<PAGE> 1
FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 33-54263
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LIBERTY MEDIA CORPORATION TELE-COMMUNICATIONS, INC.
8101 EAST PRENTICE AVENUE TERRACE TOWER II
SUITE 500 5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111 ENGLEWOOD, COLORADO 80111
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PROXY STATEMENT
FOR SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD AUGUST 4, 1994
------------------------
TCI/LIBERTY HOLDING COMPANY
TERRACE TOWER II
5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of common
stock of Tele-Communications, Inc., a Delaware corporation ("TCI"), and holders
of common stock of Liberty Media Corporation, a Delaware corporation
("Liberty"), in connection with the solicitation of proxies by the respective
Boards of Directors of TCI and Liberty for use at the respective special
meetings of the stockholders of TCI and the stockholders of Liberty, or any
adjournment or postponement thereof (together, the "Special Meetings"), called
to consider and vote upon a proposal to approve and adopt an Agreement and Plan
of Merger, dated as of January 27, 1994, as amended (the "Merger Agreement"), by
and among TCI, Liberty, TCI/Liberty Holding Company, a Delaware corporation
("TCI/Liberty"), TCI Mergerco, Inc., a Delaware corporation ("TCI Mergerco"),
and Liberty Mergerco, Inc., a Delaware corporation ("Liberty Mergerco").
Stockholders at the Special Meetings will also be asked to consider and vote
upon a separate proposal to approve the adoption of the TCI/Liberty Holding
Company 1994 Stock Incentive Plan (the "TCI/Liberty Stock Incentive Plan").
Copies of this Proxy Statement/Prospectus are also being furnished to holders of
Liberty Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock,
par value $.01 per share ("Liberty Class E Preferred Stock"), but proxies are
not being solicited from such holders and such holders are not entitled to vote
upon either the proposal to approve and adopt the Merger Agreement or the
proposal to approve the adoption of the TCI/Liberty Stock Incentive Plan.
The Merger Agreement provides, among other things, for (a) the merger of TCI
Mergerco with and into TCI (the "TCI Merger") and (b) the merger of Liberty
Mergerco with and into Liberty (the "Liberty Merger") (the TCI Merger and the
Liberty Merger are referred to collectively in this Proxy Statement/Prospectus
as the "Mergers"). As a result of the Mergers, each of TCI and Liberty will
become a wholly owned subsidiary of TCI/Liberty, and stockholders of TCI and
Liberty will become stockholders of TCI/Liberty, on the terms described in this
Proxy Statement/Prospectus. The Mergers will become effective upon the filing of
Certificates of Merger with the Secretary of State of the State of Delaware (the
"Effective Time"), which is currently expected to occur shortly after the
Special Meetings if the Merger Agreement is approved and adopted by the
requisite vote of the respective stockholders of TCI and Liberty. See "THE
MERGER AGREEMENT."
TCI/Liberty has filed a registration statement on Form S-4 (together with
all amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), relating to (i)
539,941,193 shares of TCI/Liberty Class A Common Stock, par value $1.00 per
share (the "TCI/Liberty Class A Common Stock"), that are proposed to be issued,
in connection with the Mergers, to holders of outstanding (x) shares of TCI
Class A Common Stock, par value $1.00 per share (the "TCI Class A Common
Stock"), (y) shares of Liberty Class A Common Stock, par value $1.00 per share
(the "Liberty Class A Common Stock"), and (z) stock options and stock
appreciation rights with respect to shares of TCI Class A Common Stock or
Liberty Class A Common Stock, upon exercise of such securities; (ii) 89,514,039
shares of TCI/Liberty Class B Common Stock, par value $1.00 per share (the
"TCI/Liberty Class B Common Stock"), that are proposed to be issued, in
connection with the Mergers, to holders of outstanding (x) shares of TCI Class B
Common Stock, par value $1.00 per share (the "TCI Class B Common Stock"), and
(y) shares of Liberty Class B Common Stock, par value $1.00 per share (the
"Liberty Class B Common Stock"); and (iii) 1,675,096 shares of TCI/Liberty Class
B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock, par value $.01
per share (the "TCI/Liberty Class B Preferred Stock"), that are proposed to be
issued, in connection with the Liberty Merger, to holders of outstanding shares
of Liberty Class E Preferred Stock. This Proxy Statement/Prospectus also
constitutes the Prospectus of TCI/Liberty filed as part of the Registration
Statement.
The TCI/Liberty Class A Common Stock and the TCI/Liberty Class B Common
Stock (collectively, the "TCI/Liberty Common Stock") are identical, except that
(i) the TCI/Liberty Class B Common Stock is entitled to 10 votes per share and
the TCI/Liberty Class A Common Stock is entitled to one vote per share and (ii)
each share of TCI/Liberty Class B Common Stock is convertible into one share of
TCI/Liberty Class A Common Stock at the option of the holder. The shares of
TCI/Liberty Class B Preferred Stock to be issued in the Liberty Merger will have
designations, preferences, rights and qualifications, limitations and
restrictions that are substantially identical to those of the Liberty Class E
Preferred Stock, except that the holders of TCI/Liberty Class B Preferred Stock
will be entitled to one vote per share, voting together with the holders of
TCI/Liberty Common Stock and any other class of voting preferred stock of
TCI/Liberty, in any general election of directors of TCI/Liberty. See
"DESCRIPTION OF TCI/LIBERTY CAPITAL STOCK" and "THE MERGER
AGREEMENT -- Consideration to be Received in the Mergers."
Immediately following the Mergers, except in connection with a vote with
respect to a general election of directors of TCI/Liberty, (i) former holders
(other than TCI and its subsidiaries) of Liberty Class A Common Stock and
Liberty Class B Common Stock (collectively, the "Liberty Common Stock") will
collectively hold shares of TCI/Liberty Common Stock representing approximately
37.58% of the total voting power of the issued and outstanding shares of capital
stock of TCI/Liberty and (ii) former holders (other than Liberty and its
subsidiaries) of TCI Class A Common Stock and TCI Class B Common Stock
(collectively, the "TCI Common Stock") will collectively hold shares of
TCI/Liberty Common Stock representing approximately 62.42% of the total voting
power of such shares of capital stock. In connection with any vote with respect
to a general election of directors of TCI/Liberty, immediately following the
Mergers, former holders of Liberty Class E Preferred Stock will hold less than
1% of the total voting power of the issued and outstanding shares of capital
stock of TCI/Liberty and the foregoing percentages of the total voting power
represented by the shares of TCI/Liberty Common Stock held by the former holders
of TCI Common Stock and Liberty Common Stock will be reduced proportionately
with respect to a general election of directors.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to the respective stockholders of TCI and Liberty on or about July
2, 1994.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is June 23, 1994.
<PAGE> 2
AVAILABLE INFORMATION
TCI and Liberty are each subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549.
This Proxy Statement/Prospectus does not include all of the information set
forth in the Registration Statement filed by TCI/Liberty with the Commission
under the Act, as permitted by the rules and regulations of the Commission. The
Registration Statement, including any amendments, schedules and exhibits filed
or incorporated by reference as a part thereof, is available for inspection and
copying as set forth above. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated herein by reference as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, and each such statement shall be deemed
qualified in its entirety by such reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES COVERED BY THIS PROXY STATEMENT/PROSPECTUS OR A
SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO OR FROM ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF TCI, LIBERTY OR TCI/LIBERTY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by TCI with the Commission under
the Exchange Act are incorporated herein by reference:
(a) TCI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, as amended by Form 10-K/A (amendment no. 1) ("TCI Form
10-K");
(b) TCI's Quarterly Report on Form 10-Q for the quarter ended March
31, 1994, as amended by Form 10-Q/A (amendment no. 1) ("TCI Form 10-Q");
and
(c) TCI's Current Reports on Form 8-K dated February 15, 1994,
February 25, 1994, April 6, 1994 and May 27, 1994, as amended by Form 8-K/A
(amendment no. 1) (collectively with the TCI Form 10-K and the TCI Form
10-Q, the "TCI Reports").
The following documents previously filed by Liberty with the Commission
under the Exchange Act are incorporated herein by reference:
(a) Liberty's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, as amended by Form 10-K/A (amendment no. 1) and Form
10-K/A (amendment no. 2) ("Liberty Form 10-K");
(b) Liberty's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994 ("Liberty Form 10-Q"); and
(i)
<PAGE> 3
(c) Liberty's Current Reports on Form 8-K dated February 16, 1994,
February 24, 1994, March 18, 1994, April 6, 1994 and May 27, 1994, as
amended by Form 8-K/A (amendment no. 1) (collectively with the Liberty Form
10-K and the Liberty Form 10-Q, the "Liberty Reports").
All documents filed by TCI or Liberty pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus
and prior to the Special Meetings shall be deemed to be incorporated by
reference into this Proxy Statement/Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
All information appearing in this Proxy Statement/Prospectus is qualified
in its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY
ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED, IN THE
CASE OF DOCUMENTS RELATED TO TCI, FROM STEPHEN M. BRETT, SENIOR VICE PRESIDENT
AND GENERAL COUNSEL, TELE-COMMUNICATIONS, INC., TERRACE TOWER II, 5619 DTC
PARKWAY, ENGLEWOOD, COLORADO 80111 (TELEPHONE 303-267-5500) AND, IN THE CASE OF
DOCUMENTS RELATING TO LIBERTY, FROM JOHN M. DRAPER, SENIOR VICE PRESIDENT AND
GENERAL COUNSEL, LIBERTY MEDIA CORPORATION, 8101 EAST PRENTICE AVENUE, SUITE
500, ENGLEWOOD, COLORADO 80111 (TELEPHONE 303-721-5400). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY JULY 28,
1994.
------------------------
(ii)
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................ (i)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................... (i)
INDEX OF CERTAIN DEFINED TERMS....................................................... (v)
SUMMARY.............................................................................. 1
The Companies...................................................................... 1
The Special Meetings............................................................... 1
The Mergers........................................................................ 3
Opinions of Financial Advisors..................................................... 7
Interest of Certain Persons in the Mergers......................................... 7
Certain Federal Income Tax Consequences............................................ 8
Comparative Market Price Data...................................................... 8
Certain Comparative Per Share Data................................................. 10
Selected Historical Financial Data................................................. 11
Selected Pro Forma Financial Data for TCI/Liberty.................................. 15
THE SPECIAL MEETINGS................................................................. 17
Times and Places; Purposes......................................................... 17
Voting Rights; Votes Required for Approval......................................... 17
Proxies............................................................................ 19
THE MERGERS.......................................................................... 19
Background......................................................................... 19
Negotiations with Respect to the Mergers........................................... 22
Recommendation of TCI Board; TCI's Reasons for the Mergers......................... 28
Recommendation of Liberty Board; Liberty's Reasons for the Mergers................. 31
Fairness Opinions.................................................................. 35
Interests of Certain Persons in the Mergers........................................ 47
Accounting Treatment............................................................... 52
Certain Litigation................................................................. 52
Certain Consequences of the Mergers................................................ 53
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.............................................. 54
The Mergers........................................................................ 54
TCI/Liberty........................................................................ 55
THE MERGER AGREEMENT................................................................. 55
General; Effective Time............................................................ 55
Consideration to be Received in the Mergers........................................ 55
Conditions to the Mergers.......................................................... 57
Governmental Approvals............................................................. 58
Covenants.......................................................................... 60
No Solicitation of Transactions.................................................... 61
Certain Personnel Matters.......................................................... 61
Indemnification.................................................................... 61
Termination; Amendment and Waiver.................................................. 62
Certain Restrictions on Resale of TCI/Liberty Common Stock
and TCI/Liberty Preferred Stock................................................. 63
Expenses........................................................................... 63
BUSINESS OF TCI...................................................................... 63
Recent Developments................................................................ 63
BUSINESS OF LIBERTY.................................................................. 64
BUSINESS OF TCI/LIBERTY.............................................................. 64
CERTAIN TRANSACTIONS BETWEEN TCI AND LIBERTY......................................... 65
DESCRIPTION OF TCI/LIBERTY CAPITAL STOCK............................................. 70
TCI/Liberty Common Stock........................................................... 70
TCI/Liberty Preferred Stock........................................................ 70
</TABLE>
(iii)
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COMPARISON OF STOCKHOLDERS' RIGHTS................................................... 77
Authorized Capital Stock........................................................... 77
Voting............................................................................. 77
Special Meetings of Stockholders................................................... 78
Directors.......................................................................... 78
Removal of Directors............................................................... 79
Vacancies on the Board of Directors................................................ 80
Mergers, Consolidations and Sales of Assets........................................ 80
Amendments to Certificate of Incorporation......................................... 81
Amendments to Bylaws............................................................... 81
Notice of Stockholder Nominations of Directors..................................... 82
Delaware Anti-Takeover Statute..................................................... 82
Differences Between Liberty Preferred Stock and TCI/Liberty Preferred Stock........ 83
MANAGEMENT OF TCI/LIBERTY............................................................ 84
Directors.......................................................................... 84
Compensation of Directors.......................................................... 85
Indemnification.................................................................... 85
Committees of the Board of Directors............................................... 86
Executive Officers................................................................. 87
Executive Cash Compensation........................................................ 87
TCI/Liberty Stock Incentive Plan................................................... 88
Employment Arrangements............................................................ 95
Certain Transactions with Management............................................... 98
OWNERSHIP OF TCI, LIBERTY AND TCI/LIBERTY STOCK...................................... 98
Five Percent Stockholders.......................................................... 98
Security Ownership of TCI/Liberty Directors and Officers........................... 102
Security Ownership of Other TCI and Liberty Directors and Officers................. 105
LEGAL MATTERS........................................................................ 108
EXPERTS.............................................................................. 108
FUTURE STOCKHOLDER PROPOSALS......................................................... 110
INDEX TO FINANCIAL STATEMENTS........................................................ F-1
Appendix I: Merger Agreement, as amended
Appendix II: Opinion of CS First Boston Corporation
Appendix III: Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Appendix IV: TCI/Liberty 1994 Stock Incentive Plan
Appendix V: Certain Terms of Junior Exchange Note Indenture
</TABLE>
(iv)
<PAGE> 6
INDEX OF CERTAIN DEFINED TERMS
The following terms used in this Proxy Statement/Prospectus are defined on
the following pages:
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Act.......................................................................... cover
Bell Atlantic................................................................ 4
Bell Atlantic Letter of Intent............................................... 5
Closing Date................................................................. 54
Code......................................................................... 8
Commission................................................................... (i)
Communications Act........................................................... 6
CS First Boston.............................................................. 5
DGCL......................................................................... 1
Effective Time............................................................... cover
Exchange Act................................................................. (i)
Exchange Agent............................................................... 56
Exchange Offers.............................................................. 20
FCC.......................................................................... 4
Governmental Consents........................................................ 58
Governmental Filings......................................................... 58
Hart-Scott-Rodino Act........................................................ 6
Indemnified Liabilities...................................................... 61
Indenture.................................................................... 73
Junior Exchange Notes........................................................ 73
Kearns-Tribune............................................................... 6
Liberty...................................................................... cover
Liberty Board................................................................ 5
Liberty Charter.............................................................. 77
Liberty Class A Common Stock................................................. cover
Liberty Class B Common Stock................................................. cover
Liberty Class B Preferred Stock.............................................. 2
Liberty Class D Preferred Stock.............................................. 2
Liberty Class E Preferred Stock.............................................. cover
Liberty Common Stock......................................................... cover
Liberty Form 10-K............................................................ (i)
Liberty Meeting.............................................................. 2
Liberty Merger............................................................... cover
Liberty Mergerco............................................................. cover
Liberty Preferred Shares..................................................... 20
Liberty Preferred Stock...................................................... 3
Liberty Record Date.......................................................... 2
Liberty Reports.............................................................. (ii)
Liberty SAR.................................................................. 49
Liberty Stock Option......................................................... 49
Liberty Voting Stock......................................................... 78
Local Authorizations......................................................... 58
Merger Agreement............................................................. cover
Mergers...................................................................... cover
Merrill Lynch................................................................ 6
1992 Cable Act............................................................... 4
Predecessor Companies........................................................ 12
Preferred Stock Directors.................................................... 79
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(v)
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Prime........................................................................ 63
Put-Call Agreement........................................................... 21
Registration Statement....................................................... cover
Restricted Voting Shares..................................................... 2
Restructuring Plan........................................................... 4
Revised FCC Rate Regulations................................................. 26
Rule 16b-3................................................................... 50
Service...................................................................... 54
Special Committee............................................................ 6
Special Meeting.............................................................. cover
Superior Takeover Proposal................................................... 61
TCI.......................................................................... cover
TCI Board.................................................................... 5
TCI Charter.................................................................. 77
TCI Class A Common Stock..................................................... cover
TCI Class B Common Stock..................................................... cover
TCI Common Stock............................................................. cover
TCI ESPP..................................................................... 51
TCI Form 10-K................................................................ (i)
TCI Meeting.................................................................. 1
TCI Merger................................................................... cover
TCI Mergerco................................................................. cover
TCI Record Date.............................................................. 1
TCI Reports.................................................................. (i)
TCI SAR...................................................................... 47
TCI Stock Option............................................................. 47
TCI Voting Stock............................................................. 78
TCI/Liberty.................................................................. cover
TCI/Liberty Board............................................................ 84
TCI/Liberty Charter.......................................................... 70
TCI/Liberty Class A Common Stock............................................. cover
TCI/Liberty Class A Preferred Stock.......................................... 3
TCI/Liberty Class B Common Stock............................................. cover
TCI/Liberty Class B Preferred Stock.......................................... cover
TCI/Liberty Common Stock..................................................... cover
TCI/Liberty Letter of Intent................................................. 25
TCI/Liberty Preferred Stock.................................................. 3
TCI/Liberty Series C Preferred Stock......................................... 63
TCI/Liberty Series Preferred Stock........................................... 63
TCI/Liberty Stock Incentive Plan............................................. cover
TCI/Liberty Voting Stock..................................................... 78
UACI......................................................................... 50
UAE.......................................................................... 87
Unaffiliated Liberty Directors............................................... 5
Unaffiliated Liberty Stockholders............................................ 6
Unaffiliated TCI Directors................................................... 5
Unaffiliated TCI Stockholders................................................ 5
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(vi)
<PAGE> 8
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus. This summary is not
intended to be complete and is qualified in its entirety by the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, the
Appendices hereto and the documents incorporated by reference or otherwise
referred to herein. Stockholders are urged to review this entire Proxy
Statement/Prospectus carefully, including the Appendices hereto.
THE COMPANIES
TCI. TCI, through its subsidiaries and affiliates, is principally engaged
in the construction, acquisition, ownership and operation of cable television
systems. TCI believes that, measured by the number of subscribers, it is the
largest provider of basic cable television services in the United States.
Immediately following the consummation of the Mergers, TCI will change its name
to "TCI Communications, Inc." The mailing address and telephone number of TCI's
principal executive offices are Terrace Tower II, 5619 DTC Parkway, Englewood,
Colorado 80111, (303) 267-5500. See "BUSINESS OF TCI."
Liberty. Liberty, through its subsidiaries and affiliates, is engaged in
the cable television industry as an operator of cable television systems and as
a provider of satellite-delivered video entertainment, information and home
shopping programming services to various video distribution media, principally
cable television systems. The mailing address and telephone number of Liberty's
principal executive offices are 8101 East Prentice Avenue, Suite 500, Englewood,
Colorado 80111, (303) 721-5400. See "BUSINESS OF LIBERTY."
TCI/Liberty. TCI/Liberty is a newly formed Delaware corporation that has
not, to date, conducted any significant activities other than those incident to
its formation, its execution of the Merger Agreement and its participation in
the preparation of this Proxy Statement/Prospectus. As a result of the Mergers,
TCI and Liberty will become wholly owned subsidiaries of TCI/Liberty.
Accordingly, the business of TCI/Liberty, through its wholly owned subsidiaries
TCI and Liberty, will be the business currently conducted by TCI and Liberty.
Immediately following the consummation of the Mergers, TCI/Liberty will change
its name to "Tele-Communications, Inc." The mailing address and telephone number
of TCI/Liberty's principal executive offices are Terrace Tower II, 5619 DTC
Parkway, Englewood, Colorado 80111, (303) 267-5500. See "BUSINESS OF
TCI/LIBERTY."
THE SPECIAL MEETINGS
TCI. A special meeting of the stockholders of TCI will be held at the
Sheraton Denver Tech Center Hotel, 4900 DTC Parkway, Denver, Colorado, on
Thursday, August 4, 1994, starting at 11:00 a.m., local time. At the special
meeting, or at any adjournment or postponement thereof (the "TCI Meeting"),
holders of TCI Class A Common Stock and TCI Class B Common Stock will be asked
to approve and adopt the Merger Agreement which is summarized below and
described in more detail elsewhere in this Proxy Statement/Prospectus. See "THE
MERGER AGREEMENT." Holders of TCI Common Stock will also be asked to approve the
adoption of the TCI/Liberty Stock Incentive Plan. See "MANAGEMENT OF
TCI/LIBERTY -- TCI/Liberty Stock Incentive Plan." The consummation of the
Mergers is not conditioned on approval of the TCI/Liberty Stock Incentive Plan
at the TCI Meeting.
Holders of record of TCI Common Stock at the close of business on June 15,
1994 (the "TCI Record Date") have the right to receive notice of and to vote at
the TCI Meeting. Each share of TCI Class A Common Stock is entitled to one vote
and each share of TCI Class B Common Stock is entitled to 10 votes on each
matter that is properly presented to stockholders for a vote at the TCI Meeting.
Under TCI's Restated Certificate of Incorporation and the Delaware General
Corporation Law ("DGCL"), the affirmative vote of the holders of a majority of
the combined voting power of the shares of TCI Class A Common Stock and TCI
Class B Common Stock issued and outstanding on the TCI Record Date, voting
together as a single class, is required to approve and adopt the Merger
Agreement. Approval of the adoption of the TCI/Liberty Stock Incentive Plan
requires that a majority in combined voting power and a majority in number of
the shares of TCI Class A Common Stock and TCI Class B Common Stock, in each
case represented in person or by proxy
<PAGE> 9
and entitled to vote at the TCI Meeting, voting as a single class, are voted for
such approval. As of the TCI Record Date, TCI's directors and executive officers
owned 5,598,493 outstanding shares of TCI Class A Common Stock and 28,945,290
outstanding shares of TCI Class B Common Stock, representing approximately 7.7%
of the outstanding shares of TCI Common Stock and approximately 33.7% of the
total voting power of the shares of TCI Common Stock outstanding on such date.
TCI's directors and executive officers have informed TCI that they intend to
vote all of their shares of TCI Common Stock in favor of both the Merger
Agreement and the TCI/Liberty Stock Incentive Plan. As of the TCI Record Date,
Liberty beneficially owned 2,988,009 outstanding shares of TCI Class A Common
Stock and 3,537,712 outstanding shares of TCI Class B Common Stock, representing
approximately 1.4% of the outstanding shares of TCI Common Stock and
approximately 4.4% of the total voting power of the shares of TCI Common Stock
outstanding on such date. Liberty has agreed in the Merger Agreement to vote (or
cause to be voted) all shares of TCI Common Stock beneficially owned by it in
favor of the Merger Agreement and the TCI/Liberty Stock Incentive Plan.
Liberty. A special meeting of the stockholders of Liberty will be held at
the Sheraton Denver Tech Center Hotel, 4900 DTC Parkway, Denver, Colorado, on
Thursday, August 4, 1994, starting at 2:00 p.m., local time. At the special
meeting, or at any adjournment or postponement thereof (the "Liberty Meeting"),
holders of Liberty Class A Common Stock and Liberty Class B Common Stock,
Liberty Class B Redeemable Exchangeable Preferred Stock, par value $.01 per
share ("Liberty Class B Preferred Stock"), and Liberty Class D Redeemable Voting
Preferred Stock, par value $.01 per share ("Liberty Class D Preferred Stock"),
will be asked to approve and adopt the Merger Agreement. See "THE MERGER
AGREEMENT." Holders of Liberty Common Stock will also be asked to approve the
adoption of the TCI/Liberty Stock Incentive Plan. See "MANAGEMENT OF
TCI/LIBERTY -- TCI/Liberty Stock Incentive Plan." The consummation of the
Mergers is not conditioned on approval of the TCI/Liberty Stock Incentive Plan
at the Liberty Meeting.
Holders of record of Liberty Common Stock at the close of business on June
15, 1994 (the "Liberty Record Date") have the right to receive notice of and to
vote at the Liberty Meeting. Holders of record of shares of Liberty Class B
Preferred Stock and Liberty Class D Preferred Stock at the close of business on
the Record Date are entitled to notice of and to vote at the Special Meeting on
the proposal to approve and adopt the Merger Agreement, but are not entitled to
vote on the proposal to approve the adoption of the TCI/Liberty Stock Incentive
Plan. Each share of Liberty Class A Common Stock is entitled to one vote and
each share of Liberty Class B Common Stock is entitled to 10 votes on each
matter that is properly presented to stockholders for a vote at the Liberty
Meeting. Under Liberty's Restated Certificate of Incorporation and the DGCL, the
affirmative vote of the holders of (i) a majority of the combined voting power
of the shares of Liberty Class A Common Stock and Liberty Class B Common Stock,
voting together as a single class, (ii) at least 66 2/3% of the total number of
shares of Liberty Class B Preferred Stock, voting as a separate class, and (iii)
at least 66 2/3% of the total number of shares of Liberty Class D Preferred
Stock, voting as a separate class, in each case issued and outstanding on the
Liberty Record Date, is required to approve and adopt the Merger Agreement.
Approval and adoption of the TCI/Liberty Stock Incentive Plan requires that a
majority in combined voting power and a majority in number of the shares of
Liberty Class A Common Stock and Liberty Class B Common Stock, in each case
represented in person or by proxy and entitled to vote at the Liberty Meeting,
voting as a single class, are voted for such approval. As of the Liberty Record
Date, Liberty's directors and executive officers owned 3,389,966 outstanding
shares of Liberty Class A Common Stock and 36,407,040 outstanding shares of
Liberty Class B Common Stock. Of such shares, John C. Malone, the President and
Chief Executive Officer of TCI and the Chairman of the Board of Liberty, owns
26,312,000 shares of Liberty Class B Common Stock, of which 6,400,000 shares
(the "Restricted Voting Shares") are subject to a repurchase right by Liberty
and certain voting restrictions contained in Dr. Malone's employment agreement
with Liberty and, in accordance therewith, will be voted at the Liberty Meeting
in the same proportions as votes represented by all other shares of Liberty
Common Stock are cast with respect to the proposal to approve and adopt the
Merger Agreement and the proposal to approve the adoption of the TCI/Liberty
Stock Incentive Plan. (For a description of certain provisions of Dr. Malone's
employment agreement relating to the Restricted Voting Shares, see "MANAGEMENT
OF TCI/LIBERTY -- Employment Arrangements -- Liberty.") Liberty's directors and
executive officers have informed Liberty that they
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<PAGE> 10
intend to vote all of their shares of Liberty Common Stock (exclusive of the
Restricted Voting Shares), which at the Liberty Record Date represented
approximately 26.8% of the outstanding shares of Liberty Common Stock and
approximately 66.4% of the total voting power of the shares of Liberty Common
Stock outstanding on that date (in each case, exclusive of the Restricted Voting
Shares), in favor of the Merger Agreement and the TCI/Liberty Stock Incentive
Plan. As of the Liberty Record Date, TCI beneficially owned (i) 3,477,778
outstanding shares of Liberty Class A Common Stock, representing approximately
2.7% of the outstanding shares, and less than 1% of the total voting power of
the shares of Liberty Common Stock outstanding on that date and (ii) no shares
of Liberty Class B Common Stock. As of the Liberty Record Date, TCI also
beneficially owned 100% of the outstanding shares of Liberty Class B Preferred
Stock and 100% of the outstanding shares of Liberty Class D Preferred Stock. TCI
has agreed in the Merger Agreement to vote (or cause to be voted) all shares of
Liberty Common Stock beneficially owned by TCI in favor of the Merger Agreement
and the TCI/Liberty Stock Incentive Plan, and all shares of Liberty Class B
Preferred Stock and Liberty Class D Preferred Stock beneficially owned by TCI in
favor of the Merger Agreement. IF LIBERTY'S DIRECTORS AND EXECUTIVE OFFICERS AND
TCI VOTE THEIR SHARES AS THEY HAVE PREVIOUSLY INDICATED OR AGREED, THE MERGER
AGREEMENT WILL BE APPROVED AND ADOPTED AT THE LIBERTY MEETING IRRESPECTIVE OF
THE VOTE OF ANY OTHER STOCKHOLDER OF LIBERTY.
THE MERGERS
Consideration to be Received by TCI Stockholders. Pursuant to the Merger
Agreement, TCI Mergerco will be merged with and into TCI. TCI will be the
surviving corporation of the TCI Merger and will become a wholly owned
subsidiary of TCI/Liberty. Upon consummation of the TCI Merger, each outstanding
share (other than shares held directly by TCI in its treasury, all of which will
be cancelled) of (i) TCI Class A Common Stock will be converted into the right
to receive one share of TCI/Liberty Class A Common Stock and (ii) TCI Class B
Common Stock will be converted into the right to receive one share of
TCI/Liberty Class B Common Stock. See "THE MERGER AGREEMENT -- Consideration to
be Received in the Mergers." For a description of the TCI/Liberty Common Stock,
see "DESCRIPTION OF TCI/LIBERTY CAPITAL STOCK." For a summary of the material
differences between the rights of holders of TCI Common Stock and TCI/Liberty
Common Stock, see "COMPARISON OF STOCKHOLDERS' RIGHTS."
Consideration to be Received by Liberty Stockholders. Pursuant to the
Merger Agreement, Liberty Mergerco will be merged with and into Liberty. Liberty
will be the surviving corporation of the Liberty Merger and will become a wholly
owned subsidiary of TCI/Liberty. Upon consummation of the Liberty Merger, each
outstanding share (other than shares held directly by Liberty in its treasury,
all of which will be cancelled) of (i) Liberty Class A Common Stock will be
converted into the right to receive .975 of one share of TCI/Liberty Class A
Common Stock, (ii) Liberty Class B Common Stock will be converted into the right
to receive .975 of one share of TCI/Liberty Class B Common Stock, (iii) Liberty
Class B Preferred Stock and Liberty Class D Preferred Stock (which are owned by
an indirect wholly owned subsidiary of TCI) will be converted into the right to
receive that number of shares (and/or fraction of a share) of TCI/Liberty Class
A Preferred Stock, par value $.01 per share ("TCI/Liberty Class A Preferred
Stock"), having a substantially equivalent fair market value (which shares will
be held by an indirect, wholly owned subsidiary of TCI/Liberty after the
Mergers), and (iv) Liberty Class E Preferred Stock will be converted into the
right to receive one share of TCI/Liberty Class B Preferred Stock, having
designations, preferences, rights and qualifications, limitations and
restrictions that are substantially identical to those of the Liberty Class E
Preferred Stock, except that the holders of TCI/Liberty Class B Preferred Stock
will be entitled to one vote per share, voting together with the holders of
TCI/Liberty Common Stock and any other class of voting preferred stock of
TCI/Liberty, in any general election of directors of TCI/Liberty. (The
TCI/Liberty Class A Preferred Stock and the TCI/Liberty Class B Preferred Stock
are collectively referred to herein as the "TCI/Liberty Preferred Stock." The
Liberty Class B Preferred Stock, Liberty Class D Preferred Stock and Liberty
Class E Preferred Stock are collectively referred to herein as the "Liberty
Preferred Stock.") Fractional shares of TCI/Liberty Common Stock will not be
issuable in connection with the Liberty Merger. Holders of Liberty Class A
Common Stock or Liberty Class B Common Stock otherwise entitled to a fractional
share will be paid an amount in cash equal to the same fraction of the fair
market value of a whole
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<PAGE> 11
share of Liberty Class A Common Stock or Liberty Class B Common Stock, as the
case may be, determined as set forth in the Merger Agreement. See "THE MERGER
AGREEMENT -- Consideration to be Received in the Mergers." For a description of
the TCI/Liberty Common Stock and the TCI/Liberty Preferred Stock, see
"DESCRIPTION OF TCI/LIBERTY CAPITAL STOCK." For a summary of the material
differences between the rights of holders of (x) Liberty Common Stock and
TCI/Liberty Common Stock and (y) Liberty Preferred Stock and TCI/Liberty
Preferred Stock, see "COMPARISON OF STOCKHOLDERS' RIGHTS."
Shares of TCI Common Stock held by Liberty or its subsidiaries or by
subsidiaries of TCI will be converted in the TCI Merger into shares of the
corresponding class of TCI/Liberty Common Stock, at the same exchange ratio as
that applicable to other holders of TCI Common Stock. Shares of Liberty Common
Stock and Liberty Class E Preferred Stock held by subsidiaries of Liberty or TCI
will be converted in the Liberty Merger into the corresponding class of
TCI/Liberty Common Stock and TCI/Liberty Class B Preferred Stock, respectively,
at the same respective exchange ratios as those applicable to other holders of
Liberty Common Stock and Liberty Class E Preferred Stock. Upon consummation of
the Mergers, TCI, Liberty and each of their respective subsidiaries will become
subsidiaries of TCI/Liberty.
Background of the Mergers. In early 1991, TCI restructured its interests
in certain cable programming businesses and cable television systems by
contributing to Liberty certain of TCI's programming and cable television assets
in exchange for several different classes and series of Liberty preferred stock
(the "Restructuring Plan"). Pursuant to the Restructuring Plan, TCI stockholders
were given the opportunity to invest in Liberty through an exchange offer
pursuant to which those stockholders who desired to invest in Liberty were given
a right to exchange a portion of their shares of TCI Common Stock for shares of
the same class of Liberty Common Stock. The Restructuring Plan was undertaken in
response to proposed legislation and regulations that were then being considered
by Congress and the Federal Communications Commission (the "FCC") which would
impose vertical limits on the ownership by cable system operators of interests
in entities producing cable television programming and horizontal limits on the
number of subscribers that could be served by cable systems owned by a single
entity or in which such entity had an attributable ownership interest. The
purposes of the Restructuring Plan were primarily (i) to enable TCI to avoid or
reduce the likelihood of forced divestitures and the resulting potentially
adverse consequences and (ii) to create a new public company which, because of
its smaller size and the composition of its assets, could have greater freedom
under future legislation or regulations to pursue growth opportunities in the
areas of producing cable television programming and providing cable television
service.
During the fall of 1992, the Cable Television Consumer Protection Act of
1992 (the "1992 Cable Act") was enacted. Among its various provisions, the 1992
Cable Act directed the FCC to issue regulations that establish reasonable limits
on (i) the number of channels on a cable system that can be occupied by video
programmers in which the owner of such cable system has an attributable
ownership interest and (ii) the number of cable subscribers that may be reached
through cable systems owned by an entity or in which such entity has an
attributable ownership interest. As the FCC's rulemaking process mandated by the
1992 Cable Act progressed in the spring and summer of 1993, it became apparent
that ownership of Liberty's assets would be attributed to TCI for the purposes
of the vertical and horizontal ownership regulations that the FCC proposed to
adopt; however, a combined TCI and Liberty would fit within such proposed
vertical and horizontal ownership limits. In light of these developments, the
combination of Liberty and TCI became a topic of informal discussion among
certain officers and directors of TCI and Liberty during August and September of
1993. Also during the summer of 1993, Bell Atlantic Corporation ("Bell
Atlantic") began discussions with TCI concerning a possible acquisition of TCI
by Bell Atlantic. As these discussions progressed, Bell Atlantic determined that
Liberty's cable and video programming interests would be a necessary part of any
such acquisition.
In September 1993, the FCC adopted vertical and horizontal ownership
regulations for the cable television industry. In general, these regulations
limit the number of channels on a cable system that can be occupied by video
programmers in which the operator of such system has an attributable ownership
interest to 40% of the total number of channels available on such system and
limit the number of homes that can be reached by cable systems owned by a single
cable operator or in which such operator has an attributable
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<PAGE> 12
ownership interest to 30% of the total number of homes passed nationwide. See
"THE MERGERS -- Background -- The 1992 Cable Act." Under the new regulations,
Liberty's programming and cable television interests are attributed to TCI and,
after giving effect to such attribution, the size and nature of the cable
systems and programming assets of TCI and Liberty fall within the limits adopted
by the FCC. With the adoption of the FCC's regulations, the primary reason for
the Restructuring Plan -- the legislative and regulatory uncertainty surrounding
the continuing legality of TCI's ownership interests in various cable systems
and programming interests (including those owned by Liberty) -- has essentially
been eliminated. See "THE MERGERS -- Background."
Negotiations between officers of TCI and Liberty looking towards a
combination of those two companies began in late September and culminated on
October 7, 1993, when TCI and Liberty entered into a non-binding letter of
intent which contemplated the creation of TCI/Liberty and the merger of TCI and
Liberty with separate, wholly owned subsidiaries of TCI/Liberty. On October 12,
1993, TCI, Liberty and Bell Atlantic entered into a non-binding letter of intent
(the "Bell Atlantic Letter of Intent") which contemplated a merger of
TCI/Liberty with a wholly owned subsidiary of Bell Atlantic, following the
spinoff of certain cable and programming assets which Bell Atlantic would not
legally be permitted to acquire. On January 27, 1994, the Merger Agreement was
entered into by TCI, Liberty and TCI/Liberty. Four days later, on January 31,
1994, the Bell Atlantic Letter of Intent expired (the expiration date had
previously been extended from December 15, 1993 to January 31, 1994) without a
definitive agreement having been entered into. Negotiations with Bell Atlantic
continued until February 23, 1994, on which date TCI, Liberty and Bell Atlantic
publicly announced that they were terminating any further negotiations due to an
inability to reach final agreement on the terms of their proposed merger in
light of new FCC rules concerning cable rates, regulatory uncertainties and
other factors.
Recommendation of TCI's Board of Directors; TCI's Reasons for the Mergers.
The Board of Directors of TCI (the "TCI Board"), by the unanimous vote of those
directors who are not also directors or officers of Liberty (the "Unaffiliated
TCI Directors"), has determined that the Merger Agreement is fair to and in the
best interests of the holders of TCI Common Stock other than Liberty and its
affiliates (the "Unaffiliated TCI Stockholders"), and recommends that holders of
TCI Common Stock vote in favor of the Merger Agreement. The decision of the
Unaffiliated TCI Directors to enter into the Merger Agreement and to recommend
that stockholders vote in favor of its approval and adoption is based upon its
evaluation of a number of factors including, among others, (i) the opinion of CS
First Boston Corporation ("CS First Boston"), TCI's financial advisor, to the
effect that the consideration to be received by the holders of TCI Common Stock
in the TCI Merger is fair to such holders (other than Liberty and its
affiliates), from a financial point of view, (ii) the promulgation by the FCC of
its new vertical and horizontal ownership regulations, which attribute Liberty's
cable and programming assets to TCI, and the compliance of the combined company
with those new regulations, (iii) that the Mergers will permit TCI to further
diversify into video programming and provide TCI with input into, and a
continued supply of, quality programming for its cable television systems and
(iv) that the Mergers would eliminate potential conflicts of interests that
could result from the presence of both companies in the cable television and
programming industries and from having certain common directors. TCI and Liberty
have investments in each other's stock primarily as a result of the transactions
effected pursuant to the Restructuring Plan. Bob Magness (the Chairman of the
Board of TCI) is a member of the Board of Directors of Liberty (the "Liberty
Board"), having been elected to that position by TCI as the holder of the
Liberty Class D Preferred Stock (the terms of which entitle TCI to elect not
less than 11% of the members of the Liberty Board), and has substantial
stockholdings in both TCI and Liberty. John Malone (the Chief Executive Officer
and a director of TCI) is a significant stockholder of Liberty and the Chairman
of the Liberty Board. In view of the fact that Mr. Magness and Dr. Malone are
directors of both TCI and Liberty and may be deemed to have interests which are
different from those of TCI's public stockholders, they abstained from the vote
by the TCI Board approving the Merger Agreement. See "THE MERGERS --
Recommendation of TCI Board; TCI's Reasons for the Mergers"; "-- Fairness
Opinions -- TCI" and "-- Interests of Certain Persons in the Mergers."
Recommendation of Liberty's Board of Directors; Liberty's Reasons for the
Mergers. The Liberty Board, by the unanimous vote of those directors who are not
also directors or officers of TCI (the "Unaffiliated
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<PAGE> 13
Liberty Directors"), has determined that the Merger Agreement is fair to and in
the best interests of the holders of Liberty Common Stock other than TCI and its
affiliates (the "Unaffiliated Liberty Stockholders"), and recommends that
holders of Liberty Common Stock vote in favor of the Merger Agreement. The
decision of the Unaffiliated Liberty Directors to enter into the Merger
Agreement and to recommend that stockholders vote in favor of its approval and
adoption is based upon its evaluation of a number of factors including, among
others, (i) the opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Liberty's financial advisor, that the respective exchange
ratios in the Liberty Merger and the TCI Merger, taken together, are fair to the
holders of Liberty Common Stock (other than TCI and its affiliates), from a
financial point of view, (ii) the determination of a special committee (the
"Special Committee"), consisting of two directors of the Liberty Board (neither
of whom is an officer of Liberty or a director or officer of TCI), that the
terms of the Merger Agreement are fair to the Unaffiliated Liberty Stockholders,
(iii) that a combination with TCI would provide Liberty access to a much larger
pool of capital resources and enable it to continue to grow its programming
assets and build stockholder value, which Liberty stockholders would have the
opportunity to participate in, indirectly, through the receipt of TCI/Liberty
Common Stock in a tax-free transaction, (iv) that the Mergers would eliminate
the potential conflicts of interest referred to above under "Recommendation of
TCI's Board of Directors; TCI's Reasons for the Mergers", (v) that the Liberty
Preferred Stock and certain promissory notes of Liberty presently held by
indirect wholly owned subsidiaries of TCI, as a result of the Mergers (and the
conversion of the Liberty Preferred Stock into TCI/Liberty Preferred Stock in
the Liberty Merger), would be held by indirect, wholly owned subsidiaries of
TCI/Liberty, with the result that the obligations under such financial
instruments would be owed to members of the same consolidated group of companies
and (vi) that a combination with TCI would eliminate Liberty's contingent
obligations under a put-call agreement, entered into in connection with the
Restructuring Plan, by Liberty with Mr. Magness, Dr. Malone and Kearns-Tribune
Corporation ("Kearns-Tribune") with respect to certain of their holdings of
Liberty Common Stock. In view of the fact that Mr. Magness and Dr. Malone are
directors of both Liberty and TCI and may be deemed to have interests which are
different from those of Liberty's public stockholders, they abstained from the
vote by the Liberty Board which approved the Merger Agreement. See "THE
MERGERS -- Recommendation of Liberty Board; Liberty's Reasons for the Mergers";
"-- Fairness Opinions -- Liberty" and "-- Interests of Certain Persons in the
Mergers."
Conditions to the Mergers. The respective obligations of TCI and Liberty
to consummate the Mergers are subject to the satisfaction of certain conditions,
including (a) approval of the Merger Agreement by the requisite vote of the
respective stockholders of both TCI and Liberty at the Special Meetings; (b)
effective registration under the Act of the shares of TCI/Liberty Common Stock
and TCI/Liberty Class B Preferred Stock to be issued in connection with the
Mergers; (c) expiration or early termination of all applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott-Rodino Act"); (d) receipt of (x) all approvals required to be
received from the FCC under the Communications Act of 1934, as amended (the
"Communications Act"), (y) all approvals of state and local governmental
authorities that may be required under, or in connection with the transfer of
control of, cable television franchises owned by TCI, Liberty or any of their
respective subsidiaries and (z) other third party approvals; (e) the absence of
any effective injunction or similar order preventing consummation of the
transactions contemplated by the Merger Agreement as provided therein; (f)
authorization of the shares of TCI/Liberty Common Stock for listing on the
Nasdaq National Market; (g) receipt of certain opinions of legal counsel to the
effect that the Mergers will be tax-free for Federal income tax purposes to each
party to the Merger Agreement and to the respective stockholders of TCI and
Liberty (other than with respect to cash received in lieu of fractional shares);
and (h) neither CS First Boston nor Merrill Lynch having withdrawn its
respective fairness opinion prior to the Effective Time. On April 28, 1994, TCI
and Liberty received approval from the Department of Justice to consummate the
Mergers by agreeing to enter into a proposed consent decree. See "THE MERGER
AGREEMENT -- Conditions to the Mergers" and "-- Governmental Approvals" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
Termination of the Merger Agreement. The Merger Agreement is subject to
termination at the option of either TCI or Liberty if the Mergers are not
consummated on or before September 30, 1994 (unless the absence of such
occurrence is due to the failure of the party seeking to terminate the Merger
Agreement to
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<PAGE> 14
perform any of its obligations thereunder) and prior to such time upon the
occurrence of certain events. See "THE MERGER AGREEMENT -- Termination;
Amendment and Waiver."
Indemnification. The Merger Agreement provides that the present and former
directors, officers, employees and agents of TCI and Liberty will be indemnified
by TCI/Liberty after the Effective Time against certain liabilities to the
extent that (a) a corporation is permitted under Delaware law to indemnify its
own directors, officers, employees or agents, as the case may be, (b) such
person would be entitled to be indemnified by TCI or Liberty with respect to the
liability in question under any indemnification agreement between such person
and TCI or Liberty or under the charter or bylaws of TCI or Liberty, as the case
may be, and (c) such indemnification otherwise is permitted by applicable law.
In addition, TCI and Liberty have each entered into indemnification agreements
with their respective directors. See "THE MERGER AGREEMENT -- Indemnification."
TCI/Liberty will enter into indemnification agreements with each person who is a
director of TCI/Liberty immediately prior to the Mergers. See "MANAGEMENT OF
TCI/LIBERTY -- Indemnification."
Accounting Treatment. The Mergers will be accounted for using predecessor
cost for accounting and financial reporting purposes.
Certain Litigation. For information regarding certain litigation relating
to the Mergers and related transactions, see "THE MERGERS -- Certain
Litigation."
OPINIONS OF FINANCIAL ADVISORS
TCI. On January 24, 1994, prior to the execution of the Merger Agreement,
and on June 15, 1994, CS First Boston rendered to the TCI Board oral opinions to
the effect that, as of the dates of such opinions and based upon and subject to
certain matters, the consideration to be received in the TCI Merger by holders
of TCI Common Stock was fair, from a financial point of view, to such holders
(other than Liberty and its affiliates). CS First Boston has reconfirmed such
opinions by delivery to the TCI Board of a written opinion dated the date
hereof.
Liberty. On January 21, 1994, prior to the execution of the Merger
Agreement, and again on June 6, 1994, Merrill Lynch made a presentation to the
Special Committee and rendered its opinion to the effect that, as of each such
date and based upon and subject to certain matters, the respective exchange
ratios in the Liberty Merger and the TCI Merger, taken together, were fair, from
a financial point of view, to the holders of Liberty Common Stock (other than
TCI and its affiliates). On January 24 and June 15, 1994, Merrill Lynch made
presentations to the Liberty Board and confirmed the opinions which it had
previously rendered to the Special Committee on January 21 and June 6, 1994,
respectively. Merrill Lynch has reconfirmed its opinions by delivery to the
Special Committee of a written opinion dated the date hereof.
TCI and Liberty stockholders are urged to read the opinions of CS First
Boston and Merrill Lynch, respectively, which are set forth in their entirety as
Appendices II and III to this Proxy Statement/Prospectus, carefully for a
description of the procedures followed, the factors considered and the
assumptions made by CS First Boston and Merrill Lynch in rendering their
respective opinions. See "THE MERGERS -- Fairness Opinions."
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the TCI Board and the Liberty Board
with respect to the Mergers, stockholders should be aware that certain members
of the TCI Board and the Liberty Board and of each of TCI's and Liberty's
management have certain interests in the Mergers that are in addition to or
different from the interests of the public stockholders of each of TCI and
Liberty generally. See "THE MERGERS -- Interests of Certain Persons in the
Mergers." Each of the TCI Board and the Liberty Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement. As of the TCI Record Date, (i) Mr. Magness beneficially owned
4,626,938 shares of TCI Class A Common Stock (representing 1.14% of the shares
of such class outstanding on such date) and 27,382,076 shares of TCI Class B
Common Stock (representing 57.94% of the shares of such class outstanding on
such date) and (ii)
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<PAGE> 15
Dr. Malone beneficially owned 1,165,593 shares of TCI Class A Common Stock
(representing less than 1% of the shares of such class outstanding on such date)
and 904,800 shares of TCI Class B Common Stock (representing 1.91% of the shares
of such class outstanding on such date). As of the Liberty Record Date, (i) Mr.
Magness beneficially owned 10,000,000 shares of Liberty Class B Common Stock
(representing 23.07% of the shares of such class outstanding on such date) and
125,000 shares of Liberty Class E Preferred Stock (representing 7.46% of the
shares of such class outstanding on such date) and (ii) Dr. Malone beneficially
owned 26,312,000 shares of Liberty Class B Common Stock (representing 60.71% of
the shares of such class outstanding on such date) and 320,900 shares of Liberty
Class E Preferred Stock (representing 19.16% of the shares of such class
outstanding on such date). See "OWNERSHIP OF TCI, LIBERTY AND TCI/LIBERTY
STOCK -- Five Percent Stockholders." For the number of shares of TCI and Liberty
capital stock held by the other directors and executive officers of TCI and
Liberty, see "OWNERSHIP OF TCI, LIBERTY AND TCI/LIBERTY STOCK -- Security
Ownership of TCI/Liberty Directors and Officers" and "-- Security Ownership of
Other TCI and Liberty Directors and Officers."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Mergers have been structured to qualify as a nontaxable exchange under
the Internal Revenue Code of 1986, as amended (the "Code"). It is a condition to
the Mergers that each of TCI and Liberty receives an opinion from Baker & Botts,
L.L.P. to the effect that no gain or loss will be recognized by TCI or Liberty
or their respective stockholders in connection with the Mergers (other than with
respect to cash received in lieu of fractional shares). See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
COMPARATIVE MARKET PRICE DATA
TCI. The TCI Class A Common Stock and TCI Class B Common Stock are traded
on the Nasdaq National Market under the symbols "TCOMA" and "TCOMB." The
following table sets forth the high and low sales prices of TCI Class A Common
Stock and TCI Class B Common Stock for the periods indicated. The prices have
been rounded up to the nearest eighth and do not include retail markups,
markdowns or commissions. TCI's fiscal year ends on December 31.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Year ended December 31, 1992
First Quarter................................................. 18 1/8 15 3/8 17 3/4 15 1/2
Second Quarter................................................ 20 16 1/8 19 1/2 16 1/4
Third Quarter................................................. 20 7/8 16 3/4 20 3/4 17
Fourth Quarter................................................ 22 16 1/2 21 3/4 16 1/2
Year ended December 31, 1993
First Quarter................................................. 25 1/2 20 3/4 25 1/2 21
Second Quarter................................................ 24 17 1/2 24 18 3/8
Third Quarter................................................. 26 3/4 21 5/8 27 22
Fourth Quarter................................................ 33 1/4 24 7/8 40 25 1/2
Year ended December 31, 1994
First Quarter................................................. 30 1/4 20 3/8 32 3/4 22
Second Quarter (through June 15, 1994)........................ 23 3/8 18 1/4 24 3/4 21 1/4
</TABLE>
Liberty. The Liberty Class A Common Stock, Liberty Class B Common Stock
and Liberty Class E Preferred Stock are traded on the Nasdaq National Market
under the symbols "LBTYA," "LBTYB" and "LBTYP," respectively. On March 12, 1992,
the stockholders of Liberty approved a plan of recapitalization (the
"Recapitalization") pursuant to which, among other things, each outstanding
share of Liberty Common Stock was reclassified and exchanged into and for 20
shares of the corresponding class of Liberty Common Stock and two shares of
Liberty Class E Preferred Stock. Subsequently, Liberty effected the following
stock splits, each in the form of a stock dividend (together with the
Recapitalization, the "Stock Splits"): (i) on December 3, 1992, each holder of
Liberty Common Stock received three additional shares for each share of the
corresponding class they held of record on November 23, 1992 and (ii) on March
17, 1993, each holder of Liberty Common Stock received one additional share for
each share of the corresponding class they held of
8
<PAGE> 16
record on March 10, 1993. The following table sets forth the range of high and
low bid prices of shares of Liberty Class A Common Stock, Liberty Class B Common
Stock and Liberty Class E Preferred Stock for the first quarter of 1992 as
furnished by the National Association of Securities Dealers Automated Quotations
System, during which period such shares traded in the over-the-counter market.
For the remaining periods presented, the table sets forth the range of high and
low sales prices of shares of Liberty Class A Common Stock, Liberty Class B
Common Stock and Liberty Class E Preferred Stock, as furnished by the Nasdaq
Stock Market, during which period such shares traded on the Nasdaq National
Market. The prices have been adjusted to reflect the Stock Splits, have been
rounded up to the nearest eighth and do not include retail markups, markdowns or
commissions. In addition, the high and low bid prices presented in the table
represent prices between dealers and do not necessarily represent actual
transactions. Liberty's fiscal year ends on December 31.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS E
COMMON COMMON PREFERRED
STOCK STOCK STOCK
---------- ---------- ----------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1992
First Quarter.............................................. 5 1/8 3 3/4 5 1/4* 4 7/8* 52** 52 **
Second Quarter............................................. 5 7/8 4 5/8 5 4 5/8 56 48
Third Quarter.............................................. 7 3/4 5 1/2 8 3/8 6 1/4 54 47
Fourth Quarter............................................. 14 1/2 7 16 7 1/8 65 47
Year ended December 31, 1993
First Quarter.............................................. 18 3/8 12 1/2 19 16 70 58
Second Quarter............................................. 25 3/4 14 5/8 27 15 66 62
Third Quarter.............................................. 26 3/4 20 1/2 26 1/4 23 1/2 71 62 1/2
Fourth Quarter............................................. 32 24 1/4 33 3/4 26 7/8 97 68
Year ended December 31, 1994
First Quarter.............................................. 29 1/4 19 3/4 33 23 1/2 98 1/4 71
Second Quarter (through June 15, 1994)..................... 22 3/4 17 3/4 24 1/2 20 1/2 77 65
</TABLE>
- ---------------
* The Class B Common Stock was thinly traded prior to the Recapitalization, and
price quotes during the first two months of the first quarter of 1992 were
not readily available.
** Started trading in March 1992.
On October 7, 1993, the last trading day before TCI and Liberty publicly
announced that they had agreed in principle to a combination of the two
companies, the last reported sale prices for shares of TCI Class A Common Stock
and TCI Class B Common Stock were $25 7/8 and $26 3/4, respectively, and the
last reported sale prices for shares of Liberty Class A Common Stock, Liberty
Class B Common Stock and Liberty Class E Preferred Stock were $28 1/2, $32 and
$78, respectively, in each case on the Nasdaq National Market. On January 28,
1994, the last trading day before TCI and Liberty publicly announced that they
had signed the Merger Agreement, the last reported sale prices for shares of TCI
Class A Common Stock and TCI Class B Common Stock were $27 5/8 and $31,
respectively, and the last reported sale prices for shares of Liberty Class A
Common Stock, Liberty Class B Common Stock and Liberty Class E Preferred Stock
were $26 3/4, $30 1/2 and $97, respectively, in each case on the Nasdaq National
Market. On June 22, 1994, the last trading day before the date of this Proxy
Statement/Prospectus, the last reported sale prices for shares of TCI Class A
Common Stock and TCI Class B Common Stock were $20 3/4 and $23, respectively,
and the last reported sale prices for shares of the Liberty Class A Common
Stock, Liberty Class B Common Stock and Liberty Class E Preferred Stock were
$20 3/8, $20 1/2, and $70, respectively, in each case on the Nasdaq National
Market.
TCI/Liberty. TCI/Liberty has applied for listing of the TCI/Liberty Class
A Common Stock, TCI/Liberty Class B Common Stock and TCI/Liberty Class B
Preferred Stock on the Nasdaq National Market, and it is anticipated that such
shares will trade on the Nasdaq National Market, upon official notice of
issuance, under the symbols "TCOMA", "TCOMB" and "TCOMP", respectively.
Dividends. Neither TCI nor Liberty pays cash dividends on its common stock
and neither is permitted to do so under the Merger Agreement. Payment of cash
dividends on the TCI/Liberty Common Stock after the Mergers will be determined
by the Board of Directors of TCI/Liberty in light of TCI/Liberty's earnings,
9
<PAGE> 17
financial condition and other relevant considerations. It is anticipated that no
cash dividends will be paid on the TCI/Liberty Common Stock for the foreseeable
future. Immediately following the Mergers, TCI/Liberty will be a holding company
and its ability to pay cash dividends will be dependent on its ability to
receive cash dividends and advances from TCI and Liberty. Certain loan
agreements to which TCI and/or certain of its subsidiaries and certain loan
agreements to which certain of Liberty's subsidiaries are a party contain
restricted payment provisions that limit the amount of dividends, other than
stock dividends, that those companies may pay. Payment of dividends by
TCI/Liberty will also be subject to the terms of the TCI/Liberty Preferred
Stock. See "DESCRIPTION OF TCI/LIBERTY CAPITAL STOCK -- TCI/Liberty Preferred
Stock."
The Liberty Class E Preferred Stock pays an annual dividend, when and as
declared by the Liberty Board, of $6.00 per share which is payable, at Liberty's
option, in cash, through the issuance of Liberty Class A Common Stock or in any
combination of the foregoing. Liberty has paid all dividends to date on the
Liberty Class E Preferred Stock in cash. The TCI/Liberty Class B Preferred
Stock, which is to be issued in exchange for the Liberty Class E Preferred Stock
in the Liberty Merger, will also pay an annual dividend, when and as declared by
the Board of Directors of TCI/Liberty, of $6.00 per share which will be payable,
at the option of TCI/Liberty, in cash, through the issuance of TCI/Liberty Class
A Common Stock or in any combination of the foregoing. See "DESCRIPTION OF
TCI/LIBERTY CAPITAL STOCK."
CERTAIN COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative data related to book
value and earnings (loss) per common share (i) on a historical basis for TCI and
Liberty and (ii) on an equivalent pro forma basis for TCI/Liberty. The pro forma
information shown is derived from the pro forma financial statements presented
elsewhere herein, which give effect to the Mergers as if they had occurred at
the date or at the beginning of the period indicated. The information shown
below should be read in conjunction with the consolidated historical financial
statements of TCI and Liberty, including the respective notes thereto, which are
incorporated by reference in this Proxy Statement/Prospectus, and the pro forma
financial statements of TCI, Liberty and TCI/Liberty, including the notes
thereto, appearing elsewhere in this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "INDEX TO FINANCIAL
STATEMENTS -- TCI and Subsidiaries;" "-- Liberty and Subsidiaries" and
"-- TCI/Liberty and Subsidiaries." Neither TCI nor Liberty paid any cash
dividends on its common stock during the year ended December 31, 1993 or during
the quarter ended March 31, 1994.
<TABLE>
<CAPTION>
TCI/LIBERTY
TCI LIBERTY EQUIVALENT
HISTORICAL HISTORICAL PRO FORMA
---------- ---------- -----------
<S> <C> <C> <C>
Book value per common share
March 31, 1994......................................... $ 5.22 3.03 5.12(1)
Primary and fully diluted earnings (loss) attributable to
common shareholders per common and common equivalent
share:
Year ended December 31, 1993........................... $ (.02) (.21) (.09)(2)
Three months ended March 31, 1994...................... $ .07 .06 .05(3)
</TABLE>
- ---------------
(1) The equivalent book value per common share is based upon 482,721,506 shares
of TCI/Liberty Class A Common Stock (after giving effect to the ratio of
0.975 per Liberty share and after elimination of shares of TCI/Liberty Class
A Common Stock held by Liberty and subsidiaries of TCI) and 85,976,327
shares of TCI/Liberty Class B Common Stock (after giving effect to the ratio
of 0.975 per Liberty share and after elimination of shares of TCI/Liberty
Class B Common Stock held by Liberty).
(2) The equivalent pro forma loss per common share is based upon 550,232,340
weighted average shares. Such amount is calculated utilizing 432,566,150
weighted average shares of TCI Common Stock at December 31, 1993 (such
amount representing TCI's weighted average shares as disclosed in its
historical financial statements) reduced by 6,525,721 shares of TCI Common
Stock held by Liberty prior to the Mergers and 127,582,745 weighted average
shares of Liberty Common Stock at December 31, 1993 (such amount
representing Liberty's weighted average shares, as disclosed in its
historical financial statements, shares of Liberty Common Stock issued in
the acquisition of voting control of Home Shopping Network, Inc. and Liberty
Common Stock repurchased from TCI in 1993, all of which have been adjusted
to give effect to the ratio of 0.975 per Liberty share reduced by 3,390,834
shares of Liberty Common Stock (as adjusted to give effect to the ratio of
0.975 per Liberty share) held by TCI prior to the Mergers.
(footnotes continue on following page)
10
<PAGE> 18
(footnotes continued from previous page)
(3) The equivalent pro forma earnings per common and common equivalent share is
based upon 610,025,737 weighted average shares. Such amount is calculated
utilizing 491,948,769 weighted average shares of TCI at March 31, 1994 (such
amount representing TCI's weighted average shares, as disclosed in its
historical financial statements) reduced by 6,525,721 shares of TCI Common
Stock held by Liberty prior to the Mergers and 127,993,523 weighted average
shares of Liberty at March 31, 1994 (such amount representing Liberty's
weighted average shares, as disclosed in its historical financial
statements, adjusted to give effect to the ratio of 0.975 per Liberty share)
reduced by 3,390,834 shares of Liberty Common Stock (as adjusted to give
effect to the ratio of 0.975 per Liberty share) held by TCI prior to the
Mergers.
SELECTED HISTORICAL FINANCIAL DATA
TCI. The following table sets forth selected historical financial data for
TCI and subsidiaries (i) as of March 31, 1994 and as of December 31 of each of
the years in the five-year period ended December 31, 1993 and (ii) for the
three-month periods ended March 31, 1994 and 1993 and for each of the years in
the five-years ended December 31, 1993. The following information is qualified
in its entirety by, and should be read in conjunction with, the consolidated
financial statements and notes thereto of TCI incorporated by reference into
this Proxy Statement/Prospectus and with the condensed pro forma financial
statements of TCI and subsidiaries appearing elsewhere in this Proxy
Statement/Prospectus. See "INDEX TO FINANCIAL STATEMENTS - TCI and
Subsidiaries."
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenue............................. $ 1,060 1,018 4,153 3,574 3,214 2,940 2,358
Operating income.................... $ 234 247 916 864 674 546 455
Earnings (loss) from:
Continuing operations............. $ 32 53 (7) 7 (78) (191) (262)
Discontinued operations........... -- -- -- (15) (19) (63) (3)
------- ------ ------ ------ ------ ------ ------
32 53 (7) (8) (97) (254) (265)
Dividend requirement on redeemable
preferred stocks.................. -- (1) (2) (15) -- -- --
------- ------ ------ ------ ------ ------ ------
Net earnings (loss) attributable to
common shareholders............... $ 32 52 (9) (23) (97) (254) (265)
======= ====== ====== ====== ====== ====== ======
Primary and fully diluted earnings
(loss) attributable to common
shareholders per common and common
equivalent share:
Continuing operations.......... $ .07 .11 (.02) (.01) (.22) (.54) (.74)
Discontinued operations........ -- -- -- (.04) (.05) (.18) (.01)
------- ------ ------ ------ ------ ------ ------
$ .07 .11 (.02) (.05) (.27) (.72) (.75)
======= ====== ====== ====== ====== ====== ======
Weighted average common shares
outstanding....................... 492 469 433 424 360 355 353
</TABLE>
11
<PAGE> 19
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------- ------------------------------------------
1994 1993 1992 1991 1990 1989
---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Property and equipment, net............... $ 5,026 4,935 4,562 4,081 4,156 3,692
Franchise costs, net...................... $ 9,141 9,197 9,300 8,104 7,348 6,811
Net assets of discontinued operations..... $ -- -- -- 242 54 580
Total assets.............................. $ 17,058 16,520 16,310 15,166 14,106 13,560
Debt...................................... $ 10,008 9,900 10,285 9,455 8,922 8,007
Stockholders' equity...................... $ 2,354 2,112 1,726 1,570 748 840
Shares outstanding (net of treasury
shares):
Class A common stock.................... 404 403 382 370 310 305
Class B common stock.................... 47 47 48 49 48 48
Book value per share...................... $ 5.22 4.69 4.01 3.75 2.09 2.38
</TABLE>
Liberty. The following table sets forth selected historical financial data
for (i) Liberty and subsidiaries as of March 31, 1994 and December 31, 1993,
1992 and 1991 and for the three-month periods ended March 31, 1994 and 1993 and
for each of the fiscal years in the two-year period ended December 31, 1993 and
the period from April 1, 1991 to December 31, 1991, and (ii) the Predecessor
Companies as of December 31, 1990 and 1989 and for the period from January 1,
1991 to March 31, 1991 and for each of the fiscal years in the two-year period
ended December 31, 1990. The "Predecessor Companies" consist of a combination of
certain programming interests and cable television assets of TCI that were
contributed by TCI to Liberty effective March 28, 1991 in exchange for preferred
stock of Liberty. See "THE MERGERS -- Background -- The Restructuring Plan." The
financial data for the Predecessor Companies is shown for comparative purposes
only. The following information is qualified in its entirety by, and should be
read in conjunction with, the consolidated financial statements and notes
thereto of Liberty incorporated by reference into this Proxy
Statement/Prospectus and with the condensed pro forma combined financial
statements of Liberty and subsidiaries appearing elsewhere in this Proxy
Statement/Prospectus. See "INDEX TO FINANCIAL STATEMENTS -- Liberty and
Subsidiaries."
12
<PAGE> 20
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES AND PREDECESSOR COMPANIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
LIBERTY ---------------------------------
------------------------------------------------------------
NINE THREE
THREE MONTHS MONTHS MONTHS
ENDED YEAR ENDED ENDED ENDED YEAR ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31,
-------------------- ---------------------- ------------ --------- --------------------
1994 1993 1993 1992 1991 1991 1990 1989
-------- -------- ---------- -------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenue.................... $335,080 179,072 1,153,256 156,513 85,397 21,408 75,340 47,857
Operating income (loss).... $ 27,154 2,089 (903) (3,396) 785 (8,038) (19,523) (6,483)
Interest expense, including
amounts to TCI........... $ (9,090) (4,844) (31,080) (7,329) (4,687) (1,783) (11,179) (8,842)
Dividend and interest
income primarily from
affiliates............... $ 5,287 4,973 23,549 30,909 25,116 7,849 18,972 8,251
Share of earnings (losses)
of affiliates, net....... $ 9,137 7,153 34,044 17,815 13,955 (2,414) (15,004) (21,703)
Gain on sale of
investment............... $ -- 10,613 31,972 -- -- -- -- --
Loss on transactions with
TCI...................... $ -- -- (30,296) (17,826) -- -- -- --
Minority interests in
losses (earnings) of
consolidated
subsidiaries............. $ (4,033) (35) 289 4,734 5,618 3,817 12,220 6,293
Earnings (loss) before
extraordinary item....... $ 13,642 12,246 6,986 22,384 40,321 226 (7,227) 15,658
Extraordinary item -- loss
on early extinguishment
of debt, net............. -- (1,792) (2,191) -- -- -- -- --
-------- -------- ---------- -------- ------------ --------- -------- --------
Net earnings (loss)........ 13,642 10,454 4,795 22,384 40,321 226 (7,227) 15,658
========= ======== ========
Dividend requirement on
redeemable preferred
stocks................... (5,803) (10,895) (31,972) (41,631) (24,499)
-------- -------- ---------- -------- ------------
Net earnings (loss)
attributable to common
shareholders............. $ 7,839 (441) (27,177) (19,247) 15,822
======== ======== ========= ======== ============
Primary and fully diluted
earnings (loss)
attributable to common
shareholders per common
and common equivalent
share:
Net earnings (loss)
before extraordinary
item................... $ 0.06 0.01 (0.19) (0.16) 0.13
Extraordinary item,
net.................... -- (0.01) (0.02) -- --
-------- -------- ---------- -------- ------------
Net earnings (loss)
attributable to common
stockholders........... $ 0.06 0.00 (0.21) (0.16) 0.13
======== ======== ========= ======== ============
Weighted average common and
common equivalent shares
outstanding:
Primary.................. 131,275 129,115 130,574 123,391 120,683
Fully diluted............ 131,275 129,115 130,574 123,391 120,878
</TABLE>
13
<PAGE> 21
<TABLE>
<CAPTION>
PREDECESSOR
LIBERTY COMPANIES
------------------------------------------------ --------------------
MARCH 31, DECEMBER 31, DECEMBER 31,
---------- ---------------------------------- --------------------
1994 1993 1992 1991 1990 1989
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Investment in affiliates and others........... $ 448,315 371,758 452,528 408,471 414,050 161,619
Investment in TCI common stock................ $ 104,011 104,011 104,011 104,011 -- --
Property and equipment, net................... $ 251,241 255,678 35,475 26,905 31,776 27,629
Total assets.................................. $1,516,610 1,436,548 830,187 739,844 604,507 340,839
Debt, including debt to TCI................... $ 446,201 446,098 167,652 63,634 69,292 49,788
Preferred stock subject to mandatory
redemption requirements..................... $ 158,527 155,237 155,261 142,480 -- --
Stockholders' equity.......................... $ 396,926 352,497 428,751 477,713 -- --
Shares outstanding:
Class A common stock........................ 87,515 87,515 76,036 10,848
Class B common stock........................ 43,339 43,339 43,340 5,422
Book value per share(1)....................... $ 3.03 2.69 3.59 3.67
</TABLE>
- ---------------
(1) Adjusted to reflect the Stock Splits.
14
<PAGE> 22
SELECTED PRO FORMA FINANCIAL DATA FOR TCI/LIBERTY
The following selected pro forma balance sheet data for TCI/Liberty and
subsidiaries assumes that the Mergers, the sale by Liberty of a 50% partnership
interest in American Movie Classics Company ("AMC") and certain other
transactions effected by Liberty had occurred as of March 31, 1994 and the
selected pro forma statement of operations data for TCI/Liberty and subsidiaries
assumes that the Mergers, the sale of Liberty's interest in AMC and certain
other transactions effected by Liberty had occurred prior to January 1, 1993.
The pro forma financial data are unaudited and are not necessarily indicative of
the financial position or results of operations of TCI/Liberty and subsidiaries
that would have occurred had the Mergers and such other transactions occurred as
of March 31, 1994 or prior to the beginning of 1993 or of the future results of
operations of TCI/Liberty and subsidiaries. The following pro forma information
should be read in conjunction with the historical financial statements and notes
thereto of TCI and Liberty incorporated by reference into this Proxy
Statement/Prospectus and with the condensed pro forma financial statements of
TCI and subsidiaries and the condensed pro forma combined financial statements
of Liberty and subsidiaries and TCI/Liberty and subsidiaries appearing elsewhere
in this Proxy Statement/Prospectus. See "INDEX TO FINANCIAL STATEMENTS." The net
earnings of TCI/Liberty after the Mergers will not be materially different from
those of TCI prior to the consummation of the Mergers as TCI has been reflecting
a 100% share of Liberty's earnings and losses since the date TCI contributed
certain assets to Liberty in the Restructuring Plan.
TCI/LIBERTY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL HISTORICAL LIBERTY PRO FORMA COMBINED
TCI LIBERTY TRANSACTIONS MERGERS COMPANIES
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenue.................................... $ 4,153 1,153 111 (55) 5,362
Operating, selling, general and
administrative expenses.................. (2,326) (1,105) (108) 55 (3,484)
Depreciation and amortization.............. (911) (49) (10) -- (970)
---------- ---------- ------------ ---------- ----------
Operating income (loss).................... 9$16...... (1) (7) -- 908
Interest expense........................... $ (731) (31) (10) 9 (763)
Share of earnings of Liberty............... $ 4 -- -- (4) --
Share of earnings (losses) of affiliates,
net...................................... $ (76) 34 (25) -- (67)
Loss on transactions with TCI.............. $ -- (30) -- -- (30)
Earnings (loss) before extraordinary
item..................................... $ (7) 7 (37) (2) (39)
Net earnings (loss)........................ $ (7) 5 (35) (2) (39)
Preferred stock dividend requirements...... $ (2) (32) 9 15 (10)
Loss attributable to common shareholders... $ (9) (27) (26) 13 (49)
Loss per common share before
extraordinary item....................... $ (.02) (.19) N/A N/A (.09)
Net loss per common share.................. $ (.02) (.21) N/A N/A (.09)
</TABLE>
15
<PAGE> 23
TCI/LIBERTY AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL HISTORICAL LIBERTY PRO FORMA COMBINED
TCI LIBERTY TRANSACTIONS MERGERS COMPANIES
---------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenue..................................... $ 1,060 335 -- (15) 1,380
Operating, selling, general and
administrative expenses................... (591) (295) -- 15 (871)
Depreciation and amortization............... (235) (13) -- -- (248)
---------- ---------- ------------ --------- ---------
Operating income............................ $ 234 27 -- -- 261
Interest expense............................ $ (178) (9) -- 6 (181)
Share of earnings of Liberty................ $ 14 -- -- (14) --
Share of earnings (losses) of affiliates,
net....................................... $ (9) 9 (6) -- (6)
Net earnings................................ $ 32 14 (4) (8) 34
Preferred stock dividend requirements....... $ -- (6) 6 (3) (3)
Net earnings attributable to common
shareholders.............................. $ 32 8 2 (11) 31
Primary and fully diluted earnings
attributable to common shareholders per
common and common equivalent share........ $ .07 .06 N/A N/A .05
</TABLE>
TCI/LIBERTY AND SUBSIDIARIES
MARCH 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL HISTORICAL LIBERTY PRO FORMA COMBINED
TCI LIBERTY TRANSACTIONS MERGERS COMPANIES
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash, receivables and prepaids............. $ 285 296 175 -- 756
Investment in and advances to Liberty...... $ 507 -- -- (507) --
Investment in and advances to affiliates
and others............................... $ 1,479 448 318 -- 2,245
Investment in TCI Common Stock............. $ -- 104 -- (104) --
Property and equipment, net................ $ 5,026 251 -- -- 5,277
Franchise costs and other, net............. $ 9,761 417 -- -- 10,178
Total assets............................... $ 17,058 1,517 493 (612) 18,456
Due to TCI................................. $ -- 209 -- (209) --
Debt....................................... $ 10,008 260 -- -- 10,268
Redeemable preferred stock................. $ -- 159 -- (159) --
Stockholders' equity....................... $ 2,354 397 307 (148) 2,910
Book value per common share................ $ 5.22 3.03 N/A N/A 5.12
</TABLE>
- ---------------
N/A -- not applicable
16
<PAGE> 24
THE SPECIAL MEETINGS
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of TCI Common Stock by the TCI
Board for use at the TCI Meeting and (ii) from the holders of Liberty Common
Stock by the Liberty Board for use at the Liberty Meeting. Copies of this Proxy
Statement/Prospectus are also being furnished to holders of Liberty Class E
Preferred Stock, but proxies are not being solicited from such holders nor will
such holders be entitled to vote their shares at the Liberty Meeting.
TIMES AND PLACES; PURPOSES
The TCI Meeting will be held at the Sheraton Denver Tech Center Hotel, 4900
DTC Parkway, Denver, Colorado, on Thursday, August 4, 1994, starting at 11:00
a.m., local time. The Liberty Meeting will be held at the Sheraton Denver Tech
Center Hotel, 4100 DTC Parkway, Denver, Colorado, on Thursday, August 4, 1994,
starting at 2:00 p.m., local time. At each of the Special Meetings, the
respective stockholders of TCI and Liberty will be asked to consider and vote
upon (i) a proposal to approve and adopt the Merger Agreement, (ii) a proposal
to approve the adoption of the TCI/Liberty Stock Incentive Plan and (iii) such
other matters as may properly come before either Special Meeting. The
consummation of the Mergers is not conditioned on approval of the adoption of
the TCI/Liberty Stock Incentive Plan at either the TCI Meeting or the Liberty
Meeting. A copy of the Merger Agreement and the TCI/Liberty Stock Incentive Plan
is included as Appendix I and Appendix IV, respectively, to this Proxy
Statement/Prospectus.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
TCI. The TCI Board has fixed the close of business on June 15, 1994, as
the date for the determination of holders of TCI Common Stock entitled to notice
of and to vote at the TCI Meeting. Only holders of record of shares of TCI Class
A Common Stock and TCI Class B Common Stock at the close of business on the TCI
Record Date are entitled to notice of and to vote at the TCI Meeting. At the
close of business on the TCI Record Date, there were 403,779,274 shares of TCI
Class A Common Stock outstanding and entitled to vote at the TCI Meeting held by
8,303 stockholders of record and 47,258,787 shares of TCI Class B Common Stock
outstanding and entitled to vote held by 681 stockholders of record.
The TCI Class A Common Stock and TCI Class B Common Stock will vote
together as a single class. Each holder of record, as of the TCI Record Date, of
(i) TCI Class A Common Stock is entitled to cast one vote per share and (ii) TCI
Class B Common Stock is entitled to cast ten votes per share, in person or by
proxy, on each proposal properly presented at the TCI Meeting. The presence, in
person or by proxy, of the holders of a majority of the combined voting power of
the outstanding shares of TCI Class A Common Stock and TCI Class B Common Stock
entitled to vote is necessary to constitute a quorum at the TCI Meeting.
The affirmative vote, in person or by proxy, of the holders of record of a
majority of the combined voting power of the shares of TCI Class A Common Stock
and TCI Class B Common Stock outstanding on the TCI Record Date, voting together
as a single class, is required to approve and adopt the Merger Agreement.
Approval and adoption of the TCI/Liberty Stock Incentive Plan requires that a
majority in combined voting power and a majority in number of the shares of TCI
Class A Common Stock and TCI Class B Common Stock represented in person or by
proxy and entitled to vote at the TCI Meeting, voting as a single class, are
voted for such approval.
Liberty has agreed, pursuant to the terms of the Merger Agreement, to vote
(or cause to be voted) in favor of the Merger Agreement and the TCI/Liberty
Stock Incentive Plan the 2,988,009 outstanding shares of TCI Class A Common
Stock and 3,537,712 outstanding shares of TCI Class B Common Stock beneficially
owned by it as of the TCI Record Date, representing approximately 4.4% of the
total voting power and 1.4% of the total number of the then outstanding shares
of TCI Common Stock. In addition, the directors and executive officers of TCI,
who as of the TCI Record Date owned 5,598,493 outstanding shares of TCI Class A
Common Stock and 28,945,290 outstanding shares of TCI Class B Common Stock,
representing approximately 33.7% of the total voting power and 7.7% of the total
number of the then outstanding shares of TCI Common Stock, have informed TCI
that they intend to vote their shares in favor of the Merger Agreement and the
TCI/Liberty Stock Incentive Plan.
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Liberty. The Liberty Board has fixed the close of business on June 15,
1994, as the date for the determination of stockholders entitled to notice of
and to vote at the Liberty Meeting. Only holders of record of shares of Liberty
Class A Common Stock, Liberty Class B Common Stock, Liberty Class B Preferred
Stock and Liberty Class D Preferred Stock at the close of business on the
Liberty Record Date are entitled to notice of and to vote at the Liberty
Meeting. At the close of business on the Liberty Record Date, there were (i)
87,515,378 shares of Liberty Class A Common Stock outstanding and entitled to
vote at the Liberty Meeting held by 583 stockholders of record and 43,338,720
shares of Liberty Class B Common Stock outstanding and entitled to vote held by
73 stockholders of record and (ii) 105,353 shares of Liberty Class B Preferred
Stock and 17,238 shares of Liberty Class D Preferred Stock outstanding and
entitled to vote at the Liberty Meeting, all of which shares were held by an
indirect wholly owned subsidiary of TCI.
The Liberty Class A Common Stock and Liberty Class B Common Stock will vote
together as a single class. Each holder of record, as of the Liberty Record
Date, of (i) Liberty Class A Common Stock is entitled to cast one vote per share
and (ii) Liberty Class B Common Stock is entitled to cast ten votes per share,
in person or by proxy, on each proposal properly presented at the Liberty
Meeting. The Liberty Class B Preferred Stock and the Liberty Class D Preferred
Stock have only such voting rights as are set forth in Liberty's Restated
Certificate of Incorporation or under the DGCL. Under Liberty's Restated
Certificate of Incorporation, the holders of the Liberty Class B Preferred Stock
and Liberty Class D Preferred Stock have the right, each voting as a separate
class, to vote at the Liberty Meeting on the proposal to approve and adopt the
Merger Agreement. Such holders will not have the right to vote on the proposal
to approve the adoption of the TCI/Liberty Stock Incentive Plan. The presence,
in person or by proxy, of the holders of (i) a majority of the outstanding
shares of Liberty Common Stock entitled to vote, (ii) a majority of the
outstanding shares of Liberty Class B Preferred Stock entitled to vote and (iii)
a majority of the outstanding shares of Liberty Class D Preferred Stock entitled
to vote is necessary to constitute a quorum at the Liberty Meeting. Under
Liberty's Restated Certificate of Incorporation, the holders of the Liberty
Class E Preferred Stock are not entitled to vote at the Special Meeting.
The affirmative vote, in person or by proxy, of the holders of (i) a
majority of the combined voting power of the shares of Liberty Class A Common
Stock and Liberty Class B Common Stock outstanding on the Liberty Record Date,
voting together as a single class, (ii) at least 66 2/3% of the total number of
shares of Liberty Class B Preferred Stock outstanding on the Liberty Record
Date, voting as a separate class and (iii) at least 66 2/3% of the total number
of shares of Liberty Class D Preferred Stock outstanding on the Liberty Record
Date, voting as a separate class, is required to approve and adopt the Merger
Agreement. Approval and adoption of the TCI/Liberty Stock Incentive Plan
requires that a majority in combined voting power and a majority in number of
the shares of Liberty Class A Common Stock and Liberty Class B Common Stock
represented in person or by proxy and entitled to vote at the Liberty Meeting,
voting as a single class, are voted for such approval.
TCI has agreed, pursuant to the terms of the Merger Agreement, to vote (or
cause to be voted) (i) in favor of the Merger Agreement and the TCI/Liberty
Stock Incentive Plan, all of the shares of Liberty Common Stock beneficially
owned by it on the Liberty Record Date, which consist of 3,447,778 shares of
Liberty Class A Common Stock, representing less than 1% of the total voting
power and 2.7% of the total number of the then outstanding shares of Liberty
Common Stock and (ii) in favor of the Merger Agreement, all of the shares of
Liberty Class B Preferred Stock and Liberty Class D Preferred Stock beneficially
owned by it on the Liberty Record Date, which consisted of all of the shares of
each such class of Liberty Preferred Stock outstanding on that date. The
directors and executive officers of Liberty, who as of the Liberty Record Date
owned 3,389,966 outstanding shares of Liberty Class A Common Stock and
30,007,040 outstanding shares of Liberty Class B Common Stock (exclusive of the
Restricted Voting Shares), representing approximately 66.4% of the total voting
power and 26.8% of the total number of shares of Liberty Common Stock
outstanding on that date (exclusive of the Restricted Voting Shares), have
informed Liberty that they intend to vote such shares in favor of the Merger
Agreement and the TCI/Liberty Stock Incentive Plan. IF LIBERTY'S DIRECTORS AND
EXECUTIVE OFFICERS AND TCI VOTE THEIR SHARES AS THEY HAVE PREVIOUSLY INDICATED
OR AGREED, THE MERGER AGREEMENT WILL BE APPROVED AND ADOPTED AT THE LIBERTY
MEETING IRRESPECTIVE OF THE VOTE OF ANY OTHER STOCKHOLDER OF LIBERTY.
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As of the Liberty Record Date, Dr. Malone owned 6,400,000 Restricted Voting
Shares which are subject to a repurchase right by Liberty and certain voting
restrictions contained in Dr. Malone's employment agreement with Liberty. In
accordance therewith, the votes represented by such shares will be cast in the
same proportions as votes represented by all other shares of Liberty Common
Stock are cast with respect to the proposal to approve and adopt the Merger
Agreement and the proposal to approve the adoption of the TCI/Liberty Stock
Incentive Plan. For a description of certain provisions of Dr. Malone's
employment agreement relating to the Restricted Voting Shares, see "MANAGEMENT
OF TCI/LIBERTY -- Employment Arrangements -- Liberty."
PROXIES
All shares of TCI Common Stock and Liberty Common Stock represented by
properly executed proxies received prior to or at the TCI Meeting or the Liberty
Meeting, respectively, and not revoked, will be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
proxies will be voted FOR approval and adoption of the Merger Agreement and FOR
approval of the adoption of the TCI/Liberty Stock Incentive Plan. A properly
executed proxy marked "ABSTAIN", although counted for purposes of determining
whether there is a quorum and for purposes of determining the aggregate voting
power and number of shares represented and entitled to vote at the applicable
Special Meeting, will not be voted. Shares represented by "broker non-votes"
(i.e., shares held by brokers or nominees which are represented at a meeting but
with respect to which the broker or nominee is not empowered to vote on a
particular proposal) will be counted for purposes of determining whether there
is a quorum at the applicable Special Meeting, but will be deemed shares not
entitled to vote and will not be included for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote at
the applicable Special Meeting.
A stockholder may revoke his proxy at any time prior to its use by
delivering to the Secretary of TCI or Liberty, as the case may be, a signed
notice of revocation or a later dated signed proxy or by attending the
applicable Special Meeting and voting in person. Attendance at the TCI Meeting
or the Liberty Meeting will not in itself constitute the revocation of a proxy.
The cost of solicitation of proxies will be paid by TCI for TCI proxies and
by Liberty for Liberty proxies. In addition to solicitation by mail, officers
and regular employees of TCI and Liberty may solicit proxies by telephone,
telegram, or by personal interviews. Such persons will receive no additional
compensation for such services. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward soliciting material to the
beneficial owners of shares held of record by them and will be reimbursed for
their reasonable expenses. TCI and Liberty have agreed in the Merger Agreement
that if the Mergers are not consummated for any reason, the aggregate expenses
incurred in connection with the printing and filing of the Registration
Statement (of which this Proxy Statement/Prospectus forms a part) and the
mailing of this Proxy Statement/Prospectus will be borne 80% by TCI and 20% by
Liberty.
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
THE MERGERS
BACKGROUND
The Restructuring Plan. During 1989 and 1990, numerous proposals were
pending before Congress and the FCC relating to increased regulation of the
cable television industry. Certain of these proposals contemplated imposing
horizontal limits on the number of subscribers that could be served by cable
systems in which a particular entity had an attributable ownership interest.
Other proposals contemplated placing vertical limits on the ownership by cable
system operators of interests in entities producing cable television
programming, or imposing limitations on the programming decisions that cable
operators, who also owned interests in cable programming entities, could make.
Because TCI at that time had substantial interests in both cable television
systems and cable programming producers, management of TCI believed that
enactment
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or adoption of certain of such proposals, or variants thereof, could require
divestiture by TCI of a significant portion of such interests, as well as
materially limit TCI's opportunities for growth in cable-related areas in the
future. Management of TCI further believed that a forced divestiture of assets
would not permit TCI to obtain full or fair value for those assets.
Faced with these legislative and regulatory uncertainties, the TCI Board,
in October 1990, adopted the Restructuring Plan. Through the Restructuring Plan,
TCI hoped to avoid or reduce the likelihood of forced divestitures of assets at
some unknown time in the future by contributing selected assets to a new public
company, Liberty, in which TCI's stockholders would have the opportunity to
participate. Because of its smaller size and the composition of its assets,
Liberty might have had greater freedom than would have been available to TCI
under future legislation or regulations to pursue growth opportunities in the
areas of producing cable television programming and providing cable television
services.
Pursuant to the Restructuring Plan, in early 1991 TCI contributed to
Liberty (which was formed for this purpose) (i) substantially all of TCI's
interests in entities that produced programming for distribution on cable
television (other than Turner Broadcasting System, Inc. and Discovery
Communications, Inc. (formerly named Cable Educational Network, Inc.)) and (ii)
TCI's interests (consisting primarily of minority interests) in certain cable
television operating companies. In exchange for the assets contributed by it,
TCI received, pursuant to a contribution agreement, shares of several different
classes and series of Liberty's preferred stock having an aggregate issue price
of approximately $625 million (the "Liberty Preferred Shares").
As an integral part of the Restructuring Plan, Liberty effected exchange
offers ("Exchange Offers") with the holders of each class of TCI Common Stock
and holders of certain options and convertible debt securities that were
exercisable for or convertible into TCI Common Stock. Liberty issued to such
holders one transferable right for every 200 shares of TCI Class A Common Stock
or TCI Class B Common Stock held by each such holder, or which such holder had
the right to acquire upon exercise or conversion of options or convertible debt
securities. Each right entitled the holder to exchange 16 shares of TCI Class A
Common Stock or TCI Class B Common Stock for one share of the same class of
Liberty Common Stock. The Exchange Offers were designed to give TCI's security
holders the opportunity to continue to have an interest in any future growth of
Liberty and the assets contributed to Liberty by TCI. However, unlike a
conventional "spin-off" in which even TCI security holders that did not desire
to invest in Liberty would receive Liberty Common Stock, the Exchange Offers
allowed TCI's security holders to choose whether or not to invest in Liberty
and, for those that chose to invest, the level of their investment. TCI security
holders who declined to exercise their rights could sell them and continue to
have an interest in the then current value of the assets contributed to Liberty
by TCI through TCI's ownership of the Liberty Preferred Shares.
After giving effect to the transactions contemplated by the Restructuring
Plan, TCI held a significant investment in the equity of Liberty through its
ownership of the Liberty Preferred Shares; Liberty owned a significant number of
shares of TCI Common Stock that had been tendered to it in the Exchange Offers,
and most of Liberty's stockholders were also stockholders of TCI. Pursuant to
the terms of the four classes of the Liberty Preferred Shares issued to TCI,
Liberty was given the option to redeem such shares following the expiration of a
two-year or five-year period, depending on the class, and with respect to two of
such classes, Liberty also had the option to exchange such shares after
specified periods of time for other securities of Liberty. One class of the
Liberty Preferred Shares, the Liberty Class B Preferred Stock, was initially
issued in two series, of which one was exchanged at Liberty's option in
accordance with its terms for a portion of the shares of TCI Common Stock held
by Liberty, and the other of which continues to be exchangeable at TCI's option
for a portion of such shares of TCI Common Stock. TCI also had the right to
convert one class of the Liberty Preferred Shares into shares of Liberty Class A
Common Stock, which conversion right TCI subsequently exercised. The
transferability of the Liberty Preferred Shares was not restricted by their
terms or by any agreement between TCI or Liberty; however, the right of the
holders of the Liberty Class D Preferred Stock to elect 20% of the members of
the Liberty Board would continue only for as long as TCI or its subsidiaries
held all of such shares. During 1993, Liberty repurchased all of the shares of
one class of the Liberty Preferred Shares and a portion of the shares of Liberty
Class A Common Stock that TCI acquired as a result of the aforementioned
conversion. Further, the terms of the Liberty Class D Preferred Stock were
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amended to reduce the percentage of the members of the Liberty Board that such
class was entitled to elect from a minimum of 20% to a minimum of 11%.
