<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997
REGISTRATION NO. 333-______
===============================================================================
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)
<TABLE>
<S> <C> <C>
DELAWARE 4841 84-1260157
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
</TABLE>
5619 DTC PARKWAY
ENGLEWOOD, COLORADO 80111-3000
(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 80111-3000
(303) 267-5500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------
COPY TO:
ELIZABETH M. MARKOWSKI, ESQ.
BAKER & BOTTS, L.L.P.
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022-6030
(212) 705-5000
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: Upon consummation of the Merger described herein.
If any of the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT PRICE(2) FEE(2)
- ---------------------------------- --------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Tele-Communications, Inc.
Series A TCI Group
Common Stock, par value $1.00 per
share ............................ 52,800,000 N/A $292,734,388 $88,707
- ---------------------------------- --------------------------------------------- --------------
</TABLE>
(1) Represents the Registrant's estimate of the maximum number of shares of
Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00
per share, issuable by the Registrant in connection with the merger
described in this Registration Statement.
(2) Determined pursuant to Rule 457(f)(2) under the Securities Act of 1933, as
amended, based upon the aggregate book value of the 178,933 shares of common
stock of Kearns-Tribune Corporation to be received by the Registrant in the
merger described herein, which is $292,734,388 as of March 31, 1997.
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 THE 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 Between Items in Form S-4 and Proxy Statement/Prospectus
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
ITEM FORM S-4 CAPTION HEADING IN PROXY STATEMENT/PROSPECTUS
============ ==================================================== ===========================================
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus...................... Cross-Reference Sheet; Outside Front Cover
Page
Item 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
Item 3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................... Summary; Risk Factors
Item 4. Terms of the Transaction............................ Summary; The Merger; The Merger Agreement;
Certain Transactions Between TCI and KT and With
Their Stockholders; Description of TCI Capital Stock;
Comparison of Stockholders' Rights
Item 5. Pro Forma Financial Information..................... *
Item 6. Material Contracts with the Company Being Acquired.. Certain Transactions Between TCI and KT
and With Their Stockholders
Item 7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... *
Item 8. Interests of Named Experts and Counsel.............. Legal Matters; Experts
Item 9. Disclosure of Commission Position on
Indemnification of Securities Act Liabilities........ *
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information with Respect to S-3 Registrants......... Available Information; Incorporation of
Certain Documents by Reference; Business of TCI
Item 11. Incorporation of Certain Information by Reference... Available Information; Incorporation of
Certain Documents by Reference
Item 12. Information with Respect to S-2 or S-3 Registrants.. *
Item 13. Incorporation of Certain Information by Reference... *
Item 14. Information with Respect to Registrants Other than
S-3 or S-2 Registrants.............................. *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15. Information with Respect to S-3 Companies........... *
Item 16. Information with Respect to S-2 or S-3 Companies.... *
Item 17. Information with Respect to Companies Other than
S-3 or S-2 Companies................................ Business of KT; Index to Financial
Statements
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies, Consents or Authorizations
are to be Solicited................................. Available Information; Incorporation of
Certain Documents by Reference; Summary;
The Special Meeting; The Merger; Security
Ownership of KT
Item 19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer..... *
- -------------------
* Omitted because inapplicable or answer is in the negative.
</TABLE>
<PAGE>
KEARNS-TRIBUNE CORPORATION
400 TRIBUNE BUILDING
SALT LAKE CITY, UTAH 84111
(801) 237-2031
______________, 1997
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
(the "Meeting") of Kearns-Tribune Corporation ("KT"), which will be held at
_____________________________, Salt Lake City, Utah, on ________,
_______________, 1997, commencing at ____ a.m., local time. A notice of the
Meeting, a proxy card and a Proxy Statement/Prospectus containing information
about the matters to be acted upon at the Meeting are enclosed. At the Meeting,
you will be asked to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of April 18, 1997 (together with the
exhibits and schedules thereto, the "Merger Agreement"), pursuant to which KT
will be acquired by Tele-Communications, Inc. ("TCI") by means of a merger (the
"Merger") of TCI KT Merger Sub, Inc., a wholly owned subsidiary of TCI, with and
into KT. As a result of the Merger, KT will become a wholly owned subsidiary of
TCI.
The Merger Agreement provides for the conversion and exchange of each
outstanding common share, no par value per share, of KT (the "KT Common Stock"),
into a number of shares of Tele-Communications, Inc. Series A TCI Group Common
Stock, $1.00 par value per share, of TCI (the "TCI Group Series A Common Stock")
based upon a formula set forth in the Merger Agreement. Additionally, certain
directors, officers and shareholders of KT have formed a management company that
will enter into a management agreement (the "Management Agreement") with KT to
manage the newspaper businesses of KT after the Merger. The management company
will also enter into an option agreement (the "Option Agreement") whereby KT
will grant to the management company the right to purchase all the assets used
by KT in connection with the operation of The Salt Lake Tribune after five years
at fair market value. The accompanying Proxy Statement/Prospectus contains
detailed information concerning the other terms of the proposed Merger and
certain additional information. Please give all of this information your careful
attention. A copy of the Merger Agreement is included as Appendix I to the
accompanying Proxy Statement/Prospectus and should be read in its entirety.
The Board of Directors of KT (the "KT Board") has carefully reviewed and
considered the terms and conditions of the proposed Merger. In connection with
this review and consideration, the KT Board retained Houlihan, Lokey, Howard &
Zukin, which has delivered a written opinion, dated April 18, 1997 (the
"Houlihan Lokey Opinion"), to the KT Board, to the effect that the consideration
to be received by the holders of KT Common Stock in the proposed Merger is fair
from a financial point of view to such holders and that the general terms of the
Management Agreement and the Option Agreement are fair from a financial point of
view to KT. A copy of the Houlihan Lokey Opinion is included as Appendix II to
the accompanying Proxy Statement/Prospectus. The KT Board has determined that
the terms of the Merger are fair to, and in the best interests of, KT and its
shareholders, and unanimously recommends that you vote FOR the proposal to
approve and adopt the Merger Agreement.
Adoption of the Merger Agreement requires the affirmative vote of a
majority of the outstanding shares of KT Common Stock entitled to vote at the
Meeting. Pursuant to a Voting Agreement, dated as of April 18, 1997, among TCI
and certain KT shareholders, such KT shareholders have agreed to vote their
shares of KT Common Stock (representing approximately 55% of the shares
outstanding as of __________, 1997) in favor of the adoption and approval of the
Merger Agreement. Such vote will assure that the Merger Agreement will be
approved and adopted at the Meeting. A copy of the Voting Agreement is included
as Appendix IV to the accompanying Proxy Statement/Prospectus.
Holders of shares of KT Common Stock who do not vote in favor of the
Merger or consent thereto in writing, and who comply with the applicable
procedural requirements of the Revised Business Corporation Act of the State of
<PAGE>
Utah (the "URBCA") are entitled to dissenters' rights with respect to their
shares. See "THE MERGER--Utah Statutory Dissenters' Rights" and Appendix III to
the accompanying Proxy Statement/Prospectus, which sets forth the full text
of the relevant procedural requirements of the URBCA.
Whether or not you are personally able to attend the 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 Meeting and vote personally. Any signed
proxies received by KT that are not specifically marked with a direction of how
to vote in connection with the Merger will be counted as affirmative votes in
favor of adoption of the Merger Agreement.
Sincerely yours,
Dominic A. Welch
President and Chief Executive Officer
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES FOR YOUR
COMMON STOCK AT THIS TIME
<PAGE>
KEARNS-TRIBUNE CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _______________, 1997
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Meeting") of
Kearns-Tribune Corporation, a Utah corporation ("KT"), will be held on
_____________, 1997, at ______ a.m., local time, at ___________________ Salt
Lake City, Utah, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement
and Plan of Merger, dated as of April 18, 1997 (together with the
exhibits (including a related management agreement and option agreement)
and schedules thereto, the "Merger Agreement"), among
Tele-Communications, Inc., a Delaware corporation ("TCI"), TCI KT Merger
Sub, Inc., a Utah corporation ("Merger Sub"), and KT. Pursuant to the
Merger Agreement, (a) Merger Sub will be merged with and into KT, with
KT as the surviving corporation (the "Merger") and, in connection
therewith, (b) each share of the Common Shares, no par value per share,
of KT ("KT Common Stock") outstanding immediately prior to the Effective
Time (as defined in the Merger Agreement) (other than such shares as to
which dissenters' rights are demanded and perfected under Utah law) will
be converted into the right to receive, and will be exchangeable for, a
number of shares of Tele-Communications, Inc. Series A TCI Group Common
Stock, $1.00 par value per share, of TCI (the "TCI Group Series A Common
Stock") equal to the Merger Consideration (as defined in the Merger
Agreement). The terms of the Merger Agreement and the TCI Group Series A
Common Stock are described in detail in the accompanying Proxy
Statement/Prospectus, and the full text of the Merger Agreement
(exclusive of most of the Exhibits and Schedules) is included as
Appendix I thereto.
2. To transact such other business as may properly come before
the Meeting or any adjournment or postponement thereof.
Holders of shares of KT Common Stock who do not vote in favor of the
Merger or consent thereto in writing, and who comply with the applicable
procedural requirements of the Revised Business Corporation Act of the State of
Utah (the "URBCA") are entitled to dissenters' rights with respect to their
shares. See "THE MERGER--Utah Statutory Dissenters' Rights" and Appendix III to
the accompanying Proxy Statement/Prospectus, which sets forth the full text of
the relevant procedural requirements of the URBCA.
The Board of Directors of KT has fixed the close of business on
_______________, 1997 as the record date for the determination of shareholders
entitled to notice of, and to vote at, the Meeting and any adjournments or
postponements thereof. Only shareholders of record of KT Common Stock as of the
close of business on such date are entitled to notice of, and to vote at, the
Meeting and any adjournment or postponement thereof. A list of KT shareholders
entitled to vote at the Meeting will be available for examination, during
ordinary business hours, at the corporate offices at 400 Tribune Building, Salt
Lake City, Utah 84111, beginning two business days after the date of this
notice.
To assure that your interests will be represented at the Meeting,
regardless of whether you plan to attend in person, 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 Meeting and vote personally.
By Order of the Board of Directors
Sharon E. Sonnenreich
Secretary
Salt Lake City, Utah
____________, 1997
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY, WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE MEETING. DO NOT SEND ANY STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD. THE PROCEDURE FOR THE EXCHANGE OF YOUR SHARES AFTER THE
MERGER IS CONSUMMATED IS SET FORTH IN THE ATTACHED PROXY STATEMENT/ PROSPECTUS.
<PAGE>
PROXY STATEMENT/PROSPECTUS
KEARNS-TRIBUNE CORPORATION TELE-COMMUNICATIONS, INC.
PROXY STATEMENT PROSPECTUS
For Special Meeting of Shareholders 52,800,800 Shares of
to be held ___________, 1997 Tele-Communications, Inc. Series A
TCI Group Common Stock
--------------------
This Proxy Statement/Prospectus is being furnished to holders of Common
Shares, no par value per share ("KT Common Stock"), of Kearns-Tribune
Corporation, a Utah corporation ("KT"), in connection with the solicitation of
proxies by the Board of Directors of KT (the "KT Board") for use at a special
meeting of shareholders of KT (the "Meeting"), or any adjournment or
postponement thereof. At the Meeting, holders of KT Common Stock will consider
and vote upon a proposal to approve and adopt an Agreement and Plan of Merger,
dated as of April 18, 1997 (together with the exhibits and schedules thereto,
the "Merger Agreement"), among Tele-Communications, Inc., a Delaware corporation
("TCI"), TCI KT Merger Sub, Inc., a Utah corporation and a wholly owned
subsidiary of TCI ("Merger Sub"), and KT.
Pursuant to the Merger Agreement, Merger Sub will be merged with and
into KT, with KT as the surviving corporation (the "Merger"). As a result of the
Merger, shareholders of KT will become stockholders of TCI on the terms
described in this Proxy Statement/Prospectus. See "THE MERGER AGREEMENT." The
Merger will become effective (the "Effective Time") upon the filing with the
Division of Corporations and Commercial Code of the State of Utah (the
"Division") of articles of merger (the "Articles of Merger") in accordance with
the applicable provisions of the Revised Business Corporation Act of the State
of Utah (the "URBCA"), or at such later time as may be agreed to by TCI and KT
and specified in the Articles of Merger. Such filing is expected to take place
as soon as practicable after the closing of the transactions contemplated by the
Merger Agreement. See "THE MERGER AGREEMENT."
At the Effective Time, pursuant to the Merger Agreement each share of KT
Common Stock outstanding immediately prior to the Effective Time other than such
shares (the "Dissenting Shares") held by persons who are entitled to dissenters'
rights under the URBCA ("Dissenting Shareholders") and who, in compliance with
all applicable requirements and provisions of the URBCA, make and perfect a
demand for payment of such shares and do not effectively withdraw or lose the
right to such payment, will be converted into the right to receive, and will be
exchangeable for, a number of shares of Tele-Communications, Inc. Series A TCI
Group Common Stock, $1.00 par value per share, of TCI (the "TCI Group Series A
Common Stock") equal to the Merger Consideration. The "Merger Consideration" is
the number determined by dividing (A) the quotient resulting from dividing (i)
the sum of (1) 286,000,000, plus (2) the product of (x) the amount equal to the
average of the closing sales prices of the TCI Group Series A Common Stock on
the Nasdaq National Market tier of the Nasdaq Stock Market ("NASDAQ/NM") on each
of the twenty consecutive trading days immediately preceding the second trading
day prior to the date of the Effective Time (the "TCI Trading Value") and (y)
the aggregate number of shares of TCI Group Series A Common Stock and
Tele-Communications, Inc. Series B TCI Group Common Stock, $1.00 par value per
share, of TCI (the "TCI Group Series B Common Stock" and, together with the TCI
Group Series A Common Stock, the "TCI Group Common Stock"), owned by KT at the
Effective Time, plus (3) the product of (x) the amount equal to the average of
the closing sales prices of the Tele-Communications, Inc. Series A Liberty Media
Group Common Stock, $1.00 par value per share, of TCI (the "LMG Series A Common
Stock") on the NASDAQ/NM on each of the twenty consecutive trading days
immediately preceding the second trading day prior to the date of the Effective
Time (the "LMG Trading Value") and (y) the aggregate number of shares of LMG
Series A Common Stock and Tele-Communications, Inc. Series B Liberty Media Group
Common Stock, $1.00 par value per share, of TCI (the "LMG Series B Common Stock"
and, together with the LMG Series A Common Stock, the "LMG Common Stock"), owned
by KT at the Effective Time, by (ii) the TCI Trading Value, by (B) 178,933. Had
the Merger been consummated on May 30, 1997, each outstanding share of KT
i
<PAGE>
Common Stock would have been converted into approximately 266 shares of TCI
Group Series A Common Stock. See "THE MERGER AGREEMENT--Consideration to be
Received in the Merger."
Dissenting Shares will not be converted in the Merger and, from and
after the Effective Time (unless the payment demand is effectively withdrawn or
the dissenters' rights lost), will represent only the right to receive payment
of the fair value thereof in accordance with the provisions of the URBCA.
Fractional shares of TCI Group Series A Common Stock will not be issued in the
Merger and holders of KT Common Stock otherwise entitled to a fractional share
of TCI Group Series A Common Stock will receive an amount in cash equal to the
same fraction of the current market value of a whole share of TCI Group Series A
Common Stock as determined in accordance with the Merger Agreement. See "THE
MERGER AGREEMENT--Consideration to be Received in the Merger."
In connection with the Merger, certain directors, officers, and
shareholders of KT formed a management company that will enter into a management
agreement (the "Management Agreement") with KT to manage the newspaper
businesses of KT after the Merger. The management company will also enter into
an option agreement (the "Option Agreement") whereby KT will grant to the
management company the right to purchase all the assets used by KT in connection
with the operation of The Salt Lake Tribune after five years at fair market
value. See "CERTAIN TRANSACTIONS BETWEEN TCI AND KT AND WITH THEIR
STOCKHOLDERS."
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 "Securities Act"), relating to the
shares of TCI Group Series A Common Stock that are proposed to be issued
pursuant to the Merger Agreement. This Proxy Statement/Prospectus also
constitutes the Prospectus of TCI filed as part of the Registration Statement.
All information contained in this Proxy Statement/Prospectus relating to KT and
its subsidiaries has been supplied by KT and all information relating to TCI and
its subsidiaries has been supplied by TCI.
At the Effective Time, it is estimated that former holders of KT Common
Stock will hold approximately 7.5% of the aggregate number of outstanding shares
of TCI Group Series A Common Stock representing approximately 2.6% of the total
voting power of the outstanding capital stock of TCI entitled to vote generally
in the election of directors ("TCI Voting Stock"). The foregoing ownership and
voting percentages are based upon the number of shares of KT Common Stock, TCI
Group Common Stock, LMG Common Stock and each other class or series of TCI
Voting Stock outstanding on May 30, 1997, and assuming a TCI Trading Value of
$14.25 and an LMG Trading Value of $20.56. The actual ownership and voting
interests of the former holders of KT Common Stock will be dependent upon a
variety of factors and may vary from the estimated percentages set forth above.
Because the number of shares of TCI Group Series A Common Stock to be received
by KT shareholders will be determined based on the TCI Trading Value and the LMG
Trading Value, and because the market prices of the TCI Group Series A Common
Stock and the LMG Series A Common Stock are subject to fluctuation, the number
of shares of TCI Group Series A Common Stock that KT shareholders will receive
in the Merger may increase or decrease from the number of shares such
shareholders would receive based on the current market prices for TCI Group
Series A Common Stock and LMG Series A Common Stock. Moreover, the value of TCI
Group Series A Common Stock to be received by KT shareholders pursuant to the
Merger may fluctuate following the Effective Time. There is no minimum or
maximum number of TCI Group Series A Common Stock that may be issued under the
provisions of the Merger Agreement.
TCI's common stock, par value $1.00 per share ("TCI Common Stock"), is
comprised of the TCI Group Common Stock, the LMG Common Stock, the
Tele-Communications, Inc. Series A Telephony Group Common Stock (the "Telephony
Group Series A Common Stock") and the Tele-Communications, Inc. Series B
Telephony Group Common Stock (the "Telephony Group Series B Common Stock," and
together with the Telephony Group Series A Common Stock, the "Telephony Group
Common Stock"). As of the date of this Proxy Statement/Prospectus, no shares of
the Telephony Group Common Stock have been issued. Both series of the TCI Group
Common Stock are identical in all respects, except (i) each share of TCI Group
Series B Common Stock has ten votes and each share of TCI Group Series A Common
Stock has one vote and (ii) each share of TCI Group Series B Common Stock is
convertible, at the option of the holder, into one share of TCI Group Series A
Common Stock. Similarly, both series of LMG Common Stock are identical in all
respects, except (i) each share of LMG Series B Common Stock has ten votes and
each share
ii
<PAGE>
of LMG Series A Common Stock has one vote and (ii) each share of LMG Series B
Common Stock is convertible, at the option of the holder, into one share of LMG
Series A Common Stock. The shares of TCI Group Series A Common Stock and LMG
Series A Common Stock are not convertible. See "DESCRIPTION OF TCI CAPITAL
STOCK."
As of the date of this Proxy Statement/ Prospectus, KT owned of record
(i) 8,792,490 shares of TCI Group Series A Common Stock, (ii) 9,112,500 shares
of TCI Group Series B Common Stock, (iii) 4,436,245 shares of LMG Series A
Common Stock, (iv) 2,278,125 shares of LMG Series B Common Stock and (v) 67,536
shares of Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
of TCI (collectively, the "TCI Securities"), representing approximately ___% of
the voting power of the outstanding shares TCI Voting Stock.
On _________________, 1997, the last trading day before the date of this
Proxy Statement/Prospectus, the last reported sale price on the NASDAQ/NM for
shares of TCI Group Series A Common Stock was
$---.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to the shareholders of KT on or about ____________, 1997.
SEE "RISK FACTORS" ON PAGE __ FOR A DISCUSSION OF CERTAIN RISK FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF KT COMMON STOCK.
