AT&T CORP
424B3, 2000-11-21
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>   1
                                                Filed Pursuant to Rule 424(b)(3)
                                                Registration No. 333-48606


                           VIDEO SERVICES CORPORATION
                               240 PEGASUS AVENUE
                          NORTHVALE, NEW JERSEY 07647

                               NOVEMBER 20, 2000

To Our Stockholders:

     You are cordially invited to attend a special meeting of stockholders of
Video Services Corporation to be held at our offices at 235 Pegasus Avenue,
Northvale, New Jersey 07647 on December 20, 2000 at 10:00 a.m. local time.

     At the special meeting, you will be asked to vote on the approval of an
Agreement and Plan of Merger, dated as of July 25, 2000, among Liberty Media
Corporation, AT&T Corp., E-Group Merger Corp., and Video, under which E-Group
Merger Corp. will merge with Video, with Video continuing as the surviving
corporation and becoming a member of the Liberty Media Group.

     E-Group Merger Corp. is a wholly-owned subsidiary of AT&T. Liberty Media
Corporation is an indirect wholly-owned subsidiary of AT&T and the primary
operating company of the Liberty Media Group. The Liberty Media Group consists
principally of the assets and businesses of Liberty Media Corporation and its
subsidiaries, as well as certain other direct or indirect subsidiaries of AT&T
that have businesses and assets related to those of Liberty Media Corporation.
The Class A Liberty Media Group tracking stock is a class of common stock of
AT&T that, together with the Class B Liberty Media Group tracking stock, is
designed to reflect the economic performance of the businesses and assets of the
Liberty Media Group, which is a "tracking stock" group of AT&T.

     As a result of the merger, you will be entitled to receive, in a taxable
exchange, 0.104 of a share of Class A Liberty Media Group tracking stock and
$2.75 in cash for each share of Video common stock you own immediately prior to
the merger.

     Our board of directors has approved the merger agreement and the merger and
believes it is in the best interests of Video and its stockholders to complete
the merger and the other transactions contemplated by the merger agreement. The
board of directors recommends that you vote FOR the proposal to approve the
merger agreement and the merger at the special meeting.

     The attached notice of special meeting and proxy statement/prospectus
explain the proposed transactions and provide specific information concerning
the special meeting. Please read these materials carefully. Do not send any
certificates representing Video common stock at this time.

     Video is a Delaware corporation. Under Delaware law the affirmative vote of
the holders of a majority of the outstanding shares of Video's common stock is
required to approve the merger agreement and the merger. Video stockholders
controlling approximately 71.8% of its common stock have agreed to vote all of
their shares of common stock in favor of the proposal to approve the merger
agreement and the merger.

     Whether or not you plan to attend the special meeting, we urge you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the special meeting. Failure to return a properly
executed proxy card and/or to vote at the special meeting will have the same
effect as a vote against approval of the merger agreement and the merger.

                                      Sincerely,

                                      Louis H. Siracusano
                                      President and Chief Executive Officer
<PAGE>   2

     WE URGE YOU TO CONSIDER THOSE MATTERS SET FORTH UNDER THE HEADING "RISK
FACTORS RELATING TO THE MERGER" BEGINNING ON PAGE 19 OF THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.

     NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF CLASS A LIBERTY
MEDIA GROUP TRACKING STOCK TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

     This proxy statement/prospectus is dated November 20, 2000 and is first
expected to be mailed to Video stockholders on or about November 21, 2000.
<PAGE>   3

                      REFERENCE TO ADDITIONAL INFORMATION

     This proxy statement/prospectus "incorporates by reference" important
business and financial information about Video, the Liberty Media Group and AT&T
from documents that are not included in or delivered with this proxy
statement/prospectus. You may obtain documents incorporated by reference in this
proxy statement/prospectus without charge by requesting them in writing or by
telephone from the appropriate company (documents relating to the Liberty Media
Group may be obtained from AT&T) at the following addresses:

<TABLE>
<S>                                            <C>
         Video Services Corporation                             AT&T Corp.
             240 Pegasus Avenue                          32 Avenue of the Americas
         Northvale, New Jersey 07647                   New York, New York 10013-2412
             Tel: (201) 767-1000                            Tel: (212) 387-5400
          Attn: Corporate Secretary                      Attn: Corporate Secretary
</TABLE>

     IN ORDER TO OBTAIN THE DOCUMENTS IN TIME FOR THE SPECIAL MEETING, YOU MUST
REQUEST THE DOCUMENTS FROM US BY DECEMBER 13, 2000, WHICH IS FIVE BUSINESS DAYS
PRIOR TO THE DATE OF THE SPECIAL MEETING.

     For a more detailed description of the information incorporated by
reference into this proxy statement/prospectus and how you may obtain it, see
"Summary of Proposed Merger--Where You Can Find More Information" on page 17.
<PAGE>   4

                           VIDEO SERVICES CORPORATION
                               240 PEGASUS AVENUE
                          NORTHVALE, NEW JERSEY 07647

                   NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
                        To Be Held on December 20, 2000

To the Stockholders of Video Services Corporation:

     A special meeting of stockholders of Video Services Corporation will be
held at our offices at 235 Pegasus Avenue, Northvale, New Jersey 07647 on
December 20, 2000 at 10:00 a.m. local time, for the following purposes.

     1. To consider and vote upon:

          (a) a proposal to approve and adopt an Agreement and Plan of Merger,
              dated as of July 25, 2000, among Liberty Media Corporation, AT&T
              Corp., E-Group Merger Corp., and Video, under which:

             - E-Group MergerCorp. will be merged with Video, with Video
               continuing as the surviving corporation and becoming a member of
               the Liberty Media Group;

             - each issued and outstanding share of Video common stock will be
               converted into and represent the right to receive 0.104 of a
               share of Class A Liberty Media Group tracking stock and $2.75 in
               cash; and

          (b) a proposal to approve the merger of E-Group Merger Corp. with
              Video as described in clause (a) above;

     2. To transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.

     Our board of directors has approved the merger agreement and the merger and
recommends that you vote FOR approval of the merger agreement and the merger.
These proposals are described in more detail in the accompanying proxy
statement/prospectus, which you should read in its entirety before voting. A
copy of the merger agreement is attached as Annex A to the accompanying proxy
statement/prospectus.

     Only stockholders of record at the close of business on November 17, 2000
are entitled to notice of the special meeting, and to vote at the special
meeting and at any adjournments thereof. For ten days prior to the special
meeting, a complete list of stockholders entitled to vote at the special meeting
will be available for examination by any stockholder for any purpose germane to
the special meeting during ordinary business hours at the principal executive
offices of Video Service Corporation located in Northvale, New Jersey.

     Holders of Video common stock are entitled to appraisal rights under
Section 262 of the Delaware General Corporation Law if the conditions set forth
in Section 262 are complied with. We have included a copy of Section 262 as
Annex D to the accompanying proxy statement/prospectus.

     All Video stockholders are cordially invited to attend the special meeting
in person. However, to ensure your representation at the special meeting, you
are urged to complete, sign and return the enclosed proxy card as promptly as
possible in the enclosed postage-prepaid envelope. You may revoke your proxy in
the manner described in the accompanying proxy statement/prospectus at any time
before it is voted at the special meeting. If you fail to return a properly
executed proxy card or to vote in person at the special meeting, the effect will
be a vote against the proposal to approve the merger agreement and the merger.

                                          By order of the board of directors,

                                          Michael E. Fairbourne
                                          Secretary

Northvale, New Jersey
November 20, 2000
<PAGE>   5

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
QUESTIONS AND ANSWERS ABOUT THE
  PROPOSALS...........................    1
SUMMARY OF PROPOSED MERGER............    4
     Overview.........................    4
     The Companies....................    4
     Recent Developments..............    4
     The Proposed Merger..............    5
     Recommendation of Video's Board
       of Directors...................    5
     Video's Reasons for the Merger...    5
     Opinion of Video's Financial
       Advisor........................    5
     The Merger Agreement and Other
       Transaction Agreements.........    5
     Conditions to Completing the
       Merger.........................    5
     Termination......................    6
     Termination Fees.................    7
     No Other Negotiations Involving
       Video..........................    7
     Regulatory Matters...............    7
     Alternative Merger...............    8
     Accounting Treatment.............    8
     New York Stock Exchange
       Listing........................    8
     Interests of Video's Officers and
       Directors in the Merger........    8
     Treatment of Video Stock
       Options........................    9
     Indemnification and Insurance....    9
     Vote Required for the Merger.....    9
     Voting Agreement.................    9
     AT&T Contribution of Video's
       Equity Acquired in the Merger
       to Liberty.....................    9
     Dividends........................    9
     Restrictions on the Ability to
       Sell Class A Liberty Media
       Group Tracking Stock...........    9
     Selected Historical Financial
       Information....................   10
     Unaudited Comparative Per Share
       Data...........................   13
     Comparative Per Share Market
       Price and Dividend
       Information....................   15
     Where You Can Find More
       Information....................   17
RISK FACTORS RELATING TO THE MERGER...   19
     The value of the Class A Liberty
       Media Group tracking stock you
       will receive in the merger may
       fluctuate......................   19
</TABLE>

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
     The price of Class A Liberty
       Media Group tracking stock may
       be affected by factors
       different from those affecting
       the price of the Video common
       stock..........................   19
     Holders of AT&T common stock,
       AT&T Wireless Group tracking
       stock and Liberty Media Group
       tracking stock may have
       competing interests............   19
     Certain events affecting the
       Liberty Media Group could
       result in you receiving
       consideration in the merger
       other than a combination of
       shares of Class A Liberty Media
       Group tracking stock and cash
       or in the failure of the merger
       to be completed................   19
     Liberty's board of directors has
       the power to take actions that
       may not be in the best
       interests of AT&T or holders of
       Liberty Media Group tracking
       stock..........................   20
     Liberty's board of directors may
       have no fiduciary duties to
       holders of Liberty Media Group
       tracking stock.................   21
     If we do not complete the merger,
       it could negatively impact
       Video and the price of its
       common stock...................   21
SPECIAL NOTE REGARDING FORWARD-LOOKING
  STATEMENTS..........................   22
THE COMPANIES INVOLVED IN THE
  MERGER..............................   23
     Video Services Corporation.......   23
     AT&T Corp........................   23
     E-Group Merger Corp..............   24
     Liberty Media Corporation........   24
     Liberty Livewire Corporation.....   25
THE PROPOSED MERGER...................   27
     Special Meeting to Vote on the
       Proposed Merger................   27
     Structure of the Merger; Merger
       Consideration..................   27
     Treatment of Video Stock Options
       in the Merger..................   27
     Background of the Merger.........   28
     Video's Reasons for the Merger...   29
</TABLE>

                                        i
<PAGE>   6

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
     The Liberty Media Group's Reasons
       for the Merger.................   30
     Recommendation of Video's Board
       of Directors...................   31
     Opinion of Video's Financial
       Advisor........................   32
     Accounting Treatment.............   35
     Interests of Video's Officers and
       Directors in the Merger........   35
     Indemnification and Insurance....   36
     Material U.S. Federal Income Tax
       Consequences of the Merger.....   36
     Regulatory Matters...............   38
     Restrictions on Sales of Shares
       by Affiliates of Video or
       AT&T...........................   38
     Listing on the New York Stock
       Exchange of Class A Liberty
       Media Group Tracking Stock to
       be Issued in the Merger........   38
     Appraisal Rights.................   39
     Delisting and Deregistration of
       Video Common Stock After the
       Merger.........................   41
THE MERGER AGREEMENT..................   42
     Conditions to Completing the
       Merger.........................   42
     Termination......................   47
     Termination Fees.................   48
     No Solicitation..................   48
     Representations and Warranties...   49
     Conduct of Video's Business
       Pending the Merger.............   51
     Alternative Merger...............   53
     Amendment, Extension and
       Waiver.........................   54
     Expenses.........................   54
OTHER TRANSACTION AGREEMENTS..........   55
     Voting Agreement.................   55
     Amendment to Tax Sharing
       Agreement......................   55
     Supplement to Inter-Group
       Agreement......................   55
DESCRIPTION OF AT&T CAPITAL STOCK.....   56
     Authorized Capital Stock.........   56
     AT&T Common Stock................   56
     Dividends........................   57
     AT&T Preferred Stock.............   60
COMPARISON OF RIGHTS OF STOCKHOLDERS
  OF VIDEO AND AT&T...................   61
     Business Combinations............   61
     State Takeover Legislation.......   62
</TABLE>

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
     Appraisal Rights.................   63
     Amendments to Charters...........   64
     Amendments to Bylaws.............   65
     No Preemptive Rights.............   65
     Redemption of Capital Stock......   65
     Dividend Sources.................   65
     Duration of Proxies..............   66
     Stockholder Action...............   66
     Nomination Procedures and
       Stockholder Proposals..........   67
     Special Stockholder Meetings.....   67
     Cumulative Voting................   67
     Size of the Board of Directors;
       Staggered Board................   67
     Removal of Directors.............   68
     Vacancies........................   69
     Indemnification of Directors and
       Officers.......................   69
     Limitation of Personal Liability
       of Directors...................   71
     Case Law and Court Systems.......   72
     Class Voting Structures; Transfer
       Limitations....................   72
OWNERSHIP OF VIDEO COMMON STOCK.......   73
THE SPECIAL MEETING...................   76
     Matters Relating to the Special
       Meeting........................   76
     Vote Necessary to Approve the
       Merger Agreement and the
       Merger.........................   77
     Proxies..........................   77
     Proxy Solicitation...............   77
     Other Business; Adjournments.....   78
SUBMISSION OF STOCKHOLDER PROPOSALS...   78
EXPERTS...............................   78
LEGAL MATTERS.........................   79
ANNEX A--Agreement and Plan of
  Merger..............................  A-1
ANNEX B--Opinion of Lazard Freres &
  Co. LLC.............................  B-1
ANNEX C--Voting Agreement.............  C-1
ANNEX D--Section 262 of the Delaware
  General Corporation Law.............  D-1
</TABLE>

                                       ii
<PAGE>   7

                   QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

Q: WHAT WILL I RECEIVE IN THE MERGER?

A: If we complete the merger, you will receive 0.104 of a share of Class A
   Liberty Media Group tracking stock and $2.75 in cash in exchange for each
   share of Video common stock that you hold on the date of the merger. We will
   not issue fractional shares of Class A Liberty Media Group tracking stock in
   the merger. You will receive cash based on the market price of Class A
   Liberty Media Group tracking stock instead of any fractional shares.

   For a more complete description of what you will receive in the merger, see
   the section entitled "The Proposed Merger -- Structure of the Merger; Merger
   Consideration" on page 27.

Q: WHAT IS LIBERTY MEDIA GROUP TRACKING STOCK?

A: Liberty Media Group tracking stock is a class of common stock of AT&T that is
   designed to reflect the economic performance of the businesses and assets of
   the Liberty Media Group. All of the Liberty Media Group tracking stock to be
   issued in the merger consists of Class A Liberty Media Group tracking stock
   of AT&T.

Q: WHAT WILL HAPPEN TO MY VIDEO COMMON STOCK IF AT&T DISTRIBUTES OWNERSHIP OF
   THE LIBERTY MEDIA GROUP?

A: On November 15, 2000, AT&T announced a plan to distribute ownership of the
   Liberty Media Group to the holders of Liberty Media Group tracking stock in
   exchange for such tracking stock. AT&T has not yet determined the precise
   structure or the timing of this distribution. The distribution is subject to
   the receipt of a favorable tax ruling from the Internal Revenue Service.

   We anticipate that we will complete the merger prior to the completion of
   such distribution of the Liberty Media Group. In such case, the shares of
   Class A Liberty Media Group tracking stock received by Video stockholders in
   the merger would receive the same treatment in any such transaction as any
   other shares of Class A Liberty Media Group tracking stock.

   If a distribution of the Liberty Media Group is completed prior to the
   closing of the merger, the merger agreement provides for certain automatic
   changes to the terms of the merger, including (i) the complete release of
   AT&T from all of its obligations under the merger agreement and (ii) certain
   changes in the structure of the merger and the form of consideration to be
   received by Video stockholders in exchange for their Video common stock. For
   a more complete description of such provisions, see the section entitled "The
   Merger Agreement -- Alternative Merger."

Q: DOES VIDEO'S BOARD OF DIRECTORS RECOMMEND VOTING IN FAVOR OF THE MERGER
   AGREEMENT AND THE MERGER?

A: Yes. After careful consideration, your board of directors has determined that
   the merger is fair to you and in your best interests as a stockholder of
   Video and has declared the merger advisable. Video's board of directors has
   unanimously approved the merger agreement and the merger and unanimously
   recommends that you vote in favor of the merger agreement and the merger.

   For a more complete description of the recommendation of and factors
   considered by Video's board of directors, see the section entitled "The
   Proposed Merger -- Video's Reasons for the Merger" on page 29.

Q: WILL I RECOGNIZE A TAXABLE GAIN OR LOSS FOR U.S. FEDERAL INCOME TAX PURPOSES
   IN THE MERGER?

A: Yes. If the merger is completed, you will recognize gain or loss for United
   States federal income tax purposes equal to the difference between:

   - the sum of:

     (1) the value of the Class A Liberty Media Group tracking stock you receive
         in the merger;

     (2) the cash consideration you receive in the merger; and

     (3) any cash you receive instead of fractional shares in the merger; and

   - your tax basis in your Video common stock

   HOWEVER, WE STRONGLY ENCOURAGE YOU TO CONSULT YOUR OWN TAX ADVISOR TO
   DETERMINE YOUR PARTICULAR TAX CONSEQUENCES.

   For a more complete description of the tax consequences of the merger and
   some of the
                                        1
<PAGE>   8

   related risks, see the section entitled "The Proposed Merger -- Material U.S.
   Federal Income Tax Consequences of the Merger" on page 36.

Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE MERGER?

A: Yes. For example, the number of shares of Class A Liberty Media Group
   tracking stock that you will receive in the merger will not be adjusted based
   on changes in the market prices of Class A Liberty Media Group tracking stock
   before the completion of the merger. As a result, you will not know the value
   of the shares you will receive in the merger at the time you vote on the
   merger. Video is not permitted to "walk away" from the merger or resolicit
   the vote of its stockholders based on changes in the market value of Class A
   Liberty Media Group tracking stock. We urge you to obtain current market
   quotations of Class A Liberty Media Group tracking stock (NYSE: LMG.A) and
   Video common stock (AMEX: VS). In evaluating the merger, you should carefully
   consider these and other factors discussed in the section entitled "Risk
   Factors Relating to the Merger" on page 19. You should also see the sections
   entitled "The Proposed Merger -- Video's Reasons for the Merger" on page 29
   and "-- Recommendation of Video's Board of Directors" on page 31.

Q: WHAT DO I NEED TO DO NOW?

A: We urge you to read this proxy statement/prospectus carefully, including its
   annexes, and to consider how the merger affects you as a stockholder. You may
   also want to review the documents referenced under "Summary of Proposed
   Merger -- Where You Can Find More Information" on page 17.

Q: HOW DO I VOTE?

A: Simply indicate on your proxy card how you want to vote, and sign and mail
   your proxy card in the enclosed return envelope as soon as possible so that
   your shares may be represented at the special meeting. If you sign and mail
   your proxy card but do not include instructions on how to vote your proxy, we
   will vote your shares "FOR" approval and adoption of the merger agreement and
   the merger unless your shares are held in a brokerage account. See the next
   Question and Answer regarding shares held by brokers in "street name." If you
   fail to return your proxy card or to vote in person, the effect will be the
   same as voting against the merger agreement and the merger. For a more
   complete description of voting at the meeting, see the section entitled "The
   Special Meeting -- Proxies" on page 77.

Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
   SHARES FOR ME?

A: Your broker will vote your shares only if you provide instructions on how to
   vote in accordance with the information and procedures provided to you by
   your broker. If you do not instruct your broker to vote your shares, the
   effect will be the same as voting against the merger agreement and the
   merger.

   For a more complete description of voting shares held in "street name," see
   the section entitled "The Special Meeting -- Proxies" on page 77.

Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?

A: If you want to change your vote, send the secretary of Video a later-dated,
   signed proxy card before the special meeting or attend the meeting and vote
   in person. You may also revoke your proxy by sending written notice to the
   secretary of Video before the meeting.

   For a more complete description of how to change your vote, see the section
   entitled "The Special Meeting -- Proxies" on page 77.

Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A: No. After we complete the merger, we will send you written instructions for
   exchanging your Video stock certificates for Class A Liberty Media Group
   tracking stock certificates and the cash portion of the merger consideration,
   which will be paid by check.

Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?

A: Subject to stockholder approval and the receipt of certain regulatory
   approvals, we expect to complete the merger promptly after the special
   meeting.

   For a description of the conditions to completion of the merger, see the
   section entitled "The Merger Agreement -- Conditions to Completing the
   Merger" on page 42.

Q: AM I ENTITLED TO APPRAISAL RIGHTS?

A: Under Delaware law, you have the right to an appraisal of the value of your
   shares of Video
                                        2
<PAGE>   9

   common stock in connection with the merger, subject to the provisions of
   Section 262 of the Delaware General Corporation Law. We have included a
   discussion of these rights and provisions on page 39 and we encourage you to
   read it.

Q: WHOM SHOULD I CALL WITH QUESTIONS?

A: You should call Video's Investor Relations department at (201) 767-1000 with
   any questions about the merger.

   You may also obtain additional information about Video, Liberty Media Group
   and AT&T from documents filed with the Securities and Exchange Commission by
   following the instructions in the section entitled "Summary of Proposed
   Merger -- Where You Can Find More Information" on page 17.

                                        3
<PAGE>   10

                           SUMMARY OF PROPOSED MERGER

     This summary highlights selected information from this proxy
statement/prospectus and may not contain all the information that is important
to you. To better understand the merger, you should read this entire document
carefully, including the Agreement and Plan of Merger, which is attached as
Annex A, and the other documents to which we refer you. In addition, we
incorporate by reference in this proxy statement/prospectus important business
and financial information about Video, the Liberty Media Group and AT&T. You may
obtain the information incorporated by reference into this proxy
statement/prospectus without charge by following the instructions in the section
entitled "--Where You Can Find More Information" on page 17.

OVERVIEW

THE COMPANIES

VIDEO SERVICES CORPORATION
240 PEGASUS AVENUE
NORTHVALE, NEW JERSEY 07647
TEL: (201) 767-1000

Video is a leading provider of value-added video services to a diverse base of
customers within the television network, cable and syndicated programming
markets. These services are divided into three segments:

- Satellite and Distribution Services;

- Systems and Products; and

- Production Services.

The satellite and distribution services segment integrates and distributes
broadcast quality video content via a satellite and fiber optic transmission
network routed through its digital/analog switching center and is an
international provider of multi-format technical and distribution services to
distributors of video programming. The systems and products segment designs,
engineers and produces advanced video facilities for the broadcast and cable
television, post-production, Internet and corporate markets. The production
services segment is an international provider of technical and creative services
to owners and producers of television programming, television advertising and
other programming content and the emerging Internet graphics and video markets.

LIBERTY MEDIA CORPORATION
9197 SOUTH PEORIA STREET
ENGLEWOOD, COLORADO 80112
TEL: (720) 875-5400

Liberty is a leading media, entertainment and communications company with
interests in a diverse group of public and private companies with
well-recognized brand names, such as Encore, STARZ!, Discovery, TV Guide, Fox,
USA Networks, QVC, CNN, TBS and Sprint PCS, which is held in trust. Liberty is
the primary operating company of the "Liberty Media Group," which is a "tracking
stock" group of AT&T.

AT&T CORP.
32 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10013
TEL: (212) 387-5400

RECENT DEVELOPMENTS

On November 15, 2000, AT&T announced a plan to distribute ownership of the
Liberty Media Group to the holders of the Liberty Media Group tracking stock in
exchange for such tracking stock. AT&T has not yet determined the precise
structure or the timing of that transaction. The proposed distribution is
subject to receipt of a favorable tax ruling from the Internal Revenue Service.
There cannot be any assurance that the distribution of Liberty Media Group will
be completed or that changes in the distribution plan will not be made.

Additional information is contained in AT&T's press release regarding the
proposed distribution, which has been filed as an Exhibit to AT&T's Current
Report on Form 8-K dated November 16, 2000. You are encouraged to read this
press release in its entirety. Please see the section entitled "--Where you can
find more information" on page 17 for instructions on obtaining this release.

For a more complete description of the effects of any distribution of the
Liberty Media Group, please see "Risk Factors Relating to the Merger" on page
19, "The Merger Agreement--Alternative Merger" on page 53 and "Description of
AT&T Capital Stock" on page 56.

On October 25, 2000 AT&T issued a press release describing a major restructuring
plan. A copy of

                                        4
<PAGE>   11

this press release is filed as an Exhibit to AT&T's Current Report on Form 8-K
dated October 25, 2000. You are encouraged to read this release in its entirety.
Please see the section entitled "-- Where you can find more information" on page
17 for instructions on obtaining this release.

AT&T is among the world's communications leaders, providing voice, data and
video telecommunications services to large and small businesses, consumers and
government entities. AT&T and its subsidiaries furnish domestic long distance,
international long distance, regional, local and wireless telecommunications
services, and broadband and Internet communication transmission services. AT&T
also provides billing, directory, and calling card services to support these
communications services. Internet users can obtain information about AT&T and
its services at http://www.att.com.

THE PROPOSED MERGER (SEE PAGE 27)

In the proposed merger, AT&T will acquire Video and contribute Video to the
Liberty Media Group. Assuming all outstanding Video options are exercised, Video
stockholders will be entitled to receive a total of approximately 1.5 million
shares of Class A Liberty Media Group tracking stock and a total of
approximately $39.7 million in cash in the merger.

RECOMMENDATION OF VIDEO'S BOARD OF DIRECTORS (SEE PAGE 31)

After careful consideration, your board of directors has determined that the
merger is fair to you and in your best interests as a stockholder of Video and
has declared the merger advisable. Video's board of directors has unanimously
approved the merger agreement and the merger and unanimously recommends that you
vote in favor of the merger agreement and the merger.

VIDEO'S REASONS FOR THE MERGER
(SEE PAGE 29)

Video believes the merger affords its stockholders the opportunity to
participate in the Liberty Media Group and to realize a significant premium for
their shares over the average trading price of Video common stock at the time
Video and Liberty commenced the negotiations between them that eventually
resulted in the signing of the merger agreement. In determining to approve the
merger, Video's board of directors also considered that Video is permitted to
accept alternative acquisition proposals under limited circumstances.

OPINION OF VIDEO'S FINANCIAL ADVISOR
(SEE PAGE 32)

Video's financial advisor, Lazard Freres & Co., LLC, rendered a written opinion
to Video's board of directors that, as of July 21, 2000 (the date that Video's
board approved the key terms of the merger agreement), the merger consideration
was fair, from a financial point of view, to Video's stockholders. The opinion
is subject to the considerations, qualifications and limitations set forth in
the opinion. The opinion is attached to this proxy statement/prospectus as Annex
B and we urge you to read it in its entirety.

THE MERGER AGREEMENT AND OTHER TRANSACTION AGREEMENTS (SEE PAGES 42 AND 55)

We have attached the merger agreement, which is the legal document that governs
the merger, to this proxy statement/prospectus as Annex A. We encourage you to
read the merger agreement carefully. As more fully described in this proxy
statement/prospectus, Video stockholders controlling approximately 71.8% of
Video's outstanding common stock have entered into a voting agreement with
Liberty under which these stockholders agreed to vote in favor of the merger
agreement and the merger. A copy of this voting agreement is attached to this
proxy statement/prospectus as Annex C.

CONDITIONS TO COMPLETING THE MERGER
(SEE PAGE 42)

We will complete the merger only if a number of mutual conditions are satisfied
or waived, including the following:

- the merger agreement and the merger must be approved and adopted by Video's
  stockholders at the special meeting;

- AT&T's registration statement relating to the merger must be effective and
  must not be the subject to any stop order or proceedings seeking a stop order;

- AT&T must receive all state securities laws or blue sky permits and
  authorizations necessary to issue the merger consideration;
                                        5
<PAGE>   12

- the applicable waiting period under the Hart-Scott-Rodino Antitrust
  Improvements Act of 1976 must expire or be terminated; and

- the shares of Class A Liberty Media Group tracking stock that will be issued
  in the merger must be authorized for listing on the New York Stock Exchange,
  subject only to official notice of issuance.

AT&T's obligation to complete the merger is conditioned on the satisfaction or
waiver of a number of conditions that are for Liberty's benefit. These
conditions may only be waived by Liberty and include the following:

- Video must have performed and complied in all material respects with all its
  obligations under the merger agreement;

- no law may be in effect that:

(1) prohibits us from completing the merger;

(2) imposes material damages or penalties in connection with the merger;

(3) as a result of completing the merger, requires either Video or Liberty to
    divest a material portion of its business or assets, or prohibits Liberty or
    Video from engaging in any material business; or

(4) imposes material limitations on Liberty's ability to own the Video common
    stock acquired in the merger; and

- no person shall have any contractual or other registration rights with respect
  to any shares of Class A Liberty Media Group tracking stock to be issued in
  the merger.

AT&T's obligation to complete the merger is also conditioned on the satisfaction
or waiver of a number of conditions that are for AT&T's benefit. These
conditions may only be waived by AT&T and include the following:

- each of Video and Liberty must have performed and complied in all material
  respects with its obligations under the merger agreement;

- no law may be in effect that:

(1) prohibits us from completing the merger;

(2) imposes material damages or penalties in connection with the merger;

(3) as a result of completing the merger, requires AT&T to divest any portion of
    its business or assets or imposes any restrictions or conditions on AT&T's
    conduct of its business;

(4) imposes material limitations on AT&T's or Liberty's ability to own the Video
    common stock acquired in the merger;

(5) as a result of completing the merger, prohibits AT&T or any of its material
    subsidiaries from engaging in any business; or

(6) materially increases AT&T's liabilities or obligations arising out of the
    merger agreement;

- Video must hold, and be in compliance with the terms of, all licenses, permits
  and governmental authorizations necessary to the ownership of its property or
  to the conduct of its business; and

- we must have obtained all required consents and approvals from government
  authorities.

Video's obligation to complete the merger is conditioned on the satisfaction or
waiver of a number of conditions, including the following:

- each of Liberty, AT&T and E-Group Merger Corp. must have performed and
  complied in all material respects with its obligations under the merger
  agreement; and

- no law may be in effect that has or is reasonably likely to have a material
  adverse effect on Video, Liberty or makes the merger agreement or the merger
  illegal.

TERMINATION (SEE PAGE 47)

Video, Liberty and AT&T can mutually agree to terminate the merger agreement at
any time before the merger is completed.

In addition, any of Video, Liberty or AT&T may terminate the merger agreement if
any of the following occurs:

- we do not complete the merger by December 31, 2000; however, if the failure to
  complete the merger by such date is solely a result of the failure of certain
  specified conditions set forth in the merger agreement to be satisfied or
  waived, any party may extend such date up to February 28, 2001;

- any other party materially breaches any representation, warranty, covenant or
  agreement contained in the merger agreement that is not

                                        6
<PAGE>   13

  curable and would prevent the satisfaction of the applicable conditions to
  completing the merger;

- a court or other governmental body permanently prohibits the merger; or

- Video's stockholders do not approve and adopt the merger agreement and the
  merger, except that AT&T may not terminate the merger agreement under this
  circumstance without Liberty's consent.

Liberty may terminate the merger agreement if Video's board of directors
withdraws or modifies, in a manner adverse to Liberty or AT&T, its approval or
recommendation of the merger or authorizes Video to enter into an agreement with
respect to certain types of extraordinary transactions.

Video may terminate the merger agreement if, after it receives an unsolicited
proposal for an alternative transaction and it complies with the applicable
provisions relating thereto in the merger agreement, Video's board of directors
withdraws or modifies its approval or recommendation of the merger, and
authorizes Video to enter into an agreement with respect to that alternative
transactions.

TERMINATION FEES (SEE PAGE 48)

Video may be obligated to pay Liberty a termination fee of $3.5 million if the
merger agreement is terminated under specified circumstances set forth in the
merger agreement.

NO OTHER NEGOTIATIONS INVOLVING VIDEO
(SEE PAGE 48)

Until we complete the merger or terminate the merger agreement, Video has agreed
not to take any of the following actions:

- initiate, solicit, encourage or facilitate the making of any offer or proposal
  that is or is reasonably likely to lead to an alternative transaction;

- enter into any agreement regarding any alternative transaction; or

- in the event of an unsolicited proposal for an alternative transaction, engage
  in negotiations or discussions with, or provide any non-public information to
  anyone other than Liberty, AT&T, E-Group Merger Corp. or any of their
  affiliates or representatives.

However, Video may take any of these actions, other than solicitation or
initiation, if, following the date of the merger agreement, it receives an
unsolicited proposal for an alternative transaction and both of the following
occur:

- Video's board of directors reasonably determines in good faith, after
  consulting with a nationally recognized financial advisor, that the terms of
  the proposed alternative transaction are more favorable to Video and its
  stockholders than the merger, and financing for the transaction, to the extent
  required, is either committed or, in the good faith judgment of Video's board
  of directors, reasonably capable of being obtained; and

- Video's board of directors reasonably determines in good faith that the board
  is, or is reasonably likely to be, required to take the action in order to
  properly discharge its fiduciary duties under applicable law.

Video's board of directors has also agreed to include in this proxy
statement/prospectus its recommendation in favor of approving the merger
agreement and the merger. However, Video's board may withdraw or modify its
recommendation if:

- Video receives a proposal for an alternative transaction that was not
  solicited or initiated by Video;

- Video's board of directors makes the determination described above that the
  proposal is more favorable than the merger; and

- Video's board of directors reasonably determines in good faith that the
  withdrawal or modification is, or is reasonably likely to be, required in
  order for it to properly discharge its fiduciary duties under applicable law.

REGULATORY MATTERS (SEE PAGE 38)

We have made or will make filings, and have taken or will take other actions
necessary to obtain required approvals from governmental authorities in
connection with the proposed merger, including U.S. antitrust authorities, with
a view to completing the merger as soon as possible.

On August 25, 2000, we filed the requisite Pre-Merger Notification and Report
Forms under the

                                        7
<PAGE>   14

Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with the
Department of Justice and the Federal Trade Commission. The waiting period
expired on September 24, 2000. The Department of Justice or the Federal Trade
Commission, as well as a foreign regulatory agency or government, state or
private person, may challenge the merger at any time before its completion;
however, we do not currently expect any legal objection to the merger on
antitrust grounds. AT&T is not required to close the merger if any governmental
approval for the merger contains conditions that, in its reasonable judgment,
would be adverse to or burdensome on AT&T or its subsidiaries or their
relationships with federal or state governmental authorities.

ALTERNATIVE MERGER (SEE PAGE 53)

In the event of a distribution by AT&T of all of the assets comprising the
Liberty Media Group to holders of Liberty Media Group tracking stock, a
redemption of the Liberty Media Group tracking stock for such assets or a
similar transaction, automatic changes to the terms of the merger will occur,
including (i) the complete release of AT&T from all of its obligations under the
merger agreement and (ii) certain changes in the structure of the merger and the
form of consideration to be received by Video stockholders in exchange for the
Video common stock. In such an alternative merger, stockholders of Video may be
entitled to receive a combination of cash and shares of common stock of Liberty
or another publicly-traded corporation holding, directly or indirectly, the
assets of the Liberty Media Group, or all cash. However, if such a distribution,
redemption or other transaction is completed, there is no assurance that such an
alternative merger will be consummated.

On November 15, 2000, AT&T announced a plan to distribute ownership of the
Liberty Media Group to the holders of Liberty Media Group tracking stock in
exchange for such tracking stock. AT&T has not yet determined the precise
structure or the timing of this distribution. The distribution is subject to the
receipt of a favorable tax ruling from the Internal Revenue Service. We
anticipate that we will complete the merger prior to the completion of such
distribution of the Liberty Media Group. In such case, the shares of Class A
Liberty Media Group tracking stock received by Video stockholders in the merger
would receive the same treatment in any such transaction as any other shares of
Class A Liberty Media Group tracking stock. See "Risk Factors Relating to the
Merger -- Certain events affecting the Liberty Media Group could result in you
receiving consideration in the merger other than a combination of shares of
Class A Liberty Media Group tracking stock and cash or in the failure of the
merger to be completed" on page 19 and "The Merger Agreement -- Alternative
Merger" on page 53.

ACCOUNTING TREATMENT (SEE PAGE 35)

The merger will be accounted for as a purchase in accordance with generally
accepted accounting principles.

NEW YORK STOCK EXCHANGE LISTING

We will use reasonable efforts to cause the shares of Class A Liberty Media
Group tracking stock that will be issued in the merger to be authorized for
listing on the New York Stock Exchange, subject to official notice of issuance,
before we complete the merger. It is a condition to the closing of the merger
that this listing authorization be obtained.

INTERESTS OF VIDEO'S OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 35)

When considering the recommendation of Video's board of directors, you should be
aware that members of Video's management and board of directors may be deemed to
have interests in the merger that are different from, or in addition to, yours
as a stockholder of Video. A significant number of Video's directors and
executive officers hold Video common stock and options under Video's stock
option plans.

As of November 17, 2000, directors and executive officers of Video beneficially
owned 4,711,864 shares of Video Class A Common Stock, representing approximately
35.4% of the total number of votes. If all Video common stock held by Video's
directors and executive officers were converted under the terms of the merger
agreement, those directors and executive officers would receive a total of
approximately 490,033 shares of Class A Liberty Media Group tracking stock and
$12,957,626 in cash.

Each of Video's directors and executive officers has indicated an intention to
vote in favor of the

                                        8
<PAGE>   15

merger agreement and the merger. In addition, certain directors and executive
officers have entered into the voting agreement described below.

TREATMENT OF VIDEO STOCK OPTIONS (SEE PAGE 27)

Each option to purchase shares of Video common stock issued pursuant to Video's
1993 stock plan, Video's 1997 stock plan and an agreement with a former
executive of Video will, at the effective time of the merger, become exercisable
for 0.208 of a share of Class A Liberty Media Group tracking stock. Each option
to purchase shares of Video common stock issued pursuant to Video's 1997 stock
plan will terminate immediately following the effective time of the merger.

For a more complete description of how Video stock options will be treated in
the merger, see the section entitled "The Proposed Merger--Treatment of Video
Stock Options in the Merger" on page 27.

INDEMNIFICATION AND INSURANCE
(SEE PAGE 36)

The merger agreement provides for the indemnification of Video's officers,
directors and employees and for the continuation of directors and officers
liability insurance.

VOTE REQUIRED FOR THE MERGER

The affirmative vote of the holders of a majority of the outstanding shares of
Video common stock is required to approve the merger agreement and the merger.

VOTING AGREEMENT (SEE PAGE 55)

Several of Video's principal stockholders, including Louis H. Siracusano, Arnold
P. Ferolito, Donald H. Buck, Terrence A. Elkes, Kenneth Gorman and affiliates of
Sandler Capital Management, have entered into a voting agreement with Liberty.
Under the voting agreement, these stockholders have agreed to vote the shares of
Video common stock under their control in favor of the merger agreement and the
merger. As of November 17, 2000, the shares of Video common stock subject to
this voting agreement represented approximately 71.8% of the total voting power
of the outstanding Video common stock.

For a more complete description of this voting agreement, see "Other Transaction
Agreements--Voting Agreement" on page 55.

AT&T CONTRIBUTION OF VIDEO'S EQUITY ACQUIRED IN THE MERGER TO LIBERTY

The merger agreement provides that Liberty and AT&T will complete various
transactions following the merger. As a result of these transactions, the equity
of Video, which will be the surviving entity in the merger, acquired by AT&T in
the merger will be contributed to Liberty and Video will effectively become a
member of the Liberty Media Group. Immediately following this contribution,
Liberty will transfer all of the equity of Video to Liberty Livewire
Corporation, a majority owned subsidiary of Liberty.

DIVIDENDS

AT&T does not expect to pay any dividends on the Class A Liberty Media Group
tracking stock for the foreseeable future.

RESTRICTIONS ON THE ABILITY TO SELL CLASS A LIBERTY MEDIA GROUP TRACKING STOCK

All shares of Class A Liberty Media Group tracking stock received by you in
connection with the merger will be freely transferable unless you are considered
an "affiliate" of Video or AT&T under the Securities Act of 1933. If you are an
affiliate of Video or AT&T, then prior to the first anniversary of the merger,
sales may be made only under a registration statement or an exemption under the
Securities Act.

                                        9
<PAGE>   16

                   SELECTED HISTORICAL FINANCIAL INFORMATION

AT&T

     In the table below, we provide you with selected historical consolidated
financial data of AT&T. AT&T prepared this information using its consolidated
financial statements at and for each of the fiscal years in the five-year period
ended December 31, 1999 and at and for the nine months ended September 30, 2000
and September 30, 1999. AT&T derived the consolidated income statement data
below for each of the three years ended December 31, 1999, and the consolidated
balance sheet data at December 31, 1999 and 1998 from consolidated financial
statements audited by PricewaterhouseCoopers LLP, independent accountants. AT&T
derived the remaining data from unaudited consolidated financial statements.
This information is only a summary and you should read it together with the
financial information we incorporate by reference in this proxy
statement/prospectus. For copies of the information we incorporate by reference,
see "--Where You Can Find More Information" on page 17.

     Income from continuing operations for the nine months ended September 30,
2000, includes $0.7 billion of a net pre-tax expense consisting primarily of
restructuring and other charges, equity losses associated with investments in
Cablevision Systems Corporation (Cablevision) and Time Warner Entertainment
(TWE), and net gains on the sale of businesses. Income from continuing
operations for the nine months ended September 30, 1999, includes $0.6 billion
of a net pre-tax expense consisting primarily of an in-process research and
development charge associated with AT&T's merger with Tele-Communications, Inc.
(TCI), equity losses associated with investments in Cablevision, restructuring
and other charges, and gains on the sale of businesses. Income from continuing
operations for the year ended December 31, 1999 includes $1.5 billion of a net
pre-tax expense consisting primarily of an in-process research and development
charge associated with AT&T's merger with TCI, equity losses associated with
investments in Cablevision, an asset impairment charge associated with the
planned disposal of certain wireless network equipment, other restructuring
charges and gains on the sale of businesses. Income from continuing operations
for the year ended December 31, 1998 includes $1.1 billion of a net pre-tax
expense consisting of restructuring and other charges as well as benefits from
gains on the sales of businesses. Income from continuing operations for 1995
includes $2.0 billion of a net pre-tax expense consisting of restructuring and
other charges. The number of shares of Liberty Media Group tracking stock
outstanding and per share data reflect the two-for-one split paid on June 9,
2000. Certain 1999 amounts have been reclassified to conform with the 2000
presentation.

                AT&T--SELECTED HISTORICAL FINANCIAL INFORMATION

                                  (UNAUDITED)
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                       AT OR FOR THE
                                                     NINE MONTHS ENDED
                                                       SEPTEMBER 30,            AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                    --------------------   ------------------------------------------------
                                                    2000(1)       1999     1999(2)     1998      1997      1996      1995
                                                    --------    --------   --------   -------   -------   -------   -------
<S>                                                 <C>         <C>        <C>        <C>       <C>       <C>       <C>
INCOME STATEMENT DATA:
Revenue...........................................  $ 49,097    $ 46,202   $ 62,600   $53,223   $51,577   $50,688   $48,449
Operating income..................................     8,623       8,418     10,859     7,487     6,836     8,709     5,169
Income from continuing operations.................     7,789       3,479      3,428     5,235     4,249     5,458     2,981
AT&T Common Stock Group:
Income from continuing operations.................     4,805       4,297      5,450     5,235     4,249     5,458     2,981
Weighted average common shares and potential
  common shares...................................     3,471       3,114      3,152     2,700     2,683     2,651     2,612
</TABLE>

                                       10
<PAGE>   17

<TABLE>
<CAPTION>
                                                       AT OR FOR THE
                                                     NINE MONTHS ENDED
                                                       SEPTEMBER 30,            AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                    --------------------   ------------------------------------------------
                                                    2000(1)       1999     1999(2)     1998      1997      1996      1995
                                                    --------    --------   --------   -------   -------   -------   -------
<S>                                                 <C>         <C>        <C>        <C>       <C>       <C>       <C>
Income from continuing operations per share:
  Basic...........................................  $   1.41    $   1.41   $   1.77   $  1.96   $  1.59   $  2.07   $  1.15
  Diluted.........................................  $   1.40    $   1.39   $   1.74   $  1.94   $  1.59   $  2.07   $  1.14
Dividends Declared................................  $   0.66    $   0.66   $   0.88   $  0.88   $  0.88   $  0.88   $  0.88
AT&T Wireless Group:
Income from continuing operations.................        19          --         --        --        --        --        --
Weighted average common shares and potential
  common shares...................................       360          --         --        --        --        --        --
Income from continuing operations per share:
  Basic...........................................  $   0.05          --         --        --        --        --        --
  Diluted.........................................  $   0.05          --         --        --        --        --        --
Dividends Declared................................        --          --         --        --        --        --        --
Liberty Media Group:
Income (loss) from continuing operations..........     2,965        (818)    (2,022)       --        --        --        --
Weighted average common shares and potential
  common shares...................................     2,573       2,514      2,518        --        --        --        --
Income (loss) from continuing operations per
  share:
  Basic (3).......................................  $   1.15    $  (0.33)  $  (0.80)       --        --        --        --
  Diluted(3)......................................  $   1.15    $  (0.33)  $  (0.80)       --        --        --        --
Dividends Declared................................        --          --         --        --        --        --        --
BALANCE SHEET DATA:
Total assets......................................  $252,352    $161,806   $169,406   $59,550   $61,095   $57,348   $62,864
Long-term debt....................................    29,443      23,722     23,217     5,556     7,857     8,878     8,913
Shareowners' equity...............................   110,108      74,763     78,927    25,522    23,678    21,092    17,400
</TABLE>

---------------
(1) On June 15, 2000, the MediaOne Group, Inc. merger closed. The MediaOne
    merger was recorded as a purchase. Accordingly, the results of operations of
    MediaOne have been included in AT&T's consolidated results since the date
    the merger closed.

(2) On March 9, 1999, the TCI merger closed. The TCI merger was recorded as a
    purchase. Accordingly, the results of operations of TCI and Liberty Media
    Group have been included in AT&T's consolidated results since the date the
    merger closed. In conjunction with the TCI merger, AT&T issued Liberty Media
    Group tracking stock to reflect the separate economic performance of the
    Liberty Media Group. AT&T does not have a "controlling financial interest"
    for financial accounting purposes in the Liberty Media Group, therefore AT&T
    accounts for the Liberty Media Group as an equity investment. Because the
    Liberty Media Group is reflected by separate tracking stock, AT&T excludes
    all of the earnings or losses related to the Liberty Media Group from the
    earnings available to the holders of AT&T common stock.

(3) Basic and diluted losses per share from continuing operations of Liberty
    Media Group tracking stock prior to the two-for-one stock split, for the
    nine-months ended September 30, 1999 and for the year ended December 31,
    1999, respectively were $0.65 and $1.61.

                                       11
<PAGE>   18

Video

     In the table below, we provide you with selected historical data of Video.
Video derived the following selected financial data for the five years ended
June 30, 2000 from its audited consolidated financial statements and three
months ended September 30, 2000 and 1999 (unaudited). This information is only a
summary and you should read it together with the consolidated financial
statements, related notes, and other financial information we incorporate by
reference, see "-- Where You Can Find More Information" on page 17.

                VIDEO--SELECTED HISTORICAL FINANCIAL INFORMATION

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                               AT OR FOR THE THREE
                                                  MONTHS ENDED                      AT OR FOR THE FISCAL YEARS ENDED
                                          -----------------------------   ----------------------------------------------------
                                          SEPTEMBER 30,   SEPTEMBER 30,   JUNE 30,   JUNE 30,   JUNE 30,   JUNE 30,   JUNE 30,
                                              2000            1999          2000       1999       1998       1997       1996
                                          -------------   -------------   --------   --------   --------   --------   --------
<S>                                       <C>             <C>             <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................     $22,216         $20,804      $96,148    $89,411    $72,995    $27,610    $29,740
Income/(loss) from continuing
  operations............................     $  (302)        $   (42)     $(1,111)   $(1,900)   $ 1,699    $ 1,638    $ 1,212
Weighted average common shares
  outstanding --
  Basic.................................      13,311          13,265       13,292     13,264     12,276      7,011      6,961
Income/(loss) from continuing operations
  per common share -- Basic.............     $  (.02)        $  (.02)     $  (.08)   $  (.14)   $   .14    $   .23    $   .17
Income/(loss) from continuing operations
  per common share -- Diluted...........     $  (.02)        $  (.02)     $  (.08)   $  (.14)   $   .14    $   .23    $   .17
Cash dividends declared --
  Common shares.........................     $    --         $    --      $    --    $    --    $    --    $    --    $    --
Non-Cash dividend --
  Common shares.........................     $    --         $    --      $    --    $    --    $  0.22    $    --    $    --
BALANCE SHEET DATA:
Total assets............................     $81,021         $84,187      $86,032    $85,318    $81,860    $20,801    $17,672
Long-term debt--net of current
  portion...............................      39,657          36,697       40,752     36,760     30,968      5,330      2,140
Subordinated debt -- net of current
  portion...............................       2,893           5,701        2,924      5,652      5,442         --         --
Total stockholders' equity..............      17,936          18,685       18,251     18,847     20,725      2,733      2,655
</TABLE>

                                       12
<PAGE>   19

UNAUDITED COMPARATIVE PER SHARE DATA

     In the first table below, we provide you with AT&T's consolidated book
value per share information as of September 30, 2000 and December 31, 1999.
AT&T's historical book value per share was calculated based on AT&T Common
Stock, Liberty Media Group Class A Common Stock, Liberty Media Group Class B
Common Stock and AT&T Wireless Common Stock outstanding and 1.95 billion assumed
shares, which represents AT&T Common Stock Group's retained interest in AT&T
Wireless Group. In the row labeled AT&T Pro Forma we have assumed that the
merger with Video described in this proxy statement/ prospectus and the merger
with MediaOne were completed on December 31, 1999 for balance sheet purposes.
There is no pro forma impact for the MediaOne merger to the September 30, 2000
book value, since MediaOne is included in AT&T historical balances. The row
labeled Video Pro Forma Equivalent represents the AT&T Pro Forma per share
information multiplied by 0.104.

     In the second table below, we provide you with AT&T's and AT&T Wireless
Group's historical per share information for the nine months ended September 30,
2000 and the year ended December 31, 1999. Following the merger described in
this proxy statement/prospectus, Video will be a member of the Liberty Media
Group. Therefore, the merger will have no impact on the earnings or dividends
per share of AT&T common stock or AT&T Wireless Group.

     In the third table below, we provide you with historical per share
information for the Liberty Media Group for the nine months ended September 30,
2000 and for the ten months ended December 31, 1999 and we provide pro forma per
share information for the Liberty Media Group for the nine months ended
September 30, 2000 and for the year ended December 31, 1999. In addition, we
provide historical per share information for Video for the year ended September
30, 2000 as well as conformed historical per share and equivalent per share
information for the nine months ended September 30, 2000 and the year ended
December 31, 1999. In the column labeled "Liberty Media Group Pro Forma" we have
assumed that AT&T had completed its merger with TCI and the merger of Video on
January 1, 1999 for income statement purposes. Upon completion of the Video
merger, the total consideration will be allocated to the specific identifiable
tangible and intangible assets and liabilities of Video based on final
determination of their fair values. For purposes of this presentation, the
preliminary excess of the consideration over the net assets acquired is
amortized over 20 years. The column labeled "Video Pro Forma Equivalent"
presents the per share data set forth in the column labeled "Liberty Media Group
Pro Forma" multiplied by 0.104.

     It is important that when you read this information, you read along with it
the consolidated financial statements and accompanying notes of AT&T (including
the Liberty Media Group), MediaOne Group and Video, as well as the selected pro
forma condensed financial information of AT&T, included in the documents that
are described under "-- Where You Can Find More Information" and which are
incorporated in this proxy statement/prospectus by reference. You should not
rely on the unaudited comparative per share data as an indication of the results
of operations or the financial position that would have been achieved if the
AT&T/MediaOne Group merger and the TCI merger had taken place earlier or the
results of operations or financial position of AT&T after completion of those
transactions.

                                       13
<PAGE>   20

Consolidated Book Value Per Share Information

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  2000            1999
                                                              -------------   ------------
<S>                                                           <C>             <C>
AT&T Historical.............................................     $12.74          $13.78
AT&T Pro Forma..............................................      12.75           15.85
Video Historical............................................       1.35            1.40
Video Pro Forma Equivalent..................................       1.33            1.65
</TABLE>

AT&T

<TABLE>
<CAPTION>
                                                                 AT&T
                                                              HISTORICAL
                                                              ----------
<S>                                                           <C>
AT&T Common Stock Group:
Income from continuing operations
Per common share -- basic:
  For the nine months ended September 30, 2000..............      1.41
  For the year ended December 31, 1999......................      1.77
Per common share -- diluted:
  For the nine months ended September 30, 2000..............      1.40
  For the year ended December 31, 1999......................      1.74
Cash dividends per common share:
  For the nine months ended September 30, 2000..............      0.66
  For the year ended December 31, 1999......................      0.88
AT&T Wireless Group:
Income from continuing operations
Per common share -- basic and diluted:
  For the nine months ended September 30, 2000..............      0.05
Cash dividends per common share:
  For the nine months ended September 30, 2000..............        --
</TABLE>

Liberty Media Group

<TABLE>
<CAPTION>
                                                               LIBERTY MEDIA                        VIDEO
                                                LIBERTY         MEDIAGROUP                        PRO FORMA
                                            GROUP HISTORICAL     PRO FORMA     VIDEO HISTORICAL   EQUIVALENT
                                            ----------------   -------------   ----------------   ----------
<S>                                         <C>                <C>             <C>                <C>
Income (loss) from continuing operations
Per common share -- basic:
  For the nine months ended September 30,
     2000.................................         1.15             1.15                --           0.12
  For the ten months ended December 31,
     1999.................................        (0.80)              --                --             --
  For the year ended December 31,
     1999(1)..............................           --            (0.90)               --          (0.09)
  For the year ended June 30, 2000........           --               --             (0.08)            --
  For the three months ended September 30,
     2000.................................           --               --             (0.02)            --
Per common share -- diluted:
  For the nine months ended June 30,
     2000.................................         1.15             1.15                --           0.12
  For the ten months ended December 31,
     1999.................................        (0.80)              --                --             --
  For the year ended December 31,
     1999(1)..............................           --            (0.90)               --          (0.09)
  For the year ended June 30, 2000........           --               --             (0.08)            --
  For the three months ended September 30,
     2000.................................           --               --             (0.02)            --
</TABLE>

---------------
(1) Since Video's fiscal year end differs from Liberty Media's fiscal year end,
    Video's results have been conformed to reflect results as of and for the
    year ended December 31, 1999.

                                       14
<PAGE>   21

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

     Shares of Video common stock are listed on the American Stock Exchange.
Shares of Class A and Class B Liberty Media Group tracking stock, AT&T common
stock and AT&T Wireless Group tracking stock are listed on the New York Stock
Exchange. Public trading of Class A and Class B Liberty Media Group tracking
stock commenced on March 9, 1999, the date of the closing of AT&T's acquisition
of TCI. Public trading of AT&T Wireless Group tracking stock commenced on April
27, 2000. Public trading of Video common stock commenced on February 8, 1994 on
the Nasdaq National Market under the symbol "POST." From August 27, 1997 to
February 11, 1998, Video common stock traded on the Nasdaq National Market under
the symbol "VSCX."

     The following table sets forth, for the fiscal quarters indicated, the high
and low sales prices for a share of:

     - Video Common Stock, as reported on Nasdaq, through February 11, 1998 and
       thereafter as reported on the American Stock Exchange;

     - Class A and Class B Liberty Media Group tracking stock and AT&T Wireless
       Group tracking stock, as reported on the New York Stock Exchange
       Composite Transaction Tape; and

     - AT&T common stock, as reported on the New York Stock Exchange Composite
       Transaction Tape, as well as dividends declared on AT&T common stock.

