<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1994
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TELE-COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4841 84-1260157
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111
(303) 267-5500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STEPHEN M. BRETT, ESQ.
TELE-COMMUNICATIONS, INC.
TERRACE TOWER II
5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111
(303) 267-5500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPY TO:
CHARLES Y. TANABE, ESQ.
SHERMAN & HOWARD L.L.C.
633 SEVENTEENTH STREET, SUITE 3000
DENVER, COLORADO 80202
(303) 297-2900
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: Upon
consummation of the Merger described herein.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$1.00 par value....... 42,000,000 $.0443 $1,860,045 $641.40
- --------------------------------------------------------------------------
Convertible Preferred
Stock
Series D, $.01 par
value................. 1,000,000 $.5536 $ 553,585 $190.89
- --------------------------------------------------------------------------
Class A Common Stock,
$1.00 par value....... (2) -- -- None
================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(f)(2).
(2) Such indeterminate number of shares of Class A Common Stock as may from
time to time be issued upon conversion of Convertible Preferred Stock,
Series D.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
TELE-COMMUNICATIONS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4.
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-4 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
------------------------------- ----------------------
<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus....................... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Inside Front and Outside Back Cover
Pages; Available Information;
Incorporation of Certain Documents by
Reference; Table of Contents
3. Risk Factors and Ratio of Earnings
to Fixed Charges and Other
Information...................... Summary
4. Terms of the Transaction.......... Summary; The Merger; Certain
Consequences of the Merger; The Merger
Agreement; Description of TCI Capital
Stock; Comparison of Stockholders'
Rights
5. Pro Forma Financial Information... Condensed Pro Forma Financial
Statements--Tele-Communications, Inc.
and Subsidiaries
6. Material Contacts with Company
being Acquired................... The Merger; The Merger Agreement
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters..................... *
8. Interests of Named Experts and
Counsel.......................... Legal Matters; Experts
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................. *
10. Information with Respect to S-3
Registrants...................... Business of TCI
11. Incorporation of Certain
Information by Reference......... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or
S-3 Registrants.................. *
13. Incorporation of Certain
Information by Reference......... *
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants...................... *
15. Information with Respect to S-3
Companies........................ *
16. Information with Respect to S-2 or
S-3 Companies.................... *
17. Information with Respect to
Companies Other Than S-3 or S-2
Companies........................ Certain Information Concerning
TeleCable
18. Information if Proxies, Consents
or Authorizations are to be
Solicited........................ Summary; The Special Meeting; The
Merger; Management of TCI; Ownership
of TCI and TeleCable Stock;
Incorporation of Certain Documents by
Reference
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer............................ *
</TABLE>
- --------
* Omitted because inapplicable or answer is in the negative.
<PAGE>
TELECABLE CORPORATION
Dominion Tower
999 Waterside Drive
Norfolk, Virginia 23510
(804) 624-5000
, 1994
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
TeleCable Corporation ("TeleCable"), which will be held at ,
Norfolk, Virginia, on , 1994, starting at 10:00 a.m., local time. A notice
of the special meeting, a proxy card and a Proxy Statement/Prospectus
containing important information about the matters to be acted upon at the
special meeting are enclosed.
At the special meeting, holders of TeleCable common stock will be asked to
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of August 8, 1994 (the "Merger Agreement"), among TeleCable,
Tele-Communications, Inc. ("TCI") and TCI Communications, Inc. ("TCIC"), a
wholly owned subsidiary of TCI, pursuant to which TeleCable will be merged with
and into TCIC (the "Merger") with TCIC as the surviving corporation.
Upon consummation of the Merger, each outstanding share (other than shares
held by TeleCable or any of its subsidiaries) of TeleCable Class A Common Stock
and Class B Common Stock (together, the "TeleCable Common Stock") will be
converted into the right to receive (i) that number of shares of Class A Common
Stock of TCI equal to the Common Conversion Number (as defined in the Merger
Agreement) and (ii) that number of shares of Convertible Preferred Stock,
Series D, of TCI equal to the Preferred Conversion Number (as defined in the
Merger Agreement). The accompanying Proxy Statement/Prospectus provides you
with detailed information concerning the Merger Agreement (a copy of which is
included therein as Appendix I thereto), the Class A Common Stock and the
Convertible Preferred Stock, Series D, of TCI to be issued in connection with
the Merger and other information. Please give all of this information your
careful attention.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement. In addition, the Board retained Lehman
Brothers, which has delivered to the TeleCable Board a written opinion, dated
August 8, 1994, to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the consideration to be
received by the holders of TeleCable Common Stock in the proposed Merger is
fair, from a financial point of view, to such shareholders taken as a whole. A
copy of Lehman Brothers' opinion, which sets forth the assumptions made,
matters considered and the scope of review undertaken in connection therewith,
is set forth as Appendix II to the accompanying Proxy Statement/Prospectus and
should be read carefully in its entirety. In light of, among other things, the
Lehman Brothers opinion, your Board of Directors, by the unanimous vote, has
determined that the terms of the Merger Agreement are fair to, and in the best
interests of, the holders of TeleCable Common Stock and recommends that you
vote FOR the proposal to approve and adopt the Merger Agreement. For a further
discussion of the Board's consideration and evaluation of the Merger Agreement
as well as a discussion of the interests of certain directors and executive
officers of TeleCable in the proposed Merger, see "THE MERGER--Recommendation
of TeleCable Board; TeleCable's Reasons for the Merger" and "--Interests of
Certain Persons in the Merger" in the accompanying Proxy Statement/Prospectus.
Whether or not you are personally able to attend the special meeting, please
complete, sign and date the enclosed proxy card and return it in the enclosed
prepaid envelope as soon as possible. This action will not limit your right to
vote in person if you wish to attend the special meeting and vote personally.
Sincerely yours,
Frank Batten
Chairman of the Board
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR COMMON
STOCK AT THIS TIME.
<PAGE>
TELECABLE CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On , 1994
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (together with
any adjournment or postponement thereof, the "Special Meeting") of TeleCable
Corporation, a Virginia corporation ("TeleCable"), will be held at ,
Norfolk, Virginia, starting at 10:00 a.m., local time, on , , 1994,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of August 8, 1994 (the "Merger Agreement"),
among TeleCable, Tele-Communications, Inc., a Delaware corporation ("TCI"),
and TCI Communications, Inc., a Delaware corporation ("TCIC") and wholly-
owned subsidiary of TCI. Pursuant to the Merger Agreement, among other
things, (a) TeleCable will be merged (the "Merger") with and into TCIC,
with TCIC as the surviving corporation and (b) each outstanding share
(other than shares held directly by TeleCable or any of its subsidiaries)
of TeleCable Class A Common Stock, par value $2.50 per share, and TeleCable
Class B Common Stock, par value $2.50 per share, (together, the "TeleCable
Common Stock") will be converted into the right to receive (i) a number of
shares of TCI Class A Common Stock, $1.00 par value per share, equal to the
Common Conversion Number (as defined in the Merger Agreement) and (ii) a
number of shares of TCI Convertible Preferred Stock, Series D equal to the
Preferred Conversion Number (as defined in the Merger Agreement). The terms
of the Merger Agreement, the TCI Class A Common Stock and TCI Convertible
Preferred Stock, Series D, are described in detail in the accompanying
Proxy Statement/Prospectus, and the full text of the Merger Agreement
(exclusive of Exhibits and Schedules) is included as Appendix I thereto.
2. To transact such other business as may properly come before the
Special Meeting.
Holders of shares of TeleCable Common Stock who comply with the applicable
procedural requirements of the Virginia Stock Corporation Act are entitled to
appraisal rights with respect to their shares. See "APPRAISAL RIGHTS" in, and
Appendix III to, the accompanying Proxy Statement/Prospectus.
Holders of record of shares of TeleCable Common Stock at the close of
business on 1994, the record date for the Special Meeting, are entitled
to notice of and to vote at the Special Meeting.
To assure that your interests will be represented at the Special Meeting,
regardless of whether you plan to attend in person, please complete, date and
sign the enclosed proxy card and return it promptly in the enclosed return
envelope, which requires no postage if mailed in the United States. This action
will not limit your right to vote in person if you wish to attend the Special
Meeting and vote personally.
By Order of the Board of Directors
Louis F. Ryan
Secretary
Norfolk, Virginia
, 1994
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE SPECIAL MEETING.
<PAGE>
TELECABLE CORPORATION
DOMINION TOWER
999 WATERSIDE DRIVE
NORFOLK, VIRGINIA 23510
---------------
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1994
---------------
TELE-COMMUNICATIONS, INC.
TERRACE TOWER II
5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of common stock
of TeleCable Corporation, a Virginia corporation ("TeleCable"), in connection
with the solicitation of proxies by the Board of Directors of TeleCable (the
"TeleCable Board") for use at the special meeting of the shareholders of
TeleCable, or any adjournment or postponement thereof (the "Special Meeting"),
called to consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of August 8, 1994 (the "Merger Agreement"), by and
among TeleCable, Tele- Communications, Inc. (formerly TCI/Liberty Holding
Company), a Delaware corporation ("TCI"), and TCI Communications, Inc.
(formerly Tele-Communications, Inc.), a Delaware corporation ("TCIC") and
wholly owned subsidiary of TCI.
The Merger Agreement provides, among other things, for the merger of
TeleCable with and into TCIC (the "Merger"). As a result of the Merger,
shareholders of TeleCable will become stockholders of TCI on the terms
described in this Proxy Statement/Prospectus. The Merger will become effective
upon the filing of a Certificate of Merger with the Secretary of State of the
State of Delaware and Articles of Merger with the State Corporation Commission
of the Commonwealth of Virginia (the "Effective Date"), which is currently
expected to occur as soon as practicable after the last of the conditions
precedent to the Merger set forth in the Merger Agreement have been satisfied,
or where permissible, waived. See "THE MERGER AGREEMENT."
TCI 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) 1,000,000
shares of Convertible Preferred Stock, Series D, par value $.01 per share, of
TCI (the "TCI Series D Preferred Stock") that may be issued in connection with
the Merger, and (ii) a number of shares of Class A Common Stock, par value
$1.00 per share, of TCI (the "TCI Class A Common Stock") that are proposed to
be issued in connection with the Merger (currently estimated to be 42 million
shares) and upon conversion of the TCI Series D Preferred Stock, to holders of
outstanding shares of TeleCable Class A Common Stock, par value $2.50 per share
(the "TeleCable Class A Common Stock"), and TeleCable Class B Common Stock, par
value $2.50 per share ("TeleCable Class B Common Stock" and together with
TeleCable Class A Common Stock, the "TeleCable Common Stock"). This Proxy
Statement/Prospectus also constitutes the Prospectus of TCI filed as part of
the Registration Statement. See "THE MERGER AGREEMENT--Consideration to be
Received in the Merger."
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to the shareholders of TeleCable on or about , 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 , 1994.
<PAGE>
AVAILABLE INFORMATION
TCI and TCIC are subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file and filed 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 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 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 and TCIC with the Commission
under the Exchange Act are incorporated herein by reference:
(a) TCI's and TCIC's Current Reports on Form 8-K dated August 18, 1994
(which includes the June 30, 1994 unaudited consolidated financial
statements of Liberty Media Corporation ("Liberty")) and August 26, 1994
(collectively, the "TCI/TCIC Current Reports");
(b) TCI's Current Report on Form 8-K dated August 5, 1994 (the "TCI
Current Report");
(c) TCIC's Current Reports on Form 8-K dated September 21, 1994 and
October 6, 1994 (collectively, the "TCIC Current Reports");
(d) Description of Capital Stock of TCI (the "Description of Capital
Stock") set forth in Item 4 of a Registration Statement on Form 8-B filed
by TCI on July 13, 1994 (collectively with the TCI/TCIC Current Reports,
TCI Current Report and TCIC Current Reports, the "TCI Reports");
(e) TCIC's Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A (amendment no. 1) (the "TCIC Form 10-K");
(f) TCIC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1994, as amended by Form 10-Q/A (amendment no. 1), and TCIC's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994 (collectively, the
"TCIC Forms 10-Q"); and
(i)
<PAGE>
(g) TCIC's Current Reports on Form 8-K dated February 15, 1994, February
25, 1994, April 6, 1994 (which includes the December 31, 1993 consolidated
financial statements of Liberty) and May 27, 1994 (which includes the March
31, 1994 unaudited consolidated financial statements of Liberty)
(collectively with the TCIC Form 10-K and the TCIC Forms 10-Q, the "TCIC
Reports").
All documents filed by TCI 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 Meeting 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.
Information contained in this Proxy Statement/Prospectus concerning TeleCable
was provided by TeleCable to TCI.
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, FROM
STEPHEN M. BRETT, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, TELE-
COMMUNICATIONS, INC., TERRACE TOWER II, 5619 DTC PARKWAY, ENGLEWOOD, COLORADO
80111 (TELEPHONE 303-267-5500). IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY , 1994.
----------------
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... (i)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... (i)
SUMMARY................................................................... 1
The Companies............................................................ 1
The Special Meeting...................................................... 1
The Merger............................................................... 2
Opinion of Financial Advisor............................................. 4
Interests of Certain Persons in the Merger............................... 4
Appraisal Rights......................................................... 4
Certain Federal Income Tax Consequences.................................. 4
Comparative Market Price Data............................................ 4
Certain Comparative Per Share Data....................................... 6
Selected Historical Financial Data....................................... 8
Selected Pro Forma Financial Data for TCI after the Merger............... 11
THE SPECIAL MEETING....................................................... 13
Time and Place; Purpose.................................................. 13
Voting Rights; Votes Required for Approval............................... 13
Proxies.................................................................. 13
THE MERGER................................................................ 14
Recommendation of TeleCable Board; TeleCable's Reasons for the Merger.... 14
TCI's Reasons for the Merger............................................. 14
Opinion of Financial Advisor............................................. 15
Interests of Certain Persons in the Merger............................... 18
CERTAIN CONSEQUENCES OF THE MERGER........................................ 19
General.................................................................. 19
Certain Federal Income Tax Consequences.................................. 20
Accounting Treatment..................................................... 20
THE MERGER AGREEMENT...................................................... 21
General; Effective Date.................................................. 21
Consideration to be Received in the Merger............................... 21
Conditions to the Merger................................................. 23
Governmental Approvals................................................... 23
Covenants................................................................ 24
No Solicitation of Transactions.......................................... 25
Certain Personnel Matters................................................ 26
Indemnification.......................................................... 26
Termination; Amendment and Waiver........................................ 26
Certain Restrictions on Resale of TCI Common Stock and TCI Series D
Preferred Stock......................................................... 27
Expenses................................................................. 27
CERTAIN INFORMATION REGARDING TELECABLE................................... 28
General.................................................................. 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
BUSINESS OF TCI........................................................... 31
DESCRIPTION OF TCI CAPITAL STOCK.......................................... 32
TCI Common Stock......................................................... 32
TCI Preferred Stock...................................................... 32
COMPARISON OF STOCKHOLDERS' RIGHTS........................................ 34
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
APPRAISAL RIGHTS........................................................... 38
MANAGEMENT OF TCI.......................................................... 40
Directors................................................................. 40
Compensation of Directors................................................. 41
Indemnification........................................................... 42
Executive Officers........................................................ 42
Executive Cash Compensation............................................... 43
TCI Stock Incentive Plan.................................................. 43
Employment Arrangements................................................... 44
Certain Transactions with Management...................................... 45
OWNERSHIP OF TCI AND TELECABLE STOCK....................................... 45
Security Ownership of TCI................................................. 45
Security Ownership of TeleCable........................................... 49
LEGAL MATTERS.............................................................. 52
EXPERTS.................................................................... 52
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
Appendix I:Merger Agreement
Appendix II:Opinion of Lehman Brothers
Appendix III:Article 15 of the Virginia Stock Corporation Act
Appendix IV:Certificate of Designation of Convertible Preferred Stock, Series D
(iv)
<PAGE>
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. Shareholders are urged to review this entire Proxy
Statement/Prospectus carefully, including the Appendices hereto.
THE COMPANIES
TCI. On August 4, 1994, a business combination among TCI, TCIC and Liberty
was consummated (the "TCI/Liberty Combination"). As a result of the TCI/Liberty
Combination, TCIC and Liberty, which prior to the TCI/Liberty Combination were
each publicly held companies, became wholly owned subsidiaries of TCI and
stockholders of TCIC and Liberty became stockholders of TCI. Prior to the
TCI/Liberty Combination, TCIC was known as Tele-Communications, Inc. As a
result of the TCI/Liberty Combination, the business of TCI became the business
of its wholly owned subsidiaries, TCIC and Liberty and their subsidiaries and
affiliates. TCI, through its subsidiaries and affiliates, is principally
engaged in the construction, acquisition, ownership and operation of cable
television systems and the provision of satellite-delivered video
entertainment, information and home shopping programming services to various
video distribution media, principally 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. Prior to the TCI/Liberty
Combination, TCI did not conduct any significant activities other than those
incident to the TCI/Liberty Combination. 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."
TeleCable. TeleCable, directly and through its subsidiaries and affiliates,
is principally engaged in the ownership and operation of cable television
systems in 15 states. The mailing address and telephone number of TeleCable's
principal executive offices are Dominion Tower, 999 Waterside Drive, Norfolk,
Virginia 23510, (804) 624-5000. See "CERTAIN INFORMATION REGARDING TELECABLE."
THE SPECIAL MEETING
The Special Meeting will be held at , Norfolk, Virginia, on ,
, 1994, starting at 10:00 a.m., local time. At the Special Meeting,
holders of TeleCable Class A Common Stock and TeleCable 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 record of TeleCable Common Stock at the close of business on
, 1994 (the "Record Date") have the right to receive notice of and to vote
at the Special Meeting. Each share of TeleCable Class A Common Stock and
TeleCable Class B Common Stock is entitled to one vote on each matter that is
properly presented to shareholders for a vote at the Special Meeting under the
Amended and Restated Articles of Incorporation of TeleCable, as amended (the
"TeleCable Charter"), and the Virginia Stock Corporation Act ("VSCA"). Pursuant
to the VSCA, the affirmative vote of the holders of more than two-thirds of the
shares of TeleCable Class A Common Stock and TeleCable Class B Common Stock
issued and outstanding on the Record Date, voting as two separate classes, is
required to approve and adopt the Merger Agreement. As of the Record Date,
TeleCable's directors and executive officers owned 101,430 outstanding shares
of TeleCable's Class A Common Stock, representing approximately 87% of the
outstanding shares of TeleCable Class A Common Stock on such date, and
1,738,128 outstanding shares of TeleCable's Class B Common Stock, representing
approximately 62.5% of the outstanding shares of TeleCable's Class B Common
Stock on such date. As of the Record Date, TeleCable's directors and executive
officers and a number of other holders of TeleCable Common Stock, who together
hold approximately 87% and 67% of the
<PAGE>
outstanding shares of TeleCable Class A and Class B Common Stock, respectively,
have entered into voting agreements with TCI pursuant to which they have agreed
to vote all of their shares of TeleCable Common Stock in favor of the Merger
Agreement and the Merger. See "THE SPECIAL MEETING--Voting Rights; Votes
Required for Approval."
IF TELECABLE'S DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN OTHER SHAREHOLDERS
VOTE THEIR SHARES AS THEY HAVE PREVIOUSLY AGREED, THE MERGER AGREEMENT WILL BE
APPROVED AND ADOPTED AT THE SPECIAL MEETING IRRESPECTIVE OF THE VOTE OF ANY
OTHER SHAREHOLDER OF TELECABLE.
THE MERGER
Consideration to be Received by TeleCable Shareholders. Pursuant to the
Merger Agreement, TeleCable will be merged with and into TCIC, a wholly owned
subsidiary of TCI, with TCIC as the surviving corporation of the Merger (TCIC
or the "Surviving Corporation"). Upon consummation of the Merger, each
outstanding share (other than shares held directly by TeleCable or any of its
subsidiaries (all of which will be cancelled)) of TeleCable Common Stock will
be converted into the right to receive (i) a number of shares of TCI Class A
Common Stock equal to the "Common Conversion Number" and (ii) a number of
shares of TCI Series D Preferred Stock equal to the "Preferred Conversion
Number." The "Common Conversion Number" is the number determined by dividing
(i) the quotient resulting from dividing the "Merger Value" (as defined in the
Merger Agreement), less $300 million, by $24.00 by (ii) the total number of
shares of TeleCable Common Stock outstanding (including shares issuable
pursuant to any outstanding warrant, option, convertible security or other
right to acquire TeleCable Common Stock, but excluding shares of TeleCable
Common Stock held by TeleCable or any of its subsidiaries) ("Outstanding
TeleCable Common Stock") at the Effective Date. The "Preferred Conversion
Number" is the number determined by dividing (i) 1,000,000 (the aggregate
number of shares of TCI Series D Preferred Stock to be paid to shareholders of
TeleCable pursuant to the Merger) by (ii) the total number of shares of
Outstanding TeleCable Common Stock at the Effective Date. Had the Merger been
consummated on , 1994 each share of Outstanding TeleCable Common Stock
would have been converted into approximately [14. ] shares of TCI Class A
Common Stock and .345 shares of TCI Series D Preferred Stock. See "THE MERGER
AGREEMENT--Consideration to be Received in the Merger." For a description of
the TCI Class A Common Stock and the TCI Series D Preferred Stock
(collectively, "TCI Stock"), see "DESCRIPTION OF TCI CAPITAL STOCK." For a
summary of differences between the rights of holders of TCI Class A Common
Stock and TCI Series D Preferred Stock and the rights of holders of TeleCable
Common Stock, see "COMPARISON OF STOCKHOLDERS' RIGHTS."
Recommendation of the TeleCable Board; TeleCable's Reasons for the
Merger. The TeleCable Board has unanimously approved the Merger Agreement, has
determined unanimously that the Merger is advisable and fair and in the best
interests of TeleCable and its shareholders taken as a whole and unanimously
recommends that holders of shares of TeleCable Common Stock vote FOR approval
of the Merger Agreement. In reaching its decision to approve the Merger
Agreement and to recommend that TeleCable's shareholders vote to approve the
Merger Agreement, the TeleCable Board considered, among other things, the
following factors: (i) its knowledge of the business, operations, properties,
assets, financial condition, operating results and future prospects of
TeleCable; (ii) current industry, economic and market conditions, including
anticipated regulation that could increase competition between telephone
companies and cable companies and could result in increased consolidation
within the cable industry; (iii) presentations by TeleCable's management with
respect to TeleCable and by Lehman Brothers, TeleCable's financial advisor,
with respect to TeleCable and TCI; (iv) the opinion of Lehman Brothers as to
the fairness of the consideration, from a financial point of view, to be
received by shareholders of TeleCable taken as a whole in the Merger; (v) the
terms of the Merger Agreement, including the consideration to be received by
TeleCable shareholders in the Merger, and the representations, warranties,
covenants and conditions of the parties contained therein; and (vi) the
opportunity for TeleCable shareholders to participate, as holders of TCI Stock,
in a larger, more diversified company of which TeleCable would become a
significant part, and to do so by means of a
2
<PAGE>
transaction that is designed to be tax-free to the holders of TeleCable Common
Stock. See "THE MERGER--Recommendation of the TeleCable Board; TeleCable's
Reasons for the Merger" and "--Opinion of Financial Advisor". For a discussion
of the interests of certain members of TeleCable's management and the TeleCable
Board in the Merger, see "THE MERGER--Interests of Certain Persons in the
Merger."
TCI's Reasons for the Merger. The Board of Directors of TCI ("TCI Board") has
unanimously approved the Merger Agreement. The TCI Board believes that the
Merger represents an attractive opportunity for TCI to acquire substantial
cable television assets and historically profitable operations on a basis that
does not require expenditure of its cash resources or the borrowing of funds.
The TCI Board has concluded that the Merger will benefit TCI because the Board
believes that TeleCable has a strong operations team and is a profitable
business with a consistent record of growth of revenue and cash provided by
operations. The TCI Board further believes that the acquisition of TeleCable
will provide TCI with the opportunity to realize operational efficiencies and
strategic opportunities to enter new product markets where TeleCable's cable
systems are located in close proximity to the cable systems owned or operated
by TCI, and will increase TCI's cash provided by operations and borrowing
capacity, thereby enhancing its ability to fund acquisitions, capital
expenditures and other investments.
In reaching these conclusions, the TCI Board considered a number of factors,
including among other things, the terms and conditions of the transaction
contemplated by the Merger Agreement; information with respect to the financial
condition, business, operations and prospects of TeleCable and TCI on both a
historical and prospective basis, including certain information reflecting the
two companies on a pro forma combined basis and TeleCable's historical cash
provided by operations; and the views and opinions of the management of TCI.
See "THE MERGER--TCI's Reasons for the Merger."
Conditions to the Merger. The respective obligations of TeleCable and TCI to
consummate the Merger are subject to the satisfaction of certain conditions,
including (i) the Merger Agreement and the transactions contemplated thereby
shall have been duly approved by the holders of TeleCable Common Stock; (ii)
the waiting period applicable to the consummation of the Merger under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "Hart-Scott-
Rodino Act") shall have expired or been terminated; (iii) the Registration
Statement shall have become effective in accordance with the provisions of the
Act and any necessary state securities law approvals shall have been obtained
and no stop order suspending the effectiveness of the Registration Statement
shall have been issued by the Commission and remain in effect; (iv) an opinion
of TeleCable's legal counsel, Willkie Farr & Gallagher, to the effect that the
Merger will constitute a "reorganization" for Federal income tax purposes
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code") shall have been delivered to TeleCable; (v) all consents
of governmental entities necessary for the transfer of control of cable
television franchises, to the extent required to be obtained under the Merger
Agreement, shall have been obtained; and (vi) the Federal Communications
Commission ("FCC") shall have consented, to the extent such consent is legally
required, to the transfer of control to TCI of all FCC licenses possessed by
TeleCable, except where the failure to receive such consent would not have a
material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities, or operation of TCI, TCIC and TeleCable
taken as a whole. On September 28, 1994, the Federal Trade Commission ("FTC")
issued a Request for Additional Information and Documentary Material to TCI and
TeleCable in connection with the proposed Merger. TCI and TeleCable are in the
process of responding to such request. See "THE MERGER AGREEMENT--Conditions to
the Merger" and "--Governmental Approvals" and "CERTAIN CONSEQUENCES OF THE
MERGER--Certain Federal Income Tax Consequences."
Termination of the Merger Agreement. The Merger Agreement is subject to
termination at the option of either TeleCable or TCI if the Merger has not been
consummated on or before May 31, 1995, except that if the shareholders of
TeleCable shall not have approved the Merger by such date, such termination may
not occur before August 31, 1995; provided that the party seeking to terminate
the Merger Agreement has not breached its obligations under the Merger
Agreement in any material respect. The Merger Agreement also is
3
<PAGE>
subject to termination prior to such time upon the occurrence of certain
events. See "THE MERGER AGREEMENT--Termination; Amendment and Waiver."
Indemnification. The Merger Agreement provides that TCI will cause TCIC to
continue to provide indemnification to the directors, officers and employees of
TeleCable for a period of six years from the Effective Date to the fullest
extent permitted by applicable law, to the extent that such persons would have
been indemnified under the TeleCable Charter and the Bylaws of TeleCable (the
"TeleCable Bylaws") in effect at the Effective Date. TCI has guaranteed
unconditionally full payment and performance of such indemnification. See "THE
MERGER AGREEMENT--Indemnification."
Accounting Treatment. The Merger will be accounted for using the purchase
method for accounting and financial reporting purposes.
OPINION OF FINANCIAL ADVISOR
TeleCable. On August 8, 1994, prior to the execution of the Merger Agreement
Lehman Brothers rendered to the TeleCable Board an oral and written opinion to
the effect that, as of the date of such opinion and based upon and subject to
certain matters, the consideration to be received in the Merger by holders of
TeleCable Common Stock was fair, from a financial point of view, to such
holders taken as a whole.
TeleCable shareholders are urged to read the opinion of Lehman Brothers,
which is set forth in its entirety as Appendix II to this Proxy
Statement/Prospectus, carefully for a description of the procedures followed,
the factors considered and the assumptions made by Lehman Brothers in rendering
its opinion. See "THE MERGER--Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the TeleCable Board with respect to the
Merger, shareholders should be aware that certain members of the TeleCable
Board and of management have certain interests in the Merger that are in
addition to or different from the interests of the shareholders of TeleCable
generally. See "THE MERGER--Interests of Certain Persons in the Merger." The
TeleCable Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement.
APPRAISAL RIGHTS
Under the VSCA, holders of TeleCable Common Stock will have appraisal rights
in connection with the Merger. See "THE MERGER--General," "APPRAISAL RIGHTS"
and Article 15 of the VSCA attached hereto as Appendix III.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a "reorganization" within the meaning of
Section 368(a) of the Code for each of TCIC, TeleCable and TeleCable's
shareholders (other than shareholders who properly exercise their appraisal
rights under the VSCA). It is a condition to the Merger that TeleCable receives
an opinion from Willkie Farr & Gallagher to the effect that no gain or loss
will be recognized by TeleCable's shareholders (other than shareholders who
properly exercise their appraisal rights) in connection with the Merger (other
than with respect to cash received in lieu of fractional shares). See "CERTAIN
CONSEQUENCES OF THE MERGER--Certain Federal Income Tax Consequences."
COMPARATIVE MARKET PRICE DATA
TCI. The TCI Class A Common Stock is quoted on the Nasdaq National Market
under the symbol "TCOMA". Prior to the TCI/Liberty Combination, which was
effective on August 4, 1994, the TCIC Class A Common Stock was quoted on the
Nasdaq National Market under the same symbol. The following table
4
<PAGE>
sets forth the high and low sales prices of TCIC Class A Common Stock and TCI
Class A 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>
HIGH LOW
------ --------
<S> <C> <C>
TCIC CLASS A COMMON STOCK
Year ended December 31, 1992
First Quarter.................................................. 18 1/8 15 3/8
Second Quarter................................................. 20 16 1/8
Third Quarter.................................................. 20 7/8 16 3/4
Fourth Quarter................................................. 22 16 1/2
Year ended December 31, 1993
First Quarter.................................................. 25 1/2 20 3/4
Second Quarter................................................. 24 17 1/2
Third Quarter.................................................. 26 3/4 21 5/8
Fourth Quarter................................................. 33 1/4 24 7/8
Year ended December 31, 1994
First Quarter.................................................. 30 1/4 20 3/8
Second Quarter................................................. 23 3/8 18 1/4
Third Quarter (through August 4, 1994)......................... 24 1/8 19 45/64
TCI CLASS A COMMON STOCK
Third Quarter (from August 5, 1994)............................
Fourth Quarter (to , 1994)................................
</TABLE>
TeleCable. There is no established public trading market for TeleCable Common
Stock. The only purchases and sales of TeleCable Common Stock since January 1,
1992 of which TeleCable is aware are sales and repurchases of TeleCable Class B
Common Stock pursuant to TeleCable's Executive Stock Purchase Plans in effect
from time to time (the "Executive Plans"). There were no sales or purchases of
TeleCable Class A Common Stock during such period. All sales of TeleCable Class
B Common Stock under the Executive Plans are subject to TeleCable's option to
repurchase such TeleCable Class B Common Stock (upon the occurrence of certain
specified events) at a formula price per share set forth in related Stock
Restriction Agreements. Since January 1, 1992, TeleCable has sold and
repurchased 27,410 and 18,465 shares, respectively, of TeleCable Class B Common
Stock as follows:
<TABLE>
<CAPTION>
YEAR NO. OF SHARES SALE OR REPURCHASE PRICE PER SHARE
---- ------------- ------------------ ---------------
<S> <C> <C> <C>
1992 12,510 Sale $48.17
9,945 Repurchase 48.17
1993 14,900 Sale 48.34
8,520 Repurchase 48.34
1994 -0- -- --
</TABLE>
On August 5, 1994, the last trading day before TCI and TeleCable publicly
announced that they had entered into the Merger Agreement, the last reported
sale price on the Nasdaq National Market for shares of TCI Class A Common Stock
was $23 1/16. On , 1994, the last trading day before the date of this
Proxy Statement/Prospectus, the last reported sale price on the Nasdaq National
Market for shares of TCI Class A Common Stock was $ .
DIVIDENDS
TCI. Payment of cash dividends on the TCI Class A Common Stock is determined
by the TCI Board in light of TCI's earnings, financial condition and other
relevant considerations. Prior to the TCI/Liberty Combination, TCIC did not
pay, and since its formation in 1994, TCI has not paid, any cash dividends and
it is anticipated that no cash dividends will be paid on the TCI Class A Common
Stock or TCI Class B
5
<PAGE>
Common Stock for the foreseeable future. As a holding company, TCI's ability to
pay cash dividends will be dependent on its ability to receive cash dividends
and advances from its subsidiaries, including TCIC and Liberty. Certain loan
agreements to which TCIC or certain subsidiaries of TCIC or Liberty are parties
or are subject contain restricted payment provisions that limit the amount of
dividends, other than stock dividends, that those companies may pay. Future
loan agreements may contain similar restrictions.
Payment of dividends by TCI will also be subject to the terms of the TCI
Series D Preferred Stock and other preferred stock of TCI. See "DESCRIPTION OF
TCI CAPITAL STOCK--TCI Series D Preferred Stock."
TeleCable. As of the date of the Merger Agreement, there were five holders of
TeleCable Class A Common Stock (excluding shares held by subsidiaries of
TeleCable) and 160 holders of TeleCable Class B Common Stock. For the last
three fiscal years, dividends on TeleCable Common Stock have been paid
quarterly at an annual rate of $3.00 per share.
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 TCIC and
TeleCable, (ii) on a pro forma basis for TCI and (iii) on a pro forma
equivalent basis for TeleCable. The pro forma information shown is derived from
the condensed pro forma financial statements presented elsewhere herein, which
give effect to the TCI/Liberty Combination and the Merger as if they had
occurred as of June 30, 1994 with respect to the pro forma balance sheet data
and as of January 1, 1993 with respect to pro forma operating data. The
information shown below should be read in conjunction with the consolidated
historical financial statements and notes thereto of TCIC and Liberty, which
are incorporated by reference into this Proxy Statement/Prospectus, the
accompanying historical financial statements of TeleCable and notes thereto and
the accompanying condensed pro forma financial statements and notes thereto of
TCI and subsidiaries. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"INDEX TO FINANCIAL STATEMENTS." TCIC did not pay any cash dividends on its
common stock during the year ended December 31, 1993, or during the six month
period ended June 30, 1994. See "--Dividends."
<TABLE>
<CAPTION>
TELECABLE
TCIC LIBERTY TELECABLE TCI PRO FORMA
HISTORICAL HISTORICAL HISTORICAL PRO FORMA EQUIVALENTS (4)
---------- ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Book value (deficit) per
common share
June 30, 1994.......... $5.12 4.59 (21.25) 6.84 (1)
Primary and fully
diluted earnings (loss)
attributable to common
shareholders per common
and common equivalent
share:
Year ended December
31, 1993............. $(.02) (.21) 11.88 (.10)(2)
Six months ended June
30, 1994............. $ .08 .10 6.39 .05 (3)
</TABLE>
- --------
(1) The pro forma book value per common share is based upon [524,728,593]
shares of TCI Class A Common Stock (after giving effect to the 85,327,493
shares of TCI Class A Common Stock issued in connection with the
TCI/Liberty Combination, the estimated 42,000,000 shares of TCI Class A
Common Stock to be issued in connection with the Merger, and the
elimination of shares of TCI Class A Common Stock held by Liberty and
subsidiaries of TCI) and [85,976,327] shares of TCI Class B Common Stock
(after giving effect to the 42,255,252 shares of TCI Class B Common Stock
issued in connection with the TCI/Liberty Combination and the elimination
of shares of TCI Class B Common Stock held by Liberty).
(2) The pro forma loss per common share is based upon 652,017,732 weighted
average shares. Such amount is calculated using (i) 492,134,730 weighted
average shares of TCIC at June 30, 1994 (such amount representing TCIC's
weighted average shares, as disclosed in its historical financial
statements) reduced
6
<PAGE>
by 6,525,721 shares of TCI common stock held by Liberty, (ii) 127,799,557
weighted average shares of Liberty at June 30, 1994 (such amount
representing Liberty's weighted average shares, as disclosed in its
historical financial statements, adjusted by 0.975 of a share) reduced by
3,390,854 shares of TCI common stock held by TCIC and (iii) an estimated
42,000,000 shares of TCI Class A Common Stock to be issued in connection
with the Merger. Shares issuable upon conversion of the TCI Series D
Preferred Stock have not been included in the computation of weighted
average shares outstanding for the six months ended June 30, 1994 because
their inclusion would be anti-dilutive.
(3) The equivalent pro forma earnings per common and common equivalent share is
based upon 592,232,340 weighted average shares. Such amount is calculated
utilizing (i) 432,566,150 weighted averages shares of TCIC at December 31,
1993 (such amount representing TCIC's weighted average shares, as disclosed
in its historical financial statements) reduced by 6,525,721 shares of TCI
common stock held by Liberty, (ii) 127,582,745 weighted averages shares of
Liberty 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 an acquisition by Liberty and Liberty
common stock repurchased from TCIC in 1993, all of which have been adjusted
by 0.975 of a share) reduced by 3,390,834 shares of Liberty common stock
held by TCIC and (iii) an estimated 42,000,000 shares of TCI Class A Common
Stock to be issued in connection with the TeleCable Merger. Shares issuable
upon conversion of the TCI Series D Preferred Stock have not been included
in the computation of weighted average shares outstanding for the year
ended December 31, 1993 because their inclusion would be anti-dilutive.
(4) TeleCable pro forma equivalents are determined by multiplying TCI pro forma
book value and pro forma earnings (loss) per share times [14. ], the
estimated exchange ratio for the conversion of TeleCable Common Stock into
TCI Class A Common Stock.
7
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
TCIC. The following table sets forth selected historical financial data for
TCIC and subsidiaries (i) as of June 30, 1994 and as of December 31 for each of
the years in the five-year period ended December 31, 1993 and (ii) for the six-
month periods ended June 30, 1994 and 1993 and for each of the years in the
five-year period 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 TCIC, incorporated by
reference into this Proxy Statement/Prospectus and with the condensed pro forma
financial statements and notes thereto of TCI and subsidiaries appearing
elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "INDEX TO FINANCIAL STATEMENTS."
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------
1994 1993 1992 1991 1990 1989
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Property and equipment, net....... $ 5,207 4,935 4,562 4,081 4,156 3,692
Franchise costs, net.............. $ 9,097 9,197 9,300 8,104 7,348 6,811
Net assets of discontinued
operations....................... $ -- -- -- 242 54 580
Total assets...................... $17,118 16,520 16,310 15,166 14,106 13,560
Debt.............................. $10,111 9,900 10,285 9,455 8,922 8,007
Stockholders' equity.............. $ 2,311 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 common share....... $ 5.12 4.69 4.01 3.75 2.09 2.38
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------ ---------------------------------
1994 1993 1993 1992 1991 1990 1989
------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
Revenue...................... $2,141 2,060 4,153 3,574 3,214 2,940 2,358
Operating income............. $ 439 493 916 864 674 546 455
Earnings (loss) from:
Continuing operations...... $ 38 79 (7) 7 (78) (191) (262)
Discontinued operations.... -- -- -- (15) (19) (63) (3)
------ ----- ----- ----- ----- ----- -----
38 79 (7) (8) (97) (254) (265)
Dividend requirement on
redeemable preferred stocks. -- (1) (2) (15) -- -- --
------ ----- ----- ----- ----- ----- -----
Net earnings (loss)
attributable to common
shareholders................ $ 38 78 (9) (23) (97) (254) (265)
====== ===== ===== ===== ===== ===== =====
Earnings (loss) attributable
to common shareholders per
common share:
Continuing operations...... $ 0.08 0.17 (0.02) (0.01) (0.22) (0.54) (0.74)
Discontinued operations.... -- -- -- (0.04) (0.05) (0.18) (0.01)
------ ----- ----- ----- ----- ----- -----
$ 0.08 0.17 (0.02) (0.05) (0.27) (0.72) (0.75)
====== ===== ===== ===== ===== ===== =====
Weighted average common
shares outstanding.......... 492 469 433 424 360 355 353
Ratio of earnings to fixed
charges (1)................. 1.18 1.36 1.22 1.02 -- -- --
</TABLE>
8
<PAGE>
- --------
(1) For the ratio calculations, earnings available for fixed charges consist of
earnings (losses) before income taxes plus fixed charges (minus capitalized
interest), distributions from and (earnings) losses of less than 50%-owned
affiliates with debt not guaranteed by TCIC (net of earnings not
distributed of less than 50%-owned affiliates), and minority interests in
earnings (losses) of consolidated subsidiaries (other than preferred stock
dividend requirements). Fixed charges consist of (i) interest (including
capitalized interest) on indebtedness, excluding interest to 50%-owned
affiliates, (ii) TCIC's proportionate share of interest of 50%-owned
affiliates, (iii) that portion of rental expense TCIC believes to be
representative of interest (one-third of rental expense), (iv) amortization
of deferred debt expense, (v) that portion of minority interest in earnings
of consolidated subsidiaries that represents preferred stock dividend
requirements, excluding preferred stock dividend requirements to 50%-owned
affiliates, and (vi) preferred stock dividend requirements of 50%-owned
affiliates, other than amounts payable to TCIC. TCIC has guaranteed the
debt of certain less than 50%-owned affiliates and certain other entities
in which it has an interest. Fixed charges of $13,833,000, $2,517,000,
$506,000, $710,000, and $745,000 relating to such guarantees for the years
ended December 31, 1993, 1992. 1991, 1990 and 1989, respectively, and
$5,927,000 and $1,258,000 for the six months ended June 30, 1994 and 1993,
respectively, have not been included in fixed charges. The ratio of
earnings to combined fixed charges and preferred stock dividends was less
than 1.00 for the years ended December 31, 1991, 1990 and 1989 as earnings
available for fixed charges were inadequate to cover fixed charges for such
periods. The amount of the coverage deficiencies for the years ended
December 31, 1991, 1990 and 1989 were $177,000,000, $399,000,000 and
$430,000,000, respectively.
9
<PAGE>
TeleCable. The following table sets forth selected historical financial data
for TeleCable and subsidiaries (i) as of June 30, 1994 and as of December 31
for each of the years in the five-year period ended December 31, 1993 and (ii)
for the six-month periods ended June 30, 1994 and 1993 and for each of the
years in the five-year period ended December 31, 1993. The following data,
insofar as they relate to each of the years 1989 to 1993, has been derived from
TeleCable's annual financial statements, including the consolidated balance
sheets at December 31, 1992 and 1993, and the related consolidated statements
of income and of cash flows for the three years ended December 31, 1993, and
the notes thereto appearing elsewhere herein. The data for the six months ended
June 30, 1993 and 1994 has been derived from TeleCable's unaudited financial
statements also appearing herein and, which, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for the fair statement of the results for the unaudited period. The
following information is qualified in its entirety by, and should be read in
conjunction with, the accompanying consolidated financial statements and notes
thereto of TeleCable, and with the accompanying condensed pro forma financial
statements and notes thereto of TCI and subsidiaries. See "INDEX TO FINANCIAL
STATEMENTS."
TELECABLE CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------------------
1994 1993 1992 1991 1990 1989
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET
DATA:
Property and equipment,
net.................... $249,137 231,824 228,761 227,668 227,007 220,737
Total assets............ $307,530 283,483 281,721 285,416 281,061 272,103
Debt.................... $285,107 278,372 304,195 327,998 349,897 354,115
Stockholders' deficit... $(61,559) (79,327) (104,901) (125,457) (143,379) (153,293)
Shares outstanding:
Class A common stock.. 117 117 117 117 117 117
Class B common stock.. 2,780 2,780 2,773 2,771 2,760 2,753
Stockholders' deficit
per common share....... $ (21.25) (27.38) (36.30) (43.44) (49.84) (53.41)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ---------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
Revenue................. $146,441 142,320 286,676 268,404 249,068 230,835 204,452
Operating income........ $ 41,540 40,129 78,661 73,758 64,273 61,376 53,649
Net earnings............ $ 18,514 18,586 34,284 29,338 26,370 18,726 17,611
Net earnings per common
share.................. $ 6.39 6.44 11.88 10.19 9.17 6.53 6.18
Cash dividends per
common share........... $ 1.50 0.75 3.00 3.00 3.00 3.00 2.25
Weighted average common
shares outstanding..... 2,896 2,888 2,885 2,878 2,875 2,868 2,851
</TABLE>
10
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA FOR TCI AFTER THE MERGER
The following selected pro forma balance sheet data for TCI and subsidiaries
assumes that the TCI/Liberty Combination and the Merger occurred as of June 30,
1994 and the following selected pro forma operating data for TCI and
subsidiaries assumes that the TCI/Liberty Combination and the Merger occurred
as of 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 and subsidiaries that would have occurred had the TCI/Liberty Combination
and the Merger occurred as of the dates indicated or of the future results of
operations of TCI and subsidiaries. The following pro forma information should
be read in conjunction with the historical financial statements and notes
thereto of TCIC and Liberty, incorporated by reference into this Proxy
Statement/Prospectus, the accompanying historical financial statements and
notes thereto of TeleCable, and with the accompanying condensed pro forma
financial statements and notes thereto of TCI and subsidiaries. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "INDEX TO FINANCIAL
STATEMENTS."
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TCIC TELECABLE LIBERTY PRO FORMA TCI
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
Revenue................. $ 4,153 287 1,153 56 5,649
Operating, selling,
general and
administrative expenses
and compensation
relating to stock
appreciation rights.... (2,326) (163) (1,105) (53) (3,647)
Depreciation and
amortization........... (911) (45) (49) (57) (1,062)
------- ----- ------ --- ------
Operating income (loss). $ 916 79 (1) (54) 940
Interest expense........ $ (731) (24) (31) (1) (787)
Share of earnings of
Liberty................ $ 4 -- -- (4) --
Share of earnings
(losses) of affiliates,
net.................... $ (76) -- 34 (25) (67)
Loss on transactions
with TCIC.............. $ -- -- (30) -- (30)
Earnings (loss) before
extraordinary item..... $ (7) 34 7 (67) (33)
Net earnings (loss)..... $ (7) 34 5 (65) (33)
Preferred stock dividend
requirements........... $ (2) -- (32) 8 (26)
Earnings (loss)
attributable to common
shareholders........... $ (9) 34 (27) (57) (59)
Earnings (loss) per
common share before
extraordinary item..... $ (.02) 11.88 (.19) N/A (.10)
Net earnings (loss) per
common share........... $ (.02) 11.88 (.21) N/A (.10)
</TABLE>
11
<PAGE>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TCIC TELECABLE LIBERTY PRO FORMA TCI
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
Revenue................. $ 2,141 146 675 (35) 2,927
Operating, selling,
general and
administrative expenses
and compensation
relating to stock
appreciation rights.... (1,221) (82) (612) 35 (1,880)
Depreciation and
amortization........... (481) (23) (27) (23) (554)
------- ---- ---- --- ------
Operating income........ $ 439 41 36 (23) 493
Interest expense........ $ (363) (11) (19) 21 (372)
Share of earnings of
Liberty................ $ 24 -- -- (24) --
Share of earnings
(losses) of affiliates,
net.................... $ (30) -- 22 (12) (20)
Net earnings............ $ 38 18 25 (36) 45
Preferred stock dividend
requirements........... $ -- -- (12) (1) (13)
Net earnings
attributable to common
shareholders........... $ 38 18 13 (37) 32
Primary and fully
diluted earnings
attributable to common
shareholders per common
and common equivalent
share.................. $ .08 6.39 .10 N/A .05
</TABLE>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
JUNE 30, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TCIC TELECABLE LIBERTY PRO FORMA TCI
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET
DATA:
Cash, receivables and
other current assets... $ 219 16 279 181 695
Investment in and
advances to Liberty.... $ 522 -- -- (522) --
Investment in other
affiliates and Turner
Broadcasting System,
Inc. and related
receivables............ $ 1,483 20 768 3 2,274
Investment in TCI common
stock.................. $ -- -- 104 (104) --
Property and equipment,
net.................... $ 5,207 249 249 333 6,038
Franchise costs,
intangibles and other
assets, net............ $ 9,687 23 446 1,827 11,983
Total assets............ $17,118 308 1,846 1,718 20,990
Debt.................... $10,111 285 416 (186) 10,626
Redeemable preferred
stock.................. $ -- -- 162 (162) --
Stockholders' equity
(deficit).............. $ 2,311 (61) 601 1,327 4,178
Book value (deficit) per
common share........... $ 5.12 (21.25) 4.59 N/A 6.84
</TABLE>
- --------
N/A--not applicable
12
<PAGE>
THE SPECIAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of TeleCable Common Stock by the
TeleCable Board for use at the Special Meeting.
