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EXHIBIT 10.4
DEFERRED COMPENSATION AND
STOCK APPRECIATION RIGHT AGREEMENT
This DEFERRED COMPENSATION AND STOCK APPRECIATION RIGHT AGREEMENT is
made as of August 12, 1999 (the "Effective Date"), between TCI Music, Inc., a
Delaware corporation, Liberty Media Corporation, a Delaware corporation, and
Xxxxx X. Xxxxxxx ("Executive").
RECITALS:
The parties make this Agreement with reference to the following facts:
A. In connection with a Contribution Agreement dated as of April 23,
1999 by and among the Company, Liberty and certain affiliates of Liberty, as
amended (the "Contribution Agreement"), the Company has adopted a Deferred
Compensation and Stock Appreciation Rights Plan (the "Plan").
B. The Plan provides for awards to be granted to Executive in exchange
for the cancellation of awards made to Executive by Liberty prior to the date of
the Contribution Agreement.
In consideration of services rendered or to be rendered to the Company
and its Affiliates by Executive, and for other good and valuable consideration
(the receipt and sufficiency of which are hereby acknowledged), the parties
agree as follows:
1. DEFINITIONS. For purposes of this Agreement, any word or phrase with
initial capital letters will have the meaning set forth below:
a. ACT: the Securities Act of 1933, as amended.
b. AFFILIATE: any Person directly or indirectly Controlling,
Controlled by or under common Control with a Person.
c. AGREEMENT: this Agreement, as it may from time to time be
amended in accordance with its terms.
d. CHANGE IN CONTROL: with respect to the Company, the occurrence
of any transaction as the result of which (i) Liberty ceases to be a beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of Voting Securities of
the Company representing at least 25% of the total voting power of all Voting
Securities of the Company and (ii) any other person (within the meaning of
Section 13(d)(3) of the Exchange Act) beneficially owns Voting Securities of the
Company representing more voting power than the Voting Securities of the Company
of which Liberty is a beneficial owner. For purposes of this definition, "Voting
Securities" means, with respect to the Company, the capital stock or other
ownership interests in the Company having general voting power under ordinary
circumstances to elect directors (or similar officials), of the
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Company, but will not include any capital stock that has or would have such
voting power solely by reason of the happening of any contingency.
e. COMMON EQUITY: if there is a Per Share Public Market Value,
Common Equity means the Series A Common Stock; if there is no Per Share Public
Market Value, Common Equity means the Series A Common Stock, the Series B Common
Stock and any other class or series of common stock of the Company then
outstanding.
f. COMMON STOCK: the Series A Common Stock.
g. COMPANY: TCI Music, Inc. and its successors and assigns.
h. COMPANY FAIR MARKET VALUE: as of any date of determination, the
Fair Market Value of all shares of Common Equity then outstanding, which Fair
Market Value will be: (i) if there is a Per Share Public Market Value, the
product of the number of the Shares Outstanding and the Per Share Public Market
Value; or (ii) if there is no Per Share Public Market Value, the amount
determined pursuant to Section 8 or Section 11.b. as applicable.
i. COMPANY INDEMNIFIED PARTIES: as defined in Section 7.d(iv).
j. CONTRIBUTION AGREEMENT: as defined in Recital A to this
Agreement.
k. CONTROL: the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
l. DEFERRED COMPENSATION CAP: the difference between the SAR Per
Share Base Value and the Deferred Compensation Per Share Base Value.
m. DEFERRED COMPENSATION PER SHARE APPRECIATION: as of the
Valuation Date, the amount, expressed in U.S. currency rounded to the nearest
cent, equal to any excess in the lesser of (1) the SAR Per Share Base Value and
(2) the Per Share Fair Market Value over the Deferred Compensation Per Share
Base Value.
n. DEFERRED COMPENSATION PER SHARE BASE VALUE: as of any date of
determination, $2.46, subject to adjustment from time to time pursuant to
Section 11.
o. DERIVATIVE SECURITY: any option, warrant or other right to
acquire, or any security convertible into or exchangeable for, one or more
shares of Common Stock.
p. DISABILITY: means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that (a) can be
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expected to result in death or (b) has lasted or can be expected to last for a
continuous period of not less than 12 months.
q. DISADVANTAGEOUS CONDITION: as defined in Section 7.d(iv).
r. EFFECTIVE DATE: as defined in the preamble to this Agreement.
s. EXCHANGE ACT: the Securities Exchange Act of 1934, as amended.
t. EXECUTIVE: the individual identified as "Executive" in the
preamble to this Agreement, and his permitted assigns.
u. EXERCISE DATE: the date that a notice of exercise is received
by the Company, with respect to an exercise of all or a portion of the SAR by
Executive, other than a deemed exercise on the Valuation Date.
v. FAIR MARKET VALUE: with respect to any asset, the cash price at
which a willing seller would sell and a willing buyer would buy such asset
having full knowledge of the relevant facts, in an arm's-length transaction
without time constraints, and without being under any compulsion to buy or sell.
w. LIBERTY: Liberty Media Corporation, a Delaware corporation, and
its successors and assigns, including for purposes of this definition any Person
to which all or substantially all of Liberty's assets are transferred, whether
by merger or otherwise.
x. LIBERTY POLICY: the policy set forth in Schedule 4.8 to the
Contribution Agreement.
y. LOSSES: as defined in Section 7.d(iv).