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 _________________, 1997.
iii
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements in this Proxy Statement/Prospectus and in the
documents incorporated herein by reference constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. In particular, some of the statements contained under the heading
"BUSINESS OF KT--Management's Discussion and Analysis of Financial Condition and
Results of Operation" are forward-looking. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of KT, TCI, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. With
respect to TCI, such risks, uncertainties and other factors include, among
others: general economic and business conditions and industry trends;
uncertainties inherent in proposed business strategies and development plans;
future financial performance, including availability, terms and deployment of
capital; the ability of vendors to deliver required equipment, software and
services; availability of qualified personnel; changes in, or the failure or
inability to comply with, government regulation; changes in the nature of key
strategic relationships with partners and joint venturers; and other factors
referenced herein. See "Risk Factors." With respect to KT, such risks,
uncertainties and other factors include, among others: general economic
conditions in KT's geographic markets; fluctuations in the price of newsprint; a
weakening in advertising revenue due to factors including retail consolidations,
declines in advertising budgets of major customers, and increased competition
from print and non-print products; advertisers' demands for increased
penetration in KT's designated newspaper market; costs of entering and
developing the market for electronic information; declines in circulation due to
changing reader preferences and/or new forms of information dissemination;
changing labor force pool, particularly in the areas of home delivery and
transportation; and increased competition from newspapers in or adjacent to KT's
designated newspaper market. These forward-looking statements speak only as of
the date of this Proxy Statement/Prospectus. TCI and KT expressly disclaim any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in TCI's or
KT's expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
AVAILABLE INFORMATION
TCI is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy and
information statements and other information filed with the SEC can be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the
regional offices of the SEC located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained by mail at prescribed rates
by writing to the Public Reference Section of the SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. The SEC maintains a Web
site on the Internet that contains reports, proxy and information statements and
other information regarding registrants (including TCI) that file electronically
with the SEC. The address of the SEC's Web site is http://www.sec.gov. In
addition, materials filed by TCI should be available for inspection at the
offices of The Nasdaq Stock Market, Reports Section, 1735 K Street, NW,
Washington, D.C. 20006.
TCI has filed the Registration Statement with the SEC under the
Securities Act, with respect to the shares of TCI Group Series A Common Stock to
be issued pursuant to the Merger Agreement. This Proxy Statement/Prospectus does
not include all of the information set forth in the Registration Statement filed
by TCI with the SEC under the Securities Act, as permitted by the rules and
regulations of the SEC. 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. IN ADDITION, COPIES OF
THE FORM OF MANAGEMENT AGREEMENT AND FORM OF OPTION AGREEMENT ARE AVAILABLE,
WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY ANY PERSON TO WHOM THIS PROXY
STATEMENT/PROSPECTUS HAS BEEN DELIVERED, FROM SHARON SONNENREICH, SECRETARY AND
GENERAL COUNSEL, KEARNS-TRIBUNE CORPORATION, 400 TRIBUNE BUILDING, SALT LAKE
CITY, UTAH, 84111 (TELEPHONE 801-237-2507). 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
iv
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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 OR KT 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 have been filed by TCI with the SEC under the
Exchange Act and are hereby incorporated into this Proxy Statement/Prospectus by
reference and made a part hereof (Commission File No. 0-20421): (i) TCI's Annual
Report on Form 10-K for the year ended December 31, 1996, as amended by Form
10-K/A (Amendment No. 1); (ii) TCI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997; (iii) TCI's Current Reports on Form 8-K, dated
January 22, 1997 and March 5, 1997; (iv) the financial statements and notes
thereto of VII Cable which appear in TCI's Current Report on Form 8-K, dated
June 19, 1996; and (v) the description of the TCI Group Series A Common Stock
included in Items 3 and 4 of TCI's registration statement on Form 8-B (as
amended by Form 8-B/A (Amendments No. 1, 2, 3 and 4)) and Item 1 of TCI's
registration statement on Form 8-A (as amended by Form 8-A/A (Amendments No. 1
and 2)).
All documents subsequently filed by TCI with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering and any reoffering of the securities
offered hereby shall be deemed to be incorporated herein by reference and to be
a part hereof from the respective dates of the 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 of
this Proxy Statement/Prospectus 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 such statement so modified or superseded shall not be deemed to
constitute a part of this Proxy Statement/Prospectus, except as so modified or
superseded.
All information appearing in this Proxy Statement/Prospectus is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated herein by reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY
ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED, FROM
STEPHEN M. BRETT, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL,
TELE-COMMUNICATIONS, INC., TERRACE TOWER II, 5619 DTC PARKWAY, ENGLEWOOD,
COLORADO 80111-3000 (TELEPHONE 303-267-5500). IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE RECEIVED BY ___________________,
1997 [FIVE BUSINESS DAYS PRIOR TO DATE OF MEETING].
------------------------------
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This Proxy Statement/Prospectus may also be used as a prospectus for the
resale by affiliates of KT and certain other KT shareholders of shares of TCI
Group Series A Common Stock acquired in the Merger. Any such resale would be
reflected in a supplement to this Proxy Statement/Prospectus or a post-effective
amendment of the Registration Statement, as appropriate.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
FORWARD LOOKING STATEMENTS................................................................. iv
AVAILABLE INFORMATION...................................................................... iv
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................ v
INDEX OF DEFINED TERMS..................................................................... x
SUMMARY ................................................................................... 1
The Companies...................................................................... 1
The Special Meeting................................................................ 1
The Merger......................................................................... 2
Interests of Certain Persons in the Merger......................................... 4
Utah Statutory Dissenters' Rights.................................................. 5
Certain Federal Income Tax Consequences............................................ 6
Comparative Market Price Data...................................................... 6
Dividends.......................................................................... 7
Certain Comparative Per Share Data................................................. 8
Selected Historical Financial Data................................................. 9
RISK FACTORS............................................................................... 12
THE SPECIAL MEETING........................................................................ 12
Date, Time, Place and Purpose...................................................... 12
Voting Rights; Vote Required for Approval.......................................... 12
Proxies............................................................................ 13
Expenses........................................................................... 13
THE MERGER................................................................................. 14
Background......................................................................... 14
KT's Reasons for the Merger; Recommendation of the KT Board........................ 15
Fairness Opinion................................................................... 15
TCI's Reasons for the Merger....................................................... 19
Interests of Certain Persons in the Merger......................................... 19
Certain Federal Income Tax Consequences............................................ 20
Certain Consequences of the Merger; Operations Following the Merger................ 22
Accounting Treatment............................................................... 23
Utah Statutory Dissenters' Rights.................................................. 23
Certain Transactions Between TCI and KT and With Their Stockholders................ 25
THE MERGER AGREEMENT....................................................................... 25
General; Effective Time............................................................ 25
Consideration to be Received in the Merger......................................... 26
Conditions to the Merger........................................................... 27
Covenants.......................................................................... 28
Listing on NASDAQ/NM............................................................... 29
No Solicitation of Transactions.................................................... 30
Certain Personnel Matters.......................................................... 30
</TABLE>
vii
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<TABLE>
<CAPTION>
<S> <C>
Termination, Amendment and Waiver................................................. 31
Certain Restrictions on Resale of TCI Group Series A Common Stock................. 31
Expenses.......................................................................... 32
CERTAIN TRANSACTIONS BETWEEN TCI AND KT AND WITH THEIR STOCKHOLDERS............... 32
Voting Agreement.................................................................. 32
Management Agreement.............................................................. 32
Option Agreement.................................................................. 33
Other Matters..................................................................... 34
BUSINESS OF KT.................................................................... 34
General........................................................................... 34
Management's Discussion and Analysis of Financial Condition
and Results of Operation.......................................................... 35
BUSINESS OF TCI................................................................... 40
DESCRIPTION OF TCI CAPITAL STOCK.................................................. 40
General........................................................................... 41
Common Stock...................................................................... 41
Preferred Stock................................................................... 69
Anti-Takeover Considerations...................................................... 70
COMPARISON OF STOCKHOLDERS' RIGHTS................................................ 72
Authorized Capital Stock.......................................................... 72
Preemptive Rights................................................................. 73
Dividends and Other Distributions................................................. 73
Voting Rights..................................................................... 73
Conversion Rights................................................................. 74
Board of Directors................................................................ 74
Election of Directors............................................................. 74
Removal of Directors.............................................................. 74
Vacancies on the Board of Directors............................................... 75
Action by Written Consent......................................................... 75
Special Meetings of Stockholders.................................................. 75
Merger, Consolidation and Sale of Assets.......................................... 75
Amendments to Certificate or Articles of Incorporation............................ 76
Amendments to Bylaws.............................................................. 76
Transactions Involving Officers or Directors or Interested Shareholders........... 76
Indemnification and Limitation of Liability....................................... 77
Dissenting Shareholder's Rights................................................... 78
Shareholder Approval of Certain Business Combinations............................. 78
Duration of Proxies............................................................... 79
Dissolution....................................................................... 79
SECURITY OWNERSHIP OF KT.......................................................... 79
LEGAL MATTERS..................................................................... 81
EXPERTS .......................................................................... 82
INDEX TO FINANCIAL STATEMENTS.....................................................F-1
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Appendix I: Agreement and Plan of Merger
Appendix II: Opinion of Houlihan, Lokey, Howard & Zukin
Appendix III: Part 13 of the Revised Business Corporation Act of the State of Utah
Appendix IV: Voting Agreement
</TABLE>
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INDEX OF DEFINED TERMS
Set forth below is a list of certain defined terms used in this Proxy
Statement/Prospectus and the page on which each such term is defined.
<TABLE>
<CAPTION>
<S> <C>
9% Preferred Stock......................................................................... 35
Alternative Proposal....................................................................... 30
Articles of Merger......................................................................... i
Class A Preferred Stock.................................................................... 41
Class B Preferred Stock.................................................................... 41
Closing Date............................................................................... 2
Code....................................................................................... 6
Comparable Public Companies................................................................ 16
Conversion Notice.......................................................................... 31
CSAA....................................................................................... 78
DGCL....................................................................................... 42
Dissenting Shareholders.................................................................... i
Dissenting Shares.......................................................................... i
Division................................................................................... i
EBIT....................................................................................... 16
EBITDA..................................................................................... 16
Effective Time............................................................................. i
Exchange Act............................................................................... iv
Exchange Agent............................................................................. 27
Exchange Agreement......................................................................... 20
Exercise Price............................................................................. 4
FTEE....................................................................................... 38
Houlihan Lokey ............................................................................ 3
Houlihan Lokey Opinion..................................................................... 5
HSR Act.................................................................................... 3
IRS........................................................................................ 20
JOA........................................................................................ 35
KT......................................................................................... i
KT Board................................................................................... i
KT Charter................................................................................. 1
KT Common Stock............................................................................ i
KT ESOP.................................................................................... 20
Letter Agreement........................................................................... 20
Letters.................................................................................... 21
Liberty Media Group Subsidiaries........................................................... 63
Liberty Stock Dividend..................................................................... 6
LMG Common Stock........................................................................... i
LMG Distribution........................................................................... 6
LMG Series A Common Stock.................................................................. i
LMG Series B Common Stock.................................................................. i
LMG Trading Value.......................................................................... i
LTM........................................................................................ 17
Management Agreement....................................................................... ii
Meeting.................................................................................... i
Merger........ ............................................................................ i
Merger Agreement........................................................................... i
</TABLE>
x
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<TABLE>
<CAPTION>
<S> <C>
Merger Consideration........................................................................ i
Merger Sub.................................................................................. i
NAC......................................................................................... 16
NASDAQ/NM................................................................................... i
Newspapers.................................................................................. 4
Option Agreement............................................................................ ii
Part 13..................................................................................... 5
Principals.................................................................................. 36
Record Date................................................................................. 1
Registration Statement...................................................................... ii
Regulations................................................................................. 20
SEC......................................................................................... iv
Securities Act ............................................................................. ii
Series C Preferred Stock.................................................................... 41
Series D Preferred Stock.................................................................... 41
Series E Preferred Stock.................................................................... 41
Series F Preferred Stock.................................................................... 41
Series G Preferred Stock.................................................................... 41
Series H Preferred Stock.................................................................... 41
Series Preferred Stock...................................................................... 41
SFAS........................................................................................ 40
SLT......................................................................................... 4
Superior Proposal........................................................................... 4
Surviving Corporation....................................................................... 2
Tax Counsel................................................................................. 21
TCI......................................................................................... i
TCI Charter................................................................................. 30
TCI Common Stock............................................................................ ii
TCI Group Common Stock...................................................................... i
TCI Group Series A Common Stock............................................................. i
TCI Group Series B Common Stock............................................................. i
TCI Preferred Stock......................................................................... 41
TCI Securities............................................................................. iii
TCI Trading Value........................................................................... i
TCI Voting Stock............................................................................ ii
TCIC........................................................................................ 1
Telephony Group Common Stock................................................................ ii
Telephony Group Series A Common Stock....................................................... ii
Telephony Group Series B Common Stock....................................................... ii
Telephony Group Subsidiaries................................................................ 63
TIC......................................................................................... 17
TPC - Nevada................................................................................ 16
TPC-Idaho................................................................................... 1
TPC-Nevada.................................................................................. 1
Transaction................................................................................. 15
Tribune Assets.............................................................................. 4
Tribune Offer............................................................................... 33
Tribune Option.............................................................................. 4
URBCA....................................................................................... i
Voting Agreement............................................................................ 2
Voting Securities........................................................................... 71
Voting Shareholders......................................................................... 32
</TABLE>
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SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus or in the documents
incorporated by reference herein. 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 carefully the entire Proxy
Statement/Prospectus, including the Appendices hereto.
THE COMPANIES
KT. KT and its subsidiaries, Tribune Publishing Company (Idaho)
("TPC-Idaho"), Tribune Publishing Company (Nevada) ("TPC-Nevada") and News
Review (Idaho), are primarily engaged in the business of publishing newspapers
in Salt Lake City, Utah and other venues in the northwestern United States. KT
also engages in business activities which are complementary to its core business
of newspaper publishing. Through its subsidiary, Nimitz Paper Co., KT owns a 6%
interest in the Ponderay Newsprint Mill located in Usk, Washington. KT also
develops and markets computer archive and related software systems through its
Tribune Solutions division.
KT is a Utah corporation and its principal executive offices are located
at 400 Tribune Building, Salt Lake City, Utah 84111; telephone (801) 237-2031.
See "BUSINESS OF KT."
TCI. 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 also has investments in cable
and telecommunications operations and television programming in certain
international markets, as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies. TCI is organized based upon four lines of
business: Domestic Cable and Communications; Programming; International Cable
and Programming; and Technology/Venture Capital. Within the Domestic Cable and
Communications line of business, TCI operates three strategic business units:
Cable, Telephony and Internet.
TCI is a Delaware corporation and was incorporated in 1994. TCI
Communications, Inc., a subsidiary of TCI ("TCIC"), and its predecessors have
been engaged in the cable television business since the early 1950's. TCI's
principal executive offices are located at Terrace Tower II, 5619 DTC Parkway,
Englewood, Colorado 80111-3000; telephone (303) 267-5500. See "BUSINESS OF TCI."
THE SPECIAL MEETING
A special meeting of the shareholders of KT will be held at
_____________________, Salt Lake City, Utah, on _______________,
___________________, 1997, at ________ a.m., local time. At the Meeting, KT
shareholders will be asked to consider and vote upon the proposal to approve and
adopt the Merger Agreement and such other matters as may properly be brought
before the Meeting. See "THE MERGER AGREEMENT."
Holders of record of KT Common Stock as of the close of business on
___________, 1997 (the "Record Date"), are entitled to notice of, and to vote
at, the Meeting and any adjournment or postponement thereof. Pursuant to Section
16-10a-1103(5) of the URBCA, KT's Revised Articles of Incorporation (the "KT
Charter") and KT's Bylaws, the presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of KT Common Stock
on the Record Date is necessary to constitute a quorum at the Meeting, and the
affirmative vote of a majority of the outstanding shares of KT Common Stock on
the Record Date is required to approve and adopt the
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Merger Agreement. Each share of KT Common Stock is entitled to one vote on each
matter that is properly presented to shareholders at the Meeting. As of the
Record Date, directors and executive officers of KT and affiliates were
beneficial owners of outstanding shares of KT Common Stock representing
approximately 55% of the total voting power of the shares of KT Common Stock
outstanding on such date. See "SECURITY OWNERSHIP OF KT." Pursuant to a Voting
Agreement, dated as of April 18, 1997, among TCI and certain KT shareholders
(the "Voting Agreement"), such KT shareholders have agreed to vote their shares
of KT Common Stock (representing approximately 55% of the shares outstanding as
of May 30, 1997) in favor of the adoption and approval of the Merger Agreement.
The vote of such KT shareholders in accordance with the Voting Agreement would
be sufficient to approve the Merger Agreement without any action on the part of
any other holder of KT Common Stock. See "CERTAIN TRANSACTIONS BETWEEN TCI AND
KT AND WITH THEIR STOCKHOLDERS--Voting Agreement" and Appendix IV to this Proxy
Statement/Prospectus, which contains the complete text of the Voting Agreement.
No vote of the TCI stockholders is required for approval of the Merger
Agreement. See "THE SPECIAL MEETING."
THE MERGER
Effect of the Merger. Pursuant to the Merger Agreement, upon
consummation of the Merger, Merger Sub, a wholly owned subsidiary of TCI, will
merge with and into KT, with KT being the surviving corporation (the "Surviving
Corporation"). As a result of the Merger, KT will become a wholly owned
subsidiary of TCI. The Merger will become effective upon the filing with the
Division of the Articles of Merger in accordance with the applicable provisions
of the URBCA, or at such later time as may be agreed to by TCI and KT and
specified in the Articles of Merger. Such filing is expected to take place as
soon as practicable after the closing of the transactions contemplated by the
Merger Agreement. The date on which the closing of the transactions contemplated
by the Merger Agreement takes place, which, unless otherwise agreed among the
parties, shall be on the first business day following the date on which the last
of the conditions precedent to the Merger set forth in the Merger Agreement
(other than the filing of the Articles of Merger and other than any such
conditions which by their terms are not capable of being satisfied prior to such
date) is satisfied or, when permissible, waived, is herein called the "Closing
Date." See "THE MERGER AGREEMENT--General; Effective Time."
Merger Consideration. Pursuant to the Merger Agreement, at the Effective
Time, each share of KT Common Stock outstanding immediately prior to the
Effective Time (other than shares held by KT in its treasury or by any direct or
indirect subsidiary of KT, all of which will be canceled, and other than
Dissenting Shares) will be converted into the right to receive, and will be
exchangeable for, a number of shares of TCI Group Series A Common Stock equal to
the Merger Consideration. The "Merger Consideration" is the number determined by
dividing (A) the quotient resulting from dividing (i) the sum of (1)
286,000,000, plus (2) the product of (x) the TCI Trading Value and (y) the
aggregate number of shares of TCI Group Common Stock, owned by KT at the
Effective Time, plus (3) the product of (x) the LMG Trading Value and (y) the
aggregate number of shares of LMG Common Stock, owned by KT at the Effective
Time, by (ii) the TCI Trading Value, by (B)178,933. Fractional shares of TCI
Group Series A Common Stock will not be issued in the Merger and holders of KT
Common Stock otherwise entitled to a fractional share of TCI Group Series A
Common Stock will receive an amount in cash equal to the same fraction of the
current market value of a whole share of TCI Group Series A Common Stock
determined as described herein under "THE MERGER AGREEMENT--Consideration to be
Received in the Merger." For a summary of the material differences between the
rights of holders of TCI Group Series A Common Stock and the rights of holders
of KT Common Stock, see "COMPARISON OF STOCKHOLDERS' RIGHTS." For a description
of the TCI Group Series A Common Stock to be issued in the Merger, see
"DESCRIPTION OF TCI CAPITAL STOCK--Common Stock."
KT's Reasons for the Merger; Recommendation of the KT Board. The KT
Board has unanimously approved the Merger Agreement, has determined it is
advisable and fair and in the best interests of KT and its shareholders taken as
a whole and unanimously recommends that holders of shares of KT Common Stock
vote for approval of the Merger Agreement. In reaching its decision to approve
the Merger Agreement and to recommend that KT's shareholders vote
2
<PAGE>
to approve the Merger Agreement, the KT Board considered the following factors:
(i) the industry and market conditions, including the anticipated increase in
competition from on-line services and internet providers for advertising revenue
and readership; (ii) the opinion of Houlihan, Lokey, Howard & Zukin ("Houlihan
Lokey") as to the fairness of the consideration, from a financial point of view,
to be received by the shareholders of KT taken as a whole; (iii) the terms of
the Merger Agreement, including the consideration to be received by KT
shareholders in the Merger; and (iv) the opportunity for KT shareholders to
participate, as holders of TCI Group Series A Common Stock, in a larger, more
diversified public company of which KT would become a part, and to do so by
means of a transaction that is designed to be tax-free to the holders of KT
Common Stock. See "THE MERGER -- KT's Reasons for the Merger; Recommendation of
the KT Board" and "-- Fairness Opinion." For a discussion of the interests of
certain members of the KT Board in the Merger, see "THE MERGER -- Interests of
Certain Persons in the Merger."