Prior to effecting the Exchange Offers contemplated by the Restructuring
Plan, Liberty entered into an agreement (the "Put-Call Agreement") with Bob
Magness (individually and as executor of the Estate of Betsy Magness), John
Malone and Kearns-Tribune, each of whom was a substantial stockholder of TCI and
intended to exercise a substantial portion of the rights to be issued to him or
it by Liberty. The purpose of the Put-Call Agreement was to provide for the
divestiture of shares of Liberty Common Stock by such stockholders if required
by law or regulation or if such divestiture should become necessary or in the
best interests of Liberty in order to avoid restrictions or limitations that
future legislation or regulations might impose upon Liberty. The Put-Call
Agreement provides Liberty the right, upon the occurrence of certain events, to
require such stockholders to sell certain of their shares of Liberty Common
Stock in a registered public offering undertaken by Liberty on their behalf or
in a third party sale arranged by such stockholders (subject, in either case, to
Liberty's right of first refusal to purchase such shares) and provides such
stockholders a corresponding right upon the occurrence of certain events to
obligate Liberty to arrange for the sale of certain of their shares of Liberty
Common Stock in a public offering undertaken by Liberty on their behalf, or to
one or more third parties selected by Liberty. In each case, Liberty would
guarantee the sale price for certain of the shares to be sold. Alternatively,
Liberty may elect to purchase some or all of such shares at the guaranteed
price. The events that would trigger the rights and obligations of the parties
under the Put-Call Agreement generally consist of governmental actions which
impose material limitations or restrictions on Liberty's business or on the
ownership by such stockholders of Liberty Common Stock, in each case based on
the dual ownership by such stockholders of Liberty Common Stock and TCI Common
Stock. The guaranteed sale price for shares sold in accordance with the Put-Call
Agreement is determined on the basis of the proportionate share that such shares
represent of the fair market value of Liberty on a going concern or liquidation
basis (whichever yields a higher valuation) or of the average trading prices of
the shares of Liberty Class A Common Stock during a specified trading period,
whichever is greater, subject to an upward adjustment for taxes. As of May 2,
1994, approximately 41,162,880 shares of Liberty Common Stock were subject to
the guaranteed sale price provisions of the Put-Call Agreement which represented
all of the shares of Liberty Common Stock beneficially owned by Dr. Malone, Mr.
Magness and Kearns-Tribune on that date, other than the shares held by Mrs.
Leslie Malone of which Dr. Malone disclaims beneficial ownership. John Malone is
currently the single largest stockholder of Liberty and continues to hold a
significant investment in TCI Common Stock. Bob Magness is one of the largest
stockholders of TCI and the third largest stockholder of Liberty.
Kearns-Tribune's holdings of TCI Common Stock and Liberty Common Stock also make
it one of the largest stockholders of each of such companies. See "OWNERSHIP OF
TCI, LIBERTY AND TCI/LIBERTY STOCK".
The Liberty Board was initially comprised of six directors, four of whom
(including Bob Magness and John Malone) were also members of the TCI Board. A
fifth member (Peter Barton, the President of Liberty) had previously been a
Senior Vice President of TCI, whose primary responsibility was in the cable
programming area. Mr. Barton resigned his position with TCI upon consummation of
the Exchange Offers. Liberty's initial management team consisted largely of
former TCI officers and employees, a number of whom, like Mr. Barton, had been
actively involved in the management or operations of the assets contributed to
Liberty. To ease Liberty's transition from an indirect, wholly owned subsidiary
of TCI to a separate public company, TCI and Liberty entered into arrangements
pursuant to the Restructuring Plan primarily with respect to the provision of
facilities, services and personnel.
The current Liberty Board is comprised of eight members, of which only two
(Bob Magness and John Malone) are also directors and/or officers of TCI. Mr.
Magness serves as TCI's designee to the Liberty Board pursuant to TCI's voting
rights as the holder of the Liberty Class D Preferred Stock.
Although Liberty and TCI are separate and independent public companies,
many of their stockholders, including many of their respective largest
stockholders, are the same; they continue to hold significant investments in
each other's stock and they share a similar management philosophy. When
appropriate, the two companies have pursued complementary business strategies.
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The 1992 Cable Act. On October 5, 1992, Congress enacted the 1992 Cable
Act which regulates many aspects of the cable television industry. Among its
various provisions, the 1992 Cable Act directed the FCC to issue regulations (i)
that establish limits on the number of channels on a cable system that can be
occupied by video programmers in which the owner of such cable system has an
attributable ownership interest and (ii) that establish limits on the number of
cable subscribers that may be reached through cable systems owned by an entity
or in which such entity has an attributable ownership interest. The 1992 Cable
Act also directed the FCC to consider the necessity and appropriateness of
imposing limitations on the degree to which multichannel video programming
distributors (including cable operators) may engage in the creation or
production of video programming.
The FCC issued regulations on September 23, 1993, in furtherance of the
foregoing provisions of the 1992 Cable Act. These regulations limit the number
of channels that can be occupied on a cable system by video programmers in which
the operator of such system has an attributable ownership interest to 40% of the
total number of channels available on such system. Vertical ownership of a video
programmer will be attributed to a cable operator for these purposes if its
ownership interest therein is five percent or greater or if the cable operator
and such video programmer have any common directors. Carriage of additional
vertically integrated video channels, beyond the forty percent limit, of up to
five percent or two additional channels (whichever is greater) is permitted
provided such video programming services are minority controlled. The channel
occupancy limits apply to the first 75 channels on a cable system; channel
capacity beyond 75 channels is not subject to the vertical ownership
restrictions. In addition, the vertical limitations do not apply to local or
regional programming services. The foregoing regulations are currently subject
to petitions for reconsideration before the FCC.
The FCC regulations further limit the number of homes that any one entity
can reach through cable systems owned by it or in which it has an attributable
interest (using the same ownership attribution standard as that adopted for its
new vertical limitations) to 30% of the total number of homes passed nationwide.
Additional cable systems may be owned by an entity, beyond the 30% limit,
provided (i) such systems are minority controlled and (ii) all cable systems
owned by such entity, or in which it has an attributable interest, do not pass
more than thirty-five percent of all homes nationwide. The FCC regulations
regarding horizontal ownership limits are currently subject to petitions for
reconsideration before the FCC. The effectiveness of the horizontal ownership
limits has been stayed by the FCC pending its appeal of a September 16, 1993
decision by the United States District Court for the District of Columbia which,
among other things, found unconstitutional the provision of the 1992 Cable Act
requiring the FCC to establish horizontal ownership limitations.
As part of the rulemaking in which the FCC adopted the foregoing vertical
and horizontal ownership limitations, the FCC concluded that additional
restrictions on the ability of multichannel distributors to engage in the
creation or production of video programming were presently unwarranted.
As a result of the FCC's vertical and horizontal ownership regulations,
Liberty's programming interests and cable operations are attributed to TCI. A
combined TCI and Liberty will fit within the ownership limits established by
such vertical and horizontal regulations.
NEGOTIATIONS WITH RESPECT TO THE MERGERS
As the FCC's rulemaking mandated by the 1992 Cable Act progressed in the
spring and summer of 1993, it became apparent that the ownership of Liberty's
assets would be attributed to TCI for the purposes of the vertical and
horizontal ownership regulations that the FCC proposed to adopt. It also became
apparent that a combined TCI and Liberty would fit within such proposed vertical
and horizontal ownership regulations. In light of these developments, during
August and September of 1993, the combination of TCI and Liberty became a topic
of informal discussion between certain officers and directors of TCI and
Liberty.
In June, 1993, Bell Atlantic expressed an interest in forming various
strategic alliances with TCI, including, to the extent legally permissible, by
way of a possible acquisition of TCI by Bell Atlantic. Informal discussions
concerning the terms on which such an acquisition or other transaction might
occur continued on and off between a few TCI and Bell Atlantic executives
through the summer of 1993. During the course of
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these discussions, Bell Atlantic indicated that it wished to include Liberty in
any proposed acquisition transaction with TCI.
In late summer of 1993, TCI's treasury department prepared valuations of
the assets of TCI for internal use in assessing the desirability of acquiring
the public equity interests in Liberty. These valuations were discussed with Bob
Magness, in his capacity as the Chairman of the Board of TCI, by Brendan
Clouston, the Chief Operating Officer and an Executive Vice President of TCI and
Donne F. Fisher, an Executive Vice President and a director of TCI. In light of
the limitations the FCC was then proposing to adopt with respect to vertical and
horizontal ownership, TCI's management viewed the primary purpose for the
Restructuring Plan in 1991 -- to avoid or reduce the likelihood of forced
divestitures of certain of TCI's cable programming or cable system interests
that might result from the enactment or adoption of adverse legislation or
regulations -- as essentially having been eliminated. The programming interests
initially contributed to Liberty had been acquired by TCI, for the most part, to
promote business efficiencies and operational synergies, whereas TCI's
management viewed the separation of those interests as part of the Restructuring
Plan as having created costs that would not continue if the two companies were
combined. Further, an acquisition of Liberty would eliminate potential conflicts
of interest and artificial operating constraints that TCI and Liberty, and their
respective boards of directors, operated under due to both companies being in
the same industries and Mr. Magness and Dr. Malone serving on both boards and
being large holders of voting stock of both companies. TCI's management also
believed that TCI's acquisition of Liberty would better position the two
companies for a possible acquisition transaction with Bell Atlantic.
On September 23, 1993, the FCC adopted its vertical and horizontal
ownership regulations, thereby clearing the way for a combination of TCI and
Liberty. See "-- Background -- The 1992 Cable Act" above.
On October 1, 1993, Brendan Clouston and Donne Fisher of TCI met with Peter
Barton, the President, Chief Executive Officer and a director of Liberty, and
John Malone, in his capacity as Chairman of the Board of Liberty. The purpose of
the meeting was to discuss the relative values of TCI and Liberty in
anticipation of discussions regarding a combination of TCI and Liberty. The
discussions focused on valuations of Liberty's assets prepared by Mr. Barton and
valuations of TCI's and Liberty's assets prepared by Messrs. Clouston and
Fisher. The valuations prepared by Messrs. Clouston and Fisher, insofar as they
pertained to Liberty, were based in part on non-public information that had been
supplied to Mr. Fisher by Liberty and publicly-available reports of financial
analysts. (The foregoing valuations, including the non-public information
provided by Liberty to TCI, were subsequently destroyed by both TCI and Liberty
due to their sensitive nature.) Messrs. Clouston and Fisher were of the view
that the valuations implied an exchange ratio of the Liberty Common Stock to the
TCI Common Stock in the range of 0.8:1 to 1.1:1, while Mr. Barton was of the
view that the valuations implied an exchange ratio in the range of 0.9:1 to
1.1:1.
Immediately following this meeting, Messrs. Clouston and Fisher met again
with Dr. Malone, in his capacity as Chairman of the Board of Liberty and the
largest stockholder of Liberty, to discuss the terms of a possible combination
of TCI and Liberty, including the exchange ratios for the common stock of both
TCI and Liberty. Dr. Malone stated at this meeting that he would support an
exchange ratio of 1:1 for the common stock of both companies. Messrs. Clouston
and Fisher argued that on a per share basis, TCI's net assets were more valuable
than Liberty's net assets and, as a result, the exchange ratio for the TCI
Common Stock should be higher than the exchange ratio for the Liberty Common
Stock.
A special meeting of the TCI Board was held on October 1, 1993, at which
the possible combination of Liberty and TCI was discussed. Messrs. Clouston and
Fisher made a financial presentation to the TCI directors on the relative
estimated values of Liberty's and TCI's assets. The estimated values of
Liberty's assets were based in part on non-public information supplied by
Liberty to Mr. Fisher and publicly-available reports of financial analysts. It
was proposed that an offer be made to Liberty for the combination of the two
companies by means of a merger, in which each of TCI and Liberty would become
wholly owned subsidiaries of a new holding company. Dr. Malone left the meeting
when the discussion turned to the proposed exchange ratios for TCI and Liberty
stockholders. The remaining members of the TCI Board (other than Mr. Magness),
consisting of Messrs. Fisher, John Gallivan, Kim Magness, Paul O'Brien and
Robert Naify (none of whom is an officer or director of Liberty and who are
referred to herein as the Unaffiliated TCI
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Directors), appointed Mr. Magness, in his capacity as Chairman of the Board of
TCI and as one of the largest stockholders of TCI (beneficially owning
approximately 58% of the outstanding shares of TCI Class B Common Stock), to
negotiate an exchange ratio with Dr. Malone, in his capacity as the Chairman of
the Board of Liberty and as the largest single stockholder of Liberty
(beneficially owning approximately 61% of the outstanding shares of Liberty
Class B Common Stock). The Unaffiliated TCI Directors determined to have the
exchange ratio negotiated with Dr. Malone because they believed that it was
futile to go forward with an offer for Liberty if Dr. Malone, with his large
stockholdings in Liberty, did not support the exchange ratio. Mr. Magness was
selected by the Unaffiliated TCI Directors to negotiate with Dr. Malone in the
belief that he would have the best negotiating posture with Dr. Malone due to
Mr. Magness' extensive knowledge of both companies and his large stockholdings
in TCI. Mr. Magness' stockholdings in TCI were also viewed by the Unaffiliated
TCI Directors as providing Mr. Magness with an additional incentive to ensure
that TCI obtained the best possible exchange ratio for the holders of TCI Common
Stock and that given those stockholdings it would be futile to go forward unless
Mr. Magness supported the exchange ratio. The Unaffiliated TCI Directors
approved the making of an offer by TCI for Liberty on the terms outlined at the
meeting, subject to an acceptable exchange ratio being reached between Mr.
Magness and Dr. Malone and the subsequent approval of the exchange ratio by the
Unaffiliated TCI Directors.
The TCI Board did not consider appointing a special committee to negotiate
the terms of a combination with Liberty or to make a recommendation to the TCI
Board. To assist the TCI Board in its consideration of the fairness of the
consideration to be received by the public stockholders of TCI in the Mergers,
the TCI Board subsequently engaged CS First Boston to render an opinion as to
the fairness of such consideration, from a financial point of view, to the
holders of TCI Common Stock (other than Liberty and its affiliates).
Dr. Malone agreed to negotiate the exchange ratio with Mr. Magness without
first notifying the Liberty Board as he wanted to present the Liberty Board with
a transaction that he could support. He further recognized that only the Liberty
Board, after deliberating with its advisors with respect to any proposal made by
TCI, could commit Liberty to a transaction of the nature being discussed.
Mr. Magness, in his capacity as the Chairman of the Board of TCI and as one
of the largest stockholders of TCI, subsequently met on October 1 with Dr.
Malone, in his capacity as Chairman of the Board of Liberty and as the largest
stockholder of Liberty, to negotiate an exchange ratio for the Liberty Common
Stock to the TCI Common Stock. Mr. Magness initially proposed an exchange ratio
of 0.9:1, while Dr. Malone argued that Liberty shareholders should receive an
acquisition premium and proposed an exchange ratio of 1.1:1. Mr. Magness stated
that he would not agree to an exchange ratio that valued Liberty on a share for
share basis equal to or greater than TCI and stated his belief that the TCI
Common Stock was undervalued at that time due to various of its non-cable assets
not being appropriately valued by the public markets. Mr. Magness further stated
his belief that the Liberty Common Stock was overvalued at that time by the
public market, and that he believed the Liberty Common Stock was trading near
its private market value. Dr. Malone did not disagree with Mr. Magness'
assessment of the relative trading values of TCI and Liberty, and thereafter
agreed with Mr. Magness to support an exchange ratio that was based on the
relative trading prices of the Liberty Class A Common Stock and the TCI Class A
Common Stock, which they determined was approximately .975:1 based on trading
prices shown on a Quotron machine that was in the room at that time. The
Unaffiliated TCI Directors subsequently approved the exchange ratio arrived at
by Mr. Magness and Dr. Malone.
On October 6, 1993, at a regularly scheduled meeting of the Liberty Board,
Dr. Malone and Mr. Barton advised the Unaffiliated Liberty Directors that
discussions had been held with TCI concerning a possible combination of TCI and
Liberty. At this meeting, Dr. Malone and Mr. Barton also advised the full
Liberty Board of the ongoing acquisition discussions between TCI and Bell
Atlantic and of Bell Atlantic's desire that Liberty be part of any acquisition
transaction. It was noted that the transaction with Bell Atlantic was not a
prerequisite to the combination of TCI and Liberty. A summary of the proposed
combination of TCI and Liberty (which included the proposed exchange ratio) and
a subsequent merger of the combined TCI/Liberty entity with Bell Atlantic, was
distributed and discussed. At this meeting the estimated relative values of the
assets of TCI and Liberty were also discussed. No non-public information
concerning TCI or its assets was used in these discussions. The Liberty Board
authorized Liberty management to continue talks with TCI concerning the terms of
a possible combination.
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On October 7, 1993, Mr. Barton followed up with most of the Liberty
directors individually by telephone and discussed with them the proposed terms
of the combination with TCI, and his views as to the long-term benefits to
Liberty's stockholders from such a transaction. That evening, on October 7,
1993, a special meeting of the Liberty Board was duly convened by conference
telephone call. The meeting was convened as a result of unusually heavy volume
in the trading of Liberty Common Stock, which Liberty believed was due in part
to speculation in the financial markets, including a report by at least one
financial analyst, that a combination of TCI and Liberty was likely in light of
the FCC's recent vertical and horizontal ownership regulations that would permit
such a combination. Dr. Malone advised the Liberty directors that Liberty had
received that day from TCI a non-binding letter of intent containing the terms
discussed at their board meeting the previous day. After deliberation and
discussion, the Liberty Board, with Mr. Magness and Dr. Malone abstaining,
approved the execution of the letter of intent with TCI. The non-binding letter
of intent (the "TCI/Liberty Letter of Intent") was executed on behalf of both
companies that night.
On October 12, 1993, TCI, Liberty and Bell Atlantic entered into the Bell
Atlantic Letter of Intent, which contemplated a merger of TCI/Liberty with a
wholly owned subsidiary of Bell Atlantic. The Bell Atlantic Letter of Intent
contemplated such merger being preceded by a tax-free spinoff of certain cable
and programming assets which Bell Atlantic would not be permitted to acquire
under applicable laws, regulations and judgments. The Bell Atlantic Letter of
Intent further contemplated, as a first step in a larger transaction, the
combination of TCI and Liberty on the general terms described in the TCI/Liberty
Letter of Intent, and added certain additional, customary terms on which the
parties agreed such combination would be effected.
TCI and Liberty thereafter negotiated the terms of a proposed merger
agreement, based on the terms set forth in the TCI/Liberty Letter of Intent, as
modified by the Bell Atlantic Letter of Intent (the "Draft Merger Agreement").
On December 10, 1993, the Liberty Board appointed a special committee of
directors consisting of Paul Gould and David Wargo (the "Special Committee"),
neither of whom is an officer of Liberty or an officer or director of TCI. Mr.
Gould is a Managing Director and Executive Vice President of Allen & Company
Incorporated, which makes a market for the Liberty Common Stock, the Liberty
Class E Preferred Stock and the TCI Common Stock and provided brokerage services
to Liberty in fiscal 1993 for which Liberty paid market rate commissions. Allen
& Company Incorporated acted as dealer manager for a tender offer made by
Liberty for stock of Home Shopping Network, Inc. for which Allen & Company
Incorporated received a fee of $125,000. Wargo & Company, a corporation wholly
owned by David Wargo, received $90,586 during 1993 for various consulting
services provided to Liberty. In addition, as of December 31, 1993, Mr. Wargo
beneficially owned 1,069,706 shares of Liberty Class A Common Stock, 800 shares
of Liberty Class B Common Stock and 3,370 shares of Liberty Class E Preferred
Stock. As of December 31, 1993, Mr. Gould beneficially owned 18,800 shares of
Liberty Class A Common Stock, 92,640 shares of Liberty Class B Common Stock,
19,158 shares of Liberty Class E Preferred Stock and 25,000 shares of TCI Class
A Common Stock. The Special Committee was appointed to review the terms of the
Draft Merger Agreement and its fairness to the Unaffiliated Liberty
Stockholders. The Special Committee retained Merrill Lynch as its financial
advisor and Schulte Roth & Zabel as its legal counsel to assist it in its
evaluation.
The members of the Special Committee spoke between themselves on several
occasions, and met or participated on an informal basis in phone calls on
several occasions with Merrill Lynch and Schulte Roth & Zabel. On January 17 and
21, 1994, the Special Committee held meetings with Schulte Roth & Zabel to
review the fairness of the terms of the most recent Draft Merger Agreement to
the Unaffiliated Liberty Stockholders. On January 17, 1994, the Special
Committee had a telephone conversation with representatives of Merrill Lynch in
which the Special Committee was updated by Merrill Lynch as to its progress in
rendering the fairness opinion. At the meeting on January 21, Merrill Lynch
delivered its written opinion to the Special Committee, as of that date, to the
effect that the respective exchange ratios in the Liberty Merger and the TCI
Merger, taken together, were fair to the holders of Liberty Common Stock (other
than TCI and its affiliates), from a financial point of view.
On January 24, 1994, at a regularly scheduled meeting of the Liberty Board,
the Liberty Board considered, among other things, the terms of the Draft Merger
Agreement. Merrill Lynch gave a presentation
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concerning its evaluation of the fairness of the exchange ratios to holders of
Liberty Common Stock, and delivered to the Liberty Board a copy of the written
opinion, dated January 21, 1994 which had previously been delivered to the
Special Committee, that the respective exchange ratios in the Liberty Merger and
the TCI Merger, taken together, were fair to the holders of Liberty Common Stock
(other than TCI and its affiliates), from a financial point of view. The Special
Committee also discussed their findings with the Liberty Board, including their
determination that the terms of the Draft Merger Agreement were fair to the
Unaffiliated Liberty Stockholders. The Liberty Board, after discussion and with
Mr. Magness and Dr. Malone abstaining, then approved the execution by Liberty of
the Merger Agreement.
The TCI Board also met on January 24, 1994, to consider and vote on the
Draft Merger Agreement. CS First Boston made a financial presentation concerning
the proposed combination of TCI and Liberty, and rendered its oral opinion to
the TCI Board to the effect that, as of such date and based upon and subject to
certain matters, the consideration to be received by the holders of TCI Common
Stock (other than Liberty and its affiliates) in the TCI Merger was fair, from a
financial point of view, to such stockholders. The TCI Board, after discussion
and with Mr. Magness and Dr. Malone abstaining, then approved the execution by
TCI of the Merger Agreement.
On January 27, 1994, the Merger Agreement was signed on behalf of TCI,
Liberty and TCI/Liberty.
Four days later, on January 31, 1994, the Bell Atlantic Letter of Intent
expired (the expiration date had been extended once, from December 15, 1993 to
January 31, 1994), without a definitive merger agreement having been entered
into. Negotiations between TCI and Liberty and Bell Atlantic continued until
February 23, 1994, on which date all three companies issued a joint press
release announcing that they were terminating any further negotiations because
of an inability to reach final agreement on the terms of their proposed merger,
due to new FCC regulations concerning cable rates, regulatory uncertainties and
other factors. Included among the factors that contributed to the termination of
negotiations was the announcement by the FCC on February 22, 1994, that it had
adopted benchmark regulations (the "Revised FCC Rate Regulations") pursuant to
which those cable systems that elected not to make a cost-of-service showing
would be required to set their rates for regulated cable services at levels
equal to their September 30, 1992 rate minus 17 percent, which resulted in a
rate reduction of up to 7 percent beyond the maximum rate reduction under the
FCC's regulations that had previously been in effect.
The negotiations related to the Merger Agreement and the negotiations
related to the proposed merger agreement with Bell Atlantic were each conducted
separately. The Merger Agreement is not conditioned on TCI, Liberty or
TCI/Liberty entering into a merger agreement with Bell Atlantic, and the
proposed merger with Bell Atlantic was not a material consideration in the
decision of the TCI Board and the Liberty Board to approve the terms of the
Merger Agreement.
Subsequent to the announcement of the Revised FCC Rate Regulations and
press reports that several pending transactions involving cable companies had
collapsed or were foundering due in part to the potential effect of those
regulations on the cash flows from the cable operations of those companies, the
Liberty Board determined that it was advisable for the Special Committee to
reevaluate the terms of the Merger Agreement in light of the Revised FCC Rate
Regulations. During May 1994, the Liberty Board re-formed the Special Committee
by accepting the resignation of David Wargo and appointing Mr. David Rapley,
another Liberty director, in Mr. Wargo's stead. Mr. Wargo tendered his
resignation from the committee due to a potential conflict of interest (which
had arisen following the execution of the Merger Agreement) involving certain
consulting work performed by him on behalf of TCI with respect to a potential
unrelated investment. Mr. Rapley is President of Rapley Engineering Services
Inc. ("Rapley Engineering"), a privately held engineering consulting firm. Dr.
Malone serves on the Board of Directors of Rapley Engineering. As of May 18,
1994, Mr. Rapley did not own any shares of capital stock of either Liberty or
TCI. The Liberty Board authorized the Special Committee to (i) consider and make
a report to the Liberty Board with respect to whether the terms of the Merger
Agreement remain fair to the Unaffiliated Liberty Stockholders after giving due
consideration to the effect of the Revised FCC Rate Regulations on such terms
and any other factors deemed relevant by the Special Committee and (ii) cause
Merrill Lynch to update its fairness opinion, based on such information as
Merrill Lynch may deem appropriate, concerning the continuing fairness of the
exchange ratios in the Merger Agreement to the Unaffiliated Liberty
Stockholders. The Special Committee
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was granted plenary power and authority to act on behalf of Liberty in any
negotiations which the Special Committee may deem appropriate with the other
parties to the Merger Agreement regarding any of the terms or conditions
thereof, including seeking to renegotiate with TCI such terms as the Special
Committee may deem fair or appropriate in light of the Revised FCC Rate
Regulations and such other factors as may be deemed appropriate by the Special
Committee. The Liberty Board also adopted a resolution that if the Special
Committee was unable to determine that the terms of the Merger Agreement (as
such agreement may be modified or amended) remained fair to the Unaffiliated
Liberty Stockholders, or was unable to recommend that the Liberty Board confirm
its prior approval and adoption of the Merger Agreement, then such determination
of the Special Committee would be final and would not be subject to review by
the Liberty Board, and Liberty should thereafter have taken such steps as may
have been necessary to abandon the transactions contemplated by the Merger
Agreement.
The Special Committee thereafter requested that Merrill Lynch "bring down"
its fairness opinion, as required under the Merger Agreement (see "THE MERGER
AGREEMENT -- Conditions to the Mergers"). During the last two weeks of May and
the first week of June, 1994, the Special Committee discussed on an ongoing
basis with Merrill Lynch the nature of Merrill Lynch's review of the financial
fairness of the exchange ratios.
Merrill Lynch delivered a preliminary summary of its analyses to the
Special Committee and to its counsel, Schulte Roth & Zabel, during the evening
of June 5, 1994. The next morning, on June 6, Merrill Lynch met with the Special
Committee and Schulte Roth & Zabel to review Merrill Lynch's valuation analyses
and conclusions. Mr. Gould was present in person at the meeting, and Mr. Rapley
participated by telephone from Denver. Merrill Lynch reviewed and discussed with
the Special Committee its updated analyses of the values of the underlying
assets of TCI and Liberty, which took into account, among other things, the
Revised FCC Rate Regulations. The updated analyses of Merrill Lynch are
described under "-- Fairness Opinions -- Liberty" below. Based on its analyses,
Merrill Lynch orally advised the Special Committee that, as of that date, the
respective exchange ratios in the TCI Merger and the Liberty Merger, taken
together, remained fair, from a financial point of view, to the holders of
Liberty Common Stock (other than TCI and its affiliates).
Although Merrill Lynch advised the Special Committee that the exchange
ratios remained fair, the Special Committee wanted to ensure that it had made
every effort to obtain the highest possible exchange ratio for the Unaffiliated
Liberty Stockholders and therefore in the afternoon of June 6, the Special
Committee met with Mr. Magness and Stephen Brett, the General Counsel of TCI, to
discuss the financial terms of the Merger Agreement. Mr. Rapley met with Messrs.
Magness and Brett in person while Mr. Gould participated by telephone from New
York. The Special Committee met with Mr. Magness since he had been designated
earlier by the Unaffiliated TCI Directors to negotiate the exchange ratios on
behalf of TCI. Mr. Gould stated to Mr. Magness that the Special Committee wanted
a higher exchange ratio for the Liberty Common Stock. Mr. Magness said that he
saw no reason for increasing the exchange ratio and that he was of the view that
the Revised FCC Rate Regulations had impacted the value of Liberty at least as
negatively as they had impacted the value of TCI. Accordingly, Mr. Magness
informed Mr. Gould that he saw no justification for increasing the exchange
ratio for the Liberty Common Stock contained in the Merger Agreement. The
Special Committee requested that Mr. Magness reserve any final decision until
after Merrill Lynch and CS First Boston had had an opportunity to talk to each
other. Mr. Magness agreed to resume discussions with the Special Committee after
Merrill Lynch and CS First Boston talked.
On June 7, 1994, Merrill Lynch contacted CS First Boston concerning the
exchange ratio for the Liberty Common Stock. After discussion, Merrill Lynch and
CS First Boston determined that any change to the exchange ratios should be
negotiated directly between TCI and the Special Committee or Liberty.
Between June 8 and June 10, 1994, the Special Committee and Mr. Magness
discussed by phone on three separate occasions the exchange ratio for the
Liberty Common Stock. Mr. Magness continued to state that he saw no basis for
increasing the exchange ratio, and further stated that he believed the exchange
ratio for the Liberty Common Stock constituted TCI's highest and best offer.
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On June 15, 1994, the Liberty Board met to consider the continuing fairness
of the terms of the Merger Agreement to the Unaffiliated Liberty Stockholders.
Merrill Lynch gave a presentation concerning its evaluation of the fairness of
the exchange ratios to holders of Liberty Common Stock, and orally confirmed its
opinion, given to the Special Committee on June 6, 1994, that the respective
exchange ratios in the Liberty Merger and the TCI Merger, taken together, were
fair, from a financial point of view, to the holders of Liberty Common Stock
(other than TCI and its affiliates). The discussions then turned to the report
of the Special Committee, at which time Dr. Malone and Mr. Magness excused
themselves from the meeting. The Special Committee reported that since the
execution of the Merger Agreement in January 1994, the Special Committee had
limited its inquiry to an evaluation of the fairness of the financial terms of
the Merger Agreement to the Unaffiliated Liberty Stockholders. The Special
Committee then discussed with the Unaffiliated Liberty Directors their talks
with Mr. Magness concerning a possible increase in the exchange ratio of 0.975:1
for the Liberty Common Stock, and its conclusion, based on those talks, that the
existing exchange ratio represented TCI's best and highest offer. The Special
Committee also reviewed with the Unaffiliated Liberty Directors its findings
concerning the continuing fairness of the financial terms of the Merger
Agreement, including its determination that such terms remained fair to the
Unaffiliated Liberty Stockholders. Following deliberations, the Unaffiliated
Liberty Directors confirmed their approval of the terms of the Merger Agreement
based upon their determination that the financial terms of the Merger Agreement
remained fair to the Unaffiliated Liberty Stockholders.
Also on June 15, 1994, the TCI Board met to consider the continuing
fairness of the terms of the Merger Agreement to the Unaffiliated TCI
Stockholders. CS First Boston orally confirmed to the TCI Board that, based upon
and subject to certain matters set forth in its written opinion (which is
included as Appendix II hereto), the consideration to be received by the holders
of TCI Common Stock (other than Liberty and its affiliates) remained fair, from
a financial point of view, to such stockholders. The TCI Board, after discussion
and with Mr. Magness and Dr. Malone abstaining, then confirmed its approval of
the terms of the Merger Agreement based upon their determination that the
financial terms of the Merger Agreement were fair to the Unaffiliated TCI
Stockholders.
RECOMMENDATION OF TCI BOARD; TCI'S REASONS FOR THE MERGERS
Recommendation. The Unaffiliated TCI Directors, consisting of Messrs.
Donne Fisher, John Gallivan, Kim Magness, Robert Naify, Jerome Kern (who joined
the TCI Board on December 10, 1994) and Tony Coelho (who replaced Mr. O'Brien as
a director of TCI on March 23, 1994, following Mr. O'Brien's death), believe
that the terms of the Merger Agreement are fair to, and in the best interests
of, TCI and the TCI Unaffiliated Stockholders and unanimously recommend that
holders of TCI Common Stock vote FOR approval and adoption of the Merger
Agreement. Each member of the TCI Board and each executive officer of TCI who
owns shares of TCI Common Stock has advised TCI that he intends to vote all of
his shares FOR approval and adoption of the Merger Agreement. On the TCI Record
Date, the members of the TCI Board and those executive officers owned, in the
aggregate, approximately 5,598,493 outstanding shares of TCI Class A Common
Stock and 28,945,290 outstanding shares of TCI Class B Common Stock, or
approximately 1.4% and 61.2%, respectively, of the shares of those classes
outstanding at that date, which represents 33.7% of the combined voting power of
the TCI Common Stock eligible to be voted at the TCI Meeting.
For purposes of this Proxy Statement/Prospectus, all references to the
"Unaffiliated TCI Directors" are to Messrs. Fisher, Gallivan, K. Magness and
Naify and (i) Mr. O'Brien until his death on February 15, 1994, (ii) Mr. Kern
from December 10, 1993 (the date he joined the TCI Board) and (iii) Mr. Coelho
from March 23, 1994 (the date he joined the TCI Board).
In view of the fact that John Malone and Bob Magness, each of whom is a
director and executive officer of TCI, are also directors of Liberty (Dr. Malone
being Chairman of the Liberty Board and Mr. Magness being the designee of TCI on
the Liberty Board under the terms of the Liberty Series D Preferred Stock held
by TCI) and therefore may be deemed to have a conflict of interest with the
Unaffiliated TCI Stockholders, such individuals abstained from voting on the
Merger Agreement in their capacity as directors of TCI. The Unaffiliated TCI
Directors, who unanimously approved the terms of the Merger Agreement, took into
account the fact that, notwithstanding such potential conflict of interest, Dr.
Malone and Mr. Magness negotiated the
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exchange ratios for the Liberty Common Stock and the TCI Common Stock. The
Unaffiliated TCI Directors considered the negotiation of the exchange ratios by
Dr. Malone as a crucial element in structuring the Mergers, as his leadership
position at Liberty and his ownership of approximately 61% of the outstanding
shares of Liberty Class B Common Stock made any acquisition proposal for Liberty
futile without his full participation and support. The Unaffiliated TCI
Directors recognized that Dr. Malone had a personal incentive to obtain the
highest possible exchange ratio for the holders of the Liberty Common Stock. The
Unaffiliated TCI Directors also believed that Mr. Magness had an incentive to
obtain the highest possible exchange ratio for the holders of the TCI Common
Stock due to his ownership of approximately 58% of the outstanding shares of TCI
Class B Common Stock. The TCI Unaffiliated Directors also considered that any
exchange ratio negotiated by Dr. Malone and Mr. Magness would be subject to
their prior approval before any formal acquisition proposal was made to Liberty.
See "-- Negotiations with Respect to the Mergers" above and "OWNERSHIP OF TCI,
LIBERTY AND TCI/LIBERTY STOCK."
Reasons for the Mergers. The factors considered by the Unaffiliated TCI
Directors in reaching their determination to approve and adopt the Merger
Agreement and to recommend that holders of TCI Common Stock vote to approve and
adopt the Merger Agreement included those set forth below.
The Unaffiliated TCI Directors recognized that TCI and Liberty had been
initially separated in 1991 into two public companies due to TCI management's
concerns regarding legislation that was then being considered by Congress and
regulations that were then being considered by the FCC which, if enacted or
adopted in certain of the forms being considered or discussed, might have forced
TCI to divest of certain of its cable programming or cable system interests, or
both, at an unknown time in the future. The purpose for the separation was
eliminated in September 1993 when the FCC adopted vertical and horizontal
ownership regulations that attributed Liberty's assets and operations to TCI,
and which were broad enough to permit such attribution without violation of
those regulations. The operations of TCI and Liberty had frequently been viewed
by regulators and the public markets as under common control, with the actions
of one company being attributed to and having an impact on the other,
notwithstanding the fact that TCI and Liberty are separate public companies the
officers and directors of which owe fiduciary duties to separate groups of
shareholders. The Unaffiliated TCI Directors believe that a combination of the
two companies would permit management to operate the businesses of both
companies in a complementary manner, would ensure better oversight of regulatory
compliance and would allow a common strategy for accessing the public markets.
The presence of both TCI and Liberty in the cable television and
programming industries has created potential conflicts of interest due to Dr.
Malone and Mr. Magness serving on the boards of directors of both companies. Mr.
Magness is one of the largest single stockholders of TCI and has substantial
stockholdings in Liberty, while Dr. Malone is the largest single stockholder of
Liberty. In addition, TCI and Liberty have investments in each other's stock
primarily as a result of the Restructuring Plan and TCI, as the largest operator
of cable systems in the United States, is the largest potential customer for the
programming provided by Liberty's subsidiaries and affiliates. The Unaffiliated
TCI Directors recognized that these potential conflicts could artificially
restrict the ability of TCI and Liberty to negotiate in their best interests
with respect to business ventures that both may be pursuing, and had
necessitated cumbersome procedures from time to time at the TCI and Liberty
board level to ensure that all potential conflicts of interest were known to and
eliminated from the deliberations of those boards. The Unaffiliated TCI
Directors believe that as Liberty's business grew and there was greater
potential for conflicts of interest between TCI and Liberty, Dr. Malone may have
to resign from the board of directors and as an officer of either TCI or
Liberty. The Unaffiliated TCI Directors further believed that Dr. Malone's large
holdings of Liberty stock made it more likely that if such a choice had to be
made, he would choose to remain at Liberty and resign his positions with TCI and
that such a resignation would have an immediate and adverse effect on the
business and prospects of TCI. The Unaffiliated TCI Directors determined that
the combination of TCI and Liberty would eliminate the foregoing potential
conflicts and ensure to TCI/Liberty the continued services of Dr. Malone.
The Unaffiliated TCI Directors considered it desirable to further diversify
TCI's businesses into video programming, and that, as a result, TCI would be
less dependent on its cable operations where prices for its basic cable services
are regulated. The ability of TCI to have more input with respect to programming
decisions, to the extent permitted by the FCC's vertical integration rules, was
also viewed by the Unaffiliated TCI Directors as important to the ability of TCI
to ensure the continued supply of quality programming for its
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cable systems. This diversification was also viewed as strategically important
in the context of changes taking place in the telecommunications and
entertainment industries, including a trend toward joint ventures among cable
programmers, cable operators and other parties interested in video and
information delivery to the home.
The Unaffiliated TCI Directors considered that management anticipated that
the Mergers would enable TCI/Liberty to achieve synergies in marketing
programming for foreign distribution through a combination of the programming
investments of TCI and Liberty. By having the ability to offer a variety of
programming packages with "brand name" recognition, TCI management believes that
TCI/Liberty will be in a strong position to market video programming to overseas
distributors to whom the ability to offer multiple programming choices is
perceived as critical. The Unaffiliated TCI Directors viewed enhancing TCI's
marketing position in the foreign distribution markets as especially important
in light of the relatively early stage of development of overseas cable and
other video distribution mediums and the resulting opportunities for significant
growth in those markets. It was also believed that the acquisition of Liberty's
cable television interests would permit TCI/Liberty to recognize possible
operational efficiencies and strategic opportunities where Liberty's affiliated
cable systems are located in close proximity to the cable systems owned or
operated by TCI. The Unaffiliated TCI Directors also considered that a
combination of TCI and Liberty would provide TCI with the programming expertise
of Liberty's management.
Fairness. The Unaffiliated TCI Directors believe that the terms of the
Merger Agreement are fair to, and in the best interests of, the Unaffiliated TCI
Stockholders. In reaching this conclusion, the Unaffiliated TCI Directors
considered the following factors, each of which was considered to bear favorably
on their conclusion:
(i) The oral opinions of CS First Boston to the TCI Board on
January 24, 1994 and June 15, 1994 to the effect that, as of such
respective dates, the consideration to be received by the holders of
TCI Common Stock (other than Liberty and its affiliates) in the TCI
Merger was fair, from a financial point of view, to such holders. The
Unaffiliated TCI Directors also considered the financial presentation
given by representatives of CS First Boston to the TCI Board on
January 24, 1994, in connection with the delivery of its oral fairness
opinion on that date, including its valuation analyses of Liberty, TCI
and, assuming consummation of the Mergers, TCI/Liberty. The
presentation by CS First Boston at the TCI Board meeting on June 15,
1994 in connection with its oral opinion of that date was also
considered by the Unaffiliated TCI Directors.
(ii) The confirmation by CS First Boston of the continuing
validity of its fairness opinion through the delivery to the TCI Board
of a written opinion, dated the date hereof, a copy of which is
included in this Proxy Statement/Prospectus as Appendix II. See
"-- Fairness Opinions -- TCI" below.
(iii) The Unaffiliated TCI Directors also considered that the
Mergers presented the Unaffiliated TCI Stockholders with the
opportunity to receive common stock in the combined company in a
tax-free transaction and at an exchange ratio that the Unaffiliated
TCI Directors viewed as fair to such stockholders.
The Unaffiliated TCI Directors believed the Revised FCC Rate Regulations
would have a neutral or immaterial effect on the fairness of the exchange ratio
for the TCI Common Stock. The Unaffiliated TCI Directors viewed any decrease in
the value of TCI's cable assets due to the impact of such regulations as being
offset by the effect of the Revised FCC Rate Regulations on programming services
(which would have a greater impact on Liberty as a larger percentage of its
assets consist of programming investments). This view was based in a belief that
programming companies will be adversely affected due to an anticipated
reluctance on the part of cable operators to invest in new basic cable
programming due to the rate regulations limiting their ability to recoup the
cost of such an investment. The Unaffiliated TCI Directors further viewed the
regulations as placing new constraints on the ability of programmers to increase
their rates charged to cable operators for their existing programming.
The Unaffiliated TCI Directors also considered the presentation made to the
TCI Board by Messrs. Clouston and Fisher on October 1, 1993, concerning their
estimates of the value of the respective
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assets of Liberty and TCI. The estimated values of Liberty's assets presented by
Messrs. Clouston and Fisher were based in part on non-public information
(consisting of valuations of Liberty's assets prepared by Liberty's management)
supplied to Mr. Fisher by Liberty and publicly-available reports of financial
analysts. The valuations provided by Liberty were modified to eliminate certain
information viewed as duplicative by TCI, and certain estimates of value were
viewed as excessive and therefore reduced by Messrs. Clouston and Fisher in
preparing their valuations. The valuations prepared and discussed by Messrs.
Clouston and Fisher were viewed as tentative and subject to far less rigorous
analyses than the analyses prepared and presented by CS First Boston to the TCI
Board on January 24, 1994. Accordingly, while the presentation to the TCI Board
on October 1 was considered in the total mix of information that the
Unaffiliated TCI Directors considered in reaching their conclusion that the
terms of the Merger Agreement are fair to the Unaffiliated TCI Stockholders, it
was not given as much weight and was not considered to be as material as the
analyses presented by CS First Boston.
No consideration was given to disclosing to the public the
internally-prepared valuations provided by Liberty to TCI as those valuations
were provided to TCI in confidence, were not prepared for public distribution
and were viewed by TCI as part of the negotiation process with Liberty.
The Unaffiliated TCI Directors believe that their familiarity with the
assets of Liberty, based on the ongoing operational relationship between TCI and
Liberty and the fact that many of such assets had been contributed by TCI to
Liberty three years earlier in connection with the Restructuring Plan, was an
important element in their evaluation of the fairness of the terms of the Merger
Agreement due to their heightened ability to review and critically analyze any
estimates of the relative worth of TCI and Liberty presented by management or CS
First Boston.
The foregoing discussion of the information and factors considered and
given weight by the Unaffiliated TCI Directors is believed to include all
material factors considered by the Unaffiliated TCI Directors. In reaching the
determination to approve and recommend the Merger Agreement, the Unaffiliated
TCI Directors did not assign any relative or specific weights to the foregoing
factors which were considered (excepted to the extent noted), and individual
directors may have given differing weights to different factors.
For a discussion of the ownership interests in Liberty of the members of
the TCI Board and the executive officers of TCI, see "OWNERSHIP OF TCI, LIBERTY
AND TCI/LIBERTY STOCK."
RECOMMENDATION OF LIBERTY BOARD; LIBERTY'S REASONS FOR THE MERGERS
Recommendation. The Unaffiliated Liberty Directors, consisting of Messrs.
Peter Barton, Paul Gould, Robert Johnson, H.F. Lenfest, David Rapley and David
Wargo, believe that the terms of the Merger Agreement are fair to, and in the
best interests of, Liberty and the Unaffiliated Liberty Stockholders and
unanimously recommend that holders of Liberty Common Stock vote FOR approval and
adoption of the Merger Agreement. Each member of the Liberty Board and each
executive officer of Liberty who owns shares of Liberty Common Stock has advised
Liberty that he intends to vote all of his shares (other than, in the case of
Dr. Malone, the Restricted Voting Shares, which must be voted in the same
proportions as votes represented by all other shares of Liberty Common Stock are
cast) FOR approval and adoption of the Merger Agreement. On the Liberty Record
Date, the members of the Liberty Board and those executive officers owned, in
the aggregate, approximately 3,389,966 outstanding shares of Liberty Class A
Common Stock and 30,007,040 outstanding shares of Liberty Class B Common Stock
or approximately 3.87% and 81.24%, respectively, of the shares of those classes
outstanding at that date, which represents 66.4% of the combined voting power of
the Liberty Common Stock eligible to be voted at the Liberty Meeting (each of
the foregoing amounts and percentages is exclusive of the Restricted Voting
Shares).
In view of the fact that Dr. Malone and Mr. Magness, each of whom is a
director of Liberty (Dr. Malone being Chairman of the Liberty Board and Mr.
Magness being the designee of TCI on the Liberty Board under the terms of the
Liberty Series D Preferred Stock), are also directors and executive officers of
TCI and therefore may be deemed to have a conflict of interest with the
Unaffiliated Liberty Stockholders, such individuals abstained from voting on the
Merger Agreement in their capacity as Liberty directors. The Unaffiliated
Liberty Directors, who unanimously approved the terms of the Merger Agreement,
took into
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account the fact that, notwithstanding such potential conflict of interest, Dr.
Malone and Mr. Magness negotiated the exchange ratios for the Liberty Common
Stock and the TCI Common Stock. The Unaffiliated Liberty Directors considered
the negotiation of the exchange ratios by Dr. Malone as a benefit to Liberty, as
he has the greatest knowledge on the Liberty Board (apart from Mr. Magness) of
the relative values of Liberty and TCI, and his ownership of approximately 61%
of the outstanding shares of Liberty Class B Common Stock provided him with
additional incentive to negotiate the best possible exchange ratio for the
holders of Liberty Common Stock. The Unaffiliated Liberty Directors recognized
that in negotiating the exchange ratios Mr. Magness acted on behalf of TCI and
not Liberty stockholders; this recognition did not adversely impact their
deliberations as they further recognized that Mr. Magness was the designee of
TCI on the Liberty Board. The Unaffiliated Liberty Directors also believed that
Mr. Magness's ownership of approximately 58% of the outstanding shares of TCI
Class B Common Stock gave him a strong incentive to favor TCI over Liberty in
the negotiation of the exchange ratios. See " -- Negotiations with Respect to
the Mergers" above and "OWNERSHIP OF TCI, LIBERTY AND TCI/LIBERTY STOCK."
Reasons for the Mergers. The factors considered by the Unaffiliated
Liberty Directors in reaching their determination to approve and adopt the
Merger Agreement and to recommend that holders of Liberty Common Stock vote to
approve and adopt the Merger Agreement included those set forth below.
The presence of both Liberty and TCI in the cable television and
programming industries has created potential conflicts of interest due to Dr.
Malone and Mr. Magness serving on the boards of directors of both companies. Mr.
Magness is the largest single stockholder of TCI and has substantial stock
holdings in Liberty, while Dr. Malone is the largest single stockholder of
Liberty. In addition, TCI and Liberty have investments in each other's stock
primarily as a result of the Restructuring Plan and TCI, as the largest operator
of cable systems in the United States, is the largest potential customer for the
programming provided by Liberty's subsidiaries and affiliates. The Unaffiliated
Liberty Directors recognized that these potential conflicts could artificially
restrict the ability of Liberty and TCI to negotiate in their best interests
with respect to business ventures that both may be pursuing, and had
necessitated from time to time cumbersome procedures at the Liberty and TCI
board level to ensure that all potential conflicts of interest were known to and
eliminated from the deliberations of those boards. The Unaffiliated Liberty
Directors believed that as Liberty's business grew and there was greater
potential for conflicts of interest between TCI and Liberty, Dr. Malone may have
to resign from the board of directors and as an officer of either TCI or
Liberty. Although the Unaffiliated Liberty Directors further believed that Dr.
Malone's large holdings of Liberty stock made it more likely that if such a
choice had to be made he would choose to remain at Liberty and resign his
positions with TCI, the possibility of Dr. Malone resigning from his positions
with Liberty was a serious concern. The Unaffiliated Liberty Directors
determined that the combination of Liberty and TCI would eliminate the foregoing
potential conflicts and ensure to TCI/Liberty the continued services of Dr.
Malone.
The acquisition and creation of programming is becoming increasingly
competitive, as various forms of media distribution (including cable television,
telephony and computer hardware and software manufacturers) seek to forge
strategic alliances and compete in the delivery of entertainment and information
services to consumers. The Unaffiliated Liberty Directors believed that for
Liberty to compete for attractive programming properties in this environment, it
would need access to increasingly larger pools of capital and an alliance with a
major distribution business; a combination with TCI would enable Liberty to
achieve both goals. The Unaffiliated Liberty Directors also considered that, in
order to continue to build stockholder value, absent the Mergers Liberty would
soon need to consider various options to raise capital to invest in new ventures
or to increase its ownership in certain of its current investments.
The Unaffiliated Liberty Directors considered that management anticipated
that the Mergers would enable the combined companies to achieve synergies in
marketing programming for foreign distribution through a combination of the
programming investments of TCI and Liberty. By having the ability to offer a
variety of different video programming offerings (either individually or
packaged with other programming) management believes that TCI/Liberty will be in
a strong position when marketing video programming to overseas distributors
where the ability to offer multiple programming choices is perceived as
critical. The Unaffiliated Liberty Directors viewed the foregoing synergies as
especially important in light of the relatively
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early stage of development of overseas cable and other video distribution
mediums and the resulting opportunities for significant growth in those markets.
It was also believed that the combination of Liberty's cable television
interests with those of TCI would permit TCI/Liberty to recognize possible
operational efficiencies and strategic opportunities where Liberty's affiliated
cable systems are located in close proximity to the cable systems owned or
operated by TCI. The Unaffiliated Liberty Directors also considered that a
combination with TCI would enable Liberty's management to focus on programming
investments, their primary area of expertise, and would relieve them of certain
duties relating to the operation of a public company.
The Unaffiliated Liberty Directors believe that the operations of Liberty
and TCI are frequently viewed by regulators and the public markets as being
under common control, with the actions of one company being attributed to and
having an impact on the other, notwithstanding the fact that Liberty and TCI are
separate public companies, the officers and directors of which owe fiduciary
duties to separate groups of shareholders. The Unaffiliated Liberty Directors
believe that a combination of the two companies would permit management to
operate the businesses of both companies in a complementary manner, would ensure
better oversight of regulatory compliance by both businesses and would allow a
common strategy for accessing the public markets.
The Unaffiliated Liberty Directors considered that the merger of Liberty
and TCI would result in the Liberty Preferred Stock and certain promissory notes
of Liberty presently held by indirect, wholly owned subsidiaries of TCI being
held, after the Liberty Merger (and the exchange of the Liberty Preferred Stock
for TCI/Liberty Preferred Stock), by indirect, wholly owned subsidiaries of
TCI/Liberty, with the result that the obligations related to such financial
instruments would be owed to members of the same consolidated group of
corporations. As of March 31, 1994, the Liberty Preferred Stock held by
subsidiaries of TCI consisted of (i) Liberty Class B Preferred Stock with a
liquidation value (which includes accrued dividends) of $135,394,000, which
accrete dividends at the rate of 8.5% of the liquidation value per annum,
compounded semiannually, and (ii) Liberty Class D Preferred Stock with a
liquidation value (which includes accrued dividends) of $23,133,000, which
accrete dividends at the rate of 10% of the liquidation value per annum,
compounded semiannually. The promissory notes issued by Liberty and held by
subsidiaries of TCI consist of (i) notes with an aggregate principal amount of
$76,952,000, which are due February 1, 1997 and bear interest at a rate of 11.6%
per annum and (ii) notes with an aggregate principal amount of approximately
$104,644,000, which are due the earlier of September 30, 1994 or ten days
following the consummation of the Mergers and bear interest at a rate of 6% per
annum. The Mergers would also eliminate the contingent obligation of Liberty
under the Put-Call Agreement entered into with Mr. Magness, Dr. Malone and
Kearns-Tribune in connection with the Restructuring Plan.
Fairness. The Unaffiliated Liberty Directors believe that the terms of the
Merger Agreement are fair to, and in the best interests of, the Unaffiliated
Liberty Stockholders. In reaching this conclusion, the Unaffiliated Liberty
Directors considered the following factors, each of which was considered to bear
favorably on their conclusion:
(i) The determination of the Special Committee that the terms of
the Merger Agreement are fair to the Unaffiliated Liberty
Stockholders. In reaching such determination the Special Committee
considered the advice of its financial advisor, Merrill Lynch, and its
legal counsel, Schulte Roth & Zabel, as well as many of the same
matters as were considered by the Unaffiliated Liberty Directors in
their deliberations as to fairness, as set forth in subparagraphs (ii)
through (v) below.
(ii) The oral opinion of Merrill Lynch, rendered to the Special
Committee on June 6, 1994 and confirmed to the Liberty Board at a
meeting of the Liberty Board on June 15, 1994, and the written opinion
of Merrill Lynch, dated January 21, 1994, which was delivered to the
Special Committee and a copy of which was provided to the Liberty
Board on January 24, 1994 at a meeting of the Liberty Board, to the
effect that the respective exchange ratios in the Liberty Merger and
the TCI Merger, taken together, are fair, from a financial point of
view, to the holders of Liberty Common Stock (other than TCI and its
affiliates). The Unaffiliated Liberty Directors also considered the
fairness presentations, including the underlying valuation
methodologies and analyses, given by
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representatives of Merrill Lynch to the Liberty Board on January 24,
1994 and June 15, 1994. A copy of the opinion of Merrill Lynch, which
is dated the date hereof, is included in this Proxy
Statement/Prospectus as Appendix III. See "-- Fairness
Opinions -- Liberty" below.
(iii) The negotiations between the Special Committee and Bob
Magness during the period June 6 through June 10, 1994, which the
Unaffiliated Liberty Directors believe supports their belief that the
exchange ratio for the Liberty Common Stock is the highest and best
exchange ratio obtainable from TCI.
(iv) The Unaffiliated Liberty Directors also viewed favorably the
ability that the Unaffiliated Liberty Stockholders would have to
indirectly participate in the future growth of Liberty's programming
and cable interests through their ownership of stock in TCI/Liberty,
as well as the ability that such stockholders would have to receive
such stock in a tax-free transaction and at an exchange ratio that the
Unaffiliated Liberty Directors view as fair to such stockholders.
(v) The negotiation of the exchange ratio by Dr. Malone on behalf
of Liberty was also viewed as a strong indicator that Liberty
stockholders received the highest possible exchange ratio, due to Dr.
Malone's familiarity with the respective values of TCI and Liberty and
his ownership of approximately 61% of the outstanding shares of
Liberty Class B Common Stock.
The Unaffiliated Liberty Directors also considered valuations of Liberty
that were prepared internally by Liberty's management, which were based on the
market value of certain of Liberty's public investments and valuations prepared
by Liberty management of other investments. These internal valuations were
viewed as tentative and subject to far less rigorous analyses than the valuation
analyses prepared and presented by Merrill Lynch to the Special Committee on
January 21 and June 6, 1994 and to the Liberty Board on January 24 and June 15,
1994. Accordingly, while the internally prepared valuations were considered in
the total mix of information that the Unaffiliated Liberty Directors considered
in reaching their conclusion that the terms of the Merger Agreement are fair to
the Unaffiliated Liberty Stockholders, it was not given as much weight or
considered to be as material as the valuation analyses presented by Merrill
Lynch.
The Unaffiliated Liberty Directors believe that their familiarity with a
significant portion of the assets of TCI, based in part on the ongoing
operational relationship between TCI and Liberty, was an important element in
their evaluation of the fairness of the terms of the Merger Agreement due to
their heightened ability to review and critically analyze any estimates of the
relative worth of TCI and Liberty presented by management or Merrill Lynch.
The potential for a sale of Liberty to a third party was also considered by
the Unaffiliated Liberty Directors, but such a sale was viewed as unlikely given
the various complexities, tax ramifications and other issues that such a third
party acquisition would create. Any such acquisition would necessitate the
possible renegotiation of affiliation agreements with TCI and its affiliated
cable systems that distribute programming created by Liberty's subsidiaries and
affiliates. Many of Liberty's stockholders, especially those that continue to
hold shares they received in the Exchange Offer, have a low basis in their
Liberty stock, making a tax-free transaction important. The ability and
willingness of a third party to effect a tax-free transaction would depend in
large part on the treatment of the Liberty Preferred Stock held by TCI (which
would have the right to veto any third party transaction under the terms of its
Liberty Series B and Series D Preferred Stock). If TCI were to receive stock in
such a transaction it would remain as a significant stockholder of the surviving
corporation and would most likely have representation on Liberty's Board, while
payment for such stock in cash (which would presumably include a control premium
due to the veto rights included in the terms of such securities) would eliminate
the availability of many forms of tax-free reorganizations. Further, the
Unaffiliated Liberty Directors considered that TCI is also in the unique
position of being able to provide Liberty with access to the largest cable
television distribution network in the United States.
The foregoing discussion of the information and factors considered and
given weight by the Unaffiliated Liberty Directors is believed to include all
material factors considered by the Unaffiliated Liberty Directors. In reaching
the determination to approve and recommend the Merger Agreement, the
Unaffiliated Liberty
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Directors did not assign any relative or specific weights to the foregoing
factors which were considered, and individual directors may have given differing
weights to different factors.
The Unaffiliated Liberty Directors did not analyze the fairness of the
consideration to be received by holders of Liberty Class E Preferred Stock in
the Liberty Merger. (All of the shares of Liberty Class B Preferred Stock and
Liberty Class D Preferred Stock are held by an indirect, wholly-owned subsidiary
of TCI and following the Mergers will be held by an indirect, wholly-owned
subsidiary of TCI/Liberty). The Unaffiliated Liberty Directors, however, believe
that the TCI/Liberty Class B Preferred Stock will have substantially the same
value immediately following the Liberty Merger as the Liberty Class E Preferred
Stock has immediately prior to the TCI Merger, as the financial terms of those
two securities are substantially identical.
For a discussion of the ownership interests in TCI of the members of the
Liberty Board and the executive officers of Liberty, see "OWNERSHIP OF TCI,
LIBERTY AND TCI/LIBERTY STOCK."
FAIRNESS OPINIONS
TCI. CS First Boston was retained to advise and assist the TCI Board in
its evaluation of the fairness, from a financial point of view, to the holders
of TCI Common Stock (other than Liberty and its affiliates) of the consideration
to be received in the TCI Merger by such holders. At meetings of the TCI Board
held on January 24, 1994 and June 15, 1994, CS First Boston rendered to the TCI
Board oral opinions to the effect that, as of such respective dates and based
upon and subject to certain matters, the consideration to be received in the TCI
Merger by the holders of TCI Common Stock (other than Liberty and its
affiliates) was fair to such holders from a financial point of view. CS First
Boston has reconfirmed such opinions by delivery to the TCI Board of a written
opinion dated the date hereof, a copy of which is set forth in its entirety as
Appendix II to this Proxy Statement/Prospectus. In connection with its oral
opinion of June 15, 1994 and written opinion dated the date hereof, CS First
Boston updated certain analyses and performed certain additional procedures
which resulted in no change in its conclusion as to the fairness of the TCI
exchange ratio from a financial point of view.
In arriving at its opinion, CS First Boston (i) reviewed this Proxy
Statement/Prospectus, the Merger Agreement and certain publicly available
business and financial information relating to TCI and Liberty, (ii) reviewed
certain other information, including internal financial forecasts, provided by
TCI, Liberty and certain of their affiliates, (iii) held discussions with the
respective management of TCI, Liberty and certain of their affiliates concerning
the businesses and prospects of TCI, Liberty and such affiliates, (iv)
considered and relied upon the views of the respective management of TCI and
Liberty concerning certain strategic implications and operational benefits which
might result from the Mergers, the anticipated treatment to be accorded the
Mergers by certain regulatory bodies, and certain regulatory matters affecting
the businesses of TCI, Liberty and their respective investments, (v) considered
certain financial and stock market data of TCI, Liberty and certain of their
respective investments for which such information was available and compared
that data with similar data for other publicly held companies and businesses
similar to those of TCI, Liberty and such investments, (vi) considered, to the
extent publicly available, the financial terms of certain other business
combinations recently effected and (vii) considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria which CS First Boston deemed relevant.
In connection with its review, CS First Boston did not independently verify
any of the information provided to or otherwise reviewed by CS First Boston and
relied upon its being complete and accurate in all respects. With respect to
internal financial forecasts and other data reviewed, CS First Boston assumed
that such forecasts and other data were reasonably prepared and reviewed with
the respective management of TCI, Liberty and certain of their affiliates
various operational and financial assumptions incorporated therein. CS First
Boston did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of TCI, Liberty or their respective
investments, nor was CS First Boston furnished with any such appraisals. CS
First Boston expressed no opinion as to what the value of the TCI/Liberty Common
Stock actually will be when issued to TCI stockholders pursuant to the TCI
Merger or the price at which such
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securities will trade subsequent to the Mergers. CS First Boston assumed that
the Mergers will qualify as a tax-free reorganization for Federal income tax
purposes. CS First Boston also assumed that in the course of obtaining the
necessary regulatory and governmental approvals for the proposed Mergers, no
restriction will be imposed that will have a material adverse effect on the
contemplated benefits of the Mergers. CS First Boston's opinion is necessarily
based on information available to it and financial, stock market and other
conditions and circumstances as they existed and could be evaluated on the date
of its opinion. Although CS First Boston evaluated the financial terms of the
TCI Merger, CS First Boston was not requested to, and did not, participate in
the negotiation or structuring of the Mergers and was not asked to, and did not
recommend, the specific consideration payable in the Mergers.
The full text of CS First Boston's written opinion dated the date hereof,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Appendix II to this Proxy Statement/Prospectus
and is incorporated herein by reference. HOLDERS OF TCI COMMON STOCK ARE URGED
TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. CS First Boston's opinion is
directed only to the fairness of the consideration to be received by the holders
of TCI Common Stock (other than Liberty and its affiliates) in the TCI Merger
from a financial point of view, does not address any other aspect of the Mergers
and does not constitute a recommendation to any TCI stockholder as to how such
stockholder should vote at the TCI Special Meeting. The summary of the opinion
of CS First Boston set forth in this Proxy Statement/Prospectus is qualified in
its entirety by reference to the full text of such opinion.
In making its presentation to the TCI Board on January 24, 1994, CS First
Boston performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses does not purport to be a
complete description of the analyses underlying CS First Boston's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In its analyses, CS First Boston made numerous assumptions
with respect to industry performance, general business, regulatory, economic,
market and financial conditions and other matters, many of which are beyond the
control of TCI and Liberty. Any estimates contained therein are not necessarily
indicative of actual values or predictive of future results, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, because such estimates are
inherently subject to substantial uncertainty, none of TCI, Liberty,
TCI/Liberty, CS First Boston or any other person assumes responsibility for
their accuracy.
Valuation Methodology. In valuing TCI and Liberty, CS First Boston
analyzed the enterprise value, or the non-tax-adjusted asset value, of the two
companies' component assets and businesses. The enterprise values (equity values
in the case of certain non-majority owned assets) for each of the component
assets and businesses were then aggregated to derive an overall enterprise value
range for each of TCI and Liberty. Each overall enterprise value range was then
adjusted for, among other things, net liabilities in order to calculate net
equity value and net equity value per share.
In determining enterprise values, CS First Boston generally employed, where
appropriate, up to three standard valuation methodologies (i.e., analyses of
selected publicly traded comparable companies, analyses of selected comparable
acquisition transactions and discounted cash flow analyses), which methodologies
are described more fully below. These methodologies yielded valuation reference
ranges for each asset to which they were applied, which were then utilized for
purposes of determining an overall valuation range for the particular asset. In
arriving at the overall valuation range for each asset, CS First Boston made
qualitative judgments in each particular case as to the significance and
relevance of each of the three valuation approaches and the results derived
therefrom. Overall valuation ranges do not bear a precise mathematical
relationship to their component valuation ranges and CS First Boston did not
attribute a standard weight to any particular valuation methodology or any other
factor in determining the overall valuation range for each asset. Accordingly,
CS First Boston believes that its analyses must be considered as a whole and
that selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and its opinion.
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In evaluating comparability, CS First Boston analyzed each comparable
company and comparable transaction with respect to, among other things, lines of
business, growth prospects, profitability, capital requirements, size, and,
where applicable, operating and financial data, including subscriber growth,
penetration levels, quality of plant and prospects for additional services. No
company, transaction or business utilized in the comparable company and
comparable acquisition analyses as a comparison is identical to TCI, Liberty,
their respective investments or the Mergers. Accordingly, an analysis of the
results derived therefrom is not entirely mathematical or necessarily precise;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that could affect
the public trading value of the comparable companies or the business segment or
company to which they are being compared.
Comparable Company Analysis. CS First Boston compared historical and
projected financial and operating statistics for each of TCI's and Liberty's
significant operating segments and the companies in which TCI and Liberty have
significant investments to publicly available statistics for generally
comparable publicly traded companies in order to estimate how each asset would
trade in the public market.
Comparable Acquisitions Analysis. Using publicly available information, CS
First Boston reviewed the prices and multiples paid or proposed to be paid in
relevant acquisition transactions and compared them with financial and operating
statistics for each of TCI's and Liberty's significant operating segments and
the companies in which TCI and Liberty have significant investments in order to
estimate the acquisition value, or private market value, of each asset.
Discounted Cash Flow Analysis. For its discounted cash flow analysis, CS
First Boston analyzed the unlevered free cash flow (defined as operating cash
flow available after working capital, capital spending and tax requirements)
anticipated to be generated by each of the significant operating segments of TCI
and Liberty and the companies in which TCI and Liberty have significant
investments, in most cases over the period 1994 to 2003. Cash flow estimates
were based on internal financial forecasts prepared by TCI's and Liberty's
management (or the managements of the operating entities in which TCI or Liberty
has an interest), as modified by CS First Boston in certain cases to reflect the
possibility of alternative financial outcomes for these investments. The
forecasts provided to CS First Boston for cable programming assets typically
covered the period 1994 through 1998 (in which case CS First Boston generally
projected results for the years 1999 through 2003 consistent with the operating
assumptions used for the years 1994 through 1998), and the forecasts provided to
CS First Boston for cable television assets typically covered the period 1994
through 2003. CS First Boston then applied to these estimates those terminal
multiples and discount rates it deemed appropriate in order to estimate the
acquisition value, or private market value, of each asset based on the present
value of its free cash flow.
Based on the above methodologies, the total enterprise value range derived
by CS First Boston for TCI was approximately $24,568.9 million to $28,043.7
million and the total enterprise value range derived by CS First Boston for
Liberty was approximately $3,223.7 million to $4,110.2 million. Adjusting for
debt and cash and making certain additional corporate adjustments resulted in a
net equity value range of approximately $14,459.4 million to $18,017.7 million,
or $29.30 to $36.51 per share, for TCI and a net equity value range of
approximately $2,996.8 million to $3,902.0 million, or $22.88 to $29.78 per
share, for Liberty. A summary of the methods used by CS First Boston to analyze
the enterprise value of each of TCI's and Liberty's component assets and
businesses is set forth below.
Cable Television Assets. In valuing TCI's and Liberty's domestic cable
television assets (including assets in Puerto Rico and the Dominican Republic),
CS First Boston relied primarily on a combination of the three valuation
approaches. Publicly traded cable television companies used for reference
purposes for the comparable company analysis were the following: Adelphia
Communications Corporation, Cablevision Systems Corporation, Century
Communications Corporation, Comcast Corporation and TCA Cable TV, Inc. CS First
Boston calculated each company's adjusted market value (equity market value
principally adjusted for debt and cash as of the most recently available balance
sheet date) as a multiple of, among other things, operating cash flow and
subscriber levels. CS First Boston also calculated each company's adjusted
market value as a multiple of projected results where available. Transactions
used for reference purposes for the
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comparable acquisitions analysis included Southwestern Bell Corporation/Cox
Communications, Inc. (which transaction was subsequently terminated); Bell
Canada International Inc./Jones Intercable, Inc. (which transaction was
subsequently modified); BellSouth Corporation/Prime Management Co.; US West,
Inc./Time Warner Entertainment Company, L.P.; Southwestern Bell
Corporation/Hauser Communications, Inc.; Cablevision Systems Corporation/Sutton
Capital Associates (which transaction was subsequently modified); Cablevision
Industries Corporation and Kohlberg Kravis Roberts & Co./Simmons Communications
Company, L.P.; Sammons Communications, Inc./Cardinal Communications, Inc.;
Tele-Communications, Inc./United Cable, L.P.; Time Warner Inc./Viacom Inc.;
Times Mirror Cable Television, Inc./Irvine Company; and New Heritage Associates,
Inc./North Central Cable Communications. CS First Boston calculated the
enterprise value of the target company in each transaction as a multiple both of
operating cash flow and subscriber levels. For its discounted cash flow analysis
of TCI's and Liberty's cable television assets, CS First Boston applied discount
rates ranging from 11% to 12% (based on a weighted average cost of capital for
comparable publicly traded companies) and applied terminal multiples of 9.75x to
10.75x operating cash flow in the tenth year.
Pursuant to this combination of approaches, the aggregate enterprise value
range (which included equity values for certain non-majority owned assets) for
TCI's cable television assets was approximately $20,166.5 million to $22,416.5
million, which reflects multiples of approximately 10.8x to 12.0x projected 1994
operating cash flow, 11.2x to 12.5x third quarter 1993 annualized operating cash
flow and $1,978 to $2,197 per subscriber. The aggregate enterprise value range
for Liberty's cable television assets (which included equity values for certain
non-majority owned assets) was approximately $1,137.0 million to $1,434.7
million, which reflects multiples of approximately 10.4x to 11.9x projected 1994
operating cash flow, 11.0x to 12.5x third quarter 1993 annualized operating cash
flow and $2,223 to $2,535 per subscriber.
Cable Programming Assets. In valuing TCI's and Liberty's domestic cable
programming assets (excluding publicly traded, non-control cable programming
assets), CS First Boston relied primarily on a combination of comparable company
analyses and discounted cash flow analyses, where appropriate. Publicly traded
companies used for reference purposes for the comparable company analysis were
the following: BET Holdings, Inc.; Gaylord Entertainment Company; Home Shopping
Network, Inc.; International Family Entertainment, Inc.; QVC, Inc.; Turner
Broadcasting System, Inc.; Viacom Inc.; and Video Jukebox Network, Inc. With
respect to the discounted cash flow analysis, key assumptions varied
significantly depending on the type of asset being analyzed and its phase of
development, relative risk factors and future prospects. Discount rates utilized
by CS First Boston ranged from 11% to 35% and terminal multiples ranged from
6.0x to 16.0x operating cash flow.
Pursuant to this combination of approaches, the aggregate enterprise value
range for TCI's domestic cable programming assets (excluding publicly traded,
non-control cable programming assets) was approximately $813.9 million to
$1,230.9 million. The aggregate enterprise value range for Liberty's domestic
cable programming assets (excluding publicly traded, non-control cable
programming assets) was approximately $1,578.5 million to $1,972.7 million.
Publicly Traded Investments, International and Other Assets. In assigning
values to the publicly traded, non-control investments held by TCI and Liberty
(including certain non-publicly traded investments the values of which were
directly linked to publicly traded securities), CS First Boston relied on a
range of trading values which reflected the recent trading history of each
particular investment's stock price. In assigning value to the assets held by
TCI and Liberty (other than domestic cable television and cable programming
assets) that are not publicly traded assets, CS First Boston took into
consideration, depending on the asset in question, book value, investment cost,
earnings potential and other factors. In total, TCI's publicly traded
investments, international and other assets were valued by CS First Boston at
between approximately $3,588.6 million to $4,396.4 million, while Liberty's
publicly traded investments and other assets were valued at between
approximately $618.2 million and $812.8 million.
Exchange Ratio Analysis. Utilizing the above per share valuations, as well
as certain public trading values, CS First Boston analyzed the relationship in
valuations between TCI's Common Stock and Liberty's Common Stock. A comparison
based on the closing price of Liberty's Common Stock and TCI's Common
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Stock on October 1, 1993, one week prior to the announcement of the execution of
the TCI/Liberty Letter of Intent (the "Pre-Announcement Closing Price"), which
for Liberty was $24 3/4 per share and for TCI was $25 5/8 per share, yielded a
ratio of 0.966:1.00. A comparison of CS First Boston's valuation range per share
for Liberty with TCI's Pre-Announcement Closing Price, which for Liberty was
$22.88 to $29.78 per share and for TCI was $25 5/8 per share, yielded a range of
ratios of 0.893:1.00 to 1.162:1.00. A comparison of CS First Boston's valuation
ranges per share for Liberty and TCI yielded a range of ratios of 0.627:1.00
(when comparing the low end of CS First Boston's valuation range per share for
Liberty against the high end of CS First Boston's valuation range per share for
TCI) to 1.016:1.00 (when comparing the high end of CS First Boston's valuation
range per share for Liberty against the low end of CS First Boston's valuation
range per share for TCI).
Pursuant to the terms of CS First Boston's engagement, TCI has agreed to
pay CS First Boston for its services in connection with the TCI Merger an
aggregate fee of $2,250,000. TCI also has agreed to reimburse CS First Boston
for its reasonable out-of-pocket expenses, including the fees and expenses of
legal counsel and other advisors, and to indemnify CS First Boston and certain
related persons or entities against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of its engagement.
In the ordinary course of its business, CS First Boston and its affiliates
may actively trade the debt and equity securities of TCI, Liberty and their
respective affiliates for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. CS First Boston has provided financial advisory and investment
banking services to TCI and Liberty in the past, for which services CS First
Boston has received customary fees.
CS First Boston is an internationally recognized investment banking firm
and was selected by TCI based on CS First Boston's experience and expertise. As
part of its investment banking business, CS First Boston is regularly 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 placement and
valuations for estate, corporate and other purposes.
Liberty. The Special Committee retained Merrill Lynch to assist the
Special Committee in its evaluation of the fairness of the exchange ratios in
the Mergers to the holders of Liberty Common Stock (other than TCI and its
affiliates). At a meeting of the Special Committee on January 21, 1994, Merrill
Lynch delivered a written opinion to the Special Committee to the effect that,
the respective exchange ratios in the Liberty Merger and the TCI Merger, taken
together, are fair from a financial point of view, to the holders of Liberty
Common Stock (other than TCI and its affiliates). At a presentation to the full
Liberty Board held on January 24, 1994, Merrill Lynch provided the Liberty Board
with a copy of the written opinion, dated January 21, 1994, which had been
previously delivered to the Special Committee. Merrill Lynch subsequently
confirmed its opinion of January 21, 1994 orally at a meeting of the Special
Committee on June 6, 1994 and by delivery to the Special Committee of a written
opinion dated the date hereof, which is substantially similar to the opinion
dated January 21, 1994, a copy of which is set forth in its entirety as Appendix
III to this Proxy Statement/Prospectus. Stockholders are urged to read in its
entirety the opinion of Merrill Lynch, which sets forth the matters considered
and the scope of review undertaken by Merrill Lynch in connection therewith.
For purposes of the Merrill Lynch opinions, the term "Exchange Ratios"
refers collectively to the ratios at which the Liberty Class A Common Stock and
the Liberty Class B Common Stock and the TCI Class A Common Stock and the TCI
Class B Common Stock are converted into the common stock of TCI/Liberty.
In arriving at its opinions dated January 21, 1994 and the date hereof,
Merrill Lynch considered all the matters referred to in its opinion attached
hereto as Appendix III. Merrill Lynch's opinions are directed only to the
fairness of the Exchange Ratios from a financial point of view, do not address
any other aspect of the Mergers, and do not constitute a recommendation to any
Liberty stockholder as to how such stockholder should vote at the Liberty
Meeting. The summary set forth below does not purport to be a complete
description of the analyses employed by Merrill Lynch in reaching its opinions
and, for example, does not describe many significant adjustments made to
publicly available information in order to attempt to compensate for
extraordinary or unusual items or other factors that impair comparability.
Merrill Lynch
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believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of the
processes underlying its opinions. Arriving at a fairness opinion is a complex
analytic process not necessarily susceptible to partial analysis or summary
description.
In arriving at its opinions dated January 21, 1994 and the date hereof,
Merrill Lynch, among other things, (i) reviewed Liberty's Annual Reports, Forms
10-K, as amended and related financial information for the three fiscal years
ended December 31, 1993 and Liberty's Form 10-Q and the related unaudited
financial information for the quarterly and nine month periods ending September
30, 1993 and the quarter ended March 31, 1994, as the case may be; (ii) reviewed
TCI's Annual Reports, Forms 10-K, as amended and related financial information
for the four fiscal years ended December 31, 1993 and TCI's Form 10-Q, as
amended and the related unaudited financial information for the quarterly and
nine month periods ending September 30, 1993 and the quarter ended March 31,
1994, as the case may be; (iii) reviewed certain other filings with the
Commission made by Liberty and TCI, including Forms 8-K, as amended and
registration statements, during the last three years; (iv) reviewed certain
information, including internal financial forecasts relating to the business,
cash flow, assets and prospects of Liberty, TCI and certain of their respective
affiliates, furnished to Merrill Lynch by Liberty and TCI; (v) conducted
discussions with members of senior management of Liberty, TCI and certain of
their respective affiliates concerning their respective businesses, strategic
objectives, regulatory environment and prospects; (vi) reviewed the historical
market prices and trading activity for the Liberty Common Stock and the TCI
Common Stock and compared them with those of certain publicly traded companies
which Merrill Lynch deemed to be reasonably similar to Liberty and TCI,
respectively; (vii) compared the results of operations of Liberty and certain of
its affiliates and TCI and certain of its affiliates with those of certain
companies which Merrill Lynch deemed to be reasonably similar to Liberty and TCI
(or certain of their affiliates, as the case may be), respectively; (viii)
reviewed the financial terms of certain business combinations involving
companies in lines of businesses which Merrill Lynch deemed to be similar in
certain respects to Liberty and TCI; (ix) analyzed the respective contributions
in terms of assets, cash flow and businesses of TCI and Liberty to TCI/Liberty;
(x) analyzed the valuation of the Liberty Common Stock and the TCI Common Stock
using other various valuation methodologies which Merrill Lynch deemed to be
appropriate; (xi) in connection with the opinion dated January 21, 1994,
reviewed a draft of the Merger Agreement dated January 6, 1994; (xii) in
connection with the opinion dated the date hereof, reviewed a copy of the Merger
Agreement dated as of January 27, 1994, as amended; and (xiii) reviewed such
other financial studies and analyses and performed such other investigations and
took into account such other matters as Merrill Lynch deemed necessary or
appropriate for the purposes of its opinions.
In preparing its opinion dated January 21, 1994 and the date hereof,
Merrill Lynch relied on the accuracy and completeness of all information
supplied or otherwise made available to it by Liberty, TCI and their respective
affiliates, and Merrill Lynch did not independently verify such information or
any underlying assumptions or undertake an independent appraisal or physical
inspection of the assets or the liabilities of Liberty or TCI or any of their
respective affiliates nor was Merrill Lynch furnished with any such appraisals.
With respect to the internal financial forecasts furnished by Liberty, TCI or
any of their respective affiliates, Merrill Lynch assumed that they were
reasonably prepared in accordance with accepted industry practice and reflect
the best currently available estimates and judgment of Liberty's, TCI's or their
respective affiliates' management as to the expected future financial
performance of Liberty, TCI or any of their respective affiliates, as the case
may be. In addition, in connection with the opinion dated the date hereof,
Merrill Lynch assumed that such financial forecasts reflect the best currently
available estimates and judgment of Liberty's, TCI's, or their respective
affiliates' management as to the expected future financial performance, after
taking into account, among other things, the current regulatory environment of
Liberty, TCI or any of their respective affiliates, as the case may be. Merrill
Lynch's opinions were based upon general economic, market, monetary and other
conditions as they existed and could be evaluated, and the information available
to it, as of the dates of the opinions. Merrill Lynch expressed no opinion as to
what the value of the TCI/Liberty Common Stock actually will be when issued to
Liberty common stockholders pursuant to the Liberty Merger or the price at which
such securities will trade subsequent to the Mergers. Merrill Lynch assumed that
in the Mergers TCI, Liberty, TCI/Liberty, TCI Mergerco and Liberty Mergerco will
recognize no gain or loss for Federal income tax purposes as a result of the
Mergers. Merrill Lynch was not authorized by Liberty or the Special
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Committee to solicit third-party indications of interest for the acquisition of
all or any part of Liberty, nor did Merrill Lynch solicit any such indications.
Although Merrill Lynch evaluated the fairness of the Exchange Ratios from a
financial point of view, Merrill Lynch was not requested to, and did not,
participate in the negotiation or structuring of the Mergers and was not asked
to, and did not, recommend the specific consideration payable in the Mergers.
In arriving at its opinion and making its presentation to the Special
Committee at a meeting held on January 21, 1994 and to the Liberty Board at a
meeting held on January 24, 1994, Merrill Lynch considered and discussed certain
financial analyses and other factors. In connection with its presentations,
Merrill Lynch provided the Special Committee and the Liberty Board with a
summary of valuation results obtained by using several different valuation
methods as well as other materials concerning the Liberty Common Stock and the
TCI Common Stock, the material portions of which are summarized below. In
connection with its opinion dated the date hereof and in making its
presentations to the Special Committee at a meeting held on June 6, 1994, and to
the Liberty Board at a meeting held on June 15, 1994, Merrill Lynch performed
certain procedures to update its analyses made in connection with the delivery
of its opinion dated January 21, 1994. The results of such analyses were
substantially the same as those arrived in connection with Merrill Lynch's
January 21, 1994 opinion, except as noted below.
The following paragraphs describe Merrill Lynch's analyses of Liberty and
TCI. The analysis undertaken by Merrill Lynch in connection with arriving at its
opinion dated January 21, 1994 is hereinafter referred to as the "January
Analysis" and the analysis undertaken by Merrill Lynch in connection with
arriving at its opinion dated the date hereof is hereinafter referred to as the
"June Analysis". The methodologies used in the January Analysis were
substantially identical to the methodologies used in the June Analysis. The
differences between the results outlined below in the January Analysis and the
June Analysis are due to, among other things, (1) changes in operating cash flow
estimates for TCI's and Liberty's cable television systems, (2) changes in
acquisition/private market value multiples and public market multiples paid or
being paid for cable television systems, (3) changes in public market share
prices for certain Liberty programming investments, and (4) changed
circumstances for certain TCI and Liberty non-cable television system assets.
The changes made to the public market and private market operating cash flow
multiples described above were designed to reflect changes in public market and
private market values since the January Analysis as a result of, among other
things, the termination of certain acquisition transactions between telephone
companies and cable television companies and the announcement of the Revised FCC
Rate Regulations.
Stock Trading History. Merrill Lynch reviewed the performance of the per
share stock market price of the Liberty Class A Common Stock for various time
periods and compared such per share market price movements to the market price
movements of selected publicly traded programming and cable television
companies. Such programming companies included BET Holdings, Inc., Capital
Cities/ABC, Inc., CBS Inc., Gaylord Entertainment Company, Home Shopping
Network, Inc., International Family Entertainment, Inc., QVC, Inc., Turner
Broadcasting System, Inc. (Class B Common Stock), Video Jukebox Network, Inc.
and The Walt Disney Company (collectively, the "Programming Composite") and such
cable television companies included Adelphia Communications Corp., Cablevision
Systems Corporation, Century Communications Corp., Comcast Corporation (Class A
Special Common Stock), Falcon Cable Systems, L.P., Jones Intercable, Inc. (Class
A Common Stock), TCA Cable TV, Inc., Tele-Communications, Inc. (TCI Class A
Common Stock) and Time Warner, Inc. (collectively, the "MSO Composite"). Merrill
Lynch also reviewed the performance of the per share stock market price of the
TCI Class A Common Stock for various time periods and compared such per share
market price movements to the market price movements of the companies contained
in the MSO Composite (excluding the TCI Class A Common Stock). Merrill Lynch's
analysis indicated that the Liberty Class A Common Stock outperformed both the
Programming Composite and the MSO Composite for the various time periods.
Merrill Lynch did not draw any conclusions for the Special Committee at the
January 21, 1994 meeting of the Special Committee with respect to Merrill
Lynch's fairness opinion based on this stock trading history, but informed the
Special Committee at that time that the historical stock trading analysis
indicated that due to the increase in Liberty's public market net asset value
the differential between Liberty's private and public market net asset value had
narrowed over time. Merrill
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Lynch did not draw any conclusions for the Special Committee with respect to the
stock trading history of the TCI Class A Common Stock.
Comparative Net Asset Values. Merrill Lynch also analyzed Liberty and TCI
by determining the value of each company's component assets and businesses
without accounting for tax liability if sold separately. The resulting total
values were reduced by the amount of adjusted net liabilities to determine net
asset value and thus net asset value per share. Merrill Lynch analyzed Liberty
and TCI on both a public and a private market basis. The term "public market
basis" means the range of values implied by comparing certain financial results
of a component business to certain financial multiples enjoyed by publicly
traded comparable companies. The term "private market value" means the range of
values implied by comparing certain financial results of a component business to
certain financial multiples paid in comparable acquisition transactions. In
certain instances, Merrill Lynch utilized a discounted cash flow analysis in
determining private market value. In performing a valuation analysis of both
companies, Merrill Lynch employed, where possible, up to three standard
valuation methodologies (i.e., analyses of selected publicly traded comparable
companies, analyses of selected comparable acquisition transactions and
discounted cash flow analyses). No company, transaction or business utilized in
the comparable company and comparable acquisition analyses as a comparison is
identical to TCI, Liberty, their respective investments or the Mergers.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical or necessarily precise; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
and other factors that would affect the public trading value of the comparable
companies or the business segment or company to which they are being compared.
The total asset values of Liberty and TCI determined in accordance with the
public market analysis discussed above ranged from $4,124.0 million to $4,638.5
million for Liberty and $22,172.6 million to $24,391.6 million for TCI in the
January Analysis, and ranged from $3,517.0 million to $3,956.6 million for
Liberty and $19,835.2 million to $21,943.9 million for TCI in the June Analysis.
After the adjustment for Liberty's and TCI's net debt and preferred stock,
Liberty's net asset values ranged from $2,708.9 million to $3,224.1 million and
TCI's ranged from $12,529.3 million to $14,748.3 million in the January
Analysis, and ranged from $2,215.7 million to $2,656.0 million for Liberty and
$10,063.9 million to $12,172.6 million for TCI in the June Analysis. The net
asset values per share determined in accordance with the public market analysis
discussed above ranged from $20.46 to $24.36 for Liberty and $25.17 to $29.62
for TCI in the January Analysis, and $16.74 to $20.07 for Liberty and $20.11 to
$24.33 for TCI in the June Analysis. The total asset values of Liberty and TCI
determined in accordance with the private market analysis discussed above ranged
from $4,497.5 million to $5,082.9 million for Liberty and $26,348.9 million to
$28,148.3 million for TCI in the January Analysis, and $3,926.5 million to
$4,486.6 million for Liberty and $23,233.8 million to $26,002.6 million for TCI
in the June Analysis. After the adjustment for Liberty's and TCI's net debt and
preferred stock, Liberty's respective net asset values ranged from $3,058.6
million to $3,644.8 million and TCI's ranged from $16,705.6 million to $18,505.0
million in the January Analysis, and $2,572.6 million to $3,132.7 million for
Liberty and $13,462.5 million to $16,231.3 million for TCI in the June Analysis.
The net asset values per share determined in accordance with the private market
analysis discussed above ranged from $23.11 to $27.53 for Liberty and $33.55 to
$37.17 for TCI in the January Analysis, and $19.43 to $23.67 for Liberty and
$26.90 to $32.44 for TCI in the June Analysis.
A summary of the methods used by Merrill Lynch to analyze the value of each
of Liberty's and TCI's component assets and businesses is set forth below:
Cable Television Systems. Merrill Lynch developed its analysis of
Liberty's and TCI's cable television systems based upon historical and
projected financial information relating to those assets prepared by the
respective managements of the two companies, as well as on a review of
publicly-available information relating both to cable television companies
that Merrill Lynch deemed generally comparable to Liberty and TCI and
selected cable television acquisitions announced since March 1991. Merrill
Lynch also used internal financial forecasts prepared by Liberty's
management to perform discounted cash flow analyses of selected Liberty
cable television assets.
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In using this information to develop a range of valuation multiples
applicable to operating cash flow for its valuation of Liberty's and TCI's
cable television systems, Merrill Lynch considered, among other things: the
technical quality and location of Liberty's and TCI's cable television
systems; the systems' number of homes passed, basic and pay subscribers;
the systems' basic and pay penetration ratios; the systems' cable
television revenues and projected fiscal year 1994 operating cash flow in
its January Analysis, and annualized first quarter 1994 operating cash flow
in its June Analysis; and other selected measures of performance. Merrill
Lynch then compared such information against similar information for
companies which Merrill Lynch deemed generally comparable to Liberty and
TCI and against companies acquired in transactions which Merrill Lynch
deemed comparable to the cable system being analyzed.
In its January Analysis, Merrill Lynch derived a range of public
market values for Liberty's cable television systems based generally on
multiples of 9.5 to 10.5 times projected 1994 operating cash flow, which
implied an asset value range of $1,930.8 million to $2,128.5 million and an
asset value per share range of $14.59 to $16.08. In its June analysis,
Merrill Lynch derived a range of public market values for Liberty's cable
television systems based generally on multiples of 8.5 to 9.5 times
annualized first quarter 1994 operating cash flow, which implied an asset
value range of $1,658.0 million to $1,844.8 million and an asset value per
share range of $12.53 to $13.94. In its January Analysis, Merrill Lynch
also derived a range of private market values for Liberty's cable
television systems based generally on multiples of 11.0 to 11.75 times
projected 1994 operating cash flow, which implied an asset value range of
$2,227.3 million to $2,375.6 million and an asset value per share range of
$16.83 to $17.95. In its June Analysis, Merrill Lynch also derived a range
of private market values for Liberty's cable television systems based
generally on multiples of 10.0 to 11.25 times annualized first quarter 1994
operating cash flow, which implied an asset value range of $1,937.0 million
to $2,170.4 million and an asset value per share range of $14.63 to $16.40.