TIME AND PLACE; PURPOSE
The Special Meeting will be held at , Norfolk, Virginia on ,
, 1994, starting at 10:00 a.m., local time. At the Special Meeting, the
shareholders of TeleCable will be asked to consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and (ii) such other matters
as may properly come before the Special Meeting. A copy of the Merger Agreement
is included as Appendix I to this Proxy Statement/Prospectus.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The TeleCable Board has fixed the close of business on , 1994, as the
date for the determination of holders of TeleCable Common Stock entitled to
notice of and to vote at the Special Meeting. Only holders of record of shares
of TeleCable Class A Common Stock and TeleCable Class B Common Stock at the
close of business on the Record Date are entitled to notice of and to vote at
the Special Meeting. At the close of business on the Record Date, there were
116,555 shares of TeleCable Class A Common Stock outstanding and entitled to
vote at the Special Meeting held by 5 shareholders of record (excluding shares
held by subsidiaries of TeleCable) and 2,779,801 shares of TeleCable Class B
Common Stock outstanding and entitled to vote held by 160 shareholders of
record.
The TeleCable Class A Common Stock and TeleCable Class B Common Stock will
vote as two separate classes. Each holder of record, as of the Record Date, of
TeleCable Class A and Class B Common Stock is entitled to cast one vote per
share, in person or by proxy, on approval of the Merger. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares of
each of TeleCable Class A Common Stock and TeleCable Class B Common Stock
entitled to vote is necessary to constitute a quorum of each separate voting
class at the Special Meeting.
The affirmative vote, in person or by proxy, of the holders of record of more
than two-thirds of the shares of TeleCable Class A Common Stock and TeleCable
Class B Common Stock outstanding on the Record Date, voting as two separate
classes, is required to approve and adopt the Merger Agreement.
The directors and officers of TeleCable owned, as of the Record Date, 101,430
outstanding shares of TeleCable Class A Common Stock and 1,738,128 outstanding
shares of TeleCable Class B Common Stock representing approximately 87% and
62.5%, respectively, of the total number of shares of each such class
outstanding on that date. The directors, executive officers and certain other
shareholders of TeleCable representing 87% and 67% of the outstanding shares of
TeleCable Class A and Class B Common Stock, respectively, have entered into
voting agreements with TCI pursuant to which they have agreed to vote all of
the shares of TeleCable held by them in favor of the Merger Agreement. IF SUCH
PERSONS VOTE THEIR SHARES AS THEY HAVE PREVIOUSLY AGREED, THE MERGER AGREEMENT
WILL BE APPROVED AND ADOPTED AT THE SPECIAL MEETING IRRESPECTIVE OF THE VOTE OF
ANY OTHER SHAREHOLDER OF TELECABLE.
PROXIES
All shares of TeleCable Common Stock represented by properly executed proxies
received prior to or at the Special Meeting, 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 at the discretion of the proxy holder as to any other
matter that may properly come before the Special Meeting. A properly executed
proxy marked "ABSTAIN" will not be voted, although they will be counted for
purposes of determining whether there is a quorum and for purposes of
determining the aggregate number of shares represented and entitled to vote at
the Special Meeting.
13
<PAGE>
A shareholder may revoke his proxy at any time prior to its use by delivering
to the Secretary of TeleCable a signed notice of revocation or a later dated
signed proxy or by attending the Special Meeting and voting in person.
Attendance at the Special Meeting will not in itself constitute the revocation
of a proxy.
The cost of solicitation of proxies will be paid by TeleCable. In addition to
solicitation by mail, officers and regular employees of TeleCable may solicit
proxies by telephone, telegram, or by personal interviews. Such persons will
receive no additional compensation for such services. 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. The Merger Agreement provides that if the Merger
Agreement is terminated as a result of the failure of the TeleCable
shareholders to approve the Merger Agreement, the expenses of TCI incurred in
connection with the Merger will be borne by TeleCable.
SHAREHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
THE MERGER
RECOMMENDATION OF TELECABLE BOARD; TELECABLE'S REASONS FOR THE MERGER
The TeleCable Board of Directors has approved unanimously the Merger
Agreement, has determined unanimously that the Merger is advisable and fair to
and in the best interests of TeleCable and its shareholders taken as a whole
and unanimously recommends that holders of shares of TeleCable Common Stock
vote FOR approval of the Merger Agreement.
In reaching its decision to approve the Merger Agreement and to recommend
that TeleCable's shareholders vote to approve the Merger Agreement, the
TeleCable Board considered, among other things, the following factors: (i) its
knowledge of the business, operations, properties, assets, financial condition,
operating results and future prospects of TeleCable; (ii) current industry,
economic and market conditions, including anticipated regulation that could
increase competition between telephone companies and cable companies and could
result in increased consolidation within the cable industry; (iii)
presentations by TeleCable's management with respect to TeleCable and by Lehman
Brothers, TeleCable's financial advisor, with respect to TeleCable and TCI;
(iv) the opinion of Lehman Brothers as to the fairness of the consideration,
from a financial point of view, to be received by stockholders of TeleCable
taken as a whole in the Merger (see "--Opinion of Financial Advisor"); (v) the
terms of the Merger Agreement, including the consideration to be received by
TeleCable shareholders in the Merger, and the representations, warranties,
covenants and conditions of the parties contained therein; and (vi) the
opportunity for TeleCable shareholders to participate, as holders of TCI Stock,
in a larger, more diversified company of which TeleCable would become a
significant part, and to do so by means of a transaction which is designed to
be tax-free to the holders of TeleCable Common Stock.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the TeleCable Board did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. For a discussion of the
interests of certain members of TeleCable's management and the TeleCable Board
in the Merger, see "--Interests of Certain Persons in the Merger."
TCI'S REASONS FOR THE MERGER
The TCI Board has unanimously approved the Merger Agreement. The TCI Board
believes that the Merger represents an attractive opportunity for TCI to
acquire substantial cable television assets and historically profitable
operations on a basis that does not require expenditure of its cash resources
or the borrowing of funds. The TCI Board has concluded that the Merger will
benefit TCI because the Board believes that TeleCable has a strong operations
team and is a profitable business with a consistent record of
14
<PAGE>
growth of revenue and cash provided by operations. The TCI Board further
believes that the acquisition of TeleCable will provide TCI with the
opportunity to realize operational efficiencies and strategic opportunities to
enter new product markets where TeleCable's cable systems are located in close
proximity to the cable systems owned or operated by TCI, and will increase
TCI's cash provided by operations, borrowing capacity, thereby enhancing its
ability to fund acquisitions, capital expenditures and other investments.
In reaching these conclusions, the TCI Board considered a number of factors,
including among other things, the terms and conditions of the transaction
contemplated by the Merger Agreement; information with respect to the financial
condition, business, operations and prospects of TeleCable and TCI on both a
historical and prospective basis, including certain information reflecting the
two companies on a pro forma combined basis and TeleCable's historical cash
provided by operations; and the views and opinions of the management of TCI.
The foregoing discussion is believed to include all material factors
considered by the TCI Board. In reaching the determination to approve the
Merger Agreement, the TCI Board 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.
For a discussion of the ownership interests in TCI of the members of the TCI
Board and the executive officers of TCI, see "OWNERSHIP OF TCI AND TELECABLE
STOCK."
OPINION OF FINANCIAL ADVISOR
Lehman Brothers was engaged by TeleCable to act as its financial advisor in
connection with the Merger. Pursuant to such engagement, TeleCable requested
that Lehman Brothers render its opinion with respect to the fairness, from a
financial point of view, to TeleCable's shareholders taken as a whole of the
aggregate consideration to be received by such shareholders in the Merger.
On August 8, 1994, in connection with the TeleCable Board's consideration of
the Merger, Lehman Brothers made a presentation to the TeleCable Board with
respect to the Merger and rendered its oral opinion that, as of the date of
such opinion, and subject to assumptions, factors and limitations set forth in
such opinion as described below, the aggregate consideration to be received by
the shareholders of TeleCable taken as a whole in the Merger is fair, from a
financial point of view, to such stockholders. Lehman Brothers subsequently
delivered to TeleCable its written opinion to the same effect dated August 8,
1994.
THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS DATED AUGUST 8, 1994,
WHICH SETS FORTH ASSUMPTIONS MADE, FACTORS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY LEHMAN BROTHERS, IS INCLUDED IN APPENDIX II TO THIS PROXY
STATEMENT/PROSPECTUS. TELECABLE'S SHAREHOLDERS ARE URGED TO READ SUCH OPINION
CAREFULLY AND IN ITS ENTIRETY.
No limitations were imposed by TeleCable on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except that TeleCable stated that it wished to enter into a tax-
free transaction. Lehman Brothers was not requested to and did not make any
recommendation to the TeleCable Board as to the form or amount of consideration
to be paid by TCI in the Merger, which was determined through arm's-length
negotiations between the parties in which Lehman Brothers assisted TeleCable.
In arriving at its opinion, Lehman Brothers did not ascribe a specific range of
value to TeleCable, but made its determination as to the fairness, from a
financial point of view, of the consideration to be paid by TCI in the Merger
on the basis of the financial and comparative analyses referenced below. Lehman
Brothers' opinion is directed to the TeleCable Board only and does not
constitute a recommendation to any shareholder of TeleCable as to how such
shareholder should vote at the Special Meeting. Lehman Brothers was not
requested to opine as to, and its opinion does not in any manner address, the
allocation of the consideration among TeleCable's shareholders or TeleCable's
underlying business decision to proceed with or effect the Merger.
15
<PAGE>
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i) the
Merger Agreement; (ii) such publicly available information concerning TCI
(including information pertaining to TCIC and Liberty, which were merged into
TCI on August 4, 1994 pursuant to the TCI/Liberty Combination) which Lehman
Brothers believed to be relevant to its inquiry, including the TCIC and Liberty
Annual Reports on Form 10-K for the year ended December 31, 1993, the TCIC and
Liberty Quarterly Reports on Form 10-Q for the quarter ended March 31, 1994 and
June 23, 1994 proxy materials; (iii) financial and operating information with
respect to the business and operations of TeleCable and TCIC furnished to
Lehman Brothers by TeleCable and TCIC including, in the case of TeleCable,
TeleCable's audited December 31, 1993 financial statements, 1994 budget,
unaudited interim monthly financial statements between October 1993 and June
1994 and individual cable system operating data for these periods; (iv) trading
histories of the common stock of both TCIC and Liberty from April 22, 1992 to
August 4, 1994, the date of the TCI/Liberty Combination, and TCI on August 5,
1994, the last trading day before the Merger was publicly announced, and a
comparison of those trading histories with those of other companies which
Lehman Brothers deemed relevant; (v) a comparison of the historical financial
results and present financial condition of TeleCable, TCIC and TCI with those
of other companies which Lehman Brothers deemed relevant; (vi) a comparison of
the financial terms of the Merger with the financial terms of certain other
transactions which Lehman Brothers deemed relevant; (vii) the ownership profile
and liquidity characteristics of the TCI Class A Common Stock and the TCI
Series D Preferred Stock to be received by TeleCable shareholders as
consideration, and the pro forma effects of the transaction on the ownership
profile of TCI; (viii) the voting characteristics of the TCI Class A Common
Stock and TCI Series D Preferred Stock to be received as consideration and the
voting control position to be held by the majority stockholders in TCI; (ix)
the dividend, conversion premium, call provisions and other characteristics of
the TCI Series D Preferred Stock to be received as consideration by TeleCable
shareholders; and (x) the results of Lehman Brothers' efforts to solicit
indications of interest from third parties with respect to a purchase of
TeleCable. In addition, Lehman Brothers had discussions with the management of
TeleCable and the management of TCI concerning their respective businesses,
operations, assets, financial conditions and prospects and undertook such other
studies, analyses and investigations as Lehman Brothers deemed appropriate.
In connection with its review, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion without independent verification and further relied
upon the assurances of management of TeleCable and TCI that they were not aware
of any facts that would make such information materially inaccurate or
misleading. In arriving at its opinion, Lehman Brothers did not have access to
any projections or forecasts from TeleCable, TCIC or TCI regarding their
respective future financial performance other than TeleCable's 1994 budget and
current forecast for selected 1994 financial results. In addition, Lehman
Brothers did not conduct any physical inspection of the properties and
facilities of TeleCable or TCI and did not make or obtain any evaluations or
appraisals of the assets or liabilities of TeleCable or TCI. Upon advice of
TeleCable and its legal advisors, Lehman Brothers also assumed that the Merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the
Code, and therefore as a tax-free transaction to the TeleCable shareholders.
Lehman Brothers' opinion is necessarily based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date thereof.
In connection with its presentation to the TeleCable Board and advising the
TeleCable Board of its opinion on August 8, 1994, Lehman Brothers performed
certain financial and comparative analyses, including those described below.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances, and therefore such an opinion
is not readily susceptible to summary description. Furthermore, in arriving at
its fairness opinion, Lehman Brothers did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Lehman Brothers believes that its analyses must be considered as a
whole and that considering any portions of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the opinion. In
16
<PAGE>
its analyses, Lehman Brothers made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of TeleCable and TCI. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses
relating to the value of businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be sold.
Comparable Company Analysis. Using publicly available information, Lehman
Brothers compared selected financial data of TeleCable with similar data of
selected publicly traded companies engaged in businesses considered by Lehman
Brothers to be comparable to those of TeleCable. Specifically, Lehman Brothers
included in its review Adelphia Communications Corporation, Cablevision Systems
Corporation, Century Communications Corp., Comcast Corporation, TCA Cable TV,
Inc. and TCI after giving pro forma effect to the TCI/Liberty Combination
(collectively, the "Comparable Universe"). Lehman Brothers calculated, among
other things, the current equity market value plus debt less cash, cash
equivalents and equity and cost method investments as a multiple of latest
reported twelve months ("LTM") revenues, LTM earnings before interest, taxes,
depreciation and amortization expenses ("EBITDA"), estimated 1994 EBITDA,
estimated 1995 EBITDA, EBITDA for the most recent reported quarter multiplied
by four and the number of basic cable subscribers as of the end of the most
recent reported quarter. The 1994 and 1995 EBITDA estimates were based on
values specified in recent research reports obtained by Lehman Brothers. During
its oral presentation, Lehman Brothers focused on multiples of EBITDA which are
the most commonly used measures of valuation in the cable television industry.
Because of the inherent differences between the business, operations and
prospects of TeleCable and the businesses, operations and prospects of the
companies included in the Comparable Universe, and because the multiples of
companies in the Comparable Universe reflected the value of shares traded in
the public markets and did not necessarily reflect the price a purchaser would
pay to purchase control of a cable television company in a private transaction,
Lehman Brothers believed that it was inappropriate to, and therefore did not,
rely solely on the quantitative results of this analysis.
Analysis of Selected Acquisition Transactions. Lehman Brothers reviewed the
prices paid, or proposed to be paid, to the extent publicly available, of
selected acquisition transactions in the cable television industry. Lehman
Brothers reviewed the prices paid, or proposed to be paid, in such transactions
in terms of the aggregate value of such transactions as a multiple of EBITDA
and subscribers. In certain situations Lehman Brothers utilized its industry
expertise derived from working with buyers and sellers of media and
entertainment companies over time to determine values for certain transactions.
Transactions reviewed by Lehman Brothers included three recently announced
transactions: U S WEST, Inc.'s acquisition of Wometco Cable Corp. and Georgia
Cable Television, Comcast Corporation's purchase of the U.S. cable assets of
Maclean Hunter Limited, and the merger of the cable business of Cox
Enterprises, Inc. with the cable business of The Times Mirror Company.
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of
TeleCable and the businesses, operations and prospects of the selected acquired
companies analyzed, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, and
accordingly also made qualitative judgments concerning differences between the
characteristics of these transactions and the Merger that would affect the
acquisition value of TeleCable and such acquired companies.
Stock Price Performance. Lehman Brothers examined the trading history of TCIC
Class A Common Stock and Liberty Class A Common Stock in terms of both price
and volume during the period from April 22, 1992 to August 4, 1994, the date of
the TCI/Liberty Combination, and of TCI Class A Common Stock on August 5, 1994,
the last trading day before the Merger was publicly announced. This analysis
showed that over the latest twelve month period, the Class A Common Stock of
TCIC and Liberty traded at levels
17
<PAGE>
higher than historical levels. For that period, the Class A Common Stock of
TCIC traded in a range of $18.24 to $33.25 per share. In addition, Lehman
Brothers compared the prices of TCIC Class A Common Stock and Liberty Class A
Common Stock from April 21, 1992 to August 5, 1994 with the Standard & Poor's
Corporation Index of 400 Industrial Companies.
Liquidity of TCI Class A Common Stock. Lehman Brothers examined the liquidity
characteristics of TCIC Class A Common Stock. After giving pro forma effect to
the TCI/Liberty Combination, as of June 15, 1994 there were approximately 483
million TCIC Class A shares outstanding (approximately 532 million shares on a
fully diluted basis). After giving pro forma effect to the TCI/Liberty
Combination and the Merger, TeleCable shareholders will represent approximately
7.9% of TCI Class A Common Stock outstanding (approximately 8.9% on a fully
diluted basis). The average daily trading volume as reported for TCIC Class A
Common Stock on the Nasdaq National Market over the twelve months ended August
5, 1994, was 2.7 million shares.
Research Analyst Views. Lehman Brothers surveyed recent Wall Street research
analyst reports on TCI. All analysts surveyed maintained a buy recommendation
on TCI. The analysts' twelve to eighteen month price targets for TCI Class A
Common Stock ranged from $30.50 to $35.00 per share, representing price
appreciation of 32% to 52% over the current price as of August 5, 1994.
Other Factors. Lehman Brothers analyzed the dividends to be received by
TeleCable shareholders on the shares of TCI Class A Common Stock and TCI Series
D Preferred Stock to be issued as consideration in the Merger as compared with
the aggregate amount of dividends currently paid on TeleCable shares. Lehman
Brothers also considered other potential offers for TeleCable.
Lehman Brothers is an internationally recognized investment banking firm and,
as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. The TeleCable Board selected
Lehman Brothers because of its expertise, reputation and familiarity with the
cable television industry.
Pursuant to an engagement letter dated as of December 1, 1993, TeleCable
agreed to pay Lehman Brothers an initial retainer of $200,000, a fee of
$300,000 upon delivery of the fairness opinion described above, and a fee equal
to 0.4% of the total consideration received for TeleCable (less amounts
previously paid for the retainer and the delivery of the fairness opinion),
payable at the closing of an acquisition of TeleCable. In addition, in
connection with the rendering of financial advisory services to TeleCable with
respect to the Merger, TeleCable has agreed to reimburse Lehman Brothers for
reasonable expenses incurred by Lehman Brothers, and to indemnify Lehman
Brothers against certain liabilities, including liabilities under federal
securities laws. Lehman Brothers has not performed any investment banking or
other services for TeleCable in the past, but has performed various investment
banking services for TCI in the past and received customary fees for such
services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the TeleCable Board with respect to the
Merger, shareholders should be aware that certain members of TeleCable's
management and the TeleCable Board have certain interests in the Merger that
are in addition to or different from the interests of shareholders of TeleCable
generally. The TeleCable Board was aware of these interests and considered
them, among other matters, in approving the Merger Agreement.
Severance Arrangements with TeleCable Executive Officers. Under the Severance
Plan Covering Key Employees of TeleCable Corporation and its Subsidiaries (the
"Severance Plan") certain officers of TeleCable, will become entitled to
benefits in the event of a change of control of TeleCable. Those officers are
Daniel Basnight, Lawrence Brett, Gordon Herring, Charles Kennamer, James Key,
Page Lea, Nancy Lia,
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Thomas McDonald, Gerald Machovina, L. Patrick Mellon, Alfred Ritter, Jr.,
Richard Roberts, Davis Warehime and Nicholas Worth. The Merger will constitute
such a change of control. If such persons' employment is terminated or they
voluntarily resign for good cause (as defined in the Severance Plan) within two
years following the change of control such persons will be entitled to 16 weeks
of severance pay or, if greater, three weeks of severance pay for each complete
year of service with TeleCable or any of its subsidiaries or affiliates. If all
such persons become eligible for such severance benefits, they would be
entitled to benefits of approximately $2.8 million in the aggregate. See "THE
MERGER AGREEMENT--Certain Personnel Matters."
Indemnification. The Merger Agreement provides that TCI will cause TCIC to
continue to provide indemnification to the directors, officers and employees of
TeleCable for a period of six years after the Effective Date to the fullest
extent permitted by applicable law, to the extent that such persons would have
been indemnified under the TeleCable Charter and TeleCable Bylaws in effect at
the Effective Date. TCI has guaranteed unconditionally full payment and
performance of such indemnification. See "THE MERGER AGREEMENT--
Indemnification."
Registration of TCI Class A Common Stock. TCI has agreed to maintain a
registration statement in effect pursuant to Rule 415 of the Act for a period
of three years after the Effective Date with respect to, at all times, 5
million shares of TCI Class A Common Stock and 125,000 shares of TCI Series D
Preferred Stock that "affiliates" (as defined in Rule 145 of the Act) of
TeleCable, including its officers and directors, will receive (or will receive
upon conversion of the TCI Series D Preferred Stock received) in exchange for
their shares of TeleCable Common Stock in the Merger. In addition, in
connection with the closing of the Merger, TCI and Frank Batten, Chairman of
the Board of TeleCable, for himself, and in his capacity as trustee of the Fay
M. Slover Trust (the "Trust") and as agent for the other TeleCable
shareholders, will enter into a registration rights agreement pursuant to which
Mr. Batten, for himself, and in his capacity as trustee of the Trust and as
agent for the other TeleCable shareholders, will have the right to cause TCI to
register, on not more than two occasions, all of the shares of TCI Class A
Common Stock and TCI Series D Preferred Stock issued to them in connection with
the Merger and TCI Class A Common Stock issuable upon conversion of TCI Series
D Preferred Stock. The registration rights agreement also entitles Mr. Batten,
for himself, and in his capacity as trustee of the Trust and as agent for the
other TeleCable shareholders to certain "piggyback" registration rights. See
"THE MERGER AGREEMENT--Certain Restrictions on Resales of Class A Common Stock
and TCI Series D Preferred Stock."
The respective interests of the members of TeleCable's management and board
of directors described above constitute all of the material interests of those
persons in the Merger that are known to TeleCable to be different from, or that
constitute an extra or special benefit not shared on a pro rata basis with, the
shareholders of TeleCable.
Security Ownership. For information regarding the security ownership of
TeleCable Common Stock by TeleCable's directors, five highest paid executive
officers and directors and executive officers as a group, see "OWNERSHIP OF TCI
AND TELECABLE STOCK--Security Ownership of TeleCable."
CERTAIN CONSEQUENCES OF THE MERGER
GENERAL
Upon consummation of the Merger (i) TeleCable will cease to exist as a
separate corporation and TCIC will succeed to all the assets and liabilities of
TeleCable and (ii) holders of TeleCable Common Stock will be entitled to
receive shares of TCI Class A Common Stock and TCI Series D Preferred Stock.
See "THE MERGER AGREEMENT--Consideration to be Received in the Merger." As
described under the caption "APPRAISAL RIGHTS," shareholders of TeleCable have
the right to pursue appraisal rights in lieu of receiving TCI Stock pursuant to
the Merger. TeleCable shareholders who receive TCI Stock pursuant to the Merger
will become stockholders of a Delaware corporation. See "COMPARISON OF
STOCKHOLDERS' RIGHTS."
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Following the consummation of the Merger, the officers and directors of TCIC
will be the officers and directors of the Surviving Corporation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of the material Federal income tax
consequences of the Merger to a holder of TeleCable Common Stock who exchanges
TeleCable Common Stock for TCI Stock pursuant to the Merger. Neither TeleCable
nor TCI is requesting a ruling from the Internal Revenue Service in connection
with the Merger. It is a condition to TeleCable's obligation to consummate the
Merger that it receives an opinion of Willkie Farr & Gallagher as described
below. The following discussion does not address all aspects of Federal income
taxation that may be important to particular shareholders and may not be
relevant or applicable to shareholders who are subject to special tax rules,
including shareholders who are not citizens or residents of the United States
or are subject to the alternative minimum tax. Finally, it does not address the
Federal income tax consequences to shareholders who exercise and perfect
appraisal rights with respect to the Merger. This discussion is based upon
laws, regulations and rulings and judicial authorities now in effect, all of
which are subject to change, and assumes the correctness of certain factual
representations of TCI, TCIC and TeleCable, including a representation by
TeleCable that there is no plan or intention on the part of its shareholders to
dispose of TCI Class A Common Stock and TCI Series D Preferred Stock to be
received in the Merger in an amount that would reduce the TCI Stock held by
such shareholders to below the level Willkie Farr & Gallagher, TeleCable's
counsel, believes is necessary to qualify the Merger as a "reorganization" for
Federal income tax purposes.
In the opinion of Willkie Farr & Gallagher:
1. the Merger will constitute a "reorganization" for federal income tax
purposes within the meaning of Section 368(a) of the Code;
2. no gain or loss will be recognized by the shareholders of TeleCable
upon the conversion of their shares of TeleCable Common Stock into shares
of TCI Stock pursuant to the terms of the Merger (except to the extent cash
is received in lieu of fractional shares);
3. the tax basis of the shares of TCI Stock received by the shareholders
of TeleCable on the conversion of TeleCable Common Stock pursuant to the
Merger will be the same as the basis of the shares of TeleCable Common
Stock converted (less any portion of such basis allocable to any fractional
interest in any share of TCI Stock); and
4. the holding period of the TCI Stock into which shares of TeleCable
Common Stock are converted will include the period that such shares of
TeleCable Common Stock were held by the holder, provided such shares were
held as a capital asset by such holder.
TCI should recognize no gain or loss on the issuance of TCI Stock to the
TeleCable shareholders in the Merger.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY. TELECABLE SHAREHOLDERS ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, IF ANY.
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method for accounting and
financial reporting purposes. See "INDEX TO FINANCIAL STATEMENTS--Pro Forma
Financial Information."
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THE MERGER AGREEMENT
GENERAL; EFFECTIVE DATE
The Merger Agreement provides for the merger of TeleCable with and into TCIC.
As a result of the Merger, the separate corporate existence of TeleCable will
cease and TCIC will be the Surviving Corporation. In the Merger, shareholders
of TeleCable will receive the consideration described below. The Merger will
become effective upon the filing of Articles of Merger with the State
Corporation Commission of the Commonwealth of Virginia and a Certificate of
Merger with the Secretary of State of the State of Delaware. Such filings are
anticipated to take place as soon as practicable after the last of the
conditions precedent to the Merger set forth in the Merger Agreement have been
satisfied or, where permissible, waived. 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 MERGER
Upon consummation of the Merger, each outstanding share (other than shares
held directly by TeleCable or any of its subsidiaries, all of which will be
cancelled) of TeleCable Common Stock will be converted into the right to
receive (i) a number of shares of TCI Class A Common Stock equal to the "Common
Conversion Number" and (ii) a number of shares of TCI Series D Preferred Stock
equal to the "Preferred Conversion Number." The "Common Conversion Number" is
the number determined by dividing (i) the quotient resulting from dividing the
"Merger Value" (as defined in the Merger Agreement), less $300 million by
$24.00 by (ii) the total number of shares of Outstanding TeleCable Common Stock
at the Effective Date. The "Preferred Conversion Number" is the number
determined by dividing (i) 1,000,000 (the aggregate number of shares of TCI
Series D Preferred Stock to be issued to shareholders of TeleCable pursuant to
the Merger) by (ii) the total number of shares of Outstanding TeleCable Common
Stock at the Effective Date.
Merger Value is equal to $1.6 billion less the amount of Net Liabilities (as
defined in the Merger Agreement) of TeleCable as of the Effective Date and less
the amount, if any, by which the product of 11.43 times "Annualized EBITDA" (as
defined in the Merger Agreement) for the three full months ending prior to the
Effective Date is less than a specified amount ($1.54 billion). The Merger
Value is deliverable as follows: (i) 1,000,000 shares ($300 million in
aggregate initial liquidation value) of TCI Series D Preferred Stock and (ii)
the balance in shares of TCI Class A Common Stock.
Had the Merger been consummated on , 1994: (i) the amount of Net
Liabilities at the Effective Date would have been $ million; (ii) the product
of 11.43 times Annualized EBITDA for the three months ending prior to the
Effective Date would have been $ (which amount exceeds the specified amount
of $1.54 billion and accordingly, requires no adjustment to the Merger Value);
and (iii) the number of shares of Outstanding TeleCable Common Stock would have
been 2,896,356. As a result: (i) the Merger Value would have been $ , ($1.6
billion less $ of Net Liabilities); and (ii) each share of Outstanding
TeleCable Common Stock would have been converted into approximately [14. ]
shares of TCI Class A Common Stock and .345 shares of TCI Series D Preferred
Stock.
The foregoing pro forma calculation is presented to illustrate the method by
which the Merger Value and the number of shares of TCI Class A Common Stock
issuable pursuant to the Merger will be determined as of the Effective Date.
TELECABLE SHAREHOLDERS SHOULD NOT ASSUME THEY WILL RECEIVE THE NUMBER OF SHARES
DETERMINED AS SET FORTH ABOVE UPON CONSUMMATION OF THE MERGER. THE ACTUAL
NUMBER OF SHARES OF TCI CLASS A COMMON STOCK TO BE ISSUED WILL BE DEPENDENT
UPON A VARIETY OF FACTORS. ACCORDINGLY, IT IS LIKELY THAT THE NUMBER OF SHARES
OF TCI CLASS A COMMON STOCK ACTUALLY ISSUED UPON CONSUMMATION OF THE MERGER
WILL DIFFER FROM THE FOREGOING PRO FORMA CALCULATION. For example, a $10
million increase (decrease) in the amount of Net Liabilities would result in a
decrease (increase) of .14 of a share of TCI Class A Common Stock to be issued
for each share of Outstanding TeleCable Common Stock. While the Merger Value
plus Net Liabilities
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at the Effective Date cannot exceed $1.6 billion, there is no limit on the
amount by which the Merger Value can be reduced as a result of the adjustments
provided for in the Merger Agreement.
In addition to the foregoing, if TCI makes any stock or rights offering with
respect to the TCI Class A Common Stock between the date of the Merger
Agreement and the Effective Date, TeleCable shareholders will, if an election
to participate is made, be entitled to receive the securities or other assets
issuable in such offering as if such shareholders were holders of TCI Class A
Common Stock on the date of such offering. Any election to participate will be
made in the sole discretion of Mr. Frank Batten, in his capacity as
shareholders representative under the Merger Agreement, and if such an election
is made, such shareholders will receive the benefits of such offering effective
as of the Effective Date. As of the date of this Proxy Statement/Prospectus no
such offering has been made by TCI.
For a description of the designations, preferences, rights and
qualifications, limitations and restrictions of the TCI Stock, see "DESCRIPTION
OF TCI CAPITAL STOCK." Fractional shares of TCI Stock will not be issued in the
Merger. Holders of TeleCable Common Stock otherwise entitled to a fractional
share of TCI Stock will be paid cash in an appropriate amount based upon the
value of TCI Class A Common Stock or TCI Series D Preferred Stock, determined
by reference on the closing sale price of TCI Class A Common Stock on the last
trading day prior to the Effective Date or the initial liquidation value of the
TCI Series D Preferred Stock, as the case may be.
Exchange of Shares. Promptly after the Effective Date, transmittal forms will
be mailed to each holder of record of shares of TeleCable Common Stock to be
used in forwarding his or her certificates evidencing such shares for surrender
and exchange for certificates evidencing the shares of TCI Class A Common Stock
and TCI Series D Preferred Stock to which he or she has become entitled and, if
applicable, cash in lieu of fractional shares of such TCI Stock. After receipt
of such transmittal form, each holder of certificates formerly representing
TeleCable Common 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 Class A Common Stock and TCI Series D Preferred Stock to which he or she
is entitled and a check for any cash that may be payable in lieu of a
fractional share of such TCI Stock. Such transmittal forms will be accompanied
by instructions specifying other details of the exchange.
In order to effect the adjustments to the Merger Value provided for in the
Merger Agreement, upon consummation of the Merger, TCI will deliver to the
Exchange Agent 1,000,000 shares of TCI Series D Preferred Stock and that number
of shares of TCI Class A Common Stock that is deliverable to TeleCable
shareholders based on preliminary estimates of Net Liabilities, Annualized
EBITDA and the Merger Value on the Effective Date, less 1,000,000 shares of TCI
Class A Common Stock that TCI will retain until the final determination of the
Merger Value as of the Effective Date is made (which is expected to be
determined within approximately 160 days after the Effective Date) in
accordance with procedures set forth in the Merger Agreement. Upon final
determination of the Merger Value, TCI will deliver to the Exchange Agent the
number of shares of TCI Class A Common Stock, if any, equal to the positive
difference between the number of shares of TCI Class A Common Stock deliverable
to TeleCable shareholders based on the final Merger Value and the number of
shares of TCI Class A Common Stock delivered to the Exchange Agent prior to the
Effective Date and the Exchange Agent will thereafter deliver such shares (and
any cash that may be payable in lieu of fractional shares) to the TeleCable
shareholders. Any shares issued from the amount so withheld will be deemed to
be issued as of the Effective Date.
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Date, each certificate evidencing TeleCable Common Stock
(other than certificates evidencing shares held directly by TeleCable or any of
its subsidiaries (which will be cancelled)), until so surrendered and
exchanged, will be deemed, for all purposes, to evidence only the right to
receive the number
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of shares of TCI Class A Common Stock and TCI Series D Preferred Stock that the
holder of such certificate is entitled to receive and the right to receive any
cash payment in lieu of fractional shares of TCI Stock. The holder of such
unexchanged certificate will not be entitled to receive any dividends or other
distributions payable by TCI 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 TeleCable 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 MERGER
The respective obligations of TeleCable and TCI to consummate the
transactions contemplated by the Merger Agreement are subject to the
satisfaction or, where permissible, waiver of the following conditions: (i) the
Merger Agreement and the transactions contemplated thereby shall have been duly
approved by the holders of TeleCable Common Stock; (ii) the waiting period
applicable to the consummation of the Merger under the Hart-Scott-Rodino Act
shall have expired or been terminated; (iii) the Registration Statement shall
have become effective in accordance with the provisions of the Act and any
necessary state securities law approvals shall have been obtained and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the Commission and remain in effect; and (iv) no preliminary or
permanent injunction or other order by any federal or state court in the United
States that prevents consummation of the Merger shall have been issued and
remain in effect.
The obligation of TeleCable to consummate the transactions contemplated by
the Merger Agreement is also subject to the satisfaction or waiver of the
following conditions: (i) the performance by TCI and TCIC, in all material
respects, of their respective agreements and covenants in the Merger Agreement
and the accuracy of the representations and warranties of each of them (except
where the failure to be true, in the aggregate, would not have a material
adverse effect on the business, properties, assets, condition (financial or
otherwise), liabilities or operations of TCI and its subsidiaries taken as a
whole) or on the ability of TCI to perform its obligations under the Merger
Agreement; and (ii) receipt of the opinion of Willkie Farr & Gallagher to the
effect that the Merger will constitute a "reorganization" for Federal income
tax purposes within the meaning of (S)368(a) of the Code.
The obligation of TCI and TCIC to consummate the transactions contemplated by
the Merger Agreement is also subject to the satisfaction or waiver of the
following conditions: (i) the performance by TeleCable, in all material
respects, of the agreements and covenants of it in the Merger Agreement and the
accuracy of TeleCable's representations and warranties (except for each failure
to be true that does not have a material adverse effect on the business,
properties, assets, condition (financial or otherwise), liabilities or
operations of TeleCable and its subsidiaries taken as a whole); (ii) receipt of
all consents, orders or approvals of governmental entities necessary for the
transfer of control of cable television franchises, to the extent required to
be obtained under the Merger Agreement; and (iii) the FCC shall have consented,
to the extent such consent is legally required, to the transfer of control to
TCI of all FCC licenses possessed by TeleCable, except where the failure to
receive any such consent would not have a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities,
or operations of TCI, TCIC and TeleCable taken as a whole.
GOVERNMENTAL APPROVALS
The only governmental consents and governmental filings that TCI and
TeleCable are aware of that must be obtained or made in connection with the
consummation of the Merger (other than in connection with compliance with
Federal and state securities laws) are: (i) filings with the Department of
Justice or the FTC under the Hart-Scott-Rodino Act with respect to the Merger;
(ii) filings with and consents, orders or
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approvals required to be received from the FCC under the Communications Act in
connection with the transfer of control of business radio, microwave relay
service, earth station and other licenses related to the cable television
operations of TeleCable; and (iii) filings with and consents, approvals or
orders 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 TeleCable or its subsidiaries.
On August 29, 1994, TCI and TeleCable each filed a notification of the
transaction with the FTC and the U.S. Department of Justice pursuant to the
Hart-Scott-Rodino Act. On September 28, 1994, the FTC issued a Request for
Additional Information and Documentary Material to TCI and TeleCable in
connection with the proposed Merger. TCI and TeleCable are in the process of
responding to such request.
Applications for transfer of control of FCC licenses held by TeleCable and
its affiliates and subsidiaries have been filed with the FCC, and are pending.
TeleCable has determined that, as of August 29, 1994, the consummation of the
Merger may require Local Authorizations with respect to a majority of the 112
franchises held by TeleCable and its subsidiaries. All required documentation
in connection with the Local Authorizations has been filed with state and local
cable television franchising authorities. TeleCable has also given or caused to
be given notices required under certain franchises in connection with the
Merger. In accordance with the Merger Agreement, TCI's and TCIC's obligation to
consummate the Merger is subject to the receipt of consents from a number of
Local Authorities (if so required) that represent the 35 largest cable
television franchises (based on the number of subscribers) under which
TeleCable and its subsidiaries operated as of the date of the Merger Agreement.
As of the date of the Merger Agreement, the number of basic subscribers served
by the 35 largest franchises represented approximately 90% of the total number
of basic subscribers served by TeleCable. As of the date of this Proxy
Statement/Prospectus TeleCable has received consents from franchising
authorities related to of the 35 largest cable television franchises.
TeleCable and TCI 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 Merger is 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. Such
consequences may include fines and other penalties, including the possible
revocation or nonrenewal of certain franchises.
Certain shareholders of TeleCable may be individually subject to the
notification and waiting-period requirements of the Hart-Scott-Rodino Act if as
a result of the Merger they will hold TCI 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 TeleCable and TCI expect to hold as a result of
the Merger shares of TCI Stock having a value in excess of $15 million will be
required, as a precondition to receiving such shares, to provide TCI with
evidence of compliance with the Hart-Scott-Rodino Act, satisfactory in form and
substance to TCI and its counsel. If necessary, TCI will deposit into escrow
the shares of TCI Stock issuable to any holder obligated to file a pre-merger
notification and report form under the Hart-Scott-Rodino Act and will instruct
the Exchange Agent to hold such shares pending the expiration or termination of
the applicable waiting period.
COVENANTS
TeleCable has agreed to conduct its business in the ordinary course and to
use its reasonable best efforts to preserve intact its business organizations,
to preserve its relationships with customers, suppliers and others having
business dealings with it. TeleCable has agreed that, except as required or
permitted by the Merger
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Agreement or consented to in writing by TCI, it will not, prior to the
Effective Date, (i) sell or pledge any capital stock owned by it in any of its
subsidiaries, (ii) amend or propose to amend the TeleCable Charter or TeleCable
Bylaws, (iii) split, combine or reclassify its outstanding capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of capital stock of TeleCable,
declare or pay any dividend or other distribution payable in cash, stock or
property (except for Regular Company Dividends (as defined in the Merger
Agreement)), (iv) directly or indirectly redeem, purchase or otherwise acquire
any shares of capital stock of TeleCable, (v) issue, deliver or sell any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class, or any options, rights or warrants to acquire, or
securities convertible into, shares of capital stock, (vi) acquire, lease or
dispose of any assets, other than in the ordinary course of business or
pursuant to its capital budget, (vii) create, assume or incur any additional
indebtedness for borrowed money (other than pursuant to existing credit
facilities) or mortgage, pledge or subject to any lien any of its assets (other
than pursuant to existing credit facilities) or enter into any other material
transaction other than in the ordinary course of business consistent with past
practice, (viii) make any payments with respect to any indebtedness of
TeleCable or its subsidiaries except for such payments that are scheduled to
come due prior to the Effective Date, (ix) acquire or agree to acquire any
material business or business organization or division thereof or (x) agree to
do any of the foregoing.
TeleCable further agreed that it will not and will not permit any of its
subsidiaries to, except as consented to in writing by TCI or required to comply
with applicable law or existing contracts or plans, (i) adopt or terminate or
amend any bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or other benefit
plan, agreement, trust, fund or other arrangement for the benefit or welfare of
any director, officer or current or former employee, (ii) increase in any
manner the compensation or fringe benefit of any director, officer or employee
(except for normal increases in the ordinary course of business consistent with
past practice), (iii) grant any awards under any bonus, incentive, performance
or other compensation plan or arrangement or benefit plan (except for such
awards made in the ordinary course of business consistent with past practice
unless such award is otherwise prohibited under the Merger Agreement) and (iv)
take any action to fund or in any other way secure the payment of compensation
or benefits under any employee plan, agreement, contract or arrangement or
benefit plan (except for such actions made in the ordinary course of business
consistent with past practice).
TeleCable has further agreed that it will not, without the consent of TCI,
(i) make any affirmative election with respect to any cost of service
proceeding conducted in accordance with Part 76.922 of Title 47 of the Code of
Federal Regulations or any similar proceeding, (ii) amend the provisions of, or
agree to undertake any obligation not required to be performed under, the
provisions of any cable television franchise that would materially increase the
obligations of the franchisee under such franchise if included as an amendment
thereto or (iii) take, or agree to take, any actions that would (x) make any
representation or warranty of TeleCable contained in the Merger Agreement
untrue or incorrect so as to cause the condition with respect to TeleCable's
representations and warranties not to be fulfilled as of the Effective Date or
(y) result in any of the other conditions to the obligations of TCI and TCIC in
the Merger Agreement not being satisfied as of the Effective Date.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that, subject to the fiduciary duties of the
TeleCable Board, as advised by outside counsel, neither TeleCable nor any of
its subsidiaries or any of their respective officers, directors,
representatives or agents will take any action to initiate the submission of
any Acquisition Proposal, enter into any agreement with respect to any
Acquisition Proposal or participate in negotiations with any person in
connection with any Acquisition Proposal. "Acquisition Proposal" is defined in
the Merger Agreement to mean any proposed (i) merger, consolidation or similar
transaction involving TeleCable, (ii) sale, lease or other disposition directly
or indirectly by merger, consolidation, share exchange or otherwise of all or
any substantial part of the assets of TeleCable or its subsidiaries, (iii)
issuance, sale or other disposition of
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securities representing 50% or more of the voting power of TeleCable Common
Stock or (iv) any transaction in which any person shall acquire beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act) or the
right to acquire beneficial ownership, or any "group" (as such term is defined
under the Exchange Act) shall have been formed that beneficially owns or has
the right to acquire beneficial ownership, of 50% or more of the outstanding
TeleCable Common Stock.
CERTAIN PERSONNEL MATTERS
Pursuant to the Merger Agreement, TCI has agreed to (or cause its affiliates
to) honor in accordance with their terms all obligations of TeleCable to
current and former employees of TeleCable under severance plans of TeleCable in
effect as of the Effective Date. Under the severance plans certain officers and
corporate employees of TeleCable will become entitled to benefits in the event
of a change of control of TeleCable. The Merger will constitute such a change
of control. If such persons' employment is terminated or they voluntarily
resign under certain conditions within two years following the change of
control such persons will be entitled to 16 weeks of severance pay or, if
greater, three weeks of severance pay for each complete year of service with
TeleCable or any of its subsidiaries or affiliates. See "THE MERGER--Interests
of Certain Persons in the Merger--Severance Arrangements with TeleCable
Executive Officers."
Each employee of TeleCable who is not covered by any TeleCable severance pay
plan or policy on the Effective Date and whose employment is terminated without
cause by TCI or any of its affiliates within six months after the Effective
Date will be eligible for severance benefits under the severance plan or policy
maintained by TCI based on such terminated employee's combined service with
TeleCable, TCI and their respective affiliates occurring prior to and after the
Effective Date. TCI will also (or will cause its affiliates to) recognize all
service with TeleCable and any of its affiliates of TeleCable's employees who
become employees of TCI or TCIC at or after the Effective Date for the purposes
of determining eligibility to participate, vesting, eligibility for benefits
and benefit accruals under any TCI employee benefit plans, policies and
programs maintained or to which contributions are made by TCI or TCIC for the
benefit of their respective employees following the Effective Date.
TeleCable has the right to repurchase shares of TeleCable Common Stock
acquired by the executives of TeleCable pursuant to the Executive Plans if the
executive attempts to sell or otherwise dispose of such stock, upon termination
of such executive's employment with TeleCable or its affiliates or upon the
executive's death, at price per share provided for under such Executive Plans.
Immediately prior to and contingent upon the consummation of the Merger, all of
TeleCable's rights to repurchase such shares will be cancelled. See "SUMMARY--
Comparative Market Price Data."
INDEMNIFICATION
The Merger Agreement provides that TCI will cause TCIC to continue to provide
indemnification to the directors, officers and employees of TeleCable for a
period of six years after the Effective Date to the fullest extent permitted by
applicable law, to the extent that such persons would have been indemnified
under the TeleCable Charter and TeleCable Bylaws in effect at the Effective
Date. TCI has guaranteed unconditionally full payment and performance of such
indemnification.
TERMINATION; AMENDMENT AND WAIVER
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date, whether before or after approval by TeleCable's
shareholders, (i) by mutual consent of TeleCable and TCI, (ii) by either
TeleCable or TCI if the Merger has not been consummated on or before May 31,
1995, except that if the shareholders of TeleCable shall not have approved the
Merger Agreement by such date, then by TeleCable or TCI if the Merger has not
been consummated on or before August 31, 1995; provided that the party seeking
to terminate the Merger Agreement has not breached its obligations under the
Merger Agreement in any material respect, (iii) by TeleCable, provided
TeleCable has not breached any of its
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obligations thereunder in any material respect, if any of the conditions to its
obligations to consummate the Merger have not been met or waived at such time
as such condition is no longer capable of satisfaction, or (iv) by TCI,
provided TCI has not breached any of its obligations thereunder in any material
respect, if any of the conditions to its obligation to consummate the Merger
have not been met or waived at such time as such condition is no longer capable
of satisfaction. See "--Conditions to the Merger."
In the event of termination of the Merger Agreement by either TeleCable or
TCI as provided above, the Merger Agreement will become void and (except for
the willful breach of the Merger Agreement or as described in "--Expenses"
below) there will be no liability or obligation on the part of TeleCable, TCI,
or TCIC or their respective officers or directors.
TeleCable, TCI and TCIC may amend the Merger Agreement by action taken by
their respective boards of directors, either before or after approval by the
shareholders of TeleCable of the Merger Agreement, except that after such
approval by the shareholders of TeleCable, no amendment may be made that alters
the indemnification provisions of the Merger Agreement or changes the ratios at
which TeleCable Common Stock is to be converted into TCI Class A Common Stock
and TCI Series D Preferred Stock or which in any way materially adversely
affects the rights of such shareholders, without the further approval of such
shareholders. At any time prior to the Effective Date, TeleCable, TCI or TCIC,
pursuant to action taken by their respective boards of directors, may extend
the time specified in the Merger Agreement for the performance of any of the
obligations or other acts of the other parties, waive any inaccuracies in the
representations and warranties of the other parties contained in the Merger
Agreement or in any document delivered pursuant thereto or waive compliance
with any of the agreements or covenants contained in the Merger Agreement.
CERTAIN RESTRICTIONS ON RESALE OF TCI COMMON STOCK AND TCI SERIES D PREFERRED
STOCK
All shares of TCI Stock issuable in the Merger 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 Rule 145 of the Act)
of TeleCable prior to the Merger 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) or as otherwise
permitted under the Act. Persons who may be deemed to be affiliates of
TeleCable generally include individuals or entities that control, are
controlled by, or are under common control with, TeleCable and may include
certain officers and directors of TeleCable as well as principal shareholders
of TeleCable. In this connection, to allow such affiliates to resell their
shares, TCI has agreed to file and keep effective a registration statement
pursuant to Rule 145 under the Act for a period three years after the Effective
Date with respect to, at all times, 5 million shares of TCI Class A Common
Stock and 125,000 shares of TCI Series D Preferred Stock that such persons will
receive in exchange for their shares of TeleCable Common Stock in the Merger or
will receive upon conversion of TCI Series D Preferred Stock. Resales pursuant
to such registration statement would not be subject to the resale provisions of
Rule 144 or Rule 145 under the Act. In addition, in connection with the closing
of the Merger, TCI and Frank Batten, for himself, and in his capacity as
trustee of the Trust and as agent for the other TeleCable shareholders, will
enter into a registration rights agreement pursuant to which Mr. Batten, for
himself, and in his capacity as trustee of the Trust and as agent for the other
TeleCable shareholders will have the right to cause TCI to register, on not
more than two occasions, all of the shares of TCI Class A Common Stock and TCI
Series D Preferred Stock issued to them in connection with the Merger, and TCI
Class A Common Stock issuable upon conversion of TCI Series D Preferred Stock.