TCI's Reasons for the Merger. Management of TCI believes that the
acquisition of KT will benefit TCI and its stockholders by (i) providing TCI
with a valuable source of content and opportunity for cross-promotion to support
its existing high-speed internet access, electronic commerce and cable
distribution businesses and by providing a platform for experimenting with and
gaining experience in electronic publishing; (ii) eliminating from the public
float a large block of TCI Voting Stock which, when added to another significant
block of TCI Voting Stock, could enable an unaffiliated entity to effectively
control the management and policies of TCI without the payment by such entity of
a control premium to TCI stockholders generally; and (iii) eliminating the
possibility of KT liquidating the TCI Securities in volumes or at times that
could adversely impact the market prices of the TCI Common Stock. See "THE
MERGER--TCI's Reasons for the Merger."
Conditions to the Merger. The respective obligations of KT and TCI to
consummate the transactions contemplated by the Merger Agreement are subject to
the satisfaction or, where permissible, waiver of a number of conditions,
including (a) approval and adoption of the Merger Agreement by the requisite
vote of shareholders of KT; (b) absence of any effective injunction or similar
order preventing consummation of the transactions contemplated by the Merger
Agreement as provided therein; (c) expiration or termination of the waiting
period applicable to the consummation of the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (d) receipt of
certain opinions of legal counsel, including the opinion of Winston & Strawn to
KT described elsewhere in this Proxy Statement/Prospectus to the effect that the
Merger will qualify as a tax-free reorganization for Federal income tax
purposes; (e) execution and delivery of certain agreements entered into in
connection with the Merger; and (f) certain other usual and customary conditions
for a transaction of the type of the Merger. See "THE MERGER
AGREEMENT--Conditions to the Merger."
Covenants. Under the Merger Agreement, KT has agreed, prior to the
Effective Time, to conduct its business in the ordinary and usual course
consistent with past practice, to use its reasonable efforts to preserve intact
its business organization and assets and to refrain from issuing additional
capital stock, amending its charter, entering into or modifying material
agreements or taking certain other actions. In addition, for so long as the
Merger Agreement remains in effect, KT has agreed to vote or cause to be voted
all shares of TCI voting stock (as defined in the Merger Agreement) beneficially
owned by it in the manner recommended to stockholders by the TCI Board. See "THE
MERGER AGREEMENT--Covenants."
The Merger Agreement also provides that prior to the Effective Time, KT
will not, directly or indirectly, solicit from, cooperate with or furnish any
nonpublic information to, or negotiate with any person other than TCI with
respect to any proposal for a merger, consolidation, reorganization or other
business combination or recapitalization involving KT. The Merger Agreement does
not prohibit the KT Board, to the extent required by its fiduciary duties under
applicable law, from providing information to, or participating in discussions
with, any party that makes an unsolicited inquiry with respect to KT if the KT
Board reasonably believes that such party may make a proposal on terms that are
superior from a financial point of view, to the terms of the Merger for the
shareholders of KT. KT has agreed to provide TCI with written notice of its
receipt of any such proposal or inquiry and with such information regarding the
person
3
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making the same as TCI may request. Further, the Merger Agreement provides that,
subject to the fiduciary duties of the KT Board under applicable law, the KT
Board will not approve or recommend or cause KT to enter into any agreement with
respect to any alternative proposal for a merger, consolidation, reorganization,
other business combination or recapitalization, except for certain alternative
proposals (a "Superior Proposal") which the KT Board determines in its good
faith judgment, and based upon the advice of legal counsel, to be more favorable
to KT shareholders than the Merger. See "THE MERGER AGREEMENT--No Solicitation
of Transactions."
Termination of the Merger Agreement. The Merger Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time, by
(a) the mutual consent of KT and TCI; (b) either KT or TCI (i) if the Merger has
not been consummated before October 31, 1997, unless the absence of such
occurrence is due to the failure of the party seeking to terminate the Merger
Agreement to perform any of its obligations thereunder, (ii) for a material
breach by the other party under the Merger Agreement that is not cured within
fifteen days after written notice thereof, or (iii) if a court of competent
jurisdiction has issued an order permanently enjoining or otherwise prohibiting
the Merger; or (c) KT, if the KT Board, in order to comply with its fiduciary
duties to shareholders, approves or recommends, or authorizes KT to enter into a
Superior Proposal. In the event a Superior Proposal is accepted or recommended
by the KT Board and the Merger Agreement is terminated, KT will be required to
convert all of the shares of TCI Group Series B Common Stock and LMG Series B
Common Stock beneficially owned by it into an equal number of shares of TCI
Group Series A Common Stock and LMG Series A Common Stock, respectively. See
"THE MERGER AGREEMENT--Termination, Amendment and Waiver."
Accounting Treatment. The Merger will be accounted for by TCI as a
"purchase," as such term is used under generally accepted accounting principles,
for accounting and financial reporting purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the KT Board with respect to the
Merger, shareholders should be aware that some of the members of KT's management
and the KT Board have certain interests in the Merger that are in addition to or
different from the interests of shareholders of KT generally. See "THE
MERGER--Interests of Certain Persons in the Merger." The KT Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement. Certain shareholders of KT and certain members of KT's
management have formed The Salt Lake Tribune Publishing Company, LLC, a Utah
limited liability company ("SLT"). As a condition to the Merger, KT and SLT will
enter into the Management Agreement, pursuant to which KT will engage SLT to
supervise and manage the publication and operation of the newspaper businesses
owned by KT (the "Newspapers") and to render services related thereto. As
compensation for services rendered, SLT will receive a management fee equal to
3% of the Net Income (as defined in the Management Agreement) during the term of
the Management Agreement. The Management Agreement has an initial term of five
years. See "CERTAIN TRANSACTIONS BETWEEN TCI AND KT AND WITH THEIR
STOCKHOLDERS--Management Agreement." Also as a condition to the Merger, KT and
SLT will also enter into the Option Agreement, pursuant to which KT will grant
SLT an option (the "Tribune Option") to purchase all of the assets used in
connection with the operation and publication of The Salt Lake Tribune (such
assets, the "Tribune Assets"). The exercise price of the Tribune Option (the
"Exercise Price") will be equal to the Fair Market Value (as defined in the
Option Agreement) of the Tribune Assets. Pursuant to the Option Agreement, the
Tribune Option will be exercisable at any time after the fifth anniversary of
the date of the Option Agreement (unless sooner terminated in accordance with
the provisions thereof), and will remain exercisable thereafter for so long as
the Management Agreement remains in effect. See "CERTAIN TRANSACTIONS BETWEEN
TCI AND KT AND WITH THEIR STOCKHOLDERS--Option Agreement."
In connection with the execution of the Merger Agreement, KT and John C.
Malone, Chairman of the Board and Chief Executive Officer of TCI, entered into
an agreement pursuant to which Dr. Malone may acquire from KT immediately prior
to the Effective Time (i) all of the shares of TCI Group Series B Common Stock
owned by KT in
4
<PAGE>
exchange for his delivery to KT of an equal number of shares of TCI Group Series
A Common Stock, and (ii) all of the shares of LMG Series B Common Stock owned by
KT in exchange for his delivery to KT of an equal number of shares of LMG Series
A Common Stock. See "CERTAIN TRANSACTIONS BETWEEN TCI AND KT AND WITH THEIR
STOCKHOLDERS--Other Matters."
FAIRNESS OPINION
The KT Board retained Houlihan Lokey to review the fairness, from a
financial point of view, of the Merger and the transactions contemplated by the
Management Agreement and the Option Agreement, to KT, and the fairness, from a
financial point of view, of the consideration to be received by the shareholders
of KT. Houlihan Lokey has delivered a written opinion (the "Houlihan Lokey
Opinion") to the KT Board to the effect that, as of the date thereof, the
Merger, including the general terms provided in the Management Agreement and the
Option Agreement, are fair, from a financial point of view, to KT, and the
consideration to be received by the holders of KT Common Stock in the Merger is
fair from a financial point of view to such holders. A copy of the Houlihan
Lokey Opinion, which sets forth the assumptions made, the matters considered and
the scope of review undertaken, is included as Appendix II to this Proxy
Statement/Prospectus. See "THE MERGER--Fairness Opinion."
REGULATORY MATTERS
The Merger is subject to the applicable provisions of the HSR Act. On
May 16, 1997, TCI and the Company filed the information and material required
under the HSR Act with the Antitrust Division of the Department of Justice and
the Federal Trade Commission. On May 27, 1997, the Federal Trade Commission
notified KT and TCI that it granted early termination of the waiting period
applicable to the acquisition of the KT Common Stock by TCI pursuant to the
Merger. Holders of KT Common Stock who, pursuant to the Merger, will be
acquiring shares of TCI Group Series A Common Stock having a value of more than
$15 million or a value which, when aggregated with the value of shares of TCI
Voting Stock owned by such persons prior to the Merger, exceeds $15 million, may
be subject to the notification and waiting period requirements of the HSR Act.
All such waiting periods would have to expire or be terminated before any
issuance of Merger Consideration to those particular stockholders could be
effected.
UTAH STATUTORY DISSENTERS' RIGHTS
Under Utah law, record holders of KT Common Stock who, prior to the
shareholder vote on the Merger, properly demand payment for their shares and
vote against or abstain from voting with respect to the Merger have the right to
obtain a cash payment for the "fair value" of their shares. In order to exercise
such rights, Dissenting Shareholders must comply with the procedural
requirements of Part 13 of the URBCA ("Part 13"), a description of which is
provided in "THE MERGER--Utah Statutory Dissenters' Rights" and the full text of
which is annexed to this Proxy Statement/Prospectus as Appendix III. Such "fair
value" would be determined by KT, unless a Dissenting Shareholder believed that
such determination was less than the fair value of his or her shares, in which
case the Dissenting Shareholder could demand that KT pay an amount equal to such
Dissenting Shareholder's estimate of the value of his or her shares. If a demand
for payment by a Dissenting Shareholder remains unresolved, such "fair value"
would be determined in judicial proceedings, the result of which cannot be
predicted. Failure of Dissenting Shareholders to take any of the steps required
under Part 13 on a timely basis may result in the loss of dissenters' rights.
The Merger Agreement provides that if shareholders of KT owning more than 15% of
the issued and outstanding shares of KT Common Stock perfect their dissenters'
rights, TCI may, at its option, terminate the Merger Agreement. See "THE
MERGER--Utah Statutory Dissenters' Rights."
5
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization so that no gain
or loss would be recognized by the holders of KT Common Stock, except in respect
of cash received in lieu of fractional shares and except for Dissenting
Shareholders who receive cash payments. KT has received a tax opinion from
Winston & Strawn to the effect that the Merger will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and that no gain or loss will be recognized by the shareholders of KT
to the extent they receive shares of TCI Group Series A Common Stock in exchange
for their KT Common Stock in the Merger. Each party's obligation to consummate
the Merger is conditioned upon such opinion of counsel not being withdrawn prior
to the Closing Date. See "THE MERGER--Certain Federal Income Tax Consequences."
COMPARATIVE MARKET PRICE DATA
TCI. The TCI Group Series A Common Stock trades on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol "TCOMA." Effective
August 3, 1995, TCI amended its Restated Certificate of Incorporation to, among
other things, redesignate its Class A Common Stock, par value $1.00 per share,
and Class B Common Stock, par value $1.00 per share, as TCI Group Series A
Common Stock and TCI Group Series B Common Stock, and authorize two new series
of common stock, LMG Series A Common Stock and LMG Series B Common Stock. On
August 10, 1995, TCI distributed to its stockholders of record on August 4,
1995, one-quarter of a share of LMG Series A Common Stock for each share of TCI
Group Series A Common Stock held of record and one-quarter of a share of LMG
Series B Common Stock for each share of TCI Group Series B Common Stock held of
record (the "LMG Distribution"). The following table sets forth the range of
high and low sale prices reported on the NASDAQ/NM for the periods indicated for
TCI's Class A Common Stock, the TCI Group Series A Common Stock and the LMG
Series A Common Stock. Effective January 13, 1997, TCI issued a stock dividend
to holders of LMG Common Stock, consisting of one share of LMG Series A Common
Stock for every two shares of LMG Series A Common Stock owned and one share of
LMG Series A Common Stock for every two shares of LMG Series B Common Stock
owned (the "Liberty Stock Dividend"). Sales prices of the LMG Series A Common
Stock have been adjusted to give effect to the Liberty Stock Dividend. The
prices have been rounded up to the nearest eighth and do not include retail
markups, markdowns or commissions.
<TABLE>
<CAPTION>
High Low
TCI CLASS A COMMON STOCK
<S> <C> <C>
Year ended December 31, 1995:
First Quarter............................................ 23 3/4 19 7/8
Second Quarter........................................... 24 1/2 17 1/4
Third Quarter (through August 10, 1995*)................. 26 1/4 22 5/8
<CAPTION>
High Low
TCI GROUP SERIES A COMMON STOCK
<S> <C> <C>
Year ended December 31, 1995:
Third Quarter (beginning August 11, 1995)................ 20 16 7/8
Fourth Quarter........................................... 21 1/4 16 5/8
Year ended December 31, 1996:
First Quarter............................................ 22 3/8 18 3/8
Second Quarter .......................................... 20 1/8 17 3/8
Third Quarter............................................ 18 1/2 13 1/8
Fourth Quarter........................................... 15 11 3/8
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
High Low
TCI GROUP SERIES A COMMON STOCK
<S> <C> <C>
Year ended December 31, 1997:
First Quarter............................................ 14 7/8 11 7/8
Second Quarter (through ________, 1997).................. [ ]
[ ]
<CAPTION>
High Low
LMG SERIES A COMMON STOCK
<S> <C> <C>
Year ended December 31, 1995:
Third Quarter (beginning August 11, 1995)............... 18 3/4 15 3/4
Fourth Quarter........................................... 18 3/4 15 1/4
Year ended December 31, 1996:
First Quarter............................................ 19 1/2 17 1/8
Second Quarter .......................................... 20 3/4 17 1/4
Third Quarter............................................ 19 5/8 13 3/4
Fourth Quarter........................................... 19 7/8 14 3/4
Year ended December 31, 1997:
First Quarter............................................ 23 3/4 17 7/8
Second Quarter (through ________, 1997).................. [ ] [ ]
</TABLE>
- ---------------
* The date of the LMG Distribution.
On April 18, 1997, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the last reported sale
prices on the NASDAQ/NM for shares of TCI Group Series A Common Stock and LMG
Series A Common Stock were $117/8 and $197/8 per share, respectively. On
_____________, 1997, the last full trading day before the date of this Proxy
Statement/Prospectus, the last reported sale prices on the NASDAQ/NM for shares
of TCI Group Series A Common Stock and LMG Series A Common Stock were $____ and
$____ per share, respectively. The foregoing prices have been rounded up to the
nearest eighth.
KT. There is no established public trading market for the KT Common
Stock. As of June __, 1997, there were 178,933 shares of KT Common Stock
outstanding held by 131 shareholders of record.
DIVIDENDS
TCI. TCI and its predecessors have never paid any cash dividends with
respect to its common stock. TCI anticipates that no cash dividends will be paid
on the TCI Group Series A Common Stock for the foreseeable future. Payment of
cash dividends on the TCI Group Series A Common Stock, if any, in the future
will be determined by the TCI Board in light of TCI's earnings, financial
condition and other relevant considerations. As a holding company, TCI's ability
to pay cash dividends is dependent on its ability to receive cash dividends and
advances from its subsidiaries. Certain loan agreements to which certain
subsidiaries of TCI are parties or are subject contain provisions that limit the
amount of dividends, other than stock dividends, that such companies may pay.
Future loan agreements may contain similar restrictions. Payment of dividends by
TCI is also subject to the terms of any series of TCI preferred stock. See
"DESCRIPTION OF TCI CAPITAL STOCK--Common Stock--Dividends."
KT. KT and its predecessors have paid annual cash dividends on the KT
Common Stock every year since 1922. The following table sets forth the total
amount of dividends paid on the KT Common Stock for the last five years:
7
<PAGE>
Dividend Per Share
Year of KT Common Stock
---- ------------------
1996 $8.00
1995 $8.00
1994 $5.00
1993 $4.40
1992 $4.00
CERTAIN COMPARATIVE PER SHARE DATA
The following table sets forth certain historical comparative data
related to book value, earnings (loss) and cash dividends per common share on a
historical basis for TCI Group and KT, on a pro forma basis for TCI Group and on
a pro forma equivalent basis for KT. The following information should be read in
conjunction with the consolidated financial statements and notes thereto of TCI,
which are incorporated by reference into this Proxy Statement/Prospectus and the
accompanying historical financial statements of KT and notes thereto. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "INDEX TO FINANCIAL
STATEMENTS." The following information also should be read in conjunction with
the description of TCI's common stock set forth under "DESCRIPTION OF TCI
CAPITAL STOCK--Common Stock." Capitalized terms used below that have not
previously been defined have the meanings specified under "DESCRIPTION OF TCI
CAPITAL STOCK--Common Stock." TCI did not pay any cash dividends on its common
stock during the year ended December 31, 1996. See "--Dividends."
<TABLE>
<CAPTION>
TCI KT
Group KT TCI Group Pro Forma
Historical Historical Pro Forma Equivalent (d)
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Book value per common share March 31, 1997............... $2.92 1,636 3.34 (a) 888
Primary and fully diluted earnings (loss)
attributable to common stockholders
per common and common equivalent share:
Three months ended March 31, 1997................... $ (.12) 21.56 (.12) (b) (31.92)
Year ended December 31, 1996........................ $(1.22) 78.91 (1.16) (c) (308.56)
Cash dividends declared per common share:
Three months ended March 31, 1997................... $ 0.00 2.00 0.00 0.00
Year ended December 31, 1996........................ $ 0.00 8.00 0.00 0.00
</TABLE>
- ------------------
(a) The computations of the pro forma book value per share of the TCI Group
Common Stock is based upon 712,609,744 shares of TCI Group Common Stock
outstanding on such date and upon the attribution of TCI's net assets as of
December 31, 1996 to each of the TCI Group and Liberty Media Group. Shares
of TCI Group Common Stock and LMG Common Stock represent ownership interests
in TCI and the attributed net assets of the TCI Group and the Liberty Media
Group are not necessarily indicative of the allocation of any proceeds
remaining upon any liquidation of TCI. In this regard, any such liquidation
proceeds remaining for distribution to holders of TCI Group Common Stock and
LMG Common Stock would be allocated based upon the respective aggregate
Market Capitalization of the outstanding TCI Group Common Stock and LMG
Common Stock.
(b) The pro forma loss attributable to common stockholders per common share is
based upon 707,612,285 weighted average shares. Such amount was calculated
utilizing 677,954,569 weighted average shares for the three months ended
March 31, 1997 (as disclosed in TCI's historical financial statements)
reduced by 17,904,990 shares owned by KT and increased by an estimated
47,662,706 shares to be issued upon consummation of the Merger.
(c) The pro forma loss attributable to common stockholders per common share is
based upon 694,534,123 weighted average shares. Such amount was calculated
utilizing 664,776,407 weighted average shares for the year ended December
31, 1996 (as disclosed in TCI's historical financial statements) reduced by
17,904,990 shares owned by KT and increased by an estimated 47,662,706
shares to be issued upon consummation of the Merger.
(d) The indicated KT equivalents are determined by multiplying the pro forma TCI
Group amounts by 266, which equals the Merger Consideration that would have
been issued if the Merger had been consummated on May 30, 1996. See "THE
MERGER AGREEMENT--Consideration to be Received in the Merger."