     AT&T's fiscal year ends on December 31 of each year and Video's fiscal year
ends on June 30 of each year. In order to facilitate comparisons, the
information on Video in the following table is provided on a calendar-year basis
(as opposed to using Video's fiscal year). Prices for Class A and Class B
Liberty Media Group tracking stock have been adjusted to reflect the two-for-one
split of Class A and Class B Liberty Media Group tracking stock on June 11, 1999
and the two-for-one split on June 9, 2000. Prices and cash dividends per share
for AT&T common stock have been adjusted to reflect the three-for-two split of
AT&T common stock on April 15, 1999. Cash dividends have never been paid with
respect to Video common stock, either class of Liberty Media Group tracking
stock or AT&T Wireless Group tracking stock.
<TABLE>
<CAPTION>
                                                 CLASS A                 CLASS B
                                              LIBERTY MEDIA           LIBERTY MEDIA
                              VIDEO               GROUP                   GROUP                        AT&T COMMON STOCK
                             COMMON             TRACKING                TRACKING             -------------------------------------
                              STOCK               STOCK                   STOCK                                            CASH
                          -------------      ---------------        -----------------                                    DIVIDENDS
                          HIGH      LOW      HIGH        LOW        HIGH          LOW        HIGH            LOW         PER SHARE
                          ----      ---      ----        ---        ----          ---        ----            ---         ---------
<S>                       <C>       <C>      <C>         <C>        <C>           <C>        <C>             <C>         <C>
1998
First Quarter...........   $3 1/2   $2 13/16  --         --          --           --         $45 171/256     $38 1/4       $0.22
Second Quarter..........    4 3/8    2 7/8    --         --          --           --          44 235/256     37 107/256     0.22
Third Quarter...........    3 15/16  2 5/8    --         --          --           --          40 235/256     32 1/4         0.22
Fourth Quarter..........    3 11/16  1 7/8    --         --          --           --          52 171/256     37 117/256     0.22
1999
First Quarter...........   $3 1/2   $2 1/4   $14 17/32   $10 61/64  $14 9/16      $11 1/8    $64 21/256      $50 149/256   $0.22
Second Quarter..........    2 5/8    1 5/8    18 33/64   13 1/8      18 5/8       13 11/16    63             50 149/256     0.22
Third Quarter...........    3 1/4    1 7/8    19 27/32   15 7/16     19 7/8       16          59             41 13/16       0.22
Fourth Quarter..........    4 1/2    1 5/8    28 11/32   17 15/16    34 3/8       19 5/16     61             41 1/2         0.22
2000
First Quarter...........   $5 13/16 $2 3/8   $30 23/32   $24 7/16   $36 9/16      $27        $61             $44 5/16       0.22
Second Quarter..........    6        3        29 15/16   19 3/16     32 11/16     22 1/8      58 13/16       31 3/4         0.22
Third Quarter...........    5 15/16  4 1/8    26 9/16    17 7/16     32 5/8       18 3/4      35 3/16        27 1/4         0.22
Fourth Quarter (through
  November 17, 2000)....    4 5/8    3 7/8    19 1/4     13 1/2      20 5/8       15 1/2      30             20 1/16

<CAPTION>
                              AT&T
                            WIRELESS
                             GROUP
                            TRACKING
                             STOCK
                          ------------
                          HIGH     LOW
                          ----     ---
<S>                       <C>      <C>
1998
First Quarter...........   --       --
Second Quarter..........   --       --
Third Quarter...........   --       --
Fourth Quarter..........   --       --
1999
First Quarter...........   --       --
Second Quarter..........   --       --
Third Quarter...........
Fourth Quarter..........   --       --
2000
First Quarter...........   --       --
Second Quarter..........  $36      $23 9/16
Third Quarter...........   29 9/16  20 1/2
Fourth Quarter (through
  November 17, 2000)....   24 15/16  18 1/16
</TABLE>

                                       15
<PAGE>   22

     The following table sets forth the closing prices per share of Video common
stock as reported on American Stock Exchange, and the closing prices per share
of Class A Liberty Media Group tracking stock as reported on the New York Stock
Exchange, on:

     - July 25, 2000, the last full trading day prior to the public announcement
       of the execution of the merger agreement, and

     - November 17, 2000, the last full trading day for which closing prices
       were available prior to the printing of this proxy statement/prospectus.

     The following table also sets forth the equivalent prices per share of
Class A Liberty Media Group tracking stock of shares of Video common stock on
those dates. The equivalent price per share of Class A Liberty Media Group
tracking stock of Video common stock is equal to the closing price of a share of
Class A Liberty Media Group tracking stock on the applicable date multiplied by
0.104, the number of shares of Class A Liberty Media Group tracking stock to be
issued in the merger from each share of Video common stock. The final column of
this table sets forth the equivalent price per share of Class A Liberty Media
Group tracking stock of shares of Video common stock plus the cash portion of
the merger consideration, which is $2.75 per share of Video common stock. These
equivalent per share prices reflect the market value of the Class A Liberty
Media Group tracking stock you would receive for each of your shares of Video
common stock if the merger were completed on the specified dates. Because the
market price of Class A Liberty Media Group tracking stock may increase or
decrease before the merger is completed, you are urged to obtain current market
quotations.

<TABLE>
<CAPTION>
                                                                                         EQUIVALENT PRICE PER
                                                                                           SHARE OF CLASS A
                                                                                            LIBERTY MEDIA
                                                                  EQUIVALENT PRICE PER          GROUP
                                                                    SHARE OF CLASS A        TRACKING STOCK
                                                     CLASS A         LIBERTY MEDIA        PLUS CASH PORTION
                                      VIDEO       LIBERTY MEDIA          GROUP                OF MERGER
              DATES                COMMON STOCK       STOCK          TRACKING STOCK         CONSIDERATION
              -----                ------------   -------------   --------------------   --------------------
<S>                                <C>            <C>             <C>                    <C>
July 25, 2000....................     $ 4.75         $23.813             $2.48                  $5.23
November 17, 2000................     $ 4.34         $17.375             $1.81                  $4.56
</TABLE>

                                       16
<PAGE>   23

WHERE YOU CAN FIND MORE INFORMATION

     WE URGE YOU TO READ ALL DOCUMENTS THAT HAVE BEEN FILED OR WILL BE FILED BY
AT&T AND VIDEO WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION. THIS
SECTION DESCRIBES HOW TO OBTAIN DOCUMENTS FOR FREE AT THE SEC'S WEB SITE AND A
DESCRIPTION OF THE DOCUMENTS THAT ARE AVAILABLE FREE FROM VIDEO OR AT&T.

     Video and AT&T file annual, quarterly and special reports, proxy statements
and other information with the SEC, and information relating to the Liberty
Media Group is included in reports and information filed by AT&T. You may read
and copy any reports, statements or other information we file at the SEC's
public reference rooms at the following locations:

<TABLE>
<S>                            <C>                            <C>
    Public Reference Room        New York Regional Office        Chicago Regional Office
   450 Fifth Street, N.W.          7 World Trade Center              Citicorp Center
          Room 1024                     Suite 1300               500 West Madison Street
   Washington, D.C. 20549           New York, NY 10048                 Suite 1400
                                                                 Chicago, IL 60661-2511
</TABLE>

     Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Video's SEC filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the SEC at www.sec.gov.

     AT&T has filed a registration statement on Form S-4 to register with the
SEC the Class A Liberty Media Group tracking stock to be issued to Video
stockholders in the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of AT&T, as well as a proxy
statement of Video for the special meeting. As allowed by SEC rules, this proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.

     The rules of the SEC allow us to "incorporate by reference" information
into this proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be a part of
this proxy statement/prospectus, except for any information superseded by
information contained directly in this proxy statement/prospectus. This proxy
statement/prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their financial condition.

<TABLE>
<CAPTION>
VIDEO SEC FILINGS (FILE NO. 0-23388)                              PERIOD
------------------------------------                              ------
<S>                                    <C>
Annual Report on Form 10-K             Year ended June 30, 2000. Filed on August 31, 2000
Quarterly Report on Form 10-Q          Quarter ended September 30, 2000
Current Reports on Form 8-K            Filed August 4, 2000
AT&T SEC FILINGS (FILE NO. 1-1105)
-------------------------------------

Annual Report on Form 10-K             Year ended December 31, 1999. Filed on March 27, 2000
Quarterly Reports on Form 10-Q         Quarters ended March 31, 2000, June 30, 2000 and September
                                       30, 2000.
Current Reports on Form 8-K            Filed on January 6, 2000, January 14, 2000, March 13, 2000,
                                       March 17, 2000, March 27, 2000, April 4, 2000, April 24,
                                       2000, May 5, 2000, June 15, 2000, August 29, 2000, October
                                       25, 2000 and November 16, 2000
Proxy Statements                       Filed on January 7, 2000, January 26, 2000, February 8,
                                       2000, March 27, 2000, April 4, 2000, April 24, 2000, May 5,
                                       2000, and June 15, 2000
</TABLE>

     Video and AT&T also incorporate by reference into this proxy
statement/prospectus any and all additional documents that may be filed with the
SEC from the date of this proxy statement/prospectus to

                                       17
<PAGE>   24

the date of the special meeting. These 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.

     Video has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Video, AT&T has supplied all
information contained or incorporated by reference in this proxy
statement/prospectus relating to AT&T and Liberty has supplied all information
contained or incorporated by reference in this proxy statement/prospectus
relating to the Liberty Media Group.

     You may have previously received some of the documents incorporated by
reference in this proxy statement/prospectus, but you can obtain any of them
through us, the SEC or the SEC'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 an
exhibit in this proxy statement/prospectus. You may obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from the appropriate company at the following
addresses:

<TABLE>
<S>                                            <C>
         Video Services Corporation                             AT&T Corp.
             240 Pegasus Avenue                          32 Avenue of the Americas
         Northvale, New Jersey 07647                   New York, New York 10013-2412
             Tel: (201) 767-1000                            Tel: (212) 387-5400
          Attn: Corporate Secretary               Attn: Corporate Secretary's Department
</TABLE>

     If you would like to request documents from us, please do so by December
13, 2000 to receive them before the special meeting.

     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN, OR INCORPORATED BY
REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS WHEN DECIDING HOW TO VOTE ON THE
MERGER AGREEMENT AND THE MERGER. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED NOVEMBER 20,
2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO VIDEO STOCKHOLDERS NOR
THE ISSUANCE OF CLASS A LIBERTY MEDIA GROUP TRACKING STOCK IN THE MERGER SHALL
CREATE ANY IMPLICATION TO THE CONTRARY.

                                       18
<PAGE>   25

                      RISK FACTORS RELATING TO THE MERGER

     The merger, and your investment in Class A Liberty Media Group tracking
stock, involve numerous risks. In addition to the other information we include
in or incorporate by reference into this proxy statement/prospectus, you should
consider the following risk factors in deciding whether to vote for the merger.

THE VALUE OF THE CLASS A LIBERTY MEDIA GROUP TRACKING STOCK YOU WILL RECEIVE IN
THE MERGER MAY FLUCTUATE.

     The number of shares of Class A Liberty Media Group tracking stock you will
receive in the merger will not be adjusted based on changes in the market price
of Class A Liberty Media Group tracking stock. Accordingly, because the market
price of Class A Liberty Media Group tracking stock may fluctuate, the value of
the consideration you receive when we complete the merger will depend on the
market price of Class A Liberty Media Group tracking stock at that time. We
cannot assure you as to the market value of the stock consideration you will
receive when the merger is completed. Video is not permitted to "walk away" from
the merger or resolicit the vote of its stockholders based on changes in the
market value of Class A Liberty Media Group tracking stock before completion of
the merger. For historical and current market prices of Class A Liberty Media
Group tracking stock, see "Summary of Proposed Merger -- Comparative Per Share
Market Price and Dividend Information."

THE PRICE OF CLASS A LIBERTY MEDIA GROUP TRACKING STOCK MAY BE AFFECTED BY
FACTORS DIFFERENT FROM THOSE AFFECTING THE PRICE OF THE VIDEO COMMON STOCK.

     When we complete the merger, you will become a holder of Class A Liberty
Media Group tracking stock. The businesses of the Liberty Media Group differ
from the businesses of Video, and the results of operations of the Liberty Media
Group, as well as the market price of Class A Liberty Media Group tracking
stock, may be affected by factors different from those affecting Video's results
of operations and the market price of the Video common stock. As a result,
factors that had little or no effect on the price of the Video common stock may
adversely affect the price of Class A Liberty Media Group tracking stock.

HOLDERS OF AT&T COMMON STOCK, AT&T WIRELESS GROUP TRACKING STOCK AND LIBERTY
MEDIA GROUP TRACKING STOCK MAY HAVE COMPETING INTERESTS.

     After the merger is completed, you will hold shares of Class A Liberty
Media Group tracking stock, which is a separate class of common stock of AT&T.
The existence of separate classes of common stock of AT&T could result in
occasions when the interests of holders of AT&T common stock, AT&T Wireless
Group tracking stock and Liberty Media Group tracking stock diverge or appear to
diverge. For example, AT&T's board of directors may determine to:

     - pay or omit the payment of dividends on Liberty Media Group tracking
       stock, AT&T common stock and/or AT&T Wireless Group tracking stock;

     - approve dispositions of assets attributed to AT&T and its subsidiaries
       (excluding Liberty and its subsidiaries); and

     - make operational and financial decisions with respect to AT&T and its
       subsidiaries (excluding Liberty and its subsidiaries) that could be
       considered detrimental to Liberty and its subsidiaries.

CERTAIN EVENTS AFFECTING THE LIBERTY MEDIA GROUP COULD RESULT IN YOU RECEIVING
CONSIDERATION IN THE MERGER OTHER THAN A COMBINATION OF SHARES OF CLASS A
LIBERTY MEDIA GROUP TRACKING STOCK AND CASH OR IN THE FAILURE OF THE MERGER TO
BE COMPLETED.

     The merger agreement provides that, if AT&T effects a distribution to
holders of Liberty Media Group tracking stock of all of its interest in the
assets comprising the Liberty Media Group at such time, a redemption of the
Liberty Media Group tracking stock in exchange for such assets or a similar
                                       19
<PAGE>   26

transaction, the merger agreement will be amended to provide for the release of
AT&T from its obligations under the merger agreement and the acquisition of
Video by Liberty or another publicly-traded corporation holding, directly or
indirectly, the assets previously comprising the Liberty Media Group. In
addition, in certain circumstances, Liberty or such other publicly-traded
corporation may have the ability to elect to acquire Video for cash. The merger
agreement does not limit in any way AT&T's ability to effect such a
distribution, redemption or other transaction. For a more detailed description
of these provisions of the merger agreement, see "The Merger
Agreement -- Alternative Merger."

     If AT&T effects such a distribution, redemption or similar transaction, the
parties will be unable to complete a merger in which shares of Class A Liberty
Media Group tracking stock would be issued. Although the receipt of an opinion
from an investment bank of nationally recognized standing would be a condition
to a merger involving any securities other than Class A Liberty Media Group
tracking stock, there can be no assurance that this condition can be satisfied
or that the consideration to be received pursuant to any alternative merger
transaction for the acquisition of Video would be equivalent to the merger
consideration. In addition, unless such an opinion is received, the acquisition
of Video may be completed for cash or may not be completed at all.

     On November 15, 2000, AT&T announced a plan to distribute ownership of the
Liberty Media Group to the holders of the Liberty Media Group tracking stock in
exchange for such tracking stock. AT&T has not yet determined the precise
structure or the timing of such distribution. The distribution is subject to the
receipt of a favorable tax ruling from the Internal Revenue Service. There
cannot be any assurance that the distribution of Liberty Media Group will be
completed or that changes in the distribution plan will not be made.

     We anticipate that the merger will be completed prior to the completion of
any such distribution of the Liberty Media Group. If we complete the merger
prior to such distribution, the shares of Class A Liberty Media Group tracking
stock issued to Video stockholders in the merger would be treated in the same
manner as any other shares of Class A Liberty Media Group tracking stock
outstanding at the time of any such distribution. If the distribution of the
Liberty Media Group is completed prior to the closing of the merger, AT&T will
be automatically released from all obligations under the merger agreement and
the provisions for an alternative merger described in this risk factor will
apply.

LIBERTY'S BOARD OF DIRECTORS HAS THE POWER TO TAKE ACTIONS THAT MAY NOT BE IN
THE BEST INTERESTS OF AT&T OR HOLDERS OF LIBERTY MEDIA GROUP TRACKING STOCK.

     A majority of Liberty's board of directors are individuals that were
designated by Tele-Communications, Inc. (TCI) before its merger with AT&T. If
these individuals or their designated successors cease to constitute a majority
of Liberty's board of directors, a new entity controlled by officers of Liberty
has the power to require Liberty to transfer all of Liberty's assets to that new
entity.

     Subject to its fiduciary duties to AT&T and to the obligations under an
inter-group agreement between Liberty and AT&T, Liberty's board of directors has
the power under Delaware law to manage the business and affairs of Liberty. This
includes, among other things, the power to:

     - set management compensation;

     - issue shares of stock of Liberty, including preferred shares;

     - repurchase securities, including securities owned by officers or
       directors of Liberty;

     - cause Liberty to engage in businesses and activities that compete
       directly with AT&T; or

     - cause Liberty to pursue business opportunities that may also be of
       interest to AT&T.

     This creates the risk that Liberty's board of directors could take actions
that AT&T's board of directors does not believe are in the best interests of
AT&T or holders of Liberty Media Group tracking stock. If Liberty's board were
to take any of these actions, AT&T's recourse would be limited to making a claim
for breach of the fiduciary duties owed by Liberty's board of directors to AT&T
in its capacity as a

                                       20
<PAGE>   27

stockholder of Liberty, or a claim under an inter-group agreement between AT&T
and Liberty, if that agreement applies. We cannot assure you, however, that AT&T
would be able to obtain effective relief by making a breach of fiduciary duty
claim.

LIBERTY'S BOARD OF DIRECTORS MAY HAVE NO FIDUCIARY DUTIES TO HOLDERS OF LIBERTY
MEDIA GROUP TRACKING STOCK.

     We are not aware of any legal precedent under Delaware law that would
impose on Liberty's board of directors any fiduciary duties directly to holders
of Liberty Media Group tracking stock. For this reason, we cannot assure you
that holders of Liberty Media Group tracking stock would be able to pursue a
claim for breach of fiduciary duty against Liberty's board of directors for
actions taken by that board, even if those actions were not in the best
interests of the holders of Liberty Media Group tracking stock. If AT&T is
unwilling to pursue its own claim regarding these actions, the only recourse
available to a holder of Liberty Media Group tracking stock may be to claim a
breach of fiduciary duty against AT&T's board of directors for failing to make a
claim on behalf of AT&T against Liberty's board of directors. We cannot assure
you that any holder of Liberty Media Group tracking stock would be able to
obtain effective relief by making a breach of fiduciary duty claim against
AT&T's board.

IF WE DO NOT COMPLETE THE MERGER, IT COULD NEGATIVELY IMPACT VIDEO AND THE PRICE
OF ITS COMMON STOCK.

     If the merger is not completed, Video may be subject to a number of
material risks, including the following:

     - the market price of Video common stock may decline to the extent that the
       current market price of Video common stock reflects a market assumption
       that the merger will be completed;

     - Video may be required to pay Liberty a termination fee of up to $3.5
       million; and

     - costs related to the merger, such as legal and accounting fees and
       expenses and financial advisor expenses, must be paid even if the merger
       is not completed.

     Further, if the merger agreement is terminated and Video's board of
directors seeks another merger or business combination, we cannot assure you
that it will be able to find a party willing to pay an equivalent or more
attractive price than that which will be paid in the merger. In addition, while
the merger agreement is in effect, subject to limited exceptions, Video is
prohibited from soliciting, cooperating with, or furnishing non-public
information regarding Video to, or negotiating or entering into an agreement
with, any party other than Liberty or AT&T regarding any proposal for an
alternative transaction. For additional information regarding Video's ability to
enter into an alternative transaction, see "The Merger Agreement -- No
Solicitation."

                                       21
<PAGE>   28

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This proxy statement/prospectus contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements relate to the financial condition, results of
operations, cash flows, dividends, financing plans, business strategies,
operating efficiencies or synergies, budgets, capital and other expenditures,
competitive positions, growth opportunities for existing products, benefits from
new technology, plans and objectives of management, markets for Video's and
AT&T's stock, including the Liberty Media Group tracking stock, and other
matters. Statements in this document that are not historical facts are
identified as "forward-looking statements" for the purpose of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A
of the Securities Act of 1933.

     These forward-looking statements, including statements relating to future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs and income wherever they occur in this proxy
statement/prospectus, are estimates reflecting the best judgment of the senior
management of Liberty, AT&T and Video, respectively. These forward-looking
statements involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward-looking
statements. Forward-looking statements should, therefore, be considered in light
of various important factors, including those set forth in this proxy
statement/prospectus. Important factors that could cause actual results to
differ materially from estimates or projections contained in the forward-
looking statements include, without limitation:

     - the effects of vigorous competition in the markets in which the Liberty
       Media Group and Video operate, including the potential for additional
       competition from major motion picture studios, television networks and
       the content producers that are currently customers of Video;

     - requirements imposed on these entities or latitude allowed to their
       competitors by the FCC or state regulatory commissions under the
       Telecommunications Act of 1996 or other applicable laws and regulations;

     - changes in technology that may increase the number of competitors the
       Liberty Media Group or Video faces or require significant capital
       expenditures to provide competitive services;

     - general economic or business conditions that may be less favorable than
       expected, resulting in, among other things, lower than expected revenues;

     - costs or difficulties related to the integration of the businesses of
       Video may be greater than expected;

     - legislative or regulatory changes may adversely affect the businesses in
       which the Liberty Media Group and Video are engaged;

     - the rate of customer bankruptcies and other defaults may increase;

     - adverse changes may occur in the securities markets; and

     - other factors, including, but not limited to, economic, key employee,
       competitive, regulatory, governmental and technological factors, which
       may affect the Liberty Media Group or Video.

     When we use the words "estimate," "project," "intend," "expect," "believe"
and similar expressions, we are making forward-looking statements. These
forward-looking statements are found at various places throughout this proxy
statement/prospectus and the other documents we incorporate by reference in this
proxy statement/prospectus. We caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date they were made. We
do not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this proxy statement/prospectus or to reflect the occurrence of unanticipated
events.

                                       22
<PAGE>   29

                      THE COMPANIES INVOLVED IN THE MERGER

VIDEO SERVICES CORPORATION

     Video is a leading provider of value-added video services to a diverse base
of customers within the television network, cable and syndicated programming
markets. These services are divided into three segments:

     - Satellite and Distribution Services,

     - Systems and Products; and

     - Production Services.

     The satellite and distribution services segment integrates and distributes
broadcast quality video content via a satellite and fiber optic transmission
network routed through its digital/analog switching center and is an
international provider of multi-format technical and distribution services to
distributors of video programming. The systems and products segment designs,
engineers and produces advanced video facilities for the broadcast and cable
television, post-production, Internet and corporate markets. This segment also
develops, manufactures and markets advanced color correcting and manipulation
systems for the film, post-production and multimedia industries and rents
professional video equipment to the sports, entertainment and other segments of
the broadcast and cable television and corporate markets. The production
services segment is an international provider of technical and creative services
to owners and producers of television programming, television advertising and
other programming content and the emerging Internet graphics and video markets.

AT&T CORP.

RECENT DEVELOPMENTS

     On October 25, 2000 AT&T issued a press release describing a major
restructuring plan. A copy of this press release is filed as an Exhibit to
AT&T's Current Report on Form 8-K dated October 25, 2000. You are encouraged to
read this release in its entirety. Please see the section entitled "-- Where you
can find more information" on page 17 for instructions on obtaining this
release.

     AT&T is among the world's communications leaders, providing voice, data and
video communications services to large and small businesses, consumers and
government entities. AT&T and its subsidiaries furnish domestic long distance,
international long distance, regional, local and wireless telecommunications
services and broadband and Internet communications services. AT&T also provides
billing, directory and calling card services to support these communications
services.

     AT&T's common shares are currently divided into three classes:

     - AT&T common stock, which is intended to reflect the economic performance
       of the AT&T Common Stock Group. The AT&T Common Stock Group has
       attributed to it all of the assets of AT&T, excluding that portion of the
       economic interest in the AT&T Wireless Group represented by the
       outstanding shares of AT&T Wireless Group tracking stock and the assets
       of the Liberty Media Group.

     - AT&T Wireless Group tracking stock, which is intended to reflect a
       portion of the economic performance of the AT&T Wireless Group. The AT&T
       Wireless Group has attributed to it substantially all of AT&T's current
       wireless services businesses.

     - Liberty Media Group tracking stock, which is intended to reflect the
       economic performance of the Liberty Media Group. The Liberty Media Group
       has attributed to it the programming assets, principal international
       assets and businesses and substantially all of the non-cable and non-
       programming assets of TCI, as well as additional assets and businesses
       acquired by the Liberty Media Group since the merger of TCI into AT&T.

     The terms of the AT&T Wireless Group tracking stock are described under
"The Charter Amendment Proposal -- Tracking Stock Amendment" in the proxy
statement AT&T filed with the SEC
                                       23
<PAGE>   30

on January 26, 2000, which we incorporate by reference into this proxy
statement/prospectus. To obtain a copy of AT&T's proxy statement, see
"Summary -- Where You Can Find More Information."

     On November 15, 2000, AT&T announced a plan to distribute ownership of the
Liberty Media Group to the holders of the Liberty Media Group tracking stock in
exchange for such tracking stock. AT&T has not yet determined the precise
structure or the timing of such transaction. The proposed distribution is
subject to receipt of a favorable tax ruling from the Internal Revenue Service.
There cannot be any assurance that the distribution of the Liberty Media Group
tracking stock will be completed or that changes in the distribution plan will
not be made.

     Additional information is contained in AT&T's press release regarding the
proposed distribution, which has been filed as an Exhibit to AT&T's Current
Report on Form 8-K dated November 16, 2000. You are encouraged to read this
press release in its entirety. Please see the section entitled "-- Where you can
find more information" on page 17 for instructions on obtaining this release.

     For a more complete description of the effects of any distribution of the
Liberty Media Group, please see "Risk Factors Relating to the Merger" on page
19, "The Merger Agreement -- Alternative Merger" on page 53 and "Description of
AT&T Capital Stock" on page 56.

     AT&T was incorporated in 1885 under the laws of the State of New York and
has its principal executive offices at 32 Avenue of the Americas, New York, New
York 10013-2412, telephone number (212) 387-5400. Internet users can obtain
information about AT&T and its services at http://www.att.com.

E-GROUP MERGER CORP.

     E-Group Merger Corp. is a Delaware corporation formed by AT&T in July 2000
solely for the purpose of being merged with and into Video and is wholly owned
by AT&T. The mailing address of E-Group Merger Corp.'s principal executive
offices is c/o AT&T Corp., 32 Avenue of the Americas, New York, New York
10013-2412 and its telephone number is (212) 387-5400.

LIBERTY MEDIA CORPORATION

     Liberty has been an indirect wholly owned subsidiary of AT&T since March 9,
1999. On that date, AT&T acquired by merger Liberty's former parent, TCI.
Liberty is included in the Liberty Media Group, and the businesses and assets of
Liberty and its subsidiaries constitute substantially all of the businesses and
assets of the Liberty Media Group. Liberty is a leading media, entertainment and
communications company with interests in a diverse group of public and private
companies that are market leaders in their respective industries. Liberty's
subsidiaries and business affiliates are engaged in a broad range of
programming, communications, technology and Internet businesses and have some of
the most recognized and respected brands. These brands include Encore, STARZ!,
Discovery, TV Guide, Fox, USA Networks, QVC, CNN, TBS and Sprint PCS, which is
held in trust.

     The following table lists, as of September 30, 2000, Liberty's principal
subsidiaries and business affiliates and Liberty's direct equity interests or
indirect attributed equity interests based on ownership of capital stock.
Liberty's direct or attributed equity interest in a particular company does not
necessarily represent a voting interest in that company. Liberty's indirect
attributed interest is determined by multiplying Liberty's ownership interest in
the holder of an equity interest by that equity holder's ownership interest in
the listed subsidiary or business affiliate. The ownership percentages are
approximate, calculated as of September 30, 2000 and, in the case of convertible
securities Liberty holds, assume conversion to common stock by Liberty and, to
the extent known by us, other holders. In some cases Liberty's interest is
subject to buy/sell procedures, rights of first refusal or other obligations.
All of

                                       24
<PAGE>   31

Liberty's direct and indirect interests in the following companies are
attributed to the Liberty Media Group.

<TABLE>
<CAPTION>
                                                              ATTRIBUTED
                                                              OWNERSHIP
               SUBSIDIARY/BUSINESS AFFILIATE                  PERCENTAGE
               -----------------------------                  ----------
<S>                                                           <C>
Starz Encore Group..........................................     100%
Liberty Digital, Inc........................................      95%
Liberty Livewire Corporation................................      88%
Discovery Communications, Inc...............................      49%
Liberty Satellite & Technology, Inc.........................      34%
Gemstar TV Guide International, Inc.........................      21%
QVC Inc.....................................................      43%
Sprint PCS Group............................................      24%*
Telewest Communications plc.................................      25%
USA Networks, Inc...........................................      20%
UnitedGlobalCom, Inc........................................      11%
Time Warner, Inc............................................       9%
The News Corporation Limited................................       8%
Cendant Corporation.........................................       7%
Motorola, Inc...............................................       3%
</TABLE>

---------------
* Equity interest held in trust

     Although Liberty is an indirect subsidiary of AT&T, it enjoys a substantial
degree of managerial autonomy from AT&T as a result of the corporate governance
provisions of its charter and bylaws and contractual arrangements with AT&T.
Liberty's board of directors is controlled by persons designated by TCI prior to
its acquisition by AT&T, and that board will continue to be controlled by those
persons, or others chosen by them, for at least the next six years. Liberty's
management consists of individuals who managed Liberty's businesses while it was
a subsidiary of TCI prior to its acquisition by AT&T. Liberty has entered into
agreements with AT&T which provide it with a level of financial and operational
separation from AT&T, define its tax sharing rights and obligations as a member
of AT&T's consolidated tax group, enable Liberty to finance its operations
separately from those of AT&T and provide Liberty with programming rights
relating to AT&T's cable systems. The other members of the Liberty Media Group
have similar arrangements in place that govern their relationship with AT&T. On
November 15, 2000, AT&T announced a plan to distribute ownership of the Liberty
Media Group to the holders of Liberty Media Group tracking stock in exchange for
such tracking stock. See the section entitled " -- AT&T Corp. -- Recent
Developments" on pages 23 and 24.

LIBERTY LIVEWIRE CORPORATION

     Liberty Livewire Corporation provides a wide range of services to clients
in the feature film, television and advertising industries worldwide. Service
offerings include traditional audio and video post-production, transmission and
distribution services via satellite and fiber, library services and Internet
hosting. Livewire also provides interactive television services under the brand
name HyperTV(R) with Livewire. Livewire has locations in Los Angeles, New York,
Atlanta, London, San Francisco, Singapore, and Barcelona.

     Livewire's sound services include music recording, sound editing, and the
mixing of dialogue, music, and sound effects; video services include
film-to-video transfer, visual effects and graphics, videotape editing, and
mastering and duplication of videotape and DVD formats. Livewire and its
employees have won 12 Academy Awards(R) for Best Sound and eight more Oscars(R)
for technical achievement.

     Liberty Media Corporation owns approximately 31.3 million shares of Liberty
Livewire Corporation Class B Common Stock, representing an 87% equity interest
and a 99% voting interest in Livewire, on a fully diluted basis. Each share of
Liberty Livewire Class B Common Stock is convertible into one share of Liberty
Livewire Class A Common Stock, which is traded on the National Market tier of
The Nasdaq

                                       25
<PAGE>   32

Stock Market under the symbol LWIRA. Liberty acquired its interest in Livewire
through the following transactions:

     - On April 10, 2000, Liberty acquired all of the outstanding common stock
       of Four Media Company in exchange for $123 million in cash, 6.4 million
       shares of Class A Liberty Media Group tracking stock and a warrant to
       purchase 0.7 million shares of Class A Liberty Media Group tracking
       stock.

     - On June 9, 2000 Liberty acquired a controlling interest in The Todd-AO
       Corporation, consisting of 6.5 million shares of Class B Common Stock of
       Todd-AO, representing 60% of the equity and approximately 94% of the
       voting power of Todd-AO, in exchange for 5.4 million shares of Class A
       Liberty Media Group tracking stock. The stock of Four Media was then
       contributed to Todd-AO in exchange for 16.6 million Todd-AO Class B
       shares. Concurrently, Todd-AO changed its name to Liberty Livewire
       Corporation.

     - On July 19, 2000, Liberty acquired 100% of SounDelux Entertainment
       Group's post-production and sound related businesses for $90 million in
       cash. Liberty contributed its interest in these assets to Livewire for
       8.2 million additional shares of Livewire Class B shares.

     On July 25, 2000, Livewire acquired privately held Triumph Communications
Group for 705,554 shares of Livewire Class A common stock and $5,684,000 in
cash.

                                       26
<PAGE>   33

                              THE PROPOSED MERGER

SPECIAL MEETING TO VOTE ON THE PROPOSED MERGER

     We are furnishing this proxy statement/prospectus to you in connection with
the solicitation of proxies by Video for use at the special meeting.

     The special meeting will be held at our offices at 235 Pegasus Avenue,
Northvale, New Jersey 07647, on December 20, 2000 at 10:00 a.m., local time. At
the special meeting, you will be asked to vote on a proposal to approve the
merger agreement, a copy of which is attached to this proxy statement/prospectus
as Annex A, and the merger.

STRUCTURE OF THE MERGER; MERGER CONSIDERATION

     - The Merger.  In accordance with the merger agreement and Delaware law,
       E-Group Merger Corp. will be merged with and into Video. As a result of
       the merger, the separate corporate existence of E-Group Merger Corp. will
       cease and Video will survive the merger as a wholly owned subsidiary of
       AT&T and a member of the Liberty Media Group.

     - Merger Consideration.  In the merger, Video stockholders will receive,
       for each share of Video common stock held, approximately 0.104 shares of
       Class A Liberty Media Group tracking stock and $2.75 in cash. The number
       of shares of Class A Liberty Media Group tracking stock stockholders will
       receive in the merger will be appropriately adjusted for any stock
       splits, combinations and other similar events that occur between the date
       of the merger agreement and the completion of the merger. We will not
       issue fractional shares of Class A Liberty Media Group tracking stock in
       the merger. Instead, each Video stockholder otherwise entitled to a
       fractional share will receive cash, without interest, in lieu of a
       fraction of a share of Class A Liberty Media Group tracking stock.
       Specifically, the exchange agent in the merger will sell in the open
       market a number of shares of Class A Liberty Media Group tracking stock,
       equal to the aggregate number of fractional shares that would otherwise
       be issuable in the merger and will remit to the Video stockholders
       otherwise entitled to a fractional share an amount equal to that
       stockholder's pro rata portion of the net proceeds of those sales. Unless
       the context otherwise requires, references in this proxy
       statement/prospectus to "Liberty Media Group tracking stock" refer to the
       Class A Liberty Media Group tracking stock only and not to Class B
       Liberty Media Group tracking stock, and do not take into effect any
       automatic adjustment as a result of the proposed two-for-one stock split.

     - Effective Time of the Merger.  The merger will become effective when a
       certificate of merger is filed with the Delaware Secretary of State or at
       a later time as may be specified in the certificate of merger. The
       effective time of the merger will occur as soon as practicable after the
       last of the conditions in the merger agreement has been satisfied or
       waived. We expect the merger to occur in the fourth quarter of 2000.
       However, because the merger is subject to governmental approvals and
       other customary conditions, we cannot predict the exact timing.

TREATMENT OF VIDEO STOCK OPTIONS IN THE MERGER

     Each option to purchase shares of Video common stock granted pursuant to
Video's 1993 Long Term Incentive Plan, Video's 1997 Long Term Incentive Plan and
an option agreement with a former executive of Video shall, at the effective
time of the merger, be deemed to constitute an option to purchase 0.208 shares
of Class A Liberty Media Group tracking stock, with an appropriate adjustment
made to the exercise price. Each option granted pursuant to Video's 1997 Long
Term Incentive Plan will be terminated immediately following the effective time
of the merger. Each option granted pursuant to Video's 1993 Long Term Incentive
Plan and the option agreement with such former executive will continue to be
exercisable following the effective time of the merger in accordance with its
terms.

                                       27
<PAGE>   34

BACKGROUND OF THE MERGER

     Video has sought to provide services to producers and distributors of
programming content and advertising. During the past two years, Video's
management has recognized trends affecting two of its business segments,
satellite and distribution service and production services. Management has noted
that large organizations have been acquiring competitors of Video causing Video
and its subsidiaries to compete with larger global companies with greater
resources, both in terms of facilities and capital resources. An acceleration of
the trend to digital and high definition platforms was causing Video to
experience an increasing demand for capital investment, which Video was finding
increasingly difficult to meet.

     Recognizing these trends and their effects, Video's board of directors met
via telephone on July 28, 1999 and authorized the engagement of Lazard Freres &
Co. LLC ("Lazard") to identify and open discussions with potential strategic
partners or candidates for a merger or a sale of assets or equity or other
interest in Video or its subsidiaries.

     Lazard contacted a total of 26 potential strategic and financial buyers and
a total of 20 companies entered into non-disclosure agreements with Video and
received materials from Lazard regarding Video and its business. Management
received four non-binding indications of interest to purchase certain assets or
stock of Video.

     On January 11, 2000 Louis H. Siracusano, President and Chief Executive
Officer of Video, met with Larry Romrell, a consultant to Liberty and David
Beddow, then a Vice President of Liberty and currently the Chief Executive
Officer of Liberty Livewire, at Liberty's offices in Denver, Colorado. Mr.
Beddow explained Liberty's strategy of investing in companies involved in the
confluence of video, Internet and motion picture technology and expressed
interest in a potential transaction with Video. Mr. Beddow and William Aisney of
Liberty visited Video's subsidiaries, Manhattan Transfer and Waterfront
Communications, in New York City on January 13, 2000.

     On January 25, 2000 Mr. Siracusano met with Jeffrey Marcketta, then the
Chief Operating Officer of Four Media Company and currently the Chief Financial
Officer of Liberty Livewire, to discuss concepts for the possible partnering or
merging of Video and the company (now known as Liberty Livewire) to be formed by
the consolidation of The Todd-AO Corporation, Four Media Company and SounDelux
Entertainment Group, Inc. Discussions continued between the principals during
the month of February, 2000 and at the regular meeting of Video's Board held on
February 23, 2000 Mr. Siracusano briefed the Board on his preliminary
discussions with Liberty.

     On March 10, 2000, Mr. Siracusano met with Robert Walston, then Chief
Executive Officer of Four Media Company and currently Chief Operating Officer of
Liberty Livewire, and Mr. Marcketta at Four Media Company's offices in Los
Angeles for further discussions regarding Liberty's possible offer of a merger
with Video.

     On March 14, 2000, Liberty delivered to Mr. Siracusano a memorandum setting
forth for discussion purposes the possible principal elements of a merger.
Copies of the memorandum were distributed to Video's board, legal advisors,
Lazard, and certain members of management. Video executives met on March 14,
2000 with its legal advisors and Lazard to discuss Liberty's memorandum.

     During the morning of March 15, 2000, Video's board of directors held a
telephonic board meeting. The Liberty memorandum was discussed and the board
authorized the Company to enter a "stand still" agreement, as requested by
Liberty, so that definitive terms could be negotiated. Between March 15, 2000
and March 30, 2000, Video's management and legal advisors and Liberty's
management and legal advisors continued to negotiate by telephone the structure
of a potential merger and the tax consequences of that structure.

     On March 30, 2000, Messrs. Beddow, Marcketta and Siracusano met with their
respective legal advisors at the offices of Liberty's legal advisors to
negotiate the terms of the proposed merger. A first draft of the merger
agreement was received from Liberty's legal advisors on April 7, 2000 and
distributed to certain members of Video's senior management and the board of
directors. Subsequently, Video's

                                       28
<PAGE>   35

management and legal advisors and Liberty's management and legal advisors
negotiated the draft merger agreement and related transaction documents. These
negotiations were conducted principally by telephone. The discussions and
negotiations between Video and Liberty concerning the terms of the merger
agreement and related documents included discussions and negotiations regarding
the following:

     - Video's ability to accept alternative acquisition proposals;

     - the treatment of stock options in the merger;

     - the amount of the breakup fee; and

     - the representations, warranties and covenants to be made by each party.

     A meeting of Video's board of directors was held on May 5, 2000 at Video's
offices. Mr. Siracusano advised the board of the progress of the merger and that
a second draft of the merger agreement was expected shortly. A second draft of
the merger agreement was received from Liberty's attorneys on May 16, 2000 and
distributed to certain members of Video's senior management and the board of
directors.

     On June 13, 2000, a meeting was held at the offices of Liberty's legal
advisors with among Mssrs. Marcketta, Beddow and Siracusano and their respective
legal advisors. The terms of the merger agreement were confirmed and the parties
established a schedule for finalizing and executing the merger agreement,
preparing and filing necessary documents with the Securities and Exchange
Commission and obtaining all of the necessary approvals for the boards of Video,
Liberty and AT&T, and the stockholders of Video.

     On July 21, 2000, Video's Board of Directors unanimously approved the
merger agreement and the merger. Lazard rendered its oral opinion that as of
that date, based upon and subject to the considerations, guidelines and
limitations set forth in its opinion, the merger consideration was fair, from a
financial point of view, to Video's stockholders.

     On July 25, 2000, Video, Liberty, AT&T and E-Group Merger Corp. executed
the merger agreement and certain of Video's principal stockholders entered into
a voting agreement with Liberty. Video and Liberty Livewire issued press
releases announcing the merger agreement.

VIDEO'S REASONS FOR THE MERGER

     In arriving at its decision to approve, and to recommend that the Video
stockholders approve, the merger agreement and the merger, Video's board of
directors considered several affirmative and negative factors. Video's board of
directors considered, among others, the following affirmative factors:

     - the business combination concept was consistent with Video's own vision
       of the possibilities for creation of a global provider of a wide range of
       post-production and distribution services to television producers, motion
       picture studios, cable and broadcast networks and advertising agencies;

     - Video's stockholders would have the opportunity to participate in part in
       any increase in value of the Liberty Media Group. Video believes that
       Liberty's technological expertise, investments, business reputation, and
       its financial resources and access to capital markets, provided with the
       ability of the combined entity to grow and position, would enhance the
       value of Video's assets;

     - the value of the stock consideration in connection with the merger
       implied a premium of 15% over Video's share price of $4.625 on July 20,
       2000, the day before Video's board of directors meeting to approve the
       merger agreement and the merger;

     - Video's management has, from time to time, solicited, and engaged in
       discussions with a number of significant participants in the
       communications industry regarding a possible business combination
       involving Video;

     - the regulatory approvals required for the merger and the process and
       timing associated with the approvals; and

                                       29
<PAGE>   36

     - the belief that the terms of the merger agreement, including the parties'
       representations, warranties and covenants, and the conditions to the
       parties' respective obligations are reasonable.

     In the course of its deliberations, Video's board of directors reviewed
with Video's management and outside advisors a number of additional factors
relevant to the merger, including:

     - current market conditions and historical market prices, volatility,
       liquidity and trading information with respect to Liberty Media Group
       tracking stock and Video common stock;

     - historical information concerning Liberty's and Video's respective
       businesses, financial performance and condition, operations and
       competitive position, including public reports concerning results of
       operations during the most recent fiscal year filed with the SEC;

     - detailed financial analyses and other information with respect to the
       Liberty Media Group and Video presented by Lazard in a presentation to
       Video's board of directors, including Lazard's oral opinion, subsequently
       confirmed in writing as of July 21, 2000, that as of that date, based
       upon and subject to the considerations, qualifications and limitations
       set forth in the opinion, the merger consideration was fair, from a
       financial point of view, to Video's stockholders;

     Video's board of directors also considered, in particular, the terms of the
merger agreement restricting Video's rights to solicit, consider, negotiate and
accept other acquisition proposals, and to terminate the merger agreement, as
well as the possible effects of the provisions regarding termination fees and
the effect of the voting agreement. Video's board of directors also reviewed
with its management and outside advisors various alternatives to the merger,
including remaining as an independent company.

     Video's board of directors believes that these factors, including the board
of directors' review of the terms of the merger agreement, support the board's
recommendation of the merger agreement and the merger when viewed together with
the risks and potential benefits of the merger. Video's board of directors also
identified and considered some potentially negative factors in its deliberations
concerning the merger, including, but not limited to:

     - the potentially lengthy period of time that may be required to complete
       the merger, particularly in light of the fact that the merger agreement
       does not prohibit Liberty and AT&T from engaging in transactions that
       could impede or prevent completion of the merger;

     - the risk of a decline in the market value of Class A Liberty Media Group
       tracking stock during the period between signing the merger agreement and
       completing the merger;

     - the restrictions on Video imposed by the merger agreement and the
       potential business opportunities that might be foregone due to these
       restrictions or the pendency of the merger generally;

     - the possibility that the merger might not be completed and the impact
       that might have on Video's businesses and assets and its ability to
       complete an alternative transaction on similar or equally advantageous
       terms; and

     - the other risks described under "Risk Factors Relating to the Merger."

     Video's board of directors believed that these risks were outweighed by the
potential benefits of the merger.

     The foregoing discussion is not exhaustive of all factors considered by
Video's board of directors. Each member of Video's board of directors may have
considered different factors, and Video's board of directors evaluated these
factors as a whole and did not quantify or otherwise assign relative weights to
the factors considered.

THE LIBERTY MEDIA GROUP'S REASONS FOR THE MERGER

     At the request of the Liberty Media Group, AT&T entered into the merger
agreement on behalf of the Liberty Media Group to acquire 100% of the business
and assets of Video. The following factors were considered by the Liberty Media
Group in connection with its decision to acquire Video.
                                       30
<PAGE>   37

     Strategic Business Opportunity.  The acquisition of a controlling interest
in Video is part of the Liberty Media Group's strategy to bring together a group
of companies, including Video, Four Media Company, The Todd-AO Corporation, and
SounDelux Entertainment Group, Inc., that provide a wide range of
post-production and distribution services to television producers, motion
picture studios, cable and broadcast networks and advertising agencies. The
Liberty Media Group hopes to capitalize on the potential operating synergies
within that group of companies, as well as the financial strength of such
companies' core businesses, and to grow such companies' combined client base.
The Liberty Media Group also hopes to position the acquired companies to become
major providers of new digital production, post-production, distribution and
archiving services, including interactive enablement, to the creative community
and diverse retail media outlets throughout the world. The Liberty Media Group
believes that its capital, expertise and reputation in the media industry will
strengthen such companies' consolidated product offerings and marketing efforts
and assist the Liberty Media Group and such companies in implementing their
global strategy.

     The assets and operations formerly owned and operated by Four Media and
Todd-AO and the post-production and sound related businesses of SounDelux have
been consolidated within Todd-AO, which changed its name to Liberty Livewire
Corporation. A brief description of Livewire is set forth above under the
heading "The Companies Involved in the Merger -- Liberty Livewire Corporation".
Following the acquisition of Video by the Liberty Media Group, through the
merger of Video and E-Group Merger Corp., Liberty intends to transfer 100% of
the capital stock of Video to Livewire, on terms to be agreed upon by Liberty
and Livewire. Liberty believes that the acquisition of Video by Livewire will
enhance Livewire's ability to achieve several of its strategic goals by, among
other things:

     - expanding Livewire's business to the East Coast with Video's considerable
       business presence there;

     - increasing presence in satellite and distribution services, complementing
       Livewire's existing broadcast services operations;

     - consolidating opportunities in the broadcast and mastering and
       duplication divisions;

     - entering into a new business segment with Video's subsidiary, A.F.
       Associates, which specializes in the design and engineering of advanced
       video systems for the broadcast and cable television industries;

     - utilizing A.F. Associates' and A.F. Products' expertise for guidance on
       certain consolidation projects contemplated by Livewire;

     - providing an established operations infrastructure from which to continue
       acquisitions in the New York area;

     - entering into Miami as a portal to Latin American business opportunities
       and exploiting any synergies from the recently acquired Mexico City
       facility; and

     - realizing modest cost savings from the consolidation of administrative
       and other back-office operations.

RECOMMENDATION OF VIDEO'S BOARD OF DIRECTORS

     AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS DETERMINED THE MERGER
TO BE FAIR TO YOU AND IN YOUR BEST INTEREST AND HAS DECLARED THE MERGER
ADVISABLE. THE BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND THE MERGER
AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE MERGER AT
THE SPECIAL MEETING.

     In considering the recommendation of Video's board of directors relating to
the merger agreement and the merger, you should be aware that some of its
directors and officers have interests in the merger that are different from, or
are in addition to, the interests of Video's stockholders generally. Please see
the section entitled "-- Interests of Video's Officers and Directors in the
Merger" below for additional information regarding these interests.

                                       31
<PAGE>   38

OPINION OF VIDEO'S FINANCIAL ADVISOR

     The Board of Directors of Video retained Lazard to act as its financial
advisor in connection with the possible sale of Video. Lazard was selected by
the Video board based on Lazard's qualifications, expertise and reputation in
transactions similar to the merger and its knowledge of the media and technology
industries and business and affairs of Video. As part of its engagement, Lazard
conducted the auction of Video described in "Background of the Merger."

     At the meeting of the Video board on July 21, 2000, Lazard rendered its
oral opinion that as of such date, based upon and subject to the various
considerations, guidelines and limitations set forth therein, the merger
consideration was fair to Video and its stockholders from a financial point of
view. Lazard subsequently confirmed its oral opinion by delivery of its written
opinion, dated July 21, 2000.

     THE FULL TEXT OF THE LAZARD OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY LAZARD IN RENDERING SUCH OPINION, IS ATTACHED
AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THE LAZARD OPINION ADDRESSES ONLY THE FAIRNESS OF THE MERGER
CONSIDERATION PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW AS
OF THE DATE OF THE LAZARD OPINION, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER OR CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF VIDEO COMMON STOCK AS TO
HOW TO VOTE WITH RESPECT TO THE MERGER. THE SUMMARY OF THE LAZARD OPINION SET
FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE LAZARD OPINION. VIDEO'S STOCKHOLDERS ARE URGED
TO, AND SHOULD, READ THE LAZARD OPINION CAREFULLY AND IN ITS ENTIRETY IN
CONJUNCTION WITH THIS PROXY STATEMENT/PROSPECTUS.

     In connection with rendering the Lazard opinion, Lazard:

     - reviewed the draft, dated July 19, 2000, of the merger agreement and the
       forms of the ancillary agreements to be entered into in connection
       therewith;

     - reviewed certain publicly available business and financial information
       relating to Video, AT&T and Liberty that Lazard deemed to be relevant;

     - held discussions with members of the senior management of Video with
       respect to the operations, financial condition, future prospects and
       projected operations and business performance of Video;

     - visited certain facilities and business offices of Video;

     - reviewed public information with respect to certain other companies in
       lines of business Lazard believed to be generally comparable to the
       businesses of Video;

     - reviewed the financial terms of certain business combinations involving
       companies in lines of business Lazard believed to be generally comparable
       to those of Video, and in other industries generally;

     - reviewed the historical stock prices and trading volumes of the Video
       common stock and the Class A Liberty Group tracking stock; and

     - conducted such other financial studies, analyses and investigations as
       Lazard deemed appropriate.

     Lazard noted that it had neither held discussions with members of the
senior management of Liberty, nor been provided with any materials by Liberty
with respect to the operations, financial condition, future prospects and
projected operations and business performance of Liberty.

     Lazard noted that under the merger agreement the exchange ratio and the use
of Class A Liberty Group tracking stock as merger consideration would be subject
to adjustment in the event that specified transactions were to occur prior to
the effective time and that the Lazard opinion is based on the merger
consideration and exchange ratio as in effect on the date of the Lazard opinion
and not as it may be so adjusted.

                                       32
<PAGE>   39

     Lazard relied, with Video's consent, upon the accuracy and completeness of
the foregoing information, and did not assume any responsibility for any
independent verification of such information, nor did Lazard make any
independent valuation or appraisal of any of the assets or liabilities of Video,
AT&T or Liberty, or concerning the solvency or fair value of Video, AT&T or
Liberty. With respect to the information received by Lazard concerning the
prospects of Video, Lazard assumed that this information reflected the best
currently available estimates and judgments of the management of Video. Lazard
assumed no responsibility for and expressed no view as to such information or
the assumptions on which they are based. Further, the Lazard opinion was
necessarily based on economic, monetary, market and other conditions as in
effect on, and the information made available to Lazard as of, the date of the
Lazard opinion.

     In rendering the Lazard opinion, Lazard assumed that the merger would be
consummated on the terms described in the draft merger agreement provided to it,
without any waiver of any material term or condition by Video and that obtaining
the necessary regulatory approvals for the merger will not have a material
adverse effect on Video, AT&T or Liberty.

     The following is a brief summary of the analyses performed by Lazard in
connection with the Lazard opinion. For purposes of certain of the analyses
described below, Lazard assumed the merger consideration per share of Video
common stock to be $5.48, based on the cash component of $2.75 per share and an
assumed value of the 0.104 of a share of Class A Liberty Group tracking stock to
be issued per share of Video common stock based on the closing sale price for
the Class A Liberty Group tracking stock on July 14, 2000 of $26.25. The actual
value of the merger consideration per share will depend on the trading price of
the Class A Liberty Group tracking stock at the time that the merger is
completed.

     Comparable Precedent Transactions.  Lazard noted that the post-production
industry is continuing to consolidate, with Liberty as one of the acquirers.
Five of the eight transactions Lazard examined (Liberty/ Four Media,
Liberty/Todd-AO, Warburg Pincus Equity Partners/Four Media, VDI Media/Dubs and
Four Media/MSCL ) involved pure play post-production companies. Those
transactions were priced in the range of 0.7x to 2.3x revenues reported during
the last twelve months ("LTM") prior to announcement of the transaction with an
average of 1.7x, multiples of earnings before interest and taxes ("EBIT") over
the LTM in the range of 16.0x to 24.5x with an average of 20.5x (with the
multiples in two cases being not meaningful) and multiples of earnings before
interest, taxes, depreciation, amortization ("EBITDA") over the LTM in the range
of 7.7x to 9.9x with an average of 8.8x. The other three transactions examined
involved the acquisition of companies that provided services that are generally
related to video and music production services (Allied Digital
Technologies/Vaughn Communications, Westport Group/MediaOne International
Holdings and Kingfisher/VCI). Revenue multiples over the LTM in these
transactions ranged from 0.5x to 3.9x with an average of 1.8x, multiples of EBIT
over the LTM in the range of 10.4x to 12.1x with an average of 11.0x and EBITDA
multiples over the LTM ranged from 5.7x to 10.7x with an average of 8.3x.

     Lazard noted that, using an enterprise value for Video based on an assumed
merger consideration per share of $5.48, the multiples over the LTM implied by
the merger were 1.3x, 33.8x and 8.3x, respectively, for revenues, EBIT and
EBITDA.

     Publicly Traded Comparable Companies Analysis.  Lazard compared the trading
multiples implied by the merger with those of Laser Pacific Media and VDI Media,
the two publicly traded post-production companies believed by Lazard to be most
comparable to Video. The comparison was made by determining the total enterprise
values of the companies being compared based on the closing sale prices of Laser
Pacific Media and VDI Media on July 14, 2000 and on an assumed merger
consideration per share of $5.48 for Video.

     The average LTM revenue, EBIT and EBITDA multiples for Laser Pacific Media
and VDI Media were 1.2x, 8.4x and 5.0x, respectively as compared to 1.3x, 33.8x
and 8.3x implied by the merger.

     Discounted Cash Flow Analysis.  Based upon forecasts provided by Video's
management, Lazard estimated the net present value of the future cash flows of
Video. Lazard utilized discount rates ranging

                                       33
<PAGE>   40

from 14.0% to 18.0% and a terminal multiple of 2005 EBITDA ranging from 7.5 to
9.5, which resulted in an implied price per share ranging from $2.88 to $5.32.

     Stock Price Trading History.  Lazard analyzed the stock price trading
history of the Video common stock since the reverse merger with International
Post Limited on August 27, 1997. During this time the price per share reached a
high of $6.00 on April 10, 2000 and a low of $1.63 on October 18, 1999. Lazard
noted that approximately 89% of the shares of Video common stock traded during
the period from August 27, 1997 through July 14, 2000 had traded below the
assumed per share of merger consideration of $5.48.

     Purchase Price Premium Analysis.  Lazard computed the following premiums
implied by the assumed merger consideration of $5.48 per share to the trading
prices of Video common stock at specified dates over the year preceding July 14,
2000:

<TABLE>
<CAPTION>
    PERIOD             DATE         VIDEO CLOSING PRICE   PREMIUM
    ------             ----         -------------------   -------
<S>              <C>                <C>                   <C>
1 Year Prior     July 14, 1999             $2.00           174.0%
6 Months Prior   January 14, 2000          $3.50            56.6%
1 Month Prior    June 14, 2000             $5.06             8.2%
1 Week Prior     July 7, 2000              $4.75            15.4%
Current          July 14, 2000             $4.94            11.0%
</TABLE>

     Volume Comparison Analysis.  Lazard's examination included the average
trading volumes for Video common stock and Class A Liberty Media Group tracking
stock over the six months ended June 30, 2000. Lazard noted that the Class A
Liberty Media Group tracking stock was significantly more liquid than the Video
common stock, with the average daily trading volume during this period being
5,095,373 shares of Class A Liberty Media Group tracking stock as compared to
7,178 shares of Video common stock.

     Certain Other Analyses.  Lazard noted that in Lazard's judgment it was
either not practicable or not relevant to perform certain analyses that are
frequently used as part of a valuation analysis. Specifically, Lazard determined
that it was impracticable to prepare a "sum-of-the-parts" analysis for Video
because, although Video operates in three separate segments, there is an absence
of publicly traded companies providing satellite uplink/downlink services, video
switching services or video systems integration. Lazard also noted that it did
not perform either a contribution analysis or a pro-forma merger analysis due to
the size of Video relative to Liberty and the limited impact Video's operations
will have on the valuation of the combined entity. In that regard, Lazard noted
that the dollar value of stock to be received by Video shareholders represents
approximately 0.2% of Liberty's market capitalization and the average daily
trading value of Class A Liberty Media Group tracking stock is more than three
times the amount of stock that will be issued by Liberty in the merger.