In its January Analysis, Merrill Lynch derived a range of public
market values for TCI's cable television systems based on multiples of 9.25
to 10.25 times projected 1994 operating cash flow, which implied an asset
value range of $17,284.4 million to $19,162.8 million and an asset value
per share range of $34.72 to $38.49. In its June Analysis, Merrill Lynch
derived a range of public market values for TCI's cable television systems
based on multiples of 8.5 to 9.5 times annualized first quarter 1994
operating cash flow, which implied an asset value range of $15,257.0
million to $17,007.4 million and an asset value per share range of $30.49
to $33.99. In its January Analysis, Merrill Lynch also derived a range of
private market values for TCI's cable television systems based on multiples
of 11.0 to 11.75 times projected 1994 operating cash flow, which implied an
asset value range of $20,571.7 million to $21,980.5 million and an asset
value per share range of $41.32 to $44.15. In its June Analysis, Merrill
Lynch also derived a range of private market values for TCI's cable
television systems based on multiples of 10.0 to 11.25 times annualized
first quarter 1994 operating cash flow, which implied an asset value range
of $17,892.2 million to $20,123.0 million and an asset value per share
range of $35.76 to $40.21.
Public Investments. Merrill Lynch developed its valuation analyses of
Liberty's public market investments and TCI's public market investments
based on information provided by Liberty's and TCI's managements and public
trading values as of January 19, 1994 in its January Analysis and June 3,
1994 in its June Analysis. Merrill Lynch also performed a discounted cash
flow analysis of certain of Liberty's public investments in which Liberty
exercised voting control based on internal financial forecasts supplied by
Liberty's management.
In its January Analysis, Merrill Lynch derived a range of public
market asset values for Liberty's public market investments of $1,344.1
million to $1,452.7 million and an asset value per share range of $10.15 to
$10.97. In its June Analysis, Merrill Lynch derived a range of public
market asset values for Liberty's public market investments of $1,015.8
million to $1,060.2 million and an asset value per share range of $7.67 to
$8.01. In its January Analysis, Merrill Lynch also derived a range of
private market asset values for Liberty's public investments of $1,375.9
million to $1,604.5 million and an asset value per share range of $10.39 to
$12.12. In its June Analysis, Merrill Lynch derived a range of private
market asset values for Liberty's public investments of $1,112.7 million to
$1,230.9 million and an asset value per share range of $8.41 to $9.30.
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In its January Analysis, Merrill Lynch derived a range of public
market asset values for TCI's public market investments of $2,399.3 million
to $2,403.3 million and an asset value per share range of $4.82 to $4.83.
In its June Analysis, Merrill Lynch derived a range of public market asset
values for TCI's public market investments of $1,626.5 million to $1,626.5
million and an asset value per share range of $3.25 to $3.25. In its
January Analysis, Merrill Lynch also derived a range of private market
asset values for TCI's public investments of $2,452.8 million to $2,456.9
million and an asset value per share of approximately $4.93. In its June
Analysis, Merrill Lynch also derived a range of private market asset values
for TCI's public investments of $1,789.1 million to $1,919.2 million and an
asset value per share range of $3.58 to $3.84.
Private Programming and Other Investments. Merrill Lynch developed
its analyses of Liberty's private programming investments and TCI's private
programming and other investments based upon information furnished by
Liberty and TCI. With respect to Liberty's and TCI's private programming
assets, Merrill Lynch based its analysis upon historical and forecasted
financial and operating information relating to those assets supplied by
the respective managements of the two companies, as well as on a review of
publicly-available information relating both to programming companies that
Merrill Lynch deemed generally comparable to Liberty and TCI and to
selected programming acquisitions announced since August 1985. Merrill
Lynch also used internal operating cash flow forecasts prepared by
Liberty's and TCI's respective managements to perform discounted cash flow
analyses on selected private programming assets. With respect to TCI's
other investments, Merrill Lynch: (i) used internal operating cash flow
forecasts prepared by TCI's management to perform a discounted cash flow
analysis of its direct broadcast satellite investment; (ii) applied a
multiple of revenues to TCI's competitive access and microwave investments
that Merrill Lynch deemed generally comparable to other competitive access
and microwave companies, respectively; (iii) valued TCI's fixed income and
redeemable preferred investments on the basis of book or market values,
where available; and (iv) valued TCI's projected net operating loss
carryforwards and investment tax credit utilization based on TCI's internal
forecasts, discounted to the present.
In using the information outlined above to develop a range of
valuation multiples applicable to operating cash flow and subscribers for
its valuation of Liberty's and TCI's private programming investments,
Merrill Lynch considered, among other things: the quality of Liberty's and
TCI's programming investments; the individual programming companies'
subscriber bases and affiliate and advertising revenues; their projected
fiscal year 1994 operating cash flow; and other selected measures of
performance. Merrill Lynch then compared such information against similar
information for companies which Merrill Lynch deemed generally comparable
to the private programming investments and against companies acquired in
transactions which Merrill Lynch deemed comparable to the private
programming investments.
In its January Analysis, Merrill Lynch derived a range of public
market asset values for Liberty's private programming investments of $702.1
million to $899.1 million and an asset value per share range of $5.30 to
$6.79. In its June Analysis, Merrill Lynch derived a range of public market
asset values for Liberty's private programming investments of $701.8
million to $899.0 million and an asset value per share range of $5.30 to
$6.79. In its January Analysis, Merrill Lynch also derived a range of
private market asset values for Liberty's private programming investments
of $732.0 million to $929.1 million and an asset value per share range of
$5.53 to $7.02. In its June Analysis, Merrill Lynch also derived a range of
private market asset values for Liberty's private programming investments
of $728.4 million to $925.7 million and an asset value per share range of
$5.50 to $6.99.
In its January Analysis, Merrill Lynch derived a range of public
market asset values for TCI's private programming and other investments of
$1,935.7 million to $2,272.2 million and an asset value per share range of
$3.89 to $4.56. In its June Analysis, Merrill Lynch derived a range of
public market asset values for TCI's private programming and other
investments of $1,852.4 million to $2,210.7 million and an asset value per
share range of $3.70 to $4.42. In its January Analysis, Merrill Lynch also
derived a range of private market asset values for TCI's private
programming and other investments of $2,449.3 million to $2,835.7 million
and an asset value per share range of $4.92 to $5.70. In its June Analysis,
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Merrill Lynch also derived a range of private market asset values for
TCI's private programming and other investments of $2,270.4 million to
$2,678.2 million and an asset value per share range of $4.54 to $5.35.
International and Other Investments. Merrill Lynch developed its
valuation of Liberty's other assets and liabilities and TCI's international
assets and liabilities based on information furnished by Liberty and TCI.
With respect to Liberty's other assets, Merrill Lynch: (i) considered the
public market prices of Liberty's investment in programming companies; (ii)
valued Liberty's investment in notes receivable and other investments on
the basis of book or market value, where available; (iii) capitalized
corporate expenses at 6.0 to 8.0 times projected 1994 expenses; and (iv)
valued Liberty's net operating loss carryforward utilization on the basis
of Liberty's internal forecasts, discounted to the present.
In its January Analysis, Merrill Lynch derived a public market asset
value range of $147.0 million to $158.1 million for Liberty's other assets
and an asset value per share range of $1.12 to $1.20. In its June Analysis,
Merrill Lynch derived a public market asset value range of $141.5 million
to $152.5 million for Liberty's other assets and an asset value per share
range of $1.07 to $1.15. In its January Analysis, Merrill Lynch derived a
private market asset value range of $162.2 million to $173.8 million for
Liberty's other assets and an asset value per share range of $1.23 to
$1.32. In its June Analysis, Merrill Lynch derived a private market asset
value range of $148.4 million to $159.6 million for Liberty's other assets
and an asset value per share range of $1.12 to $1.21.
Merrill Lynch used TCI's investment in and multiples of attributable
subscribers to value TCI's international assets. In its January Analysis,
Merrill Lynch derived a public market asset value of $533.3 million for
TCI's international assets and an asset value per share of $1.11, and in
its June Analysis, Merrill Lynch derived a public market asset value of
$1,099.3 million and an asset value per share of $2.20. In its January
Analysis, Merrill Lynch derived a private market asset value of $875.2
million for TCI's international assets and an asset value per share of
$1.76 and in its June Analysis, Merrill Lynch derived a private market
asset value of $1,282.1 million and an asset value per share of $2.56.
In addition to the foregoing analyses with respect to Liberty and TCI,
Merrill Lynch performed the following analyses with respect to the impact of the
proposed merger of Liberty and TCI.
Relative Market Value. Merrill Lynch reviewed trends in the implied
exchange ratio of Liberty Class A Common Stock versus TCI Class A Common Stock
from January 12, 1993 to January 11, 1994 in its January Analysis, and from
October 9, 1992 to June 3, 1994 in its June Analysis. The implied exchange
ratios were determined by taking the daily per share market price of Liberty
Class A Common Stock and dividing it by the daily per share market price of TCI
Class A Common Stock. The implied exchange ratio over this period ranged from a
high of 1.156 to a low of 0.595 in its January Analysis, and a high of 1.156 to
a low of 0.403 in its June Analysis.
Exchange Ratio Analysis. Implied exchange ratios were determined by
dividing Liberty's net asset value per share by TCI's net asset value per share.
Merrill Lynch determined a public market implied exchange ratio by dividing
Liberty's public market net asset value per share by TCI's public market net
asset value per share. Liberty's and TCI's public market net asset values per
share were determined in accordance with the public market analysis discussed
above. Merrill Lynch determined a private market implied exchange ratio by
dividing Liberty's private market net asset value per share by TCI's private
market net asset value per share. Liberty's and TCI's private market net asset
values per share were determined in accordance with the private market analysis
discussed above. Merrill Lynch advised the Special Committee and the Liberty
Board that its analysis focused on the private market/public market implied
exchange ratio derived by dividing Liberty's private market net asset value per
share by TCI's public market net asset value per share. Merrill Lynch advised
the Special Committee and the Liberty Board that its analysis focused on the
private market/public market implied exchange ratio as this was the most
conservative of the implied exchange analyses. That is, the private
market/public market exchange ratio yielded implied exchange ratios that were
higher than the other analyses Merrill Lynch performed because Liberty's private
market net asset value per share was higher than Liberty's public market net
asset value per share and TCI's public market net asset value per share was
lower than TCI's private market net asset value per share. Merrill Lynch further
advised
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<PAGE> 53
the Special Committee and the Liberty Board that the Liberty private market net
asset value per share did not necessarily represent values that could be
achieved from the sale of all or part of Liberty to third parties and that if
such values were achieved on a pre-tax basis, there was a high degree of
uncertainty as to whether Liberty could realize these values on an after-tax
basis. Liberty's private market net asset value per share and TCI's public
market net asset value per share were determined in accordance with the private
and public market analyses discussed above.
The implied exchange ratio determined in accordance with the public market
exchange ratio analysis discussed above ranged from 0.813 to 0.822 in its
January Analysis and from 0.825 to 0.832 in its June Analysis. The implied
exchange ratio determined in accordance with the private market implied exchange
ratio analysis discussed above ranged from 0.689 to 0.741 in its January
Analysis and from 0.722 to 0.730 in its June Analysis. Finally, the implied
exchange ratio determined in accordance with the private market/public market
implied exchange ratio analysis discussed above ranged from 0.918 to 0.930 in
its January Analysis and from 0.966 to 0.973 in its June Analysis.
Contribution Analysis. In its January Analysis Merrill Lynch analyzed the
respective contributions to implied market value and attributable operating cash
flow of each of Liberty and TCI to TCI/Liberty following consummation of the
Mergers, on a historical basis, and without taking into account any potential
synergies resulting from the transaction. These analyses showed that as of
January 19, 1994, after giving effect to the Mergers, Liberty's stockholders
would own 20.5% of the economic interests of TCI/Liberty and that as of
September 30, 1993, after giving effect to the Mergers, Liberty would contribute
an estimated 15.5% of attributable operating cash flow to TCI/Liberty.
The Special Committee selected Merrill Lynch to render a fairness opinion
because Merrill Lynch is an internationally recognized investment banking firm
with substantial experience in transactions similar to the proposed Mergers and
because it is familiar with Liberty and TCI and their respective businesses.
Merrill Lynch has, from time to time, acted as underwriter to TCI and its
affiliates and has, from time to time, rendered other investment banking,
financial advisory and other services to Liberty, TCI and their respective
affiliates, for which it has received customary compensation. During the past
two years with respect to TCI, Merrill Lynch acted as underwriter to TCI in
connection with a common stock offering in December 1992 and in connection with
debt offerings in July 1993, April 1993, February 1993, October 1992, April 1992
and January 1992, and Merrill Lynch received fees in connection with such
transactions of approximately $9,320,000. During such two year period, Merrill
Lynch also acted as agent to TCI in January 1993 in connection with the issuance
by TCI of certain notes, and Merrill Lynch received fees in connection with such
transaction of approximately $389,000. Merrill Lynch also owns warrants to
purchase $200 million of TCI's 7 1/4% Notes due 2008. During such two year
period, Merrill Lynch acted as co-exclusive financial advisor with CS First
Boston to SCI Holdings, Inc. ("SCI"), a subsidiary of TCI, and as co-dealer
managers in connection with the solicitation of certain holders of SCI debt
securities in December 1992. Merrill Lynch received approximately $3,250,000
from SCI for such financial advisory and dealer manager services. During such
two year period, Merrill Lynch also acted as an underwriter to TKR Cable I, Inc.
in October 1992 in connection with a debt offering and received approximately
$2,754,000 in fees in such transaction. In May 1992, OSCAR I Corporation ("OSCAR
I") purchased all of the outstanding shares of capital stock of United Artists
Theatre Circuit, Inc. ("United Artists") from an indirect subsidiary of TCI for
approximately $543.8 million. The purchase price was comprised of approximately
$134.1 million of cash, $92.5 million of Series A Preferred Stock of Oscar I and
the assumption of approximately $317.2 million of indebtedness and certain other
obligations. The Series A Preferred Stock of OSCAR I was acquired by an indirect
wholly owned subsidiary of TCI. OSCAR I is owned by a group comprised of
affiliates of Merrill Lynch Capital Partners ("MLCP") (an indirect subsidiary of
Merrill Lynch & Co., Inc., the parent of Merrill Lynch), certain institutional
investors and certain members of management of United Artists. In connection
with this transaction, OSCAR II Corporation, which is owned by affiliates of
MLCP and certain institutional investors, also acquired another indirect
subsidiary of TCI United Artists Realty Company for approximately $143.3
million. The purchase price was comprised of approximately $1.0 million of cash,
approximately $142.3 million of mortgage indebtedness and certain other
obligations. In addition, Merrill Lynch & Co., Inc. sold its indirect wholly
owned subsidiary, Teleport Communications Group Inc. ("Teleport"), to certain
investors,
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<PAGE> 54
including TCI Teleport, Inc. ("TCI Teleport", a wholly owned subsidiary of TCI),
in November 1992. TCI Teleport purchased 49.9% of Teleport for approximately
$75.8 million. Furthermore, in the ordinary course of Merrill Lynch's securities
business, it may actively trade debt and/or equity securities of Liberty and TCI
and their respective affiliates for its own account and the accounts of its
customers, and it therefore may from time to time hold a long or short position
in such securities, including, without limitation a long position in 10 1/2%
notes of TKR Cable I Inc., an affiliate of TCI, in an aggregate principal amount
of approximately $35 million. In addition, Merrill Lynch has in the past and is
currently acting as the lead agent in TCI's medium-term note program and as an
agent for TCI's commercial paper program. Mr. Charles A. Lewis, a Managing
Director of Merrill Lynch, beneficially owns 239,680 shares of Liberty Class A
Common Stock and 2,996 shares of Liberty Class E Preferred Stock. As part of its
investment banking business, Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions.
Fees Paid to Merrill Lynch. Liberty paid Merrill Lynch a fee of $750,000
pursuant to the terms of the engagement letter whereby Liberty retained Merrill
Lynch to deliver a fairness opinion to the Special Committee in connection with
the Mergers. Liberty has also agreed to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses, including fees and expenses of its legal
counsel and to indemnify Merrill Lynch and certain related persons against
certain liabilities in connection with its engagement, including certain
liabilities under the Federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the Unaffiliated TCI Directors and
the Unaffiliated Liberty Directors with respect to the Mergers, stockholders
should be aware that certain members of TCI's and Liberty's management and the
TCI and Liberty boards have certain interests in the Mergers that are in
addition to or different from the interests of stockholders of TCI and Liberty
generally. The TCI Board and the Liberty Board were aware of these interests and
considered them, among other matters, in approving the Merger Agreement.
TCI Stock Options and SARs. As of May 2, 1994, executive officers and
directors of TCI held options (each a "TCI Stock Option") to purchase an
aggregate of 6,602,714 shares of TCI Class A Common Stock at various exercise
prices and subject to various vesting schedules (6,550,000 of which were issued
in tandem with stock appreciation rights as discussed below). In the case of a
tandem option or stock appreciation right, the related stock appreciation right
or option, as the case may be, is considered to have been exercised to the
extent of the number of shares of TCI Common Stock with respect to which such
related tandem option or stock appreciation right is exercised. Immediately
following the Effective Time, all TCI Stock Options outstanding immediately
prior to the Effective Time, whether vested or unvested, will be assumed by
TCI/Liberty. Pursuant to the Merger Agreement, each TCI Stock Option will be
deemed to constitute an option to purchase, on the same terms and conditions as
were applicable under such TCI Stock Option, that number of shares of
TCI/Liberty Class A Common Stock which is equal to the number of shares of TCI
Class A Common Stock that were subject to such TCI Stock Option immediately
prior to the Effective Time, at an exercise price per share of TCI/Liberty Class
A Common Stock equal to the exercise price per share of TCI Class A Common Stock
subject to such TCI Stock Option immediately prior to the Effective Time. The
Merger Agreement provides that TCI/Liberty's assumption of the TCI Stock Options
shall be accomplished in a manner that shall, in all respects, comply with the
requirements of the Code, with respect to each TCI Stock Option that is an
"incentive stock option" (as defined in Section 422(b) of the Code), including
any requirement that the assumption of such TCI Stock Option by TCI/Liberty not
provide the holder with any benefits greater than those such holder had prior to
such assumption. TCI/Liberty may make any changes in the terms of the option
that it deems necessary or desirable with respect to such assumption in order to
satisfy the requirements of the Code.
As of May 2, 1994, executive officers and directors of TCI held stock
appreciation rights (each a "TCI SAR") with respect to an aggregate of 6,550,000
shares of TCI Class A Common Stock, each of which was issued in tandem with TCI
Stock Options. Immediately following the Effective Time, all TCI SARs
outstanding immediately prior to the Effective Time, whether vested or unvested,
will be assumed by TCI/Liberty. Pursuant to the Merger Agreement, each TCI SAR
will be deemed to constitute a stock
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<PAGE> 55
appreciation right, on the same terms and conditions as were applicable under
such TCI SAR, with respect to that number of shares of TCI/Liberty Class A
Common Stock which is equal to the number of shares of TCI Class A Common Stock
that were subject to such TCI SAR immediately prior to the Effective Time, at an
exercise price per stock appreciation right equal to the exercise price per
share of the related TCI Stock Option assumed by TCI/Liberty in the manner
described in the preceding paragraph.
The following table indicates for each person who is an executive officer
or director of TCI and who held TCI Stock Options or TCI SARs at May 2, 1994 (a)
the number of shares of TCI Class A Common Stock subject to such options and/or
stock appreciation rights that were vested at May 2, 1994, (b) the number of
shares of TCI Class A Common Stock subject to such options and/or stock
appreciation rights that were not vested at such date, (c) the exercise price
per share of TCI Class A Common Stock of all such options and/or stock
appreciation rights (whether vested or unvested), (d) the value of such person's
unexercised in-the-money TCI Stock Options and/or TCI SARs calculated using the
closing sale price per share of TCI Class A Common Stock on the Nasdaq National
Market on May 2, 1994, (e) the total number of shares of TCI/Liberty Class A
Common Stock that would be subject to such options and/or stock appreciation
rights immediately following the Effective Time assuming that all such options
and/or stock appreciation rights continue to be outstanding immediately prior to
the Effective Time and (f) the exercise or base price per share of TCI/Liberty
Class A Common Stock of such options and/or stock appreciation rights
immediately following the Effective Time. The TCI Stock Options and TCI SARs
listed opposite the name of each person in the table below include all TCI Stock
Options and TCI SARs granted to such person under incentive plans of TCI or
otherwise.
<TABLE>
<CAPTION>
TCI TCI TCI/LIBERTY
CLASS A CLASS A VALUE OF CLASS A
COMMON COMMON EXERCISE UNEXERCISED COMMON
STOCK STOCK PRICE OF IN-THE-MONEY STOCK EXERCISE
SUBJECT TO SUBJECT TO TCI OPTIONS/SARS SUBJECT TO PRICE OF
VESTED UNVESTED STOCK (IN THOUSANDS) ASSUMED ASSUMED
OPTIONS OPTIONS OPTIONS EXERCISABLE/ OPTIONS OPTIONS
OPTION AND SAR HOLDER AND/OR SARS AND/OR SARS AND/OR SARS UNEXERCISABLE AND/OR SARS AND/OR SARS
- ------------------------ ----------- ----------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
John C. Malone
Exercisable........... 200,000 -- $16 3/4 $ 550 200,000 $16 3/4
Unexercisable......... -- 800,000 16 3/4 2,200 800,000 16 3/4
Bob Magness
Exercisable........... 200,000 -- 16 3/4 550 200,000 16 3/4
Unexercisable......... -- 800,000 16 3/4 2,200 800,000 16 3/4
J.C. Sparkman
Exercisable........... 20,000 -- 16 3/4 55 20,000 16 3/4
Unexercisable......... -- 80,000 16 3/4 220 80,000 16 3/4
Fred A. Vierra
Exercisable........... 9,714 -- 10.30 89 9,714 10.30
Exercisable........... 20,000 -- 16 3/4 55 20,000 16 3/4
Unexercisable......... -- 180,000 16 3/4 495 180,000 16 3/4
Brendan R. Clouston
Exercisable........... 100,000 -- 16 3/4 275 100,000 16 3/4
Unexercisable......... -- 900,000 16 3/4 2,475 900,000 16 3/4
Jerome H. Kern
Exercisable........... 400,000 -- 16 3/4 1,100 400,000 16 3/4
Unexercisable......... -- 1,600,000 16 3/4 4,400 1,600,000 16 3/4
Stephen M. Brett
Exercisable........... 20,000 -- 16 3/4 55 20,000 16 3/4
Unexercisable......... -- 180,000 16 3/4 495 180,000 16 3/4
Gary K. Bracken
Exercisable........... 10,000 -- 17 1/4 23 10,000 17 1/4
Exercisable........... 15,000 -- 16 3/4 41 15,000 16 3/4
Unexercisable......... -- 135,000 16 3/4 371 135,000 16 3/4
</TABLE>
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<PAGE> 56
<TABLE>
<CAPTION>
TCI TCI TCI/LIBERTY
CLASS A CLASS A VALUE OF CLASS A
COMMON COMMON EXERCISE UNEXERCISED COMMON
STOCK STOCK PRICE OF IN-THE-MONEY STOCK EXERCISE
SUBJECT TO SUBJECT TO TCI OPTIONS/SARS SUBJECT TO PRICE OF
VESTED UNVESTED STOCK (IN THOUSANDS) ASSUMED ASSUMED
OPTIONS OPTIONS OPTIONS EXERCISABLE/ OPTIONS OPTIONS
OPTION AND SAR HOLDER AND/OR SARS AND/OR SARS AND/OR SARS UNEXERCISABLE AND/OR SARS AND/OR SARS
- ------------------------ ----------- ----------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Barry P. Marshall
Exercisable........... 8,000 -- $17 1/4 $ 18 8,000 $17 1/4
Exercisable........... 40,000 -- 16 3/4 110 40,000 16 3/4
Unexercisable......... -- 360,000 16 3/4 990 360,000 16 3/4
Larry E. Romrell
Exercisable........... 10,000 -- 17 1/4 23 10,000 17 1/4
Exercisable........... 20,000 -- 16 3/4 55 20,000 16 3/4
Unexercisable......... -- 180,000 16 3/4 495 180,000 16 3/4
Bernard W. Schotters
Exercisable........... 10,000 -- 17 1/4 23 10,000 17 1/4
Exercisable........... 15,000 -- 16 3/4 41 15,000 16 3/4
Unexercisable......... -- 135,000 16 3/4 371 135,000 16 3/4
Robert N. Thomson
Exercisable........... 5,000 -- 17 1/4 11 5,000 17 1/4
Exercisable........... 15,000 -- 16 3/4 41 15,000 16 3/4
Unexercisable......... -- 135,000 16 3/4 371 135,000 16 3/4
</TABLE>
Liberty Options and SARs. As of May 2, 1994, executive officers and
directors of Liberty held options (each a "Liberty Stock Option") to purchase an
aggregate of 44,000 shares of Liberty Class A Common Stock (all of which were
issued in tandem with stock appreciation rights as described below). In the case
of a tandem option or stock appreciation right, the related stock appreciation
right or option, as the case may be, is considered to have been exercised to the
extent of the number of shares of Liberty Common Stock with respect to which
such related tandem option or stock appreciation right is exercised. Immediately
following the Effective Time, all Liberty Stock Options outstanding immediately
prior to the Effective Time, whether vested or unvested, will be assumed by
TCI/Liberty. Pursuant to the Merger Agreement, each Liberty Stock Option will be
deemed to constitute an option to purchase, on the same terms and conditions as
were applicable under such Liberty Stock Option, that number of shares of
TCI/Liberty Class A Common Stock which is equal to the number of shares of
Liberty Class A Common Stock that were subject to such Liberty Stock Option
immediately prior to the Effective Time multiplied by 0.975, rounded up to the
nearest whole number after taking into account all Liberty Stock Options held by
the holder of such Liberty Stock Option, at an exercise price per share of
TCI/Liberty Class A Common Stock equal to the amount determined by dividing the
exercise price per share of Liberty Class A Common Stock subject to such Liberty
Stock Option immediately prior to the Effective Time by 0.975, and rounding the
resulting number down to the nearest whole cent. None of the Liberty Stock
Options are "incentive stock options."
As of May 2, 1994, executive officers and directors of Liberty held stock
appreciation rights (each a "Liberty SAR") with respect to an aggregate of
1,504,000 shares of Liberty Class A Common Stock (44,000 of which were issued in
tandem with Liberty Stock Options). Immediately following the Effective Time,
all Liberty SARs outstanding immediately prior to the Effective Time, whether
vested or unvested, will be assumed by TCI/Liberty. Pursuant to the Merger
Agreement, each Liberty SAR will be deemed to constitute a stock appreciation
right, on the same terms and conditions as were applicable under such Liberty
SAR, with respect to that number of shares of TCI/Liberty Class A Common Stock
which is equal to the number of shares of Liberty Class A Common Stock that were
subject to such Liberty SAR immediately prior to the Effective Time multiplied
by 0.975, rounded up to the nearest whole number (after taking into account all
stock appreciation rights owned by a holder), at an exercise price per stock
appreciation right equal to (A) in the case of a Liberty SAR issued in tandem
with Liberty Stock Options, the exercise price per share of the related Liberty
Stock Option assumed by TCI/Liberty in the manner described in the preceding
paragraph and (B) in the case of a free standing Liberty SAR, the amount
determined by dividing the base price per share of such Liberty SAR immediately
prior to the Effective Time by 0.975, and rounding the resulting number down to
the nearest whole cent.
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<PAGE> 57
The following table indicates for each person who is an executive officer
or director of Liberty and who held Liberty Stock Options or Liberty SARs at May
2, 1994 (a) the number of shares of Liberty Class A Common Stock subject to such
options and/or stock appreciation rights that were vested at May 2, 1994, (b)
the number of shares of Liberty Class A Common Stock subject to such options
and/or stock appreciation rights that were not vested at such date, (c) the
exercise price per share of Liberty Class A Common Stock of all such options
and/or stock appreciation rights (whether vested or unvested), (d) the value of
such person's unexercised in-the-money Liberty Stock Options and/or Liberty SARs
calculated using the closing sale price per share of Liberty Class A Common
Stock on the Nasdaq National Market on May 2, 1994, (e) the total number of
shares of TCI/Liberty Class A Common Stock that would be subject to such options
and/or stock appreciation rights immediately following the Effective Time
assuming that all such options and/or stock appreciation rights continue to be
outstanding immediately prior to the Effective Time and (f) the exercise or base
price per share of TCI/Liberty Class A Common Stock of such options and/or stock
appreciation rights immediately following the Effective Time. The Liberty Stock
Options and Liberty SARs listed opposite the name of each person in the table
below include all Liberty Stock Options and Liberty SARs granted to such person
under incentive plans of Liberty or otherwise.
<TABLE>
<CAPTION>
LIBERTY LIBERTY VALUE OF TCI/LIBERTY
CLASS A CLASS A UNEXERCISED CLASS A
COMMON COMMON EXERCISE IN-THE-MONEY COMMON
STOCK STOCK PRICE OF OPTIONS/SARS STOCK EXERCISE
SUBJECT TO SUBJECT TO LIBERTY (IN SUBJECT TO PRICE OF
VESTED UNVESTED STOCK THOUSANDS) ASSUMED ASSUMED
OPTIONS OPTIONS OPTIONS EXERCISABLE/ OPTIONS OPTIONS
OPTION AND SAR HOLDER AND/OR SARS AND/OR SARS(1) AND/OR SARS UNEXERCISABLE AND/OR SARS AND/OR SARS
- ---------------------- ----------- -------------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter R. Barton....... 285,000 480,000 $ .80 $5,187/8,736 745,875 $ .82
Robert R. Bennett..... 135,000 240,000 .80 2,457/4,368 365,625 .82
John M. Draper........ -0- 320,000 .80 -0-/5,824 312,000 .82
James A. Martin....... -0- 22,000 19.08 -0-/-0- 21,450 19.56
Vivian J. Carr........ -0- 22,000 19.08 -0-/-0- 21,450 19.56
</TABLE>
- ---------------
(1) Pursuant to the terms of such unvested options and stock appreciation
rights, such unvested options and stock appreciation rights would have
vested as a result of the Mergers, except that the holders have waived the
right to have such options and stock appreciation rights vest with respect
to the Mergers.
Convertible Notes held by Members of the Naify Family. In connection with
TCI's acquisition of a majority interest in United Artists Communications, Inc.
("UACI") in 1986, Mr. Robert Naify, a director of TCI, and members of the Naify
family and trusts for the benefit of such family members were issued promissory
notes convertible into TCI Class A Common Stock in partial consideration for the
UACI stock sold by such persons to TCI. Mr. Robert Naify currently holds notes
which are convertible into 22,446,926 shares of TCI Class A Common Stock. Upon
the consummation of the Mergers, such notes will become convertible into an
equal number of shares of TCI/Liberty Class A Common Stock.
TCI/Liberty Stock Incentive Plan. If the TCI/Liberty Stock Incentive Plan
is approved by stockholders at the TCI Meeting and the Liberty Meeting,
respectively, TCI and Liberty have each agreed in the Merger Agreement to use
its best efforts to cause each holder of a TCI Stock Option or TCI SAR or
Liberty Stock Option or Liberty SAR, respectively, to surrender such option or
stock appreciation right, promptly after the Effective Time, to TCI/Liberty in
exchange for a stock option or stock appreciation right, respectively, granted
under the TCI/Liberty Stock Incentive Plan, which stock option or stock
appreciation right will contain terms and conditions that are not less favorable
to the holder thereof than those under such assumed TCI Stock Option, Liberty
Stock Option, TCI SAR or Liberty SAR, as the case may be (subject to such
changes as may be agreed to by TCI and Liberty and the holder of such option or
stock appreciation right). Notwithstanding the foregoing, the terms of the
TCI/Liberty stock options and stock appreciation rights issued under the
TCI/Liberty Stock Incentive Plan may contain such variations from the terms of
any TCI or Liberty Stock Options or TCI or Liberty SARs, respectively, exchanged
therefor which were not issued under a plan complying with Rule 16b-3 under the
Exchange Act ("Rule 16b-3"), as TCI/Liberty may determine are necessary or
desirable for such TCI/Liberty stock options and stock appreciation rights to
comply with Rule 16b-3. If a holder of TCI Stock Options, TCI SARs, Liberty
Stock Options or Liberty SARs does not
50
<PAGE> 58
surrender his options or stock appreciation rights to TCI/Liberty, the terms of
such options or rights will continue to be governed by the incentive plan under
which those securities were originally granted (or, if not granted under a plan,
the terms of the agreement pursuant to which those securities were granted),
rather than under the terms of the TCI/Liberty Stock Incentive Plan.
Approval of the TCI/Liberty Stock Incentive Plan at the TCI Meeting and the
Liberty Meeting will permit grants of TCI/Liberty stock options, stock
appreciation rights, restricted shares and stock units under the TCI/Liberty
Stock Incentive Plan, the exercise of such securities and certain transfers of
TCI/Liberty Common Stock acquired thereunder or in connection therewith to be
exempt, in accordance with Rule 16b-3, from the operation of the "short-swing
profits" prohibition of Section 16(b) of the Exchange Act. Certain of the TCI
Stock Options and Liberty SARs, which will be exchanged for options and stock
appreciation rights granted under the TCI/Liberty Stock Incentive Plan if such
plan is approved at the Special Meetings, were not granted under a plan that
complied with the requirements of Rule 16b-3 and hence are not currently exempt
from the "short-swing profits" prohibition of Section 16(b). For a description
of the terms of the TCI/Liberty Stock Incentive Plan, see "MANAGEMENT OF
TCI/LIBERTY -- TCI/Liberty Stock Incentive Plan."
TCI ESPP. The Merger Agreement provides that TCI will take all actions
necessary to amend the Tele-Communications, Inc. Employee Stock Purchase Plan
(the "TCI ESPP") prior to the Effective Time to provide that the TCI ESPP will
not purchase any capital stock of TCI at or after the Effective Time. As of the
close of business on March 31, 1994, 7,447,107 shares of TCI Class A Common
Stock were held pursuant to the TCI ESPP, of which 217,828 shares were not
vested at that date. By virtue of the Mergers, each share of TCI Common Stock
held by the TCI ESPP at the Effective Time will be converted into the right to
receive one share of the same class of TCI/Liberty Common Stock. Information
with respect to contributions made by TCI to the TCI ESPP for the respective
accounts of certain of the executive officers of TCI is contained in the TCI
Form 10-K, which is incorporated herein by reference and copies of which may be
obtained as described under "AVAILABLE INFORMATION." After the Effective Time,
the TCI ESPP will be adopted by TCI/Liberty.
Effect on Employment Agreements. TCI has employment agreements with
certain of its executive officers. TCI/Liberty has agreed to assume the
employment agreements of such officers who will be executive officers of
TCI/Liberty. Liberty has an employment agreement with Dr. Malone which
TCI/Liberty has agreed to assume. Pursuant to such employment agreement Liberty
has the right to repurchase Dr. Malone's Restricted Voting Shares upon certain
triggering events; however, Liberty's repurchase right terminates as to all of
the Restricted Voting Shares if Dr. Malone terminates his employment with
Liberty as a result of a change of control. Dr. Malone has waived such change of
control provision with respect to the Mergers. For a summary of the terms of the
employment agreements of TCI executive officers and the employment agreement
between Liberty and Dr. Malone which will be assumed by TCI/Liberty, see
"MANAGEMENT OF TCI/LIBERTY -- Employment Arrangements."
Liberty Split Dollar Whole Life Insurance Policies. In 1991, Liberty
provided split dollar whole life insurance policies for three of its executive
officers. The policies provide that, in the event of a change of control of
Liberty, Liberty will immediately prepay all premiums through the tenth year of
the policies and the policies will vest to the sole benefit of the insured
executives. Each of the insured executives has waived the change of control
provision in his policy with respect to the Mergers.
Indemnification. The Merger Agreement provides that the present and former
directors, officers, employees and agents of TCI and Liberty will be indemnified
by TCI/Liberty after the Effective Time against certain liabilities to the
extent that (a) a corporation is permitted under Delaware law to indemnify its
own directors, officers, employees or agents, as the case may be, (b) such
person would be entitled to be indemnified by TCI or Liberty with respect to the
liability in question under any indemnification agreement between such person
and TCI or Liberty or under the Charter or Bylaws of TCI or Liberty, as the case
may be, and (c) such indemnification otherwise is permitted by applicable law.
See "THE MERGER AGREEMENT -- Indemnification." In addition, TCI and Liberty have
each entered into indemnification agreements with each of their respective
directors.
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Liberty Directors. Immediately following the Mergers, the present
directors on the Liberty Board will remain on the board of Liberty, which will
then be a subsidiary of TCI/Liberty, and will be compensated for their services
in the same manner as they had been by Liberty prior to the Mergers. For
regulatory reasons relating to Liberty's cable operating systems, the Liberty
directors will remain on the Liberty Board after the consummation of the
Mergers.
The respective interests of the members of TCI's and Liberty's management
and board of directors described above constitute all of the material interests
of those persons, known to TCI or Liberty, in the Mergers that are different
from, or constitute an extra or special benefit not shared on a pro rata basis
with, the public stockholders of TCI or Liberty.
In addition to the foregoing, during the past fiscal year certain of the
directors of Liberty engaged in transactions with Liberty or TCI or their
respective affiliates or with other Liberty directors. For a description of
certain transactions between each of Paul Gould, David Wargo and David Rapley,
and Liberty, TCI or their respective affiliates, see "-- Negotiations with
Respect to the Mergers." Each of Messrs. Gould, Wargo and Rapley is an
Unaffiliated Liberty Director. In addition, John Malone is a member of the board
of directors of Lenfest Communications, Inc. ("LCI"), and both Dr. Malone and
Peter Barton are on the board of directors of Black Entertainment Television,
Inc. ("BET"). Mr. H.F. Lenfest is also a director, as well as the President and
Chief Executive Officer, of LCI, and Mr. Robert L. Johnson is also a director,
as well as the President and Chief Executive Officer, of BET. Liberty has an
indirect 50% equity interest in LCI and an indirect 18% equity interest in BET.
Each of Messrs. Lenfest and Johnson is an Unaffiliated Liberty Director. TCI and
LCI are co-investors in two overseas cable television companies, and are also
parties to a joint venture which is developing an on-screen video guide for
cable television. Mr. Johnson is also an investor with Liberty and TCI in Mile
High Cable Partners, L.P., the operator of the cable television systems in
Denver, Colorado, and an investor with TCI in District Cablevision Limited
Partnership, the operator of the cable television system in the District of
Columbia. In addition, QE+ Ltd., a limited partnership formed by Liberty and
TCI, recently announced its intention to enter into a joint venture with a
subsidiary of BET and Live Ventures, Inc. to develop, produce and distribute
motion pictures targeted primarily at minority audiences. For a detailed
description of transactions during the year ended December 31, 1993 between
Liberty or its affiliates and the directors of Liberty, see Item 13 (Certain
Relationships and Related Transactions) of the Liberty Form 10-K, which is
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "AVAILABLE INFORMATION."
For information regarding the security ownership of TCI Common Stock,
Liberty Common Stock and Liberty Class E Preferred Stock by TCI's and Liberty's
respective directors, five highest paid executive officers and directors and
executive officers as a group, see "OWNERSHIP OF TCI, LIBERTY AND TCI/LIBERTY
STOCK -- Security Ownership of TCI/Liberty Directors and Officers;" and
"-- Security Ownership of Other TCI and Liberty Directors and Officers."
ACCOUNTING TREATMENT
The Mergers will be accounted for using predecessor cost for accounting and
financial reporting purposes. See "INDEX TO FINANCIAL STATEMENTS -- TCI/Liberty
and Subsidiaries."
CERTAIN LITIGATION
In October 1993, shortly after TCI and Liberty publicly announced that they
had entered into the TCI/Liberty Letter of Intent, seven putative class action
lawsuits were filed by stockholders of Liberty in the Court of Chancery for the
State of Delaware (the "Delaware Chancery Court") on behalf of unspecified
classes of the holders of Liberty Common Stock (other than defendants). The
defendants include six of the eight directors of Liberty (Bob Magness, John C.
Malone, Peter R. Barton, H.F. Lenfest, Robert L. Johnson and Paul A. Gould),
Liberty and TCI. These actions were consolidated by the Delaware Chancery Court
on October 27, 1993 under the caption In re Liberty Media Corporation
Shareholders Litigation, Consolid. C.A. No. 13168 (the "Liberty Stockholder
Action"). On April 5, 1994, plaintiffs filed an amended and consolidated
complaint on behalf of a putative class consisting of all Liberty stockholders.
The gravamen of
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the amended complaint is that, in determining to proceed with the Mergers, the
Liberty directors breached their fiduciary duties because Liberty's public
stockholders allegedly will be compelled to exchange at an unfair price their
Liberty Common Stock for shares of TCI/Liberty Common Stock. The amended
complaint further alleges that TCI aided and abetted the supposed breaches of
fiduciary duty by the Liberty directors. Plaintiffs seek to enjoin the
consummation of the Mergers, to require the Liberty directors to auction Liberty
and to obtain an award of unspecified compensatory damages to the members of the
plaintiff class. The case remains pending before the Delaware Chancery Court.
Discovery has commenced in the action. On June 23, 1994, defendants filed an
answer to the complaint in the Consolidated Action denying all of plaintiff's
allegations of wrongdoing.
CERTAIN CONSEQUENCES OF THE MERGERS
TCI. After the TCI Merger, the present holders of TCI Common Stock will
cease to have any direct interest in TCI or its future earnings or growth but,
by virtue of their receipt of shares of TCI/Liberty Common Stock in the TCI
Merger, they will indirectly share in TCI's future earnings and growth by virtue
of TCI becoming a wholly owned subsidiary of TCI/Liberty, and will also
indirectly share in the future earnings and growth of the assets and businesses
of Liberty, which will also become a wholly owned subsidiary of TCI/Liberty.
After the TCI Merger, TCI/Liberty will own 100% of the capital stock of TCI and,
accordingly, its interest in the stockholders' equity and net earnings (loss) of
TCI will be 100%.
TCI Common Stock will be removed from trading on the Nasdaq National
Market, and the registration of TCI Common Stock under the Exchange Act will be
terminated.
Liberty. After the Liberty Merger, the present holders of Liberty Common
Stock will cease to have any direct interest in Liberty or its future earnings
or growth but, by virtue of their receipt of shares of TCI/Liberty Common Stock
in the Liberty Merger, they will indirectly share in Liberty's future earnings
and growth by virtue of Liberty becoming a wholly owned subsidiary of
TCI/Liberty, and will also indirectly share in the future earnings and growth of
the assets and businesses of TCI, which will also become a wholly owned
subsidiary of TCI/Liberty. After the Liberty Merger, TCI/Liberty will own 100%
of the capital stock of Liberty and, accordingly, its interest in the
stockholders' equity and net earnings (loss) of Liberty will be 100%.
The Liberty Common Stock and Liberty Class E Preferred Stock will be
removed from trading on the Nasdaq National Market, and the registration of the
Liberty Common Stock and Liberty Class E Preferred Stock under the Exchange Act
will be terminated.
TCI/Liberty. After the Mergers, TCI and Liberty will be wholly owned
subsidiaries of TCI/Liberty. Accordingly, the business of TCI/Liberty, through
its wholly owned subsidiaries TCI and Liberty, will become the business
currently conducted by TCI and Liberty. Management of TCI and Liberty currently
anticipate that the business of TCI/Liberty will be organized into four separate
units: one unit will build, operate and market TCI/Liberty's domestic cable and
other domestic telecommunications distribution businesses; a second unit will
direct TCI/Liberty's development, acquisition and investment in television
programming and other entertainment software in the United States; a third unit
will be responsible for TCI/Liberty's television programming, cable and
telecommunications operations in foreign countries; and the fourth unit will
seek to develop and invest in new television and telecommunications technology.
Each unit will report directly to management of TCI/Liberty. Each unit may
eventually form alliances with one or more strategic partners and/or sell equity
securities to the public. TCI/Liberty will, however, continuously evaluate its
businesses and operations and take such actions as it deems appropriate under
then existing circumstances.
The TCI/Liberty Common Stock and TCI/Liberty Class B Preferred Stock will
be registered under the Exchange Act immediately after the Effective Time.
TCI/Liberty has applied for listing of the TCI/Liberty Class A Common Stock,
TCI/Liberty Class B Common Stock and TCI/Liberty Class B Preferred Stock on the
Nasdaq National Market, and it is anticipated that such shares will trade on the
Nasdaq National Market, upon official notice of issuance, under the symbols
"TCOMA", "TCOMB" and "TCOMP", respectively.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE MERGERS
The following is a general description of the material Federal income tax
consequences of the Mergers (i) to a holder of TCI stock who exchanges TCI
Common Stock for TCI/Liberty Common Stock pursuant to the TCI Merger and (ii) to
a holder of Liberty stock who exchanges Liberty Common Stock for TCI/Liberty
Common Stock or Liberty Class E Preferred Stock for TCI/Liberty Class B
Preferred Stock pursuant to the Liberty Merger. The discussion does not address
all aspects of Federal income taxation that may be important to particular
stockholders and may not be applicable to stockholders who are not citizens or
residents of the United States, who acquired their TCI or Liberty stock pursuant
to the exercise of employee stock options or otherwise as compensation, or which
are corporations subject to the alternative minimum tax. The effects of any
applicable foreign, state, local or other tax laws are not addressed. This
discussion assumes that TCI and Liberty stockholders hold their respective
shares of TCI and Liberty stock as capital assets as defined in the Code. TCI
and Liberty stockholders should consult their own tax advisors as to the
particular tax consequences of the TCI Merger or Liberty Merger, as the case may
be, to them.
In the opinion of Baker & Botts, L.L.P., counsel to TCI/Liberty, the
Mergers will constitute tax-free transactions under the Code and no gain or loss
will be recognized (i) by TCI or by TCI stockholders who exchange TCI Common
Stock for TCI/Liberty Common Stock in the TCI Merger or (ii) by Liberty or by
Liberty stockholders who exchange Liberty Common Stock for TCI/Liberty Common
Stock or Liberty Class E Preferred Stock for TCI/Liberty Class B Preferred Stock
in the Liberty Merger. In rendering such opinion, counsel has relied upon
representations contained in certificates of TCI, Liberty and TCI/Liberty.
Consummation of each of the TCI Merger and the Liberty Merger is conditioned
upon the foregoing opinion of counsel being reconfirmed as of the date of the
closing of the Mergers (the "Closing Date"). No ruling has been requested from
the Internal Revenue Service (the "Service") as to the tax-free status of the
TCI Merger or the Liberty Merger.
The principal Federal income tax consequences of the TCI Merger to TCI
stockholders and the Liberty Merger to Liberty stockholders will be as set forth
below.
Consequences to Holders of TCI Common Stock. No gain or loss will be
recognized by holders of TCI Common Stock upon the receipt of TCI/Liberty Common
Stock in the TCI Merger and the tax basis of the TCI/Liberty Common Stock
received will be equal to the basis of the TCI Common Stock surrendered in
exchange therefor. The holding period of the TCI/Liberty Common Stock received
will include the holding period of the TCI Common Stock surrendered.
Consequences to Holders of Liberty Common Stock. Except with respect to
cash received in lieu of fractional shares, no gain or loss will be recognized
by holders of Liberty Common Stock upon the receipt of TCI/Liberty Common Stock
in the Liberty Merger and the tax basis of the TCI/Liberty Common Stock received
will be equal to the basis of the Liberty Common Stock surrendered in exchange
therefor. The holding period of the TCI/Liberty Common Stock received will
include the holding period of the Liberty Common Stock surrendered. The Service
has announced an advance rulings policy of treating cash paid in lieu of
fractional share interests arising in corporate reorganizations as having been
received by the stockholders as payment for the fractional share interests
redeemed if the cash distribution is undertaken solely for the purpose of saving
the corporation the expense and inconvenience of issuing and transferring
fractional shares and is not a separately bargained-for consideration. The
Service has stated further that the purpose of the transaction giving rise to
the fractional share interests, the maximum amount of cash that may be received
by any one stockholder and the percentage of the total consideration that will
be cash are among the factors that will be considered in this connection. If so
treated in the present case, gains and losses realized by a stockholder with
respect to the receipt of cash in lieu of a fractional share will be capital
gain or loss. To determine the amount of such gain or loss, a portion of the tax
basis in the shares of Liberty Common Stock surrendered will be allocated to the
fractional share. The amount of such gain or loss will be the difference between
the amount of cash received for such fractional share and the amount of such
basis. In the case of individuals, long-term capital gains are subject to a
maximum tax rate of 28%.
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Consequences to Holders of Liberty Preferred Stock. No gain or loss will
be recognized to holders of Liberty Class E Preferred Stock upon the receipt of
TCI/Liberty Class B Preferred Stock in the Liberty Merger. The tax basis of the
TCI/Liberty Class B Preferred Stock received will be equal to the tax basis of
the Liberty Class E Preferred Stock surrendered in exchange therefor. The
holding period of TCI/Liberty Class B Preferred Stock received will include the
holding period of the Liberty Class E Preferred Stock surrendered.
Under Section 306(a) of the Code, the amount realized upon the sale or
other disposition of "Section 306 stock" is treated as ordinary income and not
as proceeds from the sale of a capital asset and no loss is recognizable on its
sale or other disposition, subject to certain limitations and exceptions. If
Section 306 stock is redeemed and no exception applies, the redemption proceeds
will be treated as a dividend. The TCI/Liberty Class B Preferred Stock will be
Section 306 stock if the Liberty Class E Preferred Stock surrendered in exchange
therefor was Section 306 stock. Even if the TCI/Liberty Class B Preferred Stock
were Section 306 stock, Section 306(a) treatment would not apply if all of the
TCI/Liberty Class B Preferred Stock and any other TCI/Liberty stock owned by the
stockholder directly or under the constructive ownership rules of Section 318 of
the Code, as described below, were redeemed or were disposed of prior to the
redemption. There are also other exceptions to Section 306(a) treatment.
TCI/LIBERTY
In the opinion of Baker & Botts, L.L.P., counsel to TCI/Liberty,
TCI/Liberty will recognize no gain or loss on the issuance of its common and
preferred stock to the TCI and Liberty stockholders in the TCI Merger and the
Liberty Merger, respectively.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY. TCI AND LIBERTY STOCKHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGERS.
THE MERGER AGREEMENT
GENERAL; EFFECTIVE TIME
The Merger Agreement provides for the merger of TCI Mergerco and Liberty
Mergerco with and into TCI and Liberty, respectively. As a result of the
Mergers, both TCI and Liberty will become wholly owned subsidiaries of
TCI/Liberty. At that time, TCI/Liberty will change its name to
"Tele-Communications, Inc." and TCI will change its name to "TCI Communications,
Inc." In the Mergers, stockholders of TCI and Liberty will receive the
consideration described below. The Mergers will become effective upon the filing
of Certificates of Merger with the Secretary of State of the State of Delaware.
Such filing is anticipated to take place as soon as practicable after the last
of the conditions precedent to the Mergers set forth in the Merger Agreement
have been satisfied or, where permissible, waived, which is expected to occur
immediately after the Special Meetings. The following description of the Merger
Agreement is qualified in its entirety by reference to the complete text of the
Merger Agreement, which is incorporated by reference herein and a copy of which
(exclusive of exhibits and schedules) is annexed to this Proxy
Statement/Prospectus as Appendix I.
CONSIDERATION TO BE RECEIVED IN THE MERGERS
TCI Merger. Upon consummation of the TCI Merger, pursuant to the Merger
Agreement, the shares of TCI Common Stock (other than any shares of TCI Common
Stock held directly by TCI in its treasury, all of which will be cancelled) will
be converted as follows: (i) each outstanding share of TCI Class A Common Stock
will be converted into the right to receive one share of TCI/Liberty Class A
Common Stock and (ii) each outstanding share of TCI Class B Common Stock will be
converted into the right to receive one share of TCI/Liberty Class B Common
Stock.
Liberty Merger. Upon consummation of the Liberty Merger, pursuant to the
Merger Agreement, the shares of Liberty Common Stock and Liberty Preferred Stock
(other than any shares of Liberty Common
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Stock or Liberty Preferred Stock held directly by Liberty in its treasury, all
of which will be cancelled) will be converted as follows: (i) each outstanding
share of Liberty Class A Common Stock will be converted into the right to
receive .975 of a share of TCI/Liberty Class A Common Stock; (ii) each
outstanding share of Liberty Class B Common Stock will be converted into the
right to receive .975 of a share of TCI/Liberty Class B Common Stock; (iii) each
share of Liberty Class B Preferred Stock and Liberty Class D Preferred Stock
(which are owned by an indirect, wholly owned subsidiary of TCI) will be
converted into the right to receive that number of shares (and/or fraction of a
share) of TCI/Liberty Class A Preferred Stock (which, following the Liberty
Merger, will be owned by an indirect, wholly owned subsidiary of TCI/Liberty),
equal to the product of one multiplied by a fraction, the numerator of which is
the fair market value (as defined below) of such share of Liberty Class B
Preferred Stock or Liberty Class D Preferred Stock, as the case may be, and the
denominator of which is the fair market value of a share of TCI/Liberty Class A
Preferred Stock; and (iv) each outstanding share of Liberty Class E Preferred
Stock will be converted into the right to receive one share of TCI/Liberty Class
B Preferred Stock. For a description of the designations, preferences, rights
and qualifications, limitations and restrictions of the TCI/Liberty Class A
Preferred Stock and TCI/Liberty Class B Preferred Stock, see "DESCRIPTION OF
TCI/LIBERTY CAPITAL STOCK -- TCI/Liberty Preferred Stock." Fractional shares of
TCI/Liberty Common Stock will not be issued in the Mergers. Holders of Liberty
Class A Common Stock or Liberty Class B Common Stock otherwise entitled to a
fractional share will be paid an amount in cash (rounded to the nearest whole
cent) equal to the same fraction of the fair market value of a whole share of
Liberty Class A Common Stock or Liberty Class B Common Stock, as the case may
be. The "fair market value" of a share of (x) Liberty Common Stock means, for
this purpose, the average of the last reported sale prices (or, if on any day no
sale price is reported, the average of the quoted high and low bid prices on
such day) of such a share on the Nasdaq National Market for the five full
trading days immediately preceding the Effective Time and (y) Liberty Class B
Preferred Stock, Liberty Class D Preferred Stock or TCI/Liberty Class A
Preferred Stock means, for this purpose, the value of such share (or the
midpoint of any range of values for such share) in the opinion of CS First
Boston. The opinion of CS First Boston will be obtained with respect to the
Liberty Class B Preferred Stock, the Liberty Class D Preferred Stock and the
TCI/Liberty Class A Preferred Stock to ensure that (i) the exchange of the
Liberty Class B Preferred Stock and the Liberty Class D Preferred Stock for the
TCI/Liberty Class A Preferred Stock pursuant to the Liberty Merger is an
exchange of stock of equal value and hence part of a tax-free reorganization and
(ii) the Internal Revenue Service does not recharacterize the Mergers, causing
adverse tax consequences.
For a description of the treatment of TCI and Liberty stock options and
other employment benefit plans under the Merger Agreement, see "THE
MERGERS -- Interests of Certain Persons in the Mergers".
Exchange of Shares. Promptly after the Effective Time, transmittal forms
will be mailed to each holder of record of shares of TCI Common Stock, Liberty
Common Stock and Liberty Preferred Stock to be used in forwarding his or her
certificates evidencing such shares for surrender and exchange for certificates
evidencing the shares of TCI/Liberty Common Stock or TCI/Liberty Preferred
Stock, as the case may be, to which he or she has become entitled and, if
applicable, cash in lieu of a fractional share of TCI/Liberty Common Stock.
After receipt of such transmittal form, each holder of certificates formerly
representing TCI Common Stock, Liberty Common Stock or Liberty Preferred Stock
should surrender such certificates to [The Bank of New York], as exchange agent
(the "Exchange Agent"), and each such holder will receive in exchange therefor
certificates evidencing the whole number of shares of TCI/Liberty Common Stock
or TCI/Liberty Preferred Stock, as the case may be, to which he or she is
entitled and any cash which may be payable in lieu of a fractional share. Such
transmittal forms will be accompanied by instructions specifying other details
of the exchange.
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate evidencing TCI Common Stock,
Liberty Common Stock or Liberty Preferred Stock (other than certificates
evidencing shares held directly by TCI or Liberty in their respective treasuries
(which will be cancelled)), until so surrendered and exchanged, will be deemed,
for all purposes, to evidence only the right to receive the number of shares of
TCI/Liberty Common Stock or
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TCI/Liberty Preferred Stock, as the case may be, which the holder of such
certificate is entitled to receive and the right to receive any cash payment in
lieu of a fractional share of TCI/Liberty Common Stock. The holder of such
unexchanged certificate will not be entitled to receive any dividends or other
distributions payable by TCI/Liberty until the certificate is surrendered.
Subject to applicable laws such dividends and distributions, if any, will be
accumulated and, at the time of such surrender, all such unpaid dividends and
distributions, together with any cash payment in lieu of a fractional share,
will be paid, without interest.
For a discussion of the procedures that will be followed with respect to
holders of TCI Common Stock and Liberty Common Stock who may be subject to the
notification and reporting requirements of the Hart-Scott-Rodino Act, see
"-- Governmental Approvals" below.
CONDITIONS TO THE MERGERS
The respective obligations of TCI and Liberty to consummate the
transactions contemplated by the Merger Agreement are subject to the
satisfaction or, where permissible, waiver of the following conditions: (a)
approval of the Merger Agreement by the requisite vote of the respective
stockholders of both TCI and Liberty; (b) expiration or early termination of all
applicable waiting periods under the Hart-Scott-Rodino Act; (c) effective
registration under the Act of the shares of TCI/Liberty Common Stock and
TCI/Liberty Class B Preferred Stock to be issued in connection with the Mergers
and receipt of all state securities law permits and authorizations necessary to
carry out the transactions contemplated by the Merger Agreement; (d) the absence
of any permanent or preliminary injunction or similar order issued by a court or
other governmental entity of competent jurisdiction preventing consummation of
the transactions contemplated by the Merger Agreement as provided therein; (e)
no action having been taken, nor any statute, rule, regulation, order, judgment
or decree proposed, enacted, issued, enforced or deemed applicable by any
foreign or United States federal, state or local governmental entity, and the
absence of any pending or threatened action, suit or proceeding, which (i) makes
the transactions contemplated by the Merger Agreement illegal or imposes or may
impose material damages or penalties in connection therewith, (ii) requires the
divestiture of a material portion of the business of TCI and its subsidiaries,
taken as a whole, or Liberty and its subsidiaries, taken as a whole, (iii)
imposes material limitations on the ability of TCI/Liberty effectively to
exercise full rights of ownership of shares of capital stock of either TCI or
Liberty or (iv) would so materially adversely impact the economic or business
benefits of the consummation of either or both Mergers as to render such
consummation inadvisable; (f) receipt of those material licenses, permits,
consents, approvals, authorizations, qualifications and orders from governmental
authorities described in "-- Governmental Approvals" below; (g) receipt of the
opinion of Baker & Botts, L.L.P., to the effect that the Mergers will be tax
free for Federal income tax purposes to each of TCI and Liberty and to their
respective stockholders; and (h) authorization of the shares of TCI/Liberty
Common Stock issuable in connection with the Mergers for listing on the Nasdaq
National Market upon official notice of issuance.
The obligation of TCI to consummate the transactions contemplated by the
Merger Agreement is also subject to the satisfaction or waiver of the following
conditions: (a) the material accuracy of the representations and warranties and
the performance, in all material respects, of the obligations, agreements and
covenants made by Liberty in the Merger Agreement; (b) receipt of certain legal
opinions and closing certificates from Liberty; (c) the fairness opinion of CS
First Boston, included in this Proxy Statement/Prospectus as Appendix II, having
not been withdrawn prior to the Effective Time; (d) receipt of all material
consents by or approvals of, and all material notices having been given to, all
third parties under any note, bond, lease, franchise, permit, license, contract
or other agreement to which TCI or Liberty or any of their respective
subsidiaries is a party; (e) the absence, after January 27, 1994, in the
reasonable judgment of TCI, of any material adverse change in the business,
assets, results of operations, financial condition or prospects of Liberty and
its subsidiaries, taken as a whole; and (f) the reasonable satisfaction of
counsel to TCI with certain actions, proceedings, instruments and documents
required to carry out the transactions contemplated by the Merger Agreement.
The obligation of Liberty to consummate the transactions contemplated by
the Merger Agreement is also subject to the satisfaction or waiver of the
following conditions: (a) the material accuracy of the representations and
warranties and the performance, in all material respects, of the obligations,
agreements and
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covenants made by TCI in the Merger Agreement; (b) receipt of certain legal
opinions and closing certificates from TCI; (c) the fairness opinion of Merrill
Lynch, included in this Proxy Statement/Prospectus as Appendix III, having not
been withdrawn prior to the Effective Time; (d) receipt of all material consents
by or approvals of, and all material notices having been given to, all third
parties under any note, bond, lease, franchise, permit, license, contract or
other agreement to which Liberty or TCI or any of their respective subsidiaries
is a party; (e) the absence, after January 27, 1994, in the reasonable judgment
of Liberty, of any material adverse change in the business, assets, results of
operations, financial condition or prospects of TCI and its subsidiaries, taken
as a whole; and (f) the reasonable satisfaction of counsel to Liberty with
certain actions, proceedings, instruments and documents required to carry out
the transactions contemplated by the Merger Agreement.
GOVERNMENTAL APPROVALS
The respective obligations of TCI and Liberty to consummate the Mergers are
subject to (i) the receipt of all necessary consents, approvals, orders or
authorizations of governmental authorities (collectively, "Governmental
Consents") and (ii) the making of all necessary registrations, declarations or
filings with governmental authorities (collectively, "Governmental Filings")
other than those that, if not obtained or made, would not, either individually
or in the aggregate, have a material adverse effect on (i) the transactions
contemplated by the Merger Agreement or (ii) the business, assets, results of
operations, financial condition or prospects of TCI and its subsidiaries, taken
as a whole, Liberty and its subsidiaries, taken as a whole, or, as of or after
the Effective Time and assuming consummation of the Mergers, TCI/Liberty and its
subsidiaries (including TCI and Liberty and their respective subsidiaries),
taken as a whole.
The only Governmental Consents and Governmental Filings that TCI and
Liberty are aware of that must be obtained or made in connection with the
consummation of the Mergers (other than in connection with compliance with
Federal and state securities laws) are: (i) filings with the Department of
Justice or the Federal Trade Commission ("FTC") under the Hart-Scott-Rodino Act
with respect to the Mergers and the consolidation within TCI/Liberty of certain
programming and other interests held by TCI, Liberty or their respective
subsidiaries with a value in excess of $15 million; (ii) filings with and
consents, orders or approvals required to be received from the FCC under the
Communications Act, in connection with the transfer of control of satellite
resale carrier, business radio, microwave relay service, earth station and other
licenses related to the cable television and programming operations of TCI and
Liberty; and (iii) filings with and consents, approvals or orders required to be
received from state and local governmental authorities (collectively, "Local
Authorizations") that may be required to be obtained in connection with the
transfer of control of or an ownership interest in cable television franchises
operated or owned by TCI, Liberty or their respective subsidiaries.
Because both TCI and Liberty hold licenses issued by the FCC, prior consent
of the FCC is required for consummation of the Mergers. Applications for
transfer of control of FCC licenses held by affiliates and subsidiaries of TCI
have been filed with the FCC. Liberty has also filed similar applications. After
filing the license transfer applications with the FCC, such applications are
placed on Public Notice lists by the FCC. Such public notice permits interested
parties the opportunity to comment on or oppose the applications for a 30-day
period. The vast majority of all license transfer applications have passed the
public comment period without opposition. However, any opposition to those
applications which have not passed the public comment period could significantly
delay the FCC approval process. The FCC has not granted final approval of TCI's
and Liberty's license transfer applications; however, TCI and Liberty expect to
receive such approval on a timely basis.
On October 14, 1993, TCI and Liberty each filed a notification of the
transaction with the FTC and the Antitrust Division of the U.S. Department of
Justice pursuant to the Hart-Scott-Rodino Act. On November 12, 1993, the
Department of Justice issued a Request for Additional Information under the
Hart-Scott-Rodino Act to TCI and Liberty. TCI and Liberty complied with the
Request for Additional Information on March 3, 1994. On April 28, 1994, TCI and
Liberty received approval from the Department of Justice to consummate the
Mergers by consenting to the entry of a proposed Final Judgment (the "Consent
Decree") by the United States District Court for the District of Columbia (the
"District Court"). The Consent Decree
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was agreed to for settlement purposes only and does not constitute evidence or
an admission of any wrongdoing by TCI or Liberty. The Consent Decree restrains
and enjoins TCI and Liberty from: (i) discriminating against unaffiliated video
programming providers in the selection, terms or conditions of carriage of video
programming offered by such providers; (ii) with respect to any video
programming provider they control, refusing to sell or license, or from selling
or licensing only on a discriminatory basis, any video programming service for
distribution by any competing multi-channel subscription television distributor;
or (iii) with respect to any multichannel subscription television distributor or
programming provider in which they have a financial interest but do not control,
seeking or supporting any conduct that would be prohibited under (i) or (ii)
above if engaged in by a controlled affiliate, in each case where the effect is
to unreasonably restrain competition. As required by the Antitrust Procedures
and Penalties Act, the Consent Decree was published in the Federal Register on
May 12, 1994, and is subject to public comment for 60 days. At the conclusion of
the 60-day comment period, the Department of Justice is to reply to any public
comments and remains free to withdraw its consent at any time prior to final
entry (in which case the Consent Decree will have no further force or effect) or
to seek final entry of the Consent Decree by the District Court. Once entered,
the Consent Decree will have a term of five years.
Filings have also been made under the Hart-Scott-Rodino Act with respect to
the consolidation within TCI/Liberty of eleven minority stock interests held by
TCI, Liberty or both. The statutory waiting period has expired with respect to
eight of those filings, without giving rise to any requests for additional
information from either the Department of Justice or the Federal Trade
Commission. Depending on several factors, such as fluctuations in the market
prices of certain publicly traded investment securities held by TCI and Liberty,
additional filings under the Hart-Scott-Rodino Act may have to be made as a
precondition to the Mergers.
TCI and Liberty have determined that, as of April 29, 1994, the
consummation of the Mergers requires certain Local Authorizations with respect
to cable systems serving approximately 1,440,184 subscribers to the basic
service offered by TCI and its subsidiaries ("TCI Subscribers") and with respect
to cable systems serving approximately 8,304 subscribers to the basic service
offered by Liberty, its subsidiaries and affiliates ("Liberty Subscribers"). All
required documentation in connection with the Local Authorizations was filed
with state and local cable television franchising authorities on or about
February 1, 1994. TCI and Liberty have also given, or caused to be given,
notices required under certain franchises in connection with the Mergers. In
accordance with the Merger Agreement, the failure to obtain Local Authorizations
relating, in the aggregate, (i) to 150,000 or fewer of the Liberty Subscribers
or (ii) to 400,000 or fewer of the TCI Subscribers, shall not be deemed to have
the material adverse effect referred to above. The materiality thresholds (in
terms of numbers of subscribers) below which the failure to obtain Local
Authorizations would be deemed not to have a material adverse effect on Liberty
or TCI were set at different levels in order to reflect the differences in the
respective numbers of subscribers served by the systems owned by the two
companies. As of the date of this Proxy Statement/Prospectus, TCI, Liberty and
their respective subsidiaries and affiliates have obtained sufficient Local
Authorizations to permit the consummation of the transactions contemplated by
the Merger Agreement within the materiality thresholds described above.
TCI and Liberty intend to pursue vigorously all required Local
Authorizations that have not been obtained as of the date hereof. There can be
no assurance, however, that such approvals will, in fact, be obtained or, if
obtained, as to the timing of their receipt. If the Mergers are consummated
without obtaining such Local Authorizations in cases where such approvals are
found to be required, the possible consequences, if any, vary depending upon the
terms of the franchise and the state cable regulatory rules and regulations, if
any, under which the relevant cable system operates, and such consequences may
in some cases include fines and other penalties, including the possible
revocation or nonrenewal of certain franchises.
Certain stockholders of TCI and Liberty may be individually subject to the
notification and waiting-period requirements of the Hart-Scott-Rodino Act if
they receive in the Mergers TCI/Liberty Common Stock or TCI/Liberty Preferred
Stock having a value of more than $15 million. Determination of whether
notification is required in a particular case will necessitate, among other
things, consideration of potentially applicable exemptions and application of a
jurisdictional test relating to such holder's revenue and assets. Persons who
TCI and Liberty expect to receive in the Mergers shares of TCI/Liberty Common
Stock or TCI/Liberty Preferred Stock having a value in excess of $15 million
will be required, as a precondition to
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receiving such shares, to provide TCI/Liberty with evidence of compliance with
the Hart-Scott-Rodino Act, satisfactory in form and substance to TCI/Liberty and
its counsel. If necessary, TCI/Liberty will deposit into escrow the shares of
TCI/Liberty stock issuable to any holder obligated to file a pre-merger
notification and report form under the Hart-Scott-Rodino Act, and instruct the
Exchange Agent to hold such shares pending the expiration or termination of the
applicable waiting period.
COVENANTS
TCI and Liberty have agreed to conduct their respective businesses in the
ordinary and usual course of business consistent with past practices, and to use
their best efforts to preserve intact their respective business obligations, to
preserve their licenses and other permits in full force and effect, to keep
available the services of their present officers and key employees and to
preserve the good will of those with which they have business relationships. TCI
and Liberty have each agreed that, except as permitted, required or specifically
contemplated by the Merger Agreement or consented to in writing by the other, it
will not, prior to the Effective Time, (a) amend its charter or by-laws; (b)
issue, grant or sell any shares of its capital stock or any of its other
securities, or any securities convertible into, or options, warrants or rights
of any kind to subscribe to or acquire, any shares of its capital stock or other
securities, except pursuant to stock options and convertible securities
outstanding as of the date of the Merger Agreement; (c) split, combine or
reclassify the outstanding shares of its capital stock or issue any capital
stock or other securities in exchange for any such shares; (d) redeem, purchase
or otherwise acquire, directly or indirectly, any shares of its capital stock or
other securities, other than as required by existing agreements with minority
investors in any of its subsidiaries; (e) amend or modify any outstanding
options, warrants or rights to acquire, or securities convertible into, shares
of its capital stock or other securities, stock appreciation rights or
restricted stock awards, or grant, adopt or authorize any stock or equity
appreciation rights, restricted stock or equity, stock or equity purchase, stock
or equity bonus or similar plan, arrangement or agreement; (f) make any other
changes in its capital structure; (g) declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash, property or
securities) with respect to its capital stock or other securities, with
specified exceptions; (h) sell or pledge any stock, equity or partnership
interest owned by it, except for permitted dispositions described below; or (i)
enter into any contract, agreement, commitment or arrangement with respect to
any of the foregoing.
Except as permitted, required or specifically contemplated by the Merger
Agreement or consented to in writing by the other, TCI and Liberty have each
further agreed that it will not, and will not permit any of its subsidiaries to,
(a) (i) establish, amend or modify any employee benefit plan, except in the
ordinary course of business consistent with past practice or to the extent
required by any applicable law or the existing terms of such employee benefit
plan; (ii) other than in connection with normal cash management practices
conducted in the ordinary and usual course of its business and consistent with
past practice, make any advance or loan to or engage in any transaction with any
director, officer, partner or affiliate not required by the terms of an existing
contract; or (iii) enter into or assume any contract, agreement, obligation,
commitment or arrangement with respect to any of the foregoing; (b) acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, except for (i) in the case of
TCI and its subsidiaries, any acquisition or related series of acquisitions in
which the aggregate purchase price is less than $500,000,000 and (ii) in the
case of Liberty and its subsidiaries, any acquisition or related series of
acquisitions in which the aggregate purchase price is less than $250,000,000;
(c) sell, lease or encumber or otherwise dispose of, or agree to sell, lease,
encumber or otherwise dispose of, any of its assets, except for (i) in the case
of TCI and its subsidiaries, any disposition or related series of dispositions
in which the aggregate fair market value of the assets disposed of does not
exceed $500,000,000 and (ii) in the case of Liberty and its subsidiaries, any
disposition or related series of dispositions in which the aggregate fair market
value of the assets disposed of does not exceed $250,000,000; (d) incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue any
debt securities or warrants or rights to acquire any debt securities or
guarantee any debt securities of others other than (i) in the ordinary course of
business consistent with past practice, (ii) as may be necessary in connection
with certain permitted acquisitions described above, (iii) renewals, extensions,
amendments or refinancing of existing indebtedness (provided there is no
increase in the interest rate or the principal amount of such indebtedness) and
(iv) the
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incurrence of any new indebtedness, or the amendment or refinancing of any
existing indebtedness, if such indebtedness would be prepayable in full at the
Effective Time without material restrictions (other than customary prepayment
penalties and premiums); or (e) take any action that would or is reasonably
likely to result in any of the conditions set forth in the Merger Agreement not
being met as of the Closing Date.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that, subject to the fiduciary duties of
TCI's and Liberty's directors under applicable law, TCI and Liberty will not,
directly or indirectly, solicit or initiate the submission of proposals or
offers from, cooperate with or furnish or cause to be furnished any non-public
information to, or negotiate or enter into any agreement or understanding with
any other person or entity relating to, or with the intent to effect, any
Takeover Proposal. "Takeover Proposal" is defined in the Merger Agreement to
mean any proposal for a merger, consolidation, reorganization, other business
combination or recapitalization involving TCI or Liberty, for the acquisition of
a 25% or greater interest in the equity or in any class or series of capital
stock of TCI or Liberty, for the acquisition of the right to cast 25% or more of
the votes on any matter with respect to TCI or Liberty, or for the acquisition
of the assets of TCI or Liberty or any of their subsidiaries constituting 40% or
more of the consolidated assets of such party or which generate 40% or more of
the consolidated revenues of such party, or the effect of which may be to
prohibit, restrict or delay the consummation of the Mergers or any of the other
transactions contemplated by the Merger Agreement. The Merger Agreement does not
prohibit TCI or Liberty or the TCI Board or Liberty Board, to the extent
required by their fiduciary duties under applicable law, from (i) providing
information to, or participating in discussions with, any party that makes an
unsolicited inquiry with respect to TCI or Liberty if the TCI Board or Liberty
Board, as the case may be, reasonably believes that such party may propose a
Takeover Proposal on terms that are superior (a "Superior Takeover Proposal"),
from a financial point of view, to the terms of the Mergers for the stockholders
of TCI or Liberty, as the case may be, or (ii) entering into an agreement with
respect to a Superior Takeover Proposal after notifying the other parties to the
Merger Agreement of the material terms of such proposal and the identity of the
person making such proposal.
CERTAIN PERSONNEL MATTERS
Pursuant to the Merger Agreement, as of the Effective Time, (i) each
outstanding TCI Stock Option and TCI SAR, whether vested or unvested and (ii)
each outstanding Liberty Stock Option and Liberty SAR, whether vested or
unvested, in each case will be assumed by TCI/Liberty. If the TCI/Liberty Stock
Incentive Plan is approved at the TCI Meeting and the Liberty Meeting,
TCI/Liberty will exchange, for the TCI Stock Options, TCI SARs, Liberty Stock
Options and Liberty SARs assumed by it, substantially similar stock options and
stock appreciation rights granted under the TCI/Liberty Stock Incentive Plan.
The provisions of the Merger Agreement relating to the treatment of outstanding
TCI Stock Options, TCI SARs, Liberty Stock Options and Liberty SARs are
described in more detail under "THE MERGERS -- Interests of Certain Persons in
the Mergers." The Merger Agreement also makes provision for the amendment of the
TCI ESPP prior to the Effective Time to provide for the termination of the TCI
ESPP as it relates to future purchases of capital stock of TCI.
INDEMNIFICATION
The Merger Agreement provides that, after the Effective Time, TCI/Liberty
will indemnify each person who was, at any time prior to the Effective Time, a
director, officer or employee or agent of TCI or Liberty against all losses,
claims, damages, costs, expenses (including fees and expenses of counsel),
liabilities or judgments or amounts paid in settlement with the approval of
TCI/Liberty (which approval shall not be unreasonably withheld) of or in
connection with any claim, action, suit, proceeding or investigation based on,
or arising out of, in whole or in part, the fact that such person was a
director, officer, employee or agent of TCI or Liberty at any time prior to the
Effective Time, whether pertaining to any matter existing or occurring at or
prior to the Effective Time and whether asserted or claimed prior to, at or
after the Effective Time (the "Indemnified Liabilities") and all Indemnified
Liabilities based on, or arising out of, in whole or in part, or pertaining to
the Merger Agreement or the transactions contemplated thereby, in each case to
the full extent
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that (i) a corporation is permitted under Delaware law to indemnify its own
directors, officers or employees, as the case may be, (ii) such person would be
entitled to be indemnified by TCI or Liberty with respect to the Indemnified
Liabilities in question under TCI's Restated Certificate of Incorporation and
By-Laws as in effect on January 1, 1994 or Liberty's Restated Certificate of
Incorporation and By-Laws as in effect on January 1, 1994 or under any
indemnification agreement between such person and TCI or Liberty in a form
previously disclosed to TCI/Liberty and (iii) such indemnification otherwise is
permitted by applicable law. In the event any such claim, action, suit,
proceeding or investigation is asserted against such person, TCI/Liberty will be
entitled to participate and assume the defense thereof, except that if
TCI/Liberty does not or cannot assume such defense, such person may retain
counsel and TCI/Liberty shall pay all reasonable fees and expenses of such
counsel unless a court of competent jurisdiction shall ultimately determine,
after exhaustion of all avenues of appeal, that such person is not entitled to
indemnification.
TERMINATION; AMENDMENT AND WAIVER
The Merger Agreement may be terminated and the Mergers abandoned at any
time prior to the Effective Time, whether before or after approval by TCI's or
Liberty's stockholders, (a) by mutual consent of Liberty and TCI; (b) by either
Liberty or TCI if (i) the Mergers have not been consummated on or before
September 30, 1994, unless the absence of such occurrence is due to the failure
of the party seeking to terminate the Merger Agreement to perform any of its
obligations thereunder, (ii) there has been a material breach by the other party
of any of its representations, warranties, covenants or agreements that is not
cured within five business days after receipt by the party alleged to be in
breach of written notice thereof, (iii) any court of competent jurisdiction or
other competent governmental authority has issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or otherwise
prohibiting either Merger and such action has become final and nonappealable or
(iv) the requisite vote of stockholders in favor of the Merger Agreement is not
obtained at the TCI Meeting or the Liberty Meeting and the party seeking to
terminate the Merger Agreement has complied with its obligations under the
Merger Agreement relating to such meeting; (c) by TCI, (i) if the Liberty Board
withdraws or modifies in any manner adverse to TCI its recommendation to
Liberty's stockholders that they approve the Merger Agreement or (ii) if the TCI
Board (x) withdraws or modifies in a manner adverse to Liberty its
recommendation to TCI's stockholders that they approve the Merger Agreement, if
at such time there exists a Superior Takeover Proposal with respect to TCI, or
(y) recommends to TCI's stockholders approval of a Superior Takeover Proposal;
or (d) by Liberty, (i) if the TCI Board withdraws or modifies in any manner
adverse to Liberty its recommendation to TCI stockholders that they approve the
Merger Agreement or (ii) if the Liberty Board (x) withdraws or modifies in a
manner adverse to TCI its recommendation to Liberty's stockholders that they
approve the Merger Agreement, if at such time there exists a Superior Takeover
Proposal with respect to Liberty, or (y) recommends to Liberty's stockholders
approval of a Superior Takeover Proposal.
In the event of termination of the Merger Agreement by either TCI or
Liberty as provided above, the Merger Agreement will become void and there will
be no liability or obligation on the part of TCI, Liberty, TCI/Liberty or their
respective affiliates, stockholders, officers, directors, agents or
representatives (other than under certain specified provisions of the Merger
Agreement).
Liberty and TCI may amend the Merger Agreement, by action taken or
authorized by their respective Boards of Directors, either before or after
approval by the stockholders of Liberty or TCI of the Merger Agreement, except
that after such approval by the stockholders of Liberty or TCI, no amendment may
be made which by law requires further approval by such stockholders without such
further approval. At any time prior to the Effective Time, either Liberty or
TCI, by action authorized by such party's board of directors, may, to the extent
legally allowed, extend the time specified in the Merger Agreement for the
performance of any of the obligations of the other party, waive any inaccuracies
in the representations and warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant thereto, waive compliance by the
other party with any of the agreements or covenants of such other party
contained in the Merger Agreement or waive any condition to such waiving party's
obligation to consummate the transactions contemplated by, or other obligations
under, the Merger Agreement.
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CERTAIN RESTRICTIONS ON RESALE OF TCI/LIBERTY COMMON STOCK AND TCI/LIBERTY
PREFERRED STOCK
All shares of TCI/Liberty Common Stock and TCI/Liberty Class B Preferred
Stock issuable in the Mergers will be registered under the Act and freely
transferable, except that any such shares received by persons who are deemed
"affiliates" (as such term is defined under the Act) of either TCI or Liberty
prior to the Mergers may be resold by them only in transactions permitted by the
resale provisions of Rule 145 under the Act (or Rule 144 in the case of such
persons who become affiliates of TCI/Liberty) or as otherwise permitted under
the Act. Persons who may be deemed to be affiliates of TCI or Liberty generally
include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal stockholders of such party. The Merger
Agreement requires TCI and Liberty to use reasonable efforts to cause each of
its affiliates to execute a written agreement to the effect that such person
will not offer or sell or otherwise dispose of any of the shares of TCI/Liberty
Common Stock or TCI/Liberty Preferred Stock issued to such person in or pursuant
to the Mergers in violation of the Act or the rules and regulations promulgated
by the Commission thereunder.
The shares of TCI/Liberty Class A Preferred Stock to be issued in the
Mergers will not be registered under the Act. The TCI/Liberty Class A Preferred
Stock will be issued to, and held by, an indirect, wholly owned subsidiary of
TCI/Liberty.
EXPENSES
If the Merger Agreement is terminated by TCI or Liberty as the result of a
material willful breach by the other party of its covenants or representations
and warranties in the Merger Agreement, the breaching party is required to
reimburse the non-breaching party for all out-of-pocket costs and expenses
incurred in connection with the transactions contemplated by the Merger
Agreement. Otherwise, if the Mergers are not consummated for any reason, each
party will pay its own costs and expenses, except that the aggregate expenses
incurred in connection with the printing, filing and mailing of this Proxy
Statement/Prospectus and the Registration Statement will be borne 80% by TCI and
20% by Liberty.
BUSINESS OF TCI
TCI is a Delaware corporation organized in 1968. TCI and its predecessor
companies have been principally engaged in the acquisition, development and
operation of cable television systems since the early 1950's. TCI believes that,
measured by the number of basic subscribers, it is the largest provider of basic
cable television services in the United States. At December 31, 1993, TCI,
through its subsidiaries and affiliates, operated cable television systems
throughout the continental United States and Hawaii. Systems owned by TCI
provided basic service to approximately 10.7 million subscribers and premium
services to approximately 10.3 million subscribers at that date. A basic
subscriber may subscribe to one or more premium services and the number of
premium subscribers represents the total number of such subscriptions to premium
services. The foregoing information does not include any subscriber data related
to cable television systems in which TCI had at such date an investment
accounted for by the equity method or the cost method.
RECENT DEVELOPMENTS
On May 12, 1994, TCI entered into a letter agreement (which became binding
on May 20, 1994) with the partners of Prime Ticket Networks, L.P. ("Prime").
Pursuant to the letter agreement, such partners agreed to transfer to a
subsidiary of TCI all of the partnership interests in Prime, for consideration
that is payable in part through the issuance of shares of a new class of Series
Preferred Stock of TCI/Liberty ("TCI/Liberty Series Preferred Stock") to be
designated "Convertible Preferred Stock, Series C" (the "TCI/Liberty Series C
Preferred Stock"). For a description of the proposed designations, preferences
and rights of the TCI/Liberty Series C Preferred Stock, see "DESCRIPTION OF
TCI/LIBERTY CAPITAL STOCK -- Series C Convertible Preferred Stock."
Prime is a regional sports network which serves more than four million
cable subscribers in southern California. The closing of the transfer of the
Prime partnership interests (the "Prime Closing") is expected to
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occur on or about July 31, 1994 (but in any event, following the consummation of
the Mergers), and will be subject to compliance with the Hart-Scott-Rodino Act,
the receipt of all necessary material third party consents and other closing
conditions to be agreed upon by the parties in a definitive agreement. If the
Prime Closing does not occur by September 30, 1994 (with up to a six week
extension for Hart-Scott-Rodino Act approval), the letter agreement will
terminate.
Additional information concerning TCI is included in the TCI Reports
incorporated by reference in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
BUSINESS OF LIBERTY
Liberty was incorporated in Delaware in 1990 and became a public company in
1991 following the contribution by TCI of certain cable television programming
interests and cable television systems pursuant to the Restructuring Plan and
the completion of the Exchange Offers. See "THE MERGERS -- Background -- The
Restructuring Plan." Liberty, through its subsidiaries and affiliates, is an
operator of cable television systems and a provider of satellite-delivered video
entertainment, information and home shopping programming services to various
video distribution media including cable television systems, broadcast
television stations and home satellite dish owners. Systems in which Liberty has
a direct or indirect ownership interest provided basic cable television services
to approximately 3.2 million subscribers and premium services to approximately
2.6 million subscribers as of December 31, 1993, of which approximately 160,000
and 127,000 of such subscribers for basic cable television services and premium
services, respectively, are attributable to systems which are held by
consolidated subsidiaries of Liberty. Included in the foregoing numbers of
subscribers to basic cable television services and premium services in which
Liberty has a direct or indirect ownership interest are approximately 828,000
and 783,000 subscribers, respectively, which are also included in such
subscriber numbers reported for TCI above. The various programming and
programming related businesses in which Liberty has interests include two
national and thirteen regional sports networks and national entertainment
services such as Encore, Home Shopping Club, QVC, Black Entertainment
Television, Court TV, The Family Channel, Starz! and X*PRESS.
Additional information concerning Liberty is included in the Liberty
Reports incorporated by reference in this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
BUSINESS OF TCI/LIBERTY
TCI/Liberty, a newly formed Delaware corporation, has not conducted any
significant business activities to date, other than those incident to its
formation, its execution of the Merger Agreement and its participation in the
preparation of this Proxy Statement/Prospectus. Immediately following the
consummation of the Mergers, TCI/Liberty will change its name to
"Tele-Communications, Inc." and will become a holding company for TCI, Liberty
and their respective subsidiaries. Accordingly, the business of TCI/Liberty,
through its wholly owned subsidiaries TCI and Liberty and their respective
subsidiaries, will become the business currently conducted by TCI and Liberty.
See "BUSINESS OF TCI" and "BUSINESS OF LIBERTY." Management of TCI and Liberty
currently anticipate that TCI/Liberty will be structured as four separate units:
one unit will build, operate and market TCI/Liberty's domestic cable and other
domestic telecommunications distribution businesses; a second unit will direct
TCI/Liberty's development, acquisition and investment in television programming
and other entertainment software in the United States; a third unit will be
responsible for TCI/Liberty's television programming and cable and
telecommunications operations in foreign countries; and the fourth unit will
seek to develop and invest in new television and telecommunications technology.
Each unit may eventually form alliances with one or more strategic partners
and/or sell equity securities to the public. All four divisions will report to
management of TCI/Liberty. TCI/Liberty will, however, continuously evaluate its
businesses and operations and take such actions as it deems appropriate under
then existing circumstances.
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CERTAIN TRANSACTIONS BETWEEN TCI AND LIBERTY
On April 24, 1991, LMC Classics, Inc., a wholly owned subsidiary of
Liberty, purchased a 7.5% interest in the net assets, net losses and cash
distributions of American Movie Classics Company, an affiliate of Liberty, from
a subsidiary of TCI for $4,447,000 in cash.
On December 31, 1991, Liberty Program Investments, Inc., a wholly owned
subsidiary of Liberty, purchased certain securities of QVC, Inc. ("QVC") from
TCI for $28,339,000 in cash. The consideration for the QVC securities was based
upon quoted market prices. At the same time, Liberty Cable, Inc., a wholly owned
subsidiary of Liberty, sold a certain note receivable from American TeleVenture
Corporation ("ATV") to TCI Holdings, Inc. ("TCIH," a wholly owned subsidiary of
TCI) for $5,523,000 in cash, and LMC Cable AdNet II, a wholly owned subsidiary
of Liberty, sold all of the common stock of Cable Television Advertising Group,
Inc. ("CTAG") to TCI Development Corporation ("TCID"), a wholly owned subsidiary
of TCI, for $22,667,000 in cash. The only asset held by CTAG is a 49% general
partnership interest in Cable AdNet Partners. The remaining 51% general
partnership interest in Cable AdNet Partners is held by another subsidiary of
TCID. The consideration for the ATV note was determined by reference to its face
value, plus accrued interest. The ATV note bears interest at 2% above the prime
rate. The consideration for the stock of CTAG was determined by reference to the
price paid for the 51% general partnership interest in Cable AdNet Partners,
which was acquired by an indirect, wholly owned subsidiary of TCI from Cable
AdNet, Inc., a subsidiary of Lenfest Communications, Inc. ("LCI") on November
25, 1991. At such date, Mr. H.F. Lenfest (a director of Liberty) was President
and Chief Executive Officer, as well as the controlling shareholder, of LCI.
Also, on December 31, 1991, an Exchange Agreement among TCI (and certain of its
subsidiaries) and Liberty (and certain of its subsidiaries) was consummated.
Pursuant to this Exchange Agreement, TCI received 69% of the stock of ATV,
2,024,063 shares of common stock of International Cablecasting Technologies,
Inc. ("ICT"), a release from an obligation to reimburse Liberty related to the
repurchase of QVC stock, a release of the option with respect to Cencom Cable
Associates, Inc. ("Cencom"), and a note in the amount of $4,322,000 issued by
LMC Chicago Sports, Inc., a subsidiary of Liberty. Liberty received a release
from an obligation to provide two free months of Court TV, a 0.1% general
partnership interest in US Cable of Northern Indiana, a 25% general partnership
interest in SportsChannel Chicago Associates, an option to acquire an
additional 25% general partnership interest in SportsChannel Chicago
Associates, and $149,000 in cash. In the opinion of the respective managements
of TCI and Liberty, the aggregate values of the assets exchanged were
substantially equivalent. Further, the Exchange Agreement was approved by the
respective Boards of Directors (with Dr. Malone and Mr. Magness abstaining) of
TCI and Liberty.
The assets received by TCI from Liberty in the December 31, 1991
transactions described above were among the assets contributed to Liberty by TCI
in the Restructuring Plan. The aggregate issue price of all preferred stock of
Liberty issued in exchange for all assets contributed by TCI was $625 million.