The registration rights agreement also entitles Mr. Batten, for himself, and in
his capacity as trustee of the Trust and as agent for the other TeleCable
shareholders to certain "piggyback" registration rights. See "THE MERGER--
Interests of Certain Persons in the Merger."
EXPENSES
The Merger Agreement provides that each party will pay its own costs and
expenses, unless the Merger Agreement is terminated as a result of the failure
by the TeleCable shareholders to approve the Merger Agreement by August 31,
1995, in which case TeleCable will reimburse TCI and TCIC for all out-of-pocket
costs and expenses incurred by TCI and TCIC in connection with the transactions
contemplated by the Merger Agreement.
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CERTAIN INFORMATION REGARDING TELECABLE
GENERAL
TeleCable and its predecessor have been in the cable television business
since 1964. As of June 30, 1994, TeleCable owns and operates, directly and
through its subsidiaries, 21 cable television systems serving approximately
738,000 primary residential and equivalent subscribers in 112 franchised areas
in Alabama, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Missouri,
North Carolina, South Carolina, Tennessee, Texas, Virginia, West Virginia and
Wisconsin.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General. Effective August 8, 1994, TeleCable entered into the Merger
Agreement. See "THE MERGER AGREEMENT".
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994, the FCC
adopted certain rate regulations required by the 1992 Cable Act and imposed a
moratorium on certain rate increases. As a result of such actions, TeleCable's
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local franchising
authorities and the FCC. Basic and tier service rates are evaluated against
competitive benchmark rates as published by the FCC, and equipment and
installation charges are based on actual costs. TeleCable's new rates for
Regulated Services (which were initially implemented in September 1993, and
further adjusted in July 1994) are subject to review by the FCC, if a complaint
has been filed, or the appropriate local franchising authority, if such
authority has been certified. The rate increase moratorium, which was
applicable to those rates charged for Regulated Services that were not subject
to review by the FCC or local franchise authorities (as described above), began
on April 5, 1993 and continued in effect through May 15, 1994. The rate
regulations do not apply to the relatively few systems which are subject to
"effective competition" or to services offered on an individual service basis,
such as premium movie and pay-per-view services.
Based on its analysis and interpretation of the FCC's 1993 and 1994 rate
regulations, TeleCable estimates that the implementation of such regulations
will result in an aggregate annualized reduction of revenue and operating
income ranging from approximately $6.0 million to approximately $8.0 million.
The estimated annualized reduction assumes that the FCC will not require
further reductions beyond the current regulations, and is prior to any possible
mitigating factors (none of which is assured) such as (i) the provision of
alternate service offerings, (ii) the implementation of rate adjustments to
non-regulated services and (iii) the utilization of cost-of-service
methodologies, as described below.
Subject to certain limitations, the FCC's rate regulations generally permit
cable operators to adjust rates to account for inflation and increases in
certain external costs, including increases in programming costs and compulsory
copyright fees.
The revised benchmark regulations also provide a mechanism for adjusting
rates when regulated tiers are affected by channel additions or deletions. The
FCC has indicated that cable operators adding or deleting channels on a
regulated tier will be required to adjust the per-channel benchmark for that
tier based on the number of channels offered after the addition or deletion.
The FCC also stated that the additional programming costs resulting from
channel additions will be accorded the same external treatment as other program
cost increases, and that cable operators will be permitted to recover a mark-up
on their programming expenses of up to 7.5%.
On February 22, 1994, the FCC also adopted interim "cost-of-service" rules
governing attempts by cable operators to justify higher than benchmark rates
based on unusually high costs. Under this methodology, cable operators may
recover, through the rates they charge for Regulated Services, their normal
operating expenses plus an interim rate of return of 11.25%, which rate may be
subject to change in the future.
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TeleCable believes that it has complied, in all material respects, with the
provisions of the 1992 Cable Act, including its rate setting provisions.
However, TeleCable's rates for Regulated Services are subject to adjustment
upon review, as described above. If, as a result of the review process,
TeleCable cannot substantiate its rates for any system, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be retroactive to the
later of September 1, 1993, or one year prior to the certification date of the
applicable franchise authority. The amount of refunds, if any, which could be
payable by TeleCable in the event that any system's rates were to be
successfully challenged, is not currently estimable.
Based on the foregoing, TeleCable believes that the 1993 and 1994 rate
regulations will have a material adverse effect on its operating results.
From time to time, TeleCable is required to negotiate the renewal of
agreements with local franchising authorities. In connection with a renewal of
a franchise, the franchising authority may require TeleCable to comply with
different conditions with respect to franchise fees, channel capacity and other
matters, which conditions could increase TeleCable's cost of doing business.
Although the Cable Communications Policy Act of 1984, as amended (the "Cable
Act of 1984"), establishes an orderly franchise renewal process that protects
cable operators against unfair denials of renewal when the operator's past
performance and proposal for future performance meet the standards established
by the Cable Act of 1984 (as supplemented by the 1992 Cable Act), there can be
no assurance that the franchises for TeleCable's systems will be renewed as
they expire. Additionally, TeleCable cannot predict the impact of any new or
different conditions that might be imposed by the franchising authorities in
connection with such renewals.
TeleCable's cable television systems are presently operating in an external
environment that is characterized by rapidly changing competitive, regulatory,
technological and economic factors. Although TeleCable generally is unable to
predict the effect that such changing factors might have on its financial
condition and results of operations, TeleCable does believe that the continued
evolution of such factors could place TeleCable at a competitive disadvantage
if it were not to implement certain technological improvements to its cable
television systems. TeleCable anticipates that such technological improvements
generally would include the replacement of coaxial trunk cable with optical
fiber and the deployment of digital compression technology. Although TeleCable
presently is unable to predict the timing or economic feasibility of any such
technological improvements, TeleCable's preliminary analyses indicate that the
cost of such technological improvements could be significant. See "--Liquidity
and Capital Resources" below.
Inflation has not had a significant impact on TeleCable's results of
operations during the six months ended June 30, 1994 or the three years ended
December 31, 1993.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("Statement No. 114").
Management does not believe that the adoption of Statement No. 114 will have a
material effect on TeleCable's consolidated financial statements. Statement No.
114 is effective for years beginning after December 15, 1994.
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<PAGE>
Summary of Operations. Management's discussion and analysis of the
consolidated results of operations and financial condition of TeleCable should
be read in conjunction with TeleCable's consolidated financial statements and
related notes thereto appearing elsewhere in this Proxy Statement/Prospectus.
The table below sets forth, for the periods indicated, the percentage
relationship that certain items bear to revenue. This summary provides trend
data relating to normal recurring operations of TeleCable. Other items of
significance are discussed separately under their own captions below.
<TABLE>
<CAPTION>
PERIOD TO PERIOD INCREASE
----------------------------------
RELATIONSHIP TO REVENUE SIX
--------------------------------- MONTHS
SIX MONTHS ENDED YEARS ENDED
ENDED YEARS ENDED JUNE 30, DECEMBER 31,
JUNE 30, DECEMBER 31, --------- ---------------------
------------ ------------------- 1993 TO 1992 TO 1991 TO
1994 1993 1993 1992 1991 1994 1993 1992
----- ----- ----- ----- ----- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 2.9% 6.8% 7.8%
Operating expenses...... 46.0 45.7 46.2 46.0 46.1 3.6% 7.4% 7.4%
Selling, general and
administrative......... 10.1 10.1 10.6 10.7 11.5 2.6% 5.9% 0.4%
Depreciation and
amortization........... 15.6 16.0 15.8 15.9 16.6 -- 6.0% 3.0%
----- ----- ----- ----- -----
Operating income........ 28.3% 28.2% 27.4% 27.4% 25.8% 3.5% 6.7% 14.8%
===== ===== ===== ===== =====
</TABLE>
REVENUE
The 2.9% growth in revenue during the six months ended June 30, 1994 is
primarily attributable to the 1994 introduction of a late fee charge and an
increase in advertising revenue. Other sources of revenue remained relatively
flat as the positive effects of a 6.1% increase in period-end basic subscribers
and a 5.8% increase in period-end Pay-TV subscriptions were largely offset by
rate reductions implemented pursuant to the 1992 Cable Act.
Revenue increased 6.8% and 7.8% during 1993 and 1992, respectively. Such
increases are primarily attributable to subscriber growth and modest increases
in the rates charged for cable television service. During 1993 and 1992,
TeleCable experienced increases in period-end basic subscribers of 3.9% and
4.3%, respectively, and increases in period-end Pay-TV subscriptions of 2.3%
and 4.3%, respectively.
OPERATING COSTS AND EXPENSES
Operating, selling, general and administrative expenses have historically
remained relatively constant as a percentage of revenue.
OTHER INCOME AND EXPENSE
TeleCable recognized gains on the sale of investments of $2.7 million, $1.5
million and $6.8 million during the years ended December 31, 1993, 1992 and
1991, respectively. Such amounts include gains recognized in connection with
the sale of investments in certain cable franchises located in the United
Kingdom ($2.2 million in 1993 and $2.7 million in 1991) and in QVC Network Inc.
($1.2 million in 1992 and $4.7 million in 1991).
TeleCable's weighted average interest rate on borrowings was approximately
8.1% during each of the six month periods ended June 30, 1994 and 1993 and
approximately 8.1%, 8.6% and 8.3% during the years ended December 31, 1993,
1992 and 1991, respectively.
Liquidity and Capital Resources. TeleCable generally finances capital
expenditures and other investing activities with net cash provided by operating
and financing activities. During the six months ended June 30, 1994, TeleCable
used available cash of $1.5 million and cash provided by operating and
financing activities of $35.9 million and $2.5 million, respectively, to fund
investing activities of $39.9 million. See the
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consolidated cash flow statements included in the accompanying consolidated
financial statements of TeleCable.
Capital expenditures, which are primarily used to upgrade and maintain
TeleCable's cable distribution systems, aggregated $38.9 million, $45.5
million, $40.8 million and $39.2 million during the six months ended June 30,
1994 and the years ended December 31, 1993, 1992 and 1991, respectively.
TeleCable anticipates that its capital expenditures for the year ended December
31, 1994 will aggregate approximately $70 million ($20.8 million of which
relates to technological improvements, as previously discussed under "--
General" above).
At June 30, 1994, TeleCable had total debt of $285 million, including $235
million of unsecured term notes and $48 million of borrowings outstanding
pursuant to bank credit facilities. Unused availability pursuant to such bank
credit facilities aggregated $100 million ($28 million of which was
uncommitted) at June 30, 1994. Although TeleCable was in compliance with the
restrictive covenants contained in all of its borrowing facilities at June 30,
1994, additional borrowings pursuant to TeleCable's bank credit facilities are
subject to continued compliance with such restrictive covenants (which relate
primarily to the maintenance of certain ratios of cash flow to total debt and
cash flow to debt service, as defined in the borrowing agreements). For
additional information concerning TeleCable's debt, see the notes to
TeleCable's consolidated financial statements appearing elsewhere in this Proxy
Statement/Prospectus.
Management believes that net cash provided by operating activities, together
with TeleCable's ability to obtain additional financing, will provide adequate
sources of short-term and long-term liquidity in the future.
BUSINESS OF TCI
TCI is a Delaware corporation formed in January 1994 for the purpose of
effecting the TCI/Liberty Combination. On August 4, 1994, the TCI/Liberty
Combination was consummated. As a result of the TCI/Liberty Combination, TCIC
and Liberty, which prior to the TCI/Liberty Combination were each publicly held
companies, became wholly owned subsidiaries of TCI and stockholders of TCIC and
Liberty became stockholders of TCI. Prior to the TCI/Liberty Combination, TCIC
was known as Tele-Communications, Inc. TCI, through its subsidiaries and
affiliates, is principally engaged in the construction, acquisition, ownership
and operation of cable television systems and the provision of satellite-
delivered video entertainment, information and home shopping programming
services to various video distribution media, principally cable television
systems. Prior to the TCI/Liberty Combination TCI did not conduct any
significant activities other than those incident to the TCI/Liberty
Combination.
TCIC is a Delaware corporation organized in 1968. TCIC 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, TCIC is the largest provider
of basic cable television services in the United States. At June 30, 1994,
TCIC, through its subsidiaries and affiliates, operated cable television
systems throughout the continental United States and Hawaii. Through certain
joint ventures, TCIC also has cable television systems and related investments
in the United Kingdom and other parts of Europe.
Liberty, which was incorporated in Delaware in 1990, 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. 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.
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Additional information concerning TCI, including the effect of the 1992 Cable
Act on TCI, is included in the TCI Reports and TCIC Reports incorporated by
reference in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
DESCRIPTION OF TCI CAPITAL STOCK
TCI COMMON STOCK
TCI's authorized common stock consists of 1,100,000,000 shares of TCI Class A
Common Stock and 150,000,000 shares of TCI Class B Common Stock, par value
$1.00 per share ("TCI Class B Common Stock" and together with TCI Class A
Common Stock, "TCI Common Stock"). As of the date of this Proxy
Statement/Prospectus, there were [484,937,855] shares of TCI Class A Common
Stock and [86,122,815] shares of TCI Class B Common Stock issued and
outstanding (net of shares of TCI Common Stock held by subsidiaries of TCI).
Each share of TCI Class A Common Stock has one vote and each share of TCI
Class B Common Stock has ten votes on each matter presented to the holders of
TCI Common Stock for a vote. Except as may be required by the DGCL, the holders
of the TCI Class A Common Stock and TCI Class B Common Stock vote as one class
for all purposes. The TCI Class A Common Stock and TCI Class B Common Stock are
otherwise identical in all respects, except that each share of TCI Class B
Common Stock is convertible into one share of TCI Class A Common Stock at the
option of the holder. The TCI Class A Common Stock is not convertible into TCI
Class B Common Stock.
Subject to the preferential rights, if any, of holders of any then
outstanding preferred stock, the holders of the TCI Class A Common Stock and
TCI Class B Common Stock are entitled to receive dividends when and as declared
by the TCI Board out of funds legally available for such payment. Holders of
TCI Class A Common Stock and TCI 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 Class A Common Stock
and TCI Class B Common Stock are entitled to share ratably in the assets of TCI
available for distribution to stockholders in the event of TCI's liquidation,
dissolution or winding up.
The shares of TCI Class A Common Stock to be issued in connection with the
Merger will be fully paid and non-assessable.
The Restated Certificate of Incorporation of TCI, as amended (the "TCI
Charter") provides that there can be no stock dividend on, or stock split,
reverse stock split or reclassification of, either the TCI Class A Common Stock
or the TCI 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 Common Stock.
The TCI Board determines its dividend policy with respect to the TCI Common
Stock based on TCI's results of operations, financial condition, capital
requirements and other circumstances, including restrictions that may be
contained in agreements pursuant to which TCI may borrow funds. It is not
anticipated that cash dividends will be paid on the TCI Common Stock in the
foreseeable future.
The TCI Class A Common Stock and the TCI Class B Common Stock are quoted on
the Nasdaq National Market. The Bank of New York is the transfer agent for each
class of TCI Common Stock.
TCI PREFERRED STOCK
General. TCI is authorized to issue up to 12,375,096 shares of preferred
stock, divided into (i) 700,000 shares of Class A Preferred Stock, par value
$.01 per share ("TCI Class A Preferred Stock"), (ii) 1,675,096 shares of Class
B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock, par value $.01
per share
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<PAGE>
("TCI Class B Preferred Stock"), and (iii) 10,000,000 shares of TCI Series
Preferred Stock. As of the date of this Proxy Statement/Prospectus 2,338,453
shares of TCI preferred stock are issued and outstanding as follows: 592,798
shares of TCI Class A Preferred Stock (all of which are held by subsidiaries of
TCI); 1,675,096 shares of TCI Class B Preferred Stock (of which 55,070 shares
are held by subsidiaries of TCI); and 70,559 shares of TCI Series Preferred
Stock of which 70,559 shares have been designated and issued as Convertible
Preferred Stock, Series C ("TCI Series C Preferred Stock"). The TCI Class B
Preferred Stock ranks junior to the TCI Class A Preferred Stock with respect to
the declaration and payment of dividends and liquidation distributions. The
1,000,000 shares of TCI Series D Preferred Stock to be issued in connection
with the Merger will be issued from the TCI Series Preferred Stock.
TCI Series D Preferred Stock. TCI Series D Preferred Stock has an aggregate
initial liquidation value of $300 million, subject to increase in the amount of
accrued but unpaid dividends, if any. Dividends on TCI Series D Preferred Stock
accrue at the rate of 5 1/2% of the liquidation value and, subject to the
rights of holders of any parity securities and the provisions of any debt
instrument of TCI, are payable semiannually out of funds legally available
therefor. Dividends on TCI Series D Preferred Stock are cumulative and, in the
event that dividends are not paid in full on two consecutive dividend payment
dates or in the event that TCI fails to effect any required redemption of TCI
Series D Preferred Stock, accrue at the rate of 10% per annum of the
liquidation value.
Subject to certain specified exceptions, TCI is prohibited from paying
dividends on any junior securities (including TCI Common Stock) during any
period in which TCI is in arrears with respect to payment of dividends on TCI
Series D Preferred Stock.
Upon any liquidation, dissolution or winding up of TCI the holders of TCI
Series D Preferred Stock are entitled to be paid an amount in cash equal to the
liquidation value of TCI Series D Preferred Stock before any distribution or
payment is made on any junior securities, which payment will be made ratably
among the holders of TCI Series D Preferred Stock and the holders of any parity
securities. The holders of TCI Series D Preferred Stock will be entitled to no
other or further distribution of or participation in the remaining assets of
TCI after receiving the liquidation value per share.
Shares of TCI Series D Preferred Stock are convertible into TCI Class A
Common Stock at the rate of 10 shares of TCI Class A Common Stock for each
share of TCI Series D Preferred Stock, which conversion rate is subject to
adjustment upon certain events specified in the certificate of designation
establishing TCI Series D Preferred Stock. To the extent any cash dividends are
not paid on any dividend payment date, the amount of such dividends will be
deemed converted into shares of TCI Class A Common Stock at a conversion rate
equal to 95% of the then current market price of TCI Class A Common Stock, and
upon issuance of TCI Class A Common Stock to holders of TCI Series D Preferred
Stock in respect of such deemed conversion such dividend will be deemed paid
for all purposes.
Similarly, if TCI fails to effect any required redemption of TCI Series D
Preferred Stock, the holders thereof will have the option to convert their
shares of TCI Series D Preferred Stock into TCI Class A Common Stock at a
conversion rate equal to 95% of the then current market value of the TCI Class
A Common Stock, provided that such option may not be exercised unless the
failure to redeem continues for more than a year.
If TCI issues to all holders of TCI Class A Common Stock rights or options to
subscribe for or purchase shares of capital stock of TCI or its subsidiaries
(other than TCI Class A Common Stock or TCI Class B Common Stock), holders of
TCI Series D Preferred Stock will have the option, in lieu of any antidilution
adjustment which might otherwise apply to the conversion rate of TCI Series D
Preferred Stock, to exchange a portion of their shares of TCI Series D
Preferred Stock for shares of a new series of preferred stock which would be
convertible into such capital stock issued upon exercise of such rights or
options and which would otherwise contain terms and conditions similar to TCI
Series D Preferred Stock.
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<PAGE>
Shares of TCI Series D Preferred Stock are redeemable at the option of the
holder (in amounts of at least $50,000 of liquidation value or the entirety of
a holder's holdings, if less) at any time after the tenth anniversary of the
issue date at a price equal to the liquidation value in effect as of the date
of redemption. Shares of TCI Series D Preferred Stock may also be redeemed at
the option of TCI after the fifth anniversary of the issue date at such
redemption price or after the third anniversary of the issue date if the market
value per share of TCI Class A Common Stock shall have exceeded $37.50 for
periods specified in the certificate of designations. Any redemptions by TCI
are required to be made pro rata if less than all shares of TCI Series D
Preferred Stock are to be redeemed.
If at any time TCI has failed to pay (or irrevocably set apart for payment)
any dividends on TCI Series D Preferred Stock up to the preceding dividend
payment date, TCI may not redeem (or purchase or otherwise acquire) shares of
TCI Series D Preferred Stock or any parity security or junior security unless
all the TCI Series D Preferred Stock is redeemed. If and so long as TCI fails
to redeem any shares of TCI Series D Preferred Stock required to be redeemed at
the option of the holder or called for redemption at the option of TCI, TCI may
not redeem (or purchase or otherwise acquire) or discharge any sinking fund
obligation with respect to any junior securities unless all shares of TCI
Series D Preferred Stock are redeemed and may not purchase or otherwise acquire
any shares of TCI Series D Preferred Stock (other than by redemption or
conversion) or junior securities. The foregoing prohibitions do not apply to
certain purchase or exchange offers made to all holders of TCI Series D
Preferred Stock.
TCI Series D Preferred Stock will not rank junior to any other stock of TCI
in respect of the right to receive dividends or liquidating distributions. TCI
may not issue any senior securities or amend the terms of TCI Series D
Preferred Stock without the consent of the holders of at least 66 2/3% of the
liquidation value of TCI Series D Preferred Stock then outstanding (excluding
for such purpose any such shares held by TCI or its affiliates).
Except as required by law, holders of TCI Series D Preferred Stock are not
entitled to vote on any matters submitted to a vote of the shareholders of TCI.
The shares of TCI Series D Preferred Stock issued in connection with the
Merger will be fully paid and non-assessable.
A description of the designations, rights, preferences and qualifications,
limitations and restrictions of the other outstanding classes or series of
preferred stock of TCI is described in the Registration Statement on Form 8-B
of TCI included in the TCI Reports, which description is incorporated herein by
reference. See "AVAILABLE INFORMATION".
COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, shareholders of TeleCable, a Virginia
corporation, will become stockholders of TCI, a Delaware corporation, and the
rights of such stockholders will be governed by the laws of the State of
Delaware and of the TCI Charter and Bylaws of TCI (the "TCI Bylaws"). The
following is a summary of certain provisions affecting, and differences
between, the rights of holders of TeleCable Common Stock, and those of holders
of TCI Class A Common Stock. The following summary is qualified in its entirety
by reference to the VSCA and the Delaware General Corporation Law (the "DGCL")
and the complete text of the TCI Charter, the TCI Bylaws, the TeleCable Charter
and the TeleCable Bylaws. See "AVAILABLE INFORMATION."
AUTHORIZED CAPITAL STOCK
TeleCable. TeleCable's authorized capitalization consists of a total of
5,225,000 shares of common stock, 225,000 of which are Class A Common Stock and
5,000,000 of which are Class B Common Stock.
34
<PAGE>
TCI. TCI's authorized capitalization consists of 1,262,375,096 shares,
divided into the following classes: 1,100,000,000 shares of TCI Class A Common
Stock; 150,000,000 shares of TCI Class B Common Stock; 700,000 shares of TCI
Class A Preferred Stock; 1,675,096 shares of TCI Class B Preferred Stock; and
10,000,000 shares of TCI Series Preferred Stock, of which 70,559 have been
designated TCI Series C Preferred Stock and 1,000,000 will be designated TCI
Series D Preferred Stock upon consummation of the Merger.
VOTING
TeleCable. The holders of Class A Common Stock have the full and exclusive
right and power to vote for the election of directors and for all other
purposes, except as otherwise required by the VSCA. Each share of Class A
Common Stock entitles the holder thereof to one vote on each matter for which a
vote is required or requested. Except as otherwise required by Virginia law,
the holders of Class B Common Stock have no voting rights. The TeleCable Bylaws
provide that, except as otherwise required by the VSCA, a majority of the
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of stockholders. If a quorum is present at a stockholder
meeting, the affirmative vote of a majority of the shares represented at such
meeting, unless otherwise required by the VSCA, shall be the act of the
shareholders.
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. Each share of TCI
Class A Preferred Stock and TCI Class B Preferred Stock entitles the holder to
one vote with respect to the election of directors, voting together as a single
class with the TCI Common Stock. (However, under Section 160 of the DGCL, a
majority-owned subsidiary of TCI will not be entitled to be voted in any
election of directors.) Each share of TCI Series C Preferred Stock entitles the
holder to one vote for each share of TCI Class A Common Stock into which such
shares of TCI Series C Preferred Stock are convertible for such purpose, voting
together as a single class with the TCI Common Stock, with respect to each
matter submitted to a vote of the holders of TCI Common Stock. The holders of
TCI Class A Preferred Stock, TCI Class B Preferred Stock and TCI Series C
Preferred Stock have no other voting rights except as required by the DGCL. The
TCI Bylaws provide that, except as otherwise required by the DGCL or the terms
of any class or series of TCI 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 capital stock entitled to vote at a meeting of
stockholders is necessary to constitute a quorum at such meeting.
SPECIAL MEETING OF STOCKHOLDERS
TeleCable. The TeleCable Bylaws provide that a special meeting of
stockholders may be called at any time, for any purpose, by the TeleCable
Board, the Chairman of the TeleCable Board or the President, or by holders of
not less than ten percent of the shares entitled to vote at such meeting.
TCI. The TCI Charter and TCI 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 preferred stock, upon the call of the Secretary of
TCI (a) upon the written request of the holders of not less than 66 2/3% of the
total voting power of the TCI Common Stock and any class or series of TCI
preferred stock entitled to vote with the TCI Common Stock generally on matters
submitted to stockholders for a vote ("TCI Voting Stock") or (ii) at the
request of not less than 75% of the members of the TCI Board.
DIRECTORS
The TeleCable Bylaws provide that the TeleCable Board shall consist of eight
directors. The TCI 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 TCI Board. The TCI
Board has fixed the number of directors at eight. The holders of TCI Common
Stock, TCI Class A Preferred Stock, TCI Class B Preferred Stock and
35
<PAGE>
TCI Series C Preferred Stock, voting together as a single class, will vote in
elections for directors. Stockholders of TCI do not have cumulative voting
rights.
REMOVAL OF DIRECTORS
TeleCable. The TeleCable Bylaws provide that at a stockholder meeting
expressly called for the purpose of removing a director or directors, any
director may be so removed, with or without cause, by the vote of the
stockholders holding a majority of the shares entitled to vote at an election
of directors. However, no director may be removed if a sufficient number of
shares are cast against his or her removal which, if cumulatively voted for him
or her at an election of the full TeleCable Board, would be sufficient to elect
such director.
TCI. The TCI Charter provides that, subject to the rights of the holders of
any class or series of TCI 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 Voting Stock, voting together as a single class. The TCI 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 TCI 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 Board (other
than such director) to be in derogation of such director's duties.
VACANCIES ON THE BOARD OF DIRECTORS
TeleCable. The TeleCable Bylaws provide that any vacancy occurring on the
TeleCable Board, including a vacancy resulting from an increase by not more
than two in the number of directors, may be filled by an affirmative vote of
the majority of the remaining directors.
TCI. The TCI Charter provides that, subject to the rights, if any, of any
shares of preferred stock of TCI, 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
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 Charter and TCI Bylaws each provide that any directors chosen to fill a
vacancy on the TCI 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
TeleCable. Article 12 and Article 13 of the VSCA establish the voting and
TeleCable Board approval requirements relating to certain mergers,
consolidations, sales of assets and other business combinations. The TeleCable
Charter and TeleCable Bylaws do not impose any restrictions that exceed those
established by the VSCA.
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 at least 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 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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<PAGE>
AMENDMENTS TO CERTIFICATE OR ARTICLES OF INCORPORATION
TeleCable. Amendments to the TeleCable Charter are governed by Article 11 of
the VSCA. Article 11 provides that a corporation's board may adopt certain
amendments without shareholder action and provides that certain amendments must
be approved by the shareholders entitled to vote.
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.
AMENDMENTS TO BYLAWS
TeleCable. The TeleCable Bylaws provide that, except as otherwise provided in
the VSCA, the Bylaws may be altered, amended, repealed or created by the
TeleCable Board or by vote of the holders of TeleCable Class A Common Stock. If
the Bylaws are established pursuant to a vote of the holders of TeleCable Class
A Common Stock, such holders may prescribe that any or all of the TeleCable
Bylaws may not be altered, amended or repealed by the TeleCable Board.
TCI. The TCI Charter and TCI Bylaw require (a) the affirmative vote of 66
2/3% of the total voting power of the outstanding TCI Voting Stock, voting
together as a single class, or (b) the affirmative vote of at least 75% of the
members of the TCI Board, to approve the adoption, amendment or repeal of any
provisions of the TCI Bylaws.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
TeleCable. Limitations on liability and indemnification of corporate officers
and directors are governed, respectively, by Articles 9 and 10 of the VSCA. The
TeleCable Bylaws provide for liability of any director or officer arising out
of any single transaction, occurrence or course of conduct to be limited to a
nominal amount, and for indemnification of directors and officers to the
fullest extent permitted by the VSCA for liabilities and expenses incurred by
them in legal proceedings arising out of their service as directors and
officers.
TCI. Under Delaware law, a corporation may include in its certificate of
incorporation a provision that would, subject to the limitations described
below, eliminate or limit the personal liability of directors' to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision may not eliminate or limit the
liability of director (i) for any breach of a director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
there which involve intentional misconduct or no violation of law, or (iii)
resulting in the receipt by such person of an improper personal benefit. The
TCI Charter contains a provision which limits a director's liability to the
full extent permitted by Delaware law, as discussed above.
ANTI-TAKEOVER STATUTES
TeleCable. Virginia has two anti-takeover statutes in force, the Control
Share Acquisitions Statute and the Affiliated Transaction Statute. Neither of
these statutes is applicable to a corporation that, like TeleCable, has fewer
than 300 stockholders.
TCI. 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
37
<PAGE>
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 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 Charter does not contain any provision "opting out" of the
application of DGCL Section 203 and TCI 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 and any of their
respective "interested stockholders."
PREFERRED STOCK
TeleCable does not have any outstanding preferred stock. For a description of
the TCI Series D Preferred Stock, see "DESCRIPTION OF TCI CAPITAL STOCK--TCI
Series D Preferred Stock".
APPRAISAL RIGHTS
Holders of TeleCable Common Stock who wish to object to the Merger and
exercise dissenters' rights must comply with the provisions of Article 15 of
the VSCA, a copy of which is attached as Appendix III. To exercise such rights,
a holder of TeleCable Common Stock (i) must, prior to the vote taking place,
deliver to the Surviving Corporation, at the address shown on the accompanying
Notice of Special Meeting, a written notice of intent to demand payment for
such holder's TeleCable Common Stock pursuant to Article 15 if the Merger is
effectuated and (ii) must not vote his or her shares in favor of the Merger.
The demand notice should specify the holder's name and mailing address, the
number of shares of TeleCable Common Stock owned and that the holder is
demanding dissenters' rights. A VOTE AGAINST THE MERGER WILL NOT IN ITSELF
CONSTITUTE SUCH WRITTEN NOTICE AND A FAILURE TO VOTE WILL NOT CONSTITUTE A
TIMELY WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT.
A record holder of TeleCable Common Stock may assert dissenters' rights as to
fewer than all of the shares registered in such holder's name only if the
holder dissents with respect to all shares beneficially owned
38
<PAGE>
by any one person and notifies TeleCable in writing of the name and address of
each person on whose behalf the holder is asserting dissenter's rights. The
rights of a partial dissenter will be determined as if the shares as to which
such holder is dissenting and such holder's other shares were registered in the
names of different shareholders. A beneficial owner of TeleCable Common Stock
may assert dissenters' rights as to shares held on such beneficial owner's
behalf only if: (i) such beneficial owner submits to TeleCable the record
holder's written consent to the dissent not later than the time the beneficial
owner asserts dissenters' rights; and (ii) the beneficial owner does so with
respect to all shares of which such beneficial owner is a beneficial owner or
over which the beneficial owner has power to direct the vote.
Within ten days after the Effective Date of the Merger, the Surviving
Corporation is required to deliver a dissenters' notice in writing to each
holder of TeleCable Common Stock who has filed such written notice of intent to
demand payment for his or her shares and who has not voted such shares in favor
of the Merger that (i) states where the payment demand shall be sent and where
and when certificates shall be deposited and includes the information set forth
in Article 15 of the VSCA; (ii) supplies a form for demanding payment; (iii)
sets a date by which the Surviving Corporation must receive the payment demand,
which date may not be fewer than thirty (30) nor more than sixty (60) days
after the date of delivery of the dissenters' notice; and (iv) is accompanied
by a copy of Article 15 of the VSCA. A dissenting holder must (i) deposit his
or her certificates in accordance with the terms of the notice and (ii) send in
the form for demanding payment within the time period specified by the
dissenters' notice, or such dissenting holder will not be entitled to payment
for his or her shares under Article 15 of the VSCA.
Within thirty (30) days after receipt of a payment demand, the Surviving
Corporation must pay a dissenting holder of TeleCable shares the amount the
Surviving Corporation estimates to be the fair value of his shares, plus
accrued interest. The payment must be accompanied by financial statements of
TeleCable, an explanation of how the Surviving Corporation estimated the fair
value of the shares and calculated the interest, a statement of the holder's
right to demand payment as provided in Article 15 of the VSCA (as described
below) if dissatisfied with the offer of payment and a copy of Article 15. The
Surviving Corporation may elect to withhold payment from a dissenting holder of
TeleCable Common Stock who was not the beneficial owner of his or her shares on
August 8, 1994, the date of the first publication in the news media of the
terms of the Merger. To the extent the Surviving Corporation withholds payment,
it must estimate the fair value of the TeleCable shares, plus accrued interest,
and must offer to pay this amount to each dissenting holder of TeleCable shares
who agrees to accept such amount in the full satisfaction of his demand.
Within thirty (30) days after the date the Surviving Corporation makes or
offers to make payment to a dissenting holder of TeleCable Common Stock, such
holder may notify the Surviving Corporation in writing of his or her (i) own
estimate of the fair value of his or her TeleCable Common Stock and interest
due, and demand payment of such estimate (less any payment made by the
Surviving Corporation) or (ii) rejection of the Surviving Corporation's offer
and demand payment of the fair value of the Surviving Corporation's shares and
interest due, if the dissenting shareholder believes that the amount paid or
offered by the Surviving Corporation is less than the fair value of his shares
of TeleCable Common Stock or that the interest due is incorrectly calculated.
Such holder waives his or her right to demand payment under Article 15 of the
VSCA if he or she does not notify the Surviving Corporation in writing as set
forth in (i) or (ii) above within 30 days after the Surviving Corporation makes
or offers payment for his or her shares of TeleCable Common Stock.
If a demand for payment under the preceding paragraph remains unsettled,
within sixty (60) days after receiving a payment demand from a dissenting
holder of TeleCable Common Stock, the Surviving Corporation must either
commence a proceeding in the Circuit Court of the City of Norfolk to determine
the fair value of such holder's shares and accrue interest, or it must pay each
dissenting shareholder whose demand remains unsettled the amount demanded.
The statements made in this summary are qualified in their entirety by
reference to Article 15 of the VSCA. The provisions of Article 15 of the VSCA
are technical in nature and complex. IT IS SUGGESTED
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<PAGE>
THAT ANY HOLDER OF TELECABLE SHARES WHO DESIRES TO AVAIL HIMSELF OR HERSELF OF
HIS OR HER RIGHT TO DISSENT CONSULT HIS OR HER COUNSEL BECAUSE FAILURE TO
COMPLY STRICTLY WITH THE PROVISIONS OF ARTICLE 15 MAY DEFEAT DISSENTERS'
RIGHTS.
MANAGEMENT OF TCI
DIRECTORS
The TCI Bylaws provide for a Board of Directors consisting of not less than
three members, with the exact number to be determined by the TCI Board from
time to time.
Members of the TCI Board are elected to staggered three-year terms, with
approximately one-third elected annually. Information regarding each person who
is a director of TCI is set forth below.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE OTHER PUBLIC
NAME AGE DURING PAST FIVE YEARS DIRECTORSHIPS HELD
---- --- ---------------------- ------------------
<S> <C> <C> <C>
Bob Magness............. 70 Chairman of the Board of TCI; Republic Pictures Corporation;
Chairman of the Board of TCIC Turner Broadcasting System, Inc.
since 1973 and Chairman of the
Board of a number of TCI's sub-
sidiaries
John C. Malone.......... 53 Chief Executive Officer and Turner Broadcasting System,
President of TCI since January Inc.; BET Holdings, Inc.; The
27, 1994; Chief Executive Offi- Bank of New York
cer of TCIC since March 1992 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 General Communication, Inc.
Treasurer of TCI since January
27, 1994; Executive Vice Presi-
dent of TCIC since December of
1991; was previously Senior Vice
President of TCIC since 1982 and
Treasurer since 1970; Vice Pres-
ident, Treasurer and a director
of most of TCI's subsidiaries
John W. Gallivan........ 79 Chairman of the Board of Kearns- Kearns-Tribune Corporation; Sil-
Tribune Corporation, a newspaper ver King Mining Company
publishing concern
Kim Magness............. 42 Director of TCIC from 1985 to
1994; Chairman and President of
a company developing liners for
irrigation canals; manages nu-
merous personal and business in-
vestments
Robert A. Naify......... 72 President of The Todd-AO Corpo- The Todd-AO Corporation
ration
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE OTHER PUBLIC
NAME AGE DURING PAST FIVE YEARS DIRECTORSHIPS HELD
---- --- ---------------------- ------------------
<S> <C> <C> <C>
Jerome H. Kern.......... 57 Senior partner of Baker & Botts,
L.L.P., a law firm located in
New York, New York, since Sep-
tember 1992. Mr. Kern was a se-
nior 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 Decem-
ber 31, 1991
Tony Coelho............. 51 President and Chief Executive Circus Circus Enterprises, Inc.;
Officer of Wertheim Schroder In- ICF Kaiser International, Inc.;
vestment Services; Managing Di- Service Corporation Internation-
rector of Wertheim Schroder & al; Specialty Retail Group,
Co., Incorporated; was formerly Inc.; Tanknology Environmental,
U.S. Representative from Cali- Inc.
fornia from January 1979 through
June 1989 and the Majority Whip
of the U.S. House of Representa-
tives from December 1986 through
June 1989
R.E. Turner............. 55 Chairman of the Board and Presi- Turner Broadcasting System, Inc.
dent of Turner Broadcasting Sys-
tem, 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's directors are compensated for all services (including any amounts
payable for committee participation or special assignments) as a director as
follows: each director receives a fee of $500 plus travel expenses for
attendance at each meeting of the TCI Board and each director who is not a
full-time employee of TCI receives additional compensation of $30,000 per year.
TCI maintains a deferred compensation plan for all non-employee directors.
Each director may 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 Board for each calendar year for which
such deferral is elected. A director may elect to defer compensation payable
for a single calendar year or period of years. Any compensation deferred is
credited to the director's account on the last day of the quarter for which
compensation has accrued. Such deferred compensation bears 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 may 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.
Each director may elect payment in a lump sum, three substantially equal
consecutive annual installments or five substantially equal consecutive annual
installments. If 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, will be paid to
the director's designated beneficiary.
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<PAGE>
INDEMNIFICATION
TCI has entered into indemnification agreements with each person who is a
director of TCI. The indemnification agreements generally provide (i) for the
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 or is or was serving at TCI'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 Board or appointee(s) of the TCI Board 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 if the Reviewing Party determines that
the indemnitee is not entitled to such indemnification under applicable law. In
addition, the indemnification agreements 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 provide that after there has been a "change in
control" in TCI (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 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.
The indemnification agreements impose upon TCI 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 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
director or officer if there is such a policy.
EXECUTIVE OFFICERS
Executive officers of TCI are appointed by and serve at the discretion of the
TCI Board. Information regarding each person who is an executive officer of
TCI, 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 since January 27, 1994. Presi-
dent and Chief Executive Officer of Liberty since June of
1990. President of Cable Value Network from 1986 to 1988, dur-
ing which time he was a consultant to TCIC. Senior Vice Presi-
dent of TCIC from 1988 to March of 1991
Stephen M. Brett........ 53 Executive Vice President and Secretary of TCI since January
27, 1994. Senior Vice President and General Counsel of TCIC
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 predeces-
sor, United Artists Communications, Inc. ("UACI")
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AGE DURING PAST FIVE YEARS
---- --- ----------------------
<S> <C> <C>
Brendan R. Clouston..... 41 Executive Vice President of TCI since January 27, 1994. Execu-
tive Vice President and Chief Operating Officer of TCIC since
March of 1992. Previously Senior Vice President of TCIC 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 since January 27, 1994. Senior
Vice President of TCIC since 1991. From 1972 to the present,
held various executive positions with WestMarc Communications,
Inc. ("WestMarc"), and is currently President and Chief Execu-
tive Officer of WestMarc, a wholly-owned subsidiary of TCIC
J. C. Sparkman.......... 62 Executive Vice President of TCI since January 27, 1994. Execu-
tive Vice President of TCIC since 1987
Fred A. Vierra.......... 63 Executive Vice President of TCI since January 27, 1994. Execu-
tive Vice President of TCIC since December of 1991. Was Presi-
dent and Chief Operating Officer of UAE from May of 1989
through December of 1991; President and Chief Operating Offi-
cer of United Cable Television Corporation from 1982 to May of
1989
</TABLE>
EXECUTIVE CASH COMPENSATION
The following table sets forth on an annualized basis the salary and deferred
compensation being paid for the period beginning August 4, 1994 (the effective
date of the TCI/Liberty Combination) and ending December 31, 1994, to the five
persons who are expected to be the most highly compensated executive officers
of TCI 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 R. Clouston.......... Executive Vice President $500,000
</TABLE>
TCI STOCK INCENTIVE PLAN
The executive officers are eligible to receive awards under the Tele-
Communications, Inc. 1994 Stock Incentive Plan (the "TCI Stock Incentive
Plan"). The TCI Stock Incentive Plan provides for awards to be made in respect
of a maximum of 16 million shares of TCI 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 Class A Common Stock or issued
shares reacquired by TCI and held in treasury, or both. Shares of TCI 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 Stock Incentive Plan.
43
<PAGE>
The TCI Stock Incentive Plan is administered by the Compensation Committee of
the TCI Board, or such other committee as the TCI 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 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 Stock
Incentive Plan or any other plan of TCI 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 Stock Incentive Plan for
purposes of Rule 16b-3 under the Exchange Act. The members of the Compensation
Committee of TCI are Mr. Gallivan and Mr. Naify.
The Committee has broad discretion in administering the TCI 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 Stock Incentive Plan and each agreement
relating to Awards granted under the TCI Stock Incentive Plan. The
determinations of the Committee are final and binding upon all participants.
Pursuant to the TCI/Liberty Combination, each outstanding stock option and
stock appreciation right outstanding under TCIC's and Liberty's executive
compensation plans, whether vested or unvested, was assumed by TCI and, upon
consummation of the TCI/Liberty Combination, TCI granted Options and SARs
pursuant to the TCI Stock Incentive Plan that are substantially the same as the
stock options and stock appreciation rights outstanding under the TCIC and
Liberty executive compensation plans at the time of the TCI/Liberty
Combination.
EMPLOYMENT ARRANGEMENTS
Pursuant to the TCI/Liberty Combination, TCI assumed the obligations of (i)
TCIC pursuant to employment agreements entered into by TCIC with each of
Messrs. Magness, Malone, Sparkman and Vierra and (ii) Liberty pursuant to the
employment agreement entered into by Liberty with Dr. Malone. Information
concerning the TCIC employment agreements assumed by TCI is available in the
TCIC Form 10-K, which is incorporated herein by reference. See "AVAILABLE
INFORMATION."
The employment agreement between Liberty and Dr. Malone that has been assumed
by TCI provides for a term that initially expires in March 1996 such term to be
extended for consecutive one year periods unless TCI 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 TCI (a "Termination Right Event"). Dr. Malone waived
his right to terminate the employment agreement with respect to a change of
control that may have been effected by the TCI/Liberty Combination.
Pursuant to the employment agreement, Dr. Malone was granted options, which
after giving effect to certain stock splits and recapitalizations effected by
Liberty, provided for the purchase of 16,000,000 shares of Liberty Class B
Common Stock and 200,000 shares of Liberty Class E Preferred Stock, which were
exercised in full by Dr. Malone in October 1991. The shares acquired by Dr.
Malone upon exercise of his options (which were converted into shares of TCI
Class B Common Stock and TCI Class B Preferred Stock, respectively, pursuant to
the TCI/Liberty Combination), together with all dividends and distributions
thereon and, in the case of any reclassification, recapitalization or other
change in the TCI 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 TCI, at the price
paid therefor by Dr. Malone, plus interest, in the event Dr. Malone's
employment with TCI is terminated for cause (as defined in the employment
agreement) or Dr. Malone voluntarily terminates his employment with TCI other
than due to a Termination Right Event. The repurchase right terminates (i) if
Dr. Malone's employment is terminated other than for cause or if TCI 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
waived with
44
<PAGE>
respect to the TCI/Liberty Combination). 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. Following the TCI/Liberty Combination,
the repurchase right initially applied to 6,240,000 shares of TCI Class B
Common Stock and 80,000 shares of TCI Class B Preferred Stock (the "TCI
Restricted Voting Shares").
Dr. Malone may not transfer, pledge or otherwise dispose of (except to TCI)
any Share Units during the period they are subject to TCI'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 TCI's repurchase right in the same proportion as all other votes of TCI's
stockholders are cast with respect to such matter.
CERTAIN TRANSACTIONS WITH MANAGEMENT
Certain transactions involving TCI's predecessor, TCIC and its officers,
directors or affiliates are described in the TCIC Form 10-K, which is
incorporated herein by reference. See "AVAILABLE INFORMATION."
OWNERSHIP OF TCI AND TELECABLE STOCK
SECURITY OWNERSHIP OF TCI
The following table sets forth, as of August 31, 1994, the ownership of TCI
Common Stock and TCI Class B Preferred Stock by (i) each person known to TCI to
beneficially own more than 5% of either class of the outstanding shares of TCI
Common Stock, (ii) each person who is a director or is expected to be one of
the five most highly compensated executive officers of TCI (based on
compensation paid in calendar year 1993), including the chief executive
officer, (iii) all of the directors and executive officers of TCI, as a group,
and (iv) the pro forma number of shares and ownership percentage of TCI Common
Stock and TCI Class B Preferred Stock to be owned by such persons and groups of
persons immediately following the Effective Date, assuming such persons do not
acquire, or dispose of, any shares of TCI Common Stock or TCI Class B Preferred
Stock during the period commencing August 31, 1994 and ending on the Effective
Date. Shares issuable upon exercise or conversion of convertible securities are
deemed to be outstanding for the purpose of computing the percentage ownership
of persons beneficially owning such convertible securities, but have not been
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person. Voting power in the table is computed with respect to a
general election of directors and therefore the TCI Class B Preferred Stock 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 Employee Stock Purchase Plan ("ESPP") and held by the
trustee of UAE's Employee Stock Ownership Plan for their respective accounts.
So far as is known to TCI, 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 the ESPP for the benefit of such persons, which shares are voted
at the discretion of the trustee.
45
<PAGE>
<TABLE>
<CAPTION>
POST-MERGER
TCI STOCK TCI STOCK
------------------------------ -----------------
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF PERCENT OF VOTING
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS(1) CLASS(2) POWER
-------------- ------------------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Class A John C. Malone 1,168,246(3) * * 19.20
Class B 5619 DTC Parkway 26,559,000(4)(5)(6) 30.84 30.84
TCI Class B Pref. Englewood, Colorado 320,900(4)(6) 19.81 19.81
Class A Bob Magness 4,626,938(7)(8)(9) * * 27.04
Class B 5619 DTC Parkway 37,132,076(5)(7)(9) 43.12 43.12
TCI Class B Pref. Englewood, Colorado 125,000 7.72 7.72
Class A Kearns-Tribune Corporation 8,792,514(9) 1.81 1.67 7.19
Class B 400 Tribune Building 9,112,500(5)(9) 10.58 10.58
TCI Class B Pref. Salt Lake City, Utah 67,536 4.17 4.17
Class A The Capital Group, Inc. 43,005,259(10) 8.87 8.16 3.09
Class B 333 South Hope Street -- -- --
TCI Class B Pref. Los Angeles, California -- -- --
Class A Associated Communications 12,479,976(11) 2.57 2.37 5.99
Class B Corporation 7,071,852(11) 8.21 8.21
TCI Class B Pref 200 Gateway Towers 41,598 2.57 2.57
Pittsburgh, Pennsylvania
Class A The Equitable Life Assurance 26,804,378(12) 5.53 5.09 1.93
Class B Society of the United States -- -- --
TCI Class B Pref. 787 Seventh Avenue -- -- --
New York, New York
Class A Donne F. Fisher 348,575 * * *
Class B 249,072 * *
TCI Class B Pref. 3,464 * *
Class A John W. Gallivan 2,124(13) * * *
Class B -- -- --
TCI Class B Pref. 14 * *
Class A Jerome H. Kern 2,000,000(14) * * *
Class B -- -- --
TCI Class B Pref. -- -- --
Class A Kim Magness -- -- -- *
Class B 518,000 * *
TCI Class B Pref. -- -- --
Class A Robert A. Naify 23,638,860(15) 4.66 4.30 1.67
Class B -- -- --
TCI Class B Pref. 1,000 * *
Class A Tony Coelho 800 * * *
Class B -- -- --
TCI Class B -- -- --
Class A J.C. Sparkman 247,131(16) * * *
Class B -- -- --
TCI Class B Pref. -- -- --
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
POST-MERGER
TCI STOCK TCI STOCK
--------------------------------- -----------------
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF PERCENT OF VOTING
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS(1) CLASS(2) POWER
-------------- ------------------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Class A Fred A. Vierra 562,548(17) * * *
Class B -- -- --
TCI Class B Pref. 200 * *
Class A Brendan R. Clouston 1,008,737(18) * * *
Class B 230 * *
TCI Class B Pref. -- -- --
Class A R.E. Turner 60,000(19) * * *
Class B -- -- --
TCI Class B. Pref. -- -- --
Class A All executive officers 34,260,473(3)(7)(8) 6.67 6.17 47.89
and directors as a group (9)(13)(14)
(15)(16)(17)
(15 persons) (18)(19)(20)
Class B 64,459,008(4)(6)(7) 74.85 74.85
(9)
TCI Class B Pref. 451,952(4)(6) 27.90 27.90
</TABLE>
- --------
* Less than one percent.