     Special Considerations.  In connection with the review of the merger by the
Video board, Lazard performed a variety of financial and comparative analyses
for purposes of its opinion given in connection therewith. While the foregoing
summary describes the analyses and factors reviewed by Lazard in connection with
its opinion, it does not purport to be a complete description of all the
analyses performed by Lazard in arriving at its opinion. The preparation of a
fairness opinion is a complex process and not necessarily susceptible to partial
analysis or summary description. Selecting portions of the analyses or the
summary set forth in this proxy statement/prospectus, without considering the
analyses as a whole, could create an incomplete or a misleading view of the
process underlying the Lazard opinion. Lazard did not attribute any particular
weight to any analysis or factor considered by them. No company or transaction
used in the analyses as a comparison is identical to Video or Liberty or the
transaction contemplated by the merger agreement. The analyses were prepared
solely for the purpose of Lazard in providing its opinion to the Video board in
connection with its consideration of the merger and do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold, which may be significantly more or less favorable than as set forth
in the analyses. Similarly, any estimate of values or forecast of future results
contained in the analyses is not necessarily indicative of actual values or
actual results, which may be significantly more or less favorable than suggested
by such analyses. In performing its analyses,

                                       34
<PAGE>   41

Lazard assumed that Video would perform substantially in accordance with
earnings forecasts provided to Lazard by the management of Video or their
representatives.

     The forecasts and other projections furnished to Lazard were prepared by
the management of Video and constitute forward-looking statements within the
meaning of the federal securities laws. As a matter of policy, neither Video nor
Liberty publicly discloses internal management forecasts, projections or
estimates of the type Video furnished to Lazard in connection with its analysis
of the merger terms, and such forecasts, projections and estimates were not
prepared with a view towards public disclosure. These forecasts, projections and
estimates were based on numerous variables and assumptions which are inherently
uncertain and which may not be in the control of the management of either Video
or Liberty, including, without limitation, general economic, regulatory and
competitive conditions.

     In performing these analyses, Lazard made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters. Because such analyses are inherently subject to uncertainty, being
based on numerous factors or events beyond the control of Video or Liberty or
their respective advisors, none of Video, Liberty or Lazard or any other person
assumes responsibility if future results or actual values are materially
different from those forecasts or estimates contained in the analyses. Although,
in connection with the delivery of its opinion, Lazard also analyzed Liberty,
the opinion is not a valuation of Liberty and does not represent Lazard's view
as to what the value of the Class A Liberty Media Group Common Stock would be
before or after the completion of the merger. In addition, Lazard noted that,
notwithstanding the fact that holders of Video common stock will receive Class A
Liberty Media Group tracking stock in the merger, the trading prices for Class A
Liberty Media Group tracking stock will be significantly affected by Liberty's
results of operations following the merger and other factors. The opinion of
Lazard was one of many factors taken into consideration by the Video board in
making its determination to approve the merger agreement. The foregoing summary
does not purport to be a complete description of the analyses performed by
Lazard.

     Lazard is an internationally recognized investment banking and advisory
firm. Lazard, as part of its investment banking business, is continuously
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts and valuations for estate, corporate and other purposes. In the ordinary
course of its business, Lazard and its affiliates may actively trade in the
securities of Video, Liberty or AT&T for their own accounts and for the accounts
of their customers and, accordingly, may at any time hold a long or short
position in such securities.

     Video has agreed to pay Lazard for its financial advisory services in
connection with the merger, including among other things, a fee for rendering
the opinion of Lazard discussed above, and a transaction fee based on the
outcome of the merger. Video also has agreed to reimburse Lazard for its
reasonable out-of-pocket expenses, including attorneys' fees, and indemnify
Lazard and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Lazard or any of its affiliates
against certain liabilities and expenses, including certain liabilities under
the federal securities laws, related to Lazard's engagement.

ACCOUNTING TREATMENT

     The merger will be accounted for under the purchase method of accounting,
with AT&T treated as the acquiror. As a result, AT&T will record the assets and
liabilities of Video at their estimated fair values and will record as goodwill
the excess of the purchase price over the estimated fair values. From the date
of the merger, the operating results of Video will be combined with the results
of AT&T as part of the Liberty Media Group, which is accounted for as an equity
investment by AT&T since AT&T does not possess a "controlling financial
interest" in the Liberty Media Group for financial accounting purposes.

INTERESTS OF VIDEO'S OFFICERS AND DIRECTORS IN THE MERGER

     In considering the recommendation of Video's board regarding the merger,
you should be aware that several members of Video's management and board of
directors and some of its principal stockholders may
                                       35
<PAGE>   42

be deemed to have interests in the merger that are different from, or in
addition to, the interests of Video stockholders generally. Video's board of
directors was aware of these interests and considered them, among other matters,
in approving the merger agreement and the merger.

Ownership of Stock

     A significant number of Video's directors and executive officers hold Video
common stock. See "Ownership of Video Common Stock" on page 73. In connection
with the merger, all holders of Video common stock (including the directors and
executive officers) will receive a combination of Class A Liberty Media Group
tracking stock and cash.

Stock Options

     Video's directors and executive officers hold options to purchase Video
common stock. See "Ownership of Video Common Stock" on page 73. As described
above under "The Proposed Merger -- Treatment of Video Stock Options in the
Merger," at the effective time of the merger, each outstanding Video option will
become exercisable for 0.208 shares of Class A Liberty Media Group tracking
stock. Each outstanding option issued under the 1997 plan will terminate
immediately following the merger.

Voting Agreement

     As of July 25, 2000, certain of Video's principal stockholders, including
Louis H. Siracusano, Arnold P. Ferolito, Donald H. Buck, Terrence A. Elkes,
Kenneth Gorman and affiliates of Sandler Capital Management, collectively
controlled approximately 71.8% of the equity of Video. Under the voting
agreement, which is described in the section entitled "Other Transaction
Agreement -- Voting Agreement" below, these stockholders have agreed to vote
shares of Video common stock under their control in favor of the merger
agreement and the merger. As a result of the voting agreement, the votes
represented by these shares will be sufficient to constitute a quorum and to
approve the merger agreement and the merger at the special meeting, irrespective
of the votes cast by any other stockholder.

INDEMNIFICATION AND INSURANCE

     The merger agreement provides that, following the merger:

     - Liberty and the surviving entity in the merger will, jointly and
       severally, indemnify and advance expenses to Video's present and former
       officers, directors and employees against all liabilities for acts or
       omissions in those capacities occurring prior to the completion of the
       merger or pertaining to the merger agreement or the merger, to the
       fullest extent permitted under the Delaware General Corporation Law. This
       indemnity will be provided to the extent insurance of the type mentioned
       below does not provide coverage and actual payment.

     - For at least three years after the merger is completed, Liberty is
       required to cause the surviving corporation in the merger to maintain in
       effect Video's existing officers' and directors' liability insurance, or
       to provide equivalent insurance covering acts or omissions occurring
       prior to completion of the merger. However, the surviving corporation in
       the merger is not required to pay an annual premium for this insurance in
       excess of 1.5 times the last annual premium paid by Video prior to the
       date of the merger agreement.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

General.

     The following discussion summarizes the material United States federal
income tax consequences of the merger. It is based on and subject to the
Internal Revenue Code of 1986, as amended, the regulations promulgated under the
Internal Revenue Code, existing administrative interpretations and court
decisions as in effect on the date hereof, all of which are subject to change,
possibly with retroactive effect. This discussion does not address all aspects
of United States federal income taxation that may be important to

                                       36
<PAGE>   43

you either in light of your particular circumstances or because you are subject
to special rules, such as rules relating to:

     - stockholders who are not citizens or residents of the United States;

     - financial institutions;

     - tax-exempt organizations;

     - insurance companies;

     - dealers in securities;

     - stockholders who acquired their shares of Video common stock pursuant to
       the exercise of options or similar derivative securities or otherwise as
       compensation or through a tax-qualified retirement plan; or

     - stockholders who hold their shares of Video common stock as part of a
       hedge, constructive sale, straddle or conversion transaction.

     This discussion assumes you hold your shares of Video common stock as
capital assets within the meaning of Section 1221 of the Internal Revenue Code.

  Tax Consequences to Video Stockholders

     The receipt of Class A Liberty Media Group tracking stock and cash in the
merger, including any cash received instead of fractional shares of Class A
Liberty Media Group tracking stock, will be a taxable transaction for U.S.
federal income tax purposes. In general, you will recognize capital gain or loss
equal to the difference between:

     - the sum of:

          (1) the value of the Class A Liberty Media Group tracking stock you
     receive in the merger;

          (2) the cash consideration you receive in the merger; and

          (3) any cash you receive instead of fractional shares of Class A
              Liberty Media Group tracking stock in the merger; and

     - your tax basis in your Video common stock.

     Your tax basis in the Class A Liberty Media Group tracking stock will be
equal to the fair market value of your stock on the date of the merger. Your
holding period for the Class A Liberty Media Group tracking stock will begin on
the day after the merger is completed.

     If you exercise appraisal rights and receive cash consideration in exchange
for your shares of Video common stock, you will generally recognize capital gain
or loss equal to the difference between the cash you receive and your tax basis
in the Video common stock as to which you exercised your appraisal rights.

     Capital gains of non-corporate stockholders are generally taxable at a
maximum U.S. federal income tax rate of 20% if the stockholder's holding period
in its shares is more than one year at the time the merger is completed. Capital
gains of corporate stockholders are generally taxable at the regular tax rates
applicable to corporations.

     Backup withholding at a rate of 31% may apply to payments made in
connection with the merger. Backup withholding will not apply, however, to a
stockholder who:

     - furnishes a correct taxpayer identification number and certifies that it
       is not subject to backup withholding on the substitute Form W-9 or
       successor form included in the letter of transmittal to be delivered to
       Video stockholders following completion of the merger;

     - provides a certification of foreign status on Form W-8 or successor form;
       or

     - is otherwise exempt from backup withholding.

                                       37
<PAGE>   44

     THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS
AND CIRCUMSTANCES OF YOUR STATUS AND ATTRIBUTES. AS A RESULT, THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT
APPLY TO YOU. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, YOU
ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THE APPLICATION AND EFFECT OF
UNITED STATES FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS
OF CHANGES IN UNITED STATES FEDERAL AND OTHER TAX LAWS.

REGULATORY MATTERS

HSR Act and Antitrust

     The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules promulgated under
that Act by the Federal Trade Commission, which prevent some transactions from
being completed until required information and materials are furnished to the
Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade
Commission and the waiting periods are terminated or expire. On August 25, 2000,
we filed the requisite Pre-Merger Notification and Report Forms under that Act
with the U.S. Federal Trade Commission and the U.S. Department of Justice. The
waiting period initiated by these filings expired on September 24, 2000. The
Antitrust Division of the Department of Justice, the Federal Trade Commission
and others may challenge the merger on antitrust grounds either before or after
expiration or termination of the applicable waiting periods. Accordingly, at any
time before or after the completion of the merger, any of the Antitrust Division
of the Department of Justice, the Federal Trade Commission or others could take
action under the antitrust laws as it deems necessary or desirable in the public
interest, including without limitation seeking to enjoin the completion of the
merger or permitting completion subject to regulatory concessions or conditions.
We cannot assure you that a challenge to the merger will not be made or that, if
a challenge is made, it will not prevail.

RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF VIDEO OR AT&T

     The shares of Class A Liberty Media Group tracking stock that will be
issued in the merger will be registered under the Securities Act and will be
freely transferable under the Securities Act, except for shares of Class A
Liberty Media Group tracking stock issued to any person who is deemed to be an
"affiliate" of either Video or AT&T at the time of the special meeting. Persons
who may be deemed to be affiliates include individuals or entities that control,
are controlled by or are under common control with, Video or AT&T and may
include some of their officers and directors, as well as their principal
stockholders. Any person deemed to be an affiliate of Video or AT&T at the time
of the special meeting may not sell their shares of Class A Liberty Media Group
tracking stock acquired in the merger except pursuant to:

     - an effective registration statement under the Securities Act covering the
       resale of those shares;

     - an exemption under paragraph (d) of Rule 145 under the Securities Act; or

     - any other applicable exemption under the Securities Act.

     AT&T's registration statement, of which this proxy statement/prospectus
forms a part, does not cover the resale of shares of Class A Liberty Media Group
tracking stock to be received by affiliates of Video in the merger.

LISTING ON THE NEW YORK STOCK EXCHANGE OF CLASS A LIBERTY MEDIA GROUP TRACKING
STOCK TO BE ISSUED IN THE MERGER

     We will use reasonable efforts to cause the shares of Class A Liberty Media
Group tracking stock that will be issued in the merger to be authorized for
listing on the New York Stock Exchange, subject to

                                       38
<PAGE>   45

official notice of issuance, before completing the merger. It is a condition to
the closing of the merger that this listing authorization be obtained.

APPRAISAL RIGHTS

     Under Section 262 of the Delaware General Corporation law, any record
holder of Video common stock who does not wish to accept the merger
consideration for his, her or its shares of Video common stock as provided in
the merger agreement, has the right to seek an appraisal of, and to be paid the
fair value for, his, her or its shares of Video common stock if the stockholder
complies with Section 262.

     Record holders of shares of Video common stock who do not vote in favor of
the merger agreement and the merger at the special meeting and who otherwise
comply with the applicable statutory procedures of Section 262 summarized in
this proxy statement/prospectus, will be entitled to appraisal rights under
Section 262. If you are the record holder of shares of Video common stock, you
must follow the steps summarized below properly and in a timely manner in order
to exercise and perfect your appraisal rights. If you have a beneficial interest
in shares of Video common stock held of record in the name of another person,
such as broker or nominee, you must act promptly to cause the record holder to
follow the steps summarized below properly and in a timely manner to perfect
appraisal rights.

     THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW OF
APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF SECTION
262, WHICH IS REPRINTED IN ITS ENTIRETY AS ANNEX D. ALL REFERENCES IN SECTION
262 AND IN THIS SUMMARY TO A "STOCKHOLDER" OR "HOLDER" ARE TO THE RECORD HOLDER
OF SHARES OF VIDEO COMMON STOCK.

     Under Section 262, holders of Video common stock who follow the procedures
set forth in Section 262 will be entitled to have their shares appraised by the
Delaware Court of Chancery and to receive payment in cash of the "fair value" of
their shares, exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with a fair rate of interest, if any, as
determined by the court.

     Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting to which
this proxy statement/prospectus relates, the corporation, not less than 20 days
prior to the meeting, must notify each of its stockholders who held stock on the
record date for the special meeting that appraisal rights are available and must
include a copy of Section 262 in the notice. We have scheduled a special meeting
of stockholders to consider and vote upon approval of the merger agreement and
the merger for 10:00 a.m. local time in Northvale, New Jersey on December 20,
2000. Please see the section entitled "The Special Meeting" for additional
information regarding the special meeting. This proxy statement/prospectus
constitutes the requisite notice to holders of Video common stock and the text
of Section 262 is attached to this proxy statement/prospectus as Annex D. If you
wish to exercise your appraisal rights or wish to preserve your right to do so,
you should review the following discussion and Annex D carefully. If you fail to
comply with the procedures specified in a timely and proper manner, it will
result in the loss of your appraisal rights.

     If you wish to exercise appraisal rights you must:

     - not vote in favor of the merger agreement and the merger; and

     - deliver to Video, before the vote at the special meeting, a written
       demand for appraisal of your shares of Video common stock.

     If you sign and return a proxy card without expressly directing that your
shares of Video common stock be voted against the merger agreement and the
merger, you will effectively waive your appraisal rights because your shares
represented by the proxy card will be voted in favor of the merger agreement and
the merger. Accordingly, if you desire to exercise and perfect appraisal rights
with respect to any of your shares of Video common stock, you must either:

     - refrain from executing and returning the enclosed proxy card and from
       voting in person in favor of approval and adoption of the merger
       agreement and the merger; or
                                       39
<PAGE>   46

     - check either the box entitled "Against" or "Abstain" next to the proposal
       to approve and adopt the merger agreement and the merger on your proxy
       card or affirmatively vote in person against the proposal or register in
       person your abstention with respect to the proposal.

     A vote or proxy against the merger agreement and the merger will not, in
and of itself, constitute a demand for appraisal.

     A demand for appraisal will be sufficient if it reasonably informs us of
the stockholders' identity and that the stockholder intends to demand appraisal
of its shares of Video common stock. This written demand for appraisal must be
separate from any proxy or vote abstaining from or voting against the approval
and adoption of the merger agreement and the merger. If you wish to exercise
appraisal rights, you must be the record holder of the shares of Video common
stock on the date the written demand for appraisal is made and must continue to
hold your shares through the effective time of the merger. Accordingly, if you
are the record holder of shares of Video common stock on the date the written
demand for appraisal is made, but thereafter transfer shares prior to the
effective time of the merger, you will lose any right to appraisal with respect
to those shares. Beneficial holders of shares of Video common stock are not
entitled to directly assert appraisal rights.

     A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as the holder's name appears on the stock
certificates and must state that the holder intends to demand appraisal of his,
her or its shares. If the shares are owned in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand for appraisal should be
made in that capacity, and if the shares are owned of record by more than one
person, as in a joint tenancy or a tenancy in common, the demand should be
executed by or on behalf of all joint owners. An authorized agent, including one
for two or more joint owners, may execute the demand for appraisal on behalf of
a holder of record; however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, he or she is
acting as agent for the owner or owners.

     A record holder, such as a broker who holds shares as nominee for several
beneficial owners, may exercise appraisal rights for the shares of Video common
stock held on behalf of one or more beneficial owners while not exercising such
rights for the shares held on behalf of other beneficial owners. Under these
circumstances, the written demand should set forth the number of shares as to
which appraisal is sought. Where the number of shares of Video common stock is
not expressly stated, the demand will be presumed to cover all shares held in
the name of the record owner. If you hold your shares in brokerage accounts or
other nominee form and wish to exercise appraisal rights, you are urged to
consult with your broker to determine the appropriate procedures for making a
demand for appraisal by your nominee.

     ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE DELIVERED TO VIDEO SERVICES
CORPORATION, 240 PEGASUS AVENUE, NORTHVALE, NEW JERSEY 07647 ATTENTION:
CORPORATE SECRETARY, OR SHOULD BE DELIVERED TO VIDEO'S SECRETARY AT THE SPECIAL
MEETING PRIOR TO THE VOTE.

     Within 10 days after the completion of the merger, we will notify each
holder of Video common stock who properly asserted appraisal rights under
Section 262 and did not vote in favor of the merger agreement and the merger
that the merger has been completed.

     Within 120 days after the effective time of the merger, but not thereafter,
Video or any holder of Video common stock who complied with the statutory
requirements summarized above, may file a petition with the Delaware Court of
Chancery demanding a determination of the fair value of the shares held by all
such holders of Video common stock. If a petition is not filed, all holders of
Video common stock who had previously demanded appraisal of their shares will
lose their appraisal rights. Video is not under any obligation, and has no
present intention, to file a petition for appraisal of the value of the shares.
Accordingly, if you wish to exercise your appraisal rights, you should regard it
as your obligation to take all steps necessary to perfect your appraisal rights
in the manner prescribed in Section 262.

     Within 120 days after the effective time of merger, any holder of Video
common stock who has complied with the provisions of Section 262 will be
entitled, upon written request, to receive from Video a statement setting forth
the aggregate number of shares of Video common stock not voted in favor of the
                                       40
<PAGE>   47

merger agreement and the merger and for which demands for appraisal were
received, and the number of persons holding those shares. Video must mail this
statement within 10 days after it receives any written request of this type.

     If a petition for a appraisal is timely filed and we are served a copy
thereof, we will then be obligated within 20 days to file with the Delaware
Register in Chancery a duly verified list containing the names and addresses of
the holders of Video common stock who have demanded appraisal of their shares
and with whom agreements as to the value of their shares have not been reached.
Thereafter, the Delaware court is empowered to conduct a hearing on the petition
to determine those holders of Video common stock who have complied with Section
262 and who have become entitled to appraisal rights thereunder. The Delaware
court may require the holders who demanded appraisal rights to submit their
stock certificates to the Register in Chancery for notation thereon of the
pendency of the appraisal proceeding. If any holder of Video common stock fails
to comply with this direction, the Delaware court may dismiss the proceedings as
to that holder.

     After determining which holders of Video common stock are entitled to
appraisal, the Delaware court will appraise the "fair value" of their shares,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. If you are considering seeking
appraisal, you should be aware that the fair value of your shares as determined
under Section 262 could be more than, the same as or less than the consideration
you are entitled to receive pursuant to the merger agreement if you did not seek
appraisal of your shares and that investment banking opinions as to the fairness
from a financial point of view are not necessarily opinions as to fair value
under Section 262.

     The costs of the action may be determined by the Delaware court and taxed
upon the parties as the Delaware court deems equitable. The Delaware court may
also order that all or a portion of the expenses incurred by any holder of Video
common stock in connection with an appraisal, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the shares
entitled to appraisal. If a determination or assessment is not made, each party
bears its own expenses.

     At any time within 60 days after the effective time of the merger, any
holder of Video common stock will have the right to withdraw his or her demand
for appraisal and to accept the merger consideration. After this period, a
holder may withdraw a demand only with Video's written consent. If a petition
for appraisal is not filed with the Delaware court within 120 days after the
effective time of the merger, a holder's right to appraisal will cease and the
holder will be entitled to receive the merger consideration, without interest,
as if the holder had not demanded appraisal of his or her shares. A petition
demanding appraisal that is timely filed in the Delaware court, may not be
dismissed as to any holder of Video common stock without the approval of the
Delaware court, and the court may condition the approval on any terms as it
deems just.

     If any holder of Video common stock who properly demands appraisal of his
or her shares under Section 262 fails to perfect, or effectively withdraws or
loses, his or her right to appraisal as provided in the Delaware General
Corporation Law, the holder's shares of Video common stock will be converted
into the right to receive the merger consideration in accordance with the terms
of the merger agreement.

     IF YOU WISH TO EXERCISE YOUR APPRAISAL RIGHTS, YOU MUST NOT VOTE IN FAVOR
OF THE MERGER AGREEMENT AND THE MERGER AND MUST STRICTLY COMPLY WITH THE
PROCEDURES SET FORTH IN SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.

     IF YOU FAIL TO TAKE ANY REQUIRED STEP IN CONNECTION WITH THE EXERCISE OF
APPRAISAL RIGHTS, IT WILL RESULT IN THE TERMINATION OR WAIVER OF THESE RIGHTS.

DELISTING AND DEREGISTRATION OF VIDEO COMMON STOCK AFTER THE MERGER

     If the merger is completed, Video common stock will be delisted from the
American Stock Exchange and will be deregistered under the Exchange Act.
                                       41
<PAGE>   48

                              THE MERGER AGREEMENT

     The following description summarizes the material provisions of the merger
agreement, a copy of which is attached as Annex A to this proxy
statement/prospectus. We urge you to read the merger agreement carefully.

     Please note that the terms Material Adverse Effect, Liberty Material
Adverse Effect and Parent Adverse Effect used in this section are defined on
pages 46 and 47.

CONDITIONS TO COMPLETING THE MERGER

     Conditions to the obligations of each party.  Our respective obligations to
complete the merger are subject to the satisfaction or waiver, at or prior to
the closing date of the merger, of each of the following conditions:

     - the merger agreement and the merger must be approved and adopted by the
       holders of a majority of the shares of Video common stock entitled to
       vote at the special meeting;

     - AT&T's registration statement relating to the merger must be effective
       and must not be the subject of any stop order or proceedings seeking a
       stop order;

     - AT&T must receive all state securities law or blue sky permits and
       authorizations necessary to issue the merger consideration;

     - the waiting period applicable to the merger under the Hart-Scott-Rodino
       Antitrust Improvements Act of 1976 must expire or be terminated; and

     - the shares of Class A Liberty Media Group tracking stock that will be
       issued in the merger must be approved for listing on the New York Stock
       Exchange, subject only to official notice of issuance.

     Conditions to the obligations of AT&T for the benefit of Liberty.  AT&T's
obligation to complete the merger is subject to the satisfaction of each of the
following additional conditions, which are for the benefit of Liberty and may be
asserted or waived solely by Liberty acting alone:

     - Video's representations and warranties must, if specifically qualified by
       materiality, be true and correct and, if not so qualified, be true and
       correct in all material respects, as of July 25, 2000 and, except to the
       extent the representations and warranties relate to an earlier date, on
       the date the merger is completed, except for changes permitted or
       contemplated by the merger agreement;

     - Video must have performed or complied in all material respects with all
       of its obligations, agreements, covenants and conditions contained in the
       merger agreement;

     - Video must have delivered to AT&T and Liberty a compliance certificate
       signed by an appropriate officer certifying that Video has fulfilled
       several specified conditions;

     - there must not be any permanent or preliminary injunction, restraining
       order or other order in effect or pending that would have the effect of:

          (1) preventing us from completing the merger and the other
              transactions contemplated by the merger agreement, or permitting
              completion only subject to a condition or restriction that has had
              or would have a Liberty Material Adverse Effect;

          (2) requiring Liberty to divest, as a result of completing the merger,
              a material portion of its business or assets or a material portion
              of the business and assets of its subsidiaries and affiliates
              taken as a whole;

          (3) imposing material limitations on Liberty's ability to effectively
              exercise full rights of ownership of shares of capital stock or
              other ownership interests in the surviving corporation in the
              merger, or making that ownership illegal or subject to any
              materially burdensome requirement or condition; or

                                       42
<PAGE>   49

          (4) requiring Liberty, its subsidiaries, Video or any of its
              subsidiaries, to cease or refrain from engaging in any of their
              lines of business as a result of completing the merger.

     - there must not be in effect any applicable statute, rule, regulation,
       law, order, judgment or decree of any foreign or United States federal,
       state or local governmental entity of competent jurisdiction that:

          (1) makes the merger agreement, the merger or any transaction
             contemplated in the merger agreement illegal or imposes or is
             reasonably likely to impose material damages or penalties in
             connection with the merger agreement, the merger or any transaction
             contemplated in the merger agreement;

          (2) requires or is reasonably likely to require, as a result of
              completing the merger, the divestiture of, or any restrictions or
              conditions on the conduct of:

             - a portion of the business or assets of Video and its
               subsidiaries, taken as a whole, which would have a Material
               Adverse Effect; or

             - a material portion of the business or assets of Liberty and its
               subsidiaries and any of Liberty's affiliates, taken as a whole;

          (3) imposes or is reasonably likely to impose material limitations on
              Liberty's ability to effectively exercise full rights of ownership
              of shares of capital stock or other ownership interests in the
              surviving corporation in the merger or makes that ownership
              illegal or subject to any materially burdensome requirement or
              condition; or

          (4) requires or is reasonably likely to require Liberty, its
              subsidiaries or affiliates, or Video or any of its material
              subsidiaries, to cease or refrain from engaging in any material
              business, including, in the case of Liberty, any material business
              conducted by Video or any of its subsidiaries prior to the merger,
              as a result of the completing of the merger;

     - Video must have delivered to Liberty the opinion of Video's counsel,
       Piper Marbury Rudnick & Wolfe LLP, dated as of closing date, covering the
       matters specified in the merger agreement;

     - no person shall have any contractual or other registration rights with
       respect to any shares of Class A Liberty Media Group tracking stock to be
       issued in the merger; and

     - other than filing the certificate of merger and filings due after the
       merger is completed, certain governmental consents specified in the
       merger agreement and approvals and governmental consents and filings
       which if not obtained, made or in force or effect, would not, either
       individually or in the aggregate, have a Material Adverse Effect (or an
       effect on Liberty and its subsidiaries and affiliates that, were Video
       and its subsidiaries subjected to the same (or a materially similar)
       effect, would constitute a Material Adverse Effect):

          (1) all approvals and governmental consents required in connection
              with completing the merger must have been obtained and must be in
              full force and effect without any condition, limitation or
              restriction;

          (2) all governmental filings required in connection with completing
              the merger must have been made; and

          (3) all waiting periods applicable to completing the merger imposed by
              any governmental entity shall have expired.

     Conditions to the obligations of AT&T and Merger Sub for the benefit of
AT&T.  AT&T's and Merger Sub's obligation to complete the merger is subject to
the satisfaction of each of the following additional conditions, which are for
AT&T's benefit and may be waived by AT&T acting alone:

     - all of Video's representations and warranties in the merger agreement
       must, if specifically qualified by materiality, be true and correct, and
       if not so qualified, be true and correct in all material

                                       43
<PAGE>   50

       respects, in each case as of July 25, 2000 and, except to the extent the
       representations and warranties speak as of a specified earlier date, on
       the date the merger is completed, except for changes permitted or
       contemplated by the merger agreement;

     - Video must have performed or complied in all material respects with all
       of its obligations, agreements, covenants and conditions contained in the
       merger agreement;

     - Video must have delivered to AT&T a compliance certificate signed by an
       appropriate officer of Video certifying that Video has complied with
       several specified conditions and identifying the following:

          (1) any pending action or preceding by any governmental entity seeking
              a permanent or preliminary injunction or restraining order or
              other order by any court or other governmental entity of competent
              jurisdiction or other legal restraint or prohibition that, if
              determined in a manner adverse to Video, Liberty or AT&T, could
              have the effect of preventing us from completing the transactions
              contemplated by the merger agreement, or permitting completion
              only subject to any condition or restriction;

          (2) any contract, agreement or understanding to which Video or any of
              its subsidiaries is a party that would, at the effective time of
              the merger, be legally enforceable against AT&T or any of its
              subsidiaries (other than Liberty, the Liberty Media Affiliates,
              Video and their respective subsidiaries); and

          (3) any license that is required for the ownership and operation of
              the assets and facilities of the respective businesses of Video
              and its subsidiaries which, as of the date the merger is
              completed, Video and its subsidiaries no longer hold, or are not
              in compliance with the terms of, or have not duly and currently
              filed all reports and other information required to be filed by
              them in connection therewith.

     - there must not be in effect any applicable statute, rule, regulation,
       law, order, judgment or decree of any foreign or United States federal,
       state or local governmental entity of competent jurisdiction that:

          (1) makes the merger agreement, the merger, the post-merger
              restructuring transactions or any other transaction contemplated
              by the merger agreement illegal or imposes material damages or
              penalties in connection with these transactions or otherwise
              prohibits or unreasonably delays any of these transactions;

          (2) requires AT&T or any of its subsidiaries to divest or hold
              separate any portion of their respective businesses or assets, in
              any case as a result of completing the merger, or would require
              AT&T or any of its subsidiaries to take or refrain from, or would
              prohibit AT&T or any of its subsidiaries from taking or refraining
              from, any action, other than actions required to be taken or
              refrained from (or prohibited to be taken or refrained from, as
              the case may be) by AT&T or its subsidiaries under the merger
              agreement or otherwise specifically agreed to by AT&T or one of
              its subsidiaries in the merger agreement;

          (3) imposes any material limitations on AT&T's or Liberty's ability to
              effectively exercise full rights of ownership of shares of capital
              stock or other ownership interests in the surviving corporation or
              makes that ownership illegal or subject to any materially
              burdensome requirement or condition;

          (4) requires AT&T or any of its subsidiaries, excluding Liberty and
              its subsidiaries, to cease or refrain from engaging in any
              material business, whether or not the business is conducted by
              Video or any of its subsidiaries, as result of completing the
              merger; or

          (5) materially increases AT&T's liabilities or obligations arising out
              of the merger agreement or, in AT&T's reasonable judgment,
              otherwise would have a Parent Adverse Effect, as a result of
              completing the merger.

                                       44
<PAGE>   51

     - there must not be any permanent or preliminary injunction, restraining
       order or other order in effect, or pending, that, if determined in a
       manner adverse to Video, Liberty or AT&T, could prevent us from
       completing the merger and the other transactions contemplated by the
       merger agreement, or permitting completion only subject to any condition
       or restriction that:

          (1) has had or would have a Parent Adverse Effect or a Material
              Adverse Effect; or

          (2) would require AT&T or any of its subsidiaries to take or refrain
              from, or would prohibit AT&T or any of its subsidiaries from
              taking or refraining from, any action (other than actions required
              to be taken by AT&T or its subsidiaries under the merger agreement
              or otherwise specifically agreed to by AT&T or one of its
              subsidiaries in the merger agreement).

     - other than filing the certificate of merger and filings due after the
       merger is completed, certain governmental consents specified in the
       merger agreement and approvals and governmental consents and filings
       which if not obtained, made or in force or effect, would not, in AT&T's
       reasonable judgment, either individually or in the aggregate, have a
       Parent Adverse Effect:

          (1) all approvals and governmental consents required in connection
              with completing the merger must have been obtained and must be in
              full force and effect without any condition, limitation or
              restriction;

          (2) all governmental filings required in connection with completing
              the merger must have been made; and

          (3) all waiting periods applicable to completing the merger imposed by
              any governmental entity shall have expired.

     - neither Video nor any of its subsidiaries may be a party to any contract,
       agreement or understanding that, at the time the merger is completed,
       would be legally enforceable against AT&T or any of its subsidiaries
       (other than Liberty, the Liberty Media Affiliates, Video and any of their
       subsidiaries), except those which would not have a Parent Adverse Effect;

     - Video and its subsidiaries must hold, and be in compliance with the terms
       of, and shall have duly and currently filed all reports and other
       information required to be filed by them in connection with, all
       licenses, permits, rights of way, easements, franchises, ordinances,
       certificates, variances, exemptions, concessions, leases, instruments,
       orders and approvals, governmental authorizations, domestic and foreign,
       necessary to the ownership of Video's and its subsidiaries' property or
       to the conduct of their respective businesses;

     - AT&T must not have been notified by Liberty that any of the conditions,
       except for those conditions to Video's obligations listed below, to
       complete the merger remain unsatisfied;

     - Liberty must have performed or complied in all material respects with all
       of its obligations, agreements, covenants and conditions contained in the
       merger agreement, and Liberty must have delivered to AT&T a certificate
       signed by an appropriate officer to that effect;

     - the applicable waiting period applicable to the merger under the
       Hart-Scott-Rodino Antitrust Improvements Act of 1976 must have expired or
       been terminated without receipt of any objections or commencement of
       litigation or threat by the appropriate governmental entity to restrain
       the transactions contemplated in the merger agreement; and

     - no person shall have any contractual or other registration rights with
       respect to any shares of Class A Liberty Media Group tracking stock to be
       issued in the merger.

     Conditions to the obligations of Video.  Video's obligation to complete the
merger is subject to the satisfaction or waiver of each of the following
conditions:

     - AT&T's and Liberty's representations and warranties contained in the
       merger agreement must, if specifically qualified by materiality, be true
       and correct and, if not so qualified, be true and correct
                                       45
<PAGE>   52

       in all material respects, in each case as of July 25, 2000 and, except to
       the extent the representations and warranties relate to a specified
       earlier date, on the date the merger is completed, except for changes
       permitted or contemplated by the merger agreement;

     - each of E-Group Merger Corp., Liberty and AT&T must have performed or
       complied in all material respects with all of their obligations,
       agreements, covenants and conditions contained in the merger agreement;

     - each of Liberty and AT&T must have delivered to Video a compliance
       certificate signed by an appropriate officer certifying that its
       conditions under the merger agreement have been satisfied;

     - there must not be in effect any permanent or preliminary injunction,
       restraining order or other order by any court or other governmental
       entity of competent jurisdiction preventing the completion of the merger
       and the other transactions contemplated by the merger agreement, or
       permitting completion only subject to any condition or restriction that
       would have a Liberty Material Adverse Effect;

     - there must not be in effect any statute, rule or regulation enacted,
       promulgated, entered, issued, enforced or deemed applicable by any
       foreign or United States federal, state or local governmental entity of
       competent jurisdiction, and no action, suit or proceeding brought by any
       governmental entity may be pending, that makes the merger agreement or
       the merger illegal or has or is reasonably likely to have a Liberty
       Material Adverse Effect; and

     - other than filing the certificate of merger and filings due after the
       merger is completed, certain governmental consents specified in the
       merger agreement and approvals and governmental consents and filings
       which if not obtained, made or in force or effect, would not, either
       individually or in the aggregate, be reasonably likely to have a Liberty
       Material Adverse Effect:

          (1) all approvals and governmental consents required in connection
              with completing the merger must have been obtained and must be in
              full force and effect; and

          (2) all waiting periods applicable to completing the merger imposed by
              any governmental entity shall have expired.

     Defined terms.  As used in the discussion of the conditions to completing
the merger, the following terms have the indicated meanings:

     - a "Material Adverse Effect" means:

          (1) a material adverse effect on the transactions contemplated by the
              merger agreement, including a material adverse effect on the
              ability of any party to the agreement to complete the transactions
              or perform its material obligations under the merger agreement; or

          (2) a material adverse effect on the business, assets, or financial
              condition of Video and its subsidiaries, taken as a whole.

     - a "Liberty Material Adverse Effect" means:

          (1) a material adverse effect on the transactions contemplated by the
              merger agreement, including a material adverse effect on the
              ability of Liberty to perform its obligations under the merger
              agreement; or

          (2) a material adverse effect on the business, assets or financial
              condition of Liberty and its subsidiaries, taken as a whole.

     - a "Parent Adverse Effect" means:

          (1) an effect which is adverse to, or burdensome on the business,
              assets, liabilities, condition (financial or otherwise), results
              of operations, operations or prospects of any business of AT&T or
              its subsidiaries, excluding Liberty and its subsidiaries, being
              conducted on July 25, 2000 other than, in each case, any effect
              which is insignificant in nature or consequence; or
                                       46
<PAGE>   53

          (2) an adverse effect on the relationship between AT&T or any of its
              subsidiaries, excluding Liberty and its subsidiaries, and any
              federal or state governmental entity having jurisdiction over any
              business of AT&T or its subsidiaries, excluding Liberty and its
              subsidiaries, or their respective operations or assets, other than
              such an effect which is insignificant in nature or consequence.

     - the term "subsidiary" or "subsidiaries," when used with respect to AT&T,
       excludes Liberty, any affiliate of Liberty or any entity that is a member
       of the Liberty Media Group or any of their respective affiliates, whether
       or not they otherwise would be subsidiaries of AT&T.

TERMINATION

     The merger agreement and the transactions contemplated in the merger
agreement, may be terminated at any time prior to completing the merger, whether
before or after approval and adoption of the merger agreement and the merger by
Video's stockholders, in the following situations:

     - by mutual consent of AT&T, Liberty and Video;

     - by any of Video, AT&T or Liberty:

          (1) if the merger has not been completed on or before December 31,
              2000; however, if the failure to complete the merger is due to any
              party's failure to perform any of its obligations under the merger
              agreement, this termination right will not be available to the
              nonperforming party, and further, if the failure to complete the
              merger on or before December 31, 2000 is solely a result of the
              failure of certain conditions specified in the merger agreement to
              be satisfied or waived, any party may extend such date up to
              February 28, 2001 by providing written notice to the other parties
              to the merger agreement;

          (2) if there has been a material breach of any representation,
              warranty, covenant or agreement on the part of any other party
              contained in the merger agreement, in each case that is not
              curable, and which would prevent the satisfaction of the
              applicable conditions to closing requiring that the party's
              representations and warranties be accurate and its covenants and
              agreements be performed;

          (3) if any court of competent jurisdiction or other competent
              governmental entity has issued an order, decree or ruling or taken
              any other action permanently restraining, enjoining or otherwise
              prohibiting the merger and the order, decree, ruling or other
              action has become final and nonappealable; or

          (4) Video's stockholders fail to approve and adopt the merger
              agreement and the merger by the requisite vote:

             (a) at the special meeting called for that purpose; or

             (b) by the date one day prior to the applicable termination date
                 referred to in clause (1) above,

but only if AT&T's registration statement relating to the merger became and
remained effective (unless the failure of the registration statement to become
effective is the result of Video's material breach of its agreement to cooperate
with the filing of the registration statement) so that this proxy statement
could be mailed to Video's stockholders and the special meeting could be held
prior to that date. AT&T may not terminate the merger agreement under the
circumstance described in clause (4) above without Liberty's agreement;

     - by Liberty, if Video's board of directors withdraws or modifies, in a
       manner adverse to AT&T or Liberty, its approval or recommendation of the
       merger, or Video's board of directors approves or recommends, or
       authorizes Video to enter into any agreement with respect to, an
       Extraordinary Transaction; or

                                       47
<PAGE>   54

     - by Video, if after receipt of an unsolicited Superior Proposal and
       complying with the applicable provisions relating thereto in the merger
       agreement, Video's board of directors withdraws or modifies its approval
       or recommendation of the merger, and authorizes Video to enter into an
       agreement with respect to this Superior Proposal.

     As used in this section and below under "--No Solicitation" the following
terms have the indicated meanings:

     - an "Extraordinary Transaction" means any tender or exchange offer
       involving Video, any proposal for a merger, consolidation or other
       business combination involving Video, any proposal or offer to acquire in
       any manner a greater than 15% equity interest in, or a significant
       portion of the business or assets of, Video (other than immaterial or
       insubstantial assets or inventory in the ordinary course of business or
       assets held for sale), any proposal or offer with respect to any
       recapitalization or restructuring regarding Video or any proposal or
       offer regarding any other transaction similar to any of these types of
       transactions regarding Video, other than pursuant to the transactions to
       be completed under the merger agreement.

     - a "Superior Proposal" means any unsolicited proposal regarding an
       Extraordinary Transaction, the terms of which Video's board of directors
       determines in good faith, after consulting with a nationally recognized
       financial advisor, are more favorable to Video and Video's stockholders
       than the merger and the transactions under the merger agreement, and for
       which financing, to the extent required, is either committed or, in the
       good faith judgment of Video's board of directors, is reasonably capable
       of being obtained, and with respect to which, Video's board of directors
       determined in good faith that the failure to provide this information or
       access or to engage in discussions or negotiations regarding this
       Extraordinary Transaction would cause Video's board of directors to
       breach its fiduciary duties to Video's stockholders under applicable law.

TERMINATION FEES

     Video will pay Liberty a termination fee of $3.5 million if:

     - during the term of the merger agreement, Video's board of directors
       withdraws or modifies, in a manner adverse to AT&T or Liberty, its
       approval or recommendation of the merger, or Video's board of directors
       approves, recommends or authorizes Video to enter into an agreement with
       respect to, an Extraordinary Transaction; and

     - the merger agreement is thereafter terminated under the provisions
       described above in the second, third or fourth "bullet points" under
       "--Termination"; and

     - in the cases of any termination under the provisions described above in
       the second "bullet point" under "-- Termination" only, Video thereafter
       enters into a definitive agreement with respect to or completes an
       Extraordinary Transaction with any person other than Liberty, AT&T or an
       affiliate of either of them prior to the expiration of six months after
       the termination of the merger agreement.

NO SOLICITATION

     Video has agreed that, except as described below, it will not, and will use
its best efforts to ensure that its officers, directors, employees and other
agents or affiliates do not, directly or indirectly, take any of the following
actions:

     - initiate, solicit or encourage, or take any action to facilitate
       (including by the furnishing of information) the making, of any offer or
       proposal which constitutes or is reasonably likely to lead to any
       Extraordinary Transaction;

     - enter into an agreement or understanding with any other person with
       respect to any Extraordinary Transaction; or

                                       48
<PAGE>   55

     - in the event of an unsolicited Extraordinary Transaction for Video,
       engage in negotiations or discussions with, or provide any information or
       data to, any person (other than Liberty, AT&T, E-Group Merger Corp. or
       any of their affiliates or representatives, and except for information
       that Video previously disseminated publicly) relating to any
       Extraordinary Transaction.

     Video will immediately notify Liberty and AT&T if a third party:

     - submits any proposals, inquires or expresses interest in acquiring Video;

     - requests information from Video regarding a possible Extraordinary
       Transaction; or

     - seeks to initiate or continue negotiations with Video or its
       representatives regarding a proposed Extraordinary Transaction,

and will provide Liberty with information regarding the inquiry or proposal,
including the name of the person making such inquiry or proposal, the terms and
conditions of any proposals or offers and the nature of any inquiries or
expressions of interest.

     However, if, prior to approval of the merger and the merger agreement by
Video's stockholders, (i) Video receives an unsolicited Superior Proposal and
(ii) in the good faith opinion of Video's board of directors the failure to
provide this information or access or to engage in discussions or negotiations
would cause the board of directors to breach its fiduciary duties to Video's
stockholders under applicable law, Video may:

     - engage in any of the activities described in the third bullet point in
       the first paragraph of this section;

     - in connection with those activities, enter into a customary
       confidentiality agreement with the person making the unsolicited Superior
       Proposal;

     - in connection with those activities, not agree to any exclusive right to
       negotiate with Video;

     - withdraw or modify its recommendation of the merger and the merger
       agreement, provided that the merger and the merger agreement must still
       be submitted to a vote by Video's stockholders at the special meeting;
       and

     - after providing written notice of such Superior Proposal to Liberty and
       AT&T and complying with the other applicable provisions relating thereto
       under the merger agreement, terminate the merger agreement and enter into
       an agreement with respect to this Superior Proposal as described in the
       fourth "bullet point" under "-- Termination"; however, concurrently with
       terminating the merger agreement for this reason, Video will be required
       to pay Liberty the termination fee as described in the second "bullet
       point" under "-- Termination Fees".

     Nothing in the merger agreement will prevent Video from complying with Rule
14d-9 and Rule 14e-2 under the Securities Exchange Act of 1934, as amended, or
making any disclosures to Video's stockholders that Video's board of directors
determines, in good faith and upon exercise of its reasonable judgment after
consultation with its financial advisors and legal counsel, that the failure to
so disclose would be reasonably likely to result in a breach of its fiduciary
duties under applicable law.

REPRESENTATIONS AND WARRANTIES

     Video, Liberty and AT&T each made a number of representations and
warranties in the merger agreement, including representations and warranties
relating to, among other things:

     - corporate organization, qualification to do business and similar
       corporate matters of AT&T, Video and Liberty;

     - Video's subsidiaries and their corporate organization, qualification to
       do business and similar corporate matters;

                                       49
<PAGE>   56

     - authorization, execution, delivery, performance and enforceability of the
       merger agreement and related matters of AT&T, Video and Liberty;

     - AT&T's, Liberty's and Video's capital structure;

     - AT&T's formation and ownership of E-Group Merger Corp.;

     - ownership of capital stock of Video by Liberty and AT&T;

     - Video's and Liberty's SEC filings, the accuracy of the information
       contained in those filings and the absence of undisclosed liabilities in
       those filings;

     - required consents, approvals, orders and authorizations of governmental
       authorities and of other parties to Video's and Liberty's contracts and
       relating to execution and delivery of the merger agreement and related
       matters;

     - material conflicts and violations of Video's and Liberty's organizational
       documents and laws, rules, regulations, orders, judgments or decrees
       applicable to Video or Liberty or any of their respective subsidiaries or
       any of their respective properties or assets;

     - absence of material adverse changes or events concerning Video's and
       Liberty's respective businesses since June 30, 1999 and December 31,
       1999, respectively;

     - the accuracy of the information supplied by Video, Liberty and AT&T in
       connection with this proxy statement/prospectus and the related
       registration statement;

     - material litigation involving Video;

     - possession of and compliance with all licenses required to conduct
       Video's business and compliance with applicable regulatory requirements
       by Video;

     - engagement and payment of fees of brokers, investment bankers and
       financial advisors by Video and Liberty;

     - filing of tax returns and payment of taxes by Video;

     - Video's labor matters and employee benefits;

     - receipt by Video of a fairness opinion of Lazard regarding the merger
       consideration;

     - approval and recommendation of the merger agreement and the merger by
       Video's board of directors;

     - required vote of Video stockholders;

     - Video's real property and intangible property and the condition of its
       personal and real property;

     - transactions and contracts with affiliates of Video;

     - Video not being subject to regulation as an investment company;

     - exemption of Liberty and AT&T from Section 203 of the Delaware General
       Corporation Law as applied to Video;

     - absence of excise tax obligations on behalf of Video;

     - accurate disclosure by Video to AT&T, Liberty and E-Group Merger Corp.;
       and

     - absence of any interest of Video in British Telecommunications plc.

     The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to read carefully the articles of the
merger agreement entitled "Representations and Warranties of the Company,"
"Representations and Warranties of Parent" and "Representations and Warranties
of Liberty Media."

                                       50
<PAGE>   57

CONDUCT OF VIDEO'S BUSINESS PENDING THE MERGER

     Video agreed in the merger agreement that, except as specifically
contemplated by the merger agreement and the other transaction documents, until
the merger is completed or unless AT&T and Liberty consent in writing, Video and
its subsidiaries will operate their businesses in the ordinary and usual course
of business consistent with past practices and use their reasonable best efforts
to:

     - preserve intact their present business organizations;

     - preserve their respective licenses;

     - keep available the services of their present officers and employees; and

     - preserve their relationships with customers, suppliers and others having
       business dealings with them to the end that their goodwill and on-going
       businesses shall be unimpaired at the effective time of the merger.

     Video also agreed that, except as specifically contemplated or expressly
permitted by the merger agreement and the other transaction documents, until the
merger is completed or unless Liberty and AT&T consent in writing, Video will
not propose to or take any of the following actions:

     - sell, grant, pledge or transfer or agree to sell, grant, pledge or
       transfer any of its or its subsidiaries' capital stock or other equity
       interests(other than Video common stock issuable pursuant to Video's
       warrants or stock options);

     - amend any of its organizational documents;

     - split, combine or reclassify its outstanding capital stock or issue or
       authorize or propose the issuance of any other securities in exchange for
       shares of the capital stock;

     - declare, set aside or pay any dividend or other distribution payable in
       cash, stock or property;

     - redeem, purchase or otherwise acquire, directly or indirectly, any shares
       of its capital stock or that of its subsidiaries;

     - take any action that would cause any of the representations and
       warranties to be untrue as of the closing date of the merger (except for
       changes expressly permitted by the merger agreement);

     - take any action that would cause any of the conditions to the completion
       of the merger not to be fulfilled;

     - issue, deliver, sell or encumber or agree to issue, deliver, sell or
       encumber any additional shares of, or stock or appreciation rights or
       rights of any kind to acquire shares of, its capital stock, or any
       options, rights or warrants to acquire shares of capital stock or
       convertible securities or any phantom shares or phantom equity, other
       than issuances of Video common stock pursuant to the exercise of warrants
       or stock options outstanding as of the date of the merger agreement;

     - amend or modify any outstanding options, warrants, convertible securities
       or other rights to acquire shares of its capital stock or other equity
       interests, or establish, amend or modify any stock option plan or other
       benefit plan;

     - make any changes in its equity capital structure;

     - acquire, lease or agree to acquire or lease any capital assets or any
       other assets, except capital assets or other assets the value of which,
       in the aggregate, does not exceed a specified amount set forth in the
       merger agreement;

     - dispose of or agree to dispose of any capital assets or other assets
       except in the ordinary course of business consistent with past practice;

                                       51
<PAGE>   58

     - incur additional debt, guarantee any debt, issue or sell any debt
       securities or warrants or rights to acquire any debt securities of Video
       or any of its subsidiaries, or guarantee any debt security of any other
       person, other than in the ordinary course of business consistent with
       past practice;

     - secure any of its outstanding unsecured debt, provide additional security
       for any of its outstanding secured debt or create or suffer to exist any
       lien on or with respect to any of its property, assets or rights, except
       for permitted encumbrances specified in the merger agreement;

     - sell, lease, encumber, grant a security interest in, or otherwise dispose
       of any assets which are material, individually or in the aggregate, to
       Video and its subsidiaries as a whole, other than in the ordinary course
       of business;

     - incur any liability or obligation, or contribute any asset, to a
       subsidiary of Video that is material to Video and its subsidiaries, other
       than in the ordinary course of business;

     - acquire or agree to acquire by merging or consolidating with, or by
       purchasing a substantial equity interest in, or by any other manner, any
       business or any corporation, partnership or other business organization
       or division thereof, in each case which are material, individually or in
       the aggregate, to Video and its subsidiaries taken as a whole and except
       as set forth in a schedule to the merger agreement; or

     - adopt, enter into, amend or terminate any contract, agreement,
       obligation, commitment or arrangement with respect to any of the
       foregoing that is not otherwise permitted by the exceptions applicable to
       the foregoing.

     Video also agreed that, except as specifically contemplated or expressly
permitted by the merger agreement and the other transaction documents, until the
merger is completed or unless AT&T and Liberty consent in writing, neither Video
nor any of its subsidiaries will:

     - adopt, enter into, terminate or amend any bonus, profit sharing,
       compensation, severance, stock option, retirement, employment or other
       agreement or arrangement for the benefit or welfare of any director,
       officer or current or former employee, except with respect to the
       agreements described in a schedule to the merger agreement;

     - increase compensation of any director, officer or employee, except for
       normal increases in the ordinary course of business consistent with past
       practice and that, in the aggregate, do not result in a material increase
       in benefits or compensation expense to Video and its subsidiaries
       relative to the level in effect prior to such increase;

     - pay any benefit not provided under any existing plan or arrangement;

     - except for benefits already earned or vested, grant any awards under any
       bonus or other compensation plan except for matching contributions to
       401(k) plans and the grant of employee stock options;

     - take any action to fund or in any way secure the payment of compensation
       or benefits under any plan, agreement or contract, other than in the
       ordinary course of business consistent with past practice;

     - make, or cause any of its subsidiaries to make, any investment in
       non-investment grade securities;

     - make, or cause any of its subsidiaries to make, any change in its
       accounting policies or procedures except as required by GAAP, or any
       material tax election, adopt or change any material tax accounting method
       unless required by GAAP, enter into any closing agreement, settle any tax
       claim or assessment or consent to any tax claim or assessment or any
       waiver of the statute of limitations for any such claim or assessment,
       without in any such case, the prior written consent of AT&T and Liberty,
       which consent shall not be unreasonably withheld or delayed;

     - modify or change any material license or contract, except in the ordinary
       course of business consistent with past practice;
                                       52
<PAGE>   59

     - pay, discharge or satisfy claims, liabilities or obligations other than
       in the ordinary course of business consistent with past practice and as
       otherwise expressly permitted by the merger agreement;

     - cancel any debts or waive any claims or rights, except in the ordinary
       course of business and consistent with past practice and as described on
       a schedule to the merger agreement;

     - accelerate the payment of, or prepay, any existing outstanding
       indebtedness, except in the ordinary course of business consistent with
       past practice;

     - other than as contemplated or otherwise permitted by the merger agreement
       and other than their normal cash management practices conducted in the
       ordinary and usual course of their businesses and consistent with past
       practice, make any advance or loan to or engage in any material
       transaction with any director, officer, partner or affiliate not required
       by the terms of an existing contract;

     - guarantee or otherwise become responsible for any indebtedness of any
       other person;

     - acquire or agree to acquire beneficial ownership of any shares of any
       class of capital stock of British Telecommunications plc; or

     - enter into or assume any contract or obligation, commitment or
       arrangement to perform any of the actions prohibited by the foregoing and
       not otherwise permitted by the exceptions contained therein.

     Video has agreed to use its reasonable best efforts to persuade each person
holding stock options issued under its 1993 option plan to exercise such stock
options prior to the effective time of the merger.

     Video's agreement regarding the conduct of its and its subsidiaries'
businesses until the merger is completed is complicated and not easily
summarized. You are urged to read carefully the section of the merger agreement
entitled "Conduct of the Company's Business Pending the Effective Time."

ALTERNATIVE MERGER

     The merger agreement provides that if, prior to the consummation of the
merger, AT&T effects a distribution to holders of Liberty Media Group tracking
stock of all of its interest in the assets comprising the Liberty Media Group at
such time, a redemption of the Liberty Media Group tracking stock in exchange
for such assets, or a similar transaction, AT&T will be fully released and
discharged from all of its obligations under the merger agreement and Video and
Liberty will amend the merger agreement to provide that Video will be acquired
by Liberty, or such other publicly-traded corporation that holds, directly or
indirectly, the assets formerly comprising the Liberty Media Group. Such an
alternative transaction would be effected, if at all, by means of a merger of a
direct wholly-owned subsidiary of Liberty or such other publicly-traded
corporation in which Video would be the surviving corporation in such merger. As
a result of this alternative merger, the stockholders of Video would be entitled
to receive a combination of cash and shares of the common stock of Liberty or
such other publicly-traded corporation which is intended to be equivalent in
value to the consideration to be received in the merger. The merger agreement
does not limit in any way AT&T's ability to effect such a distribution,
redemption or other transaction.

     It is a condition to any such alternative transaction that Video receive
the opinion of an investment bank of nationally recognized standing to the
effect that the stock consideration to be received by Video stockholders in such
alternative transaction is equivalent in value to the stock consideration which
would have been received had AT&T not effected such distribution, redemption or
other similar transaction. If Video is unable to obtain such an opinion, Liberty
or the applicable publicly-traded corporation, may, but will not be required to,
acquire Video for $5.50 per share in cash.

     On November 15, 2000, AT&T announced a plan to distribute ownership of the
Liberty Media Group to the holders of the Liberty Media Group tracking stock in
exchange for such tracking stock. AT&T has not yet determined the precise
structure or the timing of such distribution. The distribution is subject to

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<PAGE>   60

the receipt of a favorable tax ruling from the Internal Revenue Service. There
cannot be any assurance that the distribution of Liberty Media Group will be
completed or that changes in the distribution plan will not be made.

     We anticipate that the merger will be completed prior to the completion of
any such distribution of the Liberty Media Group. If we complete the merger
prior to such distribution, the shares of Class A Liberty Media Group tracking
stock issued to Video stockholders in the merger would be treated in the same
manner as any other shares of Class A Liberty Media Group tracking stock
outstanding at the time of any such distribution. If the distribution of the
Liberty Media Group is completed prior to the closing of the merger, AT&T will
be automatically released from all obligations under the merger agreement and
the provisions for an alternative merger described in this section will apply.

AMENDMENT, EXTENSION AND WAIVER

     We may amend the merger agreement, in writing by all of the parties to the
merger agreement, by action taken by our respective boards of directors, at any
time before or after the merger agreement and the merger are approved by Video's
stockholders. We may not amend the merger agreement if the amendment would
require further approval by Video's stockholders, unless that further approval
has been obtained. Several provisions of the merger agreement may be amended by
written consent of Video and Liberty only, without any action on the part of
AT&T or E-Group Merger Corp.