The allocable portion of said amount assigned to the assets received by TCI from
Liberty in the December 31, 1991 transactions is as follows: $5.4 million for
the note receivable from ATV, $6.3 million for the 49% general partnership
interest in Cable AdNet Partners, $2.7 million for the stock of ATV, $4.35
million for the stock of ICT, no specific amount for the obligation to reimburse
Liberty related to the repurchase of QVC stock and $479,000 for the option with
respect to Cencom. TCI purchased its 25% general partnership interest (and an
option to acquire an additional 25% general partnership interest) in
SportsChannel Chicago Associates on July 1, 1991 for $15 million in cash.
On December 30, 1991, TCI Liberty, Inc. ("TCIL"), a wholly owned subsidiary
of TCI, entered into a Commercial Paper Purchase Agreement with Liberty whereby
TCIL could from time to time sell short-term notes of TCIL to Liberty of up to
an aggregate amount of $100 million. TCIL borrowed $22 million from Liberty on
December 31, 1991, pursuant to the Commercial Paper Purchase Agreement. The full
amount, including interest, was repaid on January 15, 1992. Interest rates on
the short-term notes were determined by the parties by reference to prevailing
money-market rates. This agreement was terminated on March 23, 1993.
In January 1992, TCI and Liberty formed Community Cable Television ("CCT"),
a general partnership created for the purpose of acquiring and operating cable
television systems with Tele-Communications of
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Colorado, Inc. ("TCIC"), an indirect wholly owned subsidiary of TCI, owning a
49.999% interest and Liberty Cable Partner, Inc. ("LCP"), an indirect wholly
owned subsidiary of Liberty, owning a 50.001% interest. In June of 1992, CCT
acquired certain cable television assets in Texas from a third party for
aggregate consideration of $15,175,000. Funds for the acquisition were borrowed
by CCT ratably from its two partners. Pursuant to a cable management agreement,
a subsidiary of TCI provides management services for cable systems owned by CCT.
The subsidiary receives a fee equal to 3% of the gross cable television revenue
of CCT. CCT paid $115,716 in 1992 and $1,562,000 in 1993 under the agreement.
The definitive partnership agreement for CCT, which is dated as of January
30, 1992, was executed on March 17, 1992. The partners each agreed to contribute
to CCT certain noncash assets and up to $25 million in cash as needed to fund
mutually acceptable acquisitions. The non-cash assets that Liberty agreed to
contribute included its limited partnership interest in Intermedia Partners,
certain promissory notes of Intermedia Partners and its affiliates in the
aggregate face amount of $54 million (plus accrued interest which aggregated
approximately $14.9 million at February 29, 1992) (the "Intermedia Notes"), its
limited and general partnership interests in Greater Media Cablevision of
Western Oakland County Limited Partnership ("Greater Media") and 1.2 million
shares of the preferred stock (the "Storer Preferred") of Storer Communications,
Inc. CCT subsequently purchased the remaining partnership interests in Greater
Media not owned by Liberty for a cash purchase price of approximately $16.6
million, which price was established pursuant to the exercise by Liberty during
1991 of certain buy-sell procedures in the Greater Media partnership agreement.
Liberty also agreed to contribute its indirect interest in Mile Hi Cablevision
Associates, Ltd. ("Mile Hi"), the owner of the cable television system serving
Denver, Colorado, and a loan receivable from Mile Hi in the amount of $45.1
million (including accrued interest) (the "Mile Hi Note") contingent upon
receipt of certain third party consents. TCI agreed to contribute 39,299 shares
of Liberty Class C Redeemable Exchangeable Preferred Stock (the "Liberty Class C
Preferred Stock") to CCT, which shares constitute all of the outstanding shares
of such class. In the opinion of the respective managements of TCI and Liberty,
the aggregate values of the non-cash assets to be contributed by each partner to
CCT were substantially equivalent.
The non-cash assets which Liberty contributed to CCT were among the assets
contributed to Liberty in the Restructuring Plan. Of the $625 million aggregate
issue price of the preferred stock issued by Liberty to TCI in exchange for all
of the assets contributed to Liberty by TCI in the Restructuring Plan, the
allocable portion assigned to the assets which Liberty contributed to CCT was as
follows: $365,000 for the limited partnership interest in Intermedia Partners,
$16.4 million for the Intermedia Notes, $2.9 million for the indirect interest
in Mile Hi, $18.9 million for the Mile Hi Note, $6.6 million for the partnership
interests in Greater Media and $23.5 million for the Storer Preferred. (A total
of 2.56 million shares of the Storer Preferred were contributed to Liberty in
the Restructuring Plan with an aggregate assigned value of $50.2 million). The
Liberty Class C Preferred Stock that TCI agreed to contribute to CCT is one of
the four classes of Liberty's preferred stock that were issued to TCI in
connection with the Restructuring Plan.
On December 29, 1992, LCP and TCIC, as the sole partners in CCT, agreed to
amend (the "Amendment") the CCT General Partnership Agreement. Pursuant to the
Amendment, the contributions by LCP and TCIC of non-cash assets (other than the
partnership interest in Greater Media) to CCT were rescinded, retroactive to the
date of contribution. All economic and tax attributes were allocated entirely to
LCP with respect to all of the non-cash assets contributed by LCP (other than
the partnership interest in Greater Media, the allocations of which remained
unchanged) and entirely to TCIC with respect to the Liberty Class C Preferred
Stock contributed by TCIC, all effective from and after the date of
contribution.
Also pursuant to the Amendment, LCP agreed to contribute its equity and
debt interests in Daniels & Associates Partners Limited ("DAPL"), a general
partner of Mile Hi, to CCT on the sooner of (i) immediately prior to the closing
of the acquisition of Mile Hi described below which closed on March 15, 1993 or
(ii) July 1, 1993. TCIC contributed to CCT a $10,590,000 promissory note of
TCID, as of the date of the contribution of the originally contributed assets.
TCIC also agreed to contribute, at the time of the contribution by LCP of its
DAPL interests, a TCID promissory note in the amount of $66,900,000.
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On December 31, 1992, LCP sold the Intermedia Notes to TCID for $36,300,000
in cash. The Intermedia Notes were among the assets contributed to Liberty by
TCI in the Restructuring Plan.
On March 12, 1993, the CCT General Partnership Agreement was further
amended (the "Second Amendment"). Under the Second Amendment, LCP agreed to
contribute its Mile Hi partnership interest but not the Mile Hi Note (both of
which it received upon the liquidation of DAPL on March 12, 1993 as described
below) to CCT in exchange for 50.001% of a newly created Class B partnership
interest in CCT. TCIC agreed to contribute a $21,795,000 promissory note from
TCID in exchange for 49.999% of the Class B partnership interests in place of
the $66,900,000 note which was to be contributed under the Amendment. On March
15, 1993, each party made its respective contribution required by the Second
Amendment.
On March 26, 1993, TCIL, TCIC and Liberty entered into a recapitalization
agreement (the "Recapitalization Agreement"). Pursuant to the Recapitalization
Agreement, Liberty repurchased 927,900 shares of Liberty Class A Common Stock
owned by TCIL (sufficient to reduce TCI's percentage ownership of Liberty's
outstanding common stock by at least 20%), and repurchased all of the
outstanding shares of the Liberty Class C Preferred Stock from TCIC. The
purchase price per share for the shares of Liberty Class A Common Stock was
$19.98 (the average of the daily closing prices for the 10 trading days prior to
the signing of the Recapitalization Agreement and the daily closing prices for
the 10 trading days prior to closing). The aggregate purchase price for the
Liberty Class C Preferred Stock was $175,057,000 plus $337,500 ($22,500 per day
from May 19, 1993 to the date of closing under the Recapitalization Agreement).
The total purchase price was to be paid through the delivery of promissory notes
of Liberty in the aggregate principal amount of $76,952,000, consisting of a
$66,900,000 note and a $10,052,000 note (collectively, the "Liberty Notes") and
the balance in cash. The Liberty Notes, which were issued at the closing, bear
interest at the rate of 11.6% per annum, are due on February 1, 1997 and are
secured by a pledge of stock of LCP and certain other assets of LCP. However, on
June 3, 1993, TCIL, TCIC and Liberty agreed that the balance of the purchase
price which was to have been paid in cash would instead be payable by delivery
of two promissory notes in the principal amount of $86,105,000 and $18,539,442,
which bear interest at the rate of 6% per annum and were to be due on December
31, 1993 (the "6% Notes"). In consideration for this amendment, Liberty agreed
to transfer to TCIC its interest in "TV Guide On Screen." On November 30, 1993,
the parties agreed to extend the maturity of the 6% Notes to the earlier of June
30, 1994 or ten days following the termination of the Mergers. The parties
subsequently agreed to further extend the maturity of the 6% Notes to the
earlier of September 30, 1994 or ten days following the termination of the
Mergers. TCIL acquired the shares of Liberty Class A Common Stock upon the
conversion on January 15, 1993 of all outstanding shares (10,794 shares) of
Liberty's Class A Redeemable Convertible Preferred Stock into 4,405,678 shares
of Liberty Class A Common Stock and 55,070 shares of Liberty Class E Preferred
Stock. Pursuant to and subject to the terms and conditions of the
Recapitalization Agreement, TCIL, as the holder of all the outstanding shares of
the Liberty Class D Preferred Stock, gave its consent to an amendment to
Liberty's Restated Certificate of Incorporation that would reduce the number of
Liberty's directors that the holders of Liberty's Class D Preferred Stock have
the exclusive right to elect from a minimum of 20% of the total number of
members of the Liberty Board to a minimum of 11% of the total number of members
of the Liberty Board.
In connection with the Recapitalization Agreement, TCIC and LCP entered
into an Option-Put Agreement (the "Option-Put Agreement"), which was amended on
November 30, 1993. Under the amended Option-Put Agreement, between June 30, 1994
and September 28, 1994 and between January 1, 1996 and January 31, 1996, TCIC
will have the option to purchase all of LCP's interest in CCT and the Mile Hi
Note for an amount equal to $77 million plus interest accruing at the rate of
11.6% per annum on such amount from June 3, 1993. Between April 1, 1995 and June
29, 1995 and between January 1, 1997 and January 31, 1997, LCP will have the
right to require TCIC to purchase LCP's interest in CCT and the Mile Hi Note for
an amount equal to $77 million plus interest accruing at the rate of 11.6% per
annum on such amount from June 3, 1993.
Under a separate agreement, on June 3, 1993, TCIH purchased a 16% limited
partnership interest in Intermedia Partners from LCP and all of LCP's interest
in a special allocation of income and gain of $7 million under the partnership
agreement of Intermedia Partners, for a purchase price of approximately $9.2
million. TCIH also received an option to purchase LCP's remaining 6.37% limited
partnership interest in Intermedia
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Partners prior to December 31, 1995 for a price equal to approximately $4
million plus interest at 8% per annum from June 3, 1993. Liberty's obligations
to grant such option and to sell such partnership interest were conditioned upon
consummation of the transactions contemplated by the Recapitalization Agreement.
On September 16, 1992, a wholly owned subsidiary of Liberty signed a letter
of intent with TCI, Time Warner Entertainment Company, L.P. ("TWE"), Daniels
Communications, Inc. ("DCI") and Cablevision Equities III ("Cablevision III"),
with respect to the acquisition of all general and limited partnership interests
in Mile Hi.
On March 15, 1993, Mile Hi Cable Partners, L.P. ("New Mile Hi") completed
the acquisition (the "Acquisition") of all of the general and limited
partnership interests in Mile Hi. New Mile Hi is a limited partnership formed
among CCT (78% limited partnership interest), DCI (1% limited partnership
interest) and P & B Johnson Corp. ("PBJC") (21% general partnership interest), a
corporation controlled by Robert L. Johnson, a member of the Liberty Board.
Prior to the Acquisition, Liberty, through a wholly owned subsidiary,
indirectly owned a 32.175% interest in Mile Hi through its ownership of a
limited partnership interest in DAPL, one of Mile Hi's general partners. The
other partners in Mile Hi were TWE, various individual investors and Mile Hi
Cablevision, Inc., a corporation in which all the other partners in Mile Hi were
the shareholders.
DAPL was liquidated on March 12, 1993, at which time such subsidiary of
Liberty received a liquidating distribution consisting of its proportionate
interest in DAPL's partnership interest in Mile Hi, representing the 32.175%
interest in Mile Hi. The subsidiary of Liberty also received the Mile Hi Note in
the approximate amount of $50 million (including accrued interest) in novation
of a loan receivable from DAPL in an equivalent amount.
The total value of the transaction was approximately $180 million. Of that
amount, approximately $70 million was in the form of Mile Hi debt paid at the
closing. Another $50 million was in the form of the Mile Hi Note, which debt was
assumed by New Mile Hi and then by CCT. In connection with the foregoing
assumption of debt, the Mile Hi Note was restated on March 15, 1993 to reflect
its principal amount as approximately $50 million (which amount includes
interest that had accrued on the Mile Hi Note to such date). The Mile Hi Note,
as restated, bears interest from March 15, 1993 at the rate of 8% per annum and
principal and interest thereon is payable on January 1, 2000. Of the remaining
$60 million, approximately $40 million was paid in cash to partners in Mile Hi
in exchange for their partnership interests. The remaining $20 million of
interest in Mile Hi was acquired by New Mile Hi through the contribution by
Liberty's subsidiary to CCT and by CCT to New Mile Hi of its 32.175% interest in
Mile Hi received in the DAPL liquidation and by DCI's contribution to New Mile
Hi of a 0.4% interest in Mile Hi.
Of the estimated $110 million in cash required by New Mile Hi to complete
the transaction, $105 million was loaned to New Mile Hi by CCT and $5 million
was provided by PBJC as a capital contribution to New Mile Hi. Of the $5 million
contributed by PBJC, approximately $4 million was provided by CCT through loans
to Mr. Johnson and trusts for the benefit of his children. CCT funded its loans
to new Mile Hi and the Johnson interests by drawing down $93 million under its
revolving credit facility and by borrowing $16 million from TCI in the form of a
subordinated note which bears interest at the rate of 8% per annum and is
payable in full on January 1, 2000.
At June 3, 1993, Liberty and TCI each had approximately $7,800,000 in
outstanding loans to CCT. The loans are evidenced by promissory notes, bear
interest at the rate of 12% per annum through December 31, 1992 and 8% per annum
thereafter and are due in full on January 1, 2000. Other than approximately
$3,000,000 that was repaid to Liberty at the closing of the Recapitalization
Agreement, existing indebtedness between CCT and each of Liberty and TCI will
remain outstanding and will be repaid in the ordinary course out of cash flow or
partnership borrowings, as permitted by the CCT revolving credit facility.
Repayments of this indebtedness will be made in equal amounts between TCI and
Liberty and prior to repayment of any advances made by TCI in connection with or
subsequent to the closing of the Mile Hi transaction. In the event Liberty is no
longer a partner, any remaining indebtedness outstanding to Liberty at such time
will be repaid by CCT.
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Satellite Services, Inc. ("SSI"), an indirect wholly owned subsidiary of
TCI, purchases sports and other programming from certain subsidiaries of
Liberty. Charges to SSI (which are based upon customary rates charged to others)
for such programming were $25,191,000 for the period from March 28, 1991 to
December 31, 1991, $42,834,000 for the year ended December 31, 1992 and
$44,074,000 for the year ended December 31, 1993. Certain subsidiaries of
Liberty purchase, at TCI's cost plus in some cases an administrative fee of up
to 10% of the rates actually charged, certain pay television and other
programming through SSI. In addition, HSN pays a commission to TCI for
merchandise sales to customers who are subscribers of TCI's cable systems.
Aggregate commissions and charges for such programming were $1,532,000 for the
period from March 28, 1991 to December 31, 1991, $3,290,000 for the year ended
December 31, 1992 and $10,650,000 for the year ended December 31, 1993.
TCI and Liberty are parties to a services agreement pursuant to which TCI
agreed to provide certain financial reporting, tax and other administrative
services to Liberty. In addition, the employees of certain of Liberty's
subsidiaries remained on the TCI payroll through December 31, 1992. Liberty
reimbursed TCI for their salaries and related employment expenses. A subsidiary
of Liberty also leases office space and satellite transponder facilities from
TCI. Charges by TCI under such arrangements amounted to $2,813,000 for the
period from March 28, 1991 to December 31, 1991, $3,283,000 for the year ended
December 31, 1992 and $1,407,000 for the year ended December 31, 1993.
In mid-1991, Encore Media Corporation, a 90% owned subsidiary of Liberty
("EMC"), began distributing to cable operators its Encore subscription movie
service. EMC has entered into agreements extending through 2006 with various
distributors to exhibit certain films on Encore and EMC's other subscription
movie services, each of which have been or are scheduled to be launched in 1994.
Based on subscriber levels at December 31, 1993, these agreements require
minimum payments aggregating approximately $189 million. EMC has entered into
various other agreements where license fees are contingent upon future
production, sales and certain other criteria. Minimum license fees for these
movies are not currently determinable. TCID has guaranteed the payment and
performance of obligations under certain agreements and EMC has agreed to
indemnify TCID in the event that it is required to make any payments pursuant to
such guarantees.
In September, 1993, Encore QE Programming Corp. ("QEPC"), a wholly owned
subsidiary of EMC, formed QE+ Ltd. ("QE+"), a limited partnership, with TCI
Starz, Inc. ("TCIS"), a wholly owned subsidiary of TCI, for the purpose of
developing, operating and distributing STARZ!, a first-run movie premium
programming service launched in 1994. QEPC is the general partner and TCIS is
the limited partner. Losses are allocated 1% to QEPC and 99% to TCIS. Profits
are allocated 1% to QEPC and 99% to TCIS until certain defined criteria are met.
Subsequently, profits are allocated 20% to QEPC and 80% to TCIS. TCIS has the
option, exercisable at any time and without payment of additional consideration,
to convert its limited partner interest to an 80% general partnership interest
with QEPC's partnership interest simultaneously converting to a 20% limited
partnership interest. In addition, during specified periods commencing April
1999 and April 2001, respectively, QEPC may require TCIS to purchase or TCIS may
require QEPC to sell, the partnership interest of QEPC in QE+ for a
formula-based price. EMC is paid a management fee equal to 20% of "managed
costs" as defined, in order to manage the service. During 1993, EMC earned
approximately $200,000 in management fees. In addition, EMC will provide QE+
with certain programming under a programming agreement whereby QE+ will pay its
pro rata share of the total costs incurred by EMC for such programming based
upon the relative number of subscribers of STARZ! and Encore.
In December of 1993, QE+ announced its intention to enter into a joint
venture (the "BET Venture") with Black Entertainment Television Films, Inc. and
Live Ventures, Inc. which would develop, produce and distribute motion pictures
targeted primarily to minority audiences. Though no definitive agreement has
been reached with respect to the BET Venture, under the proposed structure, each
of the parties would own a one-third interest and agree to contribute up to $5
million as a capital contribution.
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DESCRIPTION OF TCI/LIBERTY CAPITAL STOCK
TCI/LIBERTY COMMON STOCK
Immediately prior to the Effective Time, TCI/Liberty will be authorized to
issue 1,100,000,000 shares of TCI/Liberty Class A Common Stock and 150,000,000
shares of TCI/Liberty Class B Common Stock. As of the date of this Proxy
Statement/Prospectus, there were twenty shares of TCI/Liberty Common Stock
outstanding, owned by TCI and Liberty. Immediately following the Mergers, there
will be approximately 482,721,506 shares of TCI/Liberty Class A Common Stock and
85,976,327 shares of TCI/Liberty Class B Common Stock issued and outstanding
(net of shares of TCI/Liberty Common Stock held by Liberty and subsidiaries of
TCI).
Each share of TCI/Liberty Class A Common Stock has one vote and each share
of TCI/Liberty Class B Common Stock has ten votes on each matter presented to
the holders of TCI/Liberty Common Stock for a vote. Except as may be required by
the DGCL, the holders of the TCI/Liberty Class A Common Stock and TCI/Liberty
Class B Common Stock vote as one class for all purposes. The TCI/Liberty Class A
Common Stock and TCI/Liberty Class B Common Stock are otherwise identical in all
respects, except that each share of TCI/Liberty Class B Common Stock is
convertible into one share of TCI/Liberty Class A Common Stock at the option of
the holder. The TCI/Liberty Class A Common Stock is not convertible into
TCI/Liberty Class B Common Stock.
Subject to the preferential rights, if any, of holders of any then
outstanding preferred stock, the holders of the TCI/Liberty Class A Common Stock
and TCI/Liberty Class B Common Stock are entitled to receive dividends when and
as declared by the TCI/Liberty Board out of funds legally available for such
payment. Holders of TCI/Liberty Class A Common Stock and TCI/Liberty Class B
Common Stock have no preemptive rights to purchase additional shares. Subject to
the preferential rights of holders of any then outstanding preferred stock, the
holders of TCI/Liberty Class A Common Stock and TCI/Liberty Class B Common Stock
are entitled to share ratably in the assets of TCI/Liberty available for
distribution to stockholders in the event of TCI/Liberty's liquidation,
dissolution or winding up.
The shares of TCI/Liberty Class A Common Stock and TCI/Liberty Class B
Common Stock to be issued in connection with the Mergers will be fully paid and
non-assessable.
The TCI/Liberty Amended and Restated Certificate of Incorporation, which
will be adopted immediately prior to the Effective Time, (the "TCI/Liberty
Charter") will provide that there can be no stock dividend on, or stock split,
reverse stock split or reclassification of, either the TCI/Liberty Class A
Common Stock or the TCI/Liberty Class B Common Stock without a corresponding
stock dividend on, or stock split, reverse stock split or other reclassification
of, the other class of TCI/Liberty Common Stock.
The TCI/Liberty Board will determine its dividend policy with respect to
the TCI/Liberty Common Stock based on TCI/Liberty's results of operations,
financial condition, capital requirements and other circumstances, including
restrictions that may be contained in agreements pursuant to which TCI/Liberty
may borrow funds. It is not anticipated that cash dividends will be paid on the
TCI/Liberty Common Stock in the foreseeable future.
TCI/Liberty has applied for listing of the TCI/Liberty Class A Common Stock
and the TCI/Liberty Class B Common Stock in the Nasdaq National Market, and is
anticipated that such shares will be authorized for listing upon notice of
official issuance. The Bank of New York will be the transfer agent for each
class of TCI/Liberty Common Stock.
TCI/LIBERTY PREFERRED STOCK
TCI/Liberty will have authority, under the TCI/Liberty Charter, to issue up
to 3,175,069 shares of preferred stock, divided into 500,000 shares of Class A
Preferred Stock, 1,675,096 shares of Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock and 10,000,000 shares of TCI/Liberty Series
Preferred Stock. As of the date of this Proxy Statement/Prospectus, no shares of
TCI/Liberty preferred stock have been issued.
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Class A Preferred Stock. The dividend, liquidation and redemption features
of the TCI/Liberty Class A Preferred Stock, each of which is discussed in
greater detail below, will be determined by reference to the liquidation value
of the TCI/Liberty Class A Preferred Stock, which as of any date of
determination will be equal, on a per share basis, to the sum of (i) $322.84
plus (ii) all dividends accrued on such share through the dividend payment date
on or immediately preceding such date of determination to the extent not paid on
or before such date, plus (iii), for purposes of determining liquidation and
redemption payments, all unpaid dividends accrued on the sum of clauses (i) and
(ii) above, to such date of determination.
Subject to the prior preferences and other rights of any class or series of
TCI/Liberty preferred stock ranking prior to the TCI/Liberty Class A Preferred
Stock with respect to the declaration or payment of dividends, the holders of
TCI/Liberty Class A Preferred Stock will be entitled to receive and TCI/Liberty
will be obligated to pay preferential cumulative cash dividends when and as
declared by the TCI/Liberty Board out of unrestricted funds legally available
therefor. Dividends will accrue cumulatively at an annual rate of 9 3/8% of the
liquidation value per share, whether or not such dividends are declared or funds
are legally or contractually available for payment of dividends. Accrued
dividends will be payable annually on March 1 of each year or the next
succeeding business day if March 1 does not fall on a business day. Dividends
not paid on any dividend payment date will be added to the liquidation value on
such date and remain a part thereof until such dividends and all dividends
accrued thereon are paid in full. The TCI/Liberty Class A Preferred Stock will
rank prior to the TCI/Liberty Common Stock and TCI/Liberty Class B Preferred
Stock with respect to the declaration and payment of dividends.
Upon the dissolution, liquidation or winding up of TCI/Liberty, holders of
the TCI/Liberty Class A Preferred Stock will be entitled, after payment of
preferential amounts on any class or series of TCI/Liberty preferred stock
ranking prior to the TCI/Liberty Class A Preferred Stock with respect to
liquidating distributions, to receive from the assets of TCI/Liberty available
for distribution to stockholders an amount in cash or property or a combination
thereof, per share, equal to the then liquidation value. The TCI/Liberty Class A
Preferred Stock will rank senior to the TCI/Liberty Common Stock and TCI/Liberty
Class B Preferred Stock as to any such distributions.
Subject to the prior preferences and other rights of any class or series of
TCI/Liberty preferred stock, the TCI/Liberty Class A Preferred Stock will be
subject to optional redemption at any time by TCI/Liberty, in whole or in part,
and to mandatory redemption by TCI/Liberty on the twelfth anniversary of the
Effective Time, in each case at a redemption price, per share, equal to the then
liquidation value of the TCI/Liberty Class A Preferred Stock.
For so long as any dividends are in arrears on the TCI/Liberty Class A
Preferred Stock or any class or series of TCI/Liberty preferred stock ranking
pari passu with the TCI/Liberty Class A Preferred Stock which is entitled to
payment of cumulative dividends prior to the redemption or other acquisition of
the TCI/Liberty Class A Preferred Stock, and until all dividends accrued up to
the immediately preceding dividend payment date on the TCI/Liberty Class A
Preferred Stock and any such parity stock shall have been paid or declared and
set apart so as to be available for payment in full thereof and for no other
purpose, neither TCI/Liberty nor any subsidiary thereof may redeem or otherwise
acquire any shares of TCI/Liberty Class A Preferred Stock, any parity stock or
any class or series of TCI/Liberty capital stock ranking junior to the
TCI/Liberty Class A Preferred Stock (including the TCI/Liberty Common Stock and
TCI/Liberty Class B Preferred Stock), or set aside any money or assets for any
such purpose, unless all of the outstanding shares of TCI/Liberty Class A
Preferred Stock and such parity stock are redeemed. For so long as any dividends
are in arrears on the TCI/Liberty Class A Preferred Stock and until all
dividends accrued up to the immediately preceding dividend payment date on the
TCI/Liberty Class A Preferred Stock shall have been paid or declared and set
apart so as to be available for payment in full thereof and for no other
purpose, TCI/Liberty may not declare or pay any dividend on or make any
distribution with respect to any junior stock or parity stock or set aside any
money or assets for any such purpose, except for dividends declared and paid on
parity stock contemporaneously and on a pro rata basis with dividends declared
and paid on the TCI/Liberty Class A Preferred Stock. If TCI/Liberty fails to
redeem shares of TCI/Liberty Class A Preferred Stock required to be redeemed on
a redemption date, TCI/Liberty may not declare or pay any dividend on or make
any distribution with respect to any junior stock or set aside money or assets
for any such purpose, and neither
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TCI/Liberty nor any subsidiary may redeem any parity stock or junior stock, or
purchase or otherwise acquire any TCI/Liberty Class A Preferred Stock, parity
stock or junior stock, or set aside any money or assets for any such purpose,
until such shares are redeemed in full. The failure of TCI/Liberty to pay any
dividends on any class or series of parity stock or to redeem on any date fixed
for redemption any shares of TCI/Liberty Class A Preferred Stock shall not
prevent TCI/Liberty from (i) paying any dividends on junior stock solely in
shares of junior stock or the redemption or other acquisition of junior stock
solely in exchange for (together with a cash adjustment for fractional shares,
if any), or (but only in the case of a failure to pay dividends on any parity
stock) through the application of the proceeds from the sale of shares of junior
stock; or (ii) the payment of dividends on any parity stock solely in shares of
parity stock and/or junior stock or the redemption or other acquisition of
TCI/Liberty Class A Preferred Stock or parity stock solely in exchange for
(together with a cash adjustment for fractional shares, if any), or (but only in
the case of a failure to pay dividends on any parity stock) through the
application of the proceeds from the sale of shares of parity stock and/or
junior stock.
The TCI/Liberty Class A Preferred Stock will vote in any general election
of directors, will have one vote per share for such purpose and will vote as a
single class with the TCI/Liberty Common Stock, the TCI/Liberty Class B
Preferred Stock and any other class or series of preferred stock entitled to
vote in any general election of directors. The TCI/Liberty Class A Preferred
Stock will have no other voting rights except as required by the DGCL. Without
limiting the generality of the foregoing, the number of authorized shares of
TCI/Liberty Class A Preferred Stock may be increased or decreased (but not below
the number of shares of TCI/Liberty Class A Preferred Stock then outstanding) by
the affirmative vote of the holders of 66 2/3% of the total voting power of the
then outstanding shares of TCI/Liberty Common Stock and any class or series of
TCI/Liberty preferred stock entitled to vote generally on matters presented to
TCI/Liberty stockholders for a vote, voting together as a single class, and the
TCI/Liberty Class A Preferred Stock will not be entitled to vote with respect to
any proposed amendment to the TCI/Liberty Charter that would create or designate
any class or series of TCI/Liberty preferred stock that would rank prior to,
pari passu with, or junior to the TCI/Liberty Class A Preferred Stock.
Following the Effective Time, all of the issued and outstanding shares of
TCI/Liberty Class A Preferred Stock will be beneficially owned by an indirect,
wholly owned subsidiary of TCI/Liberty. Under Section 160 of the DGCL, for so
long as a majority-owned subsidiary of TCI/Liberty owns the shares of
TCI/Liberty Class A Preferred Stock, such shares shall neither be entitled to
vote in any election of directors nor counted for quorum purposes.
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
Stock. Subject to the prior preferences and other rights of any class or series
of TCI/Liberty preferred stock ranking prior to the TCI/Liberty Class B
Preferred Stock with respect to the payment of dividends, the holders of
TCI/Liberty Class B Preferred Stock will be entitled to receive preferential
cumulative dividends, when and as declared by the TCI/Liberty Board out of
unrestricted funds legally available therefor. Dividends will accrue
cumulatively (but without compounding) at an annual rate of 6% of the stated
liquidation value of $100 per share (the "Stated Liquidation Value"), whether or
not such dividends are declared or funds are legally available for payment of
dividends. Accrued dividends will be payable annually on March 1 of each year
(or the next succeeding business day if March 1 does not fall on a business
day), commencing March 1, 1995, and, in the sole discretion of the TCI/Liberty
Board, may be declared and paid in cash, in shares of TCI/Liberty Class A Common
Stock or in any combination of the foregoing. Accrued dividends not paid as
provided above on any dividend payment date will accumulate and such accumulated
unpaid dividends may be declared and paid in cash, shares of TCI/Liberty Class A
Common Stock or any combination thereof at any time (subject to the rights of
any senior stock and, if applicable, to the concurrent satisfaction of any
dividend arrearages on any class or series of TCI/Liberty preferred stock
ranking on a parity with the TCI/Liberty Class B Preferred Stock with respect to
dividend rights) without reference to any regular dividend payment date, to
holders of record of TCI/Liberty Class B Preferred Stock as of a special record
date fixed by the TCI/Liberty Board (which date may not be more than 45 days nor
less than 10 days prior to the date fixed for the payment of such accumulated
unpaid dividends). No interest or additional dividends will accrue or be payable
(whether in cash, shares of TCI/Liberty Class A Common Stock or otherwise) with
respect to any dividend payment on
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the TCI/Liberty Class B Preferred Stock that may be in arrears or with respect
to that portion of any other payment on the TCI/Liberty Class B Preferred Stock
that is in arrears which consists of accumulated or accrued and unpaid
dividends. For so long as any dividends are in arrears on the TCI/Liberty Class
B Preferred Stock and until all dividends accrued up to the immediately
preceding dividend payment date on the TCI/Liberty Class B Preferred Stock shall
have been paid or declared and set apart so as to be available for payment in
full thereof and for no other purpose, no dividends may be declared or paid on
the TCI/Liberty Common Stock or on any parity stock or other junior stock and no
money or assets may be set aside for such purpose, except for dividends declared
and paid on parity stock contemporaneously and on a pro rata basis with
dividends declared and paid on the TCI/Liberty Class B Preferred Stock. The
TCI/Liberty Class B Preferred Stock will rank junior to the TCI/Liberty Class A
Preferred Stock with respect to the declaration and payment of dividends.
If all or any portion of a dividend payment is to be paid through the
issuance and delivery of shares of TCI/Liberty Class A Common Stock, the number
of such shares to be issued and delivered will be determined by dividing the
amount of the dividend to be paid in shares of TCI/Liberty Class A Common Stock
by the Average Market Price of the TCI/Liberty Class A Common Stock. For this
purpose, "Average Market Price" means the average of the daily last reported
sale prices (or, if no sale price is reported on any day, the average of the
high and low bid prices on such day) of a share of TCI/Liberty Class A Common
Stock for the period of 20 consecutive trading days ending on the tenth trading
day prior to the regular record date or special record date, as the case may be,
for the applicable dividend payment.
In the event of any liquidation, dissolution or winding up of TCI/Liberty,
the holders of TCI/Liberty Class B Preferred Stock will be entitled, after
payment of preferential amounts on any class or series of stock ranking prior to
the TCI/Liberty Class B Preferred Stock with respect to liquidating
distributions, to receive from the assets of TCI/Liberty available for
distribution to stockholders an amount in cash or property or a combination
thereof, per share, equal to the Stated Liquidation Value thereof, plus all
accumulated and accrued but unpaid dividends thereon to the date of payment,
before any distribution of assets of TCI/Liberty would be made to holders of
TCI/Liberty Common Stock. The TCI/Liberty Class B Preferred Stock will rank
junior to the TCI/Liberty Class A Preferred Stock with respect to liquidation
distributions.
Subject to the prior preferences and other rights of any class or series of
TCI/Liberty preferred stock, the TCI/Liberty Class B Preferred Stock will be
redeemable at the option of TCI/Liberty, in whole at any time or in part from
time to time, for a redemption price per share payable in cash equal to the
Stated Liquidation Value thereof, plus all accumulated and accrued but unpaid
dividends thereon to and including the redemption date. TCI/Liberty will not
have any mandatory obligation to redeem the TCI/Liberty Class B Preferred Stock
as of any fixed date, at the option of the holders or otherwise.
Subject to the prior preferences and other rights of any class or series of
TCI/Liberty preferred stock, the TCI/Liberty Class B Preferred Stock will be
exchangeable at the option of TCI/Liberty in whole but not in part at any time
for junior subordinated debt securities of TCI/Liberty ("Junior Exchange
Notes"). The Junior Exchange Notes will be issued pursuant to an indenture (the
"Indenture"), to be executed by TCI/Liberty and a qualified trustee to be chosen
by TCI/Liberty. The Indenture has been filed as an exhibit to the Registration
Statement and a copy may be obtained in the manner described under "AVAILABLE
INFORMATION." A description of certain terms of the Indenture is included in
Appendix V to this Proxy Statement/Prospectus.
If TCI/Liberty exercises its optional exchange right, each holder of
outstanding shares of TCI/Liberty Class B Preferred Stock will be entitled to
receive in exchange therefor newly issued Junior Exchange Notes of a series
authorized and established for the purpose of such exchange, the aggregate
principal amount of which will be equal to the aggregate Stated Liquidation
Value of the shares of TCI/Liberty Class B Preferred Stock so exchanged by such
holder, plus all accumulated and accrued but unpaid dividends thereon to and
including the exchange date. The Junior Exchange Notes will be issuable only in
principal amounts of $100 or any integral multiple thereof and a cash adjustment
will be paid to the holder for any excess principal that would otherwise be
issuable. The Junior Exchange Notes will mature on the fifteenth anniversary of
the date of issuance and will be subject to earlier redemption at the option of
TCI/Liberty, in whole or in part, for a
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redemption price equal to the principal amount thereof plus accrued but unpaid
interest. Interest will accrue, and be payable annually, on the principal amount
of the Junior Exchange Notes at a rate per annum to be determined prior to
issuance by adding a spread of 215 basis points to the "Fifteen Year Treasury
Rate" (as defined in the Indenture). Interest will accrue on overdue principal
at the same rate, but will not accrue on overdue interest.
The Junior Exchange Notes will represent unsecured general obligations of
TCI/Liberty and will be subordinate in right of payment to all Senior Debt (as
defined in the Indenture). The Indenture will not limit the amount of Senior
Debt or any other debt, secured or unsecured, of TCI/Liberty or any subsidiary.
There can be no assurance as to the establishment or continuity of any trading
market for the Junior Exchange Notes that would be issued if TCI/Liberty
exercised its optional exchange right. Accordingly, holders of TCI/Liberty Class
B Preferred Stock who receive Junior Exchange Notes in exchange therefor may
have difficulty selling such Notes.
For so long as any dividends are in arrears on the TCI/Liberty Class B
Preferred Stock or any class or series of TCI/Liberty preferred stock ranking
pari passu with the TCI/Liberty Class B Preferred Stock which is entitled to
payment of cumulative dividends prior to the redemption, exchange, purchase or
other acquisition of the TCI/Liberty Class B Preferred Stock, and until all
dividends accrued up to the immediately preceding dividend payment date on the
TCI/Liberty Class B Preferred Stock and such parity stock shall have been paid
or declared and set apart so as to be available for payment in full thereof and
for no other purpose, neither TCI/Liberty nor any subsidiary thereof may redeem,
exchange, purchase or otherwise acquire any shares of TCI/Liberty Class B
Preferred Stock, any such parity stock or any class or series of its capital
stock ranking junior to the TCI/Liberty Class B Preferred Stock (including the
TCI/Liberty Common Stock), or set aside any money or assets for such purpose,
unless all of the outstanding shares of TCI/Liberty Class B Preferred Stock and
such parity stock are redeemed. For so long as any dividends are in arrears on
the TCI/Liberty Class B Preferred Stock and until all dividends accrued up to
the immediately preceding dividend payment date on the TCI/Liberty Class B
Preferred Stock shall have been paid or declared and set apart so as to be
available for payment in full thereof and for no other purpose, TCI/Liberty may
not declare or pay any dividend on or make any distribution with respect to any
junior stock or parity stock or set aside any money or assets for any such
purpose, except for dividends declared and paid on parity stock
contemporaneously and on a pro rata basis with dividends declared and paid on
the TCI/Liberty Class B Preferred Stock. If TCI/Liberty fails to redeem or
exchange shares of TCI/Liberty Class B Preferred Stock on a date fixed for
redemption or exchange, and until such shares are redeemed or exchanged in full,
TCI/Liberty may not redeem or exchange any parity stock or junior stock, declare
or pay any dividend on or make any distribution with respect to any junior stock
or set aside money or assets for such purpose and neither TCI/Liberty nor any
subsidiary thereof may purchase or otherwise acquire any TCI/Liberty Class B
Preferred Stock, parity stock or junior stock or set aside any money or assets
for any such purpose. The failure of TCI/Liberty to pay any dividends on any
class or series of parity stock or to redeem or exchange on any date fixed for
redemption or exchange any shares of TCI/Liberty Class B Preferred Stock shall
not prevent TCI/Liberty from (i) paying any dividends on junior stock solely in
shares of junior stock or the redemption, purchase or other acquisition of
junior stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of a failure to pay
dividends on any parity stock) through the application of the proceeds from the
sale of, shares of junior stock; or (ii) the payment of dividends on any parity
stock solely in shares of parity stock and/or junior stock or the redemption,
exchange, purchase or other acquisition of TCI/Liberty Class B Preferred Stock
or parity stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of a failure to pay
dividends on any parity stock) through the application of the proceeds from the
sale of, parity stock and/or junior stock.
The TCI/Liberty Class B Preferred Stock will vote in any general election
of directors, will have one vote per share for such purpose and will vote as a
single class with the TCI/Liberty Common Stock, the TCI/Liberty Class A
Preferred Stock and any other class or series of TCI/Liberty preferred stock
entitled to vote in any general election of directors. The TCI/Liberty Class B
Preferred Stock will have no other voting rights except as required by the DGCL.
Without limiting the generality of the foregoing, the number of authorized
shares of TCI/Liberty Class B Preferred Stock may be increased or decreased (but
not below the
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number of shares of TCI/Liberty Class B Preferred Stock then outstanding) by the
affirmative vote of the holders of 66 2/3% of the total voting power of the then
outstanding shares of TCI/Liberty Common Stock and any class or series of
TCI/Liberty preferred stock entitled to vote generally on matters presented to
TCI/Liberty stockholders for a vote, voting together as a single class, and the
TCI/Liberty Class B Preferred Stock will not be entitled to vote with respect to
any proposed amendment to the TCI/Liberty Charter that would create or designate
any class or series of TCI/Liberty preferred stock that would rank prior to,
pari passu with, or junior to the TCI/Liberty Class B Preferred Stock.
The transfer agent for the TCI/Liberty Class B Preferred Stock will be The
Bank of New York.
Series Preferred Stock. The TCI/Liberty Series Preferred Stock will be
issuable, from time to time, in one or more series, with such designations,
preferences and relative participating, optional or other special rights,
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the TCI/Liberty Board.
All shares of any one series of the TCI/Liberty Series Preferred Stock are
required to be alike in every particular and all series are required to rank
equally and be identical in all respects, except insofar as they may vary with
respect to matters which the TCI/Liberty Board is expressly authorized by the
TCI/Liberty Charter to determine in the resolution or resolutions providing for
the issue of any series of the TCI/Liberty Series Preferred Stock.
Series C Convertible Preferred Stock. TCI has entered into a letter
agreement with Prime which contemplates the issuance of a series of TCI/Liberty
Series Preferred Stock to be designated "Convertible Preferred Stock, Series C,"
as partial consideration for the proposed acquisition by TCI of all of the
partnership interests of Prime. See "BUSINESS OF TCI -- Recent Developments." If
such series is issued at the Prime Closing, the preferences and relative
participating, optional or other special rights, qualifications, limitations or
restrictions thereof are expected to be as follows:
Each share of TCI/Liberty Series C Preferred Stock will be convertible, at
the option of the holder, into 100 shares of TCI/Liberty Class A Common Stock,
subject to anti-dilution adjustments. The dividend, liquidation and redemption
features of the TCI/Liberty Class A Preferred Stock, each of which are discussed
in greater detail below, will be determined by reference to the liquidation
value of the TCI/Liberty Series C Preferred Stock, which as of any date of
determination is equal, on a per share basis, to the sum of (i) $2,375, plus
(ii) all dividends accrued on such share through the dividend payment date on or
immediately preceding such date of determination to the extent not paid on or
before such date, plus (iii), for purposes of determining liquidation and
redemption payments, all unpaid dividends accrued on the sums of clauses (i) and
(ii) above, to such date of determination.
Subject to the rights of any class or series of TCI/Liberty preferred stock
ranking pari passu with the TCI/Liberty Series C Preferred Stock, the holders of
TCI/Liberty Series C Preferred Stock will be entitled to receive and, subject to
any prohibition or restriction contained in any instrument evidencing
indebtedness of TCI/Liberty, TCI/Liberty will be obligated to pay preferential
cumulative cash dividends out of funds legally available therefor. Dividends
will accrue cumulatively at an annual rate of 5 1/2% of the liquidation value
per share, whether or not such dividends are declared or funds are legally or
contractually available for payment of dividends, except that if TCI/Liberty
fails to redeem shares of TCI/Liberty Series C Preferred Stock required to be
redeemed on a redemption date, dividends will thereafter accrue cumulatively at
an annual rate of 15% of the liquidation value per share. Accrued dividends will
be payable quarterly on January 1, April 1, July 1 and October 1 of each year,
commencing on the first dividend payment date after the issuance of the
TCI/Liberty Series C Preferred Stock. Dividends not paid on any dividend payment
date will be added to the liquidation value on such date and remain a part
thereof until such dividends and all dividends accrued thereon are paid in full.
Dividends will accrue on unpaid dividends at the rate of 5 1/2% per annum,
unless such dividends remain unpaid for two consecutive quarters in which event
such rate will increase to 15% per annum. The TCI/Liberty Series C Preferred
Stock will rank prior to the TCI/Liberty Common Stock and TCI/Liberty Class B
Preferred Stock and pari passu with the TCI/Liberty Class A Preferred Stock with
respect to the declaration and payment of dividends.
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Upon the dissolution, liquidation or winding up of TCI/Liberty, holders of
the TCI/Liberty Series C Preferred Stock will be entitled to receive from the
assets of TCI/Liberty available for distribution to stockholders an amount in
cash, per share, equal to the liquidation value. The TCI/Liberty Series C
Preferred Stock will rank prior to the TCI/Liberty Common Stock and TCI/Liberty
Class B Preferred Stock and pari passu with the TCI/Liberty Class A Preferred
Stock as to any such distributions.
The TCI/Liberty Series C Preferred Stock will be subject to optional
redemption at any time after the seventh anniversary of its issuance, in whole
or in part, by TCI/Liberty at a redemption price, per share, equal to the then
liquidation value of the TCI/Liberty Series C Preferred Stock. Subject to the
rights of any other class or series of TCI/Liberty preferred stock ranking pari
passu with the TCI/Liberty Series C Preferred Stock, the TCI/Liberty Series C
Preferred Stock will be required to be redeemed by TCI/Liberty at any time after
such seventh anniversary at the option of the holder, in whole or in part
(provided that the aggregate liquidation value of the shares to be redeemed is
in excess of $1 million), in each case at a redemption price, per share, equal
to the then liquidation value.
For so long as any dividends are in arrears on the TCI/Liberty Series C
Preferred Stock or any class or series of TCI/Liberty preferred stock ranking
pari passu (including the TCI/Liberty Class A Preferred Stock) with the
TCI/Liberty Series C Preferred Stock and until all dividends accrued up to the
immediately preceding dividend payment date on the TCI/Liberty Series C
Preferred Stock and such parity stock shall have been paid or declared and set
apart so as to be available for payment in full thereof and for no other
purpose, TCI/Liberty may not redeem or otherwise acquire any shares of
TCI/Liberty Series C Preferred Stock, any such parity stock or any class or
series of its preferred stock ranking junior (including the TCI/Liberty Common
Stock and TCI/Liberty Series C Preferred Stock) to the TCI/Liberty Series C
Preferred Stock, unless all of the outstanding shares of TCI/Liberty Series C
Preferred Stock and such parity stock are redeemed. If TCI/Liberty fails to
redeem shares of TCI/Liberty Series C Preferred Stock required to be redeemed on
a redemption date, and until all such shares are redeemed in full, TCI/Liberty
may not redeem any such parity stock or junior stock, or otherwise acquire any
shares of such stock or TCI/Liberty Series C Preferred Stock. Nothing contained
in the two immediately preceding sentences shall prevent TCI/Liberty from
acquiring (i) shares of TCI/Liberty Series C Preferred Stock and any such parity
stock pursuant to a purchase or exchange offer made to holders of all
outstanding shares of TCI/Liberty Series C Preferred Stock and such parity
stock, if (a) as to holders of all outstanding shares of TCI/Liberty Series C
Preferred Stock, the terms of the purchase or exchange offer for all such shares
are identical, (b) as to holders of all outstanding shares of a particular
series or class of parity stock, the terms of the purchase or exchange offer for
all such shares are identical and (c) as among holders of all outstanding shares
of TCI/Liberty Series C Preferred Stock and parity stock, the terms of each
purchase or exchange offer are substantially identically relative to the
respective liquidation prices of the shares of TCI/Liberty Series C Preferred
Stock and each series or class of such parity stock, or (ii) shares of
TCI/Liberty Series C Preferred Stock, parity stock or junior stock in exchange
for, or through the application of the proceeds of the sale of, shares of junior
stock.
The TCI/Liberty Series C Preferred Stock will be subject to restrictions on
transfer although it will have certain customary registration rights with
respect to the underlying shares of TCI/Liberty Class A Common Stock. The
TCI/Liberty Series C Preferred Stock will vote on all matters submitted to a
vote of the holders of the TCI/Liberty Common Stock, will have one vote for each
share of TCI/Liberty Class A Common Stock into which the shares of TCI/Liberty
Series C Preferred Stock are convertible for such purpose, and will vote as a
single class with the TCI/Liberty Common Stock. The TCI/Liberty Series C
Preferred Stock will have no other voting rights except as required by the DGCL
and except that the consent of the holders of record of shares representing at
least two-thirds of the liquidation value of the outstanding shares of the
TCI/Liberty Series C Preferred Stock will be necessary to (i) amend the
designation, rights, preferences and limitations of the TCI/Liberty Series C
Preferred Stock set forth in the TCI/Liberty Charter and (ii) to create or
designate any class or series of TCI/Liberty Preferred Stock that would rank
prior to the TCI/Liberty Series C Preferred Stock. Without limiting the
generality of the foregoing, the number of authorized shares of TCI/Liberty
Series C Preferred Stock may be increased or decreased (but not below the number
of shares of TCI/Liberty Series C Preferred Stock then outstanding) by the
affirmative vote of the holders of 66 2/3 of the total voting power of the then
outstanding shares of TCI/Liberty Common Stock and any class or series of
TCI/Liberty preferred stock entitled to vote generally on matters presented to
TCI/Liberty stockholders for a
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vote, voting together as a single class, and the TCI/Liberty Series C Preferred
Stock will not be entitled to vote with respect to any proposed amendment to the
TCI/Liberty Charter that would create or designate any class or series of
TCI/Liberty preferred stock that would rank pari passu with, or junior to, the
TCI/Liberty Series C Preferred Stock.
COMPARISON OF STOCKHOLDERS' RIGHTS
The following is a summary of certain provisions affecting, and differences
between, the rights of holders of TCI Common Stock and Liberty Common Stock,
respectively, and those of holders of TCI/Liberty Common Stock. Since TCI,
Liberty and TCI/Liberty are each organized under the laws of the State of
Delaware, any differences in the rights of holders of TCI Common Stock and
Liberty Common Stock, respectively, and those of holders of TCI/Liberty Common
Stock arise from various provisions of the TCI Restated Certificate of
Incorporation (the "TCI Charter") and Bylaws and the Liberty Restated
Certificate of Incorporation (the "Liberty Charter") and Bylaws, respectively,
and the TCI/Liberty Charter and Bylaws which will be adopted immediately prior
to the Effective Time. The following summary is qualified in its entirety by
reference to the DGCL and the complete text of the TCI Charter and Bylaws, the
Liberty Charter and Bylaws and the TCI/Liberty Charter and Bylaws. The
TCI/Liberty Charter and Bylaws have been filed as exhibits to the Registration
Statement. See "AVAILABLE INFORMATION."
AUTHORIZED CAPITAL STOCK
TCI. TCI's authorized capital stock consists of 1,110,000,000 shares,
divided into the following classes: 1,000,000,000 shares of TCI Class A Common
Stock; 100,000,000 shares of TCI Class B Common Stock; and 10,000,000 shares of
preferred stock, of which 6,201 shares have been designated as Convertible
Preferred Stock, Series C.
Liberty. Liberty's authorized capital stock consists of 407,535,000
shares, divided into the following classes: 300,000,000 shares of Liberty Class
A Common Stock; 100,000,000 shares of Liberty Class B Common Stock; 11,000
shares of Class A Redeemable Convertible Preferred Stock; 106,000 shares of
Class B Redeemable Exchangeable Preferred Stock; 400,000 shares of Class C
Redeemable Exchangeable Preferred Stock; 18,000 shares of Class D Redeemable
Voting Preferred Stock; 2,000,000 shares of Class E, 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock; and 5,000,000 shares of Class F Serial
Preferred Stock.
TCI/Liberty. TCI/Liberty's authorized capitalization will consist of
1,253,175,096 shares, divided into the following classes: 1,100,000,000 shares
of TCI/Liberty Class A Common Stock; 150,000,000 shares of TCI/Liberty Class B
Common Stock; 500,000 shares of Class A Preferred Stock; 1,675,096 shares of
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock; and
1,000,000 shares of Series Preferred Stock.
VOTING
TCI. Each share of TCI Class B Common Stock entitles the holder to ten
votes and each share of TCI Class A Common Stock entitles the holder to one vote
on each matter presented to stockholders. The holders of TCI Class A Common
Stock and TCI Class B Common Stock vote together as a single class. The TCI
Charter provides that in the event the TCI Board authorizes the issuance of
shares of any series of preferred stock with voting rights, the total voting
power of such series and all other then authorized series of preferred stock
with voting rights shall not exceed 5% of the total voting power of the then
outstanding shares of TCI Common Stock. The TCI Bylaws provide that, except as
otherwise required by the DGCL, the presence, in person or by proxy, of the
holders of a majority of the total voting power of the outstanding shares of TCI
capital stock entitled to vote at a meeting of stockholders is necessary to
constitute a quorum at such meeting.
Liberty. Each share of Liberty Class B Common Stock entitles the holder to
ten votes and each share of Liberty Class A Common Stock entitles the holder to
one vote on each matter presented to stockholders. The Liberty Class A Common
Stock and the Liberty Class B Common Stock vote together as a single class. The
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holders of the Liberty preferred stock have no voting rights, except as required
by the DGCL and except that the consent of holders of record of shares
representing at least 66 2/3% of the number of outstanding shares of the Liberty
Class B Preferred Stock and Liberty Class D Preferred Stock, each voting as a
separate class, is necessary (i) to amend, alter or repeal any provision of the
Liberty Charter so as to effect any adverse change in the rights, privileges,
powers or preferences of the Liberty Class B Preferred Stock or the Liberty
Class D Preferred Stock, respectively, (ii) to create any additional series of
preferred stock which ranks pari passu with or senior to the Liberty Class B
Preferred Stock or the Liberty Class D Preferred Stock, respectively, and (iii)
before Liberty may effect certain other changes to its capitalization. See also
"-- Directors" and "-- Mergers, Consolidations and Sales of Assets" below. The
Liberty Bylaws provide that, except as otherwise required by the DGCL or the
terms of any class or series of Liberty preferred stock, the presence, in person
or by proxy, of the holders of a majority of the outstanding shares of Liberty
capital stock entitled to vote at a meeting of stockholders is necessary to
constitute a quorum at such meeting.
TCI/Liberty. Each share of TCI/Liberty Class B Common Stock entitles the
holder to ten votes and each share of TCI/Liberty Class A Common Stock entitles
the holder to one vote on each matter presented to stockholders. The holders of
TCI/Liberty Class A Common Stock and TCI/Liberty Class B Common Stock vote
together as a single class. Each share of TCI/Liberty Class A Preferred Stock
and TCI/Liberty Class B Preferred Stock will entitle the holder to one vote with
respect to the election of directors, voting together as a single class with the
TCI/Liberty Common Stock. (However, under Section 160 of the DGCL, for so long
as a majority-owned subsidiary of TCI/Liberty owns the shares of TCI/Liberty
Class A Preferred Stock, such shares will not be entitled to vote in any
election of directors.) The holders of the TCI/Liberty Class A Preferred Stock
and TCI/Liberty Class B Preferred Stock will have no other voting rights except
as required by the DGCL. The TCI/Liberty Bylaws will provide that, except as
otherwise required by the DGCL or the terms of any class or series of
TCI/Liberty preferred stock, the presence, in person or by proxy, of the holders
of a majority of the total voting power of the outstanding shares of TCI/Liberty
capital stock entitled to vote at a meeting of stockholders is necessary to
constitute a quorum at such meeting.
SPECIAL MEETINGS OF STOCKHOLDERS
TCI. The TCI Bylaws provide that a special meeting of stockholders shall
be called upon (i) the written request of the holders of not less than 66 2/3%
of the total voting power of the outstanding shares of TCI Common Stock and any
class or series of TCI preferred stock entitled to vote with the TCI Common
Stock generally in the election of directors ("TCI Voting Stock") or (ii) upon
the request of 75% of the members of the TCI Board.
Liberty. The Liberty Charter and Bylaws provide that a special meeting of
stockholders shall be called, subject to the rights of the holders of any class
or series of Liberty preferred stock, by the Secretary of Liberty, upon (i) the
written request of the holders of not less than 66 2/3% of the total voting
power of the outstanding Liberty Common Stock and any class or series of Liberty
preferred stock entitled to vote with the Liberty Common Stock generally in the
election of directors ("Liberty Voting Stock") or (b) at the request of 75% of
the members of the Liberty Board.
TCI/Liberty. The TCI/Liberty Charter and TCI/Liberty Bylaws provide that a
special meeting of stockholders shall be held at any time, subject to the rights
of the holders of any class or series of TCI/Liberty preferred stock, upon the
call of the Secretary of TCI/Liberty upon (a) the written request of the holders
of not less than 66 2/3% of the total voting power of the TCI/Liberty Common
Stock and any class or series of TCI/Liberty preferred stock entitled to vote
with the TCI/Liberty Common Stock generally on matters submitted to stockholders
for a vote ("TCI/Liberty Voting Stock") or (ii) at the request of not less than
75% of the members of the TCI/Liberty Board.
DIRECTORS
TCI. The TCI Charter provides for a Board of Directors of not less than
six nor more than 12 members, divided into three classes of approximately equal
size, with each class to be elected for a three-year term at each annual meeting
of stockholders. The exact number of directors is determined by the TCI Bylaws,
which
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currently provide for an eight member Board of Directors. The holders of TCI
Class A Common Stock and TCI Class B Common Stock vote as a single class for the
election of directors and have cumulative voting rights in the election of
directors.
Liberty. The Liberty Charter provides for a Board of Directors of not less
than three members, divided into three classes of approximately equal size, with
each class to be elected for a three-year term at each annual meeting of
stockholders. The exact number of directors is fixed by the Liberty Board, which
has fixed the size of the Board at eight members. The holders of Liberty Class A
Common Stock and Liberty Class B Common Stock vote as a single class for the
election of directors and do not have cumulative voting rights in the election
of directors. For so long as all outstanding shares of Liberty Class D Preferred
Stock are held by TCI and/or any of its subsidiaries, the holders of Liberty
Class D Preferred Stock, voting separately as a class, have the right to elect a
number of members (the "Preferred Stock Directors") equal to not less than 11%
(rounded upward to the nearest whole number) of the total number of directors of
the Liberty Board, and no change in the size of the Liberty Board can have the
effect of causing the number of Preferred Stock Directors to be a number which
is less than 11% of the total number of the members of the Liberty Board.
TCI/Liberty. The TCI/Liberty Charter will provide for a Board of Directors
of not less than three members, divided into three classes of approximately
equal size, with each class to be elected for a three-year term at each annual
meeting of stockholders. The exact number of directors will be fixed by the
TCI/Liberty Board, which is expected to fix the number of directors at eight
immediately prior to the Effective Time. The holders of TCI/Liberty Common
Stock, TCI/Liberty Class A Preferred Stock and TCI/Liberty Class B Preferred
Stock, voting together as a single class, will vote in elections for directors.
Stockholders of TCI/Liberty do not have cumulative voting rights.
REMOVAL OF DIRECTORS
TCI. The TCI Charter provides that, subject to the rights, if any, of any
class or series of TCI preferred stock, the vote of the holders of 66 2/3% of
the total voting power of the outstanding shares of TCI Voting Stock, voting
together as a single class, is required to remove any director. The DGCL
provides that stockholders of corporations having classified boards of directors
may remove directors only for cause unless otherwise provided in the certificate
of incorporation of such corporation. The TCI Charter does not provide for the
removal of directors without cause and therefore TCI's directors may only be
removed for cause. Neither the DGCL nor the TCI Charter contains a definition of
the term "cause."
Liberty. The Liberty Charter provides that, subject to the exclusive right
of the holders of the TCI/Liberty Class D Preferred Stock to remove, with or
without cause, the Preferred Stock Directors, and the rights of any other class
or series of Liberty preferred stock, directors may be removed only for cause by
the holders of 66 2/3% of the total voting power of the outstanding shares of
Liberty Voting Stock, voting together as a single class. The Liberty Charter
provides that "cause" for removal shall be construed to exist if (i) the
director whose removal is proposed has been convicted, or has been granted
immunity to testify where another has been convicted, of a felony, by a court of
competent jurisdiction and such conviction is no longer subject to direct
appeal; (ii) such director has become mentally incompetent, whether or not so
adjudicated, which mental incompetency directly affects his ability as a
director, as determined by 66 2/3% of the members of the entire Liberty Board
(other than such director); or (iii) such director's actions or failure to act
have been determined by 66 2/3% of the members of the entire Liberty Board
(other than such director) to be in derogation of such director's duties.
TCI/Liberty. The TCI/Liberty Charter provides that, subject to the rights
of the holders of any class or series of TCI/Liberty preferred stock, directors
may be removed only for cause by the holders of 66 2/3% of the total voting
power of the outstanding shares of TCI/Liberty Voting Stock, voting together as
a single class. The TCI/Liberty Charter provides that "cause" for removal shall
be construed to exist if (i) the director whose removal is proposed has been
convicted, or has been granted immunity to testify where another has been
convicted, of a felony, by a court of competent jurisdiction and such conviction
is no longer subject to direct appeal; (ii) such director has become mentally
incompetent, whether or not so adjudicated, which mental incompetency directly
affects his ability as a director, as determined by 66 2/3% of the members of
the
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entire TCI/Liberty Board (other than such director); or (iii) such director's
actions or failure to act have been determined by 66 2/3% of the members of the
entire TCI/Liberty Board (other than such director) to be in derogation of such
director's duties.
VACANCIES ON THE BOARD OF DIRECTORS
TCI. The TCI Charter provides that any newly created directorship
resulting from an increase in the number of directors and any vacancies on the
TCI Board caused by death, resignation, removal or otherwise, may be filled by
the remaining directors, although less than a quorum, or by the sole remaining
director. The filling of any such vacancy or newly created directorship will be
subject to Section 223(c) of the DGCL, which provides that if, at the time of
filling any vacancy or newly created directorship, the directors then in office
shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase or vacancy), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the voting power represented by the outstanding shares entitled to
vote for such directors, summarily order an election to be held to fill any such
vacancy or newly created directorship or to replace the directors chosen by the
directors then in office as aforesaid. Each director chosen to fill a vacancy or
newly created directorship shall hold office until the next election of the
class for which such director shall have been chosen, and until his successor
shall be duly elected and shall have qualified.
Liberty. The Liberty Charter provides that, subject to the rights, if any,
of any shares of preferred stock of Liberty, any newly created directorship
resulting from an increase in the number of directors and any vacancies on the
Liberty Board caused by death, resignation, removal or otherwise, may be filled
by the affirmative vote of a majority of the remaining directors, although less
than a quorum, or by the sole remaining director, except that any newly created
directorship required to be filled by the holders of the Liberty Class D
Preferred Stock or any vacancy created by the death or resignation of a
Preferred Stock Director shall be filled only by a majority of the remaining
Preferred Stock Directors or by the sole remaining Preferred Stock Director or,
if there are no Preferred Stock Directors remaining, by the holders of the
Liberty Class D Preferred Stock. Vacancies created by the removal of a Preferred
Stock Director shall be filled by the affirmative vote of the holders of a
majority of the outstanding shares of Liberty Class D Preferred Stock. The
filling of any such vacancy or newly created directorship will also be subject
to Section 223(c) of the DGCL. Each director chosen to fill a vacancy or newly
created directorship shall hold office until the next election of the class for
which such director shall have been chosen, and until his successor shall be
duly elected and shall have qualified.
TCI/Liberty. The TCI/Liberty Charter provides that, subject to the rights,
if any, of any shares of preferred stock of TCI/Liberty, any newly created
directorship resulting from an increase in the number of directors and any
vacancies on the TCI/Liberty Board caused by death, resignation, removal or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by the sole remaining director. The
filling of any such vacancy or newly created directorship will also be subject
to Section 223(c) of the DGCL. The TCI/Liberty Charter and TCI/Liberty Bylaws
each provide that any directors chosen to fill a vacancy on the TCI/Liberty
Board or newly created directorship will serve for the remainder of the full
term of the class for which such director was chosen and until his successor
shall be duly elected and shall have qualified.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
TCI. The TCI Charter requires, subject to the rights, if any, of any class
or series of preferred stock of TCI, the affirmative vote of 66 2/3% of the
total voting power of the outstanding shares of TCI Voting Stock, voting
together as a single class, to approve (a) a merger or consolidation of TCI
with, or into, another corporation, other than a merger or consolidation which
does not require the consent of stockholders under the DGCL, or a merger or
consolidation which has been approved by 75% of the members of the TCI Board (in
which case, in accordance with the DGCL, the affirmative vote of a majority of
the total voting power of the outstanding shares of TCI Voting Stock would be
required for approval), (b) the sale, lease or exchange of all or substantially
all of the property and assets of TCI or (c) the dissolution of TCI.
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Liberty. The Liberty Charter requires, subject to the rights, if any, of
any class or series of preferred stock of Liberty, the affirmative vote of
66 2/3% of the total voting power of the outstanding shares of Liberty Voting
Stock, voting together as a single class, to approve (a) a merger or
consolidation of Liberty with, or into, another corporation, other than a merger
or consolidation which does not require the consent of stockholders under the
DGCL or a merger or consolidation which has been approved by 75% of the members
of the Liberty Board (in which case, in accordance with the DGCL, the
affirmative vote of a majority of the total voting power of the outstanding
shares of Liberty Voting Stock would be required for approval), (b) the sale,
lease or exchange of all or substantially all of the property and assets of
Liberty or (c) the dissolution of Liberty. In addition, the Liberty Charter
requires the affirmative vote of 66 2/3% of the number of shares of Liberty
Class B Preferred Stock and Liberty Class D Preferred Stock then outstanding,
each voting as a separate class, to approve a merger or consolidation of Liberty
with, or into another corporation or a transfer of all or substantially all of
Liberty's assets to another corporation.
TCI/Liberty. The TCI/Liberty Charter requires, subject to the rights, if
any, of any class or series of preferred stock of TCI/Liberty, the affirmative
vote of 66 2/3% of the total voting power of the outstanding shares of
TCI/Liberty Voting Stock, voting together as a single class, to approve (a) a
merger or consolidation of TCI/Liberty with, or into, another corporation, other
than a merger or consolidation which does not require the consent of
stockholders under the DGCL or a merger or consolidation which has been approved
by at least 75% of the members of the TCI/Liberty Board (in which case, in
accordance with the DGCL, the affirmative vote of a majority of the total voting
power of the outstanding TCI/Liberty Voting Stock would be required for
approval), (b) the sale, lease or exchange of all or substantially all of the
property and assets of TCI/Liberty or (c) the dissolution of TCI/Liberty.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
TCI. The TCI Charter requires the affirmative vote of 66 2/3% of the total
voting power of the outstanding shares of TCI Voting Stock, voting together as a
single class, to approve any amendment, alteration or repeal of any provision of
the TCI Charter or the addition or insertion of other provisions therein.
Liberty. The Liberty Charter requires the affirmative vote of 66 2/3% of
the total voting power of the outstanding shares of Liberty Voting Stock, voting
together as a single class, to approve any amendment, alteration or repeal of
any provision of the Liberty Charter or the addition or insertion of other
provisions therein.
TCI/Liberty. The TCI/Liberty Charter requires the affirmative vote of
66 2/3% of the total voting power of the outstanding shares of TCI/Liberty
Voting Stock, voting together as a single class, to approve any amendment,
alteration or repeal of any provision of the TCI/Liberty Charter or the addition
or insertion of other provisions therein.
AMENDMENTS TO BYLAWS
TCI. The TCI Charter and TCI Bylaws each require (a) the affirmative vote
of 66 2/3% of the total voting power of the outstanding shares of TCI Voting
Stock, voting together as a single class, or (b) the affirmative vote of 75% of
the members of the TCI Board, to approve the adoption, amendment or repeal of
any provision of the TCI Bylaws.
Liberty. The Liberty Charter and Liberty Bylaws each require (a) the
affirmative vote of 66 2/3% of the total voting power of the outstanding Liberty
Voting Stock, voting together as a single class, or (b) the affirmative vote of
75% of the members of the Liberty Board, to approve the adoption, amendment or
repeal of any provisions of the Liberty Bylaws.
TCI/Liberty. The TCI/Liberty Charter and TCI/Liberty Bylaws each requires
(a) the affirmative vote of 66 2/3% of the total voting power of the outstanding
TCI/Liberty Voting Stock, voting together as a single class, or (b) the
affirmative vote of at least 75% of the members of the TCI/Liberty Board, to
approve the adoption, amendment or repeal of any provisions of the TCI/Liberty
Bylaws.
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NOTICE OF STOCKHOLDER NOMINATIONS OF DIRECTORS
TCI. The TCI Charter and TCI Bylaws do not set forth any restrictions or
procedures regarding stockholder nomination of directors.
Liberty. Subject to the right of Liberty Class D Preferred Stock to
nominate and elect the Preferred Stock Directors and the rights, if any, of any
shares of any other class or series of preferred stock of Liberty, Liberty's
Bylaws require that written notice of the intent to make a nomination at a
meeting of stockholders must be received by the Secretary of Liberty, at
Liberty's principal executive offices, not later than (a) with respect to an
election to be held at an annual meeting of stockholders, 90 days in advance of
such meeting, and (b) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the seventh day following the day on which notice of such meeting is first given
to stockholders. The notice must contain: (i) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the stockholder is a holder of record
of Liberty Voting Stock entitled to vote at the meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; (iii) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (iv) such other information regarding each nominee
proposed by such stockholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the Commission had each
proposed nominee been nominated, or intended to be nominated, by the Liberty
Board; and (v) the consent of each nominee to serve as a director of Liberty if
so elected. The foregoing procedures shall not apply to the nomination by the
holders of Liberty Class D Preferred Stock of nominees for election as Preferred
Stock Directors.
TCI/Liberty. Subject to the rights of any class or series of preferred
stock of TCI/Liberty, TCI/Liberty's Bylaws require that written notice of the
intent to make a nomination at a meeting of stockholders must be received by the
Secretary of TCI/Liberty, at TCI/Liberty's principal executive offices, not
later than (a) with respect to an election to be held at an annual meeting of
stockholders, 90 days in advance of such meeting, and (b) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, the close of business on the seventh day following the day on which
notice of such meeting is first given to stockholders. The notice must contain:
(i) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (ii) a representation that the
stockholder is a holder of record of TCI/Liberty Voting Stock entitled to vote
at the meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (iv) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Commission had each proposed nominee been nominated, or intended to
be nominated, by the Board of Directors of TCI/Liberty; and (v) the consent of
each nominee to serve as a director of TCI/Liberty if so elected.
DELAWARE ANTI-TAKEOVER STATUTE
DGCL Section 203, in general, prohibits a "business combination" between a
corporation and an "interested stockholder" within three years of the date such
stockholder became an "interested stockholder", unless (i) prior to such date
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which 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 commenced, exclusive of shares owned by
directors who are also officers and by certain employee stock plans, or (iii)
after such date, the business combination is approved by the board of directors
and authorized by the affirmative vote at a stockholders' meeting 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
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transactions between the interested stockholder and the corporation or any
direct or indirect majority-owned subsidiary thereof, a merger or consolidation;
a sale, pledge, transfer or other disposition (including as part of a
dissolution) 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; certain transactions that would increase the interested
stockholder's proportionate share ownership of the stock of any class or series
of the corporation or such subsidiary; and any receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or any such
subsidiary. In general, and subject to certain 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 such
person. The term "owner" is broadly defined to include any person that
individually or with or through his or its affiliates or associates, among other
things, beneficially owns such stock, or has the right to acquire such stock
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement or understanding or upon the exercise of
warrants or options or otherwise or has the right to vote such stock pursuant to
any agreement or understanding, or has an agreement or understanding with the
beneficial owner of such stock for the purpose of acquiring, holding, voting or
disposing of such stock. The restrictions of DGCL Section 203 do not apply to
corporations that have elected, in the manner provided therein, not to be
subject to such section or which do not have a class of voting stock that is
listed on a national securities exchange or authorized for quotation on an
interdealer quotation system of a registered national securities association or
held of record by more than 2,000 stockholders.
The TCI/Liberty Charter does not contain any provision "opting out" of the
application of DGCL Section 203 and TCI/Liberty has not taken any of the actions
necessary for it to "opt out" of such provision. As a result, the provisions of
Section 203 will remain applicable to transactions between TCI/Liberty and any
of their respective "interested stockholders." The TCI/Liberty Board, however,
has approved the Mergers which could result in John Malone and Bob Magness
becoming interested stockholders within the meaning of DGCL Section 203, and by
such approval has exempted such persons who become interested stockholders as a
result of the Mergers from the application of such Section.
DIFFERENCES BETWEEN LIBERTY PREFERRED STOCK AND TCI/LIBERTY PREFERRED STOCK
Liberty Class B and D Preferred Stock. All of the outstanding shares of
Liberty Class B Preferred Stock and Liberty Class D Preferred Stock are owned by
an indirect, wholly owned subsidiary of TCI. In the Liberty Merger, such
subsidiary of TCI (which will be an indirect, wholly owned subsidiary of
TCI/Liberty following the Mergers) will receive shares of TCI/Liberty Class A
Preferred Stock, having a substantially equivalent fair market value, in
exchange for such shares. For a description of the terms of the TCI/Liberty
Class A Preferred Stock, see "DESCRIPTION OF TCI/LIBERTY CAPITAL
STOCK -- TCI/Liberty Preferred Stock -- Class A Preferred Stock."
Liberty Class E Preferred Stock. There are no material differences between
the terms of the Liberty Class E Preferred Stock and the TCI/Liberty Class B
Preferred Stock, except that in addition to any voting rights to which the
holders of Liberty Class E Preferred Stock are entitled under the Liberty
Charter and the DGCL, the holders of shares of TCI/Liberty Class B Preferred
Stock will be entitled, under the TCI/Liberty Charter, to one vote per share in
the election of directors, voting as a single class with the TCI/Liberty Common
Stock and any other class or series of TCI/Liberty Preferred Stock entitled to
vote in any general election of directors. See "DESCRIPTION OF TCI/LIBERTY
CAPITAL STOCK -- TCI/Liberty Preferred Stock -- Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock."
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MANAGEMENT OF TCI/LIBERTY
DIRECTORS
The Bylaws of TCI/Liberty provide for a Board of Directors (the
"TCI/Liberty Board") consisting of not less than three members, with the exact
number to be determined by the TCI/Liberty Board from time to time. In
accordance with the Merger Agreement, the TCI/Liberty Board consists solely of
those persons who are the current members of the TCI Board.
Members of the TCI/Liberty Board will be elected to staggered three-year
terms, with approximately one-third elected annually. Information regarding each
person who is a director of TCI/Liberty is set forth below.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE OTHER PUBLIC
NAME AGE DURING PAST FIVE YEARS DIRECTORSHIP HELD
- -------------------- --- ---------------------------------- ---------------------------
<S> <C> <C> <C>
Bob Magness 70 Chairman of the Board of TCI; Liberty; Republic
TCI/Liberty; Chairman of the Board Pictures Corporation;
of TCI since 1973 and Chairman of Turner Broadcasting System,
the Board of a number of TCI's Inc.
subsidiaries
John C. Malone 53 Chief Executive Officer and TCI; Liberty; Turner
President of TCI/Liberty since Broadcasting System, Inc;
January 27, 1994; Chief Executive BET Holdings, Inc.; The
Officer of TCI since March 1992 Bank of New York
and President since 1973;
President and a director of most
of TCI's subsidiaries; Chairman of
the Board of Liberty since October
1990
Donne F. Fisher 56 Executive Vice President and TCI; General Communication,
Treasurer of TCI/Liberty since Inc.
January 27, 1994; Executive Vice
President of TCI since December of
1991; was previously Senior Vice
President of TCI since 1982 and
Treasurer since 1970; Vice
President, Treasurer and a
director of most of TCI's
subsidiaries
John W. Gallivan 78 Chairman of the Board of Kearns- TCI; Kearns-Tribune
Tribune Corporation, a newspaper Corporation; Silver King
publishing concern Mining Company
Kim Magness 41 Manages family business interests, TCI
mostly in ranching and breeding
Arabian horses, and is Chairman
and President of a company
developing liners for irrigation
canals
Robert A. Naify 72 President of The Todd-AO TCI; The Todd-AO
Corporation Corporation
</TABLE>
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<TABLE>
<CAPTION>
BUSINESS EXPERIENCE OTHER PUBLIC
NAME AGE DURING PAST FIVE YEARS DIRECTORSHIP HELD
- -------------------- --- ---------------------------------- ---------------------------
<S> <C> <C> <C>
Jerome H. Kern 57 Senior partner of Baker & Botts, TCI
L.L.P., a law firm located in New
York, New York, since September
1992. Mr. Kern was a senior
partner of the Law Offices of
Jerome H. Kern from January 1,
1992 to September 1, 1992 and,
prior to that, was a senior
partner of the law firm of Shea &
Gould from 1986 through December
31, 1991
Tony Coelho 51 President and Chief Executive TCI; Circus Circus
Officer of Wertheim Schroder Enterprises, Inc.; ICF
Investment Services; Managing Kaiser International, Inc.;
Director of Wertheim Schroder & Service Corporation
Co., Incorporated; was formerly International; Specialty
U.S. Representative from Retail Group, Inc.;
California from January 1979 Tanknology Environmental,
through June 1989 and the Majority Inc.
Whip of the U.S. House of
Representative s from December
1986 through June 1989
R.E. Turner 55 Chairman of the Board and TCI; Turner Broadcasting
President of Turner Broadcasting System, Inc.
System, Inc. since 1970.
</TABLE>
There are no family relations, of first cousin or closer, among the above
named individuals, by blood, marriage or adoption, except that Bob Magness and
Kim Magness are father and son, respectively.
COMPENSATION OF DIRECTORS
TCI/Liberty's directors will be compensated for all services (including any
amounts payable for committee participation or special assignments) as a
director as follows: each director will receive a fee of $500 plus travel
expenses for attendance at each meeting of the TCI/Liberty Board and each
director who is not a full-time employee of TCI/Liberty will receive additional
compensation of $30,000 per year.
TCI/Liberty will have a deferred compensation plan for all non-employee
directors. Each director will be able to elect to defer receipt of all, but not
less than all, of the annual compensation (excluding meeting fees and
reimbursable expenses) payable to the director for serving on the TCI/Liberty
Board for each calendar year for which such deferral is elected. A director will
be able to elect to defer compensation payable for a single calendar year or
period of years. Any compensation deferred shall be credited to the director's
account on the last day of the quarter for which compensation has accrued. Such
deferred compensation will bear interest from the date credited to the date of
payment at a rate of 120% of the applicable federal long-term rate, compounded
annually.
A director will be able to elect payment of deferred compensation at a
specified year in the future or upon termination of the director's service as a
director of TCI/Liberty. Each director will be able to elect payment in a lump
sum, three substantially equal consecutive annual installments or five
substantially equal consecutive annual installments. In the event that a
director dies prior to payment of all the amounts payable pursuant to the plan,
any amounts remaining in the director's deferred compensation account, together
with accrued interest thereon, shall be paid to the director's designated
beneficiary.
INDEMNIFICATION
TCI/Liberty will enter into indemnification agreements with each person who
is a director of TCI/Liberty prior to the Effective Time. The indemnification
agreements will generally provide (i) for the
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prompt indemnification to the fullest extent permitted by law against (a) any
and all expenses including attorneys' fees and all other costs paid or incurred
in connection with investigating, preparing to defend, defending or otherwise
participating in any threatened, pending or completed action, suit or proceeding
related to the fact that such indemnitee is or was a director, officer,
employee, agent or fiduciary of TCI/Liberty or is or was serving at
TCI/Liberty's request as a director, officer, employee, agent or fiduciary of
another entity, or by reason of anything done or not done by such indemnitee in
any such capacity and (b) any and all judgments, fines, penalties and amounts
paid in settlement of any claim, unless the "Reviewing Party" (defined as one or
more members of the TCI/Liberty Board or appointee(s) of the Board of Directors
who are not parties to the particular claim, or independent legal counsel)
determines that such indemnification is not permitted under applicable law and
(ii) for the prompt advancement of expenses to an indemnitee as well as the
reimbursement by such indemnitee of such advancement to TCI/Liberty if the
Reviewing Party determines that the indemnitee is not entitled to such
indemnification under applicable law. In addition, the indemnification
agreements will provide (i) a mechanism through which an indemnitee may seek
court relief in the event the Reviewing Party determines that the indemnitee
would not be permitted to be indemnified under applicable law (and would
therefore not be entitled to indemnification or expense advancement under the
indemnification agreement) and (ii) indemnification against all expenses
including attorneys' fees, and the advancement thereof, if requested, incurred
by the indemnitee in any action brought by the indemnitee to enforce an
indemnity claim or to collect an advancement of expenses or to recover under a
directors' and officers' liability insurance policy, regardless of whether such
action is ultimately successful or not. Furthermore, the indemnification
agreements will provide that after there has been a "change in control" in
TCI/Liberty (as defined in the indemnification agreements), other than a change
in control approved by a majority of directors who were directors prior to such
change, then, with respect to all determinations regarding rights to
indemnification and the advancement of expenses, TCI/Liberty will seek legal
advice as to the right of the indemnitee to indemnification under applicable law
only from independent legal counsel selected by the indemnitee and approved by
TCI/Liberty.
The indemnification agreements will impose upon TCI/Liberty the burden of
proving that an indemnitee is not entitled to indemnification in any particular
case and negate certain presumptions that may otherwise be drawn against an
indemnitee seeking indemnification in connection with the termination of actions
in certain circumstances. Indemnitees' rights under the indemnification
agreements are not exclusive of any other rights they may have under Delaware
law, the TCI/Liberty Bylaws or otherwise. Although not requiring the maintenance
of directors' and officers' liability insurance, the indemnification agreements
require that indemnitees be provided with the maximum coverage available for any
TCI/Liberty director or officer if there is such a policy.
COMMITTEES OF THE BOARD OF DIRECTORS
TCI/Liberty will have an Executive Committee, an Audit Committee and a
Compensation Committee.
The members of the Executive Committee will be Mr. Magness, Dr. Malone and
Mr. Gallivan. The Executive Committee will exercise all of the powers and
authority of the TCI/Liberty Board between meetings of the entire Board, other
than such power and authority as the DGCL specifically prohibits an executive
committee from performing.
The members of the Audit Committee will be Mr. Naify, Mr. Fisher and Mr.
Gallivan. The functions of the Audit Committee will be to make recommendations
to the TCI/Liberty Board with respect to the engagement or discharge of
independent auditors, to review with the independent auditors the plan and
results of the auditing engagement, to review TCI/Liberty's system of internal
accounting controls, and to direct investigations into matters within the scope
of its functions.
The members of the Compensation Committee will be Mr. Gallivan and Mr.
Naify. The functions of the Compensation Committee will be to administer the
TCI/Liberty Stock Incentive Plan (if approved by stockholders at the Special
Meetings) and any other stock option plans of TCI/Liberty, to review and make
recommendations to the TCI/Liberty Board concerning the compensation of the
executive officers of TCI/Liberty and to consider and make recommendations to
the TCI/Liberty Board concerning existing and proposed employment agreements
between TCI/Liberty and its executive officers.
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EXECUTIVE OFFICERS
Executive officers of TCI/Liberty are appointed by and serve at the
discretion of the TCI/Liberty Board. Information regarding each person who is an
executive officer of TCI/Liberty, and who is not listed in the table under
"-- Directors" above, is set forth below.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AGE DURING PAST FIVE YEARS
- ---------------------- --- -------------------------------------------------------------
<S> <C> <C>
Peter R. Barton 43 Executive Vice President of TCI/Liberty since January 27,
1994. President and Chief Executive Officer of Liberty since
June of 1990. President of Cable Value Network from 1986 to
1988, during which time he was a consultant to TCI. Senior
Vice President of TCI from 1988 to March of 1991
Stephen M. Brett 53 Executive Vice President and Secretary of TCI/Liberty since
January 27, 1994. Senior Vice President and General Counsel
of TCI since December of 1991. From August of 1988 through
December of 1991, was Executive Vice President-Legal and
Secretary of United Artist Entertainment Company ("UAE") and
its predecessor, United Artists Communications, Inc. ("UACI")
Brendan R. Clouston 41 Executive Vice President of TCI/Liberty since January 27,
1994. Executive Vice President and Chief Operating Officer of
TCI since March of 1992. Previously Senior Vice President of
TCI since December of 1991. From January of 1987 through
December of 1991, held various executive positions with UAE
and UACI, most recently Executive Vice President and Chief
Financial Officer
Larry E. Romrell 54 Executive Vice President of TCI/Liberty since January 27,
1994. Senior Vice President of TCI since 1991. From 1972 to
the present, held various executive positions with WestMarc
Communications, Inc. ("WestMarc"), and is currently President
and Chief Executive Officer of WestMarc, a wholly-owned
subsidiary of TCI
J. C. Sparkman 62 Executive Vice President of TCI/Liberty since January 27,
1994. Executive Vice President of TCI since 1987
Fred A. Vierra 63 Executive Vice President of TCI/Liberty since January 27,
1994. Executive Vice President of TCI since December of 1991.
Was President and Chief Operating Officer of UAE from May of
1989 through December of 1991; President and Chief Operating
Officer of United Cable Television Corporation from 1982 to
May of 1989
</TABLE>
EXECUTIVE CASH COMPENSATION
TCI/Liberty has not yet paid any cash compensation to executive officers.
The following table sets forth the salary and deferred compensation currently
proposed to be paid, on an annualized basis, for the period beginning
immediately after the Effective Time and ending December 31, 1994, to the five
persons who are expected to be the most highly compensated executive officers
during such period, including the chief executive officer. The following
compensation amounts are subject to change.
<TABLE>
<CAPTION>
ESTIMATED SALARY
NAME OF INDIVIDUAL CAPACITIES IN AND DEFERRED
OR IDENTIFY OF GROUP WHICH SERVE COMPENSATION
---------------------------------- ---------------------------------- ----------------
<S> <C> <C>
Bob Magness Chairman of the Board $800,000
John C. Malone Chief Executive Officer and
President $800,000
J.C. Sparkman Executive Vice President $738,000
Fred A. Vierra Executive Vice President $650,000
Brendan F. Clouston Executive Vice President $500,000
</TABLE>
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TCI/LIBERTY STOCK INCENTIVE PLAN
General. The TCI/Liberty Stock Incentive Plan provides for awards to be
made in respect of a maximum of 16 million shares of TCI/Liberty Class A Common
Stock (subject to certain adjustments described below). Awards may be made as
grants of stock options ("Options"), stock appreciation rights ("SARs"),
restricted shares ("Restricted Shares"), stock units ("Stock Units"), or any
combination thereof (collectively, "Awards"). Shares in respect of which Awards
are made may be either authorized but unissued shares of TCI/Liberty Class A
Common Stock or issued shares reacquired by TCI/Liberty and held in treasury, or
both. Shares of TCI/Liberty Class A Common Stock that are subject to Awards that
expire, terminate or are annulled for any reason without having been exercised
(or deemed exercised, by virtue of the exercise of a related SAR), or are
forfeited prior to becoming vested, or are subject to Awards of SARs that are
exercised for cash, will return to the pool of such shares available for grant
under the TCI/Liberty Stock Incentive Plan.
The TCI/Liberty Stock Incentive Plan will be administered by the
Compensation Committee of the TCI/Liberty Board, or such other committee as the
TCI/Liberty Board may in the future appoint, which shall be comprised of at
least two persons (the "Committee"). Each member of the Committee shall be a
member of the TCI/Liberty Board who during the one-year period prior to service
on the Committee was not, and during such service is not, granted or awarded
equity securities pursuant to the TCI/Liberty Stock Incentive Plan or any other
plan of TCI/Liberty or any of its affiliates, if such grant or award or
participation in such plan would prevent such member from being a "disinterested
person" with respect to the TCI/Liberty Stock Incentive Plan for purposes of
Rule 16b-3. The members of the Compensation Committee of TCI/Liberty will be Mr.
Gallivan and Mr. Naify. See "MANAGEMENT OF TCI/LIBERTY -- Committees of the
Board of Directors" above.
The Committee will have broad discretion in administering the TCI/Liberty
Stock Incentive Plan, and is authorized, subject only to the express provisions
of the Plan, to determine the persons to whom Awards may be made, to determine
the terms and conditions (which need not be identical) of each Award (including
the timing of the grant, the type of Award granted, the pricing and the amount
of the Award and terms related to vesting, exercisability, forfeiture and
termination), and to interpret the provisions of the TCI/Liberty Stock Incentive
Plan and each agreement relating to Awards granted under the TCI/Liberty Stock
Incentive Plan. The determinations of the Committee are final and binding upon
all participants.
Stock Options. Options granted pursuant to the TCI/Liberty Stock Incentive
Plan may be either incentive stock options ("Incentive Options") within the
meaning of Section 422 of the Code or nonqualified stock options which do not
qualify under Section 422. The Committee is authorized to determine whether an
Option is an Incentive Option or a Nonqualified Option.
The exercise price of all Options granted under the TCI/Liberty Stock
Incentive Plan will be fixed by the Committee, and may be more than, less than
or equal to the fair market value of the TCI/Liberty Class A Common Stock on the
date the Option is granted. No participant may be granted in any calendar year
Options covering more than 1 million shares of Common Stock (as adjusted for
stock splits, etc.).
The term of each Option will be fixed by the Committee at the time of
grant. Options may be exercised in whole or in part at any time or only after a
period of time or in installments, as determined by the Committee at the time of
grant, and the exercisability of Options may be accelerated by the Committee.
The Committee will establish the procedures for the exercise of an Option.
The method of payment of the exercise price of an Option, and of the amount
required to satisfy applicable Federal, state and local withholding tax
requirements, will be determined by the Committee and may consist of cash, a
check, a promissory note, the surrender of already owned shares of TCI/Liberty
Class A Common Stock or TCI/Liberty Class B Common Stock, the withholding of
shares of TCI/Liberty Class A Common Stock issuable upon exercise of such
Option, delivery of a properly executed exercise notice and irrevocable
instructions to a broker to deliver promptly to TCI/Liberty the amount of sale
or loan proceeds required to pay the exercise price, any combination of the
foregoing methods of payment or such other consideration and method of payment
as may be permitted for the issuance of shares under the DGCL. The permitted
method
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or methods of payment of the Option exercise price and applicable withholding
taxes, if other than in cash, shall be set forth in the agreement relating to
the Award and may be subject to such conditions as the Committee deems
appropriate.
Shares of TCI/Liberty Class A Common Stock and TCI/Liberty Class B Common
Stock surrendered in payment in whole or in part of the Option exercise price
and applicable withholding taxes, and shares of TCI/Liberty Class A Common Stock
issuable upon exercise of an Option that are withheld for such purposes, will be
valued at their fair market value on the date of exercise. In general, fair
market value is determined by reference to the last sale price for shares of the
applicable class as reported on the Nasdaq Stock Market on the relevant date. If
an Optionholder elects to have shares withheld in payment of all or part of the
amounts payable upon exercise of an Option and such election is made during a
10-day "window period" following the release of quarterly or annual statements
of TCI/Liberty's sales and earnings in order to comply with the requirements of
Rule 16b-3, then for purposes of valuing the shares withheld, the Option (other
than an Incentive Option) will be deemed to have been exercised on the date
during such window period on which the highest last sale price of a share of
TCI/Liberty Class A Common Stock is reported on the Nasdaq Stock Market, and the
fair market value of such shares shall be deemed to be such highest last
reported sale price. The Committee will have the right in its sole discretion to
approve or disapprove any election by the holder to have shares withheld to pay
the Option exercise price or withholding taxes.