8
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
TCI. The following table sets forth selected historical financial data for
TCI and subsidiaries as of March 31, 1997 and as of December 31 of each of the
years in the five-year period ended December 31, 1996, and for the three-month
periods ended March 31, 1997 and 1996, and for each of the years in the
five-year period ended December 31, 1996. The data set forth in this table is
qualified in its entirety by, and should be read in conjunction with, the
consolidated financial statements and the notes thereto of TCI incorporated by
reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The
following information also should be read in conjunction with the description of
TCI's common stock set forth under "DESCRIPTION OF TCI CAPITAL STOCK--Common
Stock." Capitalized terms used below that have not been previously defined have
the meanings specified under "DESCRIPTION OF TCI CAPITAL STOCK--Common Stock."
TELE-COMMUNICATIONS, INC.
(In millions, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------- ---------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------ ----- ------ ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OPERATING DATA:
Revenue.......................... $ 1,827 1,861 8,022 6,506 4,682 3,977 3,463
Operating income.................
$ 349 172 632 542 788 916 864
Earnings (loss) from continuing
operations.................... $ (58) (121) 278 (171) 62 (5) 8
Net earnings (loss) attributable
to common stockholders:
TCI Class A and Class B
common stock......... $ -- -- -- (71) (a) 54 (7) (22)
TCI Group Common Stock...... (84) (145) (813) (107) (b) -- -- --
LMG Common Stock............ 16 15 1,056 (27) (b) -- -- --
---- ------ ----- ---- ---- ---- ----
$ (68) (130) 243 (205) 54 (7) (22)
====== ======= ====== ===== ==== ==== =====
Primary earnings (loss) from continuing
operations attributable to common
stockholders per common share:
TCI Class A and Class B
common stock......... $ -- -- -- (.11) (a) .10 (.02) (.01)
TCI Group Common Stock..... $ (.12) (.22) (1.22) (.16) (b) -- -- --
LMG Common Stock........... $ .06 .06 3.97 (c) (.11) (b)(c) -- -- --
Cash dividends declared per
common share.................. $ -- -- -- -- -- -- --
Weighted average common and
common
equivalent shares outstanding:
TCI Class A and Class B
common stock......... -- -- -- 648 (a) 541 433 424
TCI Group Common Stock.... 678 659 665 656 (b) -- -- --
LMG Common Stock.......... 250 247 (c) 266 (c) 246 (b)(c) -- -- --
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
March December 31,
31,
-------- -------------------------------------------------
1997 1996 1995 1994 1993 1992
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Property and equipment, net...........$ 7,688 7,528 7,409 5,876 4,935 4,562
Franchise costs, net..................$ 15,911 15,436 12,230 9,444 9,197 9,300
Total assets..........................$ 30,676 30,244 25,577 19,276 16,527 16,315
Debt..................................$ 15,049 14,926 13,211 11,162 9,900 10,285
Stockholders' equity..................$ 4,422 4,253 4,550 2,655 2,116 1,728
Shares of common stock outstanding
(net of shares
held by subsidiaries):
TCI Class A and Class B common -- -- -- 576 450 430
stock..........................
TCI Group Common Stock........... 683 664 657 -- -- --
LMG Common Stock................. 250 249 (c) 246 (c) -- -- --
Book value per common share:
TCI Class A and Class B common $ -- -- -- 4.61 4.70 4.02
stock............................
TCI Group Common Stock.............$ 2.92 2.81 4.47 -- -- --
LMG Common Stock...................$ 9.73 9.63 6.56 (c) -- -- --
</TABLE>
- --------------
(a) From January 1, 1995 through the date of the LMG Distribution.
(b) From the date of the LMG Distribution through December 31, 1995.
(c) Adjusted to give effect to the Liberty Stock Dividend.
KT. The following table sets forth selected historical financial data
for KT and its subsidiaries as of March 31, 1997 and as of December 31 of each
of the years in the five-year period ended December 31, 1996, and for the three-
month periods ended March 31, 1997 and 1996, and for each of the years in the
five-year period ended December 31, 1996. The selected financial data, insofar
as they relate to each of the years 1992 to 1996, have been derived from the
audited consolidated financial statements of KT, including the consolidated
balance sheets at December 31, 1995 and 1996, and the related consolidated
statements of income and of cash flows for the three years ended December 31,
1996, and the notes thereto appearing elsewhere herein. The data set forth in
this table is qualified in its entirety by, and should be read in conjunction
with, the accompanying consolidated financial statements and the notes thereto
of KT. See "INDEX TO FINANCIAL STATEMENTS."
10
<PAGE>
KEARNS-TRIBUNE CORPORATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Fiscal Year Ended December 31,
------------------ -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- --------- -------- --------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
(Newspaper Revenue and
Commercial
Printing)....................... $11,658 $10,162 $48,709 $44,594 $42,497 $36,135 $33,271
Operating expenses............... (6,777) (7,100) (32,191) (31,137) (28,856) (28,179) (26,818)
Operating income................. 4,881 3,062 16,518 13,457 13,641 7,956 6,453
Other income (expense), net...... 958 909 6,507 2,226 1,906 (1,129) 4,745
Income before income taxes
and minority interest........... 5,839 3,971 23,025 15,683 15,547 6,827 11,198
Provision for income taxes....... (2,224) (1,438) (8,777) (5,748) (4,332) (1,989) (3,923)
Minority interest in affiliate
earnings........................ 0 0 0 0 0 0 0
------ ------ ------- ------ ------- ------ ------
Income from continuing
operations..................... $3,615 $2,533 $14,248 $9,935 $11,215 $4,838 $7,275
====== ====== ======= ====== ======= ====== ======
Earnings per share............... $20.21 $14.17 $78.91
====== ====== =======
Weighted average number of common
equivalent shares outstanding... 178,933 178,864 178,614
Cash dividends declared per $2.00 $2.00 $8.00 $8.00 $5.00 $4.40 $4.00
common share.................... ====== ====== ======= ====== ======= ====== ======
</TABLE>
<TABLE>
March 31, Fiscal Year Ended December 31,
---------- -----------------------------------------------------
1997 1996 1995 1994(b) 1993(a) 1992(a)
------ -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.................. $34,898 $33,964 $25,504 $17,857 $11,512 $12,628
Total assets.................... 471,593 493,306 587,436 487,850 73,151 70,729
Current liabilities............. 8,502 9,276 6,944 4,972 5,407 3,704
Long-term obligations........... 163,899 163,898 198,849 167,258 15,546 14,859
Stockholders' equity............ 299,192 320,132 381,643 315,620 52,198 52,166
Net book value per common share. 1,672 1,792
</TABLE>
- ---------------
(a) KT Balance Sheet for 1993 and 1992 has not been restated for SFAS No. 87
"Employer's Accounting for Pensions" and SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities."
(b) Reflects the adoption of SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" effective January 1, 1994.
11
<PAGE>
RISK FACTORS
The following factor, among others, should be considered carefully by KT
shareholders in considering whether to vote in favor of the Merger.
TCI had net earnings of $278 million and $62 million for the years ended
December 31, 1996 and 1994, respectively. TCI incurred a net loss of $58
million, $121 million and $171 million for the three months ended March 31, 1997
and 1996 and the year ended December 31, 1995, respectively. TCI has been able
to, and expects to continue to be able to, satisfy its debt service and other
obligations as and when they become due. TCI's operating cash flow (operating
income before depreciation, amortization, compensation relating to options and
to stock appreciation rights, adjustment to compensation relating to options and
to stock appreciation rights and restructuring charges) ($738 million and $533
million for the three months ended March 31, 1997 and 1996, respectively, and
$2,276 million, $1,988 million and $1,798 million for the years ended December
31, 1996, 1995 and 1994, respectively) has historically been sufficient to cover
its interest expense ($289 million and $261 million for the three months ended
March 31, 1997 and 1996, and $1,096 million, $1,010 million and $785 million for
the years ended December 31, 1996, 1995 and 1994, respectively). TCI's interest
coverage ratios for the three months ended March 31, 1997 and 1996, and for the
years ended December 31, 1996, 1995 and 1994 were 255%, 204%, 208%, 197% and
229%, respectively. Operating cash flow is a measure of value and borrowing
capacity within the cable television industry and is not intended to be a
substitute for cash flows provided by operating activities, a measure of
performance prepared in accordance with generally accepted accounting
principles, and should not be relied upon as such. Operating cash flow, as
defined, does not take into consideration substantial costs of doing business,
such as interest expense, and should not be considered in isolation to other
measures of performance.
Another measure of liquidity is net cash provided by operating
activities as reflected in TCI's consolidated statements of cash flows. Net cash
provided by operating activities ($239 million and $317 million for the three
months ended March 31, 1997 and 1996, respectively, and $1,228 million, $957
million and $908 million for the years ended December 31, 1996, 1995 and 1994,
respectively) reflects net cash from the operations of TCI available for TCI's
liquidity needs after taking into consideration the aforementioned substantial
costs of doing business not reflected in operating cash flow.
THE SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement/Prospectus and the accompanying form of proxy are
being furnished to holders of KT Common Stock in connection with the
solicitation of proxies by the KT Board for use at the Meeting to be held on
_____________, 1997, at ____________________________________________, Salt Lake
City, Utah, commencing at ______ a.m. local time, and at any adjournment or
postponement thereof. At the Meeting, holders of KT Common Stock 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 be brought before the
Meeting. A copy of the Merger Agreement is included as Appendix I to this Proxy
Statement/Prospectus.
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
The KT Board has fixed the close of business on _________________, 1997,
as the Record Date for the determination of the KT shareholders entitled to
notice of and to vote at the Meeting. Accordingly, only holders of record of
shares of KT Common Stock at the close of business on the Record Date will be
entitled to notice of, and to vote at, the Meeting. At the close of business on
the Record Date, there were 178,933 shares of KT Common Stock outstanding and
entitled to vote, held by 131 holders of record. Each holder of record of shares
of KT Common Stock on the Record Date is entitled to cast one vote per share on
each proposal properly submitted for the vote of the KT shareholders, either in
person or by properly executed proxy, at the Meeting. Pursuant to Section
16-10a-1103(5) of
12
<PAGE>
the URBCA, the KT Charter and KT's Bylaws, the presence, in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of KT Common Stock on the Record Date is necessary to constitute a quorum at the
Meeting. Abstentions will be counted in determining whether a quorum is present.
Approval and adoption of the Merger Agreement requires the affirmative
vote of a majority of the outstanding shares of KT Common Stock issued and
outstanding on the Record Date. Abstentions will have the same effect as
negative votes. Holders of shares of KT Common Stock who do not vote in favor of
the Merger or consent thereto in writing, and who comply with the applicable
procedural requirements of the URBCA are entitled to dissenters' rights with
respect to their shares. A vote in favor of the Merger Agreement by a KT
shareholder will preclude such shareholder from any right to exercise
dissenters' rights under the URBCA. See "THE MERGER--Utah Statutory Dissenters'
Rights" and Appendix III to this Proxy Statement/Prospectus.
Pursuant to the Voting Agreement, which is attached as Appendix IV to
this Proxy Statement/Prospectus, certain KT shareholders owning, in the
aggregate, 98,270 shares of KT Common Stock or 54.8% of the KT Common Stock
outstanding on the Record Date, have agreed to vote their shares of KT Common
Stock (or cause them to be voted) in favor of adoption and approval of the
Merger Agreement. The vote of such KT shareholders in accordance with the Voting
Agreement would be sufficient to approve the Merger Agreement without any action
on the part of any other holder of KT Common Stock. See "CERTAIN TRANSACTIONS
BETWEEN TCI AND KT AND WITH THEIR STOCKHOLDERS--Voting Agreement."
As of the Record Date, directors and executive officers of KT, their
subsidiaries and affiliates were beneficial owners of outstanding shares of KT
Common Stock representing approximately 55% of the total voting power of the
shares of KT Common Stock outstanding on such date. See "SECURITY OWNERSHIP OF
KT."
PROXIES
All shares of KT Common Stock represented by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted in
accordance with the instructions indicated on such proxies; however, properly
executed proxies marked "ABSTAIN," although counted for purposes of determining
whether there is a quorum at the Meeting, will not be voted. If no instructions
are indicated, such proxies will be voted FOR the proposal to adopt and approve
the Merger Agreement.
At the date of this Proxy Statement/Prospectus, the KT Board does not
know of any business to be presented at the Meeting other than as set forth in
the notice accompanying this Proxy Statement/Prospectus. If any other matters
should properly be presented at the Meeting for consideration, including, among
other things, consideration of a motion to adjourn the Meeting to another time
and/or place, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment.
A shareholder may revoke his or her proxy at any time prior to its use
by (i) delivering to the Secretary of KT a signed notice of revocation bearing a
later date than the proxy, or a duly executed later-dated proxy relating to the
same shares or (ii) attending the Meeting and voting in person. Attendance at
the Meeting will not in itself constitute the revocation of a proxy. Any written
notice of revocation or subsequent proxy should be sent so as to be delivered to
KT at 400 Tribune Building, Salt Lake City, Utah 84111, Attention: Secretary, or
hand-delivered to the Secretary of KT at the aforementioned address at or before
the taking of the vote at the Meeting.
EXPENSES
Costs and expenses incurred in connection with the printing and mailing
of this Proxy Statement/Prospectus will be paid one-half by TCI and one-half by
KT. In addition to solicitation by mail, proxies may be solicited by directors,
officers and employees of KT in person or by telephone, telegram or other means
of communication. Such directors, officers and employees will receive no
additional compensation for such services, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Custodians,
nominees and fiduciaries will be
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requested to forward proxy solicitation materials to the beneficial owners of
shares held of record by them, and will be reimbursed for the reasonable
expenses incurred by them in connection therewith.
If you have any questions about giving your proxy or require assistance,
please contact the Secretary of KT, at 400 Tribune Building, Salt Lake City,
Utah 84111 (telephone: (801) 237-2031).
SHAREHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE MERGER
BACKGROUND
As early as 1994, management of KT foresaw the possibility that
technological advances, including the dissemination of news and information via
the Internet, could eventually create greater challenges and competition for the
newspaper industry. At approximately the same time, the newspaper industry began
to undergo a period of consolidation with smaller operators seeking to
capitalize on certain perceived advantages that flow from being part of a larger
enterprise, including greater financial strength, increased liquidity and access
to expensive new technologies. These factors led John Gallivan, KT's Chairman
and a director of TCI, and Dominic Welch, KT's President, to explore the
possibility of a joint venture or other business relationship with a strategic
partner with the financial and technical resources to assist KT in competing
effectively in the future. Messrs. Gallivan and Welch then approached TCI's
Chief Executive Officer, John Malone, about the possibility of a business
combination between KT and TCI. Messrs. Gallivan and Welch believed that TCI was
a logical choice with which to pursue discussions, given KT's status as a TCI
shareholder for more than 35 years, TCI's stature in the communications industry
and TCI's plans to deliver information using new forms of telecommunications
technologies. The initial discussion among Messrs. Gallivan, Welch and Malone
was general in nature and no agreements were reached concerning the form or
scope of any transaction between KT and TCI.
On May 23, 1995, the KT Board appointed a committee of directors
consisting of Robert Steiner, David Salisbury and Philip McCarthey, none of whom
(or any of their respective affiliates) are directors or officers of TCI, to
assist KT's management in exploring a transaction with TCI. The committee
retained Winston & Strawn as KT's outside legal counsel to assist KT in
structuring a possible transaction.
In September 1995, Messrs. Gallivan and Welch met with Donne Fisher,
TCI's Chief Financial Officer at the time, to discuss possible structures for a
business combination between KT and TCI. TCI was advised by Messrs. Welch and
Gallivan of KT's desire that any proposed transaction be structured in a manner
which would ensure the editorial independence of KT's newspapers and would be
tax-free to KT's shareholders. Mr. Fisher indicated that there were certain
assets of KT, including its interest in certain mining properties, that TCI did
not wish to acquire.
Limited telephone contacts between the parties continued during the
ensuing ten months but were inconclusive. During that time, KT's management
explored various structures for disposing of certain of KT's non-newspaper
related assets. In July 1996, discussions began focusing on a transaction
pursuant to which TCI would acquire all of KT in a tax-free merger.
Representatives of KT suggested that TCI engage a management company to run KT's
newspaper operations following the transaction as a way of preserving the
editorial independence of the newspapers and ensuring an orderly transition of
ownership. Discussions then focused on the terms of such a management agreement
and possible exchange ratios for a merger. At about the same time, the major
shareholders of KT engaged in vigorous negotiations concerning who would
continue to participate in the operation of KT's newspapers under the management
contract being negotiated with TCI and the rights and obligations of those
continuing to participate. During the same time period, the KT Board engaged
Houlihan Lokey to appraise KT's assets and assist it in evaluating a proposed
transaction.
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On November 25, 1996, Messrs. Gallivan and Welch and representatives of
Winston & Strawn met in New York with Stephen M. Brett, TCI's Executive Vice
President and General Counsel, and representatives of Baker & Botts, L.L.P.,
TCI's legal counsel, to discuss the terms of the proposed merger and the
procedures for conducting a due diligence review of KT's business. TCI's due
diligence investigation of KT and negotiations over the exchange ratio and the
definitive merger documentation proceeded over the next several months. On
February 24, 1997, Mr. Brett and representatives of Baker & Botts met with
Messrs. Gallivan and Welch in Salt Lake City to discuss the results of TCI's due
diligence investigation and a formula for the exchange ratio was agreed upon.
On February 27, 1997, the KT Board approved the general terms of the
Merger and the definitive Merger Agreement was executed on April 18, 1997. The
KT Board met again on April 24, 1997 to ratify the definitive Merger
Agreement.
KT'S REASONS FOR THE MERGER; RECOMMENDATION OF THE KT BOARD
The KT Board has unanimously approved the Merger Agreement, has
determined it is advisable and fair and in the best interests of KT and its
shareholders taken as a whole and unanimously recommends that holders of shares
of KT Common Stock vote for approval of the Merger Agreement. In reaching its
decision to approve the Merger Agreement and to recommend that KT's shareholders
vote to approve the Merger Agreement, the KT Board considered the following
factors: (i) the industry and market conditions, including the anticipated
increase in competition from on-line services and internet providers for
advertising revenue and readership; (ii) the opinion of Houlihan Lokey as to the
fairness of the consideration, from a financial point of view, to be received by
the shareholders of KT taken as a whole; (iii) the terms of the Merger
Agreement, including the consideration to be received by KT shareholders in the
Merger; and (iv) the opportunity for KT shareholders to participate, as holders
of TCI Group Series A Common Stock, in a larger, more diversified public company
of which KT would become a part, and to do so by means of a transaction that is
designed to be tax-free to the holders of KT Common Stock. See "THE MERGER
- --Fairness Opinion." For a discussion of the interests of certain members of the
KT Board in the Merger, see "THE MERGER -- Interests of Certain Persons in the
Merger."
FAIRNESS OPINION
The KT Board engaged Houlihan Lokey to render an opinion on behalf of KT
that the Merger and the transactions contemplated by the Management Agreement
and the Option Agreement (collectively, the "Transaction"), are fair to KT from
a financial point of view. The summary of the fairness opinion, as set forth
herein, is qualified in its entirety by reference to the full text of the
opinion. KT's shareholders are urged to, and should, read the opinion in its
entirety.
Houlihan Lokey is a nationally recognized investment banking firm that
is continually engaged in the provision of financial advisory services in
connection with mergers and acquisitions, leveraged buyouts, business valuations
for a variety of regulatory and planning purposes, recapitalizations, financial
restructurings, and private placements of debt and equity securities. Houlihan
Lokey has no material prior relationship with KT or its affiliates.
KT selected Houlihan Lokey on the basis of the recommendation of their
legal counsel, a review of Houlihan Lokey's resume and interviews with Houlihan
Lokey personnel. As compensation to Houlihan Lokey for its services in
connection with the Transaction, KT has agreed to pay Houlihan Lokey certain
fees, estimated to total $_______. No portion of Houlihan Lokey's fees were
contingent upon the successful completion of the Transaction. KT has also agreed
to indemnify Houlihan Lokey and related persons against certain liabilities,
including liabilities under Federal securities laws, arising out of the
engagement of Houlihan Lokey, and to reimburse Houlihan Lokey for certain
expenses.
In arriving at its opinion, Houlihan Lokey made its determination as to
the fairness, from a financial point of view, of the Transaction to KT and its
shareholders on the basis of the analyses described below. No restrictions or
limitations were imposed by KT upon Houlihan Lokey with respect to its
investigation or the procedures followed by
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Houlihan Lokey in rendering its opinion. The Houlihan Lokey Opinion is not
intended to be and does not constitute a recommendation to any shareholder of KT
as to how to vote with respect to approval of the Merger Agreement.
