stearns' opinion does not constitute a recommendation to the special
committee, the board of directors of USA or any stockholder of USA as to how to
vote in connection with the transactions. Bear Stearns' opinion does not address
USA's underlying business decision to pursue the transactions, the relative
merits of the transactions as compared to any alternative business strategies
that might exist for USA or the effects of any other transaction in which USA
might engage. In addition, Bear Stearns' opinion does not address the fairness,
from a financial point of view, of the consideration that may be received by
Vivendi, Mr. Diller, Liberty or their respective affiliates in the transactions
or the relative value of that consideration as compared to the consideration to
be received by USA in the transactions. Bear Stearns' opinion is subject to the
assumptions and conditions contained therein and is necessarily based on
economic, market and other conditions, and the information made available to
Bear Stearns, as of the date of its opinion. Bear Stearns assumes no
responsibility for updating or revising its opinion based on circumstances or
events occurring after the date thereof.
The following is a summary of the financial analyses used by Bear Stearns in
connection with providing its oral opinion to the special committee on
December 16, 2001 and its written opinion to the special committee which is
attached to this proxy statement as Appendix G.
The following summaries of financial analyses include information
presentation in tabular format. You should read these tables together with the
text of each summary.
VALUATION OF THE USA ENTERTAINMENT GROUP
Bear Stearns valued the USA Entertainment Group, which consists of USA
Network, the SCI FI Channel and the "Emerging Networks" (the Trio and Newsworld
International cable networks), and USA's TV/film production businesses,
including USA Films and Studios USA.
A summary of the financial analyses used by Bear Stearns in connection with
determining the value of each segment of the USA Entertainment Group is provided
below. Bear Stearns noted that USA would be unable to sell the USA Entertainment
Group to a third party without the consent of Vivendi. Vivendi, through its
financial advisor, communicated to Bear Stearns its unwillingness to consent to
such a transaction. Therefore, the analyses of selected transactions were
provided for informational purposes only.
USA NETWORK
DISCOUNTED CASH FLOW ANALYSIS FOR USA NETWORK. Bear Stearns performed a
discounted cash flow analysis of USA Network as of December 31, 2001 to estimate
the present value of the future unleveraged, after-tax, free cash flows that USA
Network could generate. The analysis was based on financial projections for the
two years ending December 31, 2003 provided by management of USA and
management's guidance for the calendar years ending 2004 through 2006.
Using a range of discount rates of 10.5% to 11.5% reflecting Bear Stearns'
estimate of the network's weighted average after-tax cost of capital and a range
of perpetual growth rates of 5.5% to 6.5%, Bear Stearns calculated the present
value of the projected free cash flows for each of the 2002-2006 fiscal years
and the present value of the terminal value of USA Network at the end of fiscal
year 2006. The discounted cash flow analysis implied a valuation range of $5.3
to $6.3 billion (before adjusting for the assumption of $138 million of
promotional obligations).
ANALYST VALUATIONS OF USA NETWORK. Bear Stearns reviewed and compared
certain financial information and ratios for USA Network based on
sum-of-the-parts valuations of USA found in the
27
most recent available research reports of selected investment banks, as of the
respective dates indicated below.
12/31/01 TARGET
12/31/01 PRICE AS OF VALUATION
INVESTMENT BANK REPORT DATE TARGET PRICE 12/10/01(1) ($ IN BILLIONS)
--------------- ----------- ------------ ----------- ---------------
Morgan Stanley 10/25/01 $25.43 $23.95 $5.7
A.G. Edwards 10/25/01 $25.25 $23.95 $7.9
UBS Warburg 12/6/01 $29.00 $23.95 $6.6
------------------------
(1) Most recent unaffected closing price.
Bear Stearns noted that the valuation range for USA Network implied by the
discounted cash flow analysis was generally consistent with the target values
ascribed to USA Network by the above analyst reports. Bear Stearns also noted
that the December 31, 2001 target values set forth in the analyst reports are
related to target stock prices for USA common stock that exceeded the market
value of USA common stock at the time of Bear Stearns' analysis.
COMPARISON TO GENERALLY COMPARABLE CABLE NETWORKS. Using publicly available
information and analyst research reports, Bear Stearns reviewed and compared
certain financial information, ratios and percentages for USA Network with
corresponding financial information, ratios and percentages for the following
generally comparable cable networks: (1) Turner Network Television (owned by AOL
Time Warner), (2) TBS Superstation (owned by AOL Time Warner), (3) The National
Network (owned by Viacom), (4) Lifetime Television (owned by The Walt Disney
Company ("Disney") and Hearst) and (5) A&E Television Networks (owned by Disney,
Hearst and NBC).
For each of the selected networks, Bear Stearns reviewed certain publicly
available financial and operating data, valuation statistics, financial ratios,
and research reports and calculated ratios and multiples based on such
information. Bear Stearns compared Enterprise Values, as defined below, based on
sum-of-the-parts valuations by Wall Street analysts, of the selected networks
and USA Network as multiples of their respective estimated calendar year 2002
EBITDA and as multiples of estimated year-end 2001 total subscribers.
The results of such analysis are summarized below:
ENTERPRISE VALUE/
-----------------------------
2001E YEAR-END
2002E EBITDA SUBSCRIBERS
------------ --------------
Range of Generally Comparable Cable Networks................ 12.5x-18.9x $30.11-$70.70
Mean of Generally Comparable Cable Networks................. 15.8x $52.46
Median of Generally Comparable Cable Networks............... 15.9x $52.92
Multiples Implied by Bear Stearns' DCF Valuation Range for
USA Network(1)............................................ 13.3x-15.8x $62.13-$73.96
------------------------
(1) Before the impact of promotional obligations.
Bear Stearns noted that the multiples of estimated 2002 EBITDA and of
estimated 2001 year-end subscribers implied by its discounted cash flow analysis
for USA Network were generally consistent with the multiples observed for the
generally comparable cable networks.
ANALYSIS OF SELECTED TRANSACTIONS. Using publicly available information,
Bear Stearns reviewed and analyzed the purchase prices and transaction multiples
implied by the purchase prices proposed to be
28
paid, at the time of the announcement, in the following two selected merger and
acquisition transactions, which we refer to as the "USA Network Selected
Transactions":
ACQUIROR TARGET DATE ANNOUNCED
-------- ------ --------------
Disney..................................... Fox Family Worldwide July 2001
Viacom..................................... BET Network November 2000
Bear Stearns compared the value of the equity, plus debt, preferred stock
and minority interest, less cash, cash equivalents and other non-operating
assets, which we refer to as the "Enterprise Values," proposed to be paid at the
time of announcement in each of the USA Network Selected Transactions and the
transactions as multiples of latest 12 months EBITDA and as multiples of total
subscribers. Bear Stearns reviewed analyst reports and adjusted the acquisition
multiples to reflect the value and EBITDA of the Fox Family Channel and BET
cable network assets exclusively. Bear Stearns also reviewed certain operating
and financial data of the target cable network assets relative to those of USA
Network. All multiples and data for the USA Network Selected Transactions were
based on financial information and Wall Street research available at the time of
the announcement of the relevant transaction and data for the latest 12 months
preceding the date of announcement. The results of such analysis are summarized
below:
ENTERPRISE VALUE/
---------------------------
LTM EBITDA SUBSCRIBERS
----------- -------------
Disney/Fox Family Transaction............................... 34.7x $51.85
Viacom/BET Network Transaction.............................. 21.1x $43.35
Multiples Implied by Bear Stearns' DCF Valuation Range for
USA Network(1)............................................ 12.0x-14.3x $62.13-$73.96
------------------------
(1) Before the impact of promotional obligations.
Bear Stearns noted that the multiples of latest 12 months EBITDA implied by
the discounted cash flow analysis of USA Network were generally below those
observed for the USA Network Selected Transactions and attributed this
differential to two factors: (1) the ratio of latest 12 months EBITDA divided by
latest 12 months revenue, which we refer to as the "LTM EBITDA Margin," was
lower for both Fox Family Worldwide (39.1%) and BET Network (47.6%) than for USA
Network (52.1%) and (2) the ratio of latest 12 months revenue per month divided
by total subscribers was significantly lower for both Fox Family Worldwide
($0.40) and BET Network ($0.28) than for USA Network ($0.85). Bear Stearns noted
that the per subscriber multiples implied by the discounted cash flow analysis
of USA Network were above those observed for the USA Network Selected
Transactions.
SCI FI CHANNEL
DISCOUNTED CASH FLOW ANALYSIS FOR THE SCI FI CHANNEL. Bear Stearns
performed a discounted cash flow analysis of the SCI FI Channel as of
December 31, 2001 to estimate the present value of the future unleveraged,
after-tax, free cash flows that the SCI FI Channel could generate. The analysis
was based on financial projections for the two years ending December 31, 2003
and management's guidance for the calendar years ending 2004 through 2006, each
as provided by management of USA.
Using a range of discount rates of 11% to 12% reflecting Bear Stearns'
estimate of the SCI FI Channel's weighted average after-tax cost of capital and
a range of perpetual growth rates of 7.0% to 8.0%, Bear Stearns calculated the
present value of the projected free cash flows for each of the 2002-2006 fiscal
years and the present value of the terminal value of the SCI FI Channel at the
end of fiscal year 2006. The discounted cash flow analysis implied a valuation
range of $2.0 to $2.8 billion.
29
ANALYST VALUATIONS OF THE SCI FI CHANNEL. Bear Stearns reviewed and
compared certain financial information and ratios for the SCI FI Channel based
on sum-of-the-parts valuations of USA found in the most recent available
research reports of selected investment banks, as of the respective dates
indicated below.
12/31/01 TARGET
12/31/01 PRICE AS OF VALUATION
INVESTMENT BANK REPORT DATE TARGET PRICE 12/10/01(1) ($ IN BILLIONS)
--------------- ----------- ------------ ----------- ---------------
Morgan Stanley 10/25/01 $25.43 $23.95 $2.4
A.G. Edwards 10/25/01 $25.25 $23.95 $3.2
Bear Stearns 11/26/01 $26.00 $23.95 $2.5
UBS Warburg 12/6/01 $29.00 $23.95 $2.6
------------------------
(1) Most recent unaffected closing price.
Bear Stearns noted that the valuation range for the SCI FI Channel implied
by the discounted cash flow analysis was generally consistent with the target
values ascribed to the SCI FI Channel by the above analyst reports. Bear Stearns
also noted that the December 31, 2001 target values set forth in the analyst
reports are related to target stock prices for USA common stock that exceeded
the market value of USA common stock at the time of Bear Stearns' analysis.
COMPARISON TO GENERALLY COMPARABLE CABLE NETWORKS. Using publicly available
information and analyst research reports, Bear Stearns reviewed and compared
certain financial information, ratios and percentages for the SCI FI Channel
with corresponding financial information, ratios and percentages for the
following generally comparable cable networks: (1) The Discovery Channel (owned
by Liberty, Cox Communications and others), (2) The Learning Channel (owned by
Liberty, Cox Communications and others), (3) Comedy Central (owned by AOL Time
Warner and Viacom), (4) American Movie Classics (owned by Rainbow Media Group),
(5) Animal Planet (owned by Liberty, Cox Communications and others), (6) Home &
Garden Television (owned by E.W. Scripps) and (7) The History Channel (owned by
Disney, Hearst and NBC).
For each of the selected networks, Bear Stearns reviewed certain publicly
available financial and operating data, valuation statistics, financial ratios,
and research reports and calculated ratios and multiples based on such
information. Bear Stearns compared Enterprise Values, based on sum-of-the-parts
valuations by Wall Street analysts, of the selected networks and the SCI FI
Channel as multiples of their respective estimated calendar year 2002 EBITDA and
as multiples of estimated 2001 year-end subscribers.
The results of such analysis are summarized below:
ENTERPRISE VALUE/
------------------------------
2001E YEAR-END
2002E EBITDA SUBSCRIBERS
------------ ---------------
Range of Generally Comparable Cable Networks................ 11.5x-22.9x $12.46-$62.46
Mean of Generally Comparable Cable Networks................. 16.5x $28.95
Median of Generally Comparable Cable Networks............... 15.2x $23.45
Multiples Implied by Bear Stearns' Range for the SCI FI
Channel................................................... 16.7x-22.9x $26.67-$36.67
Bear Stearns noted that the multiples of estimated 2002 EBITDA and of
estimated 2001 year-end subscribers implied by the discounted cash flow analysis
for the SCI FI Channel were generally consistent with the multiples observed for
the generally comparable networks.
ANALYSIS OF SELECTED TRANSACTIONS. Using publicly available information,
Bear Stearns reviewed and analyzed the purchase prices and transaction multiples
implied by the purchase prices proposed to be
30
paid, at the time of the announcement, in the following two selected merger and
acquisition transactions, which we refer to as the "SCI FI Channel Selected
Transactions":
ACQUIROR TARGET DATE ANNOUNCED
-------- ----------------------------- -----------------------------
Viacom....................... BET Network November 2000
MGM.......................... 20% investment in Rainbow February 2001
Media Group (owner of
American Movie Classics and
Bravo Cable Networks)
Bear Stearns compared Enterprise Values, proposed to be paid at the time of
announcement, in each of the SCI FI Channel Selected Transactions and the
transactions as multiples of latest 12 months EBITDA and as multiples of total
subscribers. Bear Stearns also reviewed analyst reports and adjusted the
acquisition multiples to reflect the value and EBITDA of the BET, American Movie
Classics and Bravo cable network assets exclusively. Bear Stearns also reviewed
certain operating and financial data of the targets relative to those of the SCI
FI Channel. All multiples and data for the SCI FI Channel Selected Transactions
were based on financial information and Wall Street research available at the
time of the announcement of the relevant transaction and data for the latest
12 months preceding the date of announcement. The results of such analysis are
summarized below:
ENTERPRISE VALUE/
---------------------------------------------
LTM EBITDA SUBSCRIBERS
-------------------- ----------------------
Viacom/BET Network Transaction.............................. 21.1x $43.35
MGM/American Movie Classics and Bravo (Rainbow)
Transaction............................................... 32.7x $26.56
Multiples Implied by Bear Stearns' DCF Valuation Range for
the SCI FI Channel........................................ 19.2x - 26.4x $26.67 - $36.67
Bear Stearns noted that the multiples of latest 12 months EBITDA and
subscribers implied by the discounted cash flow analysis of the SCI FI Channel
were generally consistent with those observed for the SCI FI Channel Selected
Transactions.
STUDIOS USA & USA FILMS
DISCOUNTED CASH FLOW ANALYSIS FOR STUDIOS USA AND USA FILMS. Bear Stearns
performed a discounted cash flow analysis of Studios USA to estimate the present
value of the future unleveraged, after-tax, free cash flows generated by each of
its major programs, based on financial projections for the three years ending
December 31, 2004 and guidance from management for calendar year 2005 and
thereafter, each as provided by management of USA. The cash flow impact
(outflows and inflows) related to future, unidentified programs was not
incorporated in this analysis.
Bear Stearns calculated a range of discount rates of 8.0% to 16.0%
reflecting Bear Stearns' estimate of the weighted average after-tax cost of
capital for the cash flows generated by the various programs produced by Studios
USA. For programs which have been on the air for at least two seasons, Bear
Stearns utilized discount rates at the lower end of this range. Bear Stearns
calculated the present value as of December 31, 2001 of the projected free cash
flows for the major programs, along with the present value of the terminal value
for those programs that were projected to have cash flow in the long-term. The
discounted cash flow analysis implied a valuation range of $0.8 to
$1.0 billion.
For USA Films, Bear Stearns reviewed management of USA's 2001 forecast and
2002 budget, along with management of USA's Ultimates as of December 4, 2001.
Bear Stearns noted that management projections showed substantial negative
EBITDA and free cash flow in 2002 for the USA Films segment. Based on the
foregoing, Bear Stearns did not assign any value to the USA Films business.
31
ANALYST VALUATIONS OF STUDIOS USA AND USA FILMS. Bear Stearns reviewed and
compared certain financial information and ratios for Studios USA and USA Films
based on sum-of-the parts valuations of USA found in the most recent available
research reports of selected investment banks, as of the respective dates
indicated below.
12/31/01 TARGET VALUATION ($ IN BILLIONS)
12/31/01 PRICE AS OF -------------------------------------------
INVESTMENT BANK REPORT DATE TARGET PRICE 12/10/01(1) STUDIOS USA USA FILMS TOTAL
-------------------- ----------- ------------ ----------- ------------- ------------ ------------
Morgan Stanley 10/25/01 $25.43 $23.95 $0.4 $0.5 $ 0.9
A.G. Edwards 10/25/01 $25.25 $23.95 $0.8 $0.0 $ 0.8
UBS Warburg 12/6/01 $29.00 $23.95 $0.8 $1.2 $ 2.0
------------------------
(1) Most recent unaffected closing price.
Bear Stearns noted that its valuation range for Studios USA and USA Films,
combined, of $0.8 to $1.0 billion was generally consistent with the combined
valuation ascribed to Studios USA and USA Films by Wall Street research. Bear
Stearns also noted that the December 31, 2001 target values set forth in the
analyst reports are related to target stock prices for USA common stock that
exceeded the market value of USA common stock at the time of Bear Stearns'
analysis.
COMPARISON TO GENERALLY COMPARABLE TELEVISION AND FILM STUDIOS. Using Wall
Street research, Bear Stearns reviewed and compared certain financial
information and ratios for Studios USA with corresponding financial information
and ratios for generally comparable television and film studios of the following
diversified media companies: MGM, Viacom, Sony, Fox, AOL, Disney and Vivendi.
For each of the selected companies, Bear Stearns reviewed certain valuation
statistics, financial ratios and research reports for calendar years 2001 and
2002. Bear Stearns compared the projected 2001 year-end Enterprise Values that
Wall Street research analysts ascribed to the television and/or film studio
segments of the selected companies as multiples of their respective calendar
year 2001 and 2002 EBITDA. Bear Stearns then compared these multiples to the
comparable multiples for Studios USA implied by the discounted cash flow
analysis.
The results of such analysis are summarized below:
ENTERPRISE VALUE(1)/
-----------------------------------------------------
2001E EBITDA 2002E EBITDA
----------------------- -----------------------
LOW HIGH LOW HIGH
-------- -------- -------- --------
Range of Generally Comparable Television Studios(2)...... 13.1x 15.3x 8.6x 11.4x
Range of Generally Comparable Combined Film and TV
Studios(3)............................................. 14.7x 20.4x 12.5x 13.8x
Range of Generally Comparable Film Studios(4)............ 11.7x 20.3x 15.5x 19.3x
Multiples Implied by Bear Stearns' Range for the Studios
USA.................................................... 11.4x 13.2x 10.0x 11.5x
------------------------
(1) Source: Wall Street research for generally comparable studios and discounted
cash flow analysis for Studios USA.
(2) Includes MGM and Viacom (Spelling and King World).
(3) Includes Sony, Fox, and Warner Filmed Entertainment.
(4) Includes MGM, Disney, Paramount and Universal.
Bear Stearns noted that the 2001 and 2002 EBITDA multiples implied by the
discounted cash flow analysis for Studios USA were generally consistent with
those observed for generally comparable film and television studios.
32
EMERGING NETWORKS
DISCOUNTED CASH FLOW ANALYSIS FOR THE EMERGING NETWORKS. Bear Stearns
performed a discounted cash flow analysis of Newsworld International and Trio as
of December 31, 2001 to estimate the present value of the future unleveraged,
after-tax, free cash flows that Newsworld International and Trio could generate.
The analysis was based on management of USA's business plan for 2002 through
2005 relating to Newsworld International and Trio and management of USA's
guidance for 2005 Newsworld International subscribers and 2006 Trio subscribers.
Due to the fact that the Crime network has not yet launched, and therefore has
no current subscribers, Bear Stearns did not assign any value to that asset.
Using a range of discount rates of 30% to 40% reflecting Bear Stearns'
estimate of the weighted average after-tax cost of capital for both Newsworld
International and Trio, a range of terminal multiples of $15 to $20 per 2005
subscriber for Newsworld International and a range of terminal multiples of $15
to $25 per 2006 subscriber for Trio, Bear Stearns calculated the present value
of the projected free cash flows for the four years ending December 31,
2002-2005 and the present value of the terminal value of Newsworld International
and Trio at the end of fiscal years 2005 and 2006, respectively. The discounted
cash flow analysis implied a valuation range of $0.3 to $0.4 billion for the
Emerging Networks.
ANALYST VALUATIONS OF THE EMERGING NETWORKS. Bear Stearns reviewed and
compared certain financial information and ratios for the Emerging Networks
based on sum-of-the-parts valuations of USA found in the most recent available
research reports of selected investment banks, as of the respective dates
indicated below.
12/31/01 TARGET
12/31/01 PRICE AS OF VALUATION
INVESTMENT BANK REPORT DATE TARGET PRICE 12/10/01(1) ($ IN BILLIONS)
------------------ ----------- ------------ ----------- ---------------
Morgan Stanley 10/25/01 $25.43 $23.95 $0.2
A.G. Edwards 10/25/01 $25.25 $23.95 $0.0
UBS Warburg 12/6/01 $29.00 $23.95 $0.5
------------------------
(1) Most recent unaffected closing price.
Bear Stearns noted that the valuation range for the Emerging Networks
implied by the discounted cash flow analysis was generally consistent with the
target values ascribed to the Emerging Networks by the above analyst reports.
Bear Stearns also noted that the December 31, 2001 target values set forth in
the analyst reports are related to target stock prices for USA common stock that
exceeded the market value of USA common stock at the time of Bear Stearns'
analysis.
COMPARISON TO GENERALLY COMPARABLE CABLE NETWORKS. Using publicly available
information and analyst research reports, Bear Stearns reviewed and compared
certain financial information, ratios and percentages for the Emerging Networks
with corresponding financial information, ratios and percentages for the
following generally comparable cable networks: (1) Noggin (owned by Viacom and
others) and (2) Much Music (owned by Rainbow Media Group).
For each of the selected networks, Bear Stearns reviewed certain publicly
available financial and operating data, valuation statistics, financial ratios,
and research reports and calculated ratios and multiples based on such
information. Bear Stearns compared Enterprise Values, based on sum-of-the-parts
valuations by Wall Street analysts, of the selected networks and the Emerging
Networks as multiples of estimated 2001 year-end subscribers.
All multiples were based on the most recent publicly available information.
33
The results of such analysis are summarized below:
ENTERPRISE VALUE/
2001E YEAR-END
SUBSCRIBERS
-----------------------
Noggin...................................................... $21.66
Much Music.................................................. $12.91
Multiples Implied by Bear Stearns' DCF Valuation Range for
the Emerging Networks..................................... $10.00 - $15.00
Bear Stearns noted that the multiples of estimated 2001 subscribers implied
by the discounted cash flow analysis for the Emerging Networks were generally
consistent with those observed for the generally comparable networks.
ANALYSIS OF SELECTED TRANSACTIONS. Using publicly available information,
Bear Stearns reviewed and analyzed the purchase prices and transaction multiples
implied by the purchase prices proposed to be paid, at the time of the
announcement, in the following selected merger and acquisition transactions,
which we refer to as the "Emerging Networks Selected Transactions":
ACQUIROR TARGET DATE ANNOUNCED
-------- ------ --------------
USA Networks Newsworld International May 2000
and Trio (original
acquisition)
Vulcan Ventures ZDTV(1) November 1999
Vulcan Ventures ZDTV(1) November 1998
The Discovery Channel Eye on People February 1999
The Discovery Channel The Travel Channel December 1998
------------------------
(1) Vulcan Ventures acquired 33% of ZDTV in 1998 and an additional 64% in 1999.
Bear Stearns compared Enterprise Values, proposed to be paid at the time of
announcement, in each of the Emerging Networks Selected Transactions and the
transactions as multiples of total subscribers. Bear Stearns reviewed analyst
reports and adjusted the acquisition multiples to reflect the values of the
target cable network assets exclusively. Bear Stearns also reviewed certain
operating and financial data of the targets relative to those of the Emerging
Networks. All multiples and data for the Emerging Networks Selected Transactions
were based on financial information and Wall Street research available at the
time of the announcement of the relevant transaction. The results of such
analysis are summarized below:
ENTERPRISE VALUE/
2001 YEAR-END
SUBSCRIBERS
-----------------------
Range of Selected Transactions.............................. $8.03 - $22.86
Mean of Selected Transactions............................... $13.41
Median of Selected Transactions............................. $9.09
Multiples Implied by Bear Stearns' DCF Valuation Range for
the Emerging Networks..................................... $10.00 - $15.00
Bear Stearns noted that the multiples of 2001 year-end subscribers implied
by the discounted cash flow valuation of the Emerging Networks were generally
consistent with those observed for the Emerging Networks Selected Transactions.
Bear Stearns noted that its analysis implied a valuation for the USA
Entertainment Group, in the aggregate, of $8.2 to $10.2 billion (after reducing
for the promotional obligations).
34
VALUATION OF CONSIDERATION TO BE RECEIVED BY USA IN THE TRANSACTIONS
Bear Stearns performed an analysis of the consideration to be received by
USA in the transactions. The range of implied Enterprise Values based on this
analysis is set forth in the following table:
VALUE BASED ON
VALUE BASED ON USA
USA @ 12/10/01 20 DAY AVERAGE
($23.95) PRICE ($22.26)
------------------------------- -------------------------------
($ IN BILLIONS) LOW HIGH LOW HIGH
--------------- -------- -------- -------- --------
USA Shares Received from Vivendi(1)........... $ 7.7 - $ 7.7 $ 7.1 - $ 7.1
Cash.......................................... 1.6 - 1.6 1.6 - 1.6
Class A preferred interest in VUE............. 0.3 - 0.3 0.3 - 0.3
Class B preferred interest in VUE............. 1.0 - 1.3 1.0 - 1.2
Common Interest in VUE........................ 0.5 - 0.8 0.5 - 0.8
----- ----- ----- -----
$11.1 - $11.8 $10.6 - $11.2
------------------------
(1) Consists of LLC shares (which are currently exchangeable for USA common
shares) held by Universal.
Bear Stearns estimated the value of the equity warrants to be issued to
Vivendi in the transactions to be $0.6 to $0.8 billion, based on an estimated
USA common stock price range of $22.00 to $25.00 per share and an estimated
volatility of 35% to 45%. Bear Stearns noted that this valuation reflects a
theoretical value based on the Black Scholes model and that the public market
may attribute a lower volatility and therefore lower value to the warrants. Bear
Stearns also noted that the public market may not attribute significant value to
the premium associated with the out-of-the-money warrants, and the research
community may only begin to adjust valuation as the market price of USA common
stock approaches or exceeds the exercise prices of the warrants. Bear Stearns
estimated the present value of USA's deferred tax liability in connection with
the transactions to be $0.2 to $0.3 billion, based on an estimated after-tax
discount rate of 4.5% and tax basis of $3.5 billion. Bear Stearns noted that,
given the long-term tax deferral, the market may discount the present value of
the tax liability significantly. Bear Stearns noted that after deducting the
theoretical value of the warrants and the theoretical present value of the
deferred tax liability, the net value of the consideration to be received by USA
in the transactions would be $9.7 to $10.9 billion.
VALUE OF USA COMMON STOCK RECEIVED FROM VIVENDI
ANALYSIS 1. STOCK PRICE PERFORMANCE OF USA RELATIVE TO OTHER MEDIA
COMPANIES.
1/1/01-12/10/01 9/11/01-12/10/01 11/12/01-12/10/01
----------------------------------------- ------------------- -------------------
LOW HIGH INCREASE/(DECREASE) INCREASE/(DECREASE) INCREASE/(DECREASE)
-------- -------- ------------------- ------------------- -------------------
USA......................... $16.55 $28.04 23.2% 3.8% 21.1%
AOL......................... 29.25 56.60 (10.9) (9.9) (14.9)
Disney...................... 16.98 34.50 (25.3) (8.3) 15.6
Viacom...................... 29.55 59.29 (11.9) 9.3 4.4
Group Index................. -- -- (13.6) (2.5) 1.1
S&P 500..................... -- -- (13.7) 4.3 1.9
Bear Stearns observed that since September 11, 2001, USA stock has not
performed in a manner inconsistent with that of other media companies.
35
ANALYSIS 2. REVIEW OF WALL STREET ANALYST RATINGS AND PRICE TARGETS.
INVESTMENT BANK REPORT DATE 12-MONTH TARGET PRICE
--------------- ----------------------------- -----------------------------
UBS Warburg 12/6/01 $32.00
Prudential Financial 10/31/01 $26.00
Salomon Smith Barney 10/26/01 $25.00
A.G. Edwards 10/25/01 $27.00
Morgan Stanley 10/25/01 $28.00
Goldman Sachs 10/25/01 $21.00
Thomas Weisel Partners 10/25/01 $30.00
J.P. Morgan 10/25/01 $23.00
Bear Stearns 10/24/01 $27.00
Bear Stearns noted that analysts' 12-month price targets generally exceeded
USA's common stock price of $23.95 as of December 10, 2001 and the 20-day
average price of USA common stock of $22.26.
ANALYSIS 3. SUM-OF-THE-PARTS VALUATION ANALYSIS.
Bear Stearns performed a sum-of-the-parts valuation of USA, summarized in
the table below, and noted that the stock price as of December 10, 2001 of
$23.95 as well as the 20-day average stock price of $22.26 fell within the
valuation range of USA implied by the sum-of-the-parts analysis. The
sum-of-the-parts valuation was calculated based upon a variety of analyses
conducted by Bear Stearns with respect to the USA Interactive Group, including
discounted cash flow analyses, review of analyst valuations, a review of the
stock trading performance of USA's publicly traded segments, a comparison to
generally comparable companies and an analysis of selected transactions.
($ IN BILLIONS)
------------------------------------------------------------------
PUBLIC COMPANIES
PUBLIC COMPANIES @ 20-DAY
@ 12/10/01 CLOSE(1) AVERAGE PRICE(2)
------------------------------ ------------------------------
LOW HIGH LOW HIGH
-------- -------- -------- --------
USA Entertainment Group................... $ 8.2 - $ 10.2 $ 8.2 - $ 10.2
HSN....................................... 4.0 - 4.9 4.0 - 4.9
Ticketmaster.............................. 2.2 - 2.2 2.1 - 2.1
Hotel Reservations Network................ 2.0 - 2.0 1.9 - 1.9
Expedia................................... 2.3 - 2.3 2.1 - 2.1
PRC....................................... 0.3 - 0.4 0.3 - 0.4
Corporate/ECS/Styleclick.................. (0.3) - (0.3) (0.3) - (0.3)
------ -------- ------ ------ -------- ------
ENTERPRISE VALUE.......................... $ 18.7 - $ 21.8 $ 18.2 - $ 21.3
EQUITY VALUE.............................. $ 17.4 - $ 20.8 $ 17.1 - $ 20.5
EQUITY VALUE PER SHARE.................... $20.91 - $24.66 $20.57 - $24.33
------------------------
(1) December 10, 2001 closing prices: Ticketmaster = $16.53; Hotel Reservations
Network = $37.15; Expedia = $39.06.
(2) November 12, 2001 through December 10, 2001 20-day Average Prices:
Ticketmaster = $15.93; Hotel Reservations Network = $34.92; Expedia =
$35.29.
VALUATION OF CLASS A PREFERRED INTEREST IN VUE
Bear Stearns calculated the present value of the Class A preferred interest
in VUE by discounting the future value of $2.0 billion from December 31, 2021 to
December 31, 2001 at discount rates ranging from 9.00% to 9.85%. Bear Stearns
estimated a value of approximately $0.3 billion.
36
VALUATION OF CLASS B PREFERRED INTEREST IN VUE
Bear Stearns estimated the intrinsic value of the Class B preferred interest
in VUE by calculating the present value of the cash component of interest and
the intrinsic value of the call option based on an estimated volatility range of
35% - 45% with a stock price range for USA common stock between $22 and $25.
Bear Stearns noted that the public market may consider the Class B preferred
interest in VUE to be equivalent to a reduction in outstanding USA common shares
and that such characterization could exceed the intrinsic value of the
securities. Bear Stearns estimated the value of the Class B preferred interest
in VUE to be $1.0 to $1.3 billion.
VALUATION OF COMMON INTEREST IN VUE
Bear Stearns analyzed the film and television businesses, which we refer to
as the "filmed entertainment" segment, theme park businesses, which we refer to
as the "recreation" segment, and retail businesses, which we refer to as the
"retail" segment, of Universal, which collectively comprise the Universal
Entertainment Group to be contributed to VUE by Vivendi. Bear Stearns then
calculated an implied value of USA's 5.44% common interest in VUE.
Bear Stearns performed a sum-of-the-parts analysis of the Universal
Entertainment Group by assessing the value of each of the principal business
segments, including unconsolidated businesses, and adjusting for minority
interests where appropriate.
- The Enterprise Value of the Filmed Entertainment segment was calculated
based upon discounted cash flow analysis, comparison to generally
comparable companies and selected precedent transactions.
- The Enterprise Value of the Recreation segment was calculated as follows:
for the owned theme park facilities, Enterprise Value was calculated based
upon comparison to generally comparable companies; for the managed theme
park facilities, Enterprise Value was calculated based upon discounted
cash flow analyses of the projected management fees; for the
unconsolidated equity interests in various theme park facilities,
Enterprise Value was calculated based on comparison to generally
comparable companies and was adjusted for net debt and for Universal's
ownership percentage in each entity.
- The value of the Retail segment was calculated based upon comparison to
generally comparable companies.
The results of this analysis are summarized as follows:
ESTIMATED
VALUE
($ IN BILLIONS)
---------------
Enterprise Value of the Universal Entertainment Group....... $ 4.2 - $ 7.3
Enterprise Value of the USA Entertainment Group............. 8.2 - 10.2
---------------
Enterprise Value of VUE..................................... $ 12.4 - $17.5
Equity Value of VUE(1)...................................... 9.9 - 15.1
Implied Value of USA's 5.44% common interest in VUE......... 0.5 - 0.8
------------------------
(1) Reflects adjustment for estimated debt, estimated value of the Class A
preferred interest in VUE and estimated value of cash coupons related to
Class B preferred interest in VUE.
37
Bear Stearns noted that its valuation range for USA's common interest in VUE
is based on the fully distributed public market value. Since the contractual
procedure to determine the value of USA's common interest in VUE for purposes of
a put or call of that interest under the Partnership Agreement may exceed the
fully distributed public market value, the put and call provisions contained in
the Partnership Agreement may result in additional value to USA.
OTHER ANALYSES
Bear Stearns conducted other analyses as it deemed appropriate, including
reviewing the historical stock performance and the historical and estimated
financial and operating data of USA and Vivendi. In addition, Bear Stearns
examined publicly available information relating to trends in the various
industries in which USA and its affiliates operate.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of those methods to the
particular circumstances involved. Bear Stearns' opinion is therefore not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Bear Stearns made qualitative judgments as to the significance
and relevance of each analysis and factor considered by it and did not attribute
particular weight to any one analysis or factor. Bear Stearns did not form an
opinion as to whether any individual analysis or factor, positive or negative,
considered in isolation, supported or failed to support its opinion.
Accordingly, Bear Stearns believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors or of the summary
described above or focusing on information presented in tabular format, without
considering all analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.
The analyses performed by Bear Stearns, particularly those based on
estimates, are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than those results
suggested by the analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, Bear
Stearns' analyses are inherently subject to substantial uncertainty. The
analyses were prepared solely as part of Bear Stearns' analysis of whether the
consideration to be received by USA in the transactions is fair, from a
financial point of view, to the stockholders of USA other than Vivendi, Liberty,
Mr. Diller and their affiliates.
Bear Stearns' opinion and financial analyses were only one of many factors
considered by the special committee and the board of directors of USA in their
evaluation of the transactions, and should not be viewed as determinative of the
views of the special committee, the board of directors of USA or USA's
management with respect to their decision to recommend the transactions.
In the ordinary course of business, Bear Stearns and its affiliates may
actively trade debt and equity securities and bank debt of USA and/or any of its
affiliates, including Vivendi and its affiliates and Liberty and its affiliates,
and enter into derivative transactions with any of such parties, or with
reference to such parties' securities, for Bear Stearns' own account and for the
account of Bear Stearns' customers and, accordingly, may at any time hold a long
or short position in or in reference to such securities or bank debt.
Bear Stearns has acted as a financial advisor to the special committee of
the board of directors of USA in connection with the transactions and will
receive a customary fee for such services, one-half of which is contingent on
successful completion of the transactions. Bear Stearns has been previously
engaged by USA and its affiliates to provide investment banking and financial
advisory services for which Bear Stearns received customary fees. In addition,
Bear Stearns has acted as agent or principal in certain transactions to which
Vivendi is a counter-party, for which Bear Stearns has been compensated.
38
Pursuant to a letter agreement dated as of December 5, 2001 entered into by
USA and Bear Stearns, USA has agreed to pay Bear Stearns (1) a cash fee of
$1,500,000 upon the earlier of (a) notice by Bear Stearns to the special
committee that Bear Stearns is prepared to render an opinion (oral or written)
or (b) termination of discussions between the special committee and Vivendi
relating to the transactions (as determined in good faith by the special
committee and Bear Stearns) and (2) an additional cash fee of $1,500,000 upon
completion of the transactions.
USA has agreed to reimburse Bear Stearns for all out-of-pocket expenses
incurred by Bear Stearns, excluding fees and disbursements of counsel (other
than as provided in the indemnification provisions of the letter agreement), in
connection with matters contemplated by USA's engagement of Bear Stearns. USA
has agreed to indemnify Bear Stearns and related persons against liabilities in
connection with the engagement of Bear Stearns, including liabilities under the
federal securities laws.
OPINION OF USA'S FINANCIAL ADVISOR
At a meeting of the USA board of directors on December 16, 2001, Allen & Co.
delivered its oral opinion, subsequently confirmed in writing, to the effect
that, as of December 16, 2001, the consideration to be received by USA in the
transactions was fair, from a financial point of view, to USA.
The full text of the written opinion of Allen & Co., dated December 16,
2001, is attached as Appendix H to this proxy statement and describes the
assumptions made, matters considered, and limits on, the review undertaken. We
urge USA's stockholders to read the opinion in its entirety. Allen & Co.'s
opinion does not constitute a recommendation that USA pursue the transactions or
that any stockholder of USA vote to approve the transactions. The summary of the
opinion of Allen & Co. set forth in this proxy statement is qualified in its
entirety by reference to the full text of Allen & Co.'s opinion.
In arriving at its opinion, Allen & Co.:
- reviewed the terms and conditions of the transactions, including the draft
Transaction Agreement and drafts of the other agreements entered into in
connection with the Transaction Agreement (none of which had been executed
by the parties prior to the delivery of the opinion);
- analyzed various financial aspects of the transactions and the
consideration to be paid in respect of the transactions;
- reviewed and analyzed publicly available historical business and financial
information relating to USA and the Universal Entertainment Group as
presented in documents filed with the Securities and Exchange Commission;
- analyzed selected summary non-public financial and operating results of
USA and the Universal Entertainment Group;
- analyzed the financial condition and prospects of USA and the Universal
Entertainment Group;
- reviewed and analyzed public information, including various stock market
data and financial information relating to selected companies with
businesses similar to those of USA and the Universal Entertainment Group;
- reviewed the trading history of USA common stock;
- conferred with the management teams of each of USA and Vivendi;
- reviewed analysts' reports on each of USA and Vivendi;
- reviewed and analyzed recent business combination transactions involving
businesses similar to those being contributed to VUE by USA and Vivendi;
39
- analyzed the potential impact of the transactions on USA's capital
structure, financial condition and business operations; and
- conducted such other financial analyses and investigations as Allen & Co.
deemed necessary or appropriate for the purposes of its opinion.
In rendering its opinion, Allen & Co. relied upon and assumed, without
independent verification or investigation, the accuracy and completeness of all
of the financial and other information that USA, Vivendi and their respective
employees, representatives and affiliates provided to or discussed with Allen &
Co. With respect to forecasts relating to USA and Vivendi provided to or
discussed with Allen & Co. by the management of USA or Vivendi, Allen & Co.
assumed, at the direction of management, without independent verification or
investigation, that the forecasts were reasonably prepared on bases reflecting
the best available information, estimates and judgments of the management of USA
or Vivendi, as applicable, as to the future financial condition and operating
results of USA and Vivendi. Allen & Co. assumed, with USA's consent, that the
transactions would be consummated in all material respects in accordance with
their terms, without waiver, modification or amendment of any material term,
condition or agreement and that, in the course of obtaining the necessary
regulatory or third party consents and approvals for the transactions, if any,
no limitations, restrictions or conditions would be imposed that would have a
material adverse effect on USA, Vivendi or the contemplated benefits of the
transactions.
Allen & Co. did not make or obtain any independent evaluations or appraisals
of the assets or liabilities, contingent or otherwise, of USA or Vivendi.
Allen & Co. did not express any opinion as to the underlying valuation, future
performance or long-term viability of USA or Vivendi, the price at which USA's
common stock would trade after announcement or upon consummation of the
transactions, or the price at which Vivendi common shares would trade at any
time in the future. Allen & Co. expressed no view as to, and Allen & Co.'s
opinion does not address, the underlying business decision of USA to effect the
transactions, and Allen & Co. was not requested to consider the relative merits
of the transactions as compared to any alternative business strategies that
might exist for USA or the effect of any other transaction in which USA might
engage. Allen & Co.'s opinion was necessarily based on the information available
to Allen & Co. and general economic, financial and stock market conditions and
circumstances as they existed and could be evaluated by Allen & Co. as of the
date of its opinion. Although subsequent developments may affect its opinion,
Allen & Co. does not have any obligation to update, revise or reaffirm its
opinion. USA imposed no other limitations, and gave no other instructions, with
respect to the investigations made or the procedures followed by Allen & Co. in
rendering its opinion.
This summary is not a complete description of Allen & Co.'s opinion to the
USA board of directors or the financial analyses performed and factors
considered by Allen & Co. in connection with its opinion. The preparation of a
fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, a fairness opinion is not readily susceptible to summary
description. Allen & Co. believes that its analyses and this summary must be
considered as a whole and that selecting portions of its analyses and factors or
focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying Allen & Co.'s
analyses and opinion.
In performing its analyses, Allen & Co. considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
USA. No company or business used in the analyses as a comparison is identical to
USA, and an evaluation of the results of those analyses is not entirely
mathematical. Rather, the analyses involve complex considerations and judgments
concerning financial
40
and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies or business
segments analyzed.
The estimates contained in Allen & Co.'s analysis and the ranges of
valuations resulting from any particular analysis are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than those suggested by its analyses. In addition, analyses relating
to the value of businesses or securities do not necessarily purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, Allen & Co.'s analyses and estimates are inherently
subject to substantial uncertainty.
The type and amount of consideration payable in the transactions was
determined through negotiation among the parties to the transactions, and the
decision to enter into the transactions was solely that of the USA board of
directors. Allen & Co.'s opinion and financial analyses were only two of many
factors considered by the USA board of directors in its evaluation of the
transactions and should not be viewed as determinative of the views of the USA
board of directors or USA's management with respect to the transactions or the
consideration to be paid in connection with the transactions.
Allen & Co. did not separately value the Vivendi/Liberty transaction in
arriving at its opinion.
The following is a summary of the analyses made by Allen & Co. in connection
with the rendering of its fairness opinion:
VALUATION OF THE TRANSACTIONS
LLC SHARES
As part of the consideration to be received by USA and its subsidiaries in
the transactions and in exchange for the distribution of interests in certain
entities within the USA Entertainment Group, USANi LLC will cancel approximately
320.9 million LLC shares, which are currently exchangeable into approximately
320.9 million USA common shares, representing all of the LLC shares that will be
owned by Universal following its acquisition of LLC shares from Liberty.
Allen & Co. reviewed the twelve-month trading history of USA common stock for
the period from December 12, 2000 to December 13, 2001, and based on this review
and a range of valuation assumptions relating to USA's business segments,
determined that, for purposes of the transactions, the USA common stock has a
per share value which ranged from a low of $22.00, to a midpoint of $25.00, and
to a high of $28.00. In the aggregate, Allen & Co. valued the LLC shares to be
cancelled as part of the transactions at a range from $7.059 billion to
$8.021 billion to $8.984 billion.
OTHER CONSIDERATION
In addition to valuing the LLC shares, Allen & Co. also reviewed the terms
of (1) the Class A and Class B preferred interests and the common interest in
VUE, as well as the approximately $1.62 billion cash distribution, to be
received by a subsidiary of USA in the transactions, and (2) the warrants to
purchase USA common stock to be issued to Vivendi in connection with the
transactions. Allen & Co. valued the Class A and Class B preferred interests in
VUE using a range of pre-tax discount rates of 7% to 8% and also analyzed the
theoretical values of the call option component of the Class B preferred
interest and the warrants based on a Black-Scholes model using a range of values
relating to the USA common stock underlying those securities (I.E., $22.00,
$25.00 and $28.00 per share of USA common stock) (on an after-tax basis the
preferred interests received by USA would be valued significantly in excess of
the values Allen & Co. used in this analysis). Allen & Co. valued USA's common
interest in VUE by utilizing discounted cash flow analyses, comparable
transaction analyses, comparable stock analyses and reviewing Wall Street
analyst reports to determine a valuation range relating to the USA Entertainment
Group and the Universal Entertainment Group, each of which will
41
be contributed to VUE. The table below summarizes the total consideration to be
paid pursuant to the transactions, which we refer to as the "Consideration":
VALUE OF THE CONSIDERATION TO BE RECEIVED BY USA
(DOLLARS IN MILLIONS EXCEPT FOR PER SHARE AMOUNTS)
---------------------------------------------------------------------------------
CONSIDERATION LOW MID HIGH
------------- ------------------------- ------------------------- -------------------------
USANi exchangeable
LLC shares cancelled........... $7,059 ($22.00 per share) $8,021 ($25.00 per share) $8,984 ($28.00 per share)
$1,619 cash...................... $1,619 $1,619 $1,619
Class A preferred interest in
VUE............................ $427 $514 $514
Class B preferred interest in
VUE............................ $1,190 $1,274 $1,298
Common interest in VUE........... $749 $867 $1,090
Equity Warrants to purchase USA
common stock................... ($488) ($610) ($738)
TOTAL CONSIDERATION.............. $10,556 $11,685 $12,767
In the aggregate, Allen & Co. valued the total consideration to be received
by USA in the transactions (including the warrants to be issued by USA to
Vivendi) in a range from $10.556 billion, which we refer to as the "Low Point
Valuation," to $11.685 billion, which we refer to as the "Midpoint Valuation,"
to $12.767 billion, which we refer to as the "High Point Valuation."
IMPACT ON USA'S OWNERSHIP AND VOTING STRUCTURES
Allen & Co. also analyzed the impact of the transactions on USA's ownership
and voting structures and determined that, if consummated, the transactions will
reduce USA's stock capitalization by approximately 40%. At the time Allen & Co.
issued its opinion, USA's unaffiliated common stockholders (excluding any new
stockholders who may become stockholders as a result of the completion of the
Expedia transaction) owned 33.3% of USA's capital stock, and, if the
transactions are completed, those stockholders would own 55.5% of USA's capital
stock, representing an increase of approximately 67%.
At the time Allen & Co. issued its opinion, USA's unaffiliated common
stockholders (excluding any new stockholders who may become stockholders as a
result of the consummation of the Expedia transaction) held 10% of USA's voting
power, and, if the transactions are consummated, those stockholders would hold
25.5% of USA's voting power, representing an increase of approximately 155%.
VALUE MULTIPLES OF THE TRANSACTIONS
Allen & Co. analyzed the range of Consideration as a multiple of projected
calendar year 2001 and projected calendar year 2002 EBITDA, of the businesses to
be contributed to VUE in the transactions, which we refer to as the "EBITDA
Multiple," and per number of cable television subscribers of the businesses to
be contributed to VUE pursuant to the transactions, which we refer to as the
"Per Subscriber Value." The following table presents the results of this
analysis:
CONSIDERATION
(DOLLARS IN MILLIONS EXCEPT FOR PER SUBSCRIBER AMOUNTS)
-------------------------------------------------------
LOW MID HIGH
--- --- ----
$10,556 $11,685 $12,767
2001 EBITDA Multiple(1)......................... 17.6x 19.5x 21.3x
2002 EBITDA Multiple(1)......................... 17.7x 19.5x 21.3x
2001 Per Subscriber Value(2).................... $ 59.91 $ 66.99 $ 73.77
2002 Per Subscriber Value(2).................... $ 58.09 $ 64.96 $ 71.53
--------------------------
(1) EBITDA excludes losses for the Emerging Networks and USA Films.
(2) Assumes $1 billion of consideration allocated to Studios USA and USA Films.
42
COMPARABLE TRANSACTION ANALYSIS
Allen & Co. screened hundreds of transactions to find business combinations
similar to the transactions. Allen & Co. limited its analysis to transactions
involving companies for which financial and valuation data is publicly
disclosed. Allen & Co. analyzed the EBITDA Multiples and Per Subscriber Values
of 27 recent comparable transactions, which we refer to as the "Comparable
Transactions." In the Comparable Transactions, the EBITDA Multiples at the time
of the applicable transaction ranged from 8.7x to 38.3x with a mean of 20.5x and
a median of 16.1x, and the Per Subscriber Value ranged from $1.43 to $127.80
with a mean of $27.18 and a median of $18.00. Allen & Co. noted that, based on
the Midpoint Valuation, the EBITDA Multiple in the transactions is within the
range of the Comparable Transactions, and the Per Subscriber Values in the
transactions is toward the high end of the range of the Comparable Transactions.
SELECTED NETWORK TELEVISION TRANSACTIONS
Allen & Co. also noted that four recent Comparable Transactions appear to
have higher EBITDA Multiples than the transactions. Those four transactions,
which we refer to as the "four recent Comparable Transactions," are:
ACQUIROR SELLER NETWORK EBITDA MULTIPLE DATE
-------- ------ ------- --------------- ----
NBC Telemundo Telemundo 38.3x October 2001
Disney News Corp./Saban Ent. Fox Family Worldwide 34.7x July 2001
MGM Rainbow AMC, Bravo, IFC, WE 27.5x February 2001
Viacom BET Holdings BET 25.9x November 2000
In assessing the significance of the EBITDA multiples reflected by the four
recent Comparable Transactions, Allen & Co. noted that each of the four recent
Comparable Transactions involved the acquisition of businesses that, unlike the
USA Entertainment Group, were expected to generate rapid growth and/or
significant synergies in the years immediately following their acquisition.
Allen & Co. therefore calculated the implied EBITDA Multiples for the four
recent Comparable Transactions based on the EBITDA then anticipated to be
generated by the businesses purchased for each of the four years following the
completion of the Comparable Transactions (I.E., the EBITDA Multiples reflected
by the four recent Comparable Transactions after the accelerated growth and/or
synergies anticipated in connection with those transactions would be realized
and the businesses would have achieved a more mature level of growth). That
analysis indicated that the EBITDA Multiple to be paid in connection with the
formation of VUE is within the range of the four recent Comparable Transaction
EBITDA Multiples after consideration of the adjustments described in the
preceding sentence.
The following table indicates the EBITDA Multiple received in each of the
four recent Comparable Transactions by year, where Year 1 is the year in which
the relevant transaction occurred. In the cases of NBC's acquisition of
Telemundo and Disney's acquisition of Fox Family Worldwide, the EBITDA Multiples
reflect EBITDA before and after synergies then anticipated to be realized from
those transactions. In the case of Viacom's acquisition of BET, the Year 1
EBITDA Multiple is presented before and after adjustments appropriate to reflect
the transition from private to public ownership of BET. The table also presents
the EBITDA Multiples reflected by the contribution of the
43
USA Cable network properties to VUE based on USA Cable's expected EBITDA in
years one through four following completion of the transactions.
EBITDA EBITDA EBITDA EBITDA PER SUBSCRIBER
TRANSACTION MULTIPLE YEAR 1 MULTIPLE YEAR 2 MULTIPLE YEAR 3 MULTIPLE YEAR 4 VALUE
----------- --------------- --------------- --------------- --------------- --------------
NBC Acquires
Telemundo 38.3x 23.3x (before 14.5x (before n/a n/m
synergies) synergies)
14.5x (after 10.7x (after
synergies) synergies)
Disney Acquires Fox
Family Worldwide 34.7x 30.6x (before 26.0x (before n/a $45.22
synergies) synergies)
23.6x (after 17.3x (after
synergies) synergies)
MGM Acquires Rainbow 27.5x 23.6x 19.8x 17.2x $24.12
Viacom Acquires
BET 25.9x (before n/a n/a n/a $46.77
adjustments)
19.9x (after
adjustments)
Formation of VUE(1) 20.2x 20.7x 17.7x 15.8x $66.99
------------------------------
(1) EBITDA Multiples for the formation of VUE were calculated by dividing the
Midpoint Valuation of the consideration to be received by USA in the
transactions (less $1 billion of value allocated to Studios USA and USA
films) by the expected EBITDA of USA Cable (excluding the Emerging
Networks).
Allen & Co.'s analysis indicated that the formation of VUE reflected an
EBITDA Multiple for USA Cable that was in the range of EBITDA Multiples
reflected by the four recent Comparable Transactions. Allen & Co. further noted
that the Per Subscriber Value for USA Cable reflected by the transactions was
higher than the Per Subscriber Value for the four recent Comparable
Transactions.
COMPARISON OF THE TRANSACTIONS TO THE 1998 TRANSACTION
Allen & Co. also compared the Consideration to the terms of USA's purchase
of virtually all of the assets of the USA Entertainment Group in 1998. The
Midpoint Valuation of the transactions is $11.685 billion, and the transaction
value of the 1998 transaction was $4.075 billion, an increase of 186.8%. Based
on the Mid Point Valuation, (1) the EBITDA Multiple for the transactions (based
on estimated EBITDA for the year following the transactions) is 19.5x, and the
EBITDA Multiple in the 1998 transaction (based on then estimated EBITDA for the
year following the 1998 transaction) was 14.9x, an increase of 30.9%, and
(2) the Per Subscriber Value in the transactions is $66.99, and the Per
Subscriber Value in the 1998 transactions was $27.80, an increase of 141%.
USA STOCKHOLDER VALUE ACCRETION ANALYSIS
Allen & Co. analyzed whether the completion of the transactions could
reasonably be expected to have an accretive impact on the per share value of USA
common stock by examining public and private market valuations for USA's
businesses across a range of assumptions.
Allen & Co. constructed a sum-of-the-parts valuation range of USA common
stock on a public market basis roughly tying that valuation range to a trading
price range for USA's common stock. Allen & Co. noted that the twelve-month
average per share price of USA common stock in the period from December 12, 2000
to December 13, 2001 was $22.83, and the per share price ranged from a low of
$16.55 on September 18, 2001 to a high of $28.04 on August 1, 2001. Ranges of
implied valuations for USA's business segments were derived by Allen & Co. from
publicly available information, Wall Street analyst research and financial
information provided by USA. Allen & Co. compared the implied
44
valuations for USA with the anticipated value of USA's common stock after
completion of the transactions.
Based on this analysis, Allen & Co. observed that it would be reasonable to
expect the transactions to result in value accretion to holders of USA common
stock of $4.06 per share based on the low end of the range of value for USA's
business segments, $3.54 per share based on the middle of the range, and $2.92
per share based on the high end of the range.
Allen & Co. also constructed a sum-of-the-parts valuation for USA on a
private market basis. Using publicly available information, Wall Street analyst
research and financial information provided by USA, Allen & Co. prepared
discounted cash flow analyses of USA's business segments and analyzed the
private market value of certain publicly traded businesses of USA (I.E.,
Expedia, the acquisition of which was then pending; Hotel Reservations Network;
and Ticketmaster) by ascribing to their respective public market values
customary premiums paid in business combination transactions. Allen & Co.
compared the results of this analysis with the anticipated value of USA common
stock following the completion of the transactions. Allen & Co. observed that,
across a private market value range for USA's business segments, it would be
reasonable to expect the transactions to result in value accretion to holders of
USA common stock of $5.07 per share based on the low end of the range, $4.63 per
share based on the middle of the range, and $3.95 per share based on the high
end of the range.
Allen & Co. made no prediction as to how the stock of USA would trade at any
point in time, and did not perform a market check to ascertain what a third
party might pay for USA's business segments separately or collectively, before
or after completion of the transactions. Allen & Co. also noted that USA would
be unable to sell itself or the USA Entertainment Group to a third party without
the express approval of Vivendi and Liberty. Allen & Co. observed that the
stockholder accretion analysis supported the conclusion that the transactions
could reasonably be expected to have an accretive effect on the per share value
of USA common stock.
EARNINGS ACCRETION/DILUTION ANALYSIS
Allen & Co. also reviewed and analyzed the effect of the transactions on the
future cash earnings per share of USA, which we refer to as "Cash EPS." For
purposes of this analysis, Allen & Co. used information based upon operating and
financial assumptions, forecasts and other information provided to Allen & Co.
by the senior management of USA. This analysis excluded any one-time charges and
resulted in Cash EPS of $0.54 in 2002, a 15.6% accretion, and Cash EPS of $0.72
in 2003, a 7.4% accretion.
COMPARABLE COMPANIES ANALYSIS
Allen & Co. analyzed the ratios of enterprise value, which is equity market
value plus debt plus preferred stock, less cash, to EBITDA, which we refer to as
the "EV/EBITDA Multiple," for Crown Media and Rainbow Media, the two public
companies that are comparable to the USA Entertainment Group. The following
table provides the results of this analysis:
EV/EBITDA EV/EBITDA EV/EBITDA EV/EBITDA
COMPANY MULTIPLE--2001 MULTIPLE--2002 MULTIPLE--2003 MULTIPLE--2004
------- ----------------- ----------------- ----------------- -----------------
Crown Media........... n/m n/m 24.7x 9.7x
Rainbow Media......... 24.7x 21.1x 17.8x 15.5x
45
The following table provides the EV/EBITDA Multiples for the transactions
based on the Midpoint Valuation:
EV/EBITDA EV/EBITDA EV/EBITDA EV/EBITDA
MULTIPLE--2001 MULTIPLE--2002 MULTIPLE--2003 MULTIPLE--2004
-------------- --------------- --------------- ---------------
20.2x 20.7x 17.7x 15.8x
Allen & Co. noted that the EV/EBITDA Multiples for the transactions are
within the range of the EV/EBITDA Multiples of the Comparable Companies.
DISCOUNTED CASH FLOW ANALYSIS OF THE USA ENTERTAINMENT GROUP
Allen & Co. performed a discounted cash flow analysis on the projected
financial information of the USA Entertainment Group for the fourth financial
quarter of 2001 and for the calendar years 2002 through 2005 based upon
(1) operating and financial assumptions, forecasts and other information
provided to Allen & Co. by the management of USA, and (2) financial and
operating estimates of research analysts. Using this information, Allen & Co.
discounted to present value of the projected stream of after-tax free cash flow
(net income plus depreciation and amortization less capital expenditures and
working capital changes) of the USA Entertainment Group. Allen & Co. used
discount rates ranging from 7% to 11%.
Based on these discount rates, Allen & Co. calculated that the discounted
cash flow valuation range for the USA Entertainment Group is $8.643 billion
based on the low point of the estimated value of the USA Entertainment Group,
$10.503 billion for the midpoint and $12.609 billion for the high point. The Low
Point Valuation, $10.556 billion, is a 0.5% premium over the midpoint discounted
cash flow valuation; the Midpoint Valuation, $11.685 billion, is a 11.3% premium
over the midpoint discounted cash flow valuation, and the High Point Valuation,
$12.767 billion, is a 21.6% premium over the midpoint discounted cash flow
valuation.
The financial forecasts that underlie this analysis are subject to
substantial uncertainty, and accordingly, actual results may be substantially
different.
VALUATION OF VUE
For purposes of valuing VUE, Allen & Co. performed the analyses described
below in "--Discounted Cash Flow Analysis," "--Comparable Companies Analysis,"
"--Precedent Transactions" and "--Wall Street Estimates."
Based on these analyses, Allen & Co. determined that the valuation range of
VUE, which is the aggregate of the average of the valuation ranges of the
Universal Entertainment Group and the USA Entertainment Group, is
$17.200 billion based on the low point of the estimated value of the Universal
Entertainment Group and the USA Entertainment Group, $19.348 billion for the
midpoint and $23.267 billion for the high point.
DISCOUNTED CASH FLOW ANALYSIS
Allen & Co. performed a discounted cash flow analysis on the projected
financial information of the Universal Entertainment Group for the fourth
financial quarter of 2001 and for the calendar years 2002 through 2005 based
upon (1) operating and financial assumptions, forecasts and other information
provided to Allen & Co. by the management of Vivendi, and (2) financial and
operating estimates of research analysts. Using this information, Allen & Co.
discounted to present value the projected stream of after tax-free cash flow
(net income plus depreciation and amortization less capital expenditures and
working capital changes) of the Universal Entertainment Group. Allen & Co. used
discount rates ranging from 7% to 11%. Allen & Co. then aggregated the
discounted cash flow valuation of the
46
Universal Entertainment Group and the USA Entertainment Group to determine the
discounted cash flow valuation of VUE.
Based on these discount rates, Allen & Co. calculated that the discounted
cash flow valuation range for the Universal Entertainment Group is
$6.244 billion based on the low point of the estimated value of the Universal
Entertainment Group, $7.878 billion for the midpoint and $9.748 billion for the
high point.
As described under "--Discounted Cash Flow Analysis of the USA Entertainment
Group," Allen & Co. determined that the discounted cash flow valuation range for
the USA Entertainment Group is $8.643 billion based on the low point of the
estimated value of the USA Entertainment Group, $10.503 billion for the midpoint
and $12.609 billion for the high point. Therefore, the discounted cash flow
valuation range for VUE, which is the aggregate of the discounted cash flow
valuation ranges of the Universal Entertainment Group and the USA Entertainment
Group, is $14.887 billion based on the low point of the estimated value of the
Universal Entertainment Group and the USA Entertainment Group, $18.381 billion
for the midpoint and $22.357 billion for the high point.
The financial forecasts that underlie this analysis are subject to
substantial uncertainty, and accordingly, actual results may be substantially
different.
COMPARABLE COMPANIES ANALYSIS
Allen & Co. analyzed the EV/EBITDA Multiple for the following five companies
that are comparable to VUE: AOL Time Warner, Inc.; Disney; Fox Entertainment
Group, Inc.; Viacom, Inc. and Vivendi. The average estimated EV/EBITDA Multiple
for these companies for 2001 was 15.1x, and the median estimated EV/EBITDA
Multiple for 2001 was 16.5x. Based on the average EV/EBITDA Multiple for the
above companies, the implied value of VUE (based on its pro forma EBITDA and
excluding losses from emerging businesses) is $20.765 billion in 2001E and based
on the median EV/EBITDA Multiple for the above companies, the implied value of
VUE (based on its pro forma EBITDA and excluding losses from emerging
businesses) is $22.692 billion. The average estimated EV/EBITDA Multiple for
these companies for 2002 was 13.8x, and the median estimated EV/EBITDA Multiple
for 2002 was 14.2x; based on the average EV/EBITDA Multiple for the above
companies, the implied value of VUE (based on its pro forma EBITDA and excluding
losses from emerging businesses) is $20.382 billion in 2002E and based on the
median EV/EBITDA Multiple, the implied value of VUE is $20.978 billion.
PRECEDENT TRANSACTIONS
Allen & Co. also analyzed precedent transactions in each of the different
asset classes in VUE. For the filmed entertainment assets, the average EV/EBITDA
Multiple for nine precedent transactions was 18.8x, and based on their estimated
2001 pro forma EBITDA, at an 18.8x multiple, the implied transaction value of
the filmed entertainment assets is $10.169 billion. For the cable assets, the
average ratio of implied value to estimated cash flow for 27 precedent
transactions was 20.5x, and based on their estimated 2001 pro forma EBITDA, at a
20.5x multiple, the implied value of the cable assets is $10.849 billion. For
the television production assets, the average EV/EBITDA Multiple for eight
precedent transactions was 11.2x, and based on their estimated 2001 pro forma
EBITDA, at an 11.2x multiple, the implied value of the filmed entertainment
assets is $1.043 billion. For the recreation & retail assets, the average ratio
of transaction value to estimated cash flow for ten precedent transactions was
8.3x, and based on their estimated 2001 pro forma EBITDA, at an 8.3x multiple,
the implied value of the cable assets is $2.954 billion. The aggregate implied
value of the filmed entertainment assets, the cable assets, the television
production assets and the recreation & retail assets is therefore
$25.015 billion.
47
WALL STREET ESTIMATES
Allen & Co. also reviewed Wall Street research reports concerning the value
of the assets to be contributed to VUE by Vivendi and USA. The following table
sets forth the results of this review (dollars in millions):
LOW MEDIUM HIGH
--- ------ ----
USA Entertainment Group.................................. $ 9,732 $11,165 $13,901
Universal Entertainment Group............................ $ 6,598 $ 7,292 $ 9,103
TOTAL................................................ $16,329 $18,458 $23,004
Allen & Co. is a nationally recognized investment banking firm that is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. USA retained
Allen & Co. based on those qualifications as well as its familiarity with USA.
As of the date of its opinion, Allen & Co. and/or its affiliates owned
approximately 2,100,000 shares of USA common stock, and Donald R. Keough,
chairman of Allen & Co., serves as a director of USA. In addition, in the
ordinary course of its business, Allen & Co. and/or its affiliates may have long
or short positions, either on a discretionary or non-discretionary basis, for
its own account or for those of its clients, in the securities of USA and/or
Vivendi.
USA entered into a letter agreement with Allen & Co., dated December 12,
2001, under which Allen & Co. agreed to act as financial advisor to USA, to
negotiate on behalf of USA in connection with the transactions and to assist USA
in evaluating the fairness to USA, from a financial point of view, of the
consideration to be paid to USA in the transactions. Pursuant to that letter
agreement, USA agreed, among other things, to pay Allen & Co. a fee in an amount
to be mutually agreed upon by USA and Allen & Co., which fee has not yet been
determined or discussed. Whether or not the transactions are completed, USA has
agreed, pursuant to that letter agreement, to reimburse Allen & Co. for all of
its reasonable out-of-pocket expenses and to indemnify Allen & Co. against
specified liabilities and expenses in connection with its engagement.
ADDITIONAL INFORMATION ABOUT USA AFTER THE TRANSACTIONS
Following completion of the transactions, USA, which will be renamed "USA
Interactive," will be a leader in integrated interactivity, including ticketing,
online travel, online dating, teleservices, electronic retailing and other
interactive commerce services.
On January 29, 2002, USA publicly filed its revised internal budget for USA
Interactive, giving effect to the completion of the transactions, with the
Securities and Exchange Commission. The revised internal budget contained
management's forecasts for USA Interactive as of January 29, 2002 and speaks
only as of that date. The January internal budget showed budgeted annual
revenue, budgeted operating income and budgeted annual adjusted EBITDA, as that
term is defined in this document, for USA Interactive as follows:
- annual budgeted revenue of approximately $3.8 billion, $4.6 billion and
$5.6 billion for the years ended December 31, 2001, December 31, 2002 and
December 31, 2003, respectively;
- annual budgeted operating income of approximately $30 million,
$188 million, and $419 million for the years ending December 31, 2001,
December 31, 2002 and December 31, 2003, respectively;
- Annual budgeted net income of approximately $108 million, $126 million and
$239 million for the years ended December 31, 2001, December 31, 2002 and
December 31, 2003, respectively; and
48
- annual budgeted Adjusted EBITDA of approximately $359 million,
$607 million and $850 million for the years ended December 31, 2001,
December 31, 2002 and December 31, 2003, respectively.
USA previously had publicly filed its internal budget for USA and each of
USA's operating groups. The internal budget contained management's forecasts as
of October 24, 2001 and speaks only as of that date. The October internal budget
showed budgeted annual revenue as follows:
- for USA, annual budgeted revenue of approximately $5.6 billion,
$6.2 billion and $7.4 billion for the years ending December 31, 2001,
December 31, 2002 and December 31, 2003, respectively;
- for the USA Entertainment Group, annual budgeted revenue of approximately
$1.8 billion, $1.8 billion and $2.1 billion for the years ending
December 31, 2001, December 31, 2002 and December 31, 2003, respectively;
and
- for the USA Interactive Group (I.E., the Electronic Retailing and
Information & Services groups, excluding Corporate & other), annual
budgeted revenue of approximately $3.6 billion, $4.3 billion and
$5.2 billion for the years ending December 31, 2001, December 31, 2002 and
December 31, 2003, respectively.
The October internal budget also showed budgeted annual operating profit as
follows:
- for USA, annual budgeted operating profit of $649 million, $764 million
and $1,012 million for the years ending December 31, 2001, December 31,
2002 and December 31, 2003, respectively;
- for USA Entertainment Group, annual budgeted operating profit of
$586 million, $522 million and $613 million for the years ending
December 31, 2001, December 31, 2002 and December 31, 2003, respectively;
and
- for USA Interactive Group (excluding Corporate and other), annual budgeted
operating profit of $103 million, $285 million and $445 million for the
years ending December 31, 2001, December 31, 2002 and December 31, 2003,
respectively.
The October internal budget also showed budgeted annual net income as
follows:
- For USA, annual budgeted net income of $118 million, $180 million and $273
million for the years ending December 31, 2001, December 31, 2002 and
December 31, 2003, respectively;
- For USA Entertainment Group, annual budgeted net income of $524 million,
$483 million and $568 million for the years ending December 31, 2001,
December 31, 2002 and December 31, 2003, respectively;
- For USA Interactive Group (excluding Corporate and other), annual budgeted
net income of $41 million, $176 million and $323 million for the years
ending December 31, 2001, December 31, 2002 and December 31, 2003,
respectively.
The October internal budget also showed budgeted annual Adjusted EBITDA as
follows:
- for USA, annual budgeted Adjusted EBITDA of $936 million, $1.1 billion and
$1.4 billion for the years ending December 31, 2001, December 31, 2002 and
December 31, 2003, respectively;
- for the USA Entertainment Group, annual budgeted Adjusted EBITDA of
$596 million, $513 million and $613 million for the years ending
December 31, 2001, December 31, 2002 and December 31, 2003, respectively;
and
- for the USA Interactive Group (excluding Corporate & other), annual
budgeted Adjusted EBITDA of $373 million, $578 million and $788 million
for the years ending December 31, 2001, December 31, 2002 and
December 31, 2003, respectively.
49
For more detailed financial information regarding USA and the USA
Interactive Group, including the full text of the information filed by USA with
the Securities and Exchange Commission on Form 8-K and described above, please
see our publicly filed reports, which can be obtained by following the
instructions under "Where You Can Find More Information."
REGULATORY APPROVALS
The transactions are subject to foreign regulatory approvals, including in
Germany and Austria. The German antitrust authorities cleared the transactions
on February 27, 2002. The parties anticipate receiving any other requisite
approvals in a timely manner, but there can be no guarantee that the parties
will receive such approvals or, if they do receive the approvals, that such
approvals will be received in a timely manner.
LITIGATION RELATING TO THE TRANSACTIONS
USA and its directors, along with Vivendi and Liberty, have been named as
defendants in purported stockholder class and derivative actions filed in the
Court of Chancery, County of New Castle, State of Delaware. Each of these
actions, which are substantially identical and have been consolidated, are
brought on behalf of a purported class consisting of public stockholders of USA
not affiliated with any of the defendants and as a purported derivative action
in the right of USA. The complaints in the actions allege, among other things,
that "[t]he transfer of the USA Entertainment Group and its assets to [VUE]
represents a break-up" of USA; that this transfer is "wrongful, unfair and
harmful" to the public stockholders of USA; that the transfer, and related
transactions, represent breaches of fiduciary duty by the individual defendants;
that the board of directors of USA has not fulfilled its alleged duties in
connection with the transaction because defendants were allegedly under a duty
to seek the highest price available for the USA Entertainment Group; that
specified defendants (i.e., Mr. Diller, Vivendi, Liberty and the representatives
of Vivendi and Liberty on the USA board of directors) are being
disproportionately "enriched" by the proposed transaction in relation to the
public stockholders; that the defendants have "failed to fully disclose the true
value of USA's Entertainment Group" and the alleged future financial benefits
which Vivendi, Liberty and Mr. Diller will obtain; and that the individual
defendants approved Mr. Diller's alleged usurpation of a corporate opportunity.
The complaints also allege that Vivendi and Liberty have aided and abetted the
individual defendants in their alleged breaches of fiduciary duty. As relief,
the complaints seek, among other things, a declaration that the proposed joint
venture is "unfair, unjust and inequitable"; an injunction against consummation
of the transactions; an award of damages in an unspecified amount; and an order
"[r]equiring defendants to conduct a proper process in the break up of [USA]."
USA believes the allegations of the complaints are entirely without merit and
intends to vigorously defend the actions.
ABSENCE OF DISSENTERS' RIGHTS
USA is incorporated in the State of Delaware, and, accordingly, is governed
by the provisions of the Delaware General Corporation Law. USA stockholders are
not entitled to appraisal rights under the Delaware General Corporation Law with
respect to the transactions.
50
THE TRANSACTION DOCUMENTS
The description of the material terms of the transaction documents set forth
below is not intended to be a complete description of those documents. We
qualify this description by reference to the Transaction Agreement, the form of
Partnership Agreement, the Amended and Restated Governance Agreement, the
Amended and Restated Stockholders Agreement, the form of Warrant Agreement and
the Vivendi/Liberty Merger Agreement which we have attached as Appendices A
through F to this proxy statement. We urge all stockholders to read these
appendices in their entirety.
TRANSACTION AGREEMENT
GENERAL
The Transaction Agreement provides for the structuring of VUE, a limited
liability limited partnership, pursuant to the terms of the Partnership
Agreement described under "--Partnership Agreement." VUE will own (1) the USA
Entertainment Group and (2) the Universal Entertainment Group.
TRANSFER OF INTERESTS
At the closing of the transactions, subject to satisfaction of certain
conditions described under "--Conditions to the Transactions," the exchange
agreement relating to the LLC shares will terminate (except for the
representations and warranties contained therein), after which USANi LLC will
distribute to Universal interests in certain of its subsidiaries comprising the
USA Entertainment Group in return for the cancellation of the 320,856,512 LLC
shares that will be owned by Universal and its affiliates following Vivendi's
acquisition of Liberty's LLC shares pursuant to the Vivendi/Liberty Merger
Agreement.
Universal and its affiliates will contribute to VUE their rights and
interests in the subsidiary or subsidiaries comprising the Universal
Entertainment Group and the interests distributed by USANi LLC to Universal, and
USA, USANi LLC and their affiliates will contribute to VUE their remaining
rights and interests in the subsidiaries comprising the USA Entertainment Group,
in each case, in return for interests in VUE.
The Transaction Agreement further provides for the issuance by USA to
Vivendi of warrants to purchase an aggregate of 60,467,735 shares of USA common
stock in exchange for Vivendi agreeing to enter into certain commercial
arrangements and for other valuable consideration. The terms of the warrants are
described in further detail under "--Warrant Agreement."
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES OF USA. The Transaction Agreement includes
standard representations and warranties, generally subject to materiality
qualifiers, of USA, including, among other things, as to:
- corporate organization and good standing;
- corporate authority;
- no conflicts with material contracts, judgments or law;
- required consents and approvals;
- capitalization of USA;
- subsidiaries comprising the USA Entertainment Group;
- financial statements;
- no undisclosed liabilities;
- material contracts relating to the USA Entertainment Group;
51
- title to, and sufficiency of, assets contributed to VUE;
- USA Entertainment Group real property;
- USA Entertainment Group intangible property;
- USA Entertainment Group licenses;
- absence of changes or events relating to the USA Entertainment Group;
- compliance with applicable law by the USA Entertainment Group;
- legal proceedings relating to the USA Entertainment Group;
- brokers;
- tax matters relating to the USA Entertainment Group; and
- employee matters relating to the USA Entertainment Group.
REPRESENTATIONS AND WARRANTIES OF UNIVERSAL. The Transaction Agreement
includes standard representations and warranties, generally subject to
materiality qualifiers, of Universal (including, in some cases, with respect to
Vivendi) including, among other things, as to:
- corporate organization and good standing;
- corporate authority;
- no conflicts with material contracts, judgements or law;
- required consents and approvals;
- subsidiaries comprising the Universal Entertainment Group;
- Vivendi's financial statements;
- no undisclosed liabilities;
- title to, and sufficiency of, assets contributed to VUE;
- absence of changes or events relating to the Universal Entertainment
Group;
- compliance with applicable law by the Universal Entertainment Group;
- legal proceedings relating to the Universal Entertainment Group;
- brokers; and
- tax matters relating to the Universal Entertainment Group.
INTERIM OPERATING COVENANTS
Until the closing of the transactions (or the termination of the Transaction
Agreement), the Transaction Agreement obligates each of USA and Universal to
conduct its entertainment group in the usual, regular and ordinary course in
substantially the same manner as previously conducted and to use all reasonable
efforts to keep intact its entertainment group, keep available the services of
the related employees and preserve such group's relationships with customers,
suppliers, licensors, licensees, distributors, and others with whom it deals. In
addition, the Transaction Agreement prohibits each of USA and Universal from
taking any of the following actions with respect to its entertainment group
without the prior written consent of the other party:
- amending the organizational documents of any of its subsidiaries;
- other than sweeping cash in the ordinary course consistent with past
practice, permitting specified subsidiaries to make any declaration or
payment of any dividend or any other distribution;
52
- redeeming or otherwise acquiring any shares of capital stock or any
option, warrant or right relating to such capital stock or any securities
convertible into or exchangeable for any shares of such capital stock;
- incurring or assuming any indebtedness for borrowed money or guaranteeing
any such indebtedness;
- permitting any asset being contributed to VUE to become subject to a lien;
- canceling any material indebtedness or waiving any claims or rights of
substantial value;
- paying, loaning or advancing any amount to, or selling, transferring or
leasing any of its assets to, or entering into any agreement or
arrangement with any of its affiliates;
- making any change in any method of financial accounting or financial
accounting practice or policy other than those required by generally
accepted accounting principles;
- making any change in the methods or timing of collecting receivables or
paying payables;
- other than in the ordinary course of business, making or incurring any
capital expenditure not currently approved in writing or budgeted; or
- selling, leasing, licensing or otherwise disposing of any of its assets,
except inventory, programming or other goods or services sold in the
ordinary course of business consistent with past practice.
In addition to the foregoing restrictions, the Transaction Agreement
restricts USA from:
- making changes to benefits arrangements or labor agreements relating to
the USA Entertainment Group other than in the ordinary course of business
and consistent with past practice;
- granting any increase in compensation or benefits to employees of the USA
Entertainment Group, other than in the ordinary course of business,
consistent with past practice; or
- granting new options or restricted stock to employees of the USA
Entertainment Group, other than as required under existing agreements.
EFFORTS
Each of USA and Universal and its respective affiliates has agreed to use
its reasonable best efforts to cause the closing of the transactions to occur as
soon as practicable and to obtain all consents and approvals from third parties
necessary or appropriate to effect the contributions of the USA Entertainment
Group and the Universal Entertainment Group to VUE. In addition, each of
Vivendi, Universal, USA and Liberty has agreed to take all other actions as such
other party may reasonably deem necessary or desirable to complete the
transactions.
Concurrently with the execution of the Transaction Agreement, Vivendi,
Universal, Liberty and certain of their respective affiliates entered into an
Agreement and Plan of Merger and Exchange, which we refer to as the
"Vivendi/Liberty Merger Agreement." Among other things, the Vivendi/Liberty
Merger Agreement provides for the transfer by Liberty to Vivendi of 25,000,000
shares of USA common stock, entities holding 38,694,982 LLC shares, as well as
the assets and liabilities of Liberty Programming France (which consist
primarily of 4,921,250 shares of multiThematiques) in return for ADSs
representing Vivendi ordinary shares. The completion of the transfers by Liberty
of the USA common stock and the LLC shares, and Liberty's receipt of ADSs
representing Vivendi ordinary shares in return, is a condition precedent to each
of USA's, Universal's and Liberty's satisfaction of its obligations under the
Transaction Agreement. USA and Vivendi have agreed not to amend or waive this
prerequisite without Liberty's consent. Accordingly, under the terms of the
Transaction Agreement, Universal and Liberty have agreed to use their reasonable
best efforts (subject to the terms of the Vivendi/Liberty Merger Agreement) to
satisfy, as promptly as practicable, the conditions to the completion of the
transactions set forth in the Vivendi/Liberty Merger Agreement.
53
Universal has also agreed not to terminate the Vivendi/Liberty Merger Agreement
prior to September 30, 2002 or amend the Vivendi/Liberty Merger Agreement in any
manner that would (1) delay the completion of the transactions in any material
respect, or (2) increase the consideration payable to Liberty thereunder, other
than as a result of any amendments entered into in connection with a European
regulatory proceeding relating to the transfer by Liberty to Vivendi of
interests in multiThematiques. In the event that the closing of the transactions
will be significantly delayed by the inquiry of any regulatory body reviewing
the multiThematiques transaction, Vivendi and Liberty will negotiate in good
faith to amend the Vivendi/Liberty Merger Agreement to avoid delaying the
closing of the transactions, and Vivendi and Liberty are required to execute
such amendment if it provides to Liberty the economic benefits of the
multiThematiques transaction.
EXPENSES
USA has agreed that if Universal terminates the Transaction Agreement as a
result of the USA board of directors or a committee of the USA board of
directors having withdrawn or modified its approval or recommendation of the
Transaction Agreement or the transactions, USA will reimburse Universal and its
affiliates for all of their documented, out of pocket expenses incurred in
connection with the Transaction Agreement and the related documents, up to a
limit of $15 million. Other than as provided in the preceding sentence or with
respect to transfer taxes, the payment of which is specifically allocated
between the parties, each party to the Transaction Agreement is responsible for
the costs and expenses incurred by that party in connection with the Transaction
Agreement and the completion of the transactions.
TERMINATION OF EXISTING AGREEMENTS
In connection with the transactions, subject to the parties' commitment to
provide for a mutually satisfactory, orderly wind-down, USA and Universal have
agreed to terminate the following business arrangements upon the earlier to
occur of (1) the completion of the transactions and (2) the termination of the
Transaction Agreement:
- Universal's exclusive international distribution of television programming
produced by USA; and
- USA's exclusive domestic distribution of television programming produced
by Universal.
Even if the parties do not complete the transactions, Universal and USA will
terminate the foregoing business arrangements if the Transaction Agreement is
terminated. Notwithstanding the termination of these business arrangements, USA
and Universal have agreed, for a minimum period of one year, to make available
to one another any excess capacity with respect to the domestic and
international distribution of television programming.
USA and Universal have also agreed to terminate existing agreements relating
to merchandising, music administration and music publishing, video distribution
and other matters. These agreements will only terminate if the parties complete
the transactions.
STOCKHOLDERS MEETING
USA has agreed to hold a meeting of its stockholders for the purpose of
obtaining approval of the transactions as soon as practicable and has agreed to
recommend to its stockholders that they approve the transactions, except to the
extent that the USA board of directors has withdrawn or modified its
recommendation of the transactions as a result of a good faith determination
that it is necessary to do so in order to comply with its fiduciary obligations.
COMMERCIAL ARRANGEMENTS
USA and Vivendi have agreed to enter into a series of strategic and
commercial alliances with one another covering each party's transactional and
internet businesses. In addition, USA and Universal have agreed to negotiate in
good faith to enter into an agreement pursuant to which the VUE Joint
54
Venture will provide programming distribution for the Home Shopping Network,
America's Store, and other USA transactional services.
LEASE ARRANGEMENT
USA has agreed, for a reasonable transition period of up to two years
following the closing of the transactions, to permit VUE to occupy USA's
premises located at 8800 Sunset Boulevard, West Hollywood, California, on a
rent-free basis.
USA AGREEMENT NOT TO COMPETE
Until the later of (1) the 18-month anniversary of the closing of the
transactions, and (2) six months after Mr. Diller ceases to be chief executive
officer of VUE, USA has agreed not to engage in or acquire any interest in any
person engaged in the following businesses:
- the operation, programming or delivery of any general or genre-based
entertainment television channel;
- the production and distribution of entertainment television programming
and feature films; and
- any other business conducted by the USA Entertainment Group or the
Universal Entertainment Group as of the closing of the transactions; and
any reasonably foreseeable entertainment-focused extensions of such
businesses that are programming or film-oriented, other than in a
transactional context.
If, at any time following the 18-month anniversary of the closing of the
transactions, Mr. Diller ceases to be an officer of USA or any of its affiliates
or resigns as chief executive officer of VUE for good reason or is terminated as
chief executive officer of VUE without cause, USA's agreement not to compete
will cease to apply.
The agreement not to compete makes clear that USA may conduct the following
businesses:
- television channels which are consumer transaction-oriented or which
provide informational services which lend themselves to commerce or which
otherwise serve as a means of introducing, starting or promoting
transactional services, including transaction-oriented television channels
whose primary focus is the provision of electronic retailing, auction
services or gaming/gambling services; and
- electronic commerce and retailing, information and services.
Furthermore, the agreement not to compete does not prevent USA from owning:
- its interest in VUE;
- less than 5% of the equity of a public company engaged in the competing
business;
- less than 10% of the indebtedness of a company engaged in the competing
business;
- any company which derives less than 30% of its revenues from the competing
business, so long as USA disposes of its interest in the competing
business within six months of the acquisition; or
- interests in Vivendi as a result of the exercise of the put or call
relating to USA's common interest in VUE.
USA'S NON-SOLICITATION AGREEMENT
Until the later of (1) the 18-month anniversary of the closing of the
transactions, and (2) six months after Mr. Diller ceases to be chief executive
officer of VUE, USA has agreed, subject to specified exceptions, not to:
- solicit, recruit or hire any employees of VUE; or
- solicit or encourage any employee of VUE to leave VUE.
55
If, at any time following the 18-month anniversary of the closing of the
transactions, Mr. Diller ceases to be an officer of USA or any of its affiliates
or resigns as chief executive officer of VUE for good reason or is terminated as
chief executive officer of VUE without cause, the non-solicitation restrictions
with respect to USA will cease to apply.
USA TRADEMARKS
The name "USA Networks" will be included among the assets contributed to
VUE. USA and Universal have agreed to negotiate in good faith to determine how
the ownership of the various logos and designs currently associated with the
"USA Networks" name will be allocated and have further agreed that each party
will grant to the other party, at no significant economic cost, the right to use
any logo or name allocated to it in accordance with the current use of such logo
or name.
USA STOCK OPTIONS AND RESTRICTED STOCK
Generally, with respect to options to purchase shares of USA common stock
and restricted shares of USA common stock held by USA employees transferred to
VUE, Vivendi has agreed to replace unexercised USA options with options to
purchase Vivendi American Depositary Shares, and to replace restricted USA
shares with restricted Vivendi American Depositary Shares, as applicable, based
on a calculation that is intended to preserve the "intrinsic value" (if any) of
the options and the restricted shares being converted and with such other terms
and conditions as may be set forth in the plan or policy applicable to such
converted awards.
RETENTION OF USA COMMON SHARES
In order to satisfy its obligations with respect to USA's Class B preferred
interest in VUE, Universal has agreed that it will, at all times until the
consummation of a sale pursuant to an exercise (if any) of the put right or the
call right relating to the Class B preferred interest, retain at least
43,181,308 shares of USA common stock and 13,430,000 shares of USA Class B
common stock, in each case free of any liens.
MISCELLANEOUS COVENANTS
The Transaction Agreement contains other customary covenants relating to the
preparation and distribution of this document, public announcements regarding
the transactions, mutual notification of specified matters and access to
information.
CONDITIONS TO THE TRANSACTIONS
Pursuant to the terms of the Transaction Agreement, the obligations of each
party to complete the transactions are subject to a number of conditions,
including:
- receipt of all consents that would have a material adverse effect if not
obtained;
- the absence of any law or judgment or other legal restraint or prohibition
preventing the completion of the transactions;
- the required approval of the transactions by USA's stockholders; and
- the transfer by Liberty to Vivendi of 25,000,000 shares of USA common
stock, entities holding 38,694,982 LLC shares, as well as the assets and
obligations of Liberty Programming France, pursuant to the terms of the
Vivendi/Liberty Merger Agreement in return for ADSs representing Vivendi
ordinary shares.
Pursuant to the terms of the Transaction Agreement, USA's obligation to
complete the transactions is subject to the following additional conditions:
- Each of Universal's representations and warranties must have been true and
correct as of December 16, 2001, except to the extent that the failure of
such representations and warranties
56
to have been true and correct would not have a material adverse effect on
the Universal Entertainment Group or on the ability of Universal and its
affiliates to complete the transactions.
- Universal's representations and warranties relating to
-- organization, good standing and authority;
-- the absence of material conflicts resulting from the execution of the
Transaction Agreement;
-- Universal's and its affiliates' organizational documents; and
-- the Universal Entertainment Group assets being contributed to VUE
must be true and correct as of the closing of the transactions, except to
the extent that the failure of such representations and warranties to be
true and correct would not have a material adverse effect on the Universal
Entertainment Group or on the ability of Universal and its affiliates to
complete the transactions.
- Each of Universal and its affiliates shall have performed in all material
respects all obligations required to be performed under the Transaction
Agreement.
Pursuant to the terms of the Transaction Agreement, Universal's obligation
to complete the transactions is subject to the following conditions:
- Each of USA's representations and warranties must have been true and
correct as of December 16, 2001, except to the extent that the failure of
such representations and warranties to have been true and correct would
not have a material adverse effect on the USA Entertainment Group or on
the ability of USA and its affiliates to complete the transactions.
- USA's representations and warranties relating to
-- organization, good standing and authority;
-- the absence of material conflicts resulting from the execution of the
Transaction Agreement;
-- USA's and its affiliates' organizational documents; and
-- the USA Entertainment Group assets being contributed to VUE
must be true and correct as of the closing of the transactions, except to
the extent that the failure of such representations and warranties to be
true and correct would not have a material adverse effect on the USA
Entertainment Group or on the ability of USA and its affiliates to
complete the transactions.
-- Each of USA and its affiliates shall have performed in all material
respects all obligations required to be performed under the
Transaction Agreement.
Each of the foregoing conditions is waivable by USA or Vivendi, as the case may
be, except the condition relating to USA stockholder approval. In certain cases,
the waiver of a condition would require Liberty's consent. In the event of a
waiver, the parties do not intend to seek further approval by USA's
stockholders.
TERMINATION OF THE TRANSACTION AGREEMENT
The Transaction Agreement may be terminated at any time:
-- by mutual written consent of the parties;
-- by either USA or Universal if the USA stockholders do not approve the
transactions;
-- by either USA or Universal if any of the conditions to such party's
obligations become impossible to fulfill;
57
-- by Universal if the USA board of directors or any committee of the USA
board of directors withdraws or modifies its approval or
recommendation of the Transaction Agreement; or
-- by any party if the closing does not occur on or prior to
September 30, 2002.
INDEMNIFICATION
USA and Vivendi have entered into customary indemnification arrangements
regarding the breach of representations, warranties and covenants of each party
and its affiliates contained in any of the following documents: the Transaction
Agreement, the Partnership Agreement, the Amended and Restated Governance
Agreement, the Amended and Restated Stockholders Agreement, the Warrant
Agreement and the Vivendi/Liberty Merger Agreement. The obligations for breaches
of representations and warranties are generally subject to a $150 million
"basket," pursuant to which an indemnifying party is required to compensate an
indemnified party for any losses related to the breaches only to the extent all
such losses exceed $150 million. In the case of indemnification obligations
relating to taxes, the indemnifying party has a complete obligation, from the
first dollar of an indemnified loss relating to tax matters covered by the
Transaction Agreement.
As part of the indemnification obligations described above, Vivendi agreed
to indemnify USA for any dissolution or winding up of VUE or bankruptcy of the
general partner of VUE at any time while preferred interests in VUE are
outstanding.
AMENDMENT
The Transaction Agreement may be amended by the parties to the Transaction
Agreement, at any time before or after the USA stockholders approve the
transactions, but after any such approvals, the parties may not amend the
Transaction Agreement in a manner that requires further approval of USA's
stockholders without obtaining such further approval.
PARTNERSHIP AGREEMENT
GENERAL
At the closing of the transactions, as provided in the Transaction
Agreement, subsidiaries of Universal, USA and its subsidiaries and Mr. Diller
will execute a limited liability limited partnership agreement, which we refer
to throughout this proxy statement as the "Partnership Agreement." The form of
Partnership Agreement is attached as Appendix B to this proxy statement. The
Partnership Agreement governs the formation and management of VUE, the terms of
the preferred and common interests in VUE, partnership distributions, the
transfer of interests in VUE, the dissolution and liquidation of VUE and the
terms of Mr. Diller's agreement not to compete with VUE. Under the terms of the
Partnership Agreement, subsidiaries of Vivendi, USA and its subsidiaries and
Mr. Diller will initially hold common interests in VUE in participation
percentages of 93.06%, 5.44% and 1.50%, respectively.
CASH DISTRIBUTION TO USA
At the closing of the transactions, VUE will pay to a subsidiary of USA a
$1,618,710,396 cash distribution, which amount will be structured to be
tax-deferred for a 15-year period. VUE will finance the cash distribution
through a borrowing which VUE will keep outstanding during the 15-year period.
The repayment of the borrowing at the end of the 15-year period will be treated
as a taxable distribution to the USA subsidiary.
58
USA'S COMMON INTEREST
USA and its subsidiaries will initially hold a 5.44% common interest in VUE.
This common interest will have the following put/call features:
- Beginning on the five-year anniversary of the closing of the transactions,
Universal may purchase USA's common interest for an amount in cash or, at
Universal's option, Vivendi ordinary shares (or, at USA's option, other
listed common equity securities of Vivendi) at the private market value
(see below) of the common interest.