(1) Based on [484,937,855] shares of TCI Class A Common Stock, [86,122,815]
shares of TCI Class B Common Stock and 1,620,026 shares of TCI Class B
Preferred Stock outstanding on August 31, 1994 (after elimination of
shares of TCI held by subsidiaries of TCI).
(2) Based on [526,937,855] shares of TCI Class A Common Stock, after giving
effect to the assumed issuance of an estimated 42,000,000 shares of TCI
Class A Common Stock in the Merger, [86,122,815] shares of TCI Class B
Common Stock and 1,620,026 shares of TCI Class B Preferred Stock
outstanding on August 31, 1994 (after elimination of shares of TCI held by
subsidiaries of TCI).
(3) 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.
(4) Includes 1,173,000 shares of TCI Class B Common Stock and 6,900 shares of
Class B Preferred Stock held by Dr. Malone's wife, Mrs. Leslie Malone, but
Dr. Malone has disclaimed any beneficial ownership of such shares.
(5) 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) The number of shares of TCI Class B Common Stock and TCI Class B Preferred
Stock in the table includes 6,240,000 and 80,000 TCI Restricted Voting
Shares, respectively, that are subject to repurchase by TCI under certain
circumstances. Until they cease to be subject to TCI's repurchase right,
such shares may not be transferred and, with respect to any matter
submitted to a vote of the stockholders of TCI, 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 Class B Common
Stock in the table which are not subject to such repurchase rights and
voting requirements represent 14.71% of the total voting power of the
shares of TCI Common Stock and TCI Class B Preferred Stock outstanding
(excluding such 6,240,000 and 80,000 TCI Restricted Voting Shares from
such total voting power.)
(7) 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.
47
<PAGE>
(8) 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.
(9) 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
shares of TCI Class A Common Stock for each share of TCI Class B Common
Stock held by the other and purchase any remaining shares of TCI Class B
Common Stock at the offered price. There are certain exceptions, including
transfers to specified persons or entities, certain public sales of TCI
Class A Common Stock and exchanges of TCI Class A Common Stock for TCI
Class B Common Stock.
(10) The number of shares in the table is based upon separate Schedules 13G,
dated February 11, 1994, filed by The Capital Group, Inc. with respect to
TCIC and Liberty. Certain operating subsidiaries of The Capital Group,
Inc., exercised investment discretion over various institutional accounts,
which held as of December 31, 1993, 43,005,259 shares of TCI Class A
Common Stock (after giving effect to the TCI/Liberty Combination). Capital
Guardian Trust Company, a bank, and one of such operating companies,
exercised investment discretion over 7,110,772 of the above 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 35,560,665, 150,675
and 183,147 shares, respectively, of the above shares.
(11) The number of shares in the table is based upon a Schedule 13G, dated
January 6, 1992, filed by Associated Communications Corporation
("Associated") with respect to Liberty, which Schedule 13G reflects that
Associated has sole dispositive power and sole voting power with respect
to all of such shares.
(12) 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 with respect to TCIC, 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); and a Form
13F for the quarter ended March 31, 1994, filed by The Equitable Companies
Incorporated with respect to Liberty, which Form 13F reflects that The
Equitable Life Assurance Society of the United States has sole voting
power over 2,387,658 shares of TCI Class A Common Stock (after giving
effect to the TCI/Liberty Combination), shared voting power of over 7,410
shares of TCI Class A Common Stock (after giving effect to the TCI/Liberty
Combination) and no voting power with respect to the remaining shares.
(13) Includes 1,524 shares of TCI Class A Common Stock held by Mr. Gallivan's
wife.
(14) 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.
(15) 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 TCIC 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.
(16) 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.
(17) 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
48
<PAGE>
November of 1993 to acquire 100,000 shares of TCI Class A Common Stock.
None of these options are exercisable until October 12, 1994. Includes
20,670 shares of Class A Common Stock 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.
(18) 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 are exercisable until October 12, 1994.
(19) Includes 50,000 shares of TCI Class A Common Stock held in trust of which
Mr. Turner is the trustee and beneficiary. Includes 10,000 shares of TCI
Class A Common Stock held in trust of which Mr. Turner's wife is trustee.
(20) An executive officer of TCI (one 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
(seven 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. Options to acquire 400,000 of such shares are
currently exercisable. 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.
SECURITY OWNERSHIP OF TELECABLE
The following table sets forth as of August 31, 1994, the ownership of
TeleCable Class A Common Stock by (i) each person known to TeleCable to own
more than 5% of either class of TeleCable Common Stock, (ii) each director and
each of the five most highly compensated executive officers of TeleCable,
including the chief executive officer, (iii) all executive officers and
directors of TeleCable as a group and (iv) the pro forma number and ownership
percentage of shares of each class of TCI Class A Common Stock that will be
owned by such persons immediately after the Effective Date, assuming such
persons do not acquire, or dispose of, any shares of TeleCable Common Stock
during the period commencing August 31, 1994 and ending on the Effective Date.
Shares issuable upon exercise or conversion of convertible securities,
including the aggregate 1,000,000 shares of TCI Series D Preferred Stock, are
deemed to be outstanding for the purpose of computing the percentage ownership
of persons beneficially owning such convertible securities, but have not been
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person. Voting power in the table is computed with respect to the
vote required to approve the Merger and therefore the TeleCable Class B Common
Stock is included. So far as is known to TeleCable, 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.
49
<PAGE>
<TABLE>
<CAPTION>
POST-MERGER
TELECABLE TCI CLASS A
COMMON STOCK COMMON STOCK
--------------------------------- ----------------------------------------
AMOUNT AND
NATURE OF AMOUNT AND
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF NATURE OF BENEFICIAL
CLASS BENEFICIAL OWNER OWNERSHIP CLASS(1) OWNERSHIP(6) PERCENT(11)
- -------- ------------------- ---------- ---------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
Class A Frank Batten 99,180(2) 85.1 23,207,404(7) 4.4
Class B 150 West Brambleton Ave. 1,193,712(2) 42.9
Norfolk, Virginia 23510
Chairman of the Board
Class A Fay M. Slover Trust 40,920 35.1 13,254,280 2.5
Class B NationsBank of North Carolina, N.A. 697,480 25.1
Trust Division
NationsBank Plaza T11-5
Charlotte, North Carolina 28255
Class A NationsBank of North Carolina, N.A. 9,825(3) 8.4 8,510,090(8) 1.6
Class B Trust Division 464,275(3) 16.7
NationsBank Plaza T11-5
Charlotte, North Carolina 28255
Class A William S. Glennan Trust 9,825 8.4 3,527,170 *
Class B NationsBank of North Carolina, N.A. 186,675 6.7
Trust Division
NationsBank Plaza T11-5
Charlotte, North Carolina 28255
Class A Frank Batten, Jr. -- -- 3,145,622(9) *
Class B Director 175,216(4) 6.3
Class A Richard F. Barry, III -- -- 897,500 *
Class B Director 50,000 1.8
Class A Gary L. Christensen -- -- 89,750 *
Class B 5,000 *
Class A Frank A. Daniels, Jr. -- -- 89,750 *
Class B Director 5,000 *
Class A J. William Diederich -- -- 556,450 *
Class B Director 31,000 1.1
Class A Gordon R. Herring -- -- 748,510 *
Class B Executive Vice President 41,700 1.5
Class A George M. Kaufman 2,250(5) * 843,650(10) *
Class B Director 44,750(5) 1.6
Class A James S. Key -- -- 497,210 *
Class B Executive Vice President 27,700 *
Class A Alfred F. Ritter, Jr. -- -- 577,990 *
Class B Executive Vice President/ 32,200 1.2
Finance and Treasurer
Class A Richard D. Roberts -- -- 1,075,200 *
Class B Director, President and Chief 59,900 2.2
Executive Officer
Class A Nicholas E. Worth -- -- 345,535 *
Class B Executive Vice President/ 19,250 *
Engineering
Class A All executive officers and 101,430(2)(3)(4)(5) 87.0 33,020,067(7)(8)(9)(10) 6.3
Class B directors as a group 1,738,128(2)(3)(4)(5) 62.5
(24 persons)
</TABLE>
- --------
*Less than one percent
50
<PAGE>
(1) Based on 116,555 shares of TeleCable Class A Common Stock and 2,779,801
shares of TeleCable Class B Common Stock (after elimination of shares of
TeleCable Common Stock held by subsidiaries of TeleCable) outstanding on
August 31, 1994.
(2) Includes (i) 40,920 shares of TeleCable Class A Common Stock and 697,480
shares of Class B Common Stock held by the Fay M. Slover Trust ("Slover
Trust") of which Mr. Batten is the beneficial owner of such trust and (ii)
20,000 shares of TCI Class A Common Stock held by the Frank Batten 1987
Marital Trust ("Marital Trust") of which Mr. Batten's wife is the
beneficiary and Mr. Batten's son is the trustee and as to which Mr. Batten
disclaims beneficial ownership.
(3) Includes (i) 9,825 shares of TeleCable Class A Common Stock and 186,675
shares of TeleCable Class B Common Stock held by the William S. Glennan
Trust ("Glennan Trust") of which NationsBank is the beneficial owner as
trustee of such trust, (ii) 138,800 shares of TeleCable Class B Common
Stock held by the Mary Elizabeth Batten Trust, of which NationsBank is the
beneficial owner as trustee of such trust and of which Mr. Batten's
daughter is the beneficiary and (iii) 138,800 shares of TeleCable Class B
Common Stock held by the Dorothy Neal Batten Trust, of which NationsBank
is the beneficial owner as trustee of such trust and of which Mr. Batten's
daughter is the beneficiary.
(4) Includes 20,000 shares of TeleCable Class B Common Stock held by the
Marital Trust of which Mr. Batten, Jr. is the beneficial owner as trustee
of such trust.
(5) Includes 2,250 shares of TeleCable Class A Common Stock and 42,750 shares
of TeleCable Class B Common Stock held by the Fannie M. Broh Trust (the
"Broh Trust") of which Mr. Kaufman is the beneficial owner as co-trustee
of such trust and as to which Mr. Kaufman shares dispositive power and
voting power.
(6) Based on [526,937,855] shares of TCI Class A Common Stock, after giving
effect to the assumed issuance of an aggregate of 42,000,000 shares of TCI
Class A Common Stock in connection with the Merger. Amounts indicated are
rounded down to the nearest whole share. See "THE MERGER AGREEMENT--
Consideration to be Received in the Merger."
(7) Includes (i) 10,706,800 shares of TCI Class A Common Stock and 2,547,480
shares of TCI Class A Common Stock issuable upon conversion of 254,748
shares of TCI Series D Preferred Stock that will be held by the Slover
Trust, (ii) 210,000 shares of TCI Class A Common Stock and 69,000 shares
of TCI Class A Common Stock issuable upon conversion of 6,900 shares of
TCI Series D Preferred Stock that will be held by the Marital Trust and
(iii) 2,244,000 shares of TCI Class A Common Stock issuable upon
conversion of 224,400 shares of TCI Series D Preferred Stock that will be
held by such person. See Note (2).
(8) Includes (i) 2,849,250 shares of TCI Class A Common Stock and 677,920
shares of TCI Class A Common Stock issuable upon conversion of 67,792
shares of TCI Series D Preferred Stock that will be held by the Glennan
Trust , (ii) 2,012,600 shares of TCI Class A Common Stock and 478,860
shares of TCI Class A Common Stock issuable upon conversion of 47,886
shares of TCI Series D Preferred Stock that will be held by the Mary
Elizabeth Batten Trust, of which NationsBank is the beneficial owner as
trustee of such trust and of which Mr. Batten's daughter is the
beneficiary, and (iii) 2,012,600 shares of TCI Class A Common Stock and
478,860 shares of TCI Class A Common Stock issuable upon conversion of
47,886 shares of TCI Series D Preferred Stock that will be held by the
Dorothy Neal Batten Trust, of which NationsBank is the beneficial owner as
trustee of such trust and of which Mr. Batten's daughter is the
beneficiary. See Note (3).
(9) Includes (i) 290,000 shares of TCI Class A Common Stock and 69,000 shares
of TCI Class A Common Stock issuable upon conversion of 6,900 shares of
TCI Series D Preferred Stock that will be held by the Marital Trust and
(iii) 535,990 shares of TCI Class A Common Stock issuable upon conversion
of 53,599 shares of TCI Series D Preferred Stock that will be held by such
person. See Note (4).
(10) Includes (i) 652,500 shares of TCI Class A Common Stock and 155,250 shares
of TCI Class A Common Stock issuable upon conversion of 15,525 shares of
TCI Series D Preferred Stock that will be held by the Broh Trust, (ii)
6,900 shares of TCI Class A Common Stock issuable upon conversion of the
690 shares of TCI Series D Preferred Stock that will be held by such
person. See Note (5).
(11) Based on [526,937,855] shares of TCI Class A Common Stock and [86,122,815]
shares of TCI Class B Common Stock and 1,620,026 shares of TCI Class B
Preferred Stock outstanding on August 31, 1994 (after elimination of
shares of TCI held by subsidiaries of TCI). TCI Class A Common Stock has
one vote per share and TCI Class B Common Stock has ten votes per share.
Based on the percentage ownership of TCI Class A Common Stock and the
voting rights of the TCI Class B Common Stock, all persons or groups
listed in the table will hold less than one percent of the voting power of
TCI Voting Stock. See "DESCRIPTION OF TCI CAPITAL STOCK--TCI Common
Stock."
51
<PAGE>
LEGAL MATTERS
The validity of the TCI Common Stock and TCI Series D Preferred Stock to be
issued in connection with the Mergers will be passed upon by Sherman & Howard
L.L.C., 633 Seventeenth Street, Denver, Colorado. Certain members of Sherman &
Howard L.L.C. serve as Assistant Secretaries of TCI.
EXPERTS
The consolidated balance sheets of TCI Communications, Inc. (formerly 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, as amended of TCI Communications, Inc. 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 LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The reports of
KPMG Peat Marwick LLP refer to a change in the method of accounting for income
taxes in 1993.
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 TCI Communications, Inc.
(formerly, Tele-Communications, Inc.)) (Predecessor) for the period from
January 1, 1991 to March 31, 1991 (Predecessor Period), have been included in
the Form 8-K of TCI Communications, Inc. dated April 6, 1994, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP refers to a change in the
method of accounting for income taxes in 1993.
The consolidated balance sheets of TeleCable Corporation and subsidiaries as
of December 31, 1993 and 1992, and the related consolidated statements of
income, of changes in stockholders' equity and of cash flows for each of the
years in the three-year period ended December 31, 1993 appearing elsewhere in
this Proxy Statement/Prospectus have been included herein in reliance upon the
report dated February 4, 1994 of Price Waterhouse LLP, independent accountants,
appearing elsewhere in this Proxy Statement/Prospectus, given the authority of
said firm as experts in auditing and accounting.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
TELECABLE CORPORATION AND SUBSIDIARIES,
Six months ended June 30, 1994:
Condensed Consolidated Statement of Income, Six months ended June 30,
1994 and 1993 (unaudited).............................................. F-2
Condensed Consolidated Balance Sheet, June 30, 1994 and December 31,
1993 (unaudited)....................................................... F-4
Condensed Consolidated Statement of Stockholders' Deficit, Six months
ended June 30, 1994 (unaudited) ....................................... F-6
Condensed Consolidated Statement of Cash Flows, Six months ended June
30, 1994 and 1993 (unaudited).......................................... F-7
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-8
Years ended December 31, 1993, 1992 and 1991:
Report of Independent Accountants....................................... F-9
Consolidated Statement of Income and Retained Earnings, Years ended
December 31, 1993, 1992 and 1991....................................... F-10
Consolidated Balance Sheet, December 31, 1993 and 1992.................. F-11
Consolidated Statement of Cash Flows, Years ended December 31, 1993,
1992 and 1991.......................................................... F-12
Notes to Consolidated Financial Statements.............................. F-13
PRO FORMA FINANCIAL INFORMATION
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES:
Condensed Pro Forma Combined Balance Sheet, June 30, 1994 (unaudited)... F-20
Condensed Pro Forma Combined Statement of Operations, Six months ended
June 30, 1994 (unaudited) ............................................. F-21
Condensed Pro Forma Combined Statement of Operations, Year ended
December 31, 1993 (unaudited).......................................... F-22
Notes to Condensed Pro Forma Combined Financial Statements, June 30,
1994 (unaudited)....................................................... F-23
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES:
Condensed Pro Forma Balance Sheet, June 30, 1994 (unaudited)............ F-26
Condensed Pro Forma Statement of Operations, Six months ended June 30,
1994 (unaudited) ...................................................... F-27
Condensed Pro Forma Combined Statement of Operations, Year ended
December 31, 1993 (unaudited).......................................... F-28
Notes to Condensed Pro Forma Financial Statements, June 30, 1994
(unaudited)............................................................ F-29
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES:
Condensed Pro Forma Combined Balance Sheet, June 30, 1994 (unaudited)... F-33
Condensed Pro Forma Combined Statement of Operations, Six months ended
June 30, 1994 (unaudited) ............................................. F-34
Condensed Pro Forma Combined Statement of Operations, Year ended
December 31, 1993 (unaudited).......................................... F-35
Notes to Condensed Pro Forma Combined Financial Statements, June 30,
1994 (unaudited)....................................................... F-36
</TABLE>
F-1
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Operating revenues.................... $146,441 $142,320
Operating expenses.................... (82,100) (79,359)
Depreciation and
amortization......................... (22,801) (22,832)
-------- --------
Operating income.................... 41,540 40,129
Interest income....................... 326 298
Gain on sale of
investments.......................... 68 1,870
Interest expense...................... (11,429) (12,096)
Other expense, net.................... (222) (224)
Minority interest in
earnings of consolidated
subsidiaries......................... (174) (174)
-------- --------
Income before taxes................. 30,109 29,803
Income tax expense.................... (11,595) (11,217)
-------- --------
Net income.......................... $ 18,514 $ 18,586
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
--------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 3,991 $ 5,509
Trade and other receivables.............................. 12,148 10,766
Less--allowance for doubtful receivables............... 1,162 1,127
--------- ---------
10,986 9,639
--------- ---------
Inventories, net......................................... 985 887
Prepaid expenses......................................... 2,108 1,720
Income taxes receivable.................................. 652 --
Investments and other assets............................. 19,930 13,324
Property, plant and equipment--at cost:
Distribution plant and other equipment................. 550,710 512,610
Land, buildings, and improvement....................... 20,420 19,944
Vehicles............................................... 11,274 10,909
--------- ---------
582,404 543,463
Less--accumulated depreciation......................... 333,267 311,639
--------- ---------
249,137 231,824
--------- ---------
Cable television franchises.............................. 20,818 20,673
Less--accumulated amortization......................... 14,221 13,423
--------- ---------
6,597 7,250
--------- ---------
Purchased goodwill....................................... 19,235 19,235
Less--accumulated amortization......................... 6,806 6,576
--------- ---------
12,429 12,659
--------- ---------
Other intangibles........................................ 5,682 5,493
Less--accumulated amortization......................... 4,967 4,822
--------- ---------
715 671
--------- ---------
Total assets............................................. $ 307,530 $ 283,483
========= =========
</TABLE>
(continued)
F-4
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
--------- ------------
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Accounts payable--trade............... $ 3,900 $ 4,352
Accrued liabilities:
Payroll and related
expenses........................... 2,463 3,979
Interest............................ 4,025 3,825
Franchise taxes..................... 3,422 4,353
Program services.................... 4,940 3,917
Other............................... 7,304 7,261
--------- ---------
22,154 23,335
--------- ---------
Income taxes payable.................. -- 1,666
Dividends payable..................... 2,172 2,172
Debt.................................. 285,107 278,372
Deferred income taxes................. 47,308 45,163
Other liabilities..................... 5,930 5,406
--------- ---------
Total liabilities..................... 366,571 360,466
Minority interest in
consolidated subsidiaries............ 2,518 2,344
Stockholders' deficit:
Common stock
Class A........................... 291 291
Class B........................... 6,950 6,950
Capital deficit..................... (262,410) (262,410)
Notes receivable--
executive stock purchase
plan............................... (3,346) (3,479)
Net unrealized gain on
securities available for
sale............................... 3,465 --
Retained earnings................... 193,491 179,321
--------- ---------
(61,559) (79,327)
--------- ---------
Liabilities and
stockholders' deficit................ $ 307,530 $ 283,483
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-5
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 1994
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NET
NOTES UNREALIZED
COMMON STOCK RECEIVABLE GAIN ON TOTAL
------------ EXECUTIVE SECURITIES STOCK-
CLASS CLASS CAPITAL STOCK RETAINED AVAILABLE HOLDERS'
A B DEFICIT PLANS EARNINGS FOR SALE DEFICIT
----- ------ --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... $291 $6,950 $(262,410) $(3,479) $179,321 $ -- $(79,327)
Net income.............. 18,514 18,514
Dividends declared...... (4,344) (4,344)
Payments on executive
stock notes............ 133 133
Change in net unrealized
gain on securities
available for sale..... 3,465 3,465
---- ------ --------- ------- -------- ------ --------
Balance at June 30,
1994................... $291 $6,950 $(262,410) $(3,346) $193,491 $3,465 $(61,559)
==== ====== ========= ======= ======== ====== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-6
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 18,514 $ 18,586
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 21,628 21,371
Amortization........................................... 1,173 1,461
Deferred income tax benefit............................ (60) (601)
Gain on sale of investments............................ (68) (1,870)
Deferred income recognized............................. (137) (243)
(Increase) decrease in assets:
Accounts receivable.................................. (1,347) (1,898)
Inventory............................................ (98) 1
Prepaids............................................. (388) (450)
Income taxes receivable.............................. (652) --
Increase (decrease) in liabilities:
Accounts payable..................................... (452) 1,518
Accrued liabilities.................................. (642) (1,371)
Deferred income...................................... 122 27
Income taxes payable................................. (1,666) (1,188)
Other, net............................................. (65) 86
-------- --------
Net cash provided by operating activities.............. 35,862 35,429
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment............... (38,942) (22,390)
Proceeds from investments................................ 117 3,293
Purchase of investments and other assets................. (1,078) (894)
-------- --------
Net cash used by investing activities.................. (39,903) (19,991)
-------- --------
Cash flows from financing activities:
Change in revolving debt, net............................ (3,358) 9,051
Change in term debt...................................... 10,092 (22,898)
Dividends paid........................................... (4,344) (4,331)
Purchase of company stock................................ -- (412)
Payments received on stock notes receivable.............. 133 141
-------- --------
Net cash provided by (used for) financing activities... 2,523 (18,449)
-------- --------
Net decrease in cash and cash equivalents.................. (1,518) (3,011)
Cash and cash equivalents at beginning of period........... 5,509 7,160
-------- --------
Cash and cash equivalents at end of period................. $ 3,991 $ 4,149
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
F-7
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1994
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION:
The accompanying unaudited financial statements of TeleCable Corporation and
subsidiaries ("TeleCable") have been prepared using accounting principles
consistent with those disclosed in the December 31, 1993 financial statements.
Due to the interim nature of the financial statements, they do not include all
of the disclosures and notes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the six month periods ended June
30, 1994 and 1993 are not necessarily indicative of results that may be
expected for the entire year or any interim period. These financial statements
should be read in connection with TeleCable's December 31, 1993 financial
statements.
On January 1, 1994, TeleCable adopted Statement of Financial Accounting
Standards No. 115 ("FAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities". One of the provisions of FAS 115 requires that equity
securities be classified as available for sale, or trading. Available for sale
securities are carried at their fair values with the amount of unrealized gains
and losses, net of income taxes, reported as a separate component of
stockholders' equity. TeleCable does not have any securities classified as
trading. Accordingly, TeleCable classified equity securities with a fair value
of $8.0 million at June 30, 1994 as available for sale. Stockholders' deficit
at June 30, 1994 includes $3.5 million relating to unrealized gains on
securities available for sale, net of income taxes.
NOTE 2--DEBT:
In March 1994, TeleCable repaid $30 million of expiring term debt with
proceeds from a new unsecured $40 million note that is due 2004. Interest is
payable semi-annually at a fixed rate of 6.52%.
NOTE 3--SUBSEQUENT EVENT:
On August 8, 1994, TeleCable, Tele-Communications, Inc. ("TCI"), and TCI
Communications, Inc. ("TCIC") entered into a definitive merger agreement,
whereby TeleCable will be merged into TCIC, a wholly-owned subsidiary of TCI.
The aggregate $1.6 billion purchase price will be satisfied by TCIC's
assumption of approximately $300 million of TeleCable's net liabilities and the
issuance to TeleCable's shareholders of shares of TCI Class A Common Stock
(currently estimated to be approximately 42 million shares) and 1 million
shares of TCI Series D Preferred Stock with an aggregate initial liquidation
value of $300 million. The TCI Series D Preferred Stock, which will accrue
dividends at a rate of 5.5% per annum, will be convertible into 10 million
shares of TCI Class A Common Stock. The TCI Series D Preferred Stock will be
redeemable at the option of TCI after five years and at the option of either
TCI or the holder after ten years. Although the amount of net liabilities to be
assumed by TCIC and the number of shares of TCI Class A Common Stock to be
issued to TeleCable's shareholders are subject to closing adjustments,
TeleCable does not believe that any such adjustments will be material. The
merger agreement requires the approval of TeleCable's shareholders and various
franchise and government authorities.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 4, 1994
The Stockholders and Directors
TeleCable Corporation and Subsidiaries
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of TeleCable
Corporation and its subsidiaries at December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Norfolk, Virginia
F-9
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Operating revenues......................... $ 286,676 $ 268,404 $ 249,068
Operating costs and expenses:
Operating expenses....................... 132,487 123,350 114,845
Selling, general and administrative
expenses................................ 30,357 28,661 28,540
Depreciation and amortization............ 45,171 42,635 41,410
---------- ---------- ----------
208,015 194,646 184,795
---------- ---------- ----------
Operating income......................... 78,661 73,758 64,273
Interest income............................ 595 585 552
Gain on sale of investments................ 2,698 1,476 6,793
Interest expense........................... (23,511) (27,225) (28,277)
Other expense, net......................... (410) (1,235) (479)
Minority interest in income of consolidated
subsidiary................................ (344) (347) (369)
---------- ---------- ----------
Income before provision for income taxes. 57,689 47,012 42,493
Provision for income taxes................. 23,405 17,674 16,123
---------- ---------- ----------
Net income............................... 34,284 29,338 26,370
Retained earnings--beginning of year....... 153,695 133,000 115,257
Dividends of $3.00 per share in 1993, 1992
and 1991.................................. (8,658) (8,643) (8,627)
---------- ---------- ----------
Retained earnings--end of year............. $ 179,321 $ 153,695 $ 133,000
========== ========== ==========
Number of shares used to compute earnings
per share................................. 2,884,894 2,878,397 2,875,150
========== ========== ==========
Earnings per share......................... $ 11.88 $ 10.19 $ 9.17
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-10
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 5,509 $ 7,160
Accounts receivable--trade and other (net of allowance
for doubtful accounts of $1,127 in 1993 and $1,959 in
1992)................................................... 9,639 8,403
Inventories, at first-in, first-out cost................. 887 794
Prepaid expenses and other............................... 1,720 1,279
Investments and other assets............................. 13,324 12,494
Property, plant and equipment--at cost:
Distribution plant and other equipment................. 512,610 498,693
Land, buildings and improvements....................... 19,944 19,132
Vehicles............................................... 10,909 10,092
--------- ---------
543,463 527,917
Less--accumulated depreciation......................... 311,639 299,156
--------- ---------
231,824 228,761
--------- ---------
Intangible assets, net:
Goodwill, net of accumulated amortization of $6,576 in
1993 and $6,118 in 1992............................... 12,659 13,116
Cable television franchises and other, net of
accumulated amortization of $18,246 in 1993 and
$15,933 in 1992....................................... 7,921 9,714
--------- ---------
20,580 22,830
--------- ---------
Total assets....................................... $ 283,483 $ 281,721
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable--trade.................................. $ 4,352 $ 1,760
Accrued liabilities:
Payroll and related expenses........................... 3,979 3,511
Interest............................................... 3,825 4,187
Franchise taxes........................................ 4,353 4,210
Program services costs................................. 3,917 4,150
Other.................................................. 7,261 7,849
Dividends payable........................................ 2,172 2,167
Income taxes payable..................................... 1,666 2,522
Debt..................................................... 278,372 304,195
Deferred income taxes.................................... 45,163 45,382
Other liabilities........................................ 5,406 4,689
--------- ---------
Total liabilities.................................. 360,466 384,622
--------- ---------
Minority interests in equity of consolidated subsidiary.. 2,344 2,000
Stockholders' deficit:
Common stock:
Class A--voting--$2.50 par value; authorized 225,000
shares; issued and outstanding 116,555 shares....... 291 291
Class B--non-voting--$2.50 par value; authorized
5,000,000 shares; issued and outstanding 2,779,801
and 2,773,421 shares................................ 6,950 6,934
Capital deficit........................................ (262,410) (262,703)
Notes receivable--executive stock purchases............ (3,479) (3,118)
Retained earnings...................................... 179,321 153,695
--------- ---------
Total stockholders' deficit........................ (79,327) (104,901)
--------- ---------
Commitments and contingencies (Note 8)
Total liabilities and stockholders' deficit........ $ 283,483 $ 281,721
========= =========
</TABLE>
See notes to consolidated financial statements
F-11
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income..................................... $ 34,284 $ 29,338 $ 26,370
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation................................. 42,403 39,720 38,542
Amortization................................. 2,768 2,915 2,868
Gain on sale of property, plant and
equipment................................... (59) (72) (47)
Gain on sale of investments.................. (2,698) (1,476) (6,793)
Deferred income taxes........................ (219) (808) 1,754
(Increase) decrease in certain assets
Accounts receivable........................ (1,236) (2,132) 522
Inventories................................ (93) (134) 139
Prepaid expenses........................... (441) (157) --
Increase (decrease) in certain liabilities
Accounts payable........................... 2,560 (1,574) 26
Accrued liabilities........................ 617 1,335 3,695
Deferred income recognized................. (465) (235) 246
Income taxes payable....................... (856) 191 124
Other, net................................. 356 240 102
-------- -------- --------
Net cash provided by operating
activities.............................. 76,921 67,151 67,548
-------- -------- --------
Cash flows from investing activities
Dividends and proceeds from sale of
investments................................... 4,453 8,309 3,128
Proceeds from sale of property, plant and
equipment..................................... 122 77 63
Purchases of investments and other assets...... (3,066) (1,346) (1,953)
Purchases of property, plant and equipment..... (45,529) (40,818) (39,219)
-------- -------- --------
Net cash used by investing activities.... (44,020) (33,778) (37,981)
-------- -------- --------
Cash flows from financing activities
Change in revolving debt, net.................. (2,683) 26,587 (11,504)
Repayment of term debt......................... (23,140) (50,390) (10,395)
Dividends paid................................. (8,654) (8,635) (8,625)
Purchase of company stock...................... (411) (479) (162)
Payments received on stock notes receivable.... 336 430 207
-------- -------- --------
Net cash used by financing activities.... (34,552) (32,487) (30,479)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents..................................... (1,651) 886 (912)
Cash and cash equivalents at beginning of year... 7,160 6,274 7,186
-------- -------- --------
Cash and cash equivalents at end of year......... $ 5,509 $ 7,160 $ 6,274
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-12
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
TeleCable Corporation and its subsidiaries (the "Company"). Intercompany
balances and transactions have been eliminated in consolidation. Certain prior
year balances have been reclassified to conform with the current year
presentation with no effect on previously reported net income.
Cash and cash equivalents
The Company considers all highly liquid debt instruments, including
repurchase agreements, with an original maturity of three months or less to be
cash equivalents.
Property, plant and equipment and depreciation
Property, plant and equipment, including capitalized interest and assets
acquired under capital leases, are recorded at cost and depreciated over their
estimated useful lives using accelerated and straight-line methods for tax and
financial reporting purposes, respectively. The asset cost and related
accumulated depreciation are eliminated from the accounts when assets are fully
depreciated. The cost of cable television systems constructed by the Company
includes all costs and expenses, including, if appropriate, capitalized
interest incurred prior to receipt of the first subscriber revenues from the
system. From that time until completion of construction, costs capitalized
include all direct construction costs and a portion of certain fixed operating
expenses based on progress toward achieving expected subscriber levels.
Maintenance, repairs and minor renewals are charged to operations. Major
renewals and betterments are capitalized.
Estimated lives used to compute depreciation are:
<TABLE>
<S> <C>
Distribution plant and other equipment......................... 8-12 years
Building and improvements...................................... 8-25 years
Vehicles....................................................... 5 years
</TABLE>
Intangible assets
Costs associated with developing and acquiring cable television franchises
are capitalized and amortized on a straight-line basis over the expected life
of the franchise, generally 8 to 15 years.
Goodwill consists of acquisition costs in excess of the fair value of net
tangible and identifiable intangible assets acquired (principally cable
television franchises and purchased minority interests). Goodwill is being
amortized over 40 years.
Income taxes
On January 1, 1992, the Company adopted Statement of Financial Accounting
Standard No. 109 (FAS 109), "Accounting for Income Taxes," which uses an asset
and liability method to recognize the deferred income tax effects of
transactions which are reported in different periods for financial reporting
and income tax return purposes. Under this approach, deferred income tax
balance sheet amounts are measured using currently enacted tax rates. The
deferred income tax provision is the difference between such beginning and
ending balance sheet amounts. Prior to the adoption of FAS 109, the Company
used Statement of Financial
F-13
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounting Standard No. 96, "Accounting for Income Taxes." This change in
accounting principles did not have a material effect on the Company's financial
position or its results of operations.
Earnings per share
Earnings per share are calculated using the annual weighted average number of
common shares outstanding.
NOTE 2--RETIREMENT PLANS
The Company sponsors an employee savings plan covering substantially all
employees. The Company contributes an amount which, when added to forfeitures,
equals fifty percent of employee contributions up to four percent of
compensation. The Company's contributions were $727,000, $675,000 and $598,000
for 1993, 1992 and 1991, respectively.
The Company also sponsors a defined benefit pension plan covering
substantially all employees. The plan provides retirement benefits to eligible
employees based primarily on years of service and career compensation. The
Company's annual funding policy is to contribute no less than the minimum
required by the Employee Retirement Income Security Act of 1974 and no more
than the maximum which can be deducted under relevant IRS regulations.
Contributions to the plan reflect benefits attributed to employees' services to
date, as well as services expected to be rendered in the future. At December
31, 1993, plan assets were invested primarily in marketable securities.
For financial reporting purposes, pension expense was $632,000, $432,000 and
$362,000 for 1993, 1992 and 1991, respectively, and was comprised of the
following:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost of the current period........... $ 767 $ 677 $ 593
Interest cost on the projected benefit obli-
gation...................................... 562 457 379
Actual return on assets held in the plan..... (622) (592) (519)
Net amortization of unrecognized transition
asset and net asset gain.................... (75) (110) (91)
----------- ----------- ------
Pension expense............................ $ 632 $ 432 $ 362
=========== =========== ======
The pension plan's funding status at December 31 was:
<CAPTION>
1993 1992
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accumulated benefit obligation, including
vested benefits of $5,963 in 1993 and $3,983
in 1992..................................... $ 6,536 $ 4,406
Effect of anticipated future compensation and
other events................................ 2,472 2,392
----------- -----------
Projected benefit obligation................. 9,008 6,798
Fair value of assets held in the plan........ 9,121 7,806
----------- -----------
Plan assets in excess of projected benefit
obligation................................ 113 1,008
Net unrecognized gain from past experience
different than assumed...................... (1,056) (1,260)
Unrecognized transitional asset.............. (591) (636)
Unrecognized prior service cost.............. (127) (141)
----------- -----------
Net pension liability included in other li-
abilities................................. $ 1,661 $ 1,029
=========== ===========
</TABLE>
F-14
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average discount rate used to measure the projected benefit
obligation was reduced from 8% at December 31, 1992 and 1991 to 7% at December
31, 1993. In addition, the rate of increase in future compensation levels was
reduced from 6.5% at December 31, 1992 and 1991 to 4.5% at December 31, 1993.
The weighted average expected long-term rate of return on assets was 8.0% for
1993, 1992 and 1991.
The Company also sponsors a supplemental benefit plan which provides
supplemental retirement benefits on a nonqualified basis to certain executives
whose benefits under the pension plan are restricted by various limitations
under the Internal Revenue Code. Supplemental benefit expense was $182,000,
$152,000 and $137,000 for 1993, 1992 and 1991, respectively.
On January 1, 1993, the Company adopted Financial Accounting Standard No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" which
deals principally with employers' recognition of retiree medical and life
insurance benefit costs and obligations. The Company recognized $122,000 of net
periodic postretirement benefit cost in 1993 related to the accounting change.
Adoption of this new standard had an immaterial impact on the Company's
financial position and results of operations.
NOTE 3--INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current federal...................................... $21,107 $16,600 $12,589
Current state........................................ 2,517 1,882 1,779
Deferred federal..................................... (1,586) (1,100) 1,457
Deferred state....................................... 144 292 298
Adjustment to deferred income tax liability for
change in tax rate.................................. 1,223 -- --
------- ------- -------
$23,405 $17,674 $16,123
======= ======= =======
</TABLE>
Income taxes paid during the year were $24.4 million in 1993, $18.2 million
in 1992 and $14.2 million in 1991. Included in deferred income taxes and the
provision for income taxes as of and for the year ended December 31, 1993 is an
additional accrual of approximately $1.2 million to reflect the effect of the
1993 increase in income tax rates on the temporary differences existing at the
date of enactment.
The provision for income taxes differs from the amount computed by applying
the statutory federal tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income tax computed at 35% in 1993 and 34% in 1992 and
1991.................................................. $20,191 $15,984 $14,573
State income taxes net of federal tax benefit.......... 1,730 1,435 1,371
Effect of change in rates on temporary differences..... 1,223 -- --
Other.................................................. 261 255 179
------- ------- -------
$23,405 $17,674 $16,123
======= ======= =======
</TABLE>
Significant components of the Company's deferred income tax liability are as
follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Property and equipment, principally due to deprecia-
tion................................................ $ 50,280 $ 50,665
Accrued vacation liability........................... (669) (617)
Accrued pension liability............................ (649) (402)
Other................................................ (3,799) (4,264)
----------- -----------
Net deferred tax liability........................... $ 45,163 $ 45,382
=========== ===========
</TABLE>
F-15
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Internal Revenue Service has proposed tax adjustments for the years 1986
through 1989 in the approximate amount of $3,100,000. The IRS challenged the
investment tax credits (ITC) claimed on transitional property under the Tax
Reform Act of 1986, certain intangible allocations of a 1988 acquisition, and
the treatment of make-ready expenditures as part of cable plant costs. The
years 1990 and 1991 are also part of this audit, but the IRS does not intend to
propose adjustments until the appeal for the prior years has been considered.
Management believes that its original filing position was correct and will file
an appeals protest of all issues in early 1994. Since 1985, the Company has
recognized $5,500,000 in net transitional ITC tax benefits and approximately
$1,000,000 in tax benefits for the amortization of the 1988 acquisition
intangibles being challenged.
NOTE 4--ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from the Company's
subscribers for cable and related services and amounts due from advertisers.
During 1993, the Company ceased charging subscribers for certain equipment
which was not returned to the Company upon disconnection of service. Since
equipment charges were fully offset by a provision for doubtful accounts, the
change in policy resulted in a significant decrease in the allowance for
doubtful accounts. The components of accounts receivable and the related
allowance consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accounts receivable
Cable............................................. $ 4,540 $ 4,805
Advertising....................................... 4,689 3,770
Equipment......................................... 112 1,169
Other............................................. 1,425 618
----------- -----------
10,766 10,362
----------- -----------
Allowance for doubtful accounts
Cable............................................. 682 496
Advertising....................................... 333 294
Equipment......................................... 112 1,169
----------- -----------
1,127 1,959
----------- -----------
Accounts receivable, net............................ $ 9,639 $ 8,403
=========== ===========
</TABLE>
NOTE 5--INVESTMENTS AND OTHER ASSETS
Investments and other assets, stated at the lower of cost or net realizable
value, consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Investment in PPVN, Inc. ("Viewer's Choice")........ $ 5,770 $ 5,466
Investment in U.K. franchises....................... -- 1,313
Other, primarily equity investments................. 7,554 5,715
----------- -----------
$ 13,324 $ 12,494
=========== ===========
</TABLE>
The Company's remaining rights to provide cable and telecoms services within
the United Kingdom were sold in April and July 1993 for $3.9 million resulting
in a gain of $2.2 million.
F-16
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1991 and January 1992, the Company sold its investment in QVC
Network, Inc. resulting in gains of $4.1 million and $1.2 million,
respectively. In February 1991, the Company sold one of its United Kingdom
subsidiaries for $3.1 million, resulting in a gain of $2.7 million.
Other investments include marketable equity investments which are recorded at
a cost of $2.3 million and have a market value of $12.3 million at December 31,
1993. The remainder of other investments consists primarily of equity
investments for which a ready market does not exist; however, management
believes that the existing carrying value approximates the fair value of such
investments.
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Term notes payable (A).............................. $ 225,000 $ 250,000
Revolving credit and term loan agreements (B)....... 51,425 54,108
Other (C)........................................... 1,947 87
----------- -----------
$ 278,372 $ 304,195
=========== ===========
</TABLE>
(A) The Company issued privately-placed unsecured, medium-term notes in 1986,
1988 and 1991. The notes were issued at par in the aggregate amount of $310
million with interest payable semi-annually at rates ranging from 8.75% to
9.44%. Through December 31, 1993, the Company has repaid $85 million. The
Company intends to refinance notes due in 1994 with either funds available
under the revolving credit agreements or a new term loan. The remaining note
balances mature as follows:
<TABLE>
<S> <C> <C> <C>
1994 $30 million 1997 $50 million
1995 $40 million 1998 $50 million
1996 $40 million 1999 $15 million
</TABLE>
The loan agreements contain restrictive provisions relating to stock
redemptions, dividend payments, total debt in relation to cash flow,
limitations on secured debt, and limitations regarding certain sales, mergers
and other transactions. Through December 31, 1993, the Company was in
compliance with all such restrictive provisions.
(B) The Company's unsecured revolving credit and term loan agreements with
four commercial banks provide $100 million of revolving credit lines which
mature in early 1997. The Company has the option to convert revolving loans
outstanding on the maturity dates into term loans payable in six equal annual
installments.
At the Company's option, loans bear interest tied to the bank prime rate, the
London Interbank Offered Rate (LIBOR), the bank Certificate of Deposit (CD)
rate, or a rate agreed upon from time to time between the Company and each
bank. The rates can be fixed for periods ranging from one day to one year and
are subject to certain adjustments at varying levels of debt in relation to
operating cash flow. The banks charge commitment fees ranging from 1/8% to 3/8%
on the unused portion of the revolving credit lines. The agreements contain
restrictive provisions similar to those described in (A) above.
(C) Other notes payable include amounts due for capital lease obligations and
sundry other notes.
F-17
<PAGE>
TELECABLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
Based on the borrowing rates currently available to the corporation for loans
with similar terms and average maturities, the fair value of term notes payable
approximated $234 million and $263 million at December 31, 1993 and 1992,
respectively. The carrying value of the Company's revolving credit and term
loan agreements at December 31, 1993 and 1992 approximated fair value.
The Company paid interest of $23.9 million in 1993, $28.4 million in 1992 and
$27.2 million in 1991.
NOTE 7--STOCKHOLDERS' DEFICIT
The Company has a capital deficit at December 31, 1993 and 1992 resulting
from a return of capital paid to stockholders in May 1988.
Notes received in exchange for stock sold to employees are full recourse
notes and are shown in the accompanying balance sheet as a contra-equity
account. The notes bear interest ranging from 6.50% to 9.25%. The interest
rates on the notes receivable are established annually at rates which
approximate market.
Class B common stock and capital deficit accounts changed as follows:
<TABLE>
<CAPTION>
CLASS B CAPITAL
COMMON STOCK DEFICIT
------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at December 31, 1991........................ $6,927 $(262,819)
Purchase of 9,945 shares of Class B stock......... (24) (455)
Sale of 12,510 shares of Class B stock............ 31 571
------ ---------
Balance at December 31, 1992........................ 6,934 (262,703)
Purchase of 8,520 shares of Class B stock......... (21) (390)
Sale of 14,900 shares of Class B stock............ 37 683
------ ---------
Balance at December 31, 1993........................ $6,950 $(262,410)
====== =========
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENCIES
Effective September 1, 1993, the Company adjusted subscriber rates to comply
with FCC standards issued to regulate such rates as contemplated by the Cable
Television Consumer Protection and Competition Act of 1992. The Company's
adjusted subscriber rates are subject to local and/or federal governmental
review. Management does not expect that rate reviews will have an adverse
impact on established rates.
TeleCable and its subsidiaries lease utility poles and certain other
facilities used in their operations. Total rent expense was $2.8 million, $2.7
million and $2.6 million in 1993, 1992 and 1991, respectively.
On December 31, 1993, TeleCable and its subsidiaries were committed under
non-cancelable operating leases which expire at various dates through 2069 and
require the following minimum rents:
<TABLE>
<S> <C> <C> <C>
1994 $894,000 1997 $ 661,000
1995 $836,000 1998 $ 640,000
1996 $722,000 Thereafter $1,255,000
</TABLE>
In the ordinary course of business the Company has committed to invest in the
renewal and expansion of its cable distribution plant and support its other
cable related investments.
F-18
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TELE-COMMUNICATIONS, INC.)
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
The following unaudited condensed pro forma combined balance sheet of TCIC,
dated as of June 30, 1994, assumes that (i) the proposed Merger and (ii) the
combination of TCIC and Liberty Media Corporation ("Liberty"), whereby TCIC and
Liberty each became a wholly-owned subsidiary of TCI (the "TCI/Liberty
Combination"), had occurred as of such date. See notes (1) and (2).
In addition, the following unaudited condensed pro forma combined statements
of operations of TCIC for the six months ended June 30, 1994 and the year ended
December 31, 1993 assume that the proposed Merger and the TCI/Liberty
Combination had occurred as of 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 proposed Merger and
the TCI/Liberty Combination had occurred as of January 1, 1993. These condensed
pro forma combined financial statements of TCIC should be read in conjunction
with the condensed pro forma financial statements and the related notes thereto
of TCI and Liberty included elsewhere herein and the respective historical
financial statements and the related notes thereto of TCIC and Liberty. The pro
forma financial statements of TCI represent a combination of the separate pro
forma statements of TCIC and Liberty in giving effect to the proposed Merger
and the TCI/Liberty Combination.
F-19
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TELE-COMMUNICATIONS, INC.)