z. PER SHARE FAIR MARKET VALUE: as of any date of determination:
(1) if the Common Stock is registered pursuant to Section 12(b) or Section 12(g)
of the Exchange Act, the Per Share Public Market Value; or (2) if the Common
Stock is not then so registered, the Company Fair Market Value divided by the
number of Shares Outstanding.
aa. PER SHARE PUBLIC MARKET VALUE: as of any date of
determination, the average of the reported closing market prices of the Common
Stock for the 20 consecutive trading days ending on the trading day prior to
such date; provided that in the case of a Voluntary Termination the Per Share
Public Market Value will be the average of the reported closing market prices of
the Common Stock for the 60 calendar days beginning 120 days after the public
announcement by the Company of such Voluntary Termination. The closing market
price for each day in question will be the last sale price, regular way or, if
no such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
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consolidated transaction reporting system of the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the last quoted sale price or, if no such sale price is quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the NASDAQ Stock Market or such other system then in use or, if on
any such trading day such capital stock is not quoted by any such organization,
the average of the closing bid and asked prices as furnished by the professional
market maker who has been most active in making a market in such capital stock
during the preceding 12 months. The Per Share Public Market Value will be
appropriately adjusted to reflect the effects of any stock dividend, stock
split, reclassification, recapitalization or combination affecting the Common
Stock, the record date, ex-dividend date or similar date of which occurs during
the period of trading days preceding the date of determination.
bb. PERSON: a human being or a corporation, partnership, trust,
limited liability company, unincorporated organization, association or other
entity.
cc. PLAN: as defined in Recital A to this Agreement.
dd. PRIME RATE: at any time, the rate of interest adopted by Bank
of America National Trust and Savings Association, as its reference rate for the
determination of interest rates for loans of varying maturities in United States
dollars to United States residents of varying degrees of creditworthiness and
being quoted at such time by such bank as its "prime rate."
ee. SAR: as defined in Section 2.b.
ff. SAR PER SHARE BASE VALUE: as of any date of determination,
$19.125, subject to adjustment from time to time pursuant to Section 11.
gg. SAR PER SHARE APPRECIATION: as of the Valuation Date or an
Exercise Date, whichever is applicable, the amount, expressed in U.S. currency
rounded to the nearest cent, equal to any excess in Per Share Fair Market Value
over the SAR Per Share Base Value.
hh. SALE OF THE COMPANY: (i) the sale, exchange or other
disposition of all or substantially all of the Company's assets (other than
cash, cash equivalents and marketable securities) to or with one or more Persons
other than any Affiliate of the Company; (ii) the sale, exchange or other
disposition of all or substantially all of the outstanding shares of Common
Equity to or with one or more Persons other than any Affiliate of the Company;
or (iii) the merger or consolidation of the Company with or into another Person
other than an Affiliate of the Company, as a result of which merger or
consolidation the holders of shares of outstanding Common Equity receive or
become irrevocably entitled to receive cash, securities or other assets in
exchange for those shares. Notwithstanding the foregoing, no transaction
described in clause (ii) or clause (iii) of the foregoing sentence will be a
Sale of the Company unless such transaction results in a Change in Control of
the Company.
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ii. SEC: the Securities and Exchange Commission.
jj. SERIES A COMMON STOCK: the Series A common stock, $.01 par
value per share, of the Company or any successor class or series of capital
stock.
kk. SERIES B COMMON STOCK: the Series B common stock, $.01 par
value per share, of the Company or any successor class or series of capital
stock.
ll. SHARES OUTSTANDING: as of any date of determination, the
number of all issued and outstanding shares of Common Equity on a fully diluted
basis.
mm. TARGET PER SHARE VALUE: as of any date of determination, $2.46
plus notional interest on that amount from January 1, 1999 at the rate of 10%
per annum, compounded annually.
nn. TERMINATION DATE: as defined in Section 14.
oo. TERMINATION FOR CAUSE: will be deemed to have occurred only on
the happening of any of the following:
(1) the plea of guilty to, or conviction for, the commission
of a felony offense by Executive, provided, however, that after indictment the
Company may suspend Executive from the rendition of services but without
limiting or modifying in any other way the Company's obligations under this
Agreement;
(2) a material breach by Executive of a material fiduciary
duty owed to the Company;
(3) a material breach by Executive of any of the covenants
made by him in Section 14 or Section 15 of this Agreement; or
(4) the willful and gross neglect by Executive of the material
duties specifically and expressly required by this Agreement;
provided, however, that any claim that "cause," within the meaning of clause
(2), (3) or (4) above, exists for the termination of Executive's employment may
be asserted on behalf of the Company only by a duly adopted resolution of the
Board and only after 30 days' prior notice to Executive during which period he
may cure the breach or neglect that is the basis of any such claim, if curable;
provided, further, if at the time Executive is terminated he has contracted an
illness or other disability that has incapacitated Executive from performing his
duties as an Executive of the Company, as determined in good faith by the Board
of Directors of the Company, for at least 180 consecutive days during the 12
calendar months preceding such termination, such conditions may
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not, directly or indirectly, in whole or in part, be the basis for a claim that
"cause," within the meaning of clause (4) above, exists for the termination of
Executive's employment.
pp. TERMINATION FOR GOOD REASON: will be deemed to have occurred
if Executive terminates his employment because of (i) a material diminution of
Executive's duties as Executive Vice President of the Company, (ii) a reduction
in Executive's annual rate of salary (other than a reduction to which Executive
consents), (iii) the imposition by the Board of a requirement that Executive
report to a person other than the Board of Directors or the President and Chief
Executive Officer, (iv) the transfer of such Executive to a geographic area
other than Denver, Colorado or (v) Executive ceasing to serve as a director of
the Company, other than due to Executive's resignation, refusal to stand for
reelection or death.
qq. VALUATION DATE: as defined in Section 4.
rr. VOLUNTARY TERMINATION: a voluntary termination of employment
initiated by employee other than a Termination for Good Reason.