- Beginning on the eight-year anniversary of the closing of the
transactions, USA may require Universal to purchase USA's common interest
for an amount in cash or, at Universal's option, Vivendi ordinary shares
(or, at USA's option, other listed common equity securities of Vivendi) at
the private market value of the common interest.
- If USA continues to hold its Class A preferred interest or Class B
preferred interest in VUE, any purchase or sale will only be applicable to
a portion of the common interest so that USA and its subsidiaries continue
to collectively own a 1% common interest in VUE.
- In the event that USA receives Vivendi shares in settlement of its common
interest, USA will receive customary registration rights with respect to
those shares, including the right to three demand registrations.
- The private market value of USA's common interest will be determined in an
appraisal process involving investment bankers selected by USA and
Universal. Such valuation will not assume the value of VUE in an "auction"
proceeding, and any valuation methodology will exclude any acquisition of
similar assets or businesses at a uniquely high valuation due to a
purchaser's strategic need to acquire such assets or businesses.
MR. DILLER'S COMMON INTEREST
Mr. Diller will hold a common interest in VUE with a 1.5% profit sharing
percentage. Mr. Diller's common interest will have the following put/call
features:
- At any time after the first anniversary of the closing of the
transactions, Mr. Diller may require Universal to purchase his common
interest for an amount in cash or, at Universal's option, Vivendi ordinary
shares (or, at Mr. Diller's option, other listed common equity securities
of Vivendi) having a value equal to the greater of (1) $275 million and
(2) the private market value of Mr. Diller's common interest.
- At any time after the later of (1) the second anniversary of the closing
of the transactions and (2) the time that Mr. Diller is no longer chief
executive officer of VUE, Universal may purchase Mr. Diller's common
interest for an amount in cash or, at Universal's option, Vivendi ordinary
shares (or, at Mr. Diller's option, other listed common equity securities
of Vivendi) having a value equal to the greater of (1) $275 million and
(2) the private market value of Mr. Diller's common interest.
- In the event that Mr. Diller's employment is terminated without cause or
as a result of his death, Mr. Diller terminates his employment for good
reason or Mr. Diller becomes disabled, Mr. Diller's right to require
Universal to purchase his common interest will become immediately
exercisable.
- In the event that Mr. Diller receives Vivendi shares in settlement of his
common interest, Mr. Diller will receive customary registration rights
with respect to those shares, including the right to two demand
registrations. Vivendi will pay up to 1% of gross proceeds in the
aggregate of any underwriting discounts, fees and commissions related to
the registration of shares on behalf of Mr. Diller.
59
- The private market value of Mr. Diller's common interest will be
determined in an appraisal process involving investment bankers selected
by Mr. Diller and Universal. Such valuation will not assume the value of
VUE in an "auction" proceeding, and any valuation methodology will exclude
any acquisition of similar assets or businesses at a uniquely high
valuation due to a purchaser's strategic need to acquire such assets or
businesses.
USA'S PREFERRED INTERESTS
Under the terms of the Partnership Agreement, USA and its subsidiaries will
hold additional equity interests in VUE in the form of a Class A preferred
interest and a Class B preferred interest. The Class A preferred interest and
the Class B preferred interest will rank equally with one another, and will be
the most senior equity interests in VUE, having a preference with respect to
distributions and liquidations.
The Class A preferred interest will have the following key terms:
- FACE VALUE. $750 million.
- MATURITY. 20 years.
- ANNUAL PAID-IN-KIND DIVIDEND. 5%, accreting quarterly.
- SETTLEMENT. Settled at maturity in cash in an amount equal to the face
value plus the aggregate annual paid-in-kind dividends.
The Class B preferred interest will have the following key terms:
- FACE VALUE. $1.75 billion.
- ANNUAL PAID-IN-KIND DIVIDEND. 1.4%, accreting quarterly.
- ANNUAL CASH DIVIDENDS. 3.6%.
- PUT/CALL ARRANGEMENT. USA may require Universal to purchase the preferred
interest and Vivendi and/or Universal may require USA to sell to it the
preferred interest any time following the 20-year anniversary of issuance
for a number of USA common shares having a market value equal to the face
value plus the aggregate annual paid-in-kind dividends, subject to a
maximum of 56,611,308 USA common shares.
-- In accordance with the terms of the Transaction Agreement, Universal
will, at all times, retain at least 43,181,308 shares of USA common
stock and 13,430,000 shares of USA Class B common stock, in each case
free of any liens.
-- Universal will satisfy its put/call obligations first out of USA
Class B common stock, and second out of USA common stock.
-- The market value of the USA common shares will be determined based on
a volume weighted average price over the 15 consecutive trading days
preceding settlement.
-- Universal may, at its election, in lieu of shares of USA common stock
(but not USA Class B common stock), deliver cash equal to the market
value of those shares.
-- In the event that USA common shares ceases to be outstanding before
exercise of the put or call, the Class B preferred interest in VUE
will instead be puttable or callable for cash, plus interest at USA's
effective cost of borrowing, or such other securities or property into
which USA common shares was exchanged for or converted into.
Because the Class B preferred interest is subject to a put and call
arrangement solely against approximately 56.6 million USA shares, if the stock
price of USA common stock is below $40.82 at the time of the exercise of the put
or call, USA will receive less than the accreted face value of the Class B
preferred interest upon such exercise. There can be no assurance that USA will
receive the accreted face value of the Class B preferred interest upon exercise
of the put or call.
60
NEGATIVE COVENANTS
The Partnership Agreement contains a number of restrictions on the conduct
of VUE, including the following:
CONSENT RIGHTS OF HOLDERS OF PREFERRED INTERESTS
Other than the consent rights described in this proxy statement under this
section, holders of preferred interests in VUE have no voting, approval or
consent rights, including with respect to any merger, conversion or
consolidation of VUE. Any change to the Partnership Agreement that would have an
adverse effect on the rights of the Class A preferred interest or the Class B
preferred interest or that would be materially adverse to the right of the
holders of the preferred interests requires the consent of the holders of such
preferred interests.
CONSENT RIGHTS OF USA RELATING TO THE CLASS A PREFERRED INTEREST
For as long as the Class A preferred interest is outstanding, VUE will not
take any of the following actions without the prior consent of USA:
- issue any equity securities that rank senior to, or equally with, the
Class A preferred interest and the Class B preferred interest, or that are
exchangeable for or convertible into such securities;
- merge or consolidate unless specified conditions are satisfied;
- liquidate, dissolve or wind up; or
- become an "investment company" as defined in the Investment Company Act of
1940, as amended.
For as long as the Class A preferred interest is outstanding, unless VUE
posts an irrevocable letter of credit in favor of the holders of the Class A
preferred interest in VUE in an amount sufficient to cover its obligations with
respect to the Class A preferred interest and with an expiration date no earlier
than the maturity date of the Class A preferred interest, VUE will not take any
of the following actions without the prior consent of USA:
- issue any other preferred equity interests in VUE redeemable or
exchangeable for or convertible into any equity security of VUE (other
than common interests), or issue any security that is exchangeable for or
convertible into cash, cash equivalents or any preferred equity interest
described in this bullet;
- transfer any assets of VUE other than in the ordinary course of business
unless at least 50% of the net proceeds of the transfer are retained or
otherwise redeployed by VUE and at the time of the transfer VUE has a
consolidated tangible net worth of at least $4 billion; or
- create, incur, assure, guarantee or permit to exist indebtedness in excess
of $800 million at any time, other than the indebtedness incurred in order
to make the $1.62 billion cash distribution to USA at the closing of the
transactions.
CONSENT RIGHTS OF HOLDERS OF COMMON INTERESTS
Other than the consent rights described in this paragraph, no holder of
common interests, including USA and Mr. Diller, has any voting, approval or
consent rights, including with respect to any merger, conversion or
consolidation of VUE. Any change to the Partnership Agreement that would have an
adverse effect on the rights of a holder of a common interest in VUE requires
the consent of each such holder. In addition, prior to the exercise of a put or
call right with respect to USA's common interest in VUE and prior to any
election by USA to exercise its preemptive right solely to maintain a 1% common
interest in VUE, the following actions require the consent of USA:
- entering into, terminating, modifying or extending any agreement,
transaction or relationship between VUE and an affiliate of Vivendi that
is not on an arm's-length basis; or
61
- making any distribution in respect of, redeeming, repurchasing or
otherwise acquiring any common interest in VUE held by Universal or any of
its affiliates, other than pro rata distributions, redemptions,
repurchases and acquisitions.
TAX RELATED COVENANTS
VUE will not take any of the following actions without the consent of USA:
- sell any assets of the USA Entertainment Group any time prior to the
15-year anniversary of the closing of the transactions, other than sales
of assets in the ordinary course of business and sales the fair market
values of which do not exceed, individually or in the aggregate,
$5 million;
- reduce the principal balance of the debt incurred by VUE to fund the
$1.62 billion cash distribution to USA, other than certain permitted
reductions after the second anniversary of the closing of the
transactions; or
- take certain other actions that would result in current tax to USA.
Under the terms of the Transaction Agreement, Vivendi may elect to have any
of the preceding tax-related covenants not apply. If Vivendi makes that election
and the Vivendi or VUE takes any action that would have breached that covenant
protecting USA's tax deferral, Vivendi is required to pay to USA an amount
designed to approximate the net present value of the resulting loss of tax
deferral.
TRANSFERS OF INTERESTS IN VUE
Subject to the put and call features of USA's Class B preferred interest and
USA's common interest in VUE, the Partnership Agreement contains the following
restrictions on transfers of USA's common and preferred interests:
- In general, USA may transfer its preferred interests and common interests
in VUE only to wholly owned subsidiaries of USA.
- USA may pledge or hedge its preferred interests in VUE, but may not enter
into any transaction which could result in the transfer of its preferred
interests or common interests to a third party.
- No transfer is permitted that would reasonably be expected to result in a
materially adverse tax consequence to any partner in VUE, or that would
result in a violation of federal securities law.
Under the terms of the Transaction Agreement, Mr. Diller is permitted to
assign beneficial interests in the right to receive up to an aggregate of 10% of
his common interest in VUE to up to four persons designated by Mr. Diller prior
to the closing of the transactions.
In the event that Universal transfers any portion of its common interest to
a third party, USA and Mr. Diller are entitled to participate in any such sale
on a pro rata basis and on the same terms and conditions as Universal.
ADDITIONAL COMMON INTERESTS IN VUE
Subject to the restrictions on additional preferred interests described
above, VUE may issue additional common interests at any time (whether to
existing partners or to third parties), and each of VUE's partners' common
interests will be diluted pro rata by any third party issuance of additional
common interests in VUE.
For as long as USA and its affiliates own a common interest in VUE equal to
or greater than 1%, and a put or call with respect to USA's common interest has
not been exercised, USA will have the right, but not the obligation, to purchase
for cash additional common interests in connection with an issuance of
additional common interests to Universal or any of its affiliates so that USA
and its affiliates maintain the same relative common interest in VUE that they
had immediately prior to the issuance to Universal or its affiliates. In the
event of any issuance of additional common interests in
62
VUE, USA will have the right to exercise preemptive rights to maintain a 1%
common interest in VUE.
TAX DISTRIBUTIONS
VUE will make mandatory tax distributions to cover taxes allocable to USA
and its subsidiaries, Universal or Mr. Diller with respect to VUE's taxable
income.
GOVERNANCE OF VUE
Universal will control VUE and USA will not be entitled to any veto or
consent rights other than as described under "--Negative Covenants."
CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF VUE
Mr. Diller will serve as the Chairman and Chief Executive Officer of VUE, at
his will and at Vivendi's pleasure. Mr. Diller will have no employment contract,
and will receive no compensation for his service as the Chairman and Chief
Executive Officer of VUE. VUE will pay or reimburse Mr. Diller and any other USA
employee, if any, who is an officer of VUE for all out-of-pocket expenses
directly related to the performance of his duties as an officer of VUE.
VUE BOARD OF DIRECTORS
Universal may, at its election, appoint a board of directors or other
governing body to oversee the policy and operating procedures with respect to
the business and affairs of VUE. In the event that Universal appoints such a
board, it will include Mr. Diller for so long as Mr. Diller remains an officer
of VUE. If Mr. Diller is no longer an officer of VUE, for so long as USA has a
common interest in VUE in excess of 1% and a put or call of USA's common
interest has not been exercised, VUE board of directors will include one person
designated by USA and reasonably satisfactory to Universal.
CONTRIBUTIONS BY UNIVERSAL OF ASSETS TO VUE
To the extent that Universal or an affiliate of Universal acquires assets or
equity securities of third parties engaged in the business of VUE or any related
business, Universal or its affiliate may, upon receiving the approval of the
general partner of VUE (which will be a subsidiary of Universal), elect to
contribute those assets or equity securities to VUE in exchange for cash or if
otherwise permitted by the Partnership Agreement, a note or common interests in
VUE, subject to USA's preemptive rights, in each case equal to the value of the
consideration paid by Universal or its affiliate for the contributed assets or
equity securities.
MR. DILLER'S AGREEMENT NOT TO COMPETE
Until the date that is the earlier of:
- the later of
-- the 18-month anniversary of the closing of the transactions; and
-- six months after Mr. Diller ceases to be chief executive officer of
VUE; and
- the three-year anniversary of the closing of the transactions,
Mr. Diller has agreed not to engage in or acquire any interest in any person
engaged in the following businesses:
- the operation, programming or delivery of any general or genre-based
entertainment television channel;
- the production and distribution of entertainment television programming
and feature films; and
63
- any other business conducted by the USA Entertainment Group or the
Universal Entertainment Group as of the closing of the transactions; and
any reasonably foreseeable entertainment-focused extensions of such
businesses that are programming or film oriented, other than in a
transactional context.
If, at any time following the 18-month anniversary of the closing,
Mr. Diller resigns as chief executive officer of VUE for good reason or is
terminated as chief executive officer of VUE without cause, the non-competition
restrictions with respect to Mr. Diller will cease to apply.
Mr. Diller's agreement not to compete makes clear that he may engage in the
following businesses:
- television channels which are consumer transaction-oriented or which
provide informational services which lend themselves to commerce or which
otherwise serve as a means of introducing, starting or promoting
transactional services, including transaction-oriented television channels
whose primary focus is the provision of electronic retailing, auction
services or gaming/gambling services;
- electronic commerce; and
- retailing, information and services.
The agreement does not prevent Mr. Diller from:
- owning his interest in VUE;
- owning interests in an entity engaged in the restricted business so long
as he does not serve as a director, officer, consultant, or employee of
that entity or otherwise engage in the management of such entity;
- engaging in charitable activities relating to the restricted business;
- owning interests in Vivendi as a result of the exercise of the put or call
relating to his common interest in VUE; or
- remaining a director on any board of directors on which he currently sits.
MR. DILLER'S NON-SOLICITATION AGREEMENT
Until the date that is the earlier of:
- the later of
-- the 18-month anniversary of the closing of the transactions; and
-- six months after Mr. Diller ceases to be chief executive officer of
VUE; and
- the three-year anniversary of the closing of the transactions,
Mr. Diller has agreed, subject to specified exceptions, not to:
- solicit, recruit or hire any employees of VUE;
- solicit or encourage any employee of VUE to leave VUE;
- disclose any confidential information relating to VUE ; or
- use such confidential information for his benefit or the benefit of
others.
If, at any time following the 18-month anniversary of the closing of the
transactions, Mr. Diller ceases to be an officer of USA or any of its affiliates
or resigns as chief executive officer of VUE for good reason or is terminated as
chief executive officer of VUE without cause, the non-solicitation restrictions
with respect to Mr. Diller will cease to apply.
64
CORPORATE OPPORTUNITY
If any of Universal, USA, Mr. Diller or any of their respective affiliates
acquires knowledge of a potential transaction or matter which may be an
investment or business opportunity or prospective economic advantage in which
VUE could have an interest or otherwise is then exploiting any such transaction
or matter, VUE will not have any interest in such transaction or matter and will
not have any expectation that such transaction or opportunity be offered to it,
except to the extent that such corporate opportunity is expressly offered to
such person in his or her capacity as an officer of VUE.
Except as otherwise provided under "--Transaction Agreement--USA Agreement
Not to Compete" and "--Partnership Agreement--Mr. Diller's Agreement Not to
Compete,"
- Universal, USA, Mr. Diller and their respective affiliates may engage or
invest in any business activity of any type or description, including
those that might be the same as or similar to VUE's business;
- neither VUE nor any person beneficially owning common interests in VUE
shall have any right in or to the business activities or ventures
described in the immediately preceding bullet or to receive or share in
any income or proceeds derived therefrom; and
- VUE will not have any interest or expectancy, and specifically renounces
any interest or expectancy, in any such business activities or ventures.
AMENDED AND RESTATED GOVERNANCE AGREEMENT
GENERAL
On December 16, 2001, USA, Vivendi, Universal, Liberty and Mr. Diller
entered into an Amended and Restated Governance Agreement. The Amended and
Restated Governance Agreement will be effective as of the closing of the
transactions and sets forth restrictions on the acquisition of additional equity
securities of USA and other conduct restrictions, in each case, applicable to
Vivendi and its affiliates. In addition, the Amended and Restated Governance
Agreement governs Vivendi's and Liberty's rights of representation on USA's
board of directors and Liberty's and Mr. Diller's rights to approve certain
actions by USA.
The Amended and Restated Governance Agreement amends and restates the
Governance Agreement, dated as of October 19, 1997, and provides for certain
amendments to the Investment Agreement, dated as of October 19, 1997, as amended
from time to time, eliminating preemptive rights held by Universal, but
retaining these rights for Liberty, as described in further detail below. The
existing Governance Agreement and Stockholders Agreement were entered into in
connection with the contribution by Universal of its domestic television
production businesses to USANi LLC (which transaction required the prior written
consent of Liberty and Mr. Diller) in exchange for an effective 45.8% interest
in USA and approximately $1.63 billion in cash. If the transactions are not
completed, the existing Governance Agreement will remain in place.
RESTRICTIONS ON VIVENDI'S ACQUISITION OF ADDITIONAL EQUITY SECURITIES OF USA
AND OTHER RESTRICTIONS ON VIVENDI'S CONDUCT WITH RESPECT TO USA
Pursuant to the Amended and Restated Governance Agreement, Vivendi agreed
that it will not acquire the beneficial ownership of any additional equity
securities of USA until such time (the "Trigger Date") that the equity
securities beneficially owned by Vivendi represent less than 20% of the total
equity securities of USA. Following the Trigger Date, Vivendi will not acquire
beneficial ownership of any additional equity securities of USA if following
such acquisition Vivendi would beneficially own equity securities that represent
more than 20% of the total equity securities of USA. Generally, the restrictions
described in the preceding sentence will cease to apply upon the later of
(1) the CEO Termination Date (as defined in the Amended and Restated Governance
Agreement) or the date that Mr. Diller becomes disabled and (2) the date
following which Vivendi owns less than 10% of the total equity securities of
USA.
65
So long as the restrictions on Vivendi's right to acquire additional equity
securities of USA continue to apply, Vivendi has agreed not to:
- act, alone or in concert with others, to seek to affect or influence the
management, business or operations of USA;
- enter into any kind of arrangement, such as a proxy, with respect to the
voting of equity securities of USA;
- propose any merger or other business combination involving USA, provided
that discussions to that effect are not prohibited if Mr. Diller
participates;
- make or participate in a solicitation of proxies to vote equity securities
in USA;
- act, alone or in concert with others, for the purpose of acquiring voting
or selling equity securities in USA; or
- request any amendment to or waiver of any of these covenants.
Except in connection with open market transactions, Vivendi is not entitled
to transfer to any single third party transferee, in the aggregate, 10% or more
of the total equity securities of USA, unless Vivendi causes such third party
transferee to agree to the acquisition and conduct restrictions described above.
REPRESENTATION OF VIVENDI AND LIBERTY ON THE USA BOARD OF DIRECTORS
Under the terms of the Amended and Restated Governance Agreement,
immediately following the closing of the transactions:
- the USA board of directors will include Jean-Marie Messier, chairman of
the board and chief executive officer of Vivendi, and Philippe Germond,
chairman of the board and chief executive officer of Cegetel;
- Vivendi will continue to have the right to nominate up to two USA
directors so long as the number of equity securities of USA beneficially
owned by Vivendi is at least equal to 75% of the number of equity
securities of USA beneficially owned by Vivendi immediately following the
closing of the transactions (so long as Vivendi's ownership percentage is
at least equal to the lesser of (x) 15% of the total equity securities of
USA and (y) the percentage that is five percentage points less than the
percentage of the total equity securities of USA beneficially owned by
Vivendi immediately following the closing of the transactions); and
- Vivendi will have the right to nominate one USA director so long as
Vivendi beneficially owns a number of equity securities of USA at least
equal to 50% of the number of the equity securities of USA beneficially
owned by it immediately following the closing of the transactions (so long
as Vivendi owns at least equal to 10% of the total equity securities of
USA).
Under the terms of the Amended and Restated Governance Agreement,
immediately following the closing of the transactions:
- the USA board of directors will include John C. Malone, chairman of the
board of directors of Liberty, and Robert R. Bennett, president and chief
executive officer of Liberty;
- Liberty will continue to have the right to nominate up to two USA
directors so long as the number of equity securities beneficially owned by
Liberty is at least equal to 75% of the number of equity securities of USA
beneficially owned by Liberty immediately following the closing of the
transactions (so long as Liberty's ownership percentage is at least equal
to the lesser of (x) 15% of the total equity securities of USA and
(y) the percentage that is five percentage points less than the percentage
of the total equity securities of USA beneficially owned by Liberty
immediately following the closing of the transactions);
66
- Liberty will have the right to nominate one USA director so long as
Liberty beneficially owns a number of equity securities of USA at least
equal to 50% of the number of the equity securities of USA beneficially
owned by it immediately following the closing of the transactions (so long
as Liberty owns at least 5% of the total equity securities of USA); and
- USA will use its reasonable best efforts to cause one of Liberty's
designees to be a member of a committee of the USA board of directors and,
to the extent the person designated by Liberty would qualify as a member
of the compensation committee of the USA board of directors under
applicable tax and securities laws and regulations, USA will seek to have
such person appointed to the compensation committee.
Pursuant to the terms of the Amended and Restated Governance Agreement, USA
will cause each director that Vivendi or Liberty nominates to be included in the
slate of nominees recommended by the USA board of directors to USA's
stockholders for election as directors at each annual meeting of the
stockholders of USA and will use all reasonable efforts to cause the election of
each such director including soliciting proxies in favor of the election of such
persons.
CONTINGENT MATTERS
The Amended and Restated Governance Agreement lists fundamental actions that
require the prior consent of Liberty and Mr. Diller before USA can take any such
action. We refer to these fundamental actions as "Contingent Matters." In
connection with the transactions, Vivendi will surrender its existing veto
rights with respect to Contingent Matters. In addition, Liberty and Mr. Diller
agreed to significantly limit the Contingent Matters with respect to which they
are entitled to exercise veto rights under the current Governance Agreement.
For so long as
- in the case of Liberty, Liberty owns at least two-thirds of the number of
USA equity securities owned by it immediately after the closing of the
transactions and at least 5% of the total equity securities of USA (the
"Liberty Condition"), and
- in the case of Mr. Diller, he owns at least 20,000,000 USA common shares
(including options to purchase USA common shares, whether or not then
exercisable), continues to serve as chief executive officer of USA and has
not become disabled (the "Diller Condition," and together with the Liberty
Condition, the "Consent Conditions"),
USA has agreed that, without the prior approval of Liberty and/or Mr. Diller, as
applicable, it will not engage in any transaction that would result in Liberty
or Mr. Diller having to divest any part of their interests in USA or any other
material assets, or that would render any such ownership illegal or would
subject Mr. Diller or Liberty to any fines, penalties or material additional
restrictions or limitations. Liberty's and Mr. Diller's approval rights under
this provision are determined based on their respective ownership interests as
of the closing of the transactions.
In addition, for so long as the Consent Conditions apply, if USA's "total
debt ratio" (as defined in the Amended and Restated Governance Agreement) equals
or exceeds 4:1 over a twelve-month period, USA may not take any of the following
actions without the prior approval of Liberty and Mr. Diller:
- acquire or dispose of any assets, issue any debt or equity securities,
repurchase any debt or equity securities, or incur indebtedness, if the
aggregate value of such transaction or transactions (alone or in
combination) during any six month period equals 10% or more of USA's
market capitalization;
- voluntarily commence any liquidation, dissolution or winding up of USA or
any material subsidiary;
- make any material amendments to the certificate of incorporation or bylaws
of USA;
67
- engage in any line of business other than media, communications and
entertainment products, services and programming, and electronic
retailing, or other businesses engaged in by USA as of the date of
determination;
- adopt any stockholder rights plan that would adversely affect Liberty or
Mr. Diller, as applicable; or
- grant additional consent rights to a USA stockholder.
PREEMPTIVE RIGHTS
The Amended and Restated Governance Agreement eliminates Vivendi's
preemptive rights with respect to USA common shares contained in the Investment
Agreement, while preserving Liberty's existing preemptive rights with respect to
USA common shares.
In the event that USA issues or proposes to issue any shares of USA common
stock or Class B common stock (including shares issued upon exercise, conversion
or exchange of options, warrants and convertible securities), Liberty will have
preemptive rights that entitle it to purchase a number of USA common shares so
that Liberty will maintain the identical ownership interest in USA that Liberty
had immediately prior to such issuance or proposed issuance. Any purchase by
Liberty will be allocated between USA common stock and Class B common stock in
the same proportion as the issuance or issuances giving rise to the preemptive
right, except to the extent that Liberty opts to acquire shares of USA common
stock in lieu of shares of USA Class B common stock.
REGISTRATION RIGHTS
Vivendi, Liberty and Mr. Diller will be entitled to customary, transferable
registration rights with respect to shares of USA common stock (and in the case
of Vivendi, the warrants) owned by them as of the closing of the transactions or
acquired from USA in the future. Vivendi, Liberty and Mr. Diller will be
entitled to four, four and three demand registration rights, respectively. USA
will pay the costs associated with such registrations (other than underwriting
discounts, fees and commissions). USA will not be required to register shares of
USA common stock if a stockholder could sell the shares in the quantities
proposed to be sold at such time in one transaction under Rule 144 of the
Securities Act or under another comparable exemption from registration.
TERMINATION
Generally, the Amended and Restated Governance Agreement will terminate
- with respect to Vivendi, at such time that Vivendi beneficially owns USA
equity securities representing less than 5% of the total equity securities
of USA;
- with respect to Liberty, at such time that Liberty beneficially owns
equity securities representing less than 5% of the total equity securities
of USA; and
- with respect to Mr. Diller, at such time that the CEO Termination Date (as
defined in the Amended and Restated Governance Agreement) has occurred or
at such time as Mr. Diller becomes disabled.
With respect to the provisions governing "Contingent Matters," such
provisions will terminate as to Mr. Diller and Liberty as set forth under
"--Contingent Matters."
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
GENERAL
On December 16, 2001, Vivendi, Universal, Liberty and Mr. Diller entered
into an Amended and Restated Stockholders Agreement, which will become effective
at the closing of the transactions and
68
supersede the existing Stockholders Agreement among Universal, Liberty,
Mr. Diller, USA and Vivendi (as the successor to The Seagram Company Ltd.),
dated as of October 19, 1997. If the transactions are not completed, the
existing Stockholders Agreement will remain in place.
CORPORATE GOVERNANCE
Each party to the Amended and Restated Stockholders Agreement has agreed to
vote against any Contingent Matter if Mr. Diller and Liberty do not approve the
Contingent Matter (and continue to have veto rights with respect to the
Contingent Matter under the Amended and Restated Governance Agreement).
Universal, Liberty and Mr. Diller have also agreed to vote all USA securities
over which they have voting control in favor of the Vivendi and Liberty
designees to the USA board of directors.
Each of Universal and Liberty has granted to Mr. Diller an irrevocable proxy
with respect to all USA securities owned by Universal and Liberty for all
matters, except, with respect to the proxy granted by Liberty, for Contingent
Matters to which Liberty has not consented, in each case so long as Mr. Diller
continues to own at least 20,000,000 USA common shares (including options). The
proxy will generally remain in effect until the earlier of (1) the CEO
Termination Date (as defined in the Amended and Restated Stockholders Agreement)
and (2) the date that Mr. Diller becomes disabled.
RESTRICTIONS ON TRANSFERS
Until the earlier of (1) the CEO Termination Date (as defined in the Amended
and Restated Stockholders Agreement) and (2) the date that Mr. Diller becomes
disabled, subject to the other provisions of the Amended and Restated
Stockholders Agreement, neither Liberty nor Mr. Diller can transfer shares of
USA common stock or USA Class B common stock, other than:
- transfers by Mr. Diller to pay taxes relating to the granting, vesting
and/or exercise of stock options to purchase shares of USA common stock;
- transfers to each party's respective affiliates;
- pledges relating to financings; and
- transfers of options or USA common shares in connection with "cashless
exercises" of Mr. Diller's options to purchase shares of USA common stock.
The restrictions on transfer are subject to a number of exceptions (which
exceptions are generally subject to the rights of first refusal described
below):
- either of Liberty or Mr. Diller may transfer USA common shares to an
unaffiliated third party or Universal, subject to tag-along rights
described below;
- either of Liberty or Mr. Diller may transfer USA common shares so long as,
in the case of Mr. Diller, he continues to beneficially own at least
4,400,000 USA common shares (including stock options) and, in the case of
Liberty, Liberty continues to beneficially own 4,000,000 USA common
shares, and in the case of a transfer of an interest in, or USA common
shares held by, specified entitities referred to as the "BDTV Entities,"
after such transfer, Liberty, Universal and Mr. Diller collectively
control at least 50.1% of the total voting power of USA; and
- either of Liberty or Mr. Diller may transfer USA common shares so long as
the transfer complies with the requirements of Rule 144 or Rule 145 under
the Securities Act, and, in the case of a transfer of an interest in, or
USA common shares held by, the BDTV Entities, after such transfer,
Liberty, Universal and Mr. Diller collectively control at least 50.1% of
the total voting power of USA.
69
TAG-ALONG RIGHTS AND RIGHTS OF FIRST REFUSAL
Each of Mr. Diller and Liberty is entitled to a right to "tag-along" (I.E.,
participate on a pro rata basis) on sales by Mr. Diller or Liberty, as the case
may be, of USA common shares to any third party, including to Universal. Liberty
will not have a tag-along right in the event of:
- sales by Mr. Diller of up to 4,000,000 USA common shares within any
rolling twelve-month period;
- transfers by Mr. Diller to pay taxes relating to the granting, vesting
and/or exercise of stock options to purchase shares of USA common stock or
transfers in connection with "cashless exercises" of Mr. Diller's options
to purchase shares of USA common stock;
- specified "brokers' transactions," as defined under the Securities Act,
which we refer to as "market sales"; or
- generally, when Mr. Diller is no longer chief executive officer of USA.
Mr. Diller has a right of first refusal with respect to sales by Universal
of USA common shares. Mr. Diller will not have a right of first refusal in the
event of:
- transfers between affiliates of Vivendi;
- market sales of up to 1,000,000 USA common shares within any rolling
twelve-month period;
- transfers of up to 4,000,000 USA common shares within any rolling
twelve-month period; and
- transfers of USA common shares upon the exercise of a put or call of the
Class B preferred interest in VUE.
Subject to Mr. Diller's right of first refusal, Liberty also has a right of
first refusal on any transfer of USA common shares by Universal with respect to
which Mr. Diller would have a right of first refusal.
Each of Mr. Diller and Liberty has a right of first refusal in the case of a
transfer by the other of USA common shares to a third-party unless:
- the transfer is permitted under the first paragraph of "--Restrictions on
Transfers";
- not more than 4,000,000 USA common shares are transferred within any
rolling twelve-month period; or
- less than 1,000,000 USA common shares are transferred within any rolling
twelve-month period through market sales.
TRANSFERS OF SHARES OF USA CLASS B COMMON STOCK
If any of Universal, Liberty or Mr. Diller proposes to transfer shares of
USA Class B common stock, the other parties to the Amended and Restated
Stockholders Agreement are entitled to swap any shares of USA common stock they
own for such shares of USA Class B common stock (subject to the rights of first
refusal described above), Mr. Diller having the priority over Liberty in case of
transfers made by Universal. To the extent there remain shares of USA Class B
common stock that the selling stockholder would otherwise transfer to a third
party, such shares must first be converted into shares of USA common stock. This
restriction does not apply to, among other specified transfers, transfers among
the parties and their affiliates.
STANDSTILL IN FAVOR OF VIVENDI
Mr. Diller has agreed that, prior to the earliest of:
- the fourth anniversary of the closing of the transactions;
- the sale of all or substantially all of the assets of Vivendi to a third
party; and
70
- a merger or consolidation of Vivendi in which a majority of the shares of
the surviving entity are not held by the former shareholders of Vivendi,
neither Mr. Diller nor his affiliates will take any of the following actions:
- acquire, agree to acquire or make any proposal to acquire beneficial
ownership of (1) voting securities that would result in Mr. Diller and his
affiliates collectively owning greater than 5% of the outstanding voting
securities of Vivendi or (2) any significant assets of Vivendi, in each
case other than indirectly through the acquisition of an entity that owns
Vivendi voting securities if Mr. Diller and his affiliates collectively
own less than 1% of that entity's total assets;
- act, alone or in concert with others, to seek to affect or influence the
control of the management or the board of directors of Vivendi or the
business, operations or policies of Vivendi;
- enter into any discussions, negotiations, arrangements, understandings or
agreements with any person regarding a business combination involving
Vivendi;
- make or participate in a solicitation of proxies to vote Vivendi's
securities;
- call a meeting of Vivendi shareholders; or
- create or join any kind of group (E.G., a voting trust) for the purpose of
acquiring Vivendi's voting securities.
TERMINATION OF AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
Universal's rights and obligations under the Amended and Restated
Stockholders Agreement generally terminate at such time as Universal ceases to
have the right to designate directors of USA pursuant to the Amended and
Restated Governance Agreement.
Mr. Diller's and Liberty's rights and obligations under the Amended and
Restated Stockholders Agreement generally terminate at such time as, in the case
of Mr. Diller, he no longer beneficially owns at least 4,400,000 USA common
shares (including stock options) and, in the case of Liberty, Liberty no longer
beneficially owns at least 4,000,000 USA common shares. Liberty's tag-along
rights and obligations terminate at such time as Liberty ceases to beneficially
own at least 5% of the total equity securities of USA.
In addition, Mr. Diller's rights under the Amended and Restated Stockholders
Agreement generally terminate if Mr. Diller no longer serves as the chief
executive officer of USA or if Mr. Diller has become disabled.
WARRANT AGREEMENT
In connection with the transactions, and in exchange for Vivendi agreeing to
enter into certain commercial arrangements and for other valuable consideration,
USA has agreed to issue to Vivendi upon closing of the transactions warrants to
purchase shares of USA common stock. The warrants will be issued under a warrant
agreement to be entered into prior to completion of the transactions between USA
and The Bank of New York, as warrant agent, a form of which is attached to this
proxy statement as Appendix E. Each warrant entitles the holder to purchase one
share of USA common stock at the applicable exercise price, subject to customary
adjustments to prevent dilution.
USA will issue the warrants in three tranches as follows:
NUMBER OF WARRANTS EXERCISE PRICE PER WARRANT
------------------ --------------------------
24,187,094 $27.50
24,187,094 $32.50
12,093,547 $37.50
71
The exercise price must be paid in cash. Each warrant may be exercised on any
business day following the six-month anniversary of the closing of the
transactions until the tenth anniversary of its date of issuance. Any warrant
not exercised before the expiration of this period will become void, and all
rights of the holder of the warrant will cease. Holders of warrants will not be
entitled, by virtue of being such holders, to have any rights of holders of USA
common stock until they exercise their warrants.
The number of shares of USA common stock issuable upon exercise of the
warrants and the exercise price of the warrants will be subject to adjustment
from time to time upon the occurrence of any of the following events after the
completion of the transactions: any stock split; any stock consolidation,
combination or subdivision; any stock dividend or other distribution; and any
repurchase, reclassification, recapitalization or reorganization.
Neither the USA common stock issuable upon exercise of the warrants nor the
warrants will be registered under the Securities Act as of the closing of the
transactions. Vivendi has registration rights with respect to the warrants. In
addition, Vivendi may generally transfer the warrants and/or the shares of USA
common stock issuable upon exercise of the warrants, subject to the limitations
in the Amended and Restated Governance Agreement and the Amended and Restated
Stockholders Agreement. The issuance of USA common stock upon exercise of the
equity warrants issued to Vivendi is subject to Liberty's preemptive rights.
VIVENDI/LIBERTY MERGER AGREEMENT
On December 16, 2001, Vivendi, Universal, Liberty and certain of their
affiliates entered into the Vivendi/Liberty Merger Agreement. None of USA or its
subsidiaries is a party to the Vivendi/Liberty Merger Agreement although the
Transaction Agreement provides that Liberty and Vivendi cannot amend the
Vivendi/Liberty Merger Agreement in certain ways without the approval of USA.
Under the Vivendi/Liberty Merger Agreement, among other things, affiliates of
Liberty will exchange 7,079,726 LLC shares for 7,079,726 shares of USA common
stock, following which the exchange agreement relating to the LLC shares will
terminate (except for the representations and warranties contained therein) and
the remaining LLC shares will no longer be exchangeable for shares of USA common
stock. Immediately following the completion of the share exchange and
termination, Vivendi and Liberty will complete specified transfers and mergers
that will result in the transfer from Liberty to Vivendi of 25,000,000 shares of
USA common stock, entities holding 38,694,982 LLC shares, as well as all of the
assets and liabilities of Liberty Programming France (which consist primarily of
4,921,250 shares of multiThematiques). In return, Vivendi will issue 37,386,436
ADSs representing Vivendi ordinary shares to Liberty, which is subject to
adjustment.
Completion of the transfers specified in the Vivendi/Liberty Merger
Agreement is conditioned on the satisfaction of customary closing conditions,
including (1) the receipt of any regulatory consent or approval the failure of
which to obtain could have a material adverse effect, (2) the absence of any law
or judgment or any other legal restraint or prohibition preventing the
completion of the transactions under the Vivendi/Liberty Merger Agreement,
(3) the accuracy of specified representations and warranties, (4) the
performance of specified obligations and covenants and (5) satisfaction of the
conditions to completion of the transactions specified in the Transaction
Agreement and the concurrent completion of those transactions. In turn,
completion of the transactions contemplated by the Transaction Agreement is
conditioned on completion of the transactions contemplated by the Vivendi/
Liberty Merger Agreement. In the event that the closing of the transactions will
be significantly delayed by the inquiry of any regulatory body reviewing the
multiThematiques transaction, Vivendi and Liberty will negotiate in good faith
to amend the Vivendi/Liberty Merger Agreement to avoid delaying the closing of
the transactions, and Vivendi and Liberty are required to execute such amendment
if it provides to Liberty the economic benefits of the multiThematiques
transaction.
72
INTERESTS OF OFFICERS AND DIRECTORS IN THE TRANSACTIONS
When considering the recommendation of the USA board of directors, you
should be aware that the USA officers and directors may have interests in the
transactions that are different from or are in addition to yours. The special
committee and the USA board of directors were aware of these interests and
considered them, among other matters, in approving the transactions. These
interests are described below.
CERTAIN EXECUTIVE OFFICERS
Mr. Diller will become chairman and chief executive officer of VUE in
addition to remaining chairman and chief executive officer of USA. In
consideration of his assuming these new roles with VUE and his agreeing to the
specified non-competition provisions with respect to VUE contained in the
Partnership Agreement, Mr. Diller will receive a common interest in VUE with a
1.5% profit sharing percentage. For a description of Mr. Diller's common
interest in VUE, see "The Transaction Documents--Partnership
Agreement--Mr. Diller's Common Interest."
In February 2002, Mr. Diller assigned to three executive officers of USA the
right to receive beneficial interests in a portion of Mr. Diller's common
interest in VUE. As a result of the assignments, upon closing of the
transactions, Victor Kaufman, vice chairman and a director of USA, will have an
economic interest in Mr. Diller's VUE common interests subject to put and call
rights with a minimum value of $15 million, and both of Dara Khosrowshahi,
executive vice president and chief financial officer of USA, and Julius
Genachowski, executive vice president and general counsel of USA, will have an
economic interest in Mr. Diller's VUE common interests subject to put and call
rights with a minimum value of $2.5 million. Mr. Kaufman will serve as special
advisor to the chairman and chief executive officer of VUE. In no event will any
of the officers receive any amounts referred to above prior to the exercise of
the put or call relating to Mr. Diller's common interest, nor will any of these
officers have any right to exercise any voting interests relating to
Mr. Diller's VUE common interest. As a result of the assignments, upon closing
of the transactions, Mr. Diller's economic interest in his VUE common interest
will be reduced to 92.7%, subject to put and call rights at a minimum price of
$255 million.
VIVENDI BOARD DESIGNEES
The USA board of directors includes four representatives from Vivendi. In
connection with the transactions, USA will grant to Vivendi warrants to purchase
60,467,735 shares of USA common stock and, more generally, Vivendi is a party to
the transactions. For a description of the warrants that USA has agreed to issue
to Vivendi, see "The Transaction Documents--Warrant Agreement." In addition,
Vivendi and its subsidiaries will own 93.06% of the common interests in VUE to
which USA is contributing the USA Entertainment Group. The Vivendi
representatives on the USA board of directors did not participate in the USA
board meetings relating to transactions.
LIBERTY BOARD DESIGNEES
The USA board of directors includes two representatives from Liberty. In
connection with the transactions, Liberty will transfer to Vivendi 25,000,000
USA common shares, entities holding 38,694,982 LLC shares, as well as the assets
and obligations of Liberty Programming France (which consist primarily of
4,921,250 shares of multiThematiques), in exchange for 37,386,436 ADSs
representing Vivendi ordinary shares, subject to adjustment.
INTERESTS IN USA SECURITIES AND OPTIONS
As of the record date, the executive officers and directors of USA and their
affiliates beneficially owned USA common shares as set forth under "Stock
Ownership of Management and Directors."
73
STOCK OWNERSHIP OF MANAGEMENT AND DIRECTORS
USA COMMON STOCK
The following table presents, as of February 15, 2002, information relating
to the beneficial ownership of USA's common stock by (1) each person known by
USA to own beneficially more than 5% of the outstanding shares of USA's common
stock, (2) each director of USA, (3) each of the chief executive officer and the
four other most highly compensated executive officers of USA who served in such
capacities as of December 31, 2001 (the "Named Executive Officers"), and
(4) all executive officers and directors of USA as a group. The table also
presents, as of February 15, 2002, information relating to the beneficial
ownership of shares of Class A common stock of Hotel Reservations
Network, Inc., a subsidiary of USA ("HRN"), shares of Class A common stock of
Styleclick, Inc., a subsidiary of USA ("Styleclick"), and shares of Class B
common stock of Ticketmaster, a subsidiary of USA ("TM"), and shares of Class A
common stock of Expedia, Inc., a subsidiary of USA ("Expedia") by (1) each
director of USA, (2) each of the Named Executive Officers, and (3) all executive
officers and directors of USA as a group.
Unless otherwise indicated, beneficial owners listed here may be contacted
at USA's corporate headquarters address, 152 West 57th Street, New York, New
York 10019. For each listed person, the number of shares of USA common stock,
HRN Class A common stock, Styleclick Class A common stock, TM Class B common
stock and the percent of each such class listed assumes the conversion of any
shares of USA Class B common stock, HRN Class B common stock, Styleclick
Class B common stock and TM Class A common stock owned by such person, but does
not assume the conversion of those shares owned by any other person. Shares of
USA Class B common stock may at the option of the holder be converted on a
one-for-one basis into shares of USA common stock. Shares of HRN Class B common
stock may at the option of the holder be converted on a one-for-one basis into
shares of HRN Class A common stock. Shares of Styleclick Class B common stock
may at the option of the holder be converted on a one-for-one basis into shares
of Styleclick Class A common stock. Shares of TM Class A common stock may at the
option of the holder be converted on a one-for-one basis into shares of TM
Class B common stock. Under the rules of the Securities and Exchange Commission,
a person is deemed to be a beneficial owner of a security if that person has or
shares voting power, which includes the power to vote or to direct the voting of
such security, or investment power, which includes the power to dispose of or to
direct the disposition of such security. A person is also deemed to be the
beneficial owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules, more than one person may
be deemed to be a beneficial owner of the same securities and a person may be
deemed to be a beneficial owner of securities as to which that person has no
economic interest. For each listed person, the number of shares and percent of
class listed includes shares of USA common stock, HRN Class A common stock,
Styleclick Class A common stock and TM Class B common stock that may be acquired
by such person upon exercise of stock options that are or will be exercisable
within 60 days of February 15, 2002. Unless specifically set forth in the
following table, the listed person did not beneficially own any shares of HRN
common stock, TM common stock, Styleclick common stock or Expedia common stock.
The percentage of votes for all classes of USA common stock is based on one
vote for each share of USA common stock, ten votes for each share of USA
Class B common stock and two votes for each share of USA preferred stock. These
figures do not include any unissued shares of USA common stock or USA Class B
common stock issuable upon conversion of Liberty's Home Shopping Network, Inc.
("Holdco") shares and LLC shares beneficially owned by Liberty and Vivendi. The
percentage of votes for all classes of HRN common stock is based on one vote for
each share of HRN Class A common stock and 15 votes for each share of HRN
Class B common stock. The percentage of votes for all classes of Styleclick
common stock is based on one vote for each share of Styleclick Class A common
stock and 15 votes for each share of Styleclick Class B common stock. The
percentage of votes for all classes of TM common stock is based on 15 votes for
each share of TM Class A common stock and one vote for each share of TM Class B
common stock.
74
PERCENT OF
NUMBER OF PERCENT OF VOTES
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS SHARES CLASS (ALL CLASSES)
------------------------------------ ------------------ -------------- ---------- -------------
Capital Research & Management Co. .. USA common 27,503,520(1) 8.1% 2.8%
333 South Hope Street
Los Angeles, CA 90071
Liberty Media Corporation.......... USA common 74,442,234(2) 19.1% 52.2%
12300 Liberty Boulevard
Englewood, CO 80112
Microsoft Corporation.............. USA common 53,318,277(3) 14.3% 5.3%
One Microsoft Way USA preferred 12,808,605(3)
Redmond, WA 98052
Vivendi Universal, S.A. ........... USA common 31,611,308(4) 8.9% 15.3%
42, Avenue de Friedland
75380 Paris cedex 08/France
Wellington Management Company LLC.. USA common 15,849,317(1) 4.7% 1.6%
75 State Street
Boston, MA 02109
Barry Diller....................... USA common 155,472,777(2)(5) 34.5% 71.0%
HRN Class A --(6) * *
Styleclick Class A --(7) * *
TM Class B --(8) * *
Expedia --(9) * *
Paul Allen......................... USA common 20,024,026(10) 5.9% 2.0%
TM Class B 105,622(11) * *
Robert R. Bennett.................. USA common 26,096(28) * *
Edgar Bronfman, Jr................. USA common -- * *
Anne M. Busquet.................... USA common 18,998(12) * *
Julius Genachowski................. USA common 155,895(13) * *
TM Class B 700 * *
Philippe Germond................... USA common 1,666(14) * *
Victor A. Kaufman.................. USA common 1,045,000(15) * *
Donald R. Keough................... USA common 204,674(16) * *
75
PERCENT OF
NUMBER OF PERCENT OF VOTES
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS SHARES CLASS (ALL CLASSES)
------------------------------------ ------------------ -------------- ---------- -------------
Dara Khosrowshahi ................. USA common 270,676(17) * *
HRN Class A 29,383(18) * *
TM Class B 500 * *
Georg Kofler....................... USA common 1,600,000(19) * *
Marie-Josee Kravis................. USA common 1,666(20) * *
Pierre Lescure..................... USA common 1,666(21) * *
John C. Malone..................... USA common --(28) * *
Jean-Marie Messier ................ USA common 1,666(22) * *
William D. Savoy................... USA common 59,998(23) * *
TM Class B 14,166(24) * *
Gen. H. Norman Schwarzkopf......... USA common 165,998(25) * *
Michael Sileck..................... USA common 9,630(26) * *
Diane Von Furstenberg.............. USA common 14,998(27) * *
HRN Class A -- * *
Styleclick Class A -- * *
TM Class B -- * *
All executive officers and directors
as a group (19 persons)......... USA common 179,075,430 39.4% 73.1%
HRN Class A 29,383 * *
Styleclick Class A -- * *
TM Class B 120,988 * *
------------------------
* The percentage of shares beneficially owned does not exceed 1% of the class.
(1) Based upon information filed with the Securities and Exchange Commission as
of February 15, 2002.
(2) Consists of 24,838,738 shares of USA common stock and 756,644 shares of USA
Class B common stock held by Liberty and 44 shares of USA common stock held
collectively by the BDTV Entities and 8,000,000, 31,236,444, 8,010,364 and
1,600,000 shares of USA Class B common stock held by BDTV Inc., BDTV
II Inc., BDTV III Inc. and BDTV IV Inc. (collectively, the "BDTV Entities"),
respectively. Does not include 77,394,771 shares of USA common stock or
1,596,544 shares of USA class B common stock issuable upon conversion of
Holdco shares and LLC shares beneficially owned by Liberty. Mr. Diller owns
all of the voting stock of the BDTV Entities and Liberty owns all of the
non-voting stock, which non-voting stock represents in excess of 99% of the
equity of the BDTV Entities. Pursuant to the Stockholders Agreement,
Mr. Diller generally has the right to vote all of the shares of USA common
stock and USA Class B common stock held by Liberty and the BDTV Entities.
(3) Based on information filed with the Securities and Exchange Commission as of
February 15, 2002. Consists of 20,096,634 shares of USA common stock,
14,245,932 shares of USA common stock issuable upon exercise of the same
number of USA warrants and 18,975,711 shares of USA common stock issuable
upon conversion of 12,808,605 shares of USA preferred stock.
(4) Consists of 18,181,308 shares of USA common stock and 13,430,000 shares of
USA Class B common stock held by Vivendi. Does not include 135,591,530
shares of USA common stock or 146,570,000 shares of USA Class B common stock
issuable upon conversion of LLC shares beneficially owned by Vivendi.
Pursuant to the Stockholders Agreement, Mr. Diller generally has
76
the right to vote all of the shares of USA common stock and USA Class B
common stock held by Vivendi.
(5) Consists of 2,043,805 shares of USA common stock owned by Mr. Diller,
options to purchase 47,120,888 shares of USA common stock granted under
USA's stock option plans, 254,542 shares of USA common stock held by a
private foundation as to which Mr. Diller disclaims beneficial ownership, 44
shares of USA common stock and 48,846,808 shares of USA Class B common stock
held by the BDTV Entities, 24,838,738 shares of USA common stock and 756,644
shares of USA Class B common stock which are held by Liberty, and 18,181,308
shares of USA common stock and 13,430,000 shares of USA Class B common
stock, which are held by Universal and otherwise beneficially owned by
Vivendi, as to which Mr. Diller has general voting authority under the
Stockholders Agreement. Excludes options to purchase 14,998 shares of USA
common stock held by Ms. Von Furstenberg, as to which Mr. Diller disclaims
beneficial ownership. Ms. Von Furstenberg is Mr. Diller's wife.
(6) Excludes 38,999,100 shares of HRN Class B common stock owned by USA, as to
which Mr. Diller disclaims beneficial ownership. These shares are
convertible into an equal number of shares of HRN Class A common stock.
(7) Excludes 23,153,713 shares of Styleclick Class B common stock owned by USA,
as to which Mr. Diller disclaims beneficial ownership. These shares are
convertible into an equal number of shares of Styleclick Class A common
stock.
(8) Excludes 42,480,143 shares of TM Class A common stock and 53,302,401 shares
of TM Class B common stock owned by USA, as to which Mr. Diller disclaims
beneficial ownership. The shares of TM Class A common stock are convertible
into an equal number of shares of TM Class B common stock.
(9) Excludes 936,815 shares of Expedia Class A common stock and 34,518,375
shares of Expedia Class B common stock owned by USA, as to which Mr. Diller
disclaims beneficial ownership. The common stock has one vote per share and
the Class B common stock generally has 15 votes per share.
(10) Consists of 19,954,028 shares of USA common stock and options to purchase
69,998 shares of USA common stock granted under USA's stock option plans.
(11) Consists of 95,622 shares of TM Class B common stock held by Mr. Allen and
10,000 shares of TM Class B common stock held by Vulcan Ventures, Inc.
(12) Consists of 4,000 shares of USA common stock and options to purchase 14,998
shares of USA common stock granted under USA's stock option plans.
(13) Consists of 20,062 shares of USA common stock, 25,000 shares of USA
restricted stock and options to purchase 110,833 shares of USA common stock
granted under USA's stock option plans.
(14) Consists of options to purchase 1,666 shares of USA common stock granted
under USA's stock option plans.
(15) Consists of 45,000 shares of USA restricted stock and options to purchase
1,000,000 shares of USA common stock granted under USA's stock option
plans.
(16) Consists of 84,676 shares of USA common stock and options to purchase
119,998 shares of USA common stock granted under USA's stock option plans.
Excludes shares of USA common stock beneficially owned by Allen & Co., for
which Mr. Keough serves as Chairman. Mr. Keough disclaims beneficial
ownership of such shares.
(17) Consists of 23,593 shares of USA common stock, 45,000 shares of USA
restricted stock and options to purchase 102,083 shares of USA common stock
granted under USA's stock option plans.
(18) Consists of options to purchase 29,383 shares of HRN Class A common stock
granted under HRN's stock option plans.
77
(19) Consists of options to purchase 1,600,000 shares of USA common stock
granted under USA's stock option plans.
(20) Consists of options to purchase 1,666 shares of USA common stock granted
under USA's stock option plans.
(21) Consists of options to purchase 1,666 shares of USA common stock granted
under USA's stock option plans.
(22) Consists of options to purchase 1,666 shares of USA common stock granted
under USA's stock option plans.
(23) Consists of 10,000 shares of USA common stock and options to purchase
49,998 shares of USA common stock granted under USA's stock option plans.
(24) Consists of 10,000 shares of TM Class B common stock and options to
purchase 4,166 shares of TM Class B common stock granted under TM's stock
option plans.
(25) Consists of options to purchase 165,998 shares of USA common stock granted
under USA's stock option plans.
(26) Consists of 9,630 shares of USA common stock.
(27) Consists of options to purchase 14,998 shares of USA common stock granted
under USA's stock option plans. Excludes shares beneficially owned by
Mr. Diller, as to which Ms. Von Furstenberg disclaims beneficial ownership.
Ms. Von Furstenberg is Mr. Diller's wife.
(28) Mr. Bennett and Mr. Malone became directors of USA on October 25, 2001.
Excludes shares beneficially owned by Liberty, as to which Messrs. Bennett
and Malone disclaim beneficial ownership.
78
USA CLASS B COMMON STOCK
The following table presents, as of February 15, 2002, information relating
to the beneficial ownership of USA's Class B common stock:
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
------------------------------------ ---------------- ----------------
Barry Diller(1)............................................. 63,033,452 100%
c/o USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Liberty Media Corporation(1)(2)............................. 49,603,452 78.7%
12300 Liberty Boulevard
Englewood, CO 80112
BDTV Entities(2)............................................ 48,846,808 77.5%
(includes BDTV INC.,
BDTV II INC., BDTV III INC.
and BDTV IV INC.)
8800 Sunset Boulevard
West Hollywood, CA 90069
Vivendi Universal, S.A.(1)(3)............................... 13,430,000 21.3%
42, avenue de Friedland
75380 Paris cedex 08/France
------------------------
(1) These figures do not include shares of Class B common stock issuable upon
conversion of Liberty's Holdco shares and shares of USA Class B common stock
issuable upon conversion of Vivendi's LLC shares.
(2) Liberty holds 756,644 shares of USA Class B common stock and the BDTV
Entities hold 48,846,808 shares of USA Class B common stock. Mr. Diller owns
all of the voting stock of the BDTV Entities and Liberty owns all of the
non-voting stock, which non-voting stock represents in excess of 99% of the
equity of the BDTV Entities. Pursuant to the Stockholders Agreement,
Mr. Diller generally has the right to vote all of the USA shares, including
shares of USA Class B common stock held by Liberty and the BDTV Entities.
(3) Mr. Diller generally votes all of the shares held by Vivendi under the terms
of the Stockholders Agreement.
79
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF USA
In the tables below, we provide you with unaudited pro forma combined
condensed financial information for USA giving effect to the contribution of the
USA Entertainment Group to VUE, USA's acquisition of Expedia, and the
Ticketmaster combination completed by USA during the year ended December 31,
2001. The Ticketmaster combination was a transaction completed on January 31,
2001 which combined Ticketmaster Online--CitySearch, Inc. ("TMCS") and
Ticketmaster Corporation, both of which are subsidiaries of USA. We also provide
you with unaudited pro forma combined condensed financial information for
Expedia for the year ended December 31, 2001.
The pro forma combined condensed financial statements of USA reflect some
assumptions regarding the transactions and are based on the historical financial
statements of USA. The combined condensed financial statements of USA, including
the notes accompanying them, are qualified in their entirety by reference to,
and should be read in conjunction with, USA's audited financial statements,
including the notes accompanying them, which are incorporated by reference into
this proxy statement.
The pro forma combined condensed balance sheet as of December 31, 2001 gives
effect to the disposition of the USA Entertainment Group and the acquisition of
Expedia as if those transactions had occurred on December 31, 2001.
The pro forma combined condensed statement of operations for the year ended
December 31, 2001 reflects USA's audited statements of operations for the year
ended December 31, 2001 and Expedia's results for the twelve months ended
December 31, 2001, adjusted for the pro forma effects of the disposition of the
USA Entertainment Group, the acquisition of Expedia, as well as the completion
of the Ticketmaster combination described above, as if such transactions had
occurred as of January 1, 2001.
USA is in the process of evaluating the fair value of Expedia's assets
acquired and liabilities assumed in order to make a final allocation of the
excess purchase price, including allocation to intangibles other than goodwill.
Accordingly, the purchase accounting information is preliminary and has been
made solely for the purpose of developing such unaudited pro forma combined
condensed financial information. Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," provides that goodwill
resulting from a business combination completed subsequent to June 30, 2001 will
not be amortized but instead is required to be tested for impairment at least
annually.
THE PRO FORMA COMBINED CONDENSED BALANCE SHEET AND STATEMENTS OF OPERATIONS
ARE NOT NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS OR FINANCIAL
POSITION, WHICH ACTUALLY WOULD HAVE BEEN REPORTED HAD THESE TRANSACTIONS
OCCURRED AS OF DECEMBER 31, 2001 OR AS OF JANUARY 1, 2001, NOR ARE THEY
NECESSARILY INDICATIVE OF USA'S FUTURE FINANCIAL RESULTS OF OPERATIONS.
80
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 2001
(IN THOUSANDS)
EXPEDIA VUE
EXPEDIA PRO FORMA USA ASSETS PRO FORMA PRO FORMA
USA HISTORICAL(1) ADJUSTMENTS CONTRIBUTED(6) ADJUSTMENTS COMBINED
----------- ------------- ----------- -------------- ----------- -----------
ASSETS
Current Assets:
Cash and short-term investments.... $ 978,377 $238,374 $ -- $ -- $1,618,710 (8) $ 2,835,461
Restricted cash.................... 9,107 -- -- -- 9,107
Marketable securities.............. 171,464 -- -- -- 171,464
Accounts and notes receivable,
net.............................. 1,262,560 8,726 -- (395,798) -- 875,488
Inventories, net................... 408,306 -- -- (210,952) -- 197,354
Other.............................. 146,418 24,841 -- (2,053) -- 169,206
----------- -------- ---------- ----------- ---------- -----------
Total current assets............. 2,976,232 271,941 -- (608,803) 1,618,710 4,258,080
Property, plant and equipment,
net.............................. 434,115 21,447 -- (35,128) -- 420,434
Intangible assets including
goodwill, net.................... 7,236,283 98,270 1,368,572 (2) (3,941,801) 1,315,534 (10) 6,184,711
107,853 (13)
Cable distributions fees, net...... 158,880 -- -- -- -- 158,880
Long-term investments.............. 206,535 12,897 -- (49,277) 1,514,000 (8) 1,684,155
Preferred interest exchangeable for
common stock..................... -- -- -- -- 1,428,530 (8) 1,428,530
Advance to Universal............... 39,265 -- -- -- -- 39,265
Inventories, net................... 535,555 -- -- (535,555) -- --
Deferred charges and other......... 116,187 -- -- (92,429) -- 23,758
----------- -------- ---------- ----------- ---------- -----------
Total assets..................... 11,703,052 404,555 1,368,572 (5,262,993) 5,984,627 14,197,813
=========== ======== ========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term
debt............................. 34,016 -- -- (497) -- 33,519
Accounts payable, accrued and other
current liabilities.............. 329,043 98,395 10,000 (2) (34,992) 20,000 (10) 422,446
Accounts payable, client
accounts......................... 102,011 -- -- -- -- 102,011
Obligations for program rights and
film costs....................... 272,601 -- -- (272,601) -- --
Deferred revenue................... 131,627 52,965 -- (56,371) -- 128,221
Cable distribution fees payable.... 32,795 -- -- -- -- 32,795
Other accrued liabilities.......... 693,203 4,094 -- (206,729) -- 490,568
----------- -------- ---------- ----------- ---------- -----------
Total current liabilities........ 1,595,296 155,454 10,000 (571,190) 20,000 1,209,560
Long-term debt..................... 544,667 -- -- (295) -- 544,372
Obligation for program rights and
film costs....................... 285,378 -- -- (285,378) -- --
Other long-term liabilities........ 363,841 -- -- (24,941) 2,115,116 (10) 2,454,016
Minority interest.................. 4,968,369 -- 89,178 (5) -- (3,989,497)(10) 997,253
(70,797)(13)
Common stock exchangeable for
preferred interest............... -- -- -- 1,428,530 (8) 1,428,530
Stockholders' equity............... 3,945,501 249,101 1,518,495 (2) (4,381,189) 5,491,752 (10) 7,564,082
178,650 (13)
(249,101)(3) 810,873 (9)
----------- -------- ---------- ----------- ---------- -----------
Total liabilities and
stockholders' equity........... $11,703,052 $404,555 $1,368,572 $(5,262,993) $5,984,627 $14,197,813
=========== ======== ========== =========== ========== ===========
81
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EXPEDIA VUE
USA TICKETMASTER EXPEDIA PRO FORMA USA ASSETS PRO FORMA
HISTORICAL COMBINATION HISTORICAL(1) ADJUSTMENTS CONTRIBUTED(6) ADJUSTMENTS
----------- ------------- ------------- ------------ -------------- ------------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios............. $ 1,633,130 $ -- $ -- $ -- $(1,633,130) $ --
Emerging networks............. 24,086 -- -- -- (24,086) --
Filmed entertainment.......... 167,038 -- -- -- (167,038) --
USA ELECTRONIC RETAILING
Electronic retailing.......... 1,931,473 -- -- -- -- --
USA INFORMATION AND SERVICES
Ticketing operations.......... 579,679 -- -- -- -- --
HRN........................... 536,497 -- -- -- -- --
Expedia....................... -- -- 296,936 -- -- --
Teleservices.................. 298,678 -- -- -- -- --
Match......................... 49,250 -- -- -- --
CitySearch and related........ 46,107 -- -- -- -- --
Electronic commerce
solutions................... 26,723 -- -- -- -- --
Styleclick.................... 7,506 -- -- -- -- --
Intersegment elimination...... (15,360) -- -- -- 8,307 --
----------- ------- -------- -------- ----------- --------
Total net revenues.......... 5,284,807 -- 296,936 -- (1,815,947) --
----------- ------- -------- -------- ----------- --------
OPERATING COSTS AND EXPENSES
Cost of sales and program
costs....................... 2,481,881 -- 93,142 -- (150,443) --
Other costs................... 1,913,265 -- 142,930 -- (1,069,718) --
Amortization of cable
distribution fees........... 43,975 -- -- -- -- --
Amortization of non-cash
compensation................ 12,712 -- 16,404 -- (4,912) --
Non-cash distribution and
marketing expense........... 26,384 -- -- -- -- --
Depreciation and
amortization(4)............. 572,765 -- 61,820 -- (140,626) --
----------- ------- -------- -------- ----------- --------
Total operating costs and
expenses.................. 5,050,982 -- 314,296 -- (1,365,699) --
----------- ------- -------- -------- ----------- --------
Operating income (loss)..... 233,825 -- (17,360) -- (450,248) --
Interest and other, net....... (100,661) -- (4,136) -- 39,059 100,800(12)
----------- ------- -------- -------- ----------- --------
Earnings (loss) before income
taxes and minority interest... 133,164 -- (21,496) -- (411,189) 100,800
Income tax (expense) benefit.... (108,877) 1,612(11) -- -- 13,649 (39,564)(12)
87,113(14)
Minority interest............... (149,339) (3,148)(11) -- 7,696(5) -- 216,408(7)
----------- ------- -------- -------- ----------- --------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS.................... $ (125,052) $(1,536) $(21,496) $ 7,696 $ (397,540) $364,757
=========== ======= ======== ======== =========== ========
Loss per common share from
continuing operations.........
Basic......................... $ (0.33)
===========
Diluted....................... $ (0.33)
===========
Weighted average shares
outstanding................... 374,101
===========
Weighted average diluted shares
outstanding................... 374,101
===========
PRO FORMA
COMBINED
-----------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios............. $ --
Emerging networks............. --
Filmed entertainment..........
USA ELECTRONIC RETAILING
Electronic retailing.......... 1,931,473
USA INFORMATION AND SERVICES
Ticketing operations.......... 579,679
HRN........................... 536,497
Expedia....................... 296,936
Teleservices.................. 298,678
Match......................... 49,250
CitySearch and related........ 46,107
Electronic commerce
solutions................... 26,723
Styleclick.................... 7,506
Intersegment elimination...... (7,053)
----------
Total net revenues.......... 3,765,796
----------
OPERATING COSTS AND EXPENSES
Cost of sales and program
costs....................... 2,424,580
Other costs................... 986,477
Amortization of cable
distribution fees........... 43,975
Amortization of non-cash
compensation................ 24,204
Non-cash distribution and
marketing expense........... 26,384
Depreciation and
amortization(4)............. 493,959
----------
Total operating costs and
expenses.................. 3,999,579
----------
Operating income (loss)..... (233,783)
Interest and other, net....... 35,062
----------
Earnings (loss) before income
taxes and minority interest... (198,721)
Income tax (expense) benefit.... (46,067)
Minority interest............... 71,617
----------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS.................... $ (173,171)
==========
Loss per common share from
continuing operations.........
Basic......................... $ (0.43)
==========
Diluted....................... $ (0.43)
==========
Weighted average shares
outstanding................... 401,774
==========
Weighted average diluted shares
outstanding................... 401,774
==========
82
EXPEDIA, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL(1) PRO FORMA
-------------------------------------------------- -----------------
THREE MONTHS ENDED SIX MONTHS TWELVE MONTHS
------------------------------ ENDED ENDED
MARCH 31, 2001 JUNE 30, 2001 DECEMBER 31, 2001 DECEMBER 31, 2001
-------------- ------------- ----------------- -----------------
Net revenues............................. $ 110,245 $ 25,451 $161,240 $296,936
Operating costs and expenses:
Cost of sales.......................... 71,108 (30,133) 52,167 93,142
Other costs............................ 34,598 37,838 70,494 142,930
Amortization of non-cash
compensation......................... 6,477 3,939 5,988 16,404
Depreciation and amortization.......... 17,246 18,372 26,202 61,820
---------- -------- -------- --------
Total operating costs and expenses... 129,429 30,016 154,851 314,296
---------- -------- -------- --------
Operating income (loss).............. (19,184) (4,565) 6,389 (17,360)
Interest and other, net................ 1,567 214 (5,917) (4,136)
---------- -------- -------- --------
Earnings (loss) before income taxes...... (17,617) (4,351) 472 (21,496)
Income tax expense -- -- -- --
---------- -------- -------- --------
Earnings (loss) from continuing
operations............................. $ (17,617) $ (4,351) $ 472 $(21,496)
========== ======== ======== ========
83
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT AS NOTED AND PER SHARE DATA)
1. Represents the financial position and results of operations for Expedia
based on historical information of Expedia. See separate Expedia, Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations for the year
ended December 31, 2001. For additional financial information, refer to
Expedia's periodic reports as of and for the periods ending March 31, 2001,
June 30, 2001, and December 31, 2001 incorporated by reference in this
document. Note that Expedia adopted Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, in the quarter ended June 30,
2001, resulting in an adjustment to net revenues and cost of sales.
2. The acquisition costs and the preliminary determination of the unallocated
Expedia merger consideration over net assets acquired are set forth below:
Value of USA common stock issued............................ $ 589,291
Value of USA preferred stock issued......................... 792,421
Value of USA warrants issued................................ 116,783
Additional consideration.................................... 20,000
----------
1,518,495
Estimated transaction costs................................. 10,000
----------
Total acquisition costs..................................... 1,528,495
Less: majority ownership portion of net assets acquired..... 159,923
----------
Unallocated excess of merger consideration over assets
acquired preliminarily allocated to goodwill.............. $1,368,572
==========
The pro forma combined condensed financial statements are prepared using the
final exchange ratio for each security issued as merger consideration as
determined at the close of the transaction on February 4, 2002. In the
transaction, holders of 34,518,375 Expedia shares elected to receive USA
securities. Each such Expedia share was converted into .596582 shares of USA
common stock, .380232 shares of USA preferred stock and .4229 USA warrants,
for an aggregate of 20,593,043 shares of USA common stock, 13,124,902 shares
of USA preferred stock and 14,597,822 USA warrants issued by USA in the
Expedia transaction.
The value of the USA common stock issued was determined by multiplying
20,593,043 shares times $28.62, which is the average closing price of USA
common stock on the two days before, the date of and the two days after
February 4, 2002, the final date for Expedia shareholders to elect to
receive USA securities. February 4th was used since the final exchange ratio
was impacted by the number of Expedia shares tendered. The value of the USA
convertible preferred stock is based on a valuation provided by Allen & Co.,
USA's financial advisor in the transaction, which valued the preferred stock
at a 5 - 15% premium to face value, or $52.50 to $57.50, plus a theoretical
value of $5.00 to $5.75 for the feature that reduces the conversion price at
USA common stock prices above $35.10. USA chose to value the securities at
the mid-point of the valuation range, or $60.375, the price the Company paid
to purchase 90 shares of preferred stock in order to fund the cash payments
required to be made to former Expedia stockholders in lieu of fractional
shares of preferred stock. The value of the USA warrants is based on the
market price of $8.00 on February 13, 2002, their initial trading day on
Nasdaq.
As a result of the termination of an acquisition agreement, USA will
contribute to Expedia $20,000 plus interest from the date of the Expedia
merger.
3. Reflects the elimination of Expedia's historical equity.
4. The unallocated excess of acquisition costs over net assets acquired has
been preliminarily allocated to goodwill. Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," ("FAS 142")
provides that goodwill resulting from business combinations completed
subsequent to June 30, 2001 will not be amortized but instead is required to
be tested
84
for impairment at least annually. In order to complete its assessment, USA
is in the process of obtaining an independent valuation of the assets and
liabilities acquired, including the identification of intangibles other than
goodwill. Potential intangible assets that USA may identify include trade
names and trademarks, supply agreements, customer relationships, technology
and commercial arrangements. Accordingly, the purchase accounting
information is preliminary. In the second quarter 2002, USA expects to
complete the allocation of the purchase price relating to the Expedia
transaction. As the pro forma combined condensed statement of operations
includes no amortization of the goodwill associated with the Expedia merger,
the final allocation of purchase value to intangible assets other than
goodwill could result in increased amortization and decreased operating
income, net income, and earnings per share in subsequent periods. USA
recorded approximately $350.0 million of goodwill amortization during the
year ended December 31, 2001. Expedia recorded $10.2 million of goodwill
amortization during the year ended December 31, 2001.
5. Represents the minority interest in the financial position and the results
of operations of Expedia, based upon a 64.2% equity ownership by USA of
Expedia.
6. Reflects the contribution of the USA Entertainment Group to VUE. See the
Unaudited Financial Statements of the USA Entertainment Group. Intercompany
revenues of $8,307 were eliminated in the consolidated unaudited pro forma
financial statements.
7. Reflects decreased minority interest expense of $216,408 as a result of the
Vivendi transaction, as prior to the transaction Vivendi owned approximately
47% and Liberty 8% of USANi LLC. Minority interest related to Vivendi's and
Liberty's ownership in USANi LLC was $198,707 for the twelve months ended
December 31, 2001. In addition, subsequent to the transaction, USANi LLC
will be owned 100% by Home Shopping Network, LLC ("Holdco"), in which
Liberty owns 19.9%. As a result of the Vivendi transaction, minority
interest related to Holdco decreased $17,701. USANi LLC's primary businesses
include USA Cable, Studios USA (both of which will be contributed to VUE in
the transaction), Home Shopping Network, Styleclick and Electronic Commerce
Solutions.
8. A summary of the securities received from VUE in the Vivendi transaction and
the basis of each security as recorded in the pro forma combined condensed
balance sheet is set forth below:
Class A preferred interest in VUE........................... $ 514,000
Class B preferred interest in VUE........................... 1,428,530
Common interest in VUE...................................... 1,000,000
The values attributed to the $750 million initial face value Class A
preferred interest in VUE and the 5.44% common interest in VUE were
determined based upon internal valuations considering characteristics of the
security, the underlying credit worthiness of the venture and analyses
performed by Allen & Co., USA's financial advisor in the transaction. The
value of the Class A is determined by applying a 7% annual discount rate to
the accreted value of the preferred interest in 20 years of $1.99 billion.
The valuation of $1 billion for USA's 5.44% common equity interest in VUE is
based on an $18.4 billion value for the equity of the partnership. The
equity value of the partnership is based on the company's discounted cash
flow valuations, precedent transaction analyses and Wall Street analyst
private market valuations. The common interest in VUE will be accounted for
prospectively using the equity method. The Company valuation of the above
entitled securities is within the range of the values provided in Allen &
Co.'s fairness opinion.
The valuations provided by Allen & Co. are summarized in this proxy
statement beginning on page 41 under "The Transactions--Opinion of USA's
Financial Advisor--Valuation of the Transactions--Other Consideration."
The $1.75 billion initial face value Class B preferred interest in VUE is
puttable and callable after 20 years at its then accreted face value for up
to approximately 56.6 million USA common shares held by Vivendi. At the
election of Vivendi, USA common shares to be received by USA pursuant to the
put or call can be substituted with cash equal to the market value of such
shares, except
85
with respect to 13.4 million USA Class B shares. If cash is substituted, it
is USA's intention to repurchase shares with the proceeds. The value of
$1,428,530 attributed to the $1.75 billion initial face value Class B
preferred interest in VUE was determined by multiplying the 56.6 million
shares times $25.23, which is the average closing price of USA common stock
on the two days before, the date of and the two days after December 17,
2001, the date the transaction was announced.
Note that if USA's stock price is above $40.82, Vivendi will be required to
deliver less than 56.6 million shares. $40.82 is derived by dividing 56.6
million shares into $2.3 billion, which is the accreted value of the
instrument on the 20th anniversary of issuance. USA will compute dilution
similar to other dilutive securities (e.g., warrants) using $40.82 as the
exercise price. To illustrate, at USA shares prices of $50, $75, and
$100 USA would reacquire 46.2 million, 30.8 million and 23.1 million
USA shares, respectively, upon the exercise of the put or call option after
20 years. Based on the current pro forma loss for the year ended
December 31, 2001, the result of reacquiring our stock would create a larger
loss per share. In the future, the reacquisition of our stock could be
anti-dilutive upon exercise of the put or call, depending upon operating
results in the period of reacquisition. If the Company has net income at
that time, the reacquisition would be anti-dilutive.
USA will also receive $1,618,710 of cash from VUE. The pro forma financial
statements do not reflect the application of cash proceeds received by USA
from VUE to reduce outstanding debt and associated interest expense.
9. The preliminary value of $810,873 for the USA warrants issued to Vivendi is
estimated using a Black-Scholes pricing model with the following
assumptions: a risk-free interest rate of 5.0%, a dividend yield of zero, a
volatility factor of 0.30, and a ten-year expected life of the warrant. The
warrants have a ten-year term following the closing of the transaction, and
the following exercise prices - 24.2 million at $27.50 per share;
24.2 million at $32.50 per share; and 12.1 million at $37.50 per share.
Pursuant to the Transaction Agreement, the warrants are being issued to
Vivendi in exchange for certain commercial arrangements and other valuable
consideration. At this time, no such commercial arrangements are in place.
As a result, USA has allocated the estimated fair value of the equity
warrants to reduce the gain on the sale of the entertainment assets and
increased additional paid in capital on the pro forma balance sheet. At such
time as any commercial arrangements are entered into, USA will assign
appropriate value to such arrangements.
10. USA's contribution of businesses to VUE and the receipt of consideration by
USA results in an estimated after tax gain to USA of $2.5 billion. The gain
is determined as follows:
Estimated fair value:
Class A preferred interest in VUE........................... $ 514,000
Class B preferred interest in VUE........................... 1,428,530
Common interest in VUE...................................... 1,000,000
Cash........................................................ 1,618,710
Estimated fair value of Home Shopping resulting from
cancellation of LLC shares................................ 1,315,534
-----------
Total book value of consideration........................... 5,876,774
Entertainment net assets sold............................... (4,381,189)
Vivendi's minority interest and minority interest
acquired.................................................. 3,989,497
-----------
Estimated transaction costs................................. (20,000)
Pre tax gain................................................ 5,465,082
Estimated tax at 38.7%...................................... (2,115,116)
-----------
Taxable gain before allocation to warrant value............. 3,349,966
Estimated warrant value..................................... (810,873)
-----------
Estimated book gain......................................... $ 2,539,093
===========
The calculation of the gain is preliminary and will depend on the book value
and tax basis of the assets contributed at the close of the transaction. The
gain will be finalized and is expected to be
86
recorded in the second quarter of 2002. The gain from the Vivendi
transaction, including an estimated $20,000 of transactional costs, has been
excluded from the pro forma combined condensed statement of operations. The
preliminary estimate of deferred taxes of $2,115,116 presented in the pro
forma combined condensed balance sheet is computed applying an effective tax
rate of 38.7% to the estimated gain on the transaction and consideration of
permanent tax differences of $810,873 related to the estimated fair value of
the USA warrants as described in Note 9. At such time as any commercial
arrangements are entered into, USA will assign appropriate value to such
arrangements, which will reduce the permanent tax difference. The adjustment
of $1,315,534 is based on USA's acquisition of Vivendi's interest in HSN and
other LLC entities through the cancellation of Vivendi's LLC shares,
resulting in additional goodwill of $1,315,534. The adjustment of $3,989,497
to reduce minority interest represents USA's acquisition of HSN and other
LLC entities and the contribution of USA Entertainment to VUE. The
adjustment of $5,491,752 to increase stockholders' equity represents the
estimated gain of $2,539,093 plus the net book value of the USA assets
contributed of $4,381,189, offset by the reclassification of equity to
common stock exchangeable for preferred interest of $1,428,530.
11. Reflects decreased tax expense of $1,612 and increased minority interest of
$3,148 as a result of the merger of TMCS and Ticketmaster Corporation
("TM"), both of which are subsidiaries of USA. The merger has been accounted
for as entities under common control in a manner similar to a pooling of
interests. Tax expense decreased as a result of taxable losses from TMCS
being used to offset taxable income of TM. Minority interest increased
principally due to the impact of a lower minority interest benefit related
to the losses of TMCS, as USA's economic ownership in TMCS increased from
50% to 68% as a result of the merger.
12. Reflects the cash dividends ($63 million in 2001) payable quarterly with
respect to USAi's Class B preferred interest in VUE and the payable-in-kind
dividends ($37.8 million in 2001) due in cash at maturity (20 years) with
respect to USAi's Class A preferred interest in VUE, along with the related
tax expense for the dividends on the Class A preferred interest and Class B
preferred interest ($39.6 million).
13. In connection with the transaction, Liberty will exchange approximately
7 million USANi LLC shares for USA common stock. USA has accounted for this
as an acquisition and therefore a reduction of minority interest. The price
used to value the common stock in the exchange was $25.23, which is the
average closing price on the two days before, the day of and the two days
after December 17, 2001, the date the transaction was announced. The
acquisition cost of $178,650 over the net assets acquired of $70,797
(acquisition of minority interest) has been allocated to goodwill
($107,853).
14. Reflects a reduction in tax expense with respect to a decrease in income
from the contribution of the USA Entertainment Group to VUE.
87
UNAUDITED FINANCIAL STATEMENTS OF THE USA ENTERTAINMENT GROUP
USA ENTERTAINMENT
UNAUDITED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
NET REVENUES............................................. $1,824,254 $1,630,202 $1,365,613
Operating costs and expenses:
Cost of sales.......................................... 150,443 71,413 44,405
Program costs.......................................... 726,549 684,992 630,956
Selling and marketing.................................. 185,010 179,835 127,126
General and administrative............................. 123,937 126,315 105,091
Other operating costs.................................. 39,134 38,804 23,162
Depreciation and amortization.......................... 140,626 127,900 117,888
---------- ---------- ----------
Total operating costs and expenses................... 1,365,699 1,229,259 1,048,628
---------- ---------- ----------
Operating profit....................................... 458,555 400,943 316,985
Other income (expense):
Interest expense, net.................................. (42,225) (35,891) (26,195)
Other, net............................................. 3,166 254 99,761
---------- ---------- ----------
(39,059) (35,637) 73,566
---------- ---------- ----------
Earnings before income taxes............................. 419,496 365,306 390,551
Income tax expense....................................... (13,649) (14,343) (5,501)
---------- ---------- ----------
Net earnings before cumulative effect of accounting
change................................................. 405,847 350,963 385,050
Cumulative effect of accounting change................... (10,848) -- --
---------- ---------- ----------
NET EARNINGS............................................. 394,999 $ 350,963 $ 385,050
========== ========== ==========
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
88
USA ENTERTAINMENT
UNAUDITED COMBINED BALANCE SHEETS
2001 2000
---------- ----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Accounts and notes receivable, net of allowance of $41,204
and $49,398, respectively................................. $ 395,798 $ 379,207
Program inventory and film costs, net....................... 210,952 423,973
Other current assets, net................................... 2,053 4,720
---------- ----------
Total current assets...................................... 608,803 807,900
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 19,330 19,017
Buildings and leasehold improvements........................ 20,671 14,820
Furniture and other equipment............................... 34,975 27,795
---------- ----------
74,976 61,632
Less accumulated depreciation and amortization............ (39,848) (26,588)
---------- ----------
35,128 35,044
OTHER ASSETS
Intangible assets, net...................................... 3,941,801 4,092,014
Notes and accounts receivable............................... 49,277 10,996
Program inventories, net.................................... 535,555 238,510
Deferred charges and other, net............................. 92,429 96,700
---------- ----------
$5,262,993 $5,281,164
========== ==========
LIABILITIES AND NET ASSETS TO BE SOLD
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 497 $ 709
Accounts payable, trade..................................... 34,992 57,877
Obligations for program rights and film costs............... 272,601 283,812
Deferred revenue............................................ 56,371 29,126
Other accrued liabilities................................... 206,729 142,851
---------- ----------
Total current liabilities................................. 571,190 514,375
LONG-TERM OBLIGATIONS (NET OF CURRENT MATURITIES)........... 295 735
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 285,378 295,210
DEFERRED REVENUE............................................
OTHER LONG-TERM LIABILITIES................................. 24,941 73,864
---------- ----------
TOTAL LIABILITIES........................................... 881,804 884,184
---------- ----------
NET ASSETS TO BE SOLD....................................... 4,381,189 4,396,980
---------- ----------
$5,262,993 $5,281,164
========== ==========
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
89
USA ENTERTAINMENT
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 394,999 $ 350,963 $ 385,050
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Depreciation and amortization............................. 133,213 127,900 117,888
Amortization of program rights and film costs............. 719,010 649,743 584,620
Cumulative effect of accounting change.................... 10,848 -- --
Gain on sale of securities................................ -- -- (89,721)
CHANGES IN CURRENT ASSETS AND LIABILITIES:
Accounts receivable....................................... (45,802) 6,896 (22,520)
Accounts payable.......................................... (22,208) (15,400) (7,335)
Accrued liabilities and deferred revenue.................. 25,357 20,898 (6,341)
Payment for program rights and film costs................. (834,337) (846,924) (623,298)
Other, net................................................ 12,302 (11,183) 11,532
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 393,382 282,893 349,875
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.......................... (1,858) (101,667) (22,183)
Capital expenditures........................................ (12,975) (16,461) (7,219)
Increase in long-term investments and notes receivable...... (1,160) (1,079) --
Proceeds from sale of securities............................ -- 2,050 107,231
Other, net.................................................. 33,401 733 2,581
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES....... 17,408 (116,424) 80,410
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to USAi and subsidiaries........................... (410,790) (166,469) (429,455)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES..................... (410,790) (166,469) (429,455)
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... -- -- (830)
Cash and cash equivalents at beginning of period............ -- -- 830
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ -- $ -- $ --
========= ========= =========
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
90
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
On February 12, 1998, USA Networks, Inc. ("USA") acquired USA Cable, a New
York general partnership, consisting of cable television networks, USA Network
and Sci Fi Channel ("USA Cable"), as well as the domestic television production
and distribution businesses of Universal Studios ("Studios USA") from Universal
Studios, Inc. ("Universal"), an entity now controlled by Vivendi Universal,
S.A., a French corporation ("Vivendi") (the "Universal Transaction"). On
May 28, 1999, USAi acquired October Films, Inc., in which Vivendi owned a
majority interest, and the domestic film distribution and development business
of Universal ("USA Films") previously operated by Polygram Filmed
Entertainment, Inc. (the "October Films/PFE Transactions"). For the purposes of
these combined financial statements, USA Entertainment ("USA Entertainment")
includes USA Cable, Studios USA, and USA Films. USA Cable and Studios USA are
directly owned by USANi LLC ("LLC"), a Delaware limited liability company, which
was formed on February 12, 1998 and is a subsidiary of Home Shopping
Network, Inc. ("Home Shopping"), which is a subsidiary of USA. USA Films is
directly owned by USA.
On December 16, 2001, USA entered into an agreement with Vivendi pursuant to
which USA would contribute USA Entertainment to a joint venture newly formed
with Vivendi.
The accompanying combined financial statements and related notes reflect the
carved-out historical results of the combined operations and financial position
of USA Entertainment, as described above. These financial statements are not
necessarily indicative of results that would have occurred if USA Entertainment
had been a separate, stand-alone entity during the periods presented or of the
future results of USA Entertainment.
Significant transactions between USA Cable, Studios USA, and USA Films and
associated accounts have been eliminated.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
Television production revenues are recognized as completed episodes are
delivered. Generally, television programs are first licensed for network
exhibition and foreign syndication, and subsequently for domestic syndication,
cable television and home video. Certain television programs are produced and/or
distributed directly for initial exhibition by local television stations,
advertiser-supported cable television, pay television and/or home video.
Television production advertising revenues (i.e., sales of advertising time
received by Studios USA in lieu of cash fees for the licensing of program
broadcast rights to a broadcast station ("barter syndication")) are recognized
upon both the commencement of the license period of the program and the sale of
advertising time pursuant to non-cancelable agreements, provided that the
program is available for its first broadcast. Foreign minimum guaranteed amounts
are recognized as revenues on the commencement date of the license agreement,
provided the program is available for exhibition.
USA Cable advertising revenue is recognized in the period in which the
advertising commercials are aired on cable networks. Certain contracts with
advertisers contain minimum commitments with respect to advertising viewership.
In the event that such minimum commitments are not met, the contracts require
additional subsequent airings of the advertisement. As a result, provisions are
recorded against advertising revenues for audience under deliveries
("makegoods") until such subsequent airings are conducted. Affiliate fees are
recognized in the period during which the programming is provided.
91
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from theatrical film distributions is recognized as the films are
exhibited. Revenue from home video distribution is recognized, less a provision
for returns, when the home videos are sold. Revenue from the distribution of
theatrical products to cable, broadcast, and syndicated television markets is
recognized when the films are available to telecast.
Revenues from all other sources are recognized either upon delivery or when
the service is provided.
PROGRAM RIGHTS
License agreements for program material are accounted for as a purchase of
program rights. The asset related to the program rights acquired and the
liability for the obligation incurred are recorded at their net present value
when the license period begins and the program is available for its initial
broadcast. The asset is amortized primarily based on the estimated number of
airings. Amortization is computed generally on the straight-line basis as
programs air; however, when management estimates that the first airing of a
program has more value than subsequent airings, an accelerated method of
amortization is used. Other costs related to programming, which include program
assembly, commercial integration and other costs, are expensed as incurred.
Management periodically reviews the carrying value of program rights and records
write-offs, as warranted, based on changes in programming usage.
FILM COSTS
Film costs consist of direct production costs and production overhead, less
accumulated amortization. Prior to the adoption of SOP 00-2 on January 1, 2001,
development roster (and related costs) and abandoned story and development costs
were charged to production overhead. Film costs are stated at the lower of
unamortized cost or estimated net realizable value on a production-by-production
basis.
Generally, the estimated ultimate costs of completed productions are
amortized, and participation expenses are accrued, for each production in the
proportion that current period revenue recognized bears to the estimated future
revenue to be received from all sources. Amortization and accruals are made
under the individual film forecast method. Estimated ultimate revenues and costs
are reviewed quarterly and revisions to amortization rates or write-downs to net
realizable value are made as required.
Film costs, net of amortization, classified as current assets include the
portion of unamortized costs of program productions allocated to network, first
run syndication and initial international distribution markets. The allocated
portion of released film costs expected to be recovered from secondary markets
or other exploitation is reported as a noncurrent asset. Other costs relating to
productions, such as in-process productions and the film library, are classified
as noncurrent assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including significant improvements, are
recorded at cost. Repairs and maintenance and any gains or losses on
dispositions are included in operations.
92
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and amortization is provided for on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives.
ASSET CATEGORY DEPRECIATION/AMORTIZATION PERIOD
-------------- --------------------------------
Computer and broadcast equipment............................ 3 to 13 Years
Buildings................................................... 30 to 40 Years
Leasehold improvements...................................... 4 to 20 Years
Furniture and other equipment............................... 3 to 10 Years
Depreciation and amortization expense on property, plant and equipment was
$12.7 million, $10.2 million, and $9.3 million for the years ended December 31,
2001, 2000, and 1999, respectively.
LONG-LIVED ASSETS INCLUDING INTANGIBLES
USA Entertainment's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including goodwill
and other intangibles and property, plant and equipment, is to review the
carrying value of the assets if the facts and circumstances suggest that they
may be impaired. If this review indicates that the carrying value will not be
recoverable, as determined based on the projected undiscounted future cash
flows, the carrying value is reduced to its estimated fair value.
ADVERTISING
Advertising costs are expensed in the period incurred. Advertising expense
for the years ended December 31, 2001, 2000, and 1999 were $109.0 million,
$112.7 million and $85.3 million, respectively.
STOCK-BASED COMPENSATION
USA Entertainment accounts for stock-based compensation in accordance with
APB 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. In cases where exercise prices
are less than fair value as of the grant date, compensation is recognized over
the vesting period.
ACCOUNTING ESTIMATES
Management of USA Entertainment is required to make certain estimates and
assumptions during the preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the United States.
These estimates and assumptions impact the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities as of the date
of the consolidated financial statements. They also impact the reported amount
of net earnings during any period. Actual results could differ from those
estimates.
Significant estimates underlying the accompanying combined financial
statements include the, program rights and film cost amortization, sales return
and other revenue allowances, allowance for doubtful accounts, recoverability of
intangibles and other long-lived assets, estimates of film revenue ultimates and
various other operating allowances and accruals.
93
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, the Accounting Standards Executive Committee ("AcSEC") issued
SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF FILMS ("SOP 00-2"), which
replaces FASB Statement No. 53, FINANCIAL ACCOUNTING BY PRODUCERS AND
DISTRIBUTORS OF MOTION PICTURE FILMS. The AcSEC concluded that film costs would
be accounted for under an inventory model. In addition, SOP 00-2 addresses such
topics as revenue recognition (fixed fees and minimum guarantees in variable fee
arrangements), fee allocation in multiple films, accounting for exploitation
costs, and impairment assessment. SOP 00-2 was adopted as of January 1, 2001,
and USA Entertainment recorded a one-time, non-cash benefit of $10.8 million.
The benefit is reflected as a cumulative effect of an accounting change in the
accompanying consolidated statement of operations.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets," effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. USA Entertainment
will apply the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002, and adoption of the statements is
expected to significantly reduce amortization expense.
NOTE 3--INTANGIBLE ASSETS
Intangible assets represent goodwill which is amortized using the
straight-line method over periods ranging from 3 to 40 years.
Goodwill primarily relates to various transactions, and represents the
excess of purchase price over the fair value of assets acquired and is net of
accumulated amortization of $3,941.8 million and $4,092.0 million at
December 31, 2001 and 2000, respectively.
NOTE 4--INCOME TAXES
The businesses that comprise USA Entertainment are principally part of a
combined group that is treated as a partnership for income tax purposes. As
such, USA Entertainment is not subject to federal and state income taxation.
However, USA Entertainment is subject to certain state and local taxes,
including New York unincorporated business tax.