CONDENSED PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1994
-------------------------------------------------
TCIC TELECABLE PRO FORMA TCIC
HISTORICAL HISTORICAL ADJUSTMENTS(1)(2) PRO FORMA
---------- ---------- ----------------- ---------
AMOUNTS IN MILLIONS
<S> <C> <C> <C> <C>
ASSETS
Cash and receivables......... $ 219 16 -- 235
Investment in Liberty and
related receivables......... 522 -- (217)(3) 305
Investment in other
affiliates and Turner
Broadcasting System, Inc.,
and related receivables..... 1,483 20 -- 1,503
Property and equipment, net
of accumulated depreciation. 5,207 249 333 (4) 5,789
Franchise costs and other
assets, net of amortization. 9,687 23 1,036 (4) 11,537
791 (5)
------- ---- ----- ------
$17,118 308 1,943 19,369
======= ==== ===== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Payables and accruals........ $ 859 29 -- 888
Debt......................... 10,111 285 -- 10,396
Deferred income taxes........ 3,420 47 791 (5) 4,258
Other liabilities............ 99 5 -- 104
------- ---- ----- ------
Total liabilities........ 14,489 366 791 15,646
------- ---- ----- ------
Minority interests........... 318 3 -- 321
Redeemable preferred stocks.. -- -- -- --
Common stockholders' equity:
Class A common stock....... 483 -- -- 483
Class B common stock....... 47 7 (7)(6) 47
Additional paid-in capital
(deficit)................. 2,310 (262) 262 (6) 3,618
1,308 (7)
Cumulative foreign currency
translation adjustment.... (14) -- -- (14)
Unrealized holding gains
for available-for-sale
securities................ 128 4 (4)(6) 128
Note receivable from
executive stock purchase
plan...................... -- (3) 3 (6) --
Retained earnings
(deficit)................. (310) 193 (193)(6) (310)
Treasury stock, at cost.... (333) -- 333 (8) --
Investment in TCI.......... -- -- (217)(3) (550)
(333)(8)
------- ---- ----- ------
2,311 (61) 1,152 3,402
------- ---- ----- ------
$17,118 308 1,943 19,369
======= ==== ===== ======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
F-20
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TELE-COMMUNICATIONS, INC.)
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1994
-------------------------------------------------
TCIC TELECABLE PRO FORMA TCIC
HISTORICAL HISTORICAL ADJUSTMENTS(1)(2) PRO FORMA
---------- ---------- ----------------- ---------
AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
Revenue..................... $ 2,141 146 -- 2,287
Operating, selling, general
and administrative expenses
and compensation relating
to stock appreciation
rights..................... (1,221) (82) -- (1,303)
Depreciation and
amortization............... (481) (23) (23)(9) (527)
------- --- --- ------
Operating income.......... 439 41 (23)(9) 457
Interest expense............ (363) (11) -- (374)
Interest and dividend
income..................... 20 -- -- 20
Share of earnings of
Liberty.................... 24 -- (24)(10) --
Share of losses of other
affiliates, net............ (30) -- -- (30)
Loss on early extinguishment
of debt.................... (2) -- -- (2)
Other income, net........... 2 -- -- 2
------- --- --- ------
Earnings before income
taxes.................... 90 30 (47) 73
Income tax expense.......... (52) (12) 19 (11) (45)
------- --- --- ------
Net earnings.............. $ 38 18 (28) 28
======= === === ======
Primary and fully diluted
earnings per common and
common equivalent share.... $ .08
=======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
F-21
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TELE-COMMUNICATIONS, INC.)
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-------------------------------------------------
TCIC TELECABLE PRO FORMA TCIC
HISTORICAL HISTORICAL ADJUSTMENTS(1)(2) PRO FORMA
---------- ---------- ----------------- ---------
AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
Revenue...................... $ 4,153 287 -- 4,440
Operating, selling, general
and administrative expenses
and compensation relating to
stock appreciation rights... (2,326) (163) -- (2,489)
Depreciation and amortiza-
tion........................ (911) (45) (47)(9) (1,003)
------- ---- --- ------
Operating income........... 916 79 (47) 948
Interest expense............. (731) (24) -- (755)
Interest and dividend income. 34 -- -- 34
Share of earnings of Liberty. 4 -- (4)(10) --
Share of losses of other af-
filiates, net............... (76) -- -- (76)
Gain on dispositions......... 42 2 -- 44
Loss on early extinguishment
of debt..................... (17) -- -- (17)
Other income, net............ (11) -- -- (11)
------- ---- --- ------
Earnings before income tax-
es........................ 161 57 (51) 167
Income tax expense........... (168) (23) 21 (11) (170)
------- ---- --- ------
Net earnings (loss)........ (7) 34 (30) (3)
Dividend requirement on re-
deemable preferred stocks... (2) -- 2 (12) --
------- ---- --- ------
Net earnings (loss)
applicable to common
shareholders.............. $ (9) 34 (28) (3)
======= ==== === ======
Loss per common share........ $ (.02)
=======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
F-22
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TELE-COMMUNICATIONS, INC.)
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
(1) As of August 8, 1994, TCI, TCIC and TeleCable entered into a definitive
merger agreement whereby TeleCable will be merged into TCIC. The aggregate $1.6
billion purchase price will be satisfied by TCIC's assumption of approximately
$300 million of TeleCable's net liabilities and the issuance to TeleCable's
shareholders of shares of TCI Class A Common Stock (currently estimated to be
approximately 42 million shares) and 1 million shares of TCI Series D Preferred
Stock with an aggregate initial liquidation value of $300 million. The TCI
Series D Preferred Stock, which will accrue dividends at a rate of 5.5% per
annum, will be convertible into 10 million shares of TCI Class A Common Stock.
The TCI Series D Preferred Stock will be redeemable at the option of TCI after
five years and at the option of either TCI or the holder after ten years.
Although the amount of net liabilities to be assumed by TCIC and the number of
shares of TCI Class A Common Stock to be issued to TeleCable's shareholders are
subject to closing adjustments, management does not believe that any such
adjustments will be material. The merger agreement requires the approval of
TeleCable's shareholders and various franchise and government authorities.
(2) The TCI/Liberty Combination, which was consummated on August 4, 1994, was
structured as a tax free exchange whereby the common stock of TCIC and Liberty
and the preferred stock of Liberty were exchanged for like shares of TCI. Under
the merger agreement, each share of TCIC's and Liberty's common stock
(including shares held by TCIC's or Liberty's subsidiaries) was converted into
one share and 0.975 of a share, respectively, of the corresponding class of
TCI's common stock. Shares of Liberty Class E Preferred Stock were converted
into shares of a preferred stock of TCI having designations, preferences,
rights and qualifications, limitations and restrictions substantially identical
to the shares of preferred stock being converted. Shares of the remaining
Liberty preferred stock held by subsidiaries of TCIC were converted into shares
of a class or series of TCI preferred stock having an equivalent value.
(3) Represents the conversion of TCIC's investment in Liberty common stock
into an investment in TCI common stock and the conversion of TCIC's investment
in Liberty preferred stock into an investment in TCI 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 TCIC's investment in Liberty. See note (2) above.
(4) Represents an allocation of the $1.6 billion purchase price of TeleCable
to its tangible and intangible assets. The cost allocations were estimated
using information available at the date of preparation of these condensed pro
forma combined financial statements and will be adjusted upon final appraisal
of the assets acquired. Therefore, the actual allocations may differ from those
allocations reflected herein.
(5) Represents the estimated incremental deferred income tax liability
associated with the TeleCable purchase price allocations, as described in note
(4) above. The adjustment assumes a combined federal and state income tax rate
of 41%.
(6) Represents the elimination of TeleCable's historical stockholders'
deficit, including the note receivable from the employee stock purchase plan.
Pursuant to the Merger Agreement, any portion of such note receivable that
remains unpaid at closing will not be included in the calculation of net
liabilities to be assumed by TCIC at closing.
(7) Represents TCI's capital contribution to TCIC resulting from the issuance
by TCI to TeleCable shareholders of shares of TCI Class A Common Stock
(currently estimated to be approximately 42 million
F-23
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TELE-COMMUNICATIONS, INC.)
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
shares) and 1 million shares of TCI Series D Preferred Stock with an aggregate
liquidation of $300 million. The number of shares of TCI Class A Common Stock
to be issued, which will be calculated using a per share value of $24, is
dependent upon the amount of net liabilities of TeleCable that is assumed by
TCIC at closing and certain other factors. See note (1) above.
(8) Reflects the reclassification to "Investment in TCI" of 79,335,038 shares
of TCIC Class A common stock held by subsidiaries of TCIC replaced with TCI
common stock of the corresponding class.
(9) Represents depreciation and amortization of the allocated TeleCable
purchase price, based upon weighted average lives of 12 1/2 years for property
and equipment and 40 years for franchise costs.
(10) Reflects the elimination of TCIC's share of Liberty's historical
earnings. See notes (2) and (3) above.
(11) Reflects the estimated income tax effect of the pro forma adjustments.
(12) Reflects the elimination of the preferred stock divided requirement on
TCIC preferred stock converted into common stock of TCIC during the year ended
December 31, 1993.
F-24
<PAGE>
LIBERTY MEDIA CORPORATION
CONDENSED PRO FORMA FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
The following unaudited condensed pro forma balance sheet of Liberty, as of
June 30, 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 the 49.9%
partnership interest in American Movie Classics Company ("AMC") had occurred as
of such date. Additionally, such balance sheet also assumes that the
TCI/Liberty Combination had occurred as of such date (see note 4).
In addition, the following unaudited condensed pro forma statements of
operations of Liberty for the six months ended June 30, 1994 and for the year
ended December 31, 1993 assume the following had occurred as of 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 49.9% partnership interest in AMC,
(c) the Recapitalization Agreement, as defined in note 10,
(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 11,
(f) the acquisition of all general and limited partnership interests in
Mile Hi Cablevision Associates, Ltd. ("Mile Hi") as described in note
12,
(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 TCI/Liberty Combination.
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 as of January 1, 1993. These condensed pro forma financial
statements of Liberty should be read in conjunction with the condensed pro
forma financial statements and related notes thereto of TCIC and TCI included
elsewhere herein and the respective historical financial statements and the
related notes thereto of Liberty and TCIC. The pro forma financial statements
of TCI represent a combination of the separate pro forma statements of Liberty
and TCIC.
F-25
<PAGE>
LIBERTY MEDIA CORPORATION
CONDENSED PRO FORMA BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1994
------------------------------------------
LIBERTY PRO FORMA LIBERTY
HISTORICAL ADJUSTMENTS(1)(2)(4) PRO FORMA
---------- -------------------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
ASSETS
Cash, receivables, inventories,
prepaids and other current assets,
net............................... $ 279,303 180,429 (3) 459,732
Investment in and advances to
affiliates and others............. 872,709 2,779 (3) 771,477
(104,011)(4)
Property and equipment, net of
accumulated depreciation.......... 248,680 -- 248,680
Franchise costs, intangibles and
other assets, net of amortization. 445,718 -- 445,718
---------- -------- ---------
$1,846,410 79,197 1,925,607
========== ======== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Payables and accruals.............. $ 322,531 50,000 (3) 372,531
Debt............................... 415,556 -- 415,556
Deferred income taxes.............. 154,958 21,594 (3) 176,552
Other liabilities.................. 3,060 -- 3,060
---------- -------- ---------
Total liabilities.............. 896,105 71,594 967,699
---------- -------- ---------
Minority interests................. 187,190 -- 187,190
Preferred stock subject to
mandatory redemption.............. 161,947 (161,947)(5) --
Common stockholders' equity:
Class E Preferred Stock.......... 17 (17)(5) --
Class A common stock............. 87,515 -- 87,515
Class B common stock............. 43,339 -- 43,339
Additional paid-in capital....... 231,106 161,964 (5) 393,070
Unrealized holding gains for
available-for-sale securities... 241,471 -- 241,471
Retained earnings................ 12,761 111,614 (3) 124,375
Note receivable from related
party........................... (15,041) -- (15,041)
---------- -------- ---------
601,168 273,561 874,729
---------- -------- ---------
Investment in TCI.................. -- (104,011)(4) (104,011)
---------- -------- ---------
$1,846,410 79,197 1,925,607
========== ======== =========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
F-26
<PAGE>
LIBERTY MEDIA CORPORATION
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1994
-----------------------------------
PRO FORMA
LIBERTY ADJUSTMENTS LIBERTY
HISTORICAL (1)(2)(4) PRO FORMA
---------- ----------- ---------
AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C>
Revenue..................................... $ 675,485 -- 675,485
Operating, selling, general and
administrative expenses.................... (612,221) -- (612,221)
Depreciation and amortization............... (26,930) -- (26,930)
--------- ------- --------
Operating income.......................... 36,334 -- 36,334
Interest expense............................ (18,936) -- (18,936)
Dividend and interest income................ 12,361 -- 12,361
Share of earnings of affiliates, net........ 21,945 (3,022)(6) 10,378
(8,545)(7)
Minority interests.......................... (5,521) -- (5,521)
Provision for impairment of investment...... (2,233) -- (2,233)
Other, net.................................. (2,429) -- (2,429)
--------- ------- --------
Earnings before income taxes.............. 41,521 (11,567) 29,954
Income tax expense.......................... (17,024) 4,279 (8) (12,745)
--------- ------- --------
Net earnings.............................. 24,497 (7,288) 17,209
Dividend requirement on redeemable preferred
stocks..................................... (11,736) 11,736 (9) --
--------- ------- --------
Net earnings attributable to common
shareholders............................. $ 12,761 4,448 17,209
========= ======= ========
Primary and fully diluted earnings per
common and common equivalent share......... $ .10
=========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
F-27
<PAGE>
LIBERTY MEDIA CORPORATION
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------------------------------------------------
PRO FORMA LIBERTY
LIBERTY EFFECT OF RECAP- HSN MILE HI ADJUSTMENTS PRO FORMA
HISTORICAL ITALIZATION (10) HISTORICAL(11) HISTORICAL(12) (1)(2)(4)(11)(12) 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)(13) (58,685)
---------- ----- -------- ------ ------- ----------
Operating income
(loss)................ (903) -- (2,657) 1,100 (5,358) (7,818)
Interest expense........ (31,080) -- (2,146) (2,180) (7,702)(14) (40,928)
2,180 (15)
Dividend and interest
income................. 23,549 -- 1,633 6 -- 25,188
Gain on sale of
investment............. 31,972 -- -- -- -- 31,972
Loss on transactions
with TCIC.............. (30,296) -- -- -- -- (30,296)
Share of earnings of
affiliates, net........ 34,044 -- -- -- (13,978)(6) 9,133
(11,313)(7)
380 (16)
Minority interests...... 289 -- -- -- 57 (17) 3,884
170 (18)
3,368 (19)
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 (8) (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 (9) --
(317)(20)
---------- ----- -------- ------ ------- ----------
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)
==========
</TABLE>
See accompanying notes to unaudited condensed pro forma financial statements.
F-28
<PAGE>
LIBERTY MEDIA CORPORATION
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
(1) On July 11, 1994, Rainbow Program Enterprises ("Rainbow") purchased a
49.9% general partnership interest in AMC from Liberty under the terms of a
buy/sell provision contained in the AMC partnership agreement. In connection
with the purchase, Rainbow acquired an option to purchase the remaining 0.1%
general partnership interest in AMC from Liberty for $373,000. The proceeds of
$180,249,000 included the economic benefit of Liberty's consulting agreement
with AMC assigned by Liberty to Cablevision Systems Corporation, the parent
company of Rainbow.
(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 the Company 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 began as of that date to account for its
investment in QVC under the cost method.
(3) Represents cash received from the sale of the 49.9% 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 gain ($183,208,000) is not
reflected in the pro forma combined statement of operations due to its non-
recurring nature.
(4) The TCI/Liberty Combination, which was consummated on August 4, 1994, was
structured as a tax free exchange whereby the common stock of TCIC and Liberty
and the preferred stock of Liberty were exchanged for like shares of TCI. Under
the merger agreement, each share of TCIC's and Liberty's common stock
(including shares held by TCIC's or Liberty's subsidiaries) was converted into
one share and 0.975 of a share, respectively, of the corresponding class of
TCI's common stock. Shares of Liberty Class E Preferred Stock were converted
into shares of a preferred stock of TCI having designations, preferences,
rights and qualifications, limitations and restrictions substantially identical
to the shares of preferred stock being converted. Shares of the remaining
Liberty preferred stock held by subsidiaries of TCIC were converted into
F-29
<PAGE>
LIBERTY MEDIA CORPORATION
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
shares of a class or series of TCI preferred stock having an equivalent value.
Adjustment represents the conversion of Liberty's investment in TCIC common
stock into an investment in TCI common stock. 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 Liberty's
investment in TCIC.
(5) Reflects the elimination of the historical preferred stock of Liberty
held by TCIC or its subsidiaries. Such historical preferred stock of Liberty
was converted into TCI preferred stock having an equivalent value. See note 4.
(6) Elimination of share of earnings of QVC through May 13, 1994.
(7) Elimination of share of earnings of AMC.
(8) Estimated income tax effect of the pro forma adjustments.
(9) Reflects the elimination of the preferred stock dividend requirement on
Liberty preferred stock converted into preferred stock of TCI. See note 4.
(10) On June 3, 1993, Liberty completed the transaction contemplated by the
Recapitalization Agreement entered into on March 26, 1993 with certain
subsidiaries of TCIC (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.
(11) 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).
(12) 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
TCIC 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-30
<PAGE>
LIBERTY MEDIA CORPORATION
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
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 TCIC in the form of a subordinated note.
(13) 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.
(14) 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 TCIC pursuant to the
Recapitalization Agreement (see note 10). 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.
(15) 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.
(16) Elimination of share of losses of Mile Hi through March 15, 1993.
(17) Represents the interest income on the loan to a minority partner (see
note 12).
(18) Represents the minority partners' 22% interest in the pro forma losses
of Mile Hi adjusted for the effects of the Acquisition (see note 12).
(19) Represents the minority shareholders' 58.5% interest in the pro forma
losses of HSN (see note 11).
(20) 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-31
<PAGE>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TCI/LIBERTY HOLDING COMPANY)
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
The following unaudited condensed pro forma combined balance sheet of TCI,
dated as of June 30, 1994, assumes that (i) the proposed Merger and (ii) the
TCI/Liberty Combination had occurred as of such date. See notes (1) and (2).
In addition, the following unaudited condensed pro forma combined statements
of operations of TCI for the six months ended June 30, 1994 and the year ended
December 31, 1993 assume that the proposed Merger and the TCI/Liberty
Combination had occurred as of 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 proposed Merger and
the TCI/Liberty Combination had occurred as of January 1, 1993. These condensed
pro forma combined financial statements of TCI should be read in conjunction
with the condensed pro forma financial statements and the related notes thereto
of TCIC and Liberty included elsewhere herein and the respective historical
financial statements and the related notes thereto of TCIC and Liberty. The pro
forma financial statements of TCI represent a combination of the separate pro
forma statements of TCIC and Liberty in giving effect to the proposed Merger
and the TCI/Liberty Combination.
F-32
<PAGE>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TCI/LIBERTY HOLDING COMPANY)
CONDENSED PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1994
-----------------------------------------------
TCIC LIBERTY PRO FORMA TCI
PRO FORMA PRO FORMA ADJUSTMENTS(1)(2) PRO FORMA
--------- --------- ----------------- ---------
AMOUNTS IN MILLIONS
<S> <C> <C> <C> <C>
ASSETS
Cash, receivables and other
current assets................ $ 235 460 -- 695
Investment in and advances to
Liberty....................... 305 -- (213)(3) --
(92)(4)
Investment in other affiliates
and Turner Broadcasting
System, Inc., and related
receivables................... 1,503 771 -- 2,274
Property and equipment, net of
accumulated depreciation...... 5,789 249 -- 6,038
Franchise costs, intangibles
and other assets, net of
amortization.................. 11,537 446 -- 11,983
------- ----- ---- ------
$19,369 1,926 (305) 20,990
======= ===== ==== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Payables and accruals.......... $ 888 345 -- 1,233
Due to TCIC.................... -- 213 (213)(3) --
Debt........................... 10,396 230 -- 10,626
Deferred income taxes.......... 4,258 177 (5)(6) 4,430
Other liabilities.............. 104 3 -- 107
------- ----- ---- ------
Total liabilities.......... 15,646 968 (218) 16,396
------- ----- ---- ------
Minority interests............. 321 187 (92)(4) 416
Class A Preferred Stock........ -- -- -- (5) --
TCI Series D Preferred Stock... -- -- 300 (7) 300
Stockholders' equity:
Preferred Stock.............. -- -- -- --
Class A common stock......... 483 88 42 (7) 611
(2)(8)
Class B common stock......... 47 43 (1)(8) 89
Additional paid-in capital... 3,618 393 (342)(7) 3,568
(109)(5)
5 (6)
3 (8)
Cumulative foreign currency
translation adjustment...... (14) -- -- (14)
Unrealized holding gains for
available-for sale
securities.................. 128 242 -- 370
Retained earnings (deficit).. (310) 124 -- (186)
Receivable from related
party....................... -- (15) -- (15)
Treasury stock............... -- -- (545)(5) (545)
Investment in TCI............ (550) (104) 654 (5) --
------- ----- ---- ------
3,402 771 (295) 3,878
------- ----- ---- ------
$19,369 1,926 (305) 20,990
======= ===== ==== ======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
F-33
<PAGE>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TCI/LIBERTY HOLDING COMPANY)
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1994
-----------------------------------------------
TCIC LIBERTY PRO FORMA TCI
PRO FORMA PRO FORMA ADJUSTMENTS(1)(2) PRO FORMA
--------- --------- ----------------- ---------
AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
Revenue..................... $ 2,287 675 (35)(9) 2,927
Operating, selling, general
and administrative expenses
and compensation relating
to stock appreciation
rights..................... (1,303) (612) 35 (9) (1,880)
Depreciation and
amortization............... (527) (27) -- (554)
------- ---- --- ------
Operating income.......... 457 36 -- 493
Interest expense............ (374) (19) 21 (10) (372)
Interest and dividend
income..................... 20 12 (21)(10) 11
Share of earnings (losses)
of affiliates, net......... (30) 10 -- (20)
Loss on early extinguishment
of debt.................... (2) -- -- (2)
Other income (expense), net. 2 (9) -- (7)
------- ---- --- ------
Earnings before income
taxes.................... 73 30 -- 103
Income tax expense.......... (45) (13) -- (58)
------- ---- --- ------
Net earnings.............. 28 17 -- 45
Dividend requirement on
redeemable preferred
stocks..................... -- -- (13)(11) (13)
------- ---- --- ------
Net earnings attributable
to common shareholders... $ 28 17 (13) 32
======= ==== === ======
Primary and fully diluted
earnings attributable to
common shareholders per
common and common
equivalent share........... $ .05 (13)
======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
F-34
<PAGE>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TCI/LIBERTY HOLDING COMPANY)
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------
TCIC LIBERTY PRO FORMA TCI
PRO FORMA PRO FORMA ADJUSTMENTS(1)(2) PRO FORMA
--------- --------- ----------------- ---------
AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
Revenue................... $ 4,440 1,264 (55)(9) 5,649
Operating, selling,
general and
administrative expenses
and compensation relating
to stock appreciation
rights................... (2,489) (1,213) 55 (9) (3,647)
Depreciation and
amortization............. (1,003) (59) -- (1,062)
------- ------ --- -------
Operating income (loss). 948 (8) -- 940
Interest expense.......... (755) (41) 9 (10) (787)
Interest and dividend
income................... 34 25 (9)(10) 50
Share of earnings (losses)
of affiliates, net....... (76) 9 -- (67)
Gain on disposition....... 44 32 -- 76
Loss on transactions with
TCIC..................... -- (30) -- (30)(12)
Loss on early
extinguishment of debt... (17) (7) -- (24)
Other expense, net........ (11) (6) -- (17)
------- ------ --- -------
Earnings (loss) before
income taxes........... 167 (26) -- 141
Income tax expense........ (170) (4) -- (174)
------- ------ --- -------
Net loss................ (3) (30) -- (33)
Dividend requirement on
redeemable preferred
stocks................... -- -- (26)(11) (26)
------- ------ --- -------
Net loss attributable to
common shareholders.... $ (3) (30) (26) (59)
======= ====== === =======
Loss per common share..... $ (.10)(14)
=======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
F-35
<PAGE>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TCI/LIBERTY HOLDING COMPANY)
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
(1) As of August 8, 1994, TCI, TCIC and TeleCable entered into a definitive
merger agreement whereby TeleCable will be merged into TCIC. The aggregate $1.6
billion purchase price will be satisfied by TCIC's assumption of approximately
$300 million of TeleCable's net liabilities and the issuance to TeleCable's
shareholders of shares of TCI Class A Common Stock (currently estimated to be
approximately 42 million shares) and 1 million shares of TCI Series D Preferred
Stock with an aggregate initial liquidation value of $300 million. The TCI
Series D Preferred Stock, which will accrue dividends at a rate of 5.5% per
annum, will be convertible into 10 million shares of TCI Class A Common Stock.
The TCI Series D Preferred Stock will be redeemable at the option of TCI after
five years and at the option of either TCI or the holder after ten years.
Although the amount of net liabilities to be assumed by TCIC and the number of
shares of TCI Class A Common Stock to be issued to TeleCable's shareholders are
subject to closing adjustments, management does not believe that any such
adjustments will be material. The merger agreement requires the approval of
TeleCable's shareholders and various franchise and government authorities.
(2) The TCI/Liberty Combination, which was consummated on August 4, 1994, was
structured as a tax free exchange whereby the common stock of TCIC and Liberty
and the preferred stock of Liberty were exchanged for like shares of TCI. Under
the merger agreement, each share of TCIC's and Liberty's common stock
(including shares held by TCIC's or Liberty's subsidiaries) was converted into
one share and 0.975 of a share, respectively, of the corresponding class of
TCI's common stock. Shares of Liberty Class E Preferred Stock were converted
into shares of a preferred stock of TCI having designations, preferences,
rights and qualifications, limitations and restrictions substantially identical
to the shares of preferred stock being converted. Shares of the remaining
Liberty preferred stock held by subsidiaries of TCIC were converted into shares
of a class or series of TCI preferred stock having an equivalent value.
(3) Represents the elimination of intercompany indebtedness between TCIC and
Liberty. See note (2) above.
(4) Represents the elimination of TCIC's minority interest in the equity of a
consolidated subsidiary of Liberty. See note (2) above.
(5) Represents the reclassification to treasury stock of shares of TCI held
by TCIC, Liberty or their respective subsidiaries previously reflected as
"Investment in TCI". All preferred stock of TCI held by TCIC or its
subsidiaries (also reflected in the TCIC pro forma financial information as
"Investment in TCI") has been eliminated in consolidation with TCI. See note
(2) above.
(6) Represents the elimination of temporary differences associated with
TCIC's and Liberty's investments in TCI preferred and common stock. See note
(2) above.
(7) Represents the issuance to TeleCable shareholders of TCI Series D
Preferred Stock and TCI Class A Common Stock in connection with the proposed
Merger.
(8) Reflects the net conversion of TCIC and Liberty common stock held other
than by TCIC, Liberty or their subsidiaries, at the exchange ratios described
in note 2, into like shares of TCI.
(9) Represents the elimination of intercompany revenue and operating expenses
between TCIC and Liberty arising from the sale of certain cable television
programming to their respective cable television subscribers. See note (2)
above.
F-36
<PAGE>
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY TCI/LIBERTY HOLDING COMPANY)
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(10) Represents the elimination of interest on intercompany indebtedness
between TCIC and Liberty. See note (2) above.
(11) Represents the dividend requirements on (i) TCI Series D Preferred Stock
(to be issued in connection with the proposed Merger--see note 1) and (ii) TCI
Class B Preferred Stock (issued in connection with the TCI/Liberty
Combination--see note 2).
(12) 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. See note (2) above.
(13) Reflects primary and fully diluted earnings per common and common
equivalent share based upon 652,017,732 weighted average shares. Such amount is
calculated utilizing (i) 492,134,730 weighted average shares of TCIC at June
30, 1994 (such amount representing TCIC's weighted average shares, as disclosed
in its historical financial statements) reduced by 6,525,721 shares of TCIC
common stock previously held by Liberty (ii) 127,799,557 weighted average
shares of Liberty at June 30, 1994 (such amount representing Liberty's weighted
average shares, as disclosed in its 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 TCIC and (iii) an estimated 42
million shares of TCI Class A Common Stock to be issued in connection with the
proposed Merger. Shares issuable upon conversion of the TCI Series D Preferred
Stock (see note 1) have not been included in the computation of weighted
average shares outstanding for the six months ended June 30, 1994 because their
inclusion would be anti-dilutive.
(14) Reflects loss per common share based upon 592,232,340 weighted average
shares. Such amount is calculated utilizing (i) 432,566,150 weighted average
shares of TCIC at December 31, 1993 (such amount representing TCIC's weighted
average shares, as disclosed in its historical financial statements) reduced by
6,525,721 shares of TCIC common stock previously held by Liberty (ii)
127,582,745 weighted averages shares of Liberty 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
HSN merger and Liberty common stock repurchased from TCIC 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 TCIC and
(iii) an estimated 42 million shares of TCI Class A Common Stock to be issued
in connection with the proposed Merger. Shares issuable upon conversion of the
TCI Series D Preferred Stock (see note 1) have not been included in the
computation of weighted average shares outstanding for the year ended December
31, 1993 because their inclusion would be anti-dilutive.
F-37
<PAGE>
APPENDIX I
Agreement and Plan of Merger
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") dated as of
August 8, 1994, by and among Tele-Communications, Inc., a Delaware corporation
("Parent"), TCI Communications, Inc., a Delaware corporation and a wholly owned
Subsidiary of Parent ("Sub"), and TeleCable Corporation, a Virginia corporation
(the "Company"):
Witnesseth:
Whereas, the Boards of Directors of Parent, Sub and the Company have approved
the acquisition of the Company by Parent;
Whereas, the Boards of Directors of Parent, Sub and the Company have approved
the merger of the Company into Sub (the "Merger"), upon the terms and subject
to the conditions set forth herein;
Whereas, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, defined terms used herein are listed in Section 11.9 hereof.
Now, Therefore, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions hereof,
on the Effective Date (as defined in Section 1.2), the Company shall be merged
into Sub in compliance with the provisions of the Delaware General Corporation
Law (the "DGCL") and the Virginia Stock Corporation Act (the "VSCA") and the
separate existence of the Company shall thereupon cease, and the name of Sub,
as the surviving corporation in the Merger (the "Surviving Corporation"), shall
remain "TCI Communications, Inc."
Section 1.2 Effective Date of the Merger. The parties hereto shall file
properly executed Articles of Merger with the State Corporation Commission of
the Commonwealth of Virginia and a properly executed Certificate of Merger with
the Secretary of State of the State of Delaware, which filings shall be made as
soon as practicable after the closing of the transactions contemplated by this
Merger Agreement in accordance with Section 3.8 hereof. When used in this
Merger Agreement, the term "Effective Date" shall mean the date and time at
which both such filings shall have been made.
Section 1.3 State Law. At the Effective Date, the Merger shall have the
effects set forth herein and the effects set forth in Section 252 of the DGCL
and Section 13.1-721 of the VSCA.
ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation. Subject to Section 8.6 hereof, the
Certificate of Incorporation of Sub shall be the Certificate of Incorporation
of the Surviving Corporation after the Effective Date, and thereafter may be
amended in accordance with its terms and as provided by law and this Merger
Agreement.
I-1
<PAGE>
Section 2.2 By-Laws. Subject to Section 8.6 hereof, the By-laws of Sub as in
effect on the Effective Date shall be the By-laws of the Surviving Corporation.
Section 2.3 Board of Directors; Officers. The directors of Sub immediately
prior to the Effective Date shall be the directors of the Surviving Corporation
and the officers of Sub immediately prior to the Effective Date shall be the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected and qualified.
ARTICLE III
Merger Value; Conversion of Shares
Section 3.1 Merger Value. Subject to adjustment as provided in Section 3.2,
the aggregate value of the consideration deliverable by Parent in the Merger
(the "Merger Value") shall be $1,600,000,000 (the "Base Merger Value"),
deliverable as follows: (i) 1,000,000 shares ($300,000,000 in aggregate initial
liquidation value) of Preferred Stock of Parent having the designation, rights
and preferences set forth in a certificate of designation in the form attached
as Exhibit A (such class of stock, "Parent Preferred Stock"); and (ii) the
balance in shares of Class A Common Stock of Parent (such class of stock,
"Parent Common Stock" and, together with Parent Preferred Stock, "Parent
Stock").
Section 3.2 Adjustment of Merger Value.
(a) To determine the Merger Value, the Base Merger Value shall be reduced by:
(i) the amount of Net Liabilities as of the Effective Date; and
(ii) the amount, if any, by which $1,540,000,000 exceeds 11.43 times
Annualized EBITDA as of the Effective Date.
(b) For purposes of this Section 3.2, "Net Liabilities" means the difference,
determined as of the Effective Date, without duplication, between: (x)(i) all
Liabilities (other than Liabilities for deferred taxes, Income Taxes, dividends
payable, deferred revenue from the sale of QVC stock, and minority interests
and any Liability caused by any action taken directly by Parent or Sub or any
Subsidiary of either of them (excluding actions taken by any of them pursuant
to this Agreement)) plus or minus (plus, if a payable, and minus, if a
receivable), (ii) all Income Taxes (excluding deferred taxes) receivable or
payable (excluding state and local income taxes arising as a result of
transactions described in Section 8.13 hereof) including, for any taxable
period that includes but does not end on the Effective Date, an accrual for
such Income Taxes through the Effective Date as if such period ended on the
Effective Date; and (y) (i) cash, cash equivalents, securities (excluding all
shares of the capital stock of Turner Broadcasting System, Inc. held by the
Company) and accounts receivable (excluding notes payable to the Company by
executives of the Company in connection with purchases of Company Common Stock
pursuant to the Company's Executive Stock Purchase Plans; provided, that, cash
obtained by the Company upon a sale or redemption of such notes shall not be
excluded from any calculation of Net Liabilities), plus (ii) prepaid expenses,
but only to the extent that the book value thereof can be realized after the
Effective Date. "Income Taxes" shall mean the Company's current but not
deferred federal, state and local income Taxes. The items taken into account in
the calculation of Net Liabilities, unless otherwise specifically provided,
shall be determined for the Company on a consolidated basis in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
with that applied in the preparation of the Company's financial statements as
of and for the year ended December 31, 1993.
(c) For purposes of this Section 3.2: (i) "EBITDA" means, for any particular
period, the earnings of the Company for such period, determined on a
consolidated basis in accordance with GAAP, before "home office operating
expenses" and extraordinary items and before deduction therefrom of any amount
on account of interest, gain or loss on disposal of assets, Income Taxes,
depreciation and amortization and all amounts attributable to minority
interests in any Subsidiary that is not wholly owned, directly or indirectly,
by the
I-2
<PAGE>
Company, it being agreed that EBITDA shall be calculated in a manner consistent
with that used by the Company in estimating its "revised system cash flow" for
1994, as set forth in a document entitled "TeleCable's Revised 1994 Budget"
dated June 14, 1994, a copy of which is attached hereto as Schedule 3.2(c); and
(ii) "Annualized EBITDA" means, as of any date of determination, 400% of the
EBITDA for the most recent period of three full calendar months ended prior to
such date.
Section 3.3 Adjustment Procedures.
(a) Not later than a date that the Company reasonably believes is 20 business
days prior to the Effective Date the Company shall deliver to Parent a
schedule, accompanied by all reasonably necessary supporting information,
setting forth the Company's reasonable and good faith estimates of Net
Liabilities, Annualized EBITDA and Merger Value, all such estimates to be as of
the Effective Date. Such schedule shall be accompanied by a certificate of the
chief financial officer of the Company to the effect that the estimates
contained therein were made in good faith and on a reasonable basis. Following
receipt of such schedule, Parent shall have 10 business days to review such
schedule and supporting information and to notify the Company of any
disagreements with the Company's estimates contained thereon. If Parent
provides a notice of disagreement with the Company's estimate of the Merger
Value contained in such schedule within such 10 business day period, Parent and
the Company shall negotiate in good faith to resolve any such dispute and to
reach an agreement prior to the Effective Date on the estimated Merger Value as
of the Effective Date. The estimate so agreed upon by Parent and the Company or
(if the parties do not reach such an agreement on the estimated amount of the
Merger Value prior to the Effective Date or if Parent fails to provide a notice
of disagreement with the Company's estimate of the Merger Value within the time
provided) the estimate of the Merger Value contained in the schedule delivered
to Parent by the Company, shall be the basis for determining the amount of
Parent Common Stock issuable immediately after the Effective Date, subject to
further adjustment as provided in this Section. Not later than a date that the
Company reasonably believes (and provides notice to the Parent at least 5
business days before such date) is 45 business days prior to the Effective
Date, the Parent shall deliver to the Company a list (the "Prepayment List") of
all indebtedness for borrowed money of the Company that the Parent desires the
Surviving Corporation to prepay. The schedule delivered by the Company pursuant
to this Section 3.3(a) shall, in its calculation of Net Liabilities, include as
Liabilities, any penalties or premiums payable upon the prepayment of the
indebtedness included on the Prepayment List (whether or not the Company has
taken any action that would legally obligate the Company to pay any such
penalty or premium).
(b) Not later than 60 days following the Effective Date, Parent shall deliver
or cause to be delivered to Shareholders' Representative a schedule
substantially in the form of the schedule described in subsection (a) above
providing detailed calculations, as of the Effective Date, of Net Liabilities,
Annualized EBITDA and the Merger Value, together with all reasonably necessary
supporting information. Such calculations shall be accompanied by a certificate
of a vice president of Parent that such calculations were prepared in good
faith and on a reasonable basis. With respect to the indebtedness listed on the
Prepayment List, the schedule provided pursuant to this Section 3.3(b) shall
reflect in its calculation of Net Liabilities only those penalties or premiums
payable upon prepayment of such indebtedness as the Surviving Corporation (i)
has actually paid as of the date such schedule is delivered or (ii) is, as of
the date such schedule is delivered, irrevocably legally obligated to pay
thereafter.
(c) Following receipt of the information referred to in subsection (b) above,
Shareholders' Representative shall have 10 business days to review such
information and to notify Parent in writing of any disagreement with Parent's
calculations, which notice shall specify in reasonable detail the nature and
extent of such disagreement.
(d) If Shareholders' Representative fails to provide a notice of disagreement
with Parent's calculations of Net Liabilities, Annualized EBITDA and the Merger
Value within the period specified in subsection (c) above, Parent's
calculations thereof referred to in subsection (b) above shall be final,
conclusive and nonappealable.
I-3
<PAGE>
(e) If Shareholders' Representative provides a notice of disagreement with
Parent's calculations within the period specified in subsection (c) above,
Parent and Shareholders' Representative shall negotiate in good faith to
resolve any such dispute for a period of 30 days following the notification
thereof. At the end of such period, if the dispute is not resolved or the
negotiation period has not been mutually extended, the matter shall be referred
to an independent public accounting firm selected by mutual agreement of the
parties (or, if the parties cannot agree to the selection of such a firm within
10 days after Shareholders' Representative shall have provided a notice of
disagreement, an independent public accounting firm selected by mutual
agreement of KPMG Peat Marwick and Price Waterhouse), which firm shall render
its decision as to whether Parent's position is correct, Shareholders'
Representatives' position is correct or some position between the two is
correct (together with an explanation of the basis therefor) to the parties to
the dispute not later than 45 days following submission of the dispute to it,
which decision shall be final, conclusive and nonappealable.
(f) Upon the final determination of Net Liabilities, Annualized EBITDA and
the Merger Value pursuant to subsections (b)-(e) above, (i) if the Merger Value
as of the Effective Date is determined to be less than the estimate of the
Merger Value made pursuant to subsection (a) above, the Merger Value shall be
deemed to be reduced by the amount of the difference, effective as of the
Effective Date, and Certificates representing the number of Holdback Shares, if
any, remaining after subtracting from the total number of Holdback Shares the
number of Holdback Shares determined by dividing (x) such reduction in the
Merger Value by (y) $24.00, shall be delivered to the shareholders of the
Company entitled thereto or (ii) if the Merger Value as of the Effective Date
is determined to be greater than the estimate of Merger Value made pursuant to
subsection (a) above, the Parent shall issue to the shareholders of the Company
entitled thereto the number of shares of Parent Common Stock (which shall
include all the Holdback Shares) equal to the difference between (a) the number
of shares issuable upon final determination of the Merger Value (based on a
$24.00 price per share) and (b) the number of shares of Parent Common Stock
previously issued to the shareholders of the Company based upon the estimate of
Merger Value pursuant to subsection (a) above.
(g) The Company and the Parent shall make the calculations required pursuant
to this Section 3.3 in a manner consistent with the accounting practices and
methodologies utilized by the Company in the preparation of its December 31,
1993 audited financial statements.
Section 3.4 Conversion of Shares. As of the Effective Date, by virtue of the
Merger and without any action on the part of any holder of any common stock of
the Company:
(a) Cancellation of Shares. All shares of Class A Common Stock of the
Company ("Company Class A Common Stock") and all shares of Class B Common
Stock of the Company ("Company Class B Common Stock" and collectively with
the Company Class A Common Stock, the "Company Common Stock") which are
held by the Company or any Subsidiary of the Company, and any shares of
Company Common Stock owned by Parent, Sub or any other Subsidiary of
Parent, shall be cancelled.
(b) Conversion Numbers. Each share of Company Common Stock issued and
outstanding immediately prior to the Merger (except shares subject to
Section 3.4(a)) shall be converted into and shall become (i) that number of
fully paid and nonassessable shares of Parent Common Stock equal to the
Common Conversion Number and (ii) that number of fully paid and
nonassessable shares of Parent Preferred Stock equal to the Preferred
Conversion Number. For purposes of this Merger Agreement: (A) "Common
Conversion Number" means the number determined as of the Effective Date by
dividing (x) the quotient resulting from dividing the Merger Value, less
$300,000,000, by $24.00 by (y) the total number of shares of Company Common
Stock outstanding at the Effective Date, including as shares of Company
Common Stock deemed to be outstanding for purposes of calculating the
Common Conversion Number, without duplication, shares issuable pursuant to
any outstanding option, warrant, convertible security or other right to
acquire Company Common Stock issued or granted by the Company, whether or
not then exercisable or convertible, but excluding shares of Company Common
Stock held by any Subsidiary of the Company; and (B) "Preferred Conversion
Number" means the number determined as of the Effective Date by dividing
(x) 1,000,000 by (y) the total number of shares of Company Common
I-4
<PAGE>
Stock outstanding at the Effective Date, including as shares of Company
Common Stock deemed to be outstanding for purposes of calculating the
Preferred Conversion Number, without duplication, shares issuable pursuant
to any outstanding option, warrant, convertible security or other right to
acquire Company Common Stock issued or granted by the Company, whether or
not then exercisable or convertible, but excluding shares of Company Common
Stock held by any Subsidiary of the Company.
(c) Adjustment to Conversion Numbers. (i) Except as provided in
subsection (ii) below, in the event of any stock dividend, stock split,
reclassification, recapitalization, combination or exchange of shares after
the date hereof with respect to, or rights issued in respect of, Parent
Common Stock, the Common Conversion Number and the Preferred Conversion
Number shall be adjusted accordingly; (ii) with respect to any stock or
rights offering made to the holders of Parent Common Stock by the Parent or
any Affiliate of the Parent, all (but not less than all) of the holders of
the Company Common Stock shall, with respect to the shares of Parent Common
Stock that are to be issued hereunder to them at the Effective Date, be
entitled to participate at the sole discretion of the Shareholders'
Representative, for all purposes, and subject to all requirements and
limitations of such offering as if they were holders of Parent Common Stock
as of the relevant time, and receive the benefits of such offering
effective as of the Effective Date.
(d) Dissenters' Rights. Notwithstanding anything in this Merger Agreement
to the contrary, but only in the circumstances and to the extent provided
by the VSCA, shares of Company Common Stock that are outstanding
immediately prior to the Effective Date and that are held by shareholders
who were entitled to but did not vote such shares in favor of the Merger
and who shall have properly and timely delivered to the Company a written
demand for payment of the fair value of shares of Company Common Stock in
the manner provided in, and shall have complied with all of the relevant
provisions of, Sections 13.1-730 et seq. of the VSCA ("Dissenting Shares")
shall not be converted into the right to receive, or be exchangeable for,
shares of Parent Stock. Instead, the holders thereof shall be entitled to
payment of the fair value of such shares in accordance with the provisions
of Section 13.1-737 of the VSCA; provided, however, that (i) if any holder
of Dissenting Shares shall subsequently withdraw his demand for payment of
the fair value of such Dissenting Shares or (ii) if any holder fails to
establish and perfect his entitlement to the relief provided in such
Section 13.1-735 of the VSCA, the rights and obligations of such holder to
receive such fair value shall terminate, and such Dissenting Shares shall
thereupon be deemed to have been converted into the right to receive, and
to have become exchangeable for, as of the Effective Date, shares of Parent
Stock in accordance with Section 3.4(b) hereof. Prior to the Effective
Date, the Company will not settle any demand with respect to any Dissenting
Shares without the consent of Parent, which consent will not be
unreasonably withheld or delayed.
(e) Holdback Shares. To effect the adjustments to the Merger Value,
Parent shall retain, out of the Parent Stock otherwise issuable immediately
after the Effective Date, 1,000,000 shares of Parent Common Stock (the
"Holdback Shares"), pending final determination of the Merger Value and
distribution of certificates representing that portion, if any, of the
Holdback Shares required to be delivered to the shareholders of the Company
entitled thereto, as provided in Section 3.3(f).
Section 3.5 Parent to Make Certificates Available. As soon as practicable
after the date hereof, Parent shall select Bank of New York, or such other
Person or Persons reasonably satisfactory to the Company, to act as Exchange
Agent for the Merger (the "Exchange Agent"). Prior to the Effective Date,
Parent shall make available to the Exchange Agent certificates ("Certificates")
representing the Parent Stock to be delivered in accordance with Section 3.4(b)
hereof. As soon as practicable after the Effective Date, each holder of Company
Common Stock will be entitled to receive, upon surrender to the Exchange Agent
of one or more certificates representing such stock for cancellation,
certificates representing the number of shares of Parent Common Stock and
Parent Preferred Stock into which such shares are converted in the Merger and
cash in consideration of fractional shares as provided in Section 3.7 hereof.
Parent Stock (other than Holdback Shares not required to be delivered) into
which Company Common Stock shall be converted in the Merger shall be deemed to
have been issued at the Effective Date.
I-5
<PAGE>
Section 3.6 Dividends; Transfer Taxes. Upon surrender by a Person of the
certificates representing Company Common Stock, there shall be paid to such
Person in whose name the Certificates representing Parent Common Stock and
Parent Preferred Stock shall be issued any dividends or other distributions
which shall have become payable with respect to such Parent Common Stock and
Parent Preferred Stock in respect of a record date after the Effective Date.
Any transfer taxes payable by the holders of Company Common Stock in connection
with the Merger and the conversion of Company Common Stock into Parent Stock
shall be paid by the Parent except that any transfer taxes payable as a result
of the issuance of Parent Stock to a Person other than the registered holder of
Company Common Stock as of the Effective Date shall be paid by the shareholder.
Section 3.7 No Fractional Shares. No certificates or scrip representing any
numbers other than a whole number of shares of Parent Common Stock or Parent
Preferred Stock shall be issued upon the surrender for exchange of certificates
representing Company Common Stock pursuant to Section 3.4(b) hereof. In lieu of
any such fractional share, each holder of Company Common Stock who would
otherwise have been entitled to a fraction of a share of Parent Common Stock or
Parent Preferred Stock upon surrender of certificates evidencing shares of
Company Common Stock for exchange, pursuant to Section 3.4(b) hereof, shall be
paid upon such surrender cash in an appropriate amount based upon the value of
the Parent Common Stock (determined by reference to the closing sale price
thereof on the last trading day preceding the Effective Date) and the initial
liquidation value of the Parent Preferred Stock.
Section 3.8 Shareholders' Approval. After the Registration Statement has been
declared and remains effective, the Company shall take all action necessary, in
accordance with applicable law and its Certificate of Incorporation and By-
laws, to have this Agreement and the transaction contemplated hereby approved
by the holders of capital stock of the Company. The Company shall notify Parent
of the date set for any shareholder action to be taken in connection with
approval of the Merger not later than 30 days prior to such date. Subject to
Section 8.9 hereof, the Board of Directors of the Company will recommend that
holders of Company Common Stock vote in favor of and approve the Merger and the
adoption of this Merger Agreement at the Company Meeting.
Section 3.9 Closing of the Company's Transfer Books. At the Effective Date,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall be made thereafter. In the event that,
after the Effective Date, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for Parent Common Stock and
Parent Preferred Stock and/or cash as provided in Sections 3.4(b) and 3.7.
Section 3.10 Assistance in Consummation of the Merger. Each of Parent, Sub
and the Company shall provide all reasonable assistance to, and shall cooperate
with, each other to bring about the consummation of the Merger as soon as
possible in accordance with the terms and conditions of this Merger Agreement.
Parent shall cause Sub to perform all of its obligations in connection with
this Merger Agreement.