Stock Appreciation Rights. An SAR may be granted under the TCI/Liberty
Stock Incentive Plan to the holder of an Option (a "Related Option") with
respect to all or a portion of the shares of TCI/Liberty Class A Common Stock
subject to the related Option (a "Tandem SAR") or may be granted separately to
an eligible employee (a "Free Standing SAR"). A Tandem SAR may be granted either
concurrently with the grant of the related Option or (if the related Option is a
Nonqualified Option) at any time thereafter and prior to the complete exercise,
termination, expiration or cancellation of the related Option. A Tandem SAR will
be exercisable only at the time and to the extent that the related Option is
exercisable and may be subject to such additional limitations on exercisability
as the Committee may determine. Upon exercise of a Tandem SAR, the related
Option will be deemed to have been exercised to the extent of the number of
shares of TCI/Liberty Class A Common Stock with respect to which such Tandem SAR
is exercised. Conversely, upon the exercise or termination of the related
Option, the Tandem SAR will be cancelled automatically to the extent of the
number of shares of TCI/Liberty Class A Common Stock with respect to which the
related Option was so exercised or terminated. Free Standing SARs will be
exercisable at the time, to the extent and upon the terms and conditions
determined by the Committee and set forth in the agreement relating to the
Award. No participant may be granted in any calendar year SARs covering more
than 1 million shares of TCI/Liberty Class A Common Stock (as adjusted for stock
splits, etc.)
The base price of a Tandem SAR will be the same as the exercise price of
the related Option unless the Committee provides for a higher base price. The
base price of a Free Standing SAR will not be less than the fair market value of
the TCI/Liberty Class A Common Stock on the date of grant of the Free Standing
SAR. Upon exercise of an SAR, the holder will be entitled to receive from
TCI/Liberty, for each share of TCI/Liberty Class A Common Stock with respect to
which the SAR is exercised, an amount equal to the excess of the fair market
value of a share of TCI/Liberty Class A Common Stock on the date of exercise
over the base price per share of such SAR. Such amount shall be paid in cash,
shares of TCI/Liberty Class A Common Stock (valued at their fair market value on
the date of exercise of the SAR) or a combination thereof as specified in the
agreement relating to the Award or, if so provided in the agreement, either as
determined by the Committee in its sole discretion or as elected by the holder.
The Committee will have the right in its sole discretion to approve or
disapprove any election by the holder to receive cash in full or partial
settlement of an SAR. As described above with respect to Options granted under
the TCI/Liberty Stock Incentive Plan, if in order to meet the requirements of
Rule 16b-3 a holder exercises an SAR (other than one granted in tandem with an
Incentive Option) in whole or in part for cash during a 10-day window period
prescribed by such Rule, then such SAR will be deemed to have been exercised on
the day during such window period on which the highest last sale price of a
share of TCI/Liberty Class A Common Stock is reported on the Nasdaq Stock
Market, and the fair market value of such shares shall be deemed to be such
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highest reported last sale price. Unless the Committee shall otherwise
determine, to the extent a Free Standing SAR is exercisable, it will be
exercised automatically for a cash settlement on its expiration date.
The agreement relating to an Award of SARs may provide for a limit on the
amount payable to a holder upon exercise of SARs at any time or in the
aggregate, for a limit on the number of SARs that may be exercised by the holder
in whole or in part for cash during any specified period, for a limit on the
time periods during which a holder may exercise SARs and for such other limits
on the rights of the holder and other terms and conditions as the Committee may
determine.
Restricted Shares. At the time of any Award of Restricted Shares, the
Committee will designate a period of time which must elapse (the "Restriction
Period") and may impose such other restrictions, terms and conditions that must
be fulfilled, before the Restricted Shares will become vested. The Committee may
determine that (a) Restricted Shares will be issued at the beginning of the
Restriction Period, in which case, such shares will constitute issued and
outstanding shares of TCI/Liberty Class A Common Stock for all corporate
purposes or (b) Restricted Shares will not be issued until the end of the
Restriction Period, in which case the employee will have none of the rights of a
stockholder with respect to the shares of TCI/Liberty Class A Common Stock
covered by such Award until such shares shall have been issued to such employee
at the end of the Restriction Period. The employee will have the right to vote
Restricted Shares issued at the beginning of the Restriction Period and to
receive such dividends and other distributions as the Committee may, in its sole
discretion, designate which are paid or distributed on such Restricted Shares,
and generally to exercise all other rights as a holder of TCI/Liberty Class A
Common Stock, except that, until the end of the Restriction Period: (i) such
employee will not be entitled to take possession of the stock certificates
representing the Restricted Shares; (ii) such employee may not sell, transfer or
otherwise dispose of the Restricted Shares; and (iii) other than such dividends
and other distributions as the Committee may designate, TCI/Liberty will retain
custody of all dividends and distributions made or declared with respect to the
Restricted Shares ("Retained Distributions") and such Retained Distributions
shall not bear interest or be segregated in a separate account. In the case of
Restricted Shares issued at the end of the Restriction Period, the employee will
be entitled to receive, to the extent specified by the Committee only, cash or
property corresponding to all dividends and other distributions (or the economic
equivalent thereof) that would have been paid, made or declared on such
Restricted Shares had such shares been issued at the beginning of the
Restriction Period (collectively, "Dividend Equivalents"), and such Dividend
Equivalents will be paid as specified by the Committee in the applicable Award
agreement. A breach of any restrictions, terms or conditions established by the
Committee with respect to any award of Restricted Shares will cause a forfeiture
of such Restricted Shares and any Retained Distributions (including any unpaid
Dividend Equivalents) with respect thereto. The TCI/Liberty Stock Incentive Plan
also provides that the Committee may authorize awards of cash to a holder of
Restricted Shares, payable at any time after the Restricted Shares become
vested.
Upon expiration of the applicable Restriction Period and the satisfaction
of any other applicable conditions, all or part of the Restricted Shares and any
Retained Distributions thereon (including any unpaid Dividend Equivalents) will
become vested and all or part of any cash amount awarded will become payable.
Any Restricted Shares and Retained Distributions thereon (including any unpaid
Dividend Equivalents) which do not so vest will be forfeited.
Stock Units. The TCI/Liberty Stock Incentive Plan also authorizes the
Committee to grant to eligible employees, either alone or in addition to
Options, SARs and Restricted Shares, awards of TCI/Liberty Class A Common Stock
and other awards that are valued in whole or in part by reference to, or are
otherwise based on, the value of the TCI/Liberty Class A Common Stock ("Stock
Units").
Effect of Termination of Employment. Under the terms of the TCI/Liberty
Stock Incentive Plan, if the employment of the holder of an Award terminates by
reason of death or total disability, then, unless the agreement relating to such
Award provides otherwise, (a) all outstanding Options and SARs granted in such
Award will become immediately exercisable in full in respect of the aggregate
number of shares covered thereby, (b) the Restriction Period for all Restricted
Shares granted in such Award will be deemed to have expired and all such
Restricted Shares, any related Retained Distributions and any unpaid Dividend
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Equivalents will become vested and any cash amounts payable pursuant to the
related agreement will be adjusted in such manner as may be provided in such
agreement, and (c) all Stock Units granted in such Award will become vested in
full.
Under the terms of the TCI/Liberty Stock Incentive Plan, if the employment
of the holder of an Award is terminated during the Restriction Period with
respect to any Restricted Shares, or prior to the complete exercise of any
Option or SAR or the vesting or complete exercise of any Stock Units, granted in
such Award, then such Options, SARs and Stock Units will thereafter be
exercisable, and the holder's rights to any such unvested Restricted Shares,
Retained Distributions, unpaid Dividend Equivalents and cash amounts and any
such unvested Stock Units will thereafter vest, only to the extent provided by
the Committee in the agreement relating to such Award, except that (a) if the
holder's employment terminates by reason of death or total disability then any
Option or SAR granted in the Award will remain exercisable for a period of at
least one year after such termination (but not later than the scheduled
expiration of such Option or SAR), and (b) if the holder's employment is
terminated for cause (as defined) then (i) such employee's rights to all
Restricted Shares, Retained Distributions, unpaid Dividend Equivalents and any
cash amounts covered by such Award will be forfeited immediately and (ii) all
Options and SARs and all unvested or unexercised Stock Units granted in such
Award will immediately terminate.
Additional Provisions. Unless otherwise provided by the Committee in the
agreement relating to an Award, each Award will vest and become exercisable in
full upon the occurrence of any of the following change in control transactions:
(a) the TCI/Liberty Board (or stockholders, if Board approval is not required by
law) approves any of the following transactions (each an "Approved
Transaction"): (i) a merger, consolidation or binding share exchange to which
TCI/Liberty is a party (x) pursuant to which shares of TCI/Liberty Class A
Common Stock would be converted into or exchanged for cash, securities or other
property (other than a transaction in which the common stockholders of
TCI/Liberty prior to such transaction have the same proportionate ownership of
the common stock of, and voting power with respect to, the surviving corporation
immediately after such transaction) or (y) as a result of which the persons who
are holders of TCI/Liberty Common Stock prior to such transaction would have
less than a majority of the combined voting power of the outstanding capital
stock of TCI/Liberty immediately following such transaction; (ii) the sale of
substantially all of the assets of TCI/Liberty; or (iii) the liquidation or
dissolution of TCI/Liberty; (b) any person or other entity (other than
TCI/Liberty or any subsidiary or any employee benefit plan sponsored by
TCI/Liberty or any subsidiary) purchases any TCI/Liberty Class A Common Stock or
TCI/Liberty Class B Common Stock pursuant to a tender or exchange offer, without
the prior consent of the TCI/Liberty Board, or any person or other entity (other
than TCI/Liberty, any subsidiary, any employee benefit plan sponsored by
TCI/Liberty or any subsidiary or any Controlling Person (as defined)) becomes
the beneficial owner of securities of TCI/Liberty representing 20% or more of
the combined voting power of TCI/Liberty's outstanding securities, other than in
a transaction (or series of related transactions) approved by the TCI/Liberty
Board; or (c) during any two-year period, individuals who at the beginning of
such period constitute the entire TCI/Liberty Board of TCI/Liberty cease to
constitute a majority of the Board, unless the election, or nomination for
election, of each new director is approved by at least two-thirds of the
directors then still in office who were directors at the beginning of the
period. "Controlling Person" is defined in the TCI/Liberty Stock Incentive Plan
to mean each of (1) the Chairman of the Board, the President and each of the
directors of TCI/Liberty as of the effective date of the Plan, (2) the
respective family members, estates and heirs of each of the persons referred to
in clause (1) and any trust or other investment vehicle for the primary benefit
of any of such persons or their respective family members or heirs and (3)
Kearns-Tribune Corporation. Options, SARs or, if applicable, Stock Units not
theretofore exercised will terminate upon consummation of an Approved
Transaction. The Committee will have the discretion, unless otherwise provided
in the agreement relating to a particular Award, to determine that any or all
outstanding Awards of any or all types granted pursuant to the TCI/Liberty Stock
Incentive Plan will not vest or become exercisable on an accelerated basis in
connection with an Approved Transaction or will not terminate if not exercised
prior to consummation of the Approved Transaction, if action that, in the
opinion of the Committee, is equitable and appropriate is taken by the
TCI/Liberty Board or by the surviving or acquiring corporation, as the case may
be, to assume such Award or substitute a new Award therefor and in order to make
such assumed or new Award, as nearly as may be practicable, equivalent to the
old Award,
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taking into account the kind and amount of securities, cash or other assets into
or for which the TCI/Liberty Class A Common Stock may be converted or exchanged
in connection with the Approved Transaction.
In the event of a stock split, stock dividend or distribution,
reclassification, recapitalization or other corporate event that affects the
TCI/Liberty Class A Common Stock (including mergers or consolidations other than
those which constitute Approved Transactions), the TCI/Liberty Stock Incentive
Plan provides for the Committee to make such adjustments as it deems equitable
and appropriate to any or all of (i) the number and kind of shares subject to
outstanding Awards, (ii) the purchase or exercise price and the relevant base
price of outstanding Awards and (iii) the number and kind of shares for which
Awards may thereafter be granted under the TCI/Liberty Stock Incentive Plan.
The Committee may require in the agreement relating to an Award that if the
holder acquires any shares of TCI/Liberty Class A Common Stock through the
exercise of Options or SARs or through the vesting of Restricted Shares or Stock
Units granted in the Award, then prior to selling or otherwise transferring any
such shares to a third party, such holder must offer to sell such shares to
TCI/Liberty, at their fair market value, pursuant to a right of first refusal.
The obligations of TCI/Liberty with respect to Awards granted under the
TCI/Liberty Stock Incentive Plan are subject to all applicable laws.
No awards may be granted under the TCI/Liberty Stock Incentive Plan on or
after the ten-year anniversary of its effective date. The TCI/Liberty Board or
the Committee may terminate or amend the TCI/Liberty Stock Incentive Plan at any
time. Without further stockholder approval, no amendment to the TCI/Liberty
Stock Incentive Plan shall increase the number of shares of TCI/Liberty Class A
Common Stock subject to the TCI/Liberty Stock Incentive Plan (except as
authorized by the adjustment provisions described above), change the class of
persons eligible to receive Awards under the TCI/Liberty Stock Incentive Plan,
or otherwise materially increase the benefits accruing to participants under the
TCI/Liberty Stock Incentive Plan. Termination or amendment of the TCI/Liberty
Stock Incentive Plan may not adversely affect the rights of any holder of an
Award without his or her consent. Subject to the specific terms of the
TCI/Liberty Stock Incentive Plan, the Committee may accelerate any Award or
waive any conditions or restrictions pertaining to such Award at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following summary generally
describes the principal Federal (but not state and local) income tax
consequences of the TCI/Liberty Stock Incentive Plan. It is general in nature
and is not intended to cover all tax consequences that may apply to a particular
employee or to the corporation or other entity employing the recipient of an
award (the "Employer Entity"). In particular, this summary is qualified in its
entirety by the new rules of Section 162(m) of the Code, discussed below under
"-- Limitation on Deductions". The provisions of the Code and the regulations
thereunder relating to these matters are complicated and their impact in any one
case may depend upon the particular circumstances.
Options. In general, for Federal income tax purposes, neither the grant
nor the exercise of an Incentive Option will result in taxable income to the
Optionholder or a deduction for TCI/Liberty. An Optionholder may be subject to
the alternative minimum tax in the year that an Incentive Option is exercised.
The excess of the fair market value of the TCI/Liberty Class A Common Stock
(determined at the date of exercise) acquired through the exercise of an
Incentive Option over the exercise price is an addition to income in determining
alternative minimum taxable income and such additional amount may be sufficient
in amount to subject the Optionholder to the alternative minimum tax.
If the Optionholder holds TCI/Liberty Class A Common Stock acquired through
the exercise of Incentive Options for the full holding period (two years after
the Option is granted and one year after it is exercised), he will recognize a
capital gain or loss at the time of the sale of the stock based on the
difference between the Option exercise price and the sale price. Currently,
long-term capital gains are taxed to an individual at a maximum rate of 28% as
opposed to a maximum rate of 39.6% for ordinary income. There is no tax effect
on the Employer Entity from the sale of such stock.
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If TCI/Liberty Class A Common Stock acquired through the exercise of an
Incentive Option is disposed of before the end of the holding period described
in the preceding paragraph (a "disqualifying disposition"), the Optionholder
will recognize ordinary income equal to the difference between the fair market
value of the shares on the date the Option was exercised (or, if less, the
amount received on the sale of the TCI/Liberty Class A Common Stock) and the
Option exercise price. The Employer Entity will be entitled to a deduction in a
corresponding amount to the extent that the amount is reasonable compensation
and is an ordinary and necessary business expense. If the amount received by the
Optionholder on the disqualifying disposition exceeds the fair market value of
the shares on the date of exercise of the Incentive Option, such excess will
ordinarily constitute capital gain.
Although the Committee has the discretion under the TCI/Liberty Stock
Incentive Plan to provide for a period of time after the termination of an
Optionholder's employment in which his or her Options may continue to be
exercised, under current law an option must generally be exercised within three
months after termination of employment (one year in the case of termination
because of death or disability) in order to qualify as an Incentive Option.
In general, the grant of a Nonqualified Option will not result in taxable
income to the Optionholder or a deduction to the Employer Entity for Federal
income tax purposes. Upon exercise of a Nonqualified Option, the Employer Entity
will be entitled, for Federal income tax purposes, to a tax deduction and the
Optionholder will recognize ordinary income. The amount of such deduction and
income generally will equal the amount by which the fair market value of the
shares acquired on the date the Nonqualified Option is exercised exceeds the
Option exercise price of the shares if the TCI/Liberty Class A Common Stock is
transferable and not subject to a substantial risk of forfeiture at such time.
In general, the TCI/Liberty Class A Common Stock received on exercise of a
Nonqualified Option will be transferable and will not be subject to a
substantial risk of forfeiture. However, if the sale of the TCI/Liberty Class A
Common Stock acquired upon exercise of a Nonqualified Option would subject the
Optionholder to liability under Section 16(b) of the Exchange Act, which
requires certain "insiders" to pay to TCI/Liberty any profits received upon
certain sales of TCI/Liberty Class A Common Stock, the Optionholder will
recognize ordinary income (and the Employer Entity will be entitled to a
corresponding tax deduction) equal to the amount by which the fair market value
of the shares acquired exceeds the Option exercise price for the shares on the
earlier of (i) the date that the Optionholder is no longer subject to liability
under Section 16(b) of the Exchange Act or (ii) six months after the date the
Nonqualified Option is exercised. An Optionholder subject to liability under
Section 16(b) of the Exchange Act may, however, recognize ordinary income (and
the Employer Entity will be entitled to a corresponding tax deduction) at the
time the Option is exercised if the Optionholder makes an election under Section
83(b) of the Code.
If an Option is exercised through the use of TCI/Liberty Class A Common
Stock or Class B Common Stock previously owned by the employee, such exercise
generally will not be considered a taxable disposition of the previously owned
shares and thus no gain or loss will be recognized with respect to such shares
upon such exercise. However, if the previously owned shares were acquired by the
exercise of an Incentive Option and the holding period requirement for those
shares is not satisfied at the time they are used to exercise an Incentive
Option, such use would constitute a disqualifying disposition of such previously
owned shares resulting in the recognition of ordinary income in the amount
described above. If shares issuable upon exercise of an Incentive Option are
withheld to pay amounts payable in connection with the exercise of such Option,
such shares would be deemed to have been disposed of in a disqualifying
disposition, also resulting in the recognition of ordinary income with respect
to the shares withheld as described above.
Any difference between the basis of the TCI/Liberty Class A Common Stock
acquired through the exercise of a Nonqualified Option (the Option exercise
price plus the ordinary income recognized) and the amount realized upon a
subsequent sale of such shares will be treated as a short-term or long-term
capital gain or loss, depending on the length of the period such shares are held
prior to sale. Currently, long-term capital gains are taxed to an individual at
a maximum rate of 28% as opposed to a maximum rate of 39.6% for ordinary income.
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Stock Appreciation Rights. For Federal income tax purposes, the grant of
an SAR will not result in taxable income to the holder or a tax deduction to the
Employer Entity. At the time of exercise of an SAR, the holder will forfeit the
right to benefit from any future appreciation of the stock subject to the SAR.
Accordingly, taxable income to the holder is deferred until the SAR is
exercised. Upon exercise, the amount of cash and fair market value of shares
received by the holder, less cash or other consideration paid (if any), is taxed
to the holder as ordinary income and the Employer Entity will receive a
corresponding income tax deduction to the extent the amount represents
reasonable compensation and an ordinary and necessary business expense, subject
to any required income tax withholding. However, if the holder receives
TCI/Liberty Class A Common Stock upon the exercise of an SAR and is then subject
to the restrictions under Section 16(b) of the Exchange Act discussed above,
unless the holder elects otherwise, the amount of ordinary income and deduction
will generally be measured at the time such restrictions lapse.
Restricted Shares. Similar to SARs, the award of Restricted Shares will
not result in taxable income to the employee or a tax deduction to the Employer
Entity for Federal income tax purposes. Upon expiration of the Restriction
Period applicable to the Restricted Shares awarded, or, if applicable, at such
later date as the restrictions under Section 16(b) of the Exchange Act described
above expire, the fair market value of such shares at such date, plus the amount
of any Retained Distributions and unpaid Dividend Equivalents on such shares and
any cash amount awarded, less cash or other consideration paid (if any), will be
included in the holder's ordinary income as compensation, except that, in the
case of Restricted Shares issued at the beginning of the Restriction Period, the
holder may elect to include in his ordinary income as compensation at the time
the Restricted Shares are awarded, the fair market value of such shares at such
time, less any amount paid therefor. Absent the making of the election referred
to in the preceding sentence, any cash dividends or other distributions paid
with respect to Restricted Shares prior to expiration of the applicable
Restriction Period will be included in the employee's ordinary income as
compensation at the time of receipt. In each case, the Employer Entity will be
entitled to a corresponding income tax deduction to the extent that the amount
represents reasonable compensation and an ordinary and necessary business
expense, subject to any required income tax withholding.
Stock Units. The Federal income tax consequences of the award of Stock
Units will depend on the conditions of the Award. Generally, the transfer of
cash or property will result in ordinary income to the recipient and a tax
deduction to the Employer Entity. If there is a substantial risk that the
property transferred will be forfeited (for example, because receipt of the
property is conditioned upon the performance of substantial future services),
the taxable event is deferred until the risk of forfeiture lapses. However, the
recipient may generally elect to accelerate the taxable event to the date of
transfer, even if the property is subject to a substantial risk of forfeiture.
If this election is made, subsequent appreciation is not taxed until the
property is sold or exchanged (and the lapse of the forfeiture restriction does
not create a taxable event). Generally, any deduction for the Employer Entity
occurs only when ordinary income in respect of an Award is recognized by the
employee (and then the deduction is subject to reasonable compensation and
withholding requirements). Because Stock Unit Awards will be subject to whatever
conditions may be determined by the Committee, the Federal income tax
consequences to the recipient and to the Employer Entity will depend on the
specific conditions of the Award.
Limitation on Deductions. Notwithstanding the above, The Revenue
Reconciliation Act of 1993 added Section 162(m) to the Code which restricts the
deduction of compensation by a publicly held corporation which, according to a
proposed regulation, includes compensation paid by any members of its affiliated
group of corporations, as defined in Proposed Treasury Regulation Section
1.162-27(c)(1)(ii). Specifically, Section 162(m) prohibits the deduction of
compensation to "covered employees" to the extent that "remuneration" to any
such covered employee exceeds $1,000,000 in any taxable year. Covered employees
are defined as the chief executive officer and the four most highly compensated
officers (other than the chief executive officer) in the year in question. For
the purpose of determining whether the $1,000,000 limitation is applicable the
following do not count as remuneration: (i) compensation paid on a commission
basis, (ii) non-taxable fringe benefits, (iii) payments to or from a
tax-qualified pension plan, (iv) "performance based compensation" (as defined in
Section 162(m)(4)(C) of the Code) and (v) payments made pursuant to a binding
written contract in effect on February 17 and not modified in any material
respect after such date prior
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to the grant of compensation. In general, in order to qualify as "performance
based compensation" the compensation must be payable solely on account of
performance goals which are disclosed to and approved by shareholders, and the
compensation must be established and administered by a compensation committee
which consists solely of two or more outside directors. Because shareholders
will not be approving any performance goal formulas in connection with the vote
on the TCI/Liberty Stock Incentive Plan at the Special Meetings, compensation
paid under the TCI/Liberty Stock Incentive Plan will not generally qualify as
performance-based compensation, except that compensation which is based solely
on an increase in value of the employer's stock after the date of grant (such as
an Option or SAR granted with an exercise price or base price at least equal to
the fair market value on the date of grant) is deemed to be paid on account of
performance goals. However, compensation which is based solely on an increase in
value of the employee's stock will not qualify as performance-based compensation
unless the requirement that such compensation is granted by a compensation
committee consisting of two or more outside directors is met. The TCI/Liberty
Stock Incentive Plan itself only requires that the Committee members be
"disinterested" directors. Due to a transition rule, "disinterested" directors
will count as "outside" directors until the first meeting of shareholders at
which directors are to be elected that occurs after July 1, 1994. After that
time, no grants (including grants of Options and SARs) will qualify under the
performance based compensation exception unless all the members of the Committee
qualify as "outside" directors. The definition of outside directors is
considerably more restrictive than that of "disinterested" directors.
If compensation granted by the Committee does not fall within any of the
exceptions to the definition of remuneration, then the Employer Entities which
are members of TCI/Liberty's affiliated group of corporations may lose part of
the deductions they would otherwise be entitled to take with respect to covered
employees.
EMPLOYMENT ARRANGEMENTS
Pursuant to the Merger Agreement, TCI and Liberty have each caused the
necessary action to be taken to elect Messrs. Magness, Malone, Sparkman and
Vierra as officers of TCI/Liberty as follows: Mr. Magness -- Chairman of the
Board; Dr. Malone -- President and Chief Executive Officer; Mr.
Sparkman -- Executive Vice President; and Mr. Vierra -- Executive Vice
President. TCI/Liberty will assume the employment agreements entered into by TCI
with each of Messrs. Magness, Malone, Sparkman and Vierra immediately after the
Effective Time and any obligations required to be incurred by, or rights to be
conferred upon, TCI pursuant to such employment agreements will be incurred by,
or conferred upon, TCI/Liberty after the Effective Time. TCI/Liberty will also
assume the employment agreement entered into by Liberty with Dr. Malone
immediately after the Effective Time and any obligations required to be incurred
by, or rights to be conferred upon, Liberty pursuant to such employment
agreement will be incurred by, or conferred upon, TCI/Liberty after the
Effective Time. The following is a description of the current terms of such
employment agreements.
TCI. The term of TCI's employment agreement with each of Mr. Magness and
Dr. Malone extends daily so that the remainder of the employment term is at all
times five years. Each of Mr. Magness' and Dr. Malone's employment agreement
provides for an annual salary in 1994 of $800,000. Additionally, both
individuals are permitted personal use of corporate aircraft and flightcrew,
limited to an aggregate value of $35,000 per year.
Dr. Malone's employment agreement provides, among other things, for
deferral of a portion (not in excess of 40%) of the monthly compensation payable
to him. The deferred amounts will be payable in monthly installments over a
20-year period commencing on the termination of Dr. Malone's employment,
together with interest thereon at the rate of 8% per annum compounded annually
from the date of deferral to the date of payment. The agreement also provides
for the payment of certain benefits, discussed below.
Mr. Magness' and Dr. Malone's employment agreements further provide that
upon termination of such executive's employment (other than for cause, as
defined in each agreement), or if such executive elects to terminate the
agreement because of a change in control of TCI (TCI/Liberty after the Effective
Time), all
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remaining compensation due under the agreement for the balance of the employment
term will be immediately due and payable.
The respective employment agreements of Mr. Magness and Dr. Malone provide
that during their employment with TCI and for a period of two years following
the effective date of their termination of employment (unless termination
results from a change in control), they will not be connected with any entity in
any manner, as defined in the agreement, which competes in a material respect
with the business of TCI (TCI/Liberty after the Effective Time). The agreements
permit both executives to own up to 5% of the outstanding securities of
corporations listed on a national securities exchange or quoted in the Nasdaq
Stock Market.
Dr. Malone's agreement provides that in the event of termination of his
employment, he will be entitled to receive 240 consecutive monthly payments of
$15,000 (increased at the rate of 12% per annum compounded annually from January
1, 1988 to the date payment commences), the first of which will be payable on
the first day of the month succeeding the termination of Dr. Malone's
employment. In the event of Dr. Malone's death, his beneficiaries will be
entitled to receive the foregoing monthly payments. TCI owns a whole-life
insurance policy on Dr. Malone (which will be assigned to TCI/Liberty after the
Effective Time), the face value of which is sufficient to meet its obligation
under the foregoing salary continuation arrangement. The premiums payable on
such insurance policy are funded through earnings on the policy; Dr. Malone has
no interest in the policy.
TCI pays a portion of the annual premiums (equal to the "PS-58" costs) on
three whole-life insurance policies of which Dr. Malone is the insured and
trusts for the benefit of members of his family are the owners. TCI is (and
after the Effective Time TCI/Liberty will be) the designated beneficiary of the
proceeds of such policies less an amount equal to the greater of the cash
surrender value thereof at the time of Dr. Malone's death and the amount of the
premiums paid by the policy owners.
Mr. Sparkman's employment agreement with TCI expires on December 31, 1997
and provides for an annual salary of $738,000. Mr. Sparkman's employment
agreement also provides for the deferral of approximately 25% of each monthly
payment so as to result in the deferral of payment of Mr. Sparkman's salary at
the rate of $188,000 per annum. The deferred amounts will be payable in monthly
installments over a 120-month period commencing on the later of January 1, 1998
and the termination of Mr. Sparkman's full-time employment with TCI, together
with interest thereon at the rate of 8% per annum compounded annually from the
date of deferral to the payment date. Additionally, Mr. Sparkman's employment
agreement provides for personal use of corporate aircraft and flight crew,
limited to an aggregate value of $35,000 per year.
Mr. Vierra's employment agreement with TCI expires on December 31, 1997 and
provides for an annual salary of $650,000. Mr. Vierra's employment agreement
also provides for the deferral of approximately 38% of each monthly payment so
as to result in the deferral of payment of Mr. Vierra's salary at the rate of
$250,000 per annum. The deferred amounts will be paid in monthly installments
over a 240-month period commencing on the later of January 1, 1998 and the
termination of Mr. Vierra's full-time employment with TCI, together with
interest thereon at the rate of 8% per annum compounded annually from the date
of deferral to the payment date. Additionally, Mr. Vierra's employment agreement
provides for personal use of corporate aircraft and flight crew, limited to an
aggregate value of $35,000 per year.
Messrs. Sparkman's and Vierra's employment agreements provide that upon
termination by TCI without cause, all remaining compensation due under such
agreements for the balance of the employment term would become immediately due
and payable to such executive. Upon the death of any such executive during the
employment term, TCI will pay to such executive's beneficiaries a lump sum in an
amount equal to the lesser of (i) the compensation due under such executive's
employment agreement for the balance of the employment term and (ii) one year's
compensation. In the event of such executive's disability, TCI will continue to
pay such executive his annual salary as and when it would have otherwise become
due until the first to occur of the end of the employment term or the date of
such executive's death.
TCI will pay Mr. Sparkman 240 consecutive monthly payments of $6,250
(increased at the rate of 12% per annum compounded annually from January 1,
1988) commencing upon the termination of his employ-
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ment. In the event Mr. Sparkman dies prior to the payment of all monthly
payments, the remainder of such payments shall be made to Mr. Sparkman's
designated beneficiaries. TCI owns a whole-life insurance policy on Mr.
Sparkman, the face value of which is sufficient to meet its obligations under
this salary continuation arrangement. The premiums payable by TCI on such
insurance policy are currently being funded through earnings on the policies.
Mr. Sparkman has no interest in this policy.
Messrs. Sparkman's and Vierra's agreements provide that during their
employment with TCI and for a period of two years following the effective date
of their termination of employment with TCI, they will not be connected with any
entity in any manner, as defined in the agreements, which competes in a material
respect with the business of TCI (TCI/Liberty after the Effective Time).
However, the agreements provide that such executives may own securities of any
corporation listed on a national securities exchange or quoted in the Nasdaq
Stock Market to the extent of an aggregate of 5% of the amount of such
securities outstanding. If such executives terminate employment with TCI prior
to the expiration of each respective employment term or if TCI terminates each
executive's employment for cause , as defined in the agreements, then the
noncompetition clause shall apply to the longer of the previously described two
year period or the period beginning on the effective date of termination of
employment through December 31, 1997.
Liberty. Liberty entered into an employment agreement, as amended, with
Dr. Malone in connection with the Restructuring Plan. The employment agreement
provides for a term that initially expires in March, 1996, such term to be
extended for consecutive one year periods unless Liberty or Dr. Malone provides
six months notice prior to the end of an extended term that the agreement is not
to be extended. The agreement may be earlier terminated by Dr. Malone in the
event of a change of control of Liberty or the exercise by either Liberty or Dr.
Malone of the Put-Call Agreement (each a "Termination Right Event"). Dr. Malone
has waived his right to terminate the employment agreement with respect to a
change of control that may be effected by the Mergers.
Pursuant to the employment agreement, Dr. Malone was granted options to
purchase 16,000,000 shares of Liberty Class B Common Stock and 200,000 shares of
Liberty Class E Preferred Stock (after giving effect to the Stock Splits), which
were exercised in full by Dr. Malone in October, 1991. The shares acquired by
Dr. Malone upon exercise of his options, together with all dividends and
distributions thereon and, in the case of any reclassification, recapitalization
or other change in the Liberty Class B Common Stock, such capital stock and
other securities or property to which Dr. Malone may be entitled as the holder
of such shares (collectively "Share Units"), are subject to repurchase by
Liberty, at the price paid therefor by Dr. Malone, plus interest, in the event
Dr. Malone's employment with Liberty is terminated for cause (as defined in the
employment agreement) or Dr. Malone voluntarily terminates his employment with
Liberty other than due to a Termination Right Event. The repurchase right shall
terminate (i) if Dr. Malone's employment is terminated other than for cause or
if Liberty materially breaches the employment agreement, (ii) upon Dr. Malone's
death or disability and (iii) upon the occurrence of a Termination Right Event
(which Dr. Malone has waived with respect to the Mergers). The repurchase right
expires as to 20% of the Share Units annually (commencing in March 1992), and
will terminate as to all of the Share Units in March 1996. As of April 1, 1994,
the repurchase right had expired with respect to 60% of the Share Units, and
applied to 6,400,000 shares of Liberty Class B Common Stock owned by Dr. Malone
(the Restricted Voting Shares) and 80,000 shares of Liberty Class E Preferred
Stock.
Dr. Malone may not transfer, pledge or otherwise dispose of (except to
Liberty) any Share Units during the period they are subject to Liberty's
repurchase right. Dr. Malone has agreed to cast, with respect to any matter
submitted to a vote of stockholders, all votes represented by his Share Units
that are then subject to Liberty's repurchase right in the same proportion as
all other votes of Liberty's stockholders are cast with respect to such matter.
Following the Mergers, the repurchase right will inure to the benefit of
TCI/Liberty, and will initially apply to 6,240,000 shares of TCI/Liberty Class B
Common Stock and 80,000 shares of TCI/Liberty Class B Preferred Stock (after
application of the exchange ratio for the Liberty Common Stock and the Liberty
Class E Preferred Stock in the Liberty Merger) (the "TCI/Liberty Restricted
Voting Shares").
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CERTAIN TRANSACTIONS WITH MANAGEMENT
Certain transactions involving TCI or Liberty and their respective
officers, directors or affiliates are described in the TCI Form 10-K and the
Liberty Form 10-K, which are incorporated herein by reference. See "AVAILABLE
INFORMATION."
OWNERSHIP OF TCI, LIBERTY AND TCI/LIBERTY STOCK
FIVE PERCENT STOCKHOLDERS
The following table sets forth, as of May 2, 1994, (i) each person known to
TCI or Liberty to beneficially own more than 5% of either class of the
outstanding shares of TCI Common Stock or Liberty Common Stock, respectively,
(ii) with respect to each such person, the number of such shares and ownership
percentage thereof and of any Liberty Class E Preferred Stock owned by such
persons and (iii) the pro forma number of shares and ownership percentage of
each class of TCI/Liberty Common Stock and TCI/Liberty Class B Preferred Stock
to be owned by such persons immediately following the Effective Time, assuming
such persons do not acquire, or dispose of, any shares of TCI Common Stock,
Liberty Common Stock or Liberty Class E Preferred Stock during the period
commencing May 2, 1994 and ending at the Effective Time. Shares issuable upon
exercise or conversion of convertible securities are deemed to be outstanding
for the purpose of computing the percentage ownership and overall voting power
of persons beneficially owning such convertible securities, but have not been
deemed to be outstanding for the purpose of computing the percentage ownership
or overall voting power of any other person. Voting power in the table is
computed with respect to a general election of directors and therefore the
TCI/Liberty Class B Preferred is included in the calculation. The number of
shares of TCI Class A Common Stock and TCI Class B Common Stock in the table
shown as beneficially owned by Dr. Malone and Mr. Magness include interests of
such individuals in shares held by the trustee of TCI's ESPP and held by the
trustee of UAE's Employee Stock Ownership Plan for their respective accounts. So
far as is known to TCI or Liberty, the persons indicated below have sole voting
and investment power with respect to the shares indicated as owned by them
except as otherwise stated in the notes to the table and except for the shares
held by the trustee of TCI's ESPP for the benefit of such persons which shares
are voted at the discretion of the trustee.
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER TCI CLASS(1) LIBERTY
- ------------------------ ------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Class A John C. Malone 1,165,593(4) * --
Class B 5619 DTC Parkway 904,800(5) 1.91 26,312,000(12)(13)(14)
Lib. Class E Pref. Englewood, Colorado -- -- 320,900(15)
TCI/Lib. Class B Pref. -- -- --
Class A Bob Magness 4,626,938(6)(7)(8) 1.14 --
Class B 5619 DTC Parkway 27,382,076(5)(6)(8) 57.94 10,000,000(14)
Lib. Class E Pref. Englewood, Colorado -- -- 125,000
TCI/Lib. Class B Pref. -- -- --
Class A Kearns-Tribune Corporation 6,157,206(8) 1.52 2,702,880(14)
Class B 400 Tribune Building 6,480,000(5)(8) 13.71 2,700,000(14)
Lib. Class E Pref. Salt Lake City, Utah -- -- 67,536
TCI/Lib. Class B Pref. -- -- --
Class A The Capital Group, Inc. 30,472,024(9) 7.55 12,857,600(16)
Class B 333 South Hope Street -- -- --
Lib. Class E Pref. Los Angeles, California -- -- --
TCI/Lib. B Pref. -- -- --
Class A Harris Associates L.P. 3,443,004(17) * 5,473,667(18)
Class B 2 North LaSalle Street -- -- --
Lib. Class E Pref. Suite 500 -- -- 65,077
TCI/Lib. Class B Pref. Chicago, Illinois -- -- --
Class A Associated Communications 12,479,976 3.09 --
Class B Corporation 3,827,208 8.10 3,327,840(19)
Lib. Class E Pref. 200 Gateway Towers -- -- 41,598
TCI/Lib. Class B Pref. Pittsburgh, Pennsylvania -- -- --
Class A The Putnam Companies, Inc. 6,067,868 1.50 7,452,884
Class B One Post Office Square -- -- --
Lib. Class E Pref. Boston, Massachusetts -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Wanger Asset Management, L.P. 17,480 * 5,557,636
Class B 227 West Monroe -- -- --
Lib. Class E Pref. Suite 3000 -- -- 69,400
TCI/Lib. Class B Pref. Chicago, Illinois -- -- --
Class A RMS Limited Partnership -- -- 8,000,000(20)
Class B 201 West Liberty Street -- -- --
Lib. Class E Pref. Reno, Nevada -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Robert A. Naify 23,638,860(10) 5.54 --
Class B 172 Golden Gate Avenue -- -- --
Lib. Class E Pref. San Francisco, California -- -- 1,000
TCI/Lib. Class B Pref. -- -- --
Class A The Equitable Life Assurance 23,924,443(11) 5.93 2,953,780(21)
Class B Society of the United States -- -- --
Lib. Class E Pref. 787 Seventh Avenue -- -- --
TCI/Lib. Class B Pref. New York, New York -- -- --
<CAPTION>
NAME AND ADDRESS OF PERCENT OF PERCENT OF VOTING
TITLE OF CLASS BENEFICIAL OWNER CLASS(2) TCI/LIBERTY CLASS(3) POWER
- ------------------------ ------------------------------- ----------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Class A John C. Malone -- 1,165,593 * 19.86
Class B 5619 DTC Parkway 60.71 26,559,000 (22) 30.89
Lib. Class E Pref. Englewood, Colorado 19.16 -- --
TCI/Lib. Class B Pref. -- 320,900 (22) 19.81
Class A Bob Magness -- 4,626,938 * 27.96
Class B 5619 DTC Parkway 23.07 37,132,076 43.19
Lib. Class E. Pref. Englewood, Colorado 7.46 -- --
TCI/Lib. Class B. Pref. -- 125,000 7.72
Class A Kearns-Tribune Corporation 3.09 8,792,514 1.82 7.44
Class B 400 Tribune Building 6.23 9,112,500 10.60
Lib. Class E Pref. Salt Lake City, Utah 4.03 -- --
TCI/Lib. Class B Pref. -- 67,536 4.17
Class A The Capital Group, Inc. 14.69 43,008,184 8.91 3.20
Class B 333 South Hope Street -- -- --
Lib. Class E Pref. Los Angeles, California -- -- --
TCI/Lib. B Pref. -- -- --
Class A Harris Associates L.P. 6.25 8,779,829 1.82 *
Class B 2 North LaSalle Street -- -- --
Lib. Class E Pref. Suite 500 3.88 -- --
TCI/Lib. Class B Pref. Chicago, Illinois -- 65,077 4.02
Class A Associated Communications -- 12,479,976 2.59 6.19
Class B Corporation 7.68 7,071,852 8.23
Lib. Class E Pref. 200 Gateway Towers 2.48 -- --
TCI/Lib. Class B Pref. Pittsburgh, Pennsylvania -- 41,598 2.57
Class A The Putnam Companies, Inc. 8.52 13,334,429 2.76 *
Class B One Post Office Square -- -- --
Lib. Class E Pref. Boston, Massachusetts -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Wanger Asset Management, L.P. 6.35 5,436,175 1.13 *
Class B 227 West Monroe -- -- --
Lib. Class E Pref. Suite 3000 4.14 -- --
TCI/Lib. Class B Pref. Chicago, Illinois -- 69,400 4.28
Class A RMS Limited Partnership 9.14 7,800,000 1.62 *
Class B 201 West Liberty Street -- -- --
Lib. Class E Pref. Reno, Nevada -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Robert A. Naify -- 23,638,860 4.68 1.73
Class B 172 Golden Gate Avenue -- -- --
Lib. Class E Pref. San Francisco, California * -- --
TCI/Lib. Class B Pref. -- 1,000 *
Class A The Equitable Life Assurance 3.38 26,804,378 5.55 1.99
Class B Society of the United States -- -- --
Lib. Class E Pref. 787 Seventh Avenue -- -- --
TCI/Lib. Class B Pref. New York, New York -- -- --
</TABLE>
(See footnotes on following page)
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<PAGE> 107
- ---------------
* Less than one percent.
(1) Based on 403,772,855 shares of TCI Class A Common Stock (after elimination
of shares of TCI Class A Common Stock owned by subsidiaries of TCI) and
47,258,787 shares of TCI Class B Common Stock outstanding on May 2, 1994.
(2) Based on 87,515,378 shares of Liberty Class A Common Stock, 43,338,720
shares of Liberty Class B Common Stock and 1,675,096 shares of Liberty
Class E Preferred Stock outstanding on May 2, 1994.
(3) Based on 482,721,506 shares of TCI/Liberty Class A Common Stock (after
giving effect to the ratio of 0.975 per Liberty share and after elimination
of shares of TCI/Liberty Class A Common Stock held by Liberty and
subsidiaries of TCI), 85,976,327 shares of TCI/Liberty Class B Common Stock
(after giving effect to the ratio of 0.975 per Liberty share and after
elimination of shares of TCI/Liberty Class B Common Stock held by Liberty)
and 1,620,026 shares of TCI/Liberty Class B Preferred Stock (after giving
effect to the ratio of one share of TCI/Liberty Class B Preferred Stock for
each share of Liberty Class E Preferred Stock and the elimination of shares
of TCI/Liberty Class B Preferred Stock held by subsidiaries of TCI).
(4) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 1,000,000 shares of TCI
Class A Common Stock. Options to acquire 200,000 shares of TCI Class A
Common Stock are currently exercisable.
(5) Includes 634,800 shares of TCI Class B Common Stock held by Dr. Malone's
wife, Mrs. Leslie Malone, but Dr. Malone has disclaimed any beneficial
ownership of such shares. Pursuant to a letter agreement, dated June 17,
1988, Mr. Magness and Kearns-Tribune each agreed with Dr. Malone that prior
to making a disposition of a significant portion of their respective
holdings of TCI Class B Common Stock, he or it would first offer Dr. Malone
the opportunity to purchase such shares.
(6) Bob Magness, as executor of the Estate of Betsy Magness, is the beneficial
owner of all shares of TCI Class A and Class B Common Stock held of record
by the Estate of Betsy Magness. The number of shares in the table includes
2,105,332 shares of TCI Class A Common Stock and 6,346,212 shares of TCI
Class B Common Stock of which Bob Magness is beneficial owner as executor.
(7) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 1,000,000 shares of TCI
Class A Common Stock. Options to acquire 200,000 shares of TCI Class A
Common Stock are currently exercisable.
(8) Bob Magness and Kearns-Tribune are parties to a buy-sell agreement, entered
into in October of 1968, as amended, under which neither party may dispose
of their shares without notification of the proposed sale to the other, who
may then buy such shares at the offered price, sell all of their shares to
the other at the offered price or exchange one of their TCI Class A shares
for each TCI Class B share held by the other and purchase any remaining TCI
Class B shares at the offered price. There are certain exceptions,
including transfers to specified persons or entities, certain public sales
of TCI Class A shares and exchanges of TCI Class A shares for TCI Class B
shares.
(9) The number of shares in the table is based upon a Schedule 13G, dated
February 11, 1994, filed by The Capital Group, Inc. Certain operating
subsidiaries of The Capital Group, Inc., exercised investment discretion
over various institutional accounts which held as of December 31, 1993,
30,472,024 shares of TCI Class A Common Stock. Capital Guardian Trust
Company, a bank, and one of such operating companies, exercised investment
discretion over 3,892,102 of said shares. Capital Research and Management
Company and Capital International, Ltd., registered investment advisors,
and Capital International, S.A., another operating subsidiary, had
discretion with respect to 26,246,100, 150,675 and 183,147 shares,
respectively, of the above shares.
(10) Mr. Robert Naify received notes, which are currently convertible into
22,446,926 shares of TCI Class A Common Stock, as partial consideration for
the sale to TCI of the stock owned by him in UACI. Mr. Naify is also a
co-trustee, along with Mr. Naify's brother, Marshall, and their sister, of
a trust for the benefit of Marshall which holds additional notes
convertible into 341,606 shares of TCI Class A Common Stock. The number of
shares in the table assumes the conversion of these notes.
(See footnotes on following page)
100
<PAGE> 108
(11) The number of shares in the table is based upon a Schedule 13G, dated
February 9, 1994, filed by The Equitable Life Assurance Society of the
United States which Schedule 13G reflects that said corporation has sole
voting power over 15,277,835 shares and shared voting power over 772,431
shares of TCI Class A Common Stock. No information is given in respect to
voting power over the remaining shares.
(12) Includes 552,000 shares held by Mrs. Leslie Malone, but Dr. Malone has
disclaimed any beneficial ownership of such shares.
(13) Includes 6,400,000 Restricted Voting Shares that are subject to repurchase
by Liberty under certain circumstances. Until they cease to be subject to
Liberty's repurchase right, such shares may not be transferred and, with
respect to any matter submitted to a vote of the stockholders of Liberty,
the votes represented thereby will be cast in the same proportion as all
other votes are cast with respect to such matter. The number of shares of
Liberty Class B Common Stock in the table which are not subject to such
repurchase rights and voting requirements represent 43.58% of the total
voting power of the shares of Liberty Common Stock outstanding (excluding
the 6,400,000 Restricted Voting Shares from such total voting power).
(14) Mr. Magness, Dr. Malone and Kearns-Tribune are parties to a Put-Call
Agreement with Liberty which provides Liberty the right upon the occurrence
of certain events to require such persons to sell certain of the shares of
Liberty Common Stock owned by them in a registered public offering
undertaken by Liberty on behalf of such persons or in a third party sale
arranged by such persons, subject in each case, however, to Liberty's right
of first refusal to purchase such shares, and provides such persons a
corresponding right upon the occurrence of certain events to obligate
Liberty to arrange for the sale of certain of their shares of Liberty
Common Stock in a registered public offering undertaken by Liberty on
behalf of such persons or to one or more third parties selected by Liberty.
In each case, Liberty will guarantee the sale price for certain of the
shares to be sold. Alternatively, Liberty may elect to purchase some or all
of such shares at the guaranteed price. The events that will trigger the
rights and obligations of the parties under the Put-Call Agreement
generally consist of governmental actions which impose material limitations
or restrictions on Liberty's business or on the ownership by such persons
of Liberty Common Stock, in each case based on the dual ownership by such
persons of voting stock of Liberty and TCI. The guaranteed sale price for
shares of Liberty Common Stock that constitute "Covered Shares" (as
defined) will be determined on the basis of the proportionate share that
such shares represent of the fair market value of Liberty on a going
concern or liquidation value basis (whichever method yields a higher
valuation) or of the average trading prices of the shares of Liberty Class
A Common Stock during a specified trading period, whichever is greater,
subject to an upward adjustment for taxes. As of May 2, 1994, there were
41,162,880 shares of Liberty Common Stock covered by the Put-Call Agreement
including the Restricted Voting Shares, see "THE MERGERS -- Background".
(15) Includes 6,900 shares held by Mrs. Leslie Malone, but Dr. Malone has
disclaimed beneficial ownership of such shares.
(16) The number of shares in the table is based upon Amendment No. 6 to Schedule
13G, dated February 11, 1994, filed by Capital Group, Inc., Capital
Guardian Trust Company and Capital Research Management Company, operating
subsidiaries of The Capital Group, Inc., exercised as of December 31, 1993,
investment discretion with respect to 3,301,200 and 9,553,400 shares,
respectively, or a combined total of 12,854,600 shares of outstanding stock
which was owned by various institutional investors.
(17) Harris Associates, L.P. has sole dispositive power with respect to
2,728,644 shares of TCI Class A Common Stock and shared dispositive power
with respect to 714,360 shares of TCI Class A Common Stock.
(18) Harris Associates, L.P. has sole dispositive power with respect to
3,862,591 shares of Liberty Class A Common Stock and 64,103 shares of
Liberty Class E Preferred Stock and shared dispositive power with respect
to 1,611,076 shares of Liberty Class A Common Stock and 974 shares of
Liberty Class E Preferred Stock.
(See footnotes on following page)
101
<PAGE> 109
(19) The number of shares in the table is based upon a Schedule 13G, dated
January 6, 1992, filed by Associated Communications Corporation
("Associated"), which Schedule 13G reflects that Associated has sole
dispositive power and sole voting power with respect to all of such shares.
(20) The number of shares in the table is based upon Amendment No. 3 to Schedule
13G filed February 19, 1993, by RMS Limited Partnership, Crystal Diamond,
Inc. and Roy M. Speer which filing reflects that each of such persons has
shared voting and shared dispositive power with respect to all of such
shares.
(21) The number of shares in the table is based upon a Form 13F for the quarter
ended March 31, 1994, filed by The Equitable Companies Incorporated, which
Form 13F reflects that The Equitable Life Assurance Society of the United
States has sole voting power over 2,448,880 shares of Liberty Class A
Common Stock, shared voting power of over 7,600 shares of Liberty Class A
Common Stock and no voting power with respect to the remaining shares.
(22) The number of shares of TCI/Liberty Class B Common Stock and TCI/Liberty
Class B Preferred Stock in the table includes 6,240,000 and 80,000
TCI/Liberty Restricted Voting Shares, respectively, that will be subject to
repurchase by TCI/Liberty under certain circumstances. Until they cease to
be subject to TCI/Liberty's repurchase right, such shares may not be
transferred and, with respect to any matter submitted to a vote of the
stockholders of TCI/Liberty, the votes represented thereby will be cast in
the same proportion as all other votes are cast with respect to such
matter. The number of shares of TCI/Liberty Class B Common Stock in the
table which will not be subject to such repurchase rights and voting
requirements represent 15.95% of the total voting power of the shares of
TCI/Liberty Common Stock and TCI/Liberty Class B Preferred Stock
outstanding (excluding such 6,240,000 and 80,000 TCI/Liberty Restricted
Voting Shares from such total voting power.)
SECURITY OWNERSHIP OF TCI/LIBERTY DIRECTORS AND OFFICERS
The following table sets forth (i) as of May 2, 1994, the number of shares
and ownership percentage of each class of TCI Common Stock, Liberty Common Stock
and of Liberty Class E Preferred Stock owned by each person who is a director or
is expected to be one of the five most highly compensated executive officers of
TCI/Liberty (based on compensation paid in calendar year 1993) and (ii) the pro
forma number and ownership percentage of shares of each class of TCI/Liberty
Common Stock and shares of TCI/Liberty Class B Preferred Stock that will be
owned immediately after the Effective Time by (x) each person who is a director
or is expected to be one of the five most highly compensated executive officers
of TCI/Liberty (based on compensation paid in calendar year 1993) and (y) by
those persons who are expected to be all of the executive officers and directors
of TCI/Liberty immediately prior to the Effective Time, as a group, based on the
number of shares of each class of TCI Common Stock or Liberty Common Stock and
the number of shares of Liberty Class E Preferred Stock owned by such persons on
May 2, 1994. Voting power in the table is computed with respect to a general
election of directors and therefore the TCI/Liberty Class B Preferred Stock is
included in the calculation. Shares issuable upon exercise or conversion of
convertible securities are deemed to be outstanding for the purpose of computing
the percentage ownership and overall voting power of persons beneficially owning
such convertible securities, but have not been deemed to be outstanding for the
purpose of computing the percentage ownership or overall voting power of any
other person. Shares of Liberty Common Stock issuable upon exercise of Liberty
SARs are not deemed to be outstanding for purposes of the computations included
in the table below because such Liberty SARs may be exercised for stock or cash
or any combination thereof at the sole election of Liberty. The number of shares
of TCI Class A Common Stock and Class B Common Stock in the table includes
interests of the named directors and executive officers in shares held by the
trustee of TCI's ESPP and shares held by the trustee of UAE's Employee Stock
Ownership Plan for their respective accounts. So far as is known to TCI or
Liberty, the persons indicated below have sole voting and investment power with
respect to the shares indicated as owned by them except as otherwise stated in
the notes to the table and except for the shares held by the trustee of TCI's
ESPP for the benefit of such persons, which shares are voted at the discretion
of the trustee.
102
<PAGE> 110
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER TCI CLASS(1) LIBERTY
- ------------------------ ------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Class A John C. Malone 1,165,593(4) * --
Class B 904,800(5) 1.91 26,312,000(14)
Liberty Class E Pref. -- -- 320,900(15)
TCI/Lib. Class B Pref. -- -- --
Class A Bob Magness 4,626,938(6) 1.14 --
Class B 27,382,076(7) 57.94 10,000,000(16)
Liberty Class E Pref. -- -- 125,000
TCI/Lib. Class B Pref. -- -- --
Class A Donne F. Fisher 191,451 * 160,000
Class B 134,880 * 117,120
Liberty Class E Pref. -- -- 3,464
TCI/Lib. Class B Pref. -- -- --
Class A John W. Gallivan 600 * 140(17)
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Jerome H. Kern 2,000,000(8) * --
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Kim Magness -- -- --
Class B 518,000 1.10 --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Robert A. Naify 23,638,860(9) 5.54 --
Class B -- -- --
Liberty Class E Pref. -- -- 1,000
TCI/Lib. Class B Pref. -- -- --
Class A Tony Coelho -- -- --
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B -- -- --
Class A J.C. Sparkman 236,623(10) * 16,000
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Fred A. Vierra 518,084(11) * 45,200(18)
Class B -- -- --
Liberty Class E Pref. -- -- 200
TCI/Lib. Class B Pref. -- -- --
Class A Brendan F. Clouston 1,008,661(12) * --
Class B 230 * --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A R.E. Turner -- -- --
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B. Pref. -- -- --
Class A All executive officers and 33,861,209(4)(6)(8)(9)(10) 7.83 345,060(17)(18)
directors as a group (11)(12)(13)
Class B (15 persons) 28,940,616(5)(7) 61.24 36,429,120(14)(16)
Liberty Class E Pref. -- -- 451,938(15)
TCI/Lib. Class B Pref. -- -- --
<CAPTION>
NAME AND ADDRESS OF PERCENT OF PERCENT OF VOTING
TITLE OF CLASS BENEFICIAL OWNER CLASS(2) TCI/LIBERTY CLASS(3) POWER
- ------------------------ ------------------------------- ----------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Class A John C. Malone -- 1,165,953 * 19.86
Class B 60.71 26,559,000 (19) 30.89
Liberty Class E Pref. 19.16 -- --
TCI/Lib. Class B Pref. -- 320,900 (19) 19.81
Class A Bob Magness -- 4,626,938 * 27.96
Class B 23.07 37,132,076 43.19
Liberty Class E Pref. 7.46 -- --
TCI/Lib. Class B Pref. -- 125,000 7.72
Class A Donne F. Fisher * 347,451 * *
Class B * 249,072 *
Liberty Class E Pref. * -- --
TCI/Lib. Class B Pref. -- 3,464 *
Class A John W. Gallivan * 736 * *
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Jerome H. Kern -- 2,000,000 * *
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Kim Magness -- -- -- *
Class B -- 518,000 *
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Robert A. Naify -- 23,638,860 4.68 1.73
Class B -- -- --
Liberty Class E Pref. * -- --
TCI/Lib. Class B Pref. -- 1,000 *
Class A Tony Coelho -- -- -- --
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B -- -- --
Class A J.C. Sparkman * 252,223 * *
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Fred A. Vierra * 562,154 * *
Class B -- -- --
Liberty Class E Pref. * -- --
TCI/Lib. Class B Pref. -- 200 *
Class A Brendan F. Clouston -- 1,008,661 * *
Class B -- 230 *
Liberty Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A R.E. Turner -- -- -- --
Class B -- -- --
Liberty Class E Pref. -- -- --
TCI/Lib. Class B. Pref. -- -- --
Class A All executive officers and * 34,197,642 6.69 49.49
directors as a group
Class B (15 persons) 84.06 64,459,008 (19) 74.97
Liberty Class E Pref. 26.98 -- --
TCI/Lib. Class B Pref. -- 451,938 (19) 27.90
</TABLE>
(See footnotes on following page)
103
<PAGE> 111
- ---------------
* Less than one percent.
(1) See note 1 to the table included in "-- Five Percent Stockholders".
(2) See note 2 to the table included in "-- Five Percent Stockholders".
(3) See note 3 to the table included in "-- Five Percent Stockholders".
(4) See note 4 to the table included in "-- Five Percent Stockholders".
(5) See note 5 to the table included in "-- Five Percent Stockholders".
(6) See notes 6, 7 and 8 to the table included in "-- Five Percent
Stockholders".
(7) See notes 5, 6 and 8 to the table included in "-- Five Percent
Stockholders".
(8) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1993 to acquire 2,000,000 shares of TCI
Class A Common Stock. Options to acquire 400,000 shares are currently
exercisable.
(9) See note 10 to the table included in "-- Five Percent Stockholders".
(10) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 100,000 shares of TCI
Class A Common Stock. Options to acquire 20,000 shares of TCI Class A
Common Stock are currently exercisable.
(11) Assumes the exercise in full of stock options, granted in August of 1990,
to purchase an aggregate of 9,714 shares of TCI Class A Common Stock at an
adjusted exercise price of $10.30 per share. All such options are fully
exercisable. Also assumes the exercise in full of stock options granted in
tandem with stock appreciation rights in November of 1992 to acquire
100,000 shares of TCI Class A Common Stock. Options to acquire 20,000
shares of TCI Class A Common Stock are currently exercisable. Also assumes
the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1993 to acquire 100,000 shares of TCI
Class A Common Stock. None of these options is exercisable until October
12, 1994.
(12) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 500,000 shares of TCI
Class A Common Stock. Options to acquire 100,000 shares of TCI Class A
Common Stock are currently exercisable. Additionally, assumes the exercise
in full of stock options granted in tandem with stock appreciation rights
in November of 1993 to acquire 500,000 shares of TCI Class A Common Stock.
None of the options is exercisable until October 12, 1994.
(13) An executive officer of TCI/Liberty (1 person) holds an option, which was
granted in November of 1989, to purchase an aggregate of 10,000 shares of
TCI Class A Common Stock at a purchase price of $17.25 per share. All such
options are fully exercisable. Certain executive officers and directors (7
persons, including Messrs. Magness, Malone, Clouston, Sparkman and Vierra)
hold stock options issued in tandem with stock appreciation rights, which
were granted in November of 1992, to acquire 2,900,000 shares of TCI Class
A Common Stock at a purchase price of $16.75 per share. Options to acquire
580,000 of such shares are currently exercisable. Additionally, certain
executive officers and a director (5 persons, including Messrs. Kern,
Clouston and Vierra) hold stock options issued in tandem with stock
appreciation rights, which were granted in October and November of 1993 and
become exercisable in October of 1994, to acquire 2,800,000 shares of TCI
Class A Common Stock at a purchase price of $16.75 per share. Additionally,
Mr. Vierra holds an option, granted in August of 1990, to purchase an
aggregate of 9,714 shares of TCI Class A Common Stock at an adjusted
exercise price of $10.30 per share. All such options are fully exercisable.
(14) See notes 12, 13 and 14 to the table included in "-- Five Percent
Stockholders".
(15) See note 15 to the table included in "-- Five Percent Stockholders".
(16) See note 14 to the table included in "-- Five Percent Stockholders".
(See footnotes on following page)
104
<PAGE> 112
(17) The shares in the table are held by Mr. Gallivan's wife.
(18) Includes 21,200 shares held in a trust for Mr. Vierra's dependent child.
Mr. Vierra is the trustee of such trust but disclaims beneficial ownership
of the shares held by such trust.
(19) See note 22 to the table included in "-- Five Percent Stockholders".
SECURITY OWNERSHIP OF OTHER TCI AND LIBERTY DIRECTORS AND OFFICERS
The following table sets forth (i) as of May 2, 1994, the number of shares
and ownership percentage thereof owned of each class of TCI Common Stock and
Liberty Common Stock and of Liberty Class E Preferred Stock and (ii) the pro
forma number and ownership percentage of shares of each class of TCI/Liberty
Common Stock and TCI/Liberty Class B Preferred Stock that will be owned
immediately after the Effective Time based on the number of shares of each class
of TCI Common Stock, Liberty Common Stock and Liberty Class E Preferred Stock
owned on May 2, 1994, in each case by each director and each of the five most
highly compensated executive officers of TCI and Liberty other than those who
are included in the table under "-- Security Ownership of TCI/Liberty Directors
and Officers" and by all executive officers and directors of TCI and Liberty,
respectively, as a group (including persons who are included in the table under
"-- Security Ownership of TCI/Liberty Directors and Officers"). Shares issuable
upon exercise or conversion of convertible securities are deemed to be
outstanding for the purpose of computing the percentage ownership and overall
voting power of persons beneficially owning such convertible securities, but
have not been deemed to be outstanding for the purpose of computing the
percentage ownership or overall voting power of any other person. Voting power
in the table is computed with respect to a general election of directors and
therefore the TCI/Liberty Class B Preferred Stock is included in the
calculation. Shares of Liberty Common Stock issuable upon exercise of Liberty
SARs are not deemed to be outstanding for purposes of the computations included
in the table below because such Liberty SARs may be exercised for stock or cash
or any combination thereof at the sole election of Liberty. The number of shares
of TCI Class A Common Stock and Class B Common Stock in the table includes
interests of the named directors and executive officers in shares held by the
trustee of TCI's ESPP and shares held by the trustee of UAE's Employee Stock
Ownership Plan for their respective accounts. So far as is known to TCI or
Liberty, the persons indicated below have sole voting and investment power with
respect to the shares indicated as owned by them, except as otherwise stated in
the notes to the table and except for the shares held by the trustee of TCI's
ESPP for the benefit of such persons, which shares are voted at the discretion
of the trustee.
105
<PAGE> 113
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER TCI CLASS(1) LIBERTY
- ------------------------- -------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Class A Peter R. Barton 30,545(4) * 122,720
Class B President, Chief Executive 42 * --
Lib. Class E Pref. Officer and Director of -- -- 1,374
TCI/Lib. Class B Pref. Liberty -- -- --
Class A H. F. Lenfest 75,000(5) * 2,037,120
Class B Director of Liberty -- -- 1,600
Lib. Class E Pref. -- -- 38,714(8)
TCI/Lib. Class B Pref. -- -- --
Class A David E. Rapley -- -- --
Class B Director of Liberty -- -- --
Lib. Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Robert L. Johnson -- -- --
Class B Director of Liberty -- -- --
Lib. Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Paul A. Gould 25,000 * 18,800
Class B Director of Liberty -- -- 92,640
Lib. Class E Pref. -- -- 19,158
TCI/Lib. Class B Pref. -- -- --
Class A J. David Wargo 11,380(6) * 1,141,706(9)
Class B Director of Liberty -- -- 800
Lib. Class E Pref. -- -- 4,370(23)
TCI/Lib. Class B Pref. -- -- --
Class A Robert R. Bennett 3,069 * 17,760
Class B Senior Vice President, -- -- --
Lib. Class E Pref. Treasurer and Secretary -- -- 222
TCI/Lib. Class B Pref. of Liberty -- -- --
Class A John M. Draper 41,993(7) * 29,920(10)
Class B Senior Vice President -- -- --
Lib. Class E Pref. General Counsel and -- -- 3,076(11)
TCI/Lib. Class B Pref. Assistant Secretary of Liberty -- -- --
Class A James A. Martin 400 * 24,740(12)
Class B Vice President and Chief -- -- --
Lib. Class E Pref. Operating Officer of -- -- 16
TCI/Lib. Class B Pref. Liberty -- -- --
Class A All executive officers and 34,989,739(13)(18)(19) 8.08 368,460
Class B directors of TCI 28,945,290(20)(21) 61.25 36,429,120(16)
Lib. Class E Pref. as a group (18 persons) -- -- 452,396(17)
TCI/Lib. Class B. Pref. -- -- --
Class A All executive officers and 5,979,918(4)(5)(6)(7)(18)(19) 1.47 3,433,966(9)(10)(15)
Class B directors of Liberty 28,286,918(20)(21) 59.86 36,407,040(16)
Lib. Class E Pref. as a group (12 persons)(14) -- -- 512,830(8)(11)(17)(23)
TCI/Lib. Class B Pref. -- -- --
</TABLE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT OF PERCENT OF VOTING
TITLE OF CLASS BENEFICIAL OWNER CLASS(2) TCI/LIBERTY CLASS(3) POWER
- ------------------------- -------------------------------- ----------- ----------- ----------- ------
<S> <C> <C> <C> <C>
Class A Peter R. Barton * 150,197 * *
Class B President, Chief Executive -- 42 *
Lib. Class E Pref. Officer and Director of * -- --
TCI/Lib. Class B Pref. Liberty -- 1,374 *
Class A H. F. Lenfest 2.33 2,061,192 * *
Class B Director of Liberty * 1,560 *
Lib. Class E Pref. 2.31 -- --
TCI/Lib. Class B Pref. -- 38,714 2.39
Class A David E. Rapley -- -- -- --
Class B Director of Liberty -- -- --
Lib. Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Robert L. Johnson -- -- -- --
Class B Director of Liberty -- -- --
Lib. Class E Pref. -- -- --
TCI/Lib. Class B Pref. -- -- --
Class A Paul A. Gould * 43,330 * *
Class B Director of Liberty * 90,324 *
Lib. Class E Pref. 1.14 -- --
TCI/Lib. Class B Pref. -- 19,158 1.18
Class A J. David Wargo 1.30 1,124,543 * *
Class B Director of Liberty * 780 *
Lib. Class E Pref. * -- --
TCI/Lib. Class B Pref. -- 4,370 *
Class A Robert R. Bennett * 20,385 * *
Class B Senior Vice President, -- -- --
Lib. Class E Pref. Treasurer and Secretary * -- --
TCI/Lib. Class B Pref. of Liberty -- 222 *
Class A John M. Draper * 71,165 * *
Class B Senior Vice President -- -- --
Lib. Class E Pref. General Counsel and * -- --
TCI/Lib. Class B Pref. Assistant Secretary of Liberty -- 3,076 *
Class A James A. Martin * 24,521 * *
Class B Vice President and Chief -- -- --
Lib. Class E Pref. Operating Officer of * -- --
TCI/Lib. Class B Pref. Liberty -- 16 *
Class A All executive officers and * 35,348,987 6.90 49.54
Class B directors of TCI 84.06 64,463,682 74.98
Lib. Class E Pref. as a group (18 persons) 27.01 -- --
TCI/Lib. Class B. Pref. -- 452,396 27.93
Class A All executive officers and 3.92 9,328,034 1.92 48.11
Class B directors of Liberty 84.01 63,783,782 (22) 74.19
Lib. Class E Pref. as a group (12 persons)(14) 30.62 -- --
TCI/Lib. Class B Pref. -- 512,830 (22) 31.66
</TABLE>
(See footnotes on following page)
106
<PAGE> 114
- ---------------
* Less than one percent.
(1) See note 1 to the table included in "-- Five Percent Stockholders".
(2) See note 2 to the table included in "-- Five Percent Stockholders".
(3) See note 3 to the table included in "-- Five Percent Stockholders".
(4) Includes 19,420 shares of TCI Class A Common Stock held by Mr. Barton's
wife. Mr. Barton has disclaimed beneficial ownership of such shares.
(5) Includes 5,000 shares of TCI Class A Common Stock held by Mr. Lenfest's
wife and 70,000 shares owned directly or indirectly by Lenfest
Communications, Inc. ("LCI") of which Mr. Lenfest is President, Chief
Executive Officer and a director. Mr. Lenfest has disclaimed beneficial
ownership of all of such shares.
(6) The shares of TCI Class A Common Stock shown in the table are held in
accounts for which Mr. Wargo acts as an investment advisor. Mr. Wargo has
disclaimed beneficial ownership of such shares.
(7) Includes 19,753 shares held by Mr. Draper's wife. Mr. Draper has disclaimed
beneficial ownership of such shares.
(8) Includes 2,000 shares of Liberty Class E Preferred Stock held by LCI. Mr.
Lenfest has disclaimed beneficial ownership of such shares.
(9) Includes 72,000 shares of Liberty Class A Common Stock in accounts for
which Mr. Wargo acts as an investment advisor. Mr. Wargo has disclaimed
beneficial ownership of such shares.
(10) All of such shares of Liberty Class A Common Stock are held by Mr. Draper's
wife. Mr. Draper has disclaimed beneficial ownership of such shares.
(11) Includes 411 shares of Liberty Class E Preferred Stock held by Mr. Draper's
wife. Mr. Draper has disclaimed beneficial ownership of such shares.
(12) Assumes exercise in full of stock options granted in tandem with stock
appreciation rights in June 1993 to acquire 22,000 shares of Liberty Class
A Common Stock. None of the options is exercisable until June 3, 1994.
(13) Certain executive officers of TCI (5 persons) hold options, which were
granted in November of 1989, to purchase an aggregate of 43,000 shares of
TCI Class A Common Stock at a purchase price of $17.25 per share. All such
options are fully exercisable. Certain executive officers and directors (11
persons including Messrs. Magness, Malone, Clouston, Sparkman and Vierra)
hold stock options issued in tandem with stock appreciation rights, which
were granted in November of 1992, to acquire 3,325,000 shares of TCI Class
A Common Stock at a purchase price of $16.75 per share. Options to acquire
665,000 of such shares are currently exercisable. Additionally, certain
executive officers and a director (9 persons including Messrs. Kern,
Clouston and Vierra) hold stock options issued in tandem with stock
appreciation rights, which were granted in October and November of 1993 and
become exercisable in October of 1994, to acquire 3,225,000 shares of TCI
Class A Common Stock at a purchase price of $16.75 per share. Additionally,
Mr. Vierra holds an option, granted in August of 1990, to purchase an
aggregate of 9,714 shares of TCI Class A Common Stock at an adjusted price
of $10.30 per share. All such options are fully exercisable.
(14) Includes Dr. Malone and Mr. Magness who are also included in "TCI executive
officers and directors as a group" above.
(15) Assumes exercise in full of stock options granted in tandem with stock
appreciation rights in June 1993 to acquire 44,000 shares of Liberty Class
A Common Stock (including the stock options granted in tandem with stock
appreciation rights for Mr. Martin). None of the options are exercisable
until June 3, 1994.
(16) See notes 12, 13 and 14 to the table included in "-- Five Percent
Stockholders."
(See footnotes on following page)
107
<PAGE> 115
(17) See note 15 to the table included in "-- Five Percent Stockholders."
(18) See note 4 to the table included in "-- Five Percent Stockholders."
(19) See notes 6, 7 and 8 to the table included in "-- Five Percent
Stockholders."
(20) See note 5 to the table included in "-- Five Percent Stockholders."
(21) See notes 5, 6 and 8 to the table included in "-- Five Percent
Stockholders."
(22) See note 22 to the table included in "-- Five Percent Stockholders."
(23) Includes 1,000 shares of Liberty Class E Preferred Stock in an account for
which Mr. Wargo acts as an investment advisor. Mr. Wargo has disclaimed
beneficial ownership of such shares.
LEGAL MATTERS
The validity of the TCI/Liberty Common Stock and TCI/Liberty Class B
Preferred Stock to be issued in connection with the Mergers will be passed upon
by Baker & Botts, L.L.P., 885 Third Avenue, New York, New York 10022. Mr. Jerome
Kern, a partner of Baker & Botts, L.L.P. is a director of TCI and of
TCI/Liberty. Mr. Kern holds options to purchase 2,000,000 shares of TCI Class A
Common Stock. In addition, certain partners of Baker & Botts, L.L.P. serve as
Assistant Secretaries of TCI.
EXPERTS
The balance sheet of TCI/Liberty Holding Company as of March 31, 1994, has
been included herein in reliance upon the report, dated April 1, 1994, of KPMG
Peat Marwick, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.
The consolidated balance sheets of Tele-Communications, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1993, and the related
financial statement schedules, which appear in the annual report on Form 10-K of
Tele-Communications, Inc., as amended, for the year ended December 31, 1993,
have been incorporated by reference herein in reliance upon the reports, dated
March 21, 1994, of KPMG Peat Marwick, independent auditors, incorporated by
reference herein, and upon the authority of said firm as experts in auditing and
accounting. The reports of KPMG Peat Marwick covering the December 31, 1993
financial statements refer to a change in the method of accounting for income
taxes.
The consolidated balance sheets of Liberty Media Corporation and
subsidiaries (Successor) as of December 31, 1993 and 1992, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1993 and 1992 and the period from April 1, 1991 to
December 31, 1991 (Successor Periods), and the consolidated statements of
operations, stockholders' equity and cash flows of "Liberty Media" (a
combination of certain programming interests and cable television assets of
Tele-Communications, Inc.) (Predecessor) for the period from January 1, 1991 to
March 31, 1991 (Predecessor Period), and the related financial statement
schedules, which appear in the annual report on Form 10-K of Liberty Media
Corporation, as amended, for the year ended December 31, 1993, have been
incorporated by reference herein in reliance upon the reports, dated March 18,
1994, of KPMG Peat Marwick, independent auditors, incorporated by reference
herein, and upon the authority of said firm as experts in auditing and
accounting. The reports of KPMG Peat Marwick covering the December 31, 1993
financial statements refer to a change in the method of accounting for income
taxes.
The consolidated balance sheets of Lenfest Communications, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income (loss), changes in stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1993,
and the related financial statements schedules, which appear in the annual
report on Form 10-K of Liberty Media Corporation, as amended, for the year ended
December 31, 1993, have been incorporated by reference herein in reliance upon
the reports, dated March 4, 1994, of Steven Pressman & Co., independent
auditors, incorporated by reference herein, and upon the authority of said firm
as experts in auditing and accounting. The report of Steven Pressman & Co.
covering the December 31, 1993 financial statements refers to a change in the
method of accounting for income taxes.
108
<PAGE> 116
The combined balance sheets of The Cable Partnerships of Country Cable Co.
and Knight-Ridder Cablevision, Inc. as of December 31, 1993 and 1992, and the
related combined statements of earnings, changes in partners' capital and cash
flows for each of the years in the three-year period ended December 31, 1993,
and the related financial statements schedules, which appear in the annual
report on Form 10-K of Liberty Media Corporation, as amended, for the year ended
December 31, 1993, have been incorporated by reference herein in reliance upon
the reports, dated January 28, 1994, of KPMG Peat Marwick, independent auditors,
incorporated by reference herein, and upon the authority of said firm as experts
in auditing and accounting. The reports of KPMG Peat Marwick covering the
December 31, 1993 financial statements refer to a change in the method of
accounting for income taxes.
The consolidated balance sheets of Columbia Associates, L.P. (a Delaware
Limited Partnership) and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, partners' equity (deficit) and
cash flows for each of the years in the three-year period ended December 31,
1993, and the related financial statements schedules, which appear in the annual
report on Form 10-K of Liberty Media Corporation, as amended, for the year ended
December 31, 1993, have been incorporated by reference herein in reliance upon
the reports, dated February 25, 1994, of Arthur Andersen & Co., independent
auditors, incorporated by reference herein, and upon the authority of said firm
as experts in auditing and accounting.
The balance sheets of SportsChannel Chicago Associates (a general
partnership) as of December 31, 1993 and 1992, and the related statements of
income, partners' capital and cash flows for each of the years in the three-year
period ended December 31, 1993, and the related financial statements schedules,
which appear in the annual report on Form 10-K of Liberty Media Corporation, as
amended, for the year ended December 31, 1993, have been incorporated by
reference herein in reliance upon the report, dated March 4, 1994, of KPMG Peat
Marwick, independent auditors, incorporated by reference herein, and upon the
authority of said firm as experts in auditing and accounting.
The consolidated balance sheets of American Movie Classics Company (a
general partnership) as of December 31, 1993 and 1992, and the related
statements of income, partners' capital (deficiency) and cash flows for each of
the years in the three-year period ended December 31, 1993, and the related
financial statements schedules, which appear in the annual report on Form 10-K
of Liberty Media Corporation, as amended, for the year ended December 31, 1993,
have been incorporated by reference herein in reliance upon the report, dated
March 4, 1994, of KPMG Peat Marwick, independent auditors, incorporated by
reference herein, and upon the authority of said firm as experts in auditing and
accounting.
The consolidated balance sheets of QVC, Inc. and subsidiaries as of January
31, 1994 and 1993, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended January 31, 1994, and the related financial statements schedules,
which appear in the annual report on Form 10-K of Liberty Media Corporation, as
amended, for the year ended December 31, 1993, have been incorporated by
reference herein in reliance upon the report, dated March 4, 1994, of KPMG Peat
Marwick, independent auditors, incorporated by reference herein, and upon the
authority of said firm as experts in auditing and accounting. The report of KPMG
Peat Marwick covering the January 31, 1994 financial statements refers to a
change in the method of accounting for income taxes.
The financial statements of Kansas City Cable Partners appearing in Liberty
Media Corporation's annual report on Form 10-K, as amended, for the year ended
December 31, 1993, have been audited by Ernst & Young, independent auditors, as
set forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
109
<PAGE> 117
FUTURE STOCKHOLDER PROPOSALS
If the Mergers are not consummated, the annual meeting of stockholders of
each of TCI and Liberty is expected to be held on May 18, 1995. If any TCI or
Liberty stockholder would like to present a proposal for action at the TCI or
Liberty annual meeting and wishes to have such proposal included in the proxy
materials for such meeting, such holder must submit the same to the Secretary of
TCI or Liberty, as appropriate, in writing so as to be received at the executive
offices of TCI or Liberty prior to January 15. Such proposals must also meet the
other requirements of the rules of the Commission relating to stockholders'
proposals.
110
<PAGE> 118
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-------------
<S> <C>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Financial Statements.................................. F-2
Condensed Pro Forma Balance Sheet, March 31, 1994
(unaudited).......................................................... F-3
Condensed Pro Forma Statement of Operations,
Three months ended March 31, 1994 (unaudited)........................ F-4
Year ended December 31, 1993 (unaudited)............................. F-5
Notes to Condensed Pro Forma Financial Statements
(unaudited).......................................................... F-6
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Pro Forma Combined Financial Statements......................... F-7
Condensed Pro Forma Balance Sheet, March 31, 1994
(unaudited).......................................................... F-8
Condensed Pro Forma Combined Statement of Operations
Three months ended March 31, 1994 (unaudited)........................ F-9
Year ended December 31, 1993 (unaudited)............................. F-10
Notes to Condensed Pro Forma Combined Financial Statements
(unaudited).......................................................... F-11 to F-13
TCI/LIBERTY HOLDING COMPANY AND SUBSIDIARIES
Independent Auditors' Report.............................................. F-14
Balance Sheet, March 31, 1994............................................. F-15
Note to Balance Sheet, March 31, 1994..................................... F-16
Condensed Pro Forma Combined Financial Statements......................... F-18
Condensed Pro Forma Combined Balance Sheet
March 31, 1994 (unaudited)........................................... F-19
Condensed Pro Forma Combined Statement of Operations,
Three months ended March 31, 1994 (unaudited)........................ F-20
Year ended December 31, 1993 (unaudited)............................. F-21
Notes to Condensed Pro Forma Combined Financial Statements
(unaudited).......................................................... F-22 to F-23
</TABLE>
F-1
<PAGE> 119
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
The following unaudited condensed pro forma balance sheet of TCI, dated as
of March 31, 1994, assumes that the proposed mergers (the "Mergers"), whereby
TCI and Liberty will each become a wholly-owned subsidiary of TCI/Liberty, had
occurred as of such date (see note 1).
In addition, the unaudited condensed pro forma statements of operations of
TCI for the three months ended March 31, 1994 and the year ended December 31,
1993 assume that the proposed Mergers had occurred prior to January 1, 1993.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the Mergers had occurred
prior to January 1, 1993. These condensed pro forma financial statements of TCI
should be read in conjunction with the condensed unaudited pro forma financial
statements of Liberty and TCI/Liberty and the related notes thereto included
elsewhere herein and the respective historical financial statements and the
related notes thereto of TCI and Liberty that are incorporated by reference into
the Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "AVAILABLE INFORMATION." The pro forma financial statements of
TCI/Liberty represent a combination of the separate pro forma statements of TCI
and Liberty in giving effect to the proposed Mergers.
F-2
<PAGE> 120
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1994
-----------------------------------------
TCI PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash and receivables..................................... $ 285 -- 285
Investment in Liberty and related receivables............ 507 (207)(2) 300
Investment in other affiliates and Turner Broadcasting
System, Inc., and related receivables.................. 1,479 -- 1,479
Property and equipment, net of accumulated
depreciation........................................... 5,026 -- 5,026
Franchise costs and other assets, net of amortization.... 9,761 -- 9,761
-------- ------ -------
$ 17,058 (207) 16,851
======== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accruals.................................... $ 843 -- 843
Debt..................................................... 10,008 -- 10,008
Deferred income taxes.................................... 3,456 -- 3,456
Other liabilities........................................ 97 -- 97
-------- ------ -------
Total liabilities................................... 14,404 -- 14,404
-------- ------ -------
Minority interests....................................... 300 -- 300
Redeemable preferred stocks.............................. -- -- --
Common stockholders' equity:
Class A common stock................................ 483 -- 483
Class B common stock................................ 47 -- 47
Additional paid-in capital.......................... 2,310 -- 2,310
Cumulative foreign currency translation
adjustment........................................ (28) -- (28)
Unrealized holding gains for available-for-sale
securities........................................ 191 -- 191
Accumulated deficit................................. (316) -- (316)
Treasury stock, at cost............................. (333) 333 (3) --
Investment in TCI/Liberty........................... -- (207)(2) (540)
(333)(3)
-------- ----- -------
2,354 (207) 2,147
-------- ----- -------
$ 17,058 (207) 16,851
======== ====== =======
See accompanying notes to unaudited condensed pro forma financial statements.
</TABLE>
F-3
<PAGE> 121
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1994
-----------------------------------------
TCI PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
(AMOUNTS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue.................................................. $1,060 -- 1,060
Operating, selling, general and administrative expenses
and compensation relating to stock appreciation
rights................................................. (591) -- (591)
Depreciation and amortization............................ (235) -- (235)
---------- ------- ---------
Operating income.................................... 234 -- 234
Interest expense......................................... (178) -- (178)
Interest and dividend income............................. 10 -- 10
Share of earnings of Liberty............................. 14 (14)(4) --
Share of losses of other affiliates, net................. (9) -- (9)
Loss on early extinguishment of debt..................... (2) -- (2)
Other income, net........................................ (6) -- (6)
---------- ------- ---------
Earnings before income taxes........................ 63 (14) 49
Income tax expense....................................... (31) 6(5) (25)
---------- ------- ---------
Net earnings........................................ $ 32 (8) 24
======= =========== =======
Primary and fully diluted earnings per common and common
equivalent share....................................... $ .07
=======
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
F-4
<PAGE> 122
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------
TCI PRO FORMA
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
(AMOUNTS IN MILLIONS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue.................................................. $ 4,153 -- 4,153
Operating, selling, general and administrative expenses
and compensation relating to stock appreciation
rights................................................. (2,326) -- (2,326)
Depreciation and amortization............................ (911) -- (911)
-------- ------- -------
Operating income.................................... 916 -- 916
Interest expense......................................... (731) -- (731)
Interest and dividend income............................. 34 -- 34
Share of earnings of Liberty............................. 4 (4)(4) --
Share of losses of other affiliates, net................. (76) -- (76)
Gain on dispositions..................................... 42 -- 42
Loss on early extinguishment of debt..................... (17) -- (17)
Other income, net........................................ (11) -- (11)
-------- ------- -------
Earnings before income taxes........................ 161 (4) 157
Income tax expense....................................... (168) 2 (5) (166)
-------- ------- -------
Net loss............................................ (7) (2) (9)
Dividend requirement on redeemable preferred stocks...... (2) 2 (6) --
-------- ------- -------
Net loss applicable to common shareholders..... $ (9) -- (9)
======== ======= =======
Loss per common share.................................... $ (.02)
========
See accompanying notes to unaudited condensed pro forma financial statements.
</TABLE>
F-5
<PAGE> 123
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
(1) Pursuant to the Merger Agreement, the Mergers will be structured as a
tax free exchange whereby the common stock of TCI and Liberty and the preferred
stock of Liberty would be exchanged for like shares of TCI/Liberty. The Merger
Agreement provides that each share of TCI's and Liberty's common stock
(including shares held by TCI's or Liberty's subsidiaries) would be converted
into one share and 0.975 of a share, respectively, of the corresponding class of
TCI/Liberty's common stock. Any shares of Liberty preferred stock held by
subsidiaries of TCI or its subsidiaries shall be converted into shares of a
class or series of TCI/Liberty preferred stock having an equivalent value.
Shares of preferred stock of Liberty not owned by TCI or its subsidiaries would
be converted into shares of a preferred stock of TCI/Liberty having
designations, preferences, rights and qualifications, limitations and
restrictions similar to the shares of preferred stock being converted.
(2) Represents the conversion of TCI's investment in Liberty common stock
into an investment in TCI/Liberty common stock and the conversion of TCI's
investment in Liberty preferred stock into an investment in TCI/Liberty
preferred stock having an equivalent value. Such amount is reflected as a
reduction of stockholders' equity due to its related party nature. Such
conversion of shares is reflected at the carryover basis of TCI's investment in
Liberty.
(3) Reflects the reclassification to "Investment in TCI/Liberty" of
79,335,038 shares of TCI Class A common stock held by subsidiaries of TCI
assumed to be replaced with TCI/Liberty common stock of the corresponding class.
(4) Reflects the elimination of TCI's share of Liberty's historical
earnings. See note (2) above.
(5) Reflects the income tax effect of the pro forma adjustments.
(6) Reflects the elimination of the preferred stock dividend requirement on
TCI preferred stock converted into common stock of TCI during the three months
ended March 31, 1994.
F-6
<PAGE> 124
LIBERTY MEDIA CORPORATION
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
The following unaudited condensed pro forma balance sheet of Liberty, as of
March 31, 1994, assumes Liberty had changed its accounting for its investment in
QVC, Inc. ("QVC") to the cost method and that the sale by Liberty of its 50%
partnership interest in American Movie Classics Company ("AMC") had occurred as
of such date. Additionally, such balance sheet also assumes that the Mergers,
whereby TCI and Liberty will each become wholly-owned subsidiaries of
TCI/Liberty, had occurred as of such date.
In addition, unaudited condensed pro forma combined statements of
operations of Liberty for the three months ended March 31, 1994 and for the year
ended December 31, 1993 are included which assume the following had occurred
prior to January 1, 1993:
(a) the change in accounting for Liberty's investment in QVC to the
cost method,
(b) the sale by Liberty of its 50% partnership interest in AMC,
(c) the transactions contemplated by the Recapitalization Agreement,
as defined in note 11, had been completed,
(d) the acquisition of 20 million shares of Class B common stock of
Home Shopping Network, Inc. ("HSN"),
(e) the Tender, as defined in note 12,
(f) the acquisition of all general and limited partnership interests
in Mile Hi Cablevision Associates, Ltd. ("Mile Hi") as described in note
13,
(g) the conversion of all the outstanding shares (10,974 shares) of
Liberty's Class A Convertible Preferred Stock ("Class A Preferred Stock")
into 4,405,678 shares of Liberty Class A common stock and 55,070 shares of
Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
("Class E Preferred Stock"), and
(h) the Mergers.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the foregoing events had
actually occurred prior to January 1, 1993. These condensed pro forma combined
financial statements of Liberty should be read in conjunction with the condensed
unaudited pro forma financial statements and related notes thereto of TCI and
TCI/Liberty included elsewhere herein and the respective historical financial
statements and the related notes thereto of Liberty and TCI that are
incorporated by reference into the Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
The pro forma financial statements of TCI/Liberty represent a combination of the
separate pro forma statements of TCI and Liberty in giving effect to the
proposed Mergers.
F-7
<PAGE> 125
LIBERTY MEDIA CORPORATION
CONDENSED PRO FORMA BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1994
--------------------------------------------------
LIBERTY PRO FORMA
HISTORICAL ADJUSTMENTS(1)(2)(4) PRO FORMA
---------- -------------------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash, receivables, inventories, prepaids and
other current assets, net..................... $ 296,016 175,000 (3) 471,016
Investment in and advances to affiliates and
others........................................ 552,326 6,819 (3) 766,018
(104,011)(4)
310,884 (5)
Property and equipment, net of accumulated
depreciation.................................. 251,241 -- 251,241
Franchise costs, intangibles and other assets,
net of amortization........................... 417,027 -- 417,027
---------- ---------- ----------
$1,516,610 388,692 1,905,302
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accruals........................... $ 296,607 50,000 (3) 346,607
Debt............................................ 446,201 -- 446,201
Deferred income taxes........................... 33,248 115,027 (5) 168,969
Other liabilities............................... 2,693 20,694 (3) 2,693
---------- ---------- ----------
Total liabilities.......................... 778,749 185,721 964,470
---------- ---------- ----------
Minority interests.............................. 182,408 -- 182,408
Preferred stock subject to mandatory
redemption.................................... 158,527 (158,527)(6) --
Common stockholders' equity:
Class E Preferred Stock....................... 17 (17)(6) --
Class A common stock.......................... 87,515 -- 87,515
Class B common stock.......................... 43,339 -- 43,339
Additional paid-in capital.................... 228,593 158,544 (6) 387,137
Unrealized holding gains for
available-for-sale securities.............. 44,392 195,857 (5) 240,249
Retained earnings............................. 7,839 111,125 (3) 118,964
Note receivable from related party............ (14,769) -- (14,769)
---------- ---------- ----------
396,926 465,509 862,435
---------- ---------- ----------
Investment in TCI/Liberty....................... -- (104,011)(4) (104,011)
---------- ---------- ----------
$1,516,610 388,692 1,905,302
========== ========== ==========
See accompanying notes to unaudited condensed pro forma combined financial statements.