NOTE 5--COMMITMENTS AND CONTINGENCIES
USA Entertainment leases satellite transponders, computers, warehouse and
office space, as well as production facilities, equipment and services used in
connection with its operations under various operating leases and contracts,
many of which contain escalation clauses.
94
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments under non-cancellable agreements are as follows:
YEARS ENDING DECEMBER 31, (IN THOUSANDS)
------------------------- --------------
2002........................................................ $14,097
2003........................................................ 13,125
2004........................................................ 10,622
2005........................................................ 6,437
2006........................................................ 3,786
Thereafter.................................................. 15,454
-------
$63,521
=======
Expenses charged to operations under these agreements were $11.8 million,
$15.0 million and $14.6 million for the years ended December 31, 2001, 2000 and
1999, respectively.
NOTE 6--INVENTORIES
DECEMBER 31,
---------------------------------------------
2001 2000
--------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT
-------- ---------- -------- ----------
(IN THOUSANDS)
Film costs:
Released, net of amortization...................... $ -- $229,129 $182,757 $ 44,565
In process and unreleased.......................... -- 57,483 64,674 14,986
Programming costs, net of amortization............. 209,798 248,943 172,493 178,959
Sales merchandise, net............................. 1,154 -- 4,049 --
-------- -------- -------- --------
Total.............................................. $210,952 $535,555 $423,973 $238,510
======== ======== ======== ========
USA Entertainment estimates that approximately 90% of unamortized film costs
at December 31, 2001 will be amortized within the next three years.
NOTE 7--LITIGATION
In the ordinary course of business, USA Entertainment is engaged in various
lawsuits. In the opinion of management, the ultimate outcome of the various
lawsuits should not have a material impact on the liquidity, results of
operations or financial condition of USA Entertainment.
NOTE 8--BENEFIT PLANS
USA Entertainment offers various plans pursuant to Section 401(k) of the
Internal Revenue Code covering substantially all full-time employees who are not
party to collective bargaining agreements. USA Entertainment's share of the
matching employer contributions is set at the discretion of the Board of
Directors or the applicable committee thereof. USA Entertainment funds all costs
of the employee benefit plans on an annual basis.
NOTE 9--STOCK OPTION PLANS
USA has outstanding options to employees of USA Entertainment under several
plans (the "Plans") which provide for the grant of options to purchase USA's
common stock at not less than fair
95
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCK OPTION PLANS (CONTINUED)
market value on the date of the grant. The options under the Plans vest ratably,
generally over a range of three to five years from the date of grant and
generally expire not more than 10 years from the date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS 123. The information is determined as if USA Entertainment had
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair market value method. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for the years ended December 31,
2001, 2000 and 1999: risk-free interest rates of 5.0%; a dividend yield of zero;
a volatility factor of .72, .62, and .44, respectively, based on the expected
market price of USA Common Stock based on historical trends; and a
weighted-average expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair market value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because USA Entertainment employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair market value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. USA
Entertainment's pro forma information follows:
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
Pro forma net income........................................ $362,660 $323,351 $370,174
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years.
NOTE 10--STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
YEAR ENDED DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
CASH PAID DURING THE PERIOD FOR:
Income tax payments......................................... $12,499 $5,680 $3,935
NOTE 11--RELATED PARTY TRANSACTIONS
As of December 31, 2001, USA Entertainment was involved in several
agreements with related parties as follows:
Universal provides certain support services to USA Entertainment under a
Transition Services agreement entered into in connection with the Universal
Transaction. For these services, which include use of pre-production, production
and post-production facilities, information technology services, physical
distribution, contract administration, legal services and office space,
Universal charged USA Entertainment $9.1 million, $8.2 million and
$12.5 million for the years ended December 31, 2001, 2000
96
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--RELATED PARTY TRANSACTIONS (CONTINUED)
and 1999, respectively, of which $5.7 million, $4.7 million and $8.0 million was
capitalized to production costs, respectively.
Universal and USA Entertainment entered into an International Television
Distribution Agreement under which USA Entertainment pays to Universal a
distribution fee of 10% on all programming owned or controlled by USA
Entertainment distributed outside of the United States. For the years ended
December 31, 2001, 2000 and 1999, the fee totaled $13.6 million, $14.0 million
and $9.0 million, respectively.
In addition, USA Entertainment and Universal entered into a Domestic
Television Distribution Agreement under which USA Entertainment distributes in
the United States certain of Universal's television programming. For the years
ended December 31, 2001, 2000 and 1999, Universal paid the company
$4.1 million, $1.5 million and $1.5 million, respectively.
Pursuant to the October Films/PFE Transaction, the company entered into a
series of agreements on behalf of USA Films with entities owned by Universal, to
provide distribution services, video fulfillment and other interim and
transitional services. These agreements are described below.
Under a distribution agreement covering approximately fifty films owned by
Universal, USA Films earns a distribution fee and remits the balance of revenues
to a Universal entity. For the years ending December 31, 2001, 2000 and 1999,
USA Films earned distribution fees of approximately $5.7 million, $10.7 million
and $4.5 million, respectively, from the distribution of these films. USA Films
is responsible for collecting the full amount of the sale and remitting the net
amount after its fee to Universal, except for amounts applied against the
advance of fees initially given to Universal.
In addition, USA Films acquired home video distribution rights to a number
of "specialty video" properties. Universal holds a profit participation in
certain of these titles. No amounts were earned by Universal under this
agreement to date.
USA Films is party to a "Videogram Fulfillment Agreement" with a Universal
entity pursuant to which such entity provides certain fulfillment services for
the United States and Canadian home video markets. In the years ended
December 31, 2001, 2000 and 1999, USA Films incurred fees to Universal of
approximately $5.6 million, $3.5 million and $2.5 million, respectively, for
such services.
USA Films has entered into other agreements with Universal pursuant to which
Universal administers certain music publishing rights controlled by USA Films
and has licensed to Universal certain foreign territorial distribution rights in
specified films from which it received $0.0 million, $5.8 million and
$4.8 million in revenue during the years ended December 31, 2001, 2000 and 1999,
respectively.
USA agreed to assume certain liabilities related to the PFE businesses
acquired. In addition, USA advanced $200.0 million to Universal pursuant to an
eight year, full recourse, interest-bearing note in connection with a
distribution agreement pursuant to which USA will distribute, in the United
States and Canada, certain Polygram theatrical films which were not acquired in
the transaction. The advance is repaid as revenues are received under the
distribution agreement and, in any event, will be repaid in full at maturity.
Through December 31, 2001, approximately $180,101.1 million had been offset
against the advance and $19,365.8 million of interest had accrued.
NOTE 12--TRANSACTIONS WITH USA AND SUBSIDIARIES
Advances to and from USA and subsidiaries to fund operations are presented
within net assets to be sold. Pursuant to an investment agreement, all excess
cash held at USA Entertainment is transferred
97
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--TRANSACTIONS WITH USA AND SUBSIDIARIES (CONTINUED)
to USA no less frequently than monthly and USA Entertainment may transfer funds
to USA to satisfy obligations of USA and its subsidiaries. Transfers of cash are
evidenced by a demand note and accrue interest at USA Entertainment's borrowing
rate under the credit facility. Certain transfers of funds between USA
Entertainment and USA are not evidenced by a demand note and do not accrue
interest, primarily relating to the establishment of the operations of USA
Entertainment and to equity contributions. USA Entertainment has no external
sources of financing, such as available lines of credit, as would be necessary
to operate as a stand-alone company.
As members of a consolidated group, USA and certain of its subsidiaries
routinely provide a variety of services for the benefit of USA Entertainment.
The amount of the insurance and health benefit expense allocated to USA
Entertainment is based upon USA's actual per capita cost rate and USA
Entertainment's employee headcount. The amount of facilities cost allocated to
USA Entertainment is based on actual cost expenses incurred by USA related to
properties occupied by USA Entertainment Businesses. Management believes that
the allocation methods applied for the transactions summarized above are
reasonable in the circumstances and that such allocated expenses approximate the
amounts USA Entertainment would incur as a stand-alone company. The principal
expenses allocated from USA to USA Entertainment are summarized below:
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
Insurance................................................... $ 892,114 $ 766,355
Facilities.................................................. 691,387 1,115,075
Health benefits............................................. 5,170,514 4,362,040
---------- ----------
$6,754,015 $6,243,470
========== ==========
A summary of the changes in net assets to be sold is as follows:
NET ASSETS USA ADVANCES (TO)/ RETAINED EARNINGS
TO BE SOLD INVESTMENT FROM USA (DEFICIT)
---------- ---------- -------------- -----------------
Balance at December 31, 1998..................... $4,256,891 $4,121,784 $ (27,336) $ 162,443
Net earnings for the year ended December 31,
1999........................................... 385,050 -- -- 385,050
Net advances to USA and subsidiaries........... (429,455) 33,100 (462,555) --
---------- ---------- ----------- ----------
Balance at December 31, 1999..................... 4,212,486 4,154,884 (489,891) 547,493
Net earnings for the year ended December 31,
2000........................................... 350,963 -- -- 350,963
Net advances to USA and subsidiaries........... (166,469) -- (166,469) --
---------- ---------- ----------- ----------
Balance at December 31, 2000..................... 4,396,980 4,154,884 (656,360) 898,456
Net earnings for the year ended December 31,
2001........................................... 394,999 -- -- 394,999
Net advances to USA and subsidiaries........... (410,790) -- (410,790) --
---------- ---------- ----------- ----------
Balance at December 31, 2001..................... $4,381,189 $4,154,884 $(1,067,150) $1,293,455
========== ========== =========== ==========
98
USA ENTERTAINMENT NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--INDUSTRY SEGMENTS
USA Entertainment operates in one operating segment, producing and
distributing television and filmed programming for entertainment. USA
Entertainment operates principally within the United States.
NOTE 14--FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by USA Entertainment
using available market information and appropriate valuation methodologies when
available. The carrying value of all current assets and current liabilities
approximates fair value due to their short-term nature.
DECEMBER 31,
-----------------------------------------
2001 2000
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
Long-term investments................................ $ 1,160 $ 1,160 $ 406 $ 406
Long-term obligations................................ 792 792 (1,444) (1,444)
NOTE 15--PROGRAM RIGHTS AND FILM COSTS
As of December 31, 2001, the liability for program rights and film costs,
representing future payments to be made under program contract agreements
amounted to $558.0 million. Annual payments required are $310.9 million in 2002,
$199.0 million in 2003, $72.7 million in 2004, $17.0 million in 2005,
$3.9 million in 2006 and $2.6 million in 2007 and thereafter. Amounts
representing interest are $48.1 million.
Unrecorded commitments for program rights consist of programs for which the
license period has not yet begun or the program is not yet available to air. As
of December 31, 2001, the unrecorded commitments amounted to $968.0 million.
Annual commitments are $153.8 million in 2002, $173.6 million in 2003,
$189.1 million in 2004, $155.0 million in 2005, $112.4 million in 2006 and
$184.2 million in 2007 and thereafter.
99
STOCKHOLDER PROPOSALS
USA currently intends to hold its next annual meeting in May of 2002.
Stockholders who intend to have a proposal considered for inclusion in USA's
proxy materials for presentation at the 2002 annual meeting of stockholders must
have submitted the proposal to USA at its principal executive offices no later
than December 9, 2001. Stockholders who intend to present a proposal at the 2002
annual meeting of stockholders without inclusion of such proposal in USA's proxy
materials are required to have provided notice of such proposal to USA no later
than February 23, 2002. USA reserves the right to reject, rule out of order, or
take other appropriate action with respect to any proposal that does not comply
with these and other applicable requirements.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information we file at the Securities and
Exchange Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
room. Our Securities and Exchange Commission filings are also available to the
public from commercial documents retrieval services and at the internet world
wide web site maintained by the Securities and Exchange Commission at
www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this proxy statement, which means that we can
disclose important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this proxy statement except
for any information superseded by information contained directly in this proxy
statement. This proxy statement incorporates by reference the documents set
forth below that we have previously filed with the Securities and Exchange
Commission. These documents contain important information about us and our
financial condition.
USA SEC FILINGS PERIOD
--------------------------------------------- ---------------------------------------------
Annual Report on Form 10-K Year ended December 31, 2000
Quarterly Reports on Form 10-Q Quarters ended March 31, 2001; June 30, 2001;
and September 30, 2001
Current Reports on Form 8-K Filed on January 10, 2001; February 1, 2001;
March 6, 2001; April 25, 2001; June 6, 2001;
June 7, 2001; June 27, 2001; July 16, 2001;
July 23, 2001; July 25, 2001; September 18,
2001; October 2, 2001; October 24, 2001;
October 30, 2001; October 31, 2001; two
filed on November 9, 2001; December 5, 2001;
December 17, 2001; December 18, 2001;
January 8, 2002; two filed on January 29,
2002; January 30, 2002; February 12, 2002;
February 26, 2002; March 1, 2002; March 4,
2002; and March 15, 2002
Proxy Statement Filed on April 9, 2001
Amendment No. 2 to Registration Statement on Filed on January 8, 2002
Form S-4 (file no. 333-68120)
EXPEDIA SEC FILINGS
---------------------------------------------
Annual Report on Form 10-K and Form 10K/A Year ended June 30, 2001
Quarterly Reports on Form 10-Q Quarters ended March 31, 2001; and
September 30, 2001
Current Reports on Form 8-K Filed on February 28, 2002
100
We are also incorporating by reference into this proxy statement additional
documents that may be filed with the Securities and Exchange Commission from the
date of this proxy statement to the date of the special meeting. These documents
include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements. If
you are a stockholder, we may have sent you some of the documents incorporated
by reference, but you can obtain any of them through us, the Securities and
Exchange Commission or the Securities and Exchange Commission's internet world
wide web site as described above. Documents incorporated by reference are
available from us without charge, excluding all exhibits unless we have
specifically incorporated by reference such exhibits in this proxy statement.
Stockholders may obtain documents incorporated by reference in this proxy
statement by requesting them in writing or by telephone to us at the following
address and phone number:
USA Networks, Inc.
152 West 57th Street
New York, New York 10019
Telephone: (212) 314-7300
Attention: Corporate Secretary
or
MacKenzie Partners, Inc.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (collect)
(800) 322-2885 (toll-free)
Only one copy of this proxy statement is being delivered to multiple USA
stockholders sharing an address unless USA has received contrary instructions
from one or more of the stockholders. Upon written or oral request, USA will
promptly deliver a separate copy of this proxy statement to a USA stockholder at
a shared address to which a single copy of this proxy statement has been
delivered. USA stockholders at a shared address who would like to receive a
separate copy of this proxy statement, or a separate copy of future proxy
statements or annual reports, should contact USA or MacKenzie Partners, Inc. at
the telephone numbers or mailing addresses provided above. In the event that you
are receiving multiple copies of annual reports or proxy statements at an
address to which you would like to receive a single copy, multiple USA
stockholders sharing an address may also contact USA or MacKenzie Partners, Inc.
at the above listed telephone numbers or mailing addresses to receive a single
copy of annual reports and proxy statements in the future.
If you would like to request documents from us, please do so by April 16,
2002 to receive them before the special meeting. The information contained on
our website does not constitute a part of this document.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE MATTERS BEING CONSIDERED AT THE
SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY
STATEMENT IS DATED MARCH 25, 2002. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT
DATE, AND THE MAILING OF THIS PROXY STATEMENT SHALL NOT CREATE ANY IMPLICATION
TO THE CONTRARY.
101
APPENDIX A
-------------------------------------------------------------------
-------------------------------------------------------------------
TRANSACTION AGREEMENT
AMONG
VIVENDI UNIVERSAL, S.A.,
UNIVERSAL STUDIOS, INC.,
USA NETWORKS, INC.,
USANi LLC
AND
LIBERTY MEDIA CORPORATION
-------------------------------------------------------------------
-------------------------------------------------------------------
DATED AS OF DECEMBER 16, 2001
-------------------------------------------------------------------
-------------------------------------------------------------------
A-1
TABLE OF CONTENTS
PAGE
--------
ARTICLE I
Definitions and Usage
ARTICLE II
Transactions and Closing
SECTION 2.01. Exchange Rights............................... A-5
SECTION 2.02. USANi Shares.................................. A-6
SECTION 2.03. Transfer and Acquisition...................... A-6
SECTION 2.04. Other Transactions............................ A-7
SECTION 2.05. Assignment of Contracts and Rights............ A-7
SECTION 2.06. Closing Date.................................. A-7
SECTION 2.07. Assignment of Rights by Diller................ A-7
ARTICLE III
Representations and Warranties of Parent Parties
SECTION 3.01. Organization, Standing and Power.............. A-8
SECTION 3.02. Authority; Execution and Delivery;
Enforceability............................................ A-8
SECTION 3.03. No Conflicts; Consents........................ A-9
SECTION 3.04. Capitalization of USAi; Warrants.............. A-9
SECTION 3.05. The Contributed Subsidiaries.................. A-10
SECTION 3.06. Financial Statements; No Undisclosed
Liabilities............................................... A-11
SECTION 3.07. Contracts..................................... A-12
SECTION 3.08. Contributed Assets............................ A-12
SECTION 3.09. Real Property................................. A-12
SECTION 3.10. Intangible Property........................... A-13
SECTION 3.11. Licenses...................................... A-13
SECTION 3.12. Absence of Changes or Events.................. A-13
SECTION 3.13. Compliance with Applicable Laws............... A-13
SECTION 3.14. Litigation.................................... A-13
SECTION 3.15. Universal Contributed Interests............... A-14
SECTION 3.16. Brokers or Finders............................ A-14
SECTION 3.17. Investment Intent............................. A-14
SECTION 3.18. Tax Matters................................... A-14
SECTION 3.19. Employee Matters.............................. A-15
ARTICLE IV
Agreements and Covenants
SECTION 4.01. Covenants Relating to Conduct of Business..... A-16
SECTION 4.02. Access to Information......................... A-17
SECTION 4.03. Confidentiality............................... A-18
SECTION 4.04. Reasonable Best Efforts....................... A-18
SECTION 4.05. Expenses; Transfer Taxes...................... A-18
SECTION 4.06. Distribution Agreements....................... A-19
SECTION 4.07. Publicity..................................... A-19
SECTION 4.08. Further Assurances............................ A-19
SECTION 4.09. Board Recommendation.......................... A-20
A-2
PAGE
--------
SECTION 4.10. Preparation of Proxy Statement; Stockholders
Meeting................................................... A-20
SECTION 4.11. Commercial Arrangements....................... A-21
SECTION 4.12. Tax Matters................................... A-21
SECTION 4.13. Agreement Not To Compete...................... A-22
SECTION 4.14. USAi Partnership Interests.................... A-22
SECTION 4.15. Officers of the Partnership................... A-23
SECTION 4.16. Partnership Agreement Obligations............. A-23
SECTION 4.17. Committed LLC Shares; Committed Common
Equity.................................................... A-23
SECTION 4.18. Partnership................................... A-23
SECTION 4.19. Substitute Letters of Credit; Guarantees...... A-23
SECTION 4.20. USANi Tax Distribution........................ A-23
SECTION 4.21. Lease Arrangement............................. A-24
SECTION 4.22. USA Name...................................... A-24
SECTION 4.23. Options and Restricted Stock.................. A-24
ARTICLE V
Conditions Precedent
SECTION 5.01. Conditions to Each Party's Obligation......... A-24
SECTION 5.02. Additional Conditions to Obligation of each
Parent Party.............................................. A-25
SECTION 5.03. Frustration of Closing Conditions............. A-25
ARTICLE VI
Termination
SECTION 6.01. Termination................................... A-25
SECTION 6.02. Effect of Termination......................... A-26
ARTICLE VII
Indemnification
SECTION 7.01. Indemnification by Each Parent Party.......... A-26
SECTION 7.02. Tax Indemnification by Each Parent Party...... A-27
SECTION 7.03. Refunds....................................... A-28
SECTION 7.04. Calculation of Losses......................... A-29
SECTION 7.05. Termination of Indemnification................ A-29
SECTION 7.06. Procedures; Exclusivity....................... A-29
SECTION 7.07. Survival...................................... A-30
ARTICLE VIII
Miscellaneous
SECTION 8.01. Approval of Transactions...................... A-30
SECTION 8.02. Notices....................................... A-31
SECTION 8.03. No Third Party Beneficiaries.................. A-31
SECTION 8.04. Waiver........................................ A-31
SECTION 8.05. Assignment.................................... A-31
SECTION 8.06. Integration................................... A-31
SECTION 8.07. Headings...................................... A-31
SECTION 8.08. Counterparts.................................. A-32
SECTION 8.09. Severability.................................. A-32
SECTION 8.10. Governing Law................................. A-32
A-3
PAGE
--------
SECTION 8.11. Jurisdiction.................................. A-32
SECTION 8.12. Specific Performance.......................... A-32
SECTION 8.13. Amendments.................................... A-32
SECTION 8.14. Interpretation................................ A-32
ANNEX A
EXHIBITS
SCHEDULES
A-4
TRANSACTION AGREEMENT (this "AGREEMENT") dated as of December
16, 2001, by and among VIVENDI UNIVERSAL, S.A., a societe anonyme
organized under the laws of France ("VIVENDI"), UNIVERSAL STUDIOS,
INC., a Delaware corporation ("UNIVERSAL"), USA NETWORKS, INC., a
Delaware corporation ("USAi"), USANI LLC, a Delaware limited
liability company ("USANi"), LIBERTY MEDIA CORPORATION, a Delaware
corporation ("LIBERTY"), and, for purposes of Sections
2.03(a)(iv), 2.03(a)(v), 2.03(a)(vii), 2.07, 4.10(d) and 8.01
only, BARRY DILLER ("DILLER").
PRELIMINARY STATEMENT
WHEREAS USANi desires to distribute to Universal and its Affiliates (such
term and such other terms used and not defined in this Preliminary Statement, as
defined in Annex A) the USANi Distributed Interests in return for the
cancellation of all the USANi Shares owned by Universal and its Affiliates;
WHEREAS Affiliates of Universal and USAi desire to form the Partnership with
Universal Contributing (or causing to be Contributed) the Universal Contributed
Interests and the USANi Distributed Interests, USANi Contributing (or causing to
be Contributed) the USANi Contributed Interests and USAi Contributing (or
causing to be Contributed) all of the membership interests in USA Films, and
with the Partnership operating and conducting its business on the terms set
forth in the Partnership Agreement;
WHEREAS Universal, USAi and USANi desire that the Partnership grant to
Diller a participating interest in the Partnership as compensation for agreeing
to serve as the Chairman and CEO of the Partnership and in consideration for
Diller agreeing to be bound by certain non-competition provisions;
WHEREAS USAi desires to issue to Universal the Warrants in exchange for
Universal agreeing to enter into the commercial arrangements described in
Section 4.11 and for other valuable consideration, including Universal agreeing
to the put/call arrangements set forth in Section 8.07 of the Partnership
Agreement and agreeing to serve as general partner of the Partnership; and
WHEREAS, in connection with the foregoing, the parties hereto, as
applicable, desire to terminate the Exchange Agreement, effective as of the
Closing Date, but after the exchanges contemplated by Section 2.01 of the
Universal/Liberty Merger Agreement and to amend and restate, effective as of the
Closing, the Stockholders Agreement and the Governance Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
Unless the context shall otherwise require, terms used and not defined
herein shall have the meanings assigned thereto in Annex A. Inclusion of, or
reference to, any matter in any Schedule to this Agreement does not constitute
an admission of the materiality of any such matter.
ARTICLE II
TRANSACTIONS AND CLOSING
Upon the terms and subject to the conditions set forth herein, the parties
shall consummate each of the following transactions.
SECTION 2.01. EXCHANGE RIGHTS. (a) Prior to effecting the transactions
contemplated by Section 2.02 of this Agreement, but immediately after the
exchanges contemplated by Section 2.01 of the
A-5
Universal/Liberty Merger Agreement, (i) the Exchange Agreement, except the
representations and warranties contained therein, and (ii) Section 6.01 of the
Investment Agreement, shall be terminated, whereby the USANi Shares will no
longer be exchangeable for USAi Common Equity. Each party hereto that is also a
party to the Exchange Agreement and/or the Investment Agreement shall execute
and deliver, or shall cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all actions necessary to
effect the terminations required pursuant to this Section 2.01 at the time
specified herein.
(b) During the period from the date of this Agreement to the time of the
termination of the exchange right referred to above, USAi shall not take any
action to require either Universal or Liberty to exchange their USANi Shares for
shares of USAi Common Stock pursuant to the Exchange Agreement and during the
period from the date of this Agreement to and including the Closing Date, USAi
shall not take any action to require Liberty to exchange the shares of Home
Shopping Network, Inc. for USAi Common Stock pursuant to the Liberty Exchange
Agreement.
SECTION 2.02. USANi SHARES. On the Closing Date, immediately prior to
effecting the transactions contemplated by Section 2.03, (a) the USAi Share
Exchanges and the Mergers (each as defined in the Universal/Liberty Merger
Agreement) shall be consummated, then (b) USANi shall distribute to Universal
and/or its Affiliates (I) the USANi Universal Distributed Interests in return
for the cancellation of 282,161,530 USANi Shares owned by Universal and its
Affiliates and (II) the USANi Liberty Distributed Interests in return for the
cancellation of 38,694,982 USANi Shares owned by Universal and its Affiliates
that were directly or indirectly acquired in connection with clause (a) above,
all of which USANi Shares shall be delivered by Universal and/or its Affiliates
free and clear of any Liens (the "COMMITTED LLC SHARES") and (c) Universal shall
deliver to USANi cancelled share certificates representing the cancellation of
all such Committed LLC Shares.
SECTION 2.03. TRANSFER AND ACQUISITION. (a) On the Closing Date,
immediately after effecting the transactions contemplated by Section 2.02,
(i) Universal shall Contribute (or cause to be Contributed) to the
Partnership all the right, title and interest of Universal and its
Affiliates in, to and under the Universal Contributed Interests and the
USANi Distributed Interests;
(ii) USANi shall Contribute (or cause to be Contributed) to the
Partnership, directly or indirectly, all the right, title and interest of
USANi and its Affiliates in, to and under the USANi Contributed Interests;
(iii) USAi shall Contribute (or cause to be Contributed) to the
Partnership all the right, title and interest of USAi and its Affiliates in,
to and under the membership interests in USA Films;
(iv) Diller shall assume the roles of Chairman and CEO of the
Partnership;
(v) each Parent Party and Diller shall execute and deliver (or cause its
Affiliates to execute and deliver) (A) the Partnership Agreement and (B)
such appropriate bills of sale, assignment and assumption and other
instruments of transfer providing for the contributions set forth in this
Section 2.03, and the parties to the Partnership Agreement shall form the
Partnership;
(vi) Universal shall cause the Partnership to assume the Contributed
Liabilities; and
(vii) each of Universal, USAi, USANi Sub and Diller (or Affiliates
thereof) shall receive interests in the Partnership as set forth in the
Partnership Agreement.
(b) Prior to Closing, the Parent Parties shall agree upon a schedule that
sets forth the agreed allocation of values of the interests being Contributed
pursuant to Section 2.03(a) for tax purposes.
A-6
SECTION 2.04. OTHER TRANSACTIONS. On the Closing Date,
(i) (A) USAi and The Bank of New York shall execute and deliver the
Warrant Agreement and (B) USAi shall issue and deliver Warrants to Universal
in the amounts and with the exercise prices as set forth in Schedule 2.04;
PROVIDED, that if any event shall have occurred after the close of business
on November 30, 2001 (the "REFERENCE DATE") and on or prior to the Closing
Date that would result in an adjustment to the number of shares purchasable
upon the exercise of Warrants under Article IV of the Warrant Agreement if
such Warrants had been issued on the Reference Date, USAi shall issue and
deliver to Universal Warrants to purchase the number of shares set forth on
Schedule 2.04 as so adjusted, with exercise prices adjusted accordingly;
(ii) Universal shall cause the Partnership to incur third party debt (on
terms reasonably satisfactory to USAi) in an amount sufficient to fund the
special distribution contemplated by Section 8.05 of the Partnership
Agreement, which will be payable to USANi Sub on the Closing Date out of the
proceeds of such debt.
SECTION 2.05. ASSIGNMENT OF CONTRACTS AND RIGHTS. Anything in this
Agreement to the contrary notwithstanding, except as set forth on Schedule 2.05,
this Agreement shall not constitute an agreement to assign any Contract or
License or any claim or right or any benefit arising thereunder or resulting
therefrom, or an assumption of liability thereunder, if an attempted assignment
thereof, without the approval of a party thereto, would be ineffective or would
constitute a breach or other contravention thereof or give rise to any right of
termination thereof, as a direct result of such assignment. Each Parent Party
shall use its reasonable best efforts (which shall not require any payment of
money) to obtain the approval of the other parties to any such Contract or
License, or any claim or right or any benefit arising thereunder, for the
assignment thereof to, and the assumption by, the Partnership. If as of the
Closing Date an attempted assignment and assumption thereof would be ineffective
or would give rise to any right of termination thereof, each Parent Party shall
cooperate in arranging a mutually agreeable alternative to enable the
Partnership to obtain the benefits and assume the obligations under such
Contract or License in accordance with this Agreement as of the Closing Date or
as soon as practicable thereafter (including through a sub-contracting,
sub-licensing, or sub-leasing arrangement, or an arrangement under which such
Parent Party or one of its Affiliates would enforce such Contract or License for
the benefit of the Partnership, with the Partnership assuming such Parent
Party's or its Affiliate's obligations and any and all rights of such Parent
Party or its Affiliate against the other party thereto). If the approval of the
other party is obtained, such approval shall constitute a confirmation
(automatically and without further action of the parties) that such Contract or
License is assigned to the Partnership as of the Closing Date, and
(automatically and without further action of the parties) that the liabilities
with respect to such Contract or License are assumed by the Partnership as of
the Closing Date. The agreements set forth on Schedule 2.05 will apply with
respect to the USAi Contracts described therein.
SECTION 2.06. CLOSING DATE. The closing of the transactions set forth in
this Article II (the "CLOSING") shall take place at the offices of Cravath,
Swaine & Moore, 825 Eighth Avenue, New York, New York 10019, at 10:00 a.m. on
the second Business Day following the satisfaction (or to the extent permitted,
the waiver) of all the conditions to the parties' obligations set forth in
Article V (other than those requiring the delivery of documents or the taking of
other action at the Closing), or at such other place, time and date as the
parties hereto shall agree (the "CLOSING DATE").
SECTION 2.07. ASSIGNMENT OF RIGHTS BY DILLER. Diller may assign beneficial
interests in the right to receive up to an aggregate of 10% of the Common
Interests (as defined in the Partnership Agreement) that Diller is entitled to
receive upon the Closing to one or more Persons designated by Diller prior to
Closing; PROVIDED that no more than four such Persons may be designated. For any
such assignment to be effective, such assignee shall have agreed, pursuant to an
instrument in a form reasonably satisfactory to Universal, to be bound by the
terms of Section 6.07 of the Partnership Agreement.
A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT PARTIES
Representations and warranties of USAi relating to (i) the portions of its
Existing Business contained in USA Cable, Studios USA or their respective
subsidiaries speak only as to the period between February 13, 1998, and the date
hereof and (ii) the portions of its Existing Business contained in USA Films and
its subsidiaries speak only as to the period between May 29, 1999, and the date
hereof (it being understood that matters existing prior to (x) February 13,
1998, in the case of clause (i) above, and (y) May 29, 1999, in the case of
clause (ii) above, shall not be deemed to be a breach of a representation or
warranty that speaks on and after such respective date). Subject to the
immediately preceding sentence, each Parent Party (unless otherwise specified),
with respect to itself and, as applicable, with respect to its Affiliates,
represents and warrants to the other Parent Party as follows:
SECTION 3.01. ORGANIZATION, STANDING AND POWER. Each of such Parent Party
and its Transaction Affiliate(s) (i) is duly organized or formed, validly
existing and in good standing (with respect to jurisdictions which recognize
such concept) under the laws of the jurisdiction in which it is so organized or
formed and (ii) has full corporate or limited liability company power and
authority to perform and comply with all the terms and conditions of each
Transaction Document to which it is, or is specified to be, a party. Each of
such Parent Party and its Transaction Affiliate(s) is duly qualified to do
business as a foreign corporation or limited liability company and is in good
standing (with respect to jurisdictions which recognize such concept) in each
jurisdiction in which the nature of the business transacted by it or the
character or location of the properties owned or leased by it requires such
qualification, except where failure to be so qualified would not have a Material
Adverse Effect.
SECTION 3.02. AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. Each of
such Parent Party and its Affiliates has full power and authority to execute and
deliver the Transaction Documents to which it is, or is specified to be, a party
and to consummate the Transactions to which it is, or is specified to be, a
party. The execution, delivery and performance by each of such Parent Party and
its Affiliates of the Transaction Documents to which it is, or is specified to
be, a party and the consummation by each of such Parent Party and its Affiliates
of the Transactions to which it is, or is specified to be, a party have been
(or, with respect to such Affiliates, prior to the Closing Date will be) duly
authorized by all necessary corporate or limited liability company action
subject, in the case of USAi, to receipt of the USAi Stockholder Approvals, and
no other corporate proceedings on the part of such Parent Party or its
Affiliates are necessary to authorize this Agreement or the consummation of the
Transactions. Each of such Parent Party and its Affiliates has duly executed and
delivered this Agreement (to the extent a party hereto) and prior to the
Effective Time will have duly executed and delivered each other Transaction
Document to which it is, or is specified to be, a party, and this Agreement
constitutes, and each other Transaction Document to which it is, or is specified
to be, a party will, after the Effective Time (assuming the execution and
delivery by each other party thereto), constitute its legal, valid and binding
obligations, enforceable against it in accordance with its terms. The USAi Board
formed a special committee of the USAi Board, composed of the four disinterested
directors on the USAi Board (the "SPECIAL COMMITTEE"), to consider this
Agreement, the other Transaction Documents to which USAi is a party and the
Transactions, and to make a recommendation with respect thereto to the entire
USAi Board. The Special Committee, at a meeting duly called and held at which
all members of the Special Committee were present either in person or by
telephone, (x) received the opinion of Bear, Stearns & Co. to the effect that
the consideration to be received by USAi in the Transactions is fair, from a
financial point of view, to the stockholders of USAi other than Universal,
Liberty, Diller and their Affiliates, and (y) duly and unanimously (and without
any abstentions) adopted resolutions (i) declaring advisable this Agreement,
(ii) determining that the terms of the Transactions are fair to and in the best
interests of the public stockholders of USAi, other than stockholders party to
the Transactions, and (iii) recommending that the USAi Board approve this
Agreement, the other Transaction Documents to which USAi is a party and the
Transactions, and that the USAi Board
A-8
declare the advisability of this Agreement. After receiving and considering such
resolutions of the Special Committee, the USAi Board, at a meeting duly called
and held at which all directors of USAi were present either in person or by
telephone, duly adopted resolutions (i) approving and declaring advisable this
Agreement, (ii) determining that the terms of the Transactions are fair to and
in the best interests of the public stockholders of USAi other than stockholders
party to the Transactions, (iii) directing that this Agreement and the
Transactions be submitted to a vote at a meeting of USAi's stockholders to be
held as promptly as practicable following the date of this Agreement, (iv)
recommending that such stockholders adopt this Agreement and approve and
authorize the Transactions to the extent USAi is a party thereto and (v)
approving the other Transaction Documents to which USAi is a party and the
Transactions, which resolutions have not been subsequently rescinded, modified
or withdrawn in any way.
SECTION 3.03. NO CONFLICTS; CONSENTS. Except as set forth on Schedule
3.03, the execution, delivery and performance by each of such Parent Party and
its Affiliates of this Agreement (to the extent a party hereto) does not, the
execution, delivery and performance by each of such Parent Party and its
Affiliates of each other Transaction Document to which it is, or is specified to
be, a party will not, and the consummation of the Transactions and compliance
with the terms of the Transaction Documents will not, conflict with or result in
any violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or to increased,
additional or accelerated rights or entitlements of any Person under, or result
in the creation of any Lien upon any of the properties or assets of such Parent
Party or its Affiliates under, any provision of (i) the Organizational Documents
of such Parent Party or its Affiliates, (ii) any Material Contract to which such
Parent Party or its Affiliates is a party or by which any of their respective
properties or assets is bound or (iii) any judgment, order or decree
(collectively, "JUDGMENT") or any statute, law, ordinance, rule or regulation
(collectively, "APPLICABLE LAW") applicable to such Parent Party or its
Affiliates or their respective properties or assets, other than, in the case of
clauses (ii) and (iii) above, any such items that, individually or in the
aggregate, would not have a Material Adverse Effect. No consent, approval,
license, permit, order or authorization (collectively, "CONSENT") of, or
registration, declaration or filing with, any Federal, state, local or foreign
government or any court of competent jurisdiction, regulatory or administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign (collectively, "GOVERNMENTAL ENTITY"), is required to be
obtained or made by or with respect to either such Parent Party or any of its
Affiliates in connection with the execution, delivery and performance of the
Transaction Documents to which it is, or is specified to be, a party or the
consummation of the Transactions, other than such Consents, registrations,
declarations or filings, the failure of which to obtain or make, would not,
individually or in the aggregate, have a Material Adverse Effect or those set
forth on Schedule 3.03.
SECTION 3.04. CAPITALIZATION OF USAi; WARRANTS. USAi represents and
warrants to Universal that as of the close of business on the Reference Date (a)
the authorized capital stock of USAi consisted of (i) 1,600,000,000 shares of
USAi Common Stock, of which 314,347,113 shares were then issued and outstanding
and 6,379,547 shares were then held in treasury, (ii) 400,000,000 shares of
Class B common stock of USAi, par value $.01 per share ("USAi CLASS B COMMON
STOCK"), of which 63,033,452 shares were then issued and outstanding and (iii)
100,000,000 shares of preferred stock of USAi, par value $.01 per share ("USAi
PREFERRED STOCK"), of which there were then no shares issued and outstanding
(the issued and outstanding shares in clauses (i) and (ii) above, collectively,
the "USAi SHARES"). Except for the USAi Shares and the other securities set
forth in this Section 3.04, there are no shares of capital stock or other equity
securities of USAi issued, reserved for issuance or outstanding. Except as set
forth on Schedule 3.04 or, with respect to preemptive rights, as set forth in
the Investment Agreement, the USAi Shares are duly authorized, validly issued,
fully paid and nonassessable and not subject to or issued in violation of any
purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the DGCL, the
A-9
certificate of incorporation or by-laws of USAi or any Contract to which USAi is
a party or otherwise bound. Other than (i) options to purchase an aggregate of
82,130,198 shares of USAi Common Stock issued pursuant to employee benefit plans
and agreements of USAi as of the date hereof, (ii) USANi Shares entitling the
holders thereof to acquire, in the aggregate, 181,366,238 shares of USAi Common
Stock and 146,570,000 shares of USAi Class B Common Stock, (iii) 31,620,064
shares of USAi Common Stock and 1,596,544 shares of USAi Class B Common Stock
issuable upon the exchange of shares of Home Shopping Network, Inc., (iv)
1,137,498 shares of USAi Common Stock issuable upon conversion of USAi's 7%
Convertible Subordinated Debentures due July 1, 2003, (v) 167,994 shares of USAi
Common Stock issuable upon the exercise of outstanding warrants, (vi) 452,500
shares of USAi Common Stock issuable under various restricted stock grants,
(vii) up to 54,271,825 shares of USAi Common Stock issuable pursuant to the
Expedia Agreement (including 25,739,216 shares of USAi Common Stock issuable
upon the conversion of shares of USAi Preferred Stock issuable pursuant to the
Expedia Agreement), (viii) up to 13,125,000 shares of USAi Preferred Stock
issuable pursuant to the Expedia Agreement and (ix) up to 16,965,000 shares of
USAi Common Stock issuable upon the exercise of warrants issuable pursuant to
the Expedia Agreement, as of the date hereof, except in connection with this
Agreement and the Transactions contemplated hereby, or as set forth in the
Investment Agreement, the Governance Agreement, the Stockholders Agreement, the
Exchange Agreement and the USANi LLC Agreement, as of the Reference Date there
were not any options, warrants, rights, convertible or exchangeable securities,
"phantom" stock rights, stock appreciation rights, stock-based performance
units, commitments, Contracts or undertakings of any kind to which USAi is a
party or by which USAi is bound (i) obligating USAi to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock or
other equity interests in, or any security convertible or exercisable for or
exchangeable into any capital stock of or other equity interest in, USAi, (ii)
obligating USAi to issue, grant, extend or enter into any such option, warrant,
call, right, security, commitment, Contract, arrangement or undertaking or (iii)
that give any Person the right to receive any economic benefit or right similar
to or derived from the economic benefits and rights occurring to holders of USAi
Shares.
(b) USAi has full power to execute and deliver the Warrants, and the
Warrants have been, or as of the Closing Date will be, duly authorized by USAi
and, when duly executed, issued and delivered, will be duly and validly issued
and outstanding and will constitute valid and legally binding obligations of
USAi, entitled to the benefits of the Warrant Agreement and enforceable against
USAi in accordance with their terms. As of the Closing Date, (i) 60,467,735
shares of USAi Common Stock, adjusted as set forth in Section 2.04 or pursuant
to Section 4.1(f) of the Warrant Agreement, shall be issuable upon the exercise
of the Warrants and (ii) such shares of USAi Common Stock have been or, prior to
the Closing Date, will be duly and validly authorized and reserved for issuance
upon exercise of the Warrants and, when issued upon such exercise, will be
validly issued, fully paid and nonassessable.
SECTION 3.05. THE CONTRIBUTED SUBSIDIARIES. USAi represents and warrants
to Universal that, (a) Schedule 3.05(a) sets forth, for each Contributed
Subsidiary, the amount of its authorized capital stock or other ownership
interests, the amount of its outstanding capital stock or other ownership
interests and the record and beneficial owners of its outstanding capital stock
or other ownership interests. Except as set forth on Schedule 3.05(a), there are
no shares of capital stock or other ownership interests in any such Contributed
Subsidiary issued, reserved for issuance or outstanding. All the outstanding
shares of capital stock or other ownership interests of each such Contributed
Subsidiary have been duly authorized and validly issued and are fully paid and
nonassessable and not subject to or issued in violation of any purchase option,
call option, right of first refusal, preemptive right, subscription right or any
similar right under any provision of the DGCL, if applicable, the certificate of
incorporation, by-laws or other organizational documents of such Contributed
Subsidiary or any Contract to which such Contributed Subsidiary is a party or
otherwise bound. There are not any bonds, debentures, notes or other
indebtedness of any such Contributed Subsidiary having the right to vote (or
A-10
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which holders of capital stock or other ownership interests of
such Contributed Subsidiary may vote ("VOTING SUBSIDIARY DEBT"). Except as set
forth above, as of the date hereof, there are not any options, warrants, rights,
convertible or exchangeable securities, "phantom" stock rights, stock
appreciation rights, stock-based performance units, commitments, Contracts or
undertakings of any kind to which any such Contributed Subsidiary is a party or
by which any of them is bound (i) obligating such Contributed Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other ownership interests in, or any security
convertible or exercisable for or exchangeable into any capital stock of or
other ownership interests in, any such Contributed Subsidiary or Voting
Subsidiary Debt, (ii) obligating such Contributed Subsidiary to issue, grant,
extend or enter into any such option, warrant, call, right, security,
commitment, Contract, arrangement or undertaking or (iii) that give any Person
the right to receive any economic benefit or right similar to or derived from
the economic benefits and rights occurring to holders of capital stock or other
ownership interests of such Contributed Subsidiary. As of the date hereof, there
are not any outstanding contractual obligations of any such Contributed
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock of such Contributed Subsidiary.
(b) (i) Except for ownership interests in its wholly owned subsidiaries and
the ownership interests set forth on Schedule 3.05(b), as of the date hereof, no
Contributed Subsidiary owns, directly or indirectly, any capital stock,
membership interest, partnership interest, joint venture interest or other
equity interest in any Person, other than any interest in special purpose
subsidiaries formed in connection with motion picture or television production
projects, and (ii) the Contributed Subsidiaries do not own (or will not own as
of the Closing), directly or indirectly, any Excluded Assets and are not (or
will not be) liable (after giving effect to the indemnification provisions of
Article VII) in respect of any Excluded Liabilities.
SECTION 3.06. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. (a) USAi
represents and warrants to Universal that
(i) the consolidated financial statements of USAi included in the
documents filed by USAi with the SEC since January 1, 2000, through the date
hereof (the "USAi SEC DOCUMENTS") comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles in the United
States ("U.S. GAAP") (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
present fairly, in all material respects, the consolidated financial
position of USAi and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the USAi SEC Documents,
as of the date of this Agreement, neither USAi nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by U.S. GAAP to be set forth on a
consolidated balance sheet or in the notes thereto and that, individually or
in the aggregate, would have a Material Adverse Effect.
(ii) USAi has delivered to Universal a copy of the unaudited interim
balance sheet of USAi's Existing Business as of September 30, 2001 (the
"BALANCE SHEET"). The Balance Sheet has been prepared in accordance with
U.S. GAAP, from the books and records of USAi, and presents fairly, in all
material respects, the financial position of USAi's Existing Business as of
the date thereof, subject to normal year-end adjustments. Except as set
forth in the Balance Sheet, as of the date thereof, neither USAi nor any of
its subsidiaries had any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) arising primarily out of the
conduct of USAi's Existing Business and required by U.S. GAAP to be set
forth on a consolidated balance sheet or in the notes thereto and that,
individually or in the aggregate, would have a Material Adverse Effect.
A-11
(b) Universal represents and warrants to USAi that the consolidated
financial statements of Vivendi included in the documents filed by Vivendi with
the SEC since January 1, 2000, through the date hereof (the "VIVENDI SEC
DOCUMENTS") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles in France ("FRENCH GAAP") applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and present fairly, in all material respects, the consolidated financial
position of Vivendi and its consolidated subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments). Except as set forth in the Vivendi SEC Documents, as of the
date of this Agreement, neither Vivendi nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by French GAAP to be set forth on a consolidated balance
sheet or in the notes thereto and that, individually or in the aggregate, would
have a Material Adverse Effect.
SECTION 3.07. CONTRACTS. USAi's SEC Reports complied in all material
respects with the disclosure requirements of Item 601 of Regulation S-K. Except
as set forth on Schedule 3.07 and except as would not have a Material Adverse
Effect, all of the Material Contracts are in full force and effect and are valid
and binding agreements of USAi or its Affiliates and, to the knowledge of USAi,
the other parties thereto, enforceable in accordance with their terms. Except as
set forth on Schedule 3.07, to the knowledge of USAi, no party is in default in
any material respect under any of the Material Contracts, nor does any condition
exist that with notice or the lapse of time or both would constitute such a
default. Except for the need to obtain the Consents listed on Schedule 3.03 and
except as would not have a Material Adverse Effect, the Transactions will not
affect the validity or enforceability of any of the Material Contracts. Except
as set forth on Schedule 3.07 or as would not have a Material Adverse Effect, as
of the date of this Agreement, no party to any Material Contract has informed
USAi or, to USAi's knowledge, its Affiliates, of its intention (x) to terminate
such Material Contract or amend the material terms thereof, (y) to refuse to
renew such Material Contract upon expiration of its term, or (z) to renew such
Material Contract upon expiration only on terms and conditions that are more
onerous to its Existing Business, as the case may be, than those now existing.
SECTION 3.08. CONTRIBUTED ASSETS. (a) Such Parent Party owns, directly or
indirectly, and has good and valid title to all such Parent Party's Contributed
Assets, free and clear of all Liens, except Permitted Liens.
(b) Neither such Parent Party nor any of its Affiliates owns (or will own as
of the Closing) any asset, property or right, tangible or intangible, that is
primarily used in the business or operations of its Existing Business, other
than, in each case, such assets, properties and rights that are being
Contributed to the Partnership in accordance with this Agreement. Such Parent
Party's Contributed Assets are sufficient for the conduct of its business by the
Partnership immediately following the Closing in substantially the same manner
as currently conducted by such Parent Party.
SECTION 3.09. REAL PROPERTY. No fee estates are included in the Material
Real Property. Except as set forth on Schedule 3.09, USAi or an Affiliate
thereof has good title to all the Material Real Property, free and clear of all
Liens or other restrictions on the Material Real Property, except for Permitted
Liens. Except for that portion of the Material Real Property subject to leases
where USAi is lessor or sublessor and except as would not have a Material
Adverse Effect, USAi is in possession of, and has full legal and practical
access to, the Material Real Property. As of the date hereof there are no
pending or, to the knowledge of USAi, threatened condemnation or appropriation
proceedings against any of the Material Real Property, except as would not have
a Material Adverse Effect. With respect to each leasehold or subleasehold
interest included in the Material Real Property, USAi or its Affiliate has
enforceable rights to nondisturbance and quiet enjoyment, and no third party
holds any
A-12
interest in the leased premises with the right to foreclose upon such leasehold
or subleasehold interest, except as would not have a Material Adverse Effect.
SECTION 3.10. INTANGIBLE PROPERTY. Except (i) as set forth on Schedule
3.10 or (ii) as has arisen in the ordinary course of business consistent with
past practice and without material diminution of the value thereof, to the
knowledge of USAi, no other person has any claim of ownership or right of use
with respect to its Intangible Property. The use of such Intangible Property by
USAi's Existing Business does not, and the use by the Partnership immediately
after the Closing will not, conflict with, infringe upon, violate, or interfere
with or constitute an appropriation of any right, title, interest, or goodwill,
including any intellectual property right, patent, trademark, trade name,
service mark, brand name, computer program, database, industrial design,
copyright, or any pending application therefor of any other Person (except for
such conflicts, infringements, violations or appropriations as would not have a
Material Adverse Effect), and, to the knowledge of USAi, there have been no
claims made, and USAi's Existing Business has not received any written notice,
that any such item of Intangible Property is invalid or conflicts with the
asserted rights of any Person (other than such invalidity or conflicts as would
not have a Material Adverse Effect).
SECTION 3.11. LICENSES. Each material License of USAi's Existing Business
has been validly issued and is in full force and effect, and USAi, or an
Affiliate thereof, is the authorized legal holder thereof and has complied in
all material respects with all the terms and conditions thereof. As of the date
hereof, there is no Proceeding pending or, to USAi's knowledge, threatened,
seeking the revocation, modification (in a manner adverse to USAi's Existing
Business) or limitation of any material License of USAi's Existing Business, and
no such License will be subject to suspension, modification, revocation or
non-renewal as a result of the execution of this Agreement or the consummation
of the Transactions, except for such suspensions, modifications, revocations or
non-renewals as would not have a Material Adverse Effect. USAi possesses all
material Licenses to own or hold under lease and operate its Contributed Assets
that are necessary to enable it to conduct its Existing Business as currently
conducted.
SECTION 3.12. ABSENCE OF CHANGES OR EVENTS. Except as set forth on
Schedule 3.12 and except as disclosed in such Parent Party's SEC Reports, since
December 31, 2000 through the date hereof, (i) such Parent Party has caused its
Existing Business to be conducted in the ordinary course and in substantially
the same manner as previously conducted and (ii) there has not been any Material
Adverse Effect.
SECTION 3.13. COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed in such
Parent Party's SEC Reports, the Existing Business of such Parent Party has been
and is presently being conducted in compliance with all Applicable Laws,
including those relating to the environment, except for instances of
noncompliance that, individually or in the aggregate, would not have a Material
Adverse Effect. Except as set forth on Schedule 3.13, (i) neither such Parent
Party nor any of its Affiliates has received any written communication during
the past year from a Governmental Entity that alleges that its Existing Business
is not in compliance in any material respect with any Applicable Laws and (ii)
neither such Parent Party nor any of its Affiliates has received any written
notice that any investigation or review by any Governmental Entity with respect
to any of its Contributed Assets or its Existing Business is pending or that any
such investigation is contemplated.
SECTION 3.14. LITIGATION. Except as set forth on Schedule 3.14 or as
disclosed in such Parent Party's SEC Reports, there are not any (i) outstanding
Judgments against or affecting such Parent Party, its Affiliates or its
Contributed Assets or Contributed Subsidiaries, or (ii) claims, actions, suits,
proceedings, arbitrations, investigations, inquiries, or hearings or notices of
hearings (collectively, "PROCEEDINGS") pending or, to the knowledge of such
Parent Party, threatened against or affecting such Parent Party, its Affiliates
or its Contributed Assets or Contributed Subsidiaries, by or against any
Governmental Entity or any other Person, that in any manner challenges or seeks
to prevent, enjoin,
A-13
materially alter or materially delay the Transactions or that, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
SECTION 3.15. UNIVERSAL CONTRIBUTED INTERESTS. (a) Universal represents
and warrants to USAi that, as of the Closing Date, all the outstanding shares of
capital stock or other ownership interests of each Universal Contributed
Interest will have been duly authorized and validly issued and will have been
fully paid and non-assessable and not subject to or issued in violation of any
purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the DGCL, if
applicable, the certificate of incorporation, by-laws or other organizational
documents of such Universal Contributed Interest or any Contract to which such
Universal Contributed Interest is a party or otherwise bound. As of the Closing
Date, there will not be any bonds, debentures, notes or other indebtedness of
any such Universal Contributed Interest having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which holders of capital stock or other ownership interests of such Universal
Contributed Interest may vote ("VOTING CONTRIBUTED INTEREST DEBT"). As of the
Closing Date, there will not be any options, warrants, rights, convertible or
exchangeable securities, "phantom" stock rights, stock appreciation rights,
stock-based performance units, commitments, Contracts or undertakings of any
kind to which any such Universal Contributed Interest is a party or by which any
of them is bound (i) obligating such Universal Contributed Interest to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other ownership interests in, or any security convertible or
exercisable for or exchangeable into any capital stock of or other ownership
interests in, any such Universal Contributed Interest or Voting Contributed
Interest Debt, (ii) obligating such Universal Contributed Interest to issue,
grant, extend or enter into any such option, warrant, call, right, security,
commitment, Contract, arrangement or undertaking or (iii) that give any Person
the right to receive any economic benefit or right similar to or derived from
the economic benefits and rights occurring to holders of capital stock or other
ownership interests of such Universal Contributed Interest.
(b) As of the Closing Date, the Universal Contributed Interests will not
own, directly or indirectly, any Excluded Assets and will not be liable (after
giving effect to the indemnification provisions of Article VII) in respect of
any Excluded Liabilities.
SECTION 3.16. BROKERS OR FINDERS. No agent, broker, investment banker or
other firm or person is or will be entitled to receive from a Parent Party or
its Affiliates or the Partnership any broker's or finder's fee or any other
commission or similar fee in connection with any of the Transactions, except (i)
as to Universal and its Affiliates, Goldman, Sachs & Co., whose fees and
expenses will be paid by Universal, and (ii) as to USAi and its Affiliates,
Allen & Co. and Bear, Stearns & Co., whose fees and expenses will be paid by
USAi.
SECTION 3.17. INVESTMENT INTENT. Such Parent Party understands that (i)
the interests in the Partnership to be issued to it as contemplated by the
Partnership Agreement have not been, and will not be, registered under the
Securities Act of 1933, as amended, or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, and (ii) to the extent it or any
of its Affiliates acquires any of the interests in the Partnership as
contemplated by the Partnership Agreement, it or such Affiliate will be
acquiring such shares solely for its own account for investment purposes, and
not with a view to the distribution thereof.
SECTION 3.18. TAX MATTERS. (a) All material Returns required to be filed
by such Parent Party for taxable periods ending on or prior to the Closing Date
by, or with respect to, its Existing Business have been or will be filed in
accordance with all applicable laws, and all Taxes due have been or will be
paid, except where the failure to so file or so pay would not reasonably be
expected to have, in the aggregate, a Material Adverse Effect.
A-14
(b) USAi represents and warrants that, except as set forth on Schedule
3.18(b), each entity to be Contributed to the Partnership by USAi or USANi Sub
pursuant to this Agreement and Section 3.01 of the Partnership Agreement will be
treated as a pass-through entity for U.S. federal income tax purposes at the
time of contribution.
SECTION 3.19. EMPLOYEE MATTERS. (a) For purposes hereof, "USAi BENEFIT
ARRANGEMENTS" shall mean all material employee benefit plans or arrangements
that cover any employee of USAi's Existing Business (the "USAi BUSINESS
EMPLOYEES") including any employment, severance, or other similar contract,
arrangement or policy and each plan or arrangement (written or oral) providing
for insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, or retirement benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights, stock purchases, or other
forms of incentive compensation or post-retirement insurance, compensation, or
benefits.
(b) No USAi Benefit Arrangement is an "employee pension benefit plan," as
defined in Section 3(2) of ERISA (an "USAi PENSION PLAN"), that is subject to
Title IV of ERISA or Section 412 of the Code, and no USAi Benefit Arrangement
provides post-retirement welfare benefits, except as required by law. Neither
USAi nor any of its Affiliates has incurred or expects to incur any liability or
lien under Title IV of ERISA or Section 412 of the Code, which liability or lien
would be reasonably expected to have a Material Adverse Effect.
(c) Without limiting the generality of Section 3.19(b), except as set forth
on Schedule 3.19(c) to be provided within 10 Business Days hereafter, no USAi
Benefit Arrangement or employee benefit plans of any of its Affiliates or any
entity required to be combined with USAi or any of its Affiliates under Section
414(b), Section 414(c), Section 414(m), or Section 414(o) of the Code (an "ERISA
AFFILIATE") is a "multiemployer pension plan," as defined in Section 3(37) of
ERISA, and neither USAi nor any of its Affiliates nor any of its ERISA
Affiliates has incurred or expects to incur any liability or lien with respect
to any multiemployer pension plan which liability or lien would be reasonably
expected to have a Material Adverse Effect.
(d) Except as set forth on Schedule 3.19(d), none of USAi, any of its
Affiliates, or any of its ERISA Affiliates has incurred, or expects to incur
solely as a result of the consummation of the Transactions (including any
termination of employment in connection therewith), any cost, fee, expense,
liability, claim, suit, obligation, or other damage with respect to any USAi
Pension Plan, or any USAi Benefit Arrangement that could give rise to the
imposition of any liability, cost, fee, expense, or obligation on the
Partnership or any of its Affiliates, which would be reasonably expected to have
a Material Adverse Effect, and, to USAi's knowledge, no facts or circumstances
exist that could give rise to any such cost, fee, expense, liability, claim,
suit, obligation, or other damage, which would be reasonably expected to have a
Material Adverse Effect. Except as set forth on Schedule 3.19(d), neither the
execution and delivery of this Agreement nor the consummation of the
Transactions (including any terminations of employment in connection therewith)
will (i) increase any benefits otherwise payable under any USAi Benefit
Arrangement, which would be reasonably expected to have a Material Adverse
Effect or (ii) result in the acceleration of the time of payment or vesting of
any such payment, which would be reasonably expected to have a Material Adverse
Effect.
(e) USAi will deliver or make available to Universal within ten business
days hereafter true and complete copies of each of the following documents:
(i) each USAi Benefit Arrangement (and, if applicable, related trust
agreements) and all amendments thereto, and (if applicable) each summary
plan description together with any summary of material modifications;
(ii) each written USAi Benefit Arrangement and written descriptions
thereof that has been distributed to the USAi Business Employees (including
descriptions of the number and level of employees covered thereby); and
A-15
(iii) each employee handbook or similar document describing any USAi
Benefit Arrangement applicable to the USAi Business Employees.
(f) Except as set forth on Schedule 3.19(f) to be provided within 10
Business Days hereafter, no controversies, disputes or proceedings are pending
or, to USAi's knowledge, threatened, between USAi or any of its Affiliates, and
any of the USAi Business Employees, which would be reasonably expected to have a
Material Adverse Effect. Except as set forth on Schedule 3.19(f) to be provided
within 10 Business Days hereafter, no labor union or other collective bargaining
unit represents or, to USAi's knowledge, claims to represent any USAi Business
Employees and, to USAi's knowledge, there is no union campaign being conducted
to solicit cards from employees to authorize a union to request a National Labor
Relations Board Certification election with respect to any USAi Business
Employees.
(g) Except where any such failure would not be reasonably expected to have a
Material Adverse Effect, all USAi Benefit Arrangements (i) comply in all
material respects with Applicable Law, including but not limited to ERISA and
the Code, and (ii) have been administered in all material respects in accordance
with their terms, and all required contributions have been made to such USAi
Benefit Arrangements. Except as set forth on Schedule 3.19(g), all USAi Pension
Plans that are intended to be qualified under Section 401(a) of the Code have
received a favorable determination letter from the Internal Revenue Service, and
USAi has no knowledge of any events that would cause such letter to be revoked.
ARTICLE IV
AGREEMENTS AND COVENANTS
SECTION 4.01. COVENANTS RELATING TO CONDUCT OF BUSINESS. (a) Except for
matters set forth in Schedule 4.01 or otherwise expressly permitted by the terms
of this Agreement, from the date hereof to the Closing, each Parent Party shall
cause its respective Existing Business to be conducted in the usual, regular and
ordinary course in substantially the same manner as previously conducted
(including with respect to advertising, promotions, capital expenditures and
inventory levels) and use all reasonable efforts to keep intact the respective
businesses of such Parent Party's Existing Business, keep available the services
of their current employees and preserve their relationships with customers,
suppliers, licensors, licensees, distributors and others with whom they deal to
the end that their respective businesses shall be unimpaired at the Closing.
Each Parent Party shall not, and shall not permit any of its Affiliates to, take
any action that would, or that could reasonably be expected to, result in any of
the conditions set forth in Article V not being satisfied. In addition (and
without limiting the generality of the foregoing), except as set forth in
Schedule 4.01 or otherwise expressly permitted or required by the terms of this
Agreement, each Parent Party shall not, and shall not permit any of its
Affiliates to, do any of the following in connection with its Existing Business
without the prior written consent of the other Parent Party:
(i) with respect to any of its Contributed Subsidiaries, amend its
Organizational Documents, except as is necessary to consummate the
Transactions;
(ii) other than sweeping cash in the ordinary course of business
consistent with past practice, make any declaration or payment of any
dividend or any other distribution in respect of its equity interest in any
Contributed Subsidiary;
(iii) with respect to any of its Contributed Subsidiaries, redeem or
otherwise acquire any shares of its capital stock or issue any capital stock
(except upon the exercise of outstanding options) or any option, warrant or
right relating thereto or any securities convertible into or exchangeable
for any shares of such capital stock;
(iv) incur or assume any indebtedness for borrowed money or guarantee
any such indebtedness in connection with its Existing Business;
A-16
(v) permit, allow or suffer any Contributed Assets to become subjected
to any Lien of any nature whatsoever, except Permitted Liens;
(vi) cancel any material indebtedness (individually or in the aggregate)
or waive any claims or rights of substantial value relating to its Existing
Business;
(vii) except for intercompany loans among Contributed Subsidiaries in
the ordinary course of business or transactions in the ordinary course,
consistent with past practice and not material in amount, pay, loan or
advance any amount to, or sell, transfer or lease any of its assets to, or
enter into any agreement or arrangement with any of its Affiliates;
(viii) make any change in any method of financial accounting or
financial accounting practice or policy of its Existing Business other than
those required by generally accepted accounting principles;
(ix) make any change in the methods or timing of collecting receivables
or paying payables with respect to its Existing Business;
(x) other than in the ordinary course of business, make or incur any
capital expenditure in connection with its Existing Business that is not
currently approved in writing or budgeted;
(xi) sell, lease, license or otherwise dispose of any of the assets of
its Existing Business, except inventory, programming or other goods or
services sold in the ordinary course of business consistent with past
practice; or
(xii) authorize any of, or commit or agree to take, whether in writing
or otherwise, to do any of, the foregoing actions.
(b) Except as set forth in Schedule 4.01 or otherwise expressly permitted by
the terms of this Agreement or any ancillary agreements that may be entered into
in connection with the Transactions, USAi shall not, and shall not permit any of
its Affiliates to:
(i) adopt or amend any USAi Benefit Arrangement (or any plan or
arrangement that would be an USAi Benefit Arrangement if adopted) relating
primarily to its Existing Business or enter into, adopt, extend (beyond the
Closing Date), renew or amend any collective bargaining agreement or other
Contract relating to its Existing Business with any labor organization,
union or association, except in each case, in the ordinary course of
business and consistent with past practice or as required by Applicable Law;
or
(ii) (A) grant to any USAi Business Employee any increase in
compensation or benefits, except grants in the ordinary course of business
and consistent with past practice or as may be required under agreements in
existence on the date of this Agreement or (B) grant new options or
restricted stock to any USAi Business Employee except as may be required
under agreements in existence on the date of this Agreement.
(c) Each Parent Party shall promptly advise the other Parent Party in
writing of the occurrence of any matter or event that is material to the
business, assets, financial condition, or results of operations of its Existing
Business, taken as a whole.
(d) Notwithstanding any other provision of this Agreement, following the
date hereof, each Parent Party shall manage its cash (including any sweeps
thereof), payables and receivables relating to its Existing Business in each
case in the ordinary course of business and consistent with past practice.
SECTION 4.02. ACCESS TO INFORMATION. Except as may be deemed appropriate
to ensure compliance with any Applicable Laws and subject to any applicable
privileges, from the date hereof to the Closing Date each Parent Party (i) shall
give the other Parent Party and its authorized representatives reasonable access
to the offices, properties, books and records of it relating to its
A-17
Existing Business during normal business hours and upon reasonable prior notice,
(ii) shall furnish to such other Parent Party and its authorized representatives
such financial and operating data and other information relating to such
Existing Business as such other Parent Party may reasonably request and (iii)
shall instruct its employees and representatives to cooperate with such other
Parent Party in its investigation of such Existing Business, all for the purpose
of enabling such other Parent Party and its authorized representatives to
conduct, at their own expense, business and financial reviews, investigations
and studies of such Existing Business. No investigation pursuant to this Section
4.02 shall affect or otherwise obviate or diminish any representations or
warranties of any Parent Party or conditions to the obligations of any Parent
Party.
SECTION 4.03. CONFIDENTIALITY. Each Parent Party acknowledges that the
information being provided to it in connection with the consummation of the
Transactions, as well as the information relating to its Existing Business that
will be Contributed to the Partnership as of the Closing Date, is intended to be
kept confidential, and each Parent Party shall keep confidential, and cause its
Affiliates and instruct its and their officers, directors, employees and
advisors to keep confidential, all such information, except as required by law
or administrative process and except for information that is currently available
to the public, or thereafter becomes available to the public other than as a
result of a breach of this Section 4.03. The covenant set forth in this Section
4.03 shall terminate five years after the date of this Agreement.
SECTION 4.04. REASONABLE BEST EFFORTS. (a) On the terms and subject to the
conditions of this Agreement, each Parent Party and its Affiliates shall use its
reasonable best efforts to cause the Closing to occur as soon as practicable
after the date hereof (but subject to the satisfaction of the conditions set
forth in Article V), including taking all reasonable actions necessary to comply
promptly with all legal requirements that may be imposed on it or any of its
Affiliates with respect to the Closing.
(b) Subject to Section 2.05, prior to the Closing each Parent Party (at its
own expense) shall use its reasonable best efforts to obtain, and shall cause
its Affiliates to cooperate in obtaining, all consents and approvals from third
parties necessary or appropriate to permit the contributions contemplated by
Section 2.03 and the consummation by such Parent Party and its Affiliates of the
Transactions.
(c) Following the date hereof, each Parent Party shall file promptly any
forms required under applicable law and take any other action reasonably
necessary in connection with obtaining the expiration or termination of the
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, to the extent applicable to the Transactions.
SECTION 4.05. EXPENSES; TRANSFER TAXES. (a) Whether or not the Closing
takes place, and except as set forth in Section 6.02(b) or in Article VII, all
costs and expenses incurred in connection with the preparation of the
Transaction Documents and the consummation of the Transactions shall be paid by
the party incurring such costs and expenses, including all costs and expenses
incurred pursuant to Section 4.04.
(b) Any liabilities, obligations or commitments for transfer, documentary,
sales, use, registration, value-added and other similar Taxes, governmental fees
or other like assessments or charges of any kind whatsoever and related amounts
(including any penalties, interest and additions thereto) (each, a "TRANSFER
TAX") shall be paid as follows: (i) USAi shall pay all Transfer Taxes on the
contribution to the Partnership of the USANi Contributed Interests and the
membership interests in USA Films pursuant to Section 2.03(a), (ii) Universal
shall pay all Transfer Taxes on the contribution of the Universal Contributed
Interests and the USANi Distributed Interests to the Partnership pursuant to
Section 2.03(a) and (iii) each Parent Party shall pay one half of the Transfer
Taxes on the distribution by USANi of the USANi Distributed Interests pursuant
to Section 2.02. The Parent Party responsible for paying a Transfer Tax shall
use (and cause its Affiliates to use) its reasonable efforts to avail itself of
any available exemptions from any such Transfer Taxes, and the Parent Parties
shall cooperate with
A-18
one another in providing any information and documentation that may be necessary
to obtain such exemptions.
SECTION 4.06. DISTRIBUTION AGREEMENTS. (a) On the earlier to occur of (i)
the Closing Date and (ii) the date on which this Agreement is terminated in
accordance with Section 6.01, the Distribution Agreements shall terminate (and
each Parent Party shall take all efforts necessary to effectuate the foregoing),
and the parties thereto shall have no further obligations or liabilities
thereunder (including under the provisions of each such agreement relating to
(x) distribution obligations after termination or (y) rights of first
negotiation and last refusal after termination), except with respect to services
rendered prior to the date of such termination.
(b) On the Closing Date, the Ancillary Distribution Agreements shall
terminate (and each Parent Party shall take all efforts necessary to effectuate
the foregoing), and the parties thereto shall have no further obligations or
liabilities thereunder, except with respect to services rendered prior to the
date of such termination.
(c) Each Parent Party agrees, on behalf of itself and its Affiliates, that
for a reasonable period of time and not less than one year following the
termination of the Distribution Agreements, it or its Affiliates will make
available to the other Parent Party and its Affiliates (for the domestic and
international distribution of television programming produced by such Parent
Party or its Affiliates), any excess capacity, under existing output agreements
or otherwise, with respect to the domestic and international distribution of
television programming that such Parent Party and its Affiliates are unable to
use for their own programming. In connection with the termination of the
agreements set forth in Section 4.06(a), Universal and USAi shall cooperate and
act in good faith (i) to continue to provide television distribution, including
access to output agreements, for a period of one-year following the termination
date under Section 4.06(a) on terms and conditions (not including with respect
to exclusivity, non-compete and the like) consistent with past practice, and
(ii) to provide for the orderly wind down of any in-process commitments or
obligations so as not to unreasonably disrupt the Existing Businesses.
SECTION 4.07. PUBLICITY. From the date hereof through the Closing Date, no
public release or announcement concerning the Transactions shall be issued by
any party or any of its Affiliates without the prior consent of the other
parties (which consent shall not be unreasonably withheld), except as such
release or announcement may be required by law or the rules or regulations of
any United States or foreign securities exchange or commission (in which case
the party required to make the release or announcement shall allow the other
parties reasonable time to comment on such release or announcement in advance of
such issuance); PROVIDED, HOWEVER, that a party may make internal announcements
to its and its Affiliates' employees that are consistent with the parties' prior
public disclosures regarding the Transactions.
SECTION 4.08. FURTHER ASSURANCES. (a) From time to time prior to and after
the Closing, as and when reasonably requested by another party, each party shall
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and shall take, or cause to be taken, all such further or other
actions (subject to Section 4.04), as such other party may reasonably deem
necessary or desirable to consummate the Transactions.
(b) Universal and its Affiliates and Liberty and its Affiliates shall use
their respective reasonable best efforts (subject to the terms of the
Universal/Liberty Merger Agreement) to cause the conditions to closing set forth
in Sections 6.01, 6.02 and 6.03 of the Universal/Liberty Merger Agreement to be
satisfied as promptly as practicable. Universal and its Affiliates shall not,
without USAi's written consent, terminate the Universal/Liberty Merger Agreement
(other than pursuant to Section 7.01(a)(iv) thereof) or amend the
Universal/Liberty Merger Agreement in any manner that would (i) delay the
consummation of the Transactions in any material respect, or (ii) increase the
consideration payable to Liberty and/or its Affiliates thereunder, other than in
connection with any amendments entered into pursuant to Section 5.01(d) of the
Universal/Liberty Merger Agreement.
A-19
(c) In the event that at any time or from time to time after the Closing,
any Parent Party (or its Affiliates) shall receive or otherwise possess any
Contributed Asset that was not assigned or otherwise transferred to the
Partnership at the Closing, such Parent Party shall promptly use its reasonable
best efforts to transfer, or cause to be transferred, such asset to the
Partnership. Prior to any such transfer, the Parent Party (or its Affiliates)
possessing such asset shall hold such asset (and all earnings generated by such
asset from and after the Closing) in trust for the Partnership.
SECTION 4.09. BOARD RECOMMENDATION. Neither the USAi Board nor any
committee thereof shall withdraw or modify in a manner adverse to Universal, or
propose to withdraw or modify, in a manner adverse to Universal, the approval or
recommendation by the USAi Board or any such committee of this Agreement, the
other Transaction Documents to which USAi is a party or the Transactions.
Notwithstanding the foregoing, if, prior to the USAi Stockholder Approvals, (a)
a majority of the Special Committee determines in good faith, following receipt
of the advice of outside counsel, that it is necessary to do so in order to
comply with its fiduciary obligations, the Special Committee may withdraw or
modify its recommendation of this Agreement, the other Transaction Documents to
which USAi is a party and the Transactions, and (b) a majority of the USAi Board
determines in good faith, following receipt of the advice of outside counsel,
that it is necessary to do so in order to comply with its fiduciary obligations,
the USAi Board may withdraw or modify its recommendation to USAi's stockholders
of this Agreement, the other Transaction Documents to which USAi is a party and
the Transactions; PROVIDED that neither the Special Committee nor the USAi Board
may take any action that would result in USAi's stockholders no longer being
legally capable under the DGCL of approving or authorizing this Agreement or the
Transactions.
SECTION 4.10. PREPARATION OF PROXY STATEMENT; STOCKHOLDERS MEETING. (a) As
soon as practicable after execution of this Agreement, USAi shall prepare and
file with the SEC a preliminary Proxy Statement, in form and substance
reasonably satisfactory to Universal, and shall use its reasonable best efforts
to respond, after consultation with Universal, as promptly as practicable to any
comments of the SEC with respect thereto. USAi shall notify Universal promptly
of the receipt of any comments from the SEC or its staff and of any request by
the SEC or its staff for amendments or supplements to the Proxy Statement or for
additional information. USAi shall supply Universal with copies of all
correspondence between it or its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement. Universal
shall cooperate with USAi in providing any information or responses to comments,
or other assistance, reasonably requested in connection with the foregoing. If
at any time prior to receipt of the USAi Stockholder Approvals there shall occur
any event that should be set forth in an amendment or supplement to the Proxy
Statement, USAi shall promptly prepare and mail to its stockholders such an
amendment or supplement. USAi shall use its reasonable best efforts to cause the
Proxy Statement to be mailed to its stockholders as promptly as practicable
after filing with the SEC. The Proxy Statement shall comply in all material
respects with all applicable requirements of law. None of the information
supplied or to be supplied by Vivendi, USAi or their respective Affiliates for
inclusion or incorporation by reference in the proxy statement will contain any
untrue statement of material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading.
(b) USAi shall duly call, give notice of, convene and hold a meeting of its
stockholders (the "USAi STOCKHOLDERS MEETING") for the purpose of seeking the
USAi Stockholder Approvals as soon as practicable after the filing of the
definitive Proxy Statement. USAi shall, through the USAi Board, recommend to its
stockholders that they give the USAi Stockholder Approvals, except to the extent
that the USAi Board shall have withdrawn or modified its recommendation to
USAi's stockholders of this Agreement and the Transactions as permitted by
Section 4.09. USAi agrees that its obligations pursuant to this Section 4.10
shall not be affected by the withdrawal or modification by the USAi Board or any
committee thereof of such Board's or such committee's recommendation to USAi's
stockholders of this Agreement or the Transactions.
A-20
(c) Subject to clause (b) of this Section 4.10, each Parent Party shall use
its reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other Parent Party
in doing, all things necessary, proper or advisable to obtain the USAi
Stockholder Approvals.
(d) At any meeting of the stockholders of USAi called to seek the USAi
Stockholder Approvals or in any other circumstances upon which a vote, consent
or other approval (including by written consent) with respect to this Agreement
or the Transactions is sought, such Parent Party or Diller, as applicable, shall
vote (or cause to be voted) any USAi Common Stock over which such Parent Party
or Diller, as applicable, has the power to vote in favor of granting the USAi
Stockholder Approvals.
SECTION 4.11. COMMERCIAL ARRANGEMENTS. (a) Each Parent Party shall enter
into (or cause its Affiliates to enter into) a series of strategic and
commercial alliances with one another covering the transactional and internet
businesses of such Parent Party and its Affiliates on the Closing Date;
PROVIDED, that if such alliances are not entered into on or prior to the Closing
Date, the obligations under this provision shall continue after the Closing
Date. The commitment to enter into such agreements is an integral part of the
Transactions and the Parent Parties and their respective Affiliates shall
negotiate in good faith the terms thereof, which shall be mutually beneficial
and on mutually satisfactory terms and designed to treat each Parent Party and
its Affiliates as a "preferred partner" of the other.
(b) The Parent Parties shall negotiate in good faith to enter into an
agreement on the Closing Date pursuant to which the Partnership will provide
affiliate distribution of the Home Shopping Network, America's Store and other
transactional services (such as a travel network) on an arm's-length basis;
PROVIDED, that if such agreement is not entered into on or prior to the Closing
Date, the obligations to provide such affiliate distribution shall continue
after the Closing Date.
(c) The Parent Parties agree to the arrangements set forth on Schedule
4.11(c).
(d) The failure to enter into any of the agreements set forth in this
Section 4.11 prior to the Closing Date will not constitute a failure of the
condition set forth in Section 5.02(b).
SECTION 4.12. TAX MATTERS. (a) The Parent Parties intend that the
Partnership be treated as a partnership for United States federal income tax
purposes and agree to take no actions inconsistent with such treatment. The
Parent Parties agree, except as otherwise required pursuant to a final
determination within the meaning of Section 1313(a)(1) of the Code, to treat the
transactions contemplated by Section 2.02 as a distribution by USANi to
Universal and/or its Affiliates governed by Section 731 of the Code and the
transactions contemplated by Section 2.03 as a contribution of property to the
Partnership governed by Section 721(a) of the Code and a distribution by the
Partnership to USANi Sub, in each case that will not result in recognition of
gain or loss by any Parent Party or any of their respective Affiliates under any
provision of the Code or the Treasury Regulations thereunder.
(b) To the extent any entity to be Contributed to the Partnership by
Universal pursuant to this Agreement and Section 3.01 of the Partnership
Agreement is treated as other than a pass-through entity for U.S. federal income
tax purposes, Universal shall take all reasonable actions necessary to cause
such entity (or its successor) to be treated as a pass-through entity for U.S.
federal income tax purposes (a "CONVERSION"), provided that Universal has
determined in good faith that (i) neither Universal nor any of its Affiliates
shall suffer a material tax detriment or any other material cost as a result of
such Conversion and (ii) such Conversion is not prohibited by applicable
contract or law.
(c) Subject to Universal delivering to USAi a schedule setting forth
Universal's (or any of its Affiliate's) adjusted tax basis in any assets that
were contributed to USANi or any of its subsidiaries by Universal (or any of its
Affiliates) in a transaction in which USANi or any of its subsidiaries took a
transferred basis, USAi will deliver to Universal no later than 30 days prior to
the Closing Date a
A-21
schedule setting forth to USAi's best knowledge USANi Sub's tax basis,
immediately after the Effective Time, in its interest in the Partnership.
(d) No later than 30 days prior to the Closing Date, USAi shall deliver to
Universal a schedule setting forth, to the best knowledge of USAi, the adjusted
tax basis of USAi or USANi Sub, as the case may be, in each of the assets to be
contributed by USAi or USANi Sub, as the case may be, to the Partnership.
SECTION 4.13. AGREEMENT NOT TO COMPETE. (a) USAi understands that the
Partnership shall be entitled to protect and preserve the going concern value of
USAi's Existing Business to the extent permitted by law and that Universal would
not have entered into this Agreement absent the provisions of this Section 4.13
and, therefore, for a period from the Closing Date until the date that is the
later of (1) 18 months after the Closing Date and (2) six calendar months after
the date upon which Diller ceases to be the CEO of the Partnership, USAi shall
not, and shall cause each of its controlled Affiliates not to, directly or
indirectly:
(i) engage in the Business or acquire any interest in any Person engaged
in the Business; and
(ii)(A) solicit, recruit or hire any employees of any Existing Business
or the Partnership or Persons who have worked for any Existing Business or
the Partnership, in each case other than employees who perform solely
clerical functions for such Persons, (B) solicit or encourage any employee
of any Existing Business or the Partnership to leave the employment of any
Existing Business or the Partnership, in each case other than employees who
perform solely clerical functions for such Persons, and (C) disclose or
furnish to anyone any confidential information relating to its Existing
Business or the Partnership or otherwise use such confidential information
for its own benefit or the benefit of any other Person; PROVIDED that the
non-solicitation provisions of clauses (A) and (B) shall be deemed not
breached by any advertisement or general solicitation that is not
specifically targeted at the employees or Persons referred to therein;
PROVIDED, FURTHER, that if at any time after 18 months after the Closing Date
(x) Diller shall cease to be the CEO or an officer of USAi or any of its
Affiliates but shall still be the CEO of the Partnership, or (y) Diller resigns
as CEO of the Partnership for Good Reason or is terminated without Cause (each,
as defined in the Partnership Agreement), then the restrictions set forth in
this Section 4.13(a) shall cease to apply. Notwithstanding the foregoing, USAi
agrees that it shall not restructure, reorganize or take any other action in an
effort to circumvent the terms or intent of this Section 4.13(a).
(b) Section 4.13(a) shall be deemed not breached as a result of the
ownership by USAi or any of its Affiliates of: (i) interests in the Partnership,
(ii) less than an aggregate of 5% of any class of stock of a Person engaged,
directly or indirectly, in the Business; PROVIDED, HOWEVER, that such stock is
listed on a national securities exchange, (iii) Vivendi ordinary shares as the
result of the exercise of a put or a call under Section 10.03 of the Partnership
Agreement, (iv) less than 10% in value of any instrument of indebtedness of a
Person engaged, directly or indirectly, in the Business, and (v) the whole or
any part of an acquired Person or business which carries on the Business, where
less than 30% of such Person's revenues are generated by the Business, and USAi
or its Affiliates will dispose of such Business within six months of its
acquisition, PROVIDED that such disposition may be delayed pending receipt of
required regulatory approvals.
(c) USAi agrees that this covenant is reasonable with respect to its
duration and scope. If, at the time of enforcement of this Section 4.13, a court
holds that the restrictions stated herein are unreasonable under the
circumstances then existing, the parties hereto agree that the period and scope
legally permissible under such circumstances will be substituted for the period
and scope stated herein.
SECTION 4.14. USAi PARTNERSHIP INTERESTS. USAi covenants and agrees that
at all times its interests in the Partnership shall be held directly by USAi or
by a wholly owned direct or indirect subsidiary of USAi, PROVIDED, HOWEVER, that
this covenant shall not be deemed to be breached solely as a
A-22
result of the fact that Home Shopping Network, Inc. is not a wholly owned
subsidiary of USAi, so long as Liberty and USAi remain the only shareholders of
Home Shopping Network, Inc. and Liberty's ownership percentage of Home Shopping
Network, Inc. does not increase materially.
SECTION 4.15. OFFICERS OF THE PARTNERSHIP. Universal shall cause Diller to
be appointed as the CEO and Chairman of the Partnership, as contemplated by the
Partnership Agreement.
SECTION 4.16. PARTNERSHIP AGREEMENT OBLIGATIONS. Vivendi shall comply with
the terms of Section 10.03 of the Partnership Agreement and Universal shall
comply with the terms of Sections 8.07 and 10.03 of the Partnership Agreement,
in each case, as if it were a party to such agreement. Vivendi shall cause the
general partner of the Partnership to perform all of its obligations as the
general partner under the Partnership Agreement.
SECTION 4.17. COMMITTED LLC SHARES; COMMITTED COMMON EQUITY. (a) Between
the date hereof and the Closing, Universal shall not, and shall not permit any
of its Affiliates to, sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, the Committed LLC Shares. Any transfer of
Committed LLC Shares not permitted hereby shall be null and void.
(b) Following the Closing and until such time that the obligations in
Section 8.07 of the Partnership Agreement are satisfied, Universal and its
Affiliates shall at all times retain at least 43,181,308 shares of USAi Common
Stock and 13,430,000 shares of USAi Class B Common Stock (as adjusted for stock
splits and the like, together, the "COMMITTED COMMON EQUITY"), in each case,
free of any Liens, except Permitted Liens. To the extent that some, but not all,
of the Committed Common Equity is required to satisfy Universal's obligations
under the Partnership Agreement, Universal and its Affiliates shall satisfy such
obligations, first out of USAi Class B Common Stock, and second out of USAi
Common Stock.
SECTION 4.18. PARTNERSHIP. (a) Universal shall ensure that the
Partnership, when formed, is formed as a Delaware limited liability limited
partnership, is formed for the purpose of engaging in the Transactions and for
the other purposes set forth in the Partnership Agreement, and, following its
formation through to the Closing, does not engage in any business activities or
incur any liabilities, other than as specifically contemplated by the
Transactions.
(b) Universal shall from time to time, directly or indirectly, contribute
sufficient equity to the Partnership to ensure the Partnership is able to
perform all of its obligations under Sections 8.01, 8.02 and 8.06 of the
Partnership Agreement.
SECTION 4.19. SUBSTITUTE LETTERS OF CREDIT; GUARANTEES. As promptly as
practicable following the date hereof, USAi shall provide to Universal a list of
letters of credit, guarantees and any similar obligations of USAi and its
Affiliates (other than the Contributed Subsidiaries) primarily related to USAi's
Existing Business and not constituting Excluded Liabilities. Effective as of the
Closing, Universal shall cause the Partnership or one of its Affiliates to
procure substitute letters of credit, and shall cause the Partnership or one of
its Affiliates to be substituted in all respects for any of USAi or its
Affiliates (other than the Contributed Subsidiaries) with respect to any such
matters.
SECTION 4.20. USANi TAX DISTRIBUTION. A distribution (as calculated
pursuant to Section 8.2 of the USANi LLC Agreement) shall be made by USANi to
each Liberty Party that holds an interest in USANi prior to the exchanges of
USANi Shares for Shares of USAi Common Stock contemplated by Section 2.01 of the
Universal/Liberty Merger Agreement (the "TAX DISTRIBUTION"), and the proceeds of
such Tax Distribution shall be distributed by such Liberty Party to its
shareholder, immediately prior to any Merger involving such Liberty Party. The
amount of such Tax Distribution shall be calculated in the good faith judgment
of USANi based on facts known as of the date of such Tax Distribution and such
Tax Distribution shall be made with respect to any taxable period (or portion
thereof) of USANi (up to
A-23
and including the Closing Date) and such determination shall be final and
binding upon the parties. For purposes of this Section 4.20, "Liberty Party" and
"Merger" shall have the meanings assigned to such terms by the Universal/Liberty
Merger Agreement.
SECTION 4.21. LEASE ARRANGEMENT. For a reasonable transition period of up
to two years following the Closing (but in no event later than the date that
executives of USAi's Existing Business as of the date hereof cease to occupy
such premises), the Partnership shall be entitled to occupy the premises located
at 8800 Sunset Boulevard, West Hollywood, California, on a rent-free basis.
SECTION 4.22. USA NAME. The Parent Parties acknowledge that the USA Name
shall be Contributed to the Partnership as of the Closing Date. Prior to the
Closing the Parent Parties shall negotiate in good faith to determine how the
ownership of the various logos and designs currently associated with the USA
Name ("ASSOCIATED IP") shall be allocated, it being understood that (A) USAi
shall be granted a perpetual, non-exclusive royalty-free license to use the USA
Name in connection with its other businesses and (B) whichever Parent Party is
allocated ownership of a particular piece of Associated IP will grant to the
other Parent Party the right to use such Associated IP consistently with current
practice and without any significant economic cost to the grantee. The Parent
Parties shall work cooperatively to provide for an orderly transition and to
minimize confusion resulting from the use of the USA Name by the Partnership and
USAi.
SECTION 4.23. OPTIONS AND RESTRICTED STOCK. Vivendi shall use its
reasonable best efforts to ensure that each USAi Business Employee, who holds
stock options to acquire USAi Common Stock, whether vested or unvested,
in-the-money or underwater (the "USAi OPTIONS") and/or USAi restricted Common
Stock awards (the "USAi RESTRICTED STOCK", collectively with the USAi Options,
the "USAi EQUITY AWARDS"), shall be awarded, as of the Closing Date (or, if the
date of forfeiture of the USAi Option is 90 days or more following the Closing
Date, as soon as reasonably practicable following the applicable forfeiture
date), subject to the forfeiture of any USAi Equity Award, stock options,
restricted stock or other equity-based compensation in respect of Vivendi
American Depositary Shares representing Vivendi ordinary shares par value E5.50
per share (the "ADSs") that have a "value" that is at least equal to the "value"
of the forfeited USAi Equity Awards (the "VIVENDI REPLACEMENT AWARDS"). The
Vivendi Replacement Awards shall at a minimum (a) preserve the intrinsic value
(I.E., the "SPREAD") of the USAi Options that are in-the-money (relative to the
fair market value of the ADSs underlying the Vivendi Replacement Awards) and the
fair market value of the USAi Restricted Stock and (b) with respect to USAi
Options that are underwater, have an exercise price such that the Vivendi
Replacement Awards are not underwater by a greater percentage of fair market
value than the underwater USAi Options, in all cases measured as of the date of
grant of the Vivendi Replacement Awards. USAi represents that the maximum number
of shares of USAi Restricted Stock held by USAi Business Employees that will be
required to be replaced with Vivendi Replacement Awards is 57,500 shares of USAi
Common Stock.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. CONDITIONS TO EACH PARTY'S OBLIGATION. The obligation of
each party to consummate the Transactions is subject to the satisfaction on the
Closing Date of the following conditions, any one or more of which conditions of
each party may be waived by such party to the extent permitted by law:
(a) Other than such Consents, registrations, declarations or filings the
failure of which to obtain would not have a Material Adverse Effect, all
Consents of, or registrations, declarations or filings with, or expirations of
waiting periods imposed by, any Governmental Entity necessary for the
consummation of the Transactions shall have been obtained or filed or shall have
occurred.
A-24
(b) No Applicable Law or Judgment enacted, entered, promulgated, enforced or
issued by any Governmental Entity or other legal restraint or prohibition
preventing the consummation of the Transactions shall be in effect.
(c) USAi shall have received the USAi Stockholder Approvals at the USAi
Stockholder Meeting.
(d) The other parties shall have furnished such other documents relating to
the corporate existence and the authority to consummate the Transactions of such
other parties and their respective Affiliates, and such other matters as counsel
to such party may reasonably request.
(e) The Transaction Documents shall have been executed and delivered by each
other party thereto, and the USAi Share Exchanges and the Mergers (each as
defined in the Universal/Liberty Merger Agreement) shall have been consummated;
PROVIDED, that USAi and Universal shall not be entitled to waive the
satisfaction of the foregoing condition without the prior written approval of
Liberty.
SECTION 5.02. ADDITIONAL CONDITIONS TO OBLIGATION OF EACH PARENT
PARTY. The obligation of each Parent Party to consummate the Transactions is
further subject to the satisfaction on the Closing Date of the following
conditions, any one or more of which conditions of such Parent Party may be
waived by such party to the extent permitted by law:
(a) Except to the extent that the failure of such representations and
warranties to be true and correct, in the aggregate, would not (after giving
effect to the operation of Section 2.05) have a Material Adverse Effect: the
representations and warranties of the other Parent Party made in this Agreement,
without regard to any materiality or Material Adverse Effect qualification,
shall be true and correct as of the date hereof and, in the case of the
representations and warranties set forth in Sections 3.01, 3.02, 3.03 (only with
respect to the Organizational Documents of such Parent Party), 3.05, 3.08 and
3.15, as of the Effective Time, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties shall be true and correct as of such earlier
date), and such Parent Party shall have received a certificate signed by an
executive officer of the other Parent Party to such effect.
(b) The other Parent Party and its Affiliates shall have performed or
complied in all material respects with all obligations and covenants required by
this Agreement to be performed or complied with by such other Parent Party or
such Affiliates by the Effective Time, and such Parent Party shall have received
a certificate signed by an authorized officer of such other Parent Party to such
effect.
SECTION 5.03. FRUSTRATION OF CLOSING CONDITIONS. No Parent Party may rely
on the failure of any condition set forth in this Article V to be satisfied if
such failure was caused by (i) the action or willful inaction of such party or
its Affiliates, (ii) the failure of any representation or warranty of such party
qualified as to materiality to be true and correct or, those not so qualified to
be true and correct in all material respects, or (iii) failure to use its
reasonable best efforts to cause the Closing to occur as required by Section
4.04.