Section 3.11 Closing. The closing of the transactions contemplated by this
Merger Agreement shall take place (i) at the offices of Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
at 9:00 A.M. local time on the date that is three business days after the day
on which the last of the conditions set forth in Article IX (excluding delivery
of opinions and certificates) is fulfilled or waived, but in no event prior to
October 1, 1994, or (ii) at such other time and place as Parent and Company
shall agree in writing.
ARTICLE IV
Representations and Warranties of Parent
Except as disclosed in this Merger Agreement (including the Schedules and
Exhibits hereto), Parent represents and warrants to the Company as follows:
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Section 4.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now
being conducted or currently proposed to be conducted. Parent is duly qualified
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities make such qualification necessary, except where
the failure to be so qualified will not, individually or in the aggregate, have
a Parent Material Adverse Effect.
Section 4.2 Capitalization of Parent. As of the date hereof, the authorized
capital stock of Parent consists of:
(a) One billion one hundred million (1,100,000,000) shares of Common
Stock designated as Class A Common Stock with a par value of $1.00 per
share; of which, as of August 4, 1994, 570,793,473 shares were issued and
outstanding (85,713,880 of which were owned by Subsidiaries of Sub);
9,750,836 shares were reserved for issuance pursuant to the 1994 Incentive
Stock Plan of Parent; and 38,710,990 shares were reserved for issuance
pursuant to convertible debt securities of Parent;
(b) One hundred fifty million (150,000,000) shares of Common Stock
designated as Class B Common Stock with a par value of $1.00 per share; of
which, as of August 4, 1994, 89,514,039 shares were issued and outstanding
(3,537,712 of which were owned by Subsidiaries of Sub); and no shares were
reserved for issuance;
(c) Seven hundred thousand (700,000) shares of Preferred Stock designated
as Class A Preferred Stock with a par value of $.01 per share; of which, as
of August 4, 1994, 592,798 shares were issued and outstanding (all of which
were owned by Subsidiaries of Sub);
(d) One million six hundred seventy five thousand and ninety six
(1,675,096) shares of Preferred Stock designated as Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock with a par value of $.01 per
share; of which, as of August 4, 1994, 1,675,096 shares were issued and
outstanding (55,070 of which were owned by Subsidiaries of Sub); and no
shares were reserved for issuance;
(e) Ten million (10,000,000) shares of Preferred Stock designated as
Series Preferred Stock with a par value of $.01 per share; of which, as of
August 4, 1994, no shares were issued; and
(f) Eighty thousand (80,000) shares designated as Preferred Stock, Series
C with a par value of $1.00 per share; of which, as of August 8, 1994,
70,559 shares were issued and outstanding; no shares were in treasury; and
no shares were reserved for issuance.
All issued and outstanding shares of Parent Common Stock and Class B Common
Stock have been duly authorized, validly issued and are fully paid and
nonassessable, and 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. Except as set forth in Parent's SEC Reports or as
described on Schedule 4.2 hereto, as of the date hereof there are no existing
options, warrants, calls or other rights, agreements or commitments of any
character, to which the Parent or any of its Subsidiaries is a party relating
to the issued or unissued capital stock of the Parent. All shares of Parent
Stock issuable in connection with the Merger will be, at the Effective Date,
duly authorized, validly issued and fully paid and nonassessable, and not
subject to and not issued in violation of any preemptive rights and have not
been issued in violation of any federal or state securities laws.
Section 4.3 Authority Relative to this Merger Agreement. Parent has the
corporate power to enter into this Merger Agreement and to carry out its
obligations hereunder. The execution and delivery of this Merger Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by Parent's Board of Directors and the Parent's Board of Directors
has authorized the voting of the Common Stock of the Sub in favor of the
Merger. This Merger Agreement constitutes a valid and binding obligation of
Parent enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court
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before which any proceeding therefor may be brought. No other corporate
proceedings on the part of Parent are necessary to authorize this Merger
Agreement and the transactions contemplated hereby. Neither Parent nor any of
its Subsidiaries is subject to or obligated under (i) any Governing Document or
(ii) any indenture or other loan document provision or any other contract,
license, franchise, permit, order, decree, concession, lease, instrument,
judgment, statute, law, ordinance, rule or regulation applicable to Parent or
any of its Subsidiaries or their respective properties or assets, which would
be breached or violated, or under which there would be a default (with or
without notice or lapse of time, or both), or under which there would arise a
right of termination, cancellation or acceleration of any obligation, Lien or
the loss of a benefit, by its executing and carrying out this Merger Agreement
other than, in the case of clause (ii) only, (A) any breaches, violations,
defaults, terminations, cancellations or accelerations, Liens or losses which,
individually or in the aggregate, will not have a Parent Material Adverse
Effect or prevent the consummation of the transactions contemplated hereby and
(B) the laws and regulations referred to in clauses (i) through (v) of the next
sentence. Except as referred to herein or in connection, or in compliance, with
the provisions of (i) the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (ii) the Securities Act of 1933, as amended (the
"Securities Act"), (iii) the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iv) the corporation, securities or blue sky laws or
regulations of the various states of the United States, and (v) the rules and
regulations of the relevant Governmental Entities, and provisions contained in
Franchises regarding transfer of ownership or control of Franchises and Federal
Communications Commission ("FCC") licenses, no filing or registration with, or
authorization, consent or approval of, any Governmental Entity is necessary for
the consummation by Parent and Sub of the Merger or the other transactions
contemplated by this Merger Agreement, other than filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not have a Parent Material Adverse Effect or prevent the consummation of
the transactions contemplated hereby.
Section 4.4 Reports and Financial Statements. Parent, Sub and Liberty Media
Corporation, a wholly owned subsidiary of Parent ("Liberty"), have previously
furnished or will furnish the Company with true and complete copies of their
respective (i) Annual Report on Form 10- K for the fiscal years ended December
31, 1993, December 31, 1992, and December 31, 1991, as filed with the
Securities and Exchange Commission (the "Commission"), (ii) Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994, as filed
with the Commission, (iii) proxy statements related to all meetings of its
shareholders (whether annual or special) since December 31, 1991, and (iv) all
other reports or registration statements filed by Parent, Sub or Liberty with
the Commission since December 31, 1991, as amended prior to the date hereof
(the documents described in clauses (i) through (iv) (together with all
subsequent filings referred to in the next two sentences) being referred to
herein collectively as the "Parent SEC Reports"). As of their respective dates
or effective dates, the Parent SEC Reports complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the Commission thereunder applicable
to such Parent SEC Reports, except as the same may have been corrected, updated
or superseded by means of a subsequent filing with the Commission prior to the
date hereof. As of their respective dates or effective dates and except as the
same may have been corrected, updated or superseded by means of a subsequent
filing with the Commission prior to the date hereof, the Parent SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Copies of all filings referred to in the previous sentence have been, or will
be, provided to the Company. Since January 1, 1990, Parent, Sub and Liberty
have filed with the Commission all reports required to be filed therewith by
each of them. The audited consolidated financial statements and unaudited
interim consolidated financial statements of Parent, Sub and Liberty included
in the Parent SEC Reports comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, and the financial statements included in the
Parent SEC Reports have been prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present, in all material respects, the respective consolidated
financial position of Parent and its Subsidiaries, Sub and its Subsidiaries and
Liberty and its Subsidiaries as at the dates thereof and the results of their
operations and cash flows for the periods then
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ended subject, in the case of the unaudited interim consolidated financial
statements, to normal year-end audit adjustments and any other adjustments
described therein.
Section 4.5 Absence of Certain Changes or Events. Except as described in the
Parent SEC Reports, since December 31, 1993, there has not been (i) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
which, individually or in the aggregate, has had, or in the future is likely to
have, a Parent Material Adverse Effect (other than as a result of changes in
laws or regulations of general applicability or any changes resulting from
general economic, financial or market conditions or affecting the cable
television industry in general) or (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the capital stock of Parent.
Section 4.6 Parent Action. The Board of Directors of Parent (at a meeting
duly called and held) has by the requisite vote of all directors present (a)
approved the Merger in accordance with the applicable provisions of Section 252
of the DGCL, (b) taken any necessary steps to render Section 203 of the DGCL
inapplicable to the Merger and the transactions contemplated by this Merger
Agreement, and (c) adopted a resolution having the effect of causing Parent not
to be subject, to the extent permitted by applicable law, to any state takeover
law that may purport to be applicable to the Merger and the transactions
contemplated by this Merger Agreement.
Section 4.7 Financial Advisor. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of Parent.
ARTICLE V
Representations and Warranties of the Company
Except as disclosed in this Merger Agreement (including the Schedules and
Exhibits hereto), the Company represents and warrants to Parent and Sub as
follows:
Section 5.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has the corporate power to carry on its business
as it is now being conducted or currently proposed to be conducted. The Company
is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not, individually
or in the aggregate, have a Company Material Adverse Effect.
Section 5.2 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 225,000 shares of Company Class A Common Stock
and 5,000,000 shares of Company Class B Common Stock. As of the close of
business on August 4, 1994, 116,555 shares of Company Class A Common Stock were
outstanding, 2,779,801 shares of Company Class B Common Stock were outstanding
and 4,877 shares of Company Class A Common Stock were held by a Subsidiary of
the Company. All issued and outstanding shares of Company Class A Common Stock
and Company Class B Common Stock have been duly authorized, 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 existing options, warrants,
calls or other rights, agreements or commitments of any character, to which the
Company or any of its Subsidiaries is a party, relating to the issued or
unissued capital stock or other securities of the Company.
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Section 5.3 Subsidiaries. The only Subsidiaries or entities (other than
Subsidiaries) in which the Company directly or through one or more of its
Subsidiaries holds a 5% or greater equity interest (each an "Equity Affiliate")
of the Company are those set forth on Schedule 5.3 hereto, which Schedule
reflects the percentage and nature of the Company's ownership of each such
Subsidiary or Equity Affiliate. Each of the Company's Subsidiaries is a
corporation or partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or formation and
has the corporate or partnership power to carry on its business as it is now
being conducted or currently proposed to be conducted. Each of the Company's
Subsidiaries is duly qualified as a foreign corporation or partnership to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary except where the failure to be so qualified will
not have a Company Material Adverse Effect. All the outstanding shares of
capital stock of each of the Company's Subsidiaries that is a corporation are
validly issued, fully paid and nonassessable. The shares of capital stock or
partnership or other ownership interests in each of the Company's Subsidiaries
or Equity Affiliates that are owned by the Company or by a Subsidiary of the
Company are owned free and clear of any Liens, 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. Except as set forth on
Schedule 5.3 hereto, there are no existing options, warrants, calls or other
rights, agreements or commitments of any character, to which the Company or any
of its Subsidiaries is a party, relating to the issued or unissued capital
stock, other securities or partnership or other ownership interests of any of
the Subsidiaries or Equity Affiliates of the Company.
Section 5.4 Authority Relative to this Merger Agreement. The Company has the
corporate power to enter into this Merger Agreement and, subject to approval of
this Merger Agreement by the holders of the Company Common Stock, to carry out
its obligations hereunder. The execution and delivery of this Merger Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by the Company's Board of Directors and Lehman Brothers Inc. has
orally advised the Company's Board of Directors that the consideration to be
received in the Merger is fair, from a financial point of view, to the
Company's shareholders taken as a whole. Subject to approval of the
shareholders of the Company in accordance with the VSCA, this Merger Agreement
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which
any proceeding therefor may be brought. Except for the approval of the holders
of Company Common Stock, no other corporate proceedings on the part of the
Company are necessary to authorize this Merger Agreement and the transactions
contemplated hereby. Except as set forth on Schedule 5.4 hereto and except as
provided in the Note Purchase Agreements or the Credit Agreement, neither the
Company nor any of its Subsidiaries is subject to or obligated under (i) any
Governing Document or (ii) any indenture or other loan document provision or
any other contract, license, franchise, permit, order, decree, concession,
lease, instrument, judgment, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or their respective
properties or assets which would be breached or violated, or under which there
would be a default (with or without notice or lapse of time, or both), or under
which there would arise a right of termination, cancellation or acceleration of
any obligation, Lien or the loss of a benefit, by its executing and carrying
out this Merger Agreement, other than, in the case of clause (ii) only, (A) any
breaches, violations, defaults, terminations, cancellations or accelerations,
Liens or losses which, either individually or in the aggregate, will not have a
Company Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby and thereby and (B) the laws and regulations referred to in
clauses (i) through (iv) of the next sentence. Except as referred to herein or,
with respect to the Merger or the transactions contemplated thereby, in
connection, or in compliance with, the provisions of (i) the HSR Act, (ii) the
Securities Act, (iii) the corporation, securities or blue sky laws or
regulations of the various states of the United States and (iv) the rules and
regulations of the relevant Governmental Entities or the provisions of
Franchises regarding transfer of ownership or control of Franchises and FCC
licenses, no filing or registration with, or authorization, consent or approval
of, any Governmental Entity is necessary for the
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consummation by the Company of the Merger or the other transactions
contemplated hereby, other than filings, registrations, authorizations,
consents or approvals the failure of which to make or obtain would not have a
Company Material Adverse Effect or prevent the consummation of the transactions
contemplated hereby.
Section 5.5 Reports and Financial Statements. The Company has previously
furnished Parent with copies of audited financial statements for the fiscal
years ended December 31, 1993, December 31, 1992 and December 31, 1991 (the
"Company Reports") and a copy of the interim financial statements for the six-
month period ended June 30, 1994 (the "Interim Company Reports"). The Company
Reports have been prepared in accordance with GAAP applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present, in all material respects, the financial position of the Company and
its Subsidiaries as of the dates indicated therein and the consolidated results
of their operations and cash flows for the periods then ended. The Interim
Company Reports have been prepared in a manner consistent with past practice
(except as may be indicated therein or in the notes thereto) and fairly present
the financial position of the Company and its Subsidiaries as of the dates
indicated therein and the consolidated results of their operations for the
periods then ended, subject to normal year-end audit adjustments and any other
adjustments described therein.
Section 5.6 Absence of Certain Changes or Events. Except as set forth on
Schedule 5.6 hereto, since December 31, 1993, there has not been (i) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
which, individually or in the aggregate, has had, or in the future is likely to
have, a Company Material Adverse Effect (other than as a result of changes in
laws or regulations of general applicability or any changes resulting from
general economic, financial or market conditions or affecting the cable
television industry in general), (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to the capital stock of the Company (except for regularly scheduled
cash dividends out of current earnings at an annual rate not greater than $3.00
per share of Company Common Stock (the "Regular Company Dividends"), or (iii)
any entry into any commitment or transaction material to the Company and its
Subsidiaries taken as a whole (including, without limitation, any borrowing or
sale of assets) except in the ordinary course of business consistent with past
practice or except as contained in the Company's capital budget set forth as
Schedule 5.6 ("Capital Budget"). As of December 31, 1993, the Company did not
have any indebtedness, liability or obligation of the type required by GAAP,
consistently applied, to be reflected on a balance sheet that is not reflected
or reserved against in the Company's balance sheet dated as of December 31,
1993, except for such indebtedness, liability or obligations as do not have a
Company Material Adverse Effect.
Section 5.7 Litigation. Except as set forth on Schedule 5.7 hereto, there is
no suit, action or proceeding pending or, to the Knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries that has
had or is likely to have a Company Material Adverse Effect nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against the Company or any of its Subsidiaries that has had or is likely to
have a Company Material Adverse Effect.
Section 5.8 Labor and Employee Matters. There are no collective bargaining
agreements or employment agreements to which the Company or any of its
Subsidiaries is a party (together, the "Company Labor Contracts"). To the
Knowledge of the Company, no default exists with respect to the obligations of
the Company or any of its Subsidiaries under any Company Labor Contracts, which
default, individually or in the aggregate, has had or is likely to have a
Company Material Adverse Effect. Since December 31, 1993, there have been no
disputes or grievances subject to any grievance procedure, unfair labor
practice proceedings, arbitration or litigation under any Company Labor
Contracts, which have not been finally resolved, settled or otherwise disposed
of, or, to the Knowledge of the Company and its Subsidiaries, the failure of
which to resolve, settle or otherwise dispose of, individually or in the
aggregate, has had or is likely
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to have a Company Material Adverse Effect. Since December 31, 1993, there have
been no strikes, lockouts or work stoppages or slowdowns that have had, or are
likely to have, a Company Material Adverse Effect, or to the Knowledge of the
Company and its Subsidiaries, jurisdictional disputes or organizing activity
occurring or threatened with respect to the business or operations of the
Company or its Subsidiaries that have had, or are likely to have, a Company
Material Adverse Effect. The Company and its Subsidiaries are in compliance
with all laws relating to the employment of the employees, including any
obligations relating to employment standards legislation, pay equity,
occupational health and safety, labor relations and human rights legislation
except for such failures to comply as do not have, and are not likely to have,
a Company Material Adverse Effect. There are no outstanding labor relations
board, occupational health and safety or human rights investigations,
complaints, prosecutions or orders which could reasonably be expected to have a
Company Material Adverse Effect.
Section 5.9 ERISA.
(a) Schedule 5.9(a) hereto sets forth all "employee benefit plans," as
defined in ERISA, and all other material employee benefit arrangements,
programs or payroll practices, including, without limitation, severance pay,
sick leave, vacation pay, salary continuation for disability, deferred
compensation, bonus, stock purchase, hospitalization, medical insurance, life
insurance, tuition reimbursement, employee assistance and employee discounts,
that the Company or any trade or business (whether or not incorporated) which
is treated as a single employer with the Company under Section 414(b), (c), (m)
or (o) of the Code ("Code Affiliate") maintains or has an obligation to make
contributions (the "Company Benefit Plans").
(b) Neither the Company nor any Code Affiliate has incurred any unsatisfied
withdrawal liability, as defined in Section 4201 of ERISA, with respect to any
multiemployer plan, nor has any of them incurred any liability due to the
termination or reorganization of any multiemployer plan, except for any such
liability which would not have a Company Material Adverse Effect. To the
Knowledge of the Company, neither the Company nor any of its Code Affiliates
reasonably expects to incur any liability due to a withdrawal from or
termination or reorganization of a multiemployer plan, except for any such
liability which would not have a Company Material Adverse Effect.
(c) Each Company Benefit Plan that is intended to qualify under Section 401
of the Code and the trust maintained pursuant thereto has been determined to be
exempt from federal income taxation under Section 501 of the Code by the
Internal Revenue Service, and to the Knowledge of the Company, nothing has
occurred with respect to any such plan since such determination which could
reasonably be expected to result in the loss of such exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.
Each Company Benefit Plan has at all times been maintained in all material
respects, by its terms and in operation, in accordance with all applicable
laws.
(d) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under the Company
Benefit Plans or by law (without regard to any waivers granted under Section
412 of the Code) to any funds or trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extension), and no accumulated funding deficiency exists with respect to any of
the Company Benefit Plans subject to Section 412 of the Code.
(e) No Company Benefit Plan which is subject to Title IV of ERISA has: (i) an
accumulated benefit obligation that exceeds the assets of such plan, determined
as of the last applicable annual valuation date using the actuarial methods,
factors and assumptions used for the most recent actuarial report with respect
to such plan prepared in accordance with Statement Number 87 of the Financial
Accounting Standards Board, or (ii) been a plan with respect to which there has
been a "reportable event," as defined in Section 4043 of ERISA and the
regulations thereunder, which would require the giving of notice to the PBGC.
Except for premiums paid to the PBGC, neither the Company nor any Code
Affiliate has incurred or reasonably expects to incur any liability under
Section 4062 or 4063 of ERISA to the PBGC, or any trustee appointed under
Section 4042 of ERISA, except for any such liability which would not have a
Company Material Adverse Effect.
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(f) To the Knowledge of the Company, there have been no violations of ERISA
or the Code with respect to the filing of applicable reports, documents and
notices regarding the Company Benefit Plans with the Secretary of Labor and the
Secretary of the Treasury or the furnishing of such reports, documents and
notices to the participants or beneficiaries of the Company Benefit Plans,
except for such violations which, individually or in the aggregate, would not
have a Company Material Adverse Effect.
(g) There are no pending actions, claims or lawsuits which have been asserted
or instituted against the Company Benefit Plans, the assets of any of the
trusts under such plans or the plan sponsor or the plan administrator, or
against any fiduciary of the Company Benefit Plans with respect to the
operation of such plans (other than routine benefit claims), nor does the
Company have Knowledge of facts which could reasonably form the basis for any
such actions, claims or lawsuits, except for any such actions, claims or
lawsuits which, individually or in the aggregate, would not have a Company
Material Adverse Effect.
(h) Except as provided in Schedule 5.9(h) and as may be required under
Section 4980B of the Code, neither the Company nor any Code Affiliate maintains
any Company Benefit Plan that provides medical or welfare benefits to former
employees.
Section 5.10 Company Action. The Board of Directors of the Company (at a
meeting duly called and held or by unanimous written consent) has by the
requisite vote of all directors (a) determined that the Merger is advisable and
fair and in the best interests of the Company and its shareholders, (b)
approved the Merger in accordance with the provisions of Section 13.1-718 of
the VSCA, (c) recommended the approval of this Merger Agreement and the Merger
by the holders of the Company Common Stock and directed that the Merger be
submitted for consideration by the Company's shareholders at the Meeting and
(d) adopted a resolution having the effect of causing the Company not to be
subject, to the extent permitted by applicable law, to any state takeover law
that may purport to be applicable to the Merger and the transactions
contemplated by this Merger Agreement.
Section 5.11 Financial Advisor. Except for Lehman Brothers Inc. (whose fee
will be paid by the Company), no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of the Company.
Section 5.12 Compliance with Applicable Laws.
(a) Except as set forth on Schedule 5.12 hereto, the Company and its
Subsidiaries hold all permits, licenses, franchises, variances, exemptions,
concessions, leases, instruments, orders and approvals (the "Company Permits")
of all courts, administrative agencies or commissions or other governmental
authorities or instrumentalities, domestic or foreign (each, a "Governmental
Entity"), except for such Company Permits the failure of which to hold,
individually or in the aggregate, does not have and, in the future is not
likely to have, a Company Material Adverse Effect. To the Company's Knowledge,
the Company and its Subsidiaries are in compliance with the terms of the
Company Permits, except for such failures to comply, which individually or in
the aggregate, would not have a Company Material Adverse Effect. Except as set
forth on Schedule 5.12 hereto, to the Company's Knowledge, the businesses of
the Company and its Subsidiaries are not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for such
violations which, individually or in the aggregate, would not have a Company
Material Adverse Effect. No investigation or review by any Governmental Entity
with respect to the Company or any of its Subsidiaries is pending, or, to the
Knowledge of the Company, threatened, nor has any Governmental Entity indicated
to the Company an intention to conduct the same, other than those the outcome
of which would not have a Company Material Adverse Effect.
(b) To the Company's Knowledge, the Company and each of its Subsidiaries have
made all submissions (including, without limitation, registration statements)
required under the Communications Act of 1934, as amended, the Cable
Communications Policy Act of 1984, as amended, and the Cable Television
Consumer
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Protection and Competition Act of 1992 (collectively, the "Communications
Act"), and the applicable rules and regulations thereunder (the "Rules and
Regulations"), and has obtained all necessary FCC authorizations, licenses,
registrations, permits and tower approvals, except for such authorizations,
licenses, registrations, permits and tower approvals as are not necessary for
the consummation of the transactions contemplated hereby.
Section 5.13 Taxes. Except as set forth on Schedule 5.13 hereto, the Company
and each of its Subsidiaries have timely filed all Tax returns required to be
filed by any of them and have timely paid (or the Company has paid on its
behalf), or has set up an adequate reserve for the payment of, all Taxes
claimed by the Company to be owed in respect of the periods covered by such
returns. The information contained in such Tax returns is true, complete and
accurate in all material respects. Neither the Company nor any Subsidiary of
the Company is delinquent in the payment of any material Tax, assessment or
governmental charge. Except as set forth on Schedule 5.13 hereto, no material
deficiencies for any Taxes have been proposed, asserted or assessed against the
Company or any of its Subsidiaries that have not been finally settled or paid
in full, and no requests for waivers of the time to assess any such Tax are
pending. For the purposes of this Merger Agreement, the term "Tax" shall
include all federal, state, local and foreign income, profits, estimated,
franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties and assessments of any nature
whatsoever together with all interest, penalties and additions imposed with
respect to such amounts.
Section 5.14 Environmental Laws. Except as described on Schedule 5.14:
(a) each of the Company and its Subsidiaries is in compliance in all
material respects with all Environmental Laws; and
(b) no orders, directions or notices have been issued pursuant to any
Environmental Law and no Governmental Entity has submitted to any of the
Company and its Subsidiaries any request for information pursuant to any
Environmental Law.
Section 5.15 Intellectual Property. To the Knowledge of the Company, the
conduct of its business does not infringe, in any material way, upon the
patents, trademarks, copyrights, trade names or other intellectual property
rights, domestic or foreign, of any Person except for such infringements as do
not have a Company Material Adverse Effect. No Person has asserted any claim to
the Company with respect to any such infringement except for such infringements
as do not have a Company Material Adverse Effect.
Section 5.16 Company Representation. To the Knowledge of the Company, (other
than an exchange undertaken with respect to any stock or rights offering
contemplated by Section 3.4(c) hereof) there is no present plan or intention on
the part of those shareholders of the Company who, individually, own less than
5% of the outstanding Company Common Stock (collectively, the "5%
Shareholders") to sell, exchange or otherwise dispose of, in the aggregate, a
number of shares of Parent Common Stock that would have a value exceeding 60%
of the aggregate value of Parent Stock to be received by the 5% Shareholders in
the Merger, such value to be measured at the Effective Date.
ARTICLE VI
Representations and Warranties Regarding Sub
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
Section 6.1 Organization and Qualification. Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now
being conducted or currently proposed to be conducted. Sub is duly qualified as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the
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failure to be so qualified will not, individually or in the aggregate, have a
Parent Material Adverse Effect. Certified copies of the Certificate of
Incorporation and By-laws of the Sub have been delivered to the Company.
Section 6.2 Capitalization. The authorized capital stock of Sub consists of
1,000,000 shares of Common Stock par value $1.00 per share divided into the
following classes: 905,553 shares of Common Stock designated as Class A Common
Stock with a par value of $1.00 per share, of which 811,655 are issued and
outstanding and 94,447 shares of Common Stock with a par value of $1.00 per
share, of which 94,447 are issued and outstanding.
Section 6.3 Authority Relative to this Merger Agreement. Sub has the
corporate power to enter into this Merger Agreement and to carry out its
obligations hereunder. The execution and delivery of this Merger Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by its Board of Directors and sole shareholder, and no other
corporate proceedings on the part of Sub are necessary to authorize this Merger
Agreement and the transactions contemplated hereby. Except as referred to
herein or in connection, or in compliance, with the provisions of (i) the HSR
Act, (ii) the Securities Act, (iii) the Exchange Act, (iv) the corporation,
securities or blue sky laws or regulations of the various states and (v) the
rules and regulations of the relevant Governmental Entities and provisions
contained in Franchises regarding transfer of ownership or control of
Franchises and FCC licenses, no filing or registration with, or authorization,
consent or approval of, any Governmental Entity is necessary for the
consummation by Sub of the Merger or the other transactions contemplated by
this Merger Agreement, other than filings, registrations, authorizations,
consents or approvals the failure of which to make or obtain would not prevent
the consummation of the transactions contemplated hereby. This Merger Agreement
constitutes a valid and binding obligation of Sub enforceable in accordance
with its terms except as enforcement may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
ARTICLE VII
Conduct of Business Pending the Merger
Section 7.1 Conduct of Business by the Company Pending the Merger. Prior to
the Effective Date, unless Parent shall otherwise agree in writing or as set
forth on Schedule 7.1 hereto:
(i) The Company shall, and shall cause its Subsidiaries to, carry on
their respective businesses in the ordinary course, and shall, and shall
cause its Subsidiaries to, use their reasonable best efforts to preserve
intact their present business organizations and preserve their
relationships with customers, suppliers and others having business dealings
with them;
(ii) except as required or permitted by this Merger Agreement the Company
shall not (A) sell or pledge or agree to sell or pledge any capital stock
owned by it in any of its Subsidiaries, (B) amend or propose to amend its
Certificate of Incorporation or By-laws, (C) split, combine or reclassify
its outstanding capital stock or issue or authorize or propose the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of capital stock of the Company, declare, set aside or pay any
dividend or other distribution payable in cash, stock or property (other
than Regular Company Dividends), (D) directly or indirectly redeem,
purchase or otherwise acquire or agree to redeem, purchase or otherwise
acquire any shares of capital stock of the Company, or (E) agree to do any
of the foregoing;
(iii) the Company shall not, nor shall it permit any of its Subsidiaries
to, (A) except as required by this Merger Agreement, issue, deliver or sell
or agree to issue, deliver or sell any additional shares of, or rights of
any kind to acquire any shares of, its capital stock of any class, or any
option, rights or warrants to acquire, or securities convertible into,
shares of capital stock, (B) acquire, lease or dispose of or agree
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to acquire, lease or dispose of any capital assets or any other assets,
other than in the ordinary course of business or pursuant to the Capital
Budget; provided, notwithstanding anything to the contrary in this Merger
Agreement, the Company may (1) sell at book value any or all shares of
preferred stock of certain Subsidiaries of Landmark Communications, Inc.
owned by the Company or its Subsidiaries and (2) may sell or permit the
redemption of, at the lesser of face value and fair-market value, certain
notes having in the aggregate a face value of no greater than $3,541,587
issued to the Company by executives of the Company in connection with
purchases of Company Common Stock pursuant to the Company's Executive Stock
Purchase Plans; (C) create, assume or incur any additional indebtedness for
borrowed money or mortgage, pledge or subject to any Lien any of its assets
or enter into any other material transaction other than in each case in the
ordinary course of business consistent with past practice or otherwise
pursuant to existing credit facilities; (D) make any payments with respect
to any indebtedness of the Company or its Subsidiaries except for such
payments that are scheduled to come due prior to the Effective Date; (E)
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, in each case in this Clause (E) which are
material, individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole, except that the Company may acquire new
Franchises, or interests therein, in the ordinary course of business; or
(F) agree to do any of the foregoing;
(iv) the Company shall not, nor shall it permit, any of its Subsidiaries
to, except as required to comply with applicable law or existing contracts
or plans, (A) adopt or terminate or amend any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, employment or other Company Benefit Plan, agreement,
trust, fund or other arrangement for the benefit or welfare of any
director, officer or current or former employee, (B) increase in any manner
the compensation or fringe benefit of any director, officer or employee
(except for normal increases in the ordinary course of business consistent
with past practice), (C) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Company Benefit
Plan (except for such awards made in the ordinary course of business
consistent with past practice unless such award is otherwise prohibited
under Section 7.1(iii)(A)), (D) take any action to fund or in any other way
secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or Company Benefit Plan (except for such
actions made in the ordinary course of business consistent with past
practice) or (E) agree to do any of the foregoing;
(v) the Company shall not make any affirmative election with respect to
any cost of service proceeding conducted in accordance with Part 76.922 of
Title 47 of the Code of Federal Regulations or any similar proceeding;
(vi) the Company shall (A) make capital expenditures in accordance with
the Capital Budget; provided, that the Company may make such departures
from the Capital Budget as are consistent with recent past practice;
(vii) the Company shall not, and shall cause its Subsidiaries not to
take, or agree in writing or otherwise to take, any actions that would (i)
make any representation or warranty of the Company contained in this Merger
Agreement untrue or incorrect so as to cause the condition set forth in
Section 9.3(a) hereof not to be fulfilled as of the Effective Date or, (ii)
result in any of the other conditions of this Merger Agreement set forth in
Section 9.3 hereof not being satisfied as of the Effective Date; provided,
that, the Parent's and Sub's sole remedy (except as otherwise expressly
provided in this Merger Agreement) for any breach of this Section 7.1(vii)
shall be injunctive relief;
(viii) the Company shall consult with Parent concerning, and permit
Parent to participate in, any proceedings for or negotiations with respect
to (A) any Franchise that is subject to renewal between the date of this
Merger Agreement and the Effective Date and (B) obtaining the consent of
any Governmental Authority with respect to the transfer of ownership or
control of any Franchise in connection with the transactions contemplated
by this Agreement; and
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(ix) the Company shall not amend, alter or otherwise modify the
provisions of, or agree to undertake any obligation not required to be
performed under, the provisions of any Franchise of the Company as of the
date hereof that would materially increase the obligations of the Company
under such Franchise if included as an amendment thereto. Nothing in this
Section 7.1 shall prevent the Company from engaging in any transaction with
its Subsidiaries or prevent the Subsidiaries from engaging in any
transaction with other Subsidiaries of the Company.
Section 7.2 Conduct of Business by Parent Pending the Merger. Prior to the
Effective Date, unless the Company shall otherwise agree in writing or except
as otherwise contemplated or permitted by this Merger Agreement: (a) Parent
shall not, and shall cause its Subsidiaries not to take, or agree in writing or
otherwise to take, any actions that would (i) make any representation or
warranty of Parent or its Subsidiaries contained in this Merger Agreement
untrue or incorrect so as to cause the condition set forth in Section 9.2(a)
hereof not to be fulfilled as of the Effective Date or (ii) result in any of
the other conditions of this Merger Agreement not being satisfied as of the
Effective Date. Company's sole remedy (except as otherwise expressly provided
in this Merger Agreement) for any breach of this Section 7.2 shall be
injunctive relief.
ARTICLE VIII
Additional Agreements
Section 8.1 Access and Information. Except as otherwise required pursuant to
a contractual obligation that exists as of the date of this Merger Agreement,
each of the Company and Parent and their respective Subsidiaries shall afford
to the other and to the other's accountants, counsel and other representatives
full access during normal business hours (and at such other times as the
parties may mutually agree) throughout the period prior to the Effective Date
to all of its properties, books, contracts, commitments, records and personnel
and, during such period, each shall furnish promptly to the other a copy of
each report, schedule and other document filed or received by it pursuant to
the requirements of federal or state securities laws. Each of the Company and
Parent shall hold, and shall cause their respective employees and agents to
hold, in confidence all such information in accordance with the terms of the
Confidentiality Agreement dated December 13, 1993 between Parent and the
Company (the "Confidentiality Agreement").
Section 8.2 Registration Statement.
(a) As promptly as reasonably practicable after the execution of this Merger
Agreement, the Parent shall prepare and file with the Commission the
Registration Statement on Form S-4 (the "Registration Statement") with respect
to the Parent Common Stock and the Parent Preferred Stock to be issued in
connection with the Merger and the Parent Common Stock into which the Parent
Preferred Stock is convertible under any circumstances, and shall for three
years from the Effective Date keep the Registration Statement effective with
respect to 5,000,000 shares of Parent Common Stock and 125,000 shares of Parent
Preferred Stock (which numbers shall not be reduced as a result of any resales
made pursuant to the Registration Statement) to permit resales of Parent Common
Stock (including Parent Common Stock that is issuable upon any conversion or
exchange of the Parent Preferred Stock) thereunder by Affiliates of the
Company. As promptly as reasonably practicable after comments are received from
the Commission with respect to the Registration Statement, the Parent shall
file with the Commission any amendments to the Registration Statement required
to be filed with the Commission and Parent shall use all reasonable efforts to
cause the Registration Statement to become effective as soon thereafter as
practicable. The form and content of the filings referred to in this Section
8.2(a) shall be reasonably satisfactory to the Company.
(b) Parent and the Company shall make all other necessary filings with
respect to the Merger under the Securities Act and the Exchange Act and the
rules and regulations thereunder, and under applicable blue sky
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or similar securities laws and shall use all reasonable efforts to obtain
required approvals and clearances with respect thereto (the "Other Filings").
(c) On or before the Effective Date, Parent shall enter into a Registration
Rights Agreement (the "Registration Rights Agreement") with the Affiliates of
the Company identified pursuant to Section 8.3, in the form attached hereto as
Exhibit B.
(d) The Company shall cooperate with Parent and provide Parent all
information required to be included in the Registration Statement and the Other
Filings and shall provide promptly to Parent any information that the Company
may obtain that could necessitate amending any such document.
Section 8.3 Compliance with the Securities Act. Prior to the Effective Date,
the Company shall cause to be delivered to the Parent a letter from the
Company, identifying all Persons who were, in its opinion, at the time of the
Company Shareholders' meeting, "affiliates" of the Company as that term is used
in paragraphs (c) and (d) of Rule 145 under the Securities Act. Parent may
cause the Certificates evidencing Parent Stock issued to such Persons to bear a
legend referring to the applicability of paragraphs (c) and (d) of Rule 145
under the Securities Act.
Section 8.4 Listing. Parent shall use its best efforts to cause the shares of
Parent Common Stock issued in connection with the Merger and the Parent Common
Stock into which the Parent Preferred Stock issued in connection with the
Merger is convertible to be listed on the NASD/NM, subject to official notice
of issuance.
Section 8.5 Employee Arrangements.
(a) On or after the Effective Date, Parent shall, or shall cause its
Affiliates to, honor in accordance with their terms all obligations arising
with respect to current and former employees of the Company who participate in:
(i) the Severance Plan Covering Key Employees of Telecable Corporation and its
Operating Subsidiaries, (ii) the Severance Plan Covering Regular Full-Time Home
Office, Home Office Targeting and Greenbriar Telemarketing Employees of
Telecable Corporation and (iii) the Telecable Supplemental Benefit Plan. Each
Employee of the Company who is not covered by any Company severance pay plan or
policy on the Effective Date and whose employment is terminated without cause
by Parent or any of its Affiliates within six months of the Effective Date
shall be eligible for severance benefits under the severance plan or policy
maintained by Parent based on such terminated employee's combined service with
the Company, Parent and their respective Affiliates occurring prior to and
after the Effective Date.
(b) Except as provided in Section 8.5(a), Parent shall, or shall cause its
Affiliates to, recognize all service with the Company and any Affiliate thereof
of the Company's employees who become employees of Parent or Sub at or after
the Effective Date for the purposes of determining eligibility to participate,
vesting, eligibility for benefits and benefit accruals under any such "employee
benefit plan," as defined in Section 3(3) of ERISA, and all other Parent
employee benefit policies, programs, arrangements or practices, including,
without limitation, any sick leave, vacation pay, salary continuation for
disability, retirement, deferred compensation, bonus, stock purchase,
hospitalization, health, dental and life insurance benefits, maintained or to
which contributions are made by Sub or Parent for the benefit of their
respective employees following the Effective Date.
Section 8.6 Indemnification.
(a) Parent agrees that all rights to indemnification existing in favor of the
directors, officers or employees of the Company and its Subsidiaries as
provided in the Company's and its Subsidiaries' Certificates of Incorporation
and By-Laws (which shall be amended prior to the Effective Date, if necessary,
to grant the maximum indemnification permitted under applicable law, including,
without limitation, any mandatory indemnification and rights to receive
advances), with respect to matters occurring through the Effective Date
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shall survive the Merger, Parent (i) shall cause the Surviving Corporation to
continue to provide indemnification to the employees, officers and directors of
the Company to the fullest extent permitted under applicable law in full force
and effect for a period of not less than six years from the Effective Date and
(ii) subject to the occurrence of the Effective Date, Parent hereby guarantees
unconditionally full payment and performance of such indemnification. In the
event the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to any
Person, then, and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 8.6. Prior to the Effective Date, Parent shall
communicate in writing with each employee, officer and director of the Company
to confirm the Parent's obligation to such employees, officers and directors
under this Section 8.6.
(b) In the event that any action, suit, proceeding or investigation relating
hereto or to the transactions contemplated by this Merger Agreement is
commenced, whether before or after the Effective Date, the parties hereto agree
to cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
Section 8.7 HSR Act. The Company and Parent shall use their reasonable best
efforts to file as soon as reasonably practicable notifications under the HSR
Act in connection with the Merger and the transactions contemplated hereby and
to respond as promptly as reasonably practicable to any inquiries received from
the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") for additional information or
documentation and to respond as promptly as reasonably practicable to all
inquiries and requests received from any State Attorney General or other
Governmental Entity in connection with antitrust matters. The Company and
Parent shall take such actions as are reasonably necessary to overcome any
objections which may be raised by the FTC or Antitrust Division; provided,
however, that no actions will be required to be taken pursuant to this sentence
that would have a Combined Material Adverse Effect.
Section 8.8 Additional Agreements.
(a) Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Merger Agreement, including
using all reasonable efforts to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings (including, but
not limited to, filings under the HSR Act and with all applicable Governmental
Entities), and to lift any injunction or other legal bar to the Merger (and, in
such case, to proceed with the Merger as expeditiously as possible).
(b) In case at any time after the Effective Date any further action is
necessary or desirable to carry out the purposes of this Merger Agreement, the
Parent and the Company shall take all such reasonably necessary action.
(c) From and after the Effective Date, Parent shall conduct its business, and
shall cause Sub to conduct its business, in a manner that will not adversely
affect the characterization of the Merger as a "reorganization" within the
meaning of Section 368(a) of the Code.
(d) Prior to the Effective Date, Parent shall file with the Secretary of
State of Delaware the certificate of designation with respect to the Parent
Preferred Stock.
(e) The parties acknowledge that the holders of Company Common Stock listed
on Schedule 8.8(e)(i) (which Schedule also lists the number of shares of
Company Class A Common Stock and Company Class B Common Stock held by each such
holder) are, concurrent with the execution hereof, entering into a Voting
Agreement in the form attached as Exhibit C and the holders of Common Stock
listed on Schedule 8.8(e)(ii)
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(which Schedule also lists the number of shares of Company Class A Common Stock
and Company Class B Common Stock held by each such holder) are entering into a
Voting Agreement in the form attached hereto as Exhibit D. Further, the Company
agrees to use reasonable efforts to secure written agreements from the holders
(including, without limitation, those listed on Schedules 8.8(e)(i) and (ii))
of a sufficient number of shares of Company Class A Common Stock and Company
Class B Common Stock to ensure satisfaction of the condition set forth in
Section 9.1(a) hereof, such reasonable efforts to include the recommendation by
the Chairman of the Company's Board of Directors that such holders enter into
such an agreement.
Section 8.9 No Solicitation. Subject to the fiduciary duties of the Board of
Directors of the Company, as advised by outside counsel, neither the Company
nor any of its Subsidiaries or any of their respective officers, directors,
representatives or agents shall take any action to (i) initiate the submission
of any Acquisition Proposal, (ii) enter into any agreement with respect to any
Acquisition Proposal or (iii) participate in negotiations with any Person in
connection with any Acquisition Proposal. The Company will promptly communicate
to the Parent any solicitation or inquiry received by the Company and the terms
of any proposal or inquiry that it may receive in respect of any Acquisition
Proposal, or of any such information requested from it or of any such
negotiations or discussions being sought to be initiated with it. "Acquisition
Proposal" shall mean any proposed (A) merger, consolidation or similar
transaction involving the Company, (B) sale, lease or other disposition
directly or indirectly by merger, consolidation, share exchange or otherwise of
all or any substantial part of the assets of the Company or its Subsidiaries,
(C) issue, sale or other disposition of securities representing 50% or more of
the voting power of the Company Common Stock or (D) any transaction in which
any Person shall acquire beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act), or the right to acquire beneficial ownership or
any "group" (as such term is defined under the Exchange Act) shall have been
formed which beneficially owns or has the right to acquire beneficial ownership
of 50% or more of the outstanding Company Common Stock.
Section 8.10 Special Dividends. Notwithstanding anything else in this Merger
Agreement to the contrary:
(a) Prior to the Effective Date, the Company may, in lieu of its Regular
Company Dividends covering the period described in clause (i), declare a
special cash dividend on the Company Common Stock to holders of record of
such shares as of the record date established therefor (which record date
shall be prior to the Effective Date) with a payment date prior to or on
the Effective Date. Such special dividend may be in an amount per share not
greater than the product of (A) a fraction, (i) the numerator of which
equals the number of days between the record date with respect to the most
recent regular common stock dividend paid by the Company and the Effective
Date and (ii) the denominator of which equals 90, and (B) $.75.
(b) Upon written notice to Parent given within 45 days after the date of
this Merger Agreement, the Company may declare, in addition to the special
dividend described in subsection (a) of this Section, a special cash
dividend on the Company Common Stock to holders of record of such shares on
the record date established therefor (which record date shall be prior to
the Effective Date) with a payment date prior to the Effective Date in an
aggregate amount equal to "Free Cash Flow." "Free Cash Flow" means EBITDA
less the sum of (i) the Company's home office expenses, (ii) scheduled
payments of interest and principal on indebtedness for borrowed money and
(iii) capital expenditures, in each case as determined for the period from
July 1, 1994 to the end of the most recent month ending prior to the
Effective Date for which the information necessary to calculate Free Cash
Flow is then available.
Section 8.11 Cancellation of Stock Restrictions. Immediately prior to and
contingent upon the consummation of the Merger, all of the Company's rights to
repurchase shares of Company Common Stock acquired by the Company executives
pursuant to the Company's Executive Stock Purchase Plans in effect from time to
time, at the formula price stock set forth in related Stock Restriction
Agreements entered into between the Company and such executives, shall be
cancelled. Schedule 8.11 lists the shareholders and the number of shares to
which this action relates. Because Parent Common Stock is publicly traded and
freely
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transferable, no purpose would be served in continuing the Company's rights of
repurchase. Accordingly, the Company, Parent and Sub agree that such
cancellation is noncompensatory and that no consideration whatsoever will at
any time be required to be provided to the Company by the holders of Company
Common Stock affected by such cancellation. Because such cancellation is
noncompensatory, the Company, Parent and Sub irrevocably agree that no tax
deduction, credit, claim for refund or tax benefit of any nature will be
claimed by reason of such cancellation in any individual or consolidated tax
return filed by any of them for any tax year. On or before 30 days following
the Effective Date, Parent shall cause Sub to provide a written statement to
each of the shareholders listed on Schedule 8.11, which statement shall be
substantially in the form of Exhibit E hereto, which notice shall be prepared
by the Company and provided to Parent prior to the Effective Date.
Section 8.12 Information in Disclosure Documents, Registration Statements,
Etc. Each of Parent, Sub and the Company agrees that none of the information
supplied by it for inclusion in the Registration Statement for the purpose of
registering the shares of Parent Common Stock and Parent Preferred Stock to be
issued in the Merger and the Parent Common Stock into which the Parent
Preferred Stock is convertible, will at the time the Registration Statement
becomes effective and at the Effective Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Parent and Sub agree
that the Registration Statement will comply as to form in all material respects
with the provisions of the Securities Act and the rules and regulations
promulgated thereunder.
Section 8.13 Merger of Holding Companies into the Company. Prior to the
Effective Date the Company shall (i) cause its wholly owned Subsidiary,
TeleCable Investment Corporation, a Virginia corporation, to merge with and
into the Company's wholly owned Subsidiary, TeleCable Technologies, Inc., a
Virginia corporation ("TTI"), and (ii) thereafter cause TTI to merge with and
into the Company, with the Company as the surviving corporation.
ARTICLE IX
Conditions Precedent
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) This Merger Agreement and the transactions contemplated hereby shall
have been duly approved by the holders of the Company Common Stock.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act and any necessary state
securities law approvals shall have been obtained. No stop order suspending
the effectiveness of the Registration Statement shall have been issued by
the Commission and remain in effect.
(d) No preliminary or permanent injunction or other order by any federal
or state court in the United States which prevents the consummation of the
Merger shall have been issued and remain in effect (each party agreeing to
use its reasonable best efforts to have any such injunction lifted).
Section 9.2 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Date of the additional following
conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material respects their
agreements contained in this Merger Agreement required to be performed on
or prior to the Effective Date and the representations
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and warranties of Parent and Sub contained in this Merger Agreement shall
be true (except (i) as contemplated or permitted by this Merger Agreement
and (ii) where the failure to be true, in the aggregate, would not have a
Parent Material Adverse Effect) when made and on and as of the Effective
Date as if made on and as of such date and the Company shall have received
a certificate of the Parent executed by the President or a Vice President
of Parent and Sub to that effect.
(b) The Company shall have received, on the date hereof and on the
Effective Date, a favorable opinion of its counsel, Willkie Farr &
Gallagher, based upon certain factual representations of the Company,
Parent and Sub reasonably requested by such counsel, dated such dates, to
the effect that the Merger will constitute a "reorganization" for federal
income tax purposes within the meaning of Section 368(a) of the Code and
that accordingly:
(i) No gain or loss will be recognized by the shareholders of the
Company upon the conversion of their shares of Company Common Stock
into shares of Parent Common Stock and Parent Preferred Stock pursuant
to the terms of the Merger (except to the extent cash is received in
lieu of fractional shares);
(ii) The tax basis of the shares of Parent Common Stock and Parent
Preferred Stock received by the shareholders of the Company on the
conversion of Company Common Stock pursuant to the Merger will be the
same as the basis of the shares of Company Common Stock converted (less
any portion of such basis allocable to any fractional interest in any
share of Parent Common Stock); and
(iii) The holding period of the Parent Common Stock and Parent
Preferred Stock into which shares of Company Common Stock are converted
will include the period that such shares of Company Common Stock were
held by the holder, provided such shares were held as a capital asset
by such holder.