In arriving at its opinion, Houlihan Lokey made such reviews, analyses
and inquiries as it deemed necessary and appropriate under the circumstances.
Among other things, Houlihan Lokey has: (i) reviewed the audited financial
statements of KT and Newspaper Agency Corporation ("NAC") for the five fiscal
years ending December 31, 1996; (ii) reviewed the unaudited financial statements
of TPC - Idaho and TPC - Nevada for the five fiscal years ending December 31,
1996, which KT's management has identified as being the most current financial
statements available; (iii) visited KT's headquarters in Salt Lake City, Utah;
(iv) met with certain members of the senior management of KT to discuss the
operations, financial condition, future prospects and projected operations and
performance of KT; (v) reviewed forecasts and projections prepared by KT's
management with respect to KT for the years ended December 31, 1997 through
2001; (vi) reviewed the following documents/agreements: the Merger Agreement,
the Management Agreement, and the Option Agreement; (vii) reviewed the
historical market prices and trading volume for TCI's publicly traded
securities; (viii) reviewed certain publicly available financial data for
certain companies that Houlihan Lokey deemed comparable to KT, and publicly
available prices and premiums paid in other transactions that Houlihan Lokey
considered similar to the Transaction; and (ix) conducted such other studies,
analyses and inquiries as Houlihan Lokey deemed appropriate.
Houlihan Lokey used several methodologies to assess the fairness of the
Transaction from a financial point of view. Each methodology provided an
estimate as to the value of KT and thus provided a basis of comparison to the
Merger Consideration to be received by KT's shareholders in connection with the
Transaction. Its estimates of the value of KT were based upon the value of KT's
newspaper operations and the value of all other KT assets (which are not
pertinent to its newspaper operations). These methodologies are summarized
below.
VALUATION OF NEWSPAPER OPERATIONS
Comparative Market Multiple Analysis. One methodology for determining
the value of KT's newspaper operations was a "Comparable Market Multiple"
analysis, which considered the capitalization multiples for certain income and
cash flows of a peer group of companies and then applied a selected
capitalization multiple to KT's newspaper operations' representative income and
cash flows. Such selected capitalization multiples were based on a comparative
financial analysis of KT's newspaper operations and the peer group of companies.
In this analysis, the operational results of KT's newspaper operations were
compared to certain publicly available financial and operating data of selected
publicly traded industrial companies involved in similar businesses, i.e. the
publishing and distribution of newspapers. The selected companies (collectively,
the "Comparable Public Companies") were A.H. Belo Corporation, Central
Newspapers, Inc., Lee Enterprises, Incorporated, McClatchy Newspapers, Inc., and
Pulitzer Publishing Company. These analyses included an assessment of the
financial and operating characteristics of each, based upon the most recent
publicly available information and published earnings estimates for research
analysts. For each of the Comparable Public Companies, Houlihan Lokey analyzed,
among other things, market value, interest-bearing debt, historical revenue, and
earnings before interest, taxes, depreciation and amortization ("EBITDA"). The
Comparable Public Companies had market values of equity ranging from less than
$200 million to in excess of $1.4 billion, annual revenue ranging from
approximately $400 million to $800 million, interest-bearing debt ranging from
$4 million to $362 million and total assets ranging from $527 million to $1.2
billion. These companies are actively traded in the public marketplace, and all
of these companies are followed by research analysts.
In completing its analysis Houlihan Lokey also considered a number of
factors with respect to the Comparable Public Companies including, but not
limited to, (i) size (i.e., total revenue, ranging from $400 million to $800
million); (ii) liquidity (i.e., as indicated by the current ratios ranging from
1.1x to 2.2x); (iii) leverage (i.e., as indicated by the ratio of
interest-bearing debt to net worth ranging from 0.0x to 5.4x); (iv) the turnover
of working capital (i.e., ranging from 7.2x to 9.9x); (v) the average collection
period of receivables (i.e., as measured by days ranging from 34 to 51); (vi)
profitability (i.e., as measured by (A) Earnings Before Interest and Taxes
("EBIT") to sales (ranging from 12.9% to 25.2%), (B) EBITDA to sales (ranging
from 21.4% to 33.0%), and (C) gross profit margins ranging from 19.2% to 54.5%;
(vii) growth (i.e., as measured by (A) the four year change in revenue (ranging
from 4.3% to 14.2%), (B) annual
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change in revenue (ranging from -7.6% to 22.1%), (C) four year change in EBITDA
(ranging from 5.0% to 24.8%), and (D) annual change in EBITDA (ranging from 3.0%
to 23.9%); and (viii) dividend payout ratios (i.e., ranging from 15.8% to
39.8%).
Houlihan Lokey also analyzed the Total Invested Capital (the sum of the
market value of equity and interest-bearing debt) ("TIC") as a multiple of
latest twelve months ("LTM") EBITDA, EBIT, and revenue. Houlihan Lokey's
analysis of the Comparable Public Companies indicated TIC multiples as follows:
Range Median Mean
------------- ------------ -----------
LTM EBITDA 1.9 - 9.6x 9.1x 7.6x
LTM EBIT 2.4 - 15.2x 12.4x 10.8x
LTM Revenue 0.6 - 2.7x 2.4x 2.0x
Houlihan Lokey also considered the current stock price (based upon a
20-day moving average) as a multiple of LTM earnings and cash flow. Houlihan
Lokey's analysis of the Comparable Public Companies indicated current stock
price multiples as follows:
Range Median Mean
------------- ------------ -----------
LTM Earnings 2.8 - 27.1x 18.6x 17.6x
LTM Cash Flow 1.8 - 13.3x 11.1x 9.7x
These analyses enabled Houlihan Lokey to then make a determination of
the relative risks associated with the business of KT's newspaper operations
versus those of the Comparable Public Companies, and make a conclusion regarding
the appropriate relative multiples for the operating results of KT's newspaper
operations. Houlihan Lokey compared the results of such analyses for the
Comparable Public Companies to the corresponding results for KT's newspaper
operations. Houlihan Lokey believed it was inappropriate to, and therefore did
not, rely solely on the quantitative results of the analysis, and accordingly
made professional judgments regarding the differences between KT and the
Comparable Public Companies that would impact the appropriate multiples,
discount rate and thus the value of KT's newspaper operations. Such comparative
analyses formed the basis for Houlihan Lokey's selection of multiples for KT's
newspaper operations.
Houlihan Lokey determined the implied value of KT's newspaper based upon
LTM EBITDA, EBIT, revenues, earnings, and cash flow of approximately $210
million. In arriving at the implied value of KT's newspaper operations, Houlihan
Lokey selected multiples which were at a slight discount to the multiples of the
Comparable Public Companies. This selection reflects the risks attendant to KT,
including its relative size and its lack of geographic diversification.
Discounted Cash Flow Analysis. An alternative methodology was a
"Discounted Cash Flow" analysis, in which Houlihan Lokey performed analyses of
the forecast and projection information provided by management of KT's newspaper
operations for the years 1997 through 2001. Houlihan Lokey calculated a range of
values based upon the net present value of the sum of the discounted stream of
projected unlevered net debt free cash flows and the discounted projected
terminal value of KT's newspaper operations based upon a range of growth rates.
Based upon discount rates ranging from 12.5% to 14.5%, which were
determined from an analysis of the Comparable Public Companies which displayed
weighted average costs of capital ranging from approximately 11% to 15%, and
terminal growth rates ranging from 6% to 7%, Houlihan Lokey calculated the
implied value of KT's newspaper operations to be $215 million.
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Gordon Growth Model Abbreviated Discounted Cash Flow Analysis. Another
methodology was a "Gordon Growth Model Abbreviated Discounted Cash Flow"
analysis, which considered the current income stream generated by KT's newspaper
operations, grew such income stream into perpetuity, and then discounted that
stream to the present using a market based, risk adjusted discount rate. The
indication of a current income stream was developed from LTM net debt free cash
flow of $11.22 million. Based upon discount rates ranging from 11% to 12% and
perpetuity growth rates ranging from 6.5% to 7.5%, Houlihan Lokey calculated the
implied value of KT's newspaper operations to be approximately $212 million.
These analyses lead Houlihan Lokey to reach a Total Invested Capital
conclusion for KT's newspaper operations in the range of $210 to $215 million.
This value was adjusted to subtract the value of KT's newspaper operations'
interest-bearing debt (of approximately $4.5 million), or total equity value of
KT's newspaper operations of approximately $209 million.
The primary methodologies utilized by Houlihan Lokey to estimate the
value of KT's non-newspaper assets include a public trading price analysis and a
discounted cash flow analysis. These methodol ogies are detailed below.
VALUATION OF NON-NEWSPAPER ASSETS.
Public Trading Price Analysis. For KT's non-newspaper assets which are
publicly traded, the public trading price of such assets was considered in
Houlihan Lokey's analysis. These assets consist primarily of stock in TCI or its
affiliated companies, and to a significantly lesser degree the stock of
approximately 10 other publicly traded companies. For the stock of TCI and its
affiliated companies, the 20-day moving average closing price as of April 18,
1997 was utilized to determine the fair market value of such assets. All other
publicly traded assets were valued during the winter of 1997, based on their
average closing price over a 20-day period. Furthermore, due to KT's relatively
large holding of General Communications, Inc. Class A and Class B stock, a
slight discount was applied to the value of such stock to reflect KT's inability
to sell such a large holding at the market price. Collectively, these publicly
traded securities held by KT have a value of $361 million, with the stock in TCI
and its affiliated companies representing nearly $339 million of value.
For certain other non-material assets Houlihan Lokey relied upon KT
management's estimate of the value of such assets. These assets consist
primarily of securities in privately held companies and real property assets.
These assets collectively have an estimated value of $19.2 million.
Discounted Cash Flow and Other Analyses. Houlihan Lokey determined that
KT's balance sheet reflected excess cash (not required for the operations of
KT's newspapers) of $23.6 million. The amount of excess cash was determined by
comparing cash as a percentage of revenue and other factors for KT's newspaper
operations and the Comparable Public Companies. Houlihan Lokey utilized a
discounted cash flow analysis to determine the value of KT's life insurance
policies (estimated at approximately $11 million). Finally, Houlihan Lokey
estimated the value of KT's interest in Nimitz Paper Company at approximately
$3.7 million based upon its book value investment in such asset. Thus, Houlihan
Lokey estimates that the total value of KT's excess cash, life insurance
policies, and investment in Nimitz Paper Company is approximately $38.2 million.
Houlihan Lokey added its estimates of value of KT's newspaper assets
($209 million) to its non-newspaper assets (consisting of $361 million of
marketable securities plus $19.2 million of non-marketable securities and real
property plus $38.2 million of cash, life insurance policies, or other
investments), to arrive at an estimate of the total value of KT's assets as a
going concern of $627 million. Houlihan Lokey then considered the value of KT's
total assets to its shareholders in light of KT's long term holding of such
assets and concluded that the value of such assets to KT's shareholders is less
than $627 million. Finally, a comparable transaction analysis, which considered
the terms and conditions of transactions which Houlihan Lokey deemed similar to
the Transaction, was considered by Houlihan Lokey.
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Given that the estimate of the value of KT's assets to its shareholders
was less than the aggregate Merger Consideration to be provided to KT and its
shareholders in connection with the Transaction, Houlihan Lokey concluded that
the Transaction, including the general terms provided for in the Management
Agreement and the Option Agreement, are fair to KT from a financial point of
view, and the Merger Consideration to be received by the stockholders of KT in
connection with the Merger is fair to them from a financial point of view.
The aforementioned analyses required studies of the overall market,
economic and industry conditions in which KT operates, and KT's operating
results and holdings of other assets. Research into, and consideration of, these
conditions were incorporated into the analyses.
Houlihan Lokey's opinion is based on the business, economic, market and
other considerations as they existed as of the date of its opinion. In rendering
its opinion, Houlihan Lokey has relied upon and assumed, without independent
verification, that the financial results provided to Houlihan Lokey by KT and
KT's auditors (Deloitte & Touche) have been reasonably prepared and reflect the
best current available estimates of the financial results and conditions of KT.
Houlihan Lokey did not independently verify the accuracy or completeness of the
information supplied to it with respect to KT and does not assume responsibility
for it. Except as set forth above, Houlihan Lokey did not make any physical
inspection or independent appraisal of the specific properties or assets of KT.
The summary set forth above describes the material points of more
detailed analyses performed by Houlihan Lokey in arriving at its fairness
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey did not attribute any particular
weight to any analysis or factor considered by it, but rather made the
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Houlihan Lokey believes that its analyses and the summary
set forth herein must be considered as a whole and that selecting portions of
its analyses, without considering all analyses, or portions of this summary,
without considering all factors and analyses, could create an incomplete view of
the processes underlying the analyses set forth in the Houlihan Lokey Opinion.
In its analysis, Houlihan Lokey made numerous assumptions with respect to KT,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of KT. The
estimates contained in such analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the value of businesses or securities are not appraisals. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
TCI'S REASONS FOR THE MERGER
Management of TCI believes that the acquisition of KT will benefit TCI
and its stockholders by (i) providing TCI with a valuable source of content and
opportunity for cross-promotion to support its existing high-speed internet
access, electronic commerce and cable distribution businesses and by providing a
platform for experimenting with and gaining experience in electronic publishing;
(ii) eliminating from the public float a large block of TCI Voting Stock which,
when added to another significant block of TCI Voting Stock, could enable an
unaffiliated entity to effectively control the management and policies of TCI
without the payment by such entity of a control premium to TCI stockholders
generally; and (iii) eliminating the possibility of KT liquidating the TCI
Securities in volumes or at times that could adversely impact the market prices
of the TCI Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the KT Board with respect to the
Merger, KT shareholders should be aware that certain members of KT's management
and the KT Board have certain interests in the Merger that are in addition to or
different from the interests of shareholders of KT, generally. The KT Board was
aware of these interests and considered them, among other matters, in approving
the Merger Agreement.
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Management Agreement. As a condition to consummating the Merger, KT and
SLT will enter into the Management Agreement, pursuant to which KT will engage
SLT as the exclusive management agent to supervise and manage the publication
and operation of the Newspapers owned by KT following the Merger and to render
services related thereto. As compensation for services rendered, SLT will
receive a management fee equal to 3% of the Net Income (as defined in the
Management Agreement) during the term of the Management Agreement. The
Management Agreement has an initial term of five years. See "CERTAIN
TRANSACTIONS BETWEEN TCI AND KT AND WITH THEIR STOCKHOLDERS--Management
Agreement."
Option Agreement. As a condition to consummating the Merger, KT and SLT
will also enter into the Option Agreement, pursuant to which KT, in
consideration of the payment by SLT to KT of $1,000,000, will grant SLT the
Tribune Option to purchase all (but not less than all) of the Tribune Assets.
The Exercise Price of the Tribune Option will be equal to the Fair Market Value
(as defined in the Option Agreement) of the Tribune Assets. Pursuant to the
Option Agreement, the Tribune Option will be exercisable at any time after the
fifth anniversary of the date of the Option Agreement (unless sooner terminated
in accordance with the provisions thereof), and will remain exercisable
thereafter for so long as the Management Agreement remains in effect. If the
Management Agreement is terminated for any reason prior to the fifth anniversary
of the date of the Option Agreement, the Tribune Option will become exercisable
on the fifth anniversary of the date of the Management Agreement. See "CERTAIN
TRANSACTIONS BETWEEN TCI AND KT AND WITH THEIR STOCKHOLDERS--Option Agreement."
KT ESOP. The Merger Agreement provides that KT will take all actions
necessary to amend the KearnsTribune Corporation Employee Stock Ownership Plan
(the "KT ESOP") prior to the Effective Time to provide that all participants of
the KT ESOP who are employed by KT or any of its subsidiaries at the Effective
Time will be fully vested in their accounts under the KT ESOP to the extent that
the value of such accounts are attributable to contributions made or accrued
under the KT ESOP as of the Effective Time. Contributions by KT vest in
accordance with the vesting schedule of the KT ESOP and are invested primarily
in KT Common Stock. Employee contributions to the KT ESOP are not permitted. As
of the close of business on May 30, 1997, 12,698 shares of KT Common Stock were
held pursuant to the KT ESOP. By virtue of the Merger, all shares of KT Common
Stock held by the KT ESOP at the Effective Time will be converted into the right
to receive shares of TCI Group Series A Common Stock. The numbers of shares of
KT Common Stock beneficially owned by the executive officers of KT as set forth
in the table under "SECURITY OWNERSHIP OF KT" include all interests of such
officers in shares held by the trustee of the KT ESOP for their respective
accounts.
Other Matters. In connection with the transactions contemplated by the
Merger Agreement, John C. Malone, the Chief Executive Officer, the Chairman of
the Board, a director and a principal stockholder of TCI, has asserted certain
rights under a letter agreement dated June 17, 1988, among Dr. Malone, KT and
Bob Magness (the "Letter Agreement"), to acquire shares of TCI Group Series B
Common Stock and LMG Series B Common Stock prior to the disposition of such
shares by KT. Dr. Malone and KT entered into another letter agreement, dated
April 18, 1997 (the "Exchange Agreement"), pursuant to which, among other
things, the parties thereto agreed that immediately prior to the Effective Time,
Dr. Malone may acquire from KT (i) all of the shares of TCI Group Series B
Common Stock owned by KT in exchange for his delivery to KT of an equal number
of shares of TCI Group Series A Common Stock, and (ii) all of the shares of LMG
Series B Common Stock owned by KT in exchange for his delivery to KT of an equal
number of shares of LMG Series A Common Stock. See "CERTAIN TRANSACTIONS BETWEEN
TCI AND KT AND WITH THEIR STOCKHOLDERS--Other Matters."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences that are expected to result to the shareholders of KT from the
Merger. This discussion is based upon current provisions of the Code, Treasury
Regulations promulgated thereunder ("Regulations"), current administrative
rulings, judicial decisions and other applicable authorities in effect as of the
date hereof, all of which are subject to change, possibly with retroactive
effect. No ruling from the Internal Revenue Service ("IRS") has been sought with
respect to the Merger or the other transactions contemplated by this Proxy
Statement/Prospectus, and there can be no assurance that the IRS or a court will
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not challenge the conclusions reached below. Furthermore, legislative, judicial
or administrative changes may occur, perhaps with retroactive effect, which
could affect the accuracy of the statements and conclusions set forth herein as
well as the tax consequences to the KT shareholders.
The discussion contained herein does not address all aspects of federal
income taxation that may be relevant to particular KT shareholders in light of
their personal investment or tax circumstances, or to certain types of holders
who may be subject to special treatment under the federal income tax laws
(including, without limitation, financial institutions, broker-dealers,
insurance companies, foreign persons, tax-exempt organizations, holders of stock
or options who received such property for compensatory purposes, and holders who
hold the KT stock or will hold the TCI Group Series A Common Stock as part of a
straddle, hedge or conversion transaction). In addition, this discussion is
limited to persons who hold the KT Common Stock and who will hold the TCI Group
Series A Common Stock as "capital assets" (generally, property held for
investment) within the meaning of Code section 1221. This discussion does not
address state, local and foreign tax consequences.
ALL HOLDERS OF KT STOCK SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE EFFECT OF ANY CHANGE IN LAW THAT MAY OCCUR AFTER THE DATE
OF THIS PROXY STATEMENT/PROSPECTUS.
Opinion of Counsel. Winston & Strawn, special tax counsel to KT ("Tax
Counsel") has delivered its opinion to KT to the effect that: (i) subject to the
conditions and limitations described therein, the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Code
section 368(a), and no shareholder of KT will recognize gain or loss for federal
income tax purposes to the extent such shareholder receives only TCI Group
Series A Common Stock in exchange for the shareholder's KT stock in the Merger;
and (ii) the discussion set forth here under the caption "Certain Federal Income
Tax Consequences" in this Proxy Statement/Prospectus describes the material
federal income consequences expected to result to the shareholders of KT from
the Merger and fairly represents Tax Counsel's opinion as to the federal income
matters discussed herein. Consummation of the Merger is conditioned upon the
foregoing opinion of counsel not having been withdrawn as of the Closing Date.
Tax Counsel's opinion is based on the Code and Regulations in effect at
the time such opinion is rendered, current administrative interpretations and
positions of the IRS, and existing court decisions. No assurance can be given
that future legislation, Regulations, and administrative and judicial
interpretations will not affect the conclusions reached in Tax Counsel's
opinion. Furthermore, an opinion of counsel is not binding on the IRS or a
court; thus, no assurance may be made that a court or the IRS will agree with
Tax Counsel's opinion.