     At any time before the merger is completed, we may, by written instrument
signed by the waiving party, extend the time for performance of the obligations
of any other party to the merger agreement, waive inaccuracies in
representations and warranties of any other party contained in the merger
agreement, waive compliance by any other party with any agreements or covenants
in the merger agreement, or waive any condition to the waiving party's
obligation to complete the transactions contemplated in the merger agreement or
to any of the waiving party's other obligations under the merger agreement.

EXPENSES

     Except as set forth below, whether or not the merger is completed, as
between Video, on the one hand, and Liberty, on the other hand, all costs and
expenses incurred in connection with the merger agreement and the transactions
contemplated by the merger agreement will be paid by the party incurring the
cost or expense, except as otherwise provided in the merger agreement and except
that Video and Liberty will share equally the costs and expenses incurred in
connection with printing and mailing this proxy statement/prospectus, AT&T's
registration statement of which this proxy statement/prospectus forms a part
(and any amendment or supplement to the registration statement) and any
prospectus included in the registration statement and the costs of filings under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The merger agreement
specifically provides that the filing fee payable to the Securities and Exchange
Commission in connection with the filing of AT&T's registration statement will
be borne by Liberty.

     If the merger agreement is terminated by a party because another party to
the merger agreement has willfully breached its covenants, agreements or
representations and warranties contained in the merger agreement, the breaching
party will pay the costs and expenses incurred by the non-breaching party in
connection with the merger agreement and the transactions contemplated in the
merger agreement.

     Approximately $425,000 has been spent to date in connection with this proxy
statement/prospectus. We estimate that we will spend approximately $75,000 in
connection with this proxy statement/prospectus.

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<PAGE>   61

                          OTHER TRANSACTION AGREEMENTS

VOTING AGREEMENT

     As inducement for it to enter into the merger agreement, Liberty required
certain of Video's principal stockholders, including Louis H. Siracusano, Arnold
P. Ferolito, Donald H. Buck, Terrence A. Elkes, Kenneth Gorman and affiliates of
Sandler Capital Management to enter into a voting agreement. Mr. Siracusano is
the President and Chief Executive Officer of Video and Mr. Elkes is the Chairman
of the Board of Directors of Video.

     In the voting agreement, these stockholders agreed with Liberty to vote
their shares of Video common stock in favor of the merger agreement, the merger
and the other transactions contemplated by the merger agreement for which a
stockholder vote is required and against any alternative acquisition of Video.
Their shares consist of shares personally owned by them and shares contained in
certain trusts over which they act as trustees. However, these stockholders do
not have to vote their shares in favor of the merger agreement, the merger and
the other transactions contemplated by the merger agreement (x) if without the
consent of the stockholder, the merger agreement is amended and such amendment
materially changes the consideration to be received by Video stockholders in the
merger or imposes any material obligations on such stockholder following the
merger or (y) following 90 days after any termination of the merger agreement.

     As of November 17, 2000, these stockholders collectively controlled
9,534,269 shares of Video common stock (representing approximately 71.8% of the
total number of votes entitled to be cast at the special meeting by holders of
Video common stock). These stockholders were not paid additional consideration
in connection with the voting agreement.

     Each of these stockholders agreed not to sell, transfer, pledge, encumber,
assign or otherwise dispose of the shares of Video common stock directly or
indirectly controlled or owned by the stockholder that are covered by the voting
agreement, except for a transfer to any person who has agreed in writing to be
bound by the voting agreement. Each of these stockholders also agreed not to
grant any proxy or power of attorney with respect to the shares of Video common
stock directly or indirectly controlled or owned by the stockholder that are
covered by the voting agreement except as contemplated by the voting agreement
and the merger agreement and agreed not to take any action that would prevent
the stockholder from performing his obligations under the voting agreement. The
voting agreement will terminate upon the earlier of the date we complete the
merger and all of the other transactions contemplated by the merger agreement or
90 days following the termination of the merger agreement in accordance with its
terms. A copy of the voting agreement is attached as Annex C.

AMENDMENT TO TAX SHARING AGREEMENT

     AT&T, Liberty and other direct and indirect subsidiaries of AT&T have
entered into an amendment to the existing tax sharing agreement governing the
sharing, allocation and reimbursement of taxes by the members of the AT&T Common
Stock Group and the Liberty Media Group. Under this amendment, all tax items of
Video and all tax items arising out of the merger and the contemplated
restructuring transactions are generally allocated to the Liberty Media Group.

SUPPLEMENT TO INTER-GROUP AGREEMENT

     AT&T, Liberty and other members of the Liberty Media Group have entered
into a supplement to the existing inter-group agreement, which governs matters
between the AT&T Common Stock Group and the Liberty Media Group. This supplement
provides for, among other things, the completion of various restructuring
transactions by the AT&T Common Stock Group and the Liberty Media Group and the
allocation of potential liabilities arising out of the merger.

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<PAGE>   62

                       DESCRIPTION OF AT&T CAPITAL STOCK

RECENT DEVELOPMENTS

     On October 25, 2000 AT&T issued a press release describing a major
restructuring plan. A copy of this press release is filed as an Exhibit to
AT&T's Current Report on Form 8-K dated October 25, 2000. You are encouraged to
read this release in its entirety. Please see the section entitled "-- Where you
can find more information" on page 17 for instructions on obtaining this
release.

     The following description of the terms of AT&T's capital stock does not
purport to be complete and is qualified in its entirety by reference to AT&T's
charter, which we incorporate by reference in this proxy statement/prospectus.
For more information as to how you can obtain this document, see "Summary of
Proposed Merger -- Where You Can Find More Information" on page 17.

AUTHORIZED CAPITAL STOCK

     AT&T's charter provides that AT&T is authorized to issue 16.5 billion
shares of capital stock, consisting of:

     - 100 million shares of preferred stock, par value $1.00 per share; and

     - 16.4 billion shares of common stock.

     Of the 16.4 billion shares of authorized common stock:

     (1) 6 billion shares are shares of AT&T common stock, par value $1.00 per
         share;

     (2) 4 billion shares are shares of Class A Liberty Media Group common
         stock, par value $1.00 per share;

     (3) 400 million shares are shares of Class B Liberty Media Group common
         stock, par value $1.00 per share; and

     (4) 6 billion are shares of AT&T Wireless Group tracking stock.

     The Class A Liberty Media Group common stock and the Class B Liberty Media
Group common stock are referred to in this description of AT&T capital stock as
"Class A Liberty Media Group tracking stock" and "Class B Liberty Media Group
tracking stock," respectively, and, collectively, as "Liberty Media Group
tracking stock." As of October 31, 2000, 3,753,409,021 shares of AT&T common
stock, 2,369,760,656 shares of Class A Liberty Media Group tracking stock,
206,221,288 shares of Class B Liberty Media Group tracking stock, 360,971,000
shares of AT&T Wireless Group tracking stock and no shares of AT&T preferred
stock.

AT&T COMMON STOCK

Voting Rights

     After adjustments for recent stock splits:

     - holders of AT&T common stock are entitled to one vote for each share of
       stock held;

     - holders of Class B Liberty Media Group tracking stock are entitled to 3/8
       of a vote for each share of stock held;

     - holders of Class A Liberty Media Group tracking stock are entitled to
       3/80 of a vote for each share of stock held; and

     - holders of AT&T Wireless Group tracking stock are entitled to 1/2 of a
       vote for each share of stock held,

in each case on all matters voted on by shareholders, including elections of
directors. Except as otherwise required by law or provided in any resolution
adopted by AT&T's board of directors with respect to any

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<PAGE>   63

series of AT&T preferred stock, holders of AT&T stock possess all voting power.
AT&T's charter does not provide for cumulative voting in the election of
directors.

     AT&T's charter provides that, except as otherwise required by New York law,
any special voting rights of AT&T preferred stock or as set forth below, the
holders of AT&T common stock, Liberty Media Group tracking stock, AT&T Wireless
Group tracking stock and AT&T preferred stock, if any, entitled to vote with the
common shareholders will vote together as one class. The following circumstances
require the separate class approval of the Liberty Media Group tracking stock:

     - any amendment to AT&T's charter that would change the total number of
       authorized shares or the par value of Liberty Media Group tracking stock
       or that would adversely change the rights of Liberty Media Group tracking
       stock;

     - a Covered Disposition, as that term is defined in AT&T's charter, which
       generally includes a sale or transfer by AT&T of its equity interest in
       Liberty or Liberty Media Group LLC or a grant of a pledge or other
       security interest in the equity interest of AT&T in Liberty or Liberty
       Media Group LLC; and

     - any merger or similar transaction in which Liberty Media Group tracking
       stock is converted, reclassified or changed into or otherwise exchanged
       for any consideration, unless specified requirements are met that are
       generally intended to ensure that the rights of the holders are not
       materially altered and the composition of the holders is not changed.

Notwithstanding the foregoing, the separate approval of the holders of Liberty
Media Group tracking stock is not required in the case of a redemption of
Liberty Media Group tracking stock as described below under the heading
"-- Redemption of Liberty Media Group Trading Stock in Exchange for Stock of
Qualifying Subsidiary".

     AT&T's charter also includes an anti-dilution adjustment provision so that
the aggregate voting rights of AT&T common stock, AT&T Wireless Group tracking
stock and Liberty Media Group tracking stock will not change as a result of
stock splits, reverse stock splits, stock dividends or distributions.

Dividends

     General.  Provided that there are sufficient assets to pay a dividend on a
class of stock, AT&T's board of directors has the sole authority and discretion
to declare and pay dividends on Liberty Media Group tracking stock, AT&T
Wireless Group tracking stock or AT&T common stock. AT&T's charter provides that
dividends on Liberty Media Group tracking stock and AT&T Wireless Group tracking
stock are limited to an "available dividend amount" that is designed to be
equivalent to the amount that would legally be available for dividends on that
stock if the Liberty Media Group or the AT&T Wireless Group, as applicable, were
a stand-alone corporation. Dividends on AT&T common stock are limited to the
amount of legally available funds less the "available dividend amount" for the
Liberty Media Group tracking stock and the AT&T Wireless Group tracking stock.
AT&T's charter also provides that holders of Class A Liberty Media Group
tracking stock and Class B Liberty Media Group tracking stock receive equal
dividends per share. The exceptions to this are described under
"-- Distributions on Liberty Media Group Tracking Stock" below.

     Discrimination between Classes of Common Stock.  AT&T's charter does not
provide for mandatory dividends. Provided that there are sufficient assets to
pay a dividend on a class of stock as described in the preceding paragraph,
AT&T's board of directors has the sole authority and discretion to declare and
pay dividends, in equal or unequal amounts, on Liberty Media Group tracking
stock, AT&T Wireless Group tracking stock or AT&T common stock, regardless of
the respective available dividend amounts, prior dividend amounts declared,
liquidation rights or any other factor. As a result, AT&T's board of directors
could declare dividends on AT&T common stock and/or AT&T Wireless Group tracking
stock while not declaring dividends on Liberty Media Group tracking stock or
vice versa.

     Dividend Policy as to Liberty Media Group Tracking Stock.  The dividend
policy of AT&T's board of directors as it relates to Liberty Media Group
tracking stock generally provides that AT&T will distribute,

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<PAGE>   64

subject to limitations in AT&T's charter, any dividends AT&T receives from an
entity included in the Liberty Media Group to the holders of Liberty Media Group
tracking stock. This dividend policy may be amended, modified or rescinded only
by the unanimous consent of AT&T's board of directors.

Share Distributions

     AT&T may declare and pay a distribution consisting of shares of AT&T common
stock, AT&T Wireless Group tracking stock, Liberty Media Group tracking stock or
any other securities of AT&T or any other person (sometimes referred to in this
section as a "share distribution") only as set forth below.

     Distributions on AT&T Common Stock or AT&T Wireless Group Tracking
Stock.  AT&T may declare and pay share distributions to holders of AT&T common
stock or AT&T Wireless Group tracking stock that consist of any securities of
AT&T, any subsidiary of AT&T or any other person, except for shares of Liberty
Media Group tracking stock, securities attributed to the Liberty Media Group,
securities of any person included in the Liberty Media Group or securities
convertible, exercisable or exchangeable for any of the Liberty Media Group
securities described in this paragraph. However, securities attributable to a
group may be distributed to holders of another group only for consideration.

     Distributions on Liberty Media Group Tracking Stock.  AT&T may declare and
pay share distributions to holders of Liberty Media Group tracking stock that
consist of shares of:

     - Class A Liberty Media Group tracking stock on an equal per-share basis to
       all holders;

     - AT&T common stock on an equal per-share basis to all holders;

     - Class A Liberty Media Group tracking stock to Class A holders and Class B
       Liberty Media Group tracking stock to Class B holders; or

     - other AT&T securities or stock of any other person on an equal per-share
       basis or, to the extent practicable, on a basis that gives shares having
       greater relative voting rights and related differences to holders of
       Class B Liberty Media Group tracking stock.

Redemption of Liberty Media Group Tracking Stock in Exchange for Stock of
Qualifying Subsidiary

     AT&T's charter provides that AT&T may, at any time, redeem all of the
outstanding shares of Liberty Media Group tracking stock in exchange for all of
the shares of common stock of one or more "qualifying subsidiaries" (as defined
in AT&T's charter) that hold, in the aggregate, all of the assets and
liabilities of the Liberty Media Group and hold no other material assets and
liabilities. Any such redemption may only be made on a pro rata basis and must
be tax free to holders of Liberty Media Group tracking stock.

     In any such redemption, AT&T shall:

     - to the extent practicable, redeem shares of Class A Liberty Media Group
       tracking stock and Class B Liberty Media Group tracking stock in exchange
       for shares of separate classes or series of common stock of each such
       qualifying subsidiary with relative voting and related rights not greater
       than the corresponding differences in such rights between the two classes
       of Liberty Media Group tracking stock; and

     - to the extent that such a redemption is not practicable, redeem shares of
       Class A Liberty Media Group tracking stock and Class B Liberty Media
       Group tracking stock in exchange for shares of a single class of common
       stock of each such qualifying subsidiary, without distinction between the
       shares distributed to the holders of the Class A Liberty Media Group
       tracking stock and the shares distributed to the holders of the Class B
       Liberty Media Group tracking stock.

Liquidation Rights

     In the event of a voluntary or involuntary liquidation, dissolution or
winding up of AT&T (collectively, "liquidation"), AT&T's board of directors will
first pay or make provisions for the payment
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of AT&T's debts and other liabilities, including the liquidation preferences of
any outstanding AT&T preferred stock. Thereafter, holders of AT&T common stock,
holders of AT&T Wireless Group tracking stock and holders of Liberty Media Group
tracking stock will share in the funds remaining for distribution to AT&T's
common shareholders in the same proportion that the aggregate market
capitalization of AT&T common stock, the aggregate market capitalization of AT&T
Wireless Group tracking stock, and the aggregate market capitalization of
Liberty Media Group tracking stock, as applicable, bears to the aggregate market
capitalization of the AT&T common stock, the AT&T Wireless Group tracking stock
and the Liberty Media Group tracking stock, taken together. The market
capitalizations will be calculated based on the 20-trading day period ending on
the trading day prior to the public announcement of the liquidation. Holders of
Class A Liberty Media Group tracking stock and Class B Liberty Media Group
tracking stock will share equally, on a share-for-share basis.

     Neither the consolidation or merger of AT&T with another corporation nor
the sale, transfer or lease of all or substantially all of the assets of AT&T
will itself constitute a liquidation. In addition, any transaction or series of
related transactions that results in all of the assets and liabilities included
in the Liberty Media Group being held by one or more "qualifying subsidiaries"
(as defined in AT&T's charter) included in the Liberty Media Group, and the
distribution of the "qualifying subsidiary" (and no other material assets or
liabilities) to the holders of Liberty Media Group tracking stock, will not
constitute a liquidation, but will be subject to the provisions in AT&T's
charter regarding the redemption of Liberty Media Group tracking stock. Any
transaction or series of related transactions that results in all of the assets
and liabilities included in the AT&T Wireless Group being held by one or more
AT&T Wireless Group subsidiaries and the distribution of such AT&T Wireless
Group subsidiaries, and no other material assets or liabilities, to the holders
of the outstanding AT&T Wireless Group tracking stock will not constitute a
liquidation, but will be subject to the provisions in AT&T's charter regarding
the redemption of AT&T Wireless Group tracking stock.

Determinations by AT&T's Board of Directors

     Any determinations made by AT&T's board of directors under any provision
described under this section, "Description of AT&T Capital Stock," will be final
and binding on all of AT&T's stockholders, except as may otherwise be required
by law. AT&T will prepare and file with its Secretary a statement of any
determination by AT&T's board of directors relating to the fair market value of
any properties, assets or securities.

Relationship between the Groups

     Neither the Liberty Media Group, the AT&T Wireless Group nor the AT&T
Common Stock Group has any duty, responsibility or obligation to refrain from:

     - engaging in the same or similar activities or lines of business as any
       member of another group;

     - doing business with any potential or actual supplier or customer of any
       member of another group; or

     - engaging in, or refraining from, any other activities whatsoever relating
       to any of the potential or actual suppliers or customers of any member of
       another group.

     None of the directors or officers of the AT&T Common Stock Group, the AT&T
Wireless Group or the Liberty Media Group will have any duty, responsibility or
obligation to cause the respective groups to refrain from doing any of the
foregoing.

     Neither the Liberty Media Group, the AT&T Wireless Group nor the AT&T
Common Stock Group has any duty, responsibility or obligation:

     - to communicate or offer any business or other corporate opportunity to
       any other person, including any business or other corporate opportunity
       that may arise that any group may be financially able to

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<PAGE>   66

       undertake, and that is, from its nature, in the line of more than one
       group's business and is of practical advantage to more than one group;

     - to provide financial support to another group or any member of the group;
       or

     - otherwise to assist another group.

     None of the directors or officers of the AT&T Common Stock Group, the AT&T
Wireless Group or the Liberty Media Group has any duty, responsibility or
obligation to cause the respective groups to do any of the foregoing. In
addition, none of AT&T's directors or officers will be liable to AT&T or any
holder of any of its securities for any failure or alleged failure of the
officer or director to offer, or to cause the Liberty Media Group, the AT&T
Wireless Group or the AT&T Common Stock Group to offer, any group any corporate
opportunity of any kind or nature that is pursued by the group.

     Nothing set forth in the immediately preceding paragraphs will prevent any
member of the Liberty Media Group, the AT&T Wireless Group or the AT&T Common
Stock Group from entering into written agreements with another group to define
or restrict any aspect of the relationship between the groups.

No Preemptive Rights

     Holders of Liberty Media Group tracking stock do not have any preemptive
rights to subscribe for any additional shares of capital stock or other
obligations convertible into or exercisable for shares of capital stock that may
hereafter be issued by AT&T.

Transfer Agent and Registrar

     Boston Equiserve Trust Company, N.A. is the transfer agent and registrar
for the Class A Liberty Media Group common stock.

AT&T PREFERRED STOCK

     AT&T preferred stock may be issued from time to time in one or more series.
AT&T's board of directors is authorized to fix the number of shares of each
series, the designation of each series, and, subject to the other provisions of
AT&T's charter, the relative rights, preferences and limitations of each series
and the variations in the rights, preferences and limitations as between series.
There are currently no shares of AT&T preferred stock outstanding.

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             COMPARISON OF RIGHTS OF STOCKHOLDERS OF VIDEO AND AT&T

     If the merger is completed, stockholders of Video will hold shares of Class
A Liberty Media Group tracking stock and their rights as holders of Class A
Liberty Media Group tracking stock will be governed by AT&T's charter and AT&T's
bylaws, which differ in several material respects from Video's current charter
and Video's bylaws. As holders of Class A Liberty Media Group tracking stock,
the rights of Video stockholders will also be governed by the New York Business
Corporation Law instead of the Delaware General Corporation Law. New York is
AT&T's jurisdiction of incorporation and Delaware is Video's jurisdiction of
incorporation.

     The following comparison summarizes the material differences between the
New York Business Corporation Law, AT&T's charter and AT&T's bylaws, on the one
hand, and the Delaware General Corporation Law, Video's current charter and
Video's current bylaws, on the other hand, but is not intended to list all
differences.

BUSINESS COMBINATIONS

     Generally, under the Delaware General Corporation Law, the approval by the
affirmative vote of the holders of a majority of the outstanding stock or, if
the certificate of incorporation provides for more or less than one vote per
share, a majority of the votes of the outstanding stock, of a corporation
entitled to vote on the matter is required to complete a merger or consolidation
or sale, lease or exchange of all or substantially all the corporation's assets.

     Video's charter does not contain a provision related to voting on a merger
or consolidation or sale, lease or exchange of all or substantially all of the
corporation's assets.

     Under the New York Business Corporation Law, a plan of merger or
consolidation, a plan of share exchange or the sale, lease, exchange or other
disposition of all or substantially all of the assets of a corporation must be
approved:

     - in the case of corporations like AT&T that were in existence on February
       22, 1998 and that do not expressly provide in their certificates of
       incorporation for majority approval of these transactions, by two-thirds
       of the votes of all outstanding shares entitled to vote on the
       transaction; and

     - in the case of all other corporations, by a majority of the votes of all
       outstanding shares entitled to vote on the transaction.

     AT&T's charter does not contain a provision expressly providing for
majority approval of these types of transactions.

     The New York Business Corporation Law also provides that the holders of
shares of a class, or series of a class, of capital stock of a corporation will
be entitled to vote together and to vote as a separate class on any merger or
consolidation in which:

     - the holder's shares will remain outstanding after the merger or
       consolidation or will be converted into the right to receive shares of
       stock of the surviving or consolidated corporation or another
       corporation; and

     - the charter of the surviving or consolidated corporation or other
       corporation immediately after the merger or consolidation is effective:

          (1) will contain any provision that is not contained in the charter of
              the pre-merger corporation; and

          (2) if the provision was contained in an amendment to the pre-merger
              charter, the shareholders would be entitled to vote as a separate
              class under the procedures of the New York Business Corporation
              Law for class voting on charter amendments discussed under
              "-- Amendments to Charters" below.

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<PAGE>   68

STATE TAKEOVER LEGISLATION

Delaware Business Combination Law

     Delaware General Corporation Law Section 203, in general, prohibits a
business combination between a corporation and an interested stockholder within
three years of the time the stockholder became an interested stockholder,
unless:

     - prior to the time the board of directors of the corporation approved
       either the business combination or the transaction that resulted in the
       stockholder becoming an interested stockholder;

     - upon completion of the transaction that resulted in the stockholder
       becoming an interested stockholder, the interested stockholder owned at
       least 85% of the voting stock of the corporation outstanding at the time
       the transaction began, exclusive of shares owned by directors who are
       also officers and by employee stock plans; or

     - at or after the time the stockholder became an interested stockholder,
       the business combination is approved by the board of directors and
       authorized at an annual or special stockholders' meeting by the
       affirmative vote of at least 66 2/3% of the outstanding voting stock
       which is not owned by the interested stockholder.

     The term "business combination" is defined to include, among other
transactions between an interested stockholder and the corporation or any direct
or indirect majority owned subsidiary of the corporation:

     - a merger or consolidation;

     - a sale, pledge, transfer or other disposition (including as part of a
       dissolution, but other than to the interested stockholder proportionately
       as a stockholder) of assets having an aggregate market value equal to 10%
       or more of either the aggregate market value of all assets of the
       corporation on a consolidated basis or the aggregate market value of all
       the outstanding stock of the corporation;

     - transactions that would increase the interested stockholder's
       proportionate share ownership of the stock of any class or series of the
       corporation or majority owned subsidiary; and

     - any receipt by the interested stockholder (other than proportionately as
       a stockholder) of the benefit of any loans, advances, guarantees, pledges
       or other financial benefits provided by or through the corporation or any
       majority owned subsidiary.

     In general, and subject to several exceptions, an "interested stockholder"
is any person who is the owner of 15% or more of the outstanding voting stock
(or, in the case of a corporation with classes of voting stock with disparate
voting power, 15% or more of the voting power of the outstanding voting stock)
of the corporation, and the affiliates and associates of that person.

     The term "owner" is broadly defined to include any person that,
individually or with or through that person's affiliates or associates, among
other things, beneficially owns the stock, or has the right to acquire the
stock, whether or not the right is immediately exercisable, under any agreement
or understanding or upon the exercise of warrants or options or otherwise or has
the right to vote the stock under any agreement or understanding, or has an
agreement or understanding with the beneficial owner of the stock for the
purpose of acquiring, holding, voting or disposing of the stock.

     The restrictions in Section 203 do not apply to corporations that have
elected, in the manner provided in Section 203, not to be subject to the
Delaware Business Combination Law or, with certain exceptions, which do not have
a class of voting stock that is listed on a national securities exchange or
authorized for quotation on the Nasdaq National Market or held of record by more
than 2,000 stockholders. Because Video's charter and Video's bylaws do not opt
out of Section 203, Section 203 is applicable to the merger. Video's board of
directors unanimously approved the merger and the transactions contemplated by
the merger agreement prior to the time that either AT&T or E-Group Merger Corp.
became an interested stockholder for purposes of Section 203. See "The Merger
Agreement -- Representations and Warranties" on page 49.

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<PAGE>   69

New York Business Combination Law

     Section 912 of the New York Business Corporation Law prohibits any
"business combination" (defined to include a variety of transactions, including
mergers, sales or dispositions of assets, issuances of stock, liquidations,
reclassifications and benefits from the corporation, including loans or
guarantees) with, involving or proposed by any "interested shareholder" for a
period of five years after the date on which the interested shareholder became
an interested shareholder. "Interested shareholder" is defined generally as any
person who, directly or indirectly, beneficially owns 20% or more of the
outstanding voting stock of a New York corporation. These restrictions do not
apply, however, to any business combination with an interested shareholder if
the business combination, or the purchase of stock by the interested shareholder
that caused the shareholder to become an interested shareholder was approved by
the board of directors of the New York corporation prior to the date on which
the interested shareholder became an interested shareholder. After the five-year
period, a business combination between a New York corporation and the interested
shareholder is prohibited unless either the "fair price" provisions set forth in
Section 912 are complied with or the business combination is approved by a
majority of the outstanding voting stock not beneficially owned by the
interested shareholder or its affiliates and associates.

     A New York corporation may adopt an amendment to its bylaws, approved by
the affirmative vote of a majority of votes of the outstanding voting stock,
excluding the voting stock of interested shareholders and their affiliates and
associates, expressly electing not to be governed by Section 912. The amendment
will not, however, be effective until 18 months after the shareholder vote and
will not apply to any business combination with a shareholder who was an
interested shareholder on or prior to the effective date of the amendment.
AT&T's bylaws do not contain a provision electing not to be governed by Section
912.

APPRAISAL RIGHTS

     Under the Delaware General Corporation Law, except as otherwise provided by
the Delaware General Corporation Law, stockholders of a constituent corporation
in a merger or consolidation have the right to demand and receive payment of the
fair value of their stock in a merger or consolidation. However, except as
otherwise provided by the Delaware General Corporation Law, stockholders do not
have appraisal rights in a merger or consolidation if, among other things, their
shares are:

     - listed on a national securities exchange or designated as a national
       market system security on an inter-dealer quotation system by the
       National Association of Securities Dealers, Inc.; or

     - held of record by more than 2,000 stockholders; and,

     in each case, the consideration the stockholders receive for their shares
in a merger or consolidation consists solely of:

     - shares of stock of the corporation surviving or resulting from the merger
       or consolidation;

     - shares of stock of any other corporation that at the effective date of
       the merger or consolidation will be either listed on a national
       securities exchange, or designated as a national market system security
       on an inter-dealer quotation system by the NASD or held of record by more
       than 2,000 stockholders;

     - cash in lieu of fractional shares of the corporations described in the
       two immediately preceding bullet points; or

     - any combination of shares of stock and cash in lieu of fractional shares
       described in the three immediately preceding bullet points.

     In the merger, Video's stockholders are entitled to appraisal rights
because they will receive, as a result of the merger, both shares of Class A
Liberty Media Group tracking stock and cash.

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<PAGE>   70

     Except as otherwise provided by the New York Business Corporation Law,
stockholders of a New York corporation whose shares are not listed on a national
securities exchange or designated as a national market system security on an
inter-dealer quotation system by the NASD have the right to dissent and receive
payment of the fair value of their shares, if the corporation:

     - amends or changes its certificate of incorporation in a manner that
       adversely affects their shares;

     - is involved in a merger or consolidation of a specified type; or

     - sells, leases, exchanges or otherwise disposes of all or substantially
       all of its assets or effects an exchange of its shares.

AMENDMENTS TO CHARTERS

     Under the Delaware General Corporation Law, unless a corporation's
certificate of incorporation requires a greater vote, a proposed amendment to a
corporation's certificate of incorporation requires an affirmative vote of a
majority of the voting power of the outstanding stock entitled to vote on the
amendment and a majority of the voting power of the outstanding stock of any
class entitled to vote on the amendment separately as a class.

     Except as described below, if a proposed amendment to the certificate of
incorporation would change the aggregate number of authorized shares of any
class of capital stock, the par value of the shares of any class of capital
stock, or alter or change the powers, preferences or special rights of the
shares of any class of capital stock so as to affect them adversely, the
Delaware General Corporation Law requires that the amendment be approved by the
holders of a majority of the outstanding shares of the affected class, voting
separately as a class, whether or not the class is entitled to vote on the
amendment by the certificate of incorporation. If a proposed amendment would
alter or change the powers, preferences or special rights of one or more series
of any class so as to affect them adversely, but would not affect the remainder
of the class, then only the shares of the series so affected would be entitled
to vote as a separate class on the proposed amendment. The authorized number of
shares of any class of stock may be increased or decreased (but may not be
decreased below the number of outstanding shares in the class) without a
separate vote of stockholders of the class if so provided in the original
certificate of incorporation or in any amendment thereto that created the class
of stock or that was adopted prior to the issuance of any shares of the class,
or in an amendment authorized by a majority vote of the holders of shares of the
class.

     Under the New York Business Corporation Law, proposed amendments to a
certificate of incorporation must be authorized by a New York corporation's
board of directors and generally must be approved by vote of a majority of all
outstanding shares entitled to vote on the proposed amendment at a stockholder's
meeting. The approval of a majority of the votes of all outstanding shares of
any class of capital stock of a corporation, voting separately as a class, is
required to approve a proposed amendment to a corporation's certificate of
incorporation, whether or not the holders are otherwise entitled to vote on the
amendment by the certificate of incorporation, that:

     - would decrease the par value of the shares of the class, change any
       shares of the class into a different number of shares of the same class
       or into the same or a different number of shares of a different class,
       alter or change the designation, relative rights, preferences or
       limitations of the shares of the class or provide new conversion rights
       or the alteration of any existing conversion rights, so as to affect them
       adversely;

     - would exclude or limit the voting rights of the shares of the class,
       except as such rights may be limited by voting rights given to new shares
       then being authorized of any existing or new class or series of shares;
       or

     - would subordinate the rights of the shares of the class by authorizing
       shares having preferences superior to the rights of the existing shares.

     If a proposed amendment would have any of the effects discussed in the last
sentence of the previous paragraph only on one or more series of any class so as
to affect them adversely, but would not affect the
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<PAGE>   71

remainder of the class, then only the shares of the series affected by the
proposed amendment would be entitled to vote as a separate class on the proposed
amendment. The holders of Liberty Media Group tracking stock also have a class
vote under other circumstances.

AMENDMENTS TO BYLAWS

     Under the Delaware General Corporation Law, the power to adopt, alter and
repeal a corporation's bylaws is vested in the stockholders, except to the
extent that a corporation's certificate of incorporation vests concurrent power
in the board of directors.

     Video's current charter vests the power to make, alter or repeal the
by-laws of the corporation with the board of directors.

     Under the New York Business Corporation Law, except as otherwise provided
in a corporation's certificate of incorporation, a corporation's bylaws may be
amended, repealed or adopted by a majority of the votes cast by the shares
entitled to vote in the election of any directors. When provided in the
certificate of incorporation or a bylaw adopted by the shareholders, bylaws also
may be amended, repealed or adopted by the board of directors by the vote
specified, which vote may be greater than the vote otherwise prescribed by the
New York Business Corporation Law, but any bylaw adopted by the board of
directors may be amended or repealed by the shareholders as provided by the New
York Business Corporation Law. AT&T's bylaws may be amended by AT&T's
shareholders at any meeting, or by AT&T's board of directors at any meeting by a
majority vote of the full AT&T board or at two successive meetings by a majority
vote of the board of directors present, provided that a quorum is present.

NO PREEMPTIVE RIGHTS

     Under the Delaware General Corporation Law, a stockholder does not possess
preemptive rights unless preemptive rights are specifically granted in a
corporation's certificate of incorporation. Video's charter does not provide for
preemptive rights to stockholders.

     Under the New York Business Corporation Law, except as otherwise provided
in the New York Business Corporation Law or in a corporation's certificate of
incorporation, holders of equity shares of any corporation incorporated prior to
February 22, 1998, like AT&T, are granted preemptive rights. AT&T's charter
provides that no holder of AT&T common stock has any preemptive rights.

REDEMPTION OF CAPITAL STOCK

     Under the Delaware General Corporation Law, subject to several limitations,
a corporation's capital stock may be made subject to redemption by the
corporation at its option, at the option of its stockholders or otherwise.

     Under the New York Business Corporation Law, subject to several
limitations, a corporation's certificate of incorporation may provide for one or
more classes or series of shares to be redeemable at the option of the
corporation, the holders of the class or series, other persons or upon the
happening of specified events for cash, other property, debt or other securities
of the same or another corporation, at the time or times, price or prices, or
rate or rates, and with any adjustments, that are stated in the certificate of
incorporation. AT&T's charter does not contain this type of provision.

DIVIDEND SOURCES

     Under the Delaware General Corporation Law, a board of directors may
authorize a corporation to declare and pay dividends and other distributions to
its stockholders, subject to any restrictions contained in the corporation's
certificate of incorporation, either out of surplus, or, if there is no surplus,
out of net profits for the current or preceding fiscal year in which the
dividend is declared. However, a distribution out of net profits is not
permitted if a corporation's capital is less than the amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, until the deficiency has been
repaired.
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     Video's current charter does not contain any restrictions on the
declaration or payment of dividends.

     Under the New York Business Corporation Law, a corporation may declare and
pay dividends or make other distributions, except when it is insolvent or would
thereby be made insolvent, or when the declaration, payment or distribution
would be contrary to any restrictions contained in its certificate of
incorporation. Except as otherwise provided in the New York Business Corporation
Law, dividends may be declared and paid and other distributions may only be made
out of surplus, so that the net assets of the corporation remaining after the
declaration, payment or distribution must at least equal the amount of its
stated capital. A corporation may declare and pay dividends or make other
distributions, except when it is insolvent or would thereby be made insolvent,
or when the declaration, payment or distribution would be contrary to any
restrictions contained in its certificate of incorporation.

     No cash dividends have ever been paid on Class A Liberty Media Group
tracking stock and it is not expected that any cash dividends will be paid on
Class A Liberty Media Group tracking stock in the foreseeable future.

DURATION OF PROXIES

     Under the Delaware General Corporation Law, a proxy is only valid for three
years after its date unless otherwise provided in the proxy. A proxy is
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
proxy may be made irrevocable regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the corporation
generally.

     Under the New York Business Corporation Law, no proxy is valid more than 11
months after its date unless otherwise provided in the proxy. Irrevocable
proxies may be created for a:

     - pledgee;

     - person who has purchased or agreed to purchase the shares;

     - creditor of the corporation who extends credit in consideration of the
       proxy;

     - person who has contracted to perform services as an officer of the
       corporation if a proxy is required by the employment contract; and

     - person designated under a voting agreement.

STOCKHOLDER ACTION

     Under the Delaware General Corporation Law, unless otherwise provided in a
corporation's certificate of incorporation, any action required or permitted to
be taken at a stockholders' meeting may be taken without a meeting, without
prior notice and without a vote, if a written consent setting forth the action
taken is signed by the holders of outstanding stock having at least the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote upon the action were present and
voted.

     Video's charter provides that no action required or permitted to be taken
at a stockholder meeting may be taken without a meeting, and the power of
stockholders to consent in writing without a meeting is specifically denied.

     The New York Business Corporation Law provides that stockholder action may
be taken without a meeting upon the written consent of the holders of all
outstanding shares entitled to vote, and also allows, if a corporation's
certificate of incorporation provides, stockholder action without a meeting upon
the written consent of holders of outstanding shares having at least the minimum
number of votes that would be necessary to authorize the action at a meeting at
which all shares entitled to vote upon the action were present and voted. AT&T's
charter does not contain this type of a provision.

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NOMINATION PROCEDURES AND STOCKHOLDER PROPOSALS

     Video's current bylaws provide for procedures for stockholder nominations
of directors and stockholder proposals. For a shareholder to properly bring
business before an annual meeting, or nominate a director, the shareholder must
have delivered written notice to Video containing the information specified in
Video's bylaws not less than 60 days and no more than 90 days prior to the
anniversary date of the immediately preceding annual meeting. This requirement
is in addition to the requirements that a shareholder must meet to have a
shareholder proposal included in Video's proxy statement under SEC Rule 14a-8.

     AT&T's bylaws require that, for a shareholder to properly bring business
before or nominate directors at an annual meeting, the shareholder must have
delivered written notice to AT&T containing the information specified in AT&T's
bylaws not less than 90 and no more than 120 days prior to the first anniversary
of the preceding year's annual meeting. This requirement is in addition to the
requirements that a shareholder must meet to have a shareholder proposal
included in AT&T's proxy statement under SEC Rule 14a-8.

SPECIAL STOCKHOLDER MEETINGS

     The Delaware General Corporation Law provides that a special meeting of
stockholders may be called by the board of directors or by any person or persons
as may be authorized by a corporation's certificate of incorporation or by the
bylaws.

     Under Video's current bylaws, special meetings of the stockholders may be
called only by resolution of the board of directors or by the president.

     The New York Business Corporation Law provides that, if, for a period of
one month after the date fixed by or under the bylaws for the annual
shareholders' meeting or, if no date has been so fixed, for a period of 13
months after the last annual meeting, there is a failure to elect a sufficient
number of directors to conduct the corporation's business, the board of
directors must call a special meeting for the election of directors. If the
board of directors does not call a special meeting within two weeks after the
expiration of the 13 month period or if it is called but directors are not
elected for a period of two months after the expiration of the 13 month period,
holders of 10% of the votes of the shares entitled to vote in an election of
directors may, in writing, demand the call of a special meeting for the election
of directors. The New York Business Corporation Law provides that a
corporation's board of directors or any person authorized by a corporation's
certificate of incorporation or bylaws may call a special shareholders' meeting.
AT&T's bylaws provide that only the Chairman of AT&T's board of directors or
AT&T's board of directors may call a special shareholders' meeting.

CUMULATIVE VOTING

     Under the Delaware General Corporation Law, a corporation's certificate of
incorporation may provide that at all elections of directors, or at elections
held under specified circumstances, each stockholder is entitled to cumulative
voting. Video's current charter does not contain a provision relating to
cumulative voting.

     Under the New York Business Corporation Law, the certificate of
incorporation may provide that in all elections of directors each stockholder is
entitled to cumulative voting. AT&T's charter does not provide for cumulative
voting in the election of directors.

SIZE OF THE BOARD OF DIRECTORS; STAGGERED BOARD

     The Delaware General Corporation Law permits a corporation's certificate of
incorporation or bylaws to contain provisions governing the number and terms of
directors. However, if the certificate of incorporation contains provisions
fixing the number of directors, the number may not be changed without amending
the certificate of incorporation. The Delaware General Corporation Law also
permits a corporation's certificate of incorporation or a bylaw adopted by the
stockholders to provide that directors be divided into one, two or three
classes, with the term of office of one class of directors to expire each
                                       67
<PAGE>   74

year. The Delaware General Corporation Law further permits the certificate of
incorporation to confer upon holders of any class or series of stock the right
to elect one or more directors to serve for the terms and have the voting powers
contained in the certificate of incorporation. The terms of office and voting
powers of directors so elected may be greater or less than those of any other
director or class of directors.

     Video's current bylaws provide for a board of directors of seven members,
provided that the number of directors may be changed by a resolution of a
majority of the entire board or the stockholders.

     Subject to several limitations, the New York Business Corporation Law
permits the number of directors of a corporation to be fixed by its bylaws, by
action of the shareholders or by action of the board of directors under the
specific provision of a bylaw adopted by the shareholders. The number of
directors may be increased or decreased, subject to several limitations set
forth in the New York Business Corporation Law. At each annual shareholders'
meeting, directors are to be elected to hold office until the next annual
meeting, except as described below for corporations with classified boards. The
New York Business Corporation Law also permits a corporation's certificate of
incorporation, or the specific provisions of a bylaw adopted by the
shareholders, to provide that directors be divided into either two, three or
four classes. All classes must be as nearly equal in number as possible. The
term of office of one class of directors shall expire each year, with the terms
of office of no two classes expiring the same year. Recent amendments to the New
York Business Corporation Law delete the requirement of at least three directors
in any class. AT&T's charter provides that the number of directors shall be as
provided for in AT&T's bylaws. AT&T's bylaws provide that the number of
directors shall be not less than 10 and no more than 25, the exact number of
directors to be fixed and determined by the vote of a majority of AT&T's entire
board of directors. AT&T does not have a classified board of directors.

REMOVAL OF DIRECTORS

     The Delaware General Corporation Law provides that a corporation's
directors may be removed with or without cause by the holders of a majority in
voting power of the shares then entitled to vote at an election of directors,
except that:

     - members of a classified board of directors may be removed only for cause,
       unless the certificate of incorporation provides otherwise; and

     - in the case of a corporation having cumulative voting, if less than the
       entire board of directors is to be removed, no director may be removed
       without cause if the votes cast against the director's removal would be
       sufficient to elect the director if then cumulatively voted at an
       election of the entire board of directors or of the class of directors of
       which the director is a part.

     Video's current charter provides that a director may be removed at any
time, with or without cause, by a vote of the stockholders.

     The New York Business Corporation Law provides that any or all of a
corporation's directors may be removed for cause by a vote of its shareholders,
and, if the certificate of incorporation or the specific provisions of a bylaw
adopted by its shareholders provides, a director may be removed for cause by
action of the board of directors. An action to procure a judgment removing a
director for cause may be brought by the Attorney General of the State of New
York or by the holders of 10% of the outstanding shares, whether or not entitled
to vote. If the certificate of incorporation or bylaws provide, any or all of
the directors may be removed without cause by vote of the corporation's
shareholders.

     The removal of directors, with or without cause, is subject to the
following:

     - in the case of a corporation having cumulative voting, no director may be
       removed when the votes cast against the director's removal would be
       sufficient to elect the director if voted cumulatively; and

     - if a director is elected by the holders of shares of any class or series,
       that director may be removed only by the applicable vote of the holders
       of the shares of that class or series voting as a class.

                                       68
<PAGE>   75

     Neither AT&T's charter nor AT&T's bylaws provide that its directors may be
removed without cause by AT&T's common stockholders or by AT&T's board of
directors.

VACANCIES

     Under the Delaware General Corporation Law, unless otherwise provided in a
corporation's certificate of incorporation or bylaws, vacancies on a
corporation's board of directors and newly created directorships resulting from
an increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by the sole
remaining director. However, in the case of a classified board of directors,
vacancies and newly created directorships may be filled by a majority of the
directors elected by the class or by the sole remaining director so elected.
Directors elected to fill vacancies or newly created directorships on a
classified board of directors hold office until the next election of the class
for which the directors have been chosen, and until their successors have been
duly elected and qualified. In addition, if, at the time any vacancy or newly
created directorship is filled, the directors in office constitute less than a
majority of the whole board of directors (as constituted immediately prior to
any increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least 10% of the total number of
outstanding shares entitled to vote for the directors, summarily order an
election to fill any such vacancy or newly created directorship, or replace the
directors chosen by the directors then in office.

     Video's current bylaws provide that any vacancies on Video's board of
directors, including one created by an increase in the number of directors, may
be filled for the unexpired term by a majority vote of the remaining directors,
though less than a quorum.

     Under the New York Business Corporation Law, newly created directorships
resulting from an increase in the number of directors and vacancies occurring on
the board of directors for any reason, except the removal of directors without
cause, may be filled by vote of the board of directors. Unless a corporation's
certificate of incorporation or bylaws provide otherwise, a vacancy in a
directorship elected by holders of a particular class of shares shall be filled
by the vote of the other directors elected by holders of the same class of
shares. However, the certificate of incorporation or bylaws may provide that
such newly created directorships or vacancies are to be filled by vote of the
shareholders. Unless the certificate of incorporation or the specific provisions
of a bylaw adopted by the shareholders provide that the board of directors may
fill vacancies occurring on the board of directors by reason of the removal of
directors without cause, such vacancies may be filled only by vote of the
shareholders. A director elected to fill a vacancy, unless elected by the
shareholders, will hold office until the next shareholders' meeting at which the
election of directors is in the regular order of business and until his or her
successor has been elected and qualified. Notwithstanding the foregoing, unless
otherwise provided in a corporation's certificate of incorporation or bylaws,
whenever the holders of one or more classes or series of shares are entitled to
elect one or more directors by the certificate of incorporation, any vacancy
that may be filled by the board or a majority of the directors then in office
shall be filled by a majority of the directors then in office that were elected
by such class or series. AT&T's bylaws provide that any vacancy on AT&T's board
of directors may be filled by a majority vote of the remaining directors, though
less than a quorum.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Delaware law generally permits a corporation to indemnify its directors and
officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with a third-party action, other
than a derivative action, and against expenses actually and reasonably incurred
in the defense or settlement of a derivative action, provided that there is a
determination that the individual acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation. The
determination must be made, in the case of an individual who is a director or
officer at the time of determination, by:

     - a majority of the directors who are not parties to the action, suit or
       proceeding, even though less than a quorum;

                                       69
<PAGE>   76

     - a committee of these directors designated by a majority vote of these
       directors, even though less than a quorum;

     - independent legal counsel, in a written opinion; or

     - a majority vote of the stockholders, at a meeting at which a quorum is
       present.

     Without court approval, however, an individual may not be indemnified in
any claim, issue or matter in a derivative action as to which the individual is
adjudged liable to the corporation. Delaware law requires indemnification of
directors and officers for expenses relating to a successful defense on the
merits or otherwise of a derivative or third-party action. Delaware law permits
a corporation to advance expenses incurred in the defense of any proceeding to
directors and officers contingent upon an undertaking by or on behalf of the
individuals to repay any advances if it is determined ultimately that the
individuals are not entitled to be indemnified. Under Delaware law, the rights
to indemnification and advancement of expenses provided in the law are
non-exclusive, in that, subject to public policy issues, indemnification and
advancement of expenses beyond that provided by statute may be provided by
bylaw, agreement, vote of stockholders, disinterested directors or otherwise.

     Video's current charter and bylaws provide that Video officers and
directors (and the heirs, executors and administrators of such officers and
directors) will be indemnified to the fullest extent permitted by Section 145 of
the General Corporation Law of Delaware.

     Under the New York Business Corporation Law, a corporation may indemnify
its directors and officers that are made, or are threatened to be made, a party
to any action or proceeding, except for stockholder derivative suits, against
judgments, fines, amounts paid in settlement and reasonable expenses incurred as
a result of the action or proceeding if the director or officer acted in good
faith, for a purpose that he or she reasonably believed to be in the best
interests of the corporation or, in the case of service to another corporation
or enterprise, not opposed to the best interests of the corporation. In criminal
proceedings, in addition to the preceding conditions, the director or officer
must not have had reasonable cause to believe that his or her conduct was
unlawful. In the case of shareholder derivative suits, the corporation may
indemnify a director or officer if he or she acted in good faith for a purpose
that he or she reasonably believed to be in or, in the case of service to
another corporation or enterprise, not opposed to the best interests of the
corporation, except that, in either case, no indemnification may be made in
respect of:

     - a threatened action, or an action that is settled or otherwise disposed
       of; or

     - any claim, issue or matter as to which such individual has been adjudged
       to be liable to the corporation, unless and only to the extent that the
       court in which the action was brought, or, if no action was brought, any
       court of competent jurisdiction, determines, upon application, that, in
       view of all the circumstances of the case, the individual is fairly and
       reasonably entitled to indemnity for such portion of the settlement
       amount and expenses as the court deems proper.

     Any individual who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the New York Business Corporation Law, any indemnification
under the New York Business Corporation Law pursuant to the above paragraph may
be made only if authorized in the specific case and after a finding that the
director or officer met the applicable standard of conduct by the disinterested
directors if a quorum is available, or if the quorum so directs or is
unavailable, by the board of directors upon the written opinion of independent
legal counsel, or the stockholders.

     A corporation may advance expenses incurred by a director or officer in
defending any action or proceeding prior to its final disposition upon receipt
of an undertaking by or on behalf of the officer or director to repay the
advance to the extent the advance exceeds the indemnification to which the
officer or director is entitled.

                                       70
<PAGE>   77

     The indemnification described above under the New York Business Corporation
Law is not exclusive of other indemnification rights to which a director or
officer may be entitled, whether contained in the certificate of incorporation
or bylaws, or, when authorized by the certificate of incorporation or bylaws
contained in:

     - a resolution of shareholders;

     - a resolution of directors; or

     - an agreement providing for indemnification,

provided that indemnification may not be made to or on behalf of any director or
officer if a judgment or other final adjudication adverse to the director or
officer establishes that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled.

     AT&T's bylaws provide that AT&T is authorized, to the fullest extent
permitted by applicable law, to provide indemnification and to advance expenses
to its directors and officers by resolution of shareholders or directors or by
an agreement providing for indemnification, in each case for claims, actions,
suits or proceedings based upon, arising from, relating to or by reason of the
fact that any director or officer serves or served in such capacity with AT&T,
or at AT&T's request, in any capacity with any other enterprise.

     AT&T has entered into indemnification agreements with some of its officers
and directors in accordance with AT&T's bylaws.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling AT&T under the
foregoing provisions, AT&T has been informed that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.

LIMITATION OF PERSONAL LIABILITY OF DIRECTORS

     The Delaware General Corporation Law provides that a corporation's
certificate of incorporation may include a provision limiting a director's
personal liability to the corporation or its stockholders for monetary damages
for breach of his or her fiduciary duty as a director. However, the certificate
of incorporation may not contain a provision that eliminates or limits a
director's liability for:

     - any breach of the director's duty of loyalty to the corporation or its
       stockholders;

     - acts or omissions not in good faith or that involve intentional
       misconduct or a knowing violation of the law;

     - violation of certain provisions of the Delaware General Corporation Law;

     - any transaction from which the director derived an improper personal
       benefit; or

     - any act or omission that occurred before the provision limiting director
       liability was adopted.

     Video's current charter provides that, subject to the limitations in the
preceding paragraph, no director will be personally liable to Video or its
stockholders for monetary damages for breach of fiduciary duty as a director for
any act or omission.

     The New York Business Corporation Law provides that a corporation's
certificate of incorporation may contain a provision eliminating or limiting a
director's personal liability to the corporation or its shareholders for damages
for any breach of duty in his or her capacity as a director. However, the
certificate of incorporation may not contain a provision that eliminates or
limits a director's liability:

     - if a judgment or other final adjudication adverse to the director
       establishes that the director's acts or omissions were in bad faith or
       involved intentional misconduct or a knowing violation of law, that the
       director personally gained in fact a financial profit or other advantage
       to which the director was
                                       71
<PAGE>   78

       not legally entitled, or that the director's acts violated certain
       provisions of the New York Business Corporation Law; or

     - for any act or omission that occurred before the provision limiting
       director liability was adopted.

     AT&T's charter provides that directors will not be personally liable to
AT&T or any of its shareholders for damages for any breach of duty as a
director. However, a director's liability will not be eliminated or limited:

     - if a judgment or other final adjudication adverse to him or her
       establishes that his or her acts or omissions were in bad faith or
       involved intentional misconduct or a knowing violation of law, that he or
       she personally gained in fact a financial profit or other advantage to
       which he or she was not legally entitled, or that his or her acts
       violated Section 719 of the New York Business Corporation Law (which
       includes declaration of dividends, purchase of capital stock,
       distribution of assets to shareholders after dissolution of the
       corporation and loans to directors to the extent contrary to New York
       law); or

     - for any act or omission that occurred before the provision limiting
       director liability was adopted by AT&T's shareholders.

CASE LAW AND COURT SYSTEMS

     There is a substantial body of case law in Delaware interpreting the
corporation laws of that state. The body of case law interpreting the
corporation laws of New York is not as developed as that of Delaware. Delaware's
court system includes a Chancery Court to adjudicate matters arising under
Delaware corporate law. New York does not have an equivalent court system. As a
result of these factors, there may be less certainty as to the outcome of some
matters governed by New York corporate law, and, therefore, it may be more
difficult to obtain legal guidance as to those matters than would be the case
under Delaware corporate law.

CLASS VOTING STRUCTURES; TRANSFER LIMITATIONS

     Video's current charter does not provide for class voting structures, or
any transfer limitations.

     Currently, pursuant to AT&T's charter, holders of AT&T common stock are
entitled to one vote per share, holders of AT&T Wireless Group tracking stock
are entitled to 1/2 of a vote per share, holders of Class B Liberty Media Group
tracking stock are entitled to 3/8 of a vote per share and holders of Class A
Liberty Media Group tracking stock are entitled to 3/80 of a vote per share.
AT&T's charter does not contain any restrictions on the transfer of these shares
or any provision for automatic conversion of these shares.

                                       72
<PAGE>   79

                        OWNERSHIP OF VIDEO COMMON STOCK

     The following table sets forth information concerning the beneficial
ownership of Video's common stock as of November 17, 2000, the record date for
the special meeting for each of the following:

     - each person or entity who is known by Video to own beneficially more than
       5% of the outstanding shares of Video common stock;

     - each of Video's current directors;

     - some of Video's executive officers; and

     - all of Video's directors and officers as a group.

     The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under Rule
13d-3, beneficial ownership includes any shares as to which the individual or
entity has voting power or investment power and any shares that the individual
has the right to acquire within 60 days of November 17, 2000 through the
exercise of any stock option or other right.

     As indicated below, Video's principal stockholders have entered into a
voting agreement with Liberty, whereby they have agreed with Liberty to vote
their shares of Video common stock in favor of the merger agreement and the
merger and against any alternative acquisition of Video.

<TABLE>
<CAPTION>
                                                                                        PERCENT
                            NAME                              COMMON STOCK              OF CLASS
                            ----                              ------------              --------
<S>                                                           <C>                       <C>
Liberty Media Corporation...................................   9,534,269(1)               71.8%
Equitable Companies Incorporated, The Equitable Life
  Assurance Society of the United States, Equitable Deal
  Flow Fund, L.P. and Equitable Capital Management
  Corporation...............................................   2,263,081(2)              17.00%
Sandler Capital Management, Sandler Associates and J.K.
  Media L.P.................................................   2,270,500(3)              17.06%
Arnold P. Ferolito..........................................   2,959,582(4)(12)          22.23%
Robert H. Alter.............................................      21,000                     *
Terrence A. Elkes...........................................     470,012(5)               3.53%
Martin Irwin................................................     276,417(6)(7)            2.08%
Louis H. Siracusano.........................................   3,152,982(4)(11)(12)      23.69%
Raymond L. Steele...........................................      25,000                     *
Frank Stillo................................................      37,000(8)                  *
Donald H. Buck..............................................     523,681(4)(12)(13)       4.12%
Michael E. Fairbourne.......................................      95,000(9)                  *
Daniel Rosen................................................     155,000(10)                 *
All directors and named executive officers as a group,
  consisting of 9 persons...................................   4,711,864                 35.40%
</TABLE>

---------------

   * Less than 1%.

 (1) By virtue of the execution of the voting agreement described above in
     "Other Transaction Agreements -- Voting Agreement," Liberty Media
     Corporation is deemed to be the beneficial owner of each share of Video
     common stock controlled by Arnold P. Ferolito, Louis H. Siracusano, Sandler
     Capital Management, Donald H. Buck, Sandler Associates, Theresa Siracusano,
     Terrence A. Elkes, Kenneth Gorman, J.K. Media L.P. and Carole Buck.

 (2) Based on Amendment No. 2 dated March 6, 2000 to Schedule 13D filed on
     November 8, 1996, and Amendment No. 1 to the Schedule 13D filed with the
     Securities and Exchange Commission on July 8, 1997. The business address of
     AXA Financial, Inc. ("AXF"), The Equitable Life Assurance Society of the
     United States ("ELAS"), Equitable Deal Flow Fund, L.P. ("EDFF") and ECMC,

                                       73
<PAGE>   80

     LLC ("ECMC") is 1290 Avenue of the Americas, New York, New York. ELAS is an
     indirect wholly owned subsidiary of AXF and is the general partner of the
     general partner of EDFF. ECMC is the investment manager of EDFF. EDFF is
     the holder of record of 1,443,082 shares of Common Stock and ELAS is the
     holder of record of 819,999 shares of Common Stock. ELAS also beneficially
     owns indirectly the 1,443,082 shares held by EDFF through its control of
     EDFF. Because of its indirect ownership of ELAS, AXF may be deemed to
     beneficially own indirectly the 2,263,081 shares of Common Stock held by
     ELAS and EDFF. Certain other persons and entities (AXA Assurances I.A.R.D.
     Mutuelle; AXA Assurances Vie Mutuelle; AXA Conseil Vie Assurance Mutuelle;
     AXA Courtage Assurance Mutuelle; Finaxa; AXA; Claude Bebear, Patrice
     Garnier and Henri de Clermont-Tonnerre) may also be deemed to beneficially
     own indirectly such 2,263,081 shares because of their relationships to AXF;
     however, all of these parties expressly disclaim any beneficial ownership
     of these shares. As of March 1, 2000, 60.3% of the common stock of AXF was
     owned by AXA, a French holding company for an international group of
     insurance and related financial services companies.