The term "Strike Price" in the Plan means "Deferred Compensation Per
Share Base Price" in this Agreement and the term "Valuation Price Per Share" in
the Plan means "Per Share Fair Market Value" in this Agreement.
2. GRANTS.
a. Subject to the terms and conditions of this Agreement, the
Company hereby grants and issues to Executive, as of the Effective Date, a right
to deferred compensation equal to the Deferred Compensation Per Share
Appreciation with respect to an aggregate of 4,064,251 shares of Common Stock.
Subject to the requirement that the Per Share Fair Market Value as of the
Valuation Date equals or exceeds the Target Per Share Value, the Company will
pay Executive an amount determined on the Valuation Date equal to the Deferred
Compensation Per Share Appreciation multiplied by the number of Executive's
vested shares provided that in no event shall the amount of Deferred
Compensation Per Share Appreciation exceed the amount of the Deferred
Compensation Cap. The value of such deferred compensation is payable only upon
termination of Executive's employment with the Company and in the manner
provided in Section 7.
b. Subject to the terms and conditions of this Agreement, the
Company hereby grants and issues to Executive, as of the Effective Date, a right
(a "SAR") to the SAR Per Share Appreciation with respect to an aggregate of
4,064,251 shares of Common Stock. Upon exercise of a SAR, the Company will pay
Executive an amount determined on the Valuation Date or on an Exercise Date,
whichever is applicable, equal to the SAR Per Share Appreciation multiplied by
the number of shares of Common Stock with respect to which the SAR is exercised.
The value of such right is payable at indeterminate dates and in the manner
provided in Section 7.
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c. Each of the foregoing grants are restricted as to
transferability (as provided in Section 9), and are represented by the Company's
unsecured promise (as provided in Section 10).
3. VESTING; FORFEITURE; MANNER OF EXERCISE.
a. The grants will vest as follows: 20% of the rights to each of
the Deferred Compensation Per Share Appreciation and SAR Per Share Appreciation
will vest as of each December 15, beginning December 15, 1999, if on such date
Executive is employed by the Company. In addition, Executive will become fully
vested in his rights to each of the Deferred Compensation Per Share Appreciation
and the SAR Per Share Appreciation upon the occurrence of any of the following
events: (i) a Sale of the Company; (ii) a Change in Control; (iii) termination
of Executive's employment for any reason other than a Termination for Cause;
(iv) death; (v) Disability; or (vi) a Termination for Good Reason. Upon vesting,
a SAR may be exercised from time to time and will be exercisable, in whole or in
part.
b. If Executive ceases to be employed by the Company pursuant to a
Termination for Cause, Executive will forfeit any and all rights to any unvested
Deferred Compensation Per Share Appreciation and SAR Per Share Appreciation.
c. All unexercised rights with respect to each of the Deferred
Compensation Per Share Appreciation and SAR Per Share Appreciation will be
deemed exercised at 4:59 p.m. on the Valuation Date and these rights will become
null and void thereafter; provided however, that the parties' obligations
pursuant to this Agreement will remain in full force and effect until fully
performed.
4. VALUATION DATE. The Valuation Date will be the day on which the
first of the following events occurs, provided that Executive is employed by the
Company on that day:
a. SALE OF THE COMPANY. The day on which a Sale of the Company is
completed.
b. CHANGE IN CONTROL. The day on which a Change in Control of the
Company occurs.
c. TERMINATION OF EMPLOYMENT. The last day of the Company's fiscal
quarter preceding the date on which Executive ceases to be employed by the
Company for any reason other than a Termination for Cause or Voluntary
Termination. In the case of a Voluntary Termination the date shall be the date
of the public announcement by the Company of such Voluntary Termination.
d. END OF AWARD TERM. December 15, 2003.
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5. FAIR MARKET VALUE.
a. If the Valuation Date is the date of a Sale of the Company, the
determination of Company Fair Market Value and Deferred Compensation Per Share
Appreciation and SAR Per Share Appreciation will reflect the Fair Market Value
of the Company's assets with reference to the consideration (which may include
consideration in the form of the direct or indirect assumption of liabilities)
received by the Company (or, if applicable, by its stockholders, in exchange for
their stock in the Company) in such transaction, as set forth in a notice by the
Company to Executive. Such notice will include a description of the
consideration and, as to any consideration so received other than cash or
cash-equivalents, a statement of the Fair Market Value of such consideration, as
determined in good faith on a reasonable basis by the Board. In establishing the
Fair Market Value of such consideration, the Board, as it reasonably deems
appropriate, may take into account (and any determination of the Fair Market
Value of such consideration pursuant to Section 8 will take into account) the
effect of terms or conditions of the transaction constituting a Sale of the
Company that (i) impose liabilities, contingent or otherwise, on the Company or
its stockholders, or (ii) condition the receipt of all or a portion of the
consideration on the occurrence of one or more events, including, for example,
the lapse of time or the attainment of earnings or other indicia of performance.