</TABLE>
F-8
<PAGE> 126
LIBERTY MEDIA CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1994
--------------------------------------
PRO FORMA
LIBERTY ADJUSTMENTS PRO FORMA
HISTORICAL (1)(2)(4) COMBINED
---------- ----------- ---------
(AMOUNTS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue.................................................... $ 335,080 -- 335,080
Operating, selling, general and administrative expenses.... (295,151) -- (295,151)
Depreciation and amortization.............................. (12,775) -- (12,775)
---------- ----------- ---------
Operating income...................................... 27,154 -- 27,154
Interest expense........................................... (9,090) -- (9,090)
Dividend and interest income............................... 6,213 -- 6,213
Share of earnings of affiliates, net....................... 9,137 (1,776)(7) 3,032
(4,329)(8)
Minority interests......................................... (4,033) -- (4,033)
Provision for impairment of investment..................... (2,233) -- (2,233)
Other, net................................................. 61 -- 61
---------- ----------- ---------
Earnings before income taxes.......................... 27,209 (6,105) 21,104
Income tax expense......................................... (13,567) 2,258(9) (11,309)
---------- ----------- ---------
Net earnings.......................................... 13,642 (3,847) 9,795
Dividend requirement on redeemable preferred stocks........ (5,803) 5,803(10) --
---------- ----------- ---------
Net earnings attributable to common shareholders...... $ 7,839 1,956 9,795
========= ========= ========
Primary and fully diluted earnings per common and common
equivalent share......................................... $ 0.06
=========
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
F-9
<PAGE> 127
LIBERTY MEDIA CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------------------------------------------------------------
PRO FORMA
LIBERTY EFFECT OF RECAP- HSN MILE HI ADJUSTMENTS PRO FORMA
HISTORICAL ITALIZATION(11) HISTORICAL(12) HISTORICAL(13) (1)(2)(4)(12)(13) COMBINED
----------- ---------------- -------------- -------------- ----------------- ----------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue..................... $ 1,153,256 -- 103,640 7,568 -- 1,264,464
Operating, selling, general
and administrative
expenses.................. (1,104,890) -- (103,718) (4,989) -- (1,213,597)
Depreciation and
amortization.............. (49,269) -- (2,579) (1,479) (5,358)(14) (58,685)
----------- ------ ---------- ------- -------- ----------
Operating income (loss)... (903) -- (2,657) 1,100 (5,358) (7,818)
Interest expense............ (31,080) -- (2,146) (2,180) (7,702)(15) (40,928)
2,180 (16)
Dividend and interest
income.................... 23,549 -- 1,633 6 -- 25,188
Gain on sale of
investment................ 31,972 -- -- -- -- 31,972
Loss on transactions with
TCI....................... (30,296) -- -- -- -- (30,296)
Share of earnings of
affiliates,
net....................... 34,044 -- -- -- (13,978)(7) 9,133
(11,313)(8)
380 (17)
Minority interests.......... 289 -- -- -- 57 (18) 3,884
170 (19)
3,368 (20)
Litigation settlements...... (7,475) -- -- -- -- (7,475)
Other, net.................. (1,592) -- (847) -- -- (2,439)
----------- ------ ---------- ------- -------- ----------
Earnings (loss) before
income taxes and
extraordinary item...... 18,508 -- (4,017) (1,074) (32,196) (18,779)
Income tax expense.......... (11,522) -- (1,741) -- 9,063 (9) (4,200)
----------- ------ ---------- ------- -------- ----------
Earnings (loss) before
extraordinary item...... 6,986 -- (5,758) (1,074) (23,133) (22,979)
Extraordinary item-loss on
early extinguishment of
debt, net of taxes........ (2,191) -- (5,051) -- -- (7,242)
----------- ------ ---------- ------- -------- ----------
Net earnings (loss)....... 4,795 -- (10,809) (1,074) (23,133) (30,221)
Dividend requirement on
redeemable preferred
stocks.................... (31,972) 9,179 -- -- 23,110 (10) --
(317)(21)
----------- ------ ---------- ------- -------- ----------
Net earnings (loss)
attributable to common
shareholders............ $ (27,177) 9,179 (10,809) (1,074) (340) (30,221)
============ ====== ========== ======= ======== ==========
Net loss attributable to
common shareholders before
extraordinary item........ $ (0.19)
Extraordinary item, net..... (0.02)
-----------
Loss per common share....... $ (0.21)
============
See accompanying notes to unaudited condensed pro forma combined financial statements.
</TABLE>
F-10
<PAGE> 128
LIBERTY MEDIA CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
(1) On September 16, 1993, Liberty announced that one of its subsidiaries
received notice from Rainbow Program Enterprises that Rainbow Program
Enterprises had elected to purchase Liberty's 50% partnership interest in AMC
under the terms of a buy/sell provision contained in the AMC partnership
agreement. A subsidiary of Liberty had initiated the buy/sell procedure on
August 1, 1993. Liberty expects to receive net pre-tax cash proceeds of
approximately $170 million from the sale and an additional $5 million from a
buy-out of Liberty's consulting agreement with AMC.
(2) On November 11, 1993, Liberty entered into an agreement with the staff
of the Federal Trade Commission pursuant to which Liberty agreed to divest all
of its equity interests in QVC during an 18-month time period if QVC was
successful in its offer to buy Paramount Communications, Inc. ("Paramount") and
not to vote or otherwise exercise or influence control over QVC until such time
as QVC withdrew its offer for Paramount. Simultaneously, Liberty agreed to
withdraw from a stockholders agreement pursuant to which Liberty and certain
other stockholders exercised control over QVC (the "Stockholders' Agreement").
On February 15, 1994, QVC terminated its offer for Paramount. Upon termination
of such offer, Liberty had the right to be reinstated as a party to the
Stockholders' Agreement so long as such option was exercised within 90 days
after such termination.
On November 16, 1993, Liberty sold 1,690,041 shares of common stock of QVC
to Comcast Corporation ("Comcast") for aggregate consideration of approximately
$31,461,000. The sale to Comcast reduced Liberty's interest in QVC common stock
(on a fully diluted basis) from 21.6% to 18.5%. Liberty continued to account for
its investment in QVC under the equity method, although it no longer exercised
significant control over such affiliate, due to the pending determination of
whether Liberty would rejoin the control group under the Stockholders'
Agreement. As a result of the election on May 13, 1994 by Liberty to forego the
exercise of its option to be reinstated as a party to the Stockholders'
Agreement, Liberty will now account for its investment in QVC under the cost
method.
(3) Represents assumed cash received from the sale of the 50% partnership
interest in AMC by Liberty, pursuant to the terms of the buy/sell provision
contained in the AMC partnership agreement (see note 1), and the corresponding
increase in investment in affiliates, payables and accruals, and common
stockholders' equity. Such increase in investment in affiliates is due to a
negative balance in Liberty's carrying value due to distributions in excess of
Liberty's basis in such investment. The increase in payables and accruals
represents the estimated current income taxes payable on the sale. Increase in
deferred income taxes represents the reversal of the temporary difference
resulting from basis for income tax purposes in excess of basis for financial
statement purposes. The increase in common stockholders' equity is due to the
difference between Liberty's carrying value of such investment and the purchase
price of the same reduced by the estimated income tax effect. Such assumed gain
($181,819,000) is not reflected in the pro forma combined statement of
operations due to its non-recurring nature.
(4) Pursuant to the Merger Agreement, the Mergers will be structured as a
tax free exchange whereby the common stock of TCI and Liberty and the preferred
stock of Liberty would be exchanged for like shares of TCI/Liberty. The Merger
Agreement provides that each share of TCI's and Liberty's common stock
(including shares held by TCI's and Liberty's subsidiaries) would be converted
into one share and 0.975 of a share, respectively, of the corresponding class of
TCI/Liberty's common stock. Any shares of Liberty preferred stock held by TCI or
its subsidiaries shall be converted into shares of a class or series of
TCI/Liberty preferred stock having an equivalent value. Shares of preferred
stock of Liberty not owned by TCI, Liberty or their respective subsidiaries
would be converted into shares of a preferred stock of TCI/Liberty having
designations, preferences, rights and qualifications, limitations and
restrictions similar to the shares of preferred stock being converted.
Adjustment represents the conversion of Liberty's investment in TCI common stock
into an investment in TCI/Liberty common stock. Such amount is reflected as a
reduction of
F-11
<PAGE> 129
LIBERTY MEDIA CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
stockholders' equity due to its related party nature. Such conversion of shares
is reflected at the carryover basis of Liberty's investment in TCI.
(5) Represents the recognition of unrealized appreciation, net of taxes,
for Liberty's investment in QVC (an investment in equity securities determined
to be available-for-sale). See note 2.
(6) Reflects the elimination of the historical preferred stock of Liberty
held by TCI or its subsidiaries. Such historical preferred stock of Liberty will
be converted into TCI/Liberty preferred stock having an equivalent value. See
note 4.
(7) Elimination of share of earnings of QVC.
(8) Elimination of share of earnings of AMC.
(9) Estimated income tax effect of the pro forma adjustments.
(10) Reflects the elimination of the preferred stock dividend requirement
on Liberty preferred stock assumed to be converted into preferred stock of
TCI/Liberty. See note 4.
(11) On June 3, 1993, Liberty completed the transaction contemplated by the
Recapitalization Agreement entered into on March 26, 1993 with certain
subsidiaries of TCI (such transaction is included in the Liberty historical
column of the pro forma balance sheet). Pursuant to the Recapitalization
Agreement, Liberty purchased 100% of the outstanding shares of its Class C
Redeemable, Exchangeable Preferred Stock (the "Class C Preferred Stock") and
927,900 shares of its Class A common stock. Liberty paid a purchase price of
approximately $175 million for the Class C Preferred stock and approximately $19
million for the Class A common stock. The aggregate purchase price of
approximately $194 million was satisfied by delivery of $12 million in cash and
four promissory notes totaling $182 million. In the accompanying unaudited
condensed pro forma statements of operations, the preferred stock dividend
requirement on such purchased preferred stock has been eliminated.
(12) On February 11, 1993, Liberty acquired from RMS Limited Partnership
20,000,000 shares of Class B common stock (the "Class B Stock") of HSN for an
aggregate purchase price of $58 million in cash and 8,000,000 shares of the
Class A common stock of Liberty. Additionally, on June 1, 1993, Liberty
completed the purchase of approximately 16 million shares of the common stock
("Common Stock") of HSN at a price of $7.00 per share (the "Tender"). In
addition, Liberty had acquired Common Stock of HSN previous to the acquisition
of the Class B Stock (such transactions are included in the Liberty historical
column of the pro forma balance sheet).
(13) On March 15, 1993, Mile Hi Cable Partners, L.P. ("New Mile Hi")
completed the acquisition (the "Acquisition") of all the general and limited
partnership interests in Mile Hi, the owner of the cable television system
serving Denver, Colorado (such acquisition is included in the Liberty historical
column of the pro forma balance sheet). New Mile Hi is a limited partnership
formed among Community Cable Television ("CCT") (78% limited partnership
interest), Daniels Communications, Inc. ("DCI") (1% limited partnership
interest) and P & B Johnson Corp. (21% general partnership interest), a
corporation controlled by Robert L. Johnson, a member of the Board of Directors
of Liberty. CCT is a general partnership in which a wholly-owned subsidiary of
Liberty is a 50.001% partner and a wholly-owned subsidiary of TCI is a 49.999%
partner. New Mile Hi is a consolidated subsidiary of Liberty for financial
reporting purposes.
Prior to the Acquisition, Liberty, through a wholly-owned subsidiary,
indirectly owned a 32.175% interest in Mile Hi through its ownership of a
limited partnership interest in Daniels & Associates Partners Limited ("DAPL"),
one of Mile Hi's general partners.
F-12
<PAGE> 130
LIBERTY MEDIA CORPORATION
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
DAPL was liquidated on March 12, 1993, at which time a subsidiary of
Liberty (and partner in DAPL) received a liquidating distribution consisting of
a portion of DAPL's partnership interest in Mile Hi representing the 32.175%
interest in Mile Hi and a loan receivable of approximately $50 million (the
"Mile Hi Note").
Of the $110 million in cash required by New Mile Hi to complete the
transaction, $105 million was loaned to New Mile Hi by CCT and $5 million was
provided by Mr. Johnson's corporation as a capital contribution to New Mile Hi.
Of the $5 million contributed by Mr. Johnson's corporation, approximately $4
million was provided by CCT through loans to Mr. Johnson and trusts for the
benefit of his children. CCT funded its loans to New Mile Hi and the Johnson
interests by drawing down $93 million under its revolving credit facility and by
borrowing $16 million from TCI in the form of a subordinated note.
(14) Depreciation and amortization of the purchase price of Mile Hi and HSN
allocated to its tangible and intangible assets are based upon weighted average
lives of 12 1/2 years for tangible assets, 30 years for intangible assets and 40
years for franchise costs.
(15) Represents interest on borrowings to finance the cash portion of the
consideration for the acquisition of the partnership interests in Mile Hi and
the interest on the promissory notes delivered to TCI pursuant to the
Recapitalization Agreement (see note 11). Interest on the borrowings for the
Mile Hi acquisition is calculated at the weighted average rate of 6% in effect
for the year ended December 31, 1993.
(16) Reflects the reduction in interest expense arising from the assumed
repayment of Mile Hi debt at January 1, 1993 and the elimination of the
intercompany interest expense recorded by Mile Hi on its debt to CCT.
(17) Elimination of share of losses of Mile Hi through March 15, 1993.
(18) Represents the interest income on the loan to a minority partner (see
note 13).
(19) Represents the minority partners' 22% interest in the pro forma losses
of Mile Hi adjusted for the effects of the acquisition (see note 13).
(20) Represents the minority shareholders' 58.5% interest in the pro forma
losses of HSN (see note 12).
(21) Represents the preferred stock dividend requirement on the additional
shares of Class E Preferred Stock related to the conversion of all of the
outstanding shares (10,974 shares) of Liberty's Class A Preferred Stock into
4,405,678 shares of Liberty Class A common stock and 55,070 shares of Class E
Preferred Stock.
F-13
<PAGE> 131
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TCI/Liberty Holding Company
We have audited the accompanying balance sheet of TCI/Liberty Holding
Company as of March 31, 1994. The financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of TCI/Liberty Holding Company as of
March 31, 1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK
Denver, Colorado
April 1, 1994
F-14
<PAGE> 132
TCI/LIBERTY HOLDING COMPANY
BALANCE SHEET
MARCH 31, 1994
ASSET
<TABLE>
<S> <C>
Cash................................................................................... $20
===
</TABLE>
STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Common Stock, par value $1.00 per share, 1,000 shares authorized,
20 shares issued and outstanding..................................................... $20
===
</TABLE>
See accompanying note to balance sheet.
F-15
<PAGE> 133
TCI/LIBERTY HOLDING COMPANY
NOTE TO BALANCE SHEET
MARCH 31, 1994
NOTE -- FORMATION AND PROPOSED TRANSACTION.
TCI/Liberty is a newly-formed Delaware corporation. On the terms and
conditions set forth in the accompanying Proxy Statement/Prospectus, the holders
of TCI common stock and Liberty common stock will vote to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of January 27,
1994, amended as of March 30, 1994, among Tele-Communications, Inc. ("TCI"),
Liberty Media Corporation ("Liberty"), TCI/Liberty, TCI Mergerco, Inc. and
Liberty Mergerco, Inc., which provides for the business combination of TCI and
Liberty. As a result of the business combination (the "Mergers"), TCI and
Liberty will each become a wholly owned subsidiary of TCI/Liberty (which will be
renamed Tele-Communications, Inc.).
TCI/Liberty is owned fifty percent by TCI and fifty percent by Liberty.
Upon consummation of the Mergers, the outstanding shares of TCI/Liberty held by
TCI and Liberty will be retired. Pursuant to the Merger Agreement, when the
Mergers are completed, (i) each outstanding share (other than any shares held by
TCI in its treasury, but including shares held by subsidiaries of TCI or by
Liberty) of TCI Class A common stock and Class B common stock will be converted
into the right to receive one share of TCI/Liberty Class A common stock and
Liberty Class B common stock, respectively, (ii) each outstanding share (other
than any shares held by Liberty in its treasury, but including shares held by
subsidiaries of TCI) of Liberty Class A common stock and Class B common stock
will be converted into the right to receive 0.975 of a share of TCI/Liberty
Class A common stock and Class B common stock, respectively. Fractional shares
of TCI/Liberty's common stock will not be issued; holders of Liberty Class A
common stock or Class B common stock otherwise entitled to a fractional share
will be paid an amount in cash equal to the same fraction of the fair market
value of a whole share of Liberty Class A common stock or Class B common stock,
as the case may be, determined as set forth in the Merger Agreement, (iii) each
outstanding share of Liberty Class B Redeemable Exchangeable Preferred Stock and
Liberty Class D Redeemable Preferred Stock (all of which are owned by an
indirect, wholly-owned subsidiary of TCI) will be converted into the right to
receive that number of shares (and/or fraction of a share) of TCI/Liberty's
Class A Preferred Stock having a substantially equivalent value (all of which
will be owned by an indirect, wholly-owned subsidiary of TCI/Liberty) and (iv)
each outstanding share of Liberty Class E, 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock (the "Liberty Class E Preferred Stock") (including shares
held by a subsidiary of TCI) will be converted into the right to receive one
share of TCI/Liberty's Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock (the "TCI/Liberty Class B Preferred Stock"), having
designations, preferences, rights and qualifications, limitations and
restrictions that are substantially identical to those of the Liberty Class E
Preferred Stock, except that the holders of TCI/Liberty Class B Preferred Stock
will have one vote per share, voting together with the holders of TCI/Liberty's
common stock and any other class or series of voting preferred stock of
TCI/Liberty, in the general election of directors.
TCI/Liberty has not conducted any significant activities to date other than
those incident to its formation, its execution of the Merger Agreement and its
participation in the preparation of the Proxy Statement/Prospectus. As a result
of the Mergers, TCI and Liberty will become wholly owned subsidiaries of
TCI/Liberty and, as a result, the business of TCI/Liberty, through its wholly
owned subsidiaries, will become the business currently conducted by TCI and
Liberty. Management of TCI and Liberty currently anticipate that the business of
TCI/Liberty will be organized into four separate units: one unit will build,
operate and market TCI/Liberty's domestic cable and other domestic
telecommunications distribution businesses; a second unit will direct
TCI/Liberty's development, acquisition and investment in television programming
and other entertainment software in the United States; a third unit will be
responsible for TCI/Liberty's television programming, cable and
telecommunications operations in foreign countries; and the fourth unit will
seek to develop and invest in new television and telecommunications technology.
Each unit will report directly to the management of TCI/Liberty.
F-16
<PAGE> 134
TCI/LIBERTY HOLDING COMPANY
NOTE TO BALANCE SHEET -- (CONTINUED)
MARCH 31, 1994
Subject to approval by the TCI and Liberty common stockholders, TCI/Liberty
will adopt the TCI/Liberty Holding Company 1994 Stock Incentive Plan (the
"TCI/Liberty Stock Incentive Plan"), on the terms set forth in the Proxy
Statement/Prospectus.
Stock options or stock appreciation rights previously granted by TCI or
Liberty will be exchanged for stock options or stock appreciation rights granted
under the TCI/Liberty Stock Incentive Plan, which stock options or stock
appreciation rights will contain terms and conditions that are not less
favorable to the holders thereof than those assumed.
The TCI/Liberty Stock Incentive Plan provides for awards to be made in
respect of a maximum of 16 million shares of TCI/Liberty Class A common stock
(subject to certain adjustments described below). Awards may be made as grants
of stock options, stock appreciation rights ("SARs"), restricted shares, stock
units, or any combination thereof (collectively, "Awards"). Shares in respect of
which Awards are made may be either authorized but unissued shares of
TCI/Liberty Class A common stock or issued shares reacquired by TCI/Liberty and
held in treasury, or both. Shares of TCI/Liberty Class A common stock that are
subject to Awards that expire, terminate or are annulled for any reason without
having been exercised (or deemed exercised, by virtue of the exercise of a
related SAR), or are forfeited prior to becoming vested, or are subject to
Awards of SARs that are exercised for cash, will return to the pool of such
shares available for grant under the TCI/Liberty Stock Incentive Plan.
TCI has employment agreements with certain of its executive officers.
Liberty has an employment agreement with Dr. Malone. TCI/Liberty has agreed to
assume the employment agreements of TCI and Liberty with respect to such
officers who will be executive officers of TCI/Liberty.
F-17
<PAGE> 135
TCI/LIBERTY AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
The following unaudited condensed pro forma combined balance sheet of
TCI/Liberty, dated as of March 31, 1994, assumes that the proposed Mergers,
whereby TCI and Liberty will each become wholly-owned subsidiaries of
TCI/Liberty, had occurred as of such date.
In addition, the unaudited condensed pro forma combined statements of
operations of TCI/Liberty for the three months ended March 31, 1994 and the year
ended December 31, 1993 assume that the proposed Mergers had occurred prior to
January 1, 1993.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the Mergers had occurred
as of January 1, 1993. These condensed pro forma combined financial statements
of TCI/Liberty should be read in conjunction with the condensed unaudited pro
forma financial statements of TCI and Liberty and the related notes thereto
included elsewhere herein and the respective historical financial statements and
the related notes thereto of TCI and Liberty that are incorporated by reference
into the Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "AVAILABLE INFORMATION." The pro forma financial statements of
TCI/Liberty represent a combination of the separate pro forma statements of TCI
and Liberty in giving effect to the proposed Mergers.
F-18
<PAGE> 136
TCI/LIBERTY AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1994
----------------------------------------------------------
TCI LIBERTY PRO FORMA TCI/LIBERTY
PRO FORMA PRO FORMA ADJUSTMENTS(1) PRO FORMA
--------- --------- -------------- -----------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash, receivables and other current
assets.................................... $ 285 471 -- 756
Investment in and advances to Liberty....... 300 -- (209)(2) --
(91)(3)
Investment in other affiliates and Turner
Broadcasting System, Inc., and related
receivables............................... 1,479 766 -- 2,245
Property and equipment, net of accumulated
depreciation.............................. 5,026 251 -- 5,277
Franchise costs, intangibles and other
assets, net of amortization............... 9,761 417 -- 10,178
------- ------- -------- --------
$16,851 1,905 (300) 18,456
======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payables and accruals....................... $ 843 324 -- 1,167
Due to TCI.................................. -- 209 (209)(2) --
Debt........................................ 10,008 260 -- 10,268
Deferred income taxes....................... 3,456 169 (5)(5) 3,620
Other liabilities........................... 97 3 -- 100
------- ------- --------- -------
Total liabilities...................... 14,404 965 (214) 15,155
--------- ------- --------- -------
Minority interests.......................... 300 182 (91)(3) 391
Class A Preferred Stock..................... -- -- -- (4) --
Stockholders' equity:
Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock.... -- -- -- --
Class A common stock...................... 483 88 (2)(6) 569
Class B common stock...................... 47 43 (1)(6) 89
Additional paid-in capital................ 2,310 387 (110)(4) 2,595
5 (5)
3 (6)
Cumulative foreign currency translation
adjustment............................. (28) -- -- (28)
Unrealized holding gains for
available-for-sale securities.......... 191 240 -- 431
Retained earnings (deficit)............... (316) 119 -- (197)
Receivable from related party............. -- (15) -- (15)
Treasury stock............................ -- -- (534)(4) (534)
Investment in TCI/Liberty................. (540) (104) 644 (4) --
------- ------- -------- --------
2,147 758 5 2,910
------- ------- -------- --------
$16,851 1,905 (300) 18,456
======= ======= ======== ========
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
F-19
<PAGE> 137
TCI/LIBERTY AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1994
------------------------------------------------------
TCI LIBERTY PRO FORMA TCI/LIBERTY
PRO FORMA PRO FORMA ADJUSTMENTS(1) PRO FORMA
--------- --------- -------------- -----------
(AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue................................. $ 1,060 335 (15)(7) 1,380
Operating, selling, general and
administrative expenses and
compensation relating to stock
appreciation rights................... (591) (295) 15(7) (871)
Depreciation and amortization........... (235) (13) -- (248)
--------- --------- --- -----------
Operating income................... 234 27 -- 261
Interest expense........................ (178) (9) 6(8) (181)
Interest and dividend income............ 10 6 (6)(8) 10
Share of earnings (losses) of
affiliates, net....................... (9) 3 -- (6)
Loss on early extinguishment of debt.... (2) -- -- (2)
Other expense, net...................... (6) (6) -- (12)
--------- --------- --- -----------
Earnings before income taxes....... 49 21 -- 70
Income tax expense...................... (25) (11) -- (36)
--------- --------- --- -----------
Net earnings....................... 24 10 -- 34
Dividend requirement on redeemable
preferred stocks...................... -- -- (3)(9) (3)
--------- --------- --- -----------
Net earnings attributable to common
shareholders..................... $ 24 10 (3) 31
========= ========= ============== ===========
Primary and fully diluted earnings
attributable to common shareholders
per common and common equivalent
share................................. $ .05(11)
===========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
F-20
<PAGE> 138
TCI/LIBERTY AND SUBSIDIARIES
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1993
----------------------------------------------------
TCI LIBERTY PRO FORMA TCI/LIBERTY
PRO FORMA PRO FORMA ADJUSTMENTS(1) PRO FORMA
--------- --------- -------------- -----------
(AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue........................................... $ 4,153 1,264 (55)(7) 5,362
Operating, selling, general and administrative
expenses and compensation relating to stock
appreciation rights............................. (2,326) (1,213) 55(7) (3,484)
Depreciation and amortization..................... (911) (59) -- (970)
--------- --------- --- -----------
Operating income (loss)...................... 916 (8) -- 908
Interest expense.................................. (731) (41) 9(8) (763)
Interest and dividend income...................... 34 25 (9)(8) 50
Share of earnings (losses) of affiliates, net..... (76) 9 -- (67)
Gain on disposition............................... 42 32 -- 74
Loss on transactions with TCI..................... -- (30) -- (30)(10)
Loss on early extinguishment of debt.............. (17) (7) -- (24)
Other expense, net................................ (11) (6) -- (17)
--------- --------- --- -----------
Earnings (loss) before income taxes.......... 157 (26) -- 131
Income tax expense................................ (166) (4) -- (170)
--------- --------- --- -----------
Net loss..................................... (9) (30) -- (39)
Dividend requirement on redeemable preferred
stocks.......................................... -- -- (10)(9) (10)
--------- --------- --- -----------
Net loss attributable to common
shareholders............................... $ (9) (30) (10) (49)
======= ======= =========== =========
Loss per common share............................. $ (.09) (12)
=========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
F-21
<PAGE> 139
TCI/LIBERTY AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
(1) Pursuant to the Merger Agreement, the Mergers will be structured as a
tax free exchange whereby the common stock of TCI and Liberty and the preferred
stock of Liberty would be exchanged for like shares of TCI/Liberty. The Merger
Agreement provides that each share of TCI's and Liberty's common stock
(including shares held by TCI's and Liberty's subsidiaries) would be converted
into one share and 0.975 of a share, respectively, of the corresponding class of
TCI/Liberty's common stock. Any shares of Liberty preferred stock held by
subsidiaries of TCI or its subsidiaries shall be converted into shares of a
class or series of TCI/Liberty preferred stock having an equivalent value.
Shares of preferred stock of Liberty not owned by TCI or its subsidiaries would
be converted into shares of a preferred stock of TCI/Liberty having
designations, preferences, rights and qualifications, limitations and
restrictions similar to the shares of preferred stock being converted.
(2) Represents the elimination of intercompany indebtedness between TCI and
Liberty.
(3) Represents the elimination of TCI's minority interest in the equity of
a consolidated subsidiary of Liberty.
(4) Represents the reclassification to treasury stock of shares of
TCI/Liberty held by TCI, Liberty or their respective subsidiaries previously
reflected as "Investment in TCI/Liberty". All preferred stock of TCI/Liberty
held by TCI or its subsidiaries (also reflected in the TCI pro forma financial
information as "Investment in TCI/Liberty") has been eliminated in consolidation
with TCI/Liberty.
(5) Represents the elimination of temporary differences associated with
TCI's and Liberty's investments in TCI/Liberty preferred and common stock.
(6) Reflects the net conversion of TCI and Liberty common stock held other
than by TCI, Liberty or their subsidiaries, at the exchange ratios described in
note 1, into like shares of TCI/Liberty.
(7) Represents the elimination of intercompany revenue and operating
expenses between TCI and Liberty arising from the sale of certain cable
television programming to their respective cable television subscribers.
(8) Represents the elimination of interest on intercompany indebtedness
between TCI and Liberty.
(9) Represents the preferred stock dividend requirement on preferred stock
of TCI/Liberty other than preferred stock issued to TCI or its respective
subsidiaries.
(10) Amount not eliminated for pro forma purposes as a reserve for an
impairment would have been required (based upon fair market value of underlying
asset) equal to the loss recognized by Liberty.
(11) Reflects primary earnings per common and common equivalent share based
upon 610,025,737 weighted average shares. Such amount is calculated utilizing
491,948,769 weighted average shares of TCI at March 31, 1994 (such amount
representing TCI's weighted average shares, as disclosed in their historical
financial statements) reduced by 6,525,721 shares of TCI common stock previously
held by Liberty and 127,993,523 weighted averages shares of Liberty at March 31,
1994 (such amount representing Liberty's weighted average shares, as disclosed
in their historical financial statements, adjusted by 0.975 of a share) reduced
by 3,390,834 shares of Liberty common stock (as adjusted by 0.975 of a share)
previously held by TCI.
(12) Reflects primary earnings per common and common equivalent share based
upon 550,232,340 weighted average shares. Such amount is calculated utilizing
432,566,150 weighted average shares of TCI common stock at December 31, 1993
(such amount representing TCI's weighted average shares, as disclosed in their
historical financial statements) reduced by 6,525,721 shares of TCI common stock
previously held by
F-22
<PAGE> 140
TCI/LIBERTY AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
Liberty and 127,582,745 weighted average shares of Liberty common stock at
December 31, 1993 (such amount representing Liberty's weighted average shares,
as disclosed in their historical financial statements, shares of Liberty common
stock issued in the HSN merger and Liberty common stock repurchased from TCI in
1993, all of which have been adjusted by 0.975 of a share) reduced by 3,390,834
shares of Liberty common stock (as adjusted by 0.975 of a share) previously held
by TCI.
F-23
<PAGE> 141
APPENDIX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TELE-COMMUNICATIONS, INC.
LIBERTY MEDIA CORPORATION
TCI/LIBERTY HOLDING COMPANY
TCI MERGERCO, INC.
AND
LIBERTY MERGERCO, INC.
AS OF JANUARY 27, 1994
<PAGE> 142
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I ....................................................................... I-1
The Mergers..................................................................... I-1
1.1 The Mergers........................................................... I-1
1.2 Effective Time........................................................ I-1
1.3 Effect of the Mergers................................................. I-1
1.4 Certificate of Incorporation and By-laws of TCI/Liberty............... I-2
1.5 Certificates of Incorporation and By-laws of the Surviving
Corporations.......................................................... I-2
1.6 Directors and Officers of the Surviving Corporations.................. I-2
1.7 Closing............................................................... I-2
1.8 Definitions of "Subsidiary" and "affiliate"........................... I-3
ARTICLE II ....................................................................... I-3
Conversion and Exchange of Securities; Effect of Mergers on TCI
and Liberty Stock Plans....................................................... I-3
2.1 Conversion of Securities.............................................. I-3
2.2 TCI/Liberty Stock..................................................... I-5
2.3 Transfer Books........................................................ I-5
2.4 Definition of "fair market value"..................................... I-5
2.5 Dissenting Shares..................................................... I-6
2.6 Exchange of Shares.................................................... I-6
2.7 Stock Options, SARs and Benefit Plans................................. I-8
ARTICLE III ....................................................................... I-11
Certain Actions................................................................. I-11
3.1 TCI Stockholder Meeting............................................... I-11
3.2 Liberty Stockholder Meeting........................................... I-11
3.3 Proxy Statement and Registration Statement............................ I-11
3.4 Letters from Accountants.............................................. I-12
3.5 Release of Escrowed TCI Common Stock.................................. I-12
3.6 Identification of Affiliates.......................................... I-12
3.7 State Takeover Statutes............................................... I-12
3.8 Possible Restructuring................................................ I-12
3.9 Reasonable Efforts.................................................... I-13
3.10 Quotation on Nasdaq NMS................................................ I-13
3.11 Voting Agreement....................................................... I-14
3.12 Restrictions on Transfer............................................... I-14
3.13 Directors and Executive Officers of TCI/Liberty at the Effective
Time.................................................................. I-14
ARTICLE IV ....................................................................... I-14
Representations and Warranties of Liberty....................................... I-14
4.1 Organization and Qualification........................................ I-14
4.2 Authorization and Validity of Agreement............................... I-15
4.3 Capitalization........................................................ I-15
4.4 Reports and Financial Statements...................................... I-16
</TABLE>
i
<PAGE> 143
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.5 No Approvals or Notices Required; No Conflict with Instruments........ I-17
4.6 Absence of Certain Changes or Events.................................. I-18
4.7 Registration Statement; Proxy Statement............................... I-18
4.8 Legal Proceedings..................................................... I-19
4.9 Licenses; Compliance With Regulatory Requirements; Intangible
Property.............................................................. I-19
4.10 Brokers or Finders..................................................... I-20
4.11 Tax Matters............................................................ I-20
4.12 Employee Benefit Plans; ERISA.......................................... I-20
4.13 Fairness Opinion....................................................... I-23
4.14 Recommendation of Liberty Board........................................ I-23
4.15 Vote Required.......................................................... I-23
ARTICLE V ....................................................................... I-24
Representations and Warranties of TCI........................................... I-24
5.1 Organization.......................................................... I-24
5.2 Authorization and Validity of Agreement............................... I-24
5.3 Capitalization of TCI................................................. I-24
5.4 TCI Reports and Financial Statements.................................. I-25
5.5 No Approvals or Notices Required; No Conflict with Instruments........ I-26
5.6 Absence of Certain Changes or Events.................................. I-27
5.7 Registration Statement; Proxy Statement............................... I-27
5.8 Legal Proceedings..................................................... I-27
5.9 Licenses; Compliance with Regulatory Requirements; Intangible
Property.............................................................. I-28
5.10 Brokers or Finders..................................................... I-28
5.11 Tax Matters............................................................ I-28
5.12 Employee Benefit Plans; ERISA.......................................... I-29
5.13 Fairness Opinion....................................................... I-32
5.14 Recommendation of TCI Board............................................ I-32
5.15 Vote Required.......................................................... I-32
ARTICLE VI ....................................................................... I-32
Representations and Warranties of TCI/Liberty................................... I-32
6.1 Organization.......................................................... I-32
6.2 Authorization and Validity of Agreement............................... I-32
6.3 Newly Issued Shares................................................... I-32
6.4 Interim Operations of TCI/Liberty..................................... I-32
ARTICLE VII ....................................................................... I-32
Transactions Prior to Closing................................................... I-32
7.1 Access to Information Concerning Properties and Records............... I-32
7.2 Confidentiality....................................................... I-33
7.3 Public Announcements.................................................. I-33
7.4 Conduct of Business by Liberty and TCI Pending the Effective Time..... I-33
7.5 No Solicitation....................................................... I-35
7.6 Expenses.............................................................. I-35
</TABLE>
ii
<PAGE> 144
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.7 Notification of Certain Matters....................................... I-36
7.8 Defense of Litigation................................................. I-36
ARTICLE VIII ...................................................................... I-36
Conditions Precedent........................................................... I-36
8.1 Conditions Precedent to the Obligations of TCI and Liberty............ I-36
8.2 Conditions Precedent to the Obligations of TCI........................ I-37
8.3 Conditions Precedent to the Obligations of Liberty.................... I-39
ARTICLE IX ...................................................................... I-40
Termination.................................................................... I-40
9.1 Termination and Abandonment........................................... I-40
9.2 Effect of Termination................................................. I-40
ARTICLE X ...................................................................... I-41
Miscellaneous.................................................................. I-41
10.1 Nonsurvival of Representations, Warranties and Agreements............. I-41
10.2 Indemnification....................................................... I-41
10.3 Notices............................................................... I-42
10.4 Entire Agreement...................................................... I-42
10.5 Assignment; Binding Effect; Benefit................................... I-42
10.6 Amendment............................................................. I-43
10.7 Extension; Waiver..................................................... I-43
10.8 Interpretation........................................................ I-43
10.9 Knowledge as to Equity Affiliates..................................... I-43
10.10 Counterparts.......................................................... I-43
10.11 Applicable Law........................................................ I-43
10.12 No Remedy in Certain Circumstances.................................... I-44
10.13 Limited Liability..................................................... I-44
Exhibit A -- Certificate of Incorporation of TCI/Liberty
Exhibit B -- By-laws of TCI/Liberty
Exhibit C -- Certificate of Incorporation of TCI Surviving Corporation
Exhibit D -- Certificate of Incorporation of Liberty Surviving Corporation
Exhibit E -- By-laws of TCI Surviving Corporation
Exhibit F -- By-laws of Liberty Surviving Corporation
Exhibit G -- Other Employee Benefit Plans
Exhibit H -- Rule 145 Affiliates
Exhibit I -- Directors and Executive Officers of TCI/Liberty
Annex 1 -- Opinion of Counsel to be delivered to TCI
Annex 2 -- Opinion of Counsel to be delivered to Liberty
</TABLE>
iii
<PAGE> 145
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 27, 1994, by and among
TELE-COMMUNICATIONS, INC., a Delaware corporation ("TCI"), LIBERTY MEDIA
CORPORATION, a Delaware corporation ("Liberty"), TCI/LIBERTY HOLDING COMPANY,
a Delaware corporation jointly owned by TCI and Liberty ("TCI/Liberty"), TCI
MERGERCO, INC., a Delaware corporation and a wholly owned subsidiary of
TCI/Liberty ("TCI Mergerco"), and LIBERTY MERGERCO, INC., a Delaware corporation
and a wholly owned subsidiary of TCI/Liberty ("Liberty Mergerco").
WHEREAS, the respective Boards of Directors of TCI and Liberty have
approved, and deem it in the best interests of their respective stockholders to
consummate, the business combination transaction provided for herein, in which
TCI Mergerco would merge with and into TCI (the "TCI Merger"), Liberty Mergerco
would merge with and into Liberty (the "Liberty Merger"; and, together with the
TCI Merger, the "Mergers"), and the surviving corporations of the Mergers would
become wholly-owned subsidiaries of TCI/Liberty;
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Mergers and also to prescribe certain
conditions to the Mergers; and
WHEREAS, for Federal income tax purposes it is intended that each of the
Mergers shall be tax free to the parties and to the stockholders of each of TCI
and Liberty.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGERS
1.1 The Mergers. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.2), (i) TCI Mergerco shall be
merged with and into TCI in accordance with the provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), and the separate
corporate existence of TCI Mergerco shall cease and TCI shall continue as the
surviving corporation (hereinafter sometimes referred to as the "TCI Surviving
Corporation") under the laws of the State of Delaware under the name "TCI
Communications, Inc." and (ii) Liberty Mergerco shall be merged with and into
Liberty in accordance with the provisions of the DGCL, and the separate
corporate existence of Liberty Mergerco shall cease and Liberty shall continue
as the surviving corporation (hereinafter sometimes referred to as the "Liberty
Surviving Corporation") under the laws of the State of Delaware under the name
"Liberty Media Corporation." (TCI and TCI Mergerco are sometimes hereinafter
referred to collectively as the "TCI Constituent Corporations" and Liberty and
Liberty Mergerco are sometimes hereinafter referred to collectively as the
"Liberty Constituent Corporations.") The TCI Surviving Corporation and the
Liberty Surviving Corporation are sometimes hereinafter referred to collectively
as the "Surviving Corporations."
1.2 Effective Time. Subject to the terms and provisions of this
Agreement, there shall be filed with the Delaware Secretary of State, as soon as
practicable on or after the Closing Date (as defined in Section 1.7), (i) a
certificate of merger with respect to the TCI Merger (the "TCI Certificate of
Merger"), in such form as is required by, and executed in accordance with, the
applicable provisions of the DGCL and (ii) a certificate of merger with respect
to the Liberty Merger (the "Liberty Certificate of Merger"), in such form as is
required by, and executed in accordance with, the applicable provisions of the
DGCL. The Mergers shall become effective simultaneously at the time of filing of
the TCI Certificate of Merger and the Liberty Certificate of Merger with the
Delaware Secretary of State or at such other time as may be provided in such
certificates of merger. The time at which the Mergers shall become effective is
referred to herein as the "Effective Time."
1.3 Effect of the Mergers. The Mergers shall have the effects set forth
in Sections 259, 260 and 261 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time (i) all
I-1
<PAGE> 146
the properties, rights, privileges, powers and franchises of the TCI Constituent
Corporations shall vest in the TCI Surviving Corporation, and all debts,
liabilities and duties of the TCI Constituent Corporations shall become the
debts, liabilities and duties of the TCI Surviving Corporation and (ii) all the
properties, rights, privileges, powers and franchises of the Liberty Constituent
Corporations shall vest in the Liberty Surviving Corporation, and all debts,
liabilities and duties of the Liberty Constituent Corporations shall become the
debts, liabilities and duties of the Liberty Surviving Corporation. If, at any
time after the Effective Time, either Surviving Corporation 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 such Surviving Corporation its right, title or interest
in, to or under any of the rights, properties or assets of either TCI or TCI
Mergerco, or Liberty or Liberty Mergerco, as the case may be, or otherwise to
carry out the intent and purposes of this Agreement, the officers and directors
of such Surviving Corporation will be authorized to execute and deliver, in the
name and on behalf of each of TCI and TCI Mergerco, or Liberty and Liberty
Mergerco, as the case may be, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of TCI and TCI
Mergerco, or Liberty and Liberty Mergerco, as the case may be, all such other
actions and things as may 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 such Surviving Corporation or otherwise to carry out the intent and
purposes of this Agreement.
1.4 Certificate of Incorporation and By-laws of TCI/Liberty. From and
after the Effective Time, (a) the Certificate of Incorporation of TCI/Liberty
shall read in its entirety in the form set forth as Exhibit A and (b) the
By-laws of TCI/Liberty shall read in its entirety in the form set forth as
Exhibit B, in each case until thereafter amended as provided by law.
1.5 Certificates of Incorporation and By-laws of the Surviving
Corporations.
(a) The Certificate of Incorporation of TCI, as in effect immediately prior
to the Effective Time, shall be amended, by virtue of the TCI Merger, so as to
read in its entirety in the form set forth as Exhibit C hereto, and as so
amended shall, from and after the Effective Time, be the Certificate of
Incorporation of the TCI Surviving Corporation until thereafter further amended
as provided by law. The Certificate of Incorporation of Liberty, as in effect
immediately prior to the Effective Time, shall be amended, by virtue of the
Liberty Merger, so as to read in its entirety in the form set forth as Exhibit D
hereto, and as so amended shall, from and after the Effective Time, be the
Certificate of Incorporation of the Liberty Surviving Corporation until
thereafter further amended as provided by law.
(b) The By-laws of TCI, as in effect immediately prior to the Effective
Time, shall be amended, immediately following the Effective Time, so as to read
in its entirety in the form set forth as Exhibit E hereto, and as so amended
shall be the By-laws of the TCI Surviving Corporation until thereafter further
amended as provided by law. The By-laws of Liberty, as in effect immediately
prior to the Effective Time, shall be amended immediately following the
Effective Time, so as to read in its entirety in the form set forth as Exhibit F
hereto, and as so amended shall be the By-laws of the Liberty Surviving
Corporation until thereafter further amended as provided by law.
1.6 Directors and Officers of the Surviving Corporations. (a) The initial
directors of TCI Surviving Corporation and Liberty Surviving Corporation shall
be the respective persons that are directors of TCI and Liberty, respectively,
at the Effective Time, and all such directors will continue to hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the respective Certificates of
Incorporation and By-laws of the Surviving Corporations, or as otherwise
provided by applicable law. The initial officers of TCI Surviving Corporation
and Liberty Surviving Corporation shall be the respective persons that are
officers of TCI and Liberty, respectively, at the Effective Time and all such
officers will continue to hold office from the Effective Time until their
respective successors are duly appointed and qualify in the manner provided in
the respective By-laws of the Surviving Corporations, or as otherwise provided
by applicable law.
1.7 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Baker & Botts,
L.L.P., 885 Third Avenue, New York, New York, at 10:00 a.m., local time, on a
date to be selected by the parties, which shall be no later than the second
business day after
I-2
<PAGE> 147
the day on which the last of the conditions set forth in Article VIII (other
than any such conditions which, by their terms, are not capable of being
satisfied until the Closing Date) is satisfied or, where permissible, waived,
unless another place, date or time is agreed to by TCI and Liberty (the date on
which the Closing takes place being referred to herein as the "Closing Date").
1.8 Definitions of "Subsidiary" and "affiliate". Subject to the last
sentence of this Section 1.8, as used in this Agreement, (i) a "Subsidiary" of
any party means any corporation or other organization, whether incorporated or
unincorporated, of which (x), in the case of a corporation, securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation are directly or indirectly owned or controlled by such party, by any
one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries or (y) in the case of any organization or entity other than a
corporation, such party, one or more of its Subsidiaries, or such party and one
or more of its Subsidiaries (A) owns a majority of the equity interests thereof
and (B) has the power to elect or direct the election of a majority of the
members of the governing body thereof or otherwise has "control" (within the
meaning of Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") over such organization or entity; and (ii) except for purposes
of Section 3.6, the term "affiliate" has the meaning assigned to such term in
Rule 12b-2 under the Exchange Act. For purposes of this Agreement (other than
Section 3.6), (A) neither Liberty nor any of its Subsidiaries shall be deemed to
be Subsidiaries or affiliates of TCI or any of TCI's Subsidiaries; (B) neither
TCI nor any of its Subsidiaries (determined after applying the rule in clause
(A) of this sentence) shall be deemed to be affiliates of Liberty or any of
Liberty's Subsidiaries; (C) none of the affiliates (the "Liberty Affiliates") of
Liberty or any of its Subsidiaries (determined after applying the rules in
clauses (A) and (B) of this sentence) shall be deemed to be an affiliate of TCI
or any of TCI's Subsidiaries, unless such Liberty Affiliate would be such an
affiliate if neither TCI nor any of its Subsidiaries (1) owned any capital stock
of Liberty, (2) designated or nominated, or possessed any contractual right to
designate or nominate, any directors of Liberty or any of its Subsidiaries or
(3) otherwise possessed, directly or indirectly, the power to direct or cause
the direction of the management or policies of Liberty or any of its
Subsidiaries; and (D) none of the affiliates ("TCI Affiliates") of TCI or any of
TCI's Subsidiaries (determined after applying the rules in clauses (A) and (B)
of this sentence) shall be deemed to be an affiliate of Liberty or any of
Liberty's Subsidiaries, unless such TCI Affiliate would be such an affiliate if
neither TCI nor any of its Subsidiaries (1) owned any capital stock of Liberty,
(2) designated or nominated, or possessed any contractual right to designate or
nominate, any directors of Liberty or any of its Subsidiaries or (3) otherwise
possessed, directly or indirectly, the power to direct or cause the direction of
the management or policies of Liberty or any of its Subsidiaries.
ARTICLE II
CONVERSION AND EXCHANGE OF SECURITIES;
EFFECT OF MERGERS ON TCI AND LIBERTY STOCK PLANS
2.1 Conversion of Securities. At the Effective Time, by virtue of the
Mergers and without any action on the part of any party hereto or the holder of
any of the following securities:
(a) Conversion of TCI Common Stock. Each share of the Class A Common
Stock, par value $1.00 per share, of TCI (the "TCI Class A Stock") issued and
outstanding immediately prior to the Effective Time (other than shares of TCI
Class A Stock to be cancelled pursuant to Section 2.1(f)) shall be converted
into the right to receive one validly issued, fully paid and non-assessable
share of the Class A Common Stock, par value $1.00 per share, of TCI/Liberty
(the "TCI/Liberty Class A Stock") and each share of the Class B Common Stock,
par value $1.00 per share, of TCI (the "TCI Class B Stock," and collectively
with the TCI Class A Stock, the "TCI Common Stock") issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled
pursuant to Section 2.1(f)) shall be converted into the right to receive one
validly issued, fully paid and non-assessable share of the Class B Common Stock,
par value $1.00 per share, of TCI/Liberty (the "TCI/Liberty Class B Stock," and
collectively with the TCI/Liberty Class A Stock, the "TCI/Liberty Common
Stock"). All such shares of TCI Common Stock shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate
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<PAGE> 148
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of TCI/Liberty Common Stock to
be issued pursuant to this Section 2.1(a) (and any dividends or other
distributions payable pursuant to Section 2.6(g)) with respect thereto upon the
surrender of such certificate in accordance with Section 2.6, without interest.
(b) Conversion of TCI Preferred Stock. Subject to Section 2.5, each share
of the Convertible Preferred Stock, Series C, par value $1.00 per share, of TCI
(the "TCI Preferred Stock") issued and outstanding immediately prior to the
Effective Time (other than shares of TCI Preferred Stock to be cancelled
pursuant to Section 2.1(f)) shall be converted into the right to receive one
validly issued, fully paid and non-assessable share of the Class A Convertible
Preferred Stock, par value $1.00 per share, of TCI/Liberty (the "TCI/Liberty
Convertible Preferred"), which shall have the designations, preferences, rights
and qualifications, limitations and restrictions set forth in Article IV,
Section B of Exhibit A hereto. Subject to Section 2.5, all such shares of TCI
Preferred Stock shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of TCI/Liberty Convertible
Preferred to be issued pursuant to this Section 2.1(b) (and any dividends or
other distributions payable pursuant to Section 2.6(g)) with respect thereto
upon the surrender of such certificate in accordance with Section 2.6, without
interest.
(c) Conversion of Liberty Common Stock. Subject to Section 2.6(f), (i)
each share of the Class A Common Stock, par value $1.00 per share, of Liberty
(the "Liberty Class A Stock") issued and outstanding immediately prior to the
Effective Time (other than shares to be cancelled pursuant to Section 2.1(f))
shall be converted into the right to receive .975 of a validly issued, fully
paid and non-assessable share of the TCI/Liberty Class A Stock and (ii) each
share of the Class B Common Stock, par value $1.00 per share, of Liberty (the
"Liberty Class B Stock," and collectively with the Liberty Class A Stock, the
"Liberty Common Stock") issued and outstanding immediately prior to the
Effective Time (other than shares to be cancelled pursuant to Section 2.1(f))
shall be converted into the right to receive .975 of a validly issued, fully
paid and non-assessable share of the TCI/Liberty Class B Stock. All such shares
of Liberty Common Stock shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the shares of TCI/Liberty Common
Stock to be issued pursuant to this Section 2.1(c) (and any dividends or other
distributions and any cash in lieu of a fractional share payable pursuant to
Sections 2.6(g) and 2.6(f)) with respect thereto upon the surrender of such
certificate in accordance with Section 2.6, without interest.
(d) Conversion of Liberty Class B and D Preferred Stock. Each share of
(i) Class B Redeemable Exchangeable Preferred Stock, par value $.01 per share,
of Liberty (the "Liberty Class B Preferred") and (ii) Class D Redeemable Voting
Preferred Stock, par value $.01 per share, of Liberty (the "Liberty Class D
Preferred") issued and outstanding immediately prior to the Effective Time
(other than shares of Liberty Class B Preferred and Liberty Class D Preferred to
be cancelled pursuant to Section 2.1(f)), shall be converted into the right to
receive that number of validly issued, fully paid and nonassessable shares
(and/or fraction of a share) of the Class B Preferred Stock, par value $.01 per
share, of TCI/Liberty ("TCI/Liberty Class B Preferred") equal to the product of
one multiplied by a fraction, the numerator of which is the fair market value
(as defined in Section 2.4) of the share of Liberty Class B Preferred or Liberty
Class D Preferred, as the case may be, to be converted in accordance with this
Section 2.1(d), and the denominator of which is the fair market value of a share
of TCI/Liberty Class B Preferred. All such shares of Liberty Class B and Class D
Preferred shall no longer be outstanding and shall automatically be cancelled
and retired and shall cease to exist, and the holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of TCI/Liberty Class B Preferred
to be issued pursuant to this Section 2.1(d) (and any dividends or other
distributions payable pursuant to Section 2.6(g)) with respect thereto upon the
surrender of such certificate in accordance with Section 2.6, without interest.
The TCI/Liberty Class B Preferred shall have the designations, preferences,
rights and qualifications, limitations and restrictions set forth in Article IV,
Section C of Exhibit A hereto (as supplemented as contemplated by said Section).
No certificates or scrip representing a fractional share of TCI/Liberty Class B
Preferred shall
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be issued upon the surrender by any holder of certificates for Liberty Class B
Preferred or Liberty Class D Preferred. In lieu of such a fractional share, the
number of shares of TCI/Liberty Class B Preferred to which a holder shall be
entitled pursuant to this Section 2.1(d) shall be rounded down to the nearest
whole number (after taking into account all shares of Liberty Class B Preferred
and Liberty Class D Preferred owned by such holder).
(e) Conversion of Liberty Class E Preferred Stock. Each share of the
Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock, par value
$.01 per share, of Liberty (the "Liberty Class E Preferred", and collectively
with the Liberty Class B Preferred and Liberty Class D Preferred, the "Liberty
Preferred Stock") issued and outstanding immediately prior to the Effective Time
(other than shares of Liberty Class E Preferred to be cancelled pursuant to
Section 2.1(f)) shall be converted into the right to receive one validly issued,
fully paid and non-assessable share of the Class C, 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share, of TCI/Liberty
(the "TCI/Liberty Class C Preferred", and collectively with the TCI/Liberty
Class A Preferred and the TCI/Liberty Class B Preferred, the "TCI/Liberty
Preferred Stock"), which shall have the designations, preferences, rights and
qualifications, limitations and restrictions set forth in Article IV, Section D
of Exhibit A. All such shares of Liberty Class E Preferred shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of TCI/Liberty Class C Preferred to be issued pursuant to this Section 2.1(e)
(and any dividends or other distributions payable pursuant to Section 2.6(g))
with respect thereto upon the surrender of such certificate in accordance with
Section 2.6, without interest.
(f) Treasury Stock. All shares of TCI Common Stock and TCI Preferred
Stock which are held immediately prior to the Effective Time by TCI in its
treasury, and all shares of Liberty Common Stock and Liberty Preferred Stock
which are held immediately prior to the Effective Time by Liberty in its
treasury, shall be cancelled and retired and shall cease to exist, and no
capital stock of TCI/Liberty or other consideration shall be delivered with
respect thereto.
(g) TCI Mergerco Stock. Each share of common stock, par value $1.00 per
share, of TCI Mergerco issued and outstanding immediately prior to the Effective
Time shall be converted into one share of the common stock, par value $1.00 per
share, of the TCI Surviving Corporation, and each certificate evidencing
ownership of shares of TCI Mergerco common stock shall from and after the
Effective Time evidence ownership of the same number of shares of common stock
of the TCI Surviving Corporation.
(h) Liberty Mergerco Stock. Each share of common stock, par value $1.00
per share, of Liberty Mergerco issued and outstanding immediately prior to the
Effective Time shall be converted into one share of common stock, par value
$1.00 per share, of the Liberty Surviving Corporation, and each certificate
evidencing ownership of shares of Liberty Mergerco common stock shall from and
after the Effective Time evidence ownership of the same number of shares of
common stock of the Liberty Surviving Corporation.
2.2 TCI/Liberty Stock. Each of TCI Surviving Corporation and Liberty
Surviving Corporation shall, immediately following the Effective Time, return to
TCI/Liberty, without payment of any consideration therefor, any shares of
TCI/Liberty Common Stock held by it immediately prior to the Effective Time,
whereupon such shares shall be cancelled and retired by TCI/Liberty and resume
the status of authorized and unissued shares.
2.3 Transfer Books. At the Effective Time, the stock transfer books of
both TCI and Liberty shall be closed and no transfer of shares of capital stock
of TCI or Liberty shall thereafter be made.
2.4 Definition of "fair market value". For purposes of Section 2.1 and
Section 2.6(f), the term "fair market value" means (i) with respect to a share
of either class of Liberty Common Stock, the average of the last reported sale
prices (or, if on any day no sale price is reported, the average of the quoted
high and low bid prices on such day) of such a share on the Nasdaq National
Market System ("Nasdaq NMS") for the five full trading days immediately
preceding the Closing Date, and (ii) with respect to a share of Liberty Class B
Preferred, Liberty Class D Preferred or TCI/Liberty Class B Preferred, the value
for such share (or the midpoint of any range of values for such share) in the
opinion of CS First Boston Corporation ("CS First
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Boston") as of the date of their opinion (which shall be dated not more than
five business days prior to the Closing Date).
2.5 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of TCI Preferred Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by any stockholder
who is entitled to appraisal rights pursuant to Section 262 of the DGCL, who, on
a timely basis, makes and perfects a demand for appraisal of such shares in
accordance with all requirements and provisions of Section 262 of the DGCL, and
who does not effectively withdraw or lose the right to such appraisal
(collectively, "Dissenting Shares"), shall not be converted as described in
Section 2.1(b), but shall, from and after the Effective Time, represent only the
right to receive such consideration as may be determined to be due to such
stockholder with respect to such Dissenting Shares pursuant to Section 262 of
the DGCL; provided, however, that Dissenting Shares held by any stockholder who,
after the Effective Time, withdraws his demand for appraisal or loses his right
of appraisal with respect to such shares, in either case pursuant to Section 262
of the DGCL, shall be deemed to have been converted, as of the Effective Time,
into the right to receive the shares of TCI/Liberty Class A Preferred specified
in Section 2.1(b), without interest.
2.6 Exchange of Shares.
(a) Appointment of Exchange Agent. On or before the Closing Date,
TCI/Liberty shall enter into an agreement approved by TCI and Liberty (the
"Exchange Agent Agreement") with an exchange agent jointly selected by TCI and
Liberty (the "Exchange Agent"), authorizing such Exchange Agent to act as
exchange agent hereunder.
(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 TCI Common Stock, TCI Preferred
Stock, Liberty Common Stock or Liberty Preferred Stock (the "Certificates")
whose shares were converted into the right to receive shares of TCI/Liberty
Common Stock or TCI/Liberty Preferred Stock pursuant to Section 2.1: (i) a
notice of the effectiveness of the Mergers 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 TCI and
Liberty may jointly 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 TCI/Liberty
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, TCI/Liberty shall, subject to Section
2.6(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 TCI/Liberty Common Stock or
TCI/Liberty Preferred Stock, as the case may be, into which the shares
previously represented by the surrendered Certificate shall have been converted
at the Effective Time pursuant to Section 2.1 and (ii), in the case of a
Certificate which immediately prior to the Effective Time represented shares of
Liberty Common Stock, payment (which shall be made by check) of any cash payable
in lieu of a fractional share pursuant to Section 2.6(f). Each Certificate so
surrendered shall forthwith be cancelled.
(d) Unregistered Transfers of TCI or Liberty Stock. In the event of a
transfer of ownership of TCI Common Stock, TCI Preferred Stock, Liberty Common
Stock or Liberty Preferred Stock which is not registered in the transfer records
of TCI or Liberty, as the case may be, a certificate representing the proper
number of whole shares of TCI/Liberty Common Stock or TCI/Liberty Preferred
Stock may be issued (and cash in lieu of a fractional share may be paid) to the
transferee if the Certificate representing such TCI Common Stock, TCI Preferred
Stock, Liberty Common Stock or Liberty Preferred Stock surrendered to the
Exchange Agent in accordance with Section 2.6(c) is properly endorsed for
transfer or is accompanied by appropriate and properly endorsed stock powers (in
each case with appropriate signature guarantees) and is otherwise in proper form
to effect such transfer, if the person requesting such transfer pays to the
Exchange
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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.
(e) Lost, Stolen or Destroyed Certificates. In the event 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 TCI/Liberty and complying with any other reasonable
requirements imposed by TCI/Liberty, TCI/Liberty will cause to be delivered to
such person in respect of such lost, stolen or destroyed Certificate the
TCI/Liberty Common Stock or TCI/Liberty Preferred Stock and other property
deliverable in respect thereof as determined in accordance with this Article II.
TCI/Liberty may, in its discretion, require the owner of such lost, stolen or
destroyed Certificate to give TCI/Liberty a bond in such sum as it may direct as
indemnity against any claim that may be made against TCI/Liberty or the
applicable Surviving Corporation with respect to the Certificate alleged to have
been lost, stolen or destroyed.
(f) No Fractional Shares of TCI/Liberty Common Stock. No certificates or
scrip representing fractional shares of TCI/Liberty Common Stock shall be issued
upon the surrender for exchange of Certificates which immediately prior to the
Effective Time represented shares of Liberty Common Stock, no stock split or
dividend with respect to shares of TCI/Liberty Common Stock shall relate to any
fractional share interest, and no such fractional share interest will entitle
the owner thereof to vote as, or to any other rights of, a stockholder of
TCI/Liberty. In lieu of such fractional shares, any holder of Liberty Common
Stock who would otherwise be entitled to a fractional share of TCI/Liberty Class
A Stock or TCI/Liberty Class B Stock (after taking into account all shares of
Liberty Class A Stock or Liberty Class B Stock, as the case may be, owned by
such holder), will, upon surrender of his Certificate to the Exchange Agent in
accordance with Section 2.6(c), be entitled to receive cash in an amount
(rounded to the nearest whole cent) determined by multiplying such fraction by
the fair market value of a share of Liberty Class A Stock or Liberty Class B
Stock, as the case may be.
(g) No Dividends Before Surrender of Certificates. No dividends or other
distributions declared or made with respect to TCI/Liberty Common Stock or
TCI/Liberty Preferred Stock shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of TCI/Liberty Common Stock or
TCI/Liberty Preferred Stock represented thereby, until the holder of record of
such Certificate shall surrender such Certificate as provided herein. Subject to
the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions, if any, theretofore payable by
TCI/Liberty with respect to such whole shares of TCI/Liberty Common Stock or
TCI/Liberty Preferred Stock the payment date for which was on or prior to such
surrender, and (ii) at the appropriate payment date, the amount of dividends or
other distributions, if any, with a record date prior to such surrender and with
a payment date subsequent to such surrender payable with respect to such whole
shares of TCI/Liberty Common Stock or TCI/Liberty Preferred Stock.
(h) No Further Ownership Rights in TCI or Liberty Stock. All shares of
TCI/Liberty Common Stock or TCI/Liberty Preferred Stock issued and all cash in
lieu of fractional shares paid upon the surrender for exchange of shares of TCI
Common Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred
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 TCI
Common Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred
Stock (provided, however, that after the Effective Time TCI/Liberty shall, on
behalf of TCI or Liberty, as the case may be, pay as provided in Section 2.6(g)
any dividends or make any other distributions (in TCI/Liberty capital stock in
the case of stock dividends) with a record date prior to the Effective Time
which may have been declared by TCI or Liberty on such shares of TCI Common
Stock, TCI Preferred Stock, Liberty Common Stock or Liberty Preferred Stock
prior to the date hereof or which may be declared after the date hereof in
accordance with the terms of this Agreement and which remain unpaid at the
Effective Time). Subject to Section 2.6(i), if, after the Effective Time,
Certificates are presented to a Surviving Corporation for any reason, they shall
be cancelled and exchanged as provided in this Article II.
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(i) Abandoned Property Laws. Payment or delivery of any shares of
TCI/Liberty Common Stock or TCI/Liberty Preferred Stock (as the case may be),
any cash in lieu of fractional shares of TCI/Liberty Common Stock and any
dividends or distributions with respect to TCI/Liberty Common Stock or
TCI/Liberty Preferred Stock shall be subject to applicable abandoned property,
escheat and similar laws and neither TCI/Liberty nor either Surviving
Corporation shall be liable to any holder of shares of TCI Common Stock, TCI
Preferred Stock, Liberty Common Stock, Liberty Preferred Stock, TCI/Liberty
Common Stock or TCI/Liberty Preferred Stock for any such shares, 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.
2.7 Stock Options, SARs and Benefit Plans.
(a) TCI Stock Options and SARS. (i) At the Effective Time, each
outstanding option to purchase shares of TCI Class A Stock (a "TCI Stock
Option") issued by TCI pursuant to the Tele-Communications, Inc. 1992 Stock
Incentive Plan (the "1992 TCI SIP") or the Tele-Communications, Inc. 1982
Incentive Stock Option Plan (the "TCI 1982 ISOP", and collectively with the 1992
TCI SIP, the "TCI Incentive Plans") or issued pursuant to a TCI Predecessor Plan
(as defined below) and assumed by TCI, or otherwise issued by TCI, whether
vested or unvested, shall be assumed by TCI/Liberty. Thereafter, each TCI Stock
Option shall be deemed to constitute an option to purchase, on the same terms
and conditions as were applicable under such TCI Stock Option, that number of
shares of TCI/Liberty Class A Stock which is equal to the number of shares of
TCI Class A Stock that were subject to such TCI Stock Option immediately prior
to the Effective Time, at an exercise price per share of TCI/Liberty Class A
Stock equal to the exercise price per share of TCI Class A Stock subject to such
TCI Stock Option immediately prior to the Effective Time. The assumption
hereinabove provided for shall be accomplished in a manner that shall, in all
respects, comply with the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), with respect to each TCI Stock Option that is an
"incentive stock option" (as defined in Section 422(b) of the Code) including
any requirement that the assumption of such TCI Stock Option by TCI/Liberty
shall not give to the holder any additional benefits that he did not have prior
to such assumption, and TCI/Liberty may make any changes that it deems necessary
or desirable with respect to such assumption in order to satisfy the
requirements of the Code. For purposes of this Agreement, the term "TCI
Predecessor Plans" means (x) the United Artists Entertainment Company 1988
Incentive and Non-Qualified Stock Option Plan, which was terminated on or before
December 2, 1991 and as to which outstanding options were assumed by TCI
pursuant to the Agreement and Plan of Merger, dated as of June 6, 1991, between
United Artists Entertainment Company ("UAE") and TCI (the "1991 Merger
Agreement") and (y) the United Artists Communications, Inc. 1982 Stock Option
Plan and the United Artists Communications, Inc. 1983 Stock Option Plan, which
were each terminated on or before May 25, 1989 and as to which outstanding
options were assumed by UAE pursuant to the Second Amended and Restated
Agreement and Plan of Reorganization and Merger, dated as of March 8, 1988,
among United Artists Communications, Inc., United Cable Television Corporation
and TCI, which options, in turn, were assumed by TCI pursuant to the 1991 Merger
Agreement.
(ii) At the Effective Time, each outstanding stock appreciation right with
respect to shares of TCI Class A Stock (a "TCI SAR") issued by TCI pursuant to a
TCI Incentive Plan or issued pursuant to a TCI Predecessor Plan and assumed by
TCI, or otherwise issued by TCI, whether vested or unvested, shall be assumed by
TCI/Liberty. Thereafter, each TCI SAR shall be deemed to constitute a stock
appreciation right, on the same terms and conditions as were applicable under
such TCI SAR, with respect to that number of shares of TCI/Liberty Class A Stock
which is equal to the number of shares of TCI Class A Stock that were subject to
such TCI SAR immediately prior to the Effective Time, at an exercise price per
stock appreciation right equal to (A) in the case of a TCI SAR issued in tandem
with TCI Stock Options, the exercise price per share of the related TCI Stock
Option assumed by TCI/Liberty as determined above and (B) in the case of a free
standing TCI SAR, the base price per share of such TCI SAR immediately prior to
the Effective Time.
(iii) If the TCI/Liberty SIP (as defined in Section 2.7(e)) is approved (or
deemed approved) by stockholders at the TCI Stockholders Meeting (as defined in
Section 3.1) and the Liberty Stockholders Meeting (as defined in Section 3.2),
respectively, the TCI Surviving Corporation shall use its reasonable best
efforts to cause each holder of a TCI Stock Option or TCI SAR that is assumed by
TCI/Liberty to surrender
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such TCI Stock Option or TCI SAR, as promptly as practicable after the Effective
Time, to TCI/Liberty in exchange for a stock option or stock appreciation right,
respectively, granted under the TCI/Liberty SIP, which stock option or stock
appreciation right shall contain terms and conditions that are no less favorable
to the holder thereof than those under such assumed TCI Stock Option or TCI SAR,
as the case may be (subject to such changes as may be agreed to by TCI and
Liberty and the holder of such TCI Stock Option or TCI SAR).
(b) Liberty Stock Options and SARS. (i) At the Effective Time, each
outstanding option to purchase shares of Liberty Class A Stock (a "Liberty Stock
Option") issued by Liberty (whether pursuant to the Liberty Media Corporation
1991 Stock Incentive Plan (the "Liberty SIP") or otherwise), whether vested or
unvested, shall be assumed by TCI/Liberty. Thereafter, each Liberty Stock Option
shall be deemed to constitute an option to purchase, on the same terms and
conditions as were applicable under such Liberty Stock Option, that number of
shares of TCI/Liberty Class A Stock which is equal to the number of shares of
Liberty Class A Stock that were subject to such Liberty Stock Option immediately
prior to the Effective Time multiplied by .975, rounded up to the nearest whole
number after taking into account all Liberty Stock Options held by the holder of
such Liberty Stock Option, at an exercise price per share of TCI/Liberty Class A
Stock equal to the amount determined by dividing the exercise price per share of
Liberty Class A Stock subject to such Liberty Stock Option immediately prior to
the Effective Time by .975, and rounding the resulting number down to the
nearest whole cent. The assumption hereinabove provided for shall be
accomplished in a manner that shall, in all respects, comply with the
requirements of the Code with respect to each Liberty Stock Option that is an
"incentive stock option" (as defined in Section 422(b) of the Code) including
any requirement that the assumption of such Liberty Stock Option by TCI/Liberty
shall not give to the holder any additional benefits that he did not have prior
to such assumption, and TCI/Liberty may make any changes that it deems necessary
or desirable with respect to such assumption in order to satisfy the
requirements of the Code.
(ii) At the Effective Time, each outstanding stock appreciation right with
respect to shares of Liberty Class A Stock (a "Liberty SAR") issued by Liberty
pursuant to the Liberty SIP, or otherwise issued by Liberty, whether vested or
unvested, shall be assumed by TCI/Liberty. Thereafter, each Liberty SAR shall be
deemed to constitute a stock appreciation right, on the same terms and
conditions as were applicable under such Liberty SAR, with respect to that
number of shares of TCI/Liberty Class A Stock which is equal to the number of
shares of Liberty Class A Stock that were subject to such Liberty SAR
immediately prior to the Effective Time multiplied by .975, rounded up to the
nearest whole number (after taking into account all stock appreciation rights
owned by a holder), at an exercise price per stock appreciation right equal to
(A) in the case of a Liberty SAR issued in tandem with Liberty Stock Options,
the exercise price per share of the related Liberty Stock Option assumed by
TCI/Liberty as determined above and (B) in the case of a free standing Liberty
SAR, the amount determined by dividing the base price per share of such Liberty
SAR immediately prior to the Effective Time by .975, and rounding the resulting
number down to the nearest whole cent.
(iii) If the TCI/Liberty SIP is approved (or deemed approved) by
stockholders at the TCI Stockholders Meeting and the Liberty Stockholders
Meeting, respectively, the Liberty Surviving Corporation shall use its
reasonable best efforts to cause each holder of a Liberty Stock Option or
Liberty SAR that is assumed by TCI/Liberty to surrender such Liberty Stock
Option or Liberty SAR, as promptly as practicable after the Effective Time, to
TCI/Liberty in exchange for a stock option or stock appreciation right,
respectively, granted under the TCI/Liberty SIP, which stock option or stock
appreciation right shall contain terms and conditions that are no less favorable
to the holder thereof than those under such assumed Liberty Stock Option or
Liberty SAR, as the case may be (subject to such changes as may be agreed to by
TCI and Liberty and the holder of such Liberty Stock Option or Liberty SAR).
Notwithstanding the foregoing, the terms of the TCI/Liberty stock options and
stock appreciation rights issued under the TCI/Liberty SIP may contain such
variations from the terms of any Liberty Stock Options or Liberty SAR's,
respectively, exchanged therefor which were not issued under a plan complying
with Rule 16b-3 under the Exchange Act, as TCI/Liberty may determine are
necessary or desirable for such TCI/Liberty stock options and stock appreciation
rights to comply with Rule 16b-3.
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(c) Actions by TCI and Liberty. Each of TCI and Liberty shall distribute
to each holder of a TCI Stock Option or a TCI SAR, or a Liberty Stock Option or
a Liberty SAR, as the case may be, not less than 10 business days prior to the
TCI Stockholders Meeting and the Liberty Stockholders Meeting, respectively, (i)
an appropriate notice setting forth such holder's rights under the related TCI
Incentive Plan, TCI Predecessor Plan or Liberty SIP and/or the agreement between
such holder and TCI or Liberty, as the case may be, evidencing the grant of such
TCI Stock Option, TCI SAR, Liberty Stock Option or Liberty SAR to such holder
and (ii) a form of assumption agreement between such holder and TCI/Liberty (an
"Assumption Agreement"), containing terms consistent with the provisions hereof.
No holder of a TCI Stock Option, TCI SAR, Liberty Stock Option or Liberty SAR
shall be entitled to receive upon exercise thereof following the Effective Time
TCI/Liberty Class A Stock or any payment from TCI/Liberty in respect thereof
unless such holder shall have executed and delivered an Assumption Agreement to
TCI/Liberty.
(d) Actions by TCI/Liberty. TCI/Liberty shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of TCI/Liberty
Class A Stock for delivery upon exercise of (i) TCI Stock Options, Liberty Stock
Options or Liberty SARS assumed by it pursuant to this Section 2.7 and the
Assumption Agreements or (ii)(x) stock options exchanged for such TCI Stock
Options and Liberty Stock Options and (y) stock appreciation rights exchanged
for such Liberty SARS, in accordance with Sections 2.7(a)(iii) and 2.7(b)(iii).
As soon as practicable after the Effective Time, TCI/Liberty shall file a
registration statement on Form S-3 or Form S-8 (which may be filed as a
post-effective amendment to the Registration Statement (as defined in Section
3.3)), as the case may be (or any successor forms), or another appropriate form
with respect to the shares of TCI/Liberty Class A Stock subject to such options
and stock appreciation rights, and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements for so
long as such options remain outstanding.
(e) TCI/Liberty Stock Incentive Plan. TCI and Liberty shall cause
TCI/Liberty to adopt a stock incentive plan (the "TCI/Liberty SIP") which
satisfies the requirements of Rule 16b-3 under the Exchange Act. Each of TCI and
Liberty shall cause the TCI Liberty SIP to be presented to their stockholders
for approval at the TCI Stockholders Meeting and the Liberty Stockholders
Meeting, respectively. The TCI/Liberty SIP shall contain terms and provisions
that are substantially similar to those contained in the 1992 TCI SIP (with such
changes thereto as may be necessary to provide the holders of stock appreciation
rights granted by Liberty in 1991 to obtain substantially identical TCI/Liberty
stock appreciation rights upon any exchange thereof in accordance with Section
2.7(b)(iii)).
(f) Stock Plans. (i) TCI shall take all actions necessary to amend the
Tele-Communications, Inc. Employee Stock Purchase Plan (the "TCI ESPP") prior to
the Effective Time to provide that the TCI ESPP shall not purchase any capital
stock of TCI or the TCI Surviving Corporation at or after the Effective Time. As
of the Effective Time, the 1992 TCI SIP (except to the extent that the terms
thereof are incorporated by reference in, or otherwise govern the construction,
interpretation or administration of, any TCI Stock Options or TCI SARs assumed
by TCI/Liberty) shall automatically terminate. TCI and its Subsidiaries shall
comply with all requirements regarding withholding of taxes in connection with
the cancellations, terminations and other actions described in this Section
2.7(f)(i).
(ii) As of the Effective Time, the Liberty SIP (except to the extent that
the terms thereof are incorporated by reference in, or otherwise govern the
construction, interpretation or administration of, any Liberty Stock Options or
Liberty SARs assumed by TCI/Liberty) shall automatically terminate.
(g) Other Employment Benefit Plans. The effects of the Mergers, if any,
on the other employee benefit plans and arrangements of TCI and its Subsidiaries
and Liberty and its Subsidiaries shall be as set forth on Exhibit G attached
hereto. TCI and its Subsidiaries and Liberty and its Subsidiaries shall comply
with all requirements regarding withholding of taxes in connection with any
actions and matters described on Exhibit G.
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ARTICLE III
CERTAIN ACTIONS
3.1 TCI Stockholder Meeting. Subject to the fiduciary duties of the Board
of Directors of TCI (the "TCI Board") under applicable law (as determined by the
TCI Board in good faith after consultation with and based upon advice of
counsel) (i) TCI and the TCI Board will take all action necessary in accordance
with applicable law and TCI's Restated Certificate of Incorporation and By-laws
to duly call and hold, on a date to be mutually agreed upon by TCI and Liberty,
a meeting of TCI's stockholders (the "TCI Stockholders Meeting") for the purpose
of considering and voting upon (x) this Agreement (the "Merger Proposal") and
(y) the TCI/Liberty SIP and (ii) the TCI Board will recommend that TCI's
stockholders vote in favor of approval and adoption of the Merger Proposal and
approval of the TCI/Liberty SIP, and TCI will use reasonable efforts to solicit
from its stockholders proxies in favor of approval and adoption of the Merger
Proposal and approval of the TCI/Liberty SIP.
3.2 Liberty Stockholder Meeting. Subject to the fiduciary duties of the
Board of Directors of Liberty (the "Liberty Board") under applicable law (as
determined by the Liberty Board in good faith after consultation with and based
upon advice of counsel), (i) Liberty and the Liberty Board will take all action
necessary in accordance with applicable law and Liberty's Restated Certificate
of Incorporation and By-laws to duly call and hold, on a date to be mutually
agreed upon by Liberty and TCI, a meeting of Liberty's stockholders (the
"Liberty Stockholders Meeting") for the purpose of considering and voting upon
(x) the Merger Proposal and (y) the TCI/Liberty SIP and (ii) the Liberty Board
will recommend that Liberty's stockholders vote in favor of approval and
adoption of the Merger Proposal and approval of the TCI/Liberty SIP, and Liberty
will use reasonable efforts to solicit from its stockholders proxies in favor of
approval and adoption of the Merger Proposal and approval of the TCI/Liberty
SIP.
3.3 Proxy Statement and Registration Statement. TCI and Liberty shall
prepare and file with the Securities and Exchange Commission (the "Commission")
a preliminary joint proxy statement relating to the transactions contemplated by
this Agreement (the "Joint Proxy Statement") as soon as reasonably practicable,
and shall use their respective best efforts to promptly respond to the comments
of the Commission thereon. TCI and Liberty shall prepare, and shall cause
TCI/Liberty to file with the Commission as soon as practicable after the
Commission clears the Joint Proxy Statement, a registration statement on Form
S-4 (or any successor form), which shall include as a prospectus the Joint Proxy
Statement in the form cleared for mailing to stockholders by the Commission (the
"Joint Proxy Statement/Prospectus"), with respect to the TCI/Liberty Common
Stock and TCI/Liberty Class C Preferred Stock to be issued in the Mergers and
the TCI/Liberty Class A Stock issuable upon exercise of (i) TCI Stock Options,
Liberty Stock Options and Liberty SARs to be assumed by TCI/Liberty or (ii)
TCI/Liberty stock options and TCI/Liberty stock appreciation rights granted
under the TCI/Liberty SIP and exchanged for TCI Stock Options and Liberty Stock
Options or TCI SARs and Liberty SARs, as the case may be (the "Registration
Statement"). TCI and Liberty shall each use reasonable efforts to cause the
Registration Statement to be declared effective as soon as practicable after
such filing. As promptly as practicable after the Registration Statement is
declared effective by the Commission, each of TCI and Liberty shall mail the
Joint Proxy Statement/Prospectus to its respective stockholders. TCI and Liberty
shall cause TCI/Liberty to take any reasonable actions required to be taken
under applicable state securities or "blue sky" laws in connection with the
issuance of the securities of TCI/Liberty to be covered by the Registration
Statement. Each of TCI and Liberty shall notify the other promptly of the
receipt of any comments of the Commission and of any request by the Commission
for amendments or supplements to the Joint Proxy Statement, the Joint Proxy
Statement/Prospectus or the Registration Statement or for additional information
and shall supply one another with copies of all correspondence with the
Commission with respect to any of the foregoing filings. If at any time prior to
the TCI Stockholders Meeting or the Liberty Stockholders Meeting any event
should occur relating to TCI or any of its Subsidiaries or any of their
respective officers, directors or affiliates which should be described in an
amendment of, or supplement to, the Joint Proxy Statement/Prospectus or the
Registration Statement, TCI shall promptly inform Liberty. If at any time prior
to the Liberty Stockholders Meeting or the TCI Stockholders Meeting any event
should occur relating to Liberty or any of its Subsidiaries or any of their
respective officers, directors or affiliates which should be described in an
amendment of, or supplement to, the
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Joint Proxy Statement/Prospectus or the Registration Statement, Liberty shall
promptly inform TCI. Whenever any event occurs which should be described in an
amendment of, or a supplement to, the Joint Proxy Statement/Prospectus or the
Registration Statement, TCI and Liberty shall, upon learning of such event,
cooperate with each other to promptly prepare, file and clear with the
Commission and (if required by applicable law) mail such amendment or supplement
to the stockholders of TCI and Liberty.
3.4 Letters from Accountants. TCI will use its reasonable efforts to
cause to be delivered to Liberty a letter of KPMG Peat Marwick, TCI's
independent auditors, dated a date within two business days before the date on
which the Registration Statement becomes effective and addressed to Liberty, in
form reasonably satisfactory to Liberty and customary in scope and substance for
letters delivered by nationally recognized independent auditors in connection
with registration statements similar to the Registration Statement. Liberty will
use its reasonable efforts to cause to be delivered to TCI a letter of KPMG Peat
Marwick, Liberty's independent auditors, dated a date within two business days
before the date on which the Registration Statement becomes effective and
addressed to TCI, in form reasonably satisfactory to TCI and customary in scope
and substance for letters delivered by nationally recognized independent
auditors in connection with registration statements similar to the Registration
Statement.
3.5 Release of Escrowed TCI Common Stock. Liberty and TCI shall use their
respective reasonable efforts, and shall fully cooperate with each other, to
cause the release to Liberty Surviving Corporation, or any wholly owned
Subsidiary of Liberty Surviving Corporation, immediately after the Effective
Time, of all shares of TCI Common Stock deposited with Chemical Bank, N.A. (as
successor to Manufacturers Hanover Trust Company), as escrow agent, pursuant to
that certain escrow agreement referenced in the terms of the Liberty Class B
Preferred.
3.6 Identification of Affiliates. Each of TCI and Liberty shall deliver
to the other a letter identifying all persons who such party knows are or such
party has reason to believe may be, as of the date of the TCI Stockholders
Meeting and Liberty Stockholders Meeting, its "affiliates" for purposes of Rule
145 under the Securities Act of 1933, as amended (the "Securities Act"). Each of
TCI and Liberty shall use reasonable efforts to cause each person who is
identified as an "affiliate" in the letter referred to above to deliver to the
other party, on or prior to the Closing Date, a written agreement, in
substantially the form annexed hereto as Exhibit H, that such person will not
offer to sell or otherwise dispose of any of the shares of TCI/Liberty Common
Stock or TCI/Liberty Preferred Stock issued to such person pursuant to the
Mergers in violation of the Securities Act and the rules and regulations
thereunder.
3.7 State Takeover Statutes. Liberty will, upon the request of TCI, take
all reasonable steps to (i) exempt the Liberty Merger from the requirements of
any applicable state takeover law and (ii) assist in any challenge by TCI to the
validity or applicability to the Liberty Merger of any state takeover law. TCI
will, upon the request of Liberty, take all reasonable steps to (x) exempt the
TCI Merger from the requirements of any applicable state takeover law and (y)
assist in any challenge by Liberty to the validity or applicability to the TCI
Merger of any state takeover law.
3.8 Possible Restructuring. Each of the parties hereto shall use its
reasonable efforts, and shall consult and fully cooperate with each other, to
cause the transactions contemplated by this Agreement to be completely tax free
for Federal income tax purposes to each of the parties to this Agreement and to
the shareholders of TCI and Liberty (other than in respect of cash paid in lieu
of fractional shares pursuant to Section 2.6(f) or for Dissenting Shares).
Without limiting the generality of the foregoing, and subject to compliance with
any legal requirements, if necessary to obtain an opinion of counsel to the
foregoing effect the parties agree that either (i) TCI shall, and shall cause
its Subsidiaries to, sell to Liberty or one or more Subsidiaries of Liberty,
immediately prior to the TCI Merger, such properties and assets owned by TCI or
such Subsidiaries as may be required to obtain such opinion (the "Asset Transfer
Alternative") or (ii) Liberty shall be merged with and into TCI, with TCI
continuing as the surviving corporation (the "Alternative Merger"). If the
parties cannot mutually agree as to which of the foregoing alternatives to
pursue or as to the valuation of properties and assets proposed to be sold
pursuant to the Asset Transfer Alternative, then the parties shall pursue the
Alternative Merger. Any sale of properties and assets in connection with the
Asset Transfer Alternative shall be for the fair market value thereof, such
value to be determined by mutual
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agreement of TCI and Liberty. In the event the Alternative Merger is pursued,
the parties agree to negotiate in good faith an amendment to this Agreement
providing for (x) the Alternative Merger and (y) each holder of Liberty Common
Stock or Liberty Preferred Stock receiving, in lieu of TCI/Liberty Common Stock
or TCI Liberty Preferred Stock, shares of TCI Common Stock or a new series of
TCI preferred stock, as the case may be, on substantially the same terms (and
based on the same exchange ratios) as provided in Section 2.1. The parties agree
that no further changes shall be made in any such amendment to the terms of this
Agreement, except to the extent that changes are necessitated due to the
structure of the Alternative Merger, in which event any such changes shall not
alter materially the economic benefits of the provisions hereof to the
respective stockholders of TCI or Liberty.
3.9 Reasonable Efforts. Subject to the terms and conditions of this
Agreement and applicable law, each of the parties hereto shall use its
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, including such actions or things as any other
party hereto may reasonably request in order to cause any of the conditions to
such other party's obligation to consummate such transactions specified in
Article VIII to be fully satisfied. Without limiting the generality of the
foregoing, the parties shall (and shall cause their respective Subsidiaries, and
use their reasonable efforts to cause their respective affiliates, directors,
officers, employees, agents, attorneys, accountants and representatives, to)
consult and fully cooperate with and provide reasonable assistance to each other
in (i) the preparation and filing with the Commission of the Joint Proxy
Statement, the Joint Proxy Statement/Prospectus and the Registration Statement
and any necessary amendments of, or supplements to, any thereof; (ii) seeking to
have such Joint Proxy Statement cleared, and the Registration Statement declared
effective, by the Commission as soon as reasonably practicable after filing with
the Commission; (iii) taking such actions as may reasonably be required under
applicable state securities or "blue sky" laws in connection with the issuance
of the securities covered by the Registration Statement; (iv) obtaining all
necessary consents, approvals, waivers, licenses, permits, authorizations,
registrations, qualifications or other permission or action by, and giving all
necessary notices to and making all necessary filings with and applications and
submissions to, any Governmental Entity (as defined in Section 4.5(v)) or other
person or entity; (v) filing all Notification and Report Forms required under
the HSR Act (as defined in Section 4.5 (ii)(F)) as a result of the transactions
contemplated by this Agreement and promptly complying with any requests for
additional information and documentary material that may be requested pursuant
to the HSR Act; (vi) lifting any permanent or preliminary injunction or
restraining order or other similar order issued or entered by any court or
Governmental Entity (an "Injunction") of any type referred to in Section 8.1(d);
(vii) developing and implementing reasonable tax planning measures for
TCI/Liberty and each of the Surviving Corporations in light of the transactions
contemplated hereby; (viii) 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 (ix) in general, consummating and
making effective the transactions contemplated hereby; provided, however, that
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 clause (iv) or (vi) of this sentence,
(x) no party shall be required to pay any consideration, to divest itself of any
of, or otherwise rearrange the composition of, its assets or to agree to any
conditions or requirements which are materially adverse or burdensome and (y)
without the other party's prior consent, each of Liberty and TCI shall not, and
shall not permit any of its Subsidiaries or affiliates to, amend, or agree to
amend, in any material respect any License (as defined in Section 4.9) or
Contract (as defined in Section 4.5(iv)). Prior to making any application to or
filing with any Governmental Entity or other person or entity in connection with
this Agreement, each of TCI and Liberty shall provide the other party with
drafts thereof and afford the other party a reasonable opportunity to comment on
such drafts.
3.10 Quotation on Nasdaq NMS. TCI/Liberty shall use its reasonable best
efforts to cause the shares of TCI/Liberty Common Stock and TCI/Liberty Class C
Preferred Stock to be issued in the Mergers and upon exercise of TCI Stock
Options, Liberty Stock Options and Liberty SARs (or TCI/Liberty stock options or
stock appreciation rights exchanged therefor) to be included in the Nasdaq NMS
upon issuance.
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3.11 Voting Agreement.
(a) TCI shall, and shall cause each of its Subsidiaries to, vote all shares
of Liberty Common Stock and, if eligible to vote, shares of Liberty Preferred
Stock owned by it, at any meeting of stockholders of Liberty or in connection
with any action taken by written consent of stockholders of Liberty, (i) in
favor of the transactions contemplated by this Agreement (including, at the
Liberty Stockholders Meeting, in favor of the Merger Proposal and the
TCI/Liberty SIP) and (ii), except as otherwise agreed by Liberty, against any
action or agreement that would impede or interfere with the transactions
contemplated by this Agreement.
(b) Liberty shall, and shall cause each of its Subsidiaries to, vote all
shares of TCI Common Stock owned by it at any meeting of stockholders of TCI or
in connection with any action taken by written consent of stockholders of TCI,
(i) in favor of the transactions contemplated by this Agreement (including, at
the TCI Stockholders Meeting, in favor of the Merger Proposal and the
TCI/Liberty SIP) and (ii), except as otherwise agreed by TCI, against any action
or agreement that would impede or interfere with the transactions contemplated
by this Agreement.