ARTICLE VI
TERMINATION
SECTION 6.01. TERMINATION. (a) Notwithstanding anything to the contrary in
this Agreement, this Agreement may be terminated and the other Transactions
abandoned at any time prior to the Effective Time, whether before or after the
USAi Stockholder Approvals are obtained:
(i) by mutual written consent of the parties hereto;
(ii) by either Parent Party if, upon a vote at a duly held USAi
Stockholder Meeting or any adjournment thereof, the USAi Stockholder
Approvals shall not have been obtained;
A-25
(iii) by either Parent Party if any of the conditions to such Parent
Party's obligations set forth in Article V shall have become incapable of
fulfillment, and shall not have been waived by such Parent Party;
(iv) by Universal if the USAi Board or any committee thereof shall have
withdrawn or modified its approval or recommendation of this Agreement or
the Transactions; or
(v) by any party hereto, if the Closing does not occur on or prior to
September 30, 2002;
PROVIDED, HOWEVER, that the party seeking termination pursuant to clause (ii),
(iii) or (v) is not in breach of any of its representations, warranties,
covenants or agreements contained in this Agreement in any material respect.
(b) In the event of termination by a party pursuant to this Section 6.01,
written notice thereof shall forthwith be given to the other parties, and the
Transactions shall be terminated without further action by any party. If this
Agreement is terminated as provided herein, each party shall return all
documents and other material received from any other party relating to the
Transactions, whether so obtained before or after the execution hereof.
SECTION 6.02. EFFECT OF TERMINATION. (a) If this Agreement is terminated
and the Transactions are abandoned as described in Section 6.01, this Agreement
shall become null and void and of no further force and effect, except for the
provisions of (i) Section 3.16 relating to broker's and finder's fees, (ii)
Section 4.03 relating to the obligation of the Parent Parties to keep
confidential certain information and data obtained by it from the other parties,
(iii) Section 4.05 relating to certain expenses, (iv) Section 4.07 relating to
publicity, and (v) Section 6.01 and this Section 6.02 relating to termination.
Nothing in this Section 6.02 shall be deemed to release any party from any
liability for any breach by such party of the terms and provisions of this
Agreement.
(b) If this Agreement is terminated pursuant to Section 6.01(a)(iv), then
USAi shall promptly reimburse Universal and its Affiliates for all of their
documented, out of pocket expenses incurred in connection with this Agreement
and the other Transaction Documents, up to a limit of $15,000,000. Such
reimbursement shall be paid upon demand following such termination.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION BY EACH PARENT PARTY. (a) Vivendi shall
indemnify and hold harmless (x) USAi and its Affiliates and their respective
officers, directors, shareholders, employees, representatives, agents or
trustees and (y) the Partnership and its Affiliates and their respective
officers, directors, partners, employees, representatives, agents or trustees
(clauses (x) and (y) together, the "USAi INDEMNIFIED PARTIES"), from and against
any Losses (other than any Losses relating to Taxes, the indemnification of
which is governed solely by Section 7.02), as incurred (payable promptly upon
written request), to the extent arising from, relating to or otherwise in
respect of:
(i) any breach of any representation or warranty of Universal or its
Affiliates contained in any Transaction Document or any certificate
delivered on behalf of Universal pursuant to Section 5.02(a) (in each case,
without regard to any materiality or Material Adverse Effect qualifier
contained therein);
(ii) any failure by Universal or its Affiliates (including for purposes
of this Section 7.01(a)(ii), the Partnership) to perform or fulfill any of
its covenants or agreements contained in any Transaction Document (other
than Sections 8.01, 8.02 and 8.06 of the Partnership Agreement);
A-26
(iii) any fees, expenses or other payments incurred or owed by Universal
or its Affiliates to any brokers, financial advisors or comparable other
persons retained or employed by it in connection with the Transactions;
(iv) any Excluded Liability of Universal or its Affiliates; and
(v) any dissolution or winding up of the Partnership or Bankruptcy (as
defined in the Partnership Agreement) of the general partner of the
Partnership, in each case at any time while the Preferred Interests (as
defined in the Partnership Agreement) are outstanding;
but only (with respect to items described in Section 7.01(a)(i)) to the extent
the aggregate amount of all such Losses of all such USAi Indemnified Parties
exceed $150 million (the "BASKET"), PROVIDED, HOWEVER, that the Basket shall not
apply to the representations contained in Section 3.18.
(b) USAi shall indemnify and hold harmless (x) Universal and its Affiliates
and their respective officers, directors, shareholders, employees,
representatives, agents or trustees and (y) the Partnership and its Affiliates
and their respective officers, directors, partners, employees, representatives,
agents or trustees (clauses (x) and (y) together, the "UNIVERSAL INDEMNIFIED
PARTIES"), from and against any Losses (other than any Losses relating to Taxes,
the indemnification of which is governed solely by Section 7.02), as incurred
(payable promptly upon written request), to the extent arising from, relating to
or otherwise in respect of:
(i) any breach of any representation or warranty of USAi or its
Affiliates contained in any Transaction Document or any certificate
delivered on behalf of USAi pursuant to Section 5.02(a) (in each case,
without regard to any materiality or Material Adverse Effect qualifier
contained therein);
(ii) any failure by USAi or its Affiliates to perform or fulfill any of
its covenants or agreements contained in any Transaction Document;
(iii) any fees, expenses or other payments incurred or owed by USAi or
its Affiliates to any brokers, financial advisors or comparable other
persons retained or employed by it in connection with the Transactions; and
(iv) any Excluded Liability of USAi or its Affiliates;
but only (with respect to items described in Section 7.01(b)(i)) to the extent
the aggregate amount of all such Losses of all such Universal Indemnified
Parties exceed the Basket, PROVIDED, HOWEVER, that the Basket shall not apply to
the representation contained in Section 3.18.
SECTION 7.02. TAX INDEMNIFICATION BY EACH PARENT PARTY. (a) Vivendi shall
be liable for, and shall indemnify and hold harmless USAi, the Partnership and
their respective Affiliates from and against, the following Taxes:
(i) any and all Taxes with respect to its Existing Business and any
Taxes attributable to its ownership of USANi Shares, in each case for any
taxable period ending (or deemed pursuant to Section 7.02(c) to end) on or
before the Closing Date; and
(ii) any several liability under Treasury Regulation Section 1.1502-6 or
under any comparable or similar provision under state, local or foreign laws
or regulations for periods ending on or prior to the Closing Date.
(b) In addition, Vivendi shall be liable for, and shall indemnify and hold
harmless USAi and its Affiliates from and against any Tax Detriment incurred by
USAi or any of its Affiliates solely as a result of (i) the breach by Universal
or any of its Affiliates of any of the covenants set forth in Sections 2.07,
3.01(c), 5.05(a)(i), 5.05(a)(v) or 5.05(a)(vi) of the Partnership Agreement or
(ii) if Vivendi has
A-27
elected that any covenant set forth in Section 5.05(b) of the Partnership
Agreement shall not apply, any action or inaction that would constitute a breach
of such covenant.
(c) USAi shall be liable for, and shall indemnify and hold harmless
Universal, the Partnership and their respective Affiliates from and against, the
following Taxes:
(i) any and all Taxes with respect to its Existing Business (other than
Taxes attributable to the ownership of USANi Shares by Universal or any of
its Affiliates) for any taxable period beginning on or after February 13,
1998 (in the case of Taxes relating to USA Cable, Studios USA or their
respective subsidiaries) and May 29, 1999 (in the case of Taxes relating to
USA Films or its subsidiaries) and ending (or deemed pursuant to Section
7.02(c) to end) on or before the Closing Date; and
(ii) any several liability under Treasury Regulation Section 1.1502-6 or
under any comparable or similar provision under state, local or foreign laws
or regulations for periods beginning on or after February 13, 1998 (in the
case of Taxes relating to USA Cable, Studios USA or their respective
subsidiaries) and May 29, 1999 (in the case of Taxes relating to USA Films
or its subsidiaries) and ending on or prior to the Closing Date.
(d) In addition, USAi shall be liable for, and shall indemnify and hold
harmless Universal and its Affiliates from and against any Tax Detriment
incurred by Universal or any of its Affiliates solely as a result of the breach
by USAi or any of its Affiliates of any covenant set forth in Section 2.07 or
3.01(c) of the Partnership Agreement.
(e) (i) The Parent Parties agree that if any entity transferred to the
Partnership is permitted but not required under applicable foreign, state or
local Income Tax laws to treat the day before the Closing Date or the
Closing Date as the last day of a taxable period, such day shall be treated
as the last day of a taxable period.
(ii) For purposes hereof, in the case of any Taxes that are imposed on a
periodic basis and are payable for a period that begins before the Closing
Date and ends after the Closing Date, the portion of such Tax that shall be
deemed to be payable for the portion of the period ending on the Closing
Date shall (i) in the case of any Taxes, other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Taxes for
the entire period (or, in the case of such Taxes determined on an arrears
basis, the amount of such Taxes for the immediately preceding period),
whether actually paid before, during, or after such period, multiplied by a
fraction the numerator of which is the number of calendar days in the period
ending on (and including) the Closing Date and the denominator of which is
the number of calendar days in the entire period, and (ii) in the case of
any Taxes based upon or related to income or receipts (including but not
limited to withholding Taxes), be deemed equal to the amount which would be
payable if the taxable year ended on the close of business on the Closing
Date. Any credits for such a period shall be prorated, based upon the
fraction employed in clause (i) of the preceding sentence. Such clause (i)
shall be applied with respect to Taxes for such period relating to capital
(including net worth or long-term debt) or intangibles by reference to the
level of such items on the Closing Date. Principles similar to those of this
Section 7.02(c)(ii) shall be applied in determining whether a Tax is for a
taxable period beginning on or after February 13, 1998 or May 29, 1999, as
applicable.
SECTION 7.03. REFUNDS. (a) Universal and its Affiliates shall be entitled
to any refunds or credits of Taxes attributable to or arising in taxable periods
ending (or deemed pursuant to Section 7.02(c) to end) on or before the Closing
Date with respect to its Existing Business or its ownership of the USANi Shares,
as the case may be.
(b) USAi and its Affiliates shall be entitled to any refunds or credits of
Taxes attributable to or arising in taxable periods ending (or deemed pursuant
to Section 7.02(c) to end) on or before the
A-28
Closing Date with respect to its Existing Business (other than with respect to
the USANi Shares owned by Universal or any of its Affiliates).
SECTION 7.04. CALCULATION OF LOSSES. The amount of any Loss, Tax, or Tax
Detriment for which indemnification is provided under this Article VII shall be
net of any amounts actually recovered by the indemnified party (as defined in
Section 7.06(a)) under insurance policies or indemnities from third parties with
respect to such Loss, Tax, or Tax Detriment and shall be (i) increased to take
account of any net Tax cost incurred by the indemnified party arising from the
receipt of indemnity payments hereunder (grossed up for such increase) and (ii)
reduced to take account of any net Tax benefit realized by the indemnified party
arising from the incurrence or payment of any such Loss, Tax or Tax Detriment.
In computing the amount of any such Tax cost or Tax benefit, the indemnified
party shall be deemed to fully utilize, at the highest marginal Tax rate then in
effect, all Tax items arising from the receipt of any indemnity payment
hereunder or the incurrence or payment of any indemnified Loss, Tax or Tax
Detriment.
SECTION 7.05. TERMINATION OF INDEMNIFICATION. The obligations to indemnify
and hold harmless any party (i) pursuant to Section 7.01(a)(i) or 7.01(b)(i), as
the case may be, shall terminate when the applicable representation or warranty
terminates pursuant to Section 7.07, (ii) pursuant to Section 7.02, shall
terminate when the applicable statute of limitations expires (giving effect to
any waiver, mitigation or extension thereof) and (iii) pursuant to the other
clauses of Sections 7.01, shall not terminate; PROVIDED, HOWEVER, that such
obligations to indemnify and hold harmless shall not terminate with respect to
any item as to which the Person to be indemnified shall have, before the
expiration of the applicable period, previously made a claim by delivering a
notice of such claim (stating in reasonable detail the basis of such claim)
pursuant to Section 7.06 to the party to be providing the indemnification.
SECTION 7.06. PROCEDURES; EXCLUSIVITY. (a) In order for a party (the
"INDEMNIFIED PARTY") to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of or involving a claim made by any
Person against the indemnified party (a "THIRD PARTY CLAIM"), such indemnified
party must notify the indemnifying party in writing (and in reasonable detail)
of the Third Party Claim promptly following receipt by such indemnified party of
written notice of the Third Party Claim; PROVIDED, HOWEVER, that failure to give
such notification shall not affect the indemnification provided hereunder except
to the extent the indemnifying party shall have been actually prejudiced as a
result of such failure. Thereafter, the indemnified party shall deliver to the
indemnifying party, promptly after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim.
(b) If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party; PROVIDED, HOWEVER, that such counsel is not reasonably
objected to by the indemnified party. Should the indemnifying party so elect to
assume the defense of a Third Party Claim, the indemnifying party shall not be
liable to the indemnified party for any legal expenses incurred from and after
the date of such assumption by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the indemnified
party shall have the right to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof. If the
indemnifying party chooses to defend or prosecute a Third Party Claim, all the
indemnified parties shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request and at its expense) the provision to the indemnifying party of records
and information which are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Whether or not
the indemnifying
A-29
party assumes the defense of a Third Party Claim, the indemnified party shall
not admit any liability with respect to, or settle, compromise or discharge,
such Third Party Claim without the indemnifying party's prior written consent
(which consent shall not be unreasonably withheld). If the indemnifying party
assumes the defense of a Third Party Claim, the indemnified party shall agree to
any settlement, compromise or discharge of a Third Party Claim that the
indemnifying party may recommend and that by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third Party Claim (or, in the case of any Third Party Claim with respect to
Taxes, as to which the indemnifying party acknowledges in writing its obligation
to make payment in full), that releases the indemnified party completely in
connection with such Third Party Claim (or, in the case of any Third Party Claim
with respect to Taxes, as to which the indemnifying party acknowledges in
writing its obligation to make payment in full) and that would not otherwise
materially and adversely affect the indemnified party. Notwithstanding the
foregoing, the indemnifying party shall not be entitled to assume the defense of
any Third Party Claim (and shall be liable for the reasonable fees and expenses
of counsel incurred by the indemnified party in defending such Third Party
Claim) if the Third Party Claim seeks an order, injunction or other equitable
relief or relief for other than money damages against the indemnified party that
the indemnified party reasonably determines, after conferring with its outside
counsel, cannot be separated from any related claim for money damages.
(c) In the event any indemnified party should have a claim against any
indemnifying party under this Article VII that does not involve a Third Party
Claim being asserted against or sought to be collected from such indemnified
party, the indemnified party shall deliver notice of such claim with reasonable
promptness to the indemnifying party. So long as the indemnified party provides
notification to the indemnifying party prior to the termination of the
obligation to indemnify as set forth in Section 7.05, the failure by any
indemnified party so to notify the indemnifying party shall not relieve the
indemnifying party from any liability that it may have to such indemnified party
under this Article VII, except to the extent that the indemnifying party
demonstrates that it has been actually prejudiced by such failure. The
indemnifying party and the indemnified party shall proceed in good faith to
negotiate a resolution of any dispute with respect to such a claim and, if not
resolved through negotiations, such dispute shall be resolved by litigation in
an appropriate court of competent jurisdiction.
(d) After the Closing, Section 7.01 shall constitute the exclusive remedy
for any misrepresentation or breach of warranty contained in this Agreement.
SECTION 7.07. SURVIVAL. The representations, warranties, covenants and
agreements contained in the Transaction Documents or in any certificates
delivered pursuant to Section 5.02(a) shall survive the Closing and shall
terminate on March 31, 2003, except for those contained in Section 3.18, which
shall survive until the expiration of the applicable statute of limitations
(giving effect to any waiver, mitigation or extensions thereof). Notwithstanding
the foregoing, those covenants or agreements that contemplate or may involve
actions to be taken or obligations in effect after the Closing shall survive in
accordance with their terms.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. APPROVAL OF TRANSACTIONS. By execution of this Agreement,
each of the parties hereto approves and consents, in each case on its own behalf
and on behalf of its Affiliates, to the Transactions (including in respect of
any transaction to be taken after the Closing in respect of USAi Shares under
Section 8.07 of the Partnership Agreement) and the actions necessary to be taken
by USAi, USANi and their respective Affiliates in connection therewith, for all
purposes under the Investment Agreement, the Governance Agreement, the
Stockholders Agreement and the USANi LLC Agreement and all other agreements to
which it or its Affiliates is a party that provides the right to consent to
USAi's entering into the Transactions. Each of Diller, Universal and Liberty
hereby waives
A-30
any right of first refusal or tag along right and any restriction on Transfer
(as defined in the Stockholders Agreement) relating to the Transactions;
provided that (x) Liberty will be entitled to exercise its preemptive rights in
accordance with the Governance Agreement with respect to the Warrants to be
issued to Universal pursuant to this Agreement and (y) nothing herein shall be
deemed to constitute a waiver or consent of Diller or Liberty of his or its
rights under the Stockholders Agreement or the Governance Agreement with respect
to transactions relating to Transfers of USAi Shares occurring after the Closing
Date (other than delivery by Universal or its Affiliates of USAi Shares in
accordance with Section 8.07 of the Partnership Agreement).
SECTION 8.02. NOTICES. All notices, requests and other communications to
any party under this Agreement shall be in writing (including a facsimile or
similar writing) and shall be given to a party hereto at the address or
facsimile number set forth for such party on Schedule 8.02 or as such party
shall at any time otherwise specify by notice to each of the other parties to
such agreement or instrument. Each such notice, request or other communication
shall be effective (i) if given by facsimile, at the time such facsimile is
transmitted and the appropriate confirmation is received (or, if such time is
not during a Business Day, at the beginning of the next such Business Day), (ii)
if given by mail, five Business Days (or, if to an address outside the United
States, ten calendar days) after such communication is deposited in the United
States mails with first-class postage prepaid, addressed as aforesaid, or (iii)
if given by any other means, when delivered at the address specified pursuant
hereto.
SECTION 8.03. NO THIRD PARTY BENEFICIARIES. The terms of this Agreement
are not intended to confer any rights or remedies hereunder upon, and shall not
be enforceable by, any Person other than the parties hereto, other than (i) with
respect to the provisions of Article VII hereof, each indemnified person and
(ii) with respect to Section 4.13, the Partnership.
SECTION 8.04. WAIVER. No failure by any party to this Agreement to insist
upon the strict performance of any covenant, agreement, term or condition hereof
or to exercise any right or remedy consequent upon a breach of such or any other
covenant, agreement, term or condition shall operate as a waiver of such or any
other covenant, agreement, term or condition of this Agreement. Any party to
this Agreement, by notice given in accordance with Section 8.02, may, but shall
not be under any obligation to, waive any of its rights or conditions to its
obligations under this Agreement, or any duty, obligation or covenant of any
other party hereto. No waiver shall affect or alter the remainder of this
Agreement and each and every covenant, agreement, term and condition hereof
shall continue in full force and effect with respect to any other then existing
or subsequent breach. Subject to Section 7.06(d), the rights and remedies
provided by this Agreement are cumulative and the exercise of any one right or
remedy by any party shall not preclude or waive its right to exercise any or all
other rights or remedies.
SECTION 8.05. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
SECTION 8.06. INTEGRATION. This Agreement and the other Transaction
Documents (including the schedules and exhibits hereto and thereto) constitute
the entire agreement among the parties hereto pertaining to the subject matter
hereof and supersede all prior agreements and understandings of the parties in
connection herewith, and no covenant, representation or condition not expressed
in such Transaction Documents shall affect, or be effective to interpret, change
or restrict, the express provisions of this Agreement.
SECTION 8.07. HEADINGS. The titles of Articles and Sections of this
Agreement are for convenience only and shall not be interpreted to limit or
otherwise affect the provisions of this Agreement.
A-31
SECTION 8.08. COUNTERPARTS. This Agreement may be executed by the parties
hereto in multiple counterparts, each of which shall be deemed an original and
all of which, taken together, shall constitute one and the same instrument.
SECTION 8.09. SEVERABILITY. Each provision of this Agreement shall be
considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any applicable law, such invalidity
shall not impair the operation of or affect those portions of this Agreement
which are valid.
SECTION 8.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the conflicts of law principles thereof.
SECTION 8.11. JURISDICTION. Each party to this Agreement irrevocably
submits to the jurisdiction of (i) the courts of the State of Delaware, New
Castle County, and (ii) the United States District Court for the District of
Delaware, for the purposes of any suit, action or other proceeding (other than
suits, actions or other proceedings arising solely out of the Universal/Liberty
Merger Agreement) arising out of this Agreement or the Transactions. Each party
agrees to commence any such action, suit or proceeding either in the courts of
the State of Delaware, New Castle County or if such suit, action or other
proceeding may not be brought in such court for jurisdictional reasons, in the
District Court for the District of Delaware. Each party further agrees that
service of any process, summons, notice or document by U.S. registered mail to
such party's respective address in accordance with Section 8.02 shall be
effective service of process for any action, suit or proceeding in Delaware with
respect to any matters to which it has submitted to jurisdiction in this Section
8.11. Each party irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
or the Transactions in (i) the courts of the State of Delaware, New Castle, or
(ii) the United States District Court for the District of Delaware, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 8.12. SPECIFIC PERFORMANCE. Each of the parties to this Agreement
agrees that the other parties hereto would be irreparably damaged if any of the
provisions of this Agreement are not performed in accordance with its specific
terms and that monetary damages would not provide an adequate remedy in such
event. Accordingly, in addition to any other remedy to which the nonbreaching
parties may be entitled, at law or in equity, the nonbreaching parties (or the
Partnership, in the case of Section 4.13) may be entitled to injunctive relief
to prevent breaches of this Agreement and to specifically enforce the terms and
provisions hereof.
SECTION 8.13. AMENDMENTS. This Agreement may be amended by an instrument
in writing signed on behalf of each of the parties hereto at any time before or
after receipt of the USAi Stockholder Approvals, PROVIDED, HOWEVER, that after
any such approval, there shall be made no amendment that by law requires further
approval by such stockholders without the further approval of such stockholders.
SECTION 8.14. INTERPRETATION. References in this Agreement to Articles,
Sections, Annexes, Exhibits and Schedules shall be deemed to be references to
Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. References to Schedules shall be
deemed to be references to the respective Schedules of USAi and Universal, as
applicable. All Annexes, Exhibits and Schedules attached to this Agreement shall
be deemed incorporated therein as if set forth in full therein. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of such agreement or
instrument.
A-32
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the day and year first above written.
VIVENDI UNIVERSAL, S.A.,
By /s/ JEAN-MARIE MESSIER
----------------------------------------
Name: Jean-Marie Messier
Title: Chairman and Chief Executive
Officer
UNIVERSAL STUDIOS, INC.,
By /s/ GUILLAUME HANNEZO
----------------------------------------
Name: Guillaume Hannezo
Title: Special Power of Attorney
USA NETWORKS, INC.,
By /s/ JULIUS GENACHOWSKI
----------------------------------------
Name: Julius Genachowski
Title: Senior Vice President and
General Counsel
USANi LLC,
By /s/ JULIUS GENACHOWSKI
----------------------------------------
Name: Julius Genachowski
Title: Senior Vice President and
General Counsel
LIBERTY MEDIA CORPORATION,
By /s/ ROBERT R. BENNETT
----------------------------------------
Name: Robert R. Bennett
Title: President
Only for purposes of Sections 2.03(a)(iv),
2.03(a)(v), 2.03(a)(vii), 2.07, 4.10(d) and 8.01:
BARRY DILLER,
/s/ BARRY DILLER
---------------------------------------
A-33
ANNEX A
The terms defined below have the meanings set forth below for all purposes
of this Agreement, and such meanings shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person. For purposes of the foregoing, (i) USANi and its
Affiliates shall be deemed to be Affiliates of USAi, (ii) none of USAi, USANi or
any of their respective Affiliates shall be deemed to be an Affiliate of
Universal, (iii) none of Diller, Universal, Liberty or any of their respective
Affiliates shall be deemed to be an Affiliate of USAi and (iv) none of USAi or
Universal or any of their respective Affiliates shall be deemed to be an
Affiliate of the Partnership.
"ANCILLARY DISTRIBUTION AGREEMENTS" shall mean the Home Video Distribution
Agreement, the Other Business Rights Agreement and the Music Administration
Agreement.
"APPLICABLE LAW" shall have the meaning set forth in Section 3.03.
"BALANCE SHEET" shall have the meaning set forth in Section 3.06(b).
"BASKET" shall have the meaning set forth in Section 7.01(a).
"BUSINESS" means the operation, programming or delivery of any general or
genre-based entertainment television channel (irrespective of how such channel
is delivered to the customer, including delivery by cable, satellite, the
internet or other technologies), the production and distribution of
entertainment television programming and feature films and any other business to
be Contributed to the Partnership as of the Closing Date, including any
reasonably foreseeable entertainment-focused extensions of such businesses after
such date that are programming or film-oriented, other than in a transactional
context. The term "Business" shall not include (i) television channels
(irrespective of how such channel is delivered to the customer, including
delivery by cable, satellite, the internet or other technologies) which are
consumer transaction-oriented, such as Home Shopping Network, America's Store
and USAi's planned travel network or which provide informational services which
lend themselves to commerce (such as Travel Channel, Home & Garden Television,
the Food Network, and Do It Yourself) or which otherwise serve as a means of
introducing, starting or promoting transactional services, including
transaction-oriented television channels whose primary focus is the provision of
electronic retailing, auction services or gaming/gambling services or (ii)
electronic commerce and retailing, information and services.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a United
States Federal holiday.
"CEO" means chief executive officer.
"CLOSING" and "CLOSING DATE" shall have the meanings set forth in Section
2.06.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTED LLC SHARES" shall have the meaning set forth in Section 2.02.
"CONSENT" shall have the meaning set forth in Section 3.03.
"CONTRACTS" means all contracts, agreements, commitments and other legally
binding arrangements, whether oral or written.
"CONTRIBUTE" means to contribute, assign, transfer, convey and deliver, and
"CONTRIBUTING" and "CONTRIBUTED" shall have correlative meanings.
A-34
"CONTRIBUTED ASSETS" means, with respect to any Parent Party, all the
business, properties, assets, goodwill and rights of such Parent Party and its
Affiliates of whatever kind and nature, real or personal, tangible or
intangible, that are owned, leased or licensed by such Parent Party or its
Affiliates immediately prior to the Effective Time and used, held for use or
intended to be used primarily in the operation or conduct of its Existing
Business, other than Excluded Assets, including (i) Real Property, (ii) tangible
personal property and interests therein, including machinery, equipment,
furniture and vehicles, (iii) Inventory, (iv) Licenses, (v) Investments, (vi)
accounts receivable on the Closing Date arising out of the operation or conduct
of its Existing Business, (vii) Intangible Property, (viii) Contracts, (ix)
credits, prepaid expenses, deferred charges, advance payments, security deposits
and other prepaid items, (x) rights, claims and credits to the extent relating
to any other Contributed Asset or Contributed Liability, including such items
arising under insurance policies and all guarantees, warranties, indemnities and
similar rights in favor of such Parent Party or its Affiliates in respect of any
other Contributed Asset or Contributed Liability, (xi) Records, (xii) goodwill
generated by or associated with its Existing Business and (xiii) in the case of
USAi, the USA Name.
"CONTRIBUTED LIABILITIES" means with respect to any Parent Party, (i) the
liabilities, obligations and commitments contained in the Contracts primarily
relating to such Parent Party's Existing Business, (ii) all accounts payable of
such Parent Party and its Affiliates arising primarily out of the operation or
conduct of its Existing Business prior to the Closing and (iii) all other
liabilities, obligations and commitments of such Parent Party or its Affiliates
of any nature whether known or unknown, absolute, accrued, contingent or
otherwise and whether due or to become due, arising primarily out of the
operation or conduct of its Existing Business before, on or after the Closing
Date.
"CONTRIBUTED SUBSIDIARIES" means, with respect to USAi only, (i) New-U
Studios Inc., (ii) Studios USA, (iii) Tier One Subsidiary, Inc., (iv) USA Cable,
(v) USA Films, (vi) USA Networks Partner LLC and (vii) USA Television Production
Group LLC.
"DILLER" shall have the meaning set forth in the Preamble.
"DISTRIBUTION AGREEMENTS" means the Domestic Television Distribution
Agreement and the International Television Distribution Agreement.
"DGCL" means the Delaware General Corporation Law, as amended from time to
time.
"DOMESTIC TELEVISION DISTRIBUTION AGREEMENT" means the Domestic Television
Distribution Agreement, dated as of February 12, 1998, by and between USAi and
Universal.
"EFFECTIVE TIME" means the time at which the Closing shall have occurred.
"EXCHANGE AGREEMENT" means the Exchange Agreement dated as of October 19,
1997, by and among USAi, Universal, for itself and on behalf of certain of its
subsidiaries and Liberty, for itself and on behalf of certain of its
subsidiaries.
"EXCLUDED ASSETS" means, with respect to any Parent Party, (i) all rights of
such Parent Party under the Transaction Documents, (ii) all Records prepared for
the purpose of the Transactions, (iii) all financial and tax records relating to
such Parent Party's Existing Business that form part of its general ledger and
(iv) all rights, claims and credits of such Parent Party and its Affiliates to
the extent relating to any Excluded Asset or Excluded Liability, including such
items arising under insurance policies and all guarantees, warranties,
indemnities and similar rights in favor of such Parent Party or its Affiliates
in respect of any other Excluded Asset or Excluded Liability. For the avoidance
of doubt, with respect to USAi, the Excluded Assets shall include any and all
outstanding obligations to USAi pursuant to the Non-Negotiable Promissory Note,
dated May 28, 1999, between Universal Studios Holding I Corp., as borrower and
USAi, as lender, in the principal amount of $200 million.
"EXCLUDED LIABILITY" means, with respect to any Parent Party, any (i)
liability, obligation or commitment of such Parent Party that is not a
Contributed Liability, (ii) any liability, commitment or
A-35
obligation of an entity this is being Contributed to the Partnership to
guarantee, indemnify or otherwise be liable for any obligation of USAi,
Universal or any of their respective Affiliates that are not being Contributed
to the Partnership or (iii) any liability, obligation or commitment under (A)
the Warrant Agreements dated as of March 2, 1992 between Savoy Pictures and
Allen & Co. or (B) the Warrant Agreement dated as of April 20, 1994, by and
between Savoy Pictures Entertainment Inc., GkH Partners, L.P. and GkH Private
Limited.
"EXISTING BUSINESS" means, (i) with respect to Universal, the filmed
entertainment, television and recreation businesses of Universal Studios, Inc.,
Centenary Holding N.V., and Universal Pictures International B.V. (excluding,
for the avoidance of doubt all Universal Music Group and VU-Net businesses) in
each case as conducted by such entities immediately prior to the Effective Time,
and (ii) with respect to USAi, the programming, television distribution, cable
networks and film businesses as conducted by USAi and its Affiliates immediately
prior to the Effective Time (including, for the avoidance of doubt, USA Cable,
USA Films and Studios USA), other than the business described in the second
sentence of the definition of "Business".
"EXPEDIA AGREEMENT" means the Amended and Restated Agreement and Plan of
Recapitalization and Merger by and among USAi, Expedia, Inc., Taipei, Inc.,
Microsoft Corporation and Microsoft E-Holdings, Inc., dated as of July 15, 2001.
"GOVERNANCE AGREEMENT" means (i) with respect to periods prior to the
Closing Date, the Governance Agreement among Universal, USAi, Liberty and Diller
dated as of October 19, 1997 and (ii) with respect to periods on or after the
Closing Date, the Amended and Restated Governance Agreement dated as of December
16, 2001, among USAi, Universal, Liberty, Diller and Vivendi.
"GOVERNMENTAL ENTITY" shall have the meaning set forth in Section 3.03.
"HOME VIDEO DISTRIBUTION AGREEMENT" means the Home Video Distribution
Agreement, dated as of February 12, 1998, between USAi and Universal Studios
Home Video, Inc.
"INCOME TAX" means all Taxes based on or measured by net income.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 7.06(a).
"INTANGIBLE PROPERTY" means, with respect to an Existing Business, (i) any
intellectual property asset of such Existing Business (other than such property
licensed to such Existing Business), with a value, as reflected on such party's
balance sheet, of $10 million or more and (ii) all material patents, trademarks,
trade names, service marks, brand marks, brand names, proprietary computer
programs, proprietary databases, industrial design, copyrights or any pending
application therefor.
"INTERNATIONAL TELEVISION DISTRIBUTION AGREEMENT" means the International
Television Distribution Agreement, dated as of February 12, 1998, by and between
USAi and Universal.
"INVENTORY" means raw materials, work-in-process, finished goods, supplies,
parts, spare parts and other inventories.
"INVESTMENT AGREEMENT" means the Investment Agreement dated as of October
19, 1997, as amended and restated as of December 18, 1997, among, Universal, for
itself and on behalf of certain of its subsidiaries, USAi, HSN, Inc. and
Liberty, for itself and on behalf of certain of its subsidiaries.
"INVESTMENTS" means partnership interests and any other equity interest in
any corporation, company, limited liability company, partnership, joint venture,
trust or other business association, including the Contributed Subsidiaries.
"JUDGMENT" shall have the meaning set forth in Section 3.03.
"LIBERTY" shall have the meaning set forth in the Preamble.
A-36
"LIBERTY EXCHANGE AGREEMENT" means the Exchange Agreement dated as of
December 20, 1996 by and between Silver King Communications, Inc. and Liberty
HSN, Inc.
"LICENSES" means all licenses, permits, construction permits, registrations,
and other authorizations issued by any Governmental Entity for use in connection
with the conduct of the business or operations of the relevant business, and all
applications therefor, together with any renewals, extensions, modifications, or
additions thereto between the date of this Agreement and the Closing Date.
"LIEN" means any pledge, encumbrance, security interest, purchase option,
call or similar right.
"LOSS" means any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses).
"MATERIAL ADVERSE EFFECT" means, with respect to any applicable
representation or warranty of a Parent Party, a material adverse effect on (x)
the business, assets, financial condition or results of operations of such
Parent Party's Existing Business or (y) such Parent Party's and its Affiliates'
ability to perform their obligations under any Transaction Document to which it
is, or is specified to be, a party as of the date hereof, other than any such
effect arising our of or resulting from general economic conditions, or from
changes in or generally affecting the industries in which such Parent Party's
Existing Business operates, or as a result of the September 11, 2001 terrorist
attacks, their aftermath or any similar events.
"MATERIAL CONTRACTS" means Contracts of USAi's Existing Business as of the
date hereof which (i) at the time entered into, were outside the ordinary course
of business as then conducted by such Existing Business, or (ii) are (A) cable
television system affiliation agreements covering one million or more
subscribers (in any individual case) providing for payments to and from cable
television system operators in excess of $1 million in any twelve-month period,
(B) Contracts (other than with writer producers) with respect to the production,
development, broadcast or distribution, of television programs with respect to
which such Existing Business has a commitment to pay in excess of $10 million,
(C) agreements with writer producers with respect to which such Existing
Business has a commitment to pay in excess of $2 million per year, or (D)
agreements to buy or sell advertising where the required payments to or from
such Existing Business are in excess of $10 million.
"MATERIAL REAL PROPERTY" means all of the Real Property attributed to USAi's
Existing Business, providing individually for annual lease payments in excess of
$3 million.
"MUSIC ADMINISTRATION AGREEMENT" means the Music Administration Agreement,
dated as of February 12, 1998, between USAi and MCA Music Publishing.
"ORGANIZATIONAL DOCUMENTS" means, with respect to any Person at any time,
such Person's certificate or articles of incorporation, corporate statutes,
by-laws, memorandum and articles of association, certificate of formation of
limited liability company, limited liability company agreement, and other
similar organizational or constituent documents, as applicable, in effect at
such time.
"OTHER BUSINESS RIGHTS AGREEMENT" means the Other Business Rights Agreement,
dated as of February 12, 1998, between USAi and Universal.
"PARENT PARTY" means each or any of Universal and USAi.
"PARTNERSHIP" means the Delaware limited liability limited partnership to be
formed pursuant to the Partnership Agreement.
"PARTNERSHIP AGREEMENT" means the Partnership Agreement, dated as of the
Closing Date, by and between USAi, USAi Sub, Universal and Diller in
substantially the form of Exhibit A hereto.
"PERMITTED LIENS" shall mean, collectively, (i) all statutory or other liens
for taxes or assessments which are not yet due or the validity of which is being
contested in good faith by appropriate
A-37
proceedings, (ii) all mechanics', material men's, carriers', workers' and
repairers' liens, and other similar liens imposed by law, incurred in the
ordinary course of business, which allege unpaid amounts that are less than 30
days delinquent or which are being contested in good faith by appropriate
proceedings, and (iii) all other Liens which do not materially detract from or
materially interfere with the marketability, value or present use of the asset
subject thereto or affected thereby.
"PERSON" means any individual, firm, corporation, partnership, limited
liability company, trust, joint venture, governmental authority or other entity.
"PROCEEDINGS" shall have the meaning set forth in Section 3.14.
"PROXY STATEMENT" means the proxy or information statement relating to the
approval and authorization of the Transactions by the stockholders of USAi.
"REAL PROPERTY" means real estate and buildings and other improvements
thereon and leases and leasehold interests, leasehold improvements, fixtures and
trade fixtures.
"RECORDS" means books of account, ledgers, general financial, accounting,
tax and personnel records, files, invoices, customers' and suppliers' lists,
other distribution lists, billing records, sales and promotional literature,
manuals, and customer and supplier correspondence (in all cases, in any form or
medium).
"REFERENCE DATE" is defined in Section 2.04(i)(B).
"RETURNS" means returns, reports and forms required to be filed with any
domestic or foreign taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"SEC REPORTS" means, (i) with respect to USAi, the annual report of USAi on
Form 10-K and (ii) with respect to Universal, the annual report of Vivendi on
Form 20-F, in each case, in respect of the fiscal year ended December 31, 2000,
and each report, schedule, proxy, information statement or registration
statement (including all exhibits and schedules thereto and documents
incorporated by reference therein) filed by USAi or Vivendi, as applicable, with
the SEC following December 31, 2000, and on or before the date of this
Agreement.
"SPECIAL COMMITTEE" shall have the meaning set forth in Section 3.02.
"STOCKHOLDERS AGREEMENT" means (i) with respect to periods prior to the
Closing Date, the Stockholders Agreement among Universal, Liberty, Diller, USAi
and The Seagram Company Limited dated as of October 19, 1997 and (ii) with
respect to periods on or after the Closing Date, the Amended and Restated
Stockholders Agreement dated as of December 16, 2001 among Universal, Liberty,
Diller, USAi and Vivendi.
"STUDIOS USA" means Studios USA LLC.
"TAX DETRIMENT" means, with respect to any Taxes incurred as a result of the
recognition of income or gain by an indemnified party in a taxable period(s)
earlier than the taxable period(s) in which such income or gain would otherwise
have been recognized by such party solely as a result of an action or inaction
by an indemnifying party, the excess, if any, of (i) the net present value of
such Taxes incurred by the indemnified party in such earlier taxable period(s)
over (ii) the net present value of the Taxes that would otherwise have been
incurred in such later taxable period, assuming (i) a discount rate equal to
USAi's borrowing rate in effect as of the time such net present values are
calculated and (ii) that for all taxable years, the indemnified party is fully
taxable at the highest applicable marginal U.S. federal income tax rate and the
highest applicable marginal income and franchise tax rates of the state, local
and foreign jurisdictions in which the Partnership or any of its subsidiaries
conducts business (assuming
A-38
full deductibility of state and local taxes, and full credit ability and
deductibility of foreign taxes, for U.S. federal (and if applicable state and
local) income tax purposes).
"TAXES" means (i) all taxes (whether federal, state, local or foreign) based
upon or measured by income and any other tax whatsoever, including gross
receipts, profits, sales, use, occupation, value added, ad valorem, transfer,
franchise, withholding, payroll, employment, excise, or property taxes, together
with any interest or penalties imposed with respect thereto and (ii) any
obligations under any agreements or arrangements with respect to any Taxes
described in clause (i) above.
"TAXING AUTHORITY" means any government authority having jurisdiction over
the assessment, determination, collection or other imposition of Tax.
"THIRD PARTY CLAIM" shall have the meaning set forth in Section 7.06(a).
"TRANSACTION AFFILIATES" means, (i) with respect to USAi, the Contributed
Subsidiaries, USANi and USANi Sub, and (ii) with respect to Universal, Vivendi.
"TRANSACTION DOCUMENTS" means this Agreement, the Partnership Agreement, the
Warrant Agreement, the Universal/Liberty Merger Agreement, the Stockholders
Agreement and the Governance Agreement, collectively.
"TRANSACTIONS" means the transactions contemplated by the Transaction
Documents.
"TRANSFER TAX" shall have the meaning set forth in Section 4.05(b).
"UNIVERSAL" shall have the meaning set forth in the Preamble.
"UNIVERSAL CONTRIBUTED INTERESTS" means such entity or entities that, as of
the Effective Time, will own all of Universal's Contributed Assets.
"UNIVERSAL/LIBERTY MERGER AGREEMENT" means the Agreement and Plan of Merger
and Exchange, among Vivendi, Universal, Light France Acquisition 1, S.A.S., the
merger subsidiaries listed on the signature page thereto, Liberty Media
Corporation, Liberty Programming Company LLC, Liberty Programming France, Inc.
and the Liberty holding entities listed on the signature page thereto, dated as
of December 16, 2001.
"USA CABLE" means the cable network business of USAi and its Affiliates,
including the USA Cable Network, the S-F Cable Network, Trio, Newsworld
International and Crime Channel.
"USA FILMS" means USA Films LLC.
"USA NAME" means "USA Networks", including the presentation of words on the
cable network and promotional materials.
"USAi" shall have the meaning set forth in the Preamble.
"USAi BENEFIT ARRANGEMENTS" shall have the meaning set forth in Section
3.19(a).
"USAi BOARD" means the board of directors of USAi.
"USAi BUSINESS EMPLOYEES" shall have the meaning set forth in Section
3.19(a).
"USAi CLASS B COMMON STOCK" shall have the meaning set forth in Section
3.04(a).
"USAi COMMON EQUITY" means USAi Common Stock and USAi Class B Common Stock.
"USAi COMMON STOCK" means the common stock, par value $.01 per share, of
USAi.
"USAi PENSION PLANS" shall have the meaning set forth in Section 3.19(b).
"USAi PREFERRED STOCK" shall have the meaning set forth in Section 3.04(a).
A-39
"USAi SEC DOCUMENTS" shall have the meaning set forth in Section 3.06(a).
"USAi SHARES" shall have the meaning set forth in Section 3.04(a).
"USAi STOCKHOLDER APPROVALS" means (i) the authorization of the Transactions
at an annual or special meeting by the affirmative vote of at least 66 2/3% of
the outstanding voting stock, by voting power and by number of shares, which is
not owned by Universal, Liberty or Diller or their respective Affiliates and
(ii) the approval of the Transactions at an annual or special meeting by a
majority of the votes cast by the shareholders of USAi pursuant to Rule 4350 of
the National Association of Securities Dealers, Inc.
"USAi STOCKHOLDERS MEETING" shall have the meaning set forth in Section
4.10(b).
"USANi" shall have the meaning set forth in the Preamble.
"USANi CONTRIBUTED INTERESTS" means (i) an 83.48% membership interest in USA
Networks Partner LLC held by USANi Sub, (ii) 100% of the stock of Tier One
Subsidiary, Inc., which is held by New-U Studios Holdings, Inc., (iii) 100% of
the capital stock of New-U Studios Inc., which is held by New-U Studios
Holdings, Inc., (iv) a 42.48% membership interest in Studios USA held by USANi
Sub, (v) a 0.3% membership interest in Studios USA held by New-U Studios Inc.,
(vi) a 1% membership interest in USA Networks Partner LLC held by Tier One
Subsidiary, Inc. and (vii) a 100% membership interest in USA Television
Production Group LLC held by USANi Sub.
"USANi DISTRIBUTED INTERESTS" means the USANi Universal Distributed
Interests and the USANi Liberty Distributed Interests.
"USANi LIBERTY DISTRIBUTED INTERESTS" means a 15.52% membership interest in
USA Networks Partner LLC held by USANi Sub.
"USANi UNIVERSAL DISTRIBUTED INTERESTS" means (i) USANi Sub's 50%
partnership interest in USA Cable, and (ii) a 57.22% membership interest in
Studios USA held by USANi Sub.
"USANi SHARES" means the shares representing a proportionate interest in the
capital and profits and losses of USANi.
"USANi SUB" means USANi Sub LLC, a Delaware limited liability company.
"USANi LLC AGREEMENT" means the Amended and Restated Limited Liability
Company Agreement of USANi LLC dated as of February 12, 1998.
"VIVENDI" shall have the meaning set forth in the Preamble.
"WARRANT AGREEMENT" means the Equity Warrant Agreement between USAi and The
Bank of New York substantially in the form of Exhibit B hereto.
"WARRANTS" means the warrants to purchase USAi Common Stock on the terms set
forth in the Warrant Agreement.
A-40
APPENDIX B
-------------------------------------------------------------------
-------------------------------------------------------------------
FORM OF
LIMITED LIABILITY LIMITED PARTNERSHIP AGREEMENT
OF
VIVENDI UNIVERSAL ENTERTAINMENT LLLP
DATED AS OF / /, 2002,
BY AND AMONG
[UNIVERSAL SUB],
USA NETWORKS, INC.,
USANi SUB LLC
AND
BARRY DILLER
-------------------------------------------------------------------
-------------------------------------------------------------------
B-1
TABLE OF CONTENTS
PAGE
--------
ARTICLE I
Definitions and Usage
SECTION 1.01. Definitions................................... B-5
SECTION 1.02. Terms and Usage Generally..................... B-10
ARTICLE II
The Partnership
SECTION 2.01. Effectiveness of this Agreement............... B-11
SECTION 2.02. Formation..................................... B-11
SECTION 2.03. Name.......................................... B-11
SECTION 2.04. Term.......................................... B-11
SECTION 2.05. Registered Agent and Registered Office........ B-11
SECTION 2.06. Purposes...................................... B-11
SECTION 2.07. Treatment as Partnership...................... B-11
ARTICLE III
Capital Contributions; Partners
SECTION 3.01. Initial Capital Contributions................. B-11
SECTION 3.02. Admission of Partners......................... B-12
SECTION 3.03. Substitute Partners and Additional Partners... B-12
ARTICLE IV
Reports
SECTION 4.01. Reports to Partners........................... B-12
SECTION 4.02. Tax Information............................... B-13
SECTION 4.03. Other Information............................. B-13
ARTICLE V
Preferred Interests
SECTION 5.01. General....................................... B-13
SECTION 5.02. Ranking....................................... B-13
SECTION 5.03. PIK Accretion................................. B-14
SECTION 5.04. Consent Right................................. B-14
SECTION 5.05. Negative Covenants............................ B-14
SECTION 5.07. No Other Consent Rights....................... B-15
ARTICLE VI
Common Interests
SECTION 6.01. General....................................... B-16
SECTION 6.02. Issuances of Common Interests After the
Closing Date................................................ B-16
SECTION 6.03. Preemptive Rights............................. B-16
SECTION 6.04. Other Issuances of Common Interests........... B-17
SECTION 6.05. Contribution of Assets or Capital Stock by
Universal Sub............................................... B-17
SECTION 6.06. Consent Right................................. B-18
SECTION 6.07. Assignee of Diller Common Interests........... B-18
B-2
PAGE
--------
ARTICLE VII
Capital Accounts, Allocations of Profit and Loss and Tax Matters
SECTION 7.01. Capital Accounts.............................. B-18
SECTION 7.02. Allocations of Net Income and Net Loss........ B-19
SECTION 7.03. Allocations of Net Income and Net Loss for
Federal Income Tax Purposes................................. B-20
SECTION 7.04. Allocation of the Partnership Debt............ B-20
SECTION 7.05. Elections..................................... B-20
SECTION 7.06. Fiscal Year................................... B-20
SECTION 7.07. Withholding Requirements...................... B-20
SECTION 7.08. Tax Matters Partner........................... B-21
ARTICLE VIII
Distributions
SECTION 8.01. Distributions................................. B-21
SECTION 8.02. Tax Distributions............................. B-21
SECTION 8.03. General Limitations........................... B-21
SECTION 8.04. Distributions in Kind......................... B-21
SECTION 8.05. Closing Date Distribution..................... B-22
SECTION 8.06. Distribution Upon Maturity of Class A
Preferred Interests......................................... B-22
SECTION 8.07. Put/Call Rights with Respect to Class B
Preferred Interests......................................... B-22
ARTICLE IX
Management of the Partnership
SECTION 9.01. General Partner............................... B-22
SECTION 9.02. Board; Representatives; Chairman.............. B-23
SECTION 9.03. Expenses...................................... B-23
SECTION 9.04. Agreement Not To Compete...................... B-23
ARTICLE X
Transfers of Interests
SECTION 10.01. Restrictions on Transfers.................... B-24
SECTION 10.02. Transfers Permitted at any Time.............. B-25
SECTION 10.03. Put/Call..................................... B-25
SECTION 10.04. Tag-Along for Limited Partners for Transfers
by Universal................................................ B-28
ARTICLE XI
Limitation on Liability, Exculpation
SECTION 11.01. Limitation on Liability...................... B-29
SECTION 11.02. Exculpation.................................. B-29
SECTION 11.03. Partnership Opportunities.................... B-29
SECTION 11.04. Indemnification.............................. B-30
ARTICLE XII
Events of Withdrawal; Bankruptcy of a General Partner
SECTION 12.01. Events of Withdrawal......................... B-30
SECTION 12.02. Bankruptcy of a General Partner.............. B-30
B-3
PAGE
--------
ARTICLE XIII
Dissolution and Termination
SECTION 13.01. Dissolution.................................. B-31
SECTION 13.02. Winding Up of the Partnership................ B-32
SECTION 13.03. Distribution of Property..................... B-32
SECTION 13.04. Claims of Partners........................... B-32
SECTION 13.05. Termination.................................. B-32
ARTICLE XIV
Miscellaneous
SECTION 14.01. Notices...................................... B-33
SECTION 14.02. No Third Party Beneficiaries................. B-33
SECTION 14.03. Waiver....................................... B-33
SECTION 14.04. Integration.................................. B-33
SECTION 14.05. Headings..................................... B-33
SECTION 14.06. Counterparts................................. B-33
SECTION 14.07. Severability................................. B-33
SECTION 14.08. Applicable Law............................... B-33
SECTION 14.09. Jurisdiction................................. B-33
SCHEDULES
Schedule A--Partners
Schedule B--Initial Capital Contributions
B-4
LIMITED LIABILITY LIMITED PARTNERSHIP AGREEMENT of VIVENDI
UNIVERSAL ENTERTAINMENT LLLP (the "PARTNERSHIP") dated as of
/ /, 2002, by and among [UNIVERSAL SUB], a Delaware
corporation and a wholly owned subsidiary of Universal ("UNIVERSAL
SUB"), as general partner, and USA NETWORKS, INC., a Delaware
corporation ("USAi"), USANi SUB LLC, a Delaware limited liability
company ("USANi SUB"), and Barry Diller ("DILLER"), as limited
partners.
PRELIMINARY STATEMENT
WHEREAS the parties hereto (or Affiliates thereof) are parties to the
Transaction Agreement (the "TRANSACTION AGREEMENT") dated as of December 16,
2001 by and among Vivendi, Universal, USAi, USANi LLC, a Delaware limited
liability company, Liberty and Diller; and
WHEREAS, the parties hereto desire to form a limited liability limited
partnership.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.01. DEFINITIONS. The terms shall have the following meanings for
purposes of this Agreement:
"ADDITIONAL PARTNER" means any Person admitted as a Partner of the
Partnership pursuant to Section 3.03 in connection with the new issuance of a
Common Interest to such Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly Controlling, Controlled by or under direct or indirect common Control
with such specified Person. For purposes of the foregoing, (i) USANi and its
Affiliates shall be deemed to be Affiliates of USAi, (ii) none of USAi,
Universal or Diller, or any of their respective Affiliates, shall be deemed to
be Affiliates of one another, and (iii) none of USAi, Universal or Diller, or
any of their respective Affiliates, shall be deemed to be an Affiliate of the
Partnership.
"AGREEMENT" means this Limited Liability Limited Partnership Agreement, as
the same may be amended or restated from time to time.
"APPRAISED VALUE" of a Common Interest means (x) the Participation
Percentage of such Common Interest multiplied by (y) the private market value of
the Partnership taken as a whole; PROVIDED, HOWEVER, that such valuation shall
not assume the value of the Partnership in an "auction" proceeding, and any
valuation methodology shall exclude any acquisition of similar assets or
businesses at a uniquely high valuation due to a purchaser's strategic need to
acquire such assets or businesses.
"BANKRUPT PARTNER" is defined in Section 12.02(a).
"BANKRUPTCY" of a Person means (i) the filing by such Person of a voluntary
petition seeking liquidation, reorganization, arrangement or readjustment, in
any form, of its debts under Title 11 of the United States Code (or
corresponding provisions of future laws) or any other bankruptcy or insolvency
law, whether foreign or domestic, or such Person's filing an answer consenting
to or acquiescing in any such petition, (ii) the making by such Person of any
assignment for the benefit of its creditors or the admission by such Partner in
writing of its inability to pay its debts as they mature or (iii) the expiration
of 60 days after the filing of an involuntary petition under Title 11 of the
United States Code (or corresponding provisions of future laws), an application
for the appointment of a receiver for the assets of such Person, or an
involuntary petition seeking liquidation, reorganization, arrangements,
composition, dissolution or readjustment of its debts or similar relief under
any bankruptcy or
B-5
insolvency law, provided that the same shall not have been vacated, set aside or
stayed within such 60-day period. This definition of "Bankruptcy" is intended to
replace the bankruptcy related events set forth in Sections 17-402(a)(4) and
(a)(5) of the Delaware Act.
"BANKRUPTCY CODE" means the United States Bankruptcy Code of 1978, as
amended.
"BENEFICIAL OWNER" and "BENEFICIAL OWNERSHIP" have the meanings set forth in
Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934, as amended,
except that a Person shall be deemed to have Beneficial Ownership of all
securities that such Person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
event.
"BOARD" is defined in Section 9.02(b).
"BUSINESS" means any of the programming, television distribution, cable
network, film and theme park businesses.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a U.S.
Federal holiday.
"CALL" means the USAi Call or the Diller Call.
"CAPITAL ACCOUNT" is defined in Section 7.01(a).
"CAPITAL CONTRIBUTION" means, with respect to any Partner, any capital
contribution made by such Partner to the Partnership pursuant to Section 3.01 or
6.02.
"CAUSE" means (i) the conviction of, or pleading guilty to, any felony, or
(ii) the willful, continued and complete failure to attend to managing the
business affairs of the Partnership, after written notice of such failure from
the General Partner and reasonable opportunity to cure.
"CHAIRMAN" is defined in Section 9.02(b).
"CLASS A PREFERRED INTERESTS" is defined in Section 5.01(a).
"CLASS B PREFERRED CONSIDERATION" is defined in Section 8.07.
"CLASS B PREFERRED INTERESTS" is defined in Section 5.01(b).
"CLOSING" means the closing of the transactions contemplated by the
Transaction Agreement.
"CLOSING DATE" means the date of the Closing.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON INTEREST" means a partnership interest in the Partnership that is
not a Preferred Interest.
"CONSOLIDATED TANGIBLE NET WORTH" means total assets of the Partnership and
its consolidated subsidiaries, determined in accordance with U.S. generally
accepted accounting principles, giving effect to purchase accounting, and
deducting therefrom consolidated current liabilities and, to the extent
otherwise included, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses and other intangible items.
"CONTROL", with reference to any Person, means the Beneficial Ownership of a
majority of the outstanding voting power (or equivalent) of such Person and the
terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.
"COVERED PERSON" means (i) each Partner, (ii) each Affiliate of a Partner,
(iii) each Representative and each officer, director, shareholder, partner,
employee, member, manager, representative, agent or trustee of a Partner or of
an Affiliate of a Partner and (iv) each officer of USAi serving as an employee
of the Partnership.
B-6
"DELAWARE ACT" means the Delaware Revised Uniform Limited Partnership Act, 6
Del. C. Section 17-101 ET SEQ., as amended from time to time or any successor
statute.
"DILLER" is defined in the Preamble.
"DILLER CALL" is defined in Section 10.03(b).
"DILLER PUT" is defined in Section 10.03(b).
"DISABLED" means the disability of Diller after the expiration of more than
180 consecutive days after its commencement which is determined to be total and
permanent by a physician selected by the Partnership and reasonably acceptable
to Diller; PROVIDED that Diller shall be deemed to be disabled only following
the expiration of 90 days following receipt of a written notice from the
Partnership and such physician specifying that a disability has occurred if
within such 90-day period he fails to return to managing the business affairs of
the Partnership. A total disability shall mean mental or physical incapacity
that prevents Diller from managing the business affairs of the Partnership.
"EFFECTIVE TIME" means the Closing.
"FACE VALUE" of a Preferred Interest, as of any time, means the amount equal
to the initial Capital Contribution attributable to such Preferred Interest as
adjusted from time to time pursuant to Section 5.03.
"FISCAL YEAR" is defined in Section 7.06.
"GENERAL PARTNER" means Universal Sub, any Substitute Partner that is
admitted as the general partner of the Partnership or any Person appointed as
such pursuant to Section 12.02(a), in each case, for so long as such Person
continues to be the general partner of the Partnership.
"GOOD REASON" means the assignment to Diller of any duties inconsistent in
any respect with his position as Chairman and chief executive officer of the
Partnership, authority, duties or responsibilities (including status, offices,
title and direct reporting relationship to the chief executive officer of
Vivendi), or any diminution in such positions (or removal from such positions),
authority, duties or responsibilities or requiring him to be based at any
location other than his current locations; it being understood that the chief
executive officer of the Partnership shall have the same authority and duties as
a corresponding officer of a Delaware corporation would have to act for a
Delaware corporation.
"INDEBTEDNESS" of any Person means, without duplication, (i) all obligations
of such Person for borrowed money or with respect to deposits or advances of any
kind, (ii) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (iii) all obligations of such Person upon which interest
charges are customarily paid, (iv) all obligations of such Person in respect of
the deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business), and (v) all capital lease
obligations of such Person; PROVIDED that the Indebtedness of any Persons shall
include (A) the Indebtedness of any other entity (including any partnership in
which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor, (B) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed and (C) all guarantees by such Person of
Indebtedness of others; and PROVIDED, FURTHER, that Indebtedness shall not
include any Permitted Liens.
"INTERESTS" means the entire partnership interest of a Partner in the
Partnership, including its Common Interests and its Preferred Interests.
"INVESTMENT BANK" means an independent, nationally recognized investment
bank.
B-7
"LIBERTY" means Liberty Media Corporation, a Delaware corporation.
"LIEN" means any pledge, encumbrance, security interest, purchase option,
call or similar right.
"LIMITED PARTNER" means USAi, USANi Sub, Diller and any Additional Partner
or Substitute Partner that is admitted as a limited partner of the Partnership,
in each case for so long as such Person continues to be a limited partner of the
Partnership.
"MARKET VALUE" of a stock means the amount equal to the average of the daily
volume weighted averages of such stock on the primary exchange on which it
trades, as reported by Bloomberg, for the 15 consecutive trading days ending on
the day immediately preceding the date of determination. For the avoidance of
doubt, the Market Value of USAi Common Shares shall be determined based on the
price of USAi Common Stock.
"MATURITY DATE" is defined in Section 8.06.
"NET INCOME" or "NET LOSSES", as appropriate, means, for any period, the
taxable income or tax loss of the Partnership for such period for Federal income
tax purposes, taking into account any separately stated tax items and increased
by the amount of any tax-exempt income of the Partnership during such period and
decreased by the amount of any Section 705(a)(2)(B) expenditures (within the
meaning of Treasury Regulation Section 1.704-1(b)(2)(iv)(i)) of the Partnership;
PROVIDED, HOWEVER, that Net Income or Net Losses of the Partnership shall be
computed without regard to the amount of any items of gross income, gain, loss
or deduction that are specially allocated pursuant to Section 7.02(c),(d) or
(e). With respect to any property contributed to the Partnership at a time when
its adjusted tax basis differs from its fair market value, and with respect to
all Partnership property after any adjustment to the Capital Accounts pursuant
to Section 7.01(c), the Net Income or Net Losses of the Partnership (and the
constituent items of income, gain, loss and deduction) shall be computed in
accordance with the principles of Treasury Regulation Section
1.704-1(b)(2)(iv)(g).
"PARTICIPATION PERCENTAGE" is defined in Section 6.01(a).
"PARTNER" means the General Partner or a Limited Partner.
"PARTNERSHIP" is defined in the Preamble.
"PARTNERSHIP DEBT" means the debt incurred by the Partnership to fund the
distribution under Section 8.05, pursuant to Section 2.04(iii) of the
Transaction Agreement.
"PERMITTED LIENS" means, collectively, (i) all statutory or other liens for
taxes or assessments which are not yet due or the validity of which is being
contested in good faith by appropriate proceedings, (ii) all mechanics',
materialmen's, carriers', workers' and repairers' liens, and other similar liens
imposed by law, incurred in the ordinary course of business, which allege unpaid
amounts that are less than 30 days delinquent or which are being contested in
good faith by appropriate proceedings, and (iii) all other Liens which do not
materially detract from or materially interfere with the marketability, value or
present use of the asset subject thereto or affected thereby.
"PERSON" means any individual, firm, corporation, partnership, limited
liability company, trust, joint venture, governmental authority or other entity.
"PREFERRED INTERESTS" means the Class A Preferred Interests and the Class B
Preferred Interests, collectively.
"PURCHASING PARTNER" means the Partner purchasing Common Interests pursuant
to the exercise of a Put or a Call.
"PUT" means the USAi Put or the Diller Put.
"REPRESENTATIVE" is defined in Section 9.02(b).
B-8
"RESTRICTED BUSINESS" has the same meaning as the term "Business" in the
Transaction Agreement.
"SALE TRANSACTION" means any merger, consolidation, tender or exchange
offer, reclassification, compulsory share exchange, liquidation or similar
transaction, in which all or substantially all of the assets or the outstanding
equity securities of the ultimate parent of a Partner are transferred, converted
into or exchanged for stock, other securities, cash or assets of another entity.
"SECTION 704(c) PROPERTY" means "Section 704(c) property" as defined in
Treasury Regulation Section 1.704-3(a)(3) and property that is revalued pursuant
to Section 7.01(c) hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELECTED APPRAISAL" is defined in Section 10.03(d).
"SELLING PARTNER" means the Partner selling Common Interests pursuant to the
exercise of a Put or a Call.
"SUBSTITUTE PARTNER" means any Person admitted as a Partner of the
Partnership pursuant to Section 3.03 in connection with the Transfer of a
then-existing Interest of a Partner to such Person.
"TAG-ALONG INTERESTS" is defined in Section 10.04(a).
"TAG-ALONG NOTICE" is defined in Section 10.04(a).
"TAG-ALONG OFFEREE" is defined in Section 10.04(a).
"TAX DETRIMENT" means, with respect to any taxes incurred as a result of the
recognition of income or gain by an indemnified party in taxable period(s)
earlier than the taxable period(s) in which such income or gain would otherwise
have been recognized by such party solely as a result of an action or inaction
by an indemnifying party, the excess, if any, of (i) the net present value of
such taxes incurred by the indemnified party in such earlier taxable period(s)
over (ii) the net present value of the taxes that would otherwise have been
incurred in such later taxable period, assuming (i) a discount rate equal to
USAi's borrowing rate in effect as of the time such net present values are
calculated and (ii) that for all taxable years, the indemnified party is fully
taxable at the highest applicable marginal Federal income tax rate and the
highest applicable marginal income and franchise tax rates of the state, local
and foreign jurisdictions in which the Partnership or any of its subsidiaries
conducts business (assuming full deductibility of state and local taxes, and
full creditability and deductibility of foreign taxes, for Federal (and if
applicable state and local) income tax purposes).
"TAX MATTERS PARTNER" is defined in Section 7.08.
"TRANSACTION AGREEMENT" is defined in the Preamble.
"TRANSFER" means any sale, assignment, transfer, exchange, gift, bequest,
pledge, hypothecation or other disposition or encumbrance, direct or indirect,
in whole or in part, by operation of law or otherwise, and shall include all
matters deemed to constitute a Transfer under Section 10.01(a); PROVIDED,
HOWEVER, that a Transfer shall not include a Sale Transaction. The terms
"TRANSFERRED", "TRANSFERRING", "TRANSFEROR" and "TRANSFEREE" have meanings
correlative to the foregoing.
"UNIVERSAL" means Universal Studios, Inc., a Delaware corporation.
"UNIVERSAL SUB" is defined in the Preamble.
"USAi" is defined in the Preamble.
"USAi CALL" is defined in Section 10.03(a).
"USAi CLASS B COMMON STOCK" means shares of Class B common stock of USAi,
par value $.01 per share.
B-9
"USAi COMMON SHARES" means shares of USAi Common Stock and USAi Class B
Common Stock, collectively.
"USAi COMMON STOCK" means shares of common stock of USAi, par value $.01 per
share.
"USAi PREFERRED CALL" is defined in Section 8.07.
"USAi PREFERRED PUT" is defined in Section 8.07.
"USAi PUT" is defined in Section 10.03(a).
"USANi SUB" is defined in the Preamble.
"VIVENDI" means Vivendi Universal, S.A., a SOCIETE ANONYME organized under
the laws of France.
"VIVENDI ORDINARY SHARES" means ordinary shares of Vivendi, par value E5.5
per share, or, in the event that all or substantially all of the shares of
Vivendi are exchanged for or converted into equity securities of another Person
after the Effective Time, such other equity securities as such shares may be
exchanged for or converted into after the Effective Time, so long as such equity
securities are listed or quoted on the New York Stock Exchange, the Nasdaq Stock
Market, the London Stock Exchange, the Paris Bourse or the Frankfurt Stock
Exchange and the average monthly trading volume of such equity securities on any
such exchange immediately after such share exchange or conversion (and after
giving effect to all of the transactions contemplated in connection with such
exchange or conversion) is substantially equivalent to or greater than that of
the Vivendi Ordinary Shares on its primary exchange immediately prior to such
share exchange or conversion.
SECTION 1.02. TERMS AND USAGE GENERALLY. (a) The definitions in Section
1.01 shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. All references herein to
Articles, Sections, Annexes, Exhibits and Schedules shall be deemed to be
references to Articles and Sections of, and Annexes, Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. All Annexes, Exhibits
and Schedules attached hereto shall be deemed incorporated herein as if set
forth in full herein. The words "include", "includes" and "including" shall be
deemed to be followed by the phrase "without limitation". The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. References to a Person are also to its permitted successors and
permitted assigns. Unless otherwise expressly provided herein, any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein.
(b) As used in this Agreement, unless otherwise expressly specified herein,
any allocation or distribution to be made among Interests or Partners "on a PRO
RATA basis" or "ratably" shall be made in proportion to the relative
Participation Percentages or Face Values of, or Capital Contributions
attributable to, such Interests, or of such Interests owned by such Partners, in
each case determined immediately prior to the transaction with respect to which
such allocation is being made.
B-10
ARTICLE II
THE PARTNERSHIP
SECTION 2.01. EFFECTIVENESS OF THIS AGREEMENT. This Agreement constitutes
the partnership agreement (as defined in the Delaware Act) of the parties
hereto. This Agreement shall become effective at the Effective Time.
SECTION 2.02. FORMATION. The parties hereto agree to form the Partnership
as a limited partnership and unanimously agree that the Partnership shall be
qualified as a limited liability limited partnership under and pursuant to
Section 17-214 of the Delaware Act and Section 15-1001 of the Delaware Revised
Uniform Partnership Act (6 Del. C. Section 15-101 ET SEQ. ("DRUPA")) by filing
with the Secretary of State of the State of Delaware a certificate of limited
partnership of the Partnership and a statement of qualification as a limited
liability limited partnership. The General Partner shall file and record the
certificate of limited partnership of the Partnership, such statement of
qualification and such other documents as may be required or appropriate under
the laws of the State of Delaware and of any other jurisdiction in which the
Partnership may conduct business. The General Partner shall, on request, provide
any Partner with copies of each such document as filed and recorded.
SECTION 2.03. NAME. The name of the Partnership shall be [Vivendi
Universal Entertainment], L.L.L.P. The General Partner may change the name of
the Partnership or adopt such trade or fictitious names as it may determine, in
each case consistent with the requirements of the Delaware Act, including
Sections 17-102 and 17-214 thereof, and all other applicable law (E.G.,
fictitious name statutes). The General Partner will give all Partners prompt
written notice of any such name change (or adoption of any such trade or
fictitious name).
SECTION 2.04. TERM. The term of the Partnership shall begin on the date
the certificate of limited partnership of the Partnership is effective (which
shall in any event be no later than the Effective Time), and the Partnership
shall have perpetual existence unless sooner dissolved as provided in Article
XIII.
SECTION 2.05. REGISTERED AGENT AND REGISTERED OFFICE. The name of the
registered agent for service of process shall be The Corporation Trust Company,
and the address of the registered agent and the address of the registered office
in the State of Delaware shall be 1209 Orange Street, Wilmington, Delaware
19801. Such office and such agent may be changed from time to time by the
General Partner consistent with the requirements of the Delaware Act, including
Sections 17-104 and 17-202 thereof.
SECTION 2.06. PURPOSES. The Partnership shall be formed for the object and
purpose of, and the nature of the business to be conducted and promoted by the
Partnership shall be, engaging in any lawful act or activity for which limited
partnerships may be formed under the Delaware Act, including engaging in the
Business, and engaging in any and all activities necessary or incidental to the
foregoing.
SECTION 2.07. TREATMENT AS PARTNERSHIP. Except as otherwise required
pursuant to a determination within the meaning of Section 1313(a)(1) of the
Code, the parties shall treat the Partnership as a partnership for United States
federal income tax purposes and agree not to take any action or fail to take any
action which action or inaction would be inconsistent with such treatment.
ARTICLE III
CAPITAL CONTRIBUTIONS; PARTNERS
SECTION 3.01. INITIAL CAPITAL CONTRIBUTIONS. (a) On the Closing Date,
USAi, USANi Sub and Universal Sub shall make their respective initial Capital
Contributions, in property, in accordance with Section 2.03 of the Transaction
Agreement.
B-11
(b) In return for such initial Capital Contributions, Common Interests
and/or Preferred Interests shall be issued to the Partners as provided in
Articles V and VI hereof. Schedule B indicates the amount of Capital
Contributions attributable to Common Interests and Preferred Interests,
respectively, for each Partner.
(c) The parties shall treat the Capital Contributions described in this
Section 3.01 as contributions pursuant to Section 721 of the Code in which no
gain or loss is recognized to any extent, except as otherwise required pursuant
to a determination within the meaning of Section 1313(a)(1) of the Code.
SECTION 3.02. ADMISSION OF PARTNERS. At the Effective Time, without the
need for any further action of any Person, the Persons set forth on Schedule A
attached hereto who have executed this Agreement shall be admitted as Partners,
and each such Person shall be shown as such in the books and records of the
Partnership. Following the Effective Time, no Person shall be admitted as a
Partner and no additional Common Interests or Preferred Interests shall be
issued except as expressly provided herein.
SECTION 3.03. SUBSTITUTE PARTNERS AND ADDITIONAL PARTNERS. (a) No
Transferee of an Interest or Person to whom an Interest is issued after the
Effective Time pursuant to this Agreement shall be admitted as a Partner
hereunder or acquire any rights hereunder, including any voting rights or the
right to receive distributions and allocations in respect of the Transferred or
issued Interest, as applicable, unless (i) such Interest is Transferred or
issued in compliance with the provisions of this Agreement and (ii) such
Transferee or recipient shall have executed and delivered to the Partnership
such customary instruments as the General Partner may reasonably require, to
effectuate the admission of such Transferee or recipient as a Partner and to
confirm the agreement of such Transferee or recipient to be bound by all the
terms and provisions of this Agreement (including Section 10.03). Upon complying
with clauses (i) and (ii) above, without the need for any further action of any
Person, a Transferee or recipient shall be deemed admitted to the Partnership as
a Partner. A Substitute Partner shall enjoy the same rights, and be subject to
the same obligations, as the Transferor; PROVIDED that, unless expressly
provided otherwise herein, such Transferor shall not be relieved of any
obligation or liability hereunder arising prior to the consummation of such
Transfer. As promptly as practicable after the admission of any Person as a
Partner, the books and records of the Partnership shall be changed to reflect
such admission. In the event of any admission of a Substitute Partner or
Additional Partner pursuant to this Section 3.03(a), this Agreement shall be
deemed amended to reflect such admission, and any formal amendment of this
Agreement (including Schedules A and B hereto) in connection therewith shall
only require execution by the General Partner and such Substitute Partner or
Additional Partner, as applicable, to be effective.
(b) If a Partner shall Transfer all (but not less than all) its Interests,
the Partner shall thereupon cease to be a Partner of the Partnership; PROVIDED,
HOWEVER, that any such Partner shall not cease to be a Partner until a
Transferee of such Partner's Interests is admitted to the Partnership as a
Substitute Partner pursuant to Section 3.03(a).
ARTICLE IV
REPORTS
SECTION 4.01. REPORTS TO PARTNERS. (a) Within 30 days after the end of
each of the first three fiscal quarters of a Fiscal Year, the Partnership shall
deliver to each Partner (i) unaudited consolidated balance sheets of the
Partnership and its consolidated subsidiaries as at the end of such quarter and
the related consolidated statements of income, statements of cash flow and
changes in financial position of the Partnership for the period from the
beginning of such quarter to the end of such quarter, prepared on a basis
consistent with the audited financial statements of the Partnership and its
consolidated subsidiaries, subject to changes resulting from audit and normal
year-end adjustments and (ii) a
B-12
certificate executed by the chief financial officer and Tax Matters Partner of
the Partnership certifying compliance by the Partnership with the provisions set
forth in Section 5.05.
(b) Within 80 days after the end of each Fiscal Year, the Partnership shall
deliver to each Partner audited consolidated balance sheets of the Partnership
and its consolidated subsidiaries as at the end of such Fiscal Year and the
related consolidated statements of income, statements of cash flow and changes
in financial position of the Partnership for such Fiscal Year, all in reasonable
detail and accompanied by a report thereon of the Partnership's independent
auditors as to such consolidated financial statements presenting fairly the
financial position of the Partnership and its consolidated subsidiaries as at
the dates indicated, and as to such audit having been made in accordance with
generally accepted auditing standards. Concurrently with the delivery of such
annual financial statements, the General Partner shall deliver (i) a statement
to each Partner of the balance of each Partner's Capital Account and (ii) a
certificate executed by the chief financial officer and Tax Matters Partner of
the Partnership certifying compliance by the Partnership with the provisions set
forth in Section 5.05.
SECTION 4.02. TAX INFORMATION. The General Partner shall timely cause to
be prepared, at the expense of the Partnership, all Federal, state, local and
foreign tax returns (including information returns) of the Partnership and its
subsidiaries, which may be required by a jurisdiction in which the Partnership
or its subsidiaries operate or conduct business for each year or period for
which such returns are required to be filed, and the General Partner shall cause
such returns to be timely filed. As soon as practicable after the end of each
Fiscal Year, the General Partner shall furnish to each Partner (and each Person
to whom Diller has assigned a beneficial interest pursuant to Section 2.07 of
the Transaction Agreement) an Internal Revenue Service Schedule K-1 and such
other information in the possession of the General Partner as is reasonably
requested by such Partner to file any required Federal, state, local and foreign
tax returns.
SECTION 4.03. OTHER INFORMATION. The Partnership shall make available, on
a reasonable basis, the chief financial officer of the Partnership and other
officers of the Partnership, as appropriate, to respond to questions of the
Limited Partners relating to the financial condition of the Partnership.
ARTICLE V
PREFERRED INTERESTS
SECTION 5.01. GENERAL. As of the Effective Time, USAi shall receive the
following Preferred Interests:
(a) a preferred partnership interest in the Partnership with an initial Face
Value of $750,000,000, having special rights as set forth in this Article V and
a preference with respect to distributions (as set forth in Section 8.06) and
liquidation (as set forth in Section 13.02) (the "CLASS A PREFERRED INTERESTS"),
and
(b) a perpetual (subject to Section 8.07) preferred partnership interest in
the Partnership with an initial Face Value of $1,750,000,000, having special
rights as set forth in this Article V and a preference with respect to
distributions (as set forth in Section 8.01(a)) and liquidation (as set forth in
Section 13.02) (the "CLASS B PREFERRED INTERESTS").
SECTION 5.02. RANKING. (a) Except as otherwise provided herein, with
respect to periodic distribution rights and rights upon liquidation, dissolution
or winding up, the Preferred Interests shall rank (i) junior to the Partnership
Debt and any other of the Partnership's future indebtedness and other
obligations not incurred in violation of this Agreement, (ii) on parity with one
another and (iii) senior to the Common Interests.
B-13
(b) Other than the Class A Preferred Interests and the Class B Preferred
Interests issued pursuant to this Agreement on the Effective Date, no Class A
Preferred Interests or Class B Preferred Interests shall be issued.
(c) Subject to Section 5.05(a)(i), the Preferred Interests shall be the most
senior preferred equity interests in the Partnership. The Preferred Interests
shall have no Participation Percentage, and shall not be entitled to participate
in distributions made pursuant to Section 8.01(b).
SECTION 5.03. PIK ACCRETION. (a) The Face Value of the Class A Preferred
Interests shall accrete at a rate of 5.0% per annum and (b) the Face Value of
the Class B Preferred Interests shall accrete at a rate of 1.4% per annum, in
each case beginning on the Closing Date, and the Face Value of each such
Preferred Interest shall increase accordingly on the last day of each calendar
quarter.
SECTION 5.04. CONSENT RIGHT. The consent of the Partners who hold the
majority of the aggregate amount of a class of Preferred Interests, determined
based on the Face Value thereof, voting as a separate class, shall be required
for any amendment, alteration or repeal of the provisions of this Agreement
(including by merger, consolidation or otherwise) that would have an adverse
effect on the rights of such class or that would be materially adverse to the
rights of such Partners under this Agreement.
SECTION 5.05. NEGATIVE COVENANTS. (a) For so long as the Class A Preferred
Interests are outstanding, the Partnership shall not, and shall not permit any
subsidiary of the Partnership, without the prior consent of the Partners holding
the Class A Preferred Interests to:
(i) issue any equity interests in the Partnership that rank senior to,
or PARI PASSU with, the Preferred Interests, or issue any security that is
exchangeable for or convertible into any such equity interest;
(ii) issue any other preferred equity interests in the Partnership
redeemable or exchangeable for or convertible into any equity security of
the Partnership or any subsidiary thereof (other than Common Interests), or
issue any security that is exchangeable for or convertible into cash, cash
equivalents or any such preferred equity interest described in this clause
(ii);
(iii) Transfer any assets other than in the ordinary course of business
of the Partnership unless, (x) at least 50% of the net proceeds of such
sale, transfer or disposition are retained or otherwise redeployed by the
Partnership or its subsidiaries and (y) at the time of such Transfer the
Partnership has a Consolidated Tangible Net Worth of at least
$4,000,000,000;
(iv) create, incur, assume, guarantee or permit to exist any
Indebtedness other than (A) the Partnership Debt or (B) Indebtedness in an
aggregate outstanding principal amount not to exceed $800,000,000 at any
time;
(v) merge with or into or consolidate with (in each case within the
meaning of Treasury Regulation Section 1.708-1(c)), or convert into or
otherwise become, by any statutory mechanism, any other Person (other than a
wholly owned subsidiary of the Partnership), if immediately after giving
effect to such merger, consolidation or conversion, the Partnership would be
in violation of clause (i) or, unless such covenants shall be inapplicable
as provided below, clause (ii), (iii) or (iv) above, or any other provision
of this Agreement relating to the Class A Preferred Interests;
(vi) liquidate, dissolve or wind up the Partnership; or
(vii) become an "investment company" as defined in the Investment
Company Act of 1940, as amended.
The covenants set forth in this Section 5.05(a), other than those set forth in
clause (i), (v), (vi) and (vii) shall not be applicable at a particular time, if
at such time the Partnership shall have posted an irrevocable letter of credit
in a form that is reasonably acceptable to the Partner holding the Class A
B-14
Preferred Interests in favor of such Partner (1) in an amount equal to the
expected Face Value of the Class A Preferred Interests at maturity and (2) with
an expiration date falling no earlier than the maturity date of the Class A
Preferred Interests.
(b) Unless Vivendi shall have made the election described in Section
7.02(b)(ii) of the Transaction Agreement, for a period of 15 years following the
Effective Time, or if a shorter period is set forth in this Section 5.05(b),
then for such shorter period, without the consent of USAi, the Partnership shall
not:
(i) sell or otherwise dispose of all or any part of the assets set forth
on Schedule 5.05(b) other than in the ordinary course of business and other
than sales or other dispositions of assets the fair market values of which,
as of the Effective Time, do not, individually or in the aggregate, exceed
$5,000,000;
(ii) notwithstanding anything in Sections 8.04 and 13.03 to the
contrary, for a period of seven years following the Effective Time,
distribute any assets in kind to USAi or USANi Sub, or distribute any of the
assets set forth on Schedule 5.05(b);
(iii) pay (whether voluntarily or involuntarily) all or any part of the
principal amount of the Partnership Debt prior to the maturity of such debt
(without giving effect to any acceleration thereof) (PROVIDED, HOWEVER, that
beginning 2 years after the Effective Time, the Partnership may, from time
to time, pay a part of the principal amount of the Partnership Debt;
PROVIDED that no such payment shall be permitted to the extent such payment
would exceed USAi Sub's tax basis in its interest in the Partnership);
(iv) for a period of two years following the Effective Time, make any
distributions to USAi or USANi Sub other than distributions permitted under
Section 8.01(a) or Section 8.02 or which constitute operating cash flow
distributions within the meaning of Treasury Regulation Section 1.707-4(b)
(unless the facts and circumstances would clearly establish that any such
distribution is part of a sale);
(v) change the organizational structure with respect to any Person set
forth on Schedule 5.05(b), including, for the avoidance of doubt, taking any
action or failing to take any action which action or inaction would cause
USAi Cable or Studios USAi (each as defined in the Transaction Agreement) to
be treated as other than a partnership for U.S. federal income tax purposes;
(vi) cause or permit any Partner or any Person related to a Partner
(within the meaning of Treasury Regulation Section 1.752-4(b)) to bear the
"economic risk of loss" (within the meaning of Treasury Regulation Section
1.752-2(b)) with respect to the Partnership Debt; or
(vii) take any action, or fail to take any action, which action or
inaction would cause the Partnership to cease to be qualified as a limited
liability limited partnership under and pursuant to the Delaware Act and
DRUPA (including any failure to make the annual filings provided under
Section 17-214(a)(1) of the Delaware Act and Section 15-1003 of DRUPA).
SECTION 5.07. NO OTHER CONSENT RIGHTS. Except as provided in Sections 5.04
and 5.05, holders of Preferred Interests shall have no voting, approval or
consent rights, including with respect to any merger, conversion or
consolidation of the Partnership.
B-15
ARTICLE VI
COMMON INTERESTS
SECTION 6.01. GENERAL. (a) As of the Effective Time, the participation
percentage (the "PARTICIPATION PERCENTAGE") of each Partner's Common Interest
shall be as set forth below:
PARTNER PARTICIPATION PERCENTAGE
------- ------------------------
Universal Sub........................................... 93.06%
USAi.................................................... 0.54%
USANi Sub............................................... 4.90%
Diller.................................................. 1.50%
(b) Such initial Participation Percentages shall be subject to adjustment as
provided in this Article VI. The aggregate outstanding Participation Percentages
at all times shall equal 100%, and Participation Percentages shall be adjusted
from time to time, PRO RATA, as necessary to maintain the foregoing.
SECTION 6.02. ISSUANCES OF COMMON INTERESTS AFTER THE CLOSING DATE. (a)
After the Closing Date the Partnership, at the discretion of the Board (or, if
no Board shall then be constituted, the General Partner), may issue additional
Common Interests in return for additional Capital Contributions.
(b) In connection with the issuance of a Common Interest after the Closing
Date, the Board shall designate the Participation Percentage associated with
such issuance and any other material terms thereof. Upon such issuance, the
Participation Percentages of all Common Interests outstanding immediately before
such issuance shall be reduced in the aggregate by an amount equal to the
Participation Percentage so designated, in proportion to their relative
Participation Percentages immediately before such issuance.
SECTION 6.03. PREEMPTIVE RIGHTS. (a) For so long as USAi and its
Affiliates shall have an aggregate Participation Percentage of greater than 1%
(or at least 1% in the event that USAi and its Affiliates shall have an
aggregate Participation Percentage of no less than 1% due to any reason other
than a failure by USAi to exercise its right under this Section 6.03), in
connection with any issuance of additional Common Interests by the Partnership
to Universal Sub or an Affiliate thereof under Section 6.02(a) prior to the
exercise of an USAi Put or an USAi Call, USAi (or USANi Sub) shall have the
right to purchase, at the same time, on the same terms and at the same purchase
price per Participation Percentage point (or in the event Common Interests are
being issued in exchange for property, an amount of cash equal to the fair
market value of the property being contributed), an amount of Common Interests
(x) equal to a portion of the Common Interests being issued by the Partnership
that is in proportion to the relative Participation Percentages of USAi and its
Affiliates and Universal Sub and its Affiliates, in each case immediately prior
to the issuance giving rise to USAi's rights under this Section 6.03, or (y)
such that, after giving effect to such issuance, USAi and its Affiliates would
have an aggregate Participation Percentage equal to 1%.
(b) In connection with any issuance of additional Common Interests by the
Partnership to Universal Sub or an Affiliate thereof under Section 6.02(a) after
the exercise of an USAi Put or an USAi Call, if USAi and its Affiliates shall
have an aggregate Participation Percentage of at least 1%, USAi (or USANi Sub)
shall have the right to purchase, at the same time, on the same terms of such
issuance and at the same price per Participation Percentage point (or in the
event Common Interests are being issued in exchange for property, an amount of
cash equal to the fair market value of the property being contributed), an
amount of Common Interests such that, after giving effect to such issuance, USAi
and its Affiliates would have an aggregate Participation Percentage equal to 1%.
B-16
(c) The Partnership shall deliver written notice to USAi of any proposed
issuance of Common Interests by the Partnership to Universal Sub and its
Affiliates, including the applicable purchase price, the amount offered, the
proposed closing date, the place and time for the issuance thereof (which shall
be no less than 20 days from the date of such notice) and any other material
terms and conditions of the issuance. Within 15 days from the date of receipt of
such notice, USAi shall deliver written notice to the Partnership if it intends
to exercise its right under Section 6.03(a) or (b). Upon exercising such right,
USAi shall be entitled and obligated to purchase the amount of Common Interests
determined in accordance with Section 6.03(a) on the terms and conditions of
such issuance, and Universal Sub shall be entitled and obligated to purchase the
remaining amount of Common Interests in such issuance. Thereafter, the
Participation Percentages of all the Partners shall be adjusted in accordance
with Section 6.02(a).
SECTION 6.04. OTHER ISSUANCES OF COMMON INTERESTS. (a) For so long as USAi
and its Affiliates shall have an aggregate Participation Percentage of at least
1%, in the event that any issuance under Section 6.02(a) to a Person other than
Universal Sub or an Affiliate thereof would result in USAi and its Affiliates
having an aggregate Participation Percentage of less than 1%, USAi (or USANi
Sub) shall have the right to purchase, on the same terms of such issuance and at
the same price per Participation Percentage point (or in the event Common
Interests are being issued in exchange for property, an amount of cash equal to
the fair market value of the property being contributed), an amount of Common
Interests such that, after giving effect to such issuance to such Person and to
USAi, USAi and its Affiliates would have an aggregate Participation Percentage
equal to 1%.
(b) The Partnership shall deliver written notice to USAi of such proposed
issuance, including the applicable purchase price, the amount offered, the
proposed closing date, the place and time for the issuance thereof (which shall
be no less than 20 days from the date of such notice) and any other material
terms and conditions of the issuance. Within 15 days from the date of receipt of
such notice, USAi shall deliver written notice to the Partnership if it intends
to exercise its right under Section 6.04(a). Upon exercising such right, USAi
shall be entitled and obligated to purchase the amount of Common Interests
determined in accordance with Section 6.04(a) on the terms and conditions of
such issuance and the third party shall be entitled and obligated to purchase
the remaining amount of Common Interests in such issuance. Thereafter, the
Participation Percentages of all the Partners shall be adjusted in accordance
with Section 6.02(a).
SECTION 6.05. CONTRIBUTION OF ASSETS OR CAPITAL STOCK BY UNIVERSAL SUB. In
connection with an acquisition by Universal Sub or an Affiliate thereof of
equity securities or assets of one or more third parties engaged in the Business
or any related business in which Universal Sub or its Affiliate issued shares of
capital stock or paid cash or other consideration to such third party, Universal
Sub or its Affiliate may, in its sole discretion and upon the approval of the
Board (or, if no Board shall then be constituted, the General Partner), either
(i) contribute such acquired equity securities or assets to the Partnership in
return for cash or, to the extent permitted under Section 5.05, a promissory
note with a principal amount equal to the aggregate value (determined as set
forth below) of the consideration paid by Universal Sub or its Affiliate for
such equity securities or assets or (ii) contribute such acquired equity
securities or assets to the Partnership in return for Common Interests in the
Partnership in accordance with Section 6.02(a), subject to the provisions of
Section 6.03. The "purchase price" for any such Common Interests shall be deemed
to be (i) in the case of a contribution of equity securities or assets to the
Partnership on or prior to the first anniversary of the acquisition by Universal
Sub or an Affiliate of such equity securities or assets, the value of the
consideration paid by Universal Sub or its Affiliate for such equity securities
or assets, which consideration shall be valued at the same time it was valued
under the terms of the agreement with the applicable third party, and (ii) in
the case of a contribution of equity securities or assets to the Partnership
following the first anniversary of the acquisition by Universal Sub or an
Affiliate of such equity securities or assets, the fair market value of such
contributed equity securities or assets.
B-17
SECTION 6.06. CONSENT RIGHT. Except for the General Partner, no holder of
Common Interests shall have any voting, approval or consent rights, including
with respect to any merger, conversion or consolidation of the Partnership;
PROVIDED, HOWEVER, that (i) at all times a Partner holding Common Interests
shall have the right to consent to any amendment, alteration or repeal of this
Agreement that would have an adverse effect on the rights of such Partner
hereunder and (ii) for so long as an USAi Put or an USAi Call has not been
exercised and USAi has not exercised its rights under Section 6.03(a)(y), the
consent of USAi shall be required prior to: (x) the entering into, terminating,
modifying or extending of any agreement, transaction or relationship between the
Partnership and any Affiliate of Vivendi that is not on an arm's-length basis,
and (y) the making of distributions in respect of, redeeming, repurchasing or
otherwise acquiring any Common Interests of Universal Sub or any of its
Affiliates, other than PRO RATA distributions, redemptions, repurchases and
acquisitions.
SECTION 6.07. ASSIGNEES OF DILLER COMMON INTERESTS. Any holder of a
beneficial interest in Common Interests that shall have received such interest
as an assignee of Diller pursuant to Section 2.07 of the Transaction Agreement
hereby irrevocably appoints Diller (or his executor, administrator or trustee,
as the case may be) as its or his designated representative for all purposes
under this Agreement and agrees (except to the extent otherwise provided in
Section 4.02) that (a) any action taken or waived by, or binding upon, Diller
(or his executor, administrator or trustee, as the case may be) with respect to
Diller's Common Interests (including the provisions set forth in Section 10.03)
shall be deemed taken or waived by, and binding upon, such assignee with respect
to such assignee's beneficial interest in Diller's Common Interests, (b) such
assignee shall have no right to deal directly with the Partnership or its
Partners and the Partnership and its Partners shall deal solely with Diller in
respect of all matters relating to such assignee's interest in the Partnership,
as if such assignment had never occurred, including in respect of the provision
of information, the giving of notices and the payment of money, (c) such
assignee shall have no right to attend Partnership meetings, (d) all rights of a
holder of Common Interests under this Agreement or otherwise in connection with
the Partnership shall be exercisable only by Diller (or his executor,
administrator or trustee, as the case may be) and (e) such assignee shall in all
respects be subject to the same terms under this Agreement (other than Section
9.04) as Diller is subject to hereunder. The General Partner shall treat any
holder of a beneficial interest in Common Interests who received such interest
as an assignee of Diller pursuant to Section 2.07 of the Transaction Agreement
as a Partner in the Partnership for income tax purposes with an interest in the
Partnership corresponding to such beneficial interest.
ARTICLE VII
CAPITAL ACCOUNTS, ALLOCATIONS OF
PROFIT AND LOSS AND TAX MATTERS
SECTION 7.01. CAPITAL ACCOUNTS. (a) The Partnership shall establish a
separate capital account (a "CAPITAL ACCOUNT") in respect of each Common
Interest and Preferred Interest held by each Partner on the books of the
Partnership. The Capital Account of a Partner shall be increased by (i) the
amount of money contributed by that Partner to the Partnership, (ii) the fair
market value of property contributed by that Partner to the Partnership (net of
liabilities related to such contributed property that the Partnership is
considered to assume or take subject to under Section 752 of the Code) and (iii)
allocations to that Partner pursuant to Section 7.02 of profit, income and gain
(or items thereof). The Capital Account of a Partner shall be decreased by (i)
the amount of money distributed to that Partner by the Partnership, (ii) the
fair market value of property distributed to that Partner by the Partnership
(net of liabilities related to such distributed property that such Partner is
considered to assume or take subject to under Section 752 of the Code) and (iii)
allocations to that Partner pursuant to Section 7.02 of loss, expense and
deduction (or items thereof).
(b) In the event that a Partner Transfers its Interest in accordance with
the provisions of this Agreement, the Transferee of such Interest shall succeed
to the Capital Account of the Transferor attributable to such Interest.