If Executive disagrees with the determination of Company Fair Market Value or of
the Fair Market Value of consideration set forth in the notice given to
Executive, Executive must give notice to the Company of his disagreement within
30 days after receipt of notice from the Company and if he fails timely to give
such notice, the determination of value(s) set forth in the Company's notice
will be conclusive and binding on the parties. If Executive gives notice of his
disagreement within the required 30-day period, such disagreement will be
resolved as provided in Section 8, provided that, as to a determination of
Company Fair Market Value, each appraiser selected pursuant to Section 8 will be
instructed to treat the consideration received in such transaction as the
primary factor to be considered in establishing Company Fair Market Value.
b. If the Valuation Date is a date prescribed by Section 4.b.
(unless the event constituting a Change in Control is also a Sale of the
Company, in which case Section 5.a. will apply), Section 4.c. or Section 4.d.,
and if there is a Per Share Public Market Value for the Common Stock, within 5
business days after the Valuation Date or as soon as reasonably possible after
financial statements of the Company as of the Valuation Date and for the period
from the end of the Company's most recent fiscal year through the Valuation Date
are completed, whichever is applicable, the Company will give notice to
Executive of Company Fair Market Value, Per Share Market Value, and Deferred
Compensation Per Share Appreciation and SAR Per Share Appreciation, as of the
Valuation Date. If there is no Per Share Public Market Value for the Common
Stock, the Per Share Fair Market Value as of the Valuation Date will be used to
calculate Deferred Compensation Per Share Appreciation and SAR Per Share
Appreciation as soon as reasonably possible after financial statements
(including at least a balance sheet and a statement of operations) of the
Company as of the Valuation Date and for the period from the end of the
Company's most recent fiscal year through the Valuation Date are completed, the
Company will give notice to Executive of Company Fair Market Value, Per Share
Market Value, and Deferred Compensation Per Share Appreciation and SAR Per Share
Appreciation, as of the Valuation Date, as determined by the
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Board in good faith on a reasonable basis, including a reasonably detailed
description of the bases for such determinations.
If Executive disagrees with the determination of Company Fair Market
Value, Per Share Fair Market Value or Per Share Appreciation set forth in the
Company's notice, Executive must give notice to the Company of his disagreement
within 30 days after receipt of the Company's notice and if he fails timely to
give such notice, the determination of those amounts set forth in the Company's
notice will be conclusive and binding on the parties. If Executive gives notice
of disagreement within the 30-day period, such disagreement will be resulted in
accordance with Section 8.
6. MANNER OF EXERCISING SARS.
The SARs may be exercised in whole or in part, upon vesting only
by written notice signed by Executive and mailed or delivered to the President
or Secretary of the Company at its principal office which notice will: (i)
specify the number of SARs which are being exercised; and (ii) include such
documentation and representations as may be reasonably requested by the Company
in connection with such exercise. Once exercised a particular SAR may not be
further exercised.
7. PAYMENT.
a. Any payments made by the Company pursuant to this Agreement,
may, at the Company's election, subject to Section 13, be either in (i) cash or
other immediately available funds; (ii) shares of Common Stock; or (iii) a
combination thereof; provided however that the Company may elect to make such
payments in Common Stock only to the extent that the Common Stock is registered
pursuant to Section 12(b) or Section 12(g) of the Exchange Act. To the extent
that the Company elects to make any or all payments in the form of Common Stock,
such shares of Common Stock will be valued for purposes of this Agreement, at
the Per Share Fair Market Value of the Common Stock on the Exercise Date or the
Valuation Date, whichever is applicable.
b. Subject to the penultimate sentence of this clause b., payments
of Deferred Compensation Per Share Appreciation required to be made pursuant to
this Agreement will be made within 30 days after the Termination Date. Payments
of SAR Per Share Appreciation required to be made upon exercise of a SAR, other
than a deemed exercise with respect to a Valuation Date, will be made by the
Company within 30 days after the Exercise Date. Payments of SAR Per Share
Appreciation or Deferred Compensation Per Share Appreciation (but only if
Executive's employment is terminated as of the Valuation Date) required to be
made as of a Valuation date will be made within 30 days after the Valuation Date
if that date is the date of a Sale of the Company, 120 days after the Valuation
Date if that date is December 15, 2003 or 120 days after the Valuation Date if
that date is the date described in Section 4.c. Notwithstanding the foregoing,
if on any required payment date the determination of Deferred Compensation Per
Share Appreciation or SAR Per Share Appreciation has not been made, the required
payment will be made within five days after such determination is completed. At
the Company's option, the payment date
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may be accelerated in whole or in part. Any payment made will be subject to any
applicable required income and other payroll tax withholding.
c. Notwithstanding that (i) the terms or conditions of a Sale of
the Company may provide for the deferral of the payment or delivery of all or a
portion of the consideration to be paid or delivered to the Company or to
holders of outstanding shares of Common Equity or (ii) the payment or delivery
of such consideration may be conditioned on the occurrence of one or more
events, the Company may not defer the payment of a portion of the cash otherwise
payable to Executive in respect of his rights to receive Deferred Compensation
Per Share Appreciation and SAR Per Share Appreciation, but any such deferral or
condition will be taken into account in any determination of the Fair Market
Value of such consideration pursuant to Section 8.