Tax Counsel's opinion also is based upon the correctness of certain
representations, and assumed compliance with certain covenants, of KT, TCI and
SLT set forth in representation letters (the "Letters") to Tax Counsel. The
Letters contain a number of factual representations concerning the ability of
the Merger to meet the requirements of Code section 368, including, without
limitation, the following: (i) the Merger will meet, and KT, TCI and their
shareholders will comply with, all applicable state and federal laws,
regulations and policies necessary to cause the Merger to be valid under such
laws, regulations and policies; (ii) the KT stock to be acquired by TCI in the
Merger will represent at least 80% of the total combined voting power of all
classes of KT stock entitled to vote and at least 80% of the total number of all
KT's other outstanding nonvoting shares (on a class by class basis); (iii) there
is no present agreement, contract, plan or intention by shareholders of KT who
own 1% or more of KT stock, and to the best of the knowledge of KT's officers
and directors, there is no agreement, contract, plan or intention on the part of
the remaining shareholders of KT, to sell, exchange or otherwise dispose of the
TCI Group Series A Common Stock to be received in the Merger for a period of at
least 5 years following the Closing Date of the Merger and the KT shareholders
intend to hold the TCI Group Series A Common Stock to be received in the Merger
for investment purposes; (iv) each shareholder of KT who prior to the Merger
held 1% or more of KT's outstanding shares will not sell more than 50% of the
TCI Group Series A Common Stock received in the Merger for at least 1 year
following the Merger; (v) there is no plan, contract, agreement or intention by
TCI to dispose of the KT stock or significant KT assets for a period of at
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least 5 years following the Merger; and (vi) immediately after the Merger, KT
will hold substantially all of its assets and those of Merger Sub after the
Merger and will continue its historic business.
Tax Consequences to Holders of KT Common Stock. Under Code section 354,
a holder of KT Common Stock who receives only TCI Group Series A Common Stock in
exchange for his/her KT Common Stock in the Merger will not recognize gain or
loss for federal income tax purposes. The holder will have a tax basis in the
TCI Group Series A Common Stock equal to the holder's tax basis in the KT Common
Stock exchanged therefor. The holder's holding period for the TCI Group Series A
Common Stock for the purposes of determining long-term or short-term capital
gain or loss upon the subsequent disposition of the TCI Group Series A Common
Stock will include the period of time the holder held the KT Common Stock.
A holder of KT Common Stock who receives cash in lieu of fractional
shares of TCI Group Series A Common Stock will generally recognize taxable gain
or loss. Such gain or loss will be determined as if the holder had actually
received the fractional shares of the TCI Group Series A Common Stock to which
the holder will be required to allocate a portion of its tax basis in the KT
Common Stock and then had such fractional shares redeemed for the cash received.
The difference between the basis allocated to these fractional shares in this
hypothetical redemption and the cash received will constitute the gain or loss.
This gain or loss will generally be capital gain or loss (assuming the KT Common
Stock was held as a capital asset) and long-term capital gain or loss if the KT
Common Stock had been held for more than one year.
A holder of KT Common Stock who exercises dissenters' rights in the
Merger and receives cash will generally recognize gain or loss equal to the
difference between the cash received and the holder's basis in the KT Common
Stock. This gain will generally be capital gain and long-term capital gain if
the KT Common Stock was held for more than one year. If a holder of KT Common
Stock exercises dissenters' rights with respect to the holder's shares but would
have KT Common Stock or TCI stock owned by another person (i.e., family members
(spouse, children, grandchildren or parents) or trusts, partnerships or
corporations in which the holder directly or indirectly owns an interest)
attributed to the holder under the attribution rules of Code section 318, the
cash received may be treated as a dividend distribution, unless the holder is
only attributed ownership of stock from a family member, the holder does not
actually acquire another interest in TCI for a period of ten years, and the
holder complies with the notice requirements of Code section 302(c)(2). If the
cash is treated as a dividend distribution, it will first represent ordinary
income to the holder to the extent of KT's current and accumulated earnings and
profits allocable to such distribution, then as a return of basis to the extent
of the holder's basis in the dissenting shares and finally any remaining amount
of the cash will be treated as capital gain.
All holders of the KT Common Stock who receive TCI Group Series A Common
Stock in the Merger will be required to attach a statement to their federal
income tax returns for the year of the Merger which describes the facts of the
Merger, including the holder's basis in the KT Common Stock exchanged, and the
number of shares of TCI Group Series A Common Stock received in exchange for
that KT Common Stock. The holders should also keep as part of their permanent
records information necessary to establish their basis in the TCI Series A
Common Stock received in the Merger.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE INCLUDED HEREIN
FOR GENERAL INFORMATION ONLY. EACH KT SHAREHOLDER SHOULD CONSULT A TAX ADVISOR
AS TO THE PARTICULAR CONSEQUENCES OF THE MERGER THAT MAY APPLY TO SUCH
SHAREHOLDER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS, AND
POSSIBLE CHANGES IN FEDERAL INCOME TAX LAW SINCE THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS.
CERTAIN CONSEQUENCES OF THE MERGER; OPERATIONS FOLLOWING THE MERGER
Upon consummation of the Merger, the present holders of KT Common Stock
will cease to have any direct interest in KT or its future earnings or growth.
However, holders of KT Common Stock who receive TCI Group Series
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A Common Stock in the Merger, by virtue of such receipt, may indirectly share in
KT's future earnings and growth through TCI's ownership of 100% of the stock of
the Surviving Corporation, and may also share in the future earnings and growth
of the other assets and businesses of TCI. As described under the caption
"--Utah Statutory Dissenters' Rights," shareholders of KT have the right to
pursue dissenters' rights in lieu of receiving TCI Group Series A Common Stock
pursuant to the Merger. KT shareholders who receive TCI Group Series A Common
Stock pursuant to the Merger will become shareholders of a Delaware corporation.
See "COMPARISON OF STOCKHOLDERS' RIGHTS."
Except for the Merger and as otherwise described in this Proxy
Statement/Prospectus, neither TCI nor KT has any specific plans or proposals
that would result in an extraordinary corporate transaction, such as a merger,
reorganization, liquidation, or sale of a material amount of assets of KT.
ACCOUNTING TREATMENT
The Merger will be accounted for by TCI as a "purchase," as such term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes. Accordingly, the consideration paid for KT will be
allocated to the identifiable assets and liabilities of KT based on their
respective fair values, and the assets and liabilities and results of operations
of KT will be consolidated into the assets and liabilities and results of
operations of TCI subsequent to the Effective Time.
UTAH STATUTORY DISSENTERS' RIGHTS
Dissenting Shareholders who oppose the proposed Merger will have the
right to receive payment for the value of their shares of KT Common Stock held
as set forth in Part 13 of the URBCA, a copy of which is annexed as Appendix III
to this Proxy Statement/Prospectus. Any obligations that KT may have to
Dissenting Shareholders as set forth below will continue as obligations of the
Surviving Corporation subsequent to the Merger. The following summary is
qualified in its entirety by the more detailed referenced provisions of the
URBCA that are attached; in the event of any inconsistency, such provisions of
the URBCA shall prevail.
Under Part 13, a Dissenting Shareholder wishing to assert dissenters'
rights:
(a) must cause KT to receive, before the vote of the KT shareholders in
regard to the proposed Merger is taken at the Meeting, written notice of
his or her intent to demand payment for shares of KT Common Stock held
if the Merger is approved and effected; and
(b) may not vote any of the shares of KT Common Stock held in favor of
the Merger.
In order for a Dissenting Shareholder to be entitled to payment for
shares of KT Common Stock held, such shareholder must have been a shareholder of
KT with respect to the shares of KT Common Stock for which payment is demanded
as of the date the Merger Agreement is approved by the KT shareholders at the
Meeting. A Dissenting Shareholder who does not satisfy the above conditions is
not entitled to demand payment for his or her shares of KT Common Stock.
If the Merger is approved by a majority of the shares of KT Common Stock
issued and outstanding at the Record Date and any Dissenting Shareholders have
caused KT to receive the written notice indicated above and did not vote his or
her shares of KT Common Stock in favor of the Merger, KT shall provide written
notice to all such Dissenting Shareholders who satisfy the foregoing conditions
and who, therefore, are entitled to demand payment for their shares of KT Common
Stock. Such written dissenters' notice from KT shall be sent no later than ten
(10) days after the Effective Time and shall:
(a) state that the Merger was authorized and approved by holders of a
majority of the outstanding shares of KT Common Stock and give notice of
the Effective Time of the Merger;
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(b) state the address at which KT will receive payment demands and the
address at which certificates for shares of KT Common Stock must be
deposited;
(c) supply a form for Dissenting Shareholders to demand payment, which
form requests a Dissenting Shareholder to state an address to which
payment is to be made;
(d) set a date by which KT must receive the payment demand and by which
certificates for Dissenting Shares must be deposited at the address
indicated, which dates may not be fewer than 30 nor more than 70 days
after
the date the dissenters' notice is given; and
(e) be accompanied by a copy of Part 13.
A Dissenting Shareholder who is given dissenters' notice as provided
above and wishes to assert dissenters' rights must, in accordance with the terms
of the dissenters' notice, cause KT to receive a payment demand in the same form
referred to above or in another writing and must timely deposit certificates for
Dissenting Shares of KT Common Stock as provided above. A Dissenting Shareholder
who demands payment in accordance with this paragraph retains all rights as a
shareholder of KT except the right to transfer the shares until the Effective
Time and thereafter has only the right to receive payment for such shares. A
Dissenting Shareholder who does not meet the provisions of this paragraph is not
entitled to payment for shares pursuant to dissenters' rights.
Upon compliance by the Dissenting Shareholder with all the requirements
described above and in Part 13, KT shall pay the amount KT estimates to be the
fair value of the Dissenting Shareholder's shares of KT Common Stock immediately
before the Merger is effected (excluding any appreciation or depreciation in
anticipation of the Merger), except for any shares acquired by the Dissenting
Shareholder after the date of the notice of the Meeting, to which special
provisions not summarized here apply, accompanied by KT's balance sheet as of
the end of the most recent fiscal year; an income statement for that year;
statements of changes in shareholders' equity and cash flows for that year; and
the latest available interim financial statements, if any. Such financial
statements need not be audited. Payment shall also be accompanied by a statement
of KT's estimate of the fair value of the Dissenting Shares of KT Common Stock
and the amount of interest payable with respect to such shares, a statement of a
dissatisfied dissenters' right to demand payment, as discussed below, and a copy
of Part 13.
If the Merger is not effected, or is not effected within 60 days after
the date set by KT as the date by which KT must receive payment demands,
notwithstanding approval by the shareholders of KT holding a majority of the
issued and outstanding shares of KT Common Stock, KT is required to return to
all Dissenting Shareholders the deposited stock certificates and the Dissenting
Shareholders shall thereafter have all rights of a shareholder of KT as if no
demand for payment had been made.
If the Effective Time occurs more than 60 days after the date set by KT
as the date by which KT must receive payment demands, then KT shall send a new
dissenters' notice and the provisions of Part 13 shall again be applicable.
A Dissenting Shareholder may notify KT of his or her own estimate of the
value of his or her shares of KT Common Stock and demand that KT pay such amount
(i) if the dissenter believes that the amount paid by KT is less than the fair
value of the shares; (ii) if KT fails to make payment within 60 days after the
date set by it as the date by which it must receive the payment demand; or (iii)
if KT, having not effected the Merger, fails to return timely the Dissenting
Shareholder's shares of KT Common Stock. A dissenter waives the right to demand
payment according to this paragraph unless such Dissenting Shareholder causes KT
to receive notice of his or her estimate within 30 days after KT has made
payment for the shares of KT Common Stock.
If a demand for payment by the dissenter remains unresolved, KT shall
commence a proceeding in the Third District Court of Salt Lake County, Utah,
within 60 days after receiving the payment demand from the dissenter and
petition the court to determine the fair value of the shares. If KT fails to
commence such proceeding within such 60 days, it shall pay to each dissenter
whose demand remains unresolved the amount demanded. Each such Dissenting
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Shareholder is entitled to judgment for the amount, if any, by which the court
finds that the fair value of his or her shares, plus interest, exceeds the
amount paid by KT, or the amount KT elected to withhold payment under special
provisions applicable to shares acquired after the date of the notice of the
Meeting. The court is required to assess court costs, and appraisal costs
against KT, unless the court determines that the Dissenting Shareholder acted
arbitrarily, vexatiously, or not in good faith.
If any shareholder who demands payment of his shares of KT Common Stock
under Part 13 fails to perfect or effectively withdraws or loses, his
dissenters' rights, as provided in Part 13, the shares of KT Common Stock of
such shareholder will be converted into the right to receive shares of TCI Group
Series A Common Stock, in accordance with the Merger Agreement. A shareholder
will fail to perfect, or effectively lose or withdraw, his dissenters' rights if
he votes for adoption of the Merger Agreement (or submits a proxy without voting
instructions) or if no demand for appraisal is received within the applicable
time period set forth above or if the shareholder delivers to KT (or, after the
Effective Time, to the Surviving Corporation) a written withdrawal of his demand
for payment and acceptance of the Merger, except that any such attempt to
withdraw made more than 60 days after the Effective Time will require the
written approval of the Surviving Corporation.
FAILURE TO FOLLOW THE STEPS REQUIRED BY PART 13 OF THE URBCA FOR
PERFECTING DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
CERTAIN TRANSACTIONS BETWEEN TCI AND KT AND WITH THEIR STOCKHOLDERS
Other than the Merger Agreement and the related transactions described
in this Proxy Statement/Prospectus, there has not been during the last two full
fiscal years of KT any material contract, arrangement, understanding,
relationship, negotiation or transaction between KT or its affiliates and TCI or
its affiliates concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, election of directors, or a sale or transfer
of a material amount of assets. See "CERTAIN TRANSACTIONS BETWEEN TCI AND KT AND
WITH THEIR STOCKHOLDERS."
John W. Gallivan, Chairman of the Board of KT, has been a director of
TCI since 1994 and a director of TCIC since 1980. For a description of certain
transactions between TCI and KT, see "CERTAIN TRANSACTIONS BETWEEN TCI AND KT
AND WITH THEIR STOCKHOLDERS."
THE MERGER AGREEMENT
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 certain
exhibits and schedules) is annexed to this Proxy Statement/Prospectus as
Appendix I.
GENERAL; EFFECTIVE TIME
The Merger Agreement provides that, upon the terms and subject to the
conditions of the Merger Agreement, Merger Sub will merge with and into KT, with
KT being the Surviving Corporation. In the Merger, which will become effective
upon the filing with the Division of the Articles of Merger in accordance with
the applicable provisions of the URBCA, or at such later time as may be agreed
to by TCI and KT and specified in the Articles of Merger, shareholders of KT
will receive the Merger Consideration described below. Such filing is expected
to take place as soon as practicable after the closing of the transactions
contemplated by the Merger Agreement. The Merger will have the effects set forth
in Section 16-10a-1106 of the URBCA.
As a result of the Merger, KT will become a wholly owned subsidiary of
TCI. The Merger Agreement provides that (i) the certificate of incorporation and
the bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
will be the certificate of incorporation and the bylaws of the Surviving
Corporation until thereafter amended as
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provided by law, and (ii) the directors and officers of Merger Sub immediately
prior to the Effective Time will be the directors and officers of the Surviving
Corporation, and all such directors and officers will hold office until their
respective successors are duly elected or appointed and qualify in the manner
provided in the certificate of incorporation and/or the bylaws of the Surviving
Corporation, or as otherwise provided by applicable law.
CONSIDERATION TO BE RECEIVED IN THE MERGER
Pursuant to the Merger Agreement, at the Effective Time, each share of
KT Common Stock outstanding immediately prior to the Effective Time (other than
shares held by KT in its treasury or by any direct or indirect subsidiary of KT,
all of which will be canceled, and other than Dissenting Shares) will be
converted in the Merger into the right to receive, and will be exchangeable for,
a number of shares of the TCI Group Series A Common Stock equal to the Merger
Consideration. The "Merger Consideration" is the number determined by dividing
(A) the quotient resulting from dividing (i) the sum of (1) 286,000,000, plus
(2) the product of (x) the TCI Trading Value and (y) the aggregate number of
shares of TCI Group Common Stock owned by KT at the Effective Time, plus (3) the
product of (x) the LMG Trading Value and (y) the aggregate number of shares of
LMG Common Stock owned by KT at the Effective Time, by (ii) the TCI Trading
Value, by (B) 178,933. See "DESCRIPTION OF TCI CAPITAL STOCK." If any holder of
KT Common Stock would be entitled to receive a number of shares of TCI Group
Series A Common Stock that includes a fraction, then in lieu of a fractional
share, such holder will be entitled to receive cash in an amount determined by
multiplying such fraction by the current market value of a whole share of TCI
Group Series A Common Stock and rounding the product to the nearest whole cent.
The "current market value" of a share of TCI Group Series A Common Stock means,
for this purpose, the average of the last reported sale prices (or, if on any
day no sale price is reported, the average of the quoted high and low bid prices
on such day) of a share of TCI Group Series A Common Stock on the NASDAQ/NM for
the period of five consecutive trading days ending on and including the last
full trading day preceding the Closing Date.
At the Effective Time, it is estimated that former holders of KT Common
Stock will hold approximately 7.5% of the aggregate number of outstanding shares
of TCI Group Series A Common Stock and approximately 2.6% of the aggregate
voting power of the outstanding TCI Voting Stock. The foregoing ownership and
voting percentages are based upon the number of shares of KT Common Stock, TCI
Group Common Stock, LMG Common Stock and each other class or series of TCI
Voting Stock outstanding on May 30, 1997, and assuming a TCI Trading Value of
$14.25 and an LMG Trading Value of $20.56. The actual ownership and voting
interests of the former holders of KT Common Stock will be dependent upon a
variety of factors and may vary from the estimated percentages set forth above.
Because the number of shares of TCI Group Series A Common Stock to be received
by KT shareholders will be determined based on the TCI Trading Value and the LMG
Trading Value, and because the market prices of the TCI Group Series A Common
Stock and the LMG Series A Common Stock are subject to fluctuation, the number
of shares of TCI Group Series A Common Stock that KT shareholders will receive
in the Merger may increase or decrease from the number of shares such
shareholders would receive based on the current market prices for TCI Group
Series A Common Stock and LMG Series A Common Stock. Moreover, the value of TCI
Group Series A Common Stock to be received by KT shareholders pursuant to the
Merger may fluctuate following the Effective Time. There is no minimum or
maximum number of TCI Group Series A Common Stock that may be issued under the
provisions of the Merger Agreement.
At the Effective Time, each share of capital stock of Merger Sub
outstanding immediately prior to the Effective Time shall be converted into one
share of the common stock of the Surviving Corporation.
Dissenting Shares will not be converted in the Merger and, from and
after the Effective Time (unless the payment demand is effectively withdrawn or
the dissenters' rights lost), will represent only the right to receive payment
of the fair value thereof in accordance with the provisions of the URBCA and the
Merger Agreement. See "THE MERGER--Utah Statutory Dissenters' Rights."
Certain Adjustments. If, prior to the Effective Time, the TCI Group
Series A Common Stock is recapitalized or reclassified or TCI effects any stock
dividend, stock split, or reverse stock split of TCI Group Series A Common
Stock, then the shares of TCI Group Series A Common Stock to be delivered in the
Merger to the holders of KT
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Common Stock will be appropriately and equitably adjusted to the kind and amount
of shares of stock and other securities and property which the holders of such
shares of TCI Group Series A Common Stock would have been entitled to receive
had such shares been issued and outstanding as of the record date for
determining stockholders entitled to participate in such corporate event.
Exchange of Shares. Promptly after the Effective Time, transmittal
letters will be mailed to each holder of record of shares of KT 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 Group
Series A Common Stock to which he or she has become entitled and, if applicable,
cash in lieu of a fractional share of TCI Group Series A Common Stock. After
receipt of such transmittal letter, each holder of certificates formerly
representing KT 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 Group Series A Common 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 TCI Group
Series A Common Stock. Such transmittal letters will be accompanied by
instructions specifying other details of the exchange.
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL LETTER.