B-18
(c) Upon the occurrence of any event specified in Treasury Regulation
Section 1.704-1(b)(2)(iv)(f), the Capital Accounts of the Partners shall be
adjusted to reflect the fair market value of the Partnership's property at such
time and in such manner as provided in such Regulation.
(d) No Partner shall be entitled to withdraw capital or receive
distributions except as specifically provided herein. No Partner shall have any
obligation to the Partnership, to any other Partner or to any creditor of the
Partnership to restore any negative balance in the Capital Account of such
Partner.
(e) The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with the
Treasury Regulations promulgated under Section 704(b) of the Code and shall be
interpreted and applied in a manner consistent with such Treasury Regulations.
SECTION 7.02. ALLOCATIONS OF NET INCOME AND NET LOSS. (a) GENERAL.
(i) Except as otherwise provided in this Section 7.02, Net Income shall
be allocated to the extent thereof:
(A) FIRST, if any Net Loss has been allocated to the holders of
Preferred Interests under Section 7.02 (a)(ii)(B), to the holders of
Preferred Interests PRO RATA in proportion to the amount of Net Loss so
allocated until the aggregate Net Income allocated under this paragraph
(A) shall equal the aggregate amount of such Net Loss;
(B) SECOND, to the holders of Preferred Interests PRO RATA until the
aggregate amount allocated under this paragraph (B) equals a return of 5%
per annum on the Face Value of their Preferred Interests;
(C) THIRD, if any Net Loss has been allocated to the holders of
Common Interests under Section 7.02(a)(ii)(A) or (C), to the holders of
Common Interests PRO RATA in proportion to the amount of Net Loss so
allocated until the aggregate Net Income allocated under this paragraph
(C) shall equal the aggregate amount of such Net Loss; and
(D) FOURTH, to the Partners in accordance with their Participation
Percentages.
(ii) Net Loss shall be allocated to the extent thereof:
(A) FIRST, to the holders of Common Interests PRO RATA to the extent
of their respective Capital Accounts;
(B) SECOND, to the holders of Preferred Interests PRO RATA to the
extent of their respective Capital Accounts; and
(C) THIRD, to the Partners in accordance with their Participation
Percentages.
(b) MINIMUM GAIN CHARGE BACK. The Partnership shall allocate items of
profit among the Partners at such times and in such amounts as necessary to
satisfy the minimum gain charge back requirements of Treasury Regulation
Sections 1.704-2(f) and 1.704-2(i)(4).
(c) ALLOCATION OF DEDUCTIONS ATTRIBUTABLE TO PARTNER NONRECOURSE
LIABILITIES. Any nonrecourse deductions attributable to a "partner nonrecourse
liability" (as defined in Treasury Regulation Section 1.704-2(b)(4)) shall be
allocated among the Partners that bear the economic risk of loss for such
Partner's nonrecourse liability under Treasury Regulation Section 1.752-2 in
accordance with the ratios in which such Partners share such economic risk of
loss and in a manner consistent with the requirements of Treasury Regulation
Sections 1.704-2(c), 1.704-2(i)(2) and 1.704-2(j)(1).
(d) QUALIFIED INCOME OFFSET. The Partnership shall specially allocate
items of profit and loss when and to the extent required to satisfy the
"qualified income offset" requirement within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d).
B-19
(e) CURATIVE ALLOCATIONS. The allocations set forth in Sections 7.02 (b),
(c) and (d) (the "REGULATORY ALLOCATIONS") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Partners that,
to the extent possible, the Partnership shall make such special allocations of
Partnership income, gain, loss or deduction so that, after such allocations are
made, each Partner's Capital Account balance is, to the greatest extent
possible, equal to the Capital Account balance such Partner would have had if
the Regulatory Allocations were not part of the Agreement and all Partnership
items were allocated pursuant to Section 7.02(a) and (f) hereof.
(f) ALLOCATIONS IN LIQUIDATION AND UPON MATURITY OF CLASS A PREFERRED
INTERESTS. Upon a dissolution of the Partnership in accordance with Article
XIII, the Net Income or Net Loss (or items of profit, income, gain, loss,
deduction and expense) of the Partnership shall be allocated to the Partners so
that the balance in each Partner's Capital Account as of the date of dissolution
shall equal the amount distributable to such Partner pursuant to Section 13.02.
In the case of any distribution made at the maturity of a Class A Preferred
Interest in accordance with Section 8.06, Net Income or Net Loss (or items of
profit, income, gain, loss, deduction and expense) for the taxable period of the
Partnership in which such distribution is made shall be allocated so that the
Capital Account of each holder of such Class A Preferred Interest shall, as of
the date of distribution, equal the amount to be distributed to such holder
pursuant to Section 8.06.
SECTION 7.03. ALLOCATIONS OF NET INCOME AND NET LOSS FOR FEDERAL INCOME TAX
PURPOSES. Except as provided in the following sentence, profit, income, gain,
loss, deduction and expense as determined for Federal income tax purposes shall
be allocated among the Partners in the same proportions as the corresponding
items of "book" profit, income, gain, loss, deduction and expense are allocated
among such Partners pursuant to Section 7.02. Notwithstanding the foregoing
sentence, Federal income tax items relating to any Section 704(c) Property shall
be allocated among the Partners in accordance with Section 704(c) of the Code
and Treasury Regulation Section 1.704-3(c) to take into account the difference
between the fair market value and the tax basis of such Section 704(c) Property
as of the date of its contribution to the Partnership or its revaluation
pursuant to Section 7.01(c) using the "traditional method" as described in
Treasury Regulation Section 1.704-3(b). Items described in this Section 7.03
shall neither be credited nor charged to the Partners' Capital Accounts.
SECTION 7.04. ALLOCATION OF THE PARTNERSHIP DEBT. The Partners acknowledge
that, for purposes of Section 752 of the Code and in accordance with Treasury
Regulation 1.752-3(a)(3), and consistent with allocations of other significant
items of Partnership income or gain, 100% of the Partnership Debt shall be
allocated PRO RATA among the Partners holding the Preferred Interests.
SECTION 7.05. ELECTIONS. Except as otherwise expressly provided herein,
all elections required or permitted to be made by the Partnership under the Code
or other applicable tax law (including any election under Section 754 of the
Code), and all material decisions with respect to the calculation of its taxable
income or tax loss for tax purposes under the Code or other applicable tax law,
shall be made in such manner as may be determined by the General Partner.
SECTION 7.06. FISCAL YEAR. The fiscal year of the Partnership for tax and
accounting purposes ("FISCAL YEAR") shall be the 12-month (or shorter) period
ending on December 31 of each year, unless otherwise determined by the Board.
SECTION 7.07. WITHHOLDING REQUIREMENTS. Notwithstanding any provision
herein to the contrary, the General Partner is authorized to take any and all
actions that are necessary or appropriate to ensure that the Partnership
satisfies any and all withholding and tax payment obligations under Section
1441, 1445, 1446 or any other provision of the Code or other applicable law.
Without limiting the generality of the foregoing, the General Partner may
withhold any amount that it determines is required to be withheld from amounts
otherwise distributable to any Partner pursuant to this Agreement; PROVIDED,
HOWEVER, that such amount shall be deemed to have been distributed to such
Partner for purposes of applying this Agreement. Each Partner will timely
provide any certification or
B-20
file any agreement that is required by any taxing authority in order to avoid
any withholding obligation that would otherwise be imposed on the Partnership.
SECTION 7.08. TAX MATTERS PARTNER. The General Partner shall act as the
"TAX MATTERS PARTNER" of the Partnership within the meaning of Section
6231(a)(7) of the Code and in any similar capacity under applicable state or
local tax law. The Tax Matters Partner shall not be liable in its capacity as
such to the Partnership or the Partners for any losses, claims or damages. All
reasonable out-of-pocket expenses incurred by the Tax Matters Partner while
acting in such capacity shall be paid or reimbursed by the Partnership.
ARTICLE VIII
DISTRIBUTIONS
SECTION 8.01. DISTRIBUTIONS. (a) The Partnership shall make cumulative
preferential distributions to holders of the Class B Preferred Interests at a
rate of 3.6% per annum of the Face Value of such holder's Preferred Interests
(without taking into account any adjustments thereto made on the date of such
distribution), which distributions shall begin to accrue on the Closing Date.
Distributions shall be payable in cash in quarterly installments on the last
Business Day of each calendar quarter. Any delay or deferral of distributions
required by this Section 8.01 or Section 8.02, including upon a breach of this
Section 8.01(a), shall accrue interest commencing on the applicable due date and
continuing through to the date of payment at an annual rate equal to USAi's
effective cost of borrowing, expressed as a percentage, as of the applicable due
date.
(b) At the times and in the amounts determined by the General Partner,
subject to Section 5.05(b), the Partnership may make distributions to holders of
Common Interests PRO RATA in accordance with the respective Participation
Percentages of such Common Interests; PROVIDED that no distributions may be made
with respect to the Common Interests unless all past due distributions on the
Preferred Interests have been made as of the date of payment.
(c) To the extent any distribution to a Partner provided herein in respect
of a Common Interest or a Preferred Interest would exceed the balance of such
Partner's Capital Account relating to such Common Interest or Preferred
Interest, the distribution of such excess shall be deferred and shall be made
(prior to any other distribution pursuant to this Section 8.01) when and to the
extent that the balance of such Capital Account is increased.
SECTION 8.02. TAX DISTRIBUTIONS. The Partnership shall, as soon as
practicable after the close of each taxable year, make cash distributions to
each Partner in an amount equal to the product of (a) the amount of taxable
income allocated to such Partner for such taxable year pursuant to Section 7.02,
reduced by the amount of taxable loss allocated to such Partner for all prior
taxable years (except to the extent such taxable losses have previously been
taken into account under this sentence) and (b) the highest aggregate marginal
statutory Federal, state, local and foreign income tax rate (determined taking
into account the deductibility of state and local income taxes for Federal
income tax purposes and the creditability or deductibility of foreign income
taxes for Federal income tax purposes) applicable to any Partner.
SECTION 8.03. GENERAL LIMITATIONS. (a) Notwithstanding anything in this
Agreement to the contrary, the Partnership, and the General Partner on behalf of
the Partnership, is not required to make any distributions except to the extent
permitted under the Delaware Act.
(b) Holders of Preferred Interests shall not be entitled to any
distributions in excess of the distributions set forth in this Article VIII and
Article XIII.
SECTION 8.04. DISTRIBUTIONS IN KIND. The Partnership shall not distribute
any assets in kind, except as provided in Section 13.03.
B-21
SECTION 8.05. CLOSING DATE DISTRIBUTION. At the Effective Time, the
Partnership shall use the net proceeds of the Partnership Debt to make a cash
distribution to USANi Sub in the amount of $1,618,710,396.
SECTION 8.06. DISTRIBUTION UPON MATURITY OF CLASS A PREFERRED
INTERESTS. On the twentieth anniversary of the Closing Date (the "MATURITY
DATE"), the Class A Preferred Interests shall be redeemed by the Partnership by
payment to the holder thereof of a distribution in cash equal to the Face Value
thereof as of such date (after taking into account any accretion in the Face
Value pursuant to Section 5.03 through and including the date of redemption).
Following such payment, the Class A Preferred Interests shall cease to be
outstanding and all the rights of the holders thereof shall cease.
SECTION 8.07. PUT/CALL RIGHTS WITH RESPECT TO CLASS B PREFERRED
INTERESTS. (a) Beginning on the twentieth anniversary of the Closing Date, (i)
subject to Section 160 of the Delaware General Corporation Law, Vivendi and/or
Universal shall have the right to purchase all (but not less than all) the Class
B Preferred Interests of USAi and its Affiliates (the "USAi PREFERRED CALL"),
and (ii) USAi shall have the right to require Universal to purchase all (but not
less than all) its and its Affiliates' Class B Preferred Interests (the "USAi
PREFERRED PUT"), in each case at a purchase price equal to (A) a number of
shares of USAi Common Shares equal to the lesser of (x) the number of shares
(rounded up to the nearest whole share) of USAi Common Shares having a Market
Value equal to the Face Value as of such date (after taking into account any
accretion in the Face Value pursuant to Section 5.03 through and including such
date) of the Class B Preferred Interests or (y) 56,611,308 shares of USAi Common
Stock (as adjusted for any stock splits, stock dividends or other similar
transactions after the Effective Time), and (B) cash equal to any accrued and
unpaid distributions pursuant to Section 8.01(a) (collectively, the "CLASS B
PREFERRED CONSIDERATION"). Universal shall have the right to substitute cash for
the portion of the USAi Common Shares deliverable in the form of USAi Common
Stock as set forth in Section 4.17 of the Transaction Agreement, based on the
Market Value of such USAi Common Stock.
(b) In the event that USAi Common Shares cease to be outstanding following
the Effective Time, references to each USAi Common Share in this Section 8.07
shall refer instead to the cash (plus interest accruing at an annual rate equal
to USAi's effective cost of borrowing, expressed as a percentage, as of the
applicable date on which such cash is delivered in such exchange or conversion)
or other securities or property into which each such USAi Common Share was
exchanged for or converted into after the Effective Time, including any
successive exchange or conversion.
(c) Upon consummation of an USAi Preferred Put or an USAi Preferred Call,
the maturity of the Class B Preferred Interests shall be immediately
accelerated, and the Class B Preferred Interests shall be redeemed by the
Partnership by payment to the holder thereof of a distribution in cash equal to
the Face Value thereof as of such date (after taking into account any accretion
in the Face Value pursuant to Section 5.03 through and including the date of
redemption). Following such payment, the Class B Preferred Interests shall cease
to be outstanding and all the rights of the holders thereof shall cease.
ARTICLE IX
MANAGEMENT OF THE PARTNERSHIP
SECTION 9.01. GENERAL PARTNER. (a) The business and affairs of the
Partnership shall be managed exclusively by the General Partner in a manner
consistent with this Agreement, without the need for, except as set forth in
Section 5.04, 5.05 or 6.06, any consent or approval of any other Partner.
Subject to Section 9.02 and the terms of this Agreement, the General Partner
shall have the exclusive power and authority, on behalf of the Partnership, to
collect and distribute funds in accordance with Article VIII to make allocations
and adjustments in accordance with Article VII and to take any action of any
kind not inconsistent with this Agreement and to do anything and everything it
deems necessary or appropriate to carry on the business and purposes of the
Partnership in a manner consistent with
B-22
this Agreement. No other Partner shall participate in the management and control
of the business of the Partnership, and in no event shall any Partner other than
the General Partner have any authority to bind the Partnership for any purpose.
Persons dealing with the Partnership are entitled to rely conclusively upon the
power and authority of the General Partner.
(b) The General Partner is, to the extent of its rights and powers set forth
in this Agreement, an agent of the Partnership for the purpose of the
Partnership's business, and the actions of the General Partner taken in
accordance with such rights and powers shall bind the Partnership.
SECTION 9.02. BOARD; REPRESENTATIVES; CHAIRMAN. (a) The General Partner
shall be responsible for the establishment of policy and operating procedures
with respect to the business and affairs of the Partnership and shall appoint
agents or employees, with such titles as the General Partner may select,
including a chief executive officer, as officers of the Partnership to act on
behalf of the Partnership, with such power and authority as the General Partner
may designate from time to time to any such Person. The initial chief executive
officer shall serve at his will and at the pleasure of the General Partner,
shall report directly to the chief executive officer of the General Partner who
shall be the chief executive officer of Vivendi and shall have the same
authority to act for the Partnership as a corresponding officer of a Delaware
corporation would have to act for a Delaware corporation. Diller shall be the
initial chief executive officer of the Partnership. The other officers of the
Partnership shall report to the General Partner or the chief executive officer,
as determined by the General Partner; PROVIDED that, as of the Effective Date
and for so long as Diller is the chief executive officer, officers of the
Partnership shall report to the chief executive officer.
(b) The General Partner may, at its election, appoint a Board of Directors
or other governing body (a "BOARD") to oversee the policy and operating
procedures with respect to the business and affairs of the Partnership,
PROVIDED, HOWEVER, that the appointment of a Board shall not alter in any
respect the reporting obligations of the chief executive officer. In the event
that the General Partner appoints a Board, it shall appoint all of the members
of the Board (the "REPRESENTATIVES"), which shall include each of Diller as a
Representative for so long as he remains an officer of the Partnership and
otherwise, one Person designated by USAi and reasonably satisfactory to the
General Partner as a Representative for so long as USAi and its Affiliates shall
have a Participation Percentage in excess of 1%, provided that an USAi Put or an
USAi Call has not been exercised and USAi has not exercised its rights under
Section 6.03(a)(y). For so long as Diller is chief executive officer of the
Partnership, Diller shall also be Chairman of the Board ("CHAIRMAN"). The
General Partner, in consultation, with the chief executive officer, shall
establish whatever procedures it deems necessary and appropriate for operating
and governing the business of the Partnership.
(c) No Representative shall be entitled to any fee, remuneration,
compensation or expense reimbursement in connection with their service at Board
meetings.
SECTION 9.03. EXPENSES. (a) The Partnership shall pay or reimburse the
General Partner for all out-of-pocket expenses reasonably incurred by the
General Partner in performing its duties as the General Partner. Except as
provided in Section 7.08 and this Section 9.03, the General Partner shall not be
entitled to any salary or other compensation for its services to the Partnership
as General Partner.
(b) The Partnership shall pay or reimburse Diller and any other USAi
employee who is an officer of the Partnership for all out-of-pocket expenses
directly related to the performance by Diller or such other Person of his duties
as an officer of the Partnership.
SECTION 9.04. AGREEMENT NOT TO COMPETE. (a) Diller understands that the
Partnership shall be entitled to protect and preserve the going concern value of
USAi's Existing Business (as "Existing Business" is defined in the Transaction
Agreement) and the Partnership to the extent permitted by law and that Universal
would not have entered into this Agreement absent the provisions of this Section
B-23
9.04 and, therefore, for a period from the Closing Date until the date that is
the earlier of (A) the later of (1) 18 months after the Closing Date and (2) six
calendar months after the date upon which Diller ceases to be the chief
executive officer of the Partnership and (B) three years after the Closing Date,
Diller shall not, and shall cause each of its Affiliates not to, directly or
indirectly:
(i) engage in the Restricted Business or acquire any interest in any
Person engaged in the Restricted Business; and
(ii) (A) solicit, recruit or hire any employees of USAi's Existing
Business or the Partnership or Persons who have worked for USAi's Existing
Business or the Partnership, in each case other than employees who perform
solely clerical functions for such Persons, (B) solicit or encourage any
employee of USAi's Existing Business or the Partnership to leave the
employment of USAi's Existing Business or the Partnership, in each case
other than employees who perform solely clerical functions for such Persons,
and (C) disclose or furnish to anyone any confidential information relating
to USAi's Existing Business or the Partnership or otherwise use such
confidential information for its own benefit or the benefit of any other
Person; PROVIDED that the non-solicitation provisions of clauses (A) and (B)
shall be deemed not breached by any advertisement or general solicitation
that is not specifically targeted at the employees or Persons referred to
therein;
PROVIDED that, if at any time after 18 months after the Closing Date, Diller
resigns as chief executive officer of the Partnership for Good Reason or
Diller's employment is terminated without Cause, then the restrictions set forth
in this Section 9.04(a) shall cease to apply on and from the effective date of
such resignation or termination.
(b) This Section 9.04 shall be deemed not breached as a result of (i) the
ownership by Diller or any of his Affiliates of interests in the Partnership, or
of investments in any class of stock of any entity, public or private, engaged,
directly or indirectly, in the Restricted Business so long as Diller does not
serve as a director, an officer, a consultant or as an employee of such entity
and is not otherwise engaged in the management or operations of such entity,
(ii) Diller's engagement in not-for-profit or charitable activities related to
the Business, whether on boards or otherwise, (iii) ownership of Vivendi
Ordinary Shares as the result of the exercise of a Put or a Call or (iv)
Diller's position as a member of any board of directors (including on any
committees thereof) on which he is a board member on the date hereof.
(c) Diller agrees that the covenant in Section 9.04(a) is reasonable with
respect to its duration and scope. If, at the time of enforcement of this
Section 9.04, a court holds that the restrictions stated herein are unreasonable
under the circumstances then existing, the parties hereto agree that the period
and scope legally permissible under such circumstances will be substituted for
the period and scope stated herein.
ARTICLE X
TRANSFERS OF INTERESTS
SECTION 10.01. RESTRICTIONS ON TRANSFERS. (a) Except as permitted in this
Article X, without the prior written consent of the General Partner, neither
USAi nor Diller shall directly or indirectly Transfer all or any part of their
respective Interests, or any rights to receive capital, profits or distributions
of the Partnership pursuant thereto. To the fullest extent permitted by law, any
such Transfer in violation of this Agreement shall be null and void.
(b) It shall be a condition to any Transfer not prohibited by this Article X
that such Transfer shall comply with the provisions of the Securities Act and
applicable state securities laws. Until any Interest has been registered under
the Securities Act, such Interest may not be offered or sold except pursuant
B-24
to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
(c) It shall also be a condition to any Transfer not prohibited by this
Article X that no applicable law or judgment issued by any governmental entity
shall be in effect, and all consents of, or declarations or filings with, or
expirations of waiting periods imposed by, any governmental entity necessary for
the consummation of such Transfer shall have been obtained or filed or shall
have occurred, and each Partner agrees to cooperate with the other Partners to
provide such information and make such filings as shall be necessary to satisfy
as promptly as practicable the foregoing conditions in connection with a
proposed Transfer.
SECTION 10.02. TRANSFERS PERMITTED AT ANY TIME. (a) At any time and from
time to time, so long as such Transfer would not reasonably be expected to
result in any materially adverse tax consequences to any other Partners, (i)
USAi or USANi Sub may Transfer all, but not less than all, of its Interest to
USAi or a wholly owned subsidiary of USAi (including any subsidiary that is not
wholly owned solely as a result of the fact that Home Shopping Network, Inc. is
not a wholly owned subsidiary of USAi, so long as Liberty and USAi remain the
only shareholders of Home Shopping Network, Inc. and Light's ownership
percentage of Home Shopping Network, Inc. does not increase materially from its
interest as of the Closing Date) and USANi Sub may Transfer all, but not less
than all, of its Interest to a wholly owned subsidiary of Universal Sub and (ii)
USAi or USANi Sub may pledge or grant a security interest in, or place in trust,
its Preferred Interests in connection with a bona fide indebtedness or hedging
transactions; PROVIDED, HOWEVER, that the terms of such indebtedness or hedge
shall not permit or enable under any circumstance, including in the event of a
default thereunder, the pledgee of such indebtedness or party to such hedge to
foreclose upon or otherwise acquire any Preferred Interests, it being understood
that USAi, USANi Sub and/or one of their wholly owned subsidiaries shall in all
cases be the only holder(s) of the Preferred Interests.
(b) In respect of holders of Interests that are individuals, a Transfer may
be made upon or subsequent to the death of such holder to the executors,
administrators, legatees or beneficiaries of such deceased holder, PROVIDED that
such transferees shall (i) in aggregate be treated as a single Partner for all
purposes under this Agreement and (ii) upon such Transfer, sign a counterpart to
this Agreement or other similar document of accession, in each case in a
customary form, agreeing to be bound by the terms of this Agreement (other than
Section 9.04) to the same extent that the transferor was so bound.
SECTION 10.03. PUT/CALL RIGHTS. (a)(i) At any time, and from time to time,
after the fifth anniversary of the Closing Date, Universal shall have the right
to purchase all (but not less than all) the Common Interests of USAi and its
Affiliates (the "USAi CALL"), and (ii) at any time, and from time to time, after
the eighth anniversary of the Closing Date, USANi Sub shall have the right to
require Universal to purchase all (but not less than all) its and its
Affiliates' Common Interests (the "USAi PUT"), in each case at a purchase price
equal to the Appraised Value thereof. Notwithstanding the foregoing, for so long
as USAi or its Affiliates shall be the holder of any Preferred Interests, at the
election of USANi Sub, any Call or Put under this Section 10.03(a) shall only be
applicable to a portion of the Common Interests of USANi Sub and its Affiliates
such that upon the consummation of the applicable purchase and sale USAi and its
Affiliates would retain a Participation Percentage of 1%, and in such event the
determination of Appraised Value shall only apply to the portion of the Common
Interests of USAi and its Affiliates subject to such Call or Put.
(b)(i) At any time after the first anniversary of the Closing Date, Diller
(or his executor, administrator or trustee, as the case may be) shall have the
right to sell all (but not less than all) its Common Interests to Universal (the
"DILLER PUT"), and (ii) at any time after the later of (A) the second
anniversary of the Closing Date and (B) such time that Diller is no longer chief
executive officer of the Partnership, Universal shall have the right to purchase
all (but not less than all) the
B-25
Common Interests of Diller (the "DILLER CALL"), in each case at a purchase price
equal to the greater of (x) the Appraised Value thereof and (y) $275,000,000. In
the event that Diller's employment is terminated without Cause or as a result of
his death, Diller terminates his employment for Good Reason or Diller becomes
Disabled, the Diller Put shall become thereafter exercisable (by Diller, or his
executor, administrator, or trustee, as the case may be) immediately upon such
termination or upon becoming Disabled.
(c) A Call or a Put may be exercised by the applicable Partner by providing
notice to the other Partner in accordance with Section 14.01. The purchase and
sale of the Selling Partner's Common Interests shall be consummated at a closing
the date and time of which shall be selected by the Purchasing Partner and
provided in writing at least seven days prior thereto; PROVIDED that such date
shall not be later than the 20th Business Day following the date of the
determination of the Appraised Value. Except as set forth in Section 10.03(e),
at such closing, the Purchasing Partner shall cause to be paid to the Selling
Partner the applicable purchase price, by wire transfer of immediately available
funds, against delivery by the Selling Partner of one or more duly executed
assignments and bills of sale (in form and substance reasonably satisfactory to
the Purchasing Partner, but in any event which shall not include any provision
for indemnification) assigning its Common Interests to the Purchasing Partner,
free and clear of any Liens.
(d) The Appraised Value shall be determined as follows:
(i) subject to clause (iii) below, within 15 days from the date of
notice given pursuant to Section 10.03(c), the Selling Partner and the
Purchasing Partner shall each notify the other and the Partnership in
writing of their respective selection of an Investment Bank; PROVIDED that
if either such party fails to notify the other of its selection within such
period, the determination of the Appraised Value of such Common Interests
shall be rendered by the single Investment Bank already selected, within 45
days from the date of its selection, by notice to all the foregoing parties,
and such determination shall be deemed to be the Appraised Value of such
Common Interests and shall be final for purposes hereof;
(ii) within 45 days from the date of their selection, the Selling
Partner's Investment Bank and the Purchasing Partner's Investment Bank shall
jointly notify the Selling Partner and the Purchasing Partner in writing of
their determination of the Appraised Value of such Common Interests
(determined as set forth in the definition thereof), or, if such Investment
Banks are unable to agree on such a value (unless the lower individual
valuation is within 10% of the higher individual valuation, in which case
the two valuations shall be averaged), of their selection of a third
Investment Bank, in which case such Investment Banks shall notify such third
Investment Bank in writing of their respective determinations of the
Appraised Value concurrently with the delivery of the notice described
above, following which such third Investment Bank shall, within 30 days,
notify all of the foregoing parties of its selection of one of the two
original determinations of the Appraised Value, (the "SELECTED APPRAISAL"),
which Selected Appraisal shall be chosen by such third Investment Bank based
on its determination that the Selected Appraisal more closely reflected the
Appraised Value of such Common Interests (determined as set forth in the
definition thereof) than the other original determination. The Selected
Appraisal shall be deemed to be the Appraised Value of such Common Interests
and shall be final for purposes hereof. The costs of such determination
process shall be borne equally by the Purchasing Partner and the Selling
Partner; and
(iii) if at any time prior to the second anniversary of the Closing Date
Diller ceases to serve as the chief executive officer of the Partnership,
Universal and Diller shall promptly initiate the process set forth in
clauses (i) and (ii) above to determine the Appraised Value of the
Partnership as of the time of such cessation, and such Appraised Value shall
be deemed to be the Appraised Value of the Partnership with respect to the
subsequent exercise of a Diller Put or a Diller Call.
B-26
(e) At the election of the Purchasing Partner, payment of the purchase price
upon the exercise of a Call or a Put may be made in Vivendi Ordinary Shares
having a Market Value at the time of closing equal to the applicable purchase
price set forth in Section 10.03(a) or Section 10.03(b), in which case the
Selling Partner shall be entitled to the rights set forth in Section 10.03(f)
and 10.03(g). At the closing of any Put or Call pursuant to this Section
10.03(e), Universal shall deliver to USAi or Diller, as the case may be, validly
issued Vivendi Ordinary Shares (or, if Diller requests, other common equity
securities of Vivendi listed on an exchange other than that on which the Vivendi
Ordinary Shares are listed and representing an equivalent number of Vivendi
Ordinary Shares) free and clear of all Liens (other than Permitted Liens). The
ability of any successor or new parent entity to Vivendi to issue shares
hereunder shall be subject to (i) satisfaction of the trading volume provisions
of the definition of Vivendi Ordinary Shares and (ii) the Selling Partner
receiving less than 5% of the outstanding common stock or ordinary shares of
such successor or new parent entity in such issuance.
(f) (i) Vivendi shall provide the Selling Partner with, and the Selling
Partner shall be entitled to, customary registration rights relating to any
Vivendi Ordinary Shares received pursuant to Section 10.03(e) (including the
ability to transfer registration rights (but not to exceed in the aggregate
the total number of registration rights to which the Selling Partner is
entitled under Section 10.3(f)(ii) in connection with the sale or other
disposition of all or a portion of its Vivendi Ordinary Shares). In the
event Vivendi Ordinary Shares are listed or quoted on more than one national
securities exchange (or Nasdaq), whether in the form of shares, depositary
shares or receipts therefor, the Selling Partner may elect the type of
security (or combination of securities) to be issued to it (such securities
sometimes being referred to in paragraph (g) or this paragraph (f) of
Section 10.03 as "Vivendi Ordinary Shares") and such securities shall be
issued in an aggregate amount representing the amount of the Vivendi
Ordinary Shares that would otherwise have been issued. Vivendi, each of the
Partners and the Partnership each hereby agrees to cooperate and use its
reasonable best efforts to provide for the prompt marketability of the
Vivendi Ordinary Shares to be received hereunder, including, if requested by
USAi or Diller, as applicable, through the advance preparation and filing by
Vivendi of (x) a registration statement in order that such registration
statement may become effective simultaneously with the closing of the Put or
Call giving rise to the registration rights under this paragraph (f), and
(y) any other regulatory filings or notices.
(ii) If requested by a Selling Partner, Vivendi shall be required
promptly to cause the Vivendi Ordinary Shares owned by such Selling Partner
or its Affiliates to be registered under the Securities Act and/or any
applicable securities laws of any foreign jurisdiction in order to permit
such Selling Partner or such Affiliate to sell such shares in one or more
(but not more than, in the case of USAi, three, and in the case of Diller,
two) registered public offerings (each, a "DEMAND REGISTRATION"). Each
Selling Partner shall also be entitled to customary piggyback registration
rights and, except pursuant to agreements in effect on the date hereof, no
other Person shall be entitled to piggyback registration rights with respect
to a Selling Partner's Demand Registration, without such Selling Partner's
consent. If the amount of shares sought to be registered by a Selling
Partner and its Affiliates pursuant to any Demand Registration is reduced by
more than 25% pursuant to any underwriters' cutback, then such Selling
Partner may elect to request Vivendi to withdraw such registration, in which
case, such registration shall not count as one of such Selling Partner's
Demand Registrations. If a Selling Partner requests that any Demand
Registration be an underwritten offering, then such Selling Partner shall
select the underwriter(s) to administer the offering, provided that such
underwriter(s) shall be reasonably satisfactory to Vivendi. If a Demand
Registration is an underwritten offering and the managing underwriter
advises the Selling Partner initiating the Demand Registration in writing
that in its opinion the total number or dollar amount of securities proposed
to be sold in such offering is such as to materially and adversely affect
the success of such offering, then Vivendi will include in such
registration, first, the securities of the initiating Selling Partner, and,
thereafter, any securities to be sold for the account of others who
B-27
are participating in such registration (as determined on a fair and
equitable basis by Vivendi). In connection with any Demand Registration or
inclusion of a Selling Partner's or its Affiliate's shares in a piggyback
registration, Vivendi, such Selling Partner and/or its Affiliates shall
enter into an agreement containing terms (including representations,
covenants and indemnities by Vivendi and such Selling Partner), and shall be
subject to limitations, conditions, and blackout periods, customary for a
secondary offering by a selling stockholder. The costs of the registration
(other than underwriting discounts, fees and commissions, except as provided
herein) shall be paid by Vivendi. Vivendi shall pay up to 1% of gross
proceeds in the aggregate of any underwriting discounts, fees and
commissions related to the registration of shares on the behalf of Diller.
(iii) If Vivendi and a Selling Partner cannot agree as to what
constitutes customary terms within 10 days of such Selling Partner's request
for registration (whether in a Demand Registration or a piggyback
registration), then such determination shall be made by a law firm of
national reputation mutually acceptable to Vivendi and such Selling Partner.
In no event shall the inability of the parties to come to agreement on
customary terms delay in any way the registration of a Selling Partner's
Vivendi Ordinary Shares hereunder.
SECTION 10.04. TAG-ALONG FOR LIMITED PARTNERS FOR TRANSFERS BY
UNIVERSAL. (a) If Universal Sub or any of its Affiliates shall desire to
Transfer in one transaction or a series of related transactions Common Interests
beneficially owned by the applicable transferor and its Affiliates, other than
to a wholly owned subsidiary of such transferor, Universal Sub shall give not
less than 10 Business Days' prior written notice to each of the Limited Partners
(each, a "TAG-ALONG OFFEREE") of such intended Transfer. Such notice (the
"TAG-ALONG NOTICE") shall set forth the terms and conditions of such proposed
Transfer, including the name of the proposed transferee, the amount of Common
Interests (and the aggregate Participation Percentage represented thereby)
proposed to be Transferred (including the number of securities previously or
proposed to be Transferred to the applicable transferee or its Affiliates in a
related transaction) (the "TAG-ALONG INTERESTS"), the purchase price per Common
Interest on an equivalent basis proposed to be paid therefor (or if part of a
larger transaction, the fair value allocable portion of the total purchase
price) and the payment terms and type of Transfer to be effectuated.
(b) Within 10 Business Days after delivery of the Tag-Along Notice by
Universal Sub to the Tag-Along Offerees, each Tag-Along Offeree shall, by
written notice to Universal Sub, have the opportunity and right to sell to the
transferee in such proposed Transfer (upon the same terms and conditions as
Universal Sub and/or its Affiliates, including the same representations and
warranties, covenants, indemnities, holdback and escrow provisions, if any) up
to that number of Common Interests beneficially owned by such Tag-Along Offeree
as shall represent a Participation Percentage equal to the product of (x) a
fraction, (A) the numerator of which is the aggregate Participation Percentage
represented by the Tag-Along Interests and (B) the denominator of which is the
aggregate Participation Percentage represented by the Common Interests
beneficially owned as of the date of the Tag-Along Notice by Universal Sub and
its Affiliates, multiplied by (y) the aggregate Participation Percentage
represented by the Common Interests beneficially owned by such Tag-Along Offeree
and its Affiliates as of the date of the Tag-Along Notice. In the event that the
proposed transferee is unwilling to purchase all of the Common Interests that
Universal Sub and the Limited Partners propose to Transfer hereunder, the amount
of Common Interests to be Transferred by Universal Sub and/or its Affiliates and
each of the Limited Partners shall be reduced proportionately. The right of the
Tag-Along Offerees shall terminate with respect to that proposed Transfer if not
exercised within the period specified in the first sentence of this clause (b).
(c) At the closing of any proposed Transfer in respect of which a Tag-Along
Notice has been delivered, each Tag-Along Offeree shall deliver to the proposed
transferee the Common Interests to be sold hereby duly endorsed, or accompanied
by written instruments of transfer in form satisfactory to the proposed
transferee, free and clear of all Liens (other than Permitted Liens), and shall
receive in exchange therefor the consideration to be paid by the proposed
transferee in respect of such Common Interests.
B-28
ARTICLE XI
LIMITATION ON LIABILITY,
EXCULPATION
SECTION 11.01. LIMITATION ON LIABILITY. Except as expressly provided
herein or in the other Transaction Documents, the debts, obligations and
liabilities of the Partnership, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Partnership, and
no Covered Person shall be obligated personally for any such debt, obligation or
liability of the Partnership; PROVIDED, HOWEVER, that the foregoing shall not
alter each Partner's obligation under the Delaware Act to return funds
wrongfully distributed to it.
SECTION 11.02. EXCULPATION OF COVERED PERSONS. (a) Except as expressly
provided herein or in the Transaction Agreement, no Covered Person shall be
liable, including under any legal or equitable theory of fiduciary duty or other
theory of liability, to the Partnership or to any other Covered Person for any
losses, claims, damages or liabilities incurred by reason of any act or omission
performed or omitted by such Covered Person except for any loss, claims, damages
or liabilities arising from such Covered Person's fraud. Whenever in this
Agreement a Covered Person is permitted or required to make decisions such
Covered Person shall make such decisions in good faith having regard to the best
interests of the Partnership and shall not be subject to any other or different
standard (including any legal or equitable standard of fiduciary or other duty)
imposed by this Agreement or any relevant provisions of law or in equity or
otherwise.
(b) A Covered Person shall be fully protected in relying in good faith upon
the records of the Partnership and upon such information, opinions, reports or
statements presented to the Partnership, Board or management by any Person as to
matters the Covered Person reasonably believes are within such Person's
professional or expert competence.
SECTION 11.03. PARTNERSHIP OPPORTUNITIES. (a) If any of Universal Sub,
USAi, Diller or any officer, director, agent, stockholder, member, manager,
partner or Affiliate of any of the foregoing acquires knowledge of a potential
transaction or matter which may be a Partnership Opportunity (as defined below)
or otherwise is then exploiting any Partnership Opportunity, the Partnership
shall have no interest in such Partnership Opportunity and no expectancy that
such Partnership Opportunity be offered to the Partnership, any such interest or
expectancy being hereby renounced, so that, as a result of such renunciation,
and for the avoidance of doubt, such Person (i) shall have no duty to
communicate or present such Partnership Opportunity to the Partnership, (ii)
subject to Section 9.04, shall have the right to hold any such Partnership
Opportunity for its (and/or its officers', directors', agents', stockholders',
members', managers', partners' or Affiliates') own account or to recommend,
sell, assign or transfer such Partnership Opportunity to Persons other than the
Partnership or any subsidiary of the Partnership and (iii) subject to Section
9.04, shall not breach any fiduciary or other duty to the Partnership, in such
Person's capacity as a Partner or otherwise, by reason of the fact that such
Person pursues or acquires such Partnership Opportunity for itself, directs,
sells, assigns or transfers such Partnership Opportunity to another Person, or
does not communicate information regarding such Partnership Opportunity to the
Partnership.
(b) Notwithstanding the provisions of this Section 11.03, the Partnership
does not renounce any interest or expectancy it may have in any Partnership
Opportunity that is offered to an officer of the Partnership and who is also a
director or officer of Universal Sub, USAi or the respective Affiliates of
Vivendi or USAi if such opportunity is expressly offered to such person in his
or her capacity as an officer of the Partnership.
(c) For purposes of this Section 11.03 only, the terms (i) "PARTNERSHIP"
shall mean the Partnership and, except where the context requires otherwise,
shall also include all corporations, partnerships, joint ventures, associations
and other entities in which the Partnership beneficially owns
B-29
(directly or indirectly) 50% or more of the outstanding voting stock, voting
power, partnership or membership interests or similar voting interests, and (ii)
"PARTNERSHIP OPPORTUNITY" shall mean an investment or business opportunity or
prospective economic advantage in which the Partnership could, but for the
provisions of this Section 11.03, have an interest or expectancy.
(d) Except as otherwise expressly provided in Section 9.04, in Section 4.13
of the Transaction Agreement or in any other agreement to which the Partners may
be a party, (i) the Partners and their officers, directors, agents,
stockholders, members, managers, partners and Affiliates may engage or invest
in, independently or with others, any business activity of any type or
description, including those that might be the same as or similar to the
Partnership's business or the business of any subsidiary of the Partnership,
(ii) none of the Partnership, any subsidiary of the Partnership or any Person
beneficially owning Common Interests shall have any right in or to such business
activities or ventures or to receive or share in any income or proceeds derived
therefrom and (iii) to the extent required by applicable law in order to
effectuate the purpose of this Section 11.03, the Partnership shall have no
interest or expectancy, and specifically renounces any interest or expectancy,
in any such business activities or ventures.
SECTION 11.04. INDEMNIFICATION. (a) The Partnership shall, to the fullest
extent authorized under the Delaware Act as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Partnership to provide broader indemnification rights than
said law permitted the Partnership to provide prior to such amendment),
indemnify and hold harmless any Covered Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, investigation or proceeding, whether civil, criminal or administrative by
reason of the fact that he or a Covered Person of whom he is the legal
representative is or was a Representative or officer of the Partnership, or is
or was a Representative or officer of the Partnership serving at the request of
the Partnership as a Representative, officer or employee of another partnership,
corporation, joint venture, trust or other enterprise (whether the basis of such
proceeding is alleged action in an official capacity as a Representative or
officer or in any other capacity while serving as a Representative or officer)
against all expenses, liability and loss (including attorneys' fees, judgments,
fines or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by him in connection therewith, except in a case where such
expenses, liabilities or losses resulted from the fraud of such indemnified
Person. The right to indemnification conferred in this Agreement shall be a
contract right and shall include the right to be paid by the Partnership the
expenses incurred in defending any such proceeding in advance of its final
disposition, such advances to be paid by the Partnership within 20 days after
the receipt by the Partnership of a statement or statements from the claimant
requesting such advance or advances from time to time.
(b) At all times from and after the Effective Time, the Partnership shall
either maintain directors' and officers' liability insurance covering the
officers and Representatives entitled to indemnification under this Section
11.04 or ensure that such officers and Representatives are covered in policies
maintained by Vivendi, Universal Sub or their Affiliates, in each case providing
coverage for reasonable amounts and on customary terms.
ARTICLE XII
EVENTS OF WITHDRAWAL; BANKRUPTCY OF A GENERAL PARTNER
SECTION 12.01. EVENTS OF WITHDRAWAL. Except as otherwise provided in this
Agreement, no Partner shall withdraw from the Partnership.
SECTION 12.02. BANKRUPTCY OF A GENERAL PARTNER. (a) In the event of the
Bankruptcy of the General Partner (the "BANKRUPT PARTNER"), then the Partnership
shall be dissolved unless it is continued without dissolution in accordance with
Section 13.01(c)(iii).
B-30
(b) In the event a new General Partner is appointed, the Bankrupt Partner
shall become a Limited Partner and shall have (x) no right to participate in the
management of the Partnership or the business and affairs of the Partnership,
and (y) the same interest in all items of income, gain, loss, deduction or
credit of the Partnership to the same extent as if such Bankruptcy had not
occurred. Upon the occurrence of the Bankruptcy of any General Partner, (i) the
Bankrupt Partner and the other Partners shall execute such documents as may be
necessary or appropriate to carry out the provisions of this Article XII, and
(ii) the other Partners are, without necessity of any further action or
documentation, hereby appointed attorneys-in-fact of the Bankrupt Partner for
the purpose of carrying out the provisions of this Article XII and taking any
action and executing any documents which such Partners may deem necessary or
advisable to accomplish the purposes hereof, such appointment being irrevocable
and coupled with an interest.
(c) In the event that the General Partner shall become a "debtor" as defined
in the Bankruptcy Code in any case commenced thereunder and at any time during
the pendency of such case there shall be appointed (i) a trustee with respect to
the Bankrupt Partner under Section 701, 702 or 1104 of the Bankruptcy Code (or
any successor provisions thereto), or (ii) an examiner having expanded powers
beyond those specifically enumerated in Section 1104(b) of the Bankruptcy Code,
then the other Partners may, at any time thereafter, so long as such condition
exists, unanimously elect to dissolve the Partnership, in which event the
affairs of the Partnership shall be wound up as provided in Article XIII.
ARTICLE XIII
DISSOLUTION AND TERMINATION
SECTION 13.01. DISSOLUTION. (a) The Partnership shall not be dissolved by
the admission of Additional Partners or Substitute Partners pursuant to Section
3.03.
(b) Subject to Section 12.01, no Partner shall withdraw from the Partnership
and, to the fullest extent permitted by applicable law, no Partner shall take
any action to dissolve, terminate or liquidate the Partnership or to require
apportionment, appraisal or partition of the Partnership or any of its assets,
or to file a bill for an accounting, except as specifically provided in this
Agreement, and each Partner, to the fullest extent permitted by applicable law,
hereby waives any rights to take any such actions (or have such actions taken on
its behalf) under applicable law, including any right to petition a court for
judicial dissolution under Section 17-802 of the Delaware Act.
(c) The Partnership shall be dissolved and its business wound up upon the
earliest to occur of any one of the following events:
(i) at the time there are no Limited Partners unless the Partnership is
continued without dissolution in accordance with the Delaware Act;
(ii) the written agreement of all the Partners;
(iii) the occurrence of any event that causes the General Partner to
cease to be a general partner of the Partnership, unless (i) there is a
remaining General Partner who is hereby authorized to and shall continue the
business of the Partnership without dissolution or (ii) the other Partners
agree in writing, within 90 days after such event occurs, to continue the
business of the Partnership without dissolution and to appoint, effective as
of the date of such event, a new General Partner;
(iv) a decision to dissolve the Partnership in accordance with Section
12.02(c); and
(v) the entry of a decree of judicial dissolution under Section 17-802
of the Delaware Act, in contravention of this Agreement.
B-31
(d) Except as provided herein, the resignation, Bankruptcy, insolvency or
dissolution of a Partner or the occurrence of any other event that terminates
the continued membership of a Partner of the Partnership shall not in and of
itself cause a dissolution of the Partnership.
SECTION 13.02. WINDING UP OF THE PARTNERSHIP. (a) Upon dissolution, the
Partnership's business shall be liquidated in an orderly manner. The General
Partner shall be the liquidator to wind up the affairs of the Partnership
pursuant to this Agreement. If there shall be no General Partner, the remaining
Partners may approve one or more liquidators to act as the liquidator in
carrying out such liquidation. In performing its duties, the liquidator is
authorized to sell, distribute, exchange or otherwise dispose of the assets of
the Partnership in accordance with the Delaware Act and in any reasonable manner
that the liquidator shall determine to be in the best interest of the Partners.
(b) The proceeds of the liquidation of the Partnership shall be distributed
in the following order and priority:
(i) FIRST, to the creditors (including any Partners or their respective
Affiliates that are creditors) of the Partnership in satisfaction of all of
the Partnership's liabilities (whether by payment or by making reasonable
provision for payment thereof, including the setting up of any reserves
which are, in the judgment of the liquidator, reasonably necessary
therefor);
(ii) SECOND, to the Partners holding Preferred Interests PRO RATA up to
the amount of the Face Value of such Preferred Interests;
(iii) THIRD, to the Partners holding Common Interests PRO RATA based on
the amount of Capital Contributions attributable thereto, up to the amount
of such Capital Contributions; and
(iv) FOURTH, to the Partners holding Common Interests PRO RATA in
accordance with their respective Participation Percentages;
PROVIDED, HOWEVER, that in the event that distributions pursuant to clauses (ii)
through (iv) above would not otherwise be identical to distribution in
accordance with the positive balances in the Partners' Capital Accounts, such
distributions shall instead be made in accordance with such positive balances.
SECTION 13.03. DISTRIBUTION OF PROPERTY. In the event it becomes necessary
in connection with the liquidation of the Partnership to make a distribution of
property in kind, subject to the priority set forth in Section 13.02, the
liquidator shall have the right to compel each Partner to accept a distribution
of any asset in kind, so long as the portion of such asset to be distributed is
determined based upon the amount of cash that would be distributed to such
Partners if such property were sold for an amount of cash equal to the fair
market value of such property, as determined by the liquidator in good faith.
SECTION 13.04. CLAIMS OF PARTNERS. The Partners shall look solely to the
Partnership's assets for the return of their Capital Contributions, and if the
assets of the Partnership remaining after payment of or reasonable provision for
the payment of all liabilities of the Partnership are insufficient to return
such Capital Contributions, the Partners shall have no recourse against the
Partnership or any Partner.
SECTION 13.05. TERMINATION. The Partnership shall terminate when all of
the assets of the Partnership, after payment of or reasonable provision for the
payment of all debts and liabilities of the Partnership, shall have been
distributed to the Partners in the manner provided for in this Article XIII and
when permitted by this Agreement, and the certificate of limited partnership of
the Partnership shall have been canceled in the manner required by the Delaware
Act.
B-32
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. NOTICES. Except as otherwise expressly provided in this
Agreement, all notices, requests and other communications to any party hereunder
shall be in writing (including a facsimile or similar writing) and shall be
given to such party at the address or facsimile number set forth for such party
in Schedule A hereto or as such party shall hereafter specify for the purpose by
notice to the other parties. Each such notice, request or other communication
shall be effective (i) if given by facsimile, at the time such facsimile is
transmitted and the appropriate confirmation is received (or, if such time is
not during a Business Day, at the beginning of the next such Business Day), (ii)
if given by mail, five Business Days (or, (x) if by overnight courier, one
Business Day, or (y) if to an address outside the United States, seven Business
Days) after such communication is deposited in the mails with first-class
postage prepaid, addressed as aforesaid, or (iii) if given by any other means,
when delivered at the address specified pursuant to this Section 14.01.
SECTION 14.02. NO THIRD PARTY BENEFICIARIES. Except as provided in
Sections 10.02(b), 10.03 and 11.04, this Agreement is not intended to confer any
rights or remedies hereunder upon, and shall not be enforceable by, any Person
other than the parties hereto.
SECTION 14.03. WAIVER. No failure by any party to insist upon the strict
performance of any covenant, agreement, term or condition of this Agreement or
to exercise any right or remedy consequent upon a breach of such or any other
covenant, agreement, term or condition shall operate as a waiver of such or any
other covenant, agreement, term or condition of this Agreement. Any Partner by
notice given in accordance with Section 14.01 may, but shall not be under any
obligation to, waive any of its rights or conditions to its obligations
hereunder, or any duty, obligation or covenant of any other Partner. No waiver
shall affect or alter the remainder of this Agreement but each and every
covenant, agreement, term and condition hereof shall continue in full force and
effect with respect to any other then existing or subsequent breach. The rights
and remedies provided by this Agreement are cumulative and the exercise of any
one right or remedy by any party shall not preclude or waive its right to
exercise any or all other rights or remedies.
SECTION 14.04. INTEGRATION. This Agreement and the Transaction Documents
constitute the entire agreement among the parties hereto pertaining to the
subject matter hereof and supersede all prior agreements and understandings of
the parties in connection herewith, and no covenant, representation or condition
not expressed in this Agreement or in any Transaction Document shall affect, or
be effective to interpret, change or restrict, the express provisions of this
Agreement.
SECTION 14.05. HEADINGS. The titles of Articles and Sections of this
Agreement are for convenience only and shall not be interpreted to limit or
amplify the provisions of this Agreement.
SECTION 14.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which, taken
together, shall constitute one and the same instrument.
SECTION 14.07. SEVERABILITY. Each provision of this Agreement shall be
considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
SECTION 14.08. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the conflicts of law principles thereof.
SECTION 14.09. JURISDICTION. Each of the Partners (i) consents to and
submits itself and its property to the personal jurisdiction of any Federal or
state court located in the State of Delaware in
B-33
the event of any dispute arising out of or relating to this Agreement, (ii)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, (iii) agrees that it will
not bring any action relating to this Agreement in any court other than a
Federal or state court sitting in the State of Delaware and (iv) hereby waives
any rights such Partner may have to personal service of summons, complaint or
other process in connection therewith, and agrees that service may be made by
registered or certified mail addressed to such Partner and sent in accordance
with the provisions of Article XIV hereof.
B-34
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the day and year first above written.
[UNIVERSAL SUB],
by
-----------------------------------------
Name:
Title:
USA NETWORKS, INC.,
by
-----------------------------------------
Name:
Title:
USANi SUB LLC,
by
-----------------------------------------
Name:
Title:
BARRY DILLER,
-----------------------------------------
B-35
APPENDIX C
-------------------------------------------------------------------
-------------------------------------------------------------------
AMENDED AND RESTATED
GOVERNANCE AGREEMENT
AMONG
USA NETWORKS, INC.,
VIVENDI UNIVERSAL, S.A.,
UNIVERSAL STUDIOS, INC.,
LIBERTY MEDIA CORPORATION,
AND
BARRY DILLER
-------------------------------------------------------------------
-------------------------------------------------------------------
DATED AS OF DECEMBER 16, 2001
-------------------------------------------------------------------
-------------------------------------------------------------------
C-1
TABLE OF CONTENTS
PAGE
--------
ARTICLE I
STANDSTILL AND VOTING
SECTION 1.01. Acquisition of Voting Securities.............. C-4
SECTION 1.02. Further Restrictions on Conduct............... C-5
SECTION 1.03. Reports....................................... C-6
SECTION 1.04. Transferees................................... C-6
ARTICLE II
BOARD OF DIRECTORS AND RELATED MATTERS
SECTION 2.01. Board of Directors............................ C-6
SECTION 2.02. Management of the Business.................... C-7
SECTION 2.03. Contingent Matters............................ C-8
SECTION 2.04. Notice of Events.............................. C-9
ARTICLE III
PREEMPTIVE RIGHTS
SECTION 3.01. Liberty Preemptive Rights..................... C-9
SECTION 3.02. Investment Agreement.......................... C-10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the
Company................................................... C-10
SECTION 4.02. Representations and Warranties of the
Stockholders.............................................. C-10
ARTICLE V
DEFINITIONS
SECTION 5.01. "Affiliate"................................... C-11
SECTION 5.02. "Amended and Restated Stockholders
Agreement"................................................ C-11
SECTION 5.03. "Assumptions"................................. C-11
SECTION 5.04. "BDTV Entities"............................... C-11
SECTION 5.05. "Beneficial Ownership" or "Beneficially
Own"...................................................... C-11
SECTION 5.06. "CEO"......................................... C-12
SECTION 5.07. "CEO Termination Date"........................ C-12
SECTION 5.08. "Commission".................................. C-12
SECTION 5.09. "Company Common Shares"....................... C-12
SECTION 5.10. "Company Class B Stock"....................... C-12
SECTION 5.11. "Company Common Stock"........................ C-12
SECTION 5.12. "Consenting Party"............................ C-12
SECTION 5.13. "Demand Registration"......................... C-12
SECTION 5.14. "Disabled".................................... C-12
SECTION 5.15. "EBITDA"...................................... C-12
SECTION 5.16. "Equity Securities"........................... C-12
SECTION 5.17. "Exchange Act"................................ C-12
SECTION 5.18. "Exchange Shares"............................. C-12
SECTION 5.19. "Excluded Issuance"........................... C-12
C-2
PAGE
--------
SECTION 5.20. "Fair Market Value"........................... C-12
SECTION 5.21. "Issue Price"................................. C-13
SECTION 5.22. "Liberty Director"............................ C-13
SECTION 5.23. "Liberty Exchange Agreement".................. C-13
SECTION 5.24. "Liberty Holdco".............................. C-13
SECTION 5.25. "Ownership Percentage"........................ C-13
SECTION 5.26. "Permitted Ownership Percentage".............. C-13
SECTION 5.27. "Permitted Transferee"........................ C-13
SECTION 5.28. "Person"...................................... C-14
SECTION 5.29. "Sale Transaction"............................ C-14
SECTION 5.30. "Securities Act".............................. C-14
SECTION 5.31. "Shares"...................................... C-14
SECTION 5.32. "Stockholders"................................ C-14
SECTION 5.33. "Stockholders Group".......................... C-14
SECTION 5.34. "Subsidiary".................................. C-14
SECTION 5.35. "Third Party Transferee"...................... C-14
SECTION 5.36. "13D Group"................................... C-14
SECTION 5.37. "Total Debt".................................. C-14
SECTION 5.38. "Total Debt Ratio"............................ C-14
SECTION 5.39. "Total Equity Securities"..................... C-15
SECTION 5.40. "Transfer".................................... C-15
SECTION 5.41. "VU Director"................................. C-15
SECTION 5.42. "Voting Securities"........................... C-15
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Notices....................................... C-15
SECTION 6.02. Amendments; No Waivers........................ C-17
SECTION 6.03. Successors and Assigns........................ C-17
SECTION 6.04. Governing Law; Consent to Jurisdiction........ C-17
SECTION 6.05. Counterparts; Effectiveness................... C-18
SECTION 6.06. Specific Performance.......................... C-18
SECTION 6.07. Registration Rights........................... C-18
SECTION 6.08. Termination................................... C-19
SECTION 6.09. Severability.................................. C-19
SECTION 6.10. Cooperation................................... C-19
SECTION 6.11. Adjustment of Share Numbers................... C-19
SECTION 6.12. Entire Agreement.............................. C-19
SECTION 6.13. Interpretation................................ C-19
SECTION 6.14. Headings...................................... C-20
C-3
AMENDED AND RESTATED GOVERNANCE AGREEMENT
Amended and Restated Governance Agreement, dated as of December 16, 2001,
among USA Networks, Inc., a Delaware corporation ("USAi," or the "COMPANY"),
Vivendi Universal, S.A., a SOCIETE ANONYME organized under the laws of France
("VU"), Universal Studios, Inc., for itself and on behalf of the members of its
Stockholders Group ("UNIVERSAL"), Liberty Media Corporation, for itself and on
behalf of the members of its Stockholders Group ("LIBERTY") and Mr. Barry Diller
("MR. DILLER") for himself and on behalf of the members of his Stockholders
Group. Capitalized terms used herein without definition have the meanings
ascribed to such terms in the Transaction Agreement (as hereinafter defined).
WHEREAS, the Company, VU, Universal, Liberty, Mr. Diller, and USANi LLC, a
Delaware limited liability company ("USANi"), have entered into a Transaction
Agreement, dated as of December 16, 2001 (the "TRANSACTION AGREEMENT"), pursuant
to which, among other things, (i) each of Universal and the Company will
contribute certain businesses to a limited liability partnership (the
"PARTNERSHIP") in exchange for interests in the Partnership, and (ii) each of
Universal, VU and Mr. Diller shall enter into a limited liability limited
partnership agreement (the "PARTNERSHIP AGREEMENT") under which a wholly owned
subsidiary of Universal will be the general partner and each of the Company,
USANi Sub LLC, a Delaware limited liability company and a wholly owned
subsidiary of USANi ("USANi SUB"), and Mr. Diller will be limited partners
(collectively, the "TRANSACTIONS");
WHEREAS, the parties hereto have agreed that the Company, Universal,
Liberty, Mr. Diller and VU shall enter into this Agreement in order to amend and
restate in its entirety the respective rights and obligations of the parties set
forth in the Governance Agreement, dated as of October 19, 1997 (the "1997
GOVERNANCE AGREEMENT");
WHEREAS, the Company, Universal, Liberty, Mr. Diller and VU desire to
establish in this Agreement certain terms and conditions concerning the
acquisition and disposition of securities of the Company by Universal and VU
(together, the "VU PARTIES"), and certain additional provisions concerning
Universal's, Liberty's, Mr. Diller's and VU's relationships with the Company,
none of which shall become effective until the Closing; and
WHEREAS, the parties hereto also desire to provide for certain amendments to
the Investment Agreement (the "INVESTMENT AGREEMENT"), among Universal, for
itself and on behalf of certain Subsidiaries, the Company, Home Shopping
Network, Inc. ("HSN"), and Liberty, for itself and on behalf of certain of its
Subsidiaries, dated as of October 19, 1997, as amended and restated as of
December 18, 1997.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
Company, Universal, Liberty, Mr. Diller and VU hereby agree, effective as of the
Closing, as follows:
ARTICLE I
STANDSTILL AND VOTING
SECTION 1.01. ACQUISITION OF VOTING SECURITIES. Subject to the last
sentence hereof, immediately following the Closing, neither the VU Parties nor
any of their Affiliates will acquire, directly or indirectly, the Beneficial
Ownership of any additional Equity Securities of the Company until such time
(the "TRIGGER DATE") that the Equity Securities Beneficially Owned by the VU
Parties and their Affiliates represent less than 20% (the "PERMITTED OWNERSHIP
PERCENTAGE") of the Total Equity Securities. Subject to the last sentence
hereof, following the Trigger Date, neither the VU Parties nor any of their
Affiliates will acquire, directly or indirectly, the Beneficial Ownership of any
additional Equity Securities of the Company such that the Equity Securities
Beneficially Owned by the VU Parties and their Affiliates following such
acquisition would be in excess of the Permitted Ownership
C-4
Percentage. If at any time the VU Parties become aware that they and their
Affiliates Beneficially Own more than the Permitted Ownership Percentage, then
the VU Parties shall as soon as is reasonably practicable (but in no manner that
would require the VU Parties to incur liability under Section 16(b) of the
Exchange Act) take all action necessary to reduce the amount of Equity
Securities Beneficially Owned by such Persons to an amount not greater than the
Permitted Ownership Percentage. The restrictions contained in this Section 1.01
shall cease to apply upon the later of (x) the date that Mr. Diller no longer
serves as CEO (provided that if Mr. Diller no longer serves as CEO but continues
to hold a proxy from Universal in respect of Company Common Shares under the
Amended and Restated Stockholders Agreement, Mr. Diller shall be deemed to be
continuing to serve as CEO until the later of (i) such time as he no longer
serves as CEO and (ii) such time as Mr. Diller no longer holds the Universal
proxy, with the later of such times being referred to as the "CEO TERMINATION
DATE") or becomes Disabled and (y) the date on which VU no longer has the right
to appoint a director to the Board of Directors of the Company pursuant to
Section 2.01 hereof (the later of clauses (x) and (y), the "STANDSTILL
TERMINATION DATE"). Notwithstanding anything to the contrary contained herein,
the provisions set forth in this Section 1.01 shall not prevent the VU Parties
and their Affiliates from exercising the Warrants and continuing to Beneficially
Own the shares thereunder.
SECTION 1.02. FURTHER RESTRICTIONS ON CONDUCT. The VU Parties covenant and
agree that until the Standstill Termination Date:
(a) except by virtue of VU's representation on the Board of Directors of the
Company and as otherwise contemplated under this Agreement and the other
agreements contemplated by the Transaction Agreement or as otherwise permitted
by the Board of Directors of the Company or the CEO so long as Mr. Diller is
CEO, neither the VU Parties nor any Affiliate thereof will otherwise act, alone
or in concert with others, to seek to affect or influence the control of the
management or Board of Directors of the Company or the business, operations or
policies of the Company (it being agreed that this paragraph shall not prohibit
the VU Parties, their Affiliates and their respective employees from engaging in
ordinary course business activities with the Company);
(b) other than to a Permitted Transferee, pursuant to the Transaction
Agreement or the Amended and Restated Stockholders Agreement, neither the VU
Parties nor any Affiliate thereof shall deposit any Equity Securities in a
voting trust or subject any Equity Securities to any proxy, arrangement or
agreement with respect to the voting of such securities or other agreement
having similar effect;
(c) neither the VU Parties nor any Affiliate thereof shall propose any
merger, tender offer or other business combination involving the Company or any
of its Affiliates; PROVIDED, that discussions relating to the possibility of
such a proposal in which Mr. Diller participates shall not be deemed to be a
breach of this covenant;
(d) neither the VU Parties nor any Affiliate thereof shall initiate or
propose any stockholder proposal or make, or in any way participate in, directly
or indirectly, any "solicitation" of "proxies" to vote, or seek to influence any
Person with respect to the voting of, any Equity Securities, or became a
"participant" in a "solicitation" (as such terms are defined in Regulation 14A
under the Exchange Act) in opposition to the recommendation of the majority of
the directors of the Company with respect to any matter, except in response to a
solicitation by a third party;
(e) other than as is contemplated by this Agreement, the Transaction
Agreement, the Amended and Restated Stockholders Agreement and the other
agreements contemplated by the Transaction Agreement, neither the VU Parties nor
any Affiliate thereof shall join a partnership, limited partnership, syndicate
or other group, or otherwise act in concert with any other Person (other than a
Permitted Transferee), for the purpose of acquiring, holding, voting or
disposing of Equity Securities, or otherwise become a "person" within the
meaning of Section 13(d)(3) of the Exchange Act; and
C-5
(f) neither the VU Parties nor any Affiliate thereof shall, directly or
indirectly, request that the Company or its Board of Directors amend or waive
any of the provisions of this Section 1.02.
SECTION 1.03. REPORTS. The VU Parties shall deliver to the Company,
promptly after any acquisition or Transfer of Equity Securities representing
more than a 1% change in the Ownership Percentage, an accurate written report
specifying the amount and class of Equity Securities acquired or Transferred in
such transaction and the amount of each class of Equity Securities owned by the
VU Parties and their Affiliates after giving effect to such transaction;
PROVIDED, HOWEVER, that no such report need be delivered with respect to any
such acquisition or Transfer of Equity Securities by the VU Parties or their
Affiliates that is reported in a statement on Schedule 13D filed with the
Commission and delivered to the Company by the VU Parties in accordance with
Section 13(d) of the Exchange Act. The Company shall be entitled to rely on such
reports and statements on Schedule 13D for all purposes of this Agreement.
SECTION 1.04. TRANSFEREES. No Third Party Transferee shall have any rights
or obligations under this Agreement, except as specifically provided for in this
Agreement and except that if such Third Party Transferee shall acquire
Beneficial Ownership of more than 5% of the outstanding Total Equity Securities
upon consummation of any Transfer or series of related Transfers from a
Stockholder, to the extent such Stockholder has the right to Transfer a Demand
Registration assigns such right in connection with a Transfer, such Third Party
Transferee shall have the right to initiate one or more Demand Registrations
pursuant to Section 6.07 or any registration rights agreement that replaces or
supersedes Section 6.07 (and shall be entitled to such other rights that a
Stockholder would have applicable to such Demand Registration), subject to the
obligations of such Stockholder applicable to such demand (and the number of
Demand Registrations to which such Stockholder is entitled under Section 6.07
hereof shall be correspondingly decreased). Except in connection with open
market transactions (other than pursuant to an underwritten offering), neither
the VU Parties, nor any of their Affiliates, shall be entitled to Transfer to
any single Third Party Transferee (including Affiliates of such Third Party
Transferee), in the aggregate, 10% or more of the Total Equity Securities,
unless the VU Parties cause such Third Party Transferee (and its Affiliates, to
the extent applicable) to agree to the provisions set forth in Sections 1.01 and
1.02 hereof until such time as such Third Party Transferee and its Affiliates
own less than 10% of the Total Equity Securities. Subject to applicable
securities laws, except as provided in this Section 1.04 and the Amended and
Restated Stockholders Agreement, there are no restrictions on Transfer on the
Company Common Stock (and, in the case of the VU Parties, the Warrants).
ARTICLE II
BOARD OF DIRECTORS AND RELATED MATTERS
SECTION 2.01. BOARD OF DIRECTORS. (a) Immediately following the Closing,
the Company Board of Directors shall include Phillippe Germond and Jean-Marie
Messier. VU shall have the right to nominate up to two VU Directors so long as
the number of Equity Securities Beneficially Owned by the VU Parties and their
Affiliates is at least equal to 75% of the number of Equity Securities
Beneficially Owned by the VU Parties and their Affiliates immediately following
the Closing (appropriately adjusted to reflect any stock splits and the like)
(so long as the Ownership Percentage of the VU Parties and their Affiliates is
at least equal to the lesser of (x) 15% of the Total Equity Securities and (y)
the percentage that is five percentage points less than the percentage of the
Total Equity Securities Beneficially Owned by the VU Parties and their
Affiliates immediately following the Closing). VU shall have the right to
nominate one VU Director so long as the VU Parties Beneficially Own a number of
Equity Securities at least equal to 50% of the number of the Equity Securities
Beneficially Owned by them immediately following the Closing (appropriately
adjusted to reflect any stock splits and the like) (so long as the VU Party's
Ownership Percentage is at least equal to 10% of the Total Equity Securities).
C-6
(b) The Company shall cause each VU Director and each Liberty Director, as
the case may be, to be included in the slate of nominees recommended by the
Board of Directors to the Company's stockholders for election as directors at
each annual meeting of the stockholders of the Company and shall use all
reasonable efforts to cause the election of each VU Director and Liberty
Director, as the case may be, including soliciting proxies in favor of the
election of such persons.
(c) Within a reasonable time prior to the filing with the Commission of its
proxy statement or information statement with respect to each meeting of
stockholders at which directors are to be elected, the Company shall, to the
extent such Person is entitled to representation on the Company's Board of
Directors in accordance with this Agreement, provide VU and Liberty, as
applicable, with the opportunity to review and comment on the information
contained in such proxy or information statement applicable to the director
nominees designated by such Person.
(d) In the event that a vacancy is created at any time by the death,
disability, retirement, resignation or removal (with or without cause) of any VU
Director or Liberty Director, VU or Liberty, as the case may be, shall have the
right to designate a replacement VU Director or Liberty Director to fill such
vacancy, and the Company agrees to use its best efforts to cause such vacancy to
be filled with the replacement VU Director or Liberty Director so designated.
Upon the written request of VU or Liberty, each Stockholder shall vote (and
cause each of the members of its Stockholders Group to vote, if applicable), or
act by written consent with respect to, all Equity Securities Beneficially Owned
by it and otherwise take or cause to be taken all actions necessary to remove
the director designated by such requesting party and to elect any replacement
director designated by such party as provided in the first sentence of this
Section 2.01(d).
(e) Except as permitted by the Company Board of Directors, the parties agree
that no Company director who is a VU Director shall participate in any action
taken by the Company Board of Directors or the Company relating to any business
transaction between the Company and either of the VU Parties (including their
Affiliates), or relating to this Agreement or the Transaction Agreement,
including, without limitation, any amendment, modification or waiver hereof or
thereof.
(f) Following the Closing, the Company Board of Directors shall include John
C. Malone and Robert R. Bennett. Liberty shall have the right to nominate up to
two Liberty Directors so long as the number of Equity Securities Beneficially
Owned by Liberty is at least equal to 75% of the number of Equity Securities
Beneficially Owned by Liberty immediately following the Closing (appropriately
adjusted to reflect any stock splits and the like) (so long as the Ownership
Percentage of Liberty is at least equal to the lesser of (x) 15% of the Total
Equity Securities and (y) the percentage that is five percentage points less
than the percentage of the Total Equity Securities Beneficially owned by Liberty
immediately following the Closing). Liberty shall have the right to nominate one
Liberty Director so long as Liberty Beneficially Owns a number of Equity
Securities at least equal to 50% of the number of the Equity Securities
Beneficially Owned by it immediately following the Closing (appropriately
adjusted to reflect any stock splits and the like) (so long as Liberty's
Ownership Percentage is at least equal to 5% of the Total Equity Securities).
SECTION 2.02. MANAGEMENT OF THE BUSINESS. Following the Closing and except
as indicated in Section 2.03 below, as required by Delaware law or the
Certificate of Incorporation of the Company and the By-Laws or as contemplated
by the Transaction Agreement and the agreements contemplated thereby, Mr.
Diller, so long as he is CEO and has not become Disabled, will continue to have
full authority to operate the day-to-day business affairs of the Company to the
same extent as prior to the Closing. The Company shall use its reasonable best
efforts to cause one Liberty Director to be appointed as a member of a committee
of the Board of Directors and, to the extent such person qualifies under
applicable tax laws and Section 16(b) under the Exchange Act or other similar
requirements, the Compensation Committee of the Board of Directors.
C-7
SECTION 2.03. CONTINGENT MATTERS. So long as in the case of Liberty,
Liberty Beneficially Owns at least two-thirds of the number of Equity Securities
Beneficially Owned by it (including the Exchange Shares and through its equity
ownership of BDTV Entities) immediately following the Closing (appropriately
adjusted to reflect any stock splits and the like) (so long as such Ownership
Percentage equals at least 5% of the Total Equity Securities), and in the case
of Mr. Diller, Mr. Diller Beneficially Owns at least twenty million Company
Common Shares with respect to which he has a pecuniary interest (appropriately
adjusted to reflect any stock splits and the like) and the CEO Termination Date
(as defined in the Amended and Restated Stockholders Agreement and not as
defined in this Agreement) has not occurred and Mr. Diller has not become
Disabled, neither the Company nor any Subsidiary shall take any of the following
actions (any such action, a "CONTINGENT MATTER") without the prior approval of
Mr. Diller and/or Liberty, as applicable:
(a) any transaction not in the ordinary course of business, launching new or
additional channels or engaging in any new field of business, in any case, that
will result in, or will have a reasonable likelihood of resulting in, Liberty or
Mr. Diller or any Affiliate thereof being required under law to divest itself of
all or any part of its Equity Securities, or interests therein, or any other
material assets of such Person, or that will render such Person's continued
ownership of such securities, shares, interests or assets illegal or subject to
the imposition of a fine or penalty or that will impose material additional
restrictions or limitations on such Person's full rights of ownership
(including, without limitation, voting) thereof or therein. This Contingent
Matter will be applied based only on the Equity Securities, interests therein or
other material assets of Liberty or Mr. Diller or any Affiliate thereof as of
the Closing Date;
(b) if the Total Debt Ratio continuously equals or exceeds 4:1 over a
twelve-month period, then, for so long as the Total Debt Ratio continues to
equal or exceed 4:1:
(i) any acquisition or disposition (including pledges), directly or
indirectly, by the Company or any of its Subsidiaries of any assets
(including debt and/or equity securities) or business (by merger,
consolidation or otherwise), the grant or issuance of any debt or equity
securities of the Company or any of its Subsidiaries, other than, in any of
the foregoing, as contemplated by the Liberty Exchange Agreement or the
Exchange Shares), the redemption, repurchase or reacquisition of any debt or
equity securities of the Company or any of its Subsidiaries, other than as
contemplated by the Liberty Exchange Agreement or the Exchange Shares, by
the Company or any such Subsidiary, or the incurrence of any indebtedness,
or any combination of the foregoing, in any such case, in one transaction or
a series of transactions in a six-month period, with a value of 10% or more
of the market value of the Total Equity Securities at the time of such
transaction, provided that the prepayment, redemption, repurchase or
conversion of prepayable, callable, redeemable or convertible securities in
accordance with the terms thereof shall not be a transaction subject to this
paragraph;
(ii) voluntarily commencing any liquidation, dissolution or winding up
of the Company or any material Subsidiary;
(iii) any material amendments to the Certificate of Incorporation or
Bylaws of the Company (including the issuance of blank check preferred stock
containing super voting rights or class votes on any matter (except to the
extent such class vote is required by Delaware law or to the extent the
holder of such preferred stock may have the right to elect directors upon
the occurrence of a default in payment of dividends or a redemption price));
(iv) engagement by the Company in any line of business other than media,
communications and entertainment products, services and programming, and
electronic retailing and commerce, or other businesses engaged in by the
Company as of the date of determination of the Total Debt Ratio;
C-8
(v) adopting any stockholder rights plan (or any other plan or
arrangement that could reasonably be expected to disadvantage any
stockholder on the basis of the size or voting power of its shareholding)
that would adversely affect Liberty or Mr. Diller; and
(vi) entering into any agreement with any holder of Equity Securities in
such stockholder's capacity as such, as the case may be, which grants such
stockholder approval rights similar in type and magnitude to those set forth
in this Section 2.03.
SECTION 2.04. NOTICE OF EVENTS. In the event that (a) the Company intends
to engage in a transaction of a type that is described in Section 2.03, and (b)
the Company does not intend to seek consent from those parties that are required
to consent to a Contingent Matter (a "CONSENTING PARTY") due to the Company's
good faith belief that the specific provisions of such paragraph do not require
such consent but that reasonable people acting in good faith could differ as to
whether consent is required pursuant to such paragraph, the Company shall notify
the Consenting Parties as to the material terms of the transaction (including
the Company's estimate of the timing thereof) by written notice (including a
statement of the Total Debt Ratio) delivered as far in advance of engaging in
such transaction as is reasonably practicable unless such transaction was
previously publicly disclosed.
ARTICLE III
PREEMPTIVE RIGHTS
SECTION 3.01. LIBERTY PREEMPTIVE RIGHTS (a) In the event that after the
Closing Date, the Company issues or proposes to issue (other than to the Company
and its Affiliates or Liberty and its Affiliates, and other than pursuant to an
Excluded Issuance) any Company Common Shares (including Company Common Shares
issued upon exercise, conversion or exchange of options, warrants and
convertible securities, but excluding (x) shares of Company Common Stock issued
upon conversion of shares of Company Class B Stock, and (y) Exchange Shares
issued in accordance with the Liberty Exchange Agreement, and such issuance,
together with any prior issuances of less than 1% with respect to which Liberty
had no rights under this Section 3.01, shall be in excess of 1% of the total
number of Company Common Shares (based on the Assumptions) outstanding after
giving effect to such issuance, the Company shall give written notice to Liberty
not later than five business days after the issuance (an "ADDITIONAL ISSUANCE"),
specifying the number of Company Common Shares issued or to be issued and the
Issue Price (if known) per share. Liberty shall have the right (but not the
obligation) to purchase or cause one or more of the Liberty Holdcos to purchase
for cash a number (but not less than such number) of Company Common Shares
(allocated between Company Common Stock and Company Class B Common Stock in the
same proportion as the issuance or issuances giving rise to the preemptive right
hereunder, except to the extent that Liberty opts to receive Company Common
Stock in lieu of Company Class B Common Stock), so that Liberty and the Liberty
Holdcos shall collectively maintain the identical percentage equity beneficial
ownership interest in the Company that Liberty and the Liberty Holdcos
collectively owned immediately prior to the notice from the Company to Liberty
described in the first sentence of this paragraph (but not in excess of the
percentage equity beneficial ownership interest in the Company that Liberty and
the Liberty Holdcos collectively owned immediately following the Closing) after
giving effect to such Additional Issuance and to shares of Company Common Stock
that are to be issued to Liberty and the Liberty Holdcos pursuant to this
Section 3.01 by sending an irrevocable written notice to the Company not later
than fifteen business days after receipt of such notice (or, if later, two
business days following the determination of the Issue Price) from the Company
that it elects to purchase or to cause one or more of the Liberty Holdcos to
purchase all of such Company Common Shares (the "ADDITIONAL SHARES"). The
closing of the purchase of Additional Shares shall be the later of ten business
days after the delivery of the notice of election by Liberty and five business
days after receipt of any necessary regulatory approvals.
C-9
(b) Additional Issuances caused by the conversion of HSN's 5 7/8%
Convertible Subordinated Debentures due March 1, 2006 ("HSN CONVERTIBLE DEBT")
into Company Common Stock shall be at an Issue Price to Liberty of $10 per share
in cash. Other than with respect to the Issue Price, any such Additional
Issuance shall be governed by the provisions set forth in 3.01(a).
(c) The purchase or redemption of any Company Common Shares by the Company
or any of its Affiliates shall not result in an increase in the percentage of
Company equity that Liberty may be entitled to acquire pursuant to the
preemptive right in paragraph 3.01(a) above.
(d) Notwithstanding anything contained herein to the contrary, Liberty shall
have the rights set forth in Section 3.01(a) hereof with respect to the
transactions contemplated by the Expedia Merger Agreement to the extent Liberty
has not previously exercised such rights pursuant to Section 1.8 of the
Investment Agreement prior to its termination in accordance with the terms of
Section 3.02 hereof. Furthermore, notwithstanding the termination of Section 1.8
of the Investment Agreement pursuant to Section 3.02 hereof, for purposes of
determining the number of Company Common Shares that shall give rise to a notice
in accordance with Section 3.01(a) hereof, the Company shall include such number
of Company Common Shares not previously included in any preemptive notice prior
to the Closing Date.
SECTION 3.02. INVESTMENT AGREEMENT. Section 1.7 and Section 1.8 of the
Investment Agreement shall be of no further force or effect and Universal and
Liberty shall cease to have any preemptive rights with respect to Equity
Securities, except as otherwise provided with respect to Liberty in Section 3.01
of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Mr. Diller, the VU Parties and Liberty that (a) the
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, (b) the execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions contemplated
hereby, (c) this Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, and, assuming
this Agreement constitutes a valid and binding obligation of each Stockholder,
is enforceable against the Company in accordance with its terms, (d) neither the
execution, delivery or performance of this Agreement by the Company constitutes
a breach or violation of or conflicts with the Company's Certificate of
Incorporation or By-laws or any material agreement to which the Company is a
party and (e) none of such material agreements would impair in any material
respect the ability of the Company to perform its obligations hereunder.
SECTION 4.02. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each
Stockholder, as to itself (and, in the case of Mr. Diller, as applicable),
represents and warrants to the Company and the other Stockholders that (a) it is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and he or it, as the case may be, has
the power and authority (corporate or otherwise) to enter into this Agreement
and to carry out his or its obligations hereunder, (b) the execution and
delivery of this Agreement by such Stockholder and the consummation by such
Stockholder of the transactions contemplated hereby have been duly authorized by
all necessary action on the part of such Stockholder and no other proceedings on
the part of such Stockholder are necessary to authorize this Agreement or any of
the transactions contemplated hereby, (c) this Agreement has been duly executed
and delivered by such Stockholder and constitutes a valid and
C-10
binding obligation of such Stockholder, and, assuming this Agreement constitutes
a valid and binding obligation of the Company, is enforceable against such
Stockholder in accordance with its terms, (d) neither the execution, delivery or
performance of this Agreement by such Stockholder constitutes a breach or
violation of or conflicts with its certificate of incorporation or by-laws (or
similar governing documents) or any material agreement to which such Stockholder
is a party and (e) none of such material agreements would impair in any material
respect the ability of such Stockholder to perform its obligations hereunder.
ARTICLE V
DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings:
SECTION 5.01. "AFFILIATE" shall have the meaning set forth in Rule 12b-2
under the Exchange Act (as in effect on the date of this Agreement). For
purposes of this definition, (i) Matsushita Electric Industrial Co., Ltd.
("MEI") shall not be considered an Affiliate of Universal or any Subsidiary of
Universal so long as MEI does not materially increase its influence over
Universal following the Closing Date, (ii) natural persons shall not be deemed
to be Affiliates of each other, (iii) none of the Company, Mr. Diller, Liberty
or any of their respective Affiliates shall be deemed to be an Affiliate of the
VU Parties or their Affiliates, (iv) none of Mr. Diller, Liberty, the VU Parties
or any of their respective Affiliates shall be deemed to be an Affiliate of the
Company or its Affiliates, (v) none of the Company, the VU Parties, Liberty or
any of their respective Affiliates shall be deemed to be an Affiliate of Mr.
Diller or his Affiliates, and (vi) none of the Company, Mr. Diller, the VU
Parties or any of their respective Affiliates shall be deemed to be an Affiliate
of Liberty or its Affiliates.
SECTION 5.02. "AMENDED AND RESTATED STOCKHOLDERS AGREEMENT" shall mean the
stockholders agreement dated as of the date hereof among Liberty, VU, Universal
and Mr. Diller.
SECTION 5.03. "ASSUMPTIONS" shall have the meaning set forth in the
definition of Total Equity Securities.
SECTION 5.04. "BDTV ENTITIES" shall have the meaning specified in the
Amended and Restated Stockholders Agreement.
SECTION 5.05. "BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the
meaning given such term in Rule 13d-3 under the Exchange Act and a Person's
Beneficial Ownership of Company Common Shares shall be calculated in accordance
with the provisions of such Rule; PROVIDED, HOWEVER, that for purposes of
determining Beneficial Ownership, (a) a Person shall be deemed to be the
Beneficial Owner of any Equity Securities (including any Exchange Shares) which
may be acquired by such Person (disregarding any legal impediments to such
Beneficial Ownership), whether within 60 days or thereafter, upon the
conversion, exchange or exercise of any warrants, options (which options held by
Mr. Diller shall be deemed to be exercisable), rights or other securities issued
by the Company or any Subsidiary thereof, (b) no Person shall be deemed to
Beneficially Own any Equity Securities solely as a result of such Person's
execution of this Agreement (including by virtue of holding a proxy with respect
to such Equity Securities), the Transaction Agreement or the Amended and
Restated Stockholders Agreement, or with respect to which such Person does not
have a pecuniary interest, and (c) Liberty shall be deemed to be the Beneficial
Owner of the proportionate number of Company Common Shares represented by
Liberty's equity interest in a BDTV Entity (as defined in the Amended and
Restated Stockholders Agreement); PROVIDED, FURTHER, that for purposes of
calculating Beneficial Ownership, the number of outstanding Company Common
Shares shall be deemed to include the number of Company Common Shares that would
be outstanding if all Exchange Shares were issued.
C-11
SECTION 5.06. "CEO" shall mean the Chief Executive Officer of the Company
or any successor entity.
SECTION 5.07. "CEO TERMINATION DATE" shall have the meaning specified in
Section 1.01 of this Agreement.
SECTION 5.08. "COMMISSION" shall mean the Securities and Exchange
Commission.
SECTION 5.09. "COMPANY COMMON SHARES" shall mean shares of Company Common
Stock and Company Class B Stock.
SECTION 5.10. "COMPANY CLASS B STOCK" shall mean class B common stock, $.01
par value per share, of the Company.
SECTION 5.11. "COMPANY COMMON STOCK" shall mean common stock, $.01 par
value per share, of the Company.
SECTION 5.12. "CONSENTING PARTY" shall have the meaning set forth in
Section 2.03 of this Agreement.
SECTION 5.13. "DEMAND REGISTRATION" shall have the meaning set forth in
Section 6.07(b) of this Agreement.
SECTION 5.14. "DISABLED" shall mean the disability of Mr. Diller after the
expiration of more than 180 consecutive days after its commencement which is
determined to be total and permanent by a physician selected by Liberty (or, if
(i) the Liberty Termination Date has occurred, and (ii) the VU Parties own 10%
or more of the Total Equity Securities, VU) and reasonably acceptable to Mr.
Diller, provided that Mr. Diller shall be deemed to be disabled only following
the expiration of 90 days following receipt of a written notice from the Company
and such physician specifying that a disability has occurred if within such
90-day period he fails to return to managing the business affairs of the
Company. Total disability shall mean mental or physical incapacity that prevents
Mr. Diller from managing the business affairs of the Company.
SECTION 5.15. "EBITDA" shall mean, for any period, for the Company and its
Subsidiaries, on a combined consolidated basis: net income plus (to the extent
reflected in the determination of net income) (i) provision for income taxes,
(ii) minority interest, (iii) interest income and expense, (iv) depreciation and
amortization, (v) amortization of cable distribution fees, and (vi) amortization
of non-cash distribution and marketing expense and non-cash compensation
expense.
SECTION 5.16. "EQUITY SECURITIES" shall mean the equity securities of the
Company calculated on a Company Common Stock equivalent basis, including the
Company Common Shares, Exchange Shares and those shares issuable upon exercise,
conversion or redemption of other securities of the Company not otherwise
included in this definition.
SECTION 5.17. "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission promulgated
thereunder.
SECTION 5.18. "EXCHANGE SHARES" shall mean the Silver King Exchange Shares
as defined in the Liberty Exchange Agreement.
SECTION 5.19. "EXCLUDED ISSUANCE" shall mean any issuance of Company Common
Stock (i) in a Sale Transaction, or (ii) which is "restricted stock" or the
ownership of which is otherwise subject to forfeiture ("RESTRICTED STOCK"),
provided that for purposes of this definition any stock covered by the
provisions of clause (ii) shall be deemed to have been issued on the date (the
"LAPSE DATE") the restrictions on such stock lapse or on which the stock is no
longer subject to forfeiture.
SECTION 5.20. "FAIR MARKET VALUE" for a security publicly traded in the
over-the-counter market (on either NASDAQ-NMS or NASDAQ) or on a recognized
exchange shall be the average
C-12
closing price of such security for the three trading days ending on the
applicable day (or, if such day is not a trading day, the trading day
immediately preceding the applicable day), and for all other securities or
property "Fair Market Value" shall be determined, by a nationally recognized
investment banking firm which has not been engaged by the Company or Liberty or
their respective Affiliates for the prior three years, selected by (i) the
Company and (ii) Liberty; provided that, if the Company and Liberty cannot agree
on such an investment banking firm within 10 business days, such investment
banking firm shall be selected by a panel designated in accordance with the
rules of the American Arbitration Association. The fees, costs and expenses of
the American Arbitration Association and the investment banking firm so selected
shall be borne equally by the Company and Liberty.
SECTION 5.21. "ISSUE PRICE" shall mean the price per share equal to (i) in
connection with an underwritten offering of Company Common Shares, the initial
price at which the stock is offered to the public or other investors, (ii) in
connection with other sales of Company Common Shares for cash, the cash price
paid for such stock, (iii) in connection with the deemed issuances of Restricted
Stock, the Fair Market Value of the stock on the Lapse Date (as defined in the
definition of "Excluded Issuance" above), (iv) in connection with the issuance
of Company Common Shares as consideration in an acquisition by the Company, the
average of the Fair Market Value of the stock for the five trading days ending
on the third trading day immediately preceding (a) the date upon which
definitive agreements with respect to such acquisition were entered into if the
number of Company Common Shares issuable in such transaction is fixed on that
date, or (b) such later date on which the consideration, or remaining portion
thereof, issuable in such transaction becomes fixed, (v) in connection with a
compensatory issuance of shares of Company Common Stock, the Fair Market Value
of the Company Common Stock, and (vi) in all other cases, including, without
limitation, in connection with the issuance of Company Common Shares pursuant to
an option, warrant or convertible security (other than in connection with the
conversion of the HSN Convertible Debt, in which case the Issue Price shall be
$10 per share, or in connection with issuances described in clause (v) above),
the Fair Market Value of the Company Common Shares on the date of issuance.
SECTION 5.22. "LIBERTY DIRECTOR" shall mean (a) any executive officer or
director of Liberty designated by Liberty to serve on the Company's Board of
Directors, provided that the Company's Board of Directors is not unable, in the
exercise of its fiduciary responsibilities, to recommend that the Company's
stockholders elect such individual to serve on the Company's Board of Directors,
or (b) any other Person designated by Liberty who is reasonably acceptable to
the Company.
SECTION 5.23. "LIBERTY EXCHANGE AGREEMENT" shall mean the Exchange
Agreement dated as of December 20, 1996, by and between the Company and Liberty
HSN, Inc.
SECTION 5.24. "LIBERTY HOLDCO" shall mean any holding company wholly owned
by Liberty and reasonably acceptable to the Company, formed solely for the
purpose of acquiring and holding an equity interest in the Company.
SECTION 5.25. "OWNERSHIP PERCENTAGE" means, with respect to any
Stockholder, at any time, the ratio, expressed as a percentage, of (i) the
Equity Securities Beneficially Owned by such Stockholder (disregarding any legal
impediments to such Beneficial Ownership) and its Affiliates to (ii) the sum of
(x) the Total Equity Securities and (y) with respect to such Stockholder, any
Company Common Shares included in clause (i) that are issuable upon conversion,
exchange or exercise of Equity Securities that are not included in clause (x).
SECTION 5.26. "PERMITTED OWNERSHIP PERCENTAGE" shall have the meaning set
forth in Section 1.01.
SECTION 5.27. "PERMITTED TRANSFEREE" shall mean Liberty or Mr. Diller and
the members of their respective Stockholder Groups.
C-13
SECTION 5.28. "PERSON" shall mean any individual, partnership, joint
venture, corporation, trust, unincorporated organization, government or
department or agency of a government.
SECTION 5.29. "SALE TRANSACTION" shall mean the consummation of a merger,
consolidation or amalgamation between the Company and another entity (other than
an Affiliate of the Company) in which the Company is acquired by such other
entity or a Person who controls such entity, or a sale of all or substantially
all of the assets of the Company to another entity, other than a subsidiary of
the Company.
SECTION 5.30. "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission promulgated thereunder.
SECTION 5.31. "SHARES" shall have the meaning set forth in the preambles to
this Agreement.
SECTION 5.32. "STOCKHOLDERS" shall mean the VU Parties, Liberty and Mr.
Diller.
SECTION 5.33. "STOCKHOLDERS GROUP" shall mean (a) in respect of Universal
and VU, the Universal Stockholders Group (as defined in the Amended and Restated
Stockholders Agreement), (b) in respect of Liberty, the Liberty Stockholders
Group (as defined in the Amended and Restated Stockholders Agreement) and (c) in
respect of Mr. Diller, the Mr. Diller Stockholders Group (as defined in the
Amended and Restated Stockholders Agreement).
SECTION 5.34. "SUBSIDIARY" shall mean, as to any Person, any corporation or
other entity at least a majority of the shares of stock or other ownership
interests of which having general voting power under ordinary circumstances to
elect a majority of the Board of Directors or similar governing body of such
corporation or other entity (irrespective of whether or not at the time stock of
any other class or classes shall have or might have voting power by reason of
the happening of any contingency) is, at the time as of which the determination
is being made, owned by such Person, or one or more of its Subsidiaries or by
such Person and one or more of its Subsidiaries.
SECTION 5.35. "THIRD PARTY TRANSFEREE" shall have the meaning ascribed to
such term in the Amended and Restated Stockholders Agreement.
SECTION 5.36. "13D GROUP" shall mean any group of Persons acquiring,
holding, voting or disposing of Voting Securities which would be required under
Section 13(d) of the Exchange Act and the rules and regulations thereunder (as
in effect, and based on legal interpretations thereof existing, on the date
hereof) to file a statement on Schedule 13D with the Commission as a "person"
within the meaning of Section 13(d)(3) of the Exchange Act if such group
Beneficially Owned Voting Securities representing more than 5% of any class of
Voting Securities then outstanding.