d. (i) If shares of Common Stock are to be delivered and the
Common Stock is registered pursuant to Section 12(b) or Section 12(g) of the
Exchange Act, then the Company will as soon as practicable thereafter, file with
the SEC under the Act a registration statement to register the resale of such
shares of Common Stock by Executive and will use its reasonable best efforts to
have such registration statement declared effective by the SEC as promptly as
possible. In either event, the Company will use its reasonable best efforts to
maintain the effectiveness of such registration statement for a period of 180
days. If the Company was not required to withhold income taxes pursuant to
Section 7, and to the extent that Executive is required to pay income tax on the
payment of Deferred Compensation Per Share Appreciation or SAR Per Share
Appreciation made in shares of Common Stock prior to the expiration of the
180-day period, then prior to the date the payment is required to be made, the
Company will loan Executive an amount equal to the difference between the amount
of such income taxes required to be paid and the amount of sale proceeds, if
any, received by Executive. The principal amount of the loan will bear interest
at a rate equal to the Prime Rate and all principal and interest will be payable
in full 5 days after the end of the 180-day period.
(ii) Subject to the extensions provided by this Section, the
Company shall not be required to maintain the effectiveness of the registration
statement for more than 180 days. The Company shall be entitled to postpone for
a reasonable period of time the filing of the registration statement if the
Company determines in its judgment, that such registration and offering would
materially interfere with or otherwise adversely affect any financing,
acquisition, corporate reorganization or other material transaction or
development involving the Company or its affiliates or would require disclosure
of information that the Company believes should not be disclosed (a
"Disadvantageous Condition"). If at any time after the filing of a registration
statement or after it is declared effective the Company determines that such
registration and offering would result in a Disadvantageous Condition, then the
Company may require the suspension by Executive of the distribution of any of
the shares registered to be sold by giving notice to such effect to Executive.
In the event of such notice, then until the Company determines that such
registration and offering no longer would result in a Disadvantageous Condition,
the Company's obligation under this Section will be suspended. In the event of a
suspension after the registration statement has become
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effective, the 180-day period of effectiveness will be extended by a number of
days equal to the total number of days for which the distribution was suspended.
(iii) The Company will bear all costs and expenses incurred in
connection with such registration and distribution.
(iv) The Company agrees to indemnify and hold harmless, to the
full extent permitted by law, Executive from and against any losses, claims,
damages or liabilities, and any related legal or other fees and expenses
(collectively, "Losses"), joint or several, to which Executive may become
subject, insofar as such Losses (or actions in respect thereof) are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the registration statement or prospectus, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, that the Company will not indemnify or hold
harmless Executive from or against any such Losses if the untrue statement,
omission or allegation thereof upon which such Losses are based (x) was made in
reliance upon and in conformity with the information provided by or on behalf of
Executive specifically for use or inclusion in the registration statement or
prospectus or (y) was made in any prospectus used after such time as the Company
advised Executive that the filing of a post-effective amendment or supplement
thereto was required, except the prospectus as so amended or supplemented.
Executive agrees to indemnify and hold harmless, to the full
extent permitted by law, the Company, its officers, directors and agents, and
each person, if any, who controls the Company within the meaning of either the
Securities Act or the Exchange Act (the "Company Indemnified Parties"), from and
against any Losses, joint or several, to which such Company Indemnified Parties
may become subject, insofar as such Losses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the applicable registration statement or the
prospectus, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, if the
statement or omission was made in reliance upon and in conformity with the
information provided by or on behalf of Executive specifically for use or
inclusion in the applicable registration statement or prospectus; provided, that
Executive will not indemnify or hold harmless any Company Indemnified Party from
or against any such Losses to the extent the untrue statement, omission or
allegation thereof upon which such Losses are based was made in any prospectus
used after such time as Executive advised the Company that the filing of a
post-effective amendment or supplement thereto was required, except the
prospectus as so amended or supplemented.
If the indemnification provided for under this Section is
unavailable to or insufficient to hold the indemnified party harmless under the
above paragraphs in respect of any Losses referred to therein for any reason
other than as specified therein, then the indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such Losses
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one
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hand, and such indemnified party, on the other, in connection with the
statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by (or omitted to be supplied by) the
indemnifying parties or indemnified parties, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, the relative benefits received by each party from the
sale of the shares, and any other equitable considerations appropriate under the
circumstances. The amount paid or payable by an indemnified party as a result of
the Losses referred to above in this subsection shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act of 1933, as amended) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
e. Interest on payments of deferred compensation will accrue at a
rate equal to __% per annum from the Valuation Date that occurs other than as a
result of a termination of employment until the date of payment, which amount
will be included in any payment made under this Agreement.
f. Unless the Company is notified in writing of a change of
address, any payment will be made to Executive at the address for notices to
Executive set forth in Section 17.a.
8. DETERMINATION OF FAIR MARKET VALUE. Except as otherwise expressly
provided in this Agreement, wherever this Agreement refers to, or calls for a
determination of, Fair Market Value (including, for example, a determination of
the Company Fair Market Value pursuant to Section 1.h. when there is no Per
Share Public Market Value or a determination of the Fair Market Value of
consideration received in a Sale of the Company pursuant to Section 5.a.), the
Fair Market Value of the item in question will be determined in accordance with
the following provisions:
a. The Company and Executive may agree on the Fair Market Value of
the item in question.
b. If the Company and Executive are unable to agree on a Fair
Market Value, within 15 days after the date notice of a dispute as to that issue
is given by either party to the other, or if they otherwise determine that an
appraisal should be used to determine Fair Market Value, then they will cause
the Fair Market Value as of the required date of determination to be determined
by a qualified appraiser acceptable to both of them. If they are unable to agree
on a single appraiser within 15 days after the date of notice of the dispute,
each of them will have an additional 10 days to select one appraiser nationally
recognized in valuing items of the kind required to be valued. If either fails
to appoint an appraiser, then the determination of Fair Market Value by the one
appraiser will be binding.