 (3) Based on Form 4 filed October 15, 1999. The Reporting Persons include
     Sandler Capital Management, a registered investment adviser and a New York
     general partnership ("SCM"), and Harvey Sandler, John Kornreich, Michael
     Marocco, Andrew Sandler, Hannah Stone, Douglas Schimmel and David Lee (each
     an "Individual", and collectively, the "Individuals"). Includes 1,150,000
     shares of Common Stock, in the aggregate, owned by 21st Century
     Communications Partners, L.P., 21st Century Communications T-E Partners,
     L.P. and 21st Century Communications Foreign Partners, L.P., each of which
     is a Delaware limited partnership (collectively, the "Partnerships"). Each
     Individual controls a corporation that serves as a general partner of SCM,
     which is a general partner of one of the general partners of each of the
     Partnerships. Includes 569,000 shares of Common Stock held by accounts
     managed by SCM, and 411,000 shares of Common Stock owned by Sandler
     Associates, a New York limited partnership (each Individual is a general
     partner of Sandler Associates). For John Kornreich, also includes 140,500
     shares of Common Stock owned by J.K. Media L.P., a New York limited
     partnership, controlled by Mr. Kornreich. The business address of these
     entities is 767 Fifth Avenue, New York, New York 10153. Each Reporting
     Person disclaims beneficial ownership of the shares held by SCM, the
     Partnerships and Sandler Associates, except to the extent of the Reporting
     Person's pecuniary interest therein. Mr. Kornreich also disclaims
     beneficial ownership of the shares held by J.K. Media L.P., except to the
     extent of his pecuniary interest therein.

 (4) Mr. Irwin has an option to purchase 36,540, 36,540 and 1,920 of Messrs.
     Siracusano's, Ferolito's and Buck's shares, respectively. See footnote (7).
     Mr. Fairbourne has an option to purchase 29,232, 29,232 and 1,536 of
     Messrs. Siracusano's, Ferolito's and Buck's shares, respectively. See
     footnote (9).

 (5) Includes 10,000 shares owned by Mr. Elkes' children. Mr. Elkes disclaims
     beneficial ownership of all such shares.

 (6) Includes options to purchase 120,000 shares of Common Stock granted to Mr.
     Irwin under the 1993 Long-Term Incentive Plan (the "1993 Plan"),
     exercisable at prices ranging from $4.00 to $6.00 per share.

 (7) Includes options to purchase an aggregate of 75,000 shares of Common Stock
     at an exercise price of $0.75 per share granted by Messrs. Siracusano,
     Ferolito and Buck.

 (8) Includes 24,000 shares of Common Stock owned by the Frank Stillo Children's
     Trust, of which Mr. Stillo's wife is the trustee. Mr. Stillo disclaims
     beneficial ownership of such shares.

 (9) Includes options granted in June 1997 to purchase 60,000 shares of Common
     Stock from Messrs. Siracusano, Ferolito and Buck at an exercise price of
     $2.00 per share and options to purchase 35,000 shares of Common Stock
     granted to Mr. Fairbourne under the 1997 Plan, exercisable at prices
     ranging from $2.00 to $2.94 per share.

(10) Includes (i) options to purchase 75,000 shares of Common Stock granted to
     Mr. Rosen under the 1993 Plan, exercisable at prices ranging from $4.00 to
     $6.00 per share, and (ii) shares of Common
                                       74
<PAGE>   81

     Stock owned by Mr. Rosen's son and the Ned Rosen Trust, of which Mr. Rosen
     is the trustee, in the amounts of 5,000 and 5,000, respectively. Mr. Rosen
     disclaims beneficial ownership of all shares of Common Stock owned by his
     son and the Ned Rosen Trust. Also includes options to purchase 65,000
     shares of Common Stock granted to Mr. Rosen under the 1997 Plan,
     exercisable at prices ranging from $2.625 to $3.0625 per share.

(11) Includes (i) 39,990 shares of Common Stock transferred by Mr. Siracusano to
     seven trusts for the benefit of his family members on September 25, 1998,
     (ii) 5,000 shares of Common Stock transferred by Mr. Siracusano to two
     trusts for the benefit of his family members on December 28, 1998, (iii)
     300,000 shares of Common Stock transferred by Mr. Siracusano to his wife on
     March 2, 1999, (iv) 39,500 shares of Common Stock transferred by Mr.
     Siracusano to five trusts for the benefit of his family members on November
     1, 1999, (v) 22,000 shares of Common Stock transferred by Mr. Siracusano to
     six trusts for the benefit of his family members on December 6, 1999, (vi)
     32,600 shares of Common Stock transferred by Mr. Siracusano to six trusts
     for the benefit of his family members on February 10, 2000 and (vii)
     300,000 shares of Common Stock transferred by Mr. Siracusano to the Sano
     Foundation on July 5, 2000. Mr. Siracusano did not retain voting power,
     investment power or other control of or interest in the 439,090 shares of
     Common Stock, but is trustee of the Sano Foundation.

(12) Includes options to various employees, directors, consultants and
     independent contractors to purchase 248,472, 248,472 and 13,056 of Messrs.
     Siracusano's, Ferolito's and Buck's shares, respectively, exercisable at
     prices ranging from $0.25 to $6.00 per share.

(13) Includes 85,000 shares of Common Stock transferred by Mr. Buck to his wife
     on March 22, 1999. Mr. Buck did not retain voting power, investment power
     or other control of or interest in the 85,000 shares of Common Stock. Also
     includes options granted in October 1999 to purchase 25,000 shares of
     Common Stock granted to Mr. Buck under the 1997 Long-Term Incentive Plan
     Exercisable at $1.625 per share.

                                       75
<PAGE>   82

                              THE SPECIAL MEETING

     We are furnishing this proxy statement/prospectus to stockholders of Video
as part of the solicitation of proxies by Video's board of directors for use at
the special meeting. We are first mailing this proxy statement/prospectus and
the accompanying form of proxy to Video stockholders on or about November 21,
2000.

MATTERS RELATING TO THE SPECIAL MEETING

Date, Time and Place

     We will hold the special meeting at our offices at 235 Pegasus Avenue,
Northvale, New Jersey 07647, at 10:00 a.m., local time, on December 20, 2000.

Purpose of the Special Meeting

     At the special meeting, we are asking holders of Video common stock to
approve and adopt the merger agreement and the merger. Video's board of
directors has determined that the merger agreement and the merger are fair to,
and in the best interests of, Video stockholders, has unanimously approved the
merger agreement and the merger and declared the advisability of the Merger, and
unanimously recommends that Video stockholders vote FOR approval and adoption of
the merger agreement and the merger.

Record Date

     The record date for shares entitled to vote at the special meeting is
November 17, 2000. As of November 17, 2000, 13,311,307 shares of Video common
stock were outstanding.

List of Stockholders

     A list of Video stockholders entitled to vote at the meeting will be
available for inspection by any stockholder for purposes germane to the special
meeting during normal business hours at Video's executive offices. The list will
also be available for inspection by stockholders present at the special meeting.

Shares Entitled to Vote

     Only shares of Video common stock held at the close of business on the
record date are entitled to vote at the special meeting. Each holder of Video
common stock is entitled to one vote for each share of Video common stock held
by the stockholder on the record date.

Quorum Requirement

     A quorum of stockholders is necessary to hold a valid meeting. A quorum
will be present at the special meeting if a majority of the total number of
votes entitled to be cast by holders of Video's common stock on the record date
are represented in person or by proxy. If a quorum is not present at the special
meeting, it is expected that the meeting will be adjourned or postponed to
solicit additional proxies. The shares of Video common stock which are subject
to the voting agreement entered into by a Video's principal stockholders are
sufficient to constitute a quorum. Abstentions and broker "non-votes" count as
present for establishing a quorum. A broker "non-vote" occurs on an item when a
broker is not permitted to vote on that item without instruction from the
beneficial owner of the shares and no instruction is given.

Shares beneficially owned by Directors and Executive Officers

     On the record date, directors and executive officers of Video beneficially
owned and were entitled to vote (i) approximately 4,711,864 shares of Video
common stock, representing approximately 35.4% of the total number of votes
entitled to be cast at the special meeting. These directors and officers,
including Louis A. Siracusano, who is a party to the voting agreement described
in the section "Other Transaction Agreements -- Voting Agreement," have
indicated a present intention to vote in favor of the merger agreement and the
merger.

                                       76
<PAGE>   83

VOTE NECESSARY TO APPROVE THE MERGER AGREEMENT AND THE MERGER

     Approval and adoption of the merger agreement and the merger requires the
affirmative vote of a majority of the total number of votes entitled to be cast
by holders of shares of the Video common stock outstanding on the record date.

     IF A VIDEO STOCKHOLDER ABSTAINS FROM VOTING OR DOES NOT VOTE, EITHER IN
PERSON OR BY PROXY, IT WILL HAVE THE EFFECT OF A VOTE AGAINST APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. THE SHARES OF VIDEO COMMON
STOCK THAT ARE SUBJECT TO THE VOTING AGREEMENT ENTERED INTO BY VIDEO'S PRINCIPAL
STOCKHOLDERS WILL BE SUFFICIENT TO APPROVE THE MERGER AGREEMENT AND THE MERGER
AT THE SPECIAL MEETING.

     Under the rules of the National Association of Securities Dealers, Inc., if
your broker holds your shares in its name, your broker may not vote your shares
on the merger proposal absent instructions from you. Without your voting
instructions, a broker non-vote will occur on the merger proposal and will have
the effect of a vote against approval and adoption of the merger agreement.

PROXIES

Voting Your Proxy

     You may vote in person at the meeting or by proxy. We recommend you vote by
proxy even if you plan to attend the special meeting. You can always change your
vote at the meeting.

     Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed.

     If you sign and timely return your proxy card but do not indicate how your
shares are to be voted, your shares will be voted in favor of the merger
agreement and the merger, and the individuals named in the proxy card will have
discretionary authority to vote upon any adjournment or postponement of the
meeting, including for the purpose of soliciting additional proxies.

How to Vote by Proxy

     You may vote by proxy by completing, signing, dating and returning your
proxy card in the enclosed envelope. If you hold your shares through a broker or
other custodian, you should check the voting form used by that firm to see if it
offers telephone or Internet voting.

Revoking Your Proxy

     You may revoke your proxy before it is voted by:

     - sending in a new proxy with a later date;

     - notifying the Secretary of Video in writing before the meeting that you
       have revoked your proxy; or

     - voting in person at the meeting.

Voting in Person

     If you plan to attend the meeting and wish to vote in person, we will give
you a ballot at the meeting. However, if your shares are held in the name of
your broker, bank or other nominee, you must bring a proxy from your nominee
authorizing you to vote your "street name" shares on November 17, 2000, the
record date for voting.

PROXY SOLICITATION

     Video and Liberty will share equally the costs and expenses incurred in
connection with printing and mailing this proxy statement/prospectus. Video will
pay the cost of the solicitation of proxies from its stockholders.

                                       77
<PAGE>   84

     In addition to solicitation by mail, the directors and employees of Video
and its subsidiaries may solicit proxies from stockholders by telephone or other
electronic means or in person. Any director or employee of Video or its
subsidiaries used to solicit proxies will not receive additional compensation
for these services. Video will request brokerage houses and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of stock held of record by such persons. Video will reimburse custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in doing
so.

     A transmittal form with instructions for the surrender of Video common
stock certificates will be mailed to Video stockholders as soon as practicable
after completion of the merger.

STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.

OTHER BUSINESS; ADJOURNMENTS

     Under the merger agreement, no business may be conducted at the special
meeting other than voting on the proposal to approve and adopt the merger
agreement, the merger, and other matters agreed to by Video and Liberty.

                      SUBMISSION OF STOCKHOLDER PROPOSALS

     Due to the contemplated completion of the merger, Video does not currently
expect to hold a 2000 annual meeting of stockholders to elect directors to its
board because the merger agreement requires that all Video's directors resign
immediately prior to the completion of the merger, which we expect to occur in
the fourth quarter of this year. If an annual meeting is held, (as a result of a
failure to consummate the merger or otherwise) stockholder proposals for
inclusion in proxy materials for the meeting must be submitted to Video's
secretary in writing and received at Video's executive offices by December 29,
2000. Any proposal must also meet the other requirements of the rules of the
Securities and Exchange Commission relating to the stockholder proposals.

                                    EXPERTS

     The consolidated financial statements of AT&T Corp. incorporated in this
proxy statement/prospectus by reference to the Annual Report on Form 10-K for
the year ended December 31, 1999 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

     The combined balance sheets of Liberty Media Group ("New Liberty" or
"Successor") as of December 31, 1999 and of Liberty Media Group ("Old Liberty"
or "Predecessor") as of December 31, 1998, and the related combined statements
of operations and comprehensive earnings, combined equity, and cash flows for
the period from March 1, 1999 to December 31, 1999 (Successor period) and from
January 1, 1999 to February 28, 1999 and for each of the years in the two-year
period ended December 31, 1998 (Predecessor period) which appear as an exhibit
of the AT&T Form 10-K dated March 27, 2000, have been incorporated by reference
herein in reliance upon the report, dated February 29, 2000, of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.

     The KPMG report dated February 29, 2000 refers to the fact that the
financial statements should be read in conjunction with the consolidated
financial statements of AT&T Corp. In addition, the report contains an
explanatory paragraph that states that effective March 9, 1999, AT&T Corp., the
owner of the assets comprising New Liberty, acquired TeleCommunications, Inc.,
the owner of the assets comprising Old Liberty, in a business combination
accounted for as a purchase. As a result of the acquisition, the combined
financial information for the periods after the acquisition is presented on a
different basis than that for the periods before the acquisition and, therefore,
is not comparable.

     The consolidated balance sheets of MediaOne Group, Inc. as of December 31,
1999 and 1998, and the related consolidated statements of operations,
shareowners' equity and cash flows for each of the three
                                       78
<PAGE>   85

years in the period ended December 31, 1999, filed in AT&T Corp.'s Form 8-K,
dated March 27, 2000, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.

     The combined financial statements of the AT&T Wireless Group incorporated
in this proxy statement/prospectus by reference to AT&T Corp.'s Current Report
on Form 8-K filed on March 17, 2000 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

     The consolidated financial statements of Video Services Corporation at June
30, 2000 and 1999, and for each of the three years in the period ended June 30,
2000, incorporated by reference in this proxy statement/prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
incorporated by reference herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.

     It is expected that representatives of Ernst & Young, Video's independent
auditors, and KPMG LLP, Liberty's independent certified public accountants, will
be present at the special meeting where they will have an opportunity to respond
to appropriate questions of Video's stockholders and to make a statement if they
desire to do so.

                                 LEGAL MATTERS

     The legality of Class A Liberty Media Group tracking stock to be issued in
the merger is being passed upon for AT&T by Robert S. Feit, Esq., General
Attorney and Assistant Secretary of AT&T.

     As of June 30, 2000, Mr. Feit owned approximately 4,700 shares of AT&T
common stock and held options to purchase additional shares of AT&T common
stock.

                                       79
<PAGE>   86

                                                                         ANNEX A

                          AGREEMENT AND PLAN OF MERGER

                                     AMONG

                                  AT&T CORP.,

                             E-GROUP MERGER CORP.,

                           LIBERTY MEDIA CORPORATION

                                      AND

                           VIDEO SERVICES CORPORATION

                           DATED AS OF JULY 25, 2000
<PAGE>   87

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                      ----
<C>     <S>                                                           <C>
                                ARTICLE I.
                       DEFINITIONS AND CONSTRUCTION
 1.1    Certain Definitions.........................................   A-1
 1.2    Additional Definitions......................................   A-5
 1.3    Terms Generally.............................................   A-7
                               ARTICLE II.
                      THE MERGER AND RELATED MATTERS
 2.1    The Merger..................................................   A-8
 2.2    Closing.....................................................   A-8
 2.3    Conversion of Securities....................................   A-9
 2.4    Exchange of Certificates....................................  A-10
 2.5    Changes in Class A Liberty Media Group Stock................  A-13
 2.6    Capital Contribution to Liberty Media.......................  A-13
                               ARTICLE III.
                             CERTAIN ACTIONS
 3.1    Stockholder Meeting.........................................  A-13
 3.2    Registration Statement and Other Commission Filings.........  A-14
 3.3    Identification of Rule 145 Affiliates.......................  A-14
 3.4    Reasonable Efforts..........................................  A-15
 3.5    Company Stock Option and Other Plans........................  A-17
 3.6    Expenses....................................................  A-17
                               ARTICLE IV.
              REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 4.1    Corporate Organization......................................  A-17
 4.2    Subsidiaries................................................  A-18
 4.3    Capitalization..............................................  A-18
 4.4    Corporate Proceedings, etc. ................................  A-19
 4.5    Consents and Approvals......................................  A-19
 4.6    Absence of Defaults, Conflicts, etc. .......................  A-20
 4.7    Reports.....................................................  A-20
 4.8    Absence of Certain Developments.............................  A-21
 4.9    Compliance with Law.........................................  A-21
 4.10   Litigation..................................................  A-22
 4.11   Material Contracts..........................................  A-22
 4.12   Absence of Undisclosed Liabilities..........................  A-23
 4.13   Labor Relations and Employment..............................  A-23
 4.14   Employee Benefit Plans......................................  A-24
 4.15   FCC Matters.................................................  A-26
 4.16   Real Property...............................................  A-26
 4.17   Condition of Properties.....................................  A-27
 4.18   Environmental Matters.......................................  A-27
 4.19   Intellectual Property.......................................  A-29
 4.20   Tax Matters.................................................  A-30
 4.21   Insurance...................................................  A-30
 4.22   Transactions with Related Parties...........................  A-31
</TABLE>

                                        i
<PAGE>   88

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                      ----
<C>     <S>                                                           <C>
 4.23   Interest in Competitors.....................................  A-31
 4.24   Brokerage...................................................  A-31
 4.25   Disclosure..................................................  A-31
 4.26   DGCL Section 203............................................  A-32
 4.27   Company Action..............................................  A-32
 4.28   Fairness Opinion............................................  A-32
 4.29   FIRPTA......................................................  A-32
 4.30   No Investment Company.......................................  A-32
 4.31   Employment Agreements.......................................  A-32
 4.32   Negative Assurances.........................................  A-32
 4.33   Vote Required...............................................  A-32
 4.34   No Excise Tax Obligations...................................  A-32
 4.35   British Telecommunications..................................  A-32
                                ARTICLE V.
                 REPRESENTATIONS AND WARRANTIES OF PARENT
 5.1    Organization and Qualification..............................  A-33
 5.2    Authorization and Validity of Agreement.....................  A-33
 5.3    Capitalization of Parent....................................  A-33
 5.4    Ownership of Merger Sub; No Prior Activities; Assets of
          Merger Sub................................................  A-33
 5.5    Information Supplied........................................  A-34
                               ARTICLE VI.
             REPRESENTATIONS AND WARRANTIES OF LIBERTY MEDIA
 6.1    Organization and Qualification..............................  A-34
 6.2    Authorization and Validity of Agreement.....................  A-35
 6.3    Ownership of Company Common Stock...........................  A-35
 6.4    Information Supplied........................................  A-35
 6.5    Liberty Media Group Information.............................  A-35
 6.6    No Approvals or Notices Required; No Conflict with
          Instruments...............................................  A-36
 6.7    Absence of Certain Changes or Events........................  A-36
 6.8    Brokers or Finders..........................................  A-37
                               ARTICLE VII.
                   ADDITIONAL COVENANTS AND AGREEMENTS
 7.1    Access to Information Concerning Properties and Records.....  A-37
 7.2    Confidentiality.............................................  A-37
 7.3    Public Announcements........................................  A-38
 7.4    Conduct of the Company's Business Pending the Effective
          Time......................................................  A-38
 7.5    No Solicitation.............................................  A-41
 7.6    Actions by Merger Sub.......................................  A-42
 7.7    Listing.....................................................  A-42
 7.8    Convertible Securities......................................  A-43
 7.9    Voting Agreement............................................  A-43
 7.10   Indemnification of Directors and Officers; Insurance........  A-43
 7.11   Certificates as to Indebtedness.............................  A-44
 7.12   Notification of Certain Matters.............................  A-44
 7.13   Defense of Litigation.......................................  A-45
 7.14   Additional Financial Statements.............................  A-45
</TABLE>

                                       ii
<PAGE>   89

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                      ----
<C>     <S>                                                           <C>
                              ARTICLE VIII.
                           CONDITIONS PRECEDENT
 8.1    Conditions Precedent to the Obligations of Parent, Liberty
          Media, Merger Sub and the Company.........................  A-45
 8.2    Conditions Precedent to the Obligations of Parent and Merger
          Sub for the Benefit of Liberty Media......................  A-46
 8.3    Conditions Precedent to the Obligations of Parent and Merger
          Sub for the Benefit of Parent.............................  A-47
 8.4    Conditions Precedent to the Obligations of the Company......  A-50
                               ARTICLE IX.
                               TERMINATION
 9.1    Termination and Abandonment.................................  A-51
 9.2    Termination Fee; Effects of Termination.....................  A-51
                                ARTICLE X.
                              MISCELLANEOUS
10.1    No Waiver or Survival of Representations and Warranties.....  A-52
10.2    Notices.....................................................  A-52
10.3    Entire Agreement............................................  A-53
10.4    Assignment; Binding Effect; Benefit.........................  A-53
10.5    Amendment...................................................  A-53
10.6    Extension; Waiver...........................................  A-54
10.7    Parent Transactions.........................................  A-54
10.8    Headings....................................................  A-54
10.9    Counterparts................................................  A-54
10.10   Applicable Law..............................................  A-54
10.11   Enforcement.................................................  A-54
10.12   Company Disclosure Schedule.................................  A-55
</TABLE>

                                       iii
<PAGE>   90

                          AGREEMENT AND PLAN OF MERGER

     THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of this
25th day of July, 2000, by and among AT&T Corp., a New York corporation
("Parent"), E-Group Merger Corp., a Delaware corporation ("Merger Sub"), Liberty
Media Corporation, a Delaware corporation ("Liberty Media"), and Video Services
Corporation, a Delaware corporation (the "Company").

     WHEREAS, the parties are entering into this Agreement to provide for the
terms and conditions upon which the Company will be acquired by Parent by means
of a merger of Merger Sub, a direct wholly owned Subsidiary of Parent, with and
into the Company (the "Merger").

     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties hereby agree as follows:

                                   ARTICLE I

                          DEFINITIONS AND CONSTRUCTION

     1.1 Certain Definitions.  As used in this Agreement, the following terms
shall have the following meanings unless the context otherwise requires:

          An "Affiliate" of any Person shall mean any other Person which,
     directly or indirectly, controls or is controlled by or is under common
     control with such Person. A Person shall be deemed to "control," be
     "controlled by" or be "under common control with" any other Person if such
     other Person possesses, directly or indirectly, power to direct or cause
     the direction of the management or policies of such Person whether through
     the ownership of voting securities or partnership interests, by contract or
     otherwise. Notwithstanding the foregoing, for purposes of this Agreement,
     neither Parent nor any of its Affiliates shall be deemed to be an Affiliate
     of Liberty Media or any of its Affiliates, and neither Liberty Media nor
     any entity that is a member of the Liberty Media Group nor any of the
     Affiliates of any of the foregoing shall be deemed to be an Affiliate of
     Parent or any of its Affiliates.

          "Agreement" shall mean this Agreement and Plan of Merger, including
     all Exhibits and Schedules hereto.

          "Class A Liberty Media Group Stock" shall mean the Class A Liberty
     Media Group Common Stock, par value $1.00 per share, of Parent.

          "Class B Liberty Media Group Stock" shall mean the Class B Liberty
     Media Group Common Stock, par value $1.00 per share, of Parent.

          "Closing" shall mean the consummation of the transactions contemplated
     by this Agreement.

          "Closing Date" shall mean the date on which the Closing occurs
     pursuant to Section 2.2.

          "Commission" shall mean the Securities and Exchange Commission.

          "Company Common Stock" shall mean the common stock, par value $.01 per
     share, of the Company.

          "Company Disclosure Schedule" shall mean the disclosure schedule,
     dated as of the date of this Agreement, delivered by the Company to each of
     Parent and Liberty Media on or prior to the date hereof.

          "Company Stock Plans" shall mean (i) the Company's 1997 Long Term
     Incentive Plan and (ii) the Company's 1999 Non-Employee Director Stock
     Plan, as listed in Section 4.3(a) of the Company Disclosure Schedule.

          "Company Transaction Documents" shall mean this Agreement and all
     other agreements and instruments contemplated by this Agreement to which
     the Company is a party or otherwise is a signatory.

                                       A-1
<PAGE>   91

          "Contribution Agreement" shall mean the Amended and Restated
     Contribution Agreement, dated January 14, 2000, by and among Liberty Media,
     Liberty Media Management LLC, Liberty Media Group LLC, Liberty Ventures
     Group LLC, AGI LLC (formerly The Associated Group, Inc.) and Liberty AGI,
     Inc.

          "Covered Entity" shall have the meaning ascribed thereto in the Parent
     Charter.

          "DGCL" shall mean the General Corporation Law of the State of
     Delaware.

          "Effective Time" shall mean the time when the Merger of Merger Sub
     with and into the Company becomes effective under the DGCL as provided in
     Section 2.1(a).

          "Eighth Tax Sharing Amendment" shall mean the Eighth Amendment to Tax
     Sharing Agreement, by and among Parent, Liberty Media, for itself and each
     member of the Liberty Media Group, Tele-Communications, Inc., Liberty
     Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
     Holdings, Inc. and each Covered Entity (as defined therein), dated as of
     the date hereof.

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
     amended, and the rules and regulations promulgated thereunder.

          "GAAP" shall mean generally accepted accounting principles in the
     United States as in effect from time to time.

          "GECC Facility" means the Credit Agreement, dated as of June 30, 2000,
     among the Company and its Subsidiaries, and General Electric Capital
     Corporation, Key Bank National Association and the other lenders
     thereunder.

          "Governmental Consent" shall mean any consent, approval, order or
     authorization of or other action by any Governmental Entity.

          "Governmental Entity" shall mean and include any court, arbitrator,
     administrative or other governmental department, agency, commission,
     authority or instrumentality, domestic or foreign.

          "Governmental Filing" shall mean any registration, qualification,
     declaration or filing with or any notice to any Governmental Entity.

          "Hart-Scott Act" shall mean the Hart-Scott-Rodino Antitrust
     Improvements Act of 1976, and the rules and regulations thereunder.

          "Indebtedness" shall mean, with respect to any Person, without
     duplication (whether or not the recourse of the lender is to the whole of
     the assets of such Person or only to a portion thereof), (i) every
     liability of such Person (excluding intercompany accounts between the
     Company and any wholly owned Subsidiary of the Company or between wholly
     owned Subsidiaries of the Company) (A) for borrowed money, (B) evidenced by
     notes, bonds, debentures or other similar instruments (whether or not
     negotiable), (C) for reimbursement of amounts drawn under letters of
     credit, bankers' acceptances or similar facilities issued for the account
     of such Person, (D) issued or assumed as the deferred purchase price of
     property or services (excluding contingent payment obligations and accounts
     payable) or (E) relating to a capitalized lease obligation and all debt
     attributable to sale/leaseback transactions of such Person; (ii) every
     liability of others of the kind described in the preceding clause (i) which
     such Person has guaranteed or which is otherwise its legal liability, in
     either case to the extent required pursuant to GAAP to be set forth as a
     liability on a balance sheet of such Person.

          "Inter-Group Agreement" shall mean the Inter-Group Agreement, dated as
     of March 9, 1999, as amended and supplemented, among Parent, on the one
     hand, and Liberty Media, Liberty Media Group LLC and each Covered Entity
     (as defined therein), on the other hand.

                                       A-2
<PAGE>   92

          "Inter-Group Supplement" shall mean the Seventh Supplement to the
     Inter-Group Agreement between and among Parent, on the one hand, and
     Liberty Media, Liberty Media Group LLC and each Covered Entity (as defined
     therein), on the other hand, dated as of the date hereof.

          "Law" shall mean any foreign or domestic law, statute, code,
     ordinance, rule, regulation promulgated, or order, judgment, writ,
     stipulation, award, injunction or decree promulgated or entered by a
     Governmental Entity.

          "Liberty Media Affiliate," "Affiliate of Liberty Media" and similar
     phrases shall mean Liberty Media, each member of the Liberty Media Group,
     each Covered Entity and each Subsidiary of Liberty Media, any member of the
     Liberty Media Group or a Covered Entity and, from and after the Effective
     Time, the Surviving Entity.

          "Liberty Media Group" shall mean the Liberty Media Group, as defined
     in the Parent Charter and shall include Ranger Acquisition Corp., A-Group
     Merger Corp., B-Group Merger Corp., C-Group Merger Corp., D-Group Merger
     Corp., Merger Sub and each of their respective Subsidiaries and successors.

          "Liberty Media Group Information" means the information regarding the
     Liberty Media Group described in Section 6.5.

          "Liberty Media Material Adverse Effect" shall mean (i) a material
     adverse effect on the transactions contemplated hereby (including a
     material adverse effect on the ability of Liberty Media to perform its
     obligations hereunder) or (ii) a material adverse effect on the business,
     assets or financial condition of Liberty Media and its Subsidiaries, taken
     as a whole.

          "Lien" shall mean any security interest, mortgage, pledge,
     hypothecation, charge, claim, option, right to acquire, adverse interest,
     assignment, deposit arrangement, encumbrance, restriction, lien (statutory
     or other), or preference, priority or other security agreement or
     preferential arrangement of any kind or nature whatsoever (including any
     conditional sale or other title retention agreement, any financing lease
     involving substantially the same economic effect as any of the foregoing,
     and the filing of any financing statement under the Uniform Commercial Code
     or comparable law of any jurisdiction).

          "Material Adverse Effect" shall mean (i) a material adverse effect on
     the transactions contemplated hereby (including a material adverse effect
     on the ability of any party hereto to consummate such transactions or
     perform its material obligations hereunder) or (ii) a material adverse
     effect on the business, assets or financial condition of the Company and
     its Subsidiaries, taken as a whole.

          "Merger" shall have the meaning specified in the preamble hereto.

          "Merger Consideration" shall mean the Stock Consideration and the Cash
     Consideration to which holders of shares of Company Common Stock are
     entitled pursuant to Section 2.3(a)(i).

          "NYSE" shall mean The New York Stock Exchange.

          "Parent Adverse Effect" shall mean any of (i) an effect which is
     adverse to, or burdensome on the business, assets, liabilities, condition
     (financial or otherwise), results of operations, operations or prospects of
     any business of Parent or its Subsidiaries being conducted on the date
     hereof (other than, in each case, any such effect which is insignificant in
     nature or consequence) or (ii) an adverse effect on the relationship
     between Parent or any of its Subsidiaries and any federal or state
     Governmental Entity having jurisdiction over any business of Parent or its
     Subsidiaries or the operations or assets thereof (other than such an effect
     which is insignificant in nature or consequence).

          "Parent Charter" shall mean the Amended Certificate of Incorporation
     of Parent.

          "Parent Common Stock" shall mean the common stock, par value $1.00 per
     share, of Parent.

                                       A-3
<PAGE>   93

          "Parent/Liberty Media Commission Filings" means and includes all
     reports, registration statements, definitive proxy statements and other
     documents (in each case together with all amendments thereto) filed or to
     be filed by Parent or Liberty Media with the Commission during the period
     from the effectiveness of the acquisition by Parent of Tele-Communications,
     Inc., on March 9, 1999, through the Closing Date, to the extent (and only
     to the extent) that such documents include any financial statements of, or
     narrative description (including management's discussion and analysis)
     specifically regarding, the Liberty Media Group.

          "Parent Material Adverse Effect" shall mean (i) a material adverse
     effect on the transactions contemplated hereby (including a material
     adverse effect on the ability of Parent and Merger Sub to perform their
     respective obligations hereunder) or (ii) an adverse effect on the
     business, assets, liabilities, operations, results of operations, or
     financial condition of Parent or any of its Subsidiaries that is material
     to the Parent and all of its Subsidiaries taken as a whole.

          "Parent Transaction" shall mean any merger, acquisition, business
     combination, stock repurchase, stock issuance or other transaction or
     business opportunity, even if such Parent Transaction would materially
     interfere with the transactions contemplated by this Agreement.

          "Permitted Encumbrances" shall mean the following Liens with respect
     to the properties and assets of the Company: (a) Liens for taxes,
     assessments or other governmental charges or levies not at the time
     delinquent or thereafter payable without penalty or being contested in good
     faith by appropriate proceedings and for which adequate reserves in
     accordance with GAAP shall have been set aside on the Company's books (to
     the extent required thereby); (b) Liens of carriers, warehousemen,
     mechanics, materialmen and landlords incurred in the ordinary course of
     business for sums not overdue or being contested in good faith by
     appropriate proceedings and for which adequate reserves in accordance with
     GAAP shall have been set aside on the Company's books (to the extent
     required thereby); (c) Liens incurred in the ordinary course of business in
     connection with workmen's compensation, unemployment insurance or other
     forms of governmental insurance or benefits, or to secure performance of
     tenders, statutory obligations, leases and contracts (other than for
     borrowed money) entered into in the ordinary course of business or to
     secure obligations on surety or appeal bonds; (d) purchase money security
     interests or Liens on property acquired or held by the Company in the
     ordinary course of business to secure the purchase price of such property
     or to secure Indebtedness incurred solely for the purpose of financing the
     acquisition of such property, and (e) easements, restrictions and other
     defects of title which are not, in the aggregate, material and which do
     not, individually or in the aggregate, materially and adversely affect the
     Company's use or occupancy of the property affected thereby.

          "Person" shall mean an individual, partnership, corporation, limited
     liability company, trust, unincorporated organization, association, or
     joint venture or a government, agency, political subdivision, or
     instrumentality thereof.

          "Post-Merger Restructuring Transactions" shall mean each of the
     transactions described in Exhibit 2.6 hereto.

          "Restriction", with respect to any capital stock or other security,
     shall mean any voting or other trust or agreement, option, warrant, escrow
     arrangement, proxy, buy-sell agreement, power of attorney or other
     Contract, any Law, rule, regulation, order, judgment or decree which,
     conditionally or unconditionally, (i) grants to any Person the right to
     purchase or otherwise acquire, or obligates any Person to purchase or sell
     or otherwise acquire, dispose of or issue, or otherwise results or, whether
     upon the occurrence of any event or with notice or lapse of time or both or
     otherwise, may result in any person acquiring, (A) any of such capital
     stock or other security; (B) any of the proceeds of, or any distributions
     paid or which are or may become payable with respect to, any of such
     capital stock or other security; or (C) any interest in such capital stock
     or other security or any such proceeds or distributions; (ii) restricts or,
     whether upon the occurrence of any event or with notice or lapse of time or
     both or otherwise, may restrict the transfer or voting of, or the exercise
     of any rights or the enjoyment of any benefits arising by reason of
     ownership of, any such capital stock or other security
                                       A-4
<PAGE>   94

     or any such proceeds or distributions; or (iii) creates or, whether upon
     the occurrence of any event or with notice or lapse of time or both or
     otherwise, may create a Lien or purported Lien affecting such capital stock
     or other security, proceeds or distributions.

          "Securities Act" shall mean the Securities Act of 1933, as amended,
     and the rules and regulations promulgated thereunder.

          "Subsidiary" when used with respect to any Person, means any
     corporation or other organization, whether incorporated or unincorporated,
     of which such Person or any other Subsidiary of such Person is a general
     partner or at least 50% of the securities or other interests having by
     their terms ordinary voting power to elect at least 50% of the Board of
     Directors or others performing similar functions with respect to such
     corporation or other organization is directly or indirectly owned or
     controlled by such Person, by any one or more of its Subsidiaries, or by
     such Person and one or more of its Subsidiaries. Notwithstanding the
     foregoing, for purposes of this Agreement, Parent's Subsidiaries shall be
     deemed not to include Liberty Media, any Liberty Media Affiliate or any
     entity that is a member of the Liberty Media Group or any of the Affiliates
     of any of the foregoing, whether or not they otherwise would be
     Subsidiaries of Parent under the foregoing definition. Notwithstanding the
     foregoing, for purposes of this Agreement, the Company's Subsidiaries shall
     include all entities listed in Section 4.2 of the Company Disclosure
     Schedule.

          "Surviving Entity" shall mean the Company as the surviving entity in
     the Merger as provided in Section 2.1(a).

          "Voting Agreement" shall mean the Agreement, dated as of the date
     hereof, among Liberty Media and certain stockholders of the Company,
     substantially in the form of Exhibit 7.9 attached hereto.

     1.2 Additional Definitions.  The following additional terms have the
meaning ascribed thereto in the Section indicated below next to such term:

<TABLE>
<CAPTION>
DEFINED TERM                                                    SECTION
------------                                                  -----------
<S>                                                           <C>
1993 Plan...................................................  2.3(b)(i)
1997 Plan...................................................  2.3(b)(i)
Alternative Consideration...................................  3.4(c)
Alternative Merger..........................................  3.4(c)
breaching party.............................................  3.6
BT..........................................................  4.35
Carryover Option............................................  2.3(b)
Cash Consideration..........................................  2.3(a)(i)
Cash Election...............................................  3.4(d)
Cash Merger.................................................  3.4(d)
Certificates................................................  2.4(b)
Certificate of Merger.......................................  2.1(a)
Claim.......................................................  7.1(a)
Code........................................................  4.14(a)
Company.....................................................  Preamble
Company Board...............................................  3.1
Company Bylaws..............................................  3.1
Company Charter.............................................  3.1
Company Plans...............................................  4.14(a)
Company Preferred Stock.....................................  4.3(a)
Company SEC Reports.........................................  4.7(a)
Company Stock Option........................................  2.3(b)
</TABLE>

                                       A-5
<PAGE>   95

<TABLE>
<CAPTION>
DEFINED TERM                                                    SECTION
------------                                                  -----------
<S>                                                           <C>
Computer Software...........................................  4.20
Confidential Information....................................  7.2
Consolidated Returns........................................  4.20(a)
Contract Consent............................................  4.6(a)
Contract Notice.............................................  4.6(a)
Contract....................................................  4.6(a)(1)
Convertible Securities......................................  4.3(c)
disclosing party............................................  7.2
Employment Agreements.......................................  4.31
Environmental and Health Laws...............................  4.18
Environmental Permits.......................................  4.18
Equivalency Opinion.........................................  3.4(d)
ERISA.......................................................  4.14(a)
ERISA Affiliate.............................................  4.14(a)
Excess Shares...............................................  2.4(f)
Exchange Agent..............................................  2.4(a)
Exchange Agent Agreement....................................  2.4(a)
Exchange Pool...............................................  2.4(a)
Extraordinary Transaction...................................  7.5(a)
Extraordinary Transaction Interest..........................  7.5(a)
Fairness Opinion............................................  4.28
FCC.........................................................  4.5
FCC Licenses................................................  4.15
Fractional Fund.............................................  2.4(f)
Hazardous Material..........................................  4.18
Indemnified Liabilities.....................................  7.10(a)
Indemnified Party...........................................  7.10(a)
Injunction..................................................  3.4(a)
Intellectual Property.......................................  4.19
Interim SEC Reports.........................................  4.7(a)
IRS.........................................................  4.20(a)
Kaplan Agreement............................................  2.3(b)(i)
Lazard Freres...............................................  4.24
Leased Real Property........................................  4.16(b)
Liberty Event...............................................  3.4(c)
Liberty Interest............................................  3.4(c)
Liberty Media...............................................  Preamble
Liberty Media Disclosure Schedule...........................  Article VI
Licenses....................................................  4.9(c)
Local Approvals.............................................  4.5(iii)
Material Contracts..........................................  4.11
Merger......................................................  Preamble
Merger Proposal.............................................  3.1
Merger Sub..................................................  Preamble
Multiemployer Plan..........................................  4.14(b)
New Parent..................................................  3.4(c)
non-breaching party.........................................  3.6
Organizational Documents....................................  4.1(a)
</TABLE>

                                       A-6
<PAGE>   96

<TABLE>
<CAPTION>
DEFINED TERM                                                    SECTION
------------                                                  -----------
<S>                                                           <C>
Owned Real Property.........................................  4.16(a)
Parent......................................................  Preamble
Parent Preferred Stock......................................  5.3
PCB.........................................................  4.18(a)(iv)
Proxy Statement.............................................  3.2(a)
receiving party.............................................  7.2
Registration Statement......................................  3.2(a)
Remedial Action.............................................  4.18
Representatives.............................................  7.2
Rule 145 Agreement..........................................  3.3
Special Meeting.............................................  3.1
Stock Consideration.........................................  2.3(a)(i)
Stock Exchange Ratio........................................  2.3(a)(i)
Subsequent Determination....................................  7.5(c)
Superior Proposal...........................................  7.5(c)
tax.........................................................  4.20(a)
tax return..................................................  4.20(a)
Termination Fee.............................................  9.2
Violation...................................................  4.6(a)
Voting Debt.................................................  4.3(a)
</TABLE>

     1.3 Terms Generally.  The definitions in Sections 1.1 and 1.2 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. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation." The words "herein,"
"hereof" and "hereunder" and words of similar import refer to this Agreement
(including the Exhibits and Schedules) in its entirety and not to any part
hereof unless the context shall otherwise require. As used herein, the term "to
the Company's knowledge" or any similar term relating to the knowledge of the
Company means the actual knowledge of any of the following officers and
employees of the Company: Louis H. Siracusano, Michael E. Fairbourne and Edward
L. Shendell, in each case without investigation or inquiry by such officers and
employees (other than any such investigation or inquiry in the ordinary course
of their duties to the Company), unless the context otherwise requires. All
references herein to Articles, Sections, Exhibits and Schedules shall be deemed
references to Articles and Sections of, and Exhibits and Schedules to, this
Agreement unless the context shall otherwise require. Unless the context shall
otherwise require, any references to any agreement or other instrument or
statute or regulation are to it as amended and supplemented from time to time
(and, in the case of a statute or regulation, to any successor provisions). Any
reference in this Agreement to a "day" or number of "days" (without the explicit
qualification of "business") shall be interpreted as a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or given
on or by a particular calendar day, and such calendar day is not a business day,
then such action or notice shall be deferred until, or may be taken or given on,
the next business day. As applied to Parent and its Subsidiaries, the phrases
"as soon as reasonably practicable," "as promptly as practicable" and similar
phrases shall mean "reasonably promptly under the circumstances, in light of the
other burdens on the time and attention of the directors, officers, employees
and agents of Parent and the relative benefits to Parent of this Agreement and
such other burdens."

                                       A-7
<PAGE>   97

                                   ARTICLE II

                         THE MERGER AND RELATED MATTERS

     2.1 The Merger.

     (a) Merger; Effective Time.  At the Effective Time and subject to and upon
the terms and conditions of this Agreement, Merger Sub shall, and Parent shall
cause Merger Sub to, merge with and into the Company in accordance with the
provisions of the DGCL, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the Surviving Entity. The Effective Time
shall occur upon the filing with the Secretary of State of the State of Delaware
of a Certificate of Merger (the "Certificate of Merger") substantially in the
form of Exhibit 2.1(a) and executed in accordance with the applicable provisions
of the DGCL, or at such later time as may be agreed to by Parent, Liberty Media
and the Company and specified in the Certificate of Merger. Provided that this
Agreement has not been terminated pursuant to Article IX, the parties will cause
the Certificate of Merger to be filed concurrently with or immediately following
the Closing.

     (b) Effects of the Merger.  The Merger shall have the effect set forth in
Section 259 of the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of the Company, and Merger Sub shall vest in the Surviving
Entity, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Entity. If, at
any time after the Effective Time, the Surviving Entity considers or is advised
that any deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Entity its right, title or interest in, to or under
any of the rights, properties, or assets of either the Company or Merger Sub, or
otherwise to carry out the intent and purposes of this Agreement, the officers
and directors of the Surviving Entity will be authorized to execute and deliver,
in the name and on behalf of each of the Company and Merger Sub, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of the Company and Merger Sub, all such other actions and things
as the Board of Directors of the Surviving Entity may determine to be necessary
or desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties or assets in the Surviving Entity or
otherwise to carry out the intent and purposes of this Agreement.

     (c) Certificate of Incorporation and Bylaws of Surviving Entity.  At the
Effective Time, the certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Entity until thereafter amended as provided by
law. At the Effective Time, the bylaws of Merger Sub, shall be the bylaws of the
Surviving Entity until thereafter amended as provided by law.

     (d) Directors and Officers of Surviving Entity.  At the Effective Time, the
directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Entity and all such directors will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Certificate of Incorporation
and Bylaws of the Surviving Entity, or as otherwise provided by applicable law.
At the Effective Time, the officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Entity and all such
officers will hold office until their respective successors are duly appointed
and qualify in the manner provided in the Bylaws of the Surviving Entity, or as
otherwise provided by applicable law.

     2.2 Closing.

     (a) Closing.  The Closing shall take place (i) at 10:00 a.m. (New York
time) at the offices of Baker Botts L.L.P., 599 Lexington Avenue, New York, New
York 10022, on the first business day following the date on which the last of
the conditions set forth in Article VIII (other than the filing of the
Certificate of Merger and other than any such conditions which by their terms
are not capable of being satisfied until the Closing Date) is satisfied or, to
the extent permissible, waived, or (ii) on such other date and at such other
time or place as is mutually agreed by the parties hereto.

                                       A-8
<PAGE>   98

     (b) Obligations of the Company.  In addition to the documents required by
Article VIII, the Company shall deliver the following documents at the Closing:

          (i) a long form certificate of good standing from the State of
     Delaware dated as of a date not more than two business days prior to the
     Closing Date and certifying that the Company is duly qualified and in good
     standing as of the date of such certificate;

          (ii) resolutions duly adopted by the Company Board prior to the
     effectiveness of the resignations described in (iii) below and continuing
     in effect at the Closing (as certified by the Secretary of the Company)
     nominating those individuals serving as the directors of Merger Sub on the
     Closing Date to serve on the Company Board;

          (iii) written resignations from each of the directors of the Company,
     effective immediately prior to the Effective Time; and

          (iv) the executed Certificate of Merger substantially in the form of
     Exhibit 2.1(a).

     2.3 Conversion of Securities.

     (a) Conversion of Company Securities.  At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, Liberty
Media, the Company or the holders of any of their securities:

          (i) Each share of Company Common Stock outstanding immediately prior
     to the Effective Time (other than such shares to be canceled in accordance
     with Section 2.3(a)(iii) and subject to Sections 2.4(f) and 2.4(j)) shall
     be converted into and represent the right to receive, and shall be
     exchangeable for (i) 0.104 of a share (the "Stock Exchange Ratio") of Class
     A Liberty Media Group Stock (the "Stock Consideration") and (ii) $2.75 in
     cash (the "Cash Consideration").

          (ii) All shares of Class A Liberty Media Group Stock issued pursuant
     to this Section 2.3(a) will be validly issued, fully paid and
     non-assessable. All shares of Company Common Stock outstanding immediately
     prior to the Effective Time shall no longer be outstanding and shall
     automatically be canceled and retired, and, subject to Section 2.4(j), each
     holder of a certificate representing any such shares shall cease to have
     any rights with respect thereto, except the right to receive the Merger
     Consideration pursuant to this Section 2.3(a), including any cash in lieu
     of a fractional share payable pursuant to Section 2.4(f) (and any dividends
     or other distributions payable pursuant to Section 2.4(g)), with respect
     thereto upon the surrender of such certificate in accordance with Section
     2.4, without interest.

          (iii) Each share of Company Common Stock that immediately prior to the
     Effective Time is held by the Company as a treasury share shall be canceled
     and retired without payment of any consideration therefor and without any
     conversion thereof into the Merger Consideration.

     (b) Treatment of Company Stock Options.

     The Company shall take all actions necessary (including those actions
contemplated by Section 3.5 hereof) under the Company Stock Plans and all
agreements pursuant to which Company Stock Options were issued to effect the
transactions contemplated by this Section 2.3(b), to provide that such Company
Stock Options may be exercised pursuant to a "cashless" option exercise
procedure mutually acceptable to the Company and Liberty Media and to comply
with the covenant set forth in Section 7.4(j). At the Effective Time, all
outstanding options to purchase shares of Company Common Stock under a Company
Stock Plan or any other contract, all of which are listed in Section 2.3(b)of
the Company Disclosure Schedule ("Company Stock Options"), whether or not then
immediately exercisable or "in the money," shall, without any further action on
the part of any holder thereof, be accelerated and become exercisable
immediately prior to the Effective Time. At the Effective Time, each Company
Stock Option which remains unexercised (a "Carryover Option") shall be treated
as follows:

          (i) Each Carryover Option granted pursuant to the International Post
     Limited 1993 Long Term Incentive Plan (the "1993 Plan"), the Video Services
     Corporation 1997 Long Term Incentive Plan
                                       A-9
<PAGE>   99

     (the "1997 Plan") and the Stock Option Agreement, dated as of February 15,
     1994, between International Post Limited (formerly International Post
     Group, Inc.), a Delaware corporation, and Jeffrey J. Kaplan (the "Kaplan
     Agreement") shall be deemed, following the Effective Time, to constitute an
     option to acquire that number of shares of Class A Liberty Media Group
     Stock equal to (x) the number of shares of Company Common Stock for which
     such Carryover Option was exercisable immediately prior to the Effective
     Time multiplied by (y) 0.208. The per share exercise price of each such
     Carryover Option shall be equal to the quotient obtained by dividing (A)
     the product of (1) the per share exercise price of such Carryover Option
     immediately prior to the Effective Time multiplied by (2) the number of
     shares of Company Common Stock subject to such Carryover Option by (B) the
     number of shares of Class A Liberty Media Group Stock subject to such
     Carryover Option immediately following the Effective Time.

          (ii) All Carryover Options, except for Carryover Options granted
     pursuant to the 1993 Plan or the Kaplan Agreement, shall terminate
     immediately following the Effective Time with no consideration being paid
     therefor, and shall thereafter no longer be exercisable for securities or
     other assets or properties of the Company, the Surviving Entity Parent,
     Liberty Media or any other Person.

     All other terms and conditions of the Carryover Options shall remain in
effect, except as otherwise expressly provided herein. Promptly following the
execution of this Agreement, Liberty Media and the Company shall agree upon the
terms of a notice to be delivered to each holder of Company Stock Options
describing the treatment of Carryover Options as set forth above and soliciting
their consent to such treatment. The Company will use its reasonable best
efforts to obtain the consent of each holder of Company Stock Options to such
treatment prior to the Closing. Liberty Media represents and warrants that all
shares of Class A Liberty Media Group Stock issued upon the exercise of any
Carryover Option will be validly issued, fully paid and non-assessable. Parent
and Liberty Media shall use commercially reasonable efforts to cause the
issuance of shares of Class A Liberty Media Group Stock issuable upon exercise
of any Carryover Options granted pursuant to the 1993 Plan to have been
registered, at or as promptly as reasonably practicable following the Effective
Time, pursuant to an effective registration statement on Form S-8 (or other
comparable form) under the Securities Act, and Parent and Liberty Media shall
use commercially reasonable efforts to maintain the effectiveness of such
registration statement thereafter for so long as any Carryover Options remain
exercisable.

     (c) Conversion of Merger Sub Stock.  At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, Liberty
Media, the Company or the holders of any of their securities, each share of
capital stock of Merger Sub outstanding immediately prior to the Effective Time
shall be converted into one share of the common stock, par value $.01 per share,
of the Surviving Entity.

     2.4 Exchange of Certificates.

     (a) Appointment of Exchange Agent; Exchange Pool.  On or before the Closing
Date, Parent and the Company shall enter into an agreement (the "Exchange Agent
Agreement") with Boston Equiserve Trust Company, N.A. or, at Parent's option,
another exchange agent selected by Parent and reasonably acceptable to the
Company (the "Exchange Agent"), authorizing such Person to act as exchange agent
hereunder. At the Effective Time, Liberty Media shall deposit with the Exchange
Agent, for the benefit of those Persons who immediately prior to the Effective
Time were the holders of Company Common Stock, cash in an amount necessary to
pay the Cash Consideration pursuant to Section 2.3(a). Promptly following the
Effective Time, Parent shall make available to the Exchange Agent, for the
benefit of those Persons who immediately prior to the Effective Time were the
holders of Company Common Stock, certificates representing a sufficient number
of shares of Class A Liberty Media Group Common Stock required to effect the
delivery of the Stock Consideration pursuant to Section 2.3(a) (the cash and the
certificates representing Class A Liberty Media Group Common Stock delivered to
the Exchange Agent pursuant to this Section 2.4(a) and comprising the Merger
Consideration being hereinafter referred to as the "Exchange Pool"). The
Exchange Agent shall invest any cash included in the Exchange Pool in one or
more bank accounts or in high-quality, short-term investments, as directed by
Liberty Media, on a daily

                                      A-10
<PAGE>   100

basis. Any interest and other income resulting from such investments will be
paid to Liberty Media. The Exchange Pool shall not be used for any purpose
except as provided in this Agreement.

     (b) Letter of Transmittal.  As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of Company Common Stock (the
"Certificates") whose shares were converted into the right to receive the Merger
Consideration: (i) a notice of the effectiveness of the Merger and (ii) a letter
of transmittal (which shall state that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) with instructions for use in effecting the
surrender and exchange of the Certificates. Such notice, letter of transmittal
and instructions shall contain such provisions and be in such form as Parent,
Liberty Media and the Company reasonably specify.

     (c) Exchange Procedure.  Promptly following the surrender, in accordance
with such instructions, of a Certificate to the Exchange Agent (or such other
agent or agents as may be appointed by the Exchange Agent or Parent pursuant to
the Exchange Agent Agreement), together with such letter of transmittal (duly
executed) and any other documents required by such instructions or letter of
transmittal, the Exchange Agent shall, subject to Section 2.4(d), cause to be
distributed to the Person in whose name such Certificate shall have been issued
(i) a certificate registered in the name of such Person representing the number
of whole shares of Class A Liberty Media Group Stock constituting the Stock
Consideration issuable with respect to the shares of Company Common Stock
previously represented by the surrendered Certificate, (ii) payment by check of
the Cash Consideration payable with respect to the shares of Company Common
Stock previously represented by the surrendered Certificate, and (iii) and
payment made by check of any cash payable in lieu of fractional shares of Class
A Liberty Media Group Stock pursuant to Section 2.4(f). Each Certificate so
surrendered shall be canceled. No interest will be paid to holders of
Certificates with respect to any cash payable to such holders pursuant to the
provisions of this Article II.

     (d) Unregistered Transfers of Company Common Stock.  In the event of a
transfer of ownership of Company Common Stock which is not registered in the
transfer records of the Company, certificates representing the Stock
Consideration may be issued to, and the Cash Consideration and any cash in lieu
of fractional shares of Class A Liberty Media Group Stock may be delivered to,
the transferee if the Certificate representing such Company Common Stock
surrendered to the Exchange Agent in accordance with Section 2.4(c) is properly
endorsed for transfer or is accompanied by appropriate and properly endorsed
stock powers and is otherwise in proper form to effect such transfer, if the
Person requesting such transfer pays to the Exchange Agent any transfer or other
taxes payable by reason of such transfer or establishes to the satisfaction of
the Exchange Agent that such taxes have been paid or are not required to be paid
and if such Person establishes to the satisfaction of Parent that such transfer
would not violate applicable Federal or state securities laws.

     (e) Lost, Stolen or Destroyed Certificates.  Subject to the DGCL, if any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed satisfactory to Parent and complying with any other
reasonable requirements imposed by Parent, the Exchange Agent will cause to be
delivered to such Person in respect of such lost, stolen or destroyed
Certificate the Merger Consideration (including any cash in lieu of fractional
shares of Class A Liberty Media Group Common Stock to which such Person is
entitled pursuant to Section 2.4(f)) in respect thereof as determined in
accordance with this Article II. Parent may, in its discretion, require the
owner of such lost, stolen or destroyed Certificate to give Parent a bond in
such reasonable sum as it may direct as indemnity against any claim that may be
made against Parent or the Surviving Entity with respect to the Certificate
alleged to have been lost, stolen or destroyed.

     (f) No Fractional Shares.  No fractional shares of Class A Liberty Media
Group Stock shall be issued in the Merger. In lieu of any such fractional
shares, each holder of shares of Company Common Stock who would otherwise have
been entitled to a fraction of a share of Class A Liberty Media Group Stock upon
surrender of Certificates for exchange pursuant to this Section 2.4 will be paid
an amount in

                                      A-11
<PAGE>   101

cash (without interest) equal to such holder's proportionate interest in the
proceeds from the sale or sales in the open market by the Exchange Agent, on
behalf of all such holders, of the aggregate fractional shares of Class A
Liberty Media Group Stock which, but for this Section 2.4(f), would be issuable
in the Merger. As soon as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (i) the number of full shares of Class A
Liberty Media Group Stock delivered to the Exchange Agent by Parent over (ii)
the aggregate number of full shares of Class A Liberty Media Group Stock to be
distributed to former holders of Company Common Stock (such excess being herein
called the "Excess Shares"). The Exchange Agent, as agent for the former holders
of Company Common Stock, shall sell the Excess Shares at the prevailing prices
on the NYSE as soon as practicable after the Closing. The sales of the Excess
Shares by the Exchange Agent shall be executed on the NYSE through one or more
member firms of the NYSE and shall be executed in round lots to the extent
practicable. All commissions, transfer taxes and other out-of-pocket transaction
costs, if any, including the expenses and compensation, if any, of the Exchange
Agent, incurred in connection with such sale of Excess Shares, shall be deducted
from the proceeds otherwise distributable to the holders of Company Common
Stock. Until the proceeds of such sale have been distributed to the former
holders of Company Common Stock, the Exchange Agent will hold such proceeds in
trust for such former holders (the "Fractional Fund"). As soon as practicable
after the determination of the amount of cash to be paid to former holders of
Company Common Stock in lieu of any fractional interests, the Exchange Agent
shall make available in accordance with this Agreement such amounts to such
former holders.