3.12 Restrictions on Transfer.
(a) TCI shall not, and shall not permit any of its Subsidiaries to, prior
to the Liberty Merger, sell, assign, transfer, pledge, hypothecate or otherwise
dispose of, or grant any right (including, without limitation, as to voting)
with respect to, any shares of Liberty Common Stock or Liberty Preferred Stock
owned by it; provided, that the foregoing shall not (i) prevent TCI from
transferring any such shares to one or more Subsidiaries of TCI, or a Subsidiary
of TCI from transferring any such shares to TCI and/or one or more other
Subsidiaries of TCI or (ii) be violated by any pledge or other hypothecation in
effect on the date of this Agreement.
(b) Liberty shall not, and shall not permit any of its Subsidiaries to,
prior to the TCI Merger, sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, or grant any right (including, without limitation, as to
voting) with respect to, any shares of TCI Common Stock owned by it; provided,
that the foregoing shall not (i) prevent Liberty from transferring any such
shares to one or more Subsidiaries of Liberty, or a Subsidiary of Liberty from
transferring any such shares to Liberty and/or one or more other Subsidiaries of
Liberty or (ii) be violated by any pledge or other hypothecation in effect on
the date of this Agreement or the escrow of shares of TCI Class A Stock pursuant
to the terms of the Liberty Class B Preferred.
3.13 Directors and Executive Officers of TCI/Liberty at the Effective
Time. TCI and Liberty shall take such action as may be necessary to cause the
directors and executive officers of TCI/Liberty, immediately prior to the
Effective Time, to consist solely of those persons indicated on Exhibit I
hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LIBERTY
Liberty hereby represents and warrants to each of TCI and TCI/Liberty as
follows:
4.1 Organization and Qualification. Each of Liberty and its "significant
subsidiaries" (as defined in Rule 1-02 of Regulation S-X of the Rules and
Regulations of the Commission) (i) is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, (ii) has all requisite
corporate or partnership power and authority to own, lease and operate its
properties and to carry on its business as it is 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 the business conducted by it makes such qualification or license
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed or in good standing has not had, either individually or in
the aggregate, a material adverse effect on the business, assets, results of
operations or financial condition of Liberty and its Subsidiaries, taken as a
whole. Each entity in which Liberty, directly or through one or more of its
Subsidiaries, has an investment accounted for by the equity method which is
material to the business, assets, results of operations or financial condition
of Liberty and its Subsidiaries, taken as a whole (the "Liberty Equity
Affiliates"), to the knowledge of Liberty, is a corporation
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or partnership (A) duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, (B) has all
requisite corporate or partnership power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and (C)
is duly qualified to do business and is in good standing 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 each case where such
failure to be so existing and in good standing or to have such power and
authority or to be so qualified to do business and be in good standing has not
had, individually or in the aggregate, a material adverse effect on the
business, assets, results of operations or financial condition of Liberty and
its Subsidiaries, taken as a whole. Liberty has delivered to TCI true and
complete copies of its Restated Certificate of Incorporation and By-laws, as
amended through and in effect on the date hereof.
4.2 Authorization and Validity of Agreement. Liberty has all requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining the approval of its stockholders specified in Section 4.15, to perform
its obligations hereunder and consummate the transactions contemplated hereby.
The execution, delivery and performance by Liberty of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Liberty Board and by all other necessary corporate action on the part of
Liberty, subject, in the case of the consummation by it of the Liberty Merger,
to such approval of Liberty's stockholders. This Agreement has been duly
executed and delivered by Liberty and is a valid and binding obligation of
Liberty, 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).
4.3 Capitalization. The authorized capital stock of Liberty consists of
300 million shares of Liberty Class A Stock, 100 million shares of Liberty Class
B Stock, 11,000 shares of Class A Redeemable Convertible Preferred Stock
("Liberty Class A Preferred"), 106,000 shares of Liberty Class B Preferred,
400,000 shares of Class C Redeemable Exchangeable Preferred Stock ("Liberty
Class C Preferred"), 18,000 shares of Liberty Class D Preferred, two million
shares of Liberty Class E Preferred and five million shares of Class F Serial
Preferred Stock ("Liberty Class F Preferred"). As of the close of business on
January 18, 1994, (i) 87,513,778 shares of Liberty Class A Stock were issued and
outstanding, 56,000 shares were reserved for issuance upon exercise of
outstanding Liberty Stock Options and no shares were held by Liberty in its
treasury or by any Subsidiary of Liberty; (ii) 43,340,320 shares of Liberty
Class B Stock were issued and outstanding and no shares were issued and held by
Liberty in its treasury or by any Subsidiary of Liberty; (iii) no shares of
Liberty Class A Preferred were issued and outstanding or held by Liberty in its
treasury or by any Subsidiary of Liberty; (iv) 105,353 shares of Liberty Class B
Preferred were issued and outstanding and no shares were held by Liberty in its
treasury or by any Subsidiary of Liberty; (iv) no shares of Liberty Class C
Preferred were issued or outstanding or held by Liberty in its treasury or by
any Subsidiary of Liberty; (v) 17,238 shares of Liberty Class D Preferred were
issued and outstanding and no shares were held by Liberty in its treasury or by
any Subsidiary of Liberty; (vi) 1,675,096 shares of Liberty Class E Preferred
were issued and outstanding and no shares were held by Liberty in its treasury
or by any Subsidiary of Liberty; and (vii) no shares of Liberty Class F
Preferred were issued and outstanding or held by Liberty in its treasury or by
any Subsidiary of Liberty. All issued and outstanding shares of Liberty Common
Stock and Liberty Preferred Stock have been validly issued and are fully paid
and nonassessable, are not subject to and have not been issued in violation of
any preemptive rights and have not been issued in violation of any Federal or
state securities laws. There are no issued or outstanding bonds, debentures,
notes or other indebtedness of Liberty or any of its Subsidiaries which have the
right to vote (or which are convertible into other securities having the right
to vote) on any matters on which stockholders may vote ("Voting Debt"). Except
as set forth on Schedule 4.3, there are not as of the date hereof, and will not
at any time to and including the Effective Time be, any outstanding or
authorized subscriptions, options, warrants, calls, rights, commitments or any
other agreements of any character to or by which Liberty or any of its
Subsidiaries is a party or is bound which, directly or indirectly, obligate
Liberty or any of its Subsidiaries to issue, deliver or sell or cause to be
issued, delivered or sold any additional shares of Liberty Common Stock or
Liberty Preferred Stock or any other capital stock, equity interest or Voting
Debt of Liberty or any Subsidiary of Liberty or any securities convertible into,
or exercisable or exchangeable for, or evidencing the right to subscribe for any
such shares, interests or Voting Debt or obligating Liberty or any of its
Subsidiaries to grant, extend or enter into any such subscription,
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option, warrant, call or right. Since the close of business on January 18, 1994,
no shares of capital stock of Liberty have been issued or have been transferred
from Liberty's treasury. Immediately after the Effective Time, there will be no
subscription, option, warrant, call, right, commitment or agreement which will
entitle (conditionally or unconditionally) any person or entity to purchase or
otherwise acquire, or will obligate (conditionally or unconditionally) the
Liberty Surviving Corporation (as Liberty's successor) or any Subsidiary of the
Liberty Surviving Corporation that was a Subsidiary of Liberty to sell, issue or
deliver, any shares of capital stock, any other equity interest or any Voting
Debt of the Liberty Surviving Corporation or obligating the Liberty Surviving
Corporation or any such Subsidiary to grant, extend or enter into any such
subscription, warrant, call, right, commitment or agreement. Except for the
Liberty SIP and except as set forth on Schedule 4.3 or Schedule 4.12(a), neither
Liberty nor any of its Subsidiaries has adopted, authorized or assumed any
plans, arrangements or practices for the benefit of its officers, employees or
directors which require or permit the issuance, sale, purchase or grant of any
capital stock, other equity interests or Voting Debt of Liberty or any
Subsidiary of Liberty, any other securities convertible into, or exercisable or
exchangeable for, any such stock, interests or Voting Debt or any phantom
shares, phantom equity interests or stock or equity appreciation rights. Except
as set forth on Schedule 4.3, all shares of capital stock of and all partnership
or other equity interests in each Subsidiary of Liberty and in each Liberty
Equity Affiliate owned directly or indirectly by Liberty are owned free and
clear of any lien, security interest, pledge, charge, claim, option, right to
acquire, restriction on transfer, voting restriction or agreement, or any other
restriction or encumbrance of any nature whatsoever (a "Lien") and the shares of
capital stock of each corporate Subsidiary of Liberty are validly issued, fully
paid and nonassessable. Except as set forth on Schedule 4.3, 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 that, directly or indirectly, (x) call for or relate
to the sale, pledge, transfer or other disposition by Liberty or Liberty
Surviving Corporation or any Subsidiary of Liberty or Liberty Surviving
Corporation of any shares of capital stock, any partnership or other equity
interests or any Voting Debt of any Subsidiary of Liberty or Liberty Surviving
Corporation or of any Liberty Equity Affiliate owned directly or indirectly by
Liberty or Liberty Surviving Corporation or any Subsidiary of Liberty or Liberty
Surviving Corporation, or (y) relate to the voting or control of such capital
stock, partnership or other equity interests or Voting Debt.
4.4 Reports and Financial Statements. Liberty has heretofore made
available to TCI true and complete copies of all reports, registration
statements, definitive proxy statements and other documents (in each case
together with all amendments thereto) filed by Liberty with the Commission since
June 30, 1991 (such reports, registration statements, definitive proxy
statements and other documents, together with any amendments thereto, are
sometimes collectively referred to as the "Liberty Commission Filings"). The
Liberty Commission Filings constitute all of the documents (other than
preliminary material) that Liberty was required to file with the Commission
since such date. As of their respective dates, each of the Liberty Commission
Filings complied 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 Liberty 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 (except
that no representation or warranty is made with respect to any information
regarding TCI included in the Liberty Commission Filings which was furnished by
TCI expressly for use therein). When filed with the Commission, the financial
statements included in the Liberty 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 generally accepted accounting principles
(as in effect from time to time) 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 Liberty and its
consolidated Subsidiaries 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. Except as and to the extent
reflected or reserved against in the financial statements included in Liberty's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 or as
disclosed therein and except as set forth on Schedule 4.4, none of Liberty, any
Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity
Affiliate had as of such date any
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liability or obligation of any kind required to be reflected on a balance sheet
of Liberty and its consolidated subsidiaries prepared in accordance with the
applicable rules and regulations of the Commission which was material to the
business, assets, results of operations or financial condition of Liberty and
its Subsidiaries, taken as a whole. Since September 30, 1993, except as
disclosed in the Liberty Commission Filings filed with the Commission prior to
the date hereof and except as set forth on Schedule 4.4, none of Liberty, any
Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity
Affiliate has incurred any liability or obligation of any kind which, in any
case or in the aggregate, is material to the business, assets, results of
operations or financial condition of Liberty and its Subsidiaries, taken as a
whole.
4.5 No Approvals or Notices Required; No Conflict with
Instruments. Except as set forth on Schedule 4.5, the execution and delivery by
Liberty of this Agreement do not, and the performance by Liberty of its
obligations hereunder and the consummation of the transactions contemplated
hereby will not:
(i) assuming approval of the Merger Proposal by Liberty's stockholders
as contemplated by Section 4.15, conflict with or violate the Restated
Certificate of Incorporation or By-laws of Liberty or the charter or bylaws
of any corporate Subsidiary of Liberty or the partnership agreement of any
partnership Subsidiary of Liberty;
(ii) require any consent, approval, order or authorization of or other
action by any Governmental Entity (as defined in clause (v) of this Section
4.5) (a "Government Consent") or any registration, qualification,
declaration or filing with or notice to any Governmental Entity (a
"Governmental Filing"), in each case on the part of or with respect to
Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any
Liberty Equity Affiliate, the absence or omission of which would, either
individually or in the aggregate, have a material adverse effect on the
transactions contemplated hereby or on the business, assets, results of
operations or financial condition of Liberty and its Subsidiaries, taken as
a whole, or the Liberty Surviving Corporation and its Subsidiaries, taken
as a whole, except for (A) the filing with the Commission of the Joint
Proxy Statement and the Registration Statement and such reports under
Sections 13(a) and 16(a) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated hereby,
(B) the filing of the Liberty Certificate of Merger with the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which Liberty is qualified to do business,
(C) such Government Consents and Governmental Filings (the "FCC Approvals")
as may be required under the Communications Act of 1934, as amended (the
"Communications Act"), (D) such Government Consents and Governmental
Filings (the "Local Approvals") with foreign, state and local governmental
authorities (including foreign, state and local authorities granting
franchises to operate cable systems) as may be required with respect to the
Licenses (as defined in Section 4.9) held by Liberty, any of its
Subsidiaries or, to the knowledge of Liberty, any of the Liberty Equity
Affiliates or as may otherwise be required under laws applicable to the
conduct of the businesses of Liberty and its Subsidiaries in the ordinary
course, (E) the Governmental Filings to be made on the part of or with
respect to TCI referred to in clauses (ii)(A) and (ii)(B) of Section 5.5,
as applicable, and such Government Consents and Governmental Filings as may
be required in connection with the issuance of TCI/Liberty stock as
contemplated hereby pursuant to state securities and blue sky laws; and (F)
the Governmental Filings required pursuant to the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act");
(iii) require, on the part of Liberty, any Subsidiary of Liberty, or,
to the knowledge of Liberty, any Liberty Equity Affiliate, any consent by
or approval of (a "Contract Consent") or notice to (a "Contract Notice")
any other person or entity (other than a Governmental Entity), whether
under any License or other Contract (as defined in clause (iv) of this
Section 4.5) or otherwise, the absence or omission of which would, either
individually or in the aggregate, have a material adverse effect on the
transactions contemplated hereby or on the business, assets, results of
operations or financial condition of Liberty and its Subsidiaries, taken as
a whole, or the Liberty Surviving Corporation and its Subsidiaries, taken
as a whole;
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(iv) assuming that the Contract Consents and Contract Notices
described on Schedule 4.5 are obtained and given and that any Government
Consents and Governmental Filings required under any Licenses (as defined
in Section 4.9) are obtained or made, conflict with, result in any
violation or breach of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of any material benefit under or
the creation of 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") any Contract
(which term shall mean and include any note, bond, indenture, mortgage,
deed of trust, lease, franchise, permit, authorization, license, contract,
instrument, employee benefit plan or practice, or other agreement,
obligation, commitment or concession of any nature) to which Liberty, any
Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity
Affiliate is a party, by which Liberty, any Subsidiary of Liberty or, to
the knowledge of Liberty, any Liberty Equity Affiliate or any of their
respective assets or properties is bound or affected or pursuant to which
Liberty, any Subsidiary of Liberty or, to the knowledge of Liberty, any
Liberty Equity Affiliate is entitled to any rights or benefits (including
the Licenses), except for such Violations which would not, either
individually or in the aggregate, have a material adverse effect on the
transactions contemplated hereby or on the business, assets, results of
operations or financial condition of Liberty and its Subsidiaries, taken as
a whole, or the Liberty Surviving Corporation and its Subsidiaries, taken
as a whole; or
(v) assuming that the Merger Proposal is approved by Liberty's
stockholders and assuming that the Government Consents and Governmental
Filings specified in clause (ii) of this Section 4.5 are obtained, made and
given, result in a Violation of, under or pursuant to any law, rule,
regulation, order, judgment or decree applicable to Liberty, any Subsidiary
of Liberty or, to the knowledge of Liberty, any Liberty Equity Affiliate or
by which any of their respective properties or assets are bound or
affected, except for such Violations which would not, either individually
or in the aggregate, have a material adverse effect on the transactions
contemplated hereby or on the business, assets, results of operations or
financial condition of Liberty and its Subsidiaries, taken as a whole, or
the Liberty Surviving Corporation and its Subsidiaries, taken as a whole.
As used herein, the term "Governmental Entity" means and includes any
court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign.
4.6 Absence of Certain Changes or Events. Except as otherwise disclosed
in the Liberty Commission Filings filed with the Commission prior to the date
hereof or as set forth on Schedule 4.6, during the period commencing on October
1, 1993 and ending on the date of this Agreement, (i) there has not been any
material adverse change in, and no event has occurred and no condition exists
which, individually or together with other events or conditions, has had a
material adverse effect on, the business, assets, results of operations or
financial condition of Liberty and its Subsidiaries, taken as a whole (excluding
events or conditions generally affecting the cable television or cable
programming industries in the United States or affecting general business or
economic conditions in the United States) and (ii) neither Liberty nor any of
its Subsidiaries has taken any action which, if taken after the date of this
Agreement without the consent of TCI, would violate Section 7.4 hereof.
4.7 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Liberty or any of its affiliates, directors,
officers, employees, agents or representatives in writing specifically 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 TCI/Liberty with the Commission under
the Securities Act, (ii) the Joint Proxy Statement/Prospectus or (iii) any other
documents filed or to be filed with the Commission or any other Governmental
Entity in connection with the transactions contemplated hereby, 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, at the time of the TCI Stockholders Meeting or the Liberty
Stockholders Meeting or any other meeting of Liberty's stockholders or TCI's
stockholders to be held in connection with the Mergers or at the Effective Time,
and, in the case of the Joint Proxy Statement/Prospectus or any amendment or
supplement thereto, at the time of mailing of the Joint Proxy
Statement/Prospectus to Liberty's stockholders and TCI's stockholders
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or at the time of the Liberty Stockholders Meeting or the TCI Stockholders
Meeting or any other meeting of Liberty's stockholders or TCI's stockholders to
be held in connection with the Mergers, be false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the Liberty
Stockholders Meeting or the TCI Stockholders Meeting. For this purpose, any such
information included or incorporated by reference in any such document will be
deemed to have been so supplied in writing specifically for inclusion or
incorporation therein if such document was available for review by Liberty a
reasonable time before such document was filed (but the foregoing shall not be
the exclusive manner in which it may be established that such information was so
supplied). The Registration Statement and the Joint Proxy Statement/Prospectus
will comply as to form in all material respects with the applicable provisions
of the Securities Act, the Exchange Act and the respective rules and regulations
under each such Act.
4.8 Legal Proceedings. Except as set forth in the Liberty Commission
Filings filed with the Commission prior to the date hereof or as set forth on
Schedule 4.8, (i) there is no suit, action or proceeding pending or, to the
knowledge of Liberty, any investigation pending or any suit, action, proceeding
or investigation threatened, against, involving or affecting Liberty, any
Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity
Affiliate or any of its or their properties or rights (excluding suits, actions,
proceedings or investigations generally affecting the cable television or cable
programming industries in a particular state or in the United States and to
which neither Liberty nor any Subsidiary of Liberty is a party), which, if
adversely determined, is, insofar as Liberty can reasonably foresee, reasonably
likely to have, either individually or in the aggregate, a material adverse
effect on the business, assets, results of operations or financial condition of
Liberty and its Subsidiaries, taken as a whole; (ii) there is no judgment,
decree, Injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator applicable to Liberty, any
Subsidiary of Liberty or, to the knowledge of Liberty, any Liberty Equity
Affiliate having, or which, insofar as Liberty can reasonably foresee, is
reasonably likely to have, either individually or in the aggregate, any such
effect; and (iii) to the knowledge of Liberty, there is no action, suit,
proceeding or investigation pending or threatened against Liberty which seeks to
restrain, enjoin or delay the consummation of either Merger or any of the other
transactions contemplated hereby or which seeks damages in connection therewith,
and no Injunction of any type referred to in Section 8.1(d) has been entered or
issued. The term "order" as used in the immediately preceding sentence shall not
be deemed to include any Licenses.
4.9 Licenses; Compliance With Regulatory Requirements; Intangible
Property. Liberty, its Subsidiaries and, to the knowledge of Liberty, the
Liberty Equity Affiliates, hold all licenses, franchises, ordinances,
authorizations, permits, certificates, variances, exemptions, orders and
approvals, domestic or foreign (collectively, the "Licenses") which are material
to the operation of the businesses of Liberty and its Subsidiaries, taken as a
whole. Each of Liberty, its Subsidiaries and, to the knowledge of Liberty, the
Liberty Equity Affiliates is in compliance with, and has conducted its business
so as to comply with, the terms of their respective Licenses and with all
applicable laws, rules, regulations, ordinances and codes, domestic or foreign,
including laws, rules, regulations, ordinances and codes relating to the
protection of the environment, except where the failure so to comply has not
had, either individually or in the aggregate, a material adverse effect on the
business, assets, results of operations or financial condition of Liberty and
its Subsidiaries, taken as a whole. Without limiting the generality of the
foregoing, Liberty, its Subsidiaries and, to the knowledge of Liberty, the
Liberty Equity Affiliates, (i) have all Licenses (the "FCC Licenses") issued by
the Federal Communications Commission (the "FCC") and all Licenses of foreign,
state and local governmental authorities (the "Franchises") required for the
operation of the cable television systems and related facilities (the "CATV
Systems") being operated on the date hereof by Liberty, any of its Subsidiaries
or, to the knowledge of Liberty, any of the Liberty Equity Affiliates, (ii) have
duly and currently filed all reports and other information required to be filed
by the FCC or any other Governmental Entity in connection with such FCC Licenses
and Franchises and (iii) are not in violation of any of such FCC Licenses or
Franchises, other than the lack of FCC Licenses or Franchises, delays in filing
reports or possible violations which have not had and, insofar as can reasonably
be foreseen, in the future will not have a material adverse effect on the
business, assets, results of operations or financial condition of Liberty and
its Subsidiaries, taken as a whole. Except as Liberty shall have previously
advised TCI in writing, Liberty and its Subsidiaries own or have adequate rights
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to use all patents, trademarks, trade names, service marks, trade secrets,
copyrights and other proprietary intellectual property rights as are material in
connection with the businesses of Liberty and its Subsidiaries, taken as a
whole.
4.10 Brokers or Finders. No agent, broker, investment banker, financial
advisor or other person or entity is or will be entitled, by reason of any
agreement, act or statement by Liberty 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, except Merrill Lynch & Co ("Merrill Lynch"), whose fees and expenses
and claims for indemnification and contribution will be paid by Liberty in
accordance with Liberty's agreement with such firm (a copy of which has provided
to TCI prior to the date hereof), and Liberty agrees to indemnify and hold TCI
and TCI/Liberty harmless from and against any and all claims, liabilities or
obligations with respect to any 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 Liberty or any of its
Subsidiaries, directors, officers, employees or affiliates.
4.11 Tax Matters. Except as set forth on Schedule 4.11, to the knowledge
of Liberty (i) there has been duly filed by or on behalf of Liberty and each of
its Subsidiaries (and each of their respective predecessors (except that no
representation or warranty is made as to TCI or any of its Subsidiaries)), or
filing extensions from the appropriate Federal, state, foreign and local
Governmental Entities have been obtained with respect to, all material 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 in respect of state, local
and foreign taxes which are in the aggregate immaterial in amount) and (iii) a
reserve which Liberty 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 date hereof. None of the Federal income tax returns required to be
filed by or on behalf of Liberty and each of its Subsidiaries consolidated in
such returns (and their respective predecessors (except that no representation
or warranty is made as to TCI or any of its Subsidiaries)) under the Code or any
predecessor statute (the "Liberty Consolidated Returns") are currently under
examination by the Internal Revenue Service ("IRS"). There have not been any
deficiencies or assessments asserted in writing by the IRS with respect to the
Liberty Consolidated Returns. Except as set forth on Schedule 4.11, neither
Liberty nor any of its Subsidiaries (nor any of their respective predecessors
(except that no representation or warranty is made as to TCI or any of its
Subsidiaries)) has, with regard to any assets or property held, acquired or to
be acquired by Liberty or any of its Subsidiaries, filed a consent pursuant to
Section 341(f) of the Code or any predecessor statute. 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.
4.12 Employee Benefit Plans; ERISA.
(a) Schedule 4.12(a) contains a true and complete list of each bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance or termination pay, hospitalization, medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to or
required to be contributed to at any time since January 1, 1993 by Liberty or by
any trade or business, whether or not incorporated (a "Liberty ERISA
Affiliate"), that together with Liberty would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), for the benefit of any employee or former
employee of Liberty or any Liberty ERISA Affiliate including any such type of
plan established, maintained or contributed to under the laws of any foreign
country (the "Liberty Plans"). Schedule 4.12(a) identifies each Liberty Plan
that is an "employee benefit plan," as defined in Section 3(3) of ERISA. Liberty
has heretofore delivered to TCI true and complete copies of each Liberty Plan
and, if the Liberty Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding document.
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(b) Except as set forth in Schedule 4.12(b), (i) no Liberty Plan is subject
to Title IV of ERISA or Section 412 of the Code and (ii) neither Liberty nor any
Liberty ERISA Affiliate made, or was required to make, contributions to any
employee benefit plan subject to Title IV of ERISA during the five year period
ending on the Effective Time.
(c) Concerning each Liberty Plan that is or has been subject to the funding
requirements of Title I, Subtitle B, Part 3 of ERISA, the funding method used in
connection with such Liberty Plan is, and at all times has been, acceptable
under ERISA, each of the actuarial assumptions employed in connection with
determining the funding of each such Liberty Plan is, and at all times has been,
reasonable and satisfies the requirements of Section 12(c)(3) of the Code and
Section 302(c)(3) of ERISA, and Schedule 4.12(c) sets forth, as of the date
hereof, (A) the actuarially determined present value of all benefit liabilities
within the meaning of Section 4001(a)(16) of ERISA ("Liberty Benefit
Liabilities") determined on an ongoing plan basis, employing in making such
determination the same actuarial assumptions as were used in determining plan
fundings for the most recently completed plan year unless any such assumption is
not reasonable, in which event such assumption has been changed to a reasonable
assumption, (B) the actuarially determined present value of all Liberty Benefit
Liabilities under each such Liberty Plan employing in such determination the
same actuarial assumptions, except turnover assumptions, as were used in
determining funding for such plan for the most recently completed plan year
unless any such assumption is not reasonable, in which event such assumption has
been changed to a reasonable assumption, (C) the fair market value of the assets
held to fund each such Liberty Plan, (D) the funding method used in connection
with each such Liberty Plan and (E) identification of the amount and related
plan with respect to which there is or has been any "accumulated funding
deficiency," as defined in Section 302(a)(2) of ERISA. Schedule 4.12(c) sets
forth a reasonable good faith estimate of material changes between January 1,
1993 and the date hereof in the value of benefits or plan assets described in
the preceding clause (A), (B) or (C); Schedule 4.12(c) sets forth the
information described in said clauses (A), (B), (C) and (D) as of the date
hereof, including a separate statement of liabilities attributable to
unpredictable contingent event benefits within the meaning of Section
412(l)(7)(B)(ii) of the Code and Section 302(d)(7)(B)(ii) of ERISA. The sum of
the amount of unfunded Liberty Benefit Liabilities under all Liberty Plans
(excluding each such plan with an amount of unfunded Liberty Benefit Liabilities
of zero or less) is not more than $1,000,000; all contributions required by
Section 515 of ERISA to be made by Liberty or any Liberty ERISA Affiliate to
Liberty Plans have been timely made; with respect to any such Liberty Plan and
concerning each Liberty Plan which is in whole or in part an "individual account
plan" (as defined in Section 3(34) of ERISA), there is set forth in Schedule
4.12(c) (A) the amount of any liability of Liberty or any Liberty ERISA
Affiliate for contributions due or to become due with respect to each such
Liberty Plan for periods up to the date hereof, and the date any such amounts
were paid and (B) the amount of any contribution accrued or paid or expected to
be accrued or paid with respect to such Liberty Plan for the plan year in which
the Effective Time occurs; with respect to any such Liberty Plan no such plan
has been terminated or subject to a "spin-off" or "spin-off termination" or
partial termination and no assets of any such Liberty Plan have been used or
employed in a manner so as to subject them to an excise tax imposed under
Section 4980 of the Code; each such Liberty Plan permits termination thereof,
and distribution of any assets in excess of those required to pay Liberty
Benefit Liabilities may be distributed to or for the benefit of Liberty or any
Liberty ERISA Affiliate, and Section 4044(d) of ERISA would not prevent such
reversion; and with respect to any such Liberty Plan, any reduction in benefits
was preceded by an adequate and appropriate notice to the parties described in
and as required by Section 204(h) of ERISA. There are no former employees or
participants who are entitled to earn additional pension benefits by reason of
"grow in" or other rights with respect to service or time periods after such
employees have been terminated from employment with Liberty, or any Liberty
ERISA Affiliates.
(d) Neither Liberty nor any Liberty ERISA Affiliate has engaged in any
transaction described under Section 4069 of ERISA nor can any claim, encumbrance
or other lien be imposed on Liberty, any Liberty ERISA Affiliates or assets of
any of the foregoing under Section 4068 of ERISA.
(e) Each Liberty Plan that utilizes a funding vehicle described in Section
501(c)(9) of the Code or is subject to the provisions of Section 505 of the Code
has been the subject of a notification by the IRS that such funding vehicle
qualifies for tax-exempt status under Section 501(c)(9) of the Code and/or such
Liberty Plan
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complies with Section 505 of the Code, unless the IRS does not as a matter of
policy issue such notification with respect to that particular type of plan.
Each such Liberty Plan satisfies, where appropriate, the requirements of
Sections 501(c)(9) and 505 of the Code.
(f) Schedule 4.12(f) contains a list of, and Liberty has delivered to TCI
true and complete copies of, all other material personnel policy, stock option
plan, collective bargaining agreement, bonus, incentive award, vacation pay,
severance pay, consulting agreement or any other employee benefit plan,
agreement, arrangement or understanding which Liberty or any Liberty ERISA
Affiliate maintains, or to which Liberty or any Liberty ERISA Affiliate
contributes, is required to contribute or has contributed since January 1, 1993,
and which is not required under paragraph (a) or (b) above to be listed in
Schedule 4.12(a) or (b), respectively (including, without limitation, with
respect to any plans which are unwritten, a detailed written description of
eligibility, participation, benefits, funding arrangements, assets and any other
matters which relate to the obligations of Liberty or any Liberty ERISA
Affiliate).
(g) Liberty and each Liberty ERISA Affiliate have complied in all material
respects with all requirements for premium payments, including any interest and
penalty charges for late payment, due the Pension Benefit Guaranty Corporation
("PBGC") with respect to each Liberty Plan and each separate plan year for which
any premiums are required. Except as set forth in Schedule 4.12(g), and except
for transactions required by this Agreement, from the period commencing January
1, 1987 through the Effective Time there has been no "reportable event" (as
defined in Section 4043(b) of ERISA and the regulations promulgated by the PBGC
thereunder) with respect to any Liberty Plan subject to Title IV of ERISA for
which notice to the PBGC has not, by rule or regulation, been waived. There is
not any unsatisfied material liability to the PBGC which has been incurred by
Liberty or any Liberty ERISA Affiliate on account of any Liberty Plan subject to
Title IV of ERISA. From the period commencing January 1, 1987 through the
Effective Time, no filing has been or will be made by Liberty or any Liberty
ERISA Affiliate with the PBGC to terminate, nor has any proceeding been
commenced by the PBGC to terminate, any Liberty Plan subject to Title IV of
ERISA which was maintained, or wholly or partially funded, by Liberty or any
Liberty ERISA Affiliate. Neither Liberty nor any Liberty Equity Affiliate (i)
has ceased operations at a facility so as to become subject to the provisions of
Section 4062(e) of ERISA, (ii) has withdrawn from any Liberty Plan with respect
to which it is a substantial employer so as to become subject to the provisions
of Section 4063 of ERISA, (iii) has ceased contributions on or before the
Effective Time to any Liberty Plan subject to Section 4064(a) of ERISA to which
Liberty or any Liberty ERISA Affiliate has made contributions during the five
calendar years prior to the Effective Time, or (iv) has incurred a complete or
partial withdrawal from any Liberty Plan that is a multiemployer plan (as
defined in either Section 3(37) or Section 4001(a)(3) of ERISA (a "Multiemployer
Plan")) so as to incur withdrawal liability as defined in Section 4201 of ERISA
(without regard to any subsequent reduction or waiver of such liability under
Section 4207 or 4208 of ERISA). No employee pension benefit plan which is a
Multiemployer Plan to which Liberty or any Liberty ERISA Affiliate contributes
is in "reorganization" (as defined in Section 4241 of ERISA) or "insolvent" (as
defined in Section 4245 of ERISA). There is not now, nor can there ever be, any
liability under Section 4064 of ERISA to Liberty or any Liberty ERISA Affiliate
by reason of participation in any Liberty Plan by Liberty or any Liberty ERISA
Affiliate on or prior to the Effective Time. There has been no amendment to any
Liberty Plan that would require the furnishing of security under Section
401(a)(29) of the Code. There has been no event or circumstance and there can be
no event or circumstance which has or may result in any liability being asserted
by any Liberty Plan, the PBGC or any other person or entity under Title IV of
ERISA against Liberty or any Liberty ERISA Affiliate or against TCI/Liberty
(assuming consummation of the Mergers). Neither Liberty nor any Liberty ERISA
Affiliate has any liability to any Liberty Plan for contributions under Section
412(m) of the Code or Section 302(e) of ERISA, nor has any claim, encumbrance or
other lien been imposed under Section 412(n) of the Code or Section 302(f) of
ERISA nor is there any liability for excise taxes imposed under Section 4971 of
the Code, and all liabilities arising under Section 412(c)(11) of the Code with
respect to contributions to any Liberty Plan have been set forth in Schedule
4.12(g). Copies of any notices to the PBGC under Section 412(n) of the Code or
Section 302(f) of ERISA with respect to any Liberty Plan have been delivered to
TCI; and copies of notices required to be given to participants under Section
101(d) of ERISA with respect to any Liberty Plan have previously been delivered
to TCI.
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(h) True and complete copies of each plan, agreement, arrangement or
understanding referred to in Schedule 4.12(g), the most recent determination
letter issued by the IRS with respect to each Liberty Plan, annual reports on
Form 5500 required to be filed with any Governmental Entity for each Liberty
Plan which is an employee pension benefit plan for the three most recent plan
years and all actuarial reports for the last two plan years of each Liberty
Plan, other than an "individual account plan," have heretofore been delivered by
Liberty to TCI.
(i) Except as set forth in Schedule 4.12(i), neither Liberty nor any
Liberty ERISA Affiliate is a party to or bound by the terms of any collective
bargaining agreement. Liberty and each Liberty ERISA Affiliate is in compliance
in all material respects with all applicable laws respecting the employment and
employment practices, terms and conditions of employment and wage and hours of
its employees and is not engaged in any unfair labor practice. To the knowledge
of Liberty, all of the employees of Liberty and the Liberty ERISA Affiliates who
work in the United States are lawfully authorized to work in the United States
according to federal immigration laws. There is no labor strike or labor
disturbance pending or, to the knowledge of Liberty threatened against Liberty
or any Liberty ERISA Affiliate, and during the past five years neither Liberty
nor any Liberty ERISA Affiliate has experienced a work stoppage.
(j) Each Liberty Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including, but not
limited to, Section 406 of ERISA and Section 4975 of the Code.
(k) Each Liberty Plan which is intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code.
(l) Except as set forth in Schedule 4.12(l), no Liberty Plan provides
benefits, including without limitation death or medical benefits, with respect
to current or former employees of Liberty or any Liberty ERISA Affiliate beyond
their retirement or other termination of service (other than (i) coverage
mandated by applicable law and (ii) death benefits or retirement benefits under
any "employee pension plan," as that term is defined in Section 3(2) of ERISA).
(m) Except as set forth in Schedule 4.12(m), there are no material pending,
threatened or anticipated claims by or on behalf of any Liberty Plan, by any
employee or beneficiary covered under an such Liberty Plan, or otherwise
involving any such Plan (other than routine claims for benefits).
4.13 Fairness Opinion. On January 24, 1994, Liberty received a written
opinion of Merrill Lynch, to the effect that, as of such date, the respective
exchange ratios in the Liberty Merger and the TCI Merger, taken together, are
fair to the holders of the shares of Liberty Common Stock (other than TCI or its
affiliates) from a financial point of view.
4.14 Recommendation of Liberty Board. The Liberty Board at a meeting duly
called and held on January 24, 1994, and acting on the unanimous recommendation
of a special committee of outside directors, has, by resolutions adopted by at
least 75% of the members of the entire Liberty Board, (i) determined that the
Merger Proposal is fair to, and in the best interests of, the stockholders of
Liberty (other than TCI and its Subsidiaries), (ii) approved this Agreement and
the transactions contemplated hereby and (iii) recommended that the stockholders
of Liberty approve and adopt the Merger Proposal.
4.15 Vote Required. The only vote of stockholders of Liberty required
under the DGCL and Liberty's Restated Certificate of Incorporation and By-laws
in order to approve and adopt the Merger Proposal is the affirmative vote of the
holders of (i) a majority of the aggregate voting power of the issued and
outstanding shares of Liberty Class A Stock and Liberty Class B Stock voting
together as a single class, (ii) at least 66 2/3% of the number of shares of
Liberty Class B Preferred voting as a separate class and (iii) at least 66 2/3%
of the number of shares of Liberty Class D Preferred voting as a separate class,
and no vote or approval of or other action by the holders of any other class of
the Liberty Preferred Stock is required.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TCI
TCI hereby represents and warrants to each of Liberty and TCI/Liberty as
follows:
5.1 Organization. Each of TCI and TCI's "significant subsidiaries" (as
defined in Rule 1-02 of Regulation S-X, but excluding Liberty and its
Subsidiaries) (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 property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or license necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed or in good
standing has not had, either individually or in the aggregate, a material
adverse effect on the business, assets, results of operations or financial
condition of TCI and its Subsidiaries, taken as a whole. Each entity (excluding
Liberty and its Subsidiaries) in which TCI, directly or through one or more of
its Subsidiaries, has an investment accounted for by the equity method which is
material to the business, assets, results of operations or financial condition
of TCI and its Subsidiaries, taken as a whole (the "TCI Equity Affiliates"), to
the knowledge of TCI, is a corporation or partnership (A) duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, (B) has all requisite corporate or partnership
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and (C) is duly qualified to do business
and is in good standing 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 each case where such failure to be so
existing and in good standing or to have such power and authority or to be so
qualified to do business and be in good standing has not had, individually or in
the aggregate, a material adverse effect on the business, assets, results of
operations or financial condition of TCI and its Subsidiaries, taken as a whole.
TCI has delivered to Liberty true and complete copies of its Restated
Certificate of Incorporation and By-laws, as amended through and in effect on
the date hereof.
5.2 Authorization and Validity of Agreement. TCI has all requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining the approval of its stockholders specified in Section 5.15, perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance by TCI of this Agreement and the
consummation by TCI of the transactions contemplated hereby have been duly
authorized by the TCI Board and by all other necessary corporate action on its
part, subject, in the case of consummation by it of the TCI Merger, to such
approval of TCI's stockholders. This Agreement has been duly executed and
delivered by TCI and is a valid and binding obligation of TCI, 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).
5.3 Capitalization of TCI. The authorized capital stock of TCI consists
of one billion shares of TCI Class A Stock, 100 million shares of TCI Class B
Stock and ten million shares of "blank-check" preferred stock, of which 6,201
shares have been designated "Convertible Preferred Stock Series C" pursuant to
Section 151(g) of the DGCL. As of the close of business on December 31, 1993,
(i) 481,836,852 shares of TCI Class A Stock were issued and outstanding,
8,321,186 shares were reserved for issuance upon exercise of TCI Stock Options,
1,265,004 shares were reserved for issuance upon conversion of the TCI Preferred
Stock, 41,060,990 shares were reserved for issuance upon conversion of
outstanding convertible debt securities and 79,335,038 shares were held by TCI
in its treasury or by its Subsidiaries; (ii) 47,258,787 shares of TCI Class B
Stock were issued and outstanding and no shares were held by TCI in its treasury
or by any Subsidiary; and (iii) 6,201 shares of TCI Preferred Stock were issued
and outstanding and no shares were held by TCI in its treasury or by its
Subsidiaries. All issued and outstanding shares of TCI Common Stock and TCI
Preferred Stock have been validly issued and are fully paid and nonassessable,
are not subject to and have not been issued in violation of any preemptive
rights and have not been issued in violation of any Federal or state securities
laws. TCI has no issued or outstanding Voting Debt. Except as set forth on
Schedule 5.3, there are not, as of the date hereof, and will not at any time to
and including the Effective Time be, any outstanding
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or authorized subscriptions, options, warrants, calls, rights, commitments or
any other agreement of any character to or by which TCI or any of its
Subsidiaries is a party or is bound which, directly or indirectly, obligate TCI
or any of its Subsidiaries to issue, deliver or sell or cause to be issued,
delivered or sold any additional shares of TCI Class A Stock, TCI Class B Stock,
TCI Preferred Stock or any other capital stock, equity interest or Voting Debt
of TCI or any Subsidiary of TCI or any other securities convertible into, or
exercisable or exchangeable for, or evidencing the right to subscribe for any
such shares, interests or Voting Debt or obligating TCI or any of its
Subsidiaries to grant, extend or enter into any such subscription, option,
warrant, call or right. Except as set forth on Schedule 5.3, since the close of
business on December 31, 1993, no shares of capital stock of TCI have been
issued or have been transferred from TCI's treasury. Immediately after the
Effective Time, there will be no subscription, option, warrant, call, right,
commitment or agreement which will entitle (conditionally or unconditionally)
any person or entity to purchase or otherwise acquire, or will obligate
(conditionally or unconditionally) the TCI Surviving Corporation (as TCI's
successor) or any Subsidiary of the TCI Surviving Corporation that was a
Subsidiary of TCI to sell, issue or deliver, any shares of capital stock, any
other equity interest or any Voting Debt of the TCI Surviving Corporation or
obligating the TCI Surviving Corporation or any such Subsidiary to grant, extend
or enter into any such subscription, warrant, call, right, commitment or
agreement. Except for the TCI Incentive Plans and except as set forth on
Schedule 5.3 or Schedule 5.12(a), neither TCI nor any of its Subsidiaries has
adopted, authorized or assumed any plans, arrangements or practices for the
benefit of its officers, employees or directors which require or permit the
issuance, sale, purchase or grant of any capital stock, other equity interests
or Voting Debt of TCI or any Subsidiary of TCI, any other securities convertible
into, or exercisable or exchangeable for, any such stock, interests or Voting
Debt or any phantom shares, phantom equity interests or stock or equity
appreciation rights. Except as set forth on Schedule 5.3, all shares of capital
stock of and all partnership or other equity interests in each Subsidiary of TCI
and in each TCI Equity Affiliate owned directly or indirectly by TCI are owned
free and clear of any Lien and the shares of capital stock of each corporate
Subsidiary of TCI are validly issued, fully paid and nonassessable. Except as
set forth on Schedule 5.3, 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 that,
directly or indirectly, (x) call for or relate to the sale, pledge, transfer or
other disposition by TCI or TCI Surviving Corporation or any Subsidiary of TCI
or TCI Surviving Corporation of any shares of capital stock, any partnership or
other equity interests or any Voting Debt of any Subsidiary of TCI or TCI
Surviving Corporation or of any TCI Equity Affiliate owned directly or
indirectly by TCI or TCI Surviving Corporation or any Subsidiary of TCI or TCI
Surviving Corporation, or (y) relate to the voting or control of such capital
stock, partnership or other equity interests or Voting Debt.
5.4 TCI Reports and Financial Statements. TCI has heretofore made
available to Liberty true and complete copies of all reports, registration
statements, definitive proxy statements and other documents (in each case
together with all amendments thereto) filed by TCI with the Commission since
January 1, 1991 (such reports, registration statements, definitive proxy
statements and other documents, together with any amendments thereto, are
sometimes collectively referred to as the "TCI Commission Filings"). The TCI
Commission Filings constitute all of the documents (other than preliminary
material) that TCI was required to file with the Commission since such date. As
of their respective dates, each of the TCI Commission Filings complied 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
TCI 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 (except that no representation or warranty
is made with respect to any information regarding Liberty included in the TCI
Commission Filings which was furnished by Liberty expressly for use therein).
When filed with the Commission, the financial statements included in the TCI
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 generally accepted accounting principles (as in effect from time
to time) 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 TCI and its consolidated Subsidiaries as
at the dates thereof and the consolidated results of their operations and their
consolidated cash
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flows for the periods then ended, subject, in the case of the unaudited interim
financial statements, to normal, recurring year-end audit adjustments. Except as
and to the extent reflected or reserved against in the financial statements
included in TCI's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993 or as disclosed therein and except as set forth on Schedule 5.4, none
of TCI, any of TCI's Subsidiaries or, to the knowledge of TCI, any TCI Equity
Affiliate had as of such date any liability or obligation of any kind required
to be reflected on a balance sheet of TCI and its consolidated Subsidiaries
prepared in accordance with the applicable rules and regulations of the
Commission which was material to the business, assets, results of operations or
financial condition of TCI and its Subsidiaries, taken as a whole. Since
September 30, 1993, except as disclosed in the TCI Commission Filings filed with
the Commission prior to the date hereof and except as set forth on Schedule 5.4,
none of TCI, any of TCI's Subsidiaries or, to the knowledge of TCI, any TCI
Equity Affiliate has incurred any liability or obligation of any kind which, in
any case or in the aggregate, is material to the business, assets, results of
operations or financial condition of TCI and its Subsidiaries, taken as a whole.
5.5 No Approvals or Notices Required; No Conflict with
Instruments. Except as set forth on Schedule 5.5, the execution and delivery by
TCI of this Agreement do not, and the performance by TCI of its obligations
hereunder and the consummation of the transactions contemplated hereby will not:
(i) assuming approval of the Merger Proposal by TCI's stockholders as
contemplated by Section 5.15, conflict with or violate the Restated
Certificate of Incorporation or By-laws of TCI or any corporate Subsidiary
of TCI or the partnership agreement or any partnership Subsidiary or TCI;
(ii) require any Government Consent or Governmental Filing, in each
case on the part of or with respect to TCI, any Subsidiary of TCI or, to
the knowledge of TCI, any TCI Equity Affiliate, the absence or omission of
which would, either individually or in the aggregate, have a material
adverse effect on the transactions contemplated hereby or on the business,
assets, results of operations or financial condition of TCI and its
Subsidiaries, taken as a whole, or the TCI Surviving Corporation and its
Subsidiaries, taken as a whole, except for (A) the filing with the
Commission of the Joint Proxy Statement, the Registration Statement, and
such reports and other documents, if any, under Sections 12(g), 13(a),
13(d) and 16(a) of the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated hereby, (B) the filing of
the TCI Certificate of Merger with the Secretary of State of the State of
Delaware, and appropriate documents with the relevant authorities of other
states in which TCI is qualified to do business, (C) the FCC Approvals and
the Local Approvals, (D) such Government Consents and Governmental Filings
as may be required in connection with the issuance of TCI/Liberty stock as
contemplated hereby pursuant to state securities and blue sky laws, (E) the
Governmental Filings to be made on the part of or with respect to Liberty
referred to in clauses (ii)(A) and (B) of Section 4.5 and (F) the
Governmental Filings required pursuant to the pre-merger notification
requirements of the HSR Act;
(iii) require, on the part of TCI, any Subsidiary of TCI or, to the
knowledge of TCI, any TCI Equity Affiliate, any Contract Consent or
Contract Notice, the absence or omission of which would, either
individually or in the aggregate, have a material adverse effect on the
transactions contemplated hereby or on the business, assets, results of
operations or financial condition of TCI and its Subsidiaries, taken as a
whole, or the TCI Surviving Corporation and its Subsidiaries, taken as a
whole;
(iv) assuming that the Contract Consents and Contract Notices
described on Schedule 5.5 are obtained and given and that any Government
Consents and Governmental Filings required under any Licenses are obtained
or made, result in any Violation of any Contract to which TCI, any
Subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate is
a party, by which TCI, any Subsidiary of TCI or, to the knowledge of TCI,
any TCI Equity Affiliate or any of their respective assets or properties is
bound or affected or pursuant to which TCI, any Subsidiary of TCI or, to
the knowledge of TCI, any TCI Equity Affiliate is entitled to any rights or
benefits, except for such Violations which would not, either individually
or in the aggregate, have a material adverse effect on the transactions
contemplated hereby or on the business, assets, results of operations or
financial condition of TCI and its Subsidiaries, taken as a whole, or the
TCI Surviving Corporation and its Subsidiaries, taken as a whole; or
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(v) assuming that the Merger Proposal is approved by TCI's
stockholders and assuming that the Government Consents and Governmental
Filings specified in clause (ii) of this Section 5.5 are obtained, made and
given, result in a Violation of, under or pursuant to any law, rule,
regulation, order, judgment or decree applicable to TCI, any Subsidiary of
TCI or, to the knowledge of TCI, any TCI Equity Affiliate or by which any
of their respective properties or assets are bound or affected, except for
such Violations which would not, either individually or in the aggregate,
have a material adverse effect on the transactions contemplated hereby or
on the business, assets, results of operations or financial condition of
TCI and its Subsidiaries, taken as a whole, or the TCI Surviving
Corporation and its Subsidiaries, taken as a whole.
5.6 Absence of Certain Changes or Events. Except as otherwise disclosed
in the TCI Commission Filings filed with the Commission prior to the date hereof
or as set forth on Schedule 5.6, during the period commencing on October 1, 1993
and ending on the date of this Agreement, (i) there has not been any material
adverse change in, and no event has occurred and no condition exists which,
individually or together with other events or conditions, has had a material
adverse effect on, the business, assets, results of operations or financial
condition of TCI and its Subsidiaries, taken as a whole (excluding events or
conditions generally affecting the cable television or cable programming
industries in the United States or affecting general business or economic
conditions in the United States) and (ii) neither TCI nor any of its
Subsidiaries has taken any action which, if taken after the date of this
Agreement without the consent of Liberty, would violate Section 7.4 hereof.
5.7 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by TCI or any of its affiliates, directors, officers,
employees, agents or representatives in writing specifically 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, (ii) the Joint Proxy Statement/Prospectus or (iii) any other documents
filed or to be filed with the Commission or any other Governmental Entity in
connection with the transactions contemplated hereby, 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, at the
time of the TCI Stockholders Meeting or the Liberty Stockholders Meeting or any
other meeting of TCI's stockholders or Liberty's stockholders to be held in
connection with the Mergers or at the Effective Time, and, in the case of the
Joint Proxy Statement/Prospectus or any amendment or supplement thereto, at the
time of mailing of the Joint Proxy Statement/Prospectus to TCI's and Liberty's
stockholders or at the time of the TCI Stockholders Meeting or the Liberty
Stockholders Meeting, or any other meeting of TCI's stockholders or Liberty's
stockholders to be held in connection with the Mergers, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading or necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
Liberty Stockholders Meeting or the TCI Stockholders Meeting. For this purpose,
any such information included or incorporated by reference in any such document
will be deemed to have been so supplied in writing specifically for inclusion or
incorporation therein if such document was available for review by TCI a
reasonable time before such document was filed (but the foregoing shall not be
the exclusive manner in which it may be established that such information was so
supplied). The Registration Statement and the Joint Proxy Statement/Prospectus
will comply as to form in all material respects with the applicable provisions
of the Securities Act and the Exchange Act and the respective rules and
regulations under each such Act.
5.8 Legal Proceedings. Except as set forth in the TCI Commission Filings
filed with the Commission prior to the date hereof or as set forth on Schedule
5.8, (i) there is no suit, action or proceeding pending or, to the knowledge of
TCI, any investigation pending or any suit, action, proceeding or investigation
threatened, against, involving or affecting TCI, any Subsidiary of TCI or, to
the knowledge of TCI, any TCI Equity Affiliate or any of its or their properties
or rights (excluding suits, actions, proceedings or investigations generally
affecting the cable television industry in a particular state or in the United
States and to which neither TCI nor any Subsidiary of TCI is a party), which, if
adversely determined, is, insofar as TCI can reasonably foresee, reasonably
likely to have, either individually or in the aggregate, a material adverse
effect on the business, assets, results of operations or financial condition of
TCI and its Subsidiaries, taken as a
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whole; (ii) there is no judgment, decree, Injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
arbitrator applicable to TCI, any Subsidiary of TCI or, to the knowledge of TCI,
any TCI Equity Affiliate having, or which, insofar as TCI can reasonably
foresee, is reasonably likely to have, either individually or in the aggregate,
any such effect; and (iii) to the knowledge of TCI, there is no action, suit,
proceeding or investigation pending or threatened against TCI which seeks to
restrain, enjoin or delay the consummation of either Merger or any of the other
transactions contemplated hereby or which seeks damages in connection therewith,
and no Injunction of any type referred to in Section 8.1(d) has been entered or
issued. The term "order" as used in the immediately preceding sentence shall not
be deemed to include any Licenses.
5.9 Licenses; Compliance with Regulatory Requirements; Intangible
Property. TCI, its Subsidiaries and, to the knowledge of TCI, the TCI Equity
Affiliates hold all Licenses which are material to the operation of the
businesses of TCI and its Subsidiaries, taken as a whole. Each of TCI, its
Subsidiaries and, to the knowledge of TCI, the TCI Equity Affiliates is in
compliance with, and has conducted its business so as to comply with, the terms
of their respective Licenses and with all applicable laws, rules, regulations,
ordinances and codes, domestic or foreign, including laws, rules, regulations,
ordinances and codes relating to the protection of the environment, except where
the failure so to comply has not had, either individually or in the aggregate, a
material adverse effect on the business, assets, results of operations or
financial condition of TCI and its Subsidiaries, taken as a whole. Without
limiting the generality of the foregoing, TCI, its Subsidiaries and, to the
knowledge of TCI, the TCI Equity Affiliates (i) have all FCC Licenses and
Franchises required for the operation of the CATV Systems being operated on the
date hereof by TCI, any of its Subsidiaries, or, to the knowledge of TCI, any
TCI Equity Affiliate, (ii) have duly and currently filed all reports and other
information required to be filed by the FCC or any other Governmental Entity in
connection with such FCC Licenses and Franchises and (iii) are not in violation
of any of such FCC Licenses or Franchises, other than the lack of FCC Licenses
or Franchises, delays in filing reports or possible violations which have not
had and, insofar as can reasonably be foreseen, in the future will not have a
material adverse effect on the business, assets, results of operations or
financial condition of TCI and its Subsidiaries, taken as a whole. TCI and its
Subsidiaries own or have adequate rights to use all patents, trademarks, trade
names, service marks, trade secrets, copyrights and other proprietary
intellectual property rights as are material in connection with the businesses
of TCI and its Subsidiaries, taken as a whole.
5.10 Brokers or Finders. No agent, broker, investment banker, financial
advisor or other person or entity is or will be entitled, by reason of any
agreement, act or statement by TCI 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, except CS First Boston, whose fees and expenses and claims for
indemnification and contribution will be paid by TCI in accordance with TCI's
agreement with such firm (a copy of which has been (or following its execution
by TCI will promptly be) provided to Liberty), and TCI agrees to indemnify and
hold Liberty and TCI/Liberty harmless from and against any and all claims,
liabilities or obligations with respect to any 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 TCI or any of
its Subsidiaries, directors, officers, employees or affiliates.
5.11 Tax Matters. Except as set forth on Schedule 5.11, to the knowledge
of TCI, (i) there has been duly filed by or on behalf of TCI and each of its
Subsidiaries (and each of their respective predecessors (except that no
representation or warranty is made as to Liberty or any of its Subsidiaries)),
or filing extensions from the appropriate Federal, state, foreign and local
Governmental Entities have been obtained with respect to, all material 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 in respect of state, local
and foreign taxes which are in the aggregate immaterial in amount) and (iii) a
reserve which TCI 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 date hereof. Except as set forth on Schedule 5.11, none of the
Federal income tax returns required to be filed by or on behalf of TCI and each
of its Subsidiaries consolidated in such returns
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(and their respective predecessors (except that no representation or warranty is
made as to Liberty or any of its Subsidiaries)) under the Code or any
predecessor statute (the "TCI Consolidated Returns") are currently under
examination by the IRS. There have not been any deficiencies or assessments
asserted in writing by the IRS with respect to the TCI Consolidated Returns.
Except as set forth on Schedule 5.11, neither TCI nor any of its Subsidiaries
(nor any of their respective predecessors (except that no representation or
warranty is made as to Liberty or any of its Subsidiaries)) has, with regard to
any assets or property held, acquired or to be acquired by TCI or any of its
Subsidiaries, filed a consent pursuant to Section 341(f) of the Code or any
predecessor statute.
5.12 Employee Benefit Plans; ERISA.
(a) Schedule 5.12(a) contains a true and complete list of each bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance or termination pay, hospitalization, medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to or
required to be contributed to at any time since January 1, 1993 by TCI or by any
trade or business, whether or not incorporated (a "TCI ERISA Affiliate"), that
together with TCI would be deemed a "single employer" within the meaning of
Section 4001 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), for the benefit of any employee or former employee of TCI or any TCI
ERISA Affiliate including any such type of plan established, maintained or
contributed to under the laws of any foreign country (the "TCI Plans"). Schedule
5.12(a) identifies each TCI Plan that is an "employee benefit plan," as defined
in Section 3(3) of ERISA. TCI has heretofore delivered to Liberty true and
complete copies of each TCI Plan and, if the TCI Plan is funded through a trust
or any third party funding vehicle, a copy of the trust or other funding
document.
(b) Except as set forth in Schedule 5.12(b), (i) no TCI Plan is subject to
Title IV of ERISA or Section 412 of the Code and (ii) neither TCI nor any TCI
ERISA Affiliate made, or was required to make, contributions to any employee
benefit plan subject to Title IV of ERISA during the five year period ending on
the Effective Time.
(c) Concerning each TCI Plan that is or has been subject to the funding
requirements of Title I, Subtitle B, Part 3 of ERISA, the funding method used in
connection with such TCI Plan is, and at all times has been, acceptable under
ERISA, each of the actuarial assumptions employed in connection with determining
the funding of each such TCI Plan is, and at all times has been, reasonable and
satisfies the requirements of Section 412(c)(3) of the Code and Section
302(c)(3) of ERISA, and Schedule 5.12(c) sets forth, as of the date hereof, (A)
the actuarially determined present value of all benefit liabilities within the
meaning of Section 4001(a)(16) of ERISA ("TCI Benefit Liabilities") determined
on an ongoing plan basis, employing in making such determination the same
actuarial assumptions as were used in determining plan fundings for the most
recently completed plan year unless any such assumption is not reasonable, in
which event such assumption has been changed to a reasonable assumption, (B) the
actuarially determined present value of all TCI Benefit Liabilities under each
such TCI Plan employing in such determination the same actuarial assumptions,
except turnover assumptions, as were used in determining funding for such plan
for the most recently completed plan year unless any such assumption is not
reasonable, in which event such assumption has been changed to a reasonable
assumption, (C) the fair market value of the assets held to fund each such TCI
Plan, (D) the funding method used in connection with each such TCI Plan and (E)
identification of the amount and related plan with respect to which there is or
has been any "accumulated funding deficiency," as defined in Section 302(a)(2)
of ERISA. Schedule 5.12(c) sets forth a reasonable good faith estimate of
material changes between January 1, 1993 and the date hereof in the value of
benefits or plan assets described in the preceding clause (A), (B) or (C);
Schedule 5.12(c) sets forth the information described in said clauses (A), (B),
(C) and (D) as of the date hereof, including a separate statement of liabilities
attributable to unpredictable contingent event benefits within the meaning of
Section 412(l)(7)(B)(ii) of the Code and Section 302(d)(7)(B)(ii) of ERISA. The
sum of the amount of unfunded TCI Benefit Liabilities under all TCI Plans
(excluding each such plan with an amount of unfunded Benefit Liabilities of zero
or less) is not more than $1,000,000; all contributions required by Section 515
of ERISA to be made by TCI or any TCI ERISA Affiliate to TCI Plans have been
timely made; with respect to any such TCI Plan and concerning each
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TCI Plan which is in whole or in part an "individual account plan" (as defined
in Section 3(34) of ERISA), there is set forth in Schedule 5.12(c) (A) the
amount of any liability of TCI or any TCI ERISA Affiliate for contributions due
or to become due with respect to each such TCI Plan for periods up to the date
hereof, and the date any such amounts were paid and (B) the amount of any
contribution accrued or paid or expected to be accrued or paid with respect to
such TCI Plan for the plan year in which the Effective Time occurs; with respect
to any such TCI Plan no such plan has been terminated or subject to a "spin-off"
or "spin-off termination" or partial termination and no assets of any such TCI
Plan have been used or employed in a manner so as to subject them to an excise
tax imposed under Section 4980 of the Code; each such TCI Plan permits
termination thereof, and distribution of any assets in excess of those required
to pay TCI Benefit Liabilities may be distributed to or for the benefit of TCI
or any TCI ERISA Affiliate, and Section 4044(d) of ERISA would not prevent such
reversion; and with respect to any such TCI Plan, any reduction in benefits was
preceded by an adequate and appropriate notice to the parties described in and
as required by Section 204(h) of ERISA. There are no former employees or
participants who are entitled to earn additional pension benefits by reason of
"grow in" or other rights with respect to service or time periods after such
employees have been terminated from employment with TCI, or any TCI ERISA
Affiliates.
(d) Neither TCI nor any TCI ERISA Affiliate has engaged in any transaction
described under Section 4069 of ERISA nor can any claim, encumbrance or other
lien be imposed on TCI, any TCI ERISA Affiliates or assets of any of the
foregoing under Section 4068 of ERISA.
(e) Each TCI Plan that utilizes a funding vehicle described in Section
501(c)(9) of the Code or is subject to the provisions of Section 505 of the Code
has been the subject of a notification by the IRS that such funding vehicle
qualifies for tax-exempt status under Section 501(c)(9) of the Code and/or such
TCI Plan complies with Section 505 of the Code, unless the IRS does not as a
matter of policy issue such notification with respect to that particular type of
plan. Each such TCI Plan satisfies, where appropriate, the requirements of
Sections 501(c)(9) and 505 of the Code.
(f) Schedule 5.12(f) contains a list of, and TCI has delivered to Liberty
true and complete copies of, all other material personnel policy, stock option
plan, collective bargaining agreement, bonus, incentive award, vacation pay,
severance pay, consulting agreement or any other employee benefit plan,
agreement, arrangement or understanding which TCI or any TCI ERISA Affiliate
maintains, or to which TCI or any TCI ERISA Affiliate contributes, is required
to contribute or has contributed since January 1, 1993, and which is not
required under paragraph (a) or (b) above to be listed in Schedule 5.12(a) or
(b), respectively (including, without limitation, with respect to any plans
which are unwritten, a detailed written description of eligibility,
participation, benefits, funding arrangements, assets and any other matters
which relate to the obligations of TCI or any TCI ERISA Affiliate).
(g) TCI and each TCI ERISA Affiliate have complied in all material respects
with all requirements for premium payments, including any interest and penalty
charges for late payment, due the Pension Benefit Guaranty Corporation ("PBGC")
with respect to each TCI Plan and each separate plan year for which any premiums
are required. Except as set forth in Schedule 5.12(g), and except for
transactions required by this Agreement, from the period commencing January 1,
1987 through the Effective Time there has been no "reportable event" (as defined
in Section 4043(b) of ERISA and the regulations promulgated by the PBGC
thereunder) with respect to any TCI Plan subject to Title IV of ERISA for which
notice to the PBGC has not, by rule or regulation, been waived. There is not any
unsatisfied material liability to the PBGC which has been incurred by TCI or any
TCI ERISA Affiliate on account of any TCI Plan subject to Title IV of ERISA.
From the period commencing January 1, 1987 through the Effective Time, no filing
has been or will be made by TCI or any TCI ERISA Affiliate with the PBGC to
terminate, nor has any proceeding been commenced by the PBGC to terminate, any
TCI Plan subject to Title IV of ERISA which was maintained, or wholly or
partially funded, by TCI or any TCI ERISA Affiliate. Neither TCI nor any TCI
Equity Affiliate (i) has ceased operations at a facility so as to become subject
to the provisions of Section 4062(e) of ERISA, (ii) has withdrawn from any TCI
Plan with respect to which it is a substantial employer so as to become subject
to the provisions of Section 4063 of ERISA, (iii) has ceased contributions on or
before the Effective Time to any TCI Plan subject to Section 4064(a) of ERISA to
which TCI or any TCI ERISA Affiliate has made contributions during the five
calendar years prior to the Effective Time, or (iv) has incurred a complete or
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partial withdrawal from any TCI Plan that is a multiemployer plan (as defined in
either Section 3(37) or Section 4001(a)(3) of ERISA (a "Multiemployer Plan")) so
as to incur withdrawal liability as defined in Section 4201 of ERISA (without
regard to any subsequent reduction or waiver of such liability under Section
4207 or 4208 of ERISA). No employee pension benefit which is a Multiemployer
Plan to which TCI or any TCI ERISA Affiliate contributes is in "reorganization"
(as defined in Section 4241 of ERISA) or "insolvent" (as defined in Section 4245
of ERISA). There is not now, nor can there ever be, any liability under Section
4064 of ERISA to TCI or any TCI ERISA Affiliate by reason of participation in
any TCI Plan by TCI or any TCI ERISA Affiliate on or prior to the Effective
Time. There has been no amendment to any TCI Plan that would require the
furnishing of security under Section 401(a)(29) of the Code. There has been no
event or circumstance and there can be no event or circumstance which has or may
result in any liability being asserted by any TCI Plan, the PBGC or any other
person or entity under Title IV of ERISA against TCI or any TCI ERISA Affiliate
or against TCI/Liberty (assuming consummation of the Mergers). Neither TCI nor
any TCI ERISA Affiliate has any liability to any TCI Plan for contributions
under Section 412(m) of the Code or Section 302(e) of ERISA, nor has any claim,
encumbrance or other lien been imposed under Section 412(n) of the Code or
Section 302(f) of ERISA nor is there any liability for excise taxes imposed
under Section 4971 of the Code, and all liabilities arising under Section
412(c)(11) of the Code with respect to contributions to any TCI Plan have been
set forth in Schedule 5.12(g). Copies of any notices to the PBGC under Section
412(n) of the Code or Section 302(f) of ERISA with respect to any TCI Plan have
been delivered to Liberty; and copies of notices required to be given to
participants under Section 101(d) of ERISA with respect to any TCI Plan have
previously been delivered to Liberty.
(h) True and complete copies of each plan, agreement, arrangement or
understanding referred to in Schedule 5.12(g), the most recent determination
letter issued by the IRS with respect to each TCI Plan, annual reports on Form
5500 required to be filed with any Governmental Entity for each TCI Plan which
is an employee pension benefit plan for the three most recent plan years and all
actuarial reports for the last two plan years of each TCI Plan, other than an
"individual account plan," have heretofore been delivered by TCI to Liberty.
(i) Except as set forth in Schedule 5.12(i), neither TCI nor any TCI ERISA
Affiliate is a party to or bound by the terms of any collective bargaining
agreement. TCI and each TCI ERISA Affiliate is in compliance in all material
respects with all applicable laws respecting the employment and employment
practices, terms and conditions of employment and wage and hours of its
employees and is not engaged in any unfair labor practice. To the knowledge of
TCI, all of the employees of TCI and the TCI ERISA Affiliates who work in the
United States are lawfully authorized to work in the United States according to
federal immigration laws. There is no labor strike or labor disturbance pending
or, to the knowledge of TCI threatened against TCI or any TCI ERISA Affiliate,
and during the past five years neither TCI nor any TCI ERISA Affiliate has
experienced a work stoppage.
(j) Each TCI Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including, but not
limited to, Section 406 of ERISA and Section 4975 of the Code.
(k) Each TCI Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained thereunder
are exempt from taxation under Section 501(a) of the Code.
(l) Except as set forth in Schedule 5.12(l), no TCI Plan provides benefits,
including without limitation death or medical benefits, with respect to current
or former employees of TCI or any TCI ERISA Affiliate beyond their retirement or
other termination of service (other than (i) coverage mandated by applicable law
and (ii) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA).
(m) Except as set forth in Schedule 5.12(m), there are no material pending,
threatened or anticipated claims by or on behalf of any TCI Plan, by any
employee or beneficiary covered under an such TCI Plan, or otherwise involving
any such TCI Plan (other than routine claims for benefits).
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5.13 Fairness Opinion. On January 24, 1994, TCI received an oral opinion
of CS First Boston to the effect that, as of such date, the consideration to be
received by the holders of TCI Common Stock (other than Liberty and its
affiliates) in the TCI Merger is fair, from a financial point of view, to such
stockholders.
5.14 Recommendation of TCI Board. The TCI Board at a meeting duly called
and held on January 24, 1994, has, by resolutions adopted by at least 75% of the
members of the entire TCI Board, (i) determined that the Merger Proposal is fair
to, and in the best interests of, the stockholders of TCI (other than Liberty
and its Subsidiaries), (ii) approved this Agreement and the transactions
contemplated hereby and (iii) recommended that the stockholders of TCI approve
and adopt the Merger Proposal.
5.15 Vote Required. The only vote of stockholders of TCI required under
the DGCL and TCI's Restated Certificate of Incorporation and By-laws in order to
approve and adopt this Agreement and the terms contemplated hereby is the
affirmative vote of the holders of a majority of the aggregate voting power of
the issued and outstanding shares of TCI Class A Stock and TCI Class B Stock
voting together as a single class.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF TCI/LIBERTY
TCI/Liberty hereby represents and warrants to each of TCI and Liberty as
follows:
6.1 Organization. Each of TCI/Liberty, TCI Mergerco and Liberty Mergerco
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation.
6.2 Authorization and Validity of Agreement. Each of TCI/Liberty, TCI
Mergerco and Liberty Mergerco has all requisite corporate power and authority to
enter into this Agreement and perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance by each of TCI/Liberty, TCI Mergerco and Liberty Mergerco of this
Agreement and the consummation by each of TCI/Liberty, TCI Mergerco and Liberty
Mergerco of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on its part. This Agreement has been duly
executed and delivered by each of TCI/Liberty, TCI Mergerco and Liberty Mergerco
and is a valid and binding obligation of each of TCI/Liberty, TCI Mergerco and
Liberty Mergerco, 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 Newly Issued Shares. The shares of TCI/Liberty Common Stock and
TCI/Liberty Preferred Stock to be issued and delivered by TCI/Liberty pursuant
to Section 2.1 will be, when the Mergers have become effective and such shares
are issued and delivered as provided in Section 2.1 and as described in the
Registration Statement, duly authorized, validly issued, fully paid and
nonassessable.
6.4 Interim Operations of TCI/Liberty. Prior to the Effective Time,
TCI/Liberty, TCI Mergerco and Liberty Mergerco will engage in no business
activities, will have no subsidiaries (other than, in the case of TCI/Liberty,
TCI Mergerco and Liberty Mergerco) and will conduct their respective operations
only as contemplated hereby.
ARTICLE VII
TRANSACTIONS PRIOR TO CLOSING
7.1 Access to Information Concerning Properties and Records. Upon
reasonable notice, each of TCI and Liberty shall (and shall cause each of its
Subsidiaries, and use its reasonable efforts to cause its other affiliates, to)
afford to the officers, employees, counsel, accountants and other authorized
representatives of the other full access during normal business hours to all its
properties, personnel, books and records and furnish promptly to such persons
such information concerning its business, properties, personnel and affairs as
such persons shall from time to time reasonably request.
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7.2 Confidentiality. Each party shall, and shall use its reasonable
efforts to cause its officers, employees and authorized representatives to, (i)
hold in confidence all confidential information obtained by it or them from any
other party or any of such other party's officers, employees or authorized
representatives pursuant to this Agreement (unless such information is or
becomes publicly available or readily ascertainable from public or published
information or trade sources through no wrongful act of such first party) and
(ii) use all such data and information solely for the purpose of consummating
the transactions contemplated hereby, except, in either case, as may be
otherwise required by law or legal process or as may be necessary or appropriate
in connection with the enforcement of, or any litigation concerning, this
Agreement. In the event this Agreement is terminated, each party shall promptly
return, if so requested by any other party, all nonpublic documents obtained
from such other party in connection with the transactions contemplated hereby
and any copies thereof which may have been made by such first party and shall
use its reasonable efforts to cause its officers, employees and authorized
representatives to whom such documents were furnished promptly to return such
documents and any copies thereof any of them may have made. The foregoing
provisions shall not apply (A) to TCI with respect to any information or reports
relating to Liberty which are not obtained by TCI, its officers, employees or
authorized representatives through TCI's due diligence investigation conducted
by TCI's officers, employees and authorized representatives exclusively in
connection with the transactions contemplated hereby or (B) to Liberty with
respect to any information or reports relating to TCI which are not obtained by
Liberty, its officers, employees or authorized representatives through Liberty's
due diligence investigation conducted by Liberty's officers, employees and
authorized representatives exclusively in connection with the transactions
contemplated hereby.
7.3 Public Announcements. Neither TCI nor Liberty shall, nor shall either
TCI or Liberty permit any of its Subsidiaries to (and each such party shall use
its reasonable efforts to cause its affiliates, directors, officers, employees,
agents and representatives not to), issue any press release, make any public
announcement or furnish any written statement to its employees or stockholders
generally concerning the transactions contemplated by this Agreement without the
consent of the other party (which consent shall not be unreasonably withheld),
except to the extent required by applicable law or the applicable requirements
of the National Association of Securities Dealers, Inc. with respect to issuers
whose securities are quoted on NASDAQ NMS (and in either such case such party
shall, to the extent consistent with timely compliance with such requirement,
consult with the other party prior to making the required release, announcement
or statement).
7.4 Conduct of Business by Liberty and TCI Pending the Effective
Time. Each of Liberty and TCI shall, and, with respect to paragraphs (b)
through (g) below, shall cause each of its Subsidiaries to, except as permitted,
required or specifically contemplated by this Agreement or consented to or
approved in writing by the other party (which consent or approval shall not be
unreasonably withheld) and except as set forth in Schedule 7.4, during the
period commencing on the date hereof and ending at the Effective Time:
(a) not (i) make any change or amendments in its charter or by-laws;
(ii) issue, grant, sell or deliver any shares of its capital stock or other
securities, or any securities convertible into, or options, warrants or
rights of any kind to subscribe to or acquire, any shares of its capital
stock or other securities, other than (x) in the case of Liberty, issuances
of Liberty Class A Stock (A) upon exercise of Liberty Stock Options
outstanding on the date of and disclosed pursuant to this Agreement in
accordance with their existing terms and (B) on conversion of shares of
Liberty Class B Stock at the option of the holders thereof in accordance
with the existing terms of Liberty's Restated Certificate of Incorporation
and (y) in the case of TCI, issuances of TCI Class A Stock (A) upon
exercise of TCI Stock Options outstanding on the date of and disclosed
pursuant to this Agreement in accordance with their existing terms and (B)
on conversion of shares of TCI Class B Stock and TCI Preferred Stock at the
option of the holders thereof in accordance with the existing terms of
TCI's Restated Certificate of Incorporation; (iii) split, combine or
reclassify the outstanding shares of its capital stock or issue any capital
stock or other securities in exchange for any such shares; (iv) redeem,
purchase, or otherwise acquire, directly or indirectly, (x) in the case of
Liberty, any shares of capital stock or any other securities of Liberty,
other than as required by existing agreements with minority investors in
any of Liberty's Subsidiaries and (y) in the case of TCI, any shares of
capital stock or any other securities of TCI, other than as required by
existing agreements
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with minority investors in any of TCI's Subsidiaries; (v) amend or
modify any outstanding options, warrants or rights to acquire, or
securities convertible into, shares of its capital stock or other
securities, amend or modify any outstanding stock appreciation rights or
restricted stock awards or grant, adopt or authorize any stock or equity
appreciation rights, restricted stock or equity, stock or equity purchase,
stock or equity bonus or similar plan, arrangement or agreement; (vi) make
any other changes in its capital structure; (vii) declare, set aside, pay
or make any dividend or other distribution or payment (whether in cash,
property or securities) with respect to its capital stock or other
securities, except for (x) in the case of Liberty, regular annual dividends
on the Liberty Class E Preferred (which may be paid in cash or, at the
option of Liberty, shares of Liberty Class A Stock) as provided by the
existing terms of such Liberty Class E Preferred and (y) in the case of
TCI, regular quarterly cash dividends on the TCI Preferred Stock as
provided by the existing terms of the TCI Preferred Stock; (viii) sell or
pledge any stock, equity or partnership interest owned by it, except for
dispositions permitted by this Section 7.4; or (ix) enter into or assume
any contract, agreement, obligation, commitment or arrangement with respect
to any of the foregoing;
(b) not (i) establish, amend or modify any employee benefit plan of
any kind referred to in Section 4.12(a) or 5.12(a), as the case may be,
except in the ordinary course of business consistent with past practice or
to the extent required by any applicable law or the existing terms of such
employee benefit plan or the provisions of this Agreement; (ii) other than
as contemplated or otherwise permitted by this Agreement and other than in
connection with normal cash management practices 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 transaction with any director,
officer, partner or affiliate not required by the terms of an existing
Contract; or (iii) enter into or assume any contract, agreement,
obligation, commitment or arrangement with respect to any of the foregoing;
(c) not acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, except for (i) in the case of TCI and its Subsidiaries, any single
acquisition or related series of acquisitions in which the aggregate
purchase price is less than $500,000,000, and (ii) in the case of Liberty
and its Subsidiaries, any single acquisition or related series of
acquisitions in which the aggregate purchase price is less than
$250,000,000;
(d) not sell, lease or encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets, except
for (i) in the case of TCI and its Subsidiaries, any single disposition or
related series of dispositions in which the aggregate fair market value of
the assets disposed of does not exceed $500,000,000, and (ii) in the case
of Liberty and its Subsidiaries, any single disposition or related series
of dispositions in which the aggregate fair market value of the assets
disposed of does not exceed $250,000,000;
(e) not incur (which shall not be deemed to include entering into
credit agreements, lines of credit or similar arrangements until borrowings
are made under such arrangements) any 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 or guarantee any debt
securities of others other than (i) in the ordinary course of business
consistent with past practice and (ii) as may be necessary in connection
with acquisitions permitted by this Section 7.4; provided, however, that
the foregoing shall not prohibit (x) any renewal, extension, amendment or
refinancing of existing indebtedness (provided there is no increase in the
interest rate or the principal amount of such indebtedness) and (y) the
incurrence of any new indebtedness, or the amendment or refinancing of any
existing indebtedness (whether or not permitted by the preceding clause
(x)), if such indebtedness would be prepayable in full at the Effective
Time without material restrictions (other than customary prepayment
penalties and premiums that, in the case of any refinancing, are no greater
that those contained in the indebtedness being refinanced));
(f) conduct its business only in, and not take any action except in,
the ordinary and usual course of its business and consistent with past
practices, and use reasonable efforts, in the ordinary and usual course
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of business and consistent with past practices, to preserve intact its
business organization, to preserve its Licenses in full force and
effect, to keep available the services of its present officers and key
employees, and to preserve the good will of those having business
relationships with it; provided, however, that the provisions of this
subsection (f) shall not prohibit any action permitted to be taken
pursuant to any other subsection of this Section 7.4, and shall not
prohibit any Subsidiary of TCI or Liberty from taking any of the
actions set forth in Section 7.4(a); and
(g) not take any action that would or is reasonably likely to result
in any of the conditions set forth in Article VIII not being met as of the
Closing Date.
7.5 No Solicitation. Subject to the fiduciary duties of its directors
under applicable law, each of Liberty and TCI will not, directly or indirectly,
through any officer, director, employee, agent or representative or otherwise
(i) solicit or initiate the submission of proposals or offers from any other
person or entity relating to any Takeover Proposal (as defined below); (ii)
cooperate with, or furnish or cause to be furnished any non-public information
concerning its business, properties or assets or the business, properties or
assets of any of its Subsidiaries to, any other person or entity in connection
with any Takeover Proposal; (iii) negotiate with any other person or entity with
respect to any Takeover Proposal; or (iv) enter into any agreement or
understanding with any other person or entity with the intent to effect any
Takeover Proposal. Each of Liberty and TCI will immediately give written notice
to the other of the details of any Takeover Proposal of which it is currently or
becomes aware. Notwithstanding the foregoing, nothing contained in this Section
7.5 shall prohibit Liberty or TCI or their respective Boards of Directors, to
the extent required by their fiduciary duties under applicable law, from (i)
providing information to, or participating in discussions or negotiations with,
any person or entity that makes an unsolicited inquiry with respect to such
party if the Board of Directors of such party reasonably believes such person or
entity may propose a Takeover Proposal on terms that are superior, from a
financial point of view, to the terms of the Mergers for the stockholders of
such party (a "Superior Takeover Proposal") or (ii) entering into an agreement
with respect to a Superior Takeover Proposal after receipt by the other party of
written notice of (A) the material terms of such Superior Takeover Proposal and
(B) the identity of the person making such proposal. As used in this Section,
"Takeover Proposal" means, with respect to Liberty or TCI, any proposal, other
than as contemplated by this Agreement, for a merger, consolidation,
reorganization, other business combination or recapitalization involving such
party, for the acquisition of a 25% or greater interest in the equity or in any
class or series of capital stock of such party, for the acquisition of the right
to cast 25% or more of the votes on any matter with respect to such party or for
the acquisition of assets of such party or its Subsidiaries (or both)
constituting 40% or more of the consolidated assets of such party or which
generate 40% or more of the consolidated revenues of such party or the effect of
which may be to prohibit, restrict or delay the consummation of the transactions
contemplated by this Agreement. Nothing contained herein shall be construed to
prohibit either Liberty or TCI or the Liberty Board or the TCI Board,
respectively, from making any disclosure to its stockholders which, in the
judgment of such board as advised by its counsel, may be required by applicable
law in connection with any such proposal or offer. This Section 7.5 shall not
apply to the Takeover Proposal of Bell Atlantic Corporation ("Bell Atlantic")
set forth in that certain letter of intent dated October 12, 1993, as the same
may be modified or amended with the consent of Liberty and TCI (such consent to
be deemed granted if (x) Liberty and TCI execute an amendment to such letter of
intent, (y) Liberty and TCI execute a definitive merger agreement with Bell
Atlantic with respect to a Takeover Proposal or (z) neither Liberty nor TCI has
issued a press release to the effect that negotiations with Bell Atlantic
concerning its Takeover Proposal have been terminated).
7.6 Expenses. Whether or not the Mergers are consummated, 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 mailing and/or
printing of the Joint Proxy Statement, the Joint Proxy Statement/Prospectus and
the Registration Statement (and any amendment of or supplement thereto) shall be
borne 80% by TCI and 20% by Liberty. Notwithstanding the foregoing, but subject
to Sections 10.12 and 10.13, if this Agreement is terminated by TCI or Liberty
(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, the
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breaching party shall reimburse the non-breaching party for all out-of-pocket
costs and expenses incurred in connection with the transactions contemplated by
this Agreement. Such payment shall be made against receipt of documentation in
reasonable detail supporting the amount of such costs and expenses. Any payment
required to be made by the breaching party hereunder shall be made within five
business days of the termination of this Agreement by delivery to the
non-breaching party of a certified or bank cashier's check payable in next-day
funds.
7.7 Notification of Certain Matters. Between the date hereof and the
Effective Time, each party will give prompt notice in writing to the other
parties 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
which 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 7.8 or
any order or judgment entered or rendered therein.
7.8 Defense of Litigation. Each of TCI and Liberty agrees to vigorously
defend against all actions, suits or proceedings in which such party is named as
a defendant which seek to enjoin, restrain or prohibit the transactions
contemplated hereby or seek damages with respect to such transactions. Neither
TCI nor Liberty shall 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 such party therein without the consent of the other party (which
consent shall not be withheld unreasonably). Each of TCI and Liberty 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.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions Precedent to the Obligations of TCI and Liberty. The
respective obligations of TCI and Liberty to consummate the transactions
contemplated by this Agreement are subject to the satisfaction at or prior to
the Closing Date of each of the following conditions:
(a) Approval of Stockholders. The Merger Proposal shall have been
approved and adopted by the requisite vote (i) of the stockholders of TCI under
the DGCL and TCI's Restated Certificate of Incorporation and By-laws and (ii) of
the stockholders of Liberty under the DGCL and Liberty's Restated Certificate of
Incorporation and By-laws.
(b) HSR Act. All applicable waiting periods under the HSR Act shall have
expired or been terminated without receipt of any objections or commencement of
litigation or threat thereof by the appropriate governmental enforcement agency
to restrain the transactions contemplated hereby.
(c) 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 seeking a stop
order or to suspend the effectiveness of the Registration Statement shall have
been initiated and be continuing or shall have been threatened and be
unresolved. TCI/Liberty shall have received all state securities law or blue sky
permits and authorizations necessary to carry out the transactions contemplated
hereby, such permits and authorizations shall be in full force and effect and no
action, suit, proceeding or investigation seeking to revoke or suspend the
effectiveness of any such permit or authorization shall have been initiated and
be continuing or shall have been threatened and be unresolved.
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(d) Absence of Injunctions. 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 preventing
consummation of the transactions contemplated hereby as provided herein shall be
in effect.
(e) No Adverse Enactments. There shall not have been any action taken, or
any statute, rule, regulation, order, judgment or decree enacted, promulgated,
entered, issued or enforced by any foreign or United States federal, state or
local Governmental Entity, and there shall be no action, suit or proceeding
pending which (i) makes the transactions contemplated by this Agreement illegal
or imposes or may impose material damages or penalties in connection therewith,
(ii) requires divestiture of a material portion of the business of TCI and its
Subsidiaries, taken as a whole, or Liberty and its Subsidiaries, taken as a
whole, (iii) would, as of or after the Effective Time and assuming consummation
of the Mergers, impose material limitations on the ability of TCI/Liberty
effectively to exercise full rights of ownership of shares of capital stock of
either Surviving Corporation (including the right to vote such shares on all
matters properly presented to the stockholders of such Surviving Corporation) or
(iv) would so materially adversely impact the economic or business benefits of
the consummation of either or both Mergers as to render such consummation
inadvisable.
(f) Receipt of Licenses, Permits and Consents. Other than the filing of
the TCI Certificate of Merger and the Liberty Certificate of Merger with the
Delaware Secretary of State and filings due after the Effective Time, all Local
Approvals, all FCC Approvals and all other Government 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, all Governmental
Filings as are required in connection with the consummation of such transactions
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 those which, if not 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 on (i) the transactions contemplated hereby or
(ii) the business, assets, results of operations, financial condition or
prospects of TCI and its Subsidiaries, taken as a whole, Liberty and its
Subsidiaries, taken as a whole, or, as of or after the Effective Time and
assuming consummation of the Mergers, TCI/Liberty and its Subsidiaries, taken as
a whole. For purposes hereof, the failure to obtain Local Approvals relating to
Franchises for the operation of CATV Systems serving, in the aggregate, (x) in
the case of Liberty, 150,000 or fewer of the subscribers to the basic cable
television services offered by Liberty or its Subsidiaries, or (y), in the case
of TCI, 400,000 or fewer of the subscribers to the basic cable television
services offered by TCI or its Subsidiaries shall be deemed not to have any such
material adverse effect.
(g) Tax Opinion. Each of TCI and Liberty shall have received, prior to
the effective date of the Registration Statement, the opinion of Baker & Botts,
L.L.P., in form and substance reasonably satisfactory to each of TCI and
Liberty, to the effect that the Mergers will be completely tax free for Federal
income tax purposes to each party to this Agreement and to the respective
stockholders of TCI and Liberty (other than in respect of any cash paid in lieu
of fractional shares or for Dissenting Shares), which opinion shall not have
been withdrawn prior to the Effective Time.
(h) NMS Listing. The shares of TCI/Liberty Common Stock issuable to
stockholders of TCI and Liberty in accordance with Article II shall have been
authorized for listing on the Nasdaq NMS upon official notice of issuance.
8.2 Conditions Precedent to the Obligations of TCI. The obligation of TCI
to consummate the transactions contemplated by this Agreement is also subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions, unless waived by TCI:
(a) Accuracy of Representations and Warranties. All representations and
warranties of Liberty 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
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Date, with the same force and effect as though made on and as of the Closing
Date, except for changes permitted or contemplated by this Agreement.
(b) Performance of Agreements. Liberty 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) Officer's Certificates. TCI shall have received such certificates of
Liberty, dated the Closing Date, signed by executive officers of Liberty to
evidence satisfaction of the conditions set forth in Sections 8.1(a), 8.1(d),
8.1(e), 8.1(f) and 8.2(g) (insofar as each relates to Liberty) and in Sections
8.2(a) and 8.2(b) as may be reasonably requested by TCI.
(d) Opinion of Counsel. TCI shall have received a favorable opinion from
Liberty's General Counsel, John M. Draper, Esq., dated the Closing Date,
substantially to the effect set forth in Annex 1. In rendering such opinion,
such counsel may rely as to factual matters upon certificates or other documents
furnished by officers of Liberty and by government officials, and upon such
other documents and data as such counsel deems appropriate as a basis for the
opinion. Such counsel may specify the jurisdiction or jurisdictions in which he
is admitted to practice, that he is not admitted to practice in any other
jurisdiction or expert in the law of any other jurisdiction and that, to the
extent the foregoing opinion concerns the laws of any other jurisdiction or
pertains to matters beyond the scope of such counsel's expertise, such counsel
may rely upon the opinion of counsel admitted to practice in such other
jurisdiction. Any opinion relied upon by such counsel shall be delivered
together with the opinion of such counsel, which shall state that such counsel
believes that reliance thereon is justified.
(e) Fairness Opinion. TCI shall have received a written opinion of CS
First Boston, dated within five days of the date of the Joint Proxy
Statement/Prospectus, to the effect that, as of the date of such opinion, the
consideration to be received by the holders of TCI Common Stock (other than
Liberty and its affiliates) in the TCI Merger is fair to such stockholders, from
a financial point of view. Such opinion shall have been included in the Joint
Proxy Statement/Prospectus mailed to TCI stockholders in connection with the TCI
Stockholders Meeting, and shall not have been withdrawn prior to the Effective
Time.
(f) Proceedings Satisfactory. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated hereby or
incidental hereto and all other related legal matters shall have been reasonably
satisfactory to and approved by counsel for TCI, and such counsel shall have
been furnished with such certified copies of such corporate actions and
proceedings and such other instruments and documents as such counsel shall have
reasonably requested.
(g) Contract Consents and Notices. All Contract Consents and Contract
Notices which are referred to in Section 4.5 or 5.5 or otherwise required in
connection with the consummation of the transactions contemplated hereby and
which, if not obtained or given, would have, individually or in the aggregate,
in the reasonable judgment of TCI, a material adverse effect on (i) the
transactions contemplated hereby or (ii) the business, assets, results of
operations, financial condition or prospects of TCI and its Subsidiaries, taken
as a whole, Liberty and its Subsidiaries, taken as a whole, or, as of or after
the Effective Time and assuming consummation of the Mergers, TCI/Liberty and its
Subsidiaries, taken as a whole, shall have been obtained and given.
(h) No Material Adverse Change. Since the date hereof nothing shall have
occurred, which, individually or in the aggregate, has had or, in the reasonable
judgment of TCI, is reasonably likely to have, a material adverse effect on the
business, assets, results of operations, financial condition or prospects of
Liberty and its Subsidiaries, taken as a whole or, as of or after the Effective
Time and assuming consummation of the Mergers, TCI/Liberty and its Subsidiaries,
taken as a whole (including any potential change or event disclosed on any
Schedule which, subsequent to the date hereof, actually occurs), excluding, in
all cases, events or conditions generally affecting the cable television or
cable programming industry or affecting general business or economic conditions.