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c. Each appraiser will determine the Fair Market Value of the item
in question, taking into account such matters as may be prescribed by this
Agreement and such other matters as the appraiser may deem relevant. The Company
and Executive will use their reasonable best efforts to cause each appraiser to
submit to them a written report indicating that appraiser's determination of
Fair Market Value within 30 days after the date such appraiser is selected.
d. If the higher of the two appraisals is 110% or less of the
lower appraisal, the average of the two will be the Fair Market Value.
e. If the higher of the two appraisals is more than 110% of the
lower appraisal, the Company will immediately notify the two appraisers and
cause them to appoint a third similarly qualified appraiser within 10 days after
such notice. The Company and Executive will use their reasonable best efforts to
cause such third appraiser (who will not be apprised of the determination of the
other appraisers) to submit a written report to each of them indicating such
appraiser's determination of Fair Market Value within 30 days after the date
such third appraiser is selected. If three appraisals are necessary, then the
average of the two appraisals in which the determinations of Fair Market Value
are closest together will be the Fair Market Value or, if the highest and lowest
are equidistant from the middle determination, then the middle determination
will be the Fair Market Value.
f. Each party will use reasonable best efforts to provide each
appraiser with such information as such appraiser may reasonably request for the
purpose of preparing an appraisal pursuant to this Section 8.
g. A determination of Fair Market Value made pursuant to this
Section 8 will be final, binding and nonappealable. Each party will be
responsible for one-half of all fees and expenses of all appraisers.
h. If the determination of Fair Market Value pursuant to this
Section 8 is a determination of the Company Fair Market Value for the purpose of
determining Per Share Appreciation or SAR Per Share Appreciation or an
adjustment to Deferred Compensation Per Share Base Value or SAR Per Share Base
Value, the Company will make the required determination of such amounts using
the Company Fair Market Value determined pursuant to this Section 8 and will
give notice of such determination to Executive within two business days after
receiving notice of the determination of Company Fair Market Value pursuant to
this Section 8.
9. RESTRICTION ON TRANSFER. Executive may not transfer or grant any
security interest in any of his rights under this Agreement except (i) pursuant
to a qualified domestic relations order as defined by the Internal Revenue Code
of 1986, as amended, or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder (a "Domestic Relations Order"),
(ii) to a living trust in which the beneficiaries are the Executives or members
of Executive's immediate family or (iii) transfers by will or the laws of
intestate succession. Any attempted transfer in violation of this restriction
will be null and void.
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Executive may designate a beneficiary or beneficiaries to whom the
rights under this Agreement shall pass upon Executive's death and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Company on the form annexed hereto as
Exhibit A or such other form as may be prescribed by the Company; provided that
no such designation shall be effective unless so filed prior to the death of
Executive. If no such designation is made or if the designated beneficiary does
not survive Executive's death, the rights under this Agreement shall pass by
will or the laws of descent and distribution. Following Executive's death, the
rights under this Agreement, if otherwise exercisable, may be exercised by the
person to whom the rights under this Agreement pass according to the foregoing,
and such person shall be deemed to be Executive for purposes of any applicable
provisions of this Agreement.
10. ACKNOWLEDGMENTS.
a. Executive acknowledges and agrees that the obligations of the
Company under this Agreement are not funded in any way, and that he will have
rights only of a creditor based solely on the Company's unsecured promise to
pay. Because Executive has not made an investment in shares of Common Stock,
Executive acknowledges and agrees that the he has a right to benefit from
further appreciation in Shares without risking any capital and without the risk
of a beneficial owner that the value of property may decline substantially.
Executive further acknowledges and agrees that the grants of Deferred
Compensation Per Share Appreciation and SAR Per Share Appreciation right under
this Agreement are not an assurance of continued employment by the Company or
any of its Affiliates.
b. Executive represents and warrants that (i) by virtue of his
position with the Company or based on information furnished by the Company he is
familiar with the business, earnings, condition, properties and business
prospects of the Company, (ii) he has had the opportunity to ask questions and
request additional information concerning the business, earnings, condition,
properties and business prospects of the Company and that his questions have
been answered and that he has received the additional information requested,
(iii) he has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of entering into this
Agreement, (iv) he is an "accredited investor" (as such term is defined in
Regulation D promulgated under the Act and (v) he understands that the Company
is entering into this Agreement in reliance on the acknowledgments, agreements,
representations and warranties of Executive set forth in this Agreement. To the
extent the issuance of the shares of Common Stock are not then registered
pursuant to the Act, Executive acknowledges and agrees that he will make such
additional representations and warranties that the Company may reasonably
request to support an exemption pursuant to Section 4(2) of such Act, including
with respect to Executive's investment intent, investor status and restrictions
on transfer.