     (g) No Dividends Before Surrender of Certificates.  No dividends or other
distributions declared or made after the Effective Time with respect to Class A
Liberty Media Group Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the shares
of Class A Liberty Media Group Stock represented thereby, until the holder of
record of such Certificate shall surrender such Certificate as provided herein.
Following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Class A Liberty Media
Group Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions, if any, with a
record date after the Effective Time and payable with respect to such whole
shares of Class A Liberty Media Group Stock between the Effective Time and the
time of such surrender, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, if any, with a record date after the Effective
Time but prior to surrender and with a payment date subsequent to surrender
payable with respect to such whole shares of Class A Liberty Media Group Stock.

     (h) No Further Ownership Rights in Company Common Stock.  The Merger
Consideration (together with cash paid in lieu of fractional shares) delivered
upon the surrender for exchange of shares of Company Common Stock in accordance
with the terms hereof shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Entity of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. Subject to Section 2.4(i),
if, after the Effective Time, Certificates are presented to the Surviving Entity
for any reason, they shall be canceled and exchanged as provided in this Article
II.

     (i) Termination of Exchange Pool and Fractional Fund; Abandoned Property
Laws.  Any portion of the Exchange Pool and the Fractional Fund (and any
dividends or other distributions with respect to such portion of the Exchange
Pool) which remains unclaimed by the former stockholders of the Company for one
year after the Effective Time shall be delivered to Parent, upon demand of
Parent, and any former stockholders of the Company shall, after such delivery,
look only to Parent for payment of their claim for the applicable Merger
Consideration including any cash in lieu of fractional shares of Class A Liberty
Media Group Stock (and any such dividends or other distributions). Neither
Parent, Liberty Media nor the Surviving Entity shall be liable to any holder of
shares of Company Common Stock or Class A Liberty Media Group Stock for any
Merger Consideration, for any dividends or distributions with respect thereto or
for any cash in lieu of fractional shares, which may be delivered to any public
official pursuant to any abandoned property, escheat or similar law.

                                      A-12
<PAGE>   102

     (j) Appraisal Shares.  Notwithstanding Sections 2.3(a)(i) and 2.4(f), each
share of Company Common Stock held of record immediately prior to the Effective
Time by a stockholder of the Company that has not failed to perfect and has not
effectively withdrawn, surrendered, or lost appraisal rights under Section 262
of the DGCL as to such share (to the extent, if any, that such appraisal rights
are available under Section 262 of the DGCL) shall not be converted into and
represent the right to receive and shall not be exchangeable for the Merger
Consideration (including any payments of cash in lieu of fractional shares) as
provided in this Article II, and such stockholder shall not be entitled to
receive the Merger Consideration as provided in this Article II (including any
payment of cash in lieu of fractional shares), and such stockholder shall be
entitled only to such appraisal rights as to such share, provided, however, that
if and when any such stockholder shall have failed to perfect such appraisal
rights or shall have effectively withdrawn, surrendered, or lost such appraisal
rights as to such share in accordance with the DGCL, then such share of Company
Common Stock shall be converted into and represent the right to receive and
shall be exchangeable for (to the fullest extent permitted under the DGCL, as of
the Effective Time) the Merger Consideration as provided in this Article II
(including any payment of cash in lieu of fractional shares), and such
stockholder shall be entitled to receive the Merger Consideration as provided in
this Article II (including any payment of cash in lieu of fractional shares and
any dividends or other distributions pursuant to Section 2.4(g)) in exchange for
and upon the surrender of the Certificate evidencing such share in accordance
with this Agreement.

     2.5 Changes in Class A Liberty Media Group Stock.  If, prior to the
Effective Time, the Class A Liberty Media Group Stock shall be recapitalized,
redeemed or reclassified or Parent shall effect any stock dividend, stock split,
or reverse stock split of Class A Liberty Media Group Stock or shall otherwise
effect any transaction that changes the shares of Class A Liberty Media Group
Stock into any other securities (including securities of another corporation),
or shall make any other dividend or distribution on the shares of Class A
Liberty Media Group Stock (other than normal quarterly cash dividends as the
same may be adjusted from time to time), then the Stock Exchange Ratio, the
terms of the foregoing exchanges and the terms of the conversion of any
Carryover Options as provided in Section 2.3(b) will, as appropriate, be
adjusted to reflect such split, combination, transaction, dividend or other
distribution or change.

     2.6 Capital Contribution to Liberty Media.  As soon as practicable
following the Effective Time, to the extent permitted by applicable law, Parent
and Liberty Media shall cause the Post-Merger Restructuring Transactions
described in Exhibit 2.6, as the same may be modified or amended by mutual
agreement of the parties, to be consummated.

                                  ARTICLE III

                                CERTAIN ACTIONS

     3.1 Stockholder Meeting.  The Company and its Board of Directors (the
"Company Board") shall take all action necessary in accordance with applicable
law, the requirements of the American Stock Exchange and the Company's Restated
Certificate of Incorporation (the "Company Charter") and Bylaws (the "Company
Bylaws") to duly call and hold, as soon as reasonably practicable after the date
hereof, a meeting of the Company's stockholders (the "Special Meeting") for the
purpose of considering and voting upon the approval and adoption of this
Agreement and the Merger contemplated hereby (the "Merger Proposal"). The only
matters the Company shall propose to be acted on by the Company's stockholders
at the Special Meeting shall be the Merger Proposal and related matters
incidental to the consummation of the Merger and, if so determined by the
Company and with the consent of Liberty Media (which shall not be unreasonably
withheld or delayed), such other matters as are customarily presented to
stockholders at an annual meeting. Subject to Section 7.5(c), the Company Board
will recommend that the Company's stockholders vote in favor of approval of the
Merger Proposal and include such recommendation in the Proxy Statement, and the
Company will use its commercially reasonable efforts to solicit from its
stockholders proxies in favor of such approval and to secure the vote of
stockholders of the Company required by the DGCL, the Company Charter and the
Company Bylaws to effect the Merger. The

                                      A-13
<PAGE>   103

Company shall not require any vote greater than a majority of the votes entitled
to be cast by the holders of the issued and outstanding shares of Company Common
Stock for approval of the Merger Proposal.

     3.2 Registration Statement and Other Commission Filings.  As soon as
reasonably practicable after the execution of this Agreement, Parent, Liberty
Media and the Company shall cooperate in the preparation of, and the Company
shall file confidentially with the Commission, a preliminary proxy statement in
form and substance reasonably satisfactory to each of Parent, Liberty Media and
the Company, and, following resolution of comments, if any, of the Commission on
the preliminary proxy statement, Liberty Media and Parent shall prepare and
Parent shall file with the Commission a registration statement on Form S-4 (the
"Registration Statement"), containing a form of prospectus that includes such
proxy statement (as amended or supplemented, if applicable) registering under
the Securities Act the issuance of the shares of Class A Liberty Media Group
Stock issuable upon conversion of Company Common Stock pursuant to the Merger.
Each of Parent, Liberty Media and the Company shall use its commercially
reasonable efforts to respond to any comments of the Commission and to have the
Registration Statement declared effective as promptly as practicable after such
filing and the Company shall use its commercially reasonable efforts to cause
the proxy statement as filed with the Commission and as thereafter amended or
supplemented to be cleared by the Commission and mailed to the Company's
stockholders as promptly as practicable after the Registration Statement becomes
effective (such proxy statement in the definitive form mailed to the Company's
stockholders, as thereafter amended or supplemented, being referred to as the
"Proxy Statement"). The Company, Liberty Media and Parent will notify each other
party promptly of the receipt of any comments from the Commission or its staff
or any other government officials and of any request by the Commission or its
staff for amendments or supplements to the Registration Statement, the Proxy
Statement or any other filing or for additional information, and will supply the
other parties with copies of all correspondence between it and any of its
representatives, on the one hand, and the Commission or its staff or any other
government officials on the other hand, with respect to the Registration
Statement, the Proxy Statement, the Merger or any filing with the Commission
relating thereto. Whenever any party hereto becomes aware of any event that is
required to be set forth in an amendment or supplement to the Proxy Statement,
the Registration Statement or any other filing with the Commission in connection
with this Agreement or the transactions contemplated hereby, such party shall
promptly inform the other parties of such occurrence and cooperate in the prompt
filing with the Commission or its staff or any other governmental officials,
and/or mailing to stockholders of the Company, of such amendment or supplement,
which shall comply in all material respects with the provisions of the
Securities Act and the Exchange Act. The Company, Parent and Liberty Media shall
each promptly provide the others (or their respective counsel) copies of all
filings made by such party with any Governmental Entity in connection with this
Agreement or the transactions contemplated hereby.

     3.3 Identification of Rule 145 Affiliates.  Within 30 days after the
execution of this Agreement, the Company shall deliver to Parent and Liberty
Media a letter identifying all Persons who the Company knows are or who the
Company has reason to believe may be, as of the date of the Special Meeting,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company will supplement such letter, if applicable, with the name and
address of any other Person subsequently identified by either Parent or the
Company, as the case may be, as a Person who may be deemed to be such an
affiliate; provided, however, that no such Person identified by the Company
shall remain on such list of affiliates if the Company shall receive from
Parent, on or before the date of the Special Meeting, an opinion of outside
counsel reasonably satisfactory to the Company to the effect that such Person is
not such an affiliate. The Company shall use its reasonable best efforts to
cause each Person who is identified as an "affiliate" in the letter referred to
above (as so supplemented) to deliver to Parent, on or prior to the Closing
Date, a written agreement, in substantially the form annexed hereto as Exhibit
3.3 (each a "Rule 145 Agreement"). Parent shall not be required to maintain the
effectiveness of the Registration Statement or any other registration statement
under the Securities Act for the purposes of resale of Class A Liberty Media
Group Stock received by such "affiliates" in the Merger.

                                      A-14
<PAGE>   104

     3.4 Reasonable Efforts.

     (a) Subject to the terms and conditions of this Agreement (including
Section 7.4 hereof) and applicable law, and (with respect to Parent) subject to
the last proviso of the following sentence, each of the parties hereto shall use
its commercially reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement as soon as reasonably practicable (or, with respect to ministerial
actions required of Parent or its directors, officers, employees or agents,
promptly), including such actions or things as any other party hereto may
reasonably request in order to cause any of the conditions to such party's
obligation to consummate such transactions specified in Article VIII to be fully
satisfied. Without limiting the generality of the foregoing, each of the parties
hereto shall (and each shall cause its directors, officers and Subsidiaries, and
use its reasonable efforts to cause its Affiliates, employees, agents,
attorneys, accountants and representatives, to) consult and fully cooperate with
and provide reasonable assistance to each other in (A) the preparation and
filing with the Commission of the Registration Statement, the preliminary proxy
statement referred to in Section 3.2, the Proxy Statement and any necessary
amendments or supplements to any of the foregoing; (B) seeking to have such
Registration Statement declared effective by the Commission as soon as
reasonably practicable after filing; (C) taking such actions as may reasonably
be required under applicable state securities or blue sky laws in connection
with the issuance of the Stock Consideration; (D) using commercially reasonable
efforts to obtain all required consents, approvals, waivers, licenses, permits,
authorizations, registrations, qualifications, or other permission or action by,
and to give all required notices to and to make all required filings with and
applications and submissions to, any Governmental Entity or other Person, in
each case required in order to cause any of the conditions to each other party's
obligation to consummate the Merger and the transactions contemplated hereby to
be fully satisfied; (E) filing all pre-merger notification and report forms
required under the Hart-Scott Act and responding to any requests for additional
information made by any Governmental Entity pursuant to the Hart-Scott Act; (F)
using commercially reasonable efforts (which in the case of Parent do not
require the commencement of litigation) to cause the lifting of any permanent or
preliminary injunction or restraining order or other similar order issued or
entered by any court or other Governmental Entity (an "Injunction") of any type
referred to in Section 8.2(d), 8.3(d) or 8.4(d); (G) providing all such
information about such party, its Subsidiaries and its officers, directors,
partners and Affiliates, and making all applications and filings, as may be
necessary or reasonably requested in connection with any of the foregoing; and
(H) in general, using commercially reasonable efforts to consummate and make
effective the transactions contemplated hereby; provided, however, that in
making any such filing and in order to obtain any consent, approval, waiver,
license, permit, authorization, registration, qualification, or other permission
or action or the lifting of any Injunction referred to in this sentence, (x) the
Company, Liberty Media, Parent and their respective Affiliates shall not be
required to (and without the prior written consent of Liberty Media and Parent,
the Company and its Affiliates shall not): (i) pay any consideration; (ii)
surrender, modify or amend in any substantive respect any License or Contract
(including this Agreement), (iii) hold separately (in trust or otherwise),
divest itself of, or otherwise rearrange the composition of, any of its assets,
(iv) agree to any limi tations 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 of
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; (y) Parent shall not be required to take any action
pursuant to the foregoing if the taking of such action is reasonably likely to
result in the imposition of a condition or restriction of the type referred to
in Section 8.3(e); and (z) Liberty Media and the Company recognize that Parent
may allocate resources in whatever manner it reasonably deems appropriate; and
provided, further, that Parent and its Subsidiaries shall not be required to
take any such action, or any other action pursuant to this Section 3.4, except
to the extent that such action is required by statute, rule or regulation to be
taken by or in the name of Parent or such Subsidiary (as opposed to by or in the
name of Liberty Media or the Company or a Subsidiary thereof) in connection with
the transactions contemplated by this Agreement and, in such event, Parent (or
such Subsidiary of Parent) shall be required only to make filings and statements
of fact

                                      A-15
<PAGE>   105

and shall not under any circumstances be required to commit or be committed to
take or refrain from taking any action or be subject to any restriction that
relates to any business, asset, liability, operation or employee of Parent or
any of its Subsidiaries. Prior to making any application to or filing with any
Governmental Entity or other Person in connection with this Agreement, each
party shall provide the other party with drafts thereof and afford the other
party a reasonable opportunity to comment on such drafts.

     (b) The Company will take all reasonable steps to (i) exempt the Merger
from the requirements of any applicable state takeover law and (ii) assist in
any challenge by Parent or Liberty Media to the validity or applicability to the
Merger of any state takeover law.

     (c) Nothing in this Agreement shall be deemed to affect the ability of
Parent at any time to effect the distribution, if any, to holders of Class A
Liberty Media Group Stock and Class B Liberty Media Group Stock of all or any
portion of, or any interest in, the assets comprising the Liberty Media Group,
the redemption, if any, of all or any portion of the Class A Liberty Media Group
Stock and Class B Liberty Media Group Stock or any similar transaction. If at
any time prior to the consummation of the Merger, Parent has effected a
distribution to holders of Class A Liberty Media Group Stock and Class B Liberty
Media Group Stock of all of its interest in the assets comprising the Liberty
Media Group at such time (the "Liberty Interest"), a redemption of all of the
Class A Liberty Media Group Stock and Class B Liberty Media Group Stock in
exchange for the Liberty Interest (any such action, a "Liberty Event") or a
similar transaction, the parties agree that Parent shall automatically be fully
released and discharged from all of its obligations hereunder and the Company
and Liberty Media will amend this Agreement as appropriate to provide that (i)
the Company will be acquired by Liberty Media or such other publicly-traded
corporation that at such time holds, directly or indirectly, the Liberty
Interest (the "New Parent") by means of the merger of a direct wholly-owned
subsidiary of New Parent into the Company, with the Company as the surviving
entity in such merger (an "Alternative Merger"), (ii) in lieu of the Stock
Consideration issuable pursuant to this Agreement in the Merger, the
stockholders of the Company will be entitled to receive, per share of Company
Common Stock cancelled in the Alternative Merger, that number of shares or
fraction of a share (subject to Section 2.4(f)) of the class and series of
common stock of New Parent received by holders of shares of Class A Liberty
Media Group Stock in the Liberty Event equal to (x) 0.104 (subject to the
adjustments set forth in Section 2.5) multiplied by (y) the number of shares, or
fraction of a share, of such class or series of common stock of New Parent
distributed in respect of, or delivered in redemption of (as applicable), one
share of Class A Liberty Media Group Stock in connection with the Liberty Event
(the "Alternative Consideration"), and (iii) each Carryover Option will become
exercisable for that number of shares or fraction of a share of the class and
series of common stock of New Parent received by holders of shares of Class A
Liberty Media Group Stock in the Liberty Event equal to (x) the number of shares
of Company Common Stock for which such Carryover Option was exercisable
immediately prior to the Effective Time multiplied by (y) the product of (A)
0.208 (subject to the adjustments set forth in Section 2.5) multiplied by (B)
the number of shares, or fraction of a share, of such class or series of common
stock of New Parent distributed in respect of, or delivered in redemption of (as
applicable), one share of Class A Liberty Media Group Stock in connection with
the Liberty Event (and (1) the per share exercise price of each such Carryover
Option will likewise be appropriately adjusted and (2) each Carryover Option,
other than Carryover Options granted pursuant to the 1993 Plan or the Kaplan
Agreement, will terminate immediately following the effective time of the
Alternative Merger). Liberty Media and the Company will negotiate in good faith
such other revisions to the terms and conditions of this Agreement as are
appropriate to provide for the Alternative Merger as set forth in the preceding
sentence.

     (d) Promptly following the occurrence of a Liberty Event, the Company shall
use its commercially reasonable efforts to obtain the opinion of an investment
bank of nationally recognized standing to the effect that the Alternative
Consideration to be received by the stockholders of the Company in the
Alternative Merger is equivalent in value to the Stock Consideration that would
have been received by the stockholders of the Company in the Merger had such
Liberty Event not occurred (an "Equivalency Opinion"). Receipt of an Equivalency
Opinion will be a condition to the Company's obligation to

                                      A-16
<PAGE>   106

consummate the Alternative Merger, subject to the remaining provisions of this
Section 3.4(d). At any time on or after the tenth day following the satisfaction
or waiver of all conditions to the closing of the Alternative Merger except for
the receipt of an Equivalency Opinion and except for conditions to be satisfied
on the Closing Date, New Parent may, but shall not be required to, elect to
acquire the Company for cash (a "Cash Election"). If New Parent makes a Cash
Election (i) the Company will be acquired by New Parent by means of the merger
of a direct wholly-owned subsidiary of New Parent into the Company, with the
Company as the surviving entity in such merger (a "Cash Merger"), (ii) receipt
of an Equivalency Opinion will not be a condition to the Company's obligation to
consummate a Cash Merger, (iii) in lieu of the Stock Consideration issuable
pursuant to this Agreement in the Merger or the Alternative Consideration, the
stockholders of the Company will be entitled to receive, per share of Company
Common Stock cancelled in the Cash Merger, $2.75 in cash as additional Cash
Consideration, and (iv) each Carryover Option will become exercisable for an
amount of cash equal to (x) the number of shares of Company Common Stock for
which such Carryover Option was exercisable immediately prior to the Effective
Time multiplied by (y) $5.50 (and (1) the per share exercise price of each such
Carryover Option will likewise be appropriately adjusted and (2) each Carryover
Option, other than Carryover Options granted pursuant to the 1993 Plan or the
Kaplan Agreement, will terminate immediately following the effective time of the
Cash Merger). New Parent and the Company will negotiate in good faith such other
revisions to the terms and conditions of this Agreement as are appropriate to
provide for a Cash Merger as set forth in the preceding sentence.

     3.5 Company Stock Option and Other Plans.  Promptly following the mailing
of the Proxy Statement, the Company shall cause a notice (which shall include,
without limitation, the information contained in Section 2.3(b) hereof) to be
sent to each holder of Company Stock Options, whether vested or unvested, in
such form as is reasonably agreed upon by the Company, Parent and Liberty Media.

     3.6 Expenses.  Except as otherwise may be provided in this Agreement,
whether or not the Merger is consummated, as between the Company, on one hand,
and Liberty Media, on the other hand, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such cost or expense, except that the costs and
expenses incurred in connection with printing and mailing the Proxy Statement,
the Registration Statement (and any amendment or supplement thereto) and any
prospectus included in the Registration Statement (and any amendment or
supplement thereto) and the costs of filing under the Hart-Scott Act shall be
borne one-half by Liberty Media and one-half by the Company. The filing fee
payable to the Commission in connection with the filing of the Registration
Statement shall be paid by Liberty Media. Notwithstanding the foregoing, if this
Agreement is terminated by a party (the "non-breaching party") as a result of a
material willful breach by the other party (the "breaching party") of its
covenants or agreements contained herein or the representations and warranties
made by it herein, in addition to all other rights and remedies that may be
available to the non-breaching party, the breaching party shall reimburse the
non-breaching party for all reasonably documented out-of-pocket costs and
expenses incurred in connection with the transactions contemplated by this
Agreement.

                                   ARTICLE IV

                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company hereby makes the following representations and warranties to
Parent and Liberty Media, in each case except as otherwise set forth in the
appropriate section of the Company Disclosure Schedule dated as of the date of
this Agreement and delivered to each of Parent and Liberty Media:

     4.1 Corporate Organization.

     (a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Attached hereto as
Exhibit 4.1(a)(i) and Exhibit 4.1(a)(ii), respectively, are true and complete
copies of the Company Charter and the Company Bylaws, as amended through the
date hereof (together, the "Organizational Documents").

                                      A-17
<PAGE>   107

     (b) The Company has all requisite power and authority and has all necessary
approvals, licenses, permits and authorization to own, operate or lease its
properties and to carry on its business as now conducted. The Company has all
requisite power and authority to execute and deliver the Company Transaction
Documents and to perform its obligations thereunder.

     (c) The Company has filed all necessary documents to qualify to do business
as a foreign corporation in, and the Company is in good standing under the laws
of, each jurisdiction in which the conduct of the Company's business or the
nature of the properties owned or leased by the Company requires such
qualification, except where the failure to so qualify or be in good standing
would not reasonably be expected to have a Material Adverse Effect.

     4.2 Subsidiaries.

     (a) Section 4.2 of the Company Disclosure Schedule sets forth (i) the name
of each Subsidiary of the Company; (ii) the name of each corporation,
partnership, joint venture or other entity (other than such Subsidiaries) in
which the Company or any of its Subsidiaries has, or pursuant to any agreement
has the right or obligation to acquire at any time by any means, directly or
indirectly, an equity interest or investment; (iii) in the case of each of such
corporations described in clauses (i) and (ii) above, (A) the jurisdiction of
incorporation, (B) the percentage of each class of voting capital stock owned by
the Company or any of its Subsidiaries, (C) a description of any contractual
limitations on the holder's ability to vote or alienate such securities, (D) a
description of any outstanding options or other rights to acquire securities of
such corporation, and (E) a description of any other contractual charge or
impediment which would limit or impair the Company's or any of its Subsidiaries'
ownership of such entity or interest or its ability effectively to exercise the
full rights of ownership of such entity or interest; and (iv) in the case of
each of such unincorporated entities, information substantially equivalent to
that provided pursuant to clause (iii) above with regard to corporate entities.

     (b) Each Subsidiary of the Company has been duly organized, is validly
existing and in good standing under the laws of the jurisdiction of its
organization, has the corporate power and authority to own and lease its
properties and to conduct its business and is duly registered, qualified and
authorized to transact business and is in good standing in each jurisdiction in
which the conduct of its business or the nature of its properties requires such
registration, qualification or authorization, except where the failure to be so
registered, qualified, authorized or in good standing would not reasonably be
expected to have a Material Adverse Effect. All of the issued and outstanding
equity or other participating interests of each Subsidiary have been duly
authorized and validly issued, are fully paid and non-assessable, and, to the
extent owned by the Company as indicated on Section 4.2 of the Company
Disclosure Schedule, are owned free and clear of any Lien, Restriction or
equity, except as set forth in Section 4.2 of the Company Disclosure Schedule.
Except as set forth on Section 4.2 of the Company Disclosure Schedule, there are
no outstanding options, warrants, agreements, conversion rights, preemptive
rights or other rights to subscribe for, purchase or otherwise acquire any
issued or unissued shares of capital stock of any Subsidiary.

     4.3 Capitalization.

     (a) The authorized capital stock of the Company consists of 25,000,000
shares of Company Common Stock and 3,000,000 shares of preferred stock, par
value $.01 per share ("Company Preferred Stock"). As of the close of business on
the date one business day prior to the date hereof, (i) 13,311,307 shares of
Company Common Stock were issued and outstanding, (ii) no shares of Company
Common Stock were held in the treasury of the Company, (iii) no shares of
Company Preferred Stock were issued or outstanding, (iv) 1,125,000 shares of
Company Common Stock were reserved for issuance under the Company's employee
stock option plans and the option agreements listed in Section 4.3(a) of the
Company Disclosure Schedule in the amounts stated in such section and (v) there
were no bonds, debentures, notes or other evidences of indebtedness issued or
outstanding having the right to vote on any matters on which the Company's
stockholders may vote ("Voting Debt").

     (b) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable free of
all preemptive or similar rights and were issued in

                                      A-18
<PAGE>   108

accordance with the registration or qualification requirements of the Securities
Act and any relevant state securities laws or pursuant to valid exemptions
therefrom.

     (c) Except for the Company Stock Options, which are listed on Section
2.3(b) of the Company Disclosure Schedule, and except as set forth in Section
4.3 of the Company Disclosure Schedule, there are no warrants, options,
subscriptions, calls, rights, commitments, convertible securities or any other
agreements of any character to or by which the Company or any of its
Subsidiaries is a party or is bound which, directly or indirectly, obligate the
Company or any of its Subsidiaries to issue, deliver or sell or cause to be
issued, delivered or sold any additional shares of Company Common Stock, Company
Preferred Stock or any other capital stock, equity interest or Voting Debt of
the Company or any Subsidiary of the Company, any securities convertible into,
or exercisable or exchangeable for, or evidencing the right to subscribe for any
such shares, interests or Voting Debt, or any phantom shares, phantom equity
interests or stock or equity appreciation rights, or obligating the Company or
any of its Subsidiaries to grant, extend or enter into any such subscription,
option, warrant, call or right (collectively, "Convertible Securities"). Neither
the Company nor any Subsidiary thereof is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock.

     (d) Except as disclosed in Section 4.3(d) of the Company Disclosure
Schedule, there are not, and immediately after the Effective Time, there will
not be, any outstanding or authorized subscriptions, options, warrants, calls,
rights, commitments or other agreements of any character to or by which the
Company or any of its Subsidiaries is a party or is bound that, directly or
indirectly, (i) call for or relate to the sale, pledge, transfer or other
disposition by the Company or any Subsidiary of the Company of any shares of
capital stock, any partnership or other equity interests or any Voting Debt of
the Company or any Subsidiary of the Company, or (ii) relate to the voting or
control of such capital stock, partnership or other equity interests or Voting
Debt.

     (e) (i) no stockholder of the Company is entitled to any preemptive or
similar rights to subscribe for shares of capital stock of the Company, (ii) the
Company has not agreed to register any of its securities under the Securities
Act (other than pursuant to the registration rights agreement listed in Section
4.3(e) of the Company Disclosure Schedule) and (iii) there are no existing
voting trusts or similar agreements to which the Company or any of its
Subsidiaries is a party with respect to the voting of the capital stock of the
Company or any of its Subsidiaries.

     (f) No party (except the Company) to the registration rights agreements
listed in Section 4.3(e) of the Company Disclosure Schedule (excluding those
registration rights agreements that are mentioned in Section 8.2(g) hereof) is
an "affiliate" of the Company for purposes of Rule 145 under the Securities Act.

     4.4 Corporate Proceedings, etc.  The Company has full corporate power to
execute and deliver the Company Transaction Documents (including this
Agreement), to perform its obligations thereunder and, subject to obtaining the
approval of its stockholders specified in Section 3.1, to consummate the
transactions contemplated thereby. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby (including, without limitation, the Merger)
have been duly and validly authorized by all necessary corporate action on the
part of the Company, subject, in the case of the consummation by it of the
Merger, to the approval of the Company's stockholders specified in the previous
sentence. This Agreement has been duly executed and delivered by the Company and
is a legal, valid and binding obligation of the Company enforceable in
accordance with its terms (except that insofar as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally, or by principles governing
the availability of equitable remedies).

     4.5 Consents and Approvals.  The execution and delivery by the Company of
this Agreement do not, and the performance by the Company of its obligations
hereunder and the consummation by the Company of the Merger and the transactions
contemplated hereby will not, require any Governmental Consent or any
Governmental Filing, in each case on the part of or with respect to the Company
or any Subsidiary of the Company, except for (i) the approval of the Company's
stockholders specified in Section 3.1, (ii) the filing of the Certificate of
Merger with the Delaware Secretary of State and appropriate documents with
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the relevant authorities of other jurisdictions in which the Company is
qualified to do business, (iii) the Governmental Consents and Governmental
Filings with foreign, state and local governmental authorities set forth in
Section 4.5 of the Company Disclosure Schedule (the "Local Approvals"), (iv)
such Governmental Consents and Governmental Filings as may be required in
connection with the issuance of the Merger Consideration as contemplated hereby
pursuant to state securities and blue sky laws, (v) the Governmental Filings
required to be made pursuant to the pre-merger notification requirements of the
Hart-Scott Act, (vi) the filing with the Commission of (A) the preliminary proxy
statement and the definitive Proxy Statement as contemplated by Section 3.2(a)
and (B) such reports under Section 13(a), 13(d), 15(d) or 1(a) of the Exchange
Act as may be required in connection with this Agreement, the Voting Agreements
or the transactions contemplated hereby or thereby, (vii) the Governmental
Consent of the Federal Communications Commission (the "FCC"), with respect to
the FCC Licenses described in Section 4.15 and (viii) such other Governmental
Consents and Governmental Filings the absence or omission of which will not,
either individually or in the aggregate, have a Material Adverse Effect.

     4.6 Absence of Defaults, Conflicts, etc.

     (a) Except as set forth in Section 4.6 of the Company Disclosure Schedule,
and assuming the consents, approvals and filings referred to in Section 4.5
above and Section 4.5 of the Company Disclosure Schedule are obtained or made,
the execution and delivery by the Company of this Agreement do not, and the
consummation of the Merger and the fulfillment of the terms hereof will not, (i)
result in a breach of any of the terms, conditions or provisions of, or
constitute a default under, or permit the acceleration of rights under or
termination, cancellation, suspension or modification of or result in any
increase in any payment required by, or cause the impairment, loss or forfeiture
of any material benefit, right or privilege under, or create a Lien or other
encumbrance on any assets pursuant to (any such conflict, violation, breach,
default, right of termination, cancellation or acceleration, loss or creation, a
"Violation") or (ii) require the Company or any Subsidiary of the Company to
obtain any consent by or approval or authorization of (a "Contract Consent") or
notice to (a "Contract Notice") any other Person (other than a Governmental
Entity), under:

          (1) any indenture, mortgage, deed of trust, credit agreement, note,
     bond or other evidence of indebtedness, lease, franchise, permit,
     authorization, license, contract, instrument, employee benefit plan or
     practice, or other agreement, obligation, commitment or concession of any
     nature to which the Company or any Subsidiary of the Company is a party, by
     which the Company, any Subsidiary of the Company or any of their respective
     assets or properties is bound or affected or pursuant to which the Company
     or any Subsidiary of the Company is entitled to any rights or benefits
     (including the Licenses) (collectively, "Contracts");

          (2) assuming the approval of the Merger Proposal by the Company's
     stockholders as contemplated by Section 3.1, the Organizational Documents;
     or

          (3) any order, judgment, law, rule or regulation of any Governmental
     Entity having jurisdiction over the Company or any of its Subsidiaries or
     over their respective properties or businesses;

other than, in the case of clause (1) above, any such violations or failures to
obtain any Contract Consents or to make any Contract Notices that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

     (b) No event has occurred and no condition exists that, upon notice or the
passage of time (or both), would constitute a Violation under any of the items
listed in clauses (1), (2) or (3) of Section 4.6(a) above, other than any such
Violations that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

     4.7 Reports.

     (a) The Company has made available to Parent and Liberty Media true and
complete copies (including all amendments thereto) of its (i) Annual Reports on
Form 10-K for all fiscal years since January 1, 1996, as filed with the
Commission, (ii) Quarterly Reports on Form 10-Q for all quarters since

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<PAGE>   110

January 1, 1996, as filed with the Commission, (iii) proxy statements related to
all meetings of its stockholders (whether annual or special) held since January
1, 1996 and (iv) all other reports filed with, or registration statements
declared effective by, the Commission since January 1, 1996, which are all the
documents (other than preliminary material) that the Company filed or was
required to file with the Commission from that date through the date hereof
(clauses (i) through (iv) being referred to herein collectively as the "Company
SEC Reports").

     From the date hereof through the Closing Date, the Company will furnish to
Parent and Liberty Media copies of any reports and registration statements to be
filed with the Commission (the "Interim SEC Reports") within a reasonable amount
of time prior to the filing thereof. As of their respective dates, the Company
SEC Reports (or the Interim SEC Reports, as the case may be) complied or will
comply, as the case may be, in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, applicable to such
reports and registration statements. As of their respective dates, the Company
SEC Reports (or the Interim SEC Reports, as the case may be) did not and will
not, as the case may be, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were, or will
be, made, not misleading.

     (b) The audited consolidated financial statements and unaudited interim
financial statements of the Company included in the Company SEC Reports (or to
be included in the Interim SEC Reports, as the case may be) comply as to form in
all material respects with applicable accounting requirements of the Securities
Act or the Exchange Act, as applicable, and with the published rules and
regulations of the Commission with respect thereto. The financial statements and
the condensed financial statements, as applicable, included in the Company SEC
Reports (or to be included in the Interim SEC Reports, as the case may be) (i)
have been prepared in accordance with GAAP applied on a consistent basis (except
as may be indicated therein or in the notes thereto), (ii) present fairly, in
all material respects, the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of their operations and
cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments and any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act, and (iii)
are in all material respects in agreement with the books and records of the
Company and its Subsidiaries.

     (c) The Company and its Subsidiaries keep proper accounting records in
which all material assets and liabilities, and all material transactions, of the
Company and its Subsidiaries are recorded in conformity with applicable
accounting principles. No part of the Company's or any of its Subsidiaries'
accounting system or records, or access thereto, is under the control of a
Person who is not an employee of the Company or such Subsidiary (other than the
Company's independent auditors and outside legal counsel).

     4.8 Absence of Certain Developments.  Except as disclosed in the Company
SEC Reports filed with the Commission prior to the date hereof or in Section 4.8
of the Company Disclosure Schedule, and except for the transactions contemplated
by this Agreement, since June 30, 1999 the Company and its Subsidiaries have
conducted their business only in the ordinary and usual course in accordance
with past practice, and:

          (a) there have not occurred any events, changes or conditions
     (including the incurrence of any liabilities of any nature, whether or not
     accrued, contingent or otherwise) that have had, or are reasonably likely
     in the future to have, individually or in the aggregate, a Material Adverse
     Effect; and

          (b) neither the Company nor any Subsidiary of the Company has taken
     any action that would have been prohibited under Section 7.4 hereof had the
     prohibitions imposed by such section been in effect at such time.

     4.9 Compliance with Law.

     (a) Except as set forth in Section 4.9 of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries is in violation of any laws,
ordinances, governmental rules or regulations to which it
                                      A-21
<PAGE>   111

is subject, including, without limitation, laws or regulations relating to the
environment or to occupational health and safety. No expenditures material to
the Company and its Subsidiaries taken as a whole are or will be required in
order to cause the current operations or properties of such entities to comply
with any such laws, ordinances, governmental rules or regulations and except as
set forth in Section 4.9 of the Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries has received notice of violation of any law,
ordinance, governmental rule or regulation and except as set forth in Section
4.9 of the Company Disclosure Schedule, no investigation or review by any
Governmental Entity with respect to the Company or any of its Subsidiaries is
pending or, to the best of the Company's knowledge, threatened, nor has any
Governmental Entity indicated an intention to conduct any such investigation or
review.

     (b) Neither the Company or any of its Subsidiaries nor, to the Company's
knowledge, any of the officers, directors, employees, agents or other
representatives of the Company or any of its Subsidiaries or any other business
entity or enterprise with which the Company or any Subsidiary is or has been
affiliated or associated, has, directly or indirectly, made or authorized any
payment, contribution or gift of money, property, or services, whether or not in
contravention of applicable law, (i) as a kickback or bribe to any Person or
(ii) to any political organization, or the holder of or any aspirant to any
elective or appointive public office except for personal political contributions
not involving the direct or indirect use of funds of the Company or any of its
Subsidiaries.

     (c) The Company and its Subsidiaries hold, and Section 4.9 of the Company
Disclosure Schedule lists, all licenses, permits, rights of way, easements,
franchises, ordinances, certificates, variances, exemptions, concessions,
leases, instruments, orders and approvals, governmental authorizations, domestic
or foreign, necessary to the ownership of their property or to the conduct of
their respective businesses, which if violated or not obtained might have a
Material Adverse Effect (collectively, the "Licenses"). Neither the Company nor
any Subsidiary has finally been denied any application for any such Licenses.
Without limiting the generality of the foregoing, the Company and its
Subsidiaries, (i) have all Licenses from Governmental Entities required for the
operation of the facilities being operated on the date hereof by the Company or
any of its Subsidiaries, (ii) have duly and currently filed all reports and
other information required to be filed by any other Governmental Entity in
connection with such Licenses and (iii) are not in violation of any of such
Licenses, other than the lack of Licenses, delays in filing reports or possible
violations that, individually or in the aggregate, have not had and, insofar as
can reasonably be foreseen by the Company, in the future are not reasonably
likely to have, a Material Adverse Effect.

     (d) The Company and its Subsidiaries have not made any misstatements of
fact, or omitted to disclose any fact, to any Governmental Entity, or taken or
failed to take any action, which misstatements or omissions, actions or failures
to act, individually or in the aggregate, subject or would subject any Licenses
held by the Company to revocation or failure to renew, except where such
revocation or failure to renew, individually or in the aggregate, does not and
would not be reasonably likely to have a Material Adverse Effect.

     4.10 Litigation.  Except as disclosed in the Company SEC Reports or in
Section 4.10 of the Company Disclosure Schedule, there is no legal action, suit,
arbitration or other legal, administrative or other governmental investigation,
inquiry or proceeding (whether federal, state, local or foreign) pending or, to
the best of the Company's knowledge, threatened against or affecting the Company
or any Subsidiary of the Company or any of their respective properties, assets
or businesses which, either individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect or prevent or materially delay the
consummation of the transactions contemplated by this Agreement. To the best of
the Company's knowledge, there are no facts which might result in or form the
basis for any such action, suit, arbitration, investigation, inquiry or other
proceeding. Except as set forth on Section 4.10 of the Company Disclosure
Schedule, neither the Company nor any Subsidiary of the Company is subject to
any order, writ, judgment, Injunction, decree, determination or award of any
Governmental Entity.

     4.11 Material Contracts.  Neither the Company nor any of its Subsidiaries
is in default (or would be in default with notice or lapse of time, or both)
under, is in violation (or would be in violation with notice or lapse of time,
or both) of, or has otherwise breached, any Contract including, without
limitation, any

                                      A-22
<PAGE>   112

Material Contract (as defined below), whether or not such default has been
waived, which default, alone or in the aggregate with all other such defaults,
would reasonably be expected to have a Material Adverse Effect. Section 4.11 of
the Company Disclosure Schedule contains a complete and correct list as of the
date hereof of each Contract of the following types, written or oral, to which
the Company or any of its Subsidiaries is a party or by which they or any of
their assets are bound: (a) mortgages, indentures, security agreements,
guarantees, pledges and other agreements and instruments relating to the
borrowing of money or extension of credit, including the maximum amount of
Indebtedness available to the Company and its Subsidiaries thereunder and, in
each case, the amount of outstanding Indebtedness thereunder on the date of this
Agreement; (b) employment, severance and consulting agreements (other than any
such agreements that are terminable without liability or penalty on 30 days' or
less notice); (c) licenses of patent, trademark and other rights relating to any
Intellectual Property (other than standard licenses relating to commercially
available software) and any other licenses, permits and authorizations relating
to the businesses of the Company and its Subsidiaries (whether as licensor or
licensee) that involve by their terms a per annum payment in excess of $150,000
or resulted in a payment obligation in excess of $150,000 in the fiscal year
ended June 30, 1999; and (d) joint venture or partnership contracts or
agreements ((a) through (d) collectively, "Material Contracts"). Prior to the
date hereof, the Company has delivered to Parent and Liberty Media or their
representatives complete and correct copies of all written Material Contracts
together will all amendments thereto, and accurate descriptions of all non-
written Material Contracts. Each Material Contract is in full force and effect
and is binding upon the Company or one or more of its Subsidiaries, as the case
may be, and, to the best of the Company's knowledge, is binding upon such other
parties, in each case in accordance with its terms. Except as disclosed in
Section 4.11 of the Company Disclosure Schedule, there are no material
unresolved disputes involving the Company or any of its Subsidiaries under any
Material Contract.

     4.12 Absence of Undisclosed Liabilities.

     (a) Except as disclosed in Section 4.12 of the Company Disclosure Schedule
and except for Indebtedness, obligations or liabilities that are reflected or
reserved against as set forth in the Company SEC Reports (including the notes to
the financial statements included therein), neither the Company nor any of its
Subsidiaries has any debt, obligation or liability (whether accrued, absolute,
contingent, liquidated or otherwise, whether due or to become due and whether or
not known to the Company) arising out of any transaction entered into at or
prior to the Effective Time, or any act or omission at or prior to the Effective
Time, or any state of facts existing at or prior to the Effective Time, except
(a) for debts, obligations or liabilities incurred in the ordinary course of
business since June 30, 1999, none of which (individually or in the aggregate)
would reasonably be expected to have a Material Adverse Effect and (b) for
liabilities and obligations arising under this Agreement.

     (b) Except as disclosed in Section 4.12 of the Company Disclosure Schedule
and except for liabilities that are reflected or reserved against in the most
recent financial statements included in the Company SEC Reports, neither the
Company nor any of its Subsidiaries has any tax liability with respect to or
based upon any transactions or events occurring at or prior to the Effective
Time, including, without limitation, unfunded past service liabilities under any
pension, profit sharing or similar plan.

     4.13 Labor Relations and Employment.

     (a) Except as set forth in Section 4.13(a) of the Company Disclosure
Schedule, (i) there is no labor strike, dispute, slowdown, stoppage or lockout
actually pending, or, to the best of the Company's knowledge, threatened against
the Company or any of its Subsidiaries, and during the past three years there
has not been any such action; (ii) to the best of the Company's knowledge, there
are no union claims to represent the employees of the Company or any of its
Subsidiaries; (iii) neither the Company nor any of its Subsidiaries is a party
to or bound by any collective bargaining or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to employees of the Company or any of its
Subsidiaries; (iv) none of the employees of the Company or any of its
Subsidiaries is represented by any labor organization and the Company does not
have any knowledge of any current union organizing activities among the
employees of the Company

                                      A-23
<PAGE>   113

or any of its Subsidiaries, nor does any question concerning representation
exist concerning such employees; (v) the Company and its Subsidiaries are, and
have at all times been, in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work, occupational safety and health, equal opportunity, collective
bargaining and payment of social security and other taxes, and are not engaged
in any discriminatory employment practices or unfair labor practices as defined
in the National Labor Relations Act or other applicable law, ordinance or
regulation; (vi) there is no unfair labor practice charge or complaint against
the Company or any of its Subsidiaries pending or, to the best of the Company's
knowledge, threatened before the National Labor Relations Board or any similar
Governmental Entity; (vii) no grievance has been filed, or to the best of the
Company's knowledge, threatened to be filed, against the Company or any of its
Subsidiaries arising out of any collective bargaining agreement or employment
agreement or other grievance procedure; (viii) no charges with respect to or
relating to the Company or any of its Subsidiaries are pending before the Equal
Employment Opportunity Commission or any other Governmental Entity responsible
for the prevention of unlawful employment practices; (ix) neither the Company
nor any of its Subsidiaries has received notice of the intent of any
Governmental Entity responsible for the enforcement of labor or employment laws
to conduct an investigation with respect to or relating to the Company or any of
its Subsidiaries and no such investigation is in progress; (x) there are no
complaints, lawsuits or other proceedings pending or, to the best of the
Company's knowledge, threatened in any forum by or on behalf of any present or
former employee of the Company or any of its Subsidiaries alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship; and (xi) there
has been no "mass layoff" or "plant closing," each as defined by the Worker
Adjustment and Retraining Notification Act or any similar state or local "plant
closing" law, with respect to the current or former employees of the Company and
its Subsidiaries.

     (b) The Company is not aware that any officer or key employee, or that any
group of key employees, intends to terminate their employment with the Company
or any of its Subsidiaries, nor does the Company have a present intention to
terminate the employment of any of the foregoing.

     4.14 Employee Benefit Plans.

     (a) Section 4.14(a) of the Company Disclosure Schedule sets forth: (i) all
"employee benefit plans", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all other material
employee benefit arrangements (including any trusts maintained for such
arrangements), including, without limitation, any such arrangements providing
severance pay, sick leave, vacation pay, salary continuation for disability,
retirement benefits, deferred compensation, bonus pay, incentive pay, stock
options, hospitalization insurance, medical insurance, life insurance,
scholarships or tuition reimbursements, maintained by the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is obligated to
contribute thereunder for current or former employees of the Company and its
Subsidiaries (the "Company Plans"). Neither the Company nor any trade or
business (whether or not incorporated) which is or has ever been under control
or treated as a single employer ("ERISA Affiliate") with the Company under
Section 414(b) or (c), of the Internal Revenue Code of 1986, as amended (the
"Code") maintains, or has contributed or been obligated to contribute, during
the last six years to "employee pension benefit plans," as defined in Section
3(2) of ERISA which is subject to Title IV of ERISA or Section 412 of the Code.

     (b) Except as set forth in Section 4.14(a) of the Company Disclosure
Schedule, none of the Company Plans or Pension Plans is a multiemployer plan, as
defined in Section 3(37) of ERISA ("Multiemployer Plan"), and neither the
Company nor any ERISA Affiliate has completely or partially withdrawn from any
Multiemployer Plan with respect to which the Company or any ERISA Affiliate has
any unsatisfied withdrawal liability, nor has any of them incurred any
unsatisfied liability due to the termination or reorganization of a
Multiemployer Plan; and with respect to each Pension Plan that is a
Multiemployer Plan: (i) none of the Company, any of its Subsidiaries nor any
ERISA Affiliate would be subject to any withdrawal liability under Part I of
Subtitle E of Title IV of ERISA if, as of the close of the most recent fiscal
year of any such plan, the Company or any of its subsidiaries or any of their
                                      A-24
<PAGE>   114

respective ERISA Affiliates were to experience a complete withdrawal from such
plan; (ii) to the Company's knowledge, none of the Company, any of its
Subsidiaries, nor any of their respective ERISA Affiliates has received any
notification, nor has any reason to believe, that such Multiemployer Plan is in
reorganization, has been terminated, is insolvent, or may reasonably be expected
to be in reorganization, to be insolvent, or to be terminated; and (iii) the
Company and its ERISA Affiliates have made all contributions to such
Multiemployer Plan that they are required to make under the terms of such plan
or under any applicable law or contract, except in the case of clauses (i), (ii)
and (iii), which would not reasonably be expected to have a Material Adverse
Effect.

     (c) Each Company Plan that is intended to qualify under Section 401 of the
Code is the subject of a favorable determination letter from the Internal
Revenue Service to the effect that such Company Plan is qualified and exempt
from Federal income taxes under Sections 401(a) and 501(a) of the Code, and
nothing has occurred with respect to the operation of any such Company Plan that
could cause the loss of such qualification or exemption or the imposition of any
liability, penalty or tax under ERISA or the Code.

     (d) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under any of the
Company Plans or by law to any funds or trusts established thereunder or in
connection therewith have been made by the due date thereof (including any valid
extension), and all contributions for any period ending on or before the
Effective Time which are not yet due will have been paid or accrued on or prior
to the Effective Time.

     (e) There has been no violation of ERISA or the Code with respect to the
filing of applicable reports, documents and notices regarding the Company Plans
with the Secretary of Labor or the Secretary of the Treasury or the furnishing
of required reports, documents or notices to the participants or beneficiaries
of such Company Plans which could result in a material liability to the Company.

     (f) True, correct and complete copies of the following documents, with
respect to each of the Company Plans, have been delivered to Parent and Liberty
Media by the Company or are publicly available: (i) all plans and related trust
documents, and amendments thereto; (ii) the most recent Forms 5500; (iii) the
last IRS determination letter; (iv) summary plan descriptions; (v) the most
recent actuarial report relating to such Company Plans; and (vi) written
descriptions of all non-written agreements relating to such Company Plans.

     (g) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Company Plans, the assets of any of the
trusts under such plans or the plan sponsor or the plan administrator, or
against any fiduciary of such Company Plans with respect to the operation of
such plans (other than routine benefit claims), nor does the Company have
knowledge of facts which could form the basis for any such claim or lawsuit.

     (h) All amendments and actions required to bring the Company Plans into
conformity in all material respects with all of the applicable provisions of
ERISA, the Code and other applicable laws have been made or taken except to the
extent that such amendments or actions are not required by law to be made or
taken until a date after the Effective Time.

     (i) The Company Plans have been maintained, in all material respects, in
accordance with their terms and with all provisions of ERISA and the Code
(including rules and regulations thereunder) and other applicable federal and
state laws and regulations, and neither the Company, any of its Subsidiaries,
nor, to the best of the Company's knowledge, any "party in interest" or
"disqualified person" with respect to such Company Plans has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or 4975 of
the Code. No fiduciary has any liability for breach of fiduciary duty or any
other failure to act or comply in connection with the administration or
investment of the assets of any such Company Plan.

     (j) None of the Company Plans provides retiree life or retiree health
benefits except as may be required under Section 4980B of the Code or Section
601 of ERISA or applicable state law and at the expense of the participant or
the participant's beneficiary. The Company and the ERISA Affiliates have at
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<PAGE>   115

all times complied with the notice and health care continuation requirements of
Section 4980B of the Code and Sections 601 through 608 of ERISA.

     (k) Except as set forth in Section 4.14(k) of the Company Disclosure
Schedule or as expressly provided under the terms of this Agreement, none of the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby or any other transactions involving the Company, Parent,
Merger Sub, Liberty Media and/or any of the Company's stockholders will (i)
result in any payment becoming due to any employee (current, former or retired)
of the Company or any of its Subsidiaries, (ii) increase any benefits otherwise
payable under any Company Plan, (iii) result in the acceleration of the time of
payment or vesting of any benefits under any such Company Plan, (iv) qualify as
a "change of control" or similar event under any such Company Plan or (v) result
in any payment becoming due to any employee that may be nondeductible under
Section 162(m) or Section 280G of the Code.

     (l) Except as set forth in Section 4.14(l) of the Company Disclosure
Schedule, no stock or other security issued by the Company or any Affiliate
forms or has formed a material part of the assets of any Company Plan.

     4.15 FCC Matters.

     (a) A complete and accurate list of the licenses and authorizations issued
by the FCC and held by the Company or any Subsidiary of the Company (the "FCC
Licenses") is set forth in Section 4.15 of the Company Disclosure Schedule. The
FCC Licenses are in full force and effect and unimpaired by any condition that
could have a Material Adverse Effect. No application, complaint, action or
proceeding is pending or, to the best of the Company's knowledge, threatened,
that may result in the revocation, modification, non-renewal or suspension of
any FCC License or the imposition of any administrative or judicial sanction
with respect to any FCC License. Neither the Company nor any other Subsidiary of
the Company has knowledge of any failure by the Company or any of its
Subsidiaries to comply in all material respects with the terms and conditions of
the FCC Licenses, and all applicable rules, regulations and policies of the FCC
and requirements of the Communications Act of 1934, as amended.

     (b) The equipment which is operated pursuant to the FCC Licenses is
operated in all material respects in compliance with the rules, regulations and
policies of the FCC and requirements of the Communications Act of 1934, as
amended.

     (c) Neither the Company nor any Subsidiary of the Company is aware of any
facts or circumstances that are likely to prevent or delay prompt approval by
the FCC of the transactions contemplated by this Agreement.

     4.16 Real Property.

     (a) Section 4.16(a) of the Company Disclosure Schedule contains a complete
and accurate list of all real property owned in whole or in part, directly or
indirectly, by the Company or its Subsidiaries (the "Owned Real Property"). The
Company has good and marketable title in fee simple to all of the Owned Real
Property, free and clear of all liens, encumbrances, charges, mortgages,
judgments and hypothecations, whether recorded or unrecorded. None of the Owned
Real Property is subject to any right or option of any other Person to purchase
or lease or otherwise obtain title to or an interest in such real property. No
Person other than the Company or any of its Subsidiaries has any right to use,
occupy or lease any of the Owned Real Property or Leased Real Property (as
defined in subsection (b) of this Section 4.16). Section 4.16(a) of the Company
Disclosure Schedule contains an accurate and complete list of all Owned Real
Property leased in whole or in part by the Company as landlord. True and
complete copies of all leases, including all modifications, and amendments
thereto, listed in Section 4.16(a) of the Company Disclosure Schedule have been
delivered to Parent and Liberty Media. All of the buildings, improvements,
structures and appurtenances situated on the Owned Real Property are owned by
the Company or one if its Subsidiaries and are in all material respects in good
operating condition, normal wear and tear excepted. Except as set forth in
Section 4.16(a) of the Company Disclosure Schedule, no condemnation or similar
proceeding is pending or, to the best of the Company's knowledge, threatened
that would preclude
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or impair the use of any such property or any improvement thereon by the Company
or any of its Subsidiaries for the purpose for which it is currently used. There
is no material latent or patent structural, mechanical or other significant
defect, soil condition or deficiency in any of the improvements located on any
of the Owned Real Property or, to the best of the Company's knowledge, the
Leased Real Property.

     (b) Section 4.16(b) of the Company Disclosure Schedule lists all real
property leased by the Company or its Subsidiaries as well as the commencement
and expiration dates of all leases relating thereto (the "Leased Real
Property"). True and complete copies of all leases, including all modifications
and amendments thereto, listed in Section 4.16(b) of the Company Disclosure
Schedule have been delivered to Parent and Liberty Media. The Company or one of
its Subsidiaries has a valid and existing lease or sublease for each property
subsumed within the Leased Real Property. All leases covering any of the Leased
Real Property are valid and enforceable by the Company or one of its
Subsidiaries, as the case may be, in accordance with their respective terms, are
in full force and effect, and have not been modified, supplemented or terminated
except as set forth in Section 4.16(b) of the Company Disclosure Schedule, and
there is not under any such lease any default by the Company or any of its
Subsidiaries or, to the best of the Company's knowledge, by any landlord or
lessor under any such lease. All third party consents required in respect of the
Owned Real Property or Leased Real Property in order to consummate the
transactions contemplated by this Agreement, each of which consents are
described in Section 4.16(b) of the Company Disclosure Schedule, have been or
will be obtained by the Closing Date. The facilities and real properties covered
by the Leased Real Property and included in the Owned Real Property constitute
all of the facilities and real properties presently used by the Company or its
Subsidiaries.

     (c) Except as set forth in Section 4.16(c) of the Company Disclosure
Schedule, any increase in real property taxes due to the acquisition of Owned
Real Property by the Company is reflected in the most recent financial
statements included in the Company SEC Reports. Section 4.16(c) of the Company
Disclosure Schedule accurately states the assessed values for purposes of
property taxes of the Owned Real Property.

     4.17 Condition of Properties.  Except as would not reasonably be expected
to have a Material Adverse Effect, all facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Company and
its Subsidiaries are in good operating condition and repair, are reasonably fit
and usable for the purposes for which they are being used, are adequate and
sufficient for the Company's or such Subsidiary's business and conform in all
material respects with all applicable ordinances, regulations and laws.

     4.18 Environmental Matters.

     (a) Except as set forth in Section 4.18 of the Company Disclosure Schedule
and except as would not reasonably be expected to have a Material Adverse
Effect:

          (i) The Company and its Subsidiaries (i) are in substantial compliance
     with all Environmental and Health Laws; (ii) have obtained all necessary
     Environmental Permits, all of which are in full force and effect; and (iii)
     are in substantial compliance with all terms and conditions of such
     Environmental Permits.

          (ii) Neither the Company nor any of its Subsidiaries has violated or
     done any act which could give rise to liability under, or have otherwise
     failed to act in a manner which would expose any of them to liability
     under, any Environmental and Health Law.

          (iii) No Hazardous Material has been released, spilled, discharged,
     dumped, disposed of, or otherwise come to be located in, at, beneath or
     near any of the Owned Real Property or Leased Real Property including
     properties formerly owned, operated or otherwise controlled by the Company
     or any of its Subsidiaries (during the period of the Company's or such
     Subsidiaries' ownership, operation or control thereof) in such manner as
     would reasonably be expected to result in environmental liability to the
     Company or any of its Subsidiaries.

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          (iv) There have been and are no: (i) aboveground or underground
     storage tanks; (ii) surface impoundments for Hazardous Materials; or (iii)
     friable asbestos or asbestos-containing materials or polychlorinated
     biphenyl ("PCB") or PCB-containing equipment, located within any portion of
     the Owned Real Property or Leased Real Property.

          (v) No Liens have been placed upon any Owned Real Property or Leased
     Real Property in connection with any actual or alleged liability under any
     Environmental and Health Law.