SECTION 5.37. "TOTAL DEBT" shall mean all obligations of the Company and
its Subsidiaries for money borrowed, at such time (including all long-term
senior and subordinated indebtedness, all short-term indebtedness, the stated
amount of all letters of credit issued for the account of the Company or any of
its Subsidiaries and (without duplication) all unreimbursed draws thereunder
(but excluding trade letters of credit)), net of cash (other than working
capital) or cash equivalent securities, as shown on the consolidated quarterly
or annual financial statements, including the notes thereto, of the Company and
its Subsidiaries included in the Company's filings under the Exchange Act for
such period, determined in accordance with GAAP, PROVIDED, HOWEVER, that Total
Debt shall not include hedging, pledging, securitization or similar transactions
involving securities owned by the Company or its Subsidiaries to monetize the
underlying securities, to the extent such securities are the sole means of
satisfying such obligations and otherwise the fair value thereof.
SECTION 5.38. "TOTAL DEBT RATIO" shall mean, at any time, the ratio of (i)
Total Debt of the Company and its Subsidiaries on a combined consolidated basis
as of such time to (ii) EBITDA for the four fiscal quarter period ending as of
the last day of the most recently ended fiscal quarter as of such time.
C-14
SECTION 5.39. "TOTAL EQUITY SECURITIES" at any time shall mean, subject to
the next sentence, the total number of the Company's outstanding equity
securities calculated on a Company Common Stock equivalent basis (assuming (the
"ASSUMPTIONS") that all Exchange Shares have been issued). Any Equity Securities
Beneficially Owned by a Person that are not outstanding Voting Securities but
that, upon exercise, conversion or exchange, would become Voting Securities
(other than the Exchange Shares, which shall be deemed to be outstanding Equity
Securities for all purposes), shall be deemed to be outstanding for the purpose
of computing Total Equity Securities and the percentage of the Equity Securities
owned by such Person but shall not be deemed to be outstanding for the purpose
of computing Total Equity Securities and the percentage of the Equity Securities
owned by any other Person.
SECTION 5.40. "TRANSFER" shall mean, directly or indirectly, to sell,
transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either
voluntarily or involuntarily, or to enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, assignment,
pledge, encumbrance, hypothecation or similar disposition of, any Company Common
Shares Beneficially Owned by such Stockholder or any interest in any Company
Common Shares Beneficially Owned by such Stockholder, PROVIDED, HOWEVER, that, a
merger or consolidation in which a Stockholder is a constituent corporation
shall not be deemed to be the Transfer of any Company Common Shares Beneficially
Owned by such Stockholder (PROVIDED, that a significant purpose of any such
transaction is not to avoid the provisions of this Agreement). For purposes of
this Agreement, the conversion of Company Class B Stock into Company Common
Stock shall not be deemed to be a Transfer.
SECTION 5.41. "VU DIRECTOR" shall mean (a) any executive officer or
director of VU designated by VU to serve on the Company's Board of Directors,
provided that the Company's Board of Directors is not unable, in the exercise of
its fiduciary responsibilities to the Company's stockholders, to recommend that
the Company's stockholders elect such individual to serve on the Company's Board
of Directors, or (b) any other Person designated by VU who is reasonably
acceptable to the Company.
SECTION 5.42. "VOTING SECURITIES" shall mean at any particular time the
shares of any class of capital stock of the Company which are then entitled to
vote generally in the election of directors.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy) and shall be given,
if to Vivendi Universal, S.A. or Universal Studios, Inc., to:
Vivendi Universal, S.A.
375 Park Avenue
New York, New York 10152
Attention: Jean-Laurent Nabet
George Bushnell III
Facsimile: (212) 572-7188
with a copy to:
Universal Studios, Inc.
100 Universal City Plaza
Universal City, California 91608
Attention: Karen Randall
Facsimile: (818) 866-3444
C-15
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Faiza J. Saeed
Facsimile: (212) 474-3700
if to Liberty Media Corporation, to:
Liberty Media Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
Attention: General Counsel
Facsimile: (720) 875-5382
with a copy to:
Baker Botts L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Frederick H. McGrath
Facsimile: (212) 705-5125
if to Mr. Diller, to:
Barry Diller
Chairman and Chief Executive Officer
USA Networks, Inc.
Carnegie Hall Tower
152 W. 57th Street
New York, New York 10019
Facsimile: (212) 314-7339
with a copy to:
USA Networks, Inc.
Carnegie Hall Tower
152 W. 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 314-7329
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon
Andrew J. Nussbaum
Facsimile: (212) 403-2000
C-16
if to the Company, to:
USA Networks, Inc.
Carnegie Hall Tower
152 W. 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 314-7329
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon
Andrew J. Nussbaum
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
or such address or facsimile number as such party may hereafter specify for the
purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective when delivered personally, telegraphed,
or telecopied, or, if mailed, five business days after the date of the mailing.
SECTION 6.02. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the party whose rights or
obligations hereunder are affected by such amendment, or in the case of a
waiver, by the party or parties against whom the waiver is to be effective.
Approval by the VU Parties of any amendment to this Agreement (or any waiver of
any provision hereof) shall be required only if it relates to Article I, Section
2.01 (as applied to the VU Parties), Article VI, or if such amendment or waiver
would adversely affect any rights of, or impose any obligations on, the VU
Parties provided hereunder or under the Amended and Restated Stockholders
Agreement. Any amendment or waiver by the Company shall be authorized by a
majority of the Board of Directors (excluding for this purpose any director who
is a VU Director or Liberty Director as provided for in this Agreement).
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 6.03. SUCCESSORS AND ASSIGNS. Except as provided in Section 1.04,
neither this Agreement nor any of the rights or obligations under this Agreement
shall be assigned, in whole or in part (except by operation of law pursuant to a
merger of VU or Liberty with another Person a significant purpose of which is
not to avoid the provisions of this Agreement), by any party without the prior
written consent of the other parties hereto. Subject to the foregoing, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
SECTION 6.04. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be construed in accordance with and governed by the internal laws of the State
of Delaware, without giving effect to the principles of conflicts of laws. Each
of the parties hereto hereby irrevocably and unconditionally consents to submit
to the non-exclusive jurisdiction of the courts of the State of Delaware, for
any action, proceeding or investigation in any court or before any governmental
authority ("LITIGATION") arising out of or relating to this Agreement and the
transactions contemplated hereby and further
C-17
agrees that service of any process, summons, notice or document by U.S. mail to
its respective address set forth in this Agreement shall be effective service of
process for any Litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of Delaware, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such Litigation brought in any such court has
been brought in an inconvenient forum. Each of the parties irrevocably and
unconditionally waives, to the fullest extent permitted by applicable law, any
and all rights to trial by jury in connection with any Litigation arising out of
or relating to this Agreement or the transactions contemplated hereby.
SECTION 6.05. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective upon the Closing, at which time this
Agreement shall supersede in all respects the 1997 Governance Agreement.
SECTION 6.06. SPECIFIC PERFORMANCE. The Company, Mr. Diller, Universal, VU
and Liberty each acknowledges and agrees that the parties' respective remedies
at law for a breach or threatened breach of any of the provisions of this
Agreement would be inadequate and, in recognition of that fact, agrees that, in
the event of a breach or threatened breach by the Company, Universal, VU or
Liberty of the provisions of this Agreement, in addition to any remedies at law,
Mr. Diller, Universal, VU, Liberty and the Company, respectively, without
posting any bond shall be entitled to obtain equitable relief in the form of
specific performance, a temporary restraining order, a temporary or permanent
injunction or any other equitable remedy which may then be available.
SECTION 6.07. REGISTRATION RIGHTS. (a) The VU Parties, Liberty and Mr.
Diller shall be entitled to customary registration rights relating to Company
Common Stock (and with respect to the VU Parties, the Warrants) owned by them as
of the Closing or acquired from the Company (including upon the exercise of the
Warrants) in the future (including the ability to transfer registration rights
in connection with the sale or other disposition of Company Common Stock as set
forth in this Agreement). In the case of the VU Parties, references in this
Section 6.07 to Company Common Stock shall be deemed to include the Warrants.
(b) If requested by a Stockholder, the Company shall be required promptly to
cause the Company Common Stock owned by such Stockholder or its Affiliates to be
registered under the Securities Act in order to permit such Stockholder or such
Affiliate to sell such shares in one or more (but not more than (i) in the case
of the VU Parties, four, (ii) in the case of Liberty, four and (iii) in the case
of Mr. Diller, three) registered public offerings (each, a "DEMAND
REGISTRATION"). Each Stockholder shall also be entitled to customary piggyback
registration rights. If the amount of shares sought to be registered by a
Stockholder and its Affiliates pursuant to any Demand Registration is reduced by
more than 25% pursuant to any underwriters' cutback, then such Stockholder may
elect to request the Company to withdraw such registration, in which case, such
registration shall not count as one of such Stockholder's Demand Registrations.
If a Stockholder requests that any Demand Registration be an underwritten
offering, then such Stockholder shall select the underwriter(s) to administer
the offering, provided that such underwriter(s) shall be reasonably satisfactory
to the Company. If a Demand Registration is an underwritten offering and the
managing underwriter advises the Stockholder initiating the Demand Registration
in writing that in its opinion the total number or dollar amount of securities
proposed to be sold in such offering is such as to materially and adversely
affect the success of such offering, then the Company will include in such
registration, first, the securities of the initiating Stockholder, and,
thereafter, any securities to be sold for the account of others who are
participating in such registration (as determined on a fair and equitable basis
by the Company). In connection with any Demand Registration or inclusion of a
Stockholder's or its Affiliate's shares in a piggyback registration, the
Company, such Stockholder and/or its Affiliates shall enter into an agreement
containing terms
C-18
(including representations, covenants and indemnities by the Company and such
Stockholder), and shall be subject to limitations, conditions, and blackout
periods, customary for a secondary offering by a selling stockholder. The costs
of the registration (other than underwriting discounts, fees and commissions)
shall be paid by the Company. The Company shall not be required to register such
shares if a Stockholder would be permitted to sell the Company Common Stock in
the quantities proposed to be sold at such time in one transaction under Rule
144 of the Securities Act or under another comparable exemption therefrom.
(c) If the Company and a Stockholder cannot agree as to what constitutes
customary terms within ten days of such Stockholder's request for registration
(whether in a Demand Registration or a piggyback registration), then such
determination shall be made by a law firm of national reputation mutually
acceptable to the Company and such Stockholder.
SECTION 6.08. TERMINATION. Except as otherwise provided in this Agreement,
this Agreement shall terminate (a) as to the VU Parties, at such time that the
VU Parties Beneficially Own Equity Securities representing less than 5% of the
Total Equity Securities, (b) as to Liberty, at such time that Liberty
Beneficially Owns Equity Securities representing less than 5% of the Total
Equity Securities and (c) as to Mr. Diller, at such time that the CEO
Termination Date has occurred or at such time as he becomes Disabled. In respect
of "Contingent Matters," such provisions shall terminate as to Mr. Diller and
Liberty as set forth therein.
SECTION 6.09. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, provided that
the parties hereto shall negotiate in good faith to attempt to place the parties
in the same position as they would have been in had such provision not been held
to be invalid, void or unenforceable.
SECTION 6.10. COOPERATION. Each of Universal, VU, Liberty and Mr. Diller
covenants and agrees with the other to use its reasonable best efforts to cause
the Company to fulfill the Company's obligations under this Agreement.
SECTION 6.11. ADJUSTMENT OF SHARE NUMBERS. If, after the date of this
Agreement, there is a subdivision, split, stock dividend, combination,
reclassification or similar event with respect to any of the shares of capital
stock referred to in this Agreement, then, in any such event, the numbers and
types of shares of such capital stock referred to in this Agreement shall be
adjusted to the number and types of shares of such capital stock that a holder
of such number of shares of such capital stock would own or be entitled to
receive as a result of such event if such holder had held such number of shares
immediately prior to the record date for, or effectiveness of, such event.
SECTION 6.12. ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this Agreement, the Amended and Restated Stockholders Agreement, the
Liberty Exchange Agreement, the Transaction Agreement and each of the other
agreements contemplated by the Transaction Agreement embody the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, that may have related
to the subject matter hereof in any way (including, without limitation,
effective upon the Closing, all stockholders agreements relating to the Company
(other than the Amended and Restated Stockholders Agreement) between Liberty and
Mr. Diller). Without limiting the generality of the foregoing, to the extent
that any of the terms hereof are inconsistent with the rights or obligations of
any party under any other agreement with any other party, the terms of this
Agreement shall govern.
SECTION 6.13. INTERPRETATION. References in this Agreement to Articles and
Sections shall be deemed to be references to Articles and Sections of this
Agreement unless the context shall otherwise
C-19
require. The words "include," "includes" and "including" shall be deemed to be
followed by the phrase "without limitation." The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of such
agreement or instrument.
SECTION 6.14. HEADINGS. The titles of Articles and Sections of this
Agreement are for convenience only and shall not be interpreted to limit or
otherwise affect the provisions of this Agreement.
C-20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
USA NETWORKS, INC.
By: /s/ JULIUS GENACHOWSKI
-----------------------------------------
Name: Julius Genachowski
Title: Senior Vice President and
General Counsel
VIVENDI UNIVERSAL, S.A.
By: /s/ JEAN-MARIE MESSIER
-----------------------------------------
Name: Jean-Marie Messier
Title: Chairman and Chief Executive
Officer
UNIVERSAL STUDIOS, INC.
By: /s/ GUILLAUME HANNEZO
-----------------------------------------
Name: Guillaume Hannezo
Title: Special Power of Attorney
LIBERTY MEDIA CORPORATION
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: President
/s/ BARRY DILLER
-----------------------------------------
Barry Diller
C-21
APPENDIX D
-------------------------------------------------------------------
-------------------------------------------------------------------
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
AMONG
UNIVERSAL STUDIOS, INC.,
LIBERTY MEDIA CORPORATION,
BARRY DILLER
AND
VIVENDI UNIVERSAL, S.A.
-------------------------------------------------------------------
-------------------------------------------------------------------
DATED AS OF DECEMBER 16, 2001
-------------------------------------------------------------------
-------------------------------------------------------------------
D-1
TABLE OF CONTENTS
PAGE
--------
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Defined Terms........................... D-4
SECTION 1.2 Other Defined Terms............................. D-9
SECTION 1.3 Other Definitional Provisions................... D-9
ARTICLE II
STANDSTILL
SECTION 2.1 Diller Standstill with Vivendi.................. D-10
ARTICLE III
CORPORATE GOVERNANCE
SECTION 3.1 Voting on Certain Matters....................... D-11
SECTION 3.2 Restrictions on Other Agreements................ D-12
SECTION 3.3 Irrevocable Proxy of Universal.................. D-13
SECTION 3.4 Irrevocable Proxy of Liberty.................... D-13
SECTION 3.5 Cooperation..................................... D-14
ARTICLE IV
TRANSFER OF COMMON SHARES
SECTION 4.1 Restrictions on Transfer by Liberty and
Diller.................................................... D-14
SECTION 4.2 Tag-Along for Diller and Liberty for Transfers
by the Other.............................................. D-15
SECTION 4.3 Right of First Refusal of Diller on Transfers by
Universal................................................. D-16
SECTION 4.4 Right of First Refusal between Liberty and
Diller.................................................... D-18
SECTION 4.5 Right of First Refusal of Liberty............... D-20
SECTION 4.6 Transfers of Class B Shares..................... D-20
SECTION 4.7 Transferees..................................... D-21
SECTION 4.8 Notice of Transfer.............................. D-22
SECTION 4.9 Compliance with Transfer Provisions............. D-22
ARTICLE V
BDTV ENTITY ARRANGEMENTS
SECTION 5.1 Management...................................... D-22
SECTION 5.2 Treatment of Exchange Shares.................... D-22
SECTION 5.3 Changes to BDTV Structures...................... D-23
SECTION 5.4 Transfers of BDTV Interests..................... D-23
D-2
PAGE
--------
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Conflicting Agreements.......................... D-23
SECTION 6.2 Duration of Agreement........................... D-23
SECTION 6.3 Further Assurances.............................. D-24
SECTION 6.4 Amendment and Waiver............................ D-24
SECTION 6.5 Severability.................................... D-24
SECTION 6.6 Effective Date.................................. D-24
SECTION 6.7 Entire Agreement................................ D-24
SECTION 6.8 Successors and Assigns.......................... D-24
SECTION 6.9 Counterparts.................................... D-25
SECTION 6.10 Liabilities Under Federal Securities Laws...... D-25
SECTION 6.11 Remedies....................................... D-25
SECTION 6.12 Notices........................................ D-25
SECTION 6.13 Adjustment of Shares Numbers................... D-26
SECTION 6.14 Governing Law; Consent to Jurisdiction......... D-26
SECTION 6.15 Interpretation................................. D-27
D-3
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of December 16, 2001,
among Universal Studios, Inc., a Delaware corporation ("UNIVERSAL"), for itself
and on behalf of the members of the Vivendi Stockholders Group, Liberty Media
Corporation, a Delaware corporation ("LIBERTY"), for itself and on behalf of the
members of the Liberty Stockholders Group, Mr. Barry Diller ("DILLER"), for
himself and on behalf of the members of the Diller Stockholders Group, and
Vivendi Universal, S.A., a SOCIETE ANONYME organized under the laws of France
("VIVENDI").
WHEREAS, USA Networks, Inc., a Delaware corporation (the "COMPANY"),
Universal, Liberty, Diller, Vivendi and USANi LLC, a Delaware limited liability
company ("USANi"), have entered into a Transaction Agreement, dated as of
December 16, 2001 (the "TRANSACTION AGREEMENT"), pursuant to which, among other
things, (i) each of Universal and the Company will contribute certain businesses
to a limited liability limited partnership (the "PARTNERSHIP") in exchange for
interests in the Partnership, and (ii) each of Universal, Vivendi and Diller
shall enter into a limited liability limited partnership agreement (the
"PARTNERSHIP AGREEMENT") under which a wholly owned subsidiary of Universal will
be the general partner and each of the Company, USANi Sub LLC, a Delaware
limited liability company and a wholly owned subsidiary of USANi ("USANi SUB"),
and Diller will be limited partners (collectively, the "TRANSACTIONS");
WHEREAS, the parties hereto have agreed that Universal, Liberty, Diller and
Vivendi shall enter into this Agreement in order to amend and restate in its
entirety the respective rights and obligations of the parties set forth in the
Stockholders Agreement, dated as of October 19, 1997 (the "1997 STOCKHOLDERS
AGREEMENT"); and
WHEREAS, the parties hereto desire to enter into the arrangements provided
for herein to be effective as of the Closing, except that the agreements in
Section 3.1(d) shall be effective as of the date hereof.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and obligations hereinafter set forth, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person, for so
long as such Person remains so associated to the specified Person. For purposes
of this definition, natural persons shall not be deemed to be Affiliates of each
other, and none of Liberty, Universal, Diller or the Company shall be deemed to
be Affiliates of any of the others. For purposes of this definition, Matshushita
Electric Industrial Co., Ltd. ("MEI") shall not be considered an Affiliate of
Universal or any Subsidiary of Universal so long as MEI does not materially
increase its influence over Universal or any such Subsidiary following the date
hereof.
"AGREEMENT" means this Amended and Restated Stockholders Agreement as it may
be amended, supplemented, restated or modified from time to time.
"BDTV I" means BDTV, Inc., a Delaware corporation.
"BDTV II" means BDTV II, Inc., a Delaware corporation.
"BDTV III" means BDTV III, Inc., a Delaware corporation.
"BDTV IV" means BDTV IV, Inc., a Delaware corporation.
D-4
"BDTV ENTITIES" means, collectively, the BDTV Limited Entities and the BDTV
Unrestricted Entities.
"BDTV LIMITED ENTITIES" means, collectively, BDTV I and BDTV II.
"BDTV UNRESTRICTED ENTITIES" means BDTV III, BDTV IV and each other BDTV
Entity that may be formed subsequent to the date hereof; PROVIDED that each of
Liberty and Diller acknowledges and agrees that any corporation, partnership,
limited liability company or other business association hereafter formed by
Diller and Liberty to hold Common Shares will be a BDTV Unrestricted Entity and
will be a corporation, partnership, limited liability company or other business
association having a capital structure and governance rights substantially
similar to that of BDTV III.
"BENEFICIAL OWNER" or "BENEFICIALLY OWN" has the meaning given such term in
Rule 13d-3 under the Exchange Act and a Person's beneficial ownership of Common
Shares or Voting Securities shall be calculated in accordance with the
provisions of such Rule; PROVIDED, HOWEVER, that for purposes of determining
beneficial ownership, (i) a Person shall be deemed to be the beneficial owner of
any equity (including all Exchange Shares) which may be acquired by such Person
(disregarding any legal impediments to such beneficial ownership), whether
within 60 days or thereafter, upon the conversion, exchange or exercise of any
warrants, options (which options held by Diller shall be deemed to be
exercisable), rights or other securities issued by the Company or any Subsidiary
thereof, (ii) no Person shall be deemed to beneficially own any equity solely as
a result of such Person's execution of this Agreement (including by virtue of
holding a proxy with respect to any shares or having a put obligation or call
right with respect to any shares) or any other Transaction Document, and (iii)
Liberty shall be deemed to be the beneficial owner of the proportionate number
of Common Shares represented by Liberty's equity interest in a BDTV Entity,
other than for purposes of Articles III and V of this Agreement; PROVIDED,
FURTHER, that for purposes of calculating beneficial ownership, the number of
outstanding Common Shares of the Company shall be deemed to include the number
of Common Shares that would be outstanding if all Exchange Shares were issued.
Notwithstanding the foregoing, for purposes of calculating the Minimum
Stockholder Amount, a person shall be deemed to be the beneficial owner only of
outstanding Common Shares.
"BOARD" means the Board of Directors of the Company.
"BUSINESS DAY" shall mean any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the City of
New York.
"CAPITAL STOCK" means, with respect to any Person at any time, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of capital stock, partnership interests (whether
general or limited) or equivalent ownership interests in or issued by such
Person.
"CAUSE" means (i) the conviction of, or pleading guilty to, any felony, or
(ii) the willful, continued and complete failure to attend to managing the
business affairs of the Company, after written notice of such failure from the
Board and reasonable opportunity to cure.
"CEO" means the Chief Executive Officer of the Company.
"CEO TERMINATION DATE" means the later of (i) such time as Diller no longer
serves as CEO and (ii) such time as Diller no longer holds the Liberty Proxy.
"CLASS B COMMON STOCK" means the Class B common stock, par value $.01 per
share, of the Company and any securities issued in respect thereof, or in
substitution therefor, in connection with any stock split, dividend or
combination, or any reclassification, recapitalization, merger, consolidation,
exchange or other similar reorganization (other than Common Stock).
"CLOSING" has the meaning ascribed to such term in the Transaction
Agreement.
D-5
"COMMISSION" means the Securities and Exchange Commission, and any successor
commission or agency having similar powers.
"COMMON SHARES" means, collectively, the Common Stock and the Class B Common
Stock.
"COMMON STOCK" means the common stock, par value $.01 per share, of the
Company and any securities issued in respect thereof, or in substitution
therefor, in connection with any stock split, dividend or combination, or any
reclassification, recapitalization, merger, consolidation, exchange or other
similar reorganization.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH"), with respect to the relationship between or among two or more Persons,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee or executor, by contract or
otherwise.
"CURRENT MARKET VALUE" means, with respect to any security, the average of
the daily closing prices on the Nasdaq National Market (or the principal
exchange or market on which such security may be listed or may trade) for such
security for the 20 consecutive trading days commencing on the 22nd trading day
prior to the date as of which the Current Market Value is being determined. The
closing price for each day shall be the closing price, if reported, or, if the
closing price is not reported, the average of the closing bid and asked prices
as reported by the Nasdaq National Market (or such principal exchange or market)
or a similar source selected from time to time by the Company for such purpose.
In the event such closing prices are unavailable, the Current Market Value shall
be the Fair Market Value of such security established by independent investment
banking firms in accordance with the procedures specified in Section 4.3(h). For
purposes of this Agreement, the Current Market Value of a share of Class B
Common Stock shall be equal to the Current Market Value of a share of Common
Stock.
"CONTINGENT MATTERS" shall have the meaning ascribed to such term in the
Governance Agreement.
"DILLER INTEREST PURCHASE PRICE" means the cash amount (or cash value of
equity) invested by Diller in a BDTV Entity plus interest, from the date of such
contribution to the date of purchase, on such amount at the rate of interest per
annum in effect from time to time and publicly announced by The Bank of New York
as its prime rate of interest, compounded annually. For purposes of BDTV I, BDTV
II, BDTV III and BDTV IV, the cash amount (or cash value of equity) initially
invested by Diller is $100 in each such BDTV Entity.
"DILLER STOCKHOLDER GROUP" means Diller and Diller's 90% owned and
controlled Affiliates.
"DIRECTOR" means any member of the Board.
"DISABLED" means the disability of Diller after the expiration of more than
180 consecutive days after its commencement which is determined to be total and
permanent by a physician selected by Liberty (or if the Liberty Termination Date
has occurred, Universal) and reasonably acceptable to Diller; PROVIDED that
Diller shall be deemed to be disabled only following the expiration of 90 days
following receipt of a written notice from the Company and such physician
specifying that a disability has occurred if within such 90-day period he fails
to return to managing the business affairs of the Company. A total disability
shall mean mental or physical incapacity that prevents Diller from managing the
business affairs of the Company.
"ELIGIBLE STOCKHOLDER AMOUNT" means, in the case of Diller, the equivalent
of 4,400,000 Common Shares and, in the case of Liberty (including, in the case
of Liberty, the proportionate number of Common Shares represented by Liberty's
equity interest in any BDTV Entity and Common Shares issuable to Liberty or a
member of the Liberty Stockholder Group pursuant to the Holder Exchange
D-6
Agreement), 4,000,000 shares of Common Stock, in each case determined on a fully
diluted basis (taking into account, in the case of Diller, all unexercised
Options, whether or not then exercisable).
"EQUITY" means any and all shares of Capital Stock of the Company,
securities of the Company convertible into, or exchangeable for, such shares
(including, without limitation, the Exchange Shares), and options, warrants or
other rights to acquire such shares.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE SHARES" means the Silver King Exchange Shares as defined in the
Holder Exchange Agreement.
"FAIR MARKET VALUE" means, as to any securities or other property, the cash
price at which a willing seller would sell and a willing buyer would buy such
securities or property in an arm's-length negotiated transaction without time
constraints.
"FCC" means the Federal Communications Commission or its successor.
"FCC REGULATIONS" means, as of any date, all federal communications statutes
and all rules, regulations, orders, decrees and policies of the FCC as then in
effect, and any interpretations or waivers thereof or modifications thereto.
"GOVERNANCE AGREEMENT" means the Amended and Restated Governance Agreement,
among the Company, Diller, Vivendi, Universal and Liberty, dated as of even date
herewith, as it may be amended, supplemented, restated or modified from time to
time.
"GROUP" shall have the meaning assigned to it in Section 13(d)(3) of the
Exchange Act.
"HOLDER EXCHANGE AGREEMENT" means the Exchange Agreement, dated as of
December 20, 1996, by and between the Company and Liberty HSN.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"INDEPENDENT INVESTMENT BANKING FIRM" means an investment banking firm of
nationally recognized standing that is, in the reasonable judgment of the Person
engaging such firm, qualified to perform the task for which it has been engaged.
"LIBERTY HSN" means Liberty HSN, Inc., a Colorado corporation.
"LIBERTY STOCKHOLDER GROUP" means Liberty and those Subsidiaries of Liberty
that, from time to time, hold Equity subject to this Agreement.
"LIBERTY SURVIVING CLASS B STOCK" means the Surviving Class B Stock (as
defined in the Holder Exchange Agreement).
"MARKET SALE" means a "brokers' transaction" within the meaning of Section
4(4) of the Securities Act.
"MINIMUM STOCKHOLDER AMOUNT" means Common Shares representing at least 50.1%
of the outstanding voting power of the outstanding Common Shares.
"OPTIONS" means options to acquire capital stock of the Company granted by
the Company to Diller and outstanding from time to time.
"PERMITTED DESIGNEE" means any Person designated by a Stockholder, who shall
be reasonably acceptable to the other Stockholders (other than Universal), to
exercise such Stockholder's rights pursuant to Section 4.3 or 4.4.
"PERMITTED TRANSFEREE" means (i) with respect to Liberty, any of its
Subsidiaries, (ii) with respect to Universal, Vivendi Company and any Subsidiary
of Vivendi Company, and (iii) with respect to
D-7
Diller, any of his 90% owned and controlled Affiliates. In addition, each of
Liberty, Universal and Diller shall each be a Permitted Transferee of its
respective Permitted Transferees.
"PERSON" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivisions thereof or any Group comprised of two or more of the foregoing.
"PUBLIC STOCKHOLDERS" means any stockholder of the Company that, together
with its Affiliates (a) has sole or shared voting power with respect to Voting
Securities representing no more than 10% of the voting power on the applicable
vote or (b) has sole or shared power to dispose of Equity representing no more
than 10% of the Equity to be tendered or exchanged in any applicable tender or
exchange offer, as the case may be.
"REFERENCE RATE" means, for any day, a fixed rate per annum equal to the
yield, expressed as a percentage per annum, obtained at the official auction of
90-day United States Treasury Bills most recently preceding the date thereof
plus 100 basis points.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDER" means each of Universal, Liberty and Diller.
"STOCKHOLDER GROUP" means one or more of the Diller Stockholder Group, the
Liberty Stockholder Group and the Vivendi Stockholder Group. For purposes of
this Agreement, (i) prior to the time that Liberty acquires Diller's interest in
a BDTV Entity, each BDTV Entity shall be deemed to be a member of the Liberty
Stockholder Group except as otherwise expressly set forth herein and (ii) a
Permitted Designee shall be deemed to be a member of a Stockholder's Stockholder
Group (other than for purposes of Section 4.1(a)(x)).
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which at least a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
"THIRD PARTY TRANSFEREE" means any Person to whom a Stockholder (including a
Third Party Transferee subject to this Agreement pursuant to Sections 4.7(b) and
4.7(c)) or a Permitted Transferee Transfers Common Shares, other than a
Permitted Transferee of such Stockholder or a member of another Stockholder
Group.
"TRANSACTION DOCUMENTS" means this Agreement, the Transaction Agreement, the
Partnership Agreement, the Governance Agreement and any other agreements
contemplated by any of the foregoing.
"TRANSFER" means, directly or indirectly, to sell, transfer, assign, pledge,
encumber, hypothecate or similarly dispose of, either voluntarily or
involuntarily, or to enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, assignment, pledge,
encumbrance, hypothecation or similar disposition of, any Common Shares
beneficially owned by a Stockholder or any interest in any Common Shares
beneficially owned by a Stockholder; PROVIDED, HOWEVER, that a merger or
consolidation in which a Stockholder is a constituent corporation shall not be
deemed to be the Transfer of any Common Shares beneficially owned by such
Stockholder (PROVIDED, that a significant purpose of any such transaction is not
to avoid the provisions of this Agreement). For purposes of this Agreement, the
conversion of shares of Class B Common Stock into shares of Common Stock shall
not be deemed to be a Transfer.
"VIVENDI COMPANY" means Vivendi and any of its successors.
"VIVENDI STOCKHOLDER GROUP" means Universal, together with the Vivendi
Company and any Subsidiary of the Vivendi Company that, from time to time, hold
Equity subject to this Agreement.
D-8
"VOTING SECURITIES" means at any time shares of any class of capital stock
of the Company which are then entitled to vote generally in the election of
Directors.
SECTION 1.2 OTHER DEFINED TERMS. The following terms shall have the
meanings defined for such terms in the Sections set forth below:
TERM SECTION
---- -------
1997 Stockholders Agreement................................. Recitals
Acceptance Notice........................................... Section 4.3(d)
Appraisal................................................... Section 4.3(h)
Company..................................................... Recitals
Covered Market Sale......................................... Section 4.3(a)
Diller...................................................... Preamble
Diller Termination Date..................................... Section 6.2(a)
Exchange Notice............................................. Section 4.6(a)
L/D Offer Notice............................................ Section 4.4(b)
L/D Offer Price............................................. Section 4.4(c)
L/D Other Party............................................. Section 4.4(b)
L/D Transferring Party...................................... Section 4.4(a)
Liberty..................................................... Preamble
Liberty Proxy............................................... Section 3.4(a)
Liberty Proxy Shares........................................ Section 3.4(a)
Liberty Termination Date.................................... Section 6.2(b)
Litigation.................................................. Section 6.11
Non-Transferring Stockholder................................ Section 4.6(a)
Offer Notice................................................ Section 4.3(b)
Offer Price................................................. Section 4.3(c)
Other Stockholder........................................... Section 4.3(b)
Partnership................................................. Recitals
Partnership Agreement....................................... Recitals
Regulation 14A.............................................. Section 2.1(a)
Restricted Period........................................... Section 2.1(a)
Tag-Along Notice............................................ Section 4.2(a)
Tag-Along Sale.............................................. Section 4.2(a)
Tag-Along Shares............................................ Section 4.2(a)
Transaction Agreement....................................... Recitals
Transactions................................................ Preamble
Transferring Party.......................................... Section 4.3(a)
Transferring Stockholders................................... Section 4.6(a)
Universal................................................... Preamble
Universal Proxy............................................. Section 3.3(a)
Universal Proxy Shares...................................... Section 3.3(a)
Universal Termination Date.................................. Section 6.2(a)
USANi Sub................................................... Recitals
Vivendi..................................................... Preamble
SECTION 1.3 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Article and Section references are to this Agreement unless
otherwise specified.
D-9
(b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
(c) For purposes of calculating the amount of outstanding Common Shares or
Equity as of any date and the number of Common Shares or Equity beneficially
owned by any Person as of any date, (i) any Common Shares held in the Company's
treasury or owned by any Subsidiaries of the Company shall be disregarded and
(ii) all Exchange Shares shall be assumed to have been converted into Common
Shares.
ARTICLE II
STANDSTILL
SECTION 2.1 DILLER STANDSTILL WITH VIVENDI. (a) Diller agrees that, prior
to the earliest of (i) the fourth anniversary of the Closing Date, (ii) the sale
of all or substantially all of the assets of Vivendi and its Subsidiaries to
another Person other than a Subsidiary of Vivendi, or (iii) the effective time
of any merger or consolidation of Vivendi with or into any other Person, other
than a merger or consolidation in which a majority of the shares of the
surviving entity are held by the holders of Vivendi's voting securities
immediately prior to such effective time (the "RESTRICTED PERIOD"), he and his
Affiliates will not, in any manner, whether publicly or otherwise, directly or
indirectly, without the prior written consent of Vivendi, unless specifically
requested in writing by the CEO of Vivendi or by a resolution of a majority of
the board of directors of Vivendi:
(i) acquire, agree to acquire or make any proposal to acquire, directly
or indirectly, by purchase or otherwise, beneficial ownership of (A) any
voting securities if immediately after such acquisition, the voting
securities beneficially owned, in the aggregate, by Diller and its
Affiliates would exceed five percent (5%) of the outstanding voting
securities of Vivendi or (B) any significant assets of Vivendi, or any of
its Subsidiaries (other than assets acquired in the ordinary course of
business); PROVIDED, HOWEVER, that this clause shall not be deemed to be
violated by the indirect acquisition of voting securities of Vivendi as a
result of an acquisition by Diller of another Person that holds such voting
securities so long as the voting securities of Vivendi held by such Person
do not exceed 1% of such Person's total assets;
(ii) propose to enter into, directly or indirectly, any merger, tender
offer or other business combination or similar transaction involving Vivendi
or any of its Subsidiaries (including a purchase of a material portion of
their assets);
(iii) make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are defined in Regulation 14A
("REGULATION 14A") under the Exchange Act but without regard to the
exclusion set forth in clause (2)(iv) of the definition of "solicitation")
to vote, or seek to advise or influence any Person with respect to the
voting of, any securities of Vivendi or any of its Subsidiaries, or become a
"participant" in a "solicitation" (as such terms are defined in Regulation
14A but without regard to the exclusion set forth in clause (2)(iv) of the
definition of "solicitation") whether or not such solicitation is subject to
regulation under Regulation 14A;
(iv) grant any proxy with respect to any voting securities of Vivendi
(other than to Vivendi, its Affiliates or the CEO of Vivendi);
(v) call, or seek to call, a meeting of Vivendi's shareholders or
initiate any shareholder proposal for action by shareholders of Vivendi;
(vi) bring any action or otherwise act to contest the validity of this
Article II or seek a release of the restrictions contained herein;
D-10
(vii) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting
securities of Vivendi or any of its Subsidiaries or deposit any voting
securities of Vivendi in a voting trust or subject any voting securities of
Vivendi to any arrangement or agreement with respect to the voting of such
voting securities or other agreement having similar effect;
(viii) otherwise act, alone or in concert with others, to seek to affect
or influence the control of the management or the board of directors of
Vivendi or the business, operations or policies of Vivendi;
(ix) enter into any discussions, negotiations, arrangements,
understandings or agreements (whether written or oral) with any other Person
(other than Diller's financial advisors, agents, other advisors or
representatives) regarding a business combination involving Vivendi, any
other purchase of any voting securities involving Vivendi, or significant
assets of Vivendi;
(x) disclose any intention, plan or arrangement inconsistent with the
foregoing; or
(xi) advise or assist any other Person in connection with any of the
foregoing.
Diller also agrees that, during the Restricted Period, neither he nor anyone
acting on his behalf will (x) request Vivendi or any of its directors, officers,
employees, agents, advisors or representatives, directly or indirectly, to amend
or waive any provision of this Article II (including this sentence) or (y) take
any action which might require Vivendi to make a public announcement regarding
the possibility of a business combination, merger or extraordinary transaction.
(b) Notwithstanding Section 2.1(a), Diller or any of his Affiliates shall be
permitted during the Restricted Period to submit a proposal addressed to the
board of directors of Vivendi that proposes a merger or other business
combination involving Vivendi if (i) Vivendi shall have publicly announced that
it has entered into a definitive agreement providing for: (A) any acquisition
from Vivendi or from one or more stockholders thereof (by tender or exchange
offer or other public offer), or both, more than 50% of the outstanding voting
or equity securities of Vivendi, (B) any acquisition of all, or substantially
all, the assets of Vivendi and its Subsidiaries or (C) a merger, consolidation,
statutory share exchange or similar transaction between or involving Vivendi and
another Person (other than a merger or consolidation in which a majority of the
voting shares of the surviving entity are held by the holders of Vivendi's
voting securities immediately prior to such effective time); or (ii) any Person
shall have commenced a tender offer or exchange offer that is likely to result
in any Person or group beneficially owning 50% or more of the voting securities
of Vivendi; PROVIDED, that in the case of this clause (ii), the right to make a
proposal pursuant to this Section 2.1(b) shall cease upon the withdrawal or
termination of such unsolicited tender offer or exchange offer or proposal
unless Diller or any of his Affiliates shall have submitted a proposal prior to
such withdrawal or termination.
ARTICLE III
CORPORATE GOVERNANCE
SECTION 3.1 VOTING ON CERTAIN MATTERS. (a) In the event that Section 2.03
of the Governance Agreement is applicable, in connection with any vote or action
by written consent of the stockholders of the Company relating to any matter
that constitutes a Contingent Matter, each Stockholder agrees (and agrees to
cause each member of its Stockholders Group, if applicable), with respect to any
Common Shares with respect to which it or he has the power to vote (whether by
proxy, the ownership of voting securities of a BDTV Entity or otherwise)
(including all shares held by any BDTV Entity), to vote against (and not act by
written consent to approve) such Contingent Matter (including not voting or not
executing a written consent with respect to the Common Shares beneficially owned
by a BDTV Entity) if Liberty and Diller have not consented to such Contingent
Matter in accordance with the provisions of the Governance Agreement and to take
or cause to be taken all other reasonable actions
D-11
required, to the extent permitted by law, to prevent the taking of any action by
the Company with respect to a Contingent Matter without the consent of Liberty.
(b) Each Stockholder agrees to vote (and cause each member of its or his
Stockholder Group to vote, if applicable), or act by written consent with
respect to any Common Shares with respect to which it or he has the power to
vote (whether by proxy, the ownership of voting securities of a BDTV Entity or
otherwise) (including all shares held by any BDTV Entity) in favor of (i) each
of the designees of Universal which Universal has a right to designate pursuant
to the Governance Agreement, and (ii) each of the designees of Liberty which
Liberty has a right to designate pursuant to the Governance Agreement.
(c) Upon the written request of Universal or Liberty, each Stockholder, in
such Stockholder's capacity as a stockholder only, agrees to vote (and cause
each member of its Stockholders Group to vote, if applicable), or act by written
consent with respect to any Common Shares with respect to which it or he has the
power to vote (whether by proxy, the ownership of voting securities of a BDTV
Entity or otherwise) (including all shares held by any BDTV Entity) and
otherwise take or cause to be taken all actions necessary to remove any Director
designated by such requesting party and to elect any replacement Director
designated by such party as provided in the Governance Agreement. Unless all the
Stockholders otherwise agree, no Stockholder or any member of its Stockholders
Group shall take any action to cause the removal of any Director designated by
Universal or any Director designated by Liberty except (i) in the case of a
Director designated by Universal, upon the written request of Universal, and
(ii) in the case of a Director designated by Liberty, upon the written request
of Liberty.
(d) For purposes of Sections 3.1 and 3.4 and Article V of this Agreement as
well as the 1997 Stockholders Agreement, each of Liberty, Universal and Diller
hereby consents and agrees to the taking of any action by any of Diller, a BDTV
Entity, Universal or Liberty, which action is reasonably necessary or
appropriate to approve and consummate the transactions pursuant to the
Transaction Agreement and the Transaction Documents (and including Diller's
arrangements with the Partnership). Neither Diller nor Liberty shall enter into,
or permit any material amendment to, or waiver or modification of material
rights or obligations under the Transaction Agreement or the Transaction
Documents (including by the Company) without the prior written consent of the
other Stockholder. The consent granted by the first sentence of this paragraph
is intended to be specifically limited by the foregoing sentence.
(e) Liberty will not be deemed to be in violation of paragraphs (a), (b) or
(c) of this Section 3.1 as a result of any action by Diller (including by a BDTV
Entity as a result of an action by Diller) that is not within Liberty's control.
SECTION 3.2 RESTRICTIONS ON OTHER AGREEMENTS. No Stockholder or any of its
or his Permitted Transferees shall enter into or agree to be bound by any
stockholder agreements or arrangements of any kind with any Person with respect
to any Equity (including, without limitation, the deposit of any Common Shares
in a voting trust or forming, joining or in any way participating in or
assisting in the formation of a Group with respect to any Common Shares, other
than any such Group consisting exclusively of Liberty, Universal and Diller and
any of their respective Affiliates, Permitted Designees and Permitted
Transferees) and no Stockholder (other than Universal or Liberty or any of their
respective Permitted Transferees) or any of its or his Permitted Transferees
shall enter into or agree to be bound by any agreements or arrangements of any
kind with any Person to incur indebtedness for purposes of purchasing Equity
(other than to exercise Options or to purchase Common Shares pursuant to Section
4.3 or 4.4 of this Agreement), except (i) for such agreements or arrangements as
are now in effect or as are contemplated by the Transaction Documents, (ii) in
connection with a proposed sale of BDTV Entity securities or Common Shares
otherwise permitted hereunder or (iii) for such agreements or arrangements with
a Permitted Designee reasonably acceptable to the other Stockholders and not
inconsistent with or for the purpose of evading the terms of this Agreement.
D-12
SECTION 3.3 IRREVOCABLE PROXY OF UNIVERSAL. (a) (i) Until the earlier of
the date that Diller ceases to exercise rights under this Section 3.3 pursuant
to Section 6.2(c) or the Universal Termination Date, Diller shall be entitled to
exercise voting authority and authority to act by written consent over all
shares of Common Stock beneficially owned by each member of the Vivendi
Stockholder Group, and (ii) until Diller ceases to exercise rights under this
Section 3.3 pursuant to Section 6.2(c), Diller shall be entitled to exercise
voting authority to act by written consent over all shares of Class B Common
Stock beneficially owned by each member of the Vivendi Stockholder Group (the
shares referred to in clauses (i) and (ii), collectively, the "UNIVERSAL PROXY
SHARES"), in each case, on all matters submitted to a vote of the Company's
stockholders or by which the Company's stockholders may act by written consent
pursuant to a conditional proxy (which proxy is irrevocable and coupled with an
interest for purposes of Section 212 of the Delaware General Corporation Law)
(the "UNIVERSAL PROXY"); PROVIDED, that in the event that Diller is removed by
the Board as CEO for any reason other than Cause, Diller shall be deemed to
continue to be CEO hereunder and shall be entitled to exercise the Universal
Proxy set forth herein until the earlier of (A) such time as he has abandoned
efforts to cause his reinstatement as CEO and (B) the next stockholders meeting
of the Company at which he had an adequate opportunity to nominate and elect his
slate of directors (unless at such stockholders meeting Diller's slate of
directors is elected and Diller is promptly thereafter reinstated as CEO).
(b) The Universal Proxy shall terminate as provided for in Section 3.3(a)
or, if earlier, (i) immediately upon a material breach by Diller of Section
3.1(b)(i) or Section 3.1(c) (as applicable to Universal) or of Article II (which
breach is not cured promptly following receipt by Diller of written notice of
such breach from Vivendi), (ii) at such time as Diller has been convicted of, or
has pleaded guilty to, any felony involving moral turpitude or (iii) at such
time as Diller ceases to beneficially own 20,000,000 Common Shares with respect
to which he has a pecuniary interest; PROVIDED, in the case of clauses (ii) and
(iii) above, that Universal sends notice of such termination to Diller within 30
days after the event giving rise to such termination, in which case the
Universal Proxy shall terminate immediately upon the receipt of such notice.
(c) Notwithstanding anything to the contrary set forth in this Agreement,
the Universal Proxy is personal to Diller and may not be assigned by Diller by
operation of law or otherwise and shall not inure to Diller's successors without
the prior written consent of Universal.
SECTION 3.4 IRREVOCABLE PROXY OF LIBERTY. (a) Subject to paragraphs (b)
and (c) below, until the earlier of the date that (x) Diller is no longer CEO or
(y) Diller is Disabled, Diller shall be entitled to exercise voting authority
and authority to act by written consent over all Common Shares beneficially
owned by each member of the Liberty Stockholder Group (the "LIBERTY PROXY
SHARES"), on all matters submitted to a vote of the Company's stockholders or by
which the Company's stockholders may act by written consent pursuant to a
conditional proxy (which proxy is irrevocable and coupled with an interest for
purposes of Section 212 of the Delaware General Corporation Law) (the "LIBERTY
PROXY"); PROVIDED, that in the event that Diller is removed by the Board as CEO
for any reason other than Cause, Diller shall be deemed to continue to be CEO
hereunder and shall be entitled to the Liberty Proxy set forth herein until the
earlier of (A) such time as he has abandoned efforts to cause his reinstatement
as CEO and (B) the next stockholders meeting of the Company at which he had an
adequate opportunity to nominate and elect his slate of directors (unless at
such stockholders meeting Diller's slate of directors is elected and Diller is
promptly thereafter reinstated as CEO).
(d) Notwithstanding the foregoing, the Liberty Proxy shall not be valid with
respect to any of the Liberty Proxy Shares in connection with any vote for (or
consent to approve) any matter that is a Contingent Matter which Liberty has the
right to consent to pursuant to the terms of the Governance Agreement with
respect to which Liberty has not consented.
D-13
(e) The Liberty Proxy shall terminate as provided for in Section 3.4(a) or,
if earlier, (i) immediately upon a material breach by Diller of the terms of
Section 3.1(a), Section 3.1(b)(ii), Section 3.1(c) (as applicable to Liberty) or
Section 3.4(b) of this Agreement, (ii) at such time as Diller has been convicted
of, or has pleaded guilty to, any felony involving moral turpitude or (iii) at
such time as Diller ceases to beneficially own 20,000,000 Common Shares with
respect to which he has a pecuniary interest; PROVIDED, in the case of clauses
(ii) and (iii) above, that Liberty sends notice of such termination to Diller
within 30 days after receiving notice of the event giving rise to such
termination, in which case the Liberty Proxy shall terminate immediately upon
the receipt of such notice.
(f) Notwithstanding anything to the contrary set forth herein, the Liberty
Proxy is personal to Diller and may not be assigned by Diller and shall not
inure to Diller's successors without the prior written consent of Liberty.
SECTION 3.5 COOPERATION. Each Stockholder shall vote (or act or not act by
written consent with respect to) all of its Common Shares (and any Common Shares
with respect to which it has the power to vote (whether by proxy or otherwise)
and shall, as necessary or desirable, attend all meetings in person or by proxy
for purposes of obtaining a quorum, and execute all written consents in lieu of
meetings, as applicable, to effectuate the provisions of this Article III.
ARTICLE IV
TRANSFER OF COMMON SHARES
SECTION 4.1 RESTRICTIONS ON TRANSFER BY LIBERTY AND DILLER. (a) Until the
CEO Termination Date or such time as Diller becomes Disabled, subject to the
other provisions of this Agreement, neither Liberty nor Diller shall Transfer or
otherwise dispose of (including pledges), directly or indirectly, any Common
Shares beneficially owned by its Stockholder Group other than (w) Transfers of
Common Shares by Diller in order to pay taxes arising from the granting, vesting
and/or exercise of the Options, (x) Transfers of Common Shares by Liberty to
members of the Liberty Stockholder Group or by Diller to members of the Diller
Stockholder Group, (y) a pledge or grant of a security interest in vested Common
Shares (other than the pledge of certain Common Shares pursuant to prior
arrangements between Diller and the Company) or pledges by a member of the
Liberty Stockholder Group of securities of a BDTV Entity that Liberty is
entitled to Transfer under (b)(iii) below in connection with BONA FIDE
indebtedness in which the pledgee of the applicable Common Shares (or securities
of such BDTV Entity) agrees that, upon any default or exercise of its rights
under such pledge or security arrangement, it will offer to sell the pledged
Common Shares (or securities of such BDTV Entity) to the non-pledging
Stockholder(s) (or its or his designee) for an amount equal to the lesser of the
applicable amount of such indebtedness and the fair market value of such pledged
Common Shares (or securities of such BDTV Entity), and (z) Transfers of Options
or Common Shares to the Company by Diller or his Affiliates in connection with a
"cashless" exercise of the Options (including Options granted to Diller on the
date hereof or in the future). The restrictions on Transfer by Liberty provided
in this Section 4.1 shall be for the sole benefit of Diller and the restrictions
on Transfer by Diller provided in this Section 4.1 shall be for the sole benefit
of Liberty.
(b) Notwithstanding the restrictions contained in subsection (a) above (and
in addition to the foregoing exceptions, but subject to the right of first
refusal described in Section 4.4 on behalf of Diller (or his designee) with
respect to Transfers by members of the Liberty Stockholder Group and to a right
of first refusal on behalf of Liberty (or its designee) with respect to
Transfers by members of the Diller Stockholder Group (which rights shall be
assignable)): (i) either Liberty or Diller may Transfer all or any portion of
the Common Shares beneficially owned by its Stockholder Group (and, in the case
of Liberty only, its entire interest in the BDTV Entities) to an unaffiliated
third party or to Universal, PROVIDED, HOWEVER, that a Transfer by either
Liberty or Diller to a third party or to Universal shall be subject to the
tag-along right pursuant to Section 4.2, and (ii) either Liberty or Diller may
Transfer any
D-14
portion of the Common Shares (including, in the case of Liberty, all or a
portion of a BDTV Entity interest) held by its Stockholder Group to an
unaffiliated third party; PROVIDED that, (a) following such Transfer such
Stockholder Group retains its Eligible Stockholder Amount of Common Shares and
(b) in the case of the Transfer of an interest in or Common Shares held by a
BDTV Limited Entity as of the date hereof, following such Transfer, Liberty,
Diller and Universal, to the extent Universal remains subject to this Agreement,
and each of their respective Stockholder Groups collectively beneficially own
the Minimum Stockholder Amount. Notwithstanding the previous sentence and the
restrictions contained in paragraph (a) above and subject to the requirement,
with respect to a Transfer by Liberty of an interest in or Common Shares held by
a BDTV Limited Entity as of the date hereof, that the Stockholders and their
respective Stockholder Groups collectively beneficially own the Minimum
Stockholder Amount, either Liberty or Diller may transfer any of its Common
Shares in one or more transactions that comply with the requirements of Rule 144
or 145 (as applicable) under the Securities Act.
SECTION 4.2 TAG-ALONG FOR DILLER AND LIBERTY FOR TRANSFERS BY THE
OTHER. (a) If either Diller or Liberty shall desire to Transfer to any third
party, including Universal and the members of its Stockholder Group, any of the
Common Shares beneficially owned by him or it or any member of his or its
Stockholder Group (other than as set forth in paragraph (e) below), in one
transaction or a series of related transactions (the "TAG-ALONG SALE"), Diller
or Liberty, as applicable, shall give prior written notice to the other of such
intended Transfer. Such notice (the "TAG-ALONG NOTICE") shall set forth the
terms and conditions of such proposed Transfer, including the number of Common
Shares proposed to be Transferred (the "TAG-ALONG SHARES"), the purchase price
per Common Share proposed to be paid therefor and the payment terms and type of
Transfer to be effectuated.
(b) Within 10 days after delivery of the Tag-Along Notice by Diller or
Liberty to the other, as applicable, Liberty or Diller, respectively, shall, by
written notice to the other, have the opportunity and right to sell to such
third party in such proposed Transfer (upon the same terms and conditions as
Diller or Liberty, as applicable) up to that number of Common Shares
beneficially owned by Liberty or Diller (including Liberty's pro rata portion of
any shares held by a BDTV Entity) as shall equal the product of (x) a fraction,
the numerator of which is the number of Tag-Along Shares and the denominator of
which is the aggregate number of Common Shares beneficially owned as of the date
of the Tag-Along Notice by Diller and his Affiliates (excluding shares held by
any BDTV Entity that were not contributed by Diller) or Liberty and its
Affiliates (including Common Shares held by any BDTV Entity that were
contributed by Liberty), multiplied by (y) the number of Common Shares
beneficially owned by Liberty or Diller, as applicable (including Liberty's pro
rata portion of any shares held by a BDTV Entity) as of the date of the
Tag-Along Notice. The number of Common Shares that Diller or Liberty may sell to
a third party pursuant to Section 4.2(a) shall be determined by multiplying the
maximum number of Tag-Along Shares that such third party is willing to purchase
on the terms set forth in the Tag-Along Notice by a fraction, the numerator of
which is the number of Common Shares that such Stockholder proposes to sell
hereunder (subject to the maximum amount for Diller or Liberty, as applicable,
calculated pursuant to the preceding sentence) and the denominator of which is
the aggregate number of Common Shares that Diller and Liberty propose to sell
hereunder.
(c) At the closing of any proposed Transfer in respect of which a Tag-Along
Notice has been delivered, Liberty or Diller, as applicable, shall deliver, free
and clear of all liens (other than liens caused by the other party), to such
third party certificates evidencing the Common Shares to be sold thereto duly
endorsed with Transfer powers and shall receive in exchange therefore the
consideration to be paid by such third party in respect of such Common Shares as
described in the Tag-Along Notice. No transferee shall be required to purchase
shares of a BDTV Entity in connection with the Tag-Along Sale and each of
Liberty and Diller shall cooperate so that any transferee will be able to
purchase directly any Common Shares held by a BDTV Entity and not the shares of
any BDTV Entity.
D-15
(d) Neither Diller and the members of his Stockholders Group, on the one
hand, nor Liberty and the members of its Stockholders Group, on the other hand,
shall effect any Transfer or Transfers constituting a Tag-Along Sale absent
compliance with this Section 4.2.
(e) This Section 4.2 shall not be applicable to the Transfer by Diller or
any member of his Stockholder Group (i) of an aggregate of not more than
4,000,000 Common Shares within any rolling twelve-month period, (ii) pursuant to
Section 4.1(a)(w) or 4.1(a)(z), (iii) in a Market Sale or (iv) following such
time as Diller is no longer CEO other than any Transfer made in connection with
Diller ceasing to be CEO.
SECTION 4.3 RIGHT OF FIRST REFUSAL OF DILLER ON TRANSFERS BY
UNIVERSAL. (a) Any Transfer of Common Shares by Universal or any member of its
Stockholder Group (the "TRANSFERRING PARTY") will be subject to the right of
first refusal provisions of this Section 4.3 other than a Transfer (i) between
Universal and any member of the Vivendi Stockholder Group or between members of
the Vivendi Stockholder Group, (ii) in connection with any Market Sale (other
than any Market Sale (a "COVERED MARKET SALE") involving the Transfer of
1,000,000 or more Common Shares in any rolling twelve-month period), (iii) of an
aggregate of not more than 4,000,000 Common Shares within any rolling twelve-
month period, or (iv) contemplated by Section 8.07 of the Partnership Agreement.
(b) Prior to effecting any Transfer described in Section 4.3(a), the
Transferring Party shall deliver a written notice (the "OFFER NOTICE") to
Diller, which Offer Notice shall specify (i) the Person to whom the Transferring
Party proposes to make such Transfer or the proposed manner of Transfer in the
case of a public offering or a Covered Market Sale, (ii) the number or amount
and description of the Common Shares to be Transferred, (iii) except in the case
of a public offering or a Covered Market Sale, the Offer Price (as defined
below), and (iv) all other material terms and conditions of the proposed
Transfer, including a description of any non-cash consideration sufficiently
detailed to permit valuation thereof, and which Offer Notice shall be
accompanied by any written offer from the prospective transferee to purchase
such Common Shares, if available and permitted pursuant to the terms thereof.
The Offer Notice shall constitute an irrevocable offer to Diller or his
designee, for the period of time described below, to purchase all (but not less
than all) of such Common Shares upon the same terms specified in the Offer
Notice, subject to Section 4.3(g) and as otherwise set forth in this Section
4.3. Diller may elect to purchase all (but not less than all) of the Common
Shares at the Offer Price (or, if the Offer Price includes property other than
cash, the equivalent in cash of such property as determined in accordance with
Section 4.3(g)) and upon the other terms and conditions specified in the Offer
Notice.
(c) For purposes of this Section 4.3, "OFFER PRICE" shall be defined to mean
on a per share or other amount of Common Shares basis (i) in the case of a third
party tender offer or exchange offer, the tender offer or exchange offer price
per Common Share taking into account any provisions thereof with respect to
proration and any proposed second step or "back-end" transaction, (ii) in the
case of a public offering or a Covered Market Sale, the Current Market Value per
Common Share as of the date the election notice of Diller hereinafter described
is delivered and (iii) in the case of a privately-negotiated transaction, the
proposed sale price per Common Share.
(d) If Diller elects to purchase the offered Common Shares, he shall give
notice (the "ACCEPTANCE NOTICE") to the Transferring Party within 10 Business
Days of his receipt of the Offer Notice of his election (or in the case of a
third party tender offer or exchange offer, not later than five Business Days
prior to the expiration date of such offer; PROVIDED that all conditions to such
offer (other than with respect to the number of Common Shares tendered) shall
have been satisfied or waived and the Offer Notice shall have been provided at
least ten Business Days prior to the expiration date of such offer), which shall
constitute a binding obligation, subject to standard terms and conditions for a
stock purchase contract between two significant stockholders of an issuer
(provided that the Transferring Party shall not be required to make any
representations or warranties regarding the business of the
D-16
Company), to purchase the offered Common Shares, which Acceptance Notice shall
include the date set for the closing of such purchase, which date shall be no
later than 20 Business Days following the delivery of such Acceptance Notice,
or, if later, five Business Days after receipt of all required regulatory
approvals; PROVIDED that the closing shall only be delayed pending receipt of
required regulatory approvals if (i) Diller is using reasonable efforts to
obtain the required regulatory approvals, (ii) there is a reasonable prospect of
receiving such regulatory approvals and (iii) if such closing is delayed more
than 90 days after the date of the Acceptance Notice, then Diller agrees to pay
interest at the Reference Rate to the Transferring Party from such date to the
closing date. Notwithstanding the foregoing, such time periods shall not be
deemed to commence with respect to any purported notice that does not comply in
all material respects with the requirements of this Section 4.3(d). Diller may
assign its rights to purchase under this Section 4.3 to any Person who is a
Permitted Designee.
(e) Subject to Section 4.3(f) in the case of a Covered Market Sale, if
Diller does not respond to the Offer Notice within the required response time
period or elects not to purchase the offered Common Shares, the Transferring
Party shall be free to complete the proposed Transfer (to the same proposed
transferee, in the case of privately-negotiated transaction) on terms no less
favorable to the Transferring Party or its Affiliate, as the case may be, than
those set forth in the Offer Notice; PROVIDED that (x) such Transfer is closed
within (I) 90 days after the latest of (A) the expiration of the foregoing
required response time periods, or (B) the receipt by the Transferring Party of
the foregoing Acceptance Notice or, in the case of (A) or (B), if later, five
Business Days following receipt of all required regulatory approvals; PROVIDED
that the closing shall only be delayed pending receipt of required regulatory
approvals if (i) the Transferring Stockholder is using reasonable efforts to
obtain the required regulatory approvals and (ii) there is a reasonable prospect
of receiving such regulatory approvals or, (II) in the case of a public
offering, within 20 days of the declaration by the Commission of the
effectiveness of a registration statement filed with the Commission pursuant to
this Agreement, and (y) the price at which the Common Shares are transferred
must be equal to or higher than the Offer Price (except in the case of a public
offering, in which case the price at which the Common Shares are sold (before
deducting underwriting discounts and commissions) shall be equal to at least 90%
of the Offer Price).
(f) If Diller does not respond to the Offer Notice with respect to a Covered
Market Sale within the required response time period or elects not to purchase
the offered Common Shares, the Transferring Party shall be free to complete the
proposed Covered Market Sale in one or more transactions during the 90-day
period commencing on the latest of (i) the expiration of the required response
time period described in Section 4.3(d) or (ii) receipt by the Transferring
Party of the election notice described in Section 4.3(d); PROVIDED that the
price at which each Common Share is transferred (excluding brokerage
commissions) shall be at least equal to 90% of the Offer Price.
(g) If (i) the consideration specified in the Offer Notice consists of, or
includes, consideration other than cash or a publicly traded security for which
a closing market price is published for each Business Day, or (ii) any property
other than Common Shares is proposed to be transferred in connection with the
transaction to which the Offer Notice relates, then the price payable by Diller
under this Section 4.3 for the Common Shares being transferred shall be equal to
the Fair Market Value of such consideration which shall be determined in the
manner set forth in Section 4.3(h). Notwithstanding anything to the contrary
contained in this Section 4.3, the time periods applicable to an election by
Diller to purchase the offered securities set forth in Section 4.3(a) shall not
be deemed to commence until the Fair Market Value has been determined; PROVIDED
that, in the case of a third party tender offer or exchange offer, in no event
shall any such election be permitted later than five Business Days prior to the
latest time by which Common Shares shall be tendered in order to be accepted
pursuant to such offer or to qualify for any proration applicable to such offer
if all conditions to such offer (other than the number of shares tendered) have
been satisfied or waived. Each of Diller and Universal agrees to use its best
efforts to cause the Fair Market Value to be determined as
D-17
promptly as practicable but in no event later than 10 Business Days after the
receipt by Diller of the Offer Notice.
(h) Promptly upon receipt by the Transferring Party of the Acceptance
Notice, each of Universal and Diller shall select an Independent Investment
Banking Firm each of which shall promptly make a determination (each such
determination, an "APPRAISAL") of the Fair Market Value of the Transferring
Party's Equity. If the higher of such Appraisals is less than or equal to 110%
of the lower of such Appraisals, then the Fair Market Value shall be equal to
the average of such Appraisals. If the higher of such Appraisals is greater than
110% of the lower of such Appraisals, then a third Independent Investment
Banking Firm (which shall be an Independent Investment Banking Firm that shall
not have been engaged by the Company, Universal or Diller for the three years
prior to the date of such selection) shall be selected by the first two
Independent Investment Banking Firms, which third Independent Investment Banking
Firm shall promptly make a determination of the Fair Market Value. The Fair
Market Value shall equal the average of the two of such three Appraisals closest
in value (or if there are no such two, then of all three Appraisals).
SECTION 4.4 RIGHT OF FIRST REFUSAL BETWEEN LIBERTY AND DILLER. (a) Any
Transfer of Common Shares by a member of the Liberty Stockholder Group or a
member of the Diller Stockholder Group (the "L/D TRANSFERRING PARTY") will be
subject to the right of first refusal provisions of this Section 4.4, other than
a Transfer by a member of the Liberty Stockholder Group or the Diller
Stockholder Group permitted by Section 4.1(a) hereof, a Transfer that is a sale
described in Section 4.2(e)(i) or a Market Sale that is not a Covered Market
Sale.
(b) Prior to effecting any Transfer referred to in Section 4.4(a), the L/D
Transferring Party shall deliver written notice (the "L/D OFFER NOTICE") to
Diller, if the L/D Transferring Party is a member of the Liberty Stockholder
Group, or to Liberty, if the L/D Transferring Party is a member of the Diller
Stockholder Group (the recipient of such notice, the "L/D OTHER PARTY"), which
Offer Notice shall specify (i) the Person to whom the L/D Transferring Party
proposes to make such Transfer or the proposed manner of Transfer in the case of
a public offering or a Covered Market Sale, (ii) the number or amount and
description of the Common Shares to be Transferred, (iii) except in the case of
a public offering or a Covered Market Sale, the L/D Offer Price (as defined
below), and (iv) all other material terms and conditions of the proposed
Transfer, including a description of any non-cash consideration sufficiently
detailed to permit valuation thereof, and which Offer Notice shall be
accompanied by any written offer from the prospective transferee to purchase
such Common Shares, if available and permitted pursuant to the terms thereof.
The L/D Offer Notice shall constitute an irrevocable offer to the L/D Other
Party, for the period of time described below, to purchase all (but not less
than all) of such Common Shares.
(c) For purposes of this Section 4.4, "L/D OFFER PRICE" shall mean the
purchase price per Common Share to be paid to the L/D Transferring Party in the
proposed transaction (as it may be adjusted in order to determine the net
economic value thereof). In the event that the consideration payable to the L/D
Transferring Party in a proposed transaction consists of securities, the
purchase price per share shall equal the fair market value of such securities
divided by the number of Common Shares to be Transferred. Such fair market value
shall be the market price of any publicly traded security and, if such security
is not publicly traded, the fair market value shall be equal to the Fair Market
Value (calculated in accordance with the method described in Section 4.3(h)) of
such security.
(d) If the L/D Other Party elects to purchase the offered Common Shares, it
shall give notice to the L/D Transferring Party within ten Business Days after
receipt of the L/D Offer Notice of its election (or in the case of a third party
tender offer or exchange offer, not later than five Business Days prior to the
expiration date of such offer; PROVIDED that all conditions to such offer (other
than with respect to the number of Common Shares tendered) shall have been
satisfied or waived and the L/D Offer Notice shall have been provided at least
ten Business Days prior to the expiration date of
D-18
such offer), which shall constitute a binding obligation, subject to standard
terms and conditions for a stock purchase contract between two significant
stockholders of an issuer (provided that the L/D Transferring Party shall not be
required to make any representations or warranties regarding the business of the
Company), to purchase the offered Common Shares, which notice shall include the
date set for the closing of such purchase, which date shall be no later than 20
Business Days following the delivery of such election notice, or, if later, five
Business Days after receipt of all required regulatory approvals; PROVIDED that
the closing shall only be delayed pending receipt of required regulatory
approvals if (i) the L/D Other Party is using reasonable efforts to obtain the
required regulatory approvals, (ii) there is a reasonable prospect of receiving
such regulatory approvals and (iii) if such closing is delayed more than 90 days
after the date of the L/D Other Party's notice of election to purchase, then the
L/D Other Party agrees to pay interest at the Reference Rate to the L/D
Transferring Party from such date to the closing date. Notwithstanding the
foregoing, such time periods shall not be deemed to commence with respect to any
purported notice that does not comply in all material respects with the
requirements of this Section 4.4(d). Liberty and Diller may assign their
respective rights to purchase under this Section 4.4 to any Person who is a
Permitted Designee.
(e) Subject to Section 4.4(f) in the case of a Covered Market Sale, if the
L/D Other Stockholder does not respond to the L/D Offer Notice within the
required response time period or elects not to purchase the offered Common
Shares, the L/D Transferring Party shall be free to complete the proposed
Transfer (to the same proposed transferee, in the case of a privately-negotiated
transaction) on terms no less favorable to the L/D Transferring Party or its
Affiliate, as the case may be, than those set forth in the L/D Offer Notice,
provided that (x) such Transfer is closed within (I) 90 days after the latest of
(A) the expiration of the foregoing required response time periods, or (B) the
receipt by the L/D Transferring Party of the foregoing election notice or, in
the case of (A) or (B), if later, five Business Days following receipt of all
required regulatory approvals; PROVIDED that the closing shall only be delayed
pending receipt of required regulatory approvals if (i) the L/D Transferring
Stockholder is using reasonable efforts to obtain the required regulatory
approvals and (ii) there is a reasonable prospect of receiving such regulatory
approvals, or (II) in the case of a public offering, within 20 days of the
declaration by the Commission of the effectiveness of a registration statement
filed with the Commission pursuant to this Agreement, and (y) the price at which
the Common Shares are transferred must be equal to or higher than the L/D Offer
Price (except in the case of a public offering, in which case the price at which
the Common Shares are sold (before deducting underwriting discounts and
commissions) shall be equal to at least 90% of the L/D Offer Price).
(f) If the L/D Other Stockholder does not respond to the L/D Offer Notice
with respect to a Covered Market Sale within the required response time period
or elects not to purchase the offered Common Shares, the L/D Transferring Party
shall be free to complete the proposed Covered Market Sale in one or more
transactions during the 90-day period commencing on the latest of (i) the
expiration of the required response time period described in Section 4.4(d) or
(ii) receipt by the L/D Transferring Party of the election notice described in
Section 4.4(d); PROVIDED that the price at which each Common Share is
transferred (excluding brokerage commissions) shall be at least equal to 90% of
the L/D Offer Price.
(g) If the L/D Other Party elects to exercise its right of first refusal
under this Section 4.4, the L/D Other Party shall pay the L/D Offer Price in
cash (by wire transfer of immediately available funds) or by the delivery of
marketable securities having an aggregate fair market value equal to the L/D
Offer Price; PROVIDED, that if the securities to be so delivered by the L/D
Other Party would not, in the L/D Transferring Party's possession, have at least
the same general degree of liquidity as the securities the L/D Transferring
Party was to receive in such proposed transaction (determined by reference to
the L/D Transferring Party's ability to dispose of such securities (including,
without limitation, the trading volume of such securities and the L/D Other
Party's percentage ownership of the issuer of such securities)), then the L/D
Other Party shall be required to deliver securities having an appraised value
D-19
(calculated in accordance with the method described in Section 4.3(h)) equal to
the L/D Offer Price. If the L/D Other Party delivers securities in payment of
the L/D Offer Price, it will cause the issuer of such securities to provide the
L/D Transferring Party with customary registration rights related thereto (if,
in the other transaction, the L/D Transferring Party would have received cash,
cash equivalents, registered securities or registration rights). Each of Diller
and Liberty agrees to use his or its commercially reasonable efforts (but not to
expend any money) to preserve for the other Stockholder, to the extent possible,
the tax benefits available to it in such proposed transaction, and to otherwise
seek to structure such transaction in the most tax efficient method available.
Notwithstanding the foregoing, if Diller pays the L/D Offer Price in securities,
such securities must be securities that Liberty is permitted to own under
applicable FCC Regulations.
(h) Notwithstanding anything to the contrary contained in this Section 4.4,
the time periods applicable to an election by the L/D Other Party to purchase
the offered securities shall not be deemed to commence until the fair market
value has been determined, provided that, in the case of a third party tender
offer or exchange offer, in no event shall any such election be permitted later
than five Business Days prior to the latest time by which Common Shares shall be
tendered in such offer if all conditions to such offer (other than the number of
shares tendered) have been satisfied or waived. Each of Diller and Liberty
agrees to use his and its best efforts to cause the fair market value to be
determined as promptly as practicable, but in no event later than ten Business
Days after the receipt by the L/D Other Stockholder of the L/D Offer Notice.
SECTION 4.5 (a) Subject to the right of first refusal of Diller pursuant to
Section 4.3, any direct or indirect Transfer of Common Shares by a member of the
Vivendi Stockholder Group with respect to which Diller would have a right of
first refusal pursuant to Section 4.3 will be subject to a right of first
refusal by Liberty on the same terms and conditions as are applicable to Diller
pursuant to Section 4.3, MUTATIS MUTANDIS.
(b) Liberty acknowledges and agrees that its right of first refusal pursuant
to this Section 4.5 is subject to the right of first refusal by Diller pursuant
to Section 4.3.
SECTION 4.6 TRANSFERS OF CLASS B SHARES. (a) Subject to the rights of
first refusal pursuant to Sections 4.3, 4.4 and 4.5 and subject to paragraph (c)
below, in the event that any Stockholder or any members of its Stockholders
Group (the "TRANSFERRING STOCKHOLDER") proposes to Transfer any shares of Class
B Common Stock, such Transferring Stockholder shall send a written notice (which
obligation may be satisfied by the delivery of the applicable Offer Notice) (the
"EXCHANGE NOTICE") to Diller, if the Transferring Stockholder is Liberty,
Universal or a member of their respective Stockholder Groups, or to Liberty, if
the Transferring Stockholder is Diller, Universal or a member of their
respective Stockholder Groups (the recipient of such notice, the
"NON-TRANSFERRING STOCKHOLDER"), that such Transferring Stockholder intends to
Transfer shares of Class B Common Stock, including the number of such shares
proposed to be Transferred. The Non-Transferring Stockholder(s) shall give
notice to the Transferring Stockholder within 20 days of its receipt of the
Exchange Notice of its or their desire to exchange some or all of such shares of
Class B Common Stock proposed to be Transferred for an equivalent number of
shares of Common Stock. If the Non-Transferring Stockholder(s) desire to
exchange some or all of such shares and to the extent that such shares are not
otherwise Transferred to any Stockholder (or its Permitted Designee) pursuant to
Section 4.3, 4.4 or 4.5, such shares of Class B Common Stock shall be exchanged;
PROVIDED that if the Transferring Stockholder is Universal or a member of its
Stockholder Group, first with Diller (to the extent he elects to exchange) and,
second with Liberty (to the extent that Liberty elects to exchange). Except to
the extent necessary to avoid liability under Section 16(b) of the Exchange Act
and subject to applicable law, any such exchange shall be consummated
immediately prior to the consummation of any such Transfer.
(b) If any shares of Class B Common Stock proposed to be Transferred are not
exchanged pursuant to the provisions of paragraph (a) above, prior to any such
Transfer, the Transferring
D-20
Stockholder shall convert, or cause to be converted, such shares of Class B
Common Stock into shares of Common Stock (or such other securities of the
Company into which such shares are then convertible).
(c) The provisions of Section 4.6(a) and 4.6(b) shall not be applicable to
any Transfers (i) to a member of such Stockholder's Stockholder Group, (ii)
pursuant to a pledge or grant of a security interest in compliance with clause
(y) of Section 4.1(a), or (iii) from Liberty, Diller or their respective
Stockholder Group to the other Stockholder or its or his Stockholder Group
subject to the terms of this Agreement.
SECTION 4.7 TRANSFEREES. (a) Any Permitted Transferee or Permitted
Designee of a Stockholder shall be subject to the terms and conditions of this
Agreement as if such Permitted Transferee or Permitted Designee were Universal
(if Universal or a Permitted Transferee of Universal is the transferor), Liberty
(if Liberty or a Permitted Transferee of Liberty is the transferor) or Diller
(if Diller or a Permitted Transferee of Diller is the transferor). Prior to the
initial acquisition of beneficial ownership of any Common Shares by any
Permitted Transferee (or a Permitted Designee), and as a condition thereto, each
Stockholder agrees (i) to cause its respective Permitted Transferees or
Permitted Designees to agree in writing with the other parties hereto to be
bound by the terms and conditions of this Agreement to the extent described in
the preceding sentence and (ii) that such Stockholder shall remain directly
liable for the performance by its respective Permitted Transferees or Permitted
Designees of all obligations of such Permitted Transferees or Permitted
Designees under this Agreement. Except as otherwise contemplated by this
Agreement (i) each of Universal, Diller and Liberty agrees not to cause or
permit any of its respective Permitted Transferees to cease to qualify as a
member of such Stockholder's Stockholders Group so long as such Permitted
Transferee beneficially owns any Common Shares, and if any such Permitted
Transferee shall cease to be so qualified, such Permitted Transferee shall
automatically upon the occurrence of such event cease to be a "Permitted
Transferee" for any purpose under this Agreement and (ii) each Stockholder
agrees not to Transfer any Common Shares to any Affiliate other than a Permitted
Transferee of such Stockholder.
(b) No Third Party Transferee shall have any rights or obligations under
this Agreement, except:
(i) in the case of a Third Party Transferee of Liberty (or any member of
the Liberty Stockholder Group) who acquires shares of Common Stock and who
(together with its Affiliates) would not be a Public Stockholder, such Third
Party Transferee shall be subject to the obligations of Liberty (but subject
to the other terms and conditions of this Agreement) pursuant to Section
3.1(a) (but shall not have the right to consent to any Contingent Matters),
Section 3.1(b), Section 3.1(c), Section 3.2, Section 3.5, as applicable,
this Section 4.7 and Article VI; PROVIDED that such Third Party Transferee
shall only be subject to such obligations for so long as it would not be a
Public Stockholder;
(ii) in the case of a Third Party Transferee of Universal (or any member
of the Vivendi Stockholder Group) who (together with its Affiliates) upon
consummation of any Transfer would not be a Public Stockholder, such Third
Party Transferee shall be subject to the obligations of Universal (but
subject to the other terms and conditions of this Agreement) pursuant to
Section 3.1(a), Section 3.1(b)(ii), Section 3.1(c), Section 3.2,
Section 3.5, as applicable, this Section 4.7 and Article VI; PROVIDED that
such Third Party Transferee shall only be subject to such obligations for so
long as it would not be a Public Stockholder; and
(iii) in the case of a Third Party Transferee of Diller (or any member
of the Diller Stockholder Group) who (together with its Affiliates) upon
consummation of any Transfer would not be a Public Stockholder, such Third
Party Transferee shall be subject to the obligations of Diller (but subject
to the other terms and conditions of this Agreement) pursuant to Section
3.1(a) (but shall not have the right to consent to any Contingent Matters),
3.1(b), Section 3.1(c), Section 3.5, as applicable, this Section 4.7 and
Article VI; PROVIDED that such Third Party
D-21
Transferee shall only be subject to such obligations for so long as it would
not be a Public Stockholder.
(c) Prior to the consummation of a Transfer described in Section 4.7(b) to
the extent rights and obligations are to be assigned, and as a condition
thereto, the applicable Third Party Transferee shall agree in writing with the
other parties hereto to be bound by the terms and conditions of this Agreement
to the extent described in Section 4.7(b). To the extent the Third Party
Transferee is not an "ULTIMATE PARENT ENTITY" (as defined in the HSR Act), the
ultimate parent entity of such Third Party Transferee shall agree in writing to
be directly liable for the performance of the Third Party Transferee to the same
extent Universal or Liberty would be liable for their respective Permitted
Transferees.
SECTION 4.8 NOTICE OF TRANSFER. To the extent any Stockholder and its
Permitted Transferees shall Transfer any Common Shares, such Stockholder shall,
within three Business Days following consummation of such Transfer, deliver
notice thereof to the Company and the other Stockholders; PROVIDED, HOWEVER,
that no such notice shall be required to be delivered unless the aggregate
Common Shares transferred by such Stockholder and its Permitted Transferees
since the date of the last notice delivered by such Stockholder pursuant to this
Section 4.8 exceeds 1% of the outstanding Common Shares.
SECTION 4.9 COMPLIANCE WITH TRANSFER PROVISIONS. Any Transfer or attempted
Transfer of Common Shares in violation of any provision of this Agreement shall
be void.
ARTICLE V
BDTV ENTITY ARRANGEMENTS
SECTION 5.1 MANAGEMENT. The business and affairs of each BDTV Entity will
be managed by a Board of Directors elected by the holders of a majority of the
voting equity interests in such BDTV Entity. Notwithstanding the foregoing, the
taking of any action by a BDTV Entity with respect to (i) to the extent
permitted by applicable law, any matter that would have constituted a
Fundamental Change under the 1997 Stockholders Agreement (as applied to such
BDTV Entity, MUTATIS MUTANDIS) or (ii) any acquisition or disposition (including
pledges) of any Common Shares held by such BDTV Entity, in either case, will
require the unanimous approval of the holders of all voting and non-voting
equity interests in such BDTV Entity.
SECTION 5.2 TREATMENT OF EXCHANGE SHARES. In the event that a holder of
Exchange Shares would be entitled to hold directly shares of Class B Common
Stock issuable upon an exchange of shares of Liberty Surviving Class B Stock but
for the limitation imposed by the FCC Regulations relating to a person's
aggregate voting power in the Company, and if such person would, under the FCC
Regulations, be permitted to hold directly a number of shares of Common Stock
equal to the number of shares of Class B Common Stock so issuable, then in
connection with such exchange, such holder will be required to offer to exchange
such shares of Class B Common Stock so receivable by it for Common Stock owned
by the Diller Stockholder Group and, if Diller does not accept such offer to
exchange, or if such exchange with the Diller Stockholder Group cannot be
accomplished on a tax-free basis (and the exchange of such Exchange Shares for
Common Shares would not otherwise be taxable), then such holder shall be
entitled to exchange such Exchange Shares for shares of Class B Common Stock and
thereafter convert such shares of Class B Common Stock into shares of Common
Stock.
Nothing in this Agreement shall obligate Liberty HSN to contribute any
Common Shares received pursuant to the Investment Agreement or the Holder
Exchange Agreement to a BDTV Entity.
D-22
SECTION 5.3 CHANGES TO BDTV STRUCTURES. Liberty and Diller agree, subject
to applicable law and FCC Regulations, to take such actions as may be reasonably
necessary, including but not limited to amending the certificate of
incorporation of the BDTV Entities, in order to provide Liberty with the ability
to transfer, directly or indirectly, such amounts of Common Shares Liberty is
permitted to sell hereunder.
SECTION 5.4 TRANSFERS OF BDTV INTERESTS. Except as otherwise specifically
provided in this Agreement (including Section 4.1(b)), no transfers or other
dispositions (including pledges), directly or indirectly, of any interest in (a)
any BDTV Limited Entity by Liberty or (b) any BDTV Entity by Diller will be
permitted without the consent of the other; PROVIDED, that (i) Liberty shall be
entitled to transfer all or part of its interest in a BDTV Entity to members of
the Liberty Stockholder Group, (ii) at such time Liberty becomes the owner of
any voting securities of any BDTV Limited Entity, such BDTV Limited Entity shall
be deemed to be a BDTV Unrestricted Entity, and (iii) in connection with any
sale by Diller entitling Liberty to a right pursuant to Section 4.2, Liberty and
Diller shall take such reasonable action as may be required in order for such
interest in a BDTV Limited Entity to be sold in any such transaction. Without
the prior written consent of Liberty, Diller shall not Transfer any interest in
a BDTV Entity (other than to Liberty or, subject to Liberty's reasonable
consent, a member of the Diller Stockholder Group).
For purposes of determining whether Liberty is permitted to transfer the
Common Shares held by a BDTV Unrestricted Entity, (i) such BDTV Unrestricted
Entity shall be deemed to be a member of the Liberty Stockholder Group and the
restrictions on transfers of interests in BDTV Entities shall not apply to
Liberty (subject, however, to the other restrictions on transfer of Common
Shares set forth herein, including the Right of First Refusal) and (ii) in
connection with any proposed sale by Liberty HSN of the Common Shares held by a
BDTV Entity (or its equity interest in such BDTV Entity), Liberty shall be
entitled to purchase Diller's entire interest in such BDTV Entity for an amount
in cash equal to the Diller Interest Purchase Price or, at its election, require
Diller to sell his interest in such BDTV Entity to any such transferee for a pro
rata portion of the consideration to be paid by the applicable transferee in
such transaction.
At such time as (i) the CEO Termination Date has occurred or Diller becomes
Disabled or (ii) the Diller Stockholder Group ceases to own its Eligible
Stockholder Amount of Common Shares, Diller shall be required to sell his entire
interest in the BDTV Entities to Liberty (or Liberty's designee) at a price
equal to the Diller Interest Purchase Price.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 CONFLICTING AGREEMENTS. Each of the Stockholders represents
and warrants that such party has not granted and is not a party to any proxy,
voting trust or other agreement that is inconsistent with or conflicts with any
provision of this Agreement.
SECTION 6.2 DURATION OF AGREEMENT. Except as otherwise provided in this
Agreement, the rights and obligations of a Stockholder under this Agreement
shall terminate as follows:
(a) Universal shall cease to be entitled to exercise any rights and shall
cease to have any obligations under this Agreement as of the date that it ceases
to have the right under the Governance Agreement to designate any directors to
the Board (the "UNIVERSAL TERMINATION DATE").
(b) Each of Liberty and Diller shall cease to be entitled to exercise any
rights and shall cease to have any obligations under this Agreement as of the
date that its Stockholder Group collectively ceases to own its Eligible
Stockholder Amount of Common Shares; PROVIDED that Liberty shall cease to be
entitled to exercise any rights and shall cease to have any obligations under
Section 4.2 at such time as
D-23
the Liberty Stockholder Group ceases to beneficially own at least 5% of the
outstanding Common Shares (the "LIBERTY TERMINATION DATE").
(c) Diller and each member of his Stockholder Group shall cease to be
entitled to exercise any rights under this Agreement if the CEO Termination Date
has occurred or Diller has become Disabled (the "DILLER TERMINATION DATE").
In addition, at such time as the CEO Termination Date has occurred or Diller
has become Disabled, neither the Diller Stockholder Group nor the Liberty
Stockholder Group shall have any obligation under this Agreement with respect to
the matters covered under Sections 3.4, 4.1 and 4.4. The obligations under
Section 3.1(d) terminate upon termination of the Transaction Agreement.
SECTION 6.3 FURTHER ASSURANCES. At any time or from time to time after the
date hereof, the parties agree to cooperate with each other, and at the request
of any other party, to execute and deliver any further instruments or documents
and to take all such further action as the other party may reasonably request in
order to evidence or effectuate the consummation of the transactions
contemplated hereby and to otherwise carry out the intent of the parties
hereunder.
SECTION 6.4 AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against any Stockholder unless such modification, amendment or waiver
is approved in writing by each Stockholder; PROVIDED THAT with respect to any
provision containing an agreement between only two Stockholders or pursuant to
which only two Stockholders have rights thereunder, such provision may be
modified or waived by approval in writing by such Stockholders, without the
consent of the third Stockholder unless such modification or waiver adversely
affects the rights of such third Stockholder as provided under this Agreement or
the Governance Agreement. The failure of any party to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
SECTION 6.5 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
SECTION 6.6 EFFECTIVE DATE. Other than with respect to Section 3.1(d)
which shall be effective as of the date hereof, this Agreement shall become
effective immediately upon the Closing.
SECTION 6.7 ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this document and the Transaction Documents embody the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, that may have related
to the subject matter hereof in any way. Without limiting the generality of the
foregoing, to the extent that any of the terms hereof are inconsistent with the
rights or obligations of any Stockholder under any other agreement with any
other Stockholder, the terms of this Agreement shall govern. Upon the Closing,
the 1997 Stockholders Agreement shall terminate and shall be superseded by this
Agreement.
SECTION 6.8 SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the
rights or obligations under this Agreement shall be assigned, in whole or in
part (except by operation of law pursuant to a merger whose purpose is not to
avoid the provisions of this Agreement), by any party without the prior written
consent of the other parties hereto. Subject to the foregoing, this Agreement
shall bind and inure to the benefit of and be enforceable by the parties hereto
and their respective successors and assigns.
D-24
SECTION 6.9 COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
SECTION 6.10 LIABILITIES UNDER FEDERAL SECURITIES LAWS. The exercise by
any Stockholder (or its Affiliates or Stockholder Group, if applicable) (and
including, in the case of the Liberty Stockholder Group, its exercise of the
preemptive rights under Article III of the Governance Agreement or the rights
relating to the Holder Exchange Agreement) of any rights under this Agreement
shall be subject to such reasonable delay as may be required to prevent any
Stockholder or its respective Stockholder Group from incurring any liability
under the federal securities laws and the parties agree to cooperate in good
faith in respect thereof.
SECTION 6.11 REMEDIES. (a) Each party hereto acknowledges that money
damages would not be an adequate remedy in the event that any of the covenants
or agreements in this Agreement are not performed in accordance with its terms,
and it is therefore agreed that in addition to and without limiting any other
remedy or right it may have, the non-breaching party will have the right to an
injunction, temporary restraining order or other equitable relief in any court
of competent jurisdiction enjoining any such breach and enforcing specifically
the terms and provisions hereof.
(b) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
SECTION 6.12 NOTICES. Any notice, request, claim, demand or other
communication under this Agreement shall be in writing, shall be either
personally delivered, delivered by facsimile transmission, or sent by reputable
overnight courier service (charges prepaid) to the address for such Person set
forth below or such other address as the recipient party has specified by prior
written notice to the other parties hereto and shall be deemed to have been
given hereunder when receipt is acknowledged for personal delivery or facsimile
transmission or one day after deposit with a reputable overnight courier
service.
If to Vivendi and/or Universal:
Vivendi Universal, S.A.
375 Park Avenue
New York, NY 10152
Attention: Jean-Laurent Nabet
George Bushnell III
Telephone: (212) 572-7000
Facsimile: (212) 572-7188
and
Universal Studios, Inc.
100 Universal City Plaza
Universal City, CA 91608
Attention: Karen Randall, Esq.
Telephone: (818) 777-1000
Facsimile: (818) 866-3444
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
D-25
Attention: Faiza J. Saeed, Esq.
Telephone: (212) 474-1000
Facsimile: (212) 474-3700
If to Liberty:
Liberty Media Corporation
12300 Liberty Boulevard
Englewood, CO 80112
Attention: General Counsel
Telephone: (720) 875-5400
Facsimile: (720) 875-5382
with a copy to:
Baker Botts L.L.P.
599 Lexington Avenue
Suite 2900
New York, New York 10022
Attention: Frederick H. McGrath, Esq.
Telephone: (212) 705-5000
Facsimile: (212) 705-5125
If to Diller:
c/o USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Telephone: (212) 314-7300
Facsimile: (212) 314-7329
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Pamela S. Seymon, Esq.
Andrew J. Nussbaum, Esq.
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
SECTION 6.13 ADJUSTMENT OF SHARES NUMBERS. If, after the date of this
Agreement, there is a subdivision, split, stock dividend, combination,
reclassification or similar event with respect to any of the shares of capital
stock referred to in this Agreement, then, in any such event, the numbers and
types of shares of such capital stock referred to in this Agreement shall be
adjusted to the number and types of shares of such capital stock that a holder
of such number of shares of such capital stock would own or be entitled to
receive as a result of such event if such holder had held such number of shares
immediately prior to the record date for, or effectiveness of, such event.
SECTION 6.14 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware without giving effect to the principles of conflicts of law. Each of
the parties hereto hereby irrevocably and unconditionally consents to submit to
the non-exclusive jurisdiction of the courts of the State of Delaware for any
action, proceeding or investigation in any court or before any governmental
authority ("LITIGATION") arising out of or relating to this Agreement and the
transactions contemplated hereby and further
D-26
agrees that service of any process, summons, notice or document by U.S. mail to
its respective address set forth in this Agreement shall be effective service of
process for any Litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of Delaware, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such Litigation brought in any such court has
been brought in an inconvenient forum. Each of the parties irrevocably and
unconditionally waives, to the fullest extent permitted by applicable law, any
and all rights to trial by jury in connection with any Litigation arising out of
or relating to this Agreement or the transactions contemplated hereby.
SECTION 6.15 INTERPRETATION. The table of contents and headings contained
in this Agreement are for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". Whenever it is necessary for
purposes of this Agreement to determine whether an exchange is tax-free or
taxable, such determination shall be made without regard to any interest imputed
pursuant to Section 483 of the Code.
D-27
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first written above.
UNIVERSAL STUDIOS, INC.,
By: /s/ GUILLAUME HANNEZO
-----------------------------------------
Name: Guillaume Hannezo
Title: Special Power of Attorney
LIBERTY MEDIA CORPORATION,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: President
By: /s/ BARRY DILLER
-----------------------------------------
BARRY DILLER
VIVENDI UNIVERSAL, S.A.,
By: /s/ JEAN-MARIE MESSIER
-----------------------------------------
Name: Jean-Marie Messier
Title: Chairman and Chief Executive
Officer
D-28
APPENDIX E
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED EXCEPT AS EXPRESSLY
PERMITTED UNDER THE STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER 16,
2002, BY AND AMONG USA NETWORKS, INC. AND THE OTHER PARTIES SET FORTH
ON THE SIGNATURE PAGES THERETO, AS THE SAME MAY BE AMENDED FROM TIME
TO TIME, AND OTHERWISE IN COMPLIANCE WITH FEDERAL AND APPLICABLE
STATE SECURITIES LAWS.