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11. ADJUSTMENTS.
a. Appropriate and equitable adjustment will be made to the
Deferred Compensation Per Share Base Value and the SAR Per Share Base Value in
the event of any stock dividend, stock split, reverse stocks split,
reclassification, recapitalization or other analogous change affecting the
outstanding shares of Common Stock. This Agreement will not affect the right of
the Company or any Affiliate to take any action affecting its capital stock
whether described in the preceding sentence or otherwise.
b. If after the Effective Date the Company issues Common Stock for
a consideration per share less than the Per Share Fair Market Value as of the
date such Common Stock is issued or if the Company issues a Derivative Security
having a per share exercise, conversion or exchange price less than the Per
Share Fair Market Value as of the date such Derivative Security is issued (any
such issuance of Common Stock or a Derivative Security being referred to as a
"Subject Issuance"), then each of the Deferred Compensation Per Share Base Value
and the SAR Per Share Base Value in effect immediately before such issuance will
be adjusted in accordance with the following formula:
BV2 = BV1 x O + A
-----------
O + A x M
-----
P
Where:
BV2 = the new Deferred Compensation Per Share Base
Value or SAR Per Share Base Value, as applicable.
BV1 = the Deferred Compensation Per Share Base Value or
SAR Per Share Base Value, as applicable,
immediately prior to the Subject Issuance.
O = the total number of Shares Outstanding.
A = the number of additional shares of Common Stock
issued (or issuable upon exercise, conversion or
exchange of a Derivative Security issued) in the
Subject Issuance.
P = the price per share of the Common Stock issued
(or issuable upon exercise, conversion or
exchange of a Derivative Security issued) in the
Subject Issuance.
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M = the Per Share Fair Market Value of Common Stock
on the date of the Subject Issuance.
If an adjustment pursuant to this Section 11.b. is made on account of the
issuance of a Derivative Security, (i) no further adjustment will be made upon
exercise, conversion or exchange of such Derivative Security and (ii) such
adjustment will be reversed to the extent such Derivative Security shall not
have been exercised, converted or exchanged at the time it ceases to be
outstanding or to be exercisable, convertible or exchangeable. Within 30 days
after each issuance of shares of Common Stock or a Derivative Security by the
Company, the Company will give notice of such issuance to Executive, including a
reasonably detailed description of the terms of such issuance, the Per Share
Fair Market Value as of the date of such issuance and the amount of
consideration per share received by the Company in such transaction (or the
exercise, conversion or exchange price of any Derivative Security issued in such
issuance), as determined by the Board in accordance with the following
paragraph.
Notwithstanding anything to the contrary in this Agreement: (i) any
determination of value contemplated by this Section 11.b., including, for
example, any determination of Per Share Fair Market Value or of the Fair Market
Value of any consideration received by the Company for Common Stock or a
Derivative Security, will be made by the Board in the exercise of its good faith
judgment, and such determination will be final, binding and nonappealable so
long as the Board determination is in good faith, and if such determination is
made in connection with the issuance of Common Stock or a Derivative Security to
any Person other than Liberty or an Affiliate of Liberty such determination will
be deemed to have been made in good faith if neither Liberty nor any Affiliate
of Liberty (other than the Company) shall have received any material
consideration on account of such issuance; (ii) shares of Common Stock and
Derivative Securities issued by the Company to any Person other than Liberty or
any Affiliate of Liberty will be deemed for all purposes under this Agreement to
have been sold for a per share price, or a per share exercise, conversion or
exchange price in the case of a Derivative Security, at least equal to the Per
Share Fair Market Value on the date of issue, unless Liberty or any Affiliate of
Liberty (other than the Company) shall have received any material consideration
on account of such issuance; and (iii) shares of Common Stock issued by the
Company to any Person before December 31, 1999 for a per share price at least
equal to the initial Per Share Base Value or that are issuable upon exercise,
conversion or exchange of a Derivative Security issued by the Company to any
Person before December 31, 1999 (which Derivative Security has a per share
exercise, conversion or exchange price at least equal to the initial Per Share
Base Value), will be deemed to have been sold for a per share price at least
equal to the Per Share Fair Market Value on the date of issue.
12. ARBITRATION. If any controversy or claim arising out of this
Agreement cannot be settled by the parties (other than any disagreement that is
subject to resolution pursuant to Section 8, as to which the provisions of such
Section 8 will be exclusive), the dispute will be settled by arbitration before
a single arbitrator in Denver, Colorado, which arbitrator will be a natural
person having experience in financial and business matters appointed by, and
which arbitration will be conducted in accordance with the then applicable
provisions of the Commercial Arbitration Rules
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of, the American Arbitration Association. Each party will bear its or his own
costs of such arbitration, including attorneys' fees and expenses, except that
the fees and expenses of the arbitrator and the American Arbitration Association
will be paid by the Company and Executive in equal shares. Judgment on any award
resulting from such arbitration may be entered in any court having jurisdiction.
In consideration of the anticipated expedition of dispute resolution and
minimization of expenses, each party agrees that arbitration will be the
exclusive remedy to resolve disputes under this Agreement, and each party
expressly waives any right such party might have to seek redress in any other
forum. The parties further agree that an arbitrator will be empowered to assess
no remedy other than the payments provided under this Agreement.