          (vi) Neither the Company nor any of its Subsidiaries has received any
     written notice, claim, demand, suit or request for information from any
     Governmental Entity or private entity with respect to any liability or
     alleged liability under any Environmental Law, nor has any entity
     previously owned, operated, or otherwise controlled by the Company or its
     Subsidiaries whose liability, in whole or in part, may be attributed to the
     Company or any of its Subsidiaries, received any such notice, claim,
     demand, suit or request for information; neither the Company nor any of its
     Subsidiaries has ongoing negotiations with or agreements with any
     Governmental Entity or other Person or entity relating to any Remedial
     Action or other claim arising under or related to any Environmental and
     Health Law.

          (vii) Neither the Company nor any of its Subsidiaries has disposed, or
     arranged for the disposal, of any Hazardous Materials at any facility that
     is or has ever been the subject of investigation or response action under
     the Comprehensive Environmental Response, Compensation and Liability Act,
     42 U.S.C. (S) 9601 et seq., Resource Conservation and Recovery Act, 42
     U.S.C. (S) 6901 et seq., or any state law of similar effect.

          (viii) The Company has provided to Parent and Liberty Media all
     environmental studies and reports pertaining to the Owned Real Property or
     Leased Real Property including properties formerly owned, operated or
     otherwise controlled by the Company or any of its Subsidiaries and the
     improvements thereon which studies and reports they are aware of, have
     commissioned or have in their possession. To the best of the Company's
     knowledge, such studies and reports do not contain any inaccuracies
     resulting from, in whole or in part, any material misrepresentation of the
     Company.

     For purposes of this Agreement, the following terms shall have the
following meanings:

          "Environmental and Health Laws" shall mean all applicable federal,
     state and local environmental, health and safety laws, statutes,
     ordinances, rules and regulations of any governmental or other regulatory
     authority of the United States relating to (i) discharges to surface water
     or ground water, (ii) solid or liquid waste disposal, (iii) the use,
     storage, generation, handling, transport, discharge, release or disposal of
     Hazardous Materials, (iv) the emission of non-ionizing electromagnetic
     radiation or (v) the protection of health, safety or the environment,
     including without limitation, all matters set forth in the Comprehensive
     Environmental Response Compensation and Liability Act of 1980 as amended by
     the Superfund Amendments and Authorization Act of 1986; the Occupational
     Safety and Health Act; the Resource Conservation Recovery Act of 1976; the
     Federal Water Pollution Control Act of 1970; the Safe Drinking Water Act of
     1974; the Toxic Substances Control Act of 1976; the Emergency Planning
     Community Right to Know Act of 1986, as amended; and the Clean Air Act, as
     amended.

          "Environmental Permits" shall mean all permits, licenses, approvals,
     authorizations, consents or registrations required under any applicable
     Environmental and Health Law.

          "Hazardous Materials" shall mean any chemicals, pollutants,
     contaminants, wastes, toxic substances, hazardous substances, hazardous
     materials, hazardous wastes, radioactive materials, petroleum or petroleum
     products, and other materials regulated as hazardous materials under
     applicable laws.

          "Remedial Action" shall mean any action required to: (i) clean up,
     remove or treat Hazardous Materials; (ii) prevent a release or threat of
     release of any Hazardous Material; (iii) perform pre-remedial studies,
     investigations or post-remedial monitoring and care; or (iv) cure a
     violation of Environmental and Health Law.

                                      A-28
<PAGE>   118

     4.19 Intellectual Property.

     (a) Section 4.19(a) of the Company Disclosure Schedule sets forth a
complete list of registrations/patents or applications therefor pertaining to
the Intellectual Property, the dates of application/issuance and the relevant
jurisdictions. Except as described on Sections 4.19(a), (b) or (c) of the
Company Disclosure Schedule, the Company or one of its Subsidiaries owns or, to
the best of the Company's knowledge, has the valid right to use, free and clear
of all liens and other encumbrances or claims of any nature, all of the
Intellectual Property necessary for the conduct of the business of the Company
or any of its Subsidiaries. Except as described on Schedule 4.19(a), (b) or (c),
all Intellectual Property listed on Section 4.19(a) of the Company Disclosure
Schedule is valid, subsisting, unexpired, and enforceable and all renewal fees
and other maintenance fees that have fallen due on or prior to the effective
date of this Agreement have been paid.

     (b) Except as set forth in Section 4.19(b) of the Company Disclosure
Schedule, there is no claim, suit, action or proceeding pending or, to the best
of the Company's knowledge, threatened against the Company or one of its
Subsidiaries (and, to the best of the Company's knowledge, no grounds therefor):
(i) alleging that the Company's or any of the Company's Subsidiaries' respective
business or operations, as currently conducted, including, without limitation,
the marketing, sale and provision by the Company or any of its Subsidiaries of
all products and services marketed, sold or made conflict or infringe with any
third party's proprietary rights; or (ii) challenging the Company or one of its
Subsidiaries' ownership or use, or the validity or enforceability of any
Intellectual Property that is necessary for the conduct of the business of the
Company or any of its Subsidiaries. Except as set forth in Schedule 4.19(b) of
the Company Disclosure Schedule there is no claim, suit, action or proceeding
pending or, to best of the Company's knowledge, threatened by the Company or one
of its Subsidiaries, alleging any third party's intellectual property rights
conflict or infringe the Intellectual Property of the Company or one of its
Subsidiaries.

     (c) Section 4.19(c) of the Company Disclosure Schedule sets forth a
complete and accurate list of all:

          (i) licenses, sublicenses and other agreements in which the Company or
     one of its Subsidiaries grants rights to any Person to use the Intellectual
     Property; and (ii) consents, indemnifications, forbearances to sue,
     settlement agreements or cross-licensing arrangements relating to the
     Intellectual Property or the intellectual property of any third party to
     which the Company or one of its Subsidiaries is a party. Except as set
     forth in Section 4.19(c) of the Company Disclosure Schedule, neither the
     Company nor any of its Subsidiaries is under any obligation to pay
     royalties or similar payments in connection with any license, nor will the
     Company or any of its Subsidiaries be, as a result of the execution and
     delivery of this Agreement or the performance of its obligations hereunder
     in breach of any license, sublicense or other agreement relating to the
     Intellectual Property.

     (d) Except as set forth in Section 4.19(d) of the Company Disclosure
Schedule, no former or present employee, officer or director of the Company or
any of its Subsidiaries holds any right or title, directly or indirectly, in
whole or in part, in or to any Intellectual Property.

     (e) The Company or one of its Subsidiaries owns or has the right to use all
computer software, software systems and databases and all other information
systems currently used in the business of the Company or any of its Subsidiaries
and necessary for the conduct of the business of the Company or any of its
Subsidiaries, including, without limitation, all such computer software used in
the business of the Company on personal computers by employees of the Company or
any of its Subsidiaries.

     For purposes of this Agreement, "Intellectual Property" shall mean all of
the following, owned or used in the business of the Company or any of its
Subsidiaries: (i) trademarks and service marks (registered or unregistered),
trade dress, trade names and other names and slogans embodying business or
product goodwill or indications of origin, all applications or registrations in
any jurisdiction pertaining to the foregoing and all goodwill associated
therewith; (ii) patents, patentable inventions, discoveries, improvements,
ideas, know-how, formula methodology, processes, technology and computer
programs, software and

                                      A-29
<PAGE>   119

databases (including source code, object code, development documentation,
programming tools, drawings, specifications and data) and all applications or
registrations in any jurisdiction pertaining to the foregoing, including all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof; (iii) trade secrets, including confidential and other
non-public information, and the right in any jurisdiction to limit the use or
disclosure thereof; (iv) copyrights in writings, designs, mask works or other
works, and applications or registrations in any jurisdiction for the foregoing;
(v) database rights; (vi) Internet Web sites, domain names and registrations or
applications for registration thereof; (vii) licenses, immunities, covenants not
to sue and the like relating to any of the foregoing; (viii) books and records
described or used in connection with any of the foregoing; and (ix) claims or
causes of action arising out of or related to infringement or misappropriation
of any of the foregoing.

     4.20 Tax Matters.

     (a) (i) There has been duly filed by or on behalf of the Company and each
of its Subsidiaries (and each of their respective predecessors, if any), or
filing extensions from the appropriate federal, state, foreign and local
Governmental Entities have been obtained with respect to, all federal, state,
foreign and local tax returns and reports required to be filed on or prior to
the date hereof; (ii) payment in full or adequate provision for the payment of
all taxes required to be paid in respect of the periods covered by such tax
returns and reports has been made, except where the failure to so pay or make
such adequate provision has not had, and would not be reasonably likely to have,
a Material Adverse Effect; (iii) a reserve which the Company reasonably believes
to be adequate has been set up for the payment of all such taxes anticipated to
be payable in respect of periods through the most recent fiscal quarter end,
except where the failure to establish adequate reserves has not had and would
not be reasonably likely to have a Material Adverse Effect; (iv) except as
described in Section 4.20(a)(iv) of the Company Disclosure Schedule, none of the
income tax returns required to be filed by or on behalf of the Company and each
of its Subsidiaries consolidated in such returns (and their respective
predecessors, if any) (the "Consolidated Returns") have been examined by or
settled with the Internal Revenue Service ("IRS") or other Governmental Entity;
(v) except as described on Section 4.20(a)(v) of the Company Disclosure
Schedule, there are no material "deferred intercompany transactions" or
"intercompany transactions," the gain or loss in which has not yet been taken
into account under the Consolidated Returns; (vi) except as describe on Section
4.20(a)(vi) of the Company Disclosure Schedule, there are no liens for taxes on
the assets of the Company and each of its Subsidiaries, except for statutory
liens for current taxes not yet due and payable (and except for liens which do
not and would not, individually or in the aggregate, have a material adverse
effect on the Company); and (vii) except as described in Section 4.20(a)(vii) of
the Company Disclosure Schedule, there have been no claims or assessments
against the Company or any of its Subsidiaries asserted in writing by any
Governmental Entity with respect to any alleged deficiency in any tax. For the
purpose of this Agreement, the term "tax" (including, with correlative meaning,
the terms "taxes" and "taxable") shall include all federal, state, local and
foreign income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts. The term "tax return" means a report, return or
other information required to be supplied to or filed with a Governmental Entity
with respect to any tax including an information return, claim for refund,
amended tax return or declaration of estimated tax.

     (b) Except as described on Section 4.20(b) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries (i) is a party to any
tax allocation or tax sharing agreement, (ii) has been a member of an affiliated
group filing a consolidated federal income tax return other than a group the
common parent of which was the Company, or (iii) has any liability for taxes of
any Person (other than the Company and its Subsidiaries) under Reg. Section
1.1502-6 (or any similar provision of state, local or foreign law), as
transferee or successor, by contract or otherwise.

     4.21 Insurance.  The Company and its Subsidiaries and their respective
properties are insured in such amounts, against such losses and with such
insurers as are prudent when considered in light of the nature of the properties
and businesses of the Company and its Subsidiaries. Section 4.21 of the Company
Disclosure Schedule sets forth a complete and accurate list of the insurance
policies of the Company and
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<PAGE>   120

its Subsidiaries as in effect on the date hereof, including in each case the
applicable coverage limits, deductibles and the policy expiration dates. No
notice of any termination or threatened termination of any of such policies has
been received by the Company or any of its Subsidiaries and such policies are in
full force and effect.

     4.22 Transactions with Related Parties.  Except as set forth in Section
4.22 of the Company Disclosure Schedule or in the Company SEC Reports, neither
the Company nor any Subsidiary of the Company is a party to any agreement with
any of the Company's directors, officers or, to the best of the Company's
knowledge, shareholders or, to the best of the Company's knowledge, any
Affiliate or family member of any of the foregoing under which it: (i) leases
any real or personal property (either to or from such Person), (ii) licenses
real or personal property or Intellectual Property (either to or from such
Person), (iii) is obligated to purchase any tangible or intangible asset from or
sell such asset to such Person, (iv) purchases products or services from such
Person, (v) has borrowed money from or loaned money to such Person or (vi)
permits such Person to use any personal property of the Company or any of its
Subsidiaries for personal purposes. Except as set forth in Section 4.22 of the
Company Disclosure Schedule or in the Company SEC Reports, neither the Company
nor any Subsidiary employs as an employee or engages as a consultant any family
member of any of the Company's directors, officers or, to the best of the
Company's knowledge, shareholders. To the best of the Company's knowledge and
except as set forth in Section 4.22 of the Company Disclosure Schedule, there
exist no agreements among shareholders of the Company, except as contemplated by
the Voting Agreements, to act in concert with respect to their voting or holding
of Company securities.

     4.23 Interest in Competitors.  Neither the Company, nor any or its
Subsidiaries, nor, to the best of the Company's knowledge, any of their
respective officers or directors, has any interest, either by way of contract or
by way of investment (other than as holder of not more than 2% of the
outstanding capital stock of a publicly traded Person) or otherwise, directly or
indirectly, in any Person other than the Company and its Subsidiaries that (i)
provides any services or designs, produces or sells any product or product lines
or engages in any activity similar to or competitive with any activity currently
proposed to be conducted by the Company or any of its Subsidiaries or (ii) has
any direct or indirect interest in any asset or property, real or personal,
tangible or intangible, of the Company.

     4.24 Brokerage.  Other than with respect to fees payable to Lazard Freres &
Co., LLC ("Lazard Freres"), there are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement made by or on behalf of
the Company or any of its Subsidiaries and the Company agrees to indemnify and
hold Parent, Liberty Media, Merger Sub and their respective Affiliates harmless
from and against any and all claims, liabilities or obligations with respect to
any other such fees, commissions, expenses or claims for indemnification or
contribution asserted by any Person on the basis of any act or statement made or
alleged to have been made by the Company or any of its Subsidiaries, directors,
officers, employees or Affiliates in connection with this Agreement or any
transaction provided for or described herein.

     4.25 Disclosure.  None of the information with respect to the Company or
its Subsidiaries to be included or incorporated by reference in the Proxy
Statement or the Registration Statement will, at the time of the mailing of the
Proxy Statement, and at the time of the Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading; provided, that the
foregoing representation shall not be applicable with respect to untrue
statements or omissions based solely upon information furnished to the Company
by Parent, Liberty Media or Merger Sub for use therein. The Proxy Statement will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder. Prior to the date hereof, the
Company has provided or made available to Parent and Liberty Media or their
respective representatives complete and accurate copies of (i) all unredacted
minutes of meetings and written consents of the Company Board and committees
thereof for the period from January 1, 1997 through the date of this Agreement
and (ii) all documents and agreements, including any amendments, renewals or
modifications thereof, referenced in the schedules to this Agreement.
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     4.26 DGCL Section 203.  As of the date hereof and at all times on or prior
to the Effective Time, the Company Board shall have approved the Merger, this
Agreement, the Voting Agreement and the transactions contemplated by this
Agreement, so as to render inapplicable hereto and thereto the limitations on
business combinations contained in Section 203 of the DGCL.

     4.27 Company Action.  The Company Board (at a meeting duly called and held)
has by unanimous vote of the directors (i) determined and declared that this
Agreement and the transactions that are the subject of this Agreement are
advisable and in the best interests of the Company and its stockholders, (ii)
recommended the approval of the transactions that are the subject of this
Agreement (including, without limitation, the Merger and the Voting Agreements)
and directed that the transactions that are the subject of this Agreement be
submitted for consideration by the Company's stockholders at the Special Meeting
(subject to its right to withdraw, modify or amend such recommendation and
direction solely as provided in Section 7.5 of this Agreement), and (iii)
adopted resolutions approving this Agreement and recommending approval and
adoption of this Agreement and the Merger by the stockholders of the Company.

     4.28 Fairness Opinion.  The Company Board has received the written opinion
of Lazard Freres to the effect that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the holders of the
Company Common Stock (the "Fairness Opinion"). The Company has provided, or
prior to the filing of the preliminary proxy statement will provide, Liberty
Media and Parent with a true and complete copy of the Fairness Opinion and will
include an executed copy of the Fairness Opinion in the Proxy Statement, and
will provide to Liberty and Parent prior to the mailing of the Proxy Statement a
letter from Lazard Freres, dated as of a recent date, reaffirming the Fairness
Opinion.

     4.29 FIRPTA.  The Company is not, and has not been at any time during the
five year period ending on the date of this Agreement, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code.

     4.30 No Investment Company.  The Company is not an "investment company"
subject to the registration requirements of, or regulation as an investment
company under, the Investment Company Act of 1940, as amended.

     4.31 Employment Agreements.  Section 4.31 of the Company Disclosure
Schedule contains a list of each of the executives that have employment
agreements with the Company (collectively, the "Employment Agreements"). Each of
the Employment Agreements is in full force and effect and none of the parties
thereto are in breach thereof.

     4.32 Negative Assurances.  To the Company's knowledge, the representations
and warranties of each signatory to the Voting Agreement, are, in each such
case, true and correct in all material respects.

     4.33 Vote Required.  The only vote of stockholders (or holders of Voting
Debt) of the Company required under the DGCL, American Stock Exchange
requirements and the Organization Documents in order to approve and adopt the
Merger Proposal is the affirmative vote of a majority of the total number of
votes entitled to be cast by the holders of the issued and outstanding shares of
Company Common Stock voting as a single class, and no other vote or approval of
or other action by the holders of any capital stock (or Voting Debt, options,
warrants or other securities) of the Company is required for such approval and
adoption, or for the consummation of any of the transactions contemplated
hereby.

     4.34 No Excise Tax Obligations.  The Company does not have, and following
the consummation of the Merger the Surviving Entity will not have, any
obligation to make payments to any past or present employees of the Company or
its Subsidiaries or Affiliates as a result of the imposition of any excise taxes
pursuant to Section 4999 of the Code or the imposition of any excise or similar
taxes pursuant to any similar provision of state or local law.

     4.35 British Telecommunications.  As of the date hereof, the Company and
its Subsidiaries do not, directly or indirectly, beneficially own (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) any shares of any
class of capital stock of British Telecommunications plc, a company

                                      A-32
<PAGE>   122

organized under the laws of England and Wales ("BT"), or any of its
Subsidiaries, or any direct or indirect rights or options to acquire (through
purchase, exchange, conversion or otherwise) any shares of any class of capital
stock of BT or any of its Subsidiaries.

                                   ARTICLE V.

                    REPRESENTATIONS AND WARRANTIES OF PARENT

     Parent hereby makes the following representations and warranties to the
Company and, solely with respect to Sections 5.1 and 5.2, to Liberty Media:

     5.1 Organization and Qualification.  Each of Parent and Merger Sub (i) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (ii) has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and (iii) is duly qualified or licensed and is
in good standing to do business in each jurisdiction in which the properties
owned, leased or operated by it or the nature of its activities makes such
qualification necessary, except where the failure to be so duly qualified or
licensed and in good standing has not had and is not reasonably likely to have,
individually or in the aggregate, a Parent Material Adverse Effect.

     5.2 Authorization and Validity of Agreement.  This Agreement has been duly
executed and delivered by Parent and Merger Sub. Each of Parent and Merger Sub
has all requisite corporate power and authority to enter into this Agreement and
each of Parent and Merger Sub has all requisite corporate power and authority to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Parent and
Merger Sub of this Agreement and the consummation by each of Parent and Merger
Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub (including in the case of Merger Sub, approval and adoption of this
Agreement and the Merger by Parent, as the sole stockholder of Merger Sub). This
Agreement is a legal, valid and binding obligation of Parent and Merger Sub,
enforceable in accordance with its terms (except insofar as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, or by principles governing
the availability of equitable remedies). The shares of Class A Liberty Media
Group Stock to be issued and delivered by Parent pursuant to Sections 2.3 and
2.4 will be, when the Merger has become effective and such shares are issued and
delivered as provided in Sections 2.3 and 2.4 duly authorized, validly issued,
fully paid and non-assessable and no stockholder of Parent will have any
preemptive right of subscription or purchase in respect thereof.

     5.3 Capitalization of Parent.  As of the date hereof, Parent's authorized
capital stock consists of 16,500,000,000 shares, consisting of (a) 100,000,000
preferred shares, par value $1.00 per share ("Parent Preferred Stock"), and (b)
16,400,000,000 common shares, par value $1.00 per share, of which (i)
6,000,000,000 shares are Parent Common Stock, (ii) 4,000,000,000 shares are
Class A Liberty Media Group Stock, (iii) 400,000,000 shares are Class B Liberty
Media Group Stock and (iv) 6,000,000,000 shares are AT&T Wireless Group common
stock.

     5.4 Ownership of Merger Sub; No Prior Activities; Assets of Merger Sub.

     (a) Merger Sub was formed by Parent solely for the purpose of engaging in
the transactions contemplated hereby.

     (b) As of the date hereof and the Effective Time, the capital stock of
Merger Sub is and will be owned 100% by Parent directly. Further, except as
contemplated by this Agreement and the Inter-Group Supplement, the Post-Merger
Restructuring Transactions and the Contribution Agreement, there are not as of
the date hereof, and there will not be at the Effective Time, any outstanding or
authorized options, warrants, calls, rights, commitments or any other agreements
of any character to or by which Merger Sub is a party or may be bound requiring
it to issue, transfer, sell, purchase, redeem or acquire any shares of

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<PAGE>   123

capital stock or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for or acquire, any shares of capital stock of
Merger Sub.

     (c) As of the date hereof and immediately prior to the Effective Time,
except for agreements, obligations or liabilities entered into or incurred in
connection with its incorporation or organization and the transactions
contemplated hereby and by the Inter-Group Supplement, the Eighth Tax Sharing
Amendment or any other documents referred to herein or executed in connection
herewith to which any of the Company or its Subsidiaries or Affiliates is a
party, Merger Sub has not and will not have incurred, any obligations or
liabilities or engaged in any business or activities of any type or kind
whatsoever or entered into any agreements or arrangements with any Person.

     (d) Parent will take all commercially reasonable actions necessary to
ensure that Merger Sub at no time prior to the Effective Time owns any material
assets other than an amount of cash necessary to incorporate Merger Sub and to
pay the expenses of the Merger attributable to Merger Sub if the Merger is
consummated. If, notwithstanding the foregoing sentence, any assets are
contributed to Merger Sub, Parent will take all commercially reasonable actions
necessary to ensure that no assets will be withdrawn from Merger Sub at any time
prior to the Effective Time.

     (e) Attached hereto as Exhibit 5.4(e) is a copy of the bylaws of Merger Sub
as in effect on the Effective Date.

     5.5 Information Supplied.  None of the information concerning Parent or any
of its Subsidiaries supplied or to be supplied by Parent or Merger Sub for
inclusion or incorporation by reference in, and which is included or
incorporated by reference in, (i) the Registration Statement or any amendment or
supplement thereto filed or to be filed by Parent with the Commission under the
Securities Act in connection with the issuance of the Merger Consideration, or
(ii) any documents filed or to be filed with the Commission or any other
Governmental Entity in connection with the transactions contemplated hereby
(including, without limitation, the Proxy Statement) will, at the respective
times such documents are filed, and, in the case of the Registration Statement
or any amendment or supplement thereto, when the same becomes effective and at
the Effective Time, be false or misleading with respect to any material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading or necessary to correct any false or misleading
statement in any earlier communication.

                                  ARTICLE VI.

                REPRESENTATIONS AND WARRANTIES OF LIBERTY MEDIA

     Liberty Media hereby makes the following representations and warranties to
Parent and the Company, in each case except as otherwise set forth in the
appropriate section of the disclosure schedule (the "Liberty Media Disclosure
Schedule"), dated as of the date of this Agreement and delivered by Liberty
Media to each of Parent and the Company:

     6.1 Organization and Qualification.  Liberty Media (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and (iii) is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the properties owned,
leased or operated by it or the nature of its activities makes such
qualification necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing has not had and is not
reasonably likely to have, individually or in the aggregate, a Liberty Media
Material Adverse Effect. As of June 30, 2000, (a) 2,374,272,992 shares of Class
A Liberty Media Group Stock were issued and outstanding, (b) 94,811,634 shares
of Class A Liberty Media Group Stock were reserved for issuance upon exercise of
outstanding options to purchase shares of Class A Liberty Media Group Stock, (c)
709,676 shares of Class A Liberty Media Group Stock were reserved for issuance
upon exercise of certain warrants to purchaser shares of Class A Liberty Media
Group Stock, (d) 212,058,452 shares of Class A Liberty Media Group Stock were
reserved for issuance
                                      A-34
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upon the conversion of shares of Class B Liberty Media Group Stock, (e)
206,234,452 shares of Class B Liberty Media Group Stock were issued and
outstanding and (f) 5,824,000 shares of Class B Liberty Media Group Stock were
reserved for issuance upon exercise of outstanding options to purchase shares of
Class B Liberty Media Group Stock.

     6.2 Authorization and Validity of Agreement.  This Agreement has been duly
executed and delivered by Liberty Media. Liberty Media has all requisite
corporate power and authority to enter into this Agreement and Liberty Media has
all requisite corporate power and authority to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution, delivery
and performance by Liberty Media of this Agreement and the consummation by
Liberty Media of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on its part. This Agreement is a
legal, valid and binding obligation of Liberty Media, enforceable in accordance
with its terms (except insofar as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, or by principles governing the availability of
equitable remedies).

     6.3 Ownership of Company Common Stock.  As of the date hereof, neither
Liberty Media nor any Subsidiary or Affiliate of Liberty Media "owns", and has
not since such date "owned" (as such terms are defined in Section 203 of the
DGCL), any shares of Company Common Stock; provided that the foregoing
representation is to the best knowledge of Liberty Media with respect to shares
of Company Common Stock so "owned" by Liberty Media by virtue of the ownership
of shares of Company Common Stock by Liberty Media's "affiliates" or
"associates" (as such terms are defined in the DGCL).

     6.4 Information Supplied.  None of the information supplied or to be
supplied by Liberty Media relating to Liberty Media or any of its Subsidiaries
or the Liberty Media Group for inclusion or incorporation by reference in, and
which is included or incorporated by reference in, (i) the Registration
Statement, or any amendment or supplement thereto, filed or to be filed by
Parent with the Commission under the Securities Act in connection with the
issuance of the Merger Consideration (ii) any documents filed or to be filed
with the Commission or any other Governmental Entity in connection with the
transactions contemplated hereby (including, without limitation, the Proxy
Statement) will, at the respective times such documents are filed, and, in the
case of the Registration Statement or any amendment or supplement thereto, when
the same becomes effective and at the Effective Time, be false or misleading
with respect to any material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading or
necessary to correct any false or misleading statement in any earlier
communication. The Registration Statement, including any amendments or
supplements thereto, will comply as to form in all material respects with the
provisions of the Securities Act.

     6.5 Liberty Media Group Information.

     (a) The narrative information contained in the proxy statement of
Tele-Communications, Inc., dated January 8, 1999, with respect to the Liberty
Media Group (referred to in such proxy statement as the "New Liberty Media
Group"), giving effect to the transactions described in such proxy statement,
did not as of such date 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. The items of selected pro forma financial information with
respect to such "New Liberty Media Group" in such proxy statement, giving effect
to the transactions described in such proxy statement and on the basis described
therein, were accurate in all material respects as of the dates and for the
periods for which such information is presented.

     (b) The narrative information contained in Parent's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 with respect to the Liberty
Media Group (referred to therein as the "Liberty/ Ventures Group"), giving
effect to the acquisition of Tele-Communications, Inc. by Parent described
therein, the combination of the TCI Ventures Group referred to therein with the
predecessor of the Liberty Media Group, and the related transfers of assets by
the TCI Ventures Group in exchange for approximately $5.5 billion in cash, did
not as of the date such report was filed with the Commission
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<PAGE>   125

contain an 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.

     (c) Liberty Media has made available to the Company true and complete
copies of all Parent/ Liberty Media Commission Filings filed prior to the date
hereof and agrees to provide the Company, upon request, with true and complete
copies of all Parent/Liberty Media Commission Filings filed after the date
hereof. As of their respective dates, each of the Parent/Liberty Media
Commission Filings complied and, in the case of filings after the date hereof,
will comply in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations under each such
Act, and none of the Parent/Liberty Media Commission Filings contained as of
such date any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. When
filed with the Commission, the financial statements included in the
Parent/Liberty Media Commission Filings complied as to form in all material
respects with the applicable rules and regulations of the Commission and were
prepared in accordance with GAAP applied on a consistent basis (except as may be
indicated therein or in the notes or schedules thereto), and such financial
statements fairly present the consolidated financial position of the Liberty
Media Group as at the dates thereof and the consolidated results of their
operations and their consolidated cash flows for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal,
recurring year-end audit adjustments.

     6.6 No Approvals or Notices Required; No Conflict with Instruments.  Except
as set forth in Section 6.6 of the Liberty Media Disclosure Schedule, and
assuming in each case the accuracy, at all relevant times, of each of the
representations and warranties of the Company contained herein, the execution
and delivery by Liberty Media of this Agreement do not, and the performance by
Liberty Media of its obligations hereunder will not:

          (i) conflict with or violate the charter or bylaws, as currently in
     effect, of Liberty Media or of any material corporate Subsidiary of Liberty
     Media or the partnership agreement or other governing instrument of any
     material Subsidiary of Liberty Media that is not a corporation;

          (ii) require any Governmental Consent or any Governmental Filing by or
     on behalf of Liberty Media or any Subsidiary of Liberty Media prior to the
     Effective Time, except for (A) any such Governmental Consents and
     Governmental Filings that have been or at or prior to the Effective Time
     shall be obtained or made and (B) such other Governmental Consents and
     Government Filings the absence or omission of which would not reasonably be
     expected, either individually or in the aggregate, to have a Liberty Media
     Material Adverse Effect;

          (iii) conflict with or result in any Violation of any material
     Contract to which Liberty Media or any Subsidiary of Liberty Media is a
     party, or by which the Liberty Media, any Subsidiary of Liberty Media or
     any of their respective material assets or properties is bound or affected,
     except for any such Violations as would not reasonably expected, either
     individually or in the aggregate, to have a Liberty Media Material Adverse
     Effect; or

          (iv) assuming that all Governmental Consents and Governmental Filings
     contemplated by Section 6.6(ii) are obtained or made, conflict with or
     result in a Violation of, under or pursuant to any law, rule, regulation,
     order, judgment or decree applicable to Liberty Media or any Subsidiary of
     Liberty Media or by which any of their respective material properties or
     assets are bound, except for any such Violations as would not reasonably be
     expected, either individually or in the aggregate, to have a Liberty Media
     Material Adverse Effect.

     6.7 Absence of Certain Changes or Events.  Except as set forth in Section
6.7 of the Liberty Media Disclosure Schedule or otherwise disclosed in the
Liberty Media Group Information, since December 31, 1999, there has not been any
adverse change in, and no event has occurred and no condition exists, that,
individually or together with all such changes, events and conditions has had
or, insofar as Liberty Media can reasonably foresee, is reasonably likely to
have a Liberty Media Material Adverse Effect.

                                      A-36
<PAGE>   126

     6.8 Brokers or Finders.  Except as set forth in Section 6.8 of the Liberty
Media Disclosure Schedule, no agent, broker, investment banker, financial
advisor or other Person is or will be entitled, by reason of any agreement, act
or statement by Liberty Media or any of its Subsidiaries, directors, officers,
employees or Affiliates, to any financial advisory, broker's, finder's or
similar fee or commission, to reimbursement of expenses or to indemnification or
contribution in connection with any of the transactions contemplated by this
Agreement, and, if this Agreement is terminated prior to the Effective Time,
Liberty Media agrees to indemnify and hold the Company and its Affiliates
harmless from and against any and all claims, liabilities or obligations with
respect to any fees, commissions, expenses or claims for indemnification or
contribution asserted by any Person on the basis of any act or statement made or
alleged to have been made by Liberty Media or any of its Subsidiaries,
directors, officers, employees or Affiliates in connection with this Agreement
or any transaction provided for or described herein.

                                  ARTICLE VII.

                      ADDITIONAL COVENANTS AND AGREEMENTS

     7.1 Access to Information Concerning Properties and Records.  Upon
reasonable notice, the Company shall (and shall cause each of its Subsidiaries
to) afford to the officers, employees, counsel, accountants and other authorized
representatives of Parent and Liberty Media reasonable access during normal
business hours to all its properties, personnel, books and records and furnish
promptly to such Persons such financial and operating data and other information
concerning its business, properties, personnel and affairs as such Persons shall
from time to time reasonably request and instruct the officers, directors,
employees, counsel and financial advisors of the Company to discuss the business
operations, affairs and assets of the Company and otherwise fully cooperate with
the other party in its investigation of the business of the Company. Parent and
Liberty Media agree that they will not, and will cause their respective
officers, employees, counsel, accountants and other authorized representatives
not to, use any information obtained pursuant to this Section 7.1 for any
purpose unrelated to the transactions contemplated by this Agreement. No
investigation pursuant to this Section 7.1 will affect any representation or
warranty given by the Company to Parent or Liberty Media hereunder.

     7.2 Confidentiality.  Unless otherwise agreed to in writing by the party
disclosing (or whose Representatives disclosed) the same (a "disclosing party"),
each party (a "receiving party") shall, and shall cause its Affiliates,
directors, officers, employees, agents, counsel, financial advisors and
controlling Persons (such Affiliates and other Persons with respect to any party
being collectively referred to as such party's "Representatives") to, (i) keep
all Confidential Information of the disclosing party confidential and not
disclose or reveal any such Confidential Information to any Person other than
those Representatives of the receiving party who are participating in effecting
the transactions contemplated hereby or who otherwise need to know such
Confidential Information, (ii) use such Confidential Information only in
connection with consummating the transactions contemplated hereby and enforcing
the receiving party's rights hereunder, and (iii) not use Confidential
Information in any manner detrimental to the disclosing party. In the event that
a receiving party is requested pursuant to, or required by, applicable law or
regulation or by legal process to disclose any Confidential Information of the
disclosing party, the receiving party shall provide the disclosing party with
prompt notice of such request(s) to enable the disclosing party to seek an
appropriate protective order. A party's obligations hereunder with respect to
Confidential Information that (i) is disclosed to a third party with the
disclosing party's written approval, (ii) is required to be produced under order
of a court of competent jurisdiction or other similar requirements of a
governmental agency, or (iii) is required to be disclosed by applicable law or
regulation, will, subject in the case of clauses (ii) and (iii) above to the
receiving party's compliance with the preceding sentence, cease to the extent of
the disclosure so consented to or required, except to the extent otherwise
provided by the terms of such consent or covered by a protective order. If a
receiving party uses a degree of care to prevent disclosure of the Confidential
Information that is at least as great as the care it normally takes to preserve
its own information of a similar nature, it shall not be liable for any
disclosure that occurs despite the exercise of that degree of care, and in no
event shall a receiving party be liable for any indirect, punitive, special or
consequential damages unless such disclosure resulted from its willful
misconduct or
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<PAGE>   127

gross negligence in which event it shall be liable in damages for the disclosing
party's lost profits resulting directly and solely from such disclosure;
provided, however, that notwithstanding the foregoing, Parent will not be liable
under any circumstances for damages other than direct damages (and not lost
profits or indirect, special, punitive or consequential damages) resulting
directly and solely from such wrongful disclosure by Parent. In the event this
Agreement is terminated, each party shall, if so requested by any other party,
promptly return or destroy all of the Confidential Information of such other
party, including all copies, reproductions, summaries, analyses or extracts
thereof or based thereon in the possession of the receiving party or its
Representatives; provided, however, that the receiving party shall not be
required to return or cause to be returned summaries, analyses or extracts
prepared by it or its Representatives, but shall destroy (or cause to be
destroyed) the same upon request of the disclosing party.

     For purposes of this Section 7.2, "Confidential Information" of a party
means all confidential or proprietary information about such party that is
furnished by it or its Representatives to the other party or the other party's
Representatives, regardless of the manner in which it is furnished.
"Confidential Information" does not include, however, information which (a) has
been or in the future is published or is now or in the future is otherwise in
the public domain through no fault of the receiving party or its
Representatives, (b) was available to the receiving party or its Representatives
on a non-confidential basis prior to its disclosure by the disclosing party, (c)
becomes available to the receiving party or its Representatives on a
non-confidential basis from a Person other than the disclosing party or its
Representatives who is not otherwise bound by a confidentiality agreement with
the disclosing party or its Representatives, or is not otherwise prohibited from
transmitting the information to the receiving party or its Representatives, or
(d) is independently developed by the receiving party or its Representatives
through Persons who have not had, either directly or indirectly, access to or
knowledge of such information.

     7.3 Public Announcements.  The Company, Liberty Media and Parent shall use
commercially reasonable efforts to develop a joint communications plan and each
party hereto shall use reasonable efforts to ensure that all press releases and
other public statements with respect to the transactions contemplated hereby
shall be consistent with such joint communications plan. Unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange or the National Association of
Securities Dealers, Inc., each party shall use commercially reasonable efforts
to consult with, and use commercially reasonable efforts to accommodate the
comments of the other parties before issuing any press release or otherwise
making any public statement with respect to this Agreement or the transactions
contemplated hereby.

     7.4 Conduct of the Company's Business Pending the Effective Time.  Except
as contemplated by the Company Transaction Documents (copies of which have been
provided to Parent prior to the date hereof), from the date hereof through the
Effective Time, unless Parent and Liberty Media shall otherwise agree in writing
or, in the case of Section 7.4(c)(i), telephonically, followed by an agreement
in writing:

          (a) the Company shall and shall cause its Subsidiaries to carry on
     their respective businesses in the usual, regular and ordinary course in
     substantially the same manner as heretofore conducted, and shall, and shall
     cause its Subsidiaries to, use their reasonable best efforts to preserve
     intact their present business organizations, preserve their respective
     Licenses, keep available the services of their present officers and
     employees and preserve their relationships with customers, suppliers and
     others having business dealings with them to the end that their goodwill
     and on-going businesses shall be unimpaired at the Effective Time. Without
     limiting the generality of the foregoing, the Company shall, and shall
     cause its Subsidiaries to, (i) maintain insurance coverages and its books
     and records in a manner consistent with prior practices, (ii) comply with
     all laws, ordinances and regulations of Governmental Entities applicable to
     the Company and its Subsidiaries, (iii) maintain and keep its properties
     and equipment in good repair, working order and condition, ordinary wear
     and tear excepted, and (iv) perform its obligations under all contracts and
     commitments to which it is a party or by which it is bound, except in each
     case where the failure to so maintain, comply or perform, either
     individually or in the aggregate, would not reasonably be expected to
     result in a Material Adverse Effect;

                                      A-38
<PAGE>   128

          (b) the Company shall not, nor shall it propose to, (i) sell, grant,
     pledge or transfer or agree to sell, grant, pledge or transfer any of its
     or its Subsidiaries' capital stock or other equity interests, (ii) amend
     any of its Organizational Documents, (iii) split, combine or reclassify its
     outstanding capital stock or issue or authorize or propose the issuance of
     any other securities in respect of, in lieu of or in substitution for
     shares of the capital stock, or declare, set aside or pay any dividend or
     other distribution payable in cash, stock or property, or (iv) directly or
     indirectly redeem, purchase or otherwise acquire or agree to redeem,
     purchase or otherwise acquire any shares of its capital stock or that of
     its Subsidiaries;

          (c) the Company shall not, nor shall it permit any of its Subsidiaries
     to, (i) issue, deliver, sell or encumber or agree to issue, deliver, sell
     or encumber any additional shares of, or stock or appreciation rights or
     rights of any kind to acquire any shares of, its capital stock of any
     class, or any options, rights or warrants to acquire shares of capital
     stock, or Convertible Securities or any phantom shares or phantom equity
     interests other than issuances of Company Common Stock pursuant to the
     exercise of warrants or stock options outstanding on the date hereof and
     disclosed in Section 2.3(b) of the Company Disclosure Schedule, (ii) amend
     or modify any outstanding options, warrants, or rights to acquire, or
     Convertible Securities, or any phantom shares, phantom equity interests or
     stock or equity appreciation rights, or adopt or authorize any other stock
     or equity appreciation rights, restricted stock or equity, stock or equity
     purchase, stock or equity bonus or similar plan, arrangement or agreement;
     (iii) make any changes in its equity capital structure, (iv) acquire, lease
     or agree to acquire or lease any capital assets or any other assets except
     capital assets or other assets the value of which, in the aggregate, does
     not exceed the total capital budget set forth in Section 7.4(c)(iv) of the
     Company Disclosure Schedule (without regard to the budgeted sub-categories
     within the capital budget), (v) dispose or agree to dispose of any capital
     assets or other assets except in the ordinary course of business consistent
     with past practices, (vi) incur additional indebtedness for borrowed money
     or guarantee any such indebtedness or issue or sell any debt securities or
     warrants or rights to acquire any debt securities of the Company or any of
     its Subsidiaries or guarantee any debt security of any other Person, other
     than in the ordinary course of business consistent with past practice,
     (vii) secure any of its outstanding unsecured Indebtedness, provide
     additional security for any of its outstanding secured Indebtedness or
     grant, create or suffer to exist any Lien on or with respect to any
     property, assets or rights of the Company or any Subsidiary of the Company,
     except in any such case for Permitted Encumbrances, (viii) sell, lease,
     encumber, grant a security interest in, or otherwise dispose of any assets
     which are material, individually or in the aggregate, to the Company and
     its Subsidiaries, as a whole, other than in the ordinary course of
     business, (ix) incur any liability or obligation, or contribute any asset,
     to a Subsidiary of the Company that is material to the Company and its
     Subsidiaries other than in the ordinary course of business, (x) acquire or
     agree to acquire by merging or consolidating with, or by purchasing a
     substantial equity interest in, or by any other manner, any business or any
     corporation, partnership, association or other business organization or
     division thereof, in each case in this clause (x) which are material,
     individually or in the aggregate, to the Company and its Subsidiaries taken
     as a whole, except as set forth in Section 7.4(c)(x) of the Company
     Disclosure Schedule, or (xi) adopt, enter into, amend or terminate any
     Contract, commitment or arrangement with respect to any of the foregoing
     that is not otherwise permitted by the exceptions applicable to the
     foregoing;

          (d) the Company shall not, nor shall it permit any of its Subsidiaries
     to, other than to comply with applicable law, (i) adopt, enter into,
     terminate or amend any bonus, profit sharing, compensation, severance,
     termination, stock option, pension, retirement, deferred compensation,
     employment or other Company Plan agreement, trust, fund or other
     arrangement for the benefit or welfare of any director, officer or current
     or former employee, except with respect to the agreements described in
     Section 7.4(d) of the Company Disclosure Schedule, (ii) increase in any
     manner the compensation or fringe benefits of any director, officer or
     employee (except for normal increases in the ordinary course of business
     that are consistent with past practice and that, in the aggregate, do not
     result in a material increase in benefits or compensation expense to the
     Company and its Subsidiaries relative to the level in effect prior to such
     increase), (iii) pay any benefit not provided under any
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<PAGE>   129

     existing plan or arrangement, (iv) except for benefits that have already
     been earned or vested without acceleration, grant any awards or make any
     payments under any bonus, incentive, performance or other compensation plan
     or arrangement or Company Plan (including, without limitation, the grant of
     stock options, stock or equity appreciation rights, stock-based or
     stock-related awards, performance units or restricted stock, or the removal
     of existing restrictions in any benefit plans or agreements or awards made
     thereunder), except for (A) making of matching and contributions to 401(k)
     plans and (B) the grant of employee stock options and the issuance of
     Company Common Stock upon exercise thereof pursuant to subsection (c) of
     this Section 7.4, (v) take any action to fund or in any other way secure
     the payment of compensation or benefits under any employee plan, agreement,
     contract or arrangement or Company Plan, other than in the ordinary course
     of business consistent with past practice, or (vi) adopt, enter into, amend
     or terminate any contract, agreement, commitment or arrangement to do any
     of the foregoing that is not otherwise permitted by the exceptions
     applicable to the foregoing;

          (e) the Company shall not, nor shall it permit any of its Subsidiaries
     to, make any investments in non-investment grade securities;

          (f) the Company shall not, nor shall it permit its Subsidiaries to,
     (i) make any change in its accounting policies or procedures except as
     required by GAAP or (ii) make any material tax election, change any
     material tax election already made, adopt any material tax accounting
     method, change any material tax accounting method unless required by GAAP,
     enter into any closing agreement, settle any tax claim or assessment or
     consent to any tax claim or assessment or any waiver of the statute of
     limitations for any such claim or assessment, without in any such case the
     prior written consent of Parent and Liberty, which consent shall not
     unreasonably be withheld or delayed;

          (g) (i) the Company shall not pay, discharge or satisfy claims,
     liabilities or obligations (absolute, accrued, contingent or otherwise),
     other than the payment, discharge or satisfaction in the ordinary course of
     business consistent with past practice; (ii) cancel any Indebtedness or
     waive any claims or rights, except in the ordinary course of business and
     consistent with past practice or as described in Section 7.4(g)(ii) of the
     Company Disclosure Schedule; (iii) accelerate the payment of, or otherwise
     prepay, any existing outstanding Indebtedness except in the ordinary course
     of business consistent with past practice; (iv) other than as contemplated
     or otherwise permitted by this Agreement and other than the normal cash
     management practices of the Company and its Subsidiaries conducted in the
     ordinary and usual course of their business and consistent with past
     practice, make any advance or loan to or engage in any material transaction
     with any director, officer, partner or Affiliate not required by the terms
     of an existing Contract described in Section 4.22 of the Company Disclosure
     Schedule; (v) guarantee or otherwise become responsible for any
     Indebtedness of any other Person; or (vi) enter into or assume any
     Contract, obligation, commitment or arrangement with respect to any of the
     foregoing;

          (h) the Company shall not take any action that would or is reasonably
     likely to result in (i) any of the representations or warranties made in
     Article IV hereof being untrue on and as of the Closing Date as though made
     on and as of the Closing Date (except for any changes expressly permitted
     or contemplated by this Agreement) or (ii) any of the conditions set forth
     in Section 8.1, 8.2 or 8.3 not being satisfied;

          (i) between the date of this Agreement and the Effective Time, neither
     the Company nor its Subsidiaries will voluntarily acquire or agree to
     acquire (through purchase, exchange, conversion or otherwise) beneficial
     ownership of any shares of any class of capital stock of BT or its
     Subsidiaries or any direct or indirect rights or options to so acquire any
     shares of any class of capital stock of BT or any of its Subsidiaries;

          (j) the Company will use its reasonable best efforts to persuade each
     Person holding Company Stock Options issued pursuant to the 1993 Plan to
     exercise such Company Stock Options prior to the Effective Time;

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<PAGE>   130

          (k) the Company shall not enter into any Contract, commitment or
     arrangement to perform any of the actions prohibited under this Section 7.4
     and not otherwise permitted by the exceptions contained therein.

     Notwithstanding the foregoing, but subject to the provisions of Section 7.5
(to the extent applicable), the foregoing provisions of this Section 7.4 shall
not prohibit or restrict in any way the Company from soliciting or taking other
actions to pursue, or entering an agreement with respect to, an Extraordinary
Transaction.

     7.5 No Solicitation.

     (a) The Company will notify Parent and Liberty Media immediately, but in
any event within 24 hours, if any proposals, inquiries or expressions of
interest are received by, any information is requested from, or any negotiations
or discussions are sought to be initiated or continued with the Company or its
representatives, in each case in connection with any Extraordinary Transaction
(as defined below) or the possibility or consideration by a third party of
making a Extraordinary Transaction ("Extraordinary Transaction Interest")
indicating, in connection with such notice, the name of the Person indicating
such Extraordinary Transaction Interest, the terms and conditions of any
proposals or offers and the nature of any inquiries or expressions of interest.
The Company agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any Persons conducted
heretofore with respect to any Extraordinary Transaction Interest. The Company
agrees that it will take the necessary steps promptly to inform the Persons
referred to in the first sentence hereof of the obligations undertaken in this
Section 7.5. The Company agrees that it shall keep Parent and Liberty Media
informed, on a current basis, of the status and terms of any Extraordinary
Transaction Interest. As used in this Agreement, "Extraordinary Transaction"
shall mean any tender or exchange offer involving the Company, any proposal for
a merger, consolidation or other business combination involving the Company, any
proposal or offer to acquire in any manner a greater than 15% equity interest
in, or a significant portion of the business or assets of, the Company (other
than immaterial or insubstantial assets or inventory in the ordinary course of
business or assets held for sale), any proposal or offer with respect to any
recapitalization or restructuring with respect to the Company or any proposal or
offer with respect to any other transaction similar to any of the foregoing with
respect to the Company other than pursuant to the transactions to be effected
pursuant to this Agreement.

     (b) The Company will not, and will use its best efforts to ensure that its
officers, directors, employees, investment bankers, attorneys, accountants and
other agents do not, directly or indirectly: (i) initiate, solicit or encourage,
or take any action to facilitate (including by the furnishing of information)
the making of, any offer or proposal which constitutes or is reasonably likely
to lead to any Extraordinary Transaction, (ii) enter into any agreement with
respect to any Extraordinary Transaction, or (iii) in the event of an
unsolicited Extraordinary Transaction for the Company, engage in negotiations or
discussions with, or provide any information or data to, any Person (other than
Parent, Liberty Media, Merger Sub, any of their Affiliates or Representatives
and except for information which has been previously publicly disseminated by
the Company) relating to any Extraordinary Transaction.

     (c) Notwithstanding the foregoing, prior to the Effective Time, the Company
may furnish information concerning its business, properties or assets to any
Person pursuant to appropriate confidentiality agreements, and may negotiate and
participate in discussions and negotiations with such Person concerning a
Extraordinary Transaction (provided that the Company shall not agree to any
exclusive right to negotiate with the Company) if (x) such entity or group has,
without the Company or any of its officers, directors, employees, investment
bankers, attorneys, accountants or other agents having taken any action
prohibited by Section 7.5(b) of this Agreement following the date of this
Agreement, submitted a bona fide written proposal to the Company relating to any
such transaction that the Company Board determines, in good faith, after
receiving written advice from a financial advisor of nationally recognized
reputation is more favorable to the Company and its stockholders than the
transactions contemplated hereby (taking into account all relevant factors), and
for which financing, to the extent required, is then committed or which, in the
good faith judgment of the Company Board, is reasonably

                                      A-41
<PAGE>   131

capable of being obtained by such entity or group and (y) in the good faith
opinion of the Company Board, the failure to provide such information or access
or to engage in such discussions or negotiations would cause the Company Board
to breach its fiduciary duties to the Company's stockholders under applicable
law (an Extraordinary Transaction which satisfies clauses (x) and (y) being
referred to herein as a "Superior Proposal"). The Company shall within one
business day following a determination that such Extraordinary Transaction is a
Superior Proposal notify Parent and Liberty Media of the receipt of the same.
The Company shall promptly provide to Parent and Liberty Media any nonpublic
information regarding the Company provided to any other party which was not
previously provided to Parent and Liberty Media. If the Company Board determines
in good faith that the fiduciary duties of the Company Board so require, the
Company Board may (subject to this and the following sentences) inform the
Company's stockholders that it no longer believes that the transactions
contemplated hereby are advisable, and that it no longer recommends approval of
the Merger (a "Subsequent Determination"), but only at a time that is after the
fifth business day following Parent's and Liberty Media's receipt of written
notice advising Parent and Liberty Media that the Company Board has received a
Superior Proposal specifying the material terms and conditions of such Superior
Proposal (and including a copy thereof with all accompanying documentation),
identifying the Person making such Superior Proposal and stating that it intends
to make a Subsequent Determination. If such five-day notice overlaps with the
scheduled Special Meeting, the Company shall adjourn the Special Meeting so as
to permit compliance with such five-day notice period. After providing such
notice, the Company shall provide a reasonable opportunity to Parent and Liberty
Media to make such adjustments in the terms and conditions of this Agreement
and/or any of the Company Transaction Documents as would enable the Company
Board to proceed with its recommendation to its stockholders without a
Subsequent Determination. At any time after five business days following
notification to Parent and Liberty Media of the Company's intent to do so and if
the Company has otherwise complied with the terms of this Section 7.5(c), the
Company Board may terminate this Agreement pursuant to clause (iv) of Section
9.1 and enter into an agreement with respect to a Superior Proposal, provided
that the Company shall, concurrently with terminating this Agreement pursuant to
such clause, pay or cause to be paid to Liberty Media the Termination Fee (as
defined in Section 9.2 hereof). Notwithstanding any other provision of thi s
Agreement, so long as this Agreement has not previously been terminated in
accordance with its terms, the Company shall submit the Merger Proposal to its
stockholders pursuant to Section 3.1 hereof, whether or not the Company Board
makes a Subsequent Determination; provided that, if the Company Board has made a
Subsequent Determination, it may withdraw its recommendation to stockholders
that they vote in favor of the Merger Proposal.

     (d) Except as set forth in Section 7.5(c), neither the Company Board nor
any committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent and Liberty Media, the approval or
recommendation by the Company Board or any such committee of this Agreement, the
other Company Transaction Documents, and the transactions contemplated hereby
and (ii) approve or recommend, or propose to approve or recommend, any
Extraordinary Transaction or (iii) enter into any agreement with respect to any
Extraordinary Transaction.

     (e) Nothing contained in this Agreement shall prohibit the Company or the
Company Board from (i) taking, and disclosing to the Company's stockholders, a
position with respect to a Extraordinary Transaction pursuant to Rules 14d-9 and
14e-2 under the Exchange Act or (ii) making any disclosure to the Company's
stockholders that the Company Board determines, in good faith and upon exercise
of its reasonable judgment after consultation with its financial advisors and
outside legal counsel, that the failure to so disclose would be reasonably
likely to result in a breach of the fiduciary duties of the Company Board under
applicable law.

     7.6 Actions by Merger Sub.  In its capacity as the sole stockholder of
Merger Sub and subject to the terms and conditions of this Agreement, Parent
shall cause Merger Sub to approve and adopt the Merger Proposal and to take all
corporate action necessary on its part to consummate the Merger and the
transactions contemplated hereby.

     7.7 Listing.  Each party hereto agrees to use its reasonable efforts to
cause the shares of Class A Liberty Media Group Stock to be issued in the Merger
to be authorized for listing on the NYSE, subject
                                      A-42
<PAGE>   132

to official notice of issuance, and to cause the shares of Class A Liberty Media
Group Stock issuable upon the exercise of Carryover Options to be listed on the
NYSE.

     7.8 Convertible Securities.  The Company agrees to take such actions as are
necessary to ensure that, immediately prior to the Effective Time, all rights to
exercise, convert or exchange any Convertible Securities, whether or not issued
under any stock option or similar plans of the Company or any Subsidiary, will
have been exercised by the applicable holders of such Convertible Securities or
the rights of the applicable holders thereof to so exercise, convert or exchange
such Convertible Securities following the Effective Time shall have been
canceled, terminated or otherwise rendered null, void and of no further effect,
except in any such case as otherwise provided for herein with respect to any
Carryover Options. Nothing in this Section 7.8 shall be deemed to affect any of
the obligations of the Company pursuant to Section 7.4 including, without
limitation, clause (g) thereof.

     7.9 Voting Agreement.  Concurrently with the execution and delivery of this
Agreement, the Voting Agreement, a copy of the form of which is attached hereto
as Exhibit 7.9, is being executed by the parties identified on the signature
page thereto.

     7.10 Indemnification of Directors and Officers; Insurance.

     (a) From and after the Effective Time, the Surviving Entity shall
indemnify, defend and hold harmless the present and former officers and
directors of the Company and any individual who is or was serving at the request
of the Company as an officer or director of another entity that is subject to
the registration obligations of Section 12(g) of the Exchange Act (each, an
"Indemnified Party" and together, the "Indemnified Parties") (and shall also,
subject to Section 7.10(b), advance expenses as incurred to the fullest extent
permitted under the DGCL, provided that the individual to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such individual is not entitled to indemnification), against (i)
all losses, costs, expenses, claims, damages, judgments or liabilities arising
out of, or in connection with, any claim, action, suit, proceeding or
investigation based in whole or in part on the fact that the Indemnified Party
is or was an officer or director of the Company, or is or was serving at the
request of the Company as an officer or director of another entity that is
subject to the registration obligations of Section 12(g) of the Exchange Act,
pertaining to any matter existing or occurring before or at the Effective Time
and whether asserted or claimed before, at or after, the Effective Time (the
"Indemnified Liabilities") and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to this
Agreement, the Merger or any other transactions contemplated hereby or thereby,
in each case to the fullest extent permitted under the DGCL (notwithstanding the
Charter, Bylaws or similar organizational documents of the Company, the
Surviving Entity, Parent or Liberty Media); provided, however, that such
indemnification shall be provided only to the extent any directors' and
officers' liability insurance policy of the Company or its Subsidiaries does not
provide coverage and actual payment thereunder with respect to the matters that
would otherwise be subject to indemnification hereunder (it being understood
that the Surviving Entity shall, subject to Section 7.10(b), advance expenses on
a current basis as provided in this paragraph (a) notwithstanding such insurance
coverage to the extent that payments thereunder have not yet been made, in which
case the Surviving Entity shall be entitled to repayment of such advances from
the proceeds of such insurance coverage). All rights to indemnification,
including provisions relating to advances of expenses incurred in defense of any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (each, a "Claim"), existing in favor of the Indemnified Parties as
provided in the Company's Charter or Bylaws or pursuant to other agreements, or
certificates of incorporation or bylaws or similar documents of any of the
Company's Subsidiaries, as in effect as of the date hereof, with respect to
matters occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of not less than three years from
the Effective Time; provided, however, that all rights to indemnification in
respect of any Claim asserted, made or commenced within such period shall
continue until the final disposition of such Claim. The Surviving Entity shall
maintain in effect for not less than three years after the Effective Time the
current policies of directors' and officers' liability insurance maintained by
the Company and the Company's Subsidiaries with respect to matters occurring
prior to or at the Effective Time; provided, however, that (i) the Surviving
Entity may substitute therefor policies of at least the same coverage
                                      A-43
<PAGE>   133

containing terms and conditions which are no less advantageous to the
Indemnified Parties with an insurance company or companies, the claims paying
ability of which is substantially equivalent to the claims paying ability of the
insurance company or companies providing currently such insurance coverage for
directors and officers of the Company, and (ii) the Surviving Entity shall not
be required to pay an annual premium for such insurance in excess of one and
one-half times the last annual premium paid prior to the date hereof, but in
such case shall purchase as much coverage as possible for such amount.