FORM
OF
EQUITY WARRANT AGREEMENT
dated as of , 2002
for
WARRANTS TO PURCHASE
UP TO 60,467,735* SHARES OF COMMON STOCK
EXPIRING , 2012
between
USA NETWORKS, INC.
and
THE BANK OF NEW YORK, as
Equity Warrant Agent
------------------------
* Subject to adjustment as described in this Agreement.
E-1
TABLE OF CONTENTS
PAGE
---------
ARTICLE 1.
DEFINITIONS................................................. E-3
ARTICLE 2.
ISSUANCE OF EQUITY WARRANTS AND EXECUTION AND DELIVERY OF
EQUITY WARRANT CERTIFICATES................................. E-4
2.1. Issuance of Equity Warrants................................. E-4
2.2. Form and Execution of Equity Warrant Certificates........... E-4
2.3. Issuance and Delivery of Equity Warrant Certificates........ E-5
2.4. Temporary Equity Warrant Certificates....................... E-5
2.5. Payment of Taxes............................................ E-5
ARTICLE 3.
DURATION AND EXERCISE OF EQUITY WARRANTS.................... E-6
3.1. Exercise Price.............................................. E-6
3.2. Duration of Equity Warrants................................. E-6
3.3. Exercise of Equity Warrants................................. E-6
ARTICLE 4.
ADJUSTMENTS OF NUMBER OF SHARES............................. E-7
4.1. Adjustments................................................. E-7
4.2. Statement on Warrants....................................... E-9
4.3. Cash Payments in Lieu of Fractional Shares.................. E-9
4.4. Notices to Warrantholders................................... E-9
ARTICLE 5.
OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF EQUITY
WARRANTS.................................................... E-10
5.1. No Rights as Holder of Common Stock Conferred by Equity
Warrants or Equity Warrant Certificates..................... E-10
5.2. Lost, Stolen, Destroyed or Mutilated Equity Warrant
Certificates................................................ E-10
5.3. Holders of Equity Warrants May Enforce Rights............... E-10
5.4. Consolidation or Merger or Sale of Assets................... E-10
ARTICLE 6.
EXCHANGE AND TRANSFER OF EQUITY WARRANTS.................... E-11
6.1. Equity Warrant Register; Exchange and Transfer of Equity
Warrants.................................................... E-11
6.2. Treatment of Holders of Equity Warrants..................... E-12
6.3. Cancellation of Equity Warrant Certificates................. E-12
ARTICLE 7.
CONCERNING THE EQUITY WARRANT AGENT......................... E-12
7.1. Equity Warrant Agent........................................ E-12
7.2. Conditions of Equity Warrant Agent's Obligations............ E-12
7.3. Compliance with Applicable Laws............................. E-14
7.4. Resignation and Appointment of Successor.................... E-14
ARTICLE 8.
MISCELLANEOUS............................................... E-15
8.1. Amendment................................................... E-15
8.2. Notices and Demands to the Company and Equity Warrant
Agent....................................................... E-15
8.3. Addresses for Notices....................................... E-15
8.4. Governing Law............................................... E-15
8.5. Governmental Approvals...................................... E-15
8.6. Reservation of Shares of Common Stock....................... E-16
8.7. Covenant Regarding Shares of Common Stock................... E-16
8.8. Persons Having Rights Under Agreement....................... E-16
8.9. Limitation of Liability..................................... E-16
8.10. Restrictions on Transfer/Registration Rights................ E-16
8.11. Headings.................................................... E-17
8.12. Counterparts................................................ E-17
8.13. Inspection of Agreement..................................... E-17
E-2
THIS EQUITY WARRANT AGREEMENT (the "AGREEMENT"), dated as of ,
2002, between USA Networks, Inc., a Delaware corporation (the "COMPANY"), and
Bank of New York, a New York corporation, as warrant agent (the "EQUITY WARRANT
AGENT").
WHEREAS, pursuant to the Transaction Agreement, by and among the Company,
Vivendi Universal, S.A., Universal Studios, Inc. (the "INITIAL HOLDER"), Liberty
Media Corporation, Mr. Barry Diller and USANi LLC, dated as of December 16,
2001, the Company has agreed to issue to the Initial Holder an aggregate of
60,467,735 warrants,+ subject to adjustment pursuant to Section 4.1 hereof
(collectively, the "EQUITY WARRANTS" or, individually, an "EQUITY WARRANT"),
each Equity Warrant representing the right to purchase one share of common
stock, par value $.01 per share, of the Company (the "COMMON STOCK") and being
evidenced by certificates herein called the "EQUITY WARRANT CERTIFICATES";
WHEREAS, the Company desires the Equity Warrant Agent to assist the Company
in connection with the issuance, exchange, cancellation, replacement and
exercise of the Equity Warrants, and in this Agreement wishes to set forth,
among other things, the terms and conditions on which the Equity Warrants may be
issued, exchanged, cancelled, replaced and exercised; and
WHEREAS, the Company has duly authorized the execution and delivery of this
Agreement to provide for the issuance of Equity Warrants to be exercisable at
such times and for such prices, and to have such other provisions, as shall be
fixed as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
"AGREEMENT" shall have the meaning set forth in the preamble.
"CLOSING PRICE" for each Trading Day shall be the last reported sales price
regular way, during regular trading hours, or, in case no such reported sales
takes place on such day, the average of the closing bid and asked prices regular
way, during regular trading hours, for such day, in each case on The Nasdaq
Stock Market or, if not listed or quoted on such market, on the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if not listed or admitted to trading on a national
securities exchange, the last sale price regular way for the Common Stock as
published by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), or if such last sale price is not so published by NASDAQ or
if no such sale takes place on such day, the mean between the closing bid and
asked prices for the Common Stock as published by NASDAQ. If the Common Stock is
not publicly held or so listed or publicly traded, "Closing Price" shall mean
the Fair Market Value per share as determined in good faith by the Board of
Directors of the Company or, if such determination cannot be made, by a
nationally recognized independent investment banking firm selected in good faith
by the Board of Directors of the Company.
"COMMON STOCK" shall have the meaning set forth in the recitals.
"COMPANY" shall have the meaning set forth in the preamble.
"CURRENT MARKET PRICE" shall have the meaning set forth in Section 4.1(d).
"EQUITY WARRANT" and "EQUITY WARRANTS" shall have the meaning set forth in
the recitals.
"EQUITY WARRANT AGENT" shall have the meaning set forth in the preamble.
"EQUITY WARRANT CERTIFICATES" shall have the meaning set forth in the
recitals.
"EQUITY WARRANT REGISTER" shall have the meaning set forth in Section 6.1.
------------------------
+ Comprised of 24,187,094 warrants each at $27.50 and $32.50 and 12,093,547
warrants at $37.50.
E-3
"EXERCISE DATE" shall have the meaning set forth in 3.3(a).
"EXERCISE PRICE" shall have the meaning set forth in the applicable Equity
Warrant Certificate.
"EXPIRATION DATE" means 5:00 p.m. New York City time on , 2012.
"FAIR MARKET VALUE" means the amount that a willing buyer would pay a
willing seller in an arm's length transaction.
"FORMED, SURVIVING OR ACQUIRING CORPORATION" shall have the meaning set
forth in Section 5.4.
"GOVERNANCE AGREEMENT" shall have the meaning set forth in Section 8.10.
"HOLDER" means the person or persons in whose name such Equity Warrant
Certificate shall then be registered as set forth in the Equity Warrant Register
to be maintained by the Equity Warrant Agent pursuant to Section 6.1 for that
purpose.
"INITIAL HOLDER" shall have the meaning set forth in the recitals.
"NON-ELECTING SHARE" shall have the meaning set forth in Section 5.4.
"OFFICER'S CERTIFICATE" shall have the meaning set forth in Section 7.2(e).
"PROSPECTUS" shall have the meaning set forth in Section 8.9.
"SALE TRANSACTION" shall have the meaning set forth in Section 5.4.
"STOCKHOLDERS AGREEMENT" shall have the meaning set forth in Section 8.10.
"TIME OF DETERMINATION" shall have the meaning set forth in Section 4.1(d).
"TRADING DAY" shall mean a day on which the securities exchange utilized for
the purpose of calculating the Closing Price shall be open for business or, if
the shares of Common Stock shall not be listed on such exchange for such period,
a day on which The Nasdaq Stock Market is open for business.
ARTICLE 2.
ISSUANCE OF EQUITY WARRANTS AND EXECUTION AND
DELIVERY OF EQUITY WARRANT CERTIFICATES
2.1. ISSUANCE OF EQUITY WARRANTS. Equity Warrants may be issued by the
Company from time to time.
2.2. FORM AND EXECUTION OF EQUITY WARRANT CERTIFICATES.
(a) The Equity Warrants shall be evidenced by the Equity Warrant
Certificates, which shall be in registered form and substantially in the form
set forth as Exhibit A attached hereto. Each Equity Warrant Certificate shall be
dated the date it is countersigned by the Equity Warrant Agent and may have such
letters, numbers or other marks of identification and such legends or
endorsements printed, lithographed or engraved thereon as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any securities exchange on which the Equity Warrants may be
listed, or to conform to usage, as the officer of the Company executing the same
may approve (his execution thereof to be conclusive evidence of such approval).
Each Equity Warrant Certificate shall evidence one or more Equity Warrants.
(b) The Equity Warrant Certificates shall be signed in the name and on
behalf of the Company by its Chairman, its Vice Chairman, its Chief Executive
Officer, President or a Vice President (any reference to a Vice President of the
Company herein shall be deemed to include any Vice President of the Company
whether or not designated by a number or a word or words added before or after
the title "Vice President") under its corporate seal, and attested by its
Secretary or an Assistant Secretary.
E-4
Such signatures may be manual or facsimile signatures of the present or any
future holder of any such office and may be imprinted or otherwise reproduced on
the Equity Warrant Certificates. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Equity Warrant Certificates.
(c) No Equity Warrant Certificate shall be valid for any purpose, and no
Equity Warrant evidenced thereby shall be deemed issued or exercisable, until
such Equity Warrant Certificate has been countersigned by the manual or
facsimile signature of the Equity Warrant Agent. Such signature by the Equity
Warrant Agent upon any Equity Warrant Certificate executed by the Company shall
be conclusive evidence that the Equity Warrant Certificate so countersigned has
been duly issued hereunder.
(d) In case any officer of the Company who shall have signed any Equity
Warrant Certificate either manually or by facsimile signature shall cease to be
such officer before the Equity Warrant Certificate so signed shall have been
countersigned and delivered by the Equity Warrant Agent, such Equity Warrant
Certificate nevertheless may be countersigned and delivered as though the person
who signed such Equity Warrant Certificate had not ceased to be such officer of
the Company; and any Equity Warrant Certificate may be signed on behalf of the
Company by such person as, at the actual date of the execution of such Equity
Warrant Certificate, shall be the proper officer of the Company, although at the
date of the execution of this Agreement such person was not such an officer.
2.3. ISSUANCE AND DELIVERY OF EQUITY WARRANT CERTIFICATES. At any time and
from time to time after the execution and delivery of this Agreement, the
Company may deliver Equity Warrant Certificates executed by the Company to the
Equity Warrant Agent for countersignature. Except as provided in the following
sentence, the Equity Warrant Agent shall thereupon countersign and deliver such
Equity Warrant Certificates to or upon the written request of the Company.
Subsequent to the original issuance of an Equity Warrant Certificate evidencing
Equity Warrants, the Equity Warrant Agent shall countersign a new Equity Warrant
Certificate evidencing such Equity Warrants only if such Equity Warrant
Certificate is issued in exchange or substitution for one or more previously
countersigned Equity Warrant Certificates evidencing such Equity Warrants or in
connection with their transfer, as hereinafter provided.
2.4. TEMPORARY EQUITY WARRANT CERTIFICATES. Pending the preparation of a
definitive Equity Warrant Certificate, the Company may execute, and upon the
order of the Company the Equity Warrant Agent shall countersign and deliver,
temporary Equity Warrant Certificates that are printed, lithographed,
typewritten, mimeographed or otherwise produced, substantially of the tenor of
the definitive Equity Warrant Certificates in lieu of which they are issued and
with such appropriate insertions, omissions, substitutions and other variations
as the officer executing such Equity Warrant Certificates may determine, as
evidenced by his execution of such Equity Warrant Certificates.
If temporary Equity Warrant Certificates are issued, the Company will cause
definitive Equity Warrant Certificates to be prepared without unreasonable
delay. After the preparation of definitive Equity Warrant Certificates, the
temporary Equity Warrant Certificates shall be exchangeable for definitive
Equity Warrant Certificates upon surrender of the temporary Equity Warrant
Certificates at the corporate trust office of the Equity Warrant Agent. Upon
surrender for cancellation of any one or more temporary Equity Warrant
Certificates, the Company shall execute and the Equity Warrant Agent shall
countersign and deliver in exchange therefor definitive Equity Warrant
Certificates representing the same aggregate number of Equity Warrants. Until so
exchanged, the temporary Equity Warrant Certificates shall in all respects be
entitled to the same benefits under this Agreement as definitive Equity Warrant
Certificates.
2.5. PAYMENT OF TAXES. The Company will pay all stamp and other duties, if
any, to which this Agreement or the original issuance, or exercise, of the
Equity Warrants or Equity Warrant Certificates may be subject under the laws of
the United States of America or any state or locality; PROVIDED, HOWEVER, that
the Holder, and not the Company, shall be required to pay any stamp or other tax
or
E-5
other governmental charge that may be imposed in connection with any transfer
involved in the issuance of the Common Stock where the Holder designates the
shares to be issued in a name other than the name of the Holder; and in the
event that any such transfer is involved, the Company shall not be required to
issue any Common Stock (and the purchase of the shares of Common Stock issued
upon the exercise of such Holder's Equity Warrant shall not be deemed to have
been consummated) until such tax or other charge shall have been paid or it has
been established to the Company's satisfaction that no such tax or other charge
is due.
ARTICLE 3.
DURATION AND EXERCISE OF EQUITY WARRANTS
3.1. EXERCISE PRICE. Each Holder shall have the right to purchase the number
of fully paid and nonassessable shares of Common Stock which the Holder may at
the time be entitled to receive on exercise of such Equity Warrant and payment
of the Exercise Price, subject to the terms herein. The number of shares of
Common Stock which shall be purchasable upon the payment of the Exercise Price
and to the extent provided therein, the Exercise Price, shall be subject to
adjustment pursuant to Article 4 hereof.
3.2. DURATION OF EQUITY WARRANTS. Each Equity Warrant is exercisable at any
time commencing on , 2002++ up to the Expiration Date. Each Equity
Warrant not exercised at or before the Expiration Date shall become void, and
all rights of the Holder of such Equity Warrant thereunder and under this
Agreement shall cease.
3.3. EXERCISE OF EQUITY WARRANTS.
(a) The Holder of an Equity Warrant shall have the right, at its option, to
exercise such Equity Warrant and purchase one share of Common Stock during the
period referred to in Section 3.2, subject to adjustment pursuant to Article 4
hereof. Except as may be provided in an Equity Warrant Certificate, an Equity
Warrant may be exercised by completing the form of election to purchase set
forth on the reverse side of the Equity Warrant Certificate, by duly executing
the same, and by delivering the same, together with payment in full of the
Exercise Price, in lawful money of the United States of America, in cash or by
certified or official bank check or by bank wire transfer, to the Equity Warrant
Agent. Except as may be provided in an Equity Warrant Certificate, the date on
which such Equity Warrant Certificate and payment are received by the Equity
Warrant Agent as aforesaid shall be deemed to be the date on which the Equity
Warrant is exercised and the relevant shares of Common Stock are issued (the
"EXERCISE DATE").
(b) Upon the exercise of an Equity Warrant, the Company shall, as soon as
practicable, issue, to or upon the order of the Holder of such Equity Warrant,
the shares of Common Stock to which such Holder is entitled, registered in such
name or names as may be directed by such Holder.
(c) Unless the Equity Warrant Agent and the Company agree otherwise, the
Equity Warrant Agent shall deposit all funds received by it in payment of the
Equity Warrant Price for Equity Warrants in the account of the Company
maintained with it for such purpose and shall advise the Company by telephone by
5:00 P.M., New York City time, of each day on which a payment of the Exercise
Price for Equity Warrants is received of the amount so deposited in its account.
The Equity Warrant Agent shall promptly confirm such telephone advice in writing
to the Company.
(d) The Equity Warrant Agent shall, from time to time, as promptly as
practicable, advise the Company of (i) the number of Equity Warrants exercised
as provided herein, (ii) the instructions of each Holder of such Equity Warrants
with respect to delivery of the Common Stock issued upon exercise of such Equity
Warrants to which such Holder is entitled upon such exercise, and (iii) such
------------------------
++ Date following the six-month anniversary of the Closing.
E-6
other information as the Company shall reasonably require. Such advice may be
given by telephone to be confirmed in writing.
ARTICLE 4.
ADJUSTMENTS OF NUMBER OF SHARES
4.1. ADJUSTMENTS. The number of shares of Common Stock purchasable upon the
exercise of the Equity Warrants shall be subject to adjustment as follows:
(a) In case the Company shall (A) pay a dividend or make a distribution on
its Common Stock in shares of Common Stock, (B) subdivide its outstanding shares
of Common Stock into a greater number of shares, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, or (D) issue by
reclassification, recapitalization or reorganization of its Common Stock any
shares of capital stock of the Company, then in each such case the number of
shares of Common Stock issuable upon exercise of an Equity Warrant shall be
equitably adjusted so that the Holder of any Equity Warrant thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock or other capital stock of the Company which such Holder would have
owned or been entitled to receive immediately following such action had such
Equity Warrant been exercised immediately prior to the occurrence of such event.
An adjustment made pursuant to this subsection 4.1(a) shall become effective
immediately after the record date, in the case of a dividend or distribution, or
immediately after the effective date, in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
subsection 4.1(a), the Holder of any Equity Warrant thereafter exercised shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be in its good faith judgment and shall be
described in a statement filed by the Company with the Equity Warrant Agent)
shall determine the allocation of the Exercise Price between or among shares of
such classes of capital stock or shares of Common Stock and other capital stock.
Such adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall issue options, rights or warrants to holders
of its outstanding shares of Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned below) to subscribe for or
purchase shares of Common Stock or other securities convertible or exchangeable
for shares of Common Stock at a price per share of Common Stock less than the
Current Market Price (as determined pursuant to subsection (d) of this
Section 4.1) (other than pursuant to any stock option, restricted stock or other
incentive or benefit plan or stock ownership or purchase plan for the benefit of
employees, directors or officers or any dividend reinvestment plan of the
Company in effect at the time hereof or any other similar plan adopted or
implemented hereafter, it being agreed that none of the adjustments set forth in
this Section 4.1 shall apply to the issuance of stock, rights, warrants or other
property pursuant to such benefit plans), then the number of shares of Common
Stock issuable upon exercise of an Equity Warrant shall be adjusted so that it
shall equal the product obtained by multiplying the number of shares of Common
Stock issuable upon exercise of an Equity Warrant immediately prior to the date
of issuance of such rights or warrants by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants (immediately prior to such issuance) plus
the number of additional shares of Common Stock offered for subscription or
purchase and of which the denominator shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants
(immediately prior to such issuance) plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Current Market Price. Such adjustment shall be made successively
whenever any rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants; PROVIDED, HOWEVER, in the event that all the
shares of Common Stock offered for
E-7
subscription or purchase are not delivered upon the exercise of such rights or
warrants, upon the expiration of such rights or warrants the number of shares of
Common Stock issuable upon exercise of an Equity Warrant shall be readjusted to
the number of shares of Common Stock issuable upon exercise of an Equity Warrant
which would have been in effect had the numerator and the denominator of the
foregoing fraction and the resulting adjustment been made based upon the number
of shares of Common Stock actually delivered upon the exercise of such rights or
warrants rather than upon the number of shares of Common Stock offered for
subscription or purchase. In determining whether any security covered by this
Section 4.1(b) entitles the holders to subscribe for or purchase shares of
Common Stock at less than such Current Market Price, and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received by the Company for the issuance of such
options, rights, warrants or convertible or exchangeable securities, plus the
aggregate amount of additional consideration (as set forth in the instruments
relating thereto) to be received by the Company upon the exercise, conversion or
exchange of such securities, the value of such consideration, if other than
cash, to be determined by the Board of Directors in its good faith judgment
(whose determination shall be described in a statement filed by the Company with
the Equity Warrant Agent).
(c) In case the Company shall, by dividend or otherwise, distribute to all
holders of its outstanding Common Stock, evidences of its indebtedness or assets
(including securities and cash, but excluding any regular periodic cash dividend
of the Company and dividends or distributions payable in stock for which
adjustment is made pursuant to subsection (a) of this Section 4.1) or rights or
warrants to subscribe for or purchase securities of the Company (excluding those
referred to in subsection (b) of this Section 4.1), then in each such case the
number of shares of Common Stock issuable upon exercise of an Equity Warrant
shall be adjusted so that the same shall equal the product determined by
multiplying the number of shares of Common Stock issuable upon exercise of an
Equity Warrant immediately prior to the record date of such distribution by a
fraction of which the numerator shall be the Current Market Price as of the Time
of Determination, and of which the denominator shall be such Current Market
Price less the Fair Market Value on such record date (as determined by the Board
of Directors in its good faith judgment, whose determination shall be described
in a statement filed by the Company with the stock transfer or conversion agent,
as appropriate) of the portion of the capital stock or assets or the evidences
of indebtedness or assets so distributed to the holder of one share of Common
Stock or of such subscription rights or warrants applicable to one share of
Common Stock. Such adjustment shall be made successively whenever any such
distributions referred to in the first sentence of this Section 4.01(c) are made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(d) For the purpose of any computation under subsections (b) and (c) of this
Section 4.1, the "CURRENT MARKET PRICE" per share of Common Stock on any date
shall be deemed to be the average of the daily Closing Prices for the shorter of
(A) 10 consecutive Trading Days ending on the day immediately preceding the
applicable Time of Determination or (B) the period commencing on the date next
succeeding the first public announcement of the issuance of such rights or
warrants or such distribution through such last day prior to the applicable Time
of Determination. For purposes of the foregoing, the term "TIME OF
DETERMINATION" shall mean the time and date of the record date for determining
stockholders entitled to receive the rights, warrants or distributions referred
to in Section 4.1(b) and (c).
(e) In any case in which this Section 4.1 shall require that an adjustment
in the amount of Common Stock or other property to be received by a Holder upon
exercise of an Equity Warrant be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the Holder of any Equity Warrant exercised after such
record date the Common Stock or other property issuable upon such exercise over
and above the shares of Common Stock issuable upon such exercise prior to such
adjustment, PROVIDED, HOWEVER, that the Company shall deliver to such Holder a
due bill or other appropriate instrument evidencing such
E-8
Holder's right to receive such additional shares of Common Stock or other
property, if any, upon the occurrence of the event requiring such adjustment.
(f) In the event that the Amended and Restated Merger Agreement, dated as of
July 15, 2001, among the Company, Expedia, Inc. and Microsoft Corporation, is
terminated following the date hereof without consummation of the merger
contemplated thereby, the aggregate number of Equity Warrants shall be reduced
by 3,348,210* (subject to adjustment pursuant to Sections 4.1(a), (b) or (c)),
which reduction shall be allocated proportionately to any Equity Warrant
Certificates issued hereunder.
(g) No adjustment in the number of shares of Common Stock issuable upon
exercise of an Equity Warrant shall be required to be made pursuant to this
Section 4.1 unless such adjustment would require an increase or decrease of at
least 1% of such number; PROVIDED, HOWEVER, that any adjustments which by reason
of this subsection (g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
subsection 4.1(g) shall be made to the nearest cent or to the nearest 1/1000th
of a share, as the case may be. Except as set forth in subsections 4.1(a), (b),
and (c) above, the number of shares of Common Stock issuable upon exercise of an
Equity Warrant shall not be adjusted as a result of the issuance of Common
Stock, or any securities convertible into or exchangeable for Common Stock or
carrying the right to purchase any of the foregoing, in exchange for cash,
property or services.
4.2. STATEMENT ON WARRANTS. Irrespective of any adjustment in the amount of
Common Stock issued upon exercise of an Equity Warrant, Equity Warrants
theretofore or thereafter issued may continue to express the same number and
kind of shares as are stated in the Equity Warrants initially issuable pursuant
to this Agreement.
4.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional shares or
scrip representing fractions of shares of Common Stock shall be issued upon
exercise of the Equity Warrants. If more than one share of Equity Warrants shall
be exercised at one time by the same Holder, the number of full shares of Common
Stock issuable upon exercise thereof shall be computed on the basis of the
aggregate number of shares of Common Stock purchasable on exercise of the Equity
Warrants so requested to be exercised. In lieu of any fractional interest in a
share of Common Stock which would otherwise be deliverable upon the exercise of
such Equity Warrants, the Company shall pay to the Holder of such Equity
Warrants an amount in cash (computed to the nearest cent) equal to the Closing
Price on the Exercise Date (or the next Trading Day if such date is not a
Trading Day) multiplied by the fractional interest that otherwise would have
been deliverable upon exercise of such Equity Warrants.
4.4. NOTICES TO WARRANTHOLDERS. Upon any adjustment of the amount of Common
Stock issuable upon exercise of an Equity Warrant pursuant to Section 4.1 (but
not for any fractional cumulation as described in Section 4.1(f)), the Company
within 30 days thereafter shall (i) cause to be filed with the Equity Warrant
Agent an Officer's Certificate (as defined hereinafter) setting forth the amount
of Common Stock issuable upon exercise of an Equity Warrant after such
adjustment and setting forth in reasonable detail the method of calculation and
the facts upon which such calculations are based, which certificate, absent
manifest error and any failure to comply with Section 4.1 (other than failures
that are de minimus in nature), shall be conclusive evidence of the correctness
of the matters set forth therein, and (ii) cause to be given to each of the
registered Holders at his address appearing on the Equity Warrant Register (as
defined hereinafter) written notice of such adjustments by first-class mail,
postage prepaid.
------------------------
* In the event of adjustment, there would be an aggregate of 57,119,525
warrants, comprised of 22,847,810 warrants each at $27.50 and $32.50 and
11,423,905 warrants at $37.50.
E-9
ARTICLE 5.
OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS
OF EQUITY WARRANTS
5.1. NO RIGHTS AS HOLDER OF COMMON STOCK CONFERRED BY EQUITY WARRANTS OR
EQUITY WARRANT CERTIFICATES. No Equity Warrant or Equity Warrant Certificate
shall entitle the Holder to any of the rights of a holder of Common Stock,
including, without limitation, voting, dividend or liquidation rights.
5.2. LOST, STOLEN, DESTROYED OR MUTILATED EQUITY WARRANT CERTIFICATES. Upon
receipt by the Company and the Equity Warrant Agent of evidence reasonably
satisfactory to them of the ownership of and the loss, theft, destruction or
mutilation of any Equity Warrant Certificate and of indemnity (other than in
connection with any mutilated Equity Warrant certificates surrendered to the
Equity Warrant Agent for cancellation) reasonably satisfactory to them, the
Company shall execute, and the Equity Warrant Agent shall countersign and
deliver, in exchange for or in lieu of each lost, stolen, destroyed or mutilated
Equity Warrant Certificate, a new Equity Warrant Certificate evidencing a like
number of Equity Warrants of the same title. Upon the issuance of a new Equity
Warrant Certificate under this Section, the Company may require the payment of a
sum sufficient to cover any stamp or other tax or other governmental charge that
may be imposed in connection therewith and any other expenses (including the
fees and expenses of the Equity Warrant Agent) in connection therewith. Every
substitute Equity Warrant Certificate executed and delivered pursuant to this
Section in lieu of any lost, stolen or destroyed Equity Warrant Certificate
shall represent a contractual obligation of the Company, whether or not such
lost, stolen or destroyed Equity Warrant Certificate shall be at any time
enforceable by anyone, and shall be entitled to the benefits of this Agreement
equally and proportionately with any and all other Equity Warrant Certificates,
duly executed and delivered hereunder, evidencing Equity Warrants of the same
title. The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement of
lost, stolen, destroyed or mutilated Equity Warrant Certificates.
5.3. HOLDERS OF EQUITY WARRANTS MAY ENFORCE RIGHTS. Notwithstanding any of
the provisions of this Agreement, any Holder may, without the consent of the
Equity Warrant Agent, enforce and may institute and maintain any suit, action or
proceeding against the Company suitable to enforce, or otherwise in respect of
his right to exercise his Equity Warrants as provided in the Equity Warrants and
in this Agreement.
5.4. CONSOLIDATION OR MERGER OR SALE OF ASSETS. For purposes of this
Section 5.4, a "SALE TRANSACTION" means any transaction or event, including any
merger, consolidation, sale of assets, tender or exchange offer,
reclassification, compulsory share exchange or liquidation, in which all or
substantially all outstanding shares of the Company's Common Stock are converted
into or exchanged for stock, other securities, cash or assets or following which
any remaining outstanding shares of Common Stock fail to meet the listing
standards imposed by each of the New York Stock Exchange, the American Stock
Exchange and the Nasdaq National Market at the time of such transaction, but
shall not include any transaction the primary purpose of which is the
reincorporation of the Company in another U.S. jurisdiction so long as in such
transaction each Equity Warrant shall convert into an equity security of the
successor to the Company having identical rights as the Equity Warrant. If a
Sale Transaction occurs, then lawful provision shall be made by the corporation
formed by such Sale Transaction or the corporation whose securities, cash or
other property will immediately after the Sale Transaction be owned, by virtue
of such Sale Transaction, by the holders of Common Stock immediately prior to
the Sale Transaction, or the corporation which shall have acquired such
securities of the Company (collectively the "FORMED, SURVIVING OR ACQUIRING
CORPORATION"), as the case may be, providing that each Equity Warrant then
outstanding shall thereafter be exercisable for the kind and amount of
securities, cash or other property receivable upon such Sale Transaction by a
holder of the number of shares of Common Stock that would have been received
upon exercise of such Equity
E-10
Warrant immediately prior to such Sale Transaction assuming such holder of
Common Stock did not exercise his rights of election, if any, as to the kind or
amount of securities, cash or other property receivable upon such Sale
Transaction (PROVIDED that, if the kind or amount of securities, cash or other
property receivable upon such Sale Transaction is not the same for each share of
Common Stock in respect of which such rights of election shall not have been
exercised ("NON-ELECTING SHARE"), then for the purposes of this Section 5.4 the
kind and amount of securities, cash or other property receivable upon such Sale
Transaction for each Non-Electing Share shall be deemed to be the kind and
amount so receivable per share by a plurality of the Non-Electing Shares). At
the option of the Company, in lieu of the foregoing, the Company may require
that in a Sale Transaction each Holder of an Equity Warrant shall receive in
exchange for each such Equity Warrant a security of the Formed, Surviving or
Acquiring Corporation having substantially equivalent rights, other than as set
forth in this Section 5.4, as the Equity Warrant. Concurrently with the
consummation of such transaction, the Formed, Surviving or Acquiring Corporation
shall enter into a supplemental Equity Warrant Agreement so providing and
further providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided for in Section 4.1. The Formed, Surviving
or Acquiring Corporation shall mail to Holders a notice describing the
supplemental Equity Warrant Agreement. If the issuer of securities deliverable
upon exercise of Equity Warrants under the supplemental Equity Warrant Agreement
is an affiliate of the formed or surviving corporation, that issuer shall join
in the supplemental Equity Warrant Agreement. Notwithstanding anything to the
contrary herein, there will be no adjustments pursuant to Article 4 hereof in
case of the issuance of any shares of the Company's stock in a Sale Transaction
except as provided in this Section 5.4. The provisions of this Section 5.4 shall
similarly apply to successive Sale Transactions; PROVIDED, HOWEVER, that in no
event shall a Holder of an Equity Warrant be entitled to more than one
adjustment pursuant to this Section 5.4 in respect of a series of related
transactions.
ARTICLE 6.
EXCHANGE AND TRANSFER OF EQUITY WARRANTS
6.1. EQUITY WARRANT REGISTER; EXCHANGE AND TRANSFER OF EQUITY WARRANTS. The
Equity Warrant Agent shall maintain, at its corporate trust office or at 385
Rifle Camp Road, Reorganization Services Department, 5th Floor, West Paterson,
New Jersey 07424, a register (the "EQUITY WARRANT REGISTER") in which, upon the
issuance of Equity Warrants, and, subject to such reasonable regulations as the
Equity Warrant Agent may prescribe, it shall register Equity Warrant
Certificates and exchanges and transfers thereof. The Equity Warrant Register
shall be in written form or in any other form capable of being converted into
written form within a reasonable time.
Except as provided in the following sentence, upon surrender at the
corporate trust office of the Equity Warrant Agent or at 385 Rifle Camp Road,
Reorganization Services Department, 5th Floor, West Paterson, New Jersey 07424,
Equity Warrant Certificates may be exchanged for one or more other Equity
Warrant Certificates evidencing the same aggregate number of Equity Warrants of
the same title, or may be transferred in whole or in part. A transfer shall be
registered and an appropriate entry made in the Equity Warrant Register upon
surrender of an Equity Warrant Certificate to the Equity Warrant Agent at its
corporate trust office or at 385 Rifle Camp Road, Reorganization Services
Department, 5th Floor, West Paterson, New Jersey 07424 for transfer, properly
endorsed or accompanied by appropriate instruments of transfer and written
instructions for transfer, all in form satisfactory to the Company and the
Equity Warrant Agent. Whenever an Equity Warrant Certificate is surrendered for
exchange or transfer, the Equity Warrant Agent shall countersign and deliver to
the person or persons entitled thereto one or more Equity Warrant Certificates
duly executed by the Company, as so requested. The Equity Warrant Agent shall
not be required to effect any exchange or transfer which will result in the
issuance of an Equity Warrant Certificate evidencing a fraction of an Equity
Warrant. All Equity Warrant Certificates issued upon any exchange or transfer of
an Equity
E-11
Warrant Certificate shall be the valid obligations of the Company, evidencing
the same obligations, and entitled to the same benefits under this Agreement, as
the Equity Warrant Certificate surrendered for such exchange or transfer.
No service charge shall be made for any exchange or transfer of Equity
Warrants, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any such
exchange or transfer, in accordance with Section 2.5 hereof.
6.2. TREATMENT OF HOLDERS OF EQUITY WARRANTS. Every Holder of an Equity
Warrant, by accepting the Equity Warrant Certificate evidencing the same,
consents and agrees with the Company, the Equity Warrant Agent and with every
other Holder of Equity Warrants that the Company and the Equity Warrant Agent
may treat the record holder of an Equity Warrant Certificate as the absolute
owner of such Equity Warrant for all purposes and as the person entitled to
exercise the rights represented by such Equity Warrant.
6.3. CANCELLATION OF EQUITY WARRANT CERTIFICATES. In the event that the
Company shall purchase, redeem or otherwise acquire any Equity Warrants after
the issuance thereof, the Equity Warrant Certificate shall thereupon be
delivered to the Equity Warrant Agent and be canceled by it. The Equity Warrant
Agent shall also cancel any Equity Warrant Certificate (including any mutilated
Equity Warrant Certificate) delivered to it for exercise, in whole or in part,
or for exchange or transfer. Equity Warrant Certificates so canceled shall be
delivered by the Equity Warrant Agent to the Company from time to time, or
disposed of in accordance with the instructions of the Company.
ARTICLE 7.
CONCERNING THE EQUITY WARRANT AGENT
7.1. EQUITY WARRANT AGENT. The Company hereby appoints The Bank of New York
as Equity Warrant Agent of the Company in respect of the Equity Warrants upon
the terms and subject to the conditions set forth herein; and The Bank of New
York hereby accepts such appointment. The Equity Warrant Agent shall have the
powers and authority granted to and conferred upon it in the Equity Warrant
Certificates and hereby and such further powers and authority acceptable to it
to act on behalf of the Company as the Company may hereafter grant to or confer
upon it. All of the terms and provisions with respect to such powers and
authority contained in the Equity Warrant Certificates are subject to and
governed by the terms and provisions hereof.
7.2. CONDITIONS OF EQUITY WARRANT AGENT'S OBLIGATIONS. The Equity Warrant
Agent accepts its obligations set forth herein upon the terms and conditions
hereof, including the following, to all of which the Company agrees and to all
of which the rights hereunder of the Holders shall be subject:
(a) COMPENSATION AND INDEMNIFICATION. The Company agrees to pay the Equity
Warrant Agent from time to time such compensation for its services as the
Company and the Equity Warrant shall agree in writing and to reimburse the
Equity Warrant Agent for reasonable out-of-pocket expenses (including reasonable
counsel fees) incurred by the Equity Warrant Agent in connection with the
services rendered hereunder by the Equity Warrant Agent. The Company also agrees
to indemnify the Equity Warrant Agent for, and to hold it harmless against, any
loss, liability or expenses (including the reasonable costs and expense of
defending against any claim of liability) incurred without negligence or bad
faith on the part of the Equity Warrant Agent arising out of or in connection
with its appointment as Equity Warrant Agent hereunder.
(b) AGENT FOR THE COMPANY. In acting under this Agreement and in connection
with any Equity Warrant Certificate, the Equity Warrant Agent is acting solely
as agent of the Company and does not assume any obligation or relationship of
agency or trust for or with any Holder.
E-12
(c) COUNSEL. The Equity Warrant Agent may consult with counsel reasonably
satisfactory to it, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the advice of such counsel.
(d) DOCUMENTS. The Equity Warrant Agent shall be protected and shall incur
no liability for or in respect of any action taken, suffered or omitted by it in
reliance upon any notice, direction, consent, certification, affidavit,
statement or other paper or document reasonably believed by it to be genuine and
to have been presented or signed by the proper parties.
(e) OFFICER'S CERTIFICATE. Whenever in the performance of its duties
hereunder the Equity Warrant Agent shall reasonably deem it necessary that any
fact or matter be proved or established by the Company prior to taking,
suffering or omitting any action hereunder, the Equity Warrant Agent may (unless
other evidence in respect thereof be herein specifically prescribed), in the
absence of bad faith on its part, rely upon a certificate signed by the
Chairman, the Vice Chairman, the Chief Executive Officer, the President, a Vice
President, the Treasurer, and Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company (an "OFFICER'S CERTIFICATE") delivered by the Company
to the Equity Warrant Agent.
(f) ACTIONS THROUGH AGENTS. The Equity Warrant Agent may execute and
exercise any of the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents, provided,
however, that reasonable care shall be exercised in the selection and continued
employment of such attorneys and agents.
(g) CERTAIN TRANSACTIONS. The Equity Warrant Agent, and any officer,
director or employee thereof, may become the owner of, or acquire interest in,
any Equity Warrant, with the same rights that he, she or it would have if it
were not the Equity Warrant Agent, and, to the extent permitted by applicable
law, he, she or it may engage or be interested in any financial or other
transaction with the Company and may serve on, or as depositary, trustee or
agent for, any committee or body of holders of any obligations of the Company as
if it were not the Equity Warrant Agent.
(h) NO LIABILITY FOR INTEREST. The Equity Warrant Agent shall not be liable
for interest on any monies at any time received by it pursuant to any of the
provisions of this Agreement or of the Equity Warrant Certificates, except as
otherwise agreed with the Company.
(i) NO LIABILITY FOR INVALIDITY. The Equity Warrant Agent shall incur no
liability with respect to the validity of this Agreement (except as to the due
execution hereof by the Equity Warrant Agent) or any Equity Warrant Certificate
(except as to the countersignature thereof by the Equity Warrant Agent).
(j) NO RESPONSIBILITY FOR COMPANY REPRESENTATIONS. The Equity Warrant Agent
shall not be responsible for any of the recitals or representations contained
herein (except as to such statements or recitals as describe the Equity Warrant
Agent or action taken or to be taken by it) or in any Equity Warrant Certificate
(except as to the Equity Warrant Agent's countersignature on such Equity Warrant
Certificate), all of which recitals and representations are made solely by the
Company.
(k) NO IMPLIED OBLIGATIONS. The Equity Warrant Agent shall be obligated to
perform only such duties as are specifically set forth herein, and no other
duties or obligations shall be implied. The Equity Warrant Agent shall not be
under any obligation to take any action hereunder that may subject it to any
expense or liability, the payment of which within a reasonable time is not, in
its reasonable opinion, assured to it. The Equity Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company of
any Equity Warrant Certificate countersigned by the Equity Warrant Agent and
delivered by it to the Company pursuant to this Agreement or for the application
by the Company of the proceeds of the issuance or exercise of Equity Warrants.
The Equity Warrant Agent shall have no duty or responsibility in case of any
default by the Company in the performance of its covenants or agreements
contained herein or in any Equity Warrant Certificate or in
E-13
case of the receipt of any written demand from a Holder with respect to such
default, including, without limiting the generality of the foregoing, any duty
or responsibility to initiate or attempt to initiate any proceedings at law or
otherwise or, except as provided in Section 8.2 hereof, to make any demand upon
the Company.
7.3. COMPLIANCE WITH APPLICABLE LAWS. The Equity Warrant Agent agrees to
comply with all applicable federal and state laws imposing obligations on it in
respect of the services rendered by it under this Agreement and in connection
with the Equity Warrants, including (but not limited to) the provisions of
United States federal income tax laws regarding information reporting and backup
withholding. The Equity Warrant Agent expressly assumes all liability for its
failure to comply with any such laws imposing obligations on it, including (but
not limited to) any liability for failure to comply with any applicable
provisions of United States federal income tax laws regarding information
reporting and backup withholding.
7.4. RESIGNATION AND APPOINTMENT OF SUCCESSOR.
(a) The Company agrees, for the benefit of the Holders of the Equity
Warrants, that there shall at all times be an Equity Warrant Agent hereunder
until all the Equity Warrants are no longer exercisable.
(b) The Equity Warrant Agent may at any time resign as such agent by giving
written notice to the Company of such intention on its part, specifying the date
on which its desired resignation shall become effective, subject to the
appointment of a successor Equity Warrant Agent and acceptance of such
appointment by such successor Equity Warrant Agent, as hereinafter provided. The
Equity Warrant Agent hereunder may be removed at any time by the filing with it
of an instrument in writing signed by or on behalf of the Company and specifying
such removal and the date when it shall become effective. Such resignation or
removal shall take effect upon the appointment by the Company, as hereinafter
provided, of a successor Equity Warrant Agent (which shall be a banking
institution organized under the laws of the United States of America, or one of
the states thereof and having an office or an agent's office in the Borough of
Manhattan, the City of New York) and the acceptance of such appointment by such
successor Equity Warrant Agent. In the event a successor Equity Warrant Agent
has not been appointed and has not accepted its duties within 90 days of the
Equity Warrant Agent's notice of resignation, the Equity Warrant Agent may apply
to any court of competent jurisdiction for the designation of a successor Equity
Warrant Agent.
(c) In case at any time the Equity Warrant Agent shall resign, or shall be
removed, or shall become incapable of acting, or shall be adjudged bankrupt or
insolvent, or make an assignment for the benefit of its creditors or consent to
the appointment of a receiver or custodian of all or any substantial part of its
property, or shall admit in writing its inability to pay or meet its debts as
they mature, or if a receiver or custodian of it or all or any substantial part
of its property shall be appointed, or if any public officer shall have taken
charge or control of the Equity Warrant Agent or of its property or affairs, for
the purpose of rehabilitation, conservation or liquidation, a successor Equity
Warrant Agent, qualified as aforesaid, shall be appointed by the Company by an
instrument in writing, filed with the successor Equity Warrant Agent. Upon the
appointment as aforesaid of a successor Equity Warrant Agent and acceptance by
the latter of such appointment, the Equity Warrant Agent so superseded shall
cease to be the Equity Warrant Agent hereunder.
(d) Any successor Equity Warrant Agent appointed hereunder shall execute,
acknowledge and deliver to its predecessor and to the Company an instrument
accepting such appointment hereunder, and thereupon such successor Equity
Warrant Agent, without any further act, deed or conveyance, shall become vested
with all the authority, rights, powers, trusts, immunities, duties and
obligations of such predecessor with like effect as if originally named as
Equity Warrant Agent hereunder, and such predecessor, upon payment of its
charges and disbursements then unpaid, shall thereupon become obligated to
transfer, deliver and pay over, and such successor Equity Warrant Agent shall be
entitled
E-14
to receive all moneys, securities and other property on deposit with or held by
such predecessor, as Equity Warrant Agent hereunder.
(e) Any corporation into which the Equity Warrant Agent hereunder may be
merged or converted or any corporation with which the Equity Warrant Agent may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Equity Warrant Agent shall be a party, or any
corporation to which the Equity Warrant Agent shall sell or otherwise transfer
all or substantially all of the assets and business of the Equity Warrant Agent,
provided that it shall be qualified as aforesaid, shall be the successor Equity
Warrant Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto.
ARTICLE 8.
MISCELLANEOUS
8.1. AMENDMENT.
(a) This Agreement and the Equity Warrants may be amended by the Company and
the Equity Warrant Agent, without the consent of the Holders of Equity Warrants,
for the purpose of curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained herein or
therein or in any other manner which the Company may deem to be necessary or
desirable and which will not (i) materially and adversely affect the rights of
the Equity Warrants and (ii) adversely affect the rights of the Initial Holder
under this Agreement to the extent the Initial Holder is a Holder at the time of
such amendment.
(b) The Company and the Equity Warrant Agent may modify or amend this
Agreement and the Equity Warrant Certificates with the consent of the Holders of
not fewer than a majority in number of the then outstanding unexercised Equity
Warrants affected by such modification or amendment, for any purpose; PROVIDED,
HOWEVER, (i) that no such modification or amendment that shortens the period of
time during which the Equity Warrants may be exercised, or increases the
Exercise Price, or otherwise materially and adversely affects the exercise
rights of the Holders or reduces the percentage of Holders of outstanding Equity
Warrants the consent of which is required for modification or amendment of this
Agreement or the Equity Warrants, may be made without the consent of each Holder
affected thereby, and (ii) that no such modification or amendment that adversely
affects the exercise rights of the Holders may be made without the consent of
the Initial Holder of the Equity Warrants to the extent the Initial Holder is a
Holder at the time of such modification and/or amendment.
8.2. NOTICES AND DEMANDS TO THE COMPANY AND EQUITY WARRANT AGENT. If the
Equity Warrant Agent shall receive any notice or demand addressed to the Company
by any Holder pursuant to the provisions of the Equity Warrant Certificate, the
Equity Warrant Agent shall promptly forward such notice or demand to the
Company.
8.3. ADDRESSES FOR NOTICES. Any communications from the Company to the
Equity Warrant Agent with respect to this Agreement shall be addressed to The
Bank of New York, 385 Rifle Camp Road, Reorganization Services Department, 5th
Floor, West Paterson, New Jersey 07424; any communications from the Equity
Warrant Agent to the Company with respect to this Agreement shall be addressed
to USA Networks, Inc., 152 West 57th Street, New York, NY 10019, Attention:
General Counsel; or such other addresses as shall be specified in writing by the
Equity Warrant Agent or by the Company.
8.4. GOVERNING LAW. This Agreement and the Equity Warrants shall be governed
by the laws of the State of New York applicable to contracts made and to be
performed entirely within such state.
8.5. GOVERNMENTAL APPROVALS. The Company will from time to time use all
reasonable efforts to obtain and keep effective any and all permits, consents
and approvals of governmental agencies and authorities and the national
securities exchange on which the Equity Warrants may be listed or
E-15
authorized for trading from time to time and filings under the United States
federal and state laws, which may be or become requisite in connection with the
issuance, sale, trading, transfer or delivery of the Equity Warrants, and the
exercise of the Equity Warrants.
8.6. RESERVATION OF SHARES OF COMMON STOCK. The Company covenants that it
will at all times reserve and keep available, free from preemptive rights (other
than such rights as do not affect the ownership of shares issued to a Holder),
out of the aggregate of its authorized but unissued shares of Common Stock or
its issued shares of Common Stock held in its treasury, or both, for the purpose
of effecting exercises of Equity Warrants, the full number of shares of Common
Stock deliverable upon the exercise of all outstanding Equity Warrants not
theretofore exercised and on or before taking any action that would cause an
adjustment resulting in an increase in the number of shares of Common Stock
deliverable upon exercise above the number thereof previously reserved and
available therefor, the Company shall take all such action so required. For
purposes of this Section 8.6, the number of shares of Common Stock which shall
be deliverable upon the exercise of all outstanding Equity Warrants shall be
computed as if at the time of computation all outstanding Equity Warrants were
held by a single holder. Before taking any action which would cause an
adjustment reducing the price per share of Common Stock issued upon exercise of
the Equity Warrants below the then par value (if any) of such shares of Common
Stock, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and non-assessable shares of Common Stock at such Exercise
Price.
8.7. COVENANT REGARDING SHARES OF COMMON STOCK. All shares of Common Stock
which may be delivered upon exercise of the Equity Warrants will upon delivery
be duly and validly issued and fully paid and non-assessable, free of all liens
and charges and not subject to any preemptive rights (other than rights which do
not affect the Holder's right to own the shares of Common Stock to be issued),
and prior to the Exercise Date the Company shall take any corporate action
necessary therefor. The issuance of all such shares of Common Stock shall, to
the extent permitted by law, be registered under the Securities Act of 1933, as
amended.
8.8. PERSONS HAVING RIGHTS UNDER AGREEMENT. Nothing in this Agreement
expressed or implied and nothing that may be inferred from any of the provisions
hereof is intended, or shall be construed, to confer upon, or give to, any
person or corporation other than the Company, the Equity Warrant Agent and the
Holders any right, remedy or claim under or by reason of this Agreement or of
any covenant, condition, stipulation, promise or agreement hereof; and all
covenants, conditions, stipulations, promises and agreements in this Agreement
contained shall be for the sole and exclusive benefit of the Company and the
Equity Warrant Agent and their successors and of the Holders of Equity Warrant
Certificates.
8.9. LIMITATION OF LIABILITY. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder to pay the Exercise Price for any shares of
Common Stock other than pursuant to an exercise of the Equity Warrant or any
liability as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
8.10. RESTRICTIONS ON TRANSFER/REGISTRATION RIGHTS. For any transfer of
Equity Warrants and/or the Common Stock purchasable upon exercise of the Equity
Warrants to be effective, the Holders of the Equity Warrants must comply with
the transfer restrictions set forth in the Amended and Restated Stockholders
Agreement, dated as of December 16, 2001, among the Company and the other
parties on the signature pages thereto, as the same may be amended from time to
time (the "STOCKHOLDERS AGREEMENT"). On delivery of the Equity Warrants by the
Company to the Initial Holder, such Initial Holder (and to the extent provided
for in the Amended and Restated Governance Agreement, dated as of December 16,
2001, among the Company and the other parties set forth on the signature pages
E-16
thereto, as the same may be amended from time to time (the "GOVERNANCE
AGREEMENT"), certain transferees of the Initial Holder) shall have registration
rights with respect to the Equity Warrants to the extent provided in the
Governance Agreement.
8.11. HEADINGS. The descriptive headings of the several Articles and
Sections and the Table of Contents of this Agreement are for convenience only
and shall not control or affect the meaning or construction of any of the
provisions hereof.
8.12. COUNTERPARTS. This Agreement may be executed by the parties hereto in
any number of counterparts, each of which when so executed and delivered shall
be deemed to be an original; but all such counterparts shall together constitute
but one and the same instrument.
8.13. INSPECTION OF AGREEMENT. A copy of this Agreement shall be available
at all reasonable times at the principal corporate trust office of the Equity
Warrant Agent, for inspection by the Holders of Equity Warrants.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, all as of the day and year first above written.
USA NETWORKS, INC.
By
______________________________________
______________________________________
[Printed Name and Title]
Attest:
Name: ______________________________________
Title: _______________________________________
________________________________________
The Bank of New York
By
______________________________________
______________________________________
[Printed Name and Title]
Attest:
Name: ______________________________________
Title: _______________________________________
E-17
APPENDIX F
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND EXCHANGE
Among
VIVENDI UNIVERSAL, S.A.,
UNIVERSAL STUDIOS, INC.,
LIGHT FRANCE ACQUISITION 1, S.A.S.,
THE MERGER SUBSIDIARIES LISTED
ON THE SIGNATURE PAGE HERETO,
LIBERTY MEDIA CORPORATION,
LIBERTY PROGRAMMING COMPANY LLC,
LIBERTY PROGRAMMING FRANCE, INC.,
LMC USA VI, INC.,
LMC USA VII, INC.,
LMC USA VIII, INC.,
LMC USA X, INC.,
LIBERTY HSN LLC HOLDINGS, INC.
AND
THE LIBERTY HOLDING ENTITIES LISTED
ON THE SIGNATURE PAGE HERETO
Dated as of December 16, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
F-1
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.01. Definitions and Usage....................................... F-6
ARTICLE II
TRANSACTIONS AND CLOSING
SECTION 2.01. Exchange of USANi Shares for USAi Common Shares............. F-6
SECTION 2.02. Share Exchanges and Mergers................................. F-6
SECTION 2.03. Effects of Mergers on Capital Stock of Constituent
Corporations................................................ F-8
SECTION 2.04. Closing Date; Effective Time; Dissolution................... F-8
SECTION 2.05. Effects of Mergers.......................................... F-8
SECTION 2.06. Certificates of Incorporation and By-laws................... F-9
SECTION 2.07. Directors................................................... F-9
SECTION 2.08. Officers.................................................... F-9
SECTION 2.09. Withholding................................................. F-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF UNIVERSAL PARTIES
SECTION 3.01. Organization, Standing and Power............................ F-10
SECTION 3.02. Authority; Execution and Delivery; Enforceability........... F-10
SECTION 3.03. No Conflicts; Consents...................................... F-10
SECTION 3.04. Merger Subsidiaries......................................... F-11
SECTION 3.05. Vivendi Securities.......................................... F-11
SECTION 3.06. Taxes....................................................... F-11
SECTION 3.07. Absence of Certain Changes or Events........................ F-12
SECTION 3.08. Financial Statements; Contingent Liabilities................ F-12
SECTION 3.09. Litigation.................................................. F-13
SECTION 3.10. Foreign Private Issuer...................................... F-13
SECTION 3.11. Reports..................................................... F-13
SECTION 3.12. Compliance with Laws........................................ F-13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LIBERTY PARTIES
SECTION 4.01. Organization, Standing and Power............................ F-13
SECTION 4.02. Authority; Execution and Delivery; Enforceability........... F-14
SECTION 4.03. No Conflicts; Consents...................................... F-14
SECTION 4.04. Capitalization; Ownership and Validity of Shares............ F-15
SECTION 4.05. No Liabilities of the Liberty Holding Entities and LPF...... F-15
SECTION 4.06. Taxes....................................................... F-16
SECTION 4.07. Investment Intent........................................... F-17
ARTICLE V
AGREEMENTS AND COVENANTS
SECTION 5.01. Reasonable Best Efforts..................................... F-18
F-2
PAGE
----
SECTION 5.02. Expenses; Transfer Taxes.................................... F-19
SECTION 5.03. Publicity................................................... F-19
SECTION 5.04. Further Assurances.......................................... F-19
SECTION 5.05. Tax Treatment............................................... F-19
SECTION 5.06. Tax Matters................................................. F-20
SECTION 5.07. Resignation of multiThematiques Directors................... F-20
SECTION 5.08. Vivendi Securities.......................................... F-20
SECTION 5.09. Put Option Agreements....................................... F-20
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation....................... F-20
SECTION 6.02. Conditions to the Obligations of the Universal Parties...... F-21
SECTION 6.03. Conditions to the Obligations of the Liberty Parties........ F-21
ARTICLE VII
TERMINATION
SECTION 7.01. Termination................................................. F-22
SECTION 7.02. Effect of Termination....................................... F-22
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnification............................................. F-23
SECTION 8.02. Survival.................................................... F-26
ARTICLE IX
RESTRICTIONS ON TRANSFERS
SECTION 9.01. Restrictions on Transfers................................... F-26
SECTION 9.02. Transfers Permitted at any Time............................. F-26
ARTICLE X
STANDSTILL
SECTION 10.01. Standstill.................................................. F-27
ARTICLE XI
REGISTRATION RIGHTS
SECTION 11.01. Registration Rights......................................... F-28
SECTION 11.02. Blackout Periods............................................ F-28
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Approval of Transactions.................................... F-30
SECTION 12.02. Notices..................................................... F-30
SECTION 12.03. No Third Party Beneficiaries................................ F-30
SECTION 12.04. Waiver...................................................... F-30
SECTION 12.05. Assignment.................................................. F-30
F-3
PAGE
----
SECTION 12.06. Integration................................................. F-30
SECTION 12.07. Headings.................................................... F-30
SECTION 12.08. Counterparts................................................ F-31
SECTION 12.09. Severability................................................ F-31
SECTION 12.10. Governing Law............................................... F-31
SECTION 12.11. Jurisdiction................................................ F-31
SECTION 12.12. Specific Performance........................................ F-31
SECTION 12.13. Amendments.................................................. F-32
SECTION 12.14. Interpretation.............................................. F-32
SECTION 12.15. Adjustment of Share Numbers................................. F-32
SCHEDULE I Exchange of USANi Shares for USAi Shares and USAi Share
Exchange I
SCHEDULE II USAi Share Exchange II
SCHEDULE III Mergers
SCHEDULE 2.02(d) Allocation
SCHEDULE 4.06(b) Taxes
SCHEDULE 12.02 Addresses and Facsimile Numbers for Notices
EXHIBIT A Certificates of Incorporation of Surviving Corporations
EXHIBIT B Deposit Agreement
EXHIBIT C Capitalization of Liberty Holding Entities
F-4
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER AND EXCHANGE (this
"AGREEMENT") dated as of December 16, 2001, by and
among VIVENDI UNIVERSAL, S.A., a societe anonyme
organized under the laws of France ("VIVENDI"),
UNIVERSAL STUDIOS, INC., a Delaware corporation
("UNIVERSAL"), LIGHT FRANCE ACQUISITION 1, S.A.S., a
societe par actions simplifee organized under the laws
of France and a direct, wholly-owned subsidiary of
Vivendi ("UNIVERSAL FRANCE"), each of the Merger
Subsidiaries (as defined herein), LIBERTY MEDIA
CORPORATION, a Delaware corporation ("LIBERTY"), LMC
USA VI, INC., a Delaware corporation, LMC USA
VII, INC., a Delaware corporation, LMC USA VIII, INC.,
a Delaware corporation, LMC USA X, INC., a Delaware
corporation, LIBERTY HSN LLC HOLDINGS, INC., a Delaware
corporation, LIBERTY PROGRAMMING COMPANY LLC, a limited
liability company formed under the laws of the state of
Delaware ("LPC"), LIBERTY PROGRAMMING FRANCE, INC., a
Delaware corporation ("LPF"), and each of the Liberty
Holding Entities (as defined herein).
PRELIMINARY STATEMENT
WHEREAS, Universal desires to purchase from certain Liberty Parties (as
defined below), and such Liberty Parties desire to sell to Universal, 25,000,000
USAi Common Shares (as defined below) in exchange for Vivendi ADSs (as defined
below);
WHEREAS, Universal France desires to acquire from LPF, and LPF desires to
transfer to Universal France, all of its assets, which consist solely of
4,921,250 multiThematiques Shares, the Loan Agreement, rights under the Articles
of Association, the multiThematiques Cooperation Agreement and the Call Option
Agreement (each as defined below), in exchange for Vivendi ADSs and the
assumption by Universal France of certain obligations pursuant to Section 5.09,
and LPF desires to dissolve and make a liquidating distribution of such Vivendi
ADSs following such exchange;
WHEREAS, the parties hereto desire to cause each Merger Subsidiary to merge
with and into a Liberty Holding Entity;
WHEREAS for Federal Income Tax (as defined below) purposes it is intended
that the multiThematiques Transaction (as defined below) and each of the Mergers
(as defined below) qualify as a separate "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE");
and
WHEREAS, the Boards of Directors of each of Vivendi, Universal, the Merger
Subsidiaries, the Liberty Holding Entities, the Liberty Transferring Entities
and LPF have approved and declared advisable this Agreement and Vivendi, as the
sole stockholder of each Merger Subsidiary, LPC, as the sole stockholder of each
Liberty Holding Entity, and Liberty Media International, Inc. ("LMI"), as the
sole stockholder of LPF, have approved and adopted this Agreement.
F-5
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.01. DEFINITIONS AND USAGE. Unless the context shall otherwise
require, terms used and not defined herein shall have the meanings assigned
thereto in Annex A or, if not defined herein or therein, in the Transaction
Agreement.
ARTICLE II
TRANSACTIONS AND CLOSING
Upon the terms and subject to the conditions set forth herein, the parties
shall consummate each of the following transactions.
SECTION 2.01. EXCHANGE OF USANi SHARES FOR USAi COMMON SHARES. (a) On the
terms and subject to the conditions of this Agreement, immediately prior to
effecting the transactions contemplated by Section 2.02(a), each Liberty Party
set forth on Schedule I hereto under the caption "Exchange of USANi Shares for
USAi Common Shares" shall surrender the number of USANi Shares set forth on
Schedule I next to the name of such Liberty Party in exchange for an equal
number of USAi Common Shares in accordance with the Exchange Agreement.
(b) On the terms and subject to the conditions of this Agreement,
immediately prior to effecting the transactions contemplated by
Section 2.02(a), LMC USA VI, Inc. shall surrender 5,774,688 USANi Shares in
exchange for an equal number of USAi Common Shares in accordance with the
Exchange Agreement.
(c) Immediately after the Exchanges contemplated by this Section 2.01,
(i) the Exchange Agreement, except the representations and warranties contained
therein, and (ii) Section 6.01 of the Investment Agreement shall be terminated,
whereby the USANi Shares will no longer be exchangeable for USAi Common Shares.
SECTION 2.02. SHARE EXCHANGES AND MERGERS. (a) On the terms and subject to
the conditions of this Agreement, at the Closing, immediately prior to effecting
the transactions contemplated by Sections 2.02(b) and (c):
(i) each Liberty Party set forth on Schedule I hereto under the caption
"USAi Share Exchange I" shall sell, transfer and deliver to Universal, and
Universal shall purchase from each such Liberty Party, the number of USAi
Common Shares set forth on Schedule I next to the name of such Liberty Party
in exchange for Vivendi ADSs as set forth in Section 2.02(d) (the "USAi
SHARE EXCHANGE I") and each such Liberty Party that is a Liberty Holding
Entity shall distribute to its sole stockholder the Vivendi ADSs received by
such Liberty Party pursuant to this clause (i); PROVIDED, HOWEVER, Universal
may elect at any time prior to the USAi Share Exchange I, after providing
the Liberty Parties a reasonable opportunity to consult with Vivendi, not to
effect all or any portion of the USAi Share Exchange I with respect to any
Liberty Holding Entity and the consideration that would otherwise have been
paid in respect of any USAi Common Shares not purchased as a result of this
proviso shall be paid in respect of the Merger to which the Liberty Holding
Entity that holds such USAi Common Shares is a party; and
(ii) each Liberty Party set forth on Schedule II hereto shall sell,
transfer and deliver to Universal, and Universal shall purchase from each
such Liberty Party, the number of USAi Common Shares set forth on
Schedule II next to the name of such Liberty Party in exchange for
F-6
Vivendi ADSs as set forth in Section 2.02(d) (the "USAi SHARE EXCHANGE II"
and, together with the USAi Share Exchange I, the "USAi SHARE EXCHANGES").
(b) Subject to Section 2.04(a), on the terms and subject to the conditions
of this Agreement, at the Closing, immediately prior to effecting the
transactions contemplated by Section 2.02(c), LPF shall transfer, assign and
deliver to Universal France, and Universal France shall acquire from LPF, all of
the assets and rights of LPF and assume the obligations of LPF other than any
rights or obligations arising under this Agreement, which consist solely of
4,921,250 multiThematiques Shares and its rights and obligations under the Loan
Agreement, the multiThematiques Cooperation Agreement and the Call Option
Agreement, in exchange solely for Vivendi ADSs as set forth in Section 2.02(d)
and the assumption of certain liabilities as set forth in Section 5.09. The
transfer and acquisition of the multiThematiques Shares is referred to in this
Agreement as the "MULTITHEMATIQUES ACQUISITION". Promptly following the
multiThematiques Acquisition, LPF shall be dissolved and pursuant to such
dissolution LPF will make a liquidating distribution to LMI, its sole
stockholder, of the Vivendi ADSs received by LPF in the multiThematiques
Acquisition (the "LIQUIDATION" and, together with the multiThematiques
Acquisition, the "MULTITHEMATIQUES TRANSACTION").
(c) On the terms and subject to the conditions set forth in this Agreement,
and in accordance with the DGCL, at the Effective Time:
(i) Sub II shall be merged with and into LMC USA II, Inc., the separate
corporate existence of Sub II shall cease and LMC USA II, Inc. shall
continue as the surviving corporation;
(ii) Sub III shall be merged with and into LMC USA III, Inc., the
separate corporate existence of Sub III shall cease and LMC USA III, Inc.
shall continue as the surviving corporation;
(iii) Sub IV shall be merged with and into LMC USA IV, Inc., the
separate corporate existence of Sub IV shall cease and LMC USA IV, Inc.
shall continue as the surviving corporation; and
(iv) Sub V shall be merged with and into LMC USA V, Inc., the separate
corporate existence of Sub V shall cease and LMC USA V, Inc. shall continue
as the surviving corporation.
The mergers referred to in clauses (i) through (iv) above are referred to herein
as the "MERGERS". Notwithstanding the foregoing, Universal may elect at any time
prior to the Mergers, instead of merging a Merger Subsidiary into the applicable
Liberty Holding Entity as provided above, to merge the applicable Liberty
Holding Entity with and into the Merger Subsidiary; PROVIDED, HOWEVER, that
(i) such Mergers as restructured shall qualify as a reorganization under
Section 368(a) of the Code, and (ii) the Liberty Parties have been provided a
reasonable opportunity to consult with Vivendi on such restructuring. In such
event, the parties shall execute an appropriate amendment to this Agreement in
order to reflect the foregoing. At the election of Universal, any U.S.
corporation that is a direct, wholly-owned Subsidiary of Vivendi may be
substituted for any Merger Subsidiary as a constituent corporation in a Merger.
In such event, the parties shall execute an appropriate amendment to this
Agreement in order to reflect the foregoing. The USAi Share Exchanges, the
multiThematiques Transaction, the Mergers, the delivery of Vivendi ADSs in
connection with the foregoing and the other transactions contemplated by this
Agreement are referred to in this Agreement collectively as the "TRANSACTIONS".
(d) The aggregate number of Vivendi ADSs to be delivered in consideration
for the USAi Share Exchanges, the multiThematiques Transaction and the Mergers
shall be 37,386,436, as may be adjusted pursuant to Section 8.01 hereof, which
shares Vivendi will cause the Depositary to deliver in the form of validly
issued, fully paid and non-assessable Vivendi ADSs. The 37,386,436 Vivendi ADSs
to be delivered in consideration for the USAi Share Exchanges, the
multiThematiques Transaction and the Mergers shall be allocated as described in
Schedule 2.02(d) hereof.
F-7
(e) Prior to the Closing Date, Vivendi and Liberty shall use reasonable
efforts to agree on an allocation of the Vivendi ADSs to be delivered in
consideration for the multiThematiques Transaction among the assets of LPF.
SECTION 2.03. EFFECTS OF MERGERS ON CAPITAL STOCK OF CONSTITUENT
CORPORATIONS. As of the Effective Time, by virtue of the Mergers and without
any action on the part of the holder of any shares of capital stock of any
Liberty Holding Entity or any shares of capital stock of any Merger Subsidiary:
(a) CAPITAL STOCK OF MERGER SUBSIDIARIES. Each share of the capital stock of
each Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and become one share of common stock
of the surviving corporation of the Merger to which such Merger Subsidiary
is a party.
(b) CANCELATION OF TREASURY STOCK. Each share of capital stock of any
Liberty Holding Entity that is directly owned by such Liberty Holding
Entity, Vivendi or the applicable Merger Subsidiary shall automatically be
canceled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
(c) CONVERSION OF LIBERTY HOLDING ENTITY CAPITAL STOCK. All of the issued
and outstanding shares of capital stock of each Liberty Holding Entity
(other than shares to be canceled in accordance with Section 2.03(b)) shall
be converted into the right to receive Vivendi ADSs as set forth in
Section 2.02(d) (collectively, the "MERGER CONSIDERATION"). As of the
Effective Time, all such shares of capital stock of the Liberty Holding
Entities shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of capital stock of any Liberty Holding Entity
shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration.
SECTION 2.04. CLOSING DATE; EFFECTIVE TIME; DISSOLUTION. (a) The closing
of the Transactions (the "CLOSING") shall take place at the offices of Cravath,
Swaine & Moore, 825 Eighth Avenue, New York, New York 10019, at 10:00 a.m. on
the Transaction Agreement Closing Date, subject to the satisfaction (or to the
extent permitted, the waiver) of all the conditions to the parties' obligations
set forth in Article VI, or at such other place, time and date as the parties
hereto shall agree (the "CLOSING DATE").
(b) Prior to the Closing, Vivendi shall prepare, and on the Closing Date or
as soon as practicable thereafter Vivendi shall file with the Secretary of State
of the State of Delaware, a certificate of merger or other appropriate documents
reasonably acceptable to Liberty (in any such case, the "CERTIFICATE OF MERGER")
with respect to each Merger, executed in accordance with the relevant provisions
of the DGCL and shall make all other filings or recordings required under the
DGCL. The Mergers shall become effective at such time as the Certificates of
Merger are duly filed with such Secretary of State, or at such other time as
Universal and Liberty shall agree and specify in the Certificates of Merger (the
time at which the Mergers become effective being the "EFFECTIVE TIME").
(c) Prior to the Closing, Liberty shall prepare, and on the Closing Date or
as soon as practicable thereafter Liberty shall file with the Secretary of State
of the State of Delaware, a certificate of dissolution or other appropriate
documents (the "CERTIFICATE OF DISSOLUTION") with respect to the dissolution of
LPF, executed in accordance with the relevant provisions of the DGCL and shall
make all other filings or recordings required under the DGCL. The dissolution
shall become effective at such time as the Certificate of Dissolution is duly
filed with such Secretary of State, or at such other time as Universal and
Liberty shall agree and specify in the Certificates of Dissolution.
SECTION 2.05. EFFECTS OF MERGERS. The Mergers shall have the effects set
forth in Section 259 of the DGCL.
F-8
SECTION 2.06. CERTIFICATES OF INCORPORATION AND BY-LAWS. (a) The
Certificate of Incorporation of the surviving corporations of the Mergers shall
be amended at the Effective Time to read in the form of (i) Exhibit A-1, in the
case of LMC USA II, Inc., (ii) Exhibit A-2, in the case of LMC USA III, Inc.,
(iii) Exhibit A-3, in the case of LMC USA IV, Inc. and (iv) Exhibit A-4, in the
case of LMC USA V, Inc. and, in each case, such Certificate of Incorporation, as
so amended, shall be the Certificate of Incorporation of such surviving
corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The By-laws of each Merger Subsidiary as in effect immediately prior to
the Effective Time shall be the By-laws of the surviving corporation of the
Merger to which such Merger Subsidiary is a party until thereafter changed or
amended as provided therein or by Applicable Law.
SECTION 2.07. DIRECTORS. The directors of each Merger Subsidiary
immediately prior to the Effective Time shall be the directors of the surviving
corporation of the Merger to which such Merger Subsidiary is a party, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 2.08. OFFICERS. The officers of each Merger Subsidiary immediately
prior to the Effective Time shall be the officers of the surviving corporation
of the Merger to which such Merger Subsidiary is a party, until the earlier of
their resignation or removal or until their respective successors are duly
elected or appointed and qualified, as the case may be.
SECTION 2.09. WITHHOLDING. Each Universal Party shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement such amounts as it is required to deduct and withhold with respect to
the making of such payment under the Code or any applicable provision of state,
local or foreign Tax law. To the extent that amounts are so withheld by a
Universal Party, such amounts shall be treated for all purposes of this
Agreement as having been paid to the Liberty Party in respect of whose
consideration such deduction or withholding was made.
F-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF UNIVERSAL PARTIES
Each Universal Party represents and warrants to each Liberty Party as
follows:
SECTION 3.01. ORGANIZATION, STANDING AND POWER. Each Universal Party
(i) is duly organized or formed, validly existing and in good standing under the
laws of the jurisdiction in which it is so organized or formed and (ii) has full
corporate power and authority (A) to own, lease and use as now owned, leased and
used by it all of its assets and properties, (B) to conduct its business and
operations as currently conducted and (C) to perform and comply with all the
terms, covenants and conditions of this Agreement. Each Universal Party is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of the business transacted by it or the
character or location of the properties owned or leased by it requires such
qualification, except where failure to be so qualified would not have a material
adverse effect on (i) the business, assets, condition (financial or otherwise)
or results of operations of Vivendi and its subsidiaries, taken as a whole
(other than any such effect arising out of or resulting from general economic
conditions, or from changes in or generally affecting the industries in which
Vivendi and its subsidiaries operate in general and not having a materially
disproportionate effect on such party relative to other industry participants,
or as a result of the September 11, 2001 terrorist attacks, their aftermath or
any similar events or (ii) the ability of the Universal Parties to perform their
obligations under this Agreement or the Transaction Documents or on the ability
of the Universal Parties to consummate the Mergers and the other Transactions (a
"UNIVERSAL MATERIAL ADVERSE EFFECT" or "UNIVERSAL MATERIAL ADVERSE CHANGE").
SECTION 3.02. AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. Each
Universal Party has full power and authority (i) to execute and deliver this
Agreement and (ii) to consummate the Transactions to which it is, or is
specified to be, a party. The execution, delivery and performance by each
Universal Party of this Agreement and the consummation by each Universal Party
of the Transactions to which it is, or is specified to be, a party have been
duly authorized by all necessary corporate action, and no other corporate
proceedings on the part of any Universal Party are necessary to authorize this
Agreement or the consummation of the Transactions. Vivendi, as the sole holder
of capital stock of Universal, Universal France and the Merger Subsidiaries, has
approved this Agreement, the Mergers and the other Transactions, and no further
action to approve this Agreement is necessary on the part of such holder. Each
Universal Party has duly executed and delivered this Agreement and this
Agreement constitutes its legal, valid and binding obligations, enforceable
against it in accordance with its terms, except to the extent limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and by general equity principles regardless of
whether such proceeding is considered in equity or at law.
SECTION 3.03. NO CONFLICTS; CONSENTS. (a) The execution, delivery and
performance by each Universal Party of this Agreement does not, and the
consummation of the Transactions will not (with or without the giving notice of
lapse of time, or both), conflict with or result in any breach or violation of
or default under, or give rise to a right of or result in a termination,
cancelation or acceleration of any obligation or to loss of a material benefit
under, or to increased, additional or accelerated rights or entitlements of any
Person under, or result in the creation of any Lien or Encumbrance upon any of
the properties or assets of any Universal Party under, any provision of (i) the
Organizational Documents of any Universal Party, (ii) any Contract, permit or
franchise to which any Universal Party is a party or by which any of their
respective properties or assets is bound or is the beneficiary or (iii) any
judgment, order, injunction, ruling or decree of any Governmental Entity
(collectively, "JUDGMENT") or any applicable statute (including, without
limitation, any applicable state takeover statute or other similar statute or
regulation), law, ordinance, rule or regulation (collectively, "APPLICABLE LAW")
applicable to any Universal Party or their respective properties or assets,
except that no representation or warranty is made herein with respect to
(x) Applicable Laws of any jurisdiction
F-10
located outside of the United States and the European Community ("UNIVERSAL
EXCLUDED JURISDICTIONS") and (y) in the case of clauses (ii) and (iii) above,
any such items that, individually or in the aggregate, would not have a
Universal Material Adverse Effect.
(b) No material consent, approval, license, permit, order or authorization
(collectively, "CONSENT") of, or registration, declaration or filing
(collectively, "FILINGS") with, any Federal, state, local or foreign government
or any court of competent jurisdiction, regulatory or administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign (collectively, "GOVERNMENTAL ENTITY"), is required to be obtained or
made by or with respect to any Universal Party in connection with the execution,
delivery and performance of this Agreement or the consummation of the
Transactions (PROVIDED, that no representation or warranty is made by a
Universal Party with respect to Consents from, or Filings with, any Governmental
Entity in a Universal Excluded Jurisdiction), other than (i) compliance with and
filings under the HSR Act, the EC Merger Regulation and the merger regulations
of individual countries in Europe, in each case if applicable, (ii) the filing
of such reports under the securities laws of France, and with the SEC of such
reports under Sections 13 and 16 of the Exchange Act, as may be required in
connection with this Agreement, the Mergers and the other Transactions,
(iii) the filing of the Certificates of Merger with the Secretary of State of
the State of Delaware, (iv) compliance with and such filings as may be required
under applicable environmental laws, (v) such filings as may be required in
connection with the Taxes described in Section 5.02 and (vi) such other items
(A) required solely by reason of the participation of the Liberty Parties (as
opposed to any third party) in the Transactions or (B) that, individually or in
the aggregate, have not had and would not have a Universal Material Adverse
Effect.
SECTION 3.04. MERGER SUBSIDIARIES. Since the date of their incorporation,
the Merger Subsidiaries have not owned any assets and have not carried on any
business or conducted any operations other than the execution of this Agreement,
the performance of their obligations hereunder and matters ancillary thereto.
SECTION 3.05. VIVENDI SECURITIES. All outstanding Vivendi Shares, Vivendi
ADSs and receipts evidencing Vivendi ADSs are, and all Vivendi Shares, Vivendi
ADSs and receipts evidencing Vivendi ADSs which may be delivered pursuant to
this Agreement and the Deposit Agreement shall when delivered in accordance with
this Agreement be, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. The Vivendi Shares, Vivendi ADSs and
receipts evidencing Vivendi ADSs which may be delivered pursuant to this
Agreement and the Deposit Agreement shall, when delivered in accordance with
this Agreement, be free and clear of all Liens or Encumbrances (other than those
(x) arising under this Agreement, (y) arising under any Federal or state
securities laws or (z) created by any Liberty Party). Attached hereto as
Exhibit B is a true and complete copy of the Amended and Restated Deposit
Agreement (the "DEPOSIT AGREEMENT"), dated as of December 8, 2000, among
Vivendi, The Bank of New York (the "DEPOSITARY") and all owners and beneficial
owners from time to time of American Depositary Receipts of Vivendi. The Vivendi
ADSs to be issued to the Liberty Parties pursuant to this Agreement will be
issued by the Depositary (as defined in the Deposit Agreement) under the terms
of the Deposit Agreement. The Deposit Agreement is in full force and effect and
is enforceable in accordance with its terms. The Vivendi Shares underlying the
Vivendi ADSs delivered to the Liberty Parties pursuant to this Agreement, when
delivered, will be freely tradeable on the PSE.
SECTION 3.06. TAXES. (a) None of the Universal Parties has taken any
action that is reasonably likely to prevent any Merger or the multiThematiques
Transaction from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(b) Vivendi is classified as a corporation for U.S. federal income tax
purposes.
(c) Vivendi is, and will be as of the Closing Date, in control of Universal
France and each Merger Subsidiary within the meaning of Section 368(c) of the
Code.
F-11
(d) None of Vivendi, Universal France or any Merger Subsidiary is an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and
(iv) of the Code.
(e) None of Vivendi, Universal France, or any Merger Subsidiary is under the
jurisdiction of a court in a case under Title 11 of the United States Code, or a
receivership, foreclosure, or similar proceeding in a foreign, federal or state
court.
(f) Taking into account the application of the special rules set forth in
Treasury Regulations Section 1.367(a)-3(c)(3)(ii), (i) Vivendi or any "qualified
subsidiary" (as defined in Treasury Regulations Section 1.367(a)-3(c)(5)(vii))
or any "qualified partnership" (as defined in Treasury Regulations
Section 1.367(a)-3(c)(5)(viii)) is currently engaged, and will have been engaged
for the entire 36-month period immediately preceding the Closing Date, in an
active trade or business outside the United States within the meaning of
Treasury Regulations Section 1.367(a)-2T(b)(2) and (3) (the "ACTIVE TRADE OR
BUSINESS"); and (ii) Vivendi (and, if applicable, the qualified subsidiary or
qualified partnership engaged in the Active Trade or Business) does not have any
plan or intention to substantially dispose of or discontinue such Active Trade
or Business.
(g) On the Closing Date, the fair market value of Vivendi, computed
according to the special rules contained in Treasury Regulation
Section 1.367(a)-3(c)(3)(iii)(B), will be at least equal to the fair market
value of LPF and each of the Liberty Holding Entities.
(h) Vivendi believes that it will not be a passive foreign investment
company, as defined in Section 1297(a) of the Code (a "PFIC"), for its taxable
year in which the Closing Date occurs and on the basis of facts presently known
does not expect to become a PFIC for any subsequent taxable year.
(i) Immediately after the Effective Time, (i) any USANi Shares held by the
surviving corporations in the Mergers will be redeemed for USANi Liberty
Distributed Interests of approximately equal value to the USANi Shares exchanged
therefor, then (ii) the surviving corporations in the Mergers will contribute
the USANi Liberty Distributed Interests to the Partnership in exchange for
interests in the Partnership of approximately equal value to the USANi Liberty
Distributed Interests contributed therefor.
(j) At the Effective Time, neither Vivendi nor any Affiliate of Vivendi will
have any plan or intention to cause any of the surviving corporations in the
Mergers to transfer or otherwise dispose of (x) any of the USANi Shares, except
as described in Section 3.06(i) hereof, or (y) any of the interests in the
Partnership acquired as described in Section 3.06(i).
SECTION 3.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
2000, there has not been any Universal Material Adverse Change.
SECTION 3.08. FINANCIAL STATEMENTS; CONTINGENT LIABILITIES. The audited
consolidated financial statements of Vivendi included in the Vivendi SEC Reports
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC and with respect
thereto, have been prepared in accordance with French generally accepted
accounting principles ("FRENCH GAAP") applied on a consistent basis (except as
may be indicated in the notes thereto); such financial statements present
fairly, in all material respects, the consolidated financial position of Vivendi
and its subsidiaries as of the respective dates thereof and for the respective
periods covered thereby and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements to normal year-end adjustments). Since the date of the most recent
audited financial statements included in the Vivendi SEC Reports filed and
publicly available prior to the date of this Agreement, except as Publicly
Disclosed by Vivendi (including on the most recent consolidated balance sheet
and the footnotes thereto included in the Vivendi SEC Reports Publicly Disclosed
by Vivendi), Vivendi and its subsidiaries have not incurred any liabilities that
are of a nature that would be required to be disclosed on a balance sheet of
Vivendi and its subsidiaries or the footnotes thereto prepared in conformity
with French GAAP, other than (i) liabilities incurred in
F-12
the ordinary course of business, (ii) liabilities for Taxes and
(iii) liabilities that would not, individually or in the aggregate, have a
Universal Material Adverse Effect.
SECTION 3.09. LITIGATION. Except as set forth on Schedule 3.14 to the
Transaction Agreement or as disclosed in the Vivendi SEC Reports, there are not
any (i) outstanding Judgments against or affecting a Universal Party or any of
its Affiliates, or (ii) Proceedings pending or, to the knowledge of Vivendi,
threatened against or affecting a Universal Party or any of its Affiliates by or
against any Governmental Entity or any other Person, in each case, that in any
manner challenges or seeks to prevent, enjoin, materially alter or materially
delay the Transactions, or that, individually or in the aggregate, could
reasonably be expected to have a Universal Material Adverse Effect.
SECTION 3.10. FOREIGN PRIVATE ISSUER. Vivendi (a) is a "foreign private
issuer" within the meaning of Rule 3b-4 of the Exchange Act and (b) with respect
to the Vivendi ADSs is eligible to use Form 20-F under the Exchange Act.
SECTION 3.11. REPORTS. Vivendi has filed with the PSE, the CMF and the COB
true and complete copies of all material forms, reports, schedules, statements
and other documents required to be filed by it under applicable French
securities laws since December 31, 2000 (such forms, reports, schedules,
statements and other documents, including any financial statements or other
documents, including any schedules included therein, are referred to as the
"VIVENDI DOCUMENTS"). The Vivendi Documents have been made available to Liberty,
and at the time filed, (i) did not contain any misrepresentation of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, and (ii) complied in all material respects with
the requirements of applicable French securities laws. Vivendi's Annual Report
on Form 20-F for the fiscal year ended December 31, 2000, and each other report
filed by Vivendi since December 31, 2000, at the time filed, (i) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent revised or superseded by a later filed
document, and (ii) complied in all material respects with the applicable
requirements of Form 20-F under the Exchange Act.
SECTION 3.12. COMPLIANCE WITH LAWS. Except as disclosed in the Vivendi SEC
Reports, the business of Vivendi has been and is presently being conducted in
compliance with all Applicable Laws, including those relating to the
environment, except for instances of noncompliance that, individually or in the
aggregate, would not have a Universal Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LIBERTY PARTIES
Each Liberty Party represents and warrants, subject to its compliance with
Article II, to each Universal Party as follows:
SECTION 4.01. ORGANIZATION, STANDING AND POWER. Each Liberty Party (i) is
duly organized or formed, validly existing and in good standing under the laws
of the jurisdiction in which it is so organized or formed and (ii) has full
corporate or limited liability company power and authority (A) to own, lease and
use as now owned, leased and used by it all of its assets and properties,
(B) to conduct its business and operations as currently conducted and (C) to
perform and comply with all the terms, covenants and conditions of this
Agreement. Each Liberty Party is duly qualified to do business as a foreign
corporation or limited liability company and is in good standing in each
jurisdiction in which the nature of the business transacted by it or the
character or location of the properties owned or leased by it requires such
qualification, except where failure to be so qualified would not have a material
adverse effect on the ability of the Liberty Parties to perform their
obligations under this
F-13
Agreement or on the ability of the Liberty Parties to consummate the Mergers and
the other Transactions (a "LIBERTY MATERIAL ADVERSE EFFECT").
SECTION 4.02. AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. Each
Liberty Party has full power and authority (i) to execute and deliver this
Agreement and (ii) to consummate the Transactions to which it is, or is
specified to be, a party. The execution, delivery and performance by each
Liberty Party of this Agreement and the consummation by each Liberty Party of
the Transactions to which it is, or is specified to be, a party have been duly
authorized by all necessary corporate or limited liability company action, and
no other corporate proceedings on the part of any Liberty Party are necessary to
authorize this Agreement or the consummation of the Transactions. All of the
holders of capital stock of the Liberty Holding Entities have approved this
Agreement, the Mergers and the other Transactions, and no further action to
approve this Agreement is necessary on the part of the holders of such capital
stock. Each Liberty Party has duly executed and delivered this Agreement and
this Agreement constitutes its legal, valid and binding obligations, enforceable
against it in accordance with its terms, except to the extent limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and by general equity principles regardless of
whether such proceeding is considered in equity or at law.
SECTION 4.03. NO CONFLICTS; CONSENTS. (a) The execution, delivery and
performance by each Liberty Party of this Agreement does not, and the
consummation of the Transactions will not (with or without the giving of notice
or lapse of time, or both), conflict with or result in any breach or violation
of or default under, or give rise to a right of or result in a termination,
cancelation or acceleration of any obligation or to loss of a material benefit
under, or to increased, additional or accelerated rights or entitlements of any
Person under, or result in the creation of any Lien or Encumbrance upon any of
the properties or assets of any Liberty Party under, any provision of (i) the
Organizational Documents of any Liberty Party, (ii) any Contract, permit or
franchise to which any Liberty Party is a party or by which any of their
respective properties or assets is bound or is the beneficiary or (iii) any
Judgment or any Applicable Law (including any applicable state takeover statute
or other similar statute or regulation) applicable to any Liberty Party or their
respective properties or assets, except that no representation or warranty is
made herein with respect to (x) Applicable Laws of any jurisdiction located
outside of the United States and the European Community ("LIBERTY EXCLUDED
JURISDICTIONS"), (y) in the case of clauses (ii) and (iii) above, any such items
that, individually or in the aggregate, would not have a Liberty Material
Adverse Effect and (z) the Articles of Association of multiThematiques (the
"ARTICLES OF ASSOCIATION"), the multiThematiques Cooperation Agreement and the
Option Agreements.
(b) No material Consent of, or Filing with, any Governmental Entity is
required to be obtained or made by or with respect to any Liberty Party in
connection with the execution, delivery and performance of this Agreement or the
consummation of the Transactions (provided, that no representation or warranty
is made by a Liberty Party with respect to Consents from, or Filings with, any
Governmental Entity in a Liberty Excluded Jurisdiction), other than
(i) compliance with and filings under the HSR Act, the EC Merger Regulation and
the merger regulations of individual countries in Europe, in each case if
applicable, (ii) the filing of such reports as may be required under the
securities laws of France, and with the SEC of such reports under Sections 13
and 16 of the Exchange Act, as may be required in connection with this
Agreement, the Mergers and the other Transactions, (iii) the filing of the
Certificates of Merger and the Certificate of Dissolution with the Secretary of
State of the State of Delaware, (iv) compliance with and such filings as may be
required under applicable environmental laws, (v) such filings as may be
required in connection with any Taxes, (vi) filings with the Ministry of Economy
of France in connection with the liquidation of a foreign investment and
(vii) such other items (A) required solely by reason of the participation of the
Universal Parties (as opposed to any third party) in the Transactions or
(B) that, individually or in the aggregate, have not had and would not have a
Liberty Material Adverse Effect.
F-14
SECTION 4.04. CAPITALIZATION; OWNERSHIP AND VALIDITY OF SHARES. (a) The
authorized and issued capital stock of each of the Liberty Holding Entities is
set forth on Exhibit C hereto. The shares of capital stock of such Liberty
Holding Entities are referred to herein as the "LIBERTY SHARES". LPC owns of
record all of the issued and outstanding Liberty Shares, and such Liberty Shares
constitute all of the issued and outstanding shares of capital stock of the
Liberty Holding Entities. All of the outstanding Liberty Shares are duly
authorized, validly issued, fully paid and non-assessable. LPC owns all of the
Liberty Shares free and clear of any Lien or Encumbrance (other than those
(x) arising under the Shareholder Arrangements, (y) arising under any Federal or
state securities laws or arising in connection with an Excluded Tax Liability or
(z) created by any Universal Party (collectively, "LIBERTY PERMITTED
ENCUMBRANCES")). There are no agreements or commitments of any kind by any
Liberty Party or any of their Affiliates, including LPC and the Liberty Holding
Entities, to issue any shares of capital stock of the Liberty Holding Entities,
or any securities convertible into, or exercisable or exchangeable for the
capital stock of the Liberty Holding Entities.
(b) As of the date of this Agreement and immediately prior to the exchange
contemplated by Section 2.01, the Liberty Holding Entities collectively own in
the aggregate 40,000,000 USANi Shares, free and clear of any Encumbrances other
than Liberty Permitted Encumbrances. After the exchange contemplated by
Section 2.01 has been completed, (i) assuming that USAi complies with the
Exchange Agreement, the Liberty Holding Entities collectively will own in the
aggregate 38,694,982 USANi Shares (collectively, the "LIBERTY USANI SHARES") and
(ii) assuming USAi complies with the Exchange Agreement, the Liberty Holding
Entities and Liberty HSN LLC Holdings, Inc. collectively will own in the
aggregate 1,305,038 USAi Common Shares and the Liberty Parties set forth on
Schedule II collectively will own 23,694,962 USAi Common Shares (collectively,
the "LIBERTY USAi SHARES"), in each case free and clear of any Encumbrances
other than Liberty Permitted Encumbrances. Immediately following the USAi Share
Exchanges, assuming that the USAi Share Exchange I is effected in full without
regard to the proviso in Section 2.02(a)(i), and that USAi complies with the
Exchange Agreement, Universal will own 25,000,000 Liberty USAi Shares and,
immediately prior to the Effective Time, each of the Liberty Holding Entities
will own the number of Liberty USANi Shares set forth next to its name in
Schedule III hereto, in each case free and clear of any Encumbrances other than
Liberty Permitted Encumbrances. Immediately following the Mergers, each of the
surviving corporations of the Mergers will own the number of Liberty USANi
Shares set forth next to its name in Schedule III hereto, in each case free and
clear of any Encumbrances other than Liberty Permitted Encumbrances.
(c) As of the date of this Agreement and immediately prior to the
multiThematiques Acquisition, LPF owns, and immediately following the
multiThematiques Acquisition, Universal France will own, 4,921,250
multiThematiques Shares, in each case free and clear of any Encumbrances (other
than those (x) arising under the multiThematiques Cooperation Agreement, the
Articles of Association and the Option Agreements, (y) arising under any
Federal, state or foreign securities laws or (z) created by any Universal
Party). Except for (i) such 4,921,250 multiThematiques Shares, (ii) three shares
held as directors' qualifying shares and (iii) as provided in the Call Option
Agreement, the Articles of Association and the multiThematiques Cooperation
Agreement, directly or indirectly, any capital stock or other ownership interest
or any option or right to acquire any capital stock or other ownership interest
in multiThematiques.