After the Effective Time, each certificate evidencing KT Common Stock
(other than certificates evidencing shares held directly by KT in its treasury
or by any direct or indirect subsidiary of KT, all of which will be canceled,
and other than certificates evidencing Dissenting Shares), until so surrendered
and exchanged, will be deemed, for all purposes, to evidence only the right to
receive the number of shares of TCI Group Series A Common Stock that the holder
of such certificate is entitled to receive and the right to receive any cash
payment in lieu of a fractional share of TCI Group Series A Common 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 of TCI Group Series A Common Stock, will be paid, without
interest.
CONDITIONS TO THE MERGER
The respective obligations of KT and TCI to consummate the transactions
contemplated by the Merger Agreement are subject to the satisfaction or, where
permissible, waiver of the following conditions: (a) approval and adoption of
the Merger Agreement by the requisite vote of the shareholders of KT; (b)
effective registration under the Securities Act of the shares of TCI Group
Series A Common Stock to be issued in connection with the Merger and receipt of
all state securities law permits and authorizations necessary to carry out the
transactions contemplated by the Merger Agreement; (c) the absence of any
effective permanent or preliminary injunction or similar order issued by a court
or other governmental entity of competent jurisdiction preventing consummation
of the transactions contemplated by the Merger Agreement as provided therein;
(d) expiration or termination of the waiting period applicable to the
consummation of the Merger under the HSR Act; (e) receipt of the opinion of
Winston & Strawn, to the effect that no gain or loss will be recognized by the
shareholders of KT upon the receipt of the TCI Group Series A Common Stock in
exchange for their KT Common Stock in the Merger and the non-withdrawal of such
opinion prior to or on the Closing Date; and (f) receipt of Houlihan Lokey's
consent to the inclusion of its opinion in this Proxy Statement/Prospectus. On
May 27, 1997, the Federal Trade Commission notified KT and TCI that it granted
early termination of the waiting period applicable to the acquisition of the KT
Common Stock by TCI pursuant to the Merger.
The obligation of TCI to consummate the transactions contemplated by the
Merger Agreement is also subject to the satisfaction or waiver of the following
conditions: (a) the material accuracy of the representations and warranties and
the performance, in all material respects, of the obligations, agreements and
covenants made by KT in the Merger Agreement; (b) receipt of certain legal
opinions and closing certificates from KT; (c) receipt of all material consents
by or approvals of, and all material notices having been given to, all third
parties under any note, bond, lease, franchise,
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permit, license, contract or other agreement to which KT or any of its
subsidiaries is a party; (d) the absence after April 18, 1997, in the reasonable
judgment of TCI, of any material adverse change in the business, assets, results
of operations, financial condition or prospects of KT and its subsidiaries,
taken as a whole; (e) the reasonable satisfaction of counsel to TCI with certain
actions, proceedings, instruments and documents required to carry out the
transactions contemplated by the Merger Agreement; (f) receipt of all material
local and governmental consents, approvals and authorizations; (g) no action
having been taken, nor any statute, rule, regulation, order, judgment or decree
proposed, enacted, issued, enforced or deemed applicable by any foreign or
United States federal, state or local governmental entity, and the absence of
any pending or threatened action, suit or proceeding, which, in TCI's reasonable
judgment, (i) makes the transactions contemplated by the Merger Agreement
illegal or imposes or may impose material damages or penalties in connection
therewith, (ii) requires or may require the divestiture of a material portion of
the business of TCI and its subsidiaries, taken as a whole, or of KT and its
subsidiaries taken as a whole, (iii) imposes or may impose material limitations
on the ability of TCI effectively to exercise full rights of ownership of shares
of capital stock of KT, (iv) requires or may require TCI, KT or their material
subsidiaries or affiliates to refrain from engaging in any material business if
the Merger is consummated, or (v) otherwise prohibits, restricts, or
unreasonably delays consummation of the Merger or any of the other transactions
contemplated by the Merger Agreement, or materially increases TCI's obligations
in connection therewith; (h) Dissenting Shares consisting of not more than 15%
of the aggregate number of outstanding shares of KT Common Stock; and (i)
receipt by TCI of an agreement from each person identified by KT as an
"affiliate" of KT immediately prior to the Merger, to the effect that such
person will comply with the provisions of Rule 145 under the Securities Act with
respect to the resale of shares of Series A TCI Group Common Stock issued to
such person in the Merger.
The obligation of KT to consummate the transactions contemplated by the
Merger Agreement is also subject to the satisfaction or waiver of the following
conditions: (a) the material accuracy of the representations and warranties and
the performance, in all material respects, of the obligations, agreement and
covenants made by TCI and Merger Sub in the Merger Agreement; (b) receipt of
certain legal opinions and closing certificates from TCI; (c) receipt of all
material consents by or approvals of, and all material notices having been given
to, all third parties under any note, bond, lease, franchise, permit, license,
contract or other agreement to which TCI or any of its subsidiaries is a party;
(d) the absence, after April 18, 1997, in the reasonable judgment of KT, of any
material adverse change in the business, assets, results of operations,
financial condition or prospects of TCI and its subsidiaries, taken as a whole;
(e) the reasonable satisfaction of counsel to KT with certain actions,
proceedings, instruments and documents required to carry out the transactions
contemplated by the Merger Agreement; (f) receipt of all material governmental
consents, approvals and authorizations; (g) no action having been taken, nor any
statute, rule, regulation, order, judgment or decree proposed, enacted, issued,
enforced or deemed applicable by any foreign or United States federal, state or
local governmental entity, and the absence of any pending or threatened action,
suit or proceeding, which (i) makes the transactions contemplated by the Merger
Agreement illegal or may impose material damages or penalties in connection
therewith, or (ii) would, in the reasonable judgment of KT, likely have a
material adverse effect on the business, assets, results of operations,
financial condition or prospects of TCI and its subsidiaries, taken as a whole;
(h) the execution and delivery by KT and SLT of the Management Agreement and the
Option Agreement; and (i) receipt of authorization for listing on the NASDAQ/NM
of the shares of TCI Group Series A Common Stock to be issued in the Merger upon
official notice of issuance.
COVENANTS
KT has agreed, prior to the Effective Time, to be present, in person or
represented by proxy, at all meetings of the stockholders of TCI, however
called, so that all shares of TCI voting stock (as defined in the Merger
Agreement) beneficially owned by KT may be counted for the purposes of
determining the presence of a quorum at such meeting, and to vote or cause to be
voted all shares of TCI voting stock beneficially owned by it in the manner
recommended to stockholders by the TCI Board. KT has agreed, except as
permitted, required or specifically contemplated by the Merger Agreement or
consented to in writing by TCI, to conduct its business in the ordinary and
usual course consistent with past practice, and to use its reasonable efforts to
preserve intact its business organization, to preserve its licenses and other
permits in full force and effect, to keep available the services of its present
officers and key employees and to preserve the good will of those with which it
has business relationships. KT has also agreed that except as permitted,
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required or specifically contemplated by the Merger Agreement or consented to in
writing by TCI, it will not and will not permit any of its subsidiaries to,
prior to the Effective Time, (a) amend its charter or bylaws; (b) issue, grant
or sell any shares of its capital stock or any of its other securities, or any
securities convertible into, or options, warrants or rights of any kind to
subscribe to or acquire, any shares of its capital stock or other securities;
(c) split, combine or reclassify the outstanding shares of its capital stock or
issue any capital stock or other securities in exchange for any such shares; (d)
redeem, purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock or other securities or the capital stock or other securities of
any of its subsidiaries; (e) amend or modify any outstanding options, warrants
or rights to acquire, or securities convertible into, shares of its capital
stock or other securities, or adopt or authorize any other stock or equity
appreciation rights, restricted stock or equity, stock or equity purchase, stock
or equity bonus or similar plan, arrangement or agreement; (f) make any other
changes in its capital structure; (g) declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash, property or
securities) with respect to its capital stock or other securities, except for
dividends by a subsidiary of KT paid ratably to its stockholders (other than any
director, officer, employee or affiliate of KT); (h) sell or pledge any stock,
equity or partnership interest owned by it in any subsidiary of KT, except for
dispositions in the ordinary course of business consistent with prior practice;
(i) sell or pledge any interest in any investment securities or (j) enter into
or assume any contract, agreement, commitment or arrangement with respect to any
of the foregoing.
Except as permitted, required or specifically contemplated by the Merger
Agreement or consented to in writing by TCI, KT has also agreed that it will
not, and will cause its subsidiaries not to, (i) modify in any material respect
any license or contract, other than in the ordinary course of business; (ii)
enter into any new employment, consulting, agency or commission agreement or
make any amendment or modification to any existing such agreement or grant any
increases in compensation, other than (x) in the ordinary course of business and
consistent with past practice and with or granted to persons who are not
officers or directors and which in the aggregate do not materially increase
compensation expense, and (y) regular annual salary increases granted in the
ordinary course of business consistent with past practice to officers who are
not directors or executive officers; (iii) establish, amend or modify any
employee benefit plan, except to the extent required by applicable law or the
provisions of the Merger Agreement; (iv) make capital expenditures which in the
aggregate exceed the amount provided for most capital expenditures in KT's most
recent capital budget; (v) secure any of its outstanding unsecured indebtedness,
provide additional security for any of its outstanding secured indebtedness or
create or suffer to exist any lien on any of its assets, other than specified
permitted encumbrances; (vi) pay, discharge or satisfy claims, liabilities or
obligations, other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in KT's balance sheet as of December 31, 1996, or incurred
subsequent thereto in the ordinary course of business and consistent with past
practice and scheduled repayments of indebtedness reflected on the December 31,
1996 balance sheet; (vii) cancel any debts or waive any claims or rights except
in the ordinary course of business and consistent with past practice; (viii)
prepay any indebtedness for borrowed money; (ix) other than in connection with
normal cash management practices conducted in the ordinary and usual course of
business and consistent with past practice, make any advance or loan to or
engage in any transaction with any director, officer, partner or affiliate; (x)
enter into or assume any contract, agreement, commitment or arrangement with
respect to any of the foregoing; (xi) incur any indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
rights to acquire the same, other than in the ordinary course of business
consistent with past practice; (xii) other than dispositions in the ordinary
course of business consistent with past practice, sell, lease, encumber or
otherwise dispose of, or agree to sell, lease, encumber or otherwise dispose of,
any of its material assets; (xiii) acquire or agree to acquire by merging or
consolidating or by purchasing a substantial equity interest in or a substantial
portion of the assets of or by any other manner, any business or any business
organization or division thereof or any assets which are material, individually
or in the aggregate; or (xiv) take any action likely to result in any of its
representations and warranties in the Merger Agreement being untrue or the
conditions to the closing of the Merger not being met.
LISTING ON NASDAQ/NM
The TCI Group Series A Common Stock is listed on the NASDAQ/NM. TCI has
agreed to use its best efforts to cause the shares of TCI Group Series A Common
Stock to be issued in the Merger to be authorized for listing on the NASDAQ/NM,
subject to official notice of issuance. The obligation of KT to consummate the
transactions
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contemplated by the Merger Agreement is subject to the authorization for listing
on the NASDAQ/NM of such shares, upon official notice of issuance. See "--
Conditions to the Merger."
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that KT will not, directly or indirectly,
solicit or initiate the submission of proposals or offers from, cooperate with
or furnish or cause to be furnished any non-public information to, or negotiate
or enter into any agreement or understanding with any other person or entity
relating to, or with the intent to effect, any Alternative Proposal.
"Alternative Proposal" is defined in the Merger Agreement to mean any proposal
for a merger, consolidation, reorganization, other business combination or
recapitalization involving KT or any of its subsidiaries, for the acquisition of
a 10% or greater interest in the equity or in any class or series of capital
stock of KT or any of its subsidiaries, for the acquisition of the right to cast
10% or more of the votes on any matter with respect to KT or any of its
subsidiaries, or for the acquisition of a substantial portion of the assets of
KT or any of its subsidiaries or the effect of which may be to prohibit,
restrict or delay the consummation of, or impair the contemplated benefits to
TCI of, the Merger or any of the other transactions contemplated by the Merger
Agreement. The Merger Agreement does not prohibit KT or the KT Board, to the
extent required by their fiduciary duties under applicable law, from providing
information to, or participating in discussions with, any party that makes an
unsolicited inquiry with respect to KT if the KT Board reasonably believes that
such party may propose an Alternative Proposal on terms that are superior from a
financial point of view, to the terms of the Merger for the shareholders of KT.
KT has agreed to provide TCI with written notice of its receipt of any
Alternative Proposal or inquiry and with such information regarding the person
making the same as TCI may request.
The Merger Agreement provides that the KT Board will not approve or
recommend, or cause KT to enter into any agreement with respect to any
Alternative Proposal, provided, however, that if the KT Board, after
consultation with and based upon the advice of independent legal counsel,
determines in good faith that it is necessary to do so in order to comply with
its fiduciary duties to shareholders under applicable law, the KT Board may
approve or recommend a Superior Proposal (as defined below) or cause KT to enter
into an agreement with respect to, a Superior Proposal, but in each case only
after providing prompt written notice to TCI advising that the KT Board has
determined to approve or recommend, or authorize KT to enter into an agreement
with respect to, a Superior Proposal and to terminate the Merger Agreement in
accordance therewith. In the event of such termination of the Merger Agreement,
the Merger Agreement provides that KT will be required to convert all shares of
TCI Group Series B Common Stock and LMG Series B Common Stock beneficially owned
by KT into an equal number of shares of TCI Group Series A Common Stock and LMG
Series A Common Stock, respectively, in accordance with the terms of the
Restated Certificate of Incorporation, as amended, of TCI (the "TCI Charter"). A
"Superior Proposal" is defined in the Merger Agreement to mean any bona fide
proposal to acquire, directly or indirectly, for consideration consisting of
cash and/or securities, all or substantially all of the capital stock of KT then
outstanding or all or substantially all the assets of KT and otherwise on terms
which the KT Board determines in its good faith judgment (based on the advice of
a financial advisor of nationally recognized reputation) to be more favorable to
the KT shareholders than the Merger. See "--Termination, Amendment and Waiver."
CERTAIN PERSONNEL MATTERS
Pursuant to the Merger Agreement, KT will amend the KT ESOP prior to the
Effective Time to provide for the termination thereof at the Effective Time
insofar as it relates to future purchases of capital stock of KT, the Surviving
Corporation or other employer securities and, unless the Surviving Corporation
otherwise elects, any future employer contributions. The Merger Agreement also
provides that KT will amend the KT ESOP prior to the Effective Time, to provide
for the full vesting of employee accounts under the KT ESOP. Employees of KT who
continue as employees of the Surviving Corporation following the Effective Time
will be entitled to participate in employee benefit plans of TCI to the same
extent as similarly situated employees of TCI.
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TERMINATION, AMENDMENT AND WAIVER
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, whether before or after approval by the
shareholders of KT, by (a) mutual consent of KT and TCI; (b) either KT or TCI if
(i) the Merger has not been consummated before October 31, 1997, unless the
absence of such occurrence is due to the failure of the party seeking to
terminate the Merger Agreement to perform any of its obligations thereunder,
(ii) there has been a material breach by the other party of any of its
representations, warranties, covenants or agreements that is not cured within
fifteen business days after receipt by the party alleged to be in breach of
written notice thereof, or (iii) any court of competent jurisdiction or other
competent governmental authority has issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise prohibiting the
Merger and such action has become final and nonappealable; or (c) KT, if the KT
Board approves or recommends, or authorizes KT to enter into an agreement with
respect to, a Superior Proposal and, in connection therewith, KT delivers a
Conversion Notice (as defined below).
In the event of termination of the Merger Agreement by either KT or TCI
as provided above, the Merger Agreement will become void and there will be no
liability or obligation on the part of KT, TCI, Merger Sub or their respective
affiliates, stockholders, officers, directors, agents or representatives (other
than as provided in the following sentence, other than under certain specified
provisions of the Merger Agreement which will survive the termination thereof
and other than to the extent such termination results from the willful breach by
TCI, Merger Sub or KT of any of its respective representations, warranties,
covenants or agreements contained in the Merger Agreement). In the event of
termination by (i) KT, pursuant to clause (c) of the preceding paragraph, or
(ii) TCI, as a result of a material breach by KT of certain of its agreements
contained in the Merger Agreement, KT will be required to deliver to TCI an
irrevocable notice of conversion (a "Conversion Notice") requesting that TCI
convert all shares of TCI Group Series B Common Stock and LMG Series B Common
Stock beneficially owned by KT into an equal number of shares of TCI Group
Series A Common Stock and LMG Series A Common Stock, respectively, in accordance
with the terms of the TCI Charter, and such Conversion Notice must be
accompanied by the certificates evidencing all such shares of TCI Group Series B
Common Stock and LMG Series B Common Stock, duly endorsed for conversion.
KT and TCI may amend the Merger Agreement, by action taken or authorized
by their respective boards of directors, either before or after approval by the
shareholders of KT of the Merger Agreement, except that after such approval by
the shareholders of KT, no amendment may be made which by law requires further
approval by such shareholders without such further approval. At any time prior
to the Effective Time, either KT or TCI, by action authorized by such party's
board of directors, may, to the extent legally allowed, extend the time
specified in the Merger Agreement for the performance of any of the obligations
of the other party, waive any inaccuracies in the representations and warranties
of the other party contained in the Merger Agreement or in any document
delivered pursuant thereto, waive compliance by the other party with any of the
agreements or covenants of such other party contained in the Merger Agreement or
waive any condition to such waiving party's obligation to consummate the
transactions contemplated by, or other obligations under, the Merger Agreement.
CERTAIN RESTRICTIONS ON RESALE OF TCI GROUP SERIES A COMMON STOCK
All shares of TCI Group Series A Common Stock received by KT
shareholders in the Merger will be registered under the Securities Act and
freely transferable under the federal securities laws, except that any such
shares received by persons who are deemed "affiliates" (as such term is defined
under the Securities Act) of KT prior to the Merger may be resold by them only
in transactions permitted by the resale provisions of Rule 145 under the
Securities Act (or Rule 144 in the case of such persons who become affiliates of
TCI) or as otherwise permitted under the Securities Act. Persons who may be
deemed to be affiliates of KT generally include individuals or entities that
control, are controlled by, or are under common control with KT and may include
certain officers and directors of KT as well as principal shareholders of KT.
The Merger Agreement requires KT to use reasonable efforts to cause each of its
affiliates to execute a written agreement to the effect that such person will
not offer or sell or otherwise dispose of any of the shares of TCI Group Series
A Common Stock issued to such person in or pursuant to the Merger in violation
of the Securities Act or the rules and regulations promulgated by the SEC
thereunder.
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EXPENSES
If the Merger Agreement is terminated by KT or TCI as the result of a
material willful breach by the other party of its covenants or representations
and warranties in the Merger Agreement, the breaching party is required to
reimburse the non-breaching party for all out-of-pocket costs and expenses
incurred in connection with the transactions contemplated by the Merger
Agreement. Otherwise, if the Merger is not consummated for any reason, each
party will pay its own costs and expenses, except that the aggregate expenses
incurred in connection with the printing and mailing of this Proxy
Statement/Prospectus and the Registration Statement and the cost of filing under
the HSR Act will be borne one-half by TCI and one-half by KT.
CERTAIN TRANSACTIONS BETWEEN TCI AND KT AND WITH THEIR STOCKHOLDERS
VOTING AGREEMENT
The following is a summary of the material provisions of the Voting
Agreement, which is attached as Appendix IV to this Proxy Statement/Prospectus
and is incorporated herein by reference. The following summary does not purport
to be complete and is qualified in its entirety by reference to the Voting
Agreement.
The Voting Agreement provides, among other things, that while the Voting
Agreement is in effect, at any meeting of the KT shareholders, and in any action
by consent of the KT shareholders, the shareholders who are parties to the
Voting Agreement (the "Voting Shareholders") will vote all of their shares of KT
Common Stock (or cause them to be voted) or execute a consent with respect to
such shares (A) in favor of the Merger, the Merger Agreement and the
transactions contemplated by the Merger Agreement; (B) against any proposal for
any recapitalization, merger, sale of assets or other business combination
involving KT (other than the Merger) or any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of KT under the Merger Agreement or which could result
in any of the conditions to KT's obligations under the Merger Agreement not
being fulfilled; and (C) in favor of any other matter relating to consummation
of the transactions contemplated by the Merger Agreement.