     (b) If any Claim relating hereto or to the transactions contemplated by
this Agreement is commenced before the Effective Time, the Company, Liberty
Media and the Surviving Entity hereto agree to cooperate and use their
respective reasonable efforts to vigorously defend against and respond thereto.
Any Indemnified Party wishing to claim indemnification under paragraph (a) of
this Section 7.10, upon learning of any such claim, action, suit, proceeding or
investigation (whether arising before, at or after the Effective Time), shall
promptly notify Liberty Media and the Company or the Surviving Entity thereof
(but the failure so to notify shall not relieve the Company, Liberty Media or
the Surviving Entity from any liability which it may have under this Section
7.10 except to the extent such failure materially prejudices such party),
whereupon Liberty Media or the Surviving Entity shall have the right, from and
after the Effective Time, to assume from such Indemnified Party and control the
defense thereof on behalf of such Indemnified Party, and upon such assumption,
the Surviving Entity shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof. Notwithstanding
the foregoing, if counsel for the Indemnified Parties advises that there are
issues which raise conflicts of interest between Liberty Media or the Surviving
Entity and the Indemnified Parties, the Indemnified Parties may retain separate
counsel and the Company or the Surviving Entity shall pay or cause to be paid
all reasonable fees and expenses of such counsel; provided that neither Liberty
Media nor the Surviving Entity shall be obligated pursuant to this Section
7.10(b) to pay or cause to be paid for more than one firm or counsel to
represent all Indemnified Parties in any jurisdiction unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties. Neither
Liberty Media nor the Surviving Entity shall be liable for any settlement
effected without its prior written consent, which consent, however, shall not be
unreasonably withheld, provided that neither Liberty Media nor the Surviving
Entity shall be obliged in any event to consent to any settlement or proposed
settlement which would impose any obligation upon Parent, Liberty Media, the
Surviving Entity or any of their respective Affiliates other than an obligation
on the part of Liberty Media or the Surviving Entity to pay money.

     (c) This Section 7.10 is intended to benefit the Indemnified Parties and
shall be enforceable by each Indemnified Party, his or her heirs and
representatives and shall be binding on all successors and assigns of the
Surviving Entity.

     7.11 Certificates as to Indebtedness.  The Company shall cause each of the
lenders who hold the three largest individual amounts of the outstanding
Indebtedness of the Company as of the Effective Time to deliver a certificate to
Parent and Liberty Media at the Closing certifying the amount of outstanding
Indebtedness of the Company to such lender as of such time.

     7.12 Notification of Certain Matters.  Between the date hereof and the
Effective Time, each of Liberty and the Company will give prompt notice in
writing to the other of: (i) any information that indicates that any of its
representations or warranties contained herein was not true and correct as of
the date hereof or will not be true and correct at and as of the Effective Time
with the same force and effect as if made at and as of the Effective Time
(except for changes permitted or contemplated by this Agreement), (ii) the
occurrence of any event that will result, or has a reasonable prospect of
resulting, in the failure of any condition specified in Article VIII hereof to
be satisfied, (iii) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement or that such
transactions otherwise may violate the rights of or confer remedies upon such
third party and (iv) any notice of, or other communication relating to, any
litigation referred to in Section 7.13 or any order or judgment entered or
rendered therein.
                                      A-44
<PAGE>   134

     7.13 Defense of Litigation.  Each of Liberty and the Company agrees to
vigorously defend against any and all actions, suits or proceedings in which
such party is named as a defendant that seek to enjoin, restrain or prohibit the
transactions contemplated hereby or seek damages with respect to such
transactions. The Company shall not settle any such action, suit or proceeding
or fail to perfect on a timely basis any right to appeal any judgment rendered
or order entered against the Company therein without the consent of Parent and
Liberty Media (which consent shall not unreasonably be withheld or delayed).
Liberty Media and Merger Sub shall not settle any such action, suit or
proceeding, if such settlement would have, or could reasonably be expected to
have, a Material Adverse Effect, without the consent of the Company (which
consent shall not unreasonably be withheld or delayed). Each of Liberty and the
Company further agrees to use its reasonable efforts to cause each of its
Affiliates, directors and officers to vigorously defend any action, suit or
proceeding in which such Affiliate, director or officer is named as a defendant
and which seeks any such relief to comply with this Section to the same extent
as if such person were a party hereto.

     7.14 Additional Financial Statements.  Promptly after the same become
available, the Company shall furnish to Parent and Liberty Media such additional
financial data concerning the Company and its Subsidiaries as Parent or Liberty
Media may reasonably request, including any audited consolidated financial
statements of the furnishing party for any year ending on or after the date
hereof, prepared in conformity with the requirements of the Commission
applicable to annual financial statements to be included in Form 10-K under the
Exchange Act, and all interim quarterly consolidated financial statements of the
furnishing party prepared on or after the date of this Agreement, accompanied by
a statement of the principal financial officer of the Company that, in the
opinion of such officer, such quarterly financial statements were prepared in
conformity with the requirements of the Commission applicable to financial
statements to be included in Form 10-Q under the Exchange Act, applied (in each
such case) on a consistent basis (except as otherwise stated in the quarterly
financial statements) and present fairly the consolidated financial position,
results of operations and cash flows of the Company and its consolidated
Subsidiaries as of the date and for the period indicated (subject in the case of
quarterly financial statements to normal, recurring year-end audit adjustments).

                                 ARTICLE VIII.

                              CONDITIONS PRECEDENT

     8.1 Conditions Precedent to the Obligations of Parent, Liberty Media,
Merger Sub and the Company. The respective obligations of Parent, Liberty Media,
Merger Sub and the Company to consummate the Merger are subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which, to the extent permitted by applicable law, may be
waived by Parent (only with the concurrence of Liberty Media), for itself and
Merger Sub (but not, in either case, for the Company), or by the Company for
itself (but not for Parent, Merger Sub or Liberty Media):

          (a) Approval of Stockholders. This Agreement and the Merger Proposal
     shall have been approved and adopted by such vote of the stockholders of
     the Company as set forth in Sections 3.1 and 4.33.

          (b) Registration. The Registration Statement (as amended or
     supplemented) shall have become effective under the Securities Act and
     shall not be subject to any stop order, and no action, suit, proceeding or
     investigation by the Commission seeking a stop order or to suspend the
     effectiveness of the Registration Statement shall have been initiated and
     be continuing. Parent shall have received all state securities law or blue
     sky permits and authorizations necessary to issue the Merger Consideration
     as contemplated hereby and such permits and authorizations shall be in full
     force and effect.

          (c) Hart-Scott Act. Any applicable waiting period (and any extension
     thereof) under the Hart-Scott Act shall have expired or been terminated.

          (d) NYSE Listing. The shares of Class A Liberty Media Group Stock to
     be issued in the Merger shall have been authorized for listing on the NYSE,
     subject only to official notice of issuance.
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<PAGE>   135

     8.2 Conditions Precedent to the Obligations of Parent and Merger Sub for
the Benefit of Liberty Media.  The obligations of Parent and Merger Sub to
consummate the Merger are also subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, which conditions are solely
for the benefit of Liberty Media, and any or all of which may be asserted or
waived solely by Liberty Media acting alone:

          (a) Accuracy of Representations and Warranties. All representations
     and warranties of the Company contained in this Agreement shall, if
     specifically qualified by materiality, be true and correct and, if not so
     qualified, be true and correct in all material respects, in each case as of
     the date of this Agreement and, except to the extent such representations
     and warranties speak as of a specified earlier date, on and as of the
     Closing Date as though made on and as of the Closing Date, except for any
     changes permitted or contemplated by this Agreement. If (i) Liberty
     Livewire, Inc., a Delaware corporation ("Liberty Livewire"), has failed to
     execute and deliver the guaranty contemplated by the letter agreement,
     dated June 30, 2000, among the Company and the other parties to the GECC
     Facility and (ii) but for Liberty Livewire's failure to execute such
     guaranty, the condition set forth in the previous sentence would be
     satisfied, Parent and Merger Sub may not assert that the condition set
     forth in the previous sentence has not been satisfied. In the event of any
     changes to the amounts of Indebtedness or the identity of any creditors
     named in Section 4.12 of the Company Disclosure Schedules, a cumulative
     listing of any such changes shall be attached to the certificates
     contemplated by Sections 8.2(c) and 8.3(c).

          (b) Performance of Agreements. The Company shall have performed in all
     material respects all obligations and agreements, and complied in all
     material respects with all covenants and conditions, contained in this
     Agreement to be performed or complied with by it prior to or on the Closing
     Date.

          (c) Compliance Certificate. The Company shall have delivered to Parent
     and Liberty Media a certificate, dated the Closing Date, signed by the
     President or any Vice President of the Company (but without personal
     liability thereto), certifying as to the fulfillment of the conditions
     specified in Sections 8.1(a), 8.2(a), 8.2(b) and 8.2(f) (to the extent such
     Local Approvals or Governmental Consents must be obtained by the Company).

          (d) Absence of Injunctions and Proceedings. No permanent or
     preliminary Injunction or restraining order or other order by any court or
     other Governmental Entity of competent jurisdiction or other legal
     restraint or prohibition shall be in effect, (i) preventing consummation of
     the transactions contemplated hereby as provided herein, or permitting such
     consummation only subject to any condition or restriction that has had or
     would have a Liberty Media Material Adverse Effect, (ii) requiring the
     divestiture, as a result of consummation of the Merger, of a material
     portion of the business or assets of Liberty Media and its Subsidiaries and
     Affiliates taken as a whole, (iii) imposing material limitations on the
     ability of Liberty Media effectively to exercise full rights of ownership
     of shares of capital stock or other ownership interests of the Surviving
     Entity (including the right to vote such shares or other ownership
     interests on all matters properly presented to the stockholders or other
     equity holders of the Surviving Entity) or making the holding by Liberty
     Media of any such shares or other ownership interests illegal or subject to
     any materially burdensome requirement or condition, or (iv) requiring
     Liberty Media, its Subsidiaries or the Company or any of its Subsidiaries
     to cease or refrain from engaging in any line of business, including any
     line of business conducted by the Company or any of its Subsidiaries, as a
     result of the consummation of the Merger.

          (e) No Adverse Enactments. No statute, rule, regulation, law, order,
     judgment or decree enacted, promulgated, entered, issued, enforced or
     deemed applicable by any foreign or United States federal, state or local
     Governmental Entity of competent jurisdiction shall be in effect which (i)
     makes this Agreement, the Merger or any other transaction contemplated
     hereby illegal or imposes or is reasonably likely to impose material
     damages or penalties in connection therewith, (ii) requires or is
     reasonably likely to require, as a result of the consummation of the
     Merger, the divestiture of or any restrictions or conditions on the conduct
     of (A) a portion of the business or assets of the Company and its
     Subsidiaries, taken as a whole, which would have a Material Adverse

                                      A-46
<PAGE>   136

     Effect, or (B) a material portion of the business or assets of Liberty
     Media and its Subsidiaries and Affiliates taken as a whole, (iii) imposes
     or is reasonably likely to result in imposition of material limitations on
     the ability of Liberty Media effectively to exercise full rights of
     ownership of shares of capital stock or other ownership interests of the
     Surviving Entity (including the right to vote such shares or other
     ownership interests on all matters properly presented to the stockholders
     or other equity holders of the Surviving Entity) or makes the holding by
     Liberty Media of any such shares or other ownership interests illegal or
     subject to any materially burdensome requirement or condition, or (iv)
     requires or is reasonably likely to require Liberty Media or its
     Subsidiaries or Affiliates or the Company or any of its material
     Subsidiaries to cease or refrain from engaging in any material business,
     including in the case of Liberty Media any material business conducted by
     the Company or any of its Subsidiaries prior to the Merger, as a result of
     the consummation of the Merger.

          (f) Governmental Consents, Etc. Other than the filing of the
     Certificate of Merger with the Delaware Secretary of State and filings due
     after the Effective Time, all Local Approvals, and all other Governmental
     Consents (other than those specified in Section 8.1(c)) as are required in
     connection with the consummation of the Merger shall have been obtained and
     shall be in full force and effect without any condition, limitation or
     restriction, all Governmental Filings as are required in connection with
     the consummation of the Merger shall have been made, and all waiting
     periods, if any, applicable to the consummation of the Merger imposed by
     any Governmental Entity (other than those specified in Section 8.1(c))
     shall have expired, other than any of the foregoing which, if not so
     obtained, in force or effect, made or expired (as the case may be) would
     not, either individually or in the aggregate, have a Material Adverse
     Effect (or an effect on Liberty Media and its Subsidiaries and Affiliates
     that, were the Company and its Subsidiaries subjected to the same (or a
     materially similar) effect, would constitute a Material Adverse Effect);
     provided, however, that any Governmental Consent by the FCC relating to the
     Company's FCC Licenses described in Section 4.15 of the Company Disclosure
     Schedule shall not be deemed ineffective for purposes of this subsection
     8.2(f) solely because such Governmental Consent is subject to appeal
     (provided that no notice of appeal shall have been filed) or to
     reconsideration by the FCC on its own motion.

          (g) Opinion of Company Counsel. Liberty Media shall have received the
     opinion of Piper, Marbury, Rudnick & Wolfe LLP dated as of the Closing
     Date, in form and substance reasonably acceptable to Liberty Media,
     covering the matters set forth on Exhibit 8.2(g) hereto.

          (h) No Registration Rights. No Person shall have any contractual or
     other registration rights with respect to any of the shares of Class A
     Liberty Media Group Stock to be issued in the Merger.

     8.3 Conditions Precedent to the Obligations of Parent and Merger Sub for
the Benefit of Parent.  The obligations of Parent and Merger Sub to consummate
the Merger are also subject to the satisfaction at or prior to the Closing Date
of each of the following conditions, which conditions are solely for the benefit
of Parent, and any or all of which may be waived solely by Parent acting alone:

          (a) Accuracy of Representations and Warranties. All representations
     and warranties of the Company contained in this Agreement shall, if
     specifically qualified by materiality, be true and correct and, if not so
     qualified, be true and correct in all material respects in each case as of
     the date of this Agreement and (except to the extent such representations
     and warranties speak as of a specified earlier date) on and as of the
     Closing Date as though made on and as of the Closing Date, except for
     changes permitted or contemplated by this Agreement.

          (b) Performance of Agreements. The Company shall have performed in all
     material respects all obligations and agreements, and complied in all
     material respects with all covenants and conditions, contained in this
     Agreement to be performed or complied with by it prior to or on the Closing
     Date.

          (c) Compliance Certificate. The Company shall have delivered to Parent
     a certificate, dated the Closing Date, signed by the President or any Vice
     President of the Company (but without personal liability thereto),
     certifying as to the fulfillment of the conditions specified in Sections
     8.1(a), 8.3(a),

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<PAGE>   137

     8.3(b) and 8.3(f) (to the extent such Local Approvals or Governmental
     Consents must be obtained by the Company), and identifying the following:

             (i) any pending action or preceding by any Governmental Entity
        seeking a permanent or preliminary Injunction or restraining order or
        other order by any court or other Governmental Entity of competent
        jurisdiction or other legal restraint or prohibition which, if
        determined in a manner adverse to the Company, Liberty Media or Parent,
        could have the effect of, and any such Injunction or other order,
        restraint or prohibition in an action or proceeding (whether by a
        Governmental Entity or otherwise) that is in effect, preventing
        consummation of the transactions contemplated hereby as provided herein
        or permitting such consummation subject to any condition or restriction;

             (ii) any contract, agreement or understanding to which the Company
        or any of its Subsidiaries is a party that would, at the Effective Time,
        be legally enforceable against Parent or any of its Subsidiaries (other
        than Liberty Media, the Liberty Media Affiliates, the Company, and their
        respective Subsidiaries); and

             (iii) any License that is required for the ownership and operation
        of the assets and facilities of the respective businesses of Company and
        its Subsidiaries which, as of the Closing Date, the Company and its
        Subsidiaries no longer hold, or are not in compliance with the terms of,
        or have not duly and currently filed all reports and other information
        required to be filed by them in connection therewith.

          (d) Absence of Injunctions and Proceedings. No action or proceeding by
     any Governmental Entity seeking a permanent or preliminary Injunction or
     restraining order or other order by any court or other Governmental Entity
     of competent jurisdiction or other legal restraint or prohibition shall be
     pending which, if determined in a manner adverse to the Company, Liberty
     Media or Parent, could have the effect of, and no such Injunction or other
     order, restraint or prohibition in an action or proceeding (whether by a
     Governmental Entity or otherwise) shall be in effect, preventing
     consummation of the transactions contemplated hereby as provided herein, or
     permitting such consummation only subject to any condition or restriction
     that (x) has had or would have a Parent Material Adverse Effect or a
     Material Adverse Effect or (y) would require Parent or any of its
     Subsidiaries to take or refrain from, or would prohibit Parent or any of
     its Subsidiaries from taking or refraining from, any action (other than
     actions required to be taken by Parent or its Subsidiaries pursuant to the
     final proviso of the penultimate sentence of Section 3.4 hereof, or
     otherwise specifically agreed to by Parent or one of its Subsidiaries in
     this Agreement).

          (e) No Adverse Enactments. No statute, rule, regulation, law, order,
     judgment or decree enacted, promulgated, entered, issued, enforced or
     deemed applicable by any foreign or United States federal, state or local
     Governmental Entity of competent jurisdiction shall be in effect which (i)
     makes this Agreement, the Merger, the Post-Merger Restructuring
     Transactions or any other transaction contemplated hereby illegal or
     imposes material damages or penalties in connection therewith or otherwise
     prohibits or unreasonably delays any of such transactions, (ii) requires
     the divestiture or holding separate of any portion of the business or any
     assets of Parent or any of its Subsidiaries (or any reorganization or
     restructuring thereof) in any such case as a result of the consummation of
     the Merger, or would require Parent or any of its Subsidiaries to take or
     refrain from, or would prohibit Parent or any of its Subsidiaries from
     taking or refraining from, any action (other than actions required to be
     taken or refrained from (or prohibited to be taken or refrained from, as
     the case may be) by Parent or any of its Subsidiaries pursuant to the final
     proviso of the penultimate sentence of Section 3.4 hereof, or otherwise
     specifically agreed to by Parent or one of its Subsidiaries in this
     Agreement), (iii) imposes any material limitations on the ability of Parent
     or Liberty Media effectively to exercise full rights of ownership of shares
     of capital stock or other ownership interests of the Surviving Entity
     (including the right to vote such shares or other ownership interests on
     all matters properly presented to the stockholders or other equity holders
     of the Surviving Entity), or makes the holding by Parent or Liberty Media
     of any such shares or other ownership

                                      A-48
<PAGE>   138

     interests illegal or subject to any materially burdensome requirement or
     condition, (iv) requires Parent or any of its Subsidiaries to cease or
     refrain from engaging in any material business, whether or not such
     business is conducted by the Company or any of its Subsidiaries, as a
     result of the consummation of the Merger, or (v) increases in any material
     respect the liabilities or obligations of Parent arising out of this
     Agreement or, in Parent's reasonable judgment, otherwise would have a
     Parent Adverse Effect, as a result of the consummation of the Merger.

          (f) Governmental Consents, Etc. Other than the filing of the
     Certificate of Merger with the Delaware Secretary of State and filings due
     after the Effective Time, all Local Approvals, and all other Governmental
     Consents as are required in connection with the consummation of the
     transactions contemplated hereby shall have been obtained and shall be in
     full force and effect without any condition, limitation or restriction, all
     Governmental Filings as are required in connection with the consummation of
     the transactions contemplated hereby shall have been made, and all waiting
     periods, if any, applicable to the consummation of such transactions
     imposed by any Governmental Entity shall have expired, other than the
     foregoing which, if not so obtained, in force or effect, made or expired
     (as the case may be) would not, in Parent's reasonable judgement, either
     individually or in the aggregate, have a Parent Adverse Effect; provided,
     however, that any Governmental Consent by the FCC relating to the Company's
     FCC Licenses described in Section 4.15 of the Company Disclosure Schedule
     shall not be deemed ineffective for purposes of this subsection 8.3(f)
     solely because such Governmental Consent is subject to appeal (provided
     that no notice of appeal shall have been filed) or to reconsideration by
     the FCC on its own motion.

          (g) Certain Agreements. Neither the Company nor any of its
     Subsidiaries shall be a party to any Contract or understanding that would
     at the Effective Time be legally enforceable against Parent or any of its
     Subsidiaries (other than Liberty Media, the Liberty Media Affiliates, the
     Company, and their respective Subsidiaries), except as would not have a
     Parent Adverse Effect.

          (h) Certain Licenses. The Company and its Subsidiaries shall hold, and
     be in compliance with the terms of, and shall have duly and currently filed
     all reports and other information required to be filed by them in
     connection with, all licenses, permits, rights of way, easements,
     franchises, ordinances, certificates, variances, exemptions, concessions,
     leases, instruments, orders and approvals, governmental authorizations,
     domestic and foreign, necessary to the ownership of the Company's and its
     Subsidiaries' property or to the conduct of their respective businesses,
     including without limitation, all FCC Licenses required for the ownership
     and operation of the assets and facilities of their respective businesses,
     except for any failure to so hold, be in compliance with the terms of, or
     have duly and currently filed, that in the reasonable judgment of Parent
     would not have a Parent Adverse Effect.

          (i) No Liberty Media Notice. Parent shall not have been notified by
     Liberty Media that any of the Conditions set forth in this Article VIII
     (other than Section 8.4) shall remain unsatisfied.

          (j) Performance of Agreements. Liberty Media shall have performed in
     all material respects all obligations and agreements, and complied in all
     material respects with all covenants and conditions, to be performed or
     complied with by it hereunder, prior to or on the Closing Date and Liberty
     Media shall have delivered to Parent a certificate dated as of the Closing
     Date, signed by the President or any Vice President of Liberty Media (but
     without personal liability thereto) certifying as to the matters described
     in this Section 8.3(j).

          (k) Hart-Scott. Any applicable waiting period under the Hart-Scott Act
     shall have expired or been terminated without receipt of any objections or
     commencement of litigation or threat thereof by the appropriate
     Governmental Entity to restrain the transactions contemplated hereby.

          (l) No Registration Rights. No Person shall have any contractual or
     other registration rights with respect to any of the shares of Class A
     Liberty Media Group Stock to be issued in the Merger.

                                      A-49
<PAGE>   139

     8.4 Conditions Precedent to the Obligations of the Company.  The obligation
of the Company to consummate the Merger is also subject to the satisfaction at
or prior to the Closing Date of each of the following conditions, unless waived
by the Company:

          (a) Accuracy of Representations and Warranties. All representations
     and warranties of Parent and Liberty Media contained in this Agreement
     shall, if specifically qualified by materiality, be true and correct and,
     if not so qualified, be true and correct in all material respects in each
     case as of the date of this Agreement and (except to the extent such
     representations and warranties speak as of a specified earlier date) on and
     as of the Closing Date as though made on and as of the Closing Date, except
     for changes permitted or contemplated by this Agreement.

          (b) Performance of Agreements. Each of Merger Sub, Liberty Media and
     Parent shall have performed in all material respects all obligations and
     agreements, and complied in all material respects with all covenants and
     conditions, contained in this Agreement to be performed or complied with by
     it prior to or on the Closing Date.

          (c) Officers' Certificates. (i) Liberty Media shall have delivered to
     the Company a certificate dated the Closing Date, signed by the President
     or any Vice President of Liberty Media (but without personal liability
     thereto) certifying as to the fulfillment of the conditions specified in
     Sections 8.4(a) and 8.4(b) (insofar as each relates to Liberty Media) and
     (ii) Parent shall have delivered to the Company a certificate, dated the
     Closing Date, signed by the President or any Vice President of Parent (but
     without personal liability thereto), certifying as to the fulfillment of
     the conditions specified in Section 8.4(a) and 8.4(b) (insofar as each
     relates to Parent and Merger Sub).

          (d) Absence of Injunctions. No permanent or preliminary Injunction or
     restraining order or other order by any court or other Government Entity of
     competent jurisdiction, or other legal restraint or prohibition, shall be
     in effect preventing consummation of the transactions contemplated hereby
     as provided herein, or permitting such consummation only subject to any
     condition or restriction that has had or would have a Liberty Media
     Material Adverse Effect.

          (e) No Adverse Enactments. No statute, rule or regulation enacted,
     promulgated, entered, issued, enforced or deemed applicable by any foreign
     or United States federal, state or local Governmental Entity of competent
     jurisdiction shall be in effect, and there shall be no action, suit or
     proceeding brought by any such Governmental Entity and pending which (i)
     makes this Agreement or the Merger illegal or (ii) has or is reasonably
     likely to have a Liberty Media Material Adverse Effect.

          (f) Governmental Consents, Etc. Other than the filing of the
     Certificate of Merger with the Delaware Secretary of State and filings due
     after the Effective Time, all Local Approvals, and all other Governmental
     Consents (other than those specified in Section 8.1(c)) as are required in
     connection with the consummation of the Merger shall have been obtained and
     shall be in full force and effect, and all waiting periods, if any,
     applicable to the consummation of the Merger imposed by any Governmental
     Entity shall have expired, other than any of the foregoing which, if not
     obtained, in force or effect, made or expired (as the case may be), would
     not, either individually or in the aggregate, be reasonably likely to have
     a Liberty Media Material Adverse Effect; provided, however, that any
     Governmental Consent by the FCC relating to the Company's FCC Licenses
     described in Section 4.15 of the Company Disclosure Schedule shall not be
     deemed ineffective for purposes of this subsection 8.4(f) solely because
     such Governmental Consent is subject to appeal (provided that no notice of
     appeal shall have been filed) or to reconsideration by the FCC on its own
     motion.

                                      A-50
<PAGE>   140

                                  ARTICLE IX.

                                  TERMINATION

     9.1 Termination and Abandonment.  This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, whether before or after approval and adoption of this Agreement
by the stockholders of the Company:

          (i) by mutual consent of Parent, Liberty Media and the Company;

          (ii) by any of the Company, Parent or Liberty Media: (A) if the Merger
     shall not have been consummated on or before December 31, 2000, provided
     that the right to terminate this Agreement pursuant to this clause (ii)(A)
     shall not be available to any party whose failure to perform any of its
     obligations under this Agreement has been the cause of or resulted in the
     failure of the Merger to be consummated on or before such date, and
     provided further that if the Merger has not been consummated on or before
     December 31, 2000 solely as a result of the failure of the conditions set
     forth in Sections 8.1(b) (if the failure to satisfy such condition is the
     result of any material acquisition or other transaction, or agreement with
     respect thereto, engaged in, or entered into, by Parent or Liberty Media or
     any of their respective Affiliates whether prior to or after the date
     hereof), 8.1(c), 8.2(d), 8.2(f), 8.3(d), 8.3(f), 8.4(d), or 8.4(f) to be
     satisfied or waived, any party, by written notice to the other parties, may
     extend such date up to February 28, 2001, (B) if there has been a material
     breach of any representation, warranty, covenant or agreement on the part
     of any other party contained in this Agreement, in each case that is not
     curable, such that the conditions set forth in Sections 8.2(a) or (b) or
     Sections 8.3(a) or (b), in the case of such a breach by the Company, or
     Sections 8.4(a) or (b), in the case of such a breach by Parent, Merger Sub
     or Liberty Media, cannot be satisfied, (C) if any court of competent
     jurisdiction or other competent Governmental Entity shall have issued an
     order, decree or ruling or taken any other action permanently restraining,
     enjoining or otherwise prohibiting the Merger and such order, decree,
     ruling or other action shall have become final and nonappealable, or (D)
     the stockholders of the Company fail to approve and adopt the Merger
     Proposal by the requisite vote (I) at the Special Meeting, or (II) by the
     date one day prior to the applicable date referred to in (A) above,
     provided the Registration Statement became effective (unless the failure of
     the Registration Statement to become effective is the result of the
     Company's material breach of Section 3.2(a)) and remained effective such
     that the Proxy Statement could be mailed to the Company stockholders and
     the Special Meeting held prior to such applicable date (provided that
     Parent shall not terminate this Agreement pursuant to this clause (D)
     without the concurrence of Liberty Media); or

          (iii) by Liberty Media if (x) the Company Board withdraws or modifies,
     in a manner adverse to Parent or Liberty Media, its approval or
     recommendation of the Merger or (y) the Company Board approves or
     recommends, or authorizes the Company to enter into an agreement with
     respect to, an Extraordinary Transaction.

          (iv) by the Company, pursuant to Section 7.5(c).

     9.2 Termination Fee; Effects of Termination.

     (a) If (i) during the term of this Agreement, the Company Board withdraws
or modifies, in a manner adverse to Parent or Liberty Media, its approval or
recommendation of the Merger, or the Company Board approves, or recommends, or
authorizes the Company to enter into an agreement with respect to, an
Extraordinary Transaction, and (ii) this Agreement is thereafter terminated
pursuant to Section 9.1(ii), Section 9.1(iii) or Section 9.1(iv), and (iii) in
the case of any termination pursuant to Section 9.1(ii) only, the Company
thereafter enters into any definitive agreement with respect to or consummates
an Extraordinary Transaction with any Person other than Liberty Media, Parent or
an Affiliate of either of them, within six months after the date of such
termination, then, in any such case, the Company shall immediately pay Liberty
Media a fee of $3.5 million (the "Termination Fee"), payable by wire transfer of
same day funds.

                                      A-51
<PAGE>   141

     (b) If this Agreement is terminated by the Company, Parent or Liberty Media
pursuant to Section 9.1, this Agreement forthwith shall become void and there
shall be no liability or obligation on the part of Parent, Liberty Media, Merger
Sub, the Company or any of their respective Affiliates, stockholders, directors,
officers, agents employees or Representatives except (i) as provided in Sections
4.24, 6.8, 7.2 and 7.5, which shall survive such termination and (ii) subject to
Section 10.10, to the extent such termination results from the willful breach by
Parent, Liberty Media, Merger Sub or the Company of any of its representations,
warranties, covenants or agreements contained in this Agreement.

     (c) Notwithstanding anything to the contrary contained herein, any election
by the Company to pay, or by Liberty Media or Parent to receive, the Termination
Fee pursuant to Section 9.2(a) shall constitute full settlement of any and all
liabilities of the Company for damages under this Agreement in respect of a
termination of this Agreement pursuant to Sections 9.1(i), 9.1(ii) and 9.1(iii)
and shall be the sole measure of damages with respect to such termination.

     (d) In the event of any termination of this Agreement pursuant to Section
9.1, Parent shall have no further obligation or liability hereunder, except for
its confidentiality obligations pursuant to Section 7.2.

                                   ARTICLE X.

                                 MISCELLANEOUS

     10.1 No Waiver or Survival of Representations and Warranties.  The
respective representations and warranties of Parent, Merger Sub, Liberty Media
and the Company contained herein or in any certificate or other instrument
delivered pursuant hereto prior to or at the Closing shall not be deemed waived
or otherwise affected by any investigation made by any party hereto. All
representations and warranties made by each of the parties herein shall expire
at the Effective Time and shall thereafter be of no further force or effect.

     10.2 Notices.  All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by
telegram or confirmed telex or telecopier, as follows:

         (a) If to Parent or Merger Sub:

             AT&T Corp.
             295 North Maple Avenue
             Basking Ridge, NJ 07920
             Attention: Vice President-Law and Corporate Secretary
             Facsimile: (908) 221-6618

             with a copy to:

             Wachtell, Lipton, Rosen & Katz
             51 W. 52nd Street
             New York, NY 10019
             Attention: David M. Silk, Esq.
             Facsimile: (212) 403-2000

         (b) If to Liberty Media:

             Liberty Media Corporation
             9197 South Peoria Street
             Englewood, CO 80112
             Attention: Charles Y. Tanabe, Esq.
             Facsimile: (720) 875-5382
                                      A-52
<PAGE>   142

             with copies to:

             Baker Botts L.L.P.
             599 Lexington Ave.
             New York, NY 10022
             Attention: Marc A. Leaf, Esq./Craig Troyer, Esq.
             Facsimile: (212) 705-5125

             and

             Liberty Media Corporation
             9197 South Peoria Street
             Englewood, CO 80112
             Attention: David P. Beddow
             Facsimile: (720) 875-5415

         (c) If to the Company:

             Video Services Corporation
             240 Pegasus Avenue
             Northvale, New Jersey 07647
             Attention: Louis H. Siracusano
             Facsimile: (201) 784-2878

             with a copy to:

             Piper Marbury Rudnick & Wolfe LLP
             1251 Avenue of the Americas
             New York, New York 10020
             Attention: Barry Shalov, Esq./James T. Seery, Esq.
             Facsimile: (212) 835-6001

or to such other Person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address shall be effective only upon actual receipt thereof.

     10.3 Entire Agreement.  This Agreement (including the Schedules, Exhibits
and other documents referred to herein), together with (in the case of the
Company and Liberty Media) the Mutual Nondisclosure Agreement, dated as of March
20, 2000, between the Company and Liberty Media, constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, oral and written, between the parties with respect to the
subject matter hereof.

     10.4 Assignment; Binding Effect; Benefit.  Neither this Agreement nor any
of the rights, benefits or obligations hereunder may be assigned by any party
(whether by operation of law or otherwise) without the prior written consent of
the other party. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by, the parties and
their respective successors and permitted assigns. Except for Section 7.10,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties or their respective successors and permitted
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.

     10.5 Amendment.  This Agreement may be amended by action of all the
parties, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval and adoption of this Agreement and the
Merger by the stockholders of the Company, but, after any such approval by the
stockholders of the Company, no amendment shall be made which by law requires
further approval by
                                      A-53
<PAGE>   143

such stockholders of the Company without such further approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties. Notwithstanding the foregoing, (a) the provisions of Sections
7.4 (other than to the extent related to Sections 7.4(c)(i), and 7.4(i)) and 7.5
may be amended by an instrument signed in writing by the Company and Liberty
Media, without any action on the part of Parent or Merger Sub and (b) following
the Effective Time, this sentence of this Section 10.5 may only be amended by an
instrument signed in writing by Parent, Liberty Media and, on behalf of the
Company, by at least one individual who was serving on the board of directors of
the Company immediately prior to the Effective Time.

     10.6 Extension; Waiver.  At any time prior to the Effective Time, the
parties, by action taken or authorized by each such party's Board of Directors,
may, to the extent legally allowed, (i) extend the time specified herein for the
performance of any of the obligations of the other parties, (ii) waive any
inaccuracies in the representations and warranties of the other parties
contained herein or in any document delivered pursuant hereto, (iii) waive
compliance by the other parties with any of the agreements or covenants of such
other parties contained herein or (iv) waive any condition to such waiving
party's obligation to consummate the transactions contemplated hereby or to any
of such waiving party's other obligations hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in a written instrument signed on behalf of such party. Any such extension
or waiver by any party shall be binding on such party but not on any other party
entitled to the benefits of the provision of this Agreement affected unless such
other party also has agreed to such extension or waiver. No such waiver shall
constitute a waiver of, or estoppel with respect to, any subsequent or other
breach or failure to strictly comply with the provisions of this Agreement. The
failure of any party to insist on strict compliance with this Agreement or to
assert any of its rights or remedies hereunder or with respect hereto shall not
constitute a waiver of such rights or remedies. Whenever this Agreement requires
or permits consent or approval by any party, such consent or approval shall be
effective if given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 10.6. Any waiver by either
Parent or Liberty Media shall require the consent of both Parent and Liberty
Media. Notwithstanding the foregoing, the provisions of Sections 7.4 (other than
to the extent related to Sections 7.4(c)(i) and 7.4(h)) and 7.5 may be waived by
an instrument signed in writing by the Company and Liberty Media without any
action on the part of Parent or Merger Sub.

     10.7 Parent Transactions.  Notwithstanding anything to the contrary in this
Agreement, the pursuit and/or consummation by Parent or any of its Subsidiaries
or Affiliates of any Parent Transaction shall be deemed not to be a breach of
any provision of this Agreement.

     10.8 Headings.  The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available.

     10.9 Counterparts.  This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and all of which together shall be
deemed to be one and the same instrument.

     10.10 Applicable Law.  This Agreement and the legal relations between the
parties hereunder shall be governed by and construed in accordance with the laws
of the State of Delaware, without regard to the conflict of laws thereof.

     10.11 Enforcement.  The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
in Delaware state court, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties hereto
(a) consents to submit itself to the non-exclusive jurisdiction of any Federal
court located in the State of Delaware or any Delaware state court in the event
any dispute arises out of this Agreement or any of the transactions contemplated
by this Agreement, and (b) agrees that it will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such
court.

                                      A-54
<PAGE>   144

     10.12 Company Disclosure Schedule.  The parties acknowledge that the
Company Disclosure Schedule (i) relates to certain matters concerning the
disclosures required and transactions contemplated by this Agreement, (ii) is
qualified in its entirety by reference to specific provisions of this Agreement
and (iii) is not intended to constitute and shall not be construed as indicating
that such matter is required to be disclosed, nor shall such disclosure be
construed as an admission that such information is material with respect to the
Company, or any of its Subsidiaries or will have or is likely to have a Material
Adverse Effect, Liberty Media Material Adverse Effect, Parent Material Adverse
Effect or Parent Adverse Effect. Disclosure of the information contained in one
section or part of the Company Disclosure Schedule shall be deemed as proper
disclosure for other sections or parts of the Company Disclosure Schedule only
if appropriately cross-referenced or if the relevance thereof is reasonably
apparent from the context in which it appears and provided, further that
information set forth in the Company Disclosure Schedule shall be deemed to
qualify the representations in Section 4.1, 4.2 and 4.3 of this Agreement only
if such information is set forth in Section 4.1, 4.2 or 4.3, as applicable, of
the Company Disclosure Schedule.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first above written.

                                          AT&T CORP.

                                          By: /s/ MARILYN J. WASSER
                                            ------------------------------------
                                              Name: Marilyn J. Wasser
                                              Title:  Vice President -- Law and
                                              Secretary

                                          VIDEO SERVICES CORPORATION

                                          By: /s/ LOUIS H. SIRACUSANO
                                            ------------------------------------
                                              Name: Louis H. Siracusano
                                              Title:  President and Chief
                                              Executive Officer

                                          LIBERTY MEDIA CORPORATION

                                          By: /s/ CHARLES Y. TANABE
                                            ------------------------------------
                                              Name: Charles Y. Tanabe
                                              Title:  Senior Vice President

                                          E-GROUP MERGER CORP.

                                          By: /s/ MARILYN J. WASSER
                                            ------------------------------------
                                              Name: Marilyn J. Wasser
                                              Title:  Treasurer

                                      A-55
<PAGE>   145

                              [Lazard Letterhead]

                                                                         ANNEX B

                                          July 21, 2000

The Board of Directors
Video Services Corporation
240 Pegasus Avenue
Northvale, New Jersey 07647-1904

Dear Members of the Board:

     We understand that AT&T Corp., a New York corporation ("Parent"), E-Group
Merger Corp., a Delaware corporation and wholly-owned subsidiary of Parent
("Merger Sub"), Liberty Media Corporation, a Delaware corporation ("Liberty"),
and Video Services Corporation, a Delaware corporation (the "Company"), have
entered into an Agreement and Plan of Merger dated as of July   , 2000 (the
"Merger Agreement") pursuant to which Merger Sub will be merged, in a taxable
transaction, with and into the Company (the "Merger") as a result of which the
Company will become a wholly-owned subsidiary of Parent. Pursuant to the Merger
Agreement, each share of common stock, par value $.01 per share, of the Company
(the "Company Common Stock") outstanding immediately prior to the effective time
(the "Effective Time") of the Merger (except for Company Common Stock that
immediately prior to the Effective Time is held by the Company as treasury
stock), will be converted into and represent the right to receive, and will be
exchangeable for 0.104 of a share (the "Stock Exchange Ratio") of Class A
Liberty Media Group common stock (the "Class A Liberty Media Group Common
Stock") issued by Parent (the "Stock Consideration") and $2.75 in cash (the
"Cash Consideration" and together with the Stock Consideration, the "Merger
Consideration"). The Stock Exchange Ratio is not subject to a collar. We note
that the Merger Agreement provides that the Stock Exchange Ratio would be
appropriately adjusted to reflect stock dividends, stock splits or reverse stock
splits of Class A Liberty Media Common Stock, other transactions that change the
Class A Liberty Media Group Common Stock into any other securities (including
securities of another corporation) and dividends or distributions in the Class A
Liberty Media Group Common Stock (other than normal quarterly cash dividends),
in each case occurring prior to the Effective Time. This opinion is based on the
Stock Exchange Ratio as in effect on the date of this opinion and not as it may
be adjusted pursuant to this provision.

     You have requested our opinion as to the fairness, from a financial point
of view, to the Company's stockholders of the Merger Consideration. In
connection with this opinion, we have:

          (i) Reviewed the draft, dated June 15, 2000, of the Merger Agreement
     and the forms of the ancillary agreements to be entered into in connection
     therewith;

          (ii) Reviewed certain publicly available business and financial
     information relating to the Company, Parent and Liberty that we deemed to
     be relevant;

          (iii) Held discussions with members of the senior management of the
     Company with respect to the operations, financial condition, future
     prospects and projected operations and business performance of the Company;

          (iv) Visited certain facilities and business offices of the Company;

          (v) Reviewed the public information with respect to certain other
     companies in lines of business we believe to be generally comparable to the
     businesses of the Company;

          (vi) Reviewed the financial terms of certain business combinations
     involving companies in lines of business we believe to be generally
     comparable to those of the Company, and in other industries generally;

[Letterhead Footer]
<PAGE>   146

[LAZARD LOGO]

          (vii) Reviewed the historical stock prices and trading volumes of the
     Company Common Stock and the Class A Liberty Group Common Stock; and

          (viii) Conducted such other financial studies, analyses and
     investigations as we deemed appropriate.

     We note that we have neither held discussions with members of the senior
management of Liberty, nor been provided with any materials by Liberty with
respect to the operations, financial condition, future prospects and projected
operations and business performance of Liberty.

     We have relied upon the accuracy and completeness of the foregoing
information and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company, Parent or Liberty, or
concerning the solvency or fair value of the Company, Parent or Liberty. With
respect to the information received by us concerning the prospects of the
Company, we have assumed that this information reflects the best currently
available estimates and judgments of management of the Company. We assume no
responsibility for and express no view as to such information or the assumptions
on which they are based.

     Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.

     In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the June 15, 2000 draft of the Merger
Agreement, without further amendments thereto, and without any waiver of any
material term or condition by the Company. We also have assumed that obtaining
the necessary regulatory approvals for the Merger will not have a material
adverse effect on the Company, Parent or Liberty.

     Lazard Freres & Co. LLC is acting as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon the closing of the Merger. We
have in the past provided and are currently providing financial advisory
services to the Company. In addition, the Company has agreed to indemnify us for
certain liabilities that may arise out of the rendering of this opinion.

     Our opinion is limited to the fairness of the Merger Consideration to the
Company's stockholders from a financial point of view and does not address the
Company's underlying business decision to undertake the Merger. In addition, our
opinion does not address the future trading value of the Class A Liberty Common
Stock.

     Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is rendered to the Company's Board
of Directors in connection with its consideration of the Merger. This opinion is
not intended to and does not constitute a recommendation to any holder of
Company Common Stock as to whether such stockholder should vote for the Merger.
It is understood that, except for its inclusion in the proxy
statement/prospectus relating to the Merger, this letter may not be disclosed or
otherwise referred to without our prior consent, except as may otherwise be
required by law or by a court of competent jurisdiction.

     Based on and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Merger Consideration is fair to the Company's stockholders
from a financial point of view.

                                          Very truly yours,

                                          LAZARD FRERES & CO. LLC

                                          /s/ Barry Ridings
                                          By
                                               Barry Ridings
                                               Managing Director

                                        2
<PAGE>   147

                                                                         ANNEX C

                                VOTING AGREEMENT

     THIS VOTING AGREEMENT is made and entered into this 25th day of July, 2000
(this "Agreement"), among Liberty Media Corporation, a Delaware corporation
("Liberty"), and the stockholders each other person and entity listed on the
signature pages hereof (each, a "Stockholder").

                             W I T N E S S E T H :

     WHEREAS each Stockholder is the record holder on the date hereof of the
number of shares of Common Stock, par value $.01 per share ("VSC Stock"), of
Video Services Corporation, a Delaware Corporation ("VSC") set forth opposite
such Stockholder's name on Exhibit A hereto (all such shares and any shares of
VSC Stock hereafter acquired by the Stockholders prior to the termination of
this Agreement being referred to herein as the "Shares");

     WHEREAS, concurrently with the execution and delivery of this Agreement,
AT&T Corp., a New York corporation ("AT&T"), E-Group Merger Corp., a Delaware
corporation and a wholly-owned subsidiary of AT&T ("Merger Sub"), Liberty and
VSC are entering into an Agreement and Plan of Merger, dated as of the date
hereof (as the same may be amended from time to time, the "Merger Agreement"),
which provides, among other things, for the merger of Merger Sub with and into
VSC upon the terms and subject to the conditions provided for therein;

     WHEREAS, as a condition to the willingness of Liberty to enter into the
Merger Agreement, Liberty has required that each Stockholder agree, and, in
order to induce Liberty to enter into the Merger Agreement, each Stockholder has
agreed, severally and not jointly, to enter into this Agreement with respect to
all the Shares of such Stockholder;

     WHEREAS, capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Merger Agreement.

     NOW, THEREFORE, in consideration of the premises, covenants and
representations contained herein and in the Merger Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                                   ARTICLE 1

                                VOTING OF SHARES

     1.1 Voting of Shares.  Each Stockholder hereby agrees that during the time
this Agreement is in effect, at any meeting of the stockholders of VSC, however
called (whether, annual, special or adjourned), and in any action by written
consent of the stockholders of VSC, such Stockholder shall vote all Shares and
all other voting securities of VSC owned beneficially or of record by such
Stockholder, or with respect to which such Stockholder has the right to vote or
control the voting (or execute, or control the execution of, as stockholder, any
consent, certificate or other document relating to VSC that the law of the State
of Delaware may permit or require): (a) in favor of approval and adoption of the
Merger Agreement, the Merger, the Merger Proposal and any other transactions
contemplated by the Merger Agreement for which a stockholder vote is required
and (b) against any other proposal for any investment in, acquisition of,
business combination with or other extraordinary transaction regarding VSC or
any direct or indirect subsidiary or division thereof, including, without
limitation, any merger, purchase or sale of securities or purchase or sale of
assets outside the ordinary course of business. Each Stockholder acknowledges
receipt of a copy of the Merger Agreement. Notwithstanding the foregoing, a
Stockholder shall not be required to vote in favor of the approval and adoption
of the Merger Agreement, the Merger or the Merger Proposal if, following the
date hereof and without the consent of such Stockholder, the Merger Agreement is
amended and such amendment (x) materially changes the consideration to be
received by stockholders of VSC in the Merger or (y) imposes any material
obligations on such Stockholder following the Merger.
<PAGE>   148

     1.2 Proxy.  Each Stockholder hereby irrevocably appoints Liberty (and any
officer of Liberty), with full power of substitution, the proxy of such
Stockholder with full power and authority, in the event that such Stockholder
shall at any time fail to perform its obligations under Section 1.1 hereof, to
vote or act by consent in respect of its Shares and all of its other voting
securities of VSC exclusively as provided in Section 1.1. The proxy hereby
granted shall, for the term of this Agreement, be irrevocable and shall be
deemed coupled with an interest, in accordance with Section 212 of the Delaware
General Corporation Law.

     1.3 Further Assurances.  Each Stockholder shall perform such further acts
and execute such further documents and instruments as may reasonably be required
to carry out the provisions of this Agreement.

                                   ARTICLE 2

                                   COVENANTS

     2.1 Restrictions on Transfer.  Each Stockholder hereby covenants and agrees
that such Stockholder shall not, and shall not permit any company, trust or
other entity controlled by such Stockholder to, directly or indirectly, (i)
offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option, or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of any or all of
its Shares or any other voting securities of VSC or any interest therein or
securities convertible there into or any voting rights with respect thereto
(except, in the case of a transfer, if the transferee agrees in writing to be
bound by the terms and conditions of this Agreement), (ii) except as
contemplated by this Agreement and the Merger Agreement, grant any proxy or
power of attorney with respect to its Shares or any other voting securities of
VSC, deposit any of its Shares or any other voting securities of VSC into a
voting trust or enter into a voting agreement with respect to its Shares or any
other voting securities of VSC; or (iii) take any action that would have the
effect of preventing or disabling such Stockholder from performing its
obligations under this Agreement. Each Stockholder hereby agrees with, and
covenants to, each other party hereto, that such Stockholder shall not request
that VSC register the transfer (book entry or otherwise) of any certificate or
uncertificated interest representing any of its Shares, unless such transfer is
made in compliance with this Agreement (including the provisions of this Section
2.1).

     2.2 Changes in VSC Stock.  In the event of a stock dividend or
distribution, or any change in VSC's stock by reason of any stock dividend,
split-up, reclassification, recapitalization, combination, exchange of shares or
the like, the term "Shares" shall be deemed to refer to and include the Shares
as well as all such stock dividends and distributions and any shares into which
or for which any or all of the Shares may be changed or exchanged.

                                   ARTICLE 3

               REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS

     Each Stockholder, severally and not jointly, hereby represents and warrants
to Liberty as follows:

     3.1 Due Organization; Authority Relative to this Agreement.  Such
Stockholder, if it is a trust, corporation or other legal entity, is duly
organized and validly existing under the laws of the jurisdiction of its
organization. Such Stockholder has full power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by such Stockholder and the performance by such Stockholder of its
obligations thereunder have been duly and validly 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 such execution, delivery and
performance. This Agreement has been duly and validly executed and delivered by
or on behalf of such Stockholder and, assuming its due authorization, execution
and delivery by Liberty, constitutes a legal, valid and binding obligation of
such Stockholder, enforceable against such Stockholder in accordance with its
terms.

                                        2
<PAGE>   149

     3.2 Title to Shares.  Such Stockholder is the record or beneficial owner of
its Shares free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, proxy or voting restrictions,
charges and other encumbrances of any nature whatsoever, except as provided for
herein and as contemplated by the Merger Agreement, and, with respect to any
Shares held by a Stockholder as trustee for the benefit of any other person,
except for the rights of all beneficiaries under such trusts, which rights are
not inconsistent with the provisions of this Voting Agreement. Except as set
forth in the Disclosure Schedule attached to the Merger Agreement, such
Stockholder does not own or hold any rights to acquire any additional shares of
VSC Stock or other securities of VSC or any interest therein or any voting
rights with respect to any additional shares of VSC Stock or any other
securities of VSC.

     3.3 No Conflict.  The execution and delivery of this Agreement by such
Stockholder do not, and the performance by such Stockholder of its obligations
hereunder shall not (i) conflict with or violate the trust and/or organizational
documents of such Stockholder, (ii) conflict with or violate any order, judgment
or decree applicable to such Stockholder or by which its Shares or any of its
other securities of VSC are bound or affected or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to any other person any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of its Shares or any of its other
securities of VSC pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Stockholder is a party or by which such Stockholder or its Shares
or its other securities of VSC are bound or affected, except, in the case of
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences that would not prevent or delay the performance by such
Stockholder of its obligations under this Agreement.

                                   ARTICLE 4

                                    GENERAL

     4.1 Term.  This Agreement shall become effective on the date hereof and
shall continue in effect until the first to occur of (i) 90 days following the
termination of the Merger Agreement in accordance with its terms and (ii) the
consummation of the Merger and all other transactions contemplated by the Merger
Agreement. Upon termination of this Agreement, except for any rights a party may
have in respect of any breach by another party of its obligations hereunder,
none of the parties hereto shall have any further obligation or liability
hereunder.

     4.2 Specific Performance.  The parties hereto agree that irreparable damage
would occur in the event any provision of this Agreement was not performed in
accordance with the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy at law
or in equity. 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 hereunder.

     4.3 Entire Agreement.  This Agreement (together with the Merger Agreement
and the other agreements and documents expressly contemplated hereby and
thereby) constitutes the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to such subject matter.

     4.4 Amendment.  This Agreement may not be amended, changed, supplemented,
waived or otherwise modified or terminated except by an instrument in writing
signed by Liberty and each of the Stockholders affected by such amendment,
change, supplement, waiver, modification or termination.

     4.5 Successors and Assigns.  This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns. Any transfer of Shares notwithstanding, the
applicable transferor shall remain liable for the performance of all of its
obligations under this Agreement.
                                        3
<PAGE>   150

     4.6 Severability.  If any term or other provision of this Agreement or the
application thereof is held invalid, illegal or incapable of being enforced to
any extent by any rule of law or public policy, the remainder of this Agreement
and the application of such term or provision to the other parties or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by applicable law. Upon such determination that any
term or other provision or application thereof is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in a mutually
acceptable manner in order that the terms, other provisions and application of
this Agreement remain as originally contemplated and to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.

     4.7 Captions.  Captions contained in this Agreement are inserted only as a
matter of convenience and in no way define, limit, extend, or describe the scope
of this Agreement or the intent of any of its provisions.

     4.8 Governing Law.  This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware applicable to contracts
executed and to be performed entirely within that state, without reference to
rules governing conflicts of law.

     4.9 Counterparts.  This Agreement may be executed in any number of
counterparts, each of which when executed shall be an original instrument and
all of which taken together shall constitute one and the same agreement.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

                                          LIBERTY MEDIA CORPORATION

                                          By:     /s/ CHARLES Y. TANABE
                                            ------------------------------------
                                              Name: Charles Y. Tanabe
                                              Title:   Senior Vice President

                                                 /s/ ARNOLD P. FEROLITO
                                            ------------------------------------
                                                     Arnold P. Ferolito

                                                 /s/ LOUIS H. SIRACUSANO
                                            ------------------------------------
                                                    Louis H. Siracusano

                                                 /s/ THERESA SIRACUSANO
                                            ------------------------------------
                                                     Theresa Siracusano

                                                   /s/ DONALD H. BUCK
                                            ------------------------------------
                                                       Donald H. Buck

                                                     /s/ CAROLE BUCK
                                            ------------------------------------
                                                        Carole Buck

                                        4
<PAGE>   151

                                                   /s/ TERRENCE A. ELKES
                                              ----------------------------------
                                                     Terrence A. Elkes

                                                   /s/ KENNETH GORMAN
                                            ------------------------------------
                                                       Kenneth Gorman

                                          SANDLER ASSOCIATES

                                          By: /s/
                                            ------------------------------------
                                              Name:
                                              Title:

                                          SANDLER CAPITAL MANAGEMENT

                                          By: /s/
                                            ------------------------------------
                                              Name:
                                              Title:

                                          J.K. MEDIA L.P.

                                          By: /s/
                                            ------------------------------------
                                              Name:
                                              Title:

                                        5
<PAGE>   152

                                   EXHIBIT A

                      STOCKHOLDERS' HOLDINGS OF VSC STOCK

<TABLE>
<CAPTION>
NAME                                                            SHARES HELD
----                                                            -----------
<S>                                                             <C>
Arnold P. Ferolito..........................................     2,959,582
Louis H. Siracusano.........................................     2,508,082
Sandler Capital Management..................................     1,719,000
Donald H. Buck..............................................       438,681
Sandler Associates..........................................       411,000
Theresa Siracusano..........................................       300,000
Terrence A. Elkes...........................................       460,012
Kenneth Gorman..............................................       167,512
J.K. Media L.P..............................................       140,500
Carole Buck.................................................        85,000
Louis H. Siracusano, Trustee................................       344,900
     Total..................................................     9,534,269
</TABLE>
<PAGE>   153

                                                                         ANNEX D

                    DELAWARE LAW REGARDING DISSENTERS RIGHTS

                       DGCL SECTION 262: APPRAISAL RIGHTS

     (a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.

     (b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251 (other than a merger effected pursuant to
Section 251(g) of this title), 252, 254, 257, 258, 263 or 264 of this title:

     (1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.

     (2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:

          (a) Shares of stock of the corporation surviving or resulting from
     such merger or consolidation, or depository receipts in respect thereof;

          (b) Shares of stock of any other corporation, or depository receipts
     in respect thereof, which shares of stock (or depository receipts in
     respect thereof) or depository receipts at the effective date of the merger
     or consolidation will be either listed on a national securities exchange or
     designated as a national market system security on an interdealer quotation
     system by the National Association of Securities Dealers, Inc. or held of
     record by more than 2,000 holders;

          (c) Cash in lieu of fractional shares or fractional depository
     receipts described in the foregoing subparagraphs a. and b. of this
     paragraph; or

          (d) Any combination of the shares of stock, depository receipts and
     cash in lieu of fractional shares or fractional depository receipts
     described in the foregoing subparagraphs a., b. and c. of this paragraph.

     (3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
<PAGE>   154

     (c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

     (d) Appraisal rights shall be perfected as follows:

     (1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or

     (2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class of series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given

                                        2
<PAGE>   155

prior to the effective date, the record date shall be the close of business on
the day next preceding the day on which the notice is given.

     (e)  Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

     (f)  Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.

     (g)  At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

     (h)  After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

                                        3
<PAGE>   156

     (i)  The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

     (j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

     (k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.

     (l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.

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