SECTION 4.05. NO LIABILITIES OF THE LIBERTY HOLDING ENTITIES AND
LPF. (i) None of the Liberty Holding Entities or LPF has any material assets
other than the Liberty USANi Shares and the Liberty USAi Shares in the case of
the Liberty Holding Entities, or the multiThematiques Shares, the Loan Agreement
and, the Call Option Agreement, and LPF's rights under the Articles of
Association and the multiThematiques Cooperation Agreement, in the case of LPF,
or any liabilities of any kind whatsoever, whether absolute or contingent,
matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whenever arising, other than the obligation to consummate the
F-15
Mergers, the multiThematiques Transaction and the other Transactions, other than
liabilities to be assumed by Universal France pursuant to Section 5.09 hereof,
and other than liabilities (x) that are immaterial and (y) as to which the
Universal Parties and their Affiliates have a reasonable likelihood of being
fully indemnified by Liberty pursuant to Article VIII below; (ii) upon
consummation of the Mergers, the Universal Parties and their Affiliates will not
have any obligation or liability in respect of any liabilities of any of the
Liberty Holding Entities other than those described in the preceding clause (i)
that are covered by the indemnification described in clause (i)(y); (iii) upon
consummation of the multiThematiques Transaction, the Universal Parties and
their Affiliates will not have any obligation or liability in respect of any
liabilities of LPF, other than liabilities to be assumed by Universal France
pursuant to Section 5.09 hereof, and other than those described in the preceding
clause (i) that are covered by the indemnification described in clause (i)(y);
and (iv) upon consummation of the Mergers, all of the capital stock of the
Liberty Holding Entities shall have been converted, free of any Encumbrances
other than Liberty Permitted Encumbrances. Notwithstanding the foregoing, no
representation or warranty is made (and no indemnification obligation on the
part of any Liberty Party shall be incurred or created) with respect to (a) any
Transfer Taxes for which Vivendi is responsible pursuant to Section 5.02(b),
(b) any Tax liabilities resulting solely from the exchange of USANi Shares for
USAi Common Shares pursuant to Section 2.01(a) hereof or the USAi Share Exchange
I, (c) any Tax liabilities resulting solely from any restructuring of, or
modification to the terms of, the multiThematiques Transaction pursuant to
Section 5.01(d) hereof, (d) any Tax liabilities for which Vivendi is responsible
pursuant to Section 8.01(b)(iii), (e) any Tax liabilities resulting solely from
a breach by Vivendi of any of its representations and warranties set forth in
Sections 3.06(i) and 3.06(j), and (f) any Tax liabilities (the "EXCLUDED TAX
LIABILITIES") resulting from any Merger or the multiThematiques Transaction
being a taxable transaction to the relevant Liberty Holding Entity or LPF which
result solely from any breach of any of the representations and warranties set
forth in Sections 3.04 and 3.06, any breach by any Universal Party or any of
their Affiliates of the covenants set forth in Section 5.05 or any action (other
than any action contemplated by the Transaction Documents including, for the
avoidance of doubt, any action contemplated by Section 3.06(i) of this
Agreement) taken by any Universal Party or any of their Affiliates after the
Effective Time (other than any Tax liability which results solely from (x) any
breach of the representations and warranties set forth in Section 4.06(c),
(e) or (f) or any breach by any Liberty Party or any of their Affiliates of the
covenants set forth in Section 5.05, (y) any action or unreasonable inaction by
any Liberty Party or any of their Affiliates (other than due to an action or
inaction contemplated by the Transaction Documents) or (z) any action or
inaction of any Universal Party or any of their Affiliates contemplated by the
Transaction Documents, including, for the avoidance of doubt, any action
contemplated by Section 3.06(i) of this Agreement.
SECTION 4.06. TAXES. (a) All material Returns required to be filed by or
on behalf of each of the Liberty Holding Entities or LPF or with respect to the
USANi Shares, the USAi Common Shares, the multiThematiques Shares or any other
asset of LPF have been duly filed in a timely manner and all such Returns are
true, complete and correct in all material respects. All Taxes shown to be due
on such Returns and all Taxes otherwise due and payable have been timely paid in
full or will be timely paid in full by the due date thereof. No material Tax
liens have been filed with respect to the USANi Shares, the USAi Common Shares
or with respect to the assets of the Liberty Holding Entities or LPF.
(b) No deficiencies, audit examinations, refund litigation, proposed
adjustments or matters in controversy for any Taxes have been proposed, asserted
or assessed against any Liberty Holding Entity, or LPF except for deficiencies,
audit examinations, refund litigation, proposed adjustments or matters in
controversy that individually or in the aggregate would not have a Liberty
Material Adverse Effect. The Federal income Tax Returns of LPF have been
examined by and settled with the U.S. Internal Revenue Service or have closed by
virtue of the applicable statute of limitations for all taxable years through
1992. All assessments for Taxes due and owing by each Liberty Holding Entity or
LPF with respect to completed and settled examinations or concluded litigation
have been paid. Except as set
F-16
forth on Schedule 4.06(b), there is no currently effective agreement or other
document extending, or having the effect of extending, the period of assessment
or collection of any Taxes.
(c) None of the Liberty Holding Entities nor LPF has been a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code. None of the Liberty Holding Entities nor LPF has filed a consent under
Section 341(f) of the Code concerning collapsible corporations.
(d) None of the Liberty Holding Entities, nor LPF, as the case may be, has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (A) in the two years prior to the date of this Agreement or (B) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Mergers or the multiThematiques Transaction, as the case
may be.
(e) None of the Liberty Parties has taken any action that is reasonably
likely to prevent any Merger or the multiThematiques Transaction from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
(f) multiThematiques is not and will not have been at any time during the
taxable year that includes the Closing Date a controlled foreign corporation, as
defined in Section 957(a) of the Code, or a PFIC or a pass-through entity for
U.S. Federal income tax purposes.
(g) Each Liberty Holding Entity purchased all its USANi Shares solely for
cash and directly from USANi.
(h) None of the Liberty Holding Entities or LPF have any current
non-contingent liability for the Taxes of any Person under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(i) None of the Liberty Holding Entities or LPF have any liabilities for the
payment of any amounts as a result of being party to any Tax sharing agreement
or as a result of any express or implied obligation to indemnify any other
Person with respect to the payment of any Taxes, except pursuant to the terms of
this Agreement.
(j) Based on facts currently known as of the date of this Agreement, Liberty
believes that (i) neither it nor any member of the Selling Affiliated Group is
required to file a gain recognition agreement under Section 367 of the Code with
respect to any of the Mergers or the multiThematiques Transaction and therefore
Liberty does not intend, as of the date of this Agreement, to file a gain
recognition agreement with respect to any of the Mergers or the multiThematiques
Transaction and (ii) each of the Mergers will qualify for tax-free treatment
under Section 367 of the Code and therefore Liberty does not intend, as of the
date of this Agreement, to report taxable income or gain with respect to any of
the Mergers pursuant to Section 367 of the Code.
SECTION 4.07. INVESTMENT INTENT. The Liberty Parties are not acquiring the
Vivendi ADSs to be received pursuant to Article II with a view to or for sale
(as defined in the Securities Act) in connection with any distribution thereof
within the meaning of the Securities Act except pursuant to an exemption
therefrom or pursuant to an effective registration statement.
F-17
ARTICLE V
AGREEMENTS AND COVENANTS
SECTION 5.01. REASONABLE BEST EFFORTS. (a) On the terms and subject to the
conditions of this Agreement, each party hereto shall use its reasonable best
efforts to cause the Closing to occur as soon as practicable after the date
hereof (but subject to the satisfaction of the conditions set forth in
Article VI).
(b) Prior to the Closing each party hereto (at its own expense) shall use
its reasonable best efforts to obtain all consents and approvals from third
parties necessary or appropriate to permit the consummation by such party of the
Transactions.
(c) Following the date hereof, each party hereto shall file promptly any
forms required under applicable law and take any other action reasonably
necessary in connection with obtaining any approvals and the expiration or
termination of any waiting periods under the HSR Act and the EC Merger
Regulation and the merger regulations of individual countries in Europe, in each
case to the extent applicable to the Transactions.
Notwithstanding anything to the contrary contained herein, neither Liberty
nor Vivendi nor any of their respective Affiliates shall be required by this
Section 5.01 to: (i) pay any consideration that is not de minimus,
(ii) surrender, modify or amend in any respect any material license or contract
(including this Agreement, the Shareholders Arrangements or the Transaction
Documents), (iii) hold separately (in trust or otherwise), divest itself of, or
otherwise rearrange the composition of, any assets, (iv) agree to any
limitations on any such person's freedom of action with respect to future
acquisitions of assets or with respect to any existing or future business or
activities or on the enjoyment of the full rights or ownership, possession and
use of any asset now owned or hereafter acquired by any such person, or
(v) agree to any of the foregoing or any other conditions or requirements of any
Governmental Entity or other person that are materially adverse or burdensome.
(d) In the event that notification under the EC Merger Regulation, or under
the merger regulations of individual countries in Europe, is necessary for the
consummation of the multiThematiques Transaction, and the European Commission
elects to extend its inquiry beyond a "phase I" inquiry, or another comparable
commission elects a similar inquiry that would otherwise similarly delay the
Closing, then the parties shall negotiate in good faith to enter into such
amendments of this Agreement as may be required so that: (i) the obligations of
the parties to consummate the Transactions shall not be subject to any approvals
or the expiration or termination of any waiting periods under the EC Merger
Regulation or the merger regulation of such individual country in Europe
necessary for the consummation of the multiThematiques Transaction and the
Closing Date shall not be delayed until such approvals are obtained or such
waiting periods have expired or terminated; and (ii) Liberty will receive all
the economic benefits of the multiThematiques Transaction on the Closing Date;
PROVIDED, HOWEVER, that if Vivendi shall propose such an arrangement pursuant to
which the Liberty Parties will receive on the Closing Date the same number of
Vivendi ADSs, in the same manner, and on the same terms and conditions as
provided in this Agreement, and subject to no restrictions other than those to
which they would be subject if this Section 5.01(d) were not applicable, then
the parties hereto shall execute such appropriate amendments of this Agreement
as may be required to effect such arrangement.
(e) Vivendi shall obtain all consents, approvals, releases or waivers, as
applicable, with respect to the right of first refusal under Section 5.2 of the
multiThematiques Cooperation Agreement and the first and second rank preemptive
right under Article 13 of the Articles of Association, in each case necessary
for the consummation of the multiThematiques Transaction, and shall ensure that
no shareholder of multiThematiques asserts such right of first refusal or
preemptive rights. Vivendi shall
F-18
use its reasonable best efforts to obtain such consents, approvals, releases or
waivers, as applicable, as promptly as practicable so as not to delay the
Closing Date.
SECTION 5.02. EXPENSES; TRANSFER TAXES. (a) Whether or not the Closing
takes place, and except as set forth in Article VIII, all costs and expenses
incurred in connection with the preparation of this Agreement and the
consummation of the Transactions shall be paid by the party incurring such
expense, including all costs and expenses incurred pursuant to Section 5.01.
(b) All stock transfer, real estate transfer, documentary, stamp, recording
and other similar Taxes (including interest, penalties and additions to any such
Taxes) ("TRANSFER TAXES") incurred in connection with the Mergers or the
multiThematiques Transaction, as the case may be, shall be paid by the
applicable Liberty Holding Entity, or LPF, as the case may be, out of its own
funds. All other Transfer Taxes incurred in connection with the Transactions
shall be shared equally between the Liberty Parties, on the one hand, and
Vivendi, on the other hand. The Liberty Parties, the Merger Subsidiaries,
Universal France, Universal and Vivendi shall cooperate in preparing, executing
and filing any Returns with respect to such Transfer Taxes.
SECTION 5.03. PUBLICITY. From the date hereof through the Closing Date, no
public release or announcement concerning the Transactions shall be issued by
any party without the prior consent of the other parties (which consent shall
not be unreasonably withheld), except as such release or announcement may be
required by law or the rules or regulations of any United States or foreign
securities exchange or commission (in which case the party required to make the
release or announcement shall allow the other party reasonable time to comment
on such release or announcement in advance of such issuance); PROVIDED, HOWEVER,
that a party may make internal announcements to its and its Affiliates'
employees that are consistent with the parties' prior public disclosures
regarding the Transactions.
SECTION 5.04. FURTHER ASSURANCES. From time to time prior to and after the
Closing, as and when reasonably requested by another party, each party shall
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and shall take, or cause to be taken, all such further or other
actions (subject to Section 5.01), as such other party may reasonably deem
necessary or desirable to consummate the Transactions. From the date hereof
until the Effective Time, Liberty and the Liberty Holding Entities shall, and
shall cause the officers, directors, employees and agents of such parties to,
afford the officers, employees and agents of Vivendi reasonable access at all
reasonable times to the books and records of the Liberty Holding Entities.
SECTION 5.05. TAX TREATMENT. (a) The parties intend each of the Mergers
and the multiThematiques Transaction to qualify as a reorganization under
Section 368(a) of the Code. Each party and its Affiliates shall use reasonable
efforts to cause the Mergers and the multiThematiques Transaction to so qualify.
Each of the parties hereto and each of their respective Affiliates shall not
take (or cause to be taken) any action and shall not fail to take (or cause not
to be taken) any action or suffer to exist any condition which action or failure
to act or condition would prevent, or would be reasonably likely to prevent, any
Merger or the multiThematiques Transaction from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(b) Each of the parties and its Affiliates will comply with all reporting
and record-keeping requirements applicable to each of the Mergers and the
multiThematiques Transaction which are prescribed by the Code, by Treasury
Regulations thereunder, or by forms, instructions, or other publications of the
Internal Revenue Service. None of the parties or any of their Affiliates will
take any position on any foreign, federal, state or local income or franchise
tax return, or take any other tax reporting position that is inconsistent with
the treatment of each of the Mergers and the multiThematiques Transaction as a
separate reorganization within the meaning of Section 368(a) of the Code, unless
otherwise required by a "determination" (as defined in Section 1313(a)(1) of the
Code).
F-19
SECTION 5.06. TAX MATTERS. From the date hereof through the Closing Date,
(i) each Liberty Holding Entity and LPF will file all Returns ("POST-SIGNING
RETURNS") required to be filed by them in a timely manner, (ii) timely pay all
Taxes due and payable in respect of such Post-Signing Returns, (iii) accrue a
reserve in the books and records and financial statements of any such entity in
accordance with past practice for all Taxes payable by such entity for which no
Post-Signing Return is due prior to the Closing Date; (iv) promptly notify
Universal of any suit, claim, action, investigation, proceeding or audit
(collectively, "ACTIONS") pending against or with respect to any Liberty Holding
Entity or LPF in respect of any Tax and not settle or compromise any such Action
without Universal's consent; (v) not make any material Tax election or settle or
compromise any material Tax liability, other than in connection with currently
pending proceedings or other than in the ordinary course of business; and
(vi) cause all existing Tax sharing agreements, Tax indemnity obligations and
similar agreements, arrangements and practices with respect to Taxes to which
any Liberty Holding Entity or LPF is a party or by which any Liberty Holding
Entity or LPF is otherwise bound to be terminated as of the Closing Date so that
after such date none of the Liberty Holding Entities nor LPF shall have any
further rights or liabilities thereunder.
SECTION 5.07. RESIGNATION OF MULTITHEMATIQUES DIRECTORS. LPF shall cause
each member of the Board of Directors of multiThematiques whose appointment was
proposed by LPF under the multiThematiques Cooperation Agreement to deliver to
multiThematiques (with copies to Universal) on the Closing Date, (i) such
director's duly signed written resignations, (ii) a full release of liability
resulting solely from termination of the employment agreement, if any, of such
resigning director, effective immediately after such closing, and (iii) to
surrender any director's qualifying shares in multiThematiques held by such
resigning director.
SECTION 5.08. VIVENDI SECURITIES. Vivendi shall use its reasonable best
efforts to ensure that, after the Closing Date, upon issuance by the Depositary
to the Liberty Parties or their permitted transferees of Vivendi Shares in
exchange for Vivendi ADSs in accordance with the terms of the Deposit Agreement,
such Vivendi Shares shall be freely tradeable on the PSE (or such other
principal exchange upon which the Vivendi Shares are then listed or traded).
SECTION 5.09. PUT OPTION AGREEMENTS. Universal France shall assume the
obligations of LPF under the multiThematiques Cooperation Agreement, the Option
Agreements and the Loan Agreement and any other obligations in respect of any
multiThematiques shareholder arrangements to which LMI and/or LPF, on the one
hand, and Vivendi and/or one or more of its Affiliates, on the other hand, are
parties, in each case relating to periods after the Closing Date, and shall use
its reasonable best efforts to cause LMI and LPF to be released from such
obligations.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. CONDITIONS TO EACH PARTY'S OBLIGATION. The obligation of
each party to consummate the Transactions is subject to the satisfaction on the
Closing Date of the following conditions, any one or more of which conditions of
each party may be waived by such party to the extent permitted by law:
(a) Other than such Consents, registrations, declarations or filings the
failure of which to obtain would not have a Universal Material Adverse Effect or
a Liberty Material Adverse Effect, all Consents of, or registrations,
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Entity necessary for the consummation of the Transactions shall
have been obtained or filed or shall have occurred and continue to be in effect,
including any approvals and the expiration or termination of any waiting periods
under the HSR Act and, subject to Section 5.01(d), the EC Merger Regulation and
the merger regulations of individual countries in Europe, to the extent
applicable to the Transactions.
F-20
(b) No Applicable Law or Judgment enacted, entered, promulgated, enforced or
issued by any Governmental Entity or other legal restraint or prohibition
preventing the consummation of the Transactions shall be in effect.
(c) All conditions set forth in Article V of the Transaction Agreement shall
have been satisfied in accordance with their terms or irrevocably waived and the
Closing (as defined in the Transaction Agreement) shall occur in accordance with
the terms of the Transaction Agreement and each of the Transaction Documents in
the form attached thereto concurrently with the Closing of the Transactions.
SECTION 6.02. CONDITIONS TO THE OBLIGATIONS OF THE UNIVERSAL PARTIES. The
obligation of the Universal Parties to consummate the Transactions is subject to
the satisfaction on the Closing Date of the following conditions, any one or
more of which conditions may be waived by Universal and the Merger Subsidiaries
to the extent permitted by law:
(a) Except to the extent that the failure of such representations and
warranties to be true and correct, in the aggregate, would not have a Liberty
Material Adverse Effect: the representations and warranties of the Liberty
Parties made in this Agreement, without regard to any materiality or Liberty
Material Adverse Effect qualification, as of the date hereof and in the case of
the representations and warranties set forth in Section 4.01, 4.02, 4.03 (only
with respect to the Organizational Documents referred to therein), 4.04, 4.05,
4.06 and 4.07, as of the Closing Date, except to the extent such representations
and warranties expressly relate to an earlier date (in which case such
representations and warranties shall be true and correct as of such earlier
date), and Universal shall have received a certificate signed by an executive
officer of Liberty to such effect.
(b) The Liberty Parties shall have performed or complied in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by the Liberty Parties by the Closing Date, and
Universal shall have received a certificate signed by an authorized officer of
Liberty to such effect.
SECTION 6.03. CONDITIONS TO THE OBLIGATIONS OF THE LIBERTY PARTIES. The
obligation of the Liberty Parties to consummate the Transactions is subject to
the satisfaction on the Closing Date of the following conditions, any one or
more of which conditions may be waived by the Liberty Parties to the extent
permitted by law:
(a) Except to the extent that the failure of such representations and
warranties to be true and correct, in the aggregate, would not have a Universal
Material Adverse Effect: the representations and warranties of the Universal
Parties made in this Agreement, without regard to any materiality or Universal
Material Adverse Effect qualification, shall be true and correct as of the date
hereof and, in the case of the representations and warranties set forth in
Sections 3.01, 3.02, 3.03 (only with respect to the Organizational Documents
referred to therein), 3.04, 3.05 and 3.06, as of the Closing Date, except to the
extent such representations and warranties expressly relate to an earlier date
(in which case such representations and warranties shall be true and correct as
of such earlier date), and Liberty shall have received a certificate signed by
an executive officer of Universal to such effect.
(b) The Universal Parties shall have performed or complied in all respects
with all obligations and covenants set forth in Section 5.01(e) and in all
material respects with all other obligations and covenants required by this
Agreement to be performed or complied with by the Universal Parties by the
Closing Date, and Liberty shall have received a certificate signed by an
authorized officer of Universal to such effect.
(c) The Registration Statement shall have been declared effective by the SEC
under the Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been initiated or, to the knowledge of the
Universal Parties, threatened by the SEC. The issuance of the Vivendi ADSs to
the Liberty Parties pursuant to this Agreement shall have been qualified under
applicable
F-21
state securities laws. Such Vivendi ADSs shall have been accepted for listing on
the New York Stock Exchange, subject to official notice of issuance.
(d) The Tax Distribution referred to in Section 4.20 of the Transaction
Agreement shall have been made.
ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION. (a) Notwithstanding anything to the contrary in
this Agreement, this Agreement may be terminated and the Mergers and the other
Transactions abandoned at any time prior to the Effective Time:
(i) by mutual written consent of the parties hereto;
(ii) by any party hereto if the Transaction Agreement is terminated;
(iii) by either party if any Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any Judgment restraining, enjoining
or otherwise prohibiting any of the Transactions and such Judgment shall
have become final and nonappealable; or
(iv) by any party hereto, if the Closing does not occur on or prior to
September 30, 2002;
PROVIDED, HOWEVER, that the party seeking termination pursuant to clause (ii),
(iii) or (iv) is not in breach of any of its representations, warranties,
covenants or agreements contained in this Agreement in any material respect.
(b) In the event of termination by a party pursuant to this Section 7.01,
written notice thereof shall forthwith be given to the other parties, and the
Transactions shall be terminated without further action by any party. If this
Agreement is terminated as provided herein, each party shall return all
documents and other material received from any other party relating to the
Transactions, whether so obtained before or after the execution hereof.
SECTION 7.02. EFFECT OF TERMINATION. (a) If this Agreement is terminated
and the Transactions are abandoned as described in Section 7.01, this Agreement
shall become null and void and of no further force and effect, except for the
provisions of (i) Section 5.02 relating to certain expenses, (ii) Section 5.03
relating to publicity, (iii) Section 7.01 and this Section 7.02 relating to
termination and (iv) Article VIII relating to indemnification. Nothing in this
Section 7.02 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement.
F-22
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. INDEMNIFICATION. (a) Liberty hereby agrees to indemnify and
hold harmless the Universal Parties and their Affiliates from and against (but
without duplication) (i) any and all damages, claims, losses, expenses, costs,
obligations and liabilities, including, without limiting the generality of the
foregoing, liabilities for all Taxes and all reasonable attorneys' fees and
expenses, net of Tax benefits as and when realized and any recovery from any
third party including, without limitation, insurance proceeds and taking into
account Tax costs as and when suffered, directly or indirectly, by the Universal
Parties and their Affiliates ("LOSSES"), arising out of a breach of any
representation or warranty set forth in Section 4.04, 4.05 or 4.06 or any
covenant of any Liberty Party set forth in Section 5.05, (ii) any other
liability including liability for Taxes of any of the Liberty Holding Entities
relating to the period or portion thereof ending at or prior to the Effective
Time, (iii) any other liability, including liability for Taxes, of or in respect
of LPF other than liability of LPF assumed pursuant to Section 5.09 hereof,
(iv) all liability for Transfer Taxes for which any Liberty Party is responsible
pursuant to Section 5.02(b) and (v) any liability under Treasury Regulation
Section 1.1502-6 or under any comparable or similar provisions under state,
local or foreign Tax laws or regulations for periods or portions thereof ending
on or prior to the Closing Date, in the case of each of the preceding clauses
(i) through (v) without regard to materiality, other than, in the case of those
preceding clauses, any Loss or other liability for (t) any Tax liabilities for
which Vivendi is responsible pursuant to Section 8.01(b)(iii), (u) any Tax
liabilities resulting solely from a breach by Vivendi of any of its
representations and warranties set forth in Sections 3.06(i) and 3.06(j),
(v) Transfer Taxes for which Vivendi is responsible pursuant to
Section 5.02(b), (w) any Tax liabilities resulting solely from the exchange of
USANi Shares for USAi Common Shares pursuant to Section 2.01(a) hereof or, if
consummated, the USAi Share Exchange I, (x) any Tax liabilities resulting solely
from any restructuring of, or modification to the terms of, the multiThematiques
Transaction pursuant to Section 5.01(d) hereof, (y) an Excluded Tax Liability
and (z) any Loss arising as a result of such indemnified person's equity
ownership of USANi relating to the period prior to the Effective Time. If a
claim by a third party is made against a Universal Party, and if such Universal
Party intends to seek indemnity with respect thereto under this Section, such
Universal Party shall promptly notify Liberty in writing of such claims setting
forth such claims in reasonable detail; PROVIDED that the failure to so notify
Liberty shall not limit such Universal Party's rights to indemnity except to the
extent Liberty is materially prejudiced thereby. Liberty shall as promptly as
practicable, and in any event no later than 20 days after receipt of such
notice, undertake, through counsel of its own choosing and at its own expense,
the settlement or defense thereof, and the Universal Parties shall cooperate
with it in connection therewith; PROVIDED, HOWEVER, that the Universal Parties
may participate in such settlement or defense through counsel chosen by the
Universal Parties, provided that the fees and expenses of such counsel shall be
borne by the Universal Parties unless the Universal Parties shall have
reasonably determined that representation by the same counsel would be
inappropriate under applicable standards of appropriate conduct due to actual or
potential differing interests between the Universal Parties and Liberty, and in
that event, the fees and expenses of such counsel shall be paid by Liberty. If
Liberty assumes such defense, the Universal Parties shall have the right to
participate in the defense thereof and to employ counsel, at their own expense
(subject to the preceding sentence), separate from the counsel employed by
Liberty, it being understood that Liberty shall control such defense. In the
event that Liberty assumes such defense, the Universal Parties shall cooperate
with Liberty in such defense and make available to Liberty, at Liberty's
expense, all pertinent records, materials and information in their possession or
under their control relating thereto as is reasonably required by Liberty. The
Universal Parties shall not pay or settle any claim which Liberty is contesting
without the prior written consent of Liberty, which consent shall not be
unreasonably withheld. Liberty shall not settle any claim unless such settlement
(i) contains an unconditional release of the Universal Parties and their
Affiliates from any and all liability with respect to such third party claim and
(ii) does not otherwise impose new or additional
F-23
limitations or restrictions on any Universal Party or any of their Affiliates,
without the prior written consent of Universal which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, the Universal Parties
shall have the right to pay or settle any such claim, provided that in such
event it shall waive any right to indemnity therefor from Liberty. If Liberty
does not notify a Universal Party within 20 days after the receipt of such
Universal Party's notice of a claim of indemnity regarding a third party claim
hereunder that it elects to undertake the defense thereof, such Universal Party
shall have the right to contest, settle or compromise the claim but shall not
thereby waive any right to indemnity therefor pursuant to this Agreement.
(b) (i) In the event that any Merger is taxable to LPC or any other member
of the Selling Affiliated Group or the multiThematiques Transaction is taxable
to LMI, LPF or any other member of the Selling Affiliated Group, in each case as
a result of a breach of any of the representations and warranties set forth in
Sections 3.04 and 3.06 or any of the covenants of the Universal Parties set
forth in Section 5.05 or any action (other than any action contemplated by the
Transaction Documents including, for the avoidance of doubt, any action
contemplated by Section 3.06(i) of this Agreement) taken by any of the Universal
Parties after the Effective Time (other than any Tax liability that results
solely from (x) a breach of the representations and warranties set forth in
Section 4.06(c), (e) or (f) or any breach by any Liberty Party of the covenants
set forth in Section 5.05 or (y) an action or unreasonable inaction by any
Liberty Party (other than due to an action or inaction contemplated by the
Transaction Documents), or any action or inaction of the Universal Parties
contemplated by the Transaction Documents including, for the avoidance of doubt,
any action contemplated by Section 3.06(i) of this Agreement, Vivendi shall
indemnify and hold harmless LPC, LMI, LPF, and such other members of the Selling
Affiliated Group, as applicable, on an after-Tax basis for the amount of any
resulting Adjustments on any Return filed in respect of such indemnified party.
To the extent permitted by law, the parties agree to treat any indemnity
payments pursuant to this Section 8.01(b)(i) as adjustments to the consideration
paid in the Mergers or the multiThematiques Transaction, as applicable.
(ii) Vivendi shall indemnify and hold harmless the Liberty Parties on an
after-Tax basis for the amount of any Adjustments on any Return filed or to be
filed in respect of such indemnified parties that result solely from (a) the
exchange of USANi Shares for USAi Common Shares pursuant to Section 2.01(a)
hereof and, if consummated, the USAi Share Exchange I, (b) any restructuring of,
or modification to the terms of, the multiThematiques Transaction pursuant to
Section 5.01(d) hereof, and/or (c) a breach of any of the representations and
warranties set forth in Sections 3.06(i) and 3.06(j) hereof. To the extent
permitted by law, the parties agree to treat any indemnity payments pursuant to
clauses (a) and (c) of this Section 8.01(b)(ii) as adjustments to the
consideration paid in the Mergers and indemnity payments pursuant to clause (b)
of this Section 8.01(b)(ii) as adjustments to the consideration paid in the
multiThematiques Transaction.
(iii) Unless, as of the Closing Date, at least 35% of the Common Interests
(as defined in the Partnership Agreement) are held in the aggregate by Vivendi
or one or more Affiliates of Vivendi (other than the surviving corporations of
the Mergers) who are members of the same "qualified group" (within the meaning
of Treasury Regulation Section 1.368-1(d)(4)(ii)) with the surviving
corporations of the Mergers and Vivendi, Vivendi shall indemnify and hold
harmless the Liberty Parties on an after-Tax basis for the amount of any
Adjustments on any Return filed in respect of such indemnified parties that
result solely from any of the Mergers failing to qualify as a reorganization
within the meaning of Section 368(a) of the Code solely as a result of the
transactions contemplated by Sections 2.02 and 2.03(a) of the Transaction
Agreement. To the extent permitted by law, the parties agree to treat any
indemnity payments pursuant to this Section 8.01(b)(iii) as adjustments to the
consideration paid in the Mergers.
(c) GAIN RECOGNITION AGREEMENTS; INDEMNITY. If Liberty (or another member of
the Selling Affiliated Group) becomes a five-percent shareholder (within the
meaning of Treasury Regulation
F-24
Section 1.367(a)-3(c)(5)(ii)) of Vivendi in connection with the Mergers and/or
the multiThematiques Transaction solely as a result of the receipt of Vivendi
ADSs in connection with (i) the Transactions, (ii) any indemnification payment
made pursuant to Section 8.01(b) or (iii) any purchases of Vivendi ADSs made by
any Liberty Party directly from Vivendi in connection with the Transactions (a
"FIVE-PERCENT SHAREHOLDER EVENT") and is required, solely as a result of such
Five-Percent Shareholder Event, to enter into one or more gain recognition
agreements under Section 367 of the Code (including any new gain recognition
agreements that Liberty (or another member of the Selling Affiliated Group) may
be required to enter into as a result of any nonrecognition transfer described
in Treasury Regulations Sections 1.367(a)-8(g)(2) or (3)) with respect to the
Mergers and/or the multiThematiques Transaction, Vivendi will, effective as of
the date of such Five-Percent Shareholder Event, indemnify and hold harmless
Liberty (the "GRA INDEMNITY), on an after-Tax basis, for the amount of any
Adjustments on any Return filed by Liberty or any other member of the Selling
Affiliated Group which are required to be made as a result of any gain triggered
pursuant to such gain recognition agreements (or new gain recognition
agreements) solely as a result of any action taken by Vivendi or any of its
Affiliates after the Effective Time (other than any action or inaction
contemplated by the Transaction Documents (except for any action contemplated by
Section 3.06(i) of this Agreement)); PROVIDED, HOWEVER, that for purposes of
this Section 8.01(c), the determination of whether Liberty (or another member of
the Selling Affiliated Group) is a five-percent shareholder shall be made by
taking into account only those Vivendi Securities acquired pursuant to clauses
(i), (ii) and/or (iii) above. If the GRA Indemnity becomes effective,
(i) Vivendi agrees to notify Liberty of any action taken by it or any of its
Affiliates that has caused, or will cause, gain to be recognized under such gain
recognition agreements (or new gain recognition agreements) and (ii) if Vivendi
or any of its Affiliates have consummated, or consummate, any nonrecognition
transfer that is described in Treasury Regulations Sections 1.367(a)- 8(g)(2) or
(3), Vivendi shall provide timely notice to Liberty of such nonrecognition
transfer so Liberty (or another member of the Selling Affiliated Group) may
comply with the reporting requirements set forth in such sections of the
Treasury Regulations, and Vivendi will cause Liberty to be informed of any
subsequent disposition of property within the meaning of Treasury Regulations
Section 1.367(a)- 8(g)(2)(iv). To the extent permitted by law, the parties agree
to treat any indemnity payments pursuant to this Section 8.01(c) as adjustments
to the consideration paid in the Mergers or the multiThematiques Transaction, as
applicable.
(d) Vivendi shall make (x) any indemnification payments pursuant to Sections
8.01(b)(i), 8.01(b)(iii) and 8.01(c) hereof within thirty (30) calendar days
after the later of (i) the filing of any Return, or any amended Return, as
applicable, including the income or gain recognized that created the applicable
Adjustment, and (ii) the date (the "INDEMNIFICATION NOTICE DATE") Vivendi
receives written notice from Liberty, or any of its Affiliates, which notice
shall include a certificate setting forth in reasonable detail the calculation
and nature of such adjustment (an "INDEMNIFICATION NOTICE") demanding payment of
such indemnity, and (y) any indemnification payments pursuant to
Section 8.01(b)(ii) within 30 calendar days after the date Vivendi receives an
Indemnification Notice from Liberty or any of its Affiliates demanding payment
of such indemnity. To the extent any indemnification payment is not paid by
Vivendi within such 30-day period, as applicable, the amount due shall
thereafter include interest thereon at a rate per annum equal to the prime rate
as publicly announced from time to time by The Bank of New York (the
"OVERPAYMENT RATE"), adjusted as and when changes to such Overpayment Rate shall
occur, compounded semi-annually. Any indemnification payments to be made by
Vivendi pursuant to Sections 8.01(b) and (c) and any additional interest amounts
to be paid pursuant to this Section 8.01(d) shall be made by delivering shares
of Vivendi ADSs. Any shares of Vivendi ADSs shall be valued based on the average
of the daily closing prices (as of 4:00 p.m. eastern time) per share of Vivendi
ADSs as reported on the New York Stock Exchange (as published in the Wall Street
Journal, or if not published therein or incorrectly published therein, in
another authoritative source mutually selected by Vivendi and Liberty) for the
ten consecutive trading
F-25
days ending on the second trading day prior to the Indemnification Notice Date.
All such Vivendi ADSs shall be duly authorized, fully paid, and non-assessable.
SECTION 8.02. SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement or in any certificates delivered pursuant
to Article VI shall survive the Closing and shall terminate on March 31, 2003,
except for (i) those contained in Sections 3.04, 3.05, 4.04 and 4.05, which
shall not terminate and (ii) those relating to Taxes (including, but not limited
to those contained in Sections 3.06, 4.06, 5.05, 5.06 and 8.01) which shall
survive until the expiration of the applicable statute of limitations (giving
effect to any waiver, mitigation or extensions thereof). Notwithstanding the
foregoing, those covenants or agreements that contemplate or may involve actions
to be taken or obligations in effect after the Closing shall survive in
accordance with their terms.
ARTICLE IX
RESTRICTIONS ON TRANSFERS
SECTION 9.01. RESTRICTIONS ON TRANSFERS. (a) From the date of this
Agreement to the date that is 18 months after the Closing Date, the Liberty
Parties agree not to offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, enter into a transaction which would have the same
effect, or enter into any swap, hedge or other arrangement that Transfers, in
whole or in part, any of the economic consequences of ownership of, or publicly
disclose the intention to make any such offer, sale, pledge or disposition, or
enter into any such transaction, swap, hedge or other arrangement with respect
to the Vivendi Securities to be received pursuant to Article II; PROVIDED,
HOWEVER, that this Section 9.01 shall cease to apply to:
(i) 18,300,000 Vivendi Securities, on and after the Closing Date;
(ii) an additional 9,543,218 Vivendi Securities, on and after the date
that is 12 months after the Closing Date; and
(iii) any additional Vivendi Securities issued pursuant to this
Agreement, on and after the date that is 18 months after the Closing Date;
without, in each case, the prior written consent of Vivendi. Notwithstanding the
foregoing, with respect to the 18,300,000 Vivendi Securities referred to in
clause (i) above, the Liberty Parties may enter into swaps, hedges or other
arrangements ("HEDGES") that Transfer, in whole or in part, any of the economic
consequences of ownership of such Vivendi Securities prior to the Closing Date;
PROVIDED, that the number of Vivendi Securities so Hedged on any day does not
exceed twice the average worldwide daily trading volume for Vivendi Securities
during the five trading days preceding such day.
(b) It shall be a condition to any Transfer not prohibited by this
Article IX that such Transfer shall comply with the provisions of the Securities
Act and applicable state securities laws.
(c) The Liberty Parties acknowledge and understand that the certificates
representing the Vivendi Securities to be received pursuant to Article II will
bear an appropriate legend regarding the transfer restrictions set forth in this
Article IX.
SECTION 9.02. TRANSFERS PERMITTED AT ANY TIME. At any time and from time
to time, any Liberty Party may Transfer all or any portion of the Vivendi
Securities received pursuant to Article II to a wholly owned subsidiary of
Liberty that agrees in writing to be bound by this Article IX.
F-26
ARTICLE X
STANDSTILL
SECTION 10.01. STANDSTILL. (a) Each Liberty Party agrees that, prior to
the earliest of (i) the fourth anniversary of the Closing Date, (ii) the sale of
all or substantially all of the assets of Vivendi and its subsidiaries to
another Person other than a subsidiary of Vivendi or (iii) the effective time of
any merger or consolidation of Vivendi with or into any other Person, other than
a merger or consolidation in which a majority of the shares of the surviving
entity are held by the holders of Vivendi's voting securities immediately prior
to such effective time (the "RESTRICTED PERIOD"), it and its Affiliates will
not, in any manner, whether publicly or otherwise, directly or indirectly,
without the prior written consent of Vivendi, unless specifically requested in
writing by the CEO of Vivendi or by a resolution of a majority of the board of
directors of Vivendi:
(i) acquire, agree to acquire or make any proposal to acquire, directly
or indirectly, by purchase or otherwise, beneficial ownership of (A) any
voting securities if immediately after such acquisition, the voting
securities beneficially owned, in the aggregate, by Liberty and its
Affiliates would exceed five percent (5%) of the outstanding voting
securities of Vivendi or (B) any significant assets of Vivendi, or any of
its subsidiaries (other than assets acquired in the ordinary course of
business); PROVIDED, HOWEVER, that this clause shall not be deemed to be
violated by the indirect acquisition of voting securities of Vivendi as a
result of an acquisition by a Liberty Party of another Person that holds
such voting securities so long as the voting securities of Vivendi held by
such Person do not exceed 1% of such Person's total assets;
(ii) propose to enter into, directly or indirectly, any merger, tender
offer or other business combination or similar transaction involving Vivendi
or any of its subsidiaries (including a purchase of a material portion of
their assets);
(iii) make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are defined in Regulation 14A
("REGULATION 14A") under the Exchange Act but without regard to the
exclusion set forth in clause (2)(iv) of the definition of "solicitation")
to vote, or seek to advise or influence any Person with respect to the
voting of, any securities of Vivendi or any of its subsidiaries, or become a
"participant" in a "solicitation" (as such terms are defined in
Regulation 14A but without regard to the exclusion set forth in
clause (2)(iv) of the definition of "solicitation") whether or not such
solicitation is subject to regulation under Regulation 14A;
(iv) grant any proxy with respect to any voting securities of Vivendi
(other than to Vivendi, its Affiliates or the CEO of Vivendi);
(v) call, or seek to call, a meeting of Vivendi's shareholders or
initiate any shareholder proposal for action by shareholders of Vivendi;
(vi) bring any action or otherwise act to contest the validity of this
Article X or seek a release of the restrictions contained herein;
(vii) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting
securities of Vivendi or any of its subsidiaries or deposit any voting
securities of Vivendi in a voting trust or subject any voting securities of
Vivendi to any arrangement or agreement with respect to the voting of such
voting securities or other agreement having similar effect;
(viii) otherwise act, alone or in concert with others, to seek to affect
or influence the control of the management or the board of directors of
Vivendi or the business, operations or policies of Vivendi;
F-27
(ix) enter into any discussions, negotiations, arrangements,
understandings or agreements (whether written or oral) with any other Person
(other than Liberty's financial advisors or directors, officers, employees,
agents, advisors or representatives) regarding a business combination
involving Vivendi, any other purchase of any voting securities involving
Vivendi, or significant assets of Vivendi;
(x) disclose any intention, plan or arrangement inconsistent with the
foregoing; or
(xi) advise or assist any other Person in connection with any of the
foregoing.
Each Liberty Party also agrees that, during the Restricted Period, neither it
nor anyone acting on its behalf will (x) request Vivendi or any of its
directors, officers, employees, agents, advisors or representatives, directly or
indirectly, to amend or waive any provision of this Article X (including this
sentence) or (y) take any action which might require Vivendi to make a public
announcement regarding the possibility of a business combination, merger or
extraordinary transaction.
(b) Notwithstanding Section 10.01(a), Liberty or any of its Affiliates shall
be permitted during the Restricted Period to submit a proposal addressed to the
board of directors of Vivendi that proposes a merger or other business
combination involving Vivendi if (i) Vivendi shall have publicly announced that
it has entered into a definitive agreement providing for: (A) any acquisition
from Vivendi or from one or more stockholders thereof (by tender or exchange
offer or other public offer), or both, more than 50% of the outstanding voting
or equity securities of Vivendi, (B) any acquisition of all, or substantially
all, the assets of Vivendi and its subsidiaries or (C) a merger, consolidation,
statutory share exchange or similar transaction between or involving Vivendi and
another Person (other than a merger or consolidation in which a majority of the
voting shares of the surviving entity are held by the holders of Vivendi's
voting securities immediately prior to such effective time); or (ii) any Person
shall have commenced a tender offer or exchange offer that is likely to result
in any Person or group beneficially owning 50% or more of the voting securities
of Vivendi; PROVIDED, that in the case of this clause (ii), the right to make a
proposal pursuant to this Section 10.01(b) shall cease upon the withdrawal or
termination of such unsolicited tender offer or exchange offer or proposal
unless Liberty or any of its Affiliates shall have submitted a proposal prior to
such withdrawal or termination.
ARTICLE XI
REGISTRATION RIGHTS
SECTION 11.01 REGISTRATION RIGHTS. As soon as practicable after execution
of this Agreement, Vivendi shall (i) prepare and cause to be filed with the SEC
under the Securities Act a registration statement on Form F-3 (or other
appropriate form) (the "REGISTRATION STATEMENT") registering under the
Securities Act the resale by the Liberty Parties of the Vivendi ADSs received by
such Liberty Parties pursuant to this Agreement (the "REGISTRABLE SECURITIES"),
(ii) use its reasonable best efforts to cause such Registration Statement to be
declared effective simultaneous with the Closing and (iii) shall use its
reasonable best efforts to maintain such Registration Statement effective for a
period (the "EFFECTIVE PERIOD") of two years following the Closing Date or, if
earlier, until all Registrable Securities covered thereby have been disposed of.
In addition to such registration under the Securities Act, as soon as
practicable after the execution of this Agreement, Vivendi shall use its
reasonable best efforts to register or qualify the resale of such Vivendi ADSs
under the securities or "blue sky" laws of such jurisdictions as Liberty shall
reasonably request. Vivendi shall cause such Vivendi ADSs to be listed for
trading on the New York Stock Exchange.
SECTION 11.02. BLACKOUT PERIODS. (a) Prior to the end of the Effective
Period, if Vivendi determines in good faith that the registration and
distribution of Registrable Securities (or the use of the Registration Statement
or related prospectus) would interfere with any pending financing, acquisition,
corporate reorganization or any other corporate development involving Vivendi or
any of
F-28
its subsidiaries or would require premature disclosure thereof, Vivendi shall be
entitled to (i) postpone the filing of the Registration Statement otherwise
required to be prepared and filed by Vivendi pursuant to Section 11.01 or
(ii) elect that the Registration Statement not be used, in either case, for a
reasonable period of time, but not to exceed an aggregate of 90 days in any
consecutive 12-month period (a "SECTION 11.02(A) PERIOD").
(b) The period for which the Registration Statement shall be kept effective
pursuant to Section 11.01(a) shall be extended by a number of days equal to the
number of days of any Section 11.02(a) Period occurring during such period.
(c) Vivendi will notify Liberty, at any time when a prospectus relating to
the Registration Statement is required to be delivered under the Securities Act,
of Vivendi's becoming aware that the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and at the request of Liberty, prepare and furnish at Vivendi's
expense a reasonable number of copies of an amendment or supplement to such
Registration Statement or related prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(d) Each Liberty Party agrees that, upon receipt of any notice from Vivendi
of the happening of any event of the kind described in Section 11.02(c), such
Liberty Party will forthwith discontinue disposition of Registrable Securities
pursuant to the prospectus or Registration Statement covering such Registrable
Securities until such Liberty Party's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 11.02(c), and, if so directed by
Vivendi, such Liberty Party will deliver to Vivendi (at Vivendi's expense) all
copies, other than permanent file copies then in such Liberty Party's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice. In the event Vivendi shall give any such
notice, the period for which the Registration Statement shall be kept effective
pursuant to Section 11.01(a) shall be extended by the number of days during the
period from the date of the giving of such notice pursuant to Section 11.02(c)
and through the date when each seller of Registrable Securities covered by such
Registration Statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 11.02(c).
(e) In connection with the Registration Statement, Vivendi shall: (i) use
its best efforts to comply with all applicable rules and regulations of the SEC
in connection with the Registration Statement; (ii) prepare and file with the
SEC such amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective during the Effective Period; (iii) notify
Liberty of any stop order issued or, to the best knowledge of Vivendi,
threatened by the SEC and take all reasonable action required to prevent the
entry of such stop order or to remove it if entered; and (iv) take such other
actions as Liberty may reasonably request to effect the disposition of the
Registrable Securities pursuant to the Registration Statement.
(f) Vivendi shall pay all registration expenses with respect to the
Registration Statement. Notwithstanding the foregoing, each Liberty Party
selling Registrable Securities shall be responsible for its own internal
administrative and similar costs, the legal fees and expenses of its own counsel
and all underwriting discount and underwriting commissions and transfer Taxes,
if any, in connection with the sale of Registrable Securities.
F-29
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. APPROVAL OF TRANSACTIONS. The parties hereto acknowledge
that in Section 8.01 of the Transaction Agreement they have approved of and
consented to the Transactions.
SECTION 12.02. NOTICES. All notices, requests and other communications to
any party under this Agreement shall be in writing (including a facsimile or
similar writing) and shall be given to a party hereto at the address or
facsimile number set forth for such party on Schedule 12.02 or as such party
shall at any time otherwise specify by notice to each of the other parties to
such agreement or instrument. Each such notice, request or other communication
shall be effective (i) if given by facsimile, at the time such facsimile is
transmitted and the appropriate confirmation is received (or, if such time is
not during a Business Day, at the beginning of the next such Business Day),
(ii) if given by mail, five Business Days (or, if to an address outside the
United States, ten calendar days) after such communication is deposited in the
United States mails with first-class postage prepaid, addressed as aforesaid,
(except that notice of change of address will not be deemed given until
received) or (iii) if given by any other means, when delivered at the address
specified pursuant hereto.
SECTION 12.03. NO THIRD PARTY BENEFICIARIES. The terms of this Agreement
are not intended to confer any rights or remedies hereunder upon, and shall not
be enforceable by, any Person other than the parties hereto, other than, with
respect to the provisions of Article VIII hereof, each indemnified person.
SECTION 12.04. WAIVER. No failure by any party to this Agreement to insist
upon the strict performance of any covenant, agreement, term or condition hereof
or to exercise any right or remedy consequent upon a breach of such or any other
covenant, agreement, term or condition shall operate as a waiver of such or any
other covenant, agreement, term or condition of this Agreement. Any party to
this Agreement, by notice given in accordance with Section 12.02, may, but shall
not be under any obligation to, waive any of its rights or conditions to its
obligations under this Agreement, or any duty, obligation or covenant of any
other party hereto. No waiver shall affect or alter the remainder of this
Agreement and each and every covenant, agreement, term and condition hereof
shall continue in full force and effect with respect to any other then existing
or subsequent breach. The rights and remedies provided by this Agreement are
cumulative and the exercise of any one right or remedy by any party shall not
preclude or waive its right to exercise any or all other rights or remedies.
SECTION 12.05. ASSIGNMENT. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by and against, the parties and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties; PROVIDED,
HOWEVER, that after the Closing, Vivendi or Liberty may assign its rights and
obligations hereunder by operation of law or in connection with the transfer of
all or substantially all of its assets or may assign its rights hereunder to any
of its subsidiaries so long as such party remains responsible for all of its
obligations hereunder.
SECTION 12.06. INTEGRATION. This Agreement and the Transaction Documents
constitute the entire agreement among the parties hereto pertaining to the
subject matter hereof and supersedes all prior agreements and understandings of
the parties in connection with the subject matter hereof and no covenant,
representation or condition not expressed in this Agreement shall affect, or be
effective to interpret, change or restrict, the express provisions of this
Agreement.
SECTION 12.07. HEADINGS. The titles of Articles and Sections of this
Agreement are for convenience only and shall not be interpreted to limit or
otherwise affect the provisions of this Agreement.
F-30
SECTION 12.08. COUNTERPARTS. This Agreement may be executed by the parties
hereto in multiple counterparts, each of which shall be deemed an original and
all of which, taken together, shall constitute one and the same instrument.
SECTION 12.09. SEVERABILITY. Each provision of this Agreement shall be
considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any applicable law, such invalidity
shall not impair the operation of or affect those portions of this Agreement
which are valid.
SECTION 12.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the conflicts of law principles thereof, except to the extent the laws
of the State of Delaware are mandatorily applicable to the Merger.
SECTION 12.11. JURISDICTION. Each party to this Agreement irrevocably
submits to the exclusive jurisdiction of (i) the Supreme Court of the State of
New York, New York County, and (ii) the United States District Court for the
Southern District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or the Transactions. Each party agrees
to commence any such action, suit or proceeding either in the United States
District Court for the Southern District of New York or if such suit, action or
other proceeding may not be brought in such court for jurisdictional reasons, in
the Supreme Court of the State of New York, New York County. Each party further
agrees that service of any process, summons, notice or document by U.S.
registered mail to such party's respective address in accordance with
Section 12.02 shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction in this Section 12.11. Vivendi and Universal France hereby appoints
Vivendi Universal U.S. Holding Co., 800 Third Avenue, 7th Floor, New York, New
York 10022, Attention: President as its authorized agent (the "AUTHORIZED
AGENT") upon which process may be served in any action arising out of or based
upon this Agreement or the Transactions that may be instituted in any court by
any party hereto and expressly consents to the jurisdiction of any such court,
but only in respect of any such action, and waives any other requirements of or
objections to personal jurisdiction with respect thereto. Vivendi and Universal
France represent and warrant that the Authorized Agent has agreed to act as said
agent for service of process, and Vivendi agrees to take any and all action,
including the filing of any and all documents and instruments, that may be
necessary to continue such appointment in full force and effect as aforesaid. If
the Authorized Agent shall cease to act as Vivendi's or Universal France's agent
for service of process, such party shall appoint without delay another such
agent and notify Liberty of such appointment in the manner provided in
Section 12.02 for the giving of notices. With respect to any such action in the
courts, service of process upon the Authorized Agent in the manner provided in
Section 12.02 for the giving of notices (substituting the address set forth
above in this Section 12.11) and written notice of such service to Vivendi and
Universal France given as provided in Section 12.02 shall be deemed, in every
respect, effective service of process upon Vivendi and Universal France. Each
party irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
Transactions in (i) the Supreme Court of the State of New York, New York County,
or (ii) the United States District Court for the Southern District of New York,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
SECTION 12.12. SPECIFIC PERFORMANCE. Each of the parties to this Agreement
agrees that the other parties hereto would be irreparably damaged if any of the
provisions of this Agreement are not performed in accordance with its specific
terms and that monetary damages would not provide an adequate remedy in such
event. Accordingly, in addition to any other remedy to which the nonbreaching
parties may be entitled, at law or in equity, the nonbreaching parties may be
entitled to
F-31
injunctive relief to prevent breaches of this Agreement and to specifically
enforce the terms and provisions hereof.
SECTION 12.13. AMENDMENTS. This Agreement may be amended by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 12.14. INTERPRETATION. References in this Agreement to Articles,
Sections, Annexes, Exhibits and Schedules shall be deemed to be references to
Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. All Annexes, Exhibits and Schedules
attached to this Agreement shall be deemed incorporated herein as if set forth
in full herein. The words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation". The words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of such
agreement or instrument.
SECTION 12.15. ADJUSTMENT OF SHARE NUMBERS. If, after the date of this
Agreement, there is a subdivision, split, stock dividend, combination,
reclassification or similar event with respect to any of the shares of capital
stock referred to in this Agreement, then, in any such event, the numbers and
types of shares of such capital stock referred to in this Agreement shall be
adjusted to the number and types of shares of such capital stock that a holder
of such number and types of shares of such capital stock would own or be
entitled to receive as a result of such event if such holder had held such
number and types of shares immediately prior to the record date for, or
effectiveness of, such event.
F-32
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the day and year first above written.
VIVENDI UNIVERSAL, S.A.,
By: /s/ JEAN-MARIE MESSIER
-----------------------------------------
Name: Jean-Marie Messier
Title: Chairman and CEO
UNIVERSAL STUDIOS, INC.,
By: /s/ GUILLAUME HANNEZO
-----------------------------------------
Name: Guillaume Hannezo
Title: Special Power of Attorney
LIGHT FRANCE ACQUISITION 1, S.A.S.
by VIVENDI UNIVERSAL, S.A.,
By: /s/ JEAN-MARIE MESSIER
-----------------------------------------
Name: Jean-Marie Messier
Title: On behalf of Vivendi
Universal, S.A., Chairman
NYCSPIRIT CORP. II,
NYCSPIRIT CORP. III,
NYCSPIRIT CORP. IV,
NYCSPIRIT CORP. V,
By: /s/ JEAN-MARIE MESSIER
-----------------------------------------
Name: Jean-Marie Messier
Title: President
LIBERTY MEDIA CORPORATION,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
F-33
LIBERTY PROGRAMMING COMPANY LLC,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LIBERTY PROGRAMMING FRANCE, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LIBERTY HSN LLC HOLDINGS, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LMC USA II, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LMC USA III, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LMC USA IV, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
F-34
LMC USA V, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LMC USA VI, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LMC USA VII, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LMC USA VIII, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
LMC USA X, INC.,
By: /s/ ROBERT R. BENNETT
-----------------------------------------
Name: Robert R. Bennett
Title: CEO and President
F-35
ANNEX A
The terms defined below have the meanings set forth below for all purposes
of this Agreement, and such meanings shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
"ACTIONS" shall have the meaning set forth in Section 5.06.
"ADJUSTMENTS" shall mean the deemed increase in a Tax, determined on a
transaction-by-transaction basis and using the assumptions set forth in the next
sentence, resulting from an adjustment made with respect to any amount reflected
or required to be reflected on any Return relating to such Tax. For purposes of
determining such deemed increase in Tax, the following assumptions will be used:
(a) a combined marginal Tax rate of 38%, and (b) such determinations shall be
made without regard to whether any actual increase in such Tax will in fact be
realized with respect to the Return to which such adjustment relates (as a
result, for example, of losses, credits or other offsets against Tax).
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person. For purposes of the foregoing, (i) USANi and its
Affiliates shall be deemed to be Affiliates of USAi, (ii) none of USAi, USANi or
any of their respective Affiliates shall be deemed to be an Affiliate of
Universal, (iii) none of Diller, Universal, Liberty or any of their respective
Affiliates shall be deemed to be an Affiliate of USAi and (iv) none of USAi or
Universal or any of their respective Affiliates shall be deemed to be an
Affiliate of the Partnership.
"APPLICABLE LAW" shall have the meaning set forth in Section 3.03(a).
"ARTICLES OF ASSOCIATION" shall have the meaning set forth in
Section 4.03(a).
"AUTHORIZED AGENT" shall have the meaning set forth in Section 12.11.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a United
States Federal holiday.
"CALL OPTION AGREEMENT" means the Promise to Sell Agreement dated May 4,
2000 among Havas Images, as the Promisor, and Canal+, Hachette SA and LMI, as
the Beneficiaries.
"CEO" means chief executive officer.
"CERTIFICATE OF MERGER" shall have the meaning set forth in
Section 2.04(b).
"CLOSING" and "CLOSING DATE" shall have the meanings set forth in
Section 2.04(a).
"CMF" means the Conseil des Marches Financiers.
"COB" means the Commission des Operations de Bourse.
"CODE" shall have the meaning set forth in the Preliminary Statement.
"CONSENT" shall have the meaning set forth in Section 3.03(b).
"CONTRACTS" means all contracts, agreements, commitments and other legally
binding arrangements, whether oral or written.
"DEPOSIT AGREEMENT" shall have the meaning set forth in Section 3.05.
"DEPOSITARY" shall have the meaning set forth in Section 3.05.
"DGCL" means the Delaware General Corporation Law, as amended from time to
time.
"DILLER" means Barry Diller.
F-36
"EC MERGER REGULATION" means Council Regulation No. 4064/89/EEC of the
European Community, as amended.
"EFFECTIVE PERIOD" shall have the meaning set forth in Section 11.01.
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.04(b).
"ENCUMBRANCE" means any charge, claim, option, right to acquire, restriction
on transfer, voting restriction or agreement, or any other restriction of any
nature whatsoever on any assets.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGREEMENT" means the Exchange Agreement dated as of October 19,
1997, by and among USAi, Universal, for itself and on behalf of certain of its
subsidiaries, and Liberty, for itself and on behalf of certain of its
subsidiaries.
"EXCLUDED TAX LIABILITIES" shall have the meaning set forth in
Section 4.05.
"FILING" shall have the meaning set forth in Section 4.03(b).
"FRENCH GAAP" shall have the meaning set forth in Section 3.08.
"GOVERNANCE AGREEMENT" shall have the meaning set forth in the Transaction
Agreement.
"GOVERNMENTAL ENTITY" shall have the meaning set forth in Section 3.03(b).
"GRA INDMENITY" shall have the meaning set forth in Section 8.01(c).
"HEDGE" shall have the meaning set forth in Section 9.01(b).
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"INCOME TAX" means all Taxes based on or measured by net income.
"INDEMNIFICATION NOTICE" shall have the meaning set forth in
Section 8.01(d).
"INVESTMENT AGREEMENT" means the Investment Agreement dated as of
October 19, 1997, as amended and restated as of December 18, 1997, among,
Universal, for itself and on behalf of certain of its subsidiaries, USAi,
HSN, Inc. and Liberty, for itself and on behalf of certain of its subsidiaries.
"JUDGMENT" shall have the meaning set forth in Section 3.03(a).
"LIEN" means any pledge, encumbrance, security interest, purchase option,
call or similar right.
"LIBERTY" shall have the meaning set forth in the Preamble.
"LIBERTY EXCLUDED JURISDICTION" shall have the meaning set forth in
Section 4.03(a).
"LIBERTY HOLDING ENTITIES" means the entities listed in paragraphs
(a) through (d) of Exhibit C hereto.
"LIBERTY MATERIAL ADVERSE EFFECT" shall have the meaning set forth in
Section 4.01.
"LIBERTY PARTIES" means Liberty, Liberty HSN LLC Holdings, Inc., LPC, LPF,
the Liberty Transferring Entities and the Liberty Holding Entities; PROVIDED,
that the Liberty Holding Entities shall cease to be included as Liberty Parties
from and after the Effective Time.
"LIBERTY PERMITTED ENCUMBRANCE" shall have the meaning set forth in
Section 4.04(a).
"LIBERTY SHARES" shall have the meaning set forth in Section 4.04(a).
"LIBERTY TRANSFERRING ENTITIES" means LMC USA VI, Inc., LMC USA VII, Inc.,
LMC USA VIII, Inc., LMC USA X, Inc. and Liberty HSN LLC Holdings, Inc.
"LIBERTY USAi SHARES" shall have the meaning set forth in Section 4.04(c).
"LIBERTY USANi SHARES" shall have the meaning set forth in Section 4.04(b).
F-37
"LIQUIDATION" shall have the meaning set forth in Section 2.02(b).
"LMI" shall have the meaning set forth in the Preamble.
"LOAN AGREEMENT" means the Shareholder Loan Agreement dated August 9, 2000
by multiThematiques in favor of LMI, and the indebtedness represented thereby.
"LPC" shall have the meaning set forth in the Preamble.
"LPF" shall have the meaning set forth in the Preamble.
"LOSS" shall have the meaning set forth in Section 8.01.
"MERGERS" shall have the meaning set forth in Section 2.02(c).
"MERGER CONSIDERATION" shall have the meaning set forth in Section 2.03(c).
"MERGER SUBSIDIARIES" means Sub II, Sub III, Sub IV and Sub V.
"MULTITHEMATIQUES" means multiThematiques S.A., a societe anonyme organized
under the laws of France.
"MULTITHEMATIQUES ACQUISITION" shall have the meaning set forth in
Section 2.02(b).
"MULTITHEMATIQUES SHARES" means Class C shares, with a 100 French Francs par
value.
"MULTITHEMATIQUES COOPERATION AGREEMENT" means the Amended and Restated
Cooperation Agreement dated as of May 4, 2000 by and among Canal+ S.A., Havas
Images S.A., Liberty Media International, Inc., Part'com S.A. and Hachette S.A.
"MULTITHEMATIQUES TRANSACTION" shall have the meaning set forth in
Section 2.02(b).
"OPTION AGREEMENTS" means the Call Option Agreement and the Put Option
Agreements.
"ORGANIZATIONAL DOCUMENTS" means, with respect to any Person at any time,
such Person's certificate or articles of incorporation, by-laws, memorandum and
articles of association, certificate of formation of limited liability company,
limited liability company agreement, and other similar organizational or
constituent documents, as applicable, in effect at such time.
"PARTNERSHIP" shall have the meaning set forth in the Transaction Agreement.
"PERSON" means any individual, firm, corporation, partnership, limited
liability company, trust, joint venture, governmental authority or other entity.
"POST-SIGNING RETURNS" shall have the meaning set forth in Section 5.06.
"PROCEEDING" means any claim, action, suit, proceeding, arbitration,
investigation, inquiry, or hearing or notice of hearing.
"PSE" means the Paris Bourse.
"PUBLICLY DISCLOSED BY VIVENDI" means disclosed by Vivendi in a public
filing made by Vivendi with the PSE, the COB, the CMF, the New York Stock
Exchange or the SEC.
"PUT OPTION AGREEMENTS" means the Promise to Buy Agreement dated May 4, 2000
among Canal+, Hachette SA and LMI, as Promisors, and Part'Com, as Beneficiary
and the Promise to Buy Agreement dated May 4, 2000 among Canal+, Hachette SA and
LMI, as Promisors, and Havas Images, as Beneficiary.
"REGISTRABLE SECURITIES" shall have the meaning set forth in
Section 11.01(a).
"RELATED SECURITIES" shall have the meaning set forth in Section 11.02(b).
"REGULATION 14A" shall have the meaning set forth in Section 10.01(a).
"RESTRICTED PERIOD" shall have the meaning set forth in Section 10.01(a).
F-38
"RETURNS" means returns, reports and forms required to be filed with any
domestic or foreign Taxing Authority.
"SEC" means the United States Securities and Exchange Commission.
"SECTION 11.02(A) PERIOD" shall have the meaning set forth in
Section 11.02(a).
"SECTION 11.02(B) PERIOD" shall have the meaning set forth in
Section 11.02(b).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING AFFILIATED GROUP" means the members of the affiliated group within
the meaning of Section 1504(a) of the Code which includes Liberty.
"SHAREHOLDER ARRANGEMENTS" means the Investment Agreement, the Governance
Agreement, the Stockholders Agreement, the Exchange Agreement and the Exchange
Agreement dated as of December 20, 1996 by and between Silver King
Communications, Inc. and Liberty HSN, Inc., together with any and all
amendments, modifications and waivers to such agreements.
"STOCKHOLDERS AGREEMENT" shall have the meaning set forth in the Transaction
Agreement.
"SUB II" means NYCSpirit Corp. II, a Delaware corporation and a direct,
wholly-owned subsidiary of Vivendi.
"SUB III" means NYCSpirit Corp. III, a Delaware corporation and a direct,
wholly-owned subsidiary of Vivendi.
"SUB IV" means NYCSpirit Corp. IV, a Delaware corporation and a direct,
wholly-owned subsidiary of Vivendi.
"SUB V" means NYCSpirit Corp. V, a Delaware corporation and a direct,
wholly-owned subsidiary of Vivendi.
A "SUBSIDIARY" of any Person means another Person, an amount of the voting
securities, limited liability company membership interests, other voting
ownership or voting partnership interests or equity interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity or ownership interests of which) is owned directly or indirectly by such
first Person.
"TAXES" means all taxes (whether federal, state, local or foreign) based
upon or measured by income and any other tax whatsoever, including gross
receipts, profits, sales, use, occupation, value added, ad valorem, transfer,
franchise, withholding, payroll, employment, excise, or property taxes, together
with any interest or penalties imposed with respect thereto.
"TAXING AUTHORITY" means any government authority having jurisdiction over
the assessment, determination, collection or other imposition of Tax.
"TRANSACTION AGREEMENT" means the Transaction Agreement dated as of the date
hereof by and among Universal, USAi, USANi, Liberty and Diller.
"TRANSACTION AGREEMENT CLOSING DATE" means the Closing Date (as defined in
the Transaction Agreement).
"TRANSACTION DOCUMENT" means this Agreement, the Transaction Agreement, the
Partnership Agreement (as defined in the Transaction Agreement), the Warrant
Agreement (as defined in the Transaction Agreement), the Stockholders Agreement
and the Governance Agreement, collectively.
"TRANSACTIONS" shall have the meaning set forth in Section 2.02.
"TRANSFER" means any sale, assignment, transfer, exchange, gift, bequest,
pledge, hypothecation, or other disposition or encumbrance, direct or indirect,
in whole or in part, by operation of law or
F-39
otherwise. The terms "TRANSFERRED", "TRANSFERRING", "TRANSFEROR" and
"TRANSFEREE" have meanings correlative to the foregoing.
"TRANSFER TAX" shall have the meaning set forth in Section 5.02(b).
"TREASURY REGULATIONS" means the regulations promulgated under the Code in
effect on the date hereof and the corresponding sections of any regulation
subsequently issued that amend or supersede such regulations.
"USAi" means USA Networks, Inc., a Delaware corporation.
"USAi COMMON STOCK" means the common stock, par value $.01 per share, of
USAi.
"USAi COMMON SHARE" means a share of USAi Common Stock.
"USAi SHARE EXCHANGE" shall have the meaning set forth in Section 2.02(a).
"USANi" means USANi LLC, a Delaware limited liability company.
"USANi LIBERTY DISTRIBUTED INTEREST" shall have the meaning set forth in the
Transaction Agreement.
"USANi LLC AGREEMENT" means the Amended and Restated Limited Liability
Company Agreement of USANi LLC dated as of February 12, 1998.
"USANi SHARES" means the Class C shares representing a proportionate
interest in the capital and profits and losses of USANi.
"UNIVERSAL" shall have the meaning set forth in the Preamble.
"UNIVERSAL EXCLUDED JURISDICTION" shall have the meaning set forth in
Section 3.03(a).
"UNIVERSAL FRANCE" shall have the meaning set forth in the Preamble.
"UNIVERSAL MATERIAL ADVERSE EFFECT" and "UNIVERSAL MATERIAL ADVERSE CHANGE"
shall have the meaning set forth in Section 3.01.
"VIVENDI" shall have the meaning set forth in the Preamble.
"VIVENDI ADSS" means American depositary shares representing Vivendi Shares,
each American depositary share representing one Vivendi Share.
"VIVENDI SECURITIES" means Vivendi Shares or Vivendi ADSs, as applicable.
"VIVENDI SHARES" means ordinary shares, nominal value E5.50 per share, of
Vivendi.
"UNIVERSAL PARTIES" means Vivendi, Universal France, Universal, the Merger
Subsidiaries and, from and after the Effective Time, the surviving corporations
of the Mergers.
"VIVENDI SEC REPORTS" means all reports, schedules, statements and other
documents (including exhibits and all other information incorporated therein)
filed by Vivendi with the SEC following December 31, 2000, and on or before the
date of this Agreement.
F-40
SCHEDULE I
EXCHANGE OF USANi SHARES
FOR USAi COMMON SHARES
NUMBER OF
USANi
SHARES TO BE
LIBERTY PARTY EXCHANGED
------------- ------------
LMC USA II, Inc............................................. 435,006
LMC USA III, Inc............................................ 435,006
LMC USA IV, Inc. ........................................... 435,006
Liberty HSN LLC Holdings, Inc............................... 20
---------
Total....................................................... 1,305,038
=========
USAi SHARE EXCHANGE I
NUMBER OF
USAi
COMMON
SHARES TO BE
LIBERTY PARTY EXCHANGED
------------- ------------
LMC USA II, Inc............................................. 435,006
LMC USA III, Inc............................................ 435,006
LMC USA IV, Inc. ........................................... 435,006
Liberty HSN LLC Holdings, Inc. ............................. 20
---------
Total....................................................... 1,305,038
=========
F-41
SCHEDULE II
USAI SHARE EXCHANGE II
NUMBER OF
USAi
COMMON
SHARES TO
LIBERTY PARTY BE EXCHANGED
------------- ------------
LMC USA VI, Inc. ........................................... 5,774,688
LMC USA VII, Inc............................................ 7,277,290
LMC USA VIII, Inc........................................... 2,722,710
LMC USA X, Inc.............................................. 7,920,274
----------
Total....................................................... 23,694,962
==========
F-42
SCHEDULE III
MERGERS
NUMBER OF USANi
SHARES OWNED BY
LIBERTY HOLDING
ENTITY AFTER
GIVING EFFECT TO
LIBERTY HOLDING ENTITY SHARE EXCHANGE
---------------------- ----------------
LMC USA II, Inc. ........................................... 9,564,994
LMC USA III, Inc............................................ 9,564,994
LMC USA IV, Inc............................................. 9,564,994
LMC USA V, Inc.............................................. 10,000,000
----------
Total....................................................... 38,694,982
==========
F-43
BEAR STEARNS 245 PARK AVENUE
NEW YORK, NEW YORK 10167
212-272-2000
ATLANTA-BOSTON
CHICAGO-DALLAS-LOS ANGELES
NEW YORK-SAN FRANCISCO
SAO PAULO-LONDON-PARIS-GENEVA
BEIJING-HONG KONG-SHANGHAI-TOKYO
December 16, 2001
The Special Committee of the Board of Directors
USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Ladies and Gentlemen:
We understand that USA Networks, Inc. ("USA"), Vivendi Universal, S.A.
("Vivendi"), USANi LLC ("USANi"), Universal Networks, Inc. ("Universal"), Barry
Diller ("Diller") and Liberty Media Corporation ("Liberty") are entering into a
series of agreements whereby, among other things:
- The parties will form a new limited liability limited partnership
("Newco"), to which USA will contribute its programming, television
distribution and cable network businesses, including USA Network, the SCI
FI Channel, three emerging cable networks and film production businesses,
including USA Films and Studios USA (collectively, the "USA Assets"), and
Universal will contribute the film, television and theme park businesses
conducted by Universal Studios Group (collectively, the "Universal
Assets");
- USA will receive (i) a total of approximately 320.9 million shares of USA
common stock and/or common interests of USANi (which are exchangeable for
shares of USA common stock) held by Universal (including shares and common
interests that will be acquired by Universal from Liberty prior to the
closing as described below), which will be cancelled, (ii) common
interests in Newco representing 5.44% of the outstanding common interests
of Newco, (iii) Class A preferred interests in Newco with an initial
principal amount of $750 million (the "Class A Preferred"), (iv) Class B
preferred interests in Newco with an initial principal amount of
$1.75 billion (the "Class B Preferred"), and (v) a cash distribution from
Newco of $1.619 billion (collectively, the "Consideration to be
Received"); and
- Universal will receive (i) common interests of Newco representing 93.06%
of the outstanding common interests of Newco and (ii) warrants to acquire
up to 60.5 million shares of USA common stock.
The foregoing transactions are referred to collectively as the "Transaction." We
further understand that in a separate but related transaction, Liberty and
Vivendi have entered into an agreement pursuant to which Liberty has agreed to
exchange a total of approximately 63.7 million shares of USA common stock and
common interests in USANi, its 27.4% interest in Multithematiques S.A.
("Multithematiques") and a note receivable from Multithematiques with a
principal amount of 226 million French Francs, for 37.2 million Vivendi shares
in the form of American Depositary Shares (the "Liberty Transaction"). In
addition, we understand that Diller is a party to certain agreements pursuant to
which he will, among other things, (i) receive common interests in Newco,
(ii) be appointed the Chief Executive Officer of Newco, and (iii) relinquish
certain rights he possessed under a prior Stockholders Agreement with Vivendi,
Universal, USA and Liberty. You have provided us with a draft of each of the
Agreements (as defined below) substantially in the form to be executed by USA,
USANi, Vivendi, Universal, Diller, Liberty and the other parties to such
agreements.
G-1
The Special Committee of the Board of Directors of USA Networks, Inc.
December 16, 2001
Page 2
You have asked us to render our opinion as to whether the Consideration to be
Received by USA is fair, from a financial point of view, to the stockholders of
USA other than Vivendi, Liberty, Diller and their affiliates.
In the course of performing our review and analyses for rendering this opinion,
we have:
- reviewed the drafts dated December 16, 2001 of (i) the Transaction
Agreement among Vivendi, Universal, USA, USANi, Liberty and Diller,
(ii) the Limited Partnership Agreement among Universal, USA and Diller,
and (iii) the Warrant Agreement between USA and Universal (collectively,
the "Agreements");
- reviewed the terms and conditions of proposed agreements involving
Vivendi, Universal, Diller and Liberty, including the drafts dated
December 16, 2001 of (i) the Amended and Restated Stockholders Agreement
among Universal, Liberty, Diller and Vivendi, (ii) the Amended and
Restated Governance Agreement among Universal, USA, Liberty, Diller and
Vivendi, and (iii) the Agreement and Plan of Merger and Exchange among
Vivendi, Universal, Liberty and certain other entities listed on the
signature pages thereto;
- reviewed (i) the Investment Agreement, dated as of October 19, 1997, as
amended and restated as of December 18, 1997, among Universal
Studios, Inc., HSN, Inc., Home Shopping Network, Inc. and Liberty,
(ii) the Governance Agreement, dated as of October 19, 1997, among
HSN, Inc., Universal Studios, Inc., Liberty and Diller, (iii) the
Stockholders' Agreement, dated as of October 19, 1997 among Universal
Studios, Inc., Liberty, Diller, HSN, Inc. and The Seagram Company Ltd.,
(iv) the Amended and Restated Limited Liability Company Agreement of
USANi, dated as of February 12, 1998, among the members of USANi party
thereto, and (v) the Spinoff Agreement, dated as of October 19, 1997,
between Liberty and Universal Studios, Inc.;
- reviewed USA's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1998 through 2000, its
Quarterly Reports on Form 10-Q for the periods ended March 31, 2001,
June 30, 2001 and September 30, 2001, and its Reports on Form 8-K for the
three years ended December 16, 2001;
- reviewed Ticketmaster's ("Ticketmaster") Annual Reports to Shareholders
and Annual Reports on Form 10-K for the years ended December 31, 1998
through 2000, its Quarterly Reports on Form 10-Q for the periods ended
March 31, 2001, June 30, 2001 and September 30, 2001, its Reports on
Form 8-K for the three years ended December 16, 2001, and the Information
Statement relating to the combination of Ticketmaster Corporation and
Ticketmaster Online-Citysearch, Inc. (the predecessor to Ticketmaster) on
January 31, 2001;
- reviewed Hotel Reservations Network, Inc.'s ("HRN") Annual Report to
Shareholders and Annual Report on Form 10-K for the year ended
December 31, 2000, its Quarterly Reports on Form 10-Q for the periods
ended March 31, 2001, June 30, 2001 and September 30, 2001, its Reports on
Form 8-K for the period from March 2, 2000 to December 16, 2001, and
Registration Statement on Form S-1 relating to HRN's initial public
offering completed on March 1, 2000;
- reviewed Styleclick, Inc.'s ("Styleclick") Annual Report to Shareholders
and Annual Report on Form 10-K for the year ended December 31, 2000, its
Quarterly Reports on Form 10-Q for the periods ended March 31, 2001,
June 30, 2001 and September 30, 2001, its Reports on Form 8-K for the
period from August 11, 2000 to December 16, 2001, the Registration
Statement on Form S-4
G-2
The Special Committee of the Board of Directors of USA Networks, Inc.
December 16, 2001
Page 3
relating to the acquisition of a controlling interest in Styleclick by USA
on June 27, 2001 and the Amended and Restated Agreement and Plan of
Merger, dated as of March 23, 2000, by and among Styleclick.com Inc.,
Internet Shopping Network LLC, and USANi Sub LLC;
- reviewed Expedia, Inc.'s ("Expedia") Annual Reports to Shareholders and
Annual Reports on Form 10-K for the fiscal years ended June 30, 1999
through 2000 and the Amended and Restated Agreement and Plan of
Recapitalization and Merger, dated as of July 15, 2001 (the "Expedia
Merger Agreement"), among USA, Expedia, Inc., Taipei, Inc., Microsoft
Corporation and Microsoft E-Holdings, Inc., and the Registration Statement
on Form S-4 relating to the transactions contemplated thereby;
- reviewed Vivendi's Annual Reports to Shareholders for the years ended
December 31, 1998 through 2000, Annual Report on Form 20-F for the year
ended December 31, 2000, Reports on Form 6-K filed on or prior to
December 16, 2001 and Registration Statement on Form F-4 relating to the
combination of Vivendi, Canal Plus S.A. and The Seagram Company Ltd. on
December 8, 2000;
- reviewed certain operating and financial information, including
(i) management's forecast for the year ended December 31, 2001,
projections for the two years ending December 31, 2003 provided by
management of USA and management's guidance for the calendar years ending
2004 through 2006 relating to USA Network, the SCI FI Channel and HSN's
U.S. and German operations, (ii) management's forecast for the year ended
December 31, 2001, projections for the three years ending December 31,
2004 provided by management of USA and guidance from management for
calendar year 2005 and thereafter relating to Studios USA,
(iii) management's forecast for the year ended December 31, 2001,
management's budget for the year ending December 31, 2002 and management's
financial summary of each film over its projected life ("Ultimates") as of
December 4, 2001 relating to USA Films, (iv) management's forecast for the
year ended December 31, 2001, management's business plan for the four
years ending December 31, 2005 relating to the NWI and Trio cable networks
and management's guidance for December 31, 2005 NWI subscribers and
December 31, 2006 Trio subscribers, and (v) management's forecast for the
year ended December 31, 2001 and projections for the two years ending
December 31, 2003 provided by management of USA relating to Ticketmaster,
Expedia, HRN, and Precision Response Corporation (which, including HSN,
make up the "USA Commerce Assets"), and (vi) management's forecast for the
year ended December 31, 2001 and projections for the three years ending
December 31, 2004 provided by management of Vivendi relating to the
businesses and prospects of the Universal Assets;
- met with certain members of USA's senior management to discuss the
expected effects of the separation of the USA Assets and the USA Commerce
Assets;
- met with certain members of USA's and Vivendi's senior management to
discuss the businesses, operations, historical and projected financial
results and future prospects of the USA Assets and the USA Commerce Assets
and the Universal Assets, respectively;
- reviewed the historical prices, trading multiples and trading volumes of
the shares of common stock of USA, Ticketmaster, HRN, Styleclick and
Expedia;
- reviewed publicly available financial data, stock market performance data
and trading multiples of companies that we deemed generally comparable to
USA's constituent businesses and the Universal Assets;
G-3
The Special Committee of the Board of Directors of USA Networks, Inc.
December 16, 2001
Page 4
- reviewed various Wall Street research reports for USA, its constituent
businesses and Universal;
- performed discounted cash flow analyses based on the projections for
certain USA businesses and the Universal Assets that were furnished to us;
- reviewed the pro forma financial results, financial condition and
capitalization of USA and Newco giving effect to the Transaction;
- reviewed the terms and conditions of the Class A Preferred, the Class B
Preferred and the Warrants to be issued in connection with the
Transaction; and
- conducted such other studies, analyses, inquiries and investigations as we
deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of the financial and other information, including without
limitation the projections provided to us by USA and Vivendi. With respect to
the projected financial results of the USA Assets, the USA Commerce Assets and
the Universal Assets, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
senior managements of USA and Vivendi as to the expected future performance of
the USA Assets and the USA Commerce Assets and the Universal Assets,
respectively. We have not assumed any responsibility for the independent
verification of any such information or of the projections provided to us, and
we have further relied upon the assurances of the senior managements of USA and
Vivendi that they are unaware of any facts that would make the information, the
projections provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets or liabilities (contingent or otherwise) of the USA
Assets, the USA Commerce Assets and the Universal Assets, nor have we been
furnished with any such appraisals. We have relied, with your consent, on
statements made by Vivendi indicating that it would not approve any proposed
transaction involving a sale of USA or the USA Assets, and we were not requested
to solicit, and we did not solicit, interest from any third party with respect
to an acquisition of USA or the USA Assets. We have assumed, without independent
verification, that for Federal income tax purposes, any gain realized by USA,
USANi or Newco upon consummation of the Transaction will be tax deferred, and in
particular that no gain or loss will be recognized by USA, USANi or Newco as a
result of (i) the distribution of the USANi Distributed Interests (as defined in
the Transaction Agreement) by USANi to Universal, (ii) the issuance to Universal
of warrants to acquire USA common stock and the cancellation of the USANi common
interests held by Universal, (iii) the contribution of the USA Assets to Newco,
(iv) USA's receipt of the Class A Preferred, the Class B Preferred and the
common interests of Newco, and (v) the receipt by USA of $1.619 billion of cash
as a distribution from Newco, other than the potential recognition of an
insignificant amount of income or gain pursuant to section 751 of the Code. We
have assumed that the Transaction will be consummated in a timely manner and in
accordance with the terms of the Agreement without any limitations,
restrictions, conditions, amendments or modifications, regulatory or otherwise,
that collectively would have a material effect on the USA Assets, the USA
Commerce Assets, the Universal Assets or Newco. We have been informed by USA and
have assumed, without independent verification, that following the Transaction,
USA will not be deemed to be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
We do not express any opinion as to the price or range of prices at which the
shares of common stock of USA may trade subsequent to the announcement of the
Transaction or as to the price or range of prices at which the shares of common
stock of USA may trade subsequent to the consummation of the Transaction.
G-4
The Special Committee of the Board of Directors of USA Networks, Inc.
December 16, 2001
Page 5
We have acted as a financial advisor to the Special Committee of the Board of
Directors of USA (the "Special Committee") in connection with the Transaction
and will receive a customary fee for such services, a substantial portion of
which is contingent on successful consummation of the Transaction. Bear Stearns
has been previously engaged by USA and its affiliates to provide certain
investment banking and financial advisory services for which we received
customary fees. In addition, Bear Stearns has acted as agent or principal in
certain transactions to which Vivendi is a counter-party, for which Bear Stearns
has been compensated. In the ordinary course of business, Bear Stearns and its
affiliates may actively trade the equity and debt securities and bank debt of
USA and/or any of its affiliates, including Vivendi and its affiliates and
Liberty and its affiliates, and enter into derivative transactions with any of
such parties, or with reference to such parties' securities, for our own account
and for the account of our customers and, accordingly, may at any time hold a
long or short position in or in reference to such securities or bank debt.
It is understood that this letter is intended for the benefit and use of the
Special Committee in their consideration of the Transaction and does not
constitute a recommendation to the Special Committee, the Board of Directors of
USA or any holders of USA common stock as to how to vote in connection with the
Transaction. This opinion does not address USA's underlying business decision to
pursue the Transaction, the relative merits of the Transaction as compared to
any alternative business strategies that might exist for USA or the effects of
any other transaction in which USA might engage. In addition, this letter does
not address the fairness from a financial point of view, of the consideration
that may be received by Vivendi, Universal, Diller or Liberty, or their
respective affiliates, in connection with the transactions contemplated by the
Agreements or the relative value of such consideration as compared to the
Consideration to be Received by USA. This letter is not to be used for any other
purpose, or be reproduced, disseminated, quoted from or referred to at any time,
in whole or in part, without our prior written consent; provided, however, that
this letter may be included in its entirety in any proxy statement to be
distributed to the holders of USA common stock in connection with the
Transaction. Our opinion is subject to the assumptions and conditions contained
herein and is necessarily based on economic, market and other conditions, and
the information made available to us, as of the date hereof. We assume no
responsibility for updating or revising our opinion based on circumstances or
events occurring after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be Received by USA is fair, from a financial point
of view, to the stockholders of USA other than Vivendi, Liberty, Diller and
their affiliates.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ MARK VAN LITH
------------------------------------
Senior Managing Director
G-5
APPENDIX H
[LOGO OF ALLEN & COMPANY INCORPORATED]
711 FIFTH AVENUE - NEW YORK, N.Y. 10022 - (212)832-8000
December 16, 2001
The Board of Directors
USA Networks, Inc.
152 West 57th Street
New York, New York 10019
Members of the Board of Directors:
We understand that USA Networks, Inc. ("USA") and Vivendi Universal, S.A.
("Vivendi"), Universal Studios, Inc., USANi LLC and Liberty Media Corporation
("Liberty"), are entering into a Transaction Agreement dated as of December 16,
2001 (the "Agreement") proposing to effect a business combination transaction
pursuant to which (i) USA will contribute its cable network, television studio
and filmed entertainment properties to a joint venture (the "Joint Venture")
controlled by Vivendi; (ii) Vivendi will contribute to the Joint Venture its
Universal Studio Group assets (the "Transaction"), and (iii) simultaneously with
the Transaction, there will be certain business transactions occurring between
Vivendi and Liberty, as well as certain shareholder and governance arrangements
among Vivendi, the Joint Venture and Barry Diller.
As further described in the Agreement, in the Transaction, USA will receive
(i) 320.9 million shares of USA common stock presently owned by Vivendi;
(ii) $1.62 billion in cash through a leveraged partnership distribution from the
Joint Venture, tax deferred for 15 years; (iii) $750 million of Series A
preferred stock of the Joint Venture; (iv) $1.75 billion of Series B preferred
stock of the Joint Venture; and (v) 5.44% of the common stock of the Joint
Venture. Further, USA will issue to Vivendi (x) warrants to purchase
24.2 million shares of USA common stock with an exercise price of $27.50 per
share; (y) warrants to purchase 24.2 million shares of USA common stock with an
exercise price of $32.50 per share; and (z) warrants to purchase 12.1 million
shares of USA common stock with an exercise price of $37.50 per share. We refer
to all of the consideration to be paid pursuant to the Transaction as described
in this paragraph, as the "Consideration."
As you know, Allen & Company Incorporated ("Allen") has been engaged by USA
to render certain financial advisory services. In this connection, pursuant to
our December 12, 2001 engagement letter agreement (the "Engagement Letter"), you
have asked us to render our opinion as to the fairness to USA of the
Consideration to be received by USA pursuant to the Transaction, from a
financial point of view. Pursuant to the Engagement Letter, Allen will receive a
fee for its services in connection with the Transaction.
Allen, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, private placements and related financings, bankruptcy
reorganizations and similar recapitalizations, negotiated underwritings,
secondary distributions of listed and unlisted securities, and valuations for
corporate and other purposes. As of the date of this letter, Allen or its
affiliates are shareholders in USA, and Donald R. Keough, Chairman of Allen,
also serves as a director of USA. In addition, in the ordinary course of its
business, Allen or its affiliates may have long or short positions, either on a
discretionary or nondiscretionary basis, for its own account or for those of its
clients, in the securities of USA and/or Vivendi.
H-1
The Board of Directors
USA Networks, Inc.
December 16, 2001
Page 2
Our opinion as expressed herein reflects and gives effect to our general
familiarity with USA, as well as information concerning USA which we acquired
during the course of this assignment, including information provided by senior
management of USA in the course of a number of discussions. We have not,
however, conducted an independent appraisal of the assets, or independently
verified the information concerning the operations or other data which we have
considered in our review with respect to USA. In rendering our opinion, we have
relied upon and assumed the accuracy and completeness of all of the financial
and other information that was available to us from public sources, that was
provided to us by USA or its representatives, or that was otherwise reviewed by
us. With respect to the financial projections provided to us, we have assumed
that they have been reasonably prepared in good faith reflecting the best
currently available estimates and judgments of the management of USA as to the
future operating and financial performance of USA.
In arriving at our opinion, we have among other things:
(i) reviewed the terms and conditions of the Transaction,
including the draft Agreement and the draft agreements
ancillary thereto (none of which prior to the delivery of
this opinion has been executed by the parties);
(ii) analyzed certain financial aspects of the Transaction and
the Consideration to be paid in respect of the Transaction;
(iii) reviewed and analyzed publicly available historical business
and financial information relating to USA and the Universal
Studio Group and as presented in documents filed with the
Securities and Exchange Commission;
(iv) analyzed selected summary non-public financial and operating
results of USA and the Universal Studio Group;
(v) analyzed the financial condition and prospects of USA and
the Universal Studio Group;
(vi) reviewed and analyzed public information, including certain
stock market data and financial information relating to
selected companies with businesses similar to those of USA
and the Universal Studio Group;
(vii) reviewed the trading history of the common stock of USA;
(viii) conferred with the management teams of each of USA and
Vivendi;
(ix) reviewed analysts' reports on each of USA and Vivendi;
(x) reviewed and analyzed recent business combination
transactions involving businesses similar to those being
contributed by USA and Vivendi;
(xi) analyzed the potential impact of the Transaction on USA's
capital structure, financial condition and business
operations; and
(xii) conducted such other financial analyses and investigations
as we deemed necessary or appropriate for the purposes of
the opinion expressed herein.
It is understood that this opinion is solely for the information of the
Board of Directors of USA and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by USA with the Securities and Exchange Commission with
respect to the Transaction.
H-2
The Board of Directors
USA Networks, Inc.
December 16, 2001
Page 3
This opinion does not constitute a recommendation as to what course of
action the Board of Directors should pursue in connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion as of the date
hereof that the Consideration to be received by USA pursuant to the Transaction
is fair, from a financial point of view, to USA.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ NANCY PERETSMAN
-----------------------------------------
Name: Nancy Peretsman
Title: Managing Director
H-3
FORM OF PROXY CARD
USA NETWORKS, INC.
152 West 57th Street
New York, New York 10019
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dara Khosrowshahi and Julius
Genachowski, as proxies, each with the power to appoint such person's
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse hereof, all the shares of USA Networks, Inc.
("USA") common stock, USA Class B common stock and USA preferred stock held
of record by the undersigned on March 12, 2002 at the special meeting of
stockholders of USA to be held on April 23, 2002, at 8:00 a.m., local time,
at USA's office at 8800 Sunset Boulevard, West Hollywood, California, and
any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED.
IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE TRANSACTIONS
PROPOSAL. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
Please complete, sign and date this proxy on the reverse side and return it
promptly in the enclosed envelope.
USA NETWORKS, INC.
P.O. BOX 11001
NEW YORK, NY 10203-0001
-------------------------------------
USA NETWORKS, INC. TWO ALTERNATE WAYS TO VOTE YOUR PROXY
VOTE BY TELEPHONE OR INTERNET
24 HOURS A DAY - 7 DAYS A WEEK
-------------------------------------
TELEPHONE
---------
1-866-368-4703
o Use any touch-tone telephone.
o Have your Proxy Form in hand.
o Enter the Control Number located in the box below.
o Follow the simple recorded instructions.
OR
INTERNET
--------
HTTPS://www.proxyvotenow.com/usi
o Go to the website address listed above.
o Have your Proxy Form in hand.
o Enter the Control Number located in the box below.
o Follow the simple instructions.
OR
MAIL
----
o Mark, sign and date your Proxy Card.
o Detach card from Proxy Form.
o Return the card in the postage-paid envelope provided.
Your telephone or internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned the proxy card. IF YOU
HAVE SUBMITTED YOUR PROXY BY TELEPHONE OR THE INTERNET THERE IS NO NEED FOR YOU
TO MAIL BACK YOUR PROXY.
----------------------------
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
----------------------------
1-866-368-4703
CALL TOLL-FREE TO VOTE
- DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET -
--------------------------------------------------------------------------------
/X/
/_/ (Please sign, date and return VOTES MUST
this proxy in the enclosed BE INDICATED
postage prepaid envelope.) (X) IN
BLACK OR
BLUE INK.
USA'S BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR PROPOSAL 1.
1. TRANSACTIONS PROPOSAL. PROPOSAL TO APPROVE THE TRANSACTION AGREEMENT,
DATED AS OF DECEMBER 16, 2001, AMONG VIVENDI UNIVERSAL, S.A., UNIVERSAL
STUDIOS, INC., USA NETWORKS, INC., USANI LLC, LIBERTY MEDIA CORPORATION
AND BARRY DILLER, AS WELL AS THE RELATED TRANSACTION DOCUMENTS, AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
FOR THE AGAINST THE
TRANSACTIONS TRANSACTIONS
PROPOSAL /_/ PROPOSAL /_/ ABSTAIN /_/
2. Other Business. Such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
NON-PRINT AREA To change your address, /_/
please mark this box.
------------------
SCAN LINE
------------------
Please sign exactly as name appears hereon.
Note: When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee, guardian or corporate officer
or partner, please give full title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Date Share Owner sign here Co-Owner sign here
--------------- ---------------------- -------------------
--------------- ---------------------- -------------------
3968