(c) Parent Stock issued in connection with the Merger and Parent Common
Stock into which the Parent Preferred Stock issued in connection with the
Merger is convertible shall have been authorized for listing on the NASD/NM
upon official notice of issuance.
Section 9.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Date of the additional
following conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this Merger Agreement required to be performed on
or prior to the Effective Date and, subject to Section 8.9 and except as
contemplated or permitted by this Merger Agreement, the representations and
warranties of the Company contained in this Merger Agreement that are
subject to a Company Material Adverse Effect modifier shall be true when
made and on and as of the Effective Date as if made on and as of such date,
the representations and warranties of the Company contained in this Merger
Agreement that are not subject to such a qualifier shall be true (except
for each failure to be true that does not have a Company Material Adverse
Effect) when made and as of the Effective Date as if made on and as of such
date, and Parent and Sub shall have received a certificate of the Company
executed by the President or an Executive Vice President of the Company to
that effect.
(b) Any authorization, consent, order or approval of any Governmental
Entity necessary for the transfer of control of each Franchise listed on
Schedule 9.3(b) in connection with the consummation of the transactions
contemplated by this Merger Agreement shall have been obtained or deemed
obtained pursuant to the Rules and Regulations and other applicable laws,
regulations, ordinances or similar enactments of each Governmental Entity
having jurisdiction over such Franchise.
(c) The FCC shall have consented, to the extent such consent is legally
required, to the transfer to Parent of all FCC licenses possessed by the
Company, except where the failure to receive such consent would not have a
Combined Material Adverse Effect.
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ARTICLE X
Termination, Amendment and Waiver
Section 10.1 Termination. This Merger Agreement may be terminated at any time
prior to the Effective Date, whether before or after approval by the
shareholders of the Company:
(a) by mutual consent of the Board of Directors of Parent and the Board
of Directors of the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated on or before May 31, 1995 (except if the condition contained in
Section 9.1(a) shall not have been satisfied as of such date, in which
event, August 31, 1995), provided that the party seeking to terminate this
Agreement has not breached its obligations hereunder in any material
respect;
(c) by the Company, provided the Company has not breached any of its
obligations hereunder in any material respect, if any of the conditions
specified in Sections 9.1 or 9.2 have not been met or waived by the Company
(or, in the case of Section 9.1, waived by the Company, Parent and Sub) at
such time as such condition is no longer capable of satisfaction; or
(d) by Parent, provided Parent has not breached any of its obligations
hereunder in any material respect, if any of the conditions specified in
Sections 9.1 or 9.3 have not been met or waived by Parent (or, in the case
of Section 9.1, waived by Parent, Sub and the Company) at such time as such
condition is no longer capable of satisfaction.
Section 10.2 Effect of Termination. In the event of termination of this
Merger Agreement by either Parent or the Company, as provided above, this
Merger Agreement shall forthwith become void and (except for the willful breach
of this Merger Agreement by any party hereto) there shall be no liability on
the part of either the Company, Parent or Sub or their respective officers or
directors.
Section 10.3 Amendment. This Merger Agreement may be amended by the parties
hereto, by or pursuant to action taken by all of their Boards of Directors, at
any time before or after approval hereof by the shareholders of the Company and
prior to the Effective Date, but, after such approval, no amendment shall be
made which alters the indemnification provisions of Section 8.6 or changes the
ratios at which Company Common Stock is to be converted into Parent Common
Stock and Parent Preferred Stock as provided in Section 3.4 or which in any way
materially adversely affects the rights of such shareholders, without the
further approval of such shareholders. This Merger Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 10.4 Waiver. At any time prior to the Effective Date, the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
may (i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any documents delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE XI
General Provisions; Definitions
Section 11.1 Non-Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements in this Merger Agreement shall
survive the Merger, except for the agreements contained in Sections 3.1, 3.2,
3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.10, 8.2, 8.3 (last sentence), 8.4, 8.5, 8.6,
8.8, 8.11, 10.2, 10.3, 10.4 and Article XI.
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Section 11.2 Notices. All notices or other communications under this Merger
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
TeleCable Corporation
Dominion Tower, 9th Floor
999 Waterside Drive
Norfolk, VA 23510
Attention: Alfred F. Ritter, Jr.
Telephone No.: (804) 624-5006
Telecopy No.: (804) 624-5056
and:
Louis F. Ryan, Esq.
150 Brambleton Avenue
Norfolk, VA 23510
Telephone No.: (804) 446-2009
Telecopy No.: (804) 446-2489
With a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: William J. Grant, Jr.
Telephone No.: (212) 821-8000
Telecopy No.: (212) 821-8111
If to Parent or Sub:
Tele-Communications, Inc.
Terrace Tower II
Englewood, Colorado 80111-3000
Attention: Mary S. Willis, Esq., Legal Department
Telecopy No.: (303) 488-3217
With a copy to:
Sherman & Howard L.L.C.
633 17th Street, Suite 3000
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy No.: (303) 298-0940
or to such other addresses as any party may have furnished to the other parties
in writing in accordance with this Section.
Section 11.3 Fees and Expenses. Except as provided in Schedule 11.3, whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Merger Agreement and the transactions contemplated by this Merger
Agreement shall be paid by the party incurring such expenses. Notwithstanding
the preceding sentence, the Company shall pay the cost and expenses incurred by
the Parent if the transaction is terminated as a result of a failure of the
condition set forth in Section 9.1(a) either alone or among other
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conditions to be satisfied. The Company's expenses relating to the transactions
contemplated hereby, including, without limitation, fees of Lehman Brothers,
Inc. and counsel to the Company, shall be paid or accrued by the Company prior
to the Effective Date.
Section 11.4 Publicity. So long as this Merger Agreement is in effect prior
to the Effective Date, Parent, Sub and the Company agree to consult with each
other in issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this Merger Agreement. Prior
to the Effective Date, neither the Parent, Sub nor the Company shall issue any
such press release or make any such public statement without the prior written
consent of the other parties, except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
market. The commencement of litigation relating to this Merger Agreement or the
transactions contemplated hereby or any proceedings in connection therewith
shall not be deemed a violation of this Section 11.4.
Section 11.5 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Merger
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 11.6 Third Party Beneficiaries. The parties hereto agree that the
Company's shareholders, officers, directors, employees, attorneys and agents
are intended third party beneficiaries of the terms of this Merger Agreement,
to the extent such terms refer expressly to such Persons, with full rights
hereunder as if each of them were a party hereto.
Section 11.7 Entire Agreement. This Merger Agreement shall be of no force or
effect until executed and delivered by all of the parties hereto. This Merger
Agreement may be amended, modified or cancelled, and the terms and conditions
hereof may be waived, only by a written instrument signed by the Company,
Parent and Sub.
Section 11.8 Miscellaneous. This Merger Agreement (including the documents
and instruments referred to herein) (a) when executed and delivered,
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof (other than as provided in the
confidentiality agreement between the Company and Parent as the same may be
amended) and (b) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Delaware (without giving
effect to the provisions thereof relating to conflicts of law). This Merger
Agreement may be executed in two or more counterparts which together shall
constitute a single agreement. Any certificate delivered pursuant to this
Merger Agreement shall be made without personal liability on the part of the
person giving such certificate.
Section 11.9 Definitions.
"Acquisition Proposal" shall have the meaning set forth in Section 8.9
hereof.
"Affiliate" shall mean as to any person or entity, any other person or entity
which, directly or indirectly, controls, or is under common control with, or is
controlled by, such person or entity. As used in this definition, "control"
(including, with its correlative meanings, "controlling," "controlled by" and
"under common control with") shall mean possession, directly or indirectly, of
the power to direct or cause the direction of management or policies of a
Person (whether through the ownership of securities, or partnership or other
ownership interest, by contract or otherwise).
"Antitrust Division" shall have the meaning set forth in Section 8.7 hereof.
"Base Merger Value" shall have the meaning set forth in Section 3.1 hereof.
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"Capital Budget" shall have the meaning set forth in Section 5.6 hereof.
"Certificates" shall have the meaning set forth in Section 3.5 hereof.
"Code" shall have the meaning set forth in the recitals.
"Code Affiliate" shall have the meaning set forth in Section 5.9 hereof.
"Combined Material Adverse Effect" shall mean a material adverse effect on
the business, properties, assets, condition (financial or otherwise),
liabilities or operations of the Parent, Sub and the Company, taken as a whole.
"Commission" shall have the meaning set forth in Section 4.4 hereof.
"Common Conversion Number" shall have the meaning set forth in Section 3.4(b)
hereof.
"Communications Act" shall have the meaning set forth in Section 5.12 hereof.
"Company" shall have the meaning set forth in the first paragraph hereof.
"Company Benefit Plans" shall have the meaning set forth in Section 5.9(a)
hereof.
"Company Class A Common Stock" shall have the meaning set forth in Section
3.4(a) hereof.
"Company Common Stock" shall have the meaning set forth in Section 3.4(a)
hereof.
"Company Class B Common Stock" shall have the meaning set forth in Section
3.4(a) hereof.
"Company Labor Contracts" shall have the meaning set forth in Section 5.8
hereof.
"Company Material Adverse Effect" shall mean a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities
or operations of the Company and its Subsidiaries, taken as a whole (after
taking into account any adequate related reduction in Base Merger Value), or on
the ability of Company to perform its obligations under this Merger Agreement.
"Company Meeting" shall have the meaning set forth in Section 3.8 hereof.
"Company Permits" shall have the meaning set forth in Section 5.12 hereof.
"Company Reports" shall have the meaning set forth in Section 5.5 hereof.
"Confidentiality Agreement" shall have the meaning set forth in Section 8.1
hereof.
"Credit Agreements" shall mean (i) the three Amended and Restated Revolving
and Term Loan Agreements, dated as of December 1, 1993, between the Company, on
the one hand, and each of Mellon Bank, N.A., Wachovia Bank of North Carolina,
N.A. and Nationsbank of Virginia, N.A. on the other and (ii) the Revolving and
Term Loan Agreement, dated as of October 27, 1986, between the Company and
Morgan Guaranty Trust Company of New York
"DGCL" shall have the meaning set forth in Section 1.1 hereof.
"Dissenting Shares" shall have the meaning set forth in Section 3.4(d)
hereof.
"EBITDA" shall have the meaning set forth in Section 3.2(c) hereof.
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"Effective Date" shall have the meaning set forth in Section 1.2 hereof.
"Environmental Law" means any applicable federal, state, local or foreign
law, statute, standard, ordinance, rule, regulation, code, license, permit,
authorization or approval, and any consent order, administrative or judicial
order, judgment, decree, injunction, or settlement agreement between the
Company or any of its Subsidiaries and a Governmental Entity relating to the
protection, preservation or restoration of the environment (including, without
limitation, air, water vapor, surface water, ground water, drinking water
supply, surface land, subsurface land, plant and animal life or any other
natural resource).
"Equity Affiliate" shall have the meaning set forth in Section 5.3 hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall have the meaning set forth in Section 4.3 hereof.
"Exchange Agent" shall have the meaning set forth in Section 3.5 hereof.
"FCC" shall have the meaning set forth in Section 4.3 hereof.
"Franchise" shall mean authority to provide cable television service pursuant
to a governmental franchise or similar authorization.
"Franchise Area" shall mean any of the geographic areas in which the Company
or its Subsidiaries is authorized to provide cable television service pursuant
to a Franchise or similar authorization or provides cable television service
without a Franchise.
"Free Cash Flow" shall have the meaning set forth in Section 8.10(b) hereof.
"FTC" shall have the meaning set forth in Section 8.7 hereof.
"GAAP" shall have the meaning set forth in Section 3.2(b) hereof.
"Governing Document" shall mean, with respect to any Person, such Person's
(x) certificate of incorporation, articles of incorporation or other corporate
organizational document, (y) by-laws and (z) partnership agreement relating to
the formation of such Person as in effect at the time of determination to
include any amendments thereto.
"Governmental Entity" shall have the meaning set forth in Section 5.12
hereof.
"Holdback Shares" shall have the meaning set forth in Section 3.4(e) hereof.
"HSR Act" shall have the meaning set forth in Section 4.3 hereof.
"Income Taxes" shall have the meaning set forth in Section 3.2(b) hereof.
"Interim Company Reports" shall have the meaning set forth in Section 5.5
hereof.
"Knowledge" shall mean the personal knowledge of system managers of the
Company and all officers and employees of the Company based at the Company's
corporate headquarters in Norfolk, Virginia having a title of Vice President or
above.
"Landmark" shall have the meaning set forth in Section 7.1(iii) hereof.
"Liabilities" shall mean any debts, liabilities or obligations whatsoever,
whether absolute, contingent or otherwise, as the same would appear on a
balance sheet of the Company in accordance with GAAP consistently applied.
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"Liberty" shall have the meaning set forth in Section 4.4 hereof.
"Lien" shall mean any lien, security interest, pledge, charge, claim, option,
right to acquire, restriction on transfer, voting restriction or encumbrance of
any nature.
"Merger" shall have the meaning set forth in the recitals.
"Merger Agreement" shall have the meaning set forth in the first paragraph
hereof.
"Merger Value" shall have the meaning set forth in Section 3.1 hereof.
"NASD/NM" shall refer to the National Association of Securities
Dealers/National Market.
"Net Liabilities" shall have the meaning set forth in Section 3.2(b) hereof.
"Note Purchase Agreements" shall mean (i) the Note Agreement, dated as of
April 29, 1988, among the Company, Teachers Insurance and Annuity Association
of America and certain other lenders relating to the purchase of $150,000,000
in 9.32% Notes due May 1, 1993, (ii) the Note Agreement, dated as of October
16, 1991, among the Company, Teachers Insurance and Annuity Association of
America and certain other lenders relating to the purchase of (a) $10,000,000
in 9.25% Notes due October 15, 1997, (b) $50,000,000 in 9.38% Notes due October
15, 1998 and (c) $15,00,000 in 9.44% Notes due October 15, 1999 and (iii) the
Note Agreement, dated as of March 31, 1994, among the Company and Teachers
Insurance and Annuity Association of America and certain other lenders relating
to the purchase of $40,000,000 in 6.25% Senior Notes due March 31, 2004.
"Other Filings" shall have the meaning set forth in Section 8.2(b) hereof.
"Parent" shall have the meaning set forth in the first paragraph hereof.
"Parent Common Stock" shall have the meaning set forth in Section 3.1 hereof.
"Parent Material Adverse Effect" shall mean a material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities
or operations of Parent and its Subsidiaries, taken as a whole, or on the
ability of Parent to perform its obligations under this Merger Agreement.
"Parent Preferred Stock" shall have the meaning set forth in Section 3.1
hereof.
"Parent SEC Reports" shall have the meaning set forth in Section 4.4 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" means any individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Entity or other entity of any nature.
"Preferred Conversion Number" shall have the meaning set forth in Section 3.4
hereof.
"Prospectus" means the prospectus included as part of the Registration
Statement.
"Registration Rights Agreement" shall have the meaning set forth in Section
8.2(c) hereof.
"Registration Statement" shall have the meaning set forth in Section 8.2(a)
hereof.
"Regular Company Dividends" shall have the meaning set forth in Section 5.6
hereof.
"Rules and Regulations" shall have the meaning set forth in Section 5.12(b)
hereof.
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"Securities Act" shall have the meaning set forth in Section 4.3 hereof.
"Shareholders' Representative" shall mean Frank Batten.
"Stock Restriction Agreements" shall have the meaning set forth in Section
8.11 hereof.
"Sub" shall have the meaning set forth in the first paragraph hereof.
"Subsidiary" shall mean with respect to any Person, any corporation or
partnership more than 50% of whose outstanding voting securities or partnership
interests, as the case may be, are directly or indirectly owned by such Person.
"Surviving Corporation" shall have the meaning set forth in Section 1.1
hereof.
"TTI" shall have the meaning set forth in Section 8.13 hereof.
"Tax" shall have the meaning set forth in Section 5.13 hereof.
"VSCA" shall have the meaning set forth in Section 1.1 hereof.
All accounting terms not otherwise defined in this Merger Agreement shall
have the meanings ascribed to them under GAAP.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Merger
Agreement to be signed by their respective officers thereunder duly authorized
all as of the date first written above.
Tele-Communications, Inc.
/s/ Bernard W. Schotters
By: _________________________________
Name: Bernard W. Schotters
Title: Executive Vice President
TCI Communications, Inc.
/s/ Bernard W. Schotters
By: _________________________________
Name: Bernard W. Schotters
Title: Executive Vice President
Telecable Corporation
/s/ Frank Batten
By: _________________________________
Name: Frank Batten
Title: Chairman
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APPENDIX II
LEHMAN BROTHERS
August 8, 1994
Board of Directors
TeleCable Corporation
Dominion Tower
999 Waterside Drive
Norfolk, VA 23510
Members of the Board:
We understand that TeleCable Corporation ("TeleCable" or the "Company") and
Tele-Communications, Inc. ("TCI") have entered into a definitive merger
agreement whereby TeleCable will be merged with and into TCI Communications,
Inc., a wholly owned subsidiary of TCI. The aggregate consideration to be paid
in the merger for all of TeleCable's issued and outstanding shares of common
stock will be equal to 41,666,667 shares of Class A Common Stock of TCI
(subject to certain closing adjustments pursuant to the Agreement (as defined
below)) and 1,000,000 shares of Convertible Preferred Stock of TCI with an
aggregate liquidation value of $300,000,000 and a 5.5% annual dividend payable
semi-annually, with each share convertible into ten shares of TCI Class A
Common Stock at a conversion price of $30.00 per share (the "Proposed
Transaction"). The terms and conditions of the Proposed Transaction are set
forth in more detail in the Agreement and Plan of Merger dated August 8, 1994
between TCI and the Company (the "Agreement").
We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company's stockholders
taken as a whole of the aggregate consideration to be received in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does
not in any manner address, (i) the allocation of such consideration among the
stockholders of the Company or (ii) the Company's underlying business decision
to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement; (2)
such publicly available information concerning TCI (including information
pertaining to Liberty Media Corporation ("Liberty") which was merged into TCI
on August 4, 1994) which we believe to be relevant to our inquiry, including
the TCI and Liberty Annual Reports on Form 10-K for the year ended December 31,
1993, the Quarterly Reports on Form 10-Q for the quarter ended March 31, 1994
and June 23, 1994 proxy materials; (3) financial and operating information with
respect to the business and operations of the Company and TCI furnished to us
by the Company and TCI including, in the case of the Company, the Company's
audited December 31, 1993 financial statements, 1994 budget, unaudited interim
monthly financial statements between October 1993 and June 1994 and individual
cable system operating data for these periods; (4) trading histories of the
common stock of both TCI and Liberty from April 22, 1992 to the present and a
comparison of those trading histories with those of other companies which we
deemed relevant; (5) a comparison of the historical financial results and
present financial condition of the Company and TCI with those of other
companies which we deemed relevant; (6) a comparison of the financial terms of
the Proposed Transaction with the financial terms of certain other transactions
which we deemed relevant; (7) the ownership profile and liquidity
characteristics of the Class A Common Stock and the Convertible Preferred Stock
of TCI to be received as consideration, and the pro forma effects of the
transaction on the ownership profile of TCI; (8) the voting characteristics of
the Class A Common Stock and Convertible Preferred Stock of TCI to be received
as consideration and the voting control position to be held by the majority
stockholders in TCI; (9) the dividend, conversion premium, call provisions and
other characteristics of the Convertible Preferred Stock of TCI to be received
as
LEHMAN BROTHERS INC.
3 WORLD FINANCIAL CENTER 18TH FLOOR NEW YORK, NY 10285
<PAGE>
consideration by the TeleCable stockholders; and (10) the results of our
efforts to solicit indications of interest from third parties with respect to a
purchase of the Company. In addition, we have had discussions with the
management of the Company and the management of TCI concerning their respective
businesses, operations, assets, financial conditions and prospects and
undertook such other studies, analyses and investigations as we deemed
appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification and have further relied upon the assurances of
management of the Company and TCI that they are not aware of any facts that
would make such information materially inaccurate or misleading. In arriving at
our opinion, we have not had access to any projections or forecasts from the
Company or TCI regarding their respective future financial performance. In
addition, we have not conducted any physical inspection of the properties and
facilities of the Company or TCI and have not made nor obtained any evaluations
or appraisals of the assets or liabilities of the Company or TCI. Upon advice
of the Company and its legal advisors, we have assumed that the merger will
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and therefore as a tax-free
transaction to the stockholders of the Company. Our opinion is necessarily
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that, from a financial point of view, the aggregate consideration to be
received by the Company's stockholders in the Proposed Transaction is fair to
such stockholders taken as a whole.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities which may arise out
of the rendering of this opinion. We also have performed various investment
banking services for TCI in the past (including the underwriting of debt and
equity securities) and have received customary fees for such services. In the
ordinary course of our business, we actively trade in the debt and equity
securities of TCI for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
This opinion is solely for the use and benefit of the Board of Directors of
the Company and shall not be relied upon by any third party without our prior
approval. This opinion is not intended to be and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Proposed Transaction.
Very truly yours,
Lehman Brothers
/s/ Jill Greenthal
By: _________________________________
Jill Greenthal
Managing Director
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APPENDIX III
ARTICLE 15
DISSENTER'S RIGHTS
13.1-729 DEFINITIONS.--In this article:
"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving domestic or foreign corporation or limited liability company by
merger of that issuer, and (ii) with respect to a share exchange, "corporation"
means the acquiring corporation by share exchange, rather than the issuer, if
the plan of share exchange places the responsibility for dissenters' rights on
the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from corporate
action under (S) 13.1- 730 and who exercises that right when and in the manner
required by (S)(S) 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.
"Beneficial shareholder" means the person who is a beneficial owner of shares
held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial shareholder.
13.1-730 RIGHT TO DISSENT.--A. A shareholder is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by (S) 13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on
the merger or (ii) if the corporation is a subsidiary that is merged with
its parent under (S) 13.1-719;
2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation if the shareholder was entitled to vote on
the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that
such dissenter's rights shall not apply in the case of (i) a sale or
exchange pursuant to court order, or (ii) a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares under
this article may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the shareholder or
the corporation.
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C. Notwithstanding any other provision of this article, with respect to a
plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership interests
and cash in lieu of fractional shares (i) of the surviving or acquiring
corporation or limited liability company or (ii) of any other
corporation or limited liability company which, at the record date
fixed to determine the shareholders entitled to receive notice of and
to vote at the meeting at which the plan of merger or share exchange is
to be acted on, were either listed subject to notice of issuance on a
national securities exchange or held of record by at least 2,000 record
shareholders or members; or
c. A combination of cash and shares or membership interests as set
forth in subdivisions 2a and 2b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is
not approved by a majority of "disinterested directors" as such terms are
defined in (S) 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair value
of his shares shall terminate upon the occurrence of any one of the following
events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
13.1-731 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--A. A record shareholder
may assert dissenters rights as to fewer than all the shares registered on his
name only if he dissents with respect to all shares beneficially owned by any
one person and notifies the corporation in writing of the name and address of
each person on whose behalf he asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of
different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
1. He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
13.1-732 NOTICE OF DISSENTERS' RIGHTS.--A. If proposed corporate action
creating dissenters' rights under (S) 13.1-730 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under (S) 13.1-730 is
taken without a vote of shareholders, the corporation, during the ten-day
period after the effectuation of such corporate action, shall notify in writing
all record shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in (S) 13.1-734.
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13.1-733 NOTICE OF INTENT TO DEMAND PAYMENT.--A. If proposed corporate action
creating dissenters' rights under (S) 13.1-730 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights
(i) shall deliver to the corporation before the vote is taken written notice of
his intent to demand payment for his shares if the proposed action is
effectuated and (ii) shall not vote such shares in favor of the proposed
action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article.
13.1-734 DISSENTERS' NOTICE.--A. If proposed corporate action creating
dissenters' rights under (S) 13.1-730 is authorized at a shareholders' meeting,
the corporation, during the ten-day period after the effectuation of such
corporate action, shall deliver a dissenters' notice in writing to all
shareholders who satisfied the requirements of (S) 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before or after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
13.1-735 DUTY TO DEMAND PAYMENT.--A. A shareholder sent a dissenters' notice
described in (S) 13.17-734 shall demand payment, certify that he acquired
beneficial ownership of the shares before or after the date required to be set
forth in the dissenters' notice pursuant to paragraph 3 of subsection B of
(S) 13.1-734, and, in the case of certificated shares, deposit his certificates
in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of this
section retains all other rights of a shareholder except to the extent that
these rights are cancelled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
13.1-736 SHARE RESTRICTIONS.--A. The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment is received.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder except to the extent that
these rights are cancelled or modified by the taking of the proposed corporate
action.
13.1-737 PAYMENT.--A. Except as provided in (S) 13.1-738, within thirty days
after receipt of a payment demand made pursuant to (S) 13.1-735, the corporate
shall pay the dissenter the amount the corporation estimates to be the fair
value of his shares, plus accrued interest. The obligation of the corporation
under this paragraph may be enforced (i) by the circuit court in the city or
county where the corporation's principal office is located, or, if none in this
Commonwealth, where its registered office is located or (ii) at the
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election of any dissenter residing or having its principal office in the
Commonwealth, by the circuit court in the city or county where the dissenter
resides or has its principal office. The court shall dispose of the complaint
on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under (S) 13.1-
739; and
4. A copy of this article.
13.1-738 AFTER-ACQUIRED SHARES.--A. A corporation may elect to withhold
payment required by (S) 13.1-737 from a dissenter unless he was the beneficial
owner of the shares on the date of the first publication by news media or the
first announcement to shareholders generally, whichever is earlier, of the
terms of the proposed corporate action, as set forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment under subsection
A of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall offer
to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under (S) 13.1-739.
13.1-739 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--A. A
dissenter may notify the corporation in writing of his own estimate of the fair
value of his shares and amount of interest due, and demand payment of his
estimate (less any payment under (S) 13.1-737), or reject the corporation's
offer under (S) 13.1-738 and demand payment of the fair value of his shares and
interest due, if the dissenter believes that the amount paid under (S) 13.1-737
or offered under (S) 13.1-738 is less than the fair value of his shares or that
the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection A of this
section within thirty days after the corporation made or offered payment for
his shares.
13.1-740 COURT ACTION.--A. If a demand for payment under (S) 13.1-739 remains
unsettled, the corporation shall commence a proceeding within sixty days after
receiving the payment demand and petition the circuit court in the city or
county described in subsection B of this section to determine the fair value of
the shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or county where
its principal office is located, or, if none in this Commonwealth, where its
registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents of
this Commonwealth, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
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D. The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this article. If the court determines that such
shareholder has not complied with the provisions of this article, he shall be
dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment (i)
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation or (ii) for the fair
value, plus accrued interest, of his after-acquired shares for which the
corporation elected to withhold payment under (S) 13.1-738.
13.1-741 COURT COSTS AND COUNSEL FEES.--A. The court in an appraisal
proceeding commenced under (S) 13.1-740 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters did not act in good faith in demanding payment under (S) 13.1-
739.
B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:
1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of (S)(S) 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed did not act in good faith with respect to the rights provided
by this article.
C. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, the court may award
to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
D. In a proceeding commenced under subsection A of (S) 13.1-737 the court
shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
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APPENDIX IV
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
----------------
SETTING FORTH A COPY OF A RESOLUTION CREATING AND AUTHORIZING THE ISSUANCE OF A
SERIES OF PREFERRED STOCK DESIGNATED AS "CONVERTIBLE PREFERRED STOCK, SERIES D"
ADOPTED BY THE BOARD OF DIRECTORS OF TELE-COMMUNICATIONS, INC.
----------------
The undersigned Executive Vice President of Tele-Communications, Inc., a
Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Convertible Preferred Stock, Series D":
"BE IT RESOLVED, that, pursuant to authority expressly granted by the
provisions of the Restated Certificate of Incorporation of this Corporation,
the Board of Directors hereby creates and authorizes the issuance of a series
of preferred stock, par value $.01 per share, of this Corporation, to consist
of 1,000,000 shares, and hereby fixes the designations, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions of the shares of such series (in addition to the
designations, preferences and relative, participating, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock, par value
$.01 per share, of this Corporation authorized hereby is "Convertible Preferred
Stock, Series D" (the "Convertible Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires, the terms
defined in this Section 2 shall have the meanings herein specified:
Affiliate: As to any person or entity, any other person or entity which,
directly or indirectly, controls, or is under common control with, or is
controlled by, such person or entity. As used in this definition, "control"
(including, with its correlative meanings, "controlling," "controlled by" and
"under common control with") shall mean possession, directly or indirectly, of
the power to direct or cause the direction of management or policies of a
Person (whether through the ownership of securities, or partnership or other
ownership interest, by contract or otherwise).
Board of Directors: The Board of Directors of this Corporation and any
authorized committee thereof.
Business Day: Any day other than a Saturday, Sunday, or holiday in which
banking institutions in Denver, Colorado, are closed for business.
Capital Stock: Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
Class A Common Stock: The Class A Common Stock, par value $1.00 per share, of
this Corporation as such exists on the date of this Certificate of Designation,
and Capital Stock of any other class into which such Class A Common Stock may
thereafter have been changed.
Class B Common Stock: The Class B Common Stock, par value $1.00 per share, of
this Corporation as such exists on the date of this Certificate of Designation,
and Capital Stock of any other class into which such Class B Common Stock may
thereafter have been changed.
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Common Stock: The Class A Common Stock, Class B Common Stock and any other
class of Capital Stock of this Corporation designated as Common Stock.
Conversion Rate: As defined in Section 5(b).
Convertible Securities: Securities, other than the Class B Common Stock, that
are convertible into or exchangeable for Class A Common Stock.
Debt Instrument: Any bond, debenture, note, indenture, guarantee or other
instrument or agreement evidencing any Indebtedness of this Corporation,
whether existing at the Issue Date or thereafter created, incurred, assumed or
guaranteed.
Dividend Payment Date: As defined in Section 3(b).
Dividend Period: The period from but excluding the First Accrual Date to and
including the first Dividend Payment Date and each six-month period from but
excluding the Dividend Payment Date for the preceding Dividend Period to and
including the Dividend Payment Date for such Dividend Period.
Exchange Option. As defined in Section 7(a).
Expiration Date. As defined in Section 7(d).
First Accrual Date: The Issue Date.
Indebtedness: Any (i) liability, contingent or otherwise, of this Corporation
(x) for borrowed money whether or not the recourse of the lender is to the
whole of the assets of this Corporation or only to a portion thereof), (y)
evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (z) for
the payment of money relating to an obligation under a lease that is required
to be capitalized for financial accounting purposes in accordance with
generally accepted accounting principles; (ii) liability of others described in
the preceding clause (i) which this Corporation has guaranteed or which is
otherwise its legal liability; (iii) obligations secured by a mortgage, pledge,
lien, charge or other encumbrance to which the property or assets of this
Corporation are subject whether or not the obligations secured thereby shall
have been assumed by or shall otherwise be this Corporation's legal liability;
and (iv) any amendment, renewal, extension or refunding of any liability of the
types referred to in clauses (i), (ii) and (iii) above.
Issue Date: The first date on which any shares of the Convertible Preferred
Stock are first issued or deemed to have been issued.
Junior Securities: All shares of Common Stock and any other class or series
of stock of this Corporation not entitled to receive any dividends unless all
dividends required to have been paid or declared and set apart for payment on
the Convertible Preferred Stock shall have been so paid or declared and set
apart for payment and, for purposes of Section 4 hereof, any class or series of
stock of this Corporation not entitled to receive any assets upon liquidation,
dissolution or winding up of the affairs of this Corporation until the
Convertible Preferred Stock shall have received the entire amount to which such
stock is entitled upon such liquidation, dissolution or winding up.
Liquidation Value: Measured per Share of the Convertible Preferred Stock as
of any particular date, the sum of (i) $300 plus (ii) an amount equal to all
dividends accrued on such Share through the Dividend Payment Date immediately
preceding the date on which the Liquidation Value is being determined, which
pursuant to Section 3(c) or (d) have been added to and remain a part of the
Liquidation Value as of such date, plus (iii), for purposes of determining
amounts payable pursuant to Sections 4 and 6 hereof, an amount equal to all
unpaid dividends accrued on the sum of the amounts specified in clauses (i) and
(ii) above to the date as of which the Liquidation Value is being determined.
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Merger Agreement: The Agreement and Plan of Merger, dated as of August 8,
1994 among this Corporation, TCI Communications, Inc. and TeleCable
Corporation.
Mirror Preferred Stock. As defined in Section 7(c).
Option Notice. As defined in Section 7(d).
Parity Securities: Any class or series of stock of this Corporation entitled
to receive payment of dividends on a parity with the Convertible Preferred
Stock or entitled to receive assets upon liquidation, dissolution or winding up
of the affairs of this Corporation on a parity with the Convertible Preferred
Stock.
Record Date: For dividends payable on any Dividend Payment Date, the
fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur.
Redemption Date: As to any Share, the date fixed for redemption of such Share
as specified in the notice of redemption given in accordance with Section 6(d),
provided that no such date will be a Redemption Date unless the applicable
Redemption Price is actually paid on such date or the consideration sufficient
for the payment thereof, and for no other purpose, has been irrevocably set
apart in trust for the benefit of the holders of Shares to be redeemed, and if
the Redemption Price is not so paid in full or the consideration sufficient
therefor so irrevocably set apart in trust for the benefit of the holders of
Shares to be redeemed, then the Redemption Date will be the date on which such
Redemption Price is fully paid or the consideration sufficient for the payment
thereof, and for no other purpose, has been irrevocably set apart in trust for
the benefit of the holders of Shares to be redeemed; and provided, further that
for purposes of Section 6(c) hereof, the date fixed for redemption of Shares
which are required to be redeemed pursuant to such Section shall be the
Business Day which is 20 Business Days after the date this Corporation receives
the notice referred to in such Section from the holder of Shares therein
specified.
Redemption Price: As to any Share that is to be redeemed on any Redemption
Date, the Liquidation Value as in effect on such Redemption Date; provided,
however, that for purposes of Section 5(p) hereof (but not Section 5(a) as it
may refer to Section 5(p)) and this definition, the date otherwise fixed for
redemption of such Shares shall be deemed the Redemption Date in respect of
such Shares.
Rights. As defined in Section 7(a).
Senior Securities: Any class or series of stock of this Corporation ranking
senior to the Convertible Preferred Stock in respect of the right to receive
payment of dividends or the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of this Corporation.
Share: As defined in Section 3(a).
Special Liquidation Value: In respect of any Dividend Payment Date and
Shares, all accrued dividends not paid or irrevocably set apart in trust for
the benefit of the holders of Shares on or before such date.
Special Securities: Capital Stock (other than Class A Common Stock or Class B
Common Stock) of this Corporation or a Subsidiary thereof which (a) is common
stock of the issuer thereof or (b) participates in one or more business
operations of the issuer thereof in such a manner that if such operations were
owned by a corporation and such Capital Stock were issued thereby such Capital
Stock would be common stock of such corporation.
Special Record Date: As defined in Section 3(c).
Subsidiary: With respect to any person or entity, any corporation or
partnership more than 50% of whose outstanding voting securities or partnership
interests, as the case may be, are directly or indirectly owned by such person
or entity.
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Successor Interest: As defined in Section 5(g).
3. Dividends.
(a) Subject to the rights of any Parity Securities with respect to dividends,
the holders of the Convertible Preferred Stock shall be entitled to receive,
and, subject to any prohibition or restriction contained in any Debt
Instrument, this Corporation shall be obligated to pay, but only out of funds
legally available therefor, preferential cumulative cash dividends which shall
accrue as provided herein. Except as otherwise provided in Sections 3(c) or
3(d) hereof, dividends on each share of Convertible Preferred Stock
(hereinafter referred to as a "Share") shall accrue on a daily basis at the
rate of 5 1/2% per annum of the Liquidation Value to and including the date of
conversion thereof pursuant to Section 5 or the date on which the Liquidation
Value or Redemption Price of such Share is made available pursuant to Section 4
or 6 hereof, respectively. Dividends on the Convertible Preferred Stock shall
accrue as provided herein, whether or not such dividends have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally or contractually available for the payment of dividends and regardless
of the provisions of any Parity Securities or Debt Instrument.
(b) Accrued dividends on the Convertible Preferred Stock shall be payable
semiannually on the first day of each [month of Issue Date] and [6th month
after month of Issue Date], or the immediately preceding Business Day if such
first day is not a Business Day (each such payment date being hereinafter
referred to as a "Dividend Payment Date"), commencing on [ 1, 1995] [6th
month after month of Issue Date] to the holders of record of the Convertible
Preferred Stock as of the close of business on the applicable Record Date. For
purposes of determining the amount of dividends "accrued" as of any date that
is not a Dividend Payment Date, such amount shall be calculated on the basis of
the rate per annum specified in Section 3(a) for actual days elapsed from but
excluding the First Accrual Date (in the case of any date prior to the first
Dividend Payment Date) or the last preceding Dividend Payment Date in respect
of which dividends were fully paid or irrevocably set apart in trust for the
benefit of the holders of Shares (or shares of Class A Common Stock were issued
in respect of the Special Liquidation Value as provided in Section 5(o)
hereof), in the case of any other date, to and including the date as of which
such determination is to be made, based on a 365-day year.
(c) If on any Dividend Payment Date this Corporation pursuant to applicable
law or the terms of any Debt Instrument shall be prohibited or restricted from
paying in cash the full dividends to which holders of the Convertible Preferred
Stock and any Parity Securities shall be entitled, the amount available for
such payment pursuant to applicable law and which is not restricted by the
terms of any Debt Instrument shall be distributed among the holders of the
Convertible Preferred Stock and such Parity Securities ratably in proportion to
the full amounts to which they would otherwise be entitled except for the
issuance of the Class A Common Stock issued in respect of the partial
conversion of Shares pursuant to Section 5(o) hereof. To the extent not paid on
each Dividend Payment Date, all dividends which have accrued on each Share
during the Dividend Period ending on such Dividend Payment Date will be added
cumulatively to the Liquidation Value of such Share and will remain a part
thereof until such dividends are paid. In the event that dividends are not paid
in full on two consecutive Dividend Payment Dates, dividends on that portion of
the Liquidation Value of each Share which consists of accrued dividends that
have theretofore been or thereafter are added to, and remain a part of, the
Liquidation Value in accordance with the preceding sentence shall accrue
cumulatively on a daily basis at the rate of ten percent (10%) per annum, from
and after such second consecutive Dividend Payment Date to and including the
date of conversion of such Share pursuant to Section 5 or the date on which the
Liquidation Value or Redemption Price of such Share is made available pursuant
to Section 4 or 6 hereof, respectively, unless such portion of the Liquidation
Value that consists of accrued unpaid dividends shall be earlier paid in full.
Such portion of the Liquidation Value as consists of accrued unpaid dividends,
may be declared and paid at any time on any Business Day without reference to
any regular Dividend Payment Date, to holders of record as of the close of
business on such date, not more than 50 days nor less than 10 days preceding
the payment date thereof, as may be fixed by the Board of Directors of this
Corporation (the "Special Record Date").
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(d) In the event that on any date fixed for redemption of Shares pursuant to
Section 6 this Corporation shall fail to pay the Redemption Price due and
payable upon presentation and surrender of the stock certificates evidencing
Shares to be redeemed, then dividends on such Shares shall accrue cumulatively
on a daily basis at the rate of ten percent (10%) per annum of the Liquidation
Value thereof from and after such date fixed for redemption to and including
the date of conversion of such Shares pursuant to Section 5 or the date on
which the Liquidation Value or Redemption Price of such Shares is made
available pursuant to Section 4 or 6 hereof, respectively.
(e) Notice of each Special Record Date shall be mailed, in the manner
provided in Section 6(d), to the holders of record of the Convertible Preferred
Stock not less than 15 days prior thereto.
(f) As long as any Convertible Preferred Stock shall be outstanding, no
dividend, whether in cash or property, shall be paid or declared, nor shall any
other distribution be made, on any Junior Security, nor shall any shares of any
Junior Security be purchased, redeemed, or otherwise acquired for value by this
Corporation, unless the holders of the Convertible Preferred Stock shall have
received all dividends to which they are entitled pursuant to Section 3(a)
hereof for all the Dividend Periods preceding the date on which such dividend
on the Junior Securities is to occur, or such dividends shall have been
declared and the consideration sufficient for the payment thereof irrevocably
set apart in trust for the benefit of the holders of Shares so as to be
available for the payment in full thereof and for no other purpose. The
provisions of this Section 3(f) shall not apply (i) to a dividend payable in
any Junior Security, or (ii) to the repurchase, redemption or other acquisition
of shares of any Junior Security solely through the issuance of Junior
Securities (together with a cash adjustment for fractional shares, if any) or
through the application of the proceeds from the sale of Junior Securities.
This Corporation shall not permit a Subsidiary thereof to take any action which
this Corporation is prohibited by this Section 3(f) from taking.
4. Liquidation. Upon any liquidation, dissolution or winding up of this
Corporation, whether voluntary or involuntary, the holders of Convertible
Preferred Stock shall be entitled to be paid an amount in cash equal to the
aggregate Liquidation Value at the date fixed for liquidation of all Shares
outstanding before any distribution or payment is made upon any Junior
Securities, which payment shall be made pari passu with any such payment made
to the holders of any Parity Securities. The holders of Convertible Preferred
Stock shall be entitled to no other or further distribution of or participation
in any remaining assets of this Corporation after receiving the Liquidation
Value per Share. If upon such liquidation, dissolution or winding up, the
assets of this Corporation to be distributed among the holders of Convertible
Preferred Stock and to all holders of Parity Securities are insufficient to
permit payment in full to such holders of the aggregate preferential amounts
which they are entitled to be paid, then the entire assets of this Corporation
to be distributed to such holders shall be distributed ratably among them based
upon the full preferential amounts to which the shares of Convertible Preferred
Stock and such Parity Securities would otherwise respectively be entitled. Upon
any such liquidation, dissolution or winding up, after the holders of
Convertible Preferred Stock and Parity Securities have been paid in full the
amounts to which they are entitled, the remaining assets of this Corporation
may be distributed to the holders of Junior Securities. This Corporation shall
mail written notice of such liquidation, dissolution or winding up to each
record holder of Convertible Preferred Stock not less than 30 days prior to the
payment date stated in such written notice. Neither the consolidation or merger
of this Corporation into or with any other corporation or corporations, nor the
sale, transfer or lease by this Corporation of all or any part of its assets,
shall be deemed to be a liquidation, dissolution or winding up of this
Corporation within the meaning of this Section 4.
5. Conversion.
(a) Unless previously called for, or otherwise subject to, redemption as
provided in Section 6 hereof, the Convertible Preferred Stock may be converted
at any time or from time to time, in such manner and upon such terms and
conditions as hereinafter provided in this Section 5 into fully paid and non-
assessable full shares of Class A Common Stock. No Share of Class A Common
Stock shall be issued in respect of the conversion of the Convertible Preferred
Stock (other than pursuant to Section 5(o) or 5(p) hereof) after the
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fifteenth Business Day (the "Cut-off Date") preceding the date fixed for
redemption; provided that the conversion of Shares surrendered for conversion
in accordance with Section 5 after the Cut-off Date shall be given effect as of
the date of such surrender if the Redemption Price to be paid, or to be
irrevocably set apart in trust for the benefit of the holders of Shares to be
so redeemed, has not been paid or so set apart on or before such date fixed for
redemption. In case cash, securities or property other than Class A Common
Stock shall be payable, deliverable or issuable upon conversion as provided
herein, then all references to Class A Common Stock in this Section 5 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such cash,
property or other securities.
(b) Subject to the provisions for adjustment hereinafter set forth in this
Section 5, the Convertible Preferred Stock may be converted into Class A Common
Stock at the initial conversion rate of 10 fully paid and non-assessable shares
of Class A Common Stock for one share of the Convertible Preferred Stock. (This
conversion rate as from time to time adjusted cumulatively pursuant to the
provisions of this Section is hereinafter referred to as the "Conversion
Rate").
(c) In case after August 8, 1994 this Corporation shall (i) pay a dividend or
make a distribution on its outstanding shares of Class A Common Stock in shares
of its Capital Stock or capital stock of any Subsidiary, (ii) subdivide the
then outstanding shares of Class A Common Stock into a greater number of shares
of Class A Common Stock, (iii) combine the then outstanding shares of Class A
Common Stock into a smaller number of shares of Class A Common Stock, or (iv)
issue by reclassification of its shares of Class A Common Stock any shares of
any other class of Capital Stock of this Corporation (including any such
reclassification in connection with a merger in which this Corporation is the
continuing corporation), then the Conversion Rate in effect immediately prior
to the opening of business on the record date for such dividend or distribution
or the effective date of such subdivision, combination or reclassification
shall be adjusted so that the holder of each share of the Convertible Preferred
Stock thereafter surrendered for conversion shall be entitled to receive the
number and kind of shares of Capital Stock of this Corporation (or capital
stock of a Subsidiary) that such holder would have owned or been entitled to
receive immediately following such action had such shares of Convertible
Preferred Stock been converted immediately prior to such time. An adjustment
made pursuant to this Section 5(c) for a dividend or distribution shall become
effective immediately after the record date for the dividend or distribution
and an adjustment made pursuant to this Section 5(c) for a subdivision,
combination or reclassification shall become effective immediately after the
effective date of the subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any action listed above shall be
taken.
(d) In case this Corporation shall after August 8, 1994 issue any rights or
warrants to all holders of shares of Class A Common Stock entitling them (for a
period expiring within 45 days after the record date for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Class A Common Stock (or Convertible Securities) at a price
per share of Class A Common Stock (or having an initial exercise price or
conversion price per share of Class A Common Stock) less than the then current
market price per share of Class A Common Stock (as determined in accordance
with the provisions of Section 5(f) below) on such record date, the number of
shares of Class A Common Stock into which each Share shall thereafter be
convertible shall be determined by multiplying the number of shares of Class A
Common Stock into which such Share was theretofore convertible immediately
prior to such record date by a fraction of which the numerator shall be the
number of shares of Class A Common Stock outstanding on such record date plus
the number of additional shares of Class A Common Stock offered for
subscription or purchase (or into which the Convertible Securities so offered
are initially convertible) and of which the denominator shall be the number of
shares of Class A Common Stock outstanding on such record date plus the number
of shares of Class A Common Stock which the aggregate offering price of the
total number of shares of Class A Common Stock so offered (or the aggregate
initial conversion or exercise price of the Convertible Securities so offered)
would purchase at the then current market price per share of Class A Common
Stock (as determined in accordance with the provisions of Section 5(f) below)
on such record date. Such adjustment shall be made successively whenever any
such rights or warrants are issued and shall
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become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. In the event that all
of the shares of Class A Common Stock (or all of the Convertible Securities)
subject to such rights or warrants have not been issued when such rights or
warrants expire (or, in the case of rights or warrants to purchase Convertible
Securities which have been exercised, all of the shares of Class A Common Stock
issuable upon conversion of such Convertible Securities have not been issued
prior to the expiration of the conversion right thereof), then the Conversion
Rate shall be readjusted retroactively to be the Conversion Rate which would
then be in effect had the adjustment upon the issuance of such rights or
warrants been made on the basis of the actual number of shares of Class A
Common Stock (or Convertible Securities) issued upon the exercise of such
rights or warrants (or the conversion of such Convertible Securities); but such
subsequent adjustment shall not affect the number of shares of Class A Common
Stock issued upon the conversion of any Share prior to the date such subsequent
adjustment is made.