13. LIBERTY OBLIGATIONS RE PRICE; LIBERTY RIGHTS TO PURCHASE SHARES.
a. If payment is made in shares of Common Stock and the resale of
such shares is registered under the Act pursuant to Section 7.d., Liberty will
pay to Executive, in cash or other immediately available funds, the difference,
if any, between (i) the product of the Per Share Public Market Value on the
Valuation Date or Exercise Date, whichever is applicable, and the number of
shares sold by Executive pursuant to the registration statement received by
Executive from the sale of such number of shares plus interest thereon from the
date the Common Stock was issued to the payment date at the Prime Rate and (ii)
the net proceeds. Executive will use his reasonable best efforts to sell the
shares pursuant to the registration statement in a manner that will, in the good
faith judgment of Executive and his financial advisors maximize the average
selling price. Such payment shall be made by Liberty within five business days
after receipt by Liberty from Executive of a certificate from the broker or
underwriter effecting such sales setting forth the net proceeds received by
Executive from the sale of such shares.
b. At any time a payment is to be made to Executive pursuant to
this Agreement, Liberty will have the right to purchase from the Company a
number of shares of Series B Common Stock equal to the number of shares of
Common Stock that would have been issued to Executive if the Company had elected
to make the required payment in Common Stock at a price per share equal to (i)
the Deferred Compensation Per Share Appreciation on the Valuation Date, with
respect to the payment of Deferred Compensation Per Share Appreciation, or (ii)
the SAR Per Share Appreciation on the Valuation Date or an Exercise Date,
whichever is applicable, with respect to the payment of SAR Per Share
Appreciation.
Notwithstanding the foregoing, in the case of an exercise of a SAR
other than on a Valuation Date, Liberty may elect to purchase the number of
shares as to which the SAR is exercised at a price per share equal to the Per
Share Fair Market Value on the Exercise Date.
If Liberty exercises its right to purchase shares of Series B Common
Stock pursuant to this clause b., the Company shall be required to pay the
Deferred Compensation Per Share Appreciation or the SAR Per Share Appreciation
in cash.
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The maximum number of shares of Series B Common Stock that Liberty may
purchase pursuant to this Agreement is 19,296,193 shares. In connection with any
such purchase of Series B Common Stock, the Company and Liberty will enter into
a stock purchase agreement having customary terms which are reasonably
acceptable to the Company and Liberty. Any such stock purchase agreement shall
contain customary representations and warranties of the parties, including
representations of the Company with respect to the due authorization and valid
issuance of the shares being purchased and that such shares are fully paid and
not accessible.
14. CONFIDENTIALITY. Other than in the performance of his duties
hereunder, Executive will not, so long as he is employed by the Company or
thereafter, directly or indirectly make use of, or divulge to any person, firm,
corporation, entity or business organization, and he will use his reasonable
best efforts to prevent the publication or disclosure of, any confidential or
proprietary information concerning, the business, accounts or finances of, or
any of the methods of doing business used by the Company or of the dealings,
transactions or affairs of the Company or any of its customers which have or
which may have come to his knowledge during his employment with the Company; but
this Section 15 will not prevent Executive from responding to any subpoena,
court order or threat of other legal duress, provided Executive notifies the
Company thereof with reasonable promptness so that the Company may seek a
protective order or other appropriate relief and the Company will reimburse
Executive for any out-of-pocket expenses incurred by him in connection
therewith.
15. ANNOUNCEMENT. The Company will publicly announce a Voluntary
Termination of Executive.
16. COMPANY LOAN OF DEFERRED COMPENSATION. At any time after a
determination of the amount of Deferred Compensation after a Valuation Date, if
Executive is still employed by the Company, the Company, upon request of
Executive, will loan Executive any amount up to the total amount of Deferred
Compensation Share Appreciation payable to Executive pursuant to this Agreement.
Such loan shall be payable upon receipt by Executive of the Deferred
Compensation Share Appreciation and shall bear interest at the Prime Rate.
17. MISCELLANEOUS PROVISIONS.
a. NOTICES. All notices to be given hereunder will be in writing
and will be deemed duly given when delivered personally or mailed, certified
mail, return receipt requested, postage prepaid and addressed as follows:
If to be given to Liberty:
Liberty Media Corporation
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
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If to be given to the Company:
TCI Music, Inc.
00 Xxxxxx Xxxxx Xxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
If to be given to Executive:
Xxxxx X. Xxxxxxx
c/o Liberty Digital, Inc.
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
or to such other address as a party may furnish to the other in writing in
accordance with this Section 17.a.
b. BINDING EFFECT. This Agreement is binding upon, and inures to
the benefit of, the Company and its successors and assigns, and upon Executive
and his personal representatives and other permitted successors and assigns.
c. AMENDMENT. This Agreement may not be changed orally, but only
by a writing signed by the party against whom enforcement of any change is
sought.
d. ENTIRE AGREEMENT. This Agreement represents the entire
agreement of the Company and Executive with respect to its subject matter, and
it supersedes all prior and contemporaneous understandings and agreements, both
oral and written.
e. ORIGINALS. This Agreement will be signed in two originals, one
to be delivered to the Company and one to Executive.
f. GOVERNING LAW. This Agreement will be construed and enforced in
accordance with the internal laws of the State of Colorado without regard to the
choice-of-law principles thereof.
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IN WITNESS WHEREOF, we have signed this Agreement on the dates
indicated, to be effective as of the Effective Date.
EXECUTIVE:
/s/ Xxxxx X. Xxxxxxx
------------------------------------
Xxxxx X. Xxxxxxx
LIBERTY MEDIA CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice President
TCI MUSIC, INC.
By: /s/ Xxxxx X. Xxxxxxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxxxxxx
Title: Executive Vice President
and Chief Financial Officer
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