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<PAGE> 183
8.3 Conditions Precedent to the Obligations of Liberty. The obligation of
Liberty to consummate the transactions contemplated by this Agreement is also
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, unless waived by Liberty:
(a) Accuracy of Representations and Warranties. All representations and
warranties of TCI contained herein 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, with the same force and
effect as though made on and as of the Closing Date, except for changes
permitted or contemplated by this Agreement.
(b) Performance of Agreements. TCI 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) Officer's Certificates. Liberty shall have received such certificates
of TCI, dated the Closing Date, signed by executive officers of TCI to evidence
satisfaction of the conditions set forth in Sections 8.1(a), 8.1(d), 8.1(e),
8.1(f) and 8.3(g) (insofar as each relates to TCI) and in Sections 8.3(a) and
8.3(b) as may be reasonably requested by Liberty.
(d) Opinion of Counsel. Liberty shall have received a favorable opinion
from Sherman & Howard L.L.C, dated the Closing Date, substantially to the effect
set forth in Annex 2. In rendering such opinion, such counsel may rely as to
factual matters upon certificates or other documents furnished by officers of
TCI and by government officials, and upon such other documents and data as such
counsel deems appropriate as a basis for the opinion. Such counsel may specify
the jurisdiction or jurisdictions in which the members thereof are admitted to
practice, that they are not admitted to practice in any other jurisdiction or
experts in the law of any other jurisdiction and that, to the extent the
foregoing opinion concerns the laws of any other jurisdiction or pertains to
matters beyond the scope of such counsel's engagement, such counsel may rely
upon the opinion of counsel admitted to practice in such other jurisdiction. Any
opinion relied upon by such counsel shall be delivered together with the opinion
of such counsel, which shall state that such counsel believes that reliance
thereon is justified.
(e) Fairness Opinion. Liberty shall have received a written opinion of
Merrill Lynch, dated within five days of the date of the Joint Proxy
Statement/Prospectus, to the effect that, as of the date of such opinion, the
exchange ratios in the Liberty Merger and the TCI Merger, taken together, are
fair to the holders of shares of Liberty Common Stock (other than TCI and its
affiliates) from a financial point of view. Such opinion shall have been
included in the Joint Proxy Statement/Prospectus mailed to Liberty stockholders
in connection with the Liberty Stockholders Meeting, and shall not have been
withdrawn prior to the Effective Time.
(f) Proceedings Satisfactory. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated hereby or
incidental hereto and all other related legal matters shall have been reasonably
satisfactory to and approved by counsel for Liberty, and such counsel shall have
been furnished with such certified copies of such corporate actions and
proceedings and such other instruments and documents as it shall have reasonably
requested.
(g) Contract Consents and Notices. All Contract Consents and Contract
Notices which are referred to in Section 4.5 or 5.5 or otherwise required in
connection with the consummation of the transactions contemplated hereby and
which, if not obtained or given, would have, individually or in the aggregate,
in the reasonable judgment of Liberty, a material adverse effect on (i) the
transactions contemplated hereby or (ii) the business, assets, results of
operations, financial condition or prospects of TCI and its Subsidiaries, taken
as a whole, Liberty and its Subsidiaries, taken as a whole, or, as of or after
the Effective Time and assuming consummation of the Mergers, TCI/Liberty and its
Subsidiaries, taken as a whole, shall have been obtained and given.
(h) No Material Adverse Change. Since the date hereof nothing shall have
occurred which, individually or in the aggregate, has had or, in the reasonable
judgment of Liberty, is reasonably likely to have, a material adverse effect on
the business, assets, results of operations, financial condition or prospects of
TCI
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<PAGE> 184
and its Subsidiaries, taken as a whole, or as of or after the Effective Time and
assuming consummation of the Mergers, TCI/Liberty and its Subsidiaries, taken as
a whole (including any potential change or event disclosed on any Schedule
which, subsequent to the date hereof, actually occurs), excluding, in all cases,
events or conditions generally affecting the cable television or cable
programming industry or affecting general business or economic conditions.
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 of the matters presented in
connection with the Mergers by the stockholders of TCI or Liberty: (i) by mutual
consent of TCI and Liberty; or (ii) by either TCI or Liberty: (A) if the Mergers
shall not have been consummated before September 30, 1994, 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 required to be performed by it at or prior to the Effective Time
has resulted in the failure of the Mergers to be consummated before such date,
(B) if there has been a material breach by the other party of any of its
representations, warranties, covenants or agreements contained in this Agreement
and such breach shall not have been cured within five business days after
written notice thereof shall have been received by the party alleged to be in
breach, (C) if any court of competent jurisdiction or other competent
governmental authority shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting either
Merger and such order, decree, ruling or other action shall have become final
and nonappealable or (D) if the approval of the Merger Proposal by the
stockholders of TCI or Liberty shall not have been obtained by reason of the
failure to obtain the required vote upon a vote taken at a duly held meeting of
stockholders or at any adjournment thereof and if the terminating party has
complied with its obligations under Section 3.1 or 3.2 (as the case may be);
(iii) by TCI: (A) if the Liberty Board shall have withdrawn or modified in any
manner adverse to TCI its recommendation to the Liberty stockholders referred to
in Section 4.14 or (B) if the TCI Board (x) withdraws or modifies in a manner
adverse to Liberty its recommendation referred to in Section 5.14 if at such
time there exists a Superior Takeover Proposal with respect to TCI or (y)
recommends to TCI's stockholders approval or acceptance of such Superior
Takeover Proposal, in each case only if the TCI Board, after consultation and
based upon the advice of outside counsel (who may be such party's regularly
engaged outside counsel) determines in good faith that such action is necessary
for the TCI Board to comply with its fiduciary duties to TCI stockholders under
applicable law; or (iv) by Liberty: (A) if the TCI Board shall have withdrawn or
modified in any manner adverse to Liberty its recommendation to the TCI
Stockholders referred to in Section 5.14 or (B) if the Liberty Board (x)
withdraws or modifies in a manner adverse to TCI its recommendation referred to
in Section 4.14 if at such time there exists a Superior Takeover Proposal with
respect to Liberty or (y) recommends to Liberty's stockholders approval or
acceptance of such Superior Takeover Proposal, in each case only if the Liberty
Board, after consultation and based upon the advice of outside counsel (who may
be such party's regularly engaged outside counsel) determines in good faith that
such action is necessary for the Liberty Board to comply with its fiduciary
duties to Liberty stockholders under applicable law.
9.2 Effect of Termination. In the event of any termination of this
Agreement by TCI or Liberty pursuant to Section 9.1, this Agreement forthwith
shall become void, and there shall be no liability or obligation on the part of
any party hereto except (i) as provided in Sections 4.10, 5.10, 7.2 and 7.6,
which shall survive such termination and (ii) subject to Sections 10.12 and
10.13, to the extent such termination results from the willful breach by TCI or
Liberty of any of its representations, warranties, covenants or agreements
contained in this Agreement.
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ARTICLE X
MISCELLANEOUS
10.1 Nonsurvival of Representations, Warranties and Agreements. The
respective representations and warranties of the parties contained herein or in
any certificate or other instrument delivered prior to or at the Closing shall
not be deemed waived or otherwise affected by any investigation made by any
party hereto. None of the representations, warranties, covenants or agreements
contained in this Agreement or in any certificate or other instrument delivered
pursuant to this Agreement shall survive the Effective Time, except for (i) the
agreements contained in Article II, Sections 4.10, 5.10 and 7.6 and in this
Article X, and (ii) the agreements of the "affiliates" of TCI and Liberty
delivered pursuant to Section 3.6.
10.2 Indemnification.
(a) Post-Merger Indemnification of TCI and Liberty Directors and
Officers. After the Effective Time, TCI/Liberty shall indemnify and hold
harmless each person who was, at any time prior to the Effective Time, a
director, officer, employee or agent of TCI or Liberty (individually an
"Indemnified Party" and, collectively, the "Indemnified Parties") against (i)
all losses, claims, damages, costs, expenses (including fees and expenses of
counsel properly retained by an Indemnified Party under this Section 10.2)
(promptly as statements therefor are received), liabilities or judgments or
amounts that are paid in settlement with the approval of TCI/Liberty (which
approval shall not be unreasonably withheld) of or in connection with any claim,
action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person was at any time
prior to the Effective Time a director, officer, employee or agent of TCI or
Liberty, whether pertaining to any matter existing or occurring at or prior to
the Effective Time and whether asserted or claimed prior to, at or after the
Effective Time ("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 or the transactions contemplated hereby (and
TCI/Liberty shall pay expenses in advance of the final disposition of any such
action, suit, proceeding or investigation to each Indemnified Party (including
fees and expenses of counsel properly retained by an Indemnified Party under
this Section 10.2), promptly as statements therefor are received, to the full
extent permitted by law upon receipt of the undertaking contemplated by Section
145(e) of the DGCL), in each case to the full extent that (x) a corporation is
permitted under Delaware law to indemnify or advance expenses to its own
directors, officers, employees or agents, as the case may be, (y) such
Indemnified Party would have been entitled to be indemnified (A) by TCI, if such
Indemnified Party was a director, officer, employee or agent of TCI, with
respect to the Indemnified Liabilities in question under TCI's Restated
Certificate of Incorporation and By-Laws as in effect on January 1, 1994 and
under any indemnification agreement with TCI in a form disclosed to TCI/Liberty
prior to the date hereof and (B) by Liberty, if such Indemnified Party was a
director, officer, employee or agent of Liberty, with respect to the Indemnified
Liabilities in question under Liberty's Restated Certificate of Incorporation
and By-laws as in effect on January 1, 1994 and under any indemnification
agreement with Liberty in a form disclosed to TCI/Liberty prior to the date
hereof and (z) such indemnification otherwise is permitted by applicable law. In
the event any such claim, action, suit, proceeding or investigation is asserted
or commenced against any Indemnified Party (whether before or after the
Effective Time), TCI/Liberty will be entitled to participate and, to the extent
that it may wish, to assume the defense thereof, except that if TCI/Liberty also
is a subject of such claim, action, suit, proceeding or investigation and there
is, under applicable standards of professional conduct, a conflict on any
significant issue between the position of TCI/Liberty and the position of such
Indemnified Party, or if TCI/Liberty shall fail to assume responsibility for
such defense, such Indemnified Party may, subject to Section 10.2(b), retain
counsel who will represent such Indemnified Party, and TCI/Liberty shall pay all
reasonable fees and expenses of such counsel promptly as statements therefor are
received; provided that such Indemnified Party shall vigorously defend (or, if
the defense is assumed by TCI/Liberty, use his best efforts to assist in the
vigorous defense of) any such matter; provided, further, that TCI/Liberty shall
not be liable for any settlement effected without its written consent, which
consent, however, shall not be unreasonably withheld; and provided, further,
that TCI/Liberty shall not have any obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately determine,
after exhaustion of all avenues of appeal, that such Indemnified Party is not
entitled to indemnification hereunder.
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(b) Procedures. Any Indemnified Party wishing to claim indemnification or
advancement of expenses under Section 10.2(a), upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify TCI/Liberty
(provided that the failure so to notify TCI/Liberty shall not relieve
TCI/Liberty from any liability which it may have under this Section 10.2, except
to the extent such failure materially prejudices TCI/Liberty) and shall deliver
to TCI/Liberty an undertaking to repay any amounts advanced pursuant thereto
when and if a court of competent jurisdiction shall ultimately determine, after
exhaustion of all avenues of appeal, that such Indemnified Party is not entitled
to indemnification hereunder. In no event may the Indemnified Parties retain
more than one lead law firm and one local counsel to represent them with respect
to any such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the position of any two or
more Indemnified Parties in which case the Indemnified Parties may (unless the
defense of such matter has been assumed by TCI/Liberty as provided herein)
retain, at the expense of TCI/Liberty, such number of additional counsel as are
necessary to eliminate all conflicts of the type referred to above.
(c) Survival. This Section 10.2 shall survive the consummation of the
Mergers. The provisions of this Section are intended to be for the benefit of
and shall be enforceable by each of the Indemnified Parties and his heirs and
legal representatives.
10.3 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 TCI or TCI/Liberty, to:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attn: General Counsel
(b) if to Liberty, to:
Liberty Media Corporation
8101 East Prentice Avenue, Suite 500
Englewood, Colorado 80111
Attn: General Counsel
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.
10.4 Entire Agreement. This Agreement (including the Exhibits, Annexes,
Schedules and other documents referred to herein) 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.
10.5 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 (other than pursuant to the Mergers) or otherwise)
without the prior written consent of the other parties. 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 assigns. Nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement, other
than rights conferred upon Indemnified Parties under Section 10.2 and upon
stockholders, directors, officers, affiliates, agents and representatives of the
parties under Section 10.13.
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10.6 Amendment. This Agreement may be amended by the parties, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval of any matters presented in connection with the Mergers by the
stockholders of TCI or Liberty, but, after any such approval by the stockholders
of TCI and Liberty, no amendment shall be made which by law requires further
approval by such stockholders without such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties.
10.7 Extension; Waiver. At any time prior to the Effective Time, TCI or
Liberty, by action taken or authorized by 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 party, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto, (iii) waive compliance by
the other party with any of the agreements or covenants of such other party
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 the 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 10.7.
10.8 Interpretation. When a reference is made in this Agreement to
Sections, Articles, Exhibits, Annexes or Schedules, such reference shall be to a
Section, Article, Exhibit, Annex or Schedule (as the case may be) of this
Agreement unless otherwise indicated. When a reference is made in this Agreement
to a "party" or "parties", such reference shall be to a party or parties to this
Agreement unless otherwise indicated. 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. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". 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. The use of any gender herein shall be deemed to be or include
the other genders and the use of the singular herein shall be deemed to be or
include the plural (and vice versa), wherever appropriate. The use of the words
"hereof", "herein", "hereunder" and words of similar import shall refer to this
entire Agreement, and not to any particular article, section, subsection,
clause, paragraph or other subdivision of this Agreement, unless the context
clearly indicates otherwise.
10.9 Knowledge as to Equity Affiliates. Whenever any representation and
warranty is made herein (i) "to the knowledge of Liberty," or words of similar
intent or effect, with respect to any Liberty Equity Affiliates, such
representation and warranty shall be deemed to be made to the knowledge of the
senior management (vice presidents and higher officers) of Liberty, without
investigation and (ii) "to the knowledge of TCI," or words of similar intent or
effect, with respect to any TCI Equity Affiliates, such representation and
warranty shall be deemed to be made to the knowledge of the senior management
(senior vice presidents and higher officers) of TCI, without investigation.
10.10 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.
10.11 Applicable Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Delaware, without regard to the conflict of laws rules thereof.
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10.12 No Remedy in Certain Circumstances. Each party agrees that, should
any court or other competent governmental authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith or not to take any action required
herein, the other parties shall not be entitled to specific performance of such
provision or part hereof or to any other remedy, including but not limited to
money damages, for breach thereof or of any other provision of this Agreement or
part hereof as a result of such holding or order.
10.13 Limited Liability. Notwithstanding any other provision of this
Agreement, no stockholder, director, officer, affiliate, agent or representative
of any party (other than TCI and Liberty as stockholders of TCI/Liberty and
TCI/Liberty as the sole stockholder of each of TCI Mergerco and Liberty
Mergerco) shall have any liability in respect of or relating to the covenants,
obligations, representations or warranties of such party hereunder or in respect
of any certificate delivered with respect thereto and, to the fullest extent
legally permissible, each party, for itself and its stockholders, directors,
officers and affiliates, waives and agrees not to seek to assert or enforce any
such liability which any such person otherwise might have pursuant to applicable
law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first above written.
<TABLE>
<S> <C>
Attest: TELE-COMMUNICATIONS, INC.
/s/ Mary S. Willis By: /s/ Stephen M. Brett
- ---------------------------------------------- ------------------------------------------
Mary S. Willis Its: Senior Vice President
Attest: LIBERTY MEDIA CORPORATION
/s/ Robert R. Bennett By: /s/ Peter R. Barton
- ---------------------------------------------- ------------------------------------------
Robert R. Bennett Its: President
Attest: TCI/LIBERTY HOLDING COMPANY
/s/ Mary S. Willis By: /s/ Stephen M. Brett
- ---------------------------------------------- ------------------------------------------
Mary S. Willis Its: Vice President
Attest: TCI MERGERCO, INC.
/s/ Mary S. Willis By: /s/ Stephen M. Brett
- ---------------------------------------------- ------------------------------------------
Mary S. Willis Its: Vice President
</TABLE>
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<TABLE>
<S> <C>
Attest: LIBERTY MERGERCO, INC.
/s/ Robert R. Bennett By: /s/ Peter R. Barton
- ---------------------------------------------- ----------------------------------------------
Robert R. Bennett Its: President
</TABLE>
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AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 1, dated as of March 30, 1994 (this "Amendment"), to a
certain Agreement and Plan of Merger, dated as of January 27, 1994 (the "Merger
Agreement"), by and among Tele-Communications, Inc., a Delaware corporation
("TCI"), Liberty Media Corporation, a Delaware corporation ("Liberty"),
TCI/Liberty Holding Company, a Delaware corporation jointly owned by TCI and
Liberty ("TCI/Liberty"), TCI Mergerco, Inc., a Delaware corporation and a wholly
owned subsidiary of TCI/Liberty, and Liberty Mergerco, Inc., a Delaware
corporation and a wholly owned subsidiary of TCI/Liberty, is entered into by and
among the parties to the Agreement. All capitalized terms used in this Amendment
which are not otherwise defined herein shall have the meanings ascribed to such
terms in the Merger Agreement.
WHEREAS, subsequent to the execution of the Merger Agreement, all
outstanding shares of the Convertible Preferred Stock, Series C, par value $1.00
per share, of TCI (the "TCI Preferred Stock") were converted in accordance with
their terms into shares of TCI Class A Common Stock, par value $1.00 per share;
WHEREAS, as a result of such conversion, there are no shares of TCI
Preferred Stock outstanding and, therefore, all references in the Merger
Agreement and the Exhibits thereto to the TCI Preferred Stock and to the
TCI/Liberty Class A Preferred being the class of preferred stock of TCI/Liberty
into which the TCI Preferred Stock was to be converted in the Mergers should be
deleted, and the Merger Agreement and the Exhibits thereto should be revised to
redesignate the classes of TCI/Liberty preferred stock into which the
outstanding shares of Liberty Preferred Stock are to be converted in the
Mergers; and
WHEREAS, in connection therewith it is also necessary to amend and restate
in its entirety the form of Amended and Restated Certificate of Incorporation of
TCI/Liberty, which was attached as Exhibit A to the Merger Agreement, to change
the designations of the preferred stock of TCI/Liberty.
NOW, THEREFORE, in consideration of the premises and the respective
agreements set forth herein, the parties hereto agree as follows:
1. The Merger Agreement is hereby amended to delete (x) all references
therein to the TCI Preferred Stock and (y) all references to the
TCI/Liberty Class A Preferred being the class of preferred stock of
TCI/Liberty into which the outstanding shares of TCI Preferred Stock are to
be converted in the Mergers.
2. The Merger Agreement is hereby amended to (x) provide that all
shares of Liberty Class B Preferred and Liberty Class D Preferred shall be
converted into TCI/Liberty Class A Preferred, and (y) to change all
reference in the Merger Agreement to "TCI/Liberty Class B Preferred" to
"TCI/Liberty Class A Preferred."
3. The Merger Agreement is hereby amended to (x) provide that all
shares of Liberty Class E Preferred shall be converted into TCI/Liberty
Class B Preferred, and (y) to change all reference in the Merger Agreement
to "TCI/Liberty Class C Preferred" to "TCI/Liberty Class B Preferred."
4. Exhibit A to the Merger Agreement is hereby amended and restated to
read in its entirety as set forth in Annex I to this Amendment.
5. Except as specifically amended hereby, the terms and provisions of
the Merger Agreement shall remain in full force and effect and are hereby
in all respects ratified and confirmed.
6. This Amendment 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.
7. This Amendment and the legal relations between the parties shall be
governed by and construed in accordance with the laws of the State of
Delaware, without regard to the conflict of laws rules thereof.
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<PAGE> 191
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Merger Agreement as of the date first above written.
<TABLE>
<S> <C>
Attest: TELE-COMMUNICATIONS, INC.
/s/ Stephen M. Brett By: /s/ Brendan R. Clouston
- ---------------------------------------------- ------------------------------------------
Its: Executive Vice President
Attest: LIBERTY MEDIA CORPORATION
/s/ Robert R. Bennett By: /s/ Peter R. Barton
- ---------------------------------------------- ------------------------------------------
Its: President
Attest: TCI/LIBERTY HOLDING COMPANY
/s/ Stephen M. Brett By: /s/ Brendan R. Clouston
- ---------------------------------------------- ------------------------------------------
Its: President
Attest: TCI MERGERCO, INC.
/s/ Stephen M. Brett By: /s/ Brendan R. Clouston
- ---------------------------------------------- ------------------------------------------
Its: President
Attest: LIBERTY MERGERCO, INC.
/s/ Robert R. Bennett By: /s/ Peter R. Barton
- ---------------------------------------------- ------------------------------------------
Its: President
</TABLE>
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APPENDIX II
[CS FIRST BOSTON LETTERHEAD]
June 23, 1994
The Board of Directors
Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the common stock of
Tele-Communications, Inc. ("TCI"), other than Liberty Media Corporation
("Liberty") and its affiliates, of the consideration to be received by such
holders pursuant to the terms of the Agreement and Plan of Merger, dated as of
January 27, 1994, as amended (the "Merger Agreement"), by and among TCI,
Liberty, TCI/Liberty Holding Company ("TCI/Liberty"), a newly formed entity
jointly owned by TCI and Liberty, TCI Mergerco, Inc. ("TCI Mergerco") and
Liberty Mergerco, Inc. ("Liberty Mergerco"). The Merger Agreement provides for,
among other things, (i) the mergers of TCI Mergerco with and into TCI (the "TCI
Merger") and Liberty Mergerco with and into Liberty (the "Liberty Merger" and,
together with the TCI Merger, the "Mergers"), pursuant to which TCI and Liberty
will become wholly owned subsidiaries of TCI/Liberty and (ii) (A) pursuant to
the TCI Merger, (i) the conversion of each outstanding share of the Class A
Common Stock, par value $1.00 per share, of TCI (the "TCI Class A Common Stock")
into the right to receive one share of the Class A Common Stock, par value $1.00
per share, of TCI/Liberty (the "TCI/Liberty Class A Common Stock") and (ii) the
conversion of each outstanding share of the Class B Common Stock, par value
$1.00 per share, of TCI (the "TCI Class B Common Stock" and, together with the
TCI Class A Common Stock, the "TCI Common Stock") into the right to receive one
share of the Class B Common Stock, par value $1.00 per share, of TCI/Liberty
(the "TCI/Liberty Class B Common Stock" and, together with the TCI/Liberty Class
A Common Stock, the "TCI/Liberty Common Stock") and (B) pursuant to the Liberty
Merger, (i) the conversion of each outstanding share of the Class A Common
Stock, par value $1.00 per share, of Liberty into the right to receive 0.975 of
a share of the TCI/Liberty Class A Common Stock and (ii) the conversion of each
outstanding share of the Class B Common Stock, par value $1.00 per share, of
Liberty into the right to receive 0.975 of a share of the TCI/Liberty Class B
Common Stock.
In arriving at our opinion, we have reviewed the Proxy Statement/Prospectus
to be distributed to stockholders in connection with the Mergers, the Merger
Agreement and certain publicly available business and financial information
relating to TCI and Liberty. We also have reviewed certain other information,
including financial forecasts, provided to us by TCI, Liberty and certain of
their affiliates, and have had discussions with the respective management of
TCI, Liberty and certain of their affiliates concerning the businesses and
prospects of TCI, Liberty and such affiliates. We have considered and relied
upon the views of the respective management of TCI and Liberty concerning
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The Board of Directors
Tele-Communications, Inc.
June 23, 1994
Page 2
certain strategic implications and operational benefits which might result from
the Mergers, the anticipated treatment to be accorded to the Mergers by certain
regulatory bodies, and certain regulatory matters affecting the businesses of
TCI, Liberty and their respective investments.
We also have considered certain financial and stock market data of TCI,
Liberty and certain of their respective investments for which such information
was available, and we have compared that data with similar data for other
publicly held companies in businesses similar to those of TCI, Liberty and such
investments and we have considered, to the extent publicly available, the
financial terms of certain other business combinations which have recently been
effected. We also considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not independently verified any of
the foregoing information and have relied upon its being complete and accurate
in all respects. With respect to the financial forecasts and other data reviewed
by us, we have assumed that such forecasts and other data have been reasonably
prepared and have reviewed with the respective management of TCI, Liberty and
certain of their affiliates various operational and financial assumptions
incorporated therein. In addition, we have not made an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of TCI, Liberty
or their respective investments, nor have we been furnished with any such
appraisals. We were not requested to, and did not, participate in the
negotiation or structuring of the Mergers, nor are we expressing any opinion as
to what the value of the TCI/Liberty Common Stock actually will be when issued
to TCI stockholders pursuant to the TCI Merger or the price at which such
securities will trade subsequent to the Mergers. We have assumed that the
Mergers will qualify as a tax-free reorganization for federal income tax
purposes. We also have assumed that in the course of obtaining the necessary
regulatory and governmental approvals for the proposed Mergers, no restriction
will be imposed that will have a material adverse effect on the contemplated
benefits of the Mergers. Our opinion is necessarily based on information
available to us and financial, stock market and other conditions and
circumstances as they exist and can be evaluated on the date hereof.
We have acted as financial advisor to TCI in connection with the Mergers
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Mergers. We also have provided financial
advisory and investment banking services to TCI and Liberty in the past, for
which services we have received customary fees.
In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the debt and equity securities of TCI, Liberty and their
respective affiliates for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information of TCI's Board of
Directors only in its evaluation of the Mergers and may not be relied upon by
any other person, nor does our opinion constitute a recommendation to any
stockholder of TCI as to how such stockholder should vote on the proposed
Mergers. This letter is not to be quoted or referred to, in whole or in part, in
any registration statement, prospectus or proxy statement, or in any other
document used in connection with the offering or sale of securities, nor shall
this letter be used for any other purposes, without CS First Boston's prior
written consent.
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The Board of Directors
Tele-Communications, Inc.
June 23, 1994
Page 3
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the holders of TCI Common Stock
in the TCI Merger is fair to such holders (other than Liberty and its
affiliates) from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
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APPENDIX III
[Merrill Lynch Letterhead]
June 23, 1994
CONFIDENTIAL
- ------------
Special Committee of the Board of Directors
Liberty Media Corporation
8101 East Prentice Avenue
Englewood, CO 80111
Gentlemen:
Tele-Communications, Inc. ("TCI"), Liberty Media Corporation ("Liberty"),
TCI/Liberty Holding Company, a corporation jointly owned by TCI and Liberty
("TCI/Liberty"), TCI Mergerco, Inc., a wholly owned subsidiary of TCI/Liberty
("TCI Mergerco"), and Liberty Mergerco, Inc., a wholly owned subsidiary of
TCI/Liberty ("Liberty Mergerco"), have entered into an Agreement and Plan of
Merger dated as of January 27, 1994, as amended as of March 30, 1994 (the
"Agreement") pursuant to which, among other things, (i) TCI Mergerco will be
merged with and into TCI and Liberty Mergerco will be merged with and into
Liberty (together, the "Mergers") and (ii) each share of Class A Common Stock,
par value $1.00 per share, of TCI (the "TCI Class A Shares") shall be converted
into 1.000 share of Class A Common Stock, par value $1.00 per share, of
TCI/Liberty, each share of Class B Common Stock, par value $1.00 per share, of
TCI (the "TCI Class B Shares" and together with the TCI Class A Shares, the "TCI
Shares") shall be converted into 1.000 share of Class B Common Stock, par value
$1.00 per share, of TCI/Liberty, each share of Class A Common Stock, par value
$1.00 per share, of Liberty (the "Class A Shares"), shall be converted into
0.975 share of Class A Common Stock, par value $1.00 per share, of TCI/Liberty
and each share of Class B Common Stock, par value $1.00 per share, of Liberty
(the "Class B Shares" and together with the Class A Shares the "Shares"), shall
be converted into 0.975 share of Class B Common Stock, par value $1.00 per
share, of TCI/Liberty (collectively the "Stock Conversions," and together with
the Mergers, the "Transaction"). The ratios at which the Class A Shares, the
Class B Shares, the TCI Class A Shares and the TCI Class B Shares are converted
into common stock of TCI/Liberty in accordance with the Agreement are referred
to herein as the Exchange Ratios. It is intended that TCI Liberty, TCI/Liberty,
TCI Mergerco and Liberty Mergerco will recognize no gain or loss for federal
income tax purposes as a result of the Transaction. Consummation of the
Transaction will be subject to the terms and conditions set forth in the
Agreement.
You have asked us whether, in our opinion, the Exchange Ratios, taken
together, are fair to the holders of the Shares, other than TCI and its
affiliates, from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Liberty's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1993 and
Liberty's Form 10-Q and the related
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[Merrill Lynch Logo] 2
unaudited financial information for the quarter ended March 31, 1994;
(2) Reviewed TCI's Annual Reports, Forms 10-K and related financial
information for the four fiscal years ended December 31, 1993 and
TCI's Form 10-Q and the related unaudited financial information for
the quarter ended March 31, 1994;
(3) Reviewed certain other filings with the Securities and Exchange
Commission made by Liberty and TCI including Forms 8-K and
registration statements, during the last three years;
(4) Reviewed certain information, including financial forecasts, relating
to the business, cash flow, assets and prospects of Liberty and TCI
and certain of their respective affiliates, furnished to us by Liberty
and TCI;
(5) Conducted discussions with members of senior management of Liberty,
TCI and certain of their respective affiliates concerning their
respective businesses, strategic objectives, regulatory environment
and prospects;
(6) Reviewed the historical market prices and trading activity for the
Class A Shares and Class B Shares and the TCI Class A Shares and TCI
Class B Shares and compared them with those of certain publicly traded
companies which we deemed to be reasonably similar to Liberty and TCI,
respectively;
(7) Compared the results of operations of Liberty and certain of its
affiliates and TCI and certain of its affiliates with those of certain
companies which we deemed to be reasonably similar to Liberty and TCI
(or certain of their affiliates, as the case may be), respectively;
(8) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses which we deemed to be
similar in certain respects to Liberty and TCI;
(9) Analyzed the respective contributions in terms of assets, cash flow
and businesses of TCI and Liberty to TCI/Liberty;
(10) Analyzed the valuation of the TCI Shares and the Shares using various
valuation methodologies which we deemed to be appropriate;
(11) Reviewed the Agreement; and
(12) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary or appropriate for purposes of this opinion.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by Liberty, TCI
and their respective affiliates, and we have not independently verified such
information or any underlying assumptions or undertaken an independent appraisal
or physical inspection of the assets or the liabilities of Liberty or TCI or any
of their respective affiliates. With respect to the financial forecasts
furnished by Liberty, TCI or any of their respective affiliates, we have assumed
that they have been reasonably prepared in accordance with accepted industry
practice and reflect the best currently available estimates and judgment of
Liberty's,
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[Merrill Lynch Logo] 3
TCI's or their respective affiliates' management as to the expected
future financial performance, after taking into account, among other things, the
current regulatory environment, of Liberty, TCI or any of their respective
affiliates, as the case may be. Our opinion is based upon general economic,
market, monetary and other conditions as they exist and can be evaluated, and
the information available to us, as of the date thereof.
In connection with the preparation of this opinion, we have not been
authorized by Liberty, or the Special Committee of the Board of Directors to
solicit, nor have we solicited, third-party indications of interest for the
acquisition of all or any part of Liberty.
We have, in the past on unrelated matters, provided certain financial
advisory and financing services to TCI and certain of its affiliates and have
received fees for the rendering of such services. In addition, in the ordinary
course of our securities business, we may actively trade debt and/or equity
securities of TCI and Liberty and their respective affiliates for our own
account and the accounts of our customers, and we therefore may from time to
time hold a long or short position in such securities.
This opinion has been prepared solely for the use of the Board of Directors
of Liberty.
On the basis of, and subject to the foregoing and such other matters as we
consider relevant, we are of the opinion that the Exchange Ratios, taken
together, are fair to the holders of the Shares, other than TCI and its
affiliates, from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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APPENDIX IV
TELE-COMMUNICATIONS, INC.
1994 STOCK INCENTIVE PLAN
Article I
Purpose and Effectiveness
1.1 Purpose. The purpose of the Tele-Communications, Inc. 1994 Stock
Incentive Plan (the "Plan") is to promote the success of Tele-Communications,
Inc. (the "Company") by providing a method whereby (i) eligible employees of the
Company and its Subsidiaries and (ii) independent contractors providing services
to the Company or its Subsidiaries may be awarded additional remuneration for
services rendered and encouraged to invest in capital stock of the Company,
thereby increasing their proprietary interest in the Company's businesses,
encouraging them to remain in the employ of the Company or its Subsidiaries, and
increasing their personal interest in the continued success and progress of the
Company or its Subsidiaries. The Plan is also intended to aid (i) in attracting
persons of exceptional ability to become officers and employees of the Company
and its Subsidiaries and (ii) inducing independent contractors to agree to
provide services to the Company. An additional purpose of the Plan is to provide
for the issuance pursuant to the Agreement and Plan of Merger, dated as of
January 27, 1994, as amended (the "Merger Agreement"), among TCI/Liberty Holding
Company, a Delaware corporation ("Holding"), Tele-Communications, Inc., a
Delaware corporation ("Old TCI"), Liberty Media Corporation, a Delaware
corporation ("Liberty"), TCI Mergerco, Inc., a Delaware corporation ("TCI
Mergerco"), and Liberty Mergerco, Inc., a Delaware corporation ("Liberty
Mergerco") of compensation agreements such as stock options, stock rights or
restricted stock in exchange for similar rights previously granted by either of
Old TCI or Liberty, in connection with the consummation of the transaction
contemplated by the Merger Agreement. In the transactions contemplated by the
Merger Agreement, Old TCI will be merged with TCI Mergerco and Liberty will be
merged with Liberty Mergerco and Holding, the parent of TCI Mergerco and Liberty
Mergerco, will change its name to Tele-Communications, Inc. which is the
Company, sponsor of this Plan.
1.2 Effective Date. The Plan shall be subject to, and become effective
upon, the approval by the affirmative vote of the holders of at least a majority
of the outstanding shares of capital stock of each of Old TCI and Liberty,
represented in person or by proxy and entitled to vote, at the special meetings
of stockholders of Old TCI and of Liberty for the purpose of approving the
Merger Agreement or at any adjournment or postponement thereof.
Article II
Definitions
2.1 Certain Defined Terms. Capitalized terms not defined elsewhere in the
Plan shall have the following meanings (whether used in the singular or plural):
"Affiliate" of the Company means any corporation, partnership, or
other business association that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with the Company.
"Agreement" means a stock option agreement, stock appreciation rights
agreement, restricted shares agreement or stock units agreement, or an
agreement evidencing more than one type of Award, specified in Section
10.5, as any such Agreement may be supplemented or amended from time to
time.
"Approved Transaction" means any transaction in which the Board (or,
if approval of the Board is not required as a matter of law, the
stockholders of the Company) shall approve (i) any consolidation or merger
of the Company, or binding share exchange, pursuant to which shares of
Common Stock would be changed or converted into or exchanged for cash,
securities or other property, other than any such transaction in which the
common stockholders of the Company immediately prior to such transaction
have the same proportionate ownership of the common stock of, and voting
power with respect to, the
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surviving corporation immediately after such transaction, (ii) any
merger, consolidation or binding share exchange to which the Company is
a party as a result of which the persons who are common stockholders of
the Company immediately prior thereto have less than a majority of the
combined voting power of the outstanding capital stock of the Company
ordinarily (and apart from the rights accruing under special
circumstances) having the right to vote in the election of directors
immediately following such merger, consolidation or binding share
exchange, (iii) the adoption of any plan or proposal for the
liquidation or dissolution of the Company, or (iv) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Company.
"Award" means a grant of Options, SARs, Restricted Shares and/or Stock
Units under this Plan.
"Board" means the Board of Directors of the Company.
"Board Change" means, during any period of two consecutive years,
individuals who at the beginning of such period constituted the entire
Board cease for any reason to constitute a majority thereof unless the
election, or the nomination for election, of each new director was approved
by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of the period.
"Class B Stock" means the Class B Common Stock, $1.00 par value per
share, of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute or statutes thereto. Reference to any
specific Code section shall include any successor section.
"Committee" means the committee of the Board appointed pursuant to
Section 3.1 to administer the Plan.
"Common Stock" means the Class A Common Stock, $1.00 par value per
share, of the Company.
"Company" means Tele-Communications, Inc., a Delaware corporation
(previously named TCI/ Liberty Holding Company).
"Control Purchase" means any transaction (or series of related
transactions) in which (i) any person (as such term is defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity
(other than the Company, any Subsidiary or any employee benefit plan
sponsored by the Company or any Subsidiary) shall purchase any Common Stock
or any Class B Stock (or securities convertible into Common Stock or Class
B Stock) for cash, securities or any other consideration pursuant to a
tender offer or exchange offer, without the prior consent of the Board, or
(ii) any person (as such term is so defined), corporation or other entity
(other than the Company, any Subsidiary, any employee benefit plan
sponsored by the Company or any Subsidiary, or any Controlling Person (as
defined below)) shall become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the then outstanding securities of the Company ordinarily (and
apart from the rights accruing under special circumstances) having the
right to vote in the election of directors (calculated as provided in Rule
13d-3(d) under the Exchange Act in the case of rights to acquire the
Company's securities), other than in a transaction (or series of related
transactions) approved by the Board. For purposes of this definition,
"Controlling Person" means each of (a) the Chairman of the Board, the
President and each of the directors of the Company as of the Effective Date
of this Plan, (b) the respective family members, estates and heirs of each
of the persons referred to in clause (a) above and any trust or other
investment vehicle for the primary benefit of any of such persons or their
respective family members or heirs and (c) Kearns-Tribune Corporation, a
Delaware corporation. As used with respect to any person, the term "family
member" means the spouse, siblings and lineal descendants of such person.
"Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months.
"Dividend Equivalents" means, with respect to Restricted Shares to be
issued at the end of the Restriction Period, to the extent specified by the
Committee only, an amount equal to all dividends and
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other distributions (or the economic equivalent thereof) which are
payable to stockholders of record during the Restriction Period on a
like number of shares of Common Stock.
"Effective Date" means the date on which the Plan becomes effective
pursuant to Section 1.2.
"Equity security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Exchange Act, and an equity security of an issuer
shall have the meaning ascribed thereto in Rule 16a-1 promulgated under the
Exchange Act, or any successor Rule.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto. Reference
to any specific Exchange Act section shall include any successor section.
"Fair Market Value" of a share of Common Stock or Class B Stock on any
day means the last sale price (or, if no last sale price is reported, the
average of the high bid and low asked prices) for a share of Common Stock
or Class B Stock, as applicable, on such day (or, if such day is not a
trading day, on the next preceding trading day) as reported on NASDAQ or,
if not reported on NASDAQ, as quoted by the National Quotation Bureau
Incorporated, or if the Common Stock or Class B Stock is listed on an
exchange, on the principal exchange on which the Common Stock or Class B
Stock, as applicable, is listed. If for any day the Fair Market Value of a
share of Common Stock or Class B Stock, as applicable, is not determinable
by any of the foregoing means, then the Fair Market Value for such day
shall be determined in good faith by the Committee on the basis of such
quotations and other considerations as the Committee deems appropriate.
"Free Standing SAR" has the meaning ascribed thereto in Section 7.1.
"Holder" means an employee of the Company or a Subsidiary or an
independent contractor who has received an Award under this Plan.
"Incentive Stock Option" means a stock option granted under Article VI
which is intended to be an incentive stock option within the meaning of
Section 422 of the Code.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"Nonqualified Stock Option" means a stock option granted under Article
VI that is designated a nonqualified stock option.
"Option" means any Incentive Stock Option or Nonqualified Stock
Option.
"Plan" has the meaning ascribed thereto in Section 1.1.
"Qualified domestic relations order" means a qualified domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder.
"Restricted Shares" means shares of Common Stock or the right to
receive shares of Common Stock, as the case may be, awarded pursuant to
Article VIII.
"Restriction Period" means a period of time beginning on the date of
each award of Restricted Shares and ending on the Vesting Date with respect
to such award.
"Retained Distribution" has the meaning ascribed thereto in Section
8.3.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor Rule. References to paragraphs of Rule 16b-3 shall include
the comparable provisions of any successor Rule.
"SARs" means stock appreciation rights, awarded pursuant to Article
VII, with respect to shares of Common Stock.
"Stock Unit Award" has the meaning ascribed thereto in Section 9.1.
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"Subsidiary" of the Company means any present or future subsidiary (as
defined in Section 424(f) of the Code) of the Company or any business
entity in which the Company owns directly or indirectly, 50% or more of the
voting, capital or profits interests. An entity shall be deemed a
subsidiary of the Company for purposes of this definition only for such
periods as the requisite ownership or control relationship is maintained.
"Tandem SARs" has the meaning ascribed thereto in Section 7.1.
"Vesting Date" with respect to any Restricted Shares awarded hereunder
means the date on which such Restricted Shares cease to be subject to a
risk of forfeiture, as designated in or determined in accordance with the
Agreement with respect to such award of Restricted Shares pursuant to
Article VIII. If more than one Vesting Date is designated for an award of
Restricted Shares, reference in the Plan to a Vesting Date in respect of
such Award shall be deemed to refer to each part of such Award and the
Vesting Date for such part.
Article III
Administration
3.1 Committee. The Plan shall be administered by the Compensation
Committee of the Board unless a different committee is appointed by the Board.
The Committee shall be comprised of not less than two persons. Each member of
the Committee shall be a member of the Board who during the one year period
prior to service on the Committee was not, and during such service is not,
granted or awarded equity securities pursuant to the Plan or any other plan of
the Company or any of its Affiliates if such grant or award or participation in
such plan would prevent such member from being a "disinterested person" with
respect to the Plan for purposes of Rule 16b-3. Subject to the foregoing, the
Board may from time to time appoint members of the Committee in substitution for
or in addition to members previously appointed, may fill vacancies in the
Committee and may remove members of the Committee. The Committee shall select
one of its members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall constitute a
quorum and all determinations shall be made by a majority of such quorum. Any
determination reduced to writing and signed by all of the members shall be fully
as effective as if it had been made by a majority vote at a meeting duly called
and held.
3.2 Powers. The Committee shall have full power and authority to grant to
eligible persons Options under Article VI of the Plan, SARs under Article VII of
the Plan, Restricted Shares under Article VIII of the Plan and/or Stock Units
under Article IX of the Plan, to determine the terms and conditions (which need
not be identical) of all Awards so granted, to interpret the provisions of the
Plan and any Agreements relating to Awards granted under the Plan, and to
supervise the administration of the Plan. The Committee in making an Award may
provide for the granting or issuance of additional, replacement or alternative
Awards upon the occurrence of specified events, including the exercise of the
original Award. The Committee shall have sole authority in the selection of
persons to whom Awards may be granted under the Plan and in the determination of
the timing, pricing and amount of any such Award, subject only to the express
provisions of the Plan. In making determinations hereunder, the Committee may
take into account the nature of the services rendered by the respective
employees and independent contractors, their present and potential contributions
to the success of the Company and its Subsidiaries and such other factors as the
Committee in its discretion deems relevant.
3.3 Interpretation. The Committee is authorized, subject to the provisions
of the Plan, to establish, amend and rescind such rules and regulations as it
deems necessary or advisable for the proper administration of the Plan and to
take such other action in connection with or in relation to the Plan as it deems
necessary or advisable. Each action and determination made or taken pursuant to
the Plan by the Committee, including any interpretation or construction of the
Plan, shall be final and conclusive for all purposes and upon all persons. No
member of the Committee shall be liable for any action or determination made or
taken by him or the Committee in good faith with respect to the Plan.
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3.4 Assumption of Awards under Predecessor Plans. Upon the effective time
of the mergers contemplated by the Merger Agreement, the Company shall issue
Awards hereunder upon the assumption of, and in substitution for, similar stock
options, stock appreciation rights and restricted stock previously granted by
Old TCI and by Liberty, as the case may be, pursuant to the terms of Section 2.7
of the Merger Agreement. Awards so issued upon such assumption shall thereafter
be deemed for all purposes to be Awards under this Plan, provided that the
issuance thereof shall not be deemed a new grant for purposes of Sections 6.2,
6.3, 7.1, 7.2 or 7.3 and the date of grant of such Awards for vesting and
similar purposes shall be deemed to be the date of grant of the original awards
so assumed.
Article IV
Shares Subject to the Plan
4.1 Number of Shares. Subject to the provisions of this Article IV, the
maximum number of shares of Common Stock with respect to which Awards may be
granted during the term of the Plan shall be 16,000,000 shares. Shares of Common
Stock will be made available from the authorized but unissued shares of the
Company or from shares reacquired by the Company, including shares purchased in
the open market. The shares of Common Stock subject to (i) any Award granted
under the Plan that shall expire, terminate or be annulled for any reason
without having been exercised (or considered to have been exercised as provided
in Section 7.2), (ii) any Award of any SARs granted under the Plan that shall be
exercised for cash and (iii) any Award of Restricted Shares or Stock Units that
shall be forfeited prior to becoming vested (provided that the Holder received
no benefits of ownership of such Restricted Shares or Stock Units other than
voting rights and the accumulation of Retained Distributions and unpaid Dividend
Equivalents that are likewise forfeited), shall again be available for purposes
of the Plan.
4.2 Adjustments. If the Company subdivides its outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock dividend,
stock split, reclassification or otherwise) or combines its outstanding shares
of Common Stock into a smaller number of shares of Common Stock (by reverse
stock split, reclassification or otherwise), or if the Committee determines that
any stock dividend, extraordinary cash dividend, reclassification,
recapitalization, reorganization, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Common Stock, or other similar
corporate event (including mergers or consolidations other than those which
constitute Approved Transactions) affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be made available under this Plan, then the Committee shall, in its
sole discretion and in such manner as the Committee may deem equitable and
appropriate, make such adjustments to any or all of (i) the number and kind of
shares which thereafter may be awarded, optioned, or otherwise made subject to
the benefits contemplated by the Plan, (ii) the number and kind of shares
subject to outstanding Awards, and (iii) the purchase or exercise price and the
relevant appreciation base with respect to any of the foregoing, provided,
however, that the number of shares subject to any Award shall always be a whole
number. The Committee may, if deemed appropriate, provide for a cash payment to
any Holder of an Award in connection with any adjustment made pursuant to this
Section 4.2.
Article V
Eligibility
5.1 General. The persons who shall be eligible to participate in the Plan
and to receive Awards under the Plan shall be such employees (including officers
and, subject to Section 5.2, directors) of the Company and its Subsidiaries or
independent contractors as the Committee shall select. Awards may be made to
employees or independent contractors who hold or have held Awards under this
Plan or any similar or other awards under any other plan of the Company or any
of its Affiliates.
5.2 Ineligibility. No member of the Committee, while serving as such,
shall be eligible to receive an Award.
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Article VI
Stock Options
6.1 Grant of Options. Subject to the limitations of the Plan, the
Committee shall designate from time to time those eligible persons to be granted
Options, the time when each Option shall be granted to such eligible persons,
the number of shares subject to such Option, whether such Option is an Incentive
Stock Option or a Nonqualified Stock Option and, subject to Section 6.2, the
purchase price of the shares of Common Stock subject to such Option. Subject to
the other provisions of the Plan, the same person may receive Incentive Stock
Options and Nonqualified Stock Options at the same time and pursuant to the same
Agreement, provided that Incentive Stock Options and Nonqualified Stock Options
are clearly designated as such.
6.2 Option Price. The price at which shares may be purchased upon exercise
of an Option shall be fixed by the Committee and may be more than, less than or
equal to the Fair Market Value of the Common Stock as of the date the Option is
granted.
6.3 Limitation on Grants. Except for Awards described in either of
Sections 3.4 or 10.1, no Person may be granted in any calendar year Options
covering more than 1,000,000 shares of Common Stock (adjusted as provided in
Section 4.2).
6.4 Term of Options. Subject to the provisions of the Plan with respect to
death, retirement and termination of employment, the term of each Option shall
be for such period as the Committee shall determine as set forth in the
applicable Agreement.
6.5 Exercise of Options. An Option granted under the Plan shall become
(and remain) exercisable during the term of the Option to the extent provided in
the applicable Agreement and this Plan and, unless the Agreement otherwise
provides, may be exercised to the extent exercisable, in whole or in part, at
any time and from time to time during such term; provided, however, that
subsequent to the grant of an Option, the Committee, at any time before complete
termination of such Option, may accelerate the time or times at which such
Option may be exercised in whole or in part (without reducing the term of such
Option).
6.6 Manner of Exercise.
(a) Form of Payment. An Option shall be exercised by written notice
to the Company upon such terms and conditions as the Agreement may provide
and in accordance with such other procedures for the exercise of Options as
the Committee may establish from time to time. The method or methods of
payment of the purchase price for the shares to be purchased upon exercise
of an Option and of any amounts required by Section 10.10 shall be
determined by the Committee and may consist of (i) cash, (ii) check, (iii)
promissory note, (iv) whole shares of Common Stock or of Class B Stock
already owned by the Holder, (v) the withholding of shares of Common Stock
issuable upon such exercise of the Option, (vi) the delivery, together with
a properly executed exercise notice, of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan
proceeds required to pay the purchase price, (vii) any combination of the
foregoing methods of payment, or such other consideration and method of
payment as may be permitted for the issuance of shares under the Delaware
General Corporation Law. The permitted method or methods of payment of the
amounts payable upon exercise of an Option, if other than in cash, shall be
set forth in the applicable Agreement and may be subject to such conditions
as the Committee deems appropriate. Without limiting the generality of the
foregoing, if a Holder is permitted to elect to have shares of Common Stock
issuable upon exercise of an Option withheld to pay all or any part of the
amounts payable in connection with such exercise, then the Committee shall
have the sole discretion to approve or disapprove such election, which
approval or disapproval shall be given after such election is made.
(b) Value of Shares. Shares of Common Stock or Class B Stock
delivered in payment of all or any part of the amounts payable in
connection with the exercise of an Option, and shares of Common Stock
withheld for such payment, shall be valued for such purpose at their Fair
Market Value as of the exercise date. Notwithstanding the foregoing, if a
Holder who is permitted to do so pursuant to the
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applicable Agreement elects to have shares of Common Stock issuable
upon exercise of an Option withheld in payment of all or any part of the
amounts payable in connection with the exercise of such Option and if, in
order to meet the exemptive requirements of Rule 16b-3, such election is
made during a window period determined in accordance with paragraph (e)(3)
of such Rule (or is made prior thereto to become effective during such
window period), then for purposes of determining the Fair Market Value of
the shares of Common Stock withheld, such Option (other than an Incentive
Stock Option) shall be deemed to have been exercised on the day during
such window period on which the highest reported last sale price of a
share of Common Stock as reported on NASDAQ occurred and the Fair Market
Value of such shares shall be deemed to be such highest reported last sale
price.
(c) Issuance of Shares. The Company shall effect the transfer of the
shares of Common Stock purchased under the Option as soon as practicable
after the exercise thereof and payment in full of the purchase price
therefor and of any amounts required by Section 10.10, and within a
reasonable time thereafter such transfer shall be evidenced on the books of
the Company. No Holder or other person exercising an Option shall have any
of the rights of a stockholder of the Company with respect to shares of
Common Stock subject to an Option granted under the Plan until due exercise
and full payment has been made. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date of
such due exercise and full payment.
6.7 Nontransferability. Unless otherwise determined by the Committee and
provided in the applicable Agreement, Options shall not be transferable other
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order and, except as otherwise required pursuant to a
qualified domestic relations order, Options may be exercised during the lifetime
of the Holder thereof only by such Holder (or his or her court appointed legal
representative).
Article VII
SARs
7.1 Grant of SARs. Subject to the limitations of the Plan, SARs may be
granted by the Committee to such eligible persons in such numbers and at such
times during the term of the Plan as the Committee shall determine. An SAR may
be granted to a Holder of an Option (hereinafter called a "related Option") with
respect to all or a portion of the shares of Common Stock subject to the related
Option (a "Tandem SAR") or may be granted separately to an eligible employee (a
"Free Standing SAR"). Subject to the limitations of the Plan, SARs shall be
exercisable in whole or in part upon notice to the Company upon such terms and
conditions as are provided in the Agreement. Except for Awards described in
either of Sections 3.4 or 10.1, no Person may be granted in any calendar year
SARs covering more than 1,000,000 shares of Common Stock (adjusted as provided
in Section 4.2).
7.2 Tandem SARs. A Tandem SAR may be granted either concurrently with the
grant of the related Option or (if the related Option is a Nonqualified Option)
at any time thereafter prior to the complete exercise, termination, expiration
or cancellation of such related Option. Tandem SARs shall be exercisable only at
the time and to the extent that the related Option is exercisable (and may be
subject to such additional limitations on exercisability as the Agreement may
provide), and in no event after the complete termination or full exercise of the
related Option. Upon the exercise or termination of the related Option, the
Tandem SARs with respect thereto shall be cancelled automatically to the extent
of the number of shares of Common Stock with respect to which the related Option
was so exercised or terminated. Subject to the limitations of the Plan, upon the
exercise of a Tandem SAR, the Holder thereof shall be entitled to receive from
the Company, for each share of Common Stock with respect to which the Tandem SAR
is being exercised, consideration (in the form determined as provided in Section
7.4) equal in value to the excess of the Fair Market Value of a share of Common
Stock on the date of exercise over the related Option purchase price per share;
provided, however, that the Committee may, in any Agreement granting Tandem
SARs, provide that the appreciation realizable upon exercise thereof shall be
measured from a base higher than the related Option purchase price.
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7.3 Free Standing SARs. Free Standing SARs shall be exercisable at the
time, to the extent and upon the terms and conditions set forth in the
applicable Agreement. The base price of a Free Standing SAR shall be not less
than 100% of the Fair Market Value of the Common Stock on the date of grant of
the Free Standing SAR. Subject to the limitations of the Plan, upon the exercise
of a Free Standing SAR, the Holder thereof shall be entitled to receive from the
Company, for each share of Common Stock with respect to which the Free Standing
SAR is being exercised, consideration (in the form determined as provided in
Section 7.4) equal in value to the excess of the Fair Market Value of a share of
Common Stock on the date of exercise over the base price per share of such Free
Standing SAR.
7.4 Consideration. The consideration to be received upon the exercise of
an SAR by the Holder shall be paid in cash, shares of Common Stock (valued at
Fair Market Value on the date of exercise of such SAR) or a combination of cash
and shares of Common Stock as specified in the Agreement, or, if so provided in
the Agreement, either as determined by the Committee in its sole discretion or
as elected by the Holder, provided that the Committee shall have the sole
discretion to approve or disapprove the election by a Holder to receive cash in
full or partial settlement of an SAR, which approval or disapproval shall be
given after such election is made. The Company's obligation arising upon the
exercise of an SAR may be paid currently or on a deferred basis with such
interest or earnings equivalent as the Committee may determine. No fractional
shares of Common Stock shall be issuable upon exercise of an SAR and, unless
otherwise provided in the applicable Agreement, the Holder will receive cash in
lieu of fractional shares. Unless the Committee shall otherwise determine, to
the extent a Free Standing SAR is exercisable, it will be exercised
automatically for cash on its expiration date.
7.5 Limitations. The applicable Agreement may provide for a limit on the
amount payable to a Holder upon exercise of SARs at any time or in the
aggregate, for a limit on the number of SARs that may be exercised by the Holder
in whole or in part for cash during any specified period, for a limit on the
time periods during which a Holder may exercise SARs and for such other limits
on the rights of the Holder and such other terms and conditions of the SAR as
the Committee may determine, including, without limitation, a condition that the
SAR may be exercised only in accordance with rules and regulations adopted by
the Committee from time to time. Unless otherwise so provided in the applicable
Agreement, any such limit relating to a Tandem SAR shall not restrict the
exercisability of the related Option. Such rules and regulations may govern the
right to exercise SARs granted prior to the adoption or amendment of such rules
and regulations as well as SARs granted thereafter.
7.6 Exercise. For purposes of this Article VII, the date of exercise of an
SAR shall mean the date on which the Company shall have received notice from the
Holder of the SAR of the exercise of such SAR, except that, if in order to meet
the exemptive requirements of Rule 16b-3 a Holder exercises any SAR (other than
one granted in tandem with an Incentive Stock Option) in whole or in part for
cash during a window period determined in accordance with paragraph (e)(3) of
such Rule, then such SAR shall be deemed to have been exercised on the day
during such window period on which the highest reported last sale price of a
share of Common Stock as reported on NASDAQ occurred and the Fair Market Value
of such shares shall be deemed to be such highest reported last sale price.
7.7 Nontransferability. Unless otherwise determined by the Committee and
provided in the applicable Agreement, SARs shall not be transferable other than
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order and, except as otherwise required pursuant to a
qualified domestic relations order, SARs may be exercised during the lifetime of
the Holder thereof only by such Holder (or his or her court appointed legal
representative).
Article VIII
Restricted Shares
8.1 Grant. Subject to the limitations of the Plan, the Committee shall
designate those eligible persons to be granted awards of Restricted Shares,
shall determine the time when each such Award shall be granted, whether shares
of Common Stock covered by awards of Restricted Shares will be issued at the
beginning or
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the end of the Restriction Period and whether Dividend Equivalents will be paid
during the Restriction Period in the event shares of the Common Stock are to be
issued at the end of the Restriction Period, and shall designate (or set forth
the basis for determining) the Vesting Date or Vesting Dates for each award of
Restricted Shares and may prescribe other restrictions, terms and conditions
applicable to the vesting of such Restricted Shares in addition to those
provided in the Plan. The Committee shall determine the price, if any, to be
paid by the Holder for the Restricted Shares; provided, however, that the
issuance of Restricted Shares shall be made for at least the minimum
consideration necessary to permit such Restricted Shares to be deemed fully paid
and nonassessable. All determinations made by the Committee pursuant to this
Section 8.1 shall be specified in the Agreement.
8.2 Issuance of Restricted Shares at Beginning of the Restriction
Period. If shares of Common Stock are issued at the beginning of the
Restriction Period, the stock certificate or certificates representing such
Restricted Shares shall be registered in the name of the Holder to whom such
Restricted Shares shall have been awarded. During the Restriction Period,
certificates representing the Restricted Shares and any securities constituting
Retained Distributions shall bear a restrictive legend to the effect that
ownership of the Restricted Shares (and such Retained Distributions), and the
enjoyment of all rights appurtenant thereto, are subject to the restrictions,
terms and conditions provided in the Plan and the applicable Agreement. Such
certificates shall remain in the custody of the Company and the Holder shall
deposit with the Company stock powers or other instruments of assignment, each
endorsed in blank, so as to permit retransfer to the Company of all or any
portion of the Restricted Shares and any securities constituting Retained
Distributions that shall be forfeited or otherwise not become vested in
accordance with the Plan and the applicable Agreement.
8.3 Restrictions. Restricted Shares issued at the beginning of the
Restriction Period shall constitute issued and outstanding shares of Common
Stock for all corporate purposes. The Holder will have the right to vote such
Restricted Shares, to receive and retain such dividends and distributions, as
the Committee may in its sole discretion designate, paid or distributed on such
Restricted Shares and to exercise all other rights, powers and privileges of a
Holder of Common Stock with respect to such Restricted Shares; except, that (a)
the Holder will not be entitled to delivery of the stock certificate or
certificates representing such Restricted Shares until the Restriction Period
shall have expired and unless all other vesting requirements with respect
thereto shall have been fulfilled or waived; (b) the Company will retain custody
of the stock certificate or certificates representing the Restricted Shares
during the Restriction Period as provided in Section 8.2; (c) other than such
dividends and distributions as the Committee may in its sole discretion
designate, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Shares (and such
Retained Distributions will be subject to the same restrictions, terms and
vesting and other conditions as are applicable to the Restricted Shares) until
such time, if ever, as the Restricted Shares with respect to which such Retained
Distributions shall have been made, paid or declared shall have become vested,
and such Retained Distributions shall not bear interest or be segregated in a
separate account; (d) the Holder may not sell, assign, transfer, pledge,
exchange, encumber or dispose of the Restricted Shares or any Retained
Distributions or his interest in any of them during the Restriction Period; and
(e) a breach of any restrictions, terms or conditions provided in the Plan or
established by the Committee with respect to any Restricted Shares or Retained
Distributions will cause a forfeiture of such Restricted Shares and any Retained
Distributions with respect thereto.
8.4 Issuance of Stock at End of the Restriction Period. Restricted Shares
issued at the end of the Restriction Period shall not constitute issued and
outstanding shares of Common Stock and the Holder shall not have any of the
rights of a stockholder with respect to the shares of Common Stock covered by
such an award of Restricted Shares, in each case until such shares shall have
been transferred to the Holder at the end of the Restriction Period. If and to
the extent that shares of Common Stock are to be issued at the end of the
Restriction Period, the Holder shall be entitled to receive Dividend Equivalents
with respect to the shares of Common Stock covered thereby either (i) during the
Restriction Period or (ii) in accordance with the rules applicable to Retained
Distributions, as the Committee may specify in the Agreement.
8.5 Cash Awards. In connection with any award of Restricted Shares, an
Agreement may provide for the payment of a cash amount to the Holder of such
Restricted Shares at any time after such Restricted Shares shall have become
vested. Such cash awards shall be payable in accordance with such additional
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restrictions, terms and conditions as shall be prescribed by the Committee in
the Agreement and shall be in addition to any other salary, incentive, bonus or
other compensation payments which such Holder shall be otherwise entitled or
eligible to receive from the Company.
8.6 Completion of Restriction Period. On the Vesting Date with respect to
each award of Restricted Shares, and the satisfaction of any other applicable
restrictions, terms and conditions (a) all or the applicable portion of such
Restricted Shares shall become vested, (b) any Retained Distributions and any
unpaid Dividend Equivalents with respect to such Restricted Shares shall become
vested to the extent that the Restricted Shares related thereto shall have
become vested and (c) any cash award to be received by the Holder with respect
to such Restricted Shares shall become payable, all in accordance with the terms
of the applicable Agreement. Any such Restricted Shares, Retained Distributions
and any unpaid Dividend Equivalents that shall not become vested shall be
forfeited to the Company and the Holder shall not thereafter have any rights
(including dividend and voting rights) with respect to such Restricted Shares,
Retained Distributions and any unpaid Dividend Equivalents that shall have been
so forfeited. The Committee may, in its discretion, provide that the delivery of
any Restricted Shares, Retained Distributions and unpaid Dividend Equivalents
that shall have become vested, and payment of any cash awards that shall have
become payable, shall be deferred until such date or dates as the recipient may
elect. Any election of a recipient pursuant to the preceding sentence shall be
filed in writing with the Committee in accordance with such rules and
regulations, including any deadline for the making of such an election, as the
Committee may provide.
Article IX
Stock Units
9.1 Grant. In addition to granting awards of Options, SARs and Restricted
Shares, the Committee shall have authority to grant to eligible persons awards
of Stock Units which may be in the form of Common Stock or units, the value of
which is based, in whole or in part, on the Fair Market Value of the Common
Stock. Subject to the provisions of the Plan, including any rules established
pursuant to Section 9.2, awards of Stock Units shall be subject to such terms,
restrictions, conditions, vesting requirements and payment rules as the
Committee may determine in its sole discretion, which need not be identical for
each Award. The determinations made by the Committee pursuant to this Section
9.1 shall be specified in the applicable Agreement.
9.2 Rules. The Committee may, in its sole discretion, establish any or all
of the following rules for application to an award of Stock Units:
(a) Any shares of Common Stock which are part of an award of Stock
Units may not be assigned, sold, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued, or if later,
the date provided by the Committee at the time of the Award.
(b) Such Awards may provide for the payment of cash consideration by
the person to whom such Award is granted or provide that the Award, and
Common Stock to be issued in connection therewith, if applicable, shall be
delivered without the payment of cash consideration; provided, however,
that the issuance of any shares of Common Stock in connection with an award
of Stock Units shall be for at least the minimum consideration necessary to
permit such shares to be deemed fully paid and nonassessable.
(c) Awards of Stock Units may relate in whole or in part to
performance or other criteria established by the Committee at the time of
grant.
(d) Awards of Stock Units may provide for deferred payment schedules,
vesting over a specified period of employment, the payment (on a current or
deferred basis) of dividend equivalent amounts with respect to the number
of shares of Common Stock covered by the Award, and elections by the
employee to defer payment of the Award or the lifting of restrictions on
the Award, if any.
(e) In such circumstances as the Committee may deem advisable, the
Committee may waive or otherwise remove, in whole or in part, any
restrictions or limitations to which a Stock Unit Award was made subject at
the time of grant.
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Article X
General Provisions
10.1 Acceleration of Options, SARs, Restricted Shares and Stock Units.
(a) Death or Disability. If a Holder's employment shall terminate by
reason of death or Disability, notwithstanding any contrary waiting period,
installment period, vesting schedule or Restriction Period in any Agreement
or in the Plan, unless the applicable Agreement provides otherwise: (i) in
the case of an Option or SAR, each outstanding Option or SAR granted under
the Plan shall immediately become exercisable in full in respect of the
aggregate number of shares covered thereby; (ii) in the case of Restricted
Shares, the Restriction Period applicable to each such award of Restricted
Shares shall be deemed to have expired and all such Restricted Shares, any
related Retained Distributions and any unpaid Dividend Equivalents shall
become vested and any cash amounts payable pursuant to the applicable
Agreement shall be adjusted in such manner as may be provided in the
Agreement, and (iii) in the case of Stock Units, each such award of Stock
Units shall become vested in full.
(b) Approved Transactions; Board Change; Control Purchase. In the
event of any Approved Transaction, Board Change or Control Purchase,
notwithstanding any contrary waiting period, installment period, vesting
schedule or Restriction Period in any Agreement or in the Plan, unless the
applicable Agreement provides otherwise: (i) in the case of an Option or
SAR, each such outstanding Option or SAR granted under the Plan shall
become exercisable in full in respect of the aggregate number of shares
covered thereby; (ii) in the case of Restricted Shares, the Restriction
Period applicable to each such award of Restricted Shares shall be deemed
to have expired and all such Restricted Shares, any related Retained
Distributions and any unpaid Dividend Equivalents shall become vested and
any cash amounts payable pursuant to the applicable Agreement shall be
adjusted in such manner as may be provided in the Agreement, and (iii) in
the case of Stock Units, each such award of Stock Units shall become vested
in full, in each case effective upon the Board Change or Control Purchase
or immediately prior to consummation of the Approved Transaction; provided,
however, that any Options, SARs or, if applicable, Stock Units not
theretofore exercised shall terminate upon consummation of the Approved
Transaction. Notwithstanding the foregoing, unless otherwise provided in
the applicable Agreement, the Committee may, in its discretion, determine
that any or all outstanding Awards of any or all types granted pursuant to
the Plan will not vest or become exercisable on an accelerated basis in
connection with an Approved Transaction and/or will not terminate if not
exercised prior to consummation of the Approved Transaction, if the Board
or the surviving or acquiring corporation, as the case may be, shall have
taken, or made effective provision for the taking of, such action as in the
opinion of the Committee is equitable and appropriate to substitute a new
Award for such Award or to assume such Award and in order to make such new
or assumed Award, as nearly as may be practicable, equivalent to the old
Award (before giving effect to any acceleration of the vesting or
exercisability thereof), taking into account, to the extent applicable, the
kind and amount of securities, cash or other assets into or for which the
Common Stock may be changed, converted or exchanged in connection with the
Approved Transaction.
10.2 Termination of Employment.
(a) General. If a Holder's employment shall terminate prior to the
complete exercise of an Option or SAR (or deemed exercise thereof, as
provided in Section 7.2) or during the Restriction Period with respect to
any Restricted Shares or prior to the vesting or complete exercise of any
Stock Units, then such Option, SAR or Stock Unit shall thereafter be
exercisable, and the Holder's rights to any unvested Restricted Shares,
Retained Distributions, unpaid Dividend Equivalents and cash amounts and
any such unvested Stock Units shall thereafter vest solely to the extent
provided in the applicable Agreement; provided, however, that (i) no Option
or SAR may be exercised after the scheduled expiration date thereof; (ii)
if the Holder's employment terminates by reason of death or Disability, the
Option or SAR shall remain exercisable for a period of at least one year
following such termination (but not later than the scheduled expiration of
such Option or SAR); and (iii) any termination by the Company for cause
will be treated in accordance with the provisions of Section 10.2.
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(b) Termination by Company for Cause. If a Holder's employment with
the Company or a Subsidiary shall be terminated by the Company or such
Subsidiary during the Restriction Period with respect to any Restricted
Shares, or prior to the exercise of any Option or SAR, or prior to the
vesting or exercise of any Stock Unit, for cause (for these purposes, cause
shall have the meaning ascribed thereto in any employment agreement to
which such Holder is a party or, in the absence thereof, shall include but
not be limited to, insubordination, dishonesty, incompetence, moral
turpitude, other misconduct of any kind and the refusal to perform his
duties and responsibilities for any reason other than illness or
incapacity; provided, however, that if such termination occurs within 12
months after an Approved Transaction, Control Purchase or Board Change,
termination for cause shall mean only a felony conviction for fraud,
misappropriation or embezzlement), then (i) all Options and SARs and all
unvested or unexercised Stock Units held by such Holder shall immediately
terminate and (ii) such Holder's rights to all Restricted Shares, Retained
Distributions, any unpaid Dividend Equivalents and any cash awards shall be
forfeited immediately.
(c) Miscellaneous. The Committee may determine whether any given
leave of absence constitutes a termination of employment; provided,
however, that for purposes of the Plan (i) a leave of absence, duly
authorized in writing by the Company for military service or sickness, or
for any other purpose approved by the Company if the period of such leave
does not exceed 90 days, and (ii) a leave of absence in excess of 90 days,
duly authorized in writing by the Company, provided the employee's right to
reemployment is guaranteed either by statute or contract, shall not be
deemed a termination of employment. Awards made under the Plan shall not be
affected by any change of employment so long as the Holder continues to be
an employee of the Company or any Subsidiary.
10.3 Right of Company to Terminate Employment. Nothing contained in the
Plan or in any Award, and no action of the Company or the Committee with respect
thereto, shall confer or be construed to confer on any Holder any right to
continue in the employ of the Company or any of its Subsidiaries or interfere in
any way with the right of the Company or a Subsidiary to terminate the
employment of the Holder at any time, with or without cause; subject, however,
to the provisions of any employment agreement between the Holder and the Company
or any Subsidiary.
10.4 Nonalienation of Benefits. No right or benefit under the Plan shall
be subject to anticipation, alienation, sale, assignment, hypothecation, pledge,
exchange, transfer, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or
charge the same shall be void. No right or benefit hereunder shall in any manner
be liable for or subject to the debts, contracts, liabilities or torts of the
person entitled to such benefits.
10.5 Written Agreement. Each grant of an Option under the Plan shall be
evidenced by a stock option agreement which shall designate the Options granted
thereunder as Incentive Stock Options or Nonqualified Stock Options; each SAR
shall be evidenced by a stock appreciation rights agreement; each award of
Restricted Shares shall be evidenced by a restricted shares agreement and each
award of Stock Units shall be evidenced by a stock units agreement, each in such
form and containing such terms and provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve;
provided, however, that if more than one type of Award is made to the same
Holder, such Awards may be evidenced by a single agreement with such Holder.
Each grantee of an Option, SAR, Restricted Shares or Stock Units shall be
notified promptly of such grant and a written agreement shall be promptly
executed and delivered by the Company and the grantee, provided that, in the
discretion of the Committee, such grant of Options, SARs, Restricted Shares or
Stock Units shall terminate if such written agreement is not signed by such
grantee (or his attorney) and delivered to the Company within 60 days after the
date the Committee approved such grant. Any such written agreement may contain
(but shall not be required to contain) such provisions as the Committee deems
appropriate (i) to insure that the penalty provisions of Section 4999 of the
Code will not apply to any stock or cash received by the Holder from the Company
or (ii) to provide cash payments to the Holder to mitigate the impact of such
penalty provisions upon the Holder. Any such agreement may be supplemented or
amended from time to time as approved by the Committee as contemplated by
Section 10.8(b).
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10.6 Designation of Beneficiaries. Each person who shall be granted an
Award under the Plan may designate a beneficiary or beneficiaries and may change
such designation from time to time by filing a written designation of
beneficiary or beneficiaries with the Committee on a form to be prescribed by
it, provided that no such designation shall be effective unless so filed prior
to the death of such person.
10.7 Right of First Refusal. The Agreements may contain such provisions as
the Committee shall determine to the effect that if a Holder elects to sell all
or any shares of Common Stock that such Holder acquired upon the exercise of an
Option or SAR or upon the vesting of Restricted Shares or Stock Units awarded
under the Plan, then such Holder shall not sell such shares unless such Holder
shall have first offered in writing to sell such shares to the Company at Fair
Market Value on a date specified in such offer (which date shall be at least
three business days and not more than ten business days following the date of
such offer). In any such event, certificates representing shares issued upon
exercise of Options or SARs and the vesting of Restricted Shares or Stock Units
shall bear a restrictive legend to the effect that transferability of such
shares are subject to the restrictions contained in the Plan and the applicable
Agreement and the Company may cause the transfer agent for the Common Stock to
place a stop transfer order with respect to such shares.
10.8 Termination and Amendment.
(a) General. Unless the Plan shall theretofore have been terminated
as hereinafter provided, no Awards may be made under the Plan on or after
the tenth anniversary of the Effective Date. The Board or the Committee may
at any time prior to the tenth anniversary of the Effective Date terminate
the Plan, and may, from time to time, suspend or discontinue the Plan or
modify or amend the Plan in such respects as it shall deem advisable;
except that no such modification or amendment shall be effective prior to
approval by the Company's stockholders to the extent such approval is then
required pursuant to Rule 16b-3 in order to preserve the applicability of
any exemption provided by such rule to any Award then outstanding (unless
the holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements.
(b) Modification. No termination, modification or amendment of the
Plan may, without the consent of the person to whom any Award shall
theretofore have been granted, adversely affect the rights of such person
with respect to such Award. No modification, extension, renewal or other
change in any Award granted under the Plan shall be made after the grant of
such Award, unless the same is consistent with the provisions of the Plan.
With the consent of the Holder and subject to the terms and conditions of
the Plan (including Section 10.8(a)), the Committee may amend outstanding
Agreements with any Holder, including, without limitation, any amendment
which would (i) accelerate the time or times at which the Award may be
exercised and/or (ii) extend the scheduled expiration date of the Award.
Without limiting the generality of the foregoing, the Committee may, but
solely with the Holder's consent unless otherwise provided in the
Agreement, agree to cancel any Award under the Plan and issue a new Award
in substitution therefor, provided that the Award so substituted shall
satisfy all of the requirements of the Plan as of the date such new Award
is made. Nothing contained in the foregoing provisions of this Section
10.08(b) shall be construed to prevent the Committee from providing in any
Agreement that the rights of the Holder with respect to the Award evidenced
thereby shall be subject to such rules and regulations as the Committee
may, subject to the express provisions of the Plan, adopt from time to
time, or impair the enforceability of any such provision.
10.9 Government and Other Regulations. The obligation of the Company with
respect to Awards shall be subject to all applicable laws, rules and regulations
and such approvals by any governmental agencies as may be required, including,
without limitation, the effectiveness of any registration statement required
under the Securities Act of 1933, and the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
quoted. For so long as the Common Stock is registered under the Exchange Act,
the Company shall use its reasonable efforts to comply with any legal
requirements (i) to maintain a registration statement in effect under the
Securities Act of 1933 with respect to all shares of Common Stock that may be
issued to Holders under the Plan, and (ii) to file in a timely manner all
reports required to be filed by it under the Exchange Act.
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10.10 Withholding. The Company's obligation to deliver shares of Common
Stock or pay cash in respect of any Award under the Plan shall be subject to
applicable federal, state and local tax withholding requirements. Federal, state
and local withholding tax due at the time of an Award, upon the exercise of any
Option or SAR or upon the vesting of, or expiration of restrictions with respect
to, Restricted Shares or Stock Units, as appropriate, may, in the discretion of
the Committee, be paid in shares of Common Stock already owned by the Holder or
through the withholding of shares otherwise issuable to such Holder, upon such
terms and conditions (including, without limitation, the conditions referenced
in Section 6.6) as the Committee shall determine. If the Holder shall fail to
pay, or make arrangements satisfactory to the Committee for the payment, to the
Company of all such federal, state and local taxes required to be withheld by
the Company, then the Company shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to such Holder an
amount equal to any federal, state or local taxes of any kind required to be
withheld by the Company with respect to such Award.
10.11 Separability. It is the intent of the Company that this Plan comply
with Rule 16b-3 with respect to persons subject to Section 16 of the Exchange
Act unless otherwise provided herein or in an Award Agreement, that any
ambiguities or inconsistencies in the construction of this Plan be interpreted
to give effect to such intention, and that if any provision of this Plan is
found not to be in compliance with Rule 16b-3, such provision shall be null and
void to the extent required to permit this Plan to comply with Rule 16b-3.
10.12 Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding of
stock and cash otherwise then under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
10.13 Exclusion from Pension and Profit-Sharing Computation. By acceptance
of an Award, unless otherwise provided in the applicable Agreement, each Holder
shall be deemed to have agreed that such Award is special incentive compensation
that will not be taken into account, in any manner, as salary, compensation or
bonus in determining the amount of any payment under any pension, retirement or
other employee benefit plan, program or policy of the Company or any Subsidiary.
In addition, each beneficiary of a deceased Holder shall be deemed to have
agreed that such Award will not affect the amount of any life insurance
coverage, if any, provided by the Company on the life of the Holder which is
payable to such beneficiary under any life insurance plan covering employees of
the Company or any Subsidiary.
10.14 Unfunded Plan. Neither the Company nor any Subsidiary shall be
required to segregate any cash or any shares of Common Stock which may at any
time be represented by Awards and the Plan shall constitute an "unfunded" plan
of the Company. Except as provided in Article VII with respect to awards of
Restricted Shares and except as expressly set forth in writing, no employee
shall have voting or other rights with respect to shares of Common Stock prior
to the delivery of such shares. Neither the Company nor any Subsidiary shall, by
any provisions of the Plan, be deemed to be a trustee of any Common Stock or any
other property, and the liabilities of the Company and any Subsidiary to any
employee pursuant to the Plan shall be those of a debtor pursuant to such
contract obligations as are created by or pursuant to the Plan, and the rights
of any employee, former employee or beneficiary under the Plan shall be limited
to those of a general creditor of the Company or the applicable Subsidiary, as
the case may be. In its sole discretion, the Board may authorize the creation of
trusts or other arrangements to meet the obligations of the Company under the
Plan, provided, however, that the existence of such trusts or other arrangements
is consistent with the unfunded status of the Plan.
10.15 Governing Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
10.16 Accounts. The delivery of any shares of Common Stock and the payment
of any amount in respect of an Award shall be for the account of the Company or
the applicable Subsidiary, as the case may be, and any such delivery or payment
shall not be made until the recipient shall have paid or made satisfactory
arrangements for the payment of any applicable withholding taxes as provided in
Section 10.10.
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10.17 Legends. In addition to any legend contemplated by Section 10.7,
each certificate evidencing Common Stock subject to an Award shall bear such
legends as the Committee deems necessary or appropriate to reflect or refer to
any terms, conditions or restrictions of the Award applicable to such shares,
including, without limitation, any to the effect that the shares represented
thereby may not be disposed of unless the Company has received an opinion of
counsel, acceptable to the Company, that such disposition will not violate any
federal or state securities laws.
10.18 Company's Rights. The grant of Awards pursuant to the Plan shall not
affect in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
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APPENDIX V
CERTAIN TERMS OF JUNIOR EXCHANGE NOTES
The Junior Exchange Notes (the "Notes") will be issued as a series of
junior subordinated debt securities of TCI/Liberty ("Junior Securities")
pursuant to an indenture (the "Indenture") to be executed by TCI/Liberty and a
qualified trustee to be chosen by TCI/Liberty (the "Trustee"), as supplemented
by a supplemental indenture substantially in the form annexed to the Indenture
as Exhibit 1 (the "Junior Note Supplement"). The Indenture will contain general
terms applicable to all series of Junior Securities and the Junior Note
Supplement will contain the terms specific to the Notes, certain of which terms
will be determined at the time of issuance. Similarly, each other series of
Junior Securities that may be issued under the Indenture will be issued pursuant
to a supplemental indenture (each, a "Supplemental Indenture"), which will
contain the terms specific to that particular series.
The following is a summary of certain general terms of the Indenture.
Capitalized terms not defined in this Appendix V have the meanings ascribed to
them in the Proxy Statement/Prospectus.
General: The Junior Securities will represent unsecured
general obligations of TCI/Liberty and will be
subordinate in right of payment to certain debt
obligations of TCI/Liberty and pari passu with
other junior subordinated indebtedness of
TCI/Liberty, if any.
The terms of the Junior Securities of any series
will include those stated in the Indenture and the
Supplemental Indenture in respect thereof, and
those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended, as in
effect on the date of the Indenture. The Junior
Securities will be subject to all such terms.
The Indenture does not limit the amount of Junior
Securities that may be issued thereunder and
provides that Junior Securities may be issued in
one or more series, in such form, with such terms
and up to the aggregate principal amount authorized
from time to time by TCI/Liberty in a Supplemental
Indenture. The Supplemental Indenture in respect of
a particular series of Junior Securities will
include the following specific terms: (i) the
designation, aggregate principal amount at maturity
and authorized denominations of Junior Securities;
(ii) the rate or rates (which may be fixed or
variable) per annum, if any, at which the Junior
Securities will bear interest and the date from
which such interest will accrue; (iii) the times at
which any such interest will be payable; (iv) the
date or dates, if any, on or after which, or the
circumstances under which, and the price or prices
(and form or method of payment thereof) at which
the Junior Securities may be redeemed, purchased or
exchanged at the option of TCI/Liberty or any
holder; (v) the initial conversion price or
conversion rate at which Junior Securities that are
convertible will be convertible into TCI/Liberty
Class A Common Stock, any specific terms relating
to the adjustment thereof that are in addition to
or different from those set forth in the Indenture
and the period during which such Junior Securities
may be so converted; (vi) any covenants,
conditions, restrictions, limitations or events of
default that are in addition to or different from
those described therein, provided that none of such
covenants, conditions, restrictions, limitations or
events of default adversely affect the rights of
the holders of any then outstanding series of
Junior Securities; and (vii) any other specific
terms.
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Junior Securities of a particular series may accrue
interest which is then added to the issue amount
thereof ("Zero Coupon Securities"), rather than
paying interest currently. The issue amount of
Junior Securities that are Zero Coupon Securities,
the manner and rate or rates per annum (which may
be fixed or variable) at which interest shall
accrue, the date or dates from or to which or
period or periods during which interest shall
accrue, the determination of the principal amount
thereof at maturity (herein referred to as
"principal amount"), the portion of the principal
amount of such Junior Securities that will be
payable upon acceleration of the maturity thereof
or upon the optional or mandatory redemption,
purchase or exchange thereof (such portion being
herein referred to as "principal"), and any other
specific terms thereof will be contained in the
Supplemental Indenture for any such Zero Coupon
Securities.
Covenants: The Indenture will contain covenants regarding the
payment of principal, premium, if any, and
interest, if any; the filing with the Trustee of
certain reports and compliance certificates; the
maintenance of TCI/Liberty's corporate existence
and certain other customary matters. In addition,
the Supplemental Indenture in respect of each
series of Junior Securities may contain such
additional covenants (affirmative and negative) and
conditions as are requested by TCI/Liberty,
provided that such additional covenants and
conditions will not adversely affect the rights of
the holders of any other then outstanding series of
Junior Securities.
Subordination: The indebtedness evidenced by the Junior Securities
will be subordinate to the prior payment in full of
all Senior Debt (as defined below). The Indenture
does not limit Senior Debt or any other debt,
secured or unsecured, of TCI/Liberty or any
subsidiary. Upon maturity (by acceleration or
otherwise) of any Senior Debt, payment in full must
be made on such Senior Debt (or duly provided for)
before any payment is made on or in respect of the
Junior Securities. During the continuance of any
default in payment of the principal of, premium, if
any, interest on, or other amounts due in respect
of, any Senior Debt, no payment may be made by
TCI/Liberty on, or in respect of, the Junior
Securities. Upon any distribution of assets of
TCI/Liberty in any dissolution, winding up,
liquidation or reorganization of TCI/Liberty,
payment of all amounts due in respect of the Junior
Securities will be subordinated, to the extent and
in the manner set forth in the Indenture, to the
prior payment in full of all Senior Debt. Such
subordination will not prevent the occurrence of
any event of default. "Senior Debt" means the
principal of, premium, if any and interest on Debt
of TCI/Liberty outstanding at any time, other than
(i) the Junior Securities and (ii) Debt which by
its terms is not superior in right of payment to
the Junior Securities. "Debt" of any person means:
(i) any indebtedness of such person (x) for
borrowed money or (y) evidenced by a note,
debenture, or similar instrument (including a
purchase money obligation) given in connection with
the acquisition of any property or assets,
including securities; (ii) any guarantee by such
person of any indebtedness of others described in
clause (i) above; and (iii) any amendment,
extension, renewal, or refunding of any
indebtedness or guarantee.
Amendment, Supplement,
Waiver: Subject to certain exceptions, the Indenture or the
Junior Securities may be amended or supplemented,
and any past default or compliance with
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any provision may be waived, insofar as the Junior
Securities of any series are concerned, with the
consent of the holders of a majority in aggregate
principal amount of the outstanding Junior
Securities of such series. Without the consent of
any holder of Junior Securities, TCI/Liberty and
the Trustee may amend or supplement the Indenture
or the Junior Securities to cure any ambiguity,
defect or inconsistency, or to make certain other
specified changes (including the inclusion of
additional covenants, conditions or events of
default) or any change that does not materially
adversely affect the rights of any holder of Junior
Securities. No consent of the holders of
outstanding Junior Securities will be required for
the issuance of additional series of Junior
Securities pursuant to a Supplemental Indenture.
Successor Corporation: TCI/Liberty may not consolidate with or merge into,
or transfer its properties and assets substantially
as an entirety to, another corporation unless the
successor corporation, which shall be a corporation
organized under the laws of the United States or a
State thereof, assumes all the obligations of
TCI/Liberty under the Junior Securities, the
Indenture and each Supplemental Indenture in
respect of an outstanding series of Junior
Securities. Thereafter, all such obligations of
TCI/Liberty terminate.
Default and Remedies: An event of default with respect to Junior
Securities of any series is: (i) default for 30
days in payment of any interest on the Junior
Securities of that series; (ii) default in payment
of principal, premium or any other amount (other
than interest) due in respect of the Junior
Securities of that series at maturity, upon
redemption (including default in the making of any
mandatory sinking fund payment), upon purchase by
TCI/Liberty at the option of the holder or
otherwise; (iii) failure by TCI/Liberty for 30 days
after receipt of written notice as provided in the
Indenture to comply with any of its other
agreements in the Indenture (other than agreements
included in the Indenture solely for the benefit of
a series of Junior Securities other than that
series) or the Junior Securities of that series;
and (iv) certain events of bankruptcy or
insolvency. If an event of default occurs with
respect to the Junior Securities of any series and
is continuing, the Trustee or the holders of at
least 25% in aggregate principal amount of the
Junior Securities of that series may declare to be
due and payable immediately (i) the principal
amount of the Junior Securities of that series (or,
if the Junior Securities of that series are Zero
Coupon Securities, that portion of the principal
amount specified in the terms of that series) and
(ii) accrued interest, if any, thereon. The
Indenture provides for automatic acceleration of
the maturity of such amounts upon the occurrence of
certain events of bankruptcy or insolvency.
Satisfaction and Discharge: TCI/Liberty's obligations under the Junior
Securities of any series and the Indenture (except
for the obligation to issue TCI/Liberty Class A
Common Stock upon the conversion of Junior
Securities of a series that is convertible into
TCI/Liberty Class A Common Stock and certain other
obligations) will be satisfied and discharged upon
payment of all amounts due on the Junior Securities
of such series, upon redemption or purchase of all
of such Junior Securities, or upon deposit with the
Trustee of cash or non callable obligations of the
United States government sufficient for such
payment, redemption or purchase.
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No Personal Liability: No past, present or future director, officer,
employee or stockholder, as such, of TCI/Liberty or
any successor thereof will have any liability for
any obligations of TCI/Liberty under the Junior
Securities or the Indenture or for any claim based
on, in respect of, or by reason of, such
obligations or their creation.
Junior Note Supplement: The Junior Note Supplement provides that the
aggregate principal amount of Notes will be
limited, except as set forth in the Indenture, to
that amount which is equal to the aggregate Stated
Liquidation Value of the shares of TCI/Liberty
Class B Preferred Stock in respect of which the
Notes are issued, plus all accumulated and accrued
but unpaid dividends thereon to and including the
exchange date, less the amount of any cash
adjustment payable to the holders of such shares of
TCI/Liberty Class B Preferred Stock as provided in
the TCI/Liberty Charter, in lieu of issuing Notes
in other than authorized denominations. The Notes
will be issued in fully registered form, without
coupons, in denominations of $100 or any integral
multiple thereof. The Notes will bear interest,
payable annually, at a rate per annum equal to the
sum of the Fifteen Year Treasury Rate (as defined
below) plus 215 basis points, and the stated
maturity date of the Notes will be the fifteenth
anniversary of the date, as set forth on the face
of the Notes, on which the Notes are deemed to have
been first issued in exchange for shares of
TCI/Liberty Class B Preferred Stock (the "Issue
Date"). Interest will accrue on overdue principal
at the rate per annum so determined for the Notes,
but interest will not accrue on overdue interest.
The Notes will be subject to redemption at the
option of TCI/Liberty, in whole at any time or in
part from time to time, without premium or penalty.
The "Fifteen Year Treasury Rate", defined generally
as the intended equivalent of a Treasury Rate (as
defined below) with a Constant Maturities Period
(as defined below) of fifteen years, will be
derived by linear interpolation from the Treasury
Rate with a Constant Maturities Period of ten years
and the Treasury Rate with a Constant Maturities
Period of thirty years. "Treasury Rate" is defined
as the arithmetic average (rounded to the nearest
basis point) of the weekly average per annum yield
to maturity values adjusted to constant maturities
of a specified term (the "Constant Maturities
Period"), for the three calendar weeks ending on
the last Friday that is not more than 15 business
days prior to the Issue Date of the Notes, as read
from the yield curves of the most actively traded
marketable United States Treasury fixed interest
rate securities constructed daily by the United
States Treasury Department, as published by the
Federal Reserve Board in its Statistical Release
H.15(519), "Selected Interest Rates", which weekly
average yield to maturity values presently are set
forth in such Statistical Release in "U.S.
Government Securities-Treasury Constant Maturities"
under the caption relating to the applicable
Constant Maturities Period. Alternative methods of
determining the Fifteen Year Treasury Rate are
specified in the event that such Statistical
Release is not at the time being published or the
United States Treasury Department is not at the
time constructing such yield curves.
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