(e) In case this Corporation shall distribute after August 8, 1994 to all
holders of shares of Class A Common Stock (including any such distribution made
in connection with a merger in which this Corporation is the continuing
corporation, other than a merger to which Section 5(g) is applicable) any
securities, evidences of its indebtedness or assets (other than cash dividends
out of earnings since July 1, 1994 (determined without regard to gains on the
sale of significant capital assets) or Capital Stock in respect of which an
adjustment is made pursuant to Section 5(c) hereof) or rights or warrants to
purchase shares of Class A Common Stock or Class B Common Stock or securities
convertible into shares of Class A Common Stock or Class B Common Stock
(excluding those referred to in Section 5(d) above), then in each such case the
number of shares of Class A Common Stock into which each Share shall thereafter
be convertible shall be determined by multiplying the number of shares of Class
A Common Stock into which such Share was theretofore convertible immediately
prior to the record date for the determination of stockholders entitled to
receive the distribution by a fraction of which the numerator shall be the then
current market price per share of Class A Common Stock (as determined
accordance with the provisions of Section 5(f) below) on such record date and
of which the denominator shall be such current market price per share of Class
A Common Stock less the fair market value on such record date (as determined by
the Board of Directors of this Corporation, whose determination shall be
conclusive) of the portion of the securities, assets or evidences of
indebtedness or rights and warrants so to be distributed applicable to one
share of Class A Common Stock. Such adjustment shall be made successively
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
(f) For the purpose of any computation under Section 5(d), (e), (k), (o) or
(p) or Section 7, the current market price per share of Class A Common Stock at
any date shall be deemed to be the average of the daily closing prices for a
share of Class A Common Stock for the ten (10) consecutive trading days before
the day in question. The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices regular way, in
either case on the composite tape, or if the shares of Class A Common Stock are
not quoted on the composite tape, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on which the shares of Class A Common Stock are listed or
admitted to trading, or if they are not listed or admitted to trading on any
such exchange, the last reported sale price (or the average of the quoted
closing bid and asked prices if there were no reported sales) as reported by
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any comparable system, or if the Class A Common Stock is not
quoted on NASDAQ or any comparable system, the average of the closing bid and
asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(g) In case of any reclassification or change in the Class A Common Stock
(other than any reclassification or change referred to in Section 5(c) and
other than a change in par value) or in case of any consolidation of this
Corporation with any other corporation or any merger of this Corporation into
another
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corporation or of another corporation into this Corporation (other than a
merger in which this Corporation is the continuing corporation and which does
not result in any reclassification or change (other than a change in par value
or any reclassification or change to which Section 5(c) is applicable) in the
outstanding Class A Common Stock), or in case of any sale or transfer to
another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, in any such
case after August 8, 1994, this Corporation (or its successor in such
consolidation or merger) or the purchaser of such properties and assets shall
make appropriate provision so that the holder of a Share shall have the right
thereafter to convert such Share into the kind and amount of shares of stock
and other securities and property (a "Successor Interest") that such holder
would have owned immediately after such reclassification, change,
consolidation, merger, sale or transfer if such holder had converted such Share
into Class A Common Stock immediately prior to the effective date of such
reclassification, change, consolidation, merger, sale or transfer (assuming for
this purpose (to the extent applicable) that such holder failed to exercise any
rights of election and received per share of Class A Common Stock the kind and
amount of shares of stock and other securities and property received per share
by a plurality of the non-electing shares), and the holders of the Convertible
Preferred Stock shall have no other conversion rights under these provisions
(other than pursuant to Section 5(o) or 5(p) hereof, provided that upon any
conversion effected pursuant to Section 5(o) or 5(p) after any event to which
this Section 5(g) is applicable, references in Section 5(o) and 5(p) to Class A
Common Stock shall be deemed to be references to Successor Interests);
provided, that effective provision shall be made, in the Articles or
Certificate of Incorporation of the resulting or surviving corporation or
otherwise or in any contracts of sale or transfer, so that the provisions set
forth herein for the protection of the conversion rights of the Convertible
Preferred Stock shall thereafter be made applicable, as nearly as reasonably
may be to any such other shares of stock and other securities and property
deliverable upon conversion of the Convertible Preferred Stock remaining
outstanding or other convertible preferred stock or other Convertible
Securities received by the holders of Convertible Preferred Stock in place
thereof; and provided, further, that any such resulting or surviving
corporation or purchaser shall expressly assume the obligation to deliver, upon
the exercise of the conversion privilege, such shares, securities or property
as the holders of the Convertible Preferred Stock remaining outstanding, or
other convertible preferred stock or other convertible securities received by
the holders in place thereof, shall be entitled to receive pursuant to the
provisions hereof, and to make provisions for the protection of the conversion
rights as above provided.
(h) Whenever the Conversion Rate or the conversion privilege shall be
adjusted as provided in Sections 5(c), (d), (e) or (g), this Corporation shall
promptly cause a notice to be mailed to the holders of record of the
Convertible Preferred Stock describing the nature of the event requiring such
adjustment, the Conversion Rate in effect immediately thereafter and the kind
and amount of stock or other securities or property into which the Convertible
Preferred Stock shall be convertible after such event. Where appropriate, such
notice may be given in advance and included as a part of a notice required to
be mailed under the provisions of Section 5(j).
(i) This Corporation may, but shall not be required to, make any adjustment
of the Conversion Rate if such adjustment would require an increase or decrease
of less than 1% in such Conversion Rate; provided, however, that any
adjustments which by reason of this Section 5(i) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. In any case in which this
Section 5(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation may defer until
the occurrence of such event (x) issuing to the holder of any shares of
Convertible Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Class A Common Stock or other
Capital Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock, or
other Capital Stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to Section 5(n); provided,
however, that, if requested by such holder, this Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Class A
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<PAGE>
Common Stock or other Capital Stock, and such cash, upon the occurrence of the
event requiring such adjustment.
(j) In case at any time:
(i) this Corporation shall take any action which would require an
adjustment in the Conversion Rate pursuant to this Section;
(ii) there shall be any capital reorganization or reclassification of the
Class A Common Stock (other than a change in par value), or any
consolidation or merger to which the Corporation is a party and for which
approval of any shareholders of this Corporation is required, or any sale,
transfer or lease of all or substantially all of the properties and assets
of the Corporation, or a tender offer for shares of Class A Common Stock
representing, together with any shares of Class B Common Stock tendered for
in such tender offer, at least a majority of the total voting power
represented by the outstanding shares of Class A Common Stock and Class B
Common Stock which has been recommended by the Board of Directors as being
in the best interests of the holders of Class A Common Stock; or
(iii) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of this Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in Section 6(d) hereof, to the holders of the Convertible
preferred Stock at their respective addresses as the same appear on the books
of the Corporation, at least twenty days (or ten days in the case of a
recommended tender offer as specified in clause (ii) above) prior to any record
date for such action, dividend or distribution or the date as of which it is
expected that holders of Class A Common Stock of record shall be entitled to
exchange their shares of Class A Common Stock for securities or other property,
if any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, tender offer, dissolution, liquidation or
winding up; provided, however, that any notice required by any event described
in clause (ii) of this Section 5(j) shall be given in the manner and at the
time that such notice is given to the holders of Class A Common Stock. Without
limiting the obligations of this Corporation to provide notice of corporate
actions hereunder, the failure to give the notice required by this Section 5(j)
or any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
(k) Before any holder of Convertible Preferred Stock shall be entitled to
convert the same into Class A Common Stock (other than pursuant to Section 5(o)
hereof but including pursuant to Section 5(p) hereof), such holder shall
surrender the certificate or certificates for such Convertible Preferred Stock
at the office of this Corporation or at the office of the transfer agent for
the Convertible Preferred Stock, which certificate or certificates, if this
Corporation shall so request, shall be duly endorsed to this Corporation or in
blank or accompanied by proper instruments of transfer to this Corporation or
in blank (such endorsements or instruments of transfer to be in form
satisfactory to this Corporation), and shall give written notice to this
Corporation at said office that such holder elects to convert all or a part of
the Shares represented by said certificate or certificates in accordance with
the terms of this Section 5 (and in the case of a conversion pursuant to
Section 5(p) hereof, specifying that such conversion is made pursuant to
Section 5(p) hereof), and shall state in writing therein the name or names in
which such holder wishes the certificates for Class A Common Stock to be
issued. Every such notice of election to convert shall constitute a contract
between the holder of such Convertible Preferred Stock and this Corporation,
whereby the holder of such Convertible Preferred Stock shall be deemed to
subscribe for the amount of Class A Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Convertible
Preferred Stock to be converted, and, in satisfaction of such subscription, to
deposit the shares of Convertible Preferred Stock to be converted, and thereby
this Corporation shall be deemed to agree that the surrender of the shares of
Convertible Preferred Stock to be converted shall constitute full payment of
such subscription for Class A Common Stock to be issued upon such conversion.
This Corporation will as soon as practicable after such deposit of a
certificate or certificates for Convertible Preferred Stock, accompanied by the
written notice and the statement above prescribed, or on the Dividend Payment
Date described in Section 5(o) hereof as
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<PAGE>
contemplated in such Section, issue and deliver at the office of this
Corporation or of said transfer agent to the person for whose account such
Convertible Preferred Stock was so surrendered, or to his nominee(s) or,
subject to compliance with applicable law, transferee(s), or the holders of
Convertible Preferred Stock on the Record Date in respect of the Dividend
Payment Date described in Section 5(o) hereof, a certificate or certificates
for the number of full shares of Class A Common Stock to which such holder
shall be entitled, together with cash in lieu of any fraction of a share as
hereinafter provided. If surrendered certificates for Convertible Preferred
Stock are converted only in part, this Corporation will issue and deliver to
the holder, or to his nominee(s), without charge therefor, a new certificate or
certificates representing the aggregate of the unconverted Shares. Such
conversion shall be deemed to have been made as of the date of such surrender
of the Convertible Preferred Stock to be converted or on such Dividend Payment
Date described in Section 5(o) hereof, as the case may be; and the person or
persons entitled to receive the Class A Common Stock issuable upon conversion
of such Convertible Preferred Stock shall be treated for all purposes as the
record holder or holders of such Class A Common Stock on such date.
Upon the conversion of any Share (other than pursuant to Section 5(o) or 5(p)
hereof), this Corporation shall pay, to the holder of record of such Share on
the immediately preceding Record Date, if such date is after the most recent
Dividend Payment Date, or otherwise to the holder of record of such Share as of
the date of conversion, all accrued but unpaid dividends on such Share to the
date of the surrender of such Share for conversion. Such payment shall be made
in cash or, at the election of this Corporation, the issuance of certificates
representing such number of shares of Class A Common Stock as have an aggregate
current market price (as determined in accordance with Section 5(f)) on the
date of issuance equal to the amount of such accrued but unpaid dividends. Upon
the making of such payment to the person entitled thereto as determined
pursuant to the first sentence of this paragraph, no further dividends shall
accrue on such Share or be payable to any other person.
The issuance of certificates for shares of Class A Common Stock upon
conversion of shares of Convertible Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance,
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the share or shares of Convertible Preferred
Stock converted, the person or persons requesting the issuance thereof shall
pay to this Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
Except for conversion pursuant to Section 5(o) or 5(p) hereof, this
Corporation shall not be required to convert any shares of Convertible
Preferred Stock, and no surrender of Convertible Preferred Stock shall be
effective for that purpose, while the stock transfer books of this Corporation
are closed for any purpose; but the surrender of Convertible Preferred Stock
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Convertible Preferred Stock was
surrendered.
(l) This Corporation shall at all times reserve and keep available, solely
for the purpose of issuance upon conversion of the outstanding shares of
Convertible Preferred Stock, such number of shares of Class A Common Stock as
shall be issuable upon the conversion of all outstanding Shares, provided that
nothing contained herein shall be construed to preclude this Corporation from
satisfying its obligations in respect of the conversion of the outstanding
shares of Convertible Preferred Stock by delivery of shares of Class A Common
Stock which are held in the treasury of this Corporation. This Corporation
shall take all such corporate and other actions as from time to time may be
necessary to insure that all shares of Class A Common Stock issuable upon
conversion of shares of Convertible Preferred Stock at the Conversion Rate in
effect from time to time will, upon issue, be duly and validly authorized and
issued, fully paid and nonassessable and free of any preemptive or similar
rights.
(m) All shares of Convertible Preferred Stock received by this Corporation
upon conversion thereof into Class A Common Stock shall be retired and shall be
restored to the status of authorized and unissued shares
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of preferred stock (and may be reissued as part of another series of the
preferred stock of this Corporation, but such shares shall not be reissued as
Convertible Preferred Stock).
(n) This Corporation shall not be required to issue fractional shares of
Class A Common Stock or scrip upon conversion of the Convertible Preferred
Stock. As to any final fraction of a share of Class A Common Stock which a
holder of one or more Shares would otherwise be entitled to receive upon
conversion of such Shares in the same transaction, this Corporation shall pay a
cash adjustment in respect of such final fraction in an amount equal to the
same fraction of the market value of a full share of Class A Common Stock. For
purposes of this Section 5(n), the market value of a share of Class A Common
Stock shall be the last reported sale price regular way on the business day
immediately preceding the date of conversion, or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the composite tape, or if the
shares of Class A Common Stock are not quoted on the composite tape, on the
principal United States securities exchange registered under the Exchange Act
on which the shares of Class A Common Stock are listed or admitted to trading,
or if the shares of Class A Common Stock are not listed or admitted to trading
on any such exchange, the last reported sale price (or the average of the
quoted last reported bid and asked prices if there were no reported sales) as
reported by NASDAQ or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(o) To the extent all cash dividends on the Convertible Preferred Stock which
have accrued on any Dividend Payment Date are not paid, or are not irrevocably
set apart in trust for the benefit of the holder of such Shares, on such date,
then each Share shall be deemed to be automatically partially converted into a
number of duly authorized, fully paid and non-assessable shares of Class A
Common Stock equal to the quotient obtained by dividing the Special Liquidation
Value in respect of such Share on such Dividend Payment Date by 95% of the
current market price of the Class A Common Stock on such date (as determined in
accordance with Section 5(f) hereof) and this Corporation shall issue and
deliver to the holder of record of such Share on the Record Date in respect of
such Dividend Payment Date a certificate evidencing such number of shares of
Class A Common Stock and payment in respect of fractional shares as provided in
Section 5(n) hereof. Upon the issuance of such Class A Common Stock the
dividend otherwise accrued on such Dividend Payment Date shall for all purposes
be deemed paid. Partial conversion of Shares pursuant to this Section 5(o)
shall not reduce Liquidation Value (except for Special Liquidation Value to the
extent included in Liquidation Value), or (except as provided in the
immediately preceding sentence) otherwise affect the right of the holder of
such Shares to convert the same pursuant to the other provisions of this
Section 5.
(p) If this Corporation fails on any Redemption Date to pay the Redemption
Price in respect of Shares otherwise called for redemption pursuant to Section
6(a) or (b) hereof or which a holder elects to cause to be redeemed pursuant to
Section 6(c) hereof, the holder of such Shares may, in addition to any other
right of conversion herein contained, convert such Shares into a number of
shares of Class A Common Stock equal to the quotient obtained by dividing such
Redemption Price by 95% of the current market price (determined in accordance
with Section 5(f) hereof) on such Redemption Date. The holder's rights in this
Section 5(p) shall be in addition to any other rights such holder may have in
respect of such failure.
(q) If any shares of Class A Common Stock which would be issuable upon
conversion of Shares require registration with or approval of any governmental
authority before such shares may be issued upon conversion (whether or not, in
the case of Section 5(o) or 5(p) hereof, any event giving rise to such issuance
has occurred or is likely to occur), this Corporation will in good faith and as
expeditiously as possible cause such shares to be duly registered or approved,
as the case may be. This Corporation will endeavor to list the shares of Class
A Common Stock required to be delivered upon conversion of Shares prior to such
delivery upon the principal national securities exchange upon which the
outstanding Common Stock is listed at the time of such delivery.
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6. Redemption.
(a) Subject to the provisions of Section 6(g), if at any time after the third
anniversary of the Issue Date the market value per share (as defined below) of
the Class A Common Stock shall have equaled or exceeded $37.50 (as adjusted for
dividends on Class A Common Stock payable in Class A Common Stock, stock splits
and reverse stock splits in respect of the Class A Common Stock occurring after
August 8, 1994) on any 20 out of a period of 30 consecutive Business Days
ending within five days prior to the giving of a notice of redemption pursuant
to this Section, the shares of Convertible Preferred Stock may be redeemed out
of funds legally available therefor, at the option of this Corporation by
action of the Board of Directors, in whole or in part, at the Redemption Price
per Share as of the applicable Redemption Date. If less than all Shares are to
be redeemed, Shares shall be redeemed ratably among the holders thereof. For
purposes of this Section, the market values of the Class A Common Stock shall
be the last reported sale price of the Class A Common Stock on the NASDAQ
National Market System (or, if not quoted on the NASDAQ National Market System,
then on such exchange on which the Class A Common Stock is listed as the
Corporation may designate) on each such Business Day or if there shall not have
been a sale on any such Business Day, the market value for that Business Day
shall be the average of the bid and asked quotations on the NASDAQ National
Market System on that Business Day, or, if the Class A Common Stock shall not
then be quoted on the NASDAQ National Market System or listed on any exchange,
the market value shall be the highest bid quotation in the over-the-counter
market on such Business Day as reported by National Quotation Bureau, Inc. or
its successor or such other generally accepted source of publicly reported bid
and asked quotations as the Corporation may reasonably designate.
(b) Subject to the provisions of Section 6(g), the shares of Convertible
Preferred Stock may be redeemed out of funds legally available therefor, at the
option of this Corporation by action of the Board of Directors, in whole or
from time to time in part, at any time after the fifth anniversary of the Issue
Date at the Redemption Price per Share as of the applicable Redemption Date. If
less than all outstanding Shares are to be redeemed, Shares shall be redeemed
ratably among the holders thereof.
(c) Subject to the rights of any Parity Securities and subject to any
prohibitions or restrictions contained in any Debt Instrument, at any time on
or after the tenth anniversary of the Issue Date, any holder of Shares shall
have the right, at such holder's option, to require redemption by this
Corporation at the Redemption Price per Share as of the applicable Redemption
Date of all or any portion of such holder's Shares having an aggregate
Liquidation Value in excess of $50,000 (or, if all of the Shares held by such
holder have an aggregate Liquidation Value of less than $50,000, all but not
less than all of such Shares) by written notice to this Corporation stating the
number of Shares to be redeemed. This Corporation shall redeem, out of funds
legally available therefor, the Shares so requested to be redeemed on such date
within 20 Business Days following this Corporation's receipt of such notice;
provided, however, that notwithstanding the provisions of Section 5(p) hereof,
if this Corporation fails on the Redemption Date to pay the Redemption Price in
respect of Shares otherwise subject to redemption pursuant to this Section 6(c)
and fails irrevocably to set apart such Redemption Price in trust for the
benefit of the holders of such Shares, the holder of such Shares shall not
exercise the conversion rights provided for in Section 5(p) for a period of one
year from such date fixed for redemption (the "One-Year Period"); provided,
further, that nothing contained in this Section 6(c) shall (i) affect any other
rights of such holder, including, without limitation, the accrual of dividends
as provided in Section 3 hereof with respect to any Shares in respect of which
the Redemption Price has not been paid or funds irrevocably set apart in trust
for the benefit of the holders of such Shares, (ii) otherwise affect the right
of the holder to convert Shares or (iii) otherwise affect the right of the
holder of any Shares in respect of which the Redemption Price has not been paid
or funds irrevocably set apart in trust for the benefit of the holders of such
Shares to convert the same pursuant to the provisions of Section 5 following
the expiration of the One-Year Period. At any time during the One- Year-Period,
this Corporation may pay, out of funds legally available therefor, ratably
among the holders who have required Shares to be redeemed under this Section
6(c), the Redemption Price for all or part of such Shares. If the funds of this
Corporation legally available for redemption of Shares are insufficient to
redeem the total number of shares required to be redeemed pursuant to this
Section 6(c), those funds which are legally available for redemption of such
Shares
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<PAGE>
will be used to redeem the maximum possible number of such Shares ratably among
the holders who have required Shares to be redeemed under this Section 6(c).
Without limiting the holders' rights pursuant to Section 5(p) hereof, at any
time thereafter when additional funds of this Corporation are legally available
and not so restricted for such purpose, such funds will immediately be used to
redeem the Shares this Corporation failed to redeem on such Redemption Date (to
the extent not previously converted) until the balance of such Shares are
redeemed.
(d) Notice of any redemption pursuant to Section 6(a) or 6(b) shall be
mailed, first class, postage prepaid, not less than 30 days nor more than 60
days prior to the Redemption Date, to the holders of record of the shares of
Convertible Preferred Stock to be redeemed, at their respective addresses as
the same appear upon the books of this Corporation or are supplied by them in
writing to this Corporation for the purpose of such notice; but no failure to
mail such notice or any defect therein or in the mailing thereof shall affect
the validity of the proceedings for the redemption of any shares of the
Convertible Preferred Stock; provided that this sentence shall not prejudice
the right of any holder to receive such damages which may result from any such
defective notice. Such notice shall set forth the Redemption Price, the
Redemption Date, the number of Shares to be redeemed and the place at which the
Shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such Shares, be redeemed. In case fewer than the total
number of shares of Convertible Preferred Stock represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Shares
will be issued to the holder thereof without cost to such holder.
(e) If notice of any redemption by this Corporation pursuant to this Section
6 shall have been mailed as provided in Section 6(d) and if on or before the
Redemption Date specified in such notice the consideration necessary for such
redemption shall have been irrevocably set apart in trust for the benefit of
the holders of Shares to be so redeemed so as to be available therefor and only
therefor, then on and after the close of business on the Redemption Date, the
Shares called for redemption, notwithstanding that any certificate therefor
shall not have been surrendered for cancellation, shall no longer be deemed
outstanding, and all rights with respect to such Shares shall forthwith cease
and terminate, except the right of the holders thereof to receive upon
surrender of their certificates the consideration payable upon redemption
thereof.
(f) All shares of Convertible Preferred Stock redeemed, retired, purchased or
otherwise acquired by this Corporation shall be retired and shall be restored
to the status of authorized and unissued shares of preferred stock (and may be
reissued as part of another series of the preferred stock of this Corporation,
but such shares shall not be reissued as Convertible Preferred Stock).
(g) If at any time this Corporation shall have failed to pay, or declare and
irrevocably set apart in trust for the benefit of the holders of Shares the
consideration sufficient to pay, all dividends accrued up to and including the
immediately preceding Dividend Payment Date on the Convertible Preferred Stock,
and until all dividends accrued up to and including the immediately preceding
Dividend Payment Date on the Convertible Preferred Stock shall have been paid
or declared and irrevocably set apart in trust for the benefit of the holders
of Shares so as to be available for the payment in full thereof and for no
other purpose, this Corporation shall not redeem, pursuant to a sinking fund or
otherwise, any shares of Convertible Preferred Stock, Parity Securities or
Junior Securities, unless all then outstanding shares of Convertible Preferred
Stock are redeemed, and shall not purchase or otherwise acquire any shares of
Convertible Preferred Stock, Parity Securities or Junior Securities. If and so
long as this Corporation shall fail to redeem on a Redemption Date pursuant to
Section 6(a), (b) and (c) all shares of Convertible Preferred Stock required to
be redeemed on such date, this Corporation shall not redeem, or discharge any
sinking fund obligation with respect to, any Junior Securities, unless all then
outstanding shares of Convertible Preferred Stock are redeemed, and shall not
purchase or otherwise acquire any shares of Convertible Preferred Stock (other
than by way of redemption or conversion) or Junior Securities. Nothing
contained in this Section 6(g) shall prevent the purchase or acquisition of
shares of Convertible Preferred Stock pursuant to a purchase or exchange offer
or offers made to holders of all outstanding shares of Convertible Preferred
Stock, provided that as to holders of all outstanding shares of Convertible
Preferred Stock, the terms of the purchase or exchange offer for all
IV-13
<PAGE>
such shares are identical and all accrued dividends on all Shares have been
paid or shall have been paid or declared and irrevocably set apart in trust for
the benefit of holders of Shares so as to be available for the payment in full
thereof and for no other purpose. The provisions of this Section 6(g) are for
the benefit of holders of Convertible Preferred Stock and accordingly the
provisions of this Section 6(g) shall not restrict any redemption by this
Corporation of Shares held by any holder, provided that all other holders of
Shares shall have waived in writing the benefits of this provision with respect
to such redemption. This Corporation shall not permit any Subsidiary thereof to
take any action which this Corporation is prohibited from taking pursuant to
this Section 6(g).
7. Exchange Option.
(a) In case this Corporation shall at any time distribute to all holders of
the Class A Common Stock any rights or warrants ("Rights") to subscribe for or
purchase Special Securities, each holder of Shares shall have the option (the
"Exchange Option"), in lieu of any adjustment to the Conversion Rate pursuant
to Section 5, to exchange shares of Convertible Preferred Stock for shares of
Mirror Preferred Stock (as defined below) which shall have an initial aggregate
liquidation value determined as follows:
(i) in the case of Rights exercisable upon payment, in whole or in part,
of cash or property other than Class A Common Stock, the maximum aggregate
liquidation value of shares of Mirror Preferred Stock issuable to a holder
of Convertible Preferred Stock upon exercise of the Exchange Option shall
be equal to the product of (x) the number shares of Special Securities
issuable upon exercise of the Rights which this Corporation would have
distributed to such holder of Convertible Preferred Stock had such holder's
Shares been converted immediately prior to the record date for the
distribution of such Rights, and (y) the amount of cash, or the fair market
value of such other property (as reasonably determined by the Board of
Directors; with respect to any Class A Common Stock that is included in
such property, the fair market value thereof shall be the current market
price as determined pursuant to Section 5(f) as of such record date),
payable by a holder of Class A Common Stock in respect of the purchase of
any such shares upon exercise of a Right; or
(ii) in the case of Rights exercisable upon the surrender of Class A
Common Stock without payment of additional consideration, the maximum
aggregate liquidation value of shares of Mirror Preferred Stock issuable
upon exercise of the Exchange Option by the holder thereof shall be equal
to the product of (x) the Conversion Rate expressed in dollars of
Liquidation Value per share of Class A Common Stock as in effect on the
record date for distribution of the Rights, and (y) the maximum number of
shares of Class A Common Stock that would have been surrendered by such
holder upon exercise of Rights that would have been distributed to such
holder had such holder converted his Shares immediately prior to the record
date for distribution of the Rights.
(b) The exercise price of the Exchange Option shall be one dollar in
Liquidation Value of Shares of Convertible Preferred Stock for each dollar of
liquidation value of shares of Mirror Preferred Stock to be purchased upon
exercise of the Exchange Option.
(c) "Mirror Preferred Stock" means convertible preferred stock issued by the
issuer of the Special Securities, such Mirror Preferred Stock to have terms,
conditions, designations, dividend rights, voting powers, rights on liquidation
and other preferences and relative, participating, optional or other special
rights, and qualifications, limitations, or restrictions thereof which are
identical, or as nearly so as is practicable in the reasonable judgment of the
Board of Directors, to those of the Convertible Preferred Stock, except that
the running of any time periods pursuant to the terms of the Convertible
Preferred Stock shall be tacked to such time periods in the Mirror Preferred
Stock and except that Mirror Preferred Stock shall be convertible into shares
of the Special Security in respect of which such Mirror Preferred Stock is
issued pursuant to the terms hereof in lieu of Class A Common Stock. The rate
at which Mirror Preferred Stock shall be convertible into Special Securities,
expressed in shares of the Special Security per dollar of liquidation value of
the Mirror Preferred Stock, shall:
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<PAGE>
(i) in the case of Mirror Preferred Stock issued in respect of Rights
exercisable upon payment, in whole or in part, of cash or property other
than Class A Common Stock, be determined by a quotient, the numerator of
which shall be the number of shares of Special Securities issuable upon
exercise of the Rights which this Corporation would have distributed to all
holders of Convertible Preferred Stock had all of the Shares been converted
immediately prior to the record date for the distribution of such Rights
and the denominator of which shall be equal to the aggregate liquidation
value of Mirror Preferred Stock issuable (assuming exercise of all the
Exchange Options) to all holders of Convertible Preferred Stock in respect
of such Rights pursuant to Section 7(a)(i) above; or
(ii) in the case of Mirror Preferred Stock issued in respect of Rights
exercisable upon surrender of shares of Class A Common Stock without
payment of additional consideration, be determined by the inverse of the
product of (x) the Conversion Rate of the Convertible Preferred Stock
expressed in dollars of Liquidation Value per share of Class A Common Stock
as in effect immediately prior to the record date for distribution of the
Rights (without giving effect to any antidilution adjustment pursuant to
Section 6 in respect of such Rights) and (y) the number of shares of Class
A Common Stock required to be surrendered upon the exercise of each Right.
(d) If this Corporation distributes Rights in respect of which the holders
of Convertible Preferred Stock are required to be granted an Exchange Option
hereunder, this Corporation shall, concurrently with the distribution of such
Rights to holders of Class A Common Stock, provide each holder of Convertible
Preferred Stock a notice (the "Option Notice") stating that such holder may,
on or before the date of expiration of the Rights (the "Expiration Date"),
exercise the Exchange Option in accordance herewith, and setting forth a
description of the Rights, the Special Securities, and the Mirror Preferred
Stock. Such notice shall be accompanied by any prospectus or similar document
provided to holders of Class A Common Stock in respect of the distribution of
the Rights and a copy of the certificate of designations (or similar document)
proposed to be filed by this Corporation or any Subsidiary with the
appropriate government official in order to establish the Mirror Preferred
Stock.
(e) If a transaction described in this Section 7 occurs before the Issue
Date, holders of the Convertible Preferred Stock may exercise the rights in
this Section 7 within 45 days after the Issue Date or, if later, the date
related Rights expire.
(f) Upon the exchange of any Share, this Corporation shall pay, to the
holder of record of such Share on the immediately preceding Record Date, if
such date is after the most recent Dividend Payment Date, or otherwise, to the
holder of record of such Share as of the date of exercise of the Exchange
Option, all accrued but unpaid dividends on such Share to the date of the
surrender of such Share for exchange. Such payment shall be made in cash or,
at the election of this Corporation, the issuance of certificates representing
such number of shares of Class A Common Stock as have an aggregate current
market price (as determined in accordance with Section 5(f)) on the date of
issuance equal to the amount of such accrued but unpaid dividends. Upon the
making of such payment to the person entitled thereto as determined pursuant
to the first sentence of this paragraph, no further dividends shall accrue on
such Share or be payable to any other person.
8. No Voting Rights. Except as required by law and Sections 9 and 11 hereof,
the holders of the Convertible Preferred Stock shall not be entitled to vote
on any matters submitted to a vote of the holders of the Capital Stock of this
Corporation.
9. Amendment. No amendment or modification of the designation, rights,
preferences, and limitations of the Shares set forth herein shall be binding
or effective without the prior consent of the holders of record of Shares
representing 66 2/3% of the Liquidation Value of all Shares outstanding
(excluding, for this purpose, Shares owned by this Corporation or any of its
Affiliates) at the time such action is taken.
10. Preemptive Rights. The holders of the Convertible Preferred Stock will
not have any preemptive right to subscribe for or purchase any shares of stock
or any other securities which may be issued by this
IV-15
<PAGE>
Corporation, provided that this Section 10 shall not limit the rights of
holders of the Convertible Preferred Stock pursuant to Sections 5 or 7 hereof.
11. Senior Securities. The Convertible Preferred Stock shall not rank junior
to any other classes or series of stock of this Corporation in respect of the
right to receive dividends or the right to participate in any distribution upon
liquidation, dissolution or winding up of this Corporation. Without the prior
consent of the holders of record of Shares representing 66 2/3% of the
Liquidation Value of all Shares then outstanding (excluding, for this purpose,
Shares owned by this Corporation or any of its Affiliates), this Corporation
shall not issue any Senior Securities.
12. Exclusion of Other Rights. Except as may otherwise be required by law and
for the equitable rights and remedies that may otherwise be available to
holders of Convertible Preferred Stock, the shares of Convertible Preferred
Stock shall not have any designations, preferences, limitations or relative
rights, other than those specifically set forth in these resolutions (as such
resolutions may, subject to Section 9, be amended from time to time) and in the
Restated Certificate of Incorporation of this Corporation.
13. Headings. The headings of the various sections and subsections hereof are
for convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
_____________________________________
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
generally, that a corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any action, suit, or
proceeding (except actions by or in the right of the corporation) by reason of
the fact that such person is or was a director, officer, employee, or agent of
the corporation against all expenses, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may
similarly indemnify such person for expenses actually and reasonably incurred
by him in connection with the defense or settlement of an action or suit by or
in the right of the corporation if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, in the case of claims, issues, and matters as to which
such person shall have been adjudged liable to the corporation, provided that a
court shall have determined, upon application, that, despite the adjudication
of liability, but in view of all of the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses that such
court shall deem proper.
Section 102(b)(7) of the DGCL provides, generally, that the certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of Title 8, or (iv) for any transaction from which the director derived an
improper personal benefit. No such provision may eliminate or limit the
liability of a director for any act or omission occurring prior to the date
when such provision became effective.
Article V, Section E of TCI's Restated Certificate of Incorporation, as
amended (the "TCI Charter"), provides as follows:
A. Limitation on Liability
To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or may hereafter be amended, a director of the
Corporation shall not be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this paragraph 1 shall be
prospective only and shall not adversely affect any limitation, right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
B. Indemnification
a. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss suffered
and expenses (including attorneys' fees) reasonably incurred by such
person. Such right of indemnification shall inure whether or not the claim
asserted is based on matters which antedate the adoption of this
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<PAGE>
Section E. The Corporation shall be required to indemnify a person in
connection with a proceeding (or part thereof) initiated by such person
only if the proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
b. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in advance
of its final disposition, provided, however, that the payment of expenses
incurred by a director or officer in advance of the final disposition of
the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this paragraph or otherwise.
c. CLAIMS. If a claim for indemnification or payment of expenses under
this paragraph is not paid in full within 60 days after a written claim
therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or
in part, shall be entitled to be paid the expense of prosecuting such
claim. In any such action the Corporation shall have the burden of proving
that the claimant was not entitled to the requested indemnification or
payment of expenses under applicable law.
d. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
paragraph shall not be exclusive of any other rights which such person may
or hereafter acquire under any statute, provision of this Certificate, the
Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
e. OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or nonprofit entity shall be reduced by any
amount such person may collect as indemnification from such other
corporation, partnership, joint venture, trust, enterprise or nonprofit
entity.
Article II, Section 2.9 of TCI's By-laws also contains an indemnity
provision, requiring TCI to indemnify members of the Board of Directors and
officers of TCI and their respective heirs, personal representatives and
successors in interest for or on account of any action performed on behalf of
TCI, to the fullest extent provided by the laws of the State of Delaware and
the TCI Charter.
TCI has entered into indemnification agreements with each person who is a
director of TCI (each director, an "indemnitee"). The indemnification
agreements provide (i) for the prompt indemnification to the fullest extent
permitted by law against any and all expenses, including attorneys' fees and
all other costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness or participating in (including on
appeal), or in preparing for ("Expenses"), any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation ("Claim"), related
to the fact that such indemnitee is or was a director, officer, employee, agent
or fiduciary of TCI or is or was serving at TCI's request as a director,
officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
or by reason of anything done or not done by a director or officer in any such
capacity, and against any and all judgments, fines, penalties and amounts paid
in settlement (including all interest, assessments and other charges paid or
payable in connection therewith) of any Claim, unless the Reviewing Party (one
or more members of the Board of Directors or other person appointed by the
Board of Directors, who is not a party 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, and for
reimbursement to TCI if the Reviewing Party determines that such indemnitee is
not entitled to such indemnification under applicable law. In addition, the
indemnification agreements 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
therefore is not entitled to indemnification or expense advancement under the
indemnification agreement) and (ii) indemnification against all expenses
(including attorneys' fees), and advancement thereof if requested, incurred by
the indemnitee in seeking to collect an indemnity claim or advancement of
expenses from TCI or
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<PAGE>
incurred in seeking to recover under a directors' and officers' liability
insurance policy, regardless of whether successful or not. Furthermore, the
indemnification agreements provide that after there has been a "change in
control" of TCI (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 a right to
indemnity and the right to advancement of Expenses, TCI will seek legal advice
only from independent legal counsel selected by the indemnitee and approved by
TCI.
The indemnification agreements impose upon TCI 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 the DGCL, TCI By-laws 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 director or officer of TCI
if there is such a policy.
TCI may purchase liability insurance policies covering its directors and
officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of August 8, 1994 by and among
Tele-Communications, Inc., TCI Communications Inc. and TeleCable Corporation.
(Included in Proxy Statement/Prospectus as Appendix I.)
*2.2 First Amendment to Agreement and Plan of Merger
3.1 Restated Certificate of Incorporation of Registrant, as amended. (Incorporated by
reference to Exhibit 3.2 to a Registration Statement on Form S-4 (Registration No.
33-54283).)
3.2 Bylaws of Registrant. (Incorporated by reference to Exhibit 3.4 to a Registration
Statement on Form S-4 filed by TCI (Registration No. 33- 54283).)
4.1 Specimen Stock Certificate for the Class A Common Stock, par value $1.00 per share,
of Registrant. (Incorporated by reference to Exhibit 4.1 to a Registration Statement
on Form S-4 filed by TCI (Registration No. 33- 54283).)
4.2 Specimen Stock Certificate for the Class B Common Stock, par value $1.00 per share,
of Registrant. (Incorporated by reference to Exhibit 4.2 to a Registration Statement
on Form S-4 filed by TCI (Registration No. 33- 54283).)
4.3 Specimen Stock Certificate for the Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock, par value $.01 per share, of Registrant. (Incorporated by
reference to Exhibit 4.3 to a Registration Statement on Form S-4 filed by TCI
(Registration No. 33-54283).)
4.4 Specimen Stock Certificate for Convertible Preferred Stock, Series C, [$1.00] par
value, of Registrant
4.5 Restated Certificate of Incorporation of Registrant, as amended.
4.6 Form of Junior Exchange Note Indenture. (Incorporated by reference to Exhibit 4.5 to
a Registration Statement on Form S-4 filed by TCI (Registration No. 33-54283).)
*5 Opinion of Sherman & Howard L.L.C. regarding legality of securities being requested.
*8 Tax opinion of Willkie Farr & Gallagher regarding certain Federal income tax
matters.
10.1 TCI 1994 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.1 to a
Registration Statement on Form S-4 filed by TCI (Registration No. 33- 54283)
(included as Appendix IV to Proxy Statement/Prospectus, which constitutes a
prospectus thereunder).)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.2 Restated and Amended Employment Agreement, dated as of November 1, 1992, between
Tele-Communications, Inc. and Bob Magness. (Incorporated herein by reference to TCI
Communications, Inc.'s (formerly Tele-Communications, Inc.) ("TCIC") Annual Report
on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A
(amendment No. 1) Commission File No. 0-5550.)
10.3 Restated and Amended Employment Agreement, dated as of November 1, 1993, between
Tele-Communications, Inc. and John C. Malone. (Incorporated herein by reference to
TCIC's Annual Report on Form 10-K for the year ended December 31, 1992, as amended
by Form 10-K/A (Amendment No. 1) Commission File No. 0-5550.)
10.4 Employment Agreement, dated as of November 1, 1992, between Tele-Communications,
Inc. and J.C. Sparkman. (Incorporated herein by reference to TCIC's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A (amendment
No. 1) Commission File No. 0-5550.)
10.5 Employment Agreement, dated as of November 1, 1992, between Tele-Communications,
Inc. and Fred A. Vierra. (Incorporated herein by reference to TCIC's Annual Report
on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A
(amendment No. 1) Commission File No. 0-5550.)
10.6 Employment Agreement, dated as of February 8, 1991, between Liberty Media
Corporation and John C. Malone. (Incorporated by reference to a Registration
Statement on Form S-4 filed by Liberty Media Corporation (Registration No. 37673).)
10.7 First Amendment, dated October 24, 1991, to Employment Agreement between Liberty
Media Corporation and John C. Malone. (Incorporated by reference to a Registration
Statement on Form S-4 filed by Liberty Media Corporation (Registration No. 37673).)
10.8 Form of Indemnification Agreement. (Incorporated by reference to Exhibit 10.8 to a
Registration Statement on Form S-4 filed by TCI (Registration No. 33-54283).)
10.9 Qualified Employee Stock Purchase Plan of Tele-Communications, Inc., as amended.
(Incorporated herein by reference to the TCIC's Registration Statement on Form S-8
(Commission File No. 33-59058).)
*21 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Price Waterhouse LLP.
*23.4 Consent of Sherman & Howard L.L.C. (included in Exhibit 5).
*23.5 Consent of Willkie Farr & Gallagher (included in Exhibit 8).
24 Power of Attorney (included herein on page II-8).
99.1 Form of Proxy for Special Meeting of TeleCable Corporation.
</TABLE>
- --------
*to be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES.
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the Financial
Statements or notes thereto.
II-4
<PAGE>
(C) REPORTS, OPINIONS OR APPRAISALS.
Opinion of Lehman Brothers (included in the Proxy Statement/Prospectus as
Appendix II).
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(3) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective, provided, in the case of a transaction that (but for
the possibility of integration with other transactions) would itself
qualify for an exemption from registration, that (i) such transactions by
itself or when aggregated with other such transactions made since the
filing of the most recently audited financial statements of the Registrant
would have a material financial effect upon the Registrant and (ii) the
information required to be supplied in a post-effective amendment by this
paragraph 6 is not contained in periodic reports filed by the Registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF ENGLEWOOD, STATE OF
COLORADO, ON OCTOBER 21, 1994.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
-------------------------------------
STEPHEN M. BRETT
EXECUTIVE VICE PRESIDENT AND SECRETARY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS AND STEPHEN M. BRETT AND BRENDAN R. CLOUSTON,
AND EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, EACH WITH
FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE
AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
PRE-EFFECTIVE AND POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE OR NECESSARY
TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS
HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS, OR EITHER OF THEM, OR THEIR OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John C. Malone Chief Executive October 21, 1994
- ------------------------------------- Officer and
JOHN C. MALONE President
(Principal
Executive Officer)
/s/ Donne F. Fisher Executive Vice October 21, 1994
- ------------------------------------- President and
DONNE F. FISHER Treasurer
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Bob Magness Chairman of the October 20, 1994
- ------------------------------------- Board and Director
BOB MAGNESS
Director
- -------------------------------------
JOHN W. GALLIVAN
Director
- -------------------------------------
KIM MAGNESS
/s/ Robert A. Naify Director October 20, 1994
- -------------------------------------
ROBERT A. NAIFY
/s/ Jerome H. Kern Director October 21, 1994
- -------------------------------------
JEROME H. KERN
/s/ Anthony L. Coelho Director October 21, 1994
- -------------------------------------
ANTHONY L. COELHO
/s/ R.E. Turner Director October 21, 1994
- -------------------------------------
R.E. TURNER
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED COPY
------- ----------- --------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of August 8, 1994 by and
among Tele-Communications, Inc., TCI Communications Inc. and
TeleCable Corporation. (Included in Proxy Statement/Prospectus as
Appendix I.)
*2.2 First Amendment to Agreement and Plan of Merger
3.1 Restated Certificate of Incorporation of Registrant, as amended.
(Incorporated by reference to Exhibit 3.2 to a Registration
Statement on Form S-4 (Registration No. 33-54283).)
3.2 Bylaws of Registrant. (Incorporated by reference to Exhibit 3.4 to
a Registration Statement on Form S-4 filed by TCI (Registration No.
33-54283).)
4.1 Specimen Stock Certificate for the Class A Common Stock, par value
$1.00 per share, of Registrant. (Incorporated by reference to
Exhibit 4.1 to a Registration Statement on Form S-4 filed by TCI
(Registration No. 33-54283).)
4.2 Specimen Stock Certificate for the Class B Common Stock, par value
$1.00 per share, of Registrant. (Incorporated by reference to
Exhibit 4.2 to a Registration Statement on Form S-4 filed by TCI
(Registration No. 33-54283).)
4.3 Specimen Stock Certificate for the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share, of
Registrant. (Incorporated by reference to Exhibit 4.3 to a
Registration Statement on Form S-4 filed by TCI (Registration No.
33-54283).)
4.4 Specimen Stock Certificate for Convertible Preferred Stock, Series
C, [$1.00] par value, of Registrant
4.5 Restated Certificate of Incorporation of Registrant, as amended.
4.6 Form of Junior Exchange Note Indenture. (Incorporated by reference
to Exhibit 4.5 to a Registration Statement on Form S-4 filed by TCI
(Registration No. 33-54283).)
*5 Opinion of Sherman & Howard L.L.C. regarding legality of securities
being requested.
*8 Tax opinion of Willkie Farr & Gallagher regarding certain Federal
income tax matters.
10.1 TCI 1994 Stock Incentive Plan. (Incorporated by reference to
Exhibit 10.1 to a Registration Statement on Form S-4 filed by TCI
(Registration No. 33-54283) (included as Appendix IV to Proxy
Statement/Prospectus, which constitutes a prospectus thereunder).)
10.2 Restated and Amended Employment Agreement, dated as of November 1,
1992, between Tele-Communications, Inc. and Bob Magness.
(Incorporated herein by reference to TCI Communications, Inc.'s
(formerly Tele-Communications, Inc.) ("TCIC") Annual Report on Form
10-K for the year ended December 31, 1992, as amended by Form 10-
K/A (amendment No. 1) Commission File No. 0-5550.)
10.3 Restated and Amended Employment Agreement, dated as of November 1,
1993, between Tele-Communications, Inc. and John C. Malone.
(Incorporated herein by reference to TCIC's Annual Report on Form
10-K for the year ended December 31, 1992, as amended by Form 10-
K/A (Amendment No. 1) Commission File No. 0-5550.)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED COPY
------- ----------- --------------
<C> <S> <C>
10.4 Employment Agreement, dated as of November 1, 1992, between
Tele-Communications, Inc. and J.C. Sparkman. (Incorporated herein
by reference to TCIC's Annual Report on Form 10-K for the year
ended December 31, 1992, as amended by Form 10-K/A (amendment No.
1) Commission File No. 0-5550.)
10.5 Employment Agreement, dated as of November 1, 1992, between
Tele-Communications, Inc. and Fred A. Vierra. (Incorporated herein
by reference to TCIC's Annual Report on Form 10-K for the year
ended December 31, 1992, as amended by Form 10-K/A (amendment No.
1) Commission File No. 0-5550.)
10.6 Employment Agreement, dated as of February 8, 1991, between Liberty
Media Corporation and John C. Malone. (Incorporated by reference to
a Registration Statement on Form S-4 filed by Liberty Media
Corporation (Registration No. 37673).)
10.7 First Amendment, dated October 24, 1991, to Employment Agreement
between Liberty Media Corporation and John C. Malone. (Incorporated
by reference to a Registration Statement on Form S-4 filed by
Liberty Media Corporation (Registration No. 37673).)
10.8 Form of Indemnification Agreement. (Incorporated by reference to
Exhibit 10.8 to a Registration Statement on Form S-4 filed by TCI
(Registration No. 33-54283).)
10.9 Qualified Employee Stock Purchase Plan of Tele-Communications,
Inc., as amended. (Incorporated herein by reference to the TCIC's
Registration Statement on Form S-8 (Commission File No. 33-59058).)
*21 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Price Waterhouse LLP.
*23.4 Consent of Sherman & Howard L.L.C. (included in Exhibit 5).
*23.5 Consent of Willkie Farr & Gallagher (included in Exhibit 8).
24 Power of Attorney (included herein on page II-8).
99.1 Form of Proxy for Special Meeting of TeleCable Corporation.
</TABLE>
- --------
*to be filed by amendment
II-8
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
--------------------------------
The Board of Directors and Stockholders
Liberty Media Corporation:
We consent to the incorporation by reference in the registration statement on
Form S-4 of Tele-Communications, Inc. of our report, dated March 18, 1994,
relating to 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), which report appears in the Form 8-K of
TCI Communications, Inc. (formerly Tele-Communications, Inc.) dated April 6,
1994 and to the reference to our firm under the heading "Experts" in the
registration statement. Our reports refer to a change in the method of
accounting for income taxes in 1993.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
October 20, 1994
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders
TCI Communications, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-4 of Tele-Communications, Inc. of our reports, dated March 21, 1994,
relating to the consolidated balance sheets of TCI Communications, Inc.
(formerly 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 reports
appear in the December 31, 1993 Annual Report on Form 10-K, as amended, of TCI
Communications, Inc. and to the reference to our firm under the heading
"Experts" in the registration statement. Our reports refer to a change in the
method of accounting for income taxes in 1993.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
October 20, 1994
<PAGE>
Consent of Independent Accountants
----------------------------------
We hereby consent to the use in the Proxy Statement/Prospectus constituting part
of this Registration Statement on Form S-4 of Tele-Communications, Inc. of our
report dated February 4, 1994 relating to the financial statements of TeleCable
Corporation which appears in such Proxy Statement/Prospectus. We also consent to
the reference to us under the heading "Experts" in such Proxy
Statement/Prospectus.
Price Waterhouse LLP
Norfolk, Virginia
October 20, 1994
<PAGE>
TELECABLE CORPORATION
Dominion Tower
999 Waterside Drive
Norfolk, Virginia 23510
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF STOCKHOLDERS ON
_________________, 1994
The undersigned hereby appoints _____________ and _____________, or
either of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of common stock of TeleCable Corporation held of record by the
undersigned on _____________, 1994, or any adjournment thereof.
1. PROPOSAL TO APPROVE AGREEMENT AND PLAN OF MERGER DATED AS OF
AUGUST 8, 1994 AMONG TELE-COMMUNICATIONS, INC., TCI COMMUNICATIONS,
INC. AND TELECABLE CORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL.
Please sign exactly as When shares are held by joint tenants, both should
name appears below. sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title. If stockholder is a corporation, please sign in
full corporate name by President or other authorized
officer. If a partnership, please sign in partnership
name by an authorized person.
__________________________________
(Signature)
DATED:_______________________, 1994
Please mark, sign, date and mail the proxy card
promptly using the return envelope.