As of the date of this Proxy Statement/Prospectus, the Voting
Shareholders own, in the aggregate, 98,270 shares of KT Common Stock,
representing approximately 55% of the outstanding voting shares of KT. The vote
of the Voting Shareholders in accordance with the Voting Agreement would be
sufficient to approve the Merger Agreement without any action on the part of any
other KT shareholder.
MANAGEMENT AGREEMENT
The following summary of the material provisions of the Management
Agreement does not purport to be complete and is qualified in its entirety by
reference to the complete text of the Management Agreement, which is an exhibit
to the Registration Statement.
In connection with the transactions contemplated by the Merger
Agreement, KT and SLT will enter into the Management Agreement, pursuant to
which KT will engage SLT as the exclusive management agent to supervise and
manage the publication and operation of the Newspapers owned by KT following the
Merger and to render services related thereto, subject to the direction and
authority of KT, in accordance with the terms of the Management Agreement. The
members and/or managers of SLT who are also directors and shareholders of KT are
Philip G. McCarthey, Thomas K. McCarthey, Jr., Sarah J. McCarthey, James P.
Kearns, A.L. Alford, Jr., Dominic Welch, Robert C. Steiner, Michael Gallivan,
and certain of their respective affiliates. The Management Agreement expressly
provides that SLT will have sole authority and discretion with respect to the
news and editorial policies established and implemented by the Newspapers so
long as the Management Agreement remains in effect. As compensation for services
rendered, SLT will receive a management fee equal to 3% of the Net Income (as
defined below) during the term of the Management Agreement. The Management
Agreement has an initial term of five years (unless sooner terminated in
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accordance with the provisions thereof), and thereafter, will be automatically
renewed for successive one-year periods unless either party provides the other
party with written notice that it will not renew the Management Agreement. The
term "Net Income," for purposes of the Management Agreement, means, for any
period, the net income of KT and its subsidiaries for such period after
provision for taxes applicable to such period, as determined on a consolidated
basis in accordance with generally accepted accounting principles, consistently
applied.
The Management Agreement provides that it may be terminated (i) at KT's
option, upon the failure of SLT to keep, observe, or perform any material
covenant, agreement, term, or provision of the Management Agreement, and if any
such default is not cured or satisfied by SLT within the time periods set forth
in the Management Agreement; (ii) at KT's option, immediately and without any
requirement of notice, if SLT is the subject of certain bankruptcy or
insolvency-related events; (iii) at SLT's option, immediately and without any
requirement of notice, if TCI is the subject of certain bankruptcy or
insolvency-related events; or (iv) at KT's option, if Net Income for two
consecutive fiscal years, beginning in 1999, is less than 75% of the Net Income
contained in the annual plan (established in accordance with the Management
Agreement) for each such fiscal year.
Pursuant to the Management Agreement, SLT will serve as an independent
contractor in rendering the services set forth therein and will not be an
employee of KT. In the performance of its duties thereunder, SLT will act solely
as agent of KT and all debts and liabilities to third persons incurred by SLT on
behalf of KT in accordance with the Management Agreement and in the course of
the operation and management of the Newspapers will be the debts and obligations
of KT only.
OPTION AGREEMENT
The following summary of the material provisions of the Option Agreement
does not purport to be complete and is qualified in its entirety by reference to
the complete text of the Option Agreement, which is an exhibit to the
Registration Statement.
In connection with the transactions contemplated by the Merger
Agreement, KT and SLT will enter into the Option Agreement, pursuant to which
KT, in consideration of the payment by SLT to KT of $1,000,000, will grant SLT
the Tribune Option to purchase all (but not less than all) of the Tribune
Assets. The Exercise Price of the Tribune Option will be equal to the Fair
Market Value (as defined below) of the Tribune Assets, determined on a going
concern or liquidation basis, whichever would yield the higher result, as of the
last day of the month preceding the month of the date on which SLT provides
notice to KT that it is exercising the Tribune Option. "Fair Market Value," when
used with reference to the Tribune Assets, means the price at which a willing
seller would sell, and a willing buyer (having full knowledge of the facts)
would buy, the Tribune Assets in an arms' length auction transaction without
time constraints and without being under any compulsion to buy or sell.
The Option Agreement provides that the Tribune Option will be
exercisable at any time after the fifth anniversary of the date of the Option
Agreement (unless sooner terminated as set forth below), and will remain
exercisable thereafter for so long as the Management Agreement remains in effect
and for a period of ten days thereafter. If the Management Agreement is
terminated for any reason prior to the fifth anniversary of the date of the
Option Agreement, the Tribune Option will become exercisable on the fifth
anniversary of the date of the Management Agreement and SLT will have the right
for a period of sixty (60) days from such date to exercise the Tribune Option at
the Exercise Price. Further, KT has agreed not to sell or otherwise transfer the
Tribune Assets to any other person or entity prior to the fifth anniversary of
the date of the Option Agreement, except (i) to an entity controlled by or under
common control with KT, provided such entity agrees to be bound by the Option
Agreement, and (ii) for sales or transfers of assets in the ordinary course of
the business of operating and publishing The Salt Lake Tribune.
The Option Agreement provides that if at any time during the period from
the fifth anniversary to the tenth anniversary of the date of the Option
Agreement, KT receives a bona fide offer in writing to purchase the Tribune
Assets (a "Tribune Offer""), KT will not consummate the sale of the Tribune
Assets pursuant to such Tribune Offer without first giving SLT the right to
exercise the Tribune Option at the Exercise Price. In the event (i) SLT does not
exercise
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the Tribune Option within a specified time period, or (ii) if the Tribune Option
is so exercised but SLT does not tender to KT the Exercise Price within a
specified time period (other than by a reason of a breach by KT of its
obligations under the Option Agreement), then in any such event the Tribune
Option will terminate and KT will have the right to sell the Tribune Assets to
the proposed purchaser on the terms set forth in the Tribune Offer; provided,
however, that if such sale to the proposed purchaser is not consummated within a
specified time period, KT will not sell the Tribune Assets without again
complying with the provisions set forth above.
OTHER MATTERS
In connection with the transactions contemplated by the Merger
Agreement, John C. Malone, the Chairman of the Board, the Chief Executive
Officer, and a director and a principal stockholder of TCI, has asserted certain
rights under the Letter Agreement, to acquire shares of TCI Group Series B
Common Stock and LMG Series B Common Stock owned by KT prior to KT's disposition
thereof. As a result thereof, Dr. Malone and KT entered into the Exchange
Agreement, pursuant to which, among other things, the parties thereto agreed
that immediately prior to the Effective Time, Dr. Malone may acquire from KT (i)
all of the shares of TCI Group Series B Common Stock owned by KT in exchange for
his delivery to KT of an equal number of shares of TCI Group Series A Common
Stock, and (ii) all of the shares of LMG Series B Common Stock owned by KT in
exchange for his delivery to KT of an equal number of shares of LMG Series A
Common Stock. The Exchange Agreement provides that Dr. Malone may elect to
acquire all, any portion, or any combination of such shares of TCI Group Series
B Common Stock and LMG Series B Common Stock and that he is under no obligation
to acquire any such shares. The Exchange Agreement further provides that in the
event the Merger Agreement is terminated, the Exchange Agreement will also
terminate and that such termination will have no effect on the validity or
enforceability of the Letter Agreement.
BUSINESS OF KT
GENERAL
KT was incorporated in Utah in 1952 through the consolidation of three
predecessor entities: the Tribune Publishing Company, the Telegram Publishing
Company and the Kearns (Tribune) Corporation (Delaware). Its primary business is
the publication of newspapers. KT's largest newspaper is The Salt Lake Tribune,
which was founded in 1871 and is currently the largest daily newspaper published
in Utah. Its daily circulation is approximately 130,000 and approximately
160,000 on Sundays. The Salt Lake Tribune is published under a Joint Operating
Agreement (JOA) with its primary competitor, the Deseret News. KT and Deseret
News Publishing Company ("Deseret Publishing"), the owner of the Deseret News,
jointly formed NAC to act as operating agent under the JOA. NAC provides
printing, circulation, advertising, marketing, and other support services for
both newspapers. For those services, NAC retains 3.5% of net earnings. NAC's net
operating income is distributed 58% to KT and 42% to Deseret Publishing.
The JOA expires in 2012.
KT also publishes other newspapers throughout the northwest United
States through subsidiary corporations. TPC-Idaho publishes three newspapers:
The Lewiston Morning Tribune, the Moscow-Pullman Daily News and the Whitman
County Gazette. The Lewiston Morning Tribune is a morning and Sunday newspaper
with circulation of approximately 25,000. It is the only local newspaper
published daily in its primary market and has a home penetration rate of
approximately 70%.
The Moscow-Pullman Daily News is published by News-Review Corporation,
which is owned 70% by TPCIdaho and 30% by KT directly. It is a five-day per week
afternoon newspaper that also has a Saturday morning edition. Its circulation is
approximately 8,000 on weekdays and 8,500 on Saturdays. The newspaper serves the
university communities of Moscow, Idaho, and Pullman, Washington, the homes of
the University of Idaho and Washington State University, respectively. The
operation also does a significant amount of printing for outside customers. It
operates in competition with The Lewiston Tribune and the Spokane daily
newspaper, The Spokesman-Review, and has a penetration rate of approximately 55%
of its primary market. The Whitman County Gazette is a weekly newspaper
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serving Colfax, Washington, a small agriculture-based community located about 60
miles south of Spokane. It has a weekly circulation of approximately 4,500.
The Lewiston Morning Tribune, Moscow-Pullman Daily News and the Whitman
County Gazette have, in the aggregate, approximately 250 employees.
The Daily Sparks Tribune is a 5,000 circulation newspaper published
five-days per week in the afternoon and Sunday mornings. It is published by KT's
subsidiary, TPC-Nevada, which also publishes the Big Nickel, a shopping
circular distributed free of charge.
In addition to direct newspaper publishing, KT provides online editions
of some of its papers and participates in newspaper related business. Through
its subsidiary, Nimitz Paper Company, KT owns a 6% interest in the Ponderay
Newspaper Mill located in Usk, Washington ("Ponderay"). Through its Tribune
Solutions division, KT develops and markets (directly and by licensing
arrangements) archival software and other computer-related products.
Though not a primary business activity, KT has from time-to-time
obtained a variety of non-newspaper related assets, including its interest in
TCI and various real estate and other holdings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
General. The principal line of business of KT is newspaper publishing.
Revenues are derived primarily from advertising and newspaper sales in Salt Lake
City, Utah, where it publishes The Salt Lake Tribune, and to a lesser degree
from advertising and newspaper sales in Lewiston and Moscow, Idaho, Pullman and
Colfax, Washington, and Sparks, Nevada. KT owns a 6% interest in Ponderay
Newsprint Company, a partnership formed to own and operate a newsprint mill in
the State of Washington.
KT publishes its Salt Lake City newspaper under the JOA with Deseret
Publishing. The agent in the JOA, NAC, performs certain duties for the owners.
Although KT has a 50% ownership interest in NAC and receives 58% of its net
earnings, NAC's operations are accounted for by the equity method. Because NAC
operations are not consolidated with KT, its financial statements are included
in this discussion. In addition, the existence of the JOA and its operation may
make comparisons with other similar newspaper publishers' financial statements
difficult.
The following analysis should be read in conjunction with the 1996
consolidated financial statements and the accompanying notes to the consolidated
financial statements appearing elsewhere in this Proxy Statement/Prospectus.
Recent Events. On September 30, 1996, KT redeemed all 2,300,000
outstanding shares of KT's 9 Per Cent Cumulative Preferred Stock, par value
$1.00 per share ("9% Preferred Stock"), at its aggregate liquidation value of
$3.5 million.
In November 1996, KT transferred Tribune Solutions L.L.C. from TPC-Idaho
to KT, reflecting its commitment to increasing its involvement in the electronic
and computerized dissemination of news.
Results of Operations. Operating income for the first quarter of 1997
and 1996 was $4.9 million and $3.1 million, respectively, increasing by 58.1%
for the first quarter of 1997 as compared to the first quarter of 1996. Net
income for the first quarter of 1997 was $3.6 million, reflecting a 44.0%
increase from the net income for the first quarter of 1996. Earnings per share
for the first quarter of 1997 were $20.21, which represents a $6.04 increase
from the $14.17 earnings per share reported in the first quarter of 1996.
Operating income for 1996, 1995, and 1994 was $16.5 million, $13.5
million, and $13.6 million, respectively, increasing by 22.2% from 1995 to 1996,
and decreasing by 0.7% from 1994 to 1995. Net income for 1996 was $14.2 million,
reflecting a 43.4% increase from 1995's net income of $9.9 million. Net income
for 1995 decreased 11.6% from 1994's net income of $11.2 million. All three
years included gains on sale of investments. Earnings per share for
35
<PAGE>
1996 were $78.91, which represents a $24.50 increase from the $54.41 earnings
per share reported in 1995. The 1995 earnings decreased $6.74 per share from the
$61.15 earned in 1994.
Operating Revenues (Newspaper Revenues and Commercial Printing). KT's
operating revenues rose 14.7% to $11.7 million in the first quarter of 1997,
reflecting an increase from $10.2 million in the first quarter of 1996. These
figures include increased distributions of net earnings received from NAC, which
were $7.8 million in 1997 and $6.1 million in the first quarter of 1996, an
increase of 27.9%.
KT's operating revenues rose 9.2% to $48.7 million in 1996, reflecting
an increase from $44.6 million in 1995. Operating revenues for 1995 increased
4.9% over 1994's operating revenue of $42.5 million. These figures include
increased distributions of net earnings received from NAC, which were $31.3
million in 1996, $26.6 million in 1995, and $25.2 million in 1994. The 1995 to
1996 gain of 17.7% and the 1994 to 1995 gain of 5.6% are discussed in more
detail below.
Operating revenue from the Idaho, Washington and Nevada newspaper
operations was $16.7 million, $16.4 million, and $16.1 million in 1996, 1995,
and 1994, respectively. The 1995 to 1996 gain was 2.4% and the 1994 to 1995 gain
was 2.4%.
Operating Expenses. Compensation costs, which include payroll and
benefits, decreased 2.9% to $3.3 million in the first quarter of 1997, from $3.4
million in the first quarter of 1996. Although the employee count remained
relatively flat during the first quarter of 1997, the slight decrease was due to
elimination of the KT ESOP contribution accrual. Newsprint and ink expenses were
$0.5 million and $0.9 million in the first quarter of 1997 and the first quarter
of 1996, respectively. The 45.6% decrease is due to softer newsprint prices.
Depreciation and amortization expense was $0.9 million and $1.0 million in the
first quarter of 1997 and the first quarter of 1996, respectively. Other
operating costs for the first quarter of 1997 and the first quarter of 1996 were
$2.1 million and $1.9 million, respectively, representing an increase of 10.5%
for the first quarter of 1997 as compared to the first quarter of 1996.
Compensation costs increased 13.2% to $17.2 million in 1996, and 4.1% to
$15.2 million in 1995. Although the employee count remained relatively flat
during 1996, the 1996 increase in costs is attributable to increases in the
stock plan contribution and vacation and sick leave accruals. Newsprint and ink
expenses were $3.0 million, $3.2 million, and $2.5 million in 1996, 1995, and
1994, respectively. The 6.3% decrease from 1995 to 1996 was due primarily to the
decrease in non-newspaper printing volume at TPC-Idaho during 1996. Because
newsprint and ink expenses at NAC flow through the NAC revenue distribution, see
the detailed analysis of newsprint pricing volatility in the NAC operations
section below.
Depreciation and amortization expense was $4.2 million, $4.9 million,
and $4.3 million in 1996, 1995, and 1994, respectively. Depreciation and
amortization expense includes amortization of excess cost over fair market value
of the net assets of certain purchased subsidiaries. Amortization of these
excess costs were $490,266 in 1996, $667,243 in 1995, and $489,010 in 1994.
Other operating costs for 1996, 1995, and 1994 were $7.7 million, $7.8
million, and $7.4 million, respectively, representing a 1995 to 1996 decrease of
1.3%, and a 1994 to 1995 increase of 5.4%. Items contributing to the 1995 to
1996 decrease include charitable contributions and life insurance expense. Items
contributing to the increase from 1994 to 1995 include features and wire
services, travel, supplies, legal expense and contributions.
Newspaper Agency Corporation. NAC was incorporated on August 30, 1952,
as a result of the entering into on August 12, 1952 of the JOA between KT and
Deseret Publishing (collectively, the "Principals"). The Principals each
directly own 50% of the common stock of NAC. The JOA expires December 31, 2012,
with renewal options beyond that date.
NAC was organized for the exclusive purpose of acting as an agent for
the Principals to manage, print, circulate, distribute, and handle the
advertising for The Salt Lake Tribune and the Deseret News. The Principals
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<PAGE>
maintain separate control and direction of their editorial and news departments,
and the policies of their respective newspaper. Their operating costs are not
included in the financial statements of NAC. All of the buildings, machinery,
and equipment used in the operations are jointly owned by the Principals. In
addition, under the JOA, NAC, acting upon approval from the Principals, may
procure equipment that is deemed necessary or advisable for the efficient
publication of the newspapers. NAC bills the Principals, at cost, for such
equipment purchases and other direct charges.
Earnings from operations of NAC are distributed in accordance with the
JOA. NAC retains 3.5% of earnings from operations and the balance is distributed
58% to KT and 42% to Deseret Publishing. The distribution of earnings to the
Principals constitutes revenues to them and are recorded accordingly in their
individual financial statements.
NAC reports its 3.5% of earnings from operations as income for federal
income tax purposes. The earnings distributed to Principals are included in
their respective federal income tax returns. However, total earnings from
operations are reported by the Principals at their respective percentage share
for state franchise tax purposes. No state franchise tax is recorded or paid by
NAC.
Total advertising revenues for NAC were $23.2 million and $21.3 million
in the first quarter of 1997 and the first quarter of 1996, respectively.
Advertising revenues increased by 8.9% from 1996 to 1997. Circulation revenues
for each of the first quarter of 1997 and the first quarter of 1996 were $6.6
million.
Operating costs decreased 2.3% to $13.4 million in the first quarter of
1997, from $17.8 million in the first quarter of 1996. The 24.7% decrease in
total operating costs is due to the 23.8% decrease in newsprint and ink
expenses, which were $4.8 million in the first quarter of 1997 as compared to
$6.3 million in the first quarter of 1996.
Total advertising revenue for NAC was $97.4 million in 1996, $86.3
million in 1995, and $76.6 million in 1994. Advertising revenues increased 12.9%
from 1995 to 1996 and 12.6% from 1994 to 1995. Run of press advertising revenue
changes resulted from increases in advertising lineage and higher advertising
rates. Preprinted advertising inserts revenue as a percent of total advertising
revenue was 11.8%, 12.2%, and 13.4% in 1996, 1995, and 1994, respectively. Major
lineage classification volume for the period is shown below.
Advertising revenue was helped by increases on open rates in all
classifications during 1996. The impact of the rate increases was minimized by
volume contracts with major advertisers.
<TABLE>
<CAPTION>
LINEAGE IN SIX COLUMN INCHES
(LINEAGE AMOUNTS IN THOUSANDS)
1996 %Chg 1995 %Chg 1994
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Retail 1,089 (2.1%) 1,112 6.4% 1,045
General/ National 105 16.7% 90 12.5% 80
Classified 1,303 12.3% 1,160 16.0% 1,000
----- ----- ----- ----- -----
Total 2,497 5.7% 2,362 11.2% 2,125
===== ====== ===== ===== =====
<CAPTION>
ADVERTISING INSERT REVENUE
(DOLLAR AMOUNTS IN MILLIONS)
1996 %Chg 1995 %Chg 1994
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenue $11.4 8.7% $10.53 2.0% $10.32
===== ==== ====== ==== ======
</TABLE>
37
<PAGE>
Circulations revenues for 1996, 1995, and 1994 were $26.4 million, $26.0
million, and $24.2 million, reflecting increases of 1.5% and 7.4%, respectively,
from the prior year. The average Daily and Sunday circulation, based on Audit
Bureau of Circulation audited numbers as of September 30 of each year for The
Salt Lake Tribune were:
<TABLE>
<CAPTION>
AVERAGE CIRCULATION
1996 %Chg 1995 %Chg 1994
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Daily 127,978 1.6% 125,996 1.2% 124,467
Sunday 160,614 0.7% 159,521 0.4% 158,936
</TABLE>
Average daily total circulation for The Salt Lake Tribune grew to
127,978 during 1996, up from 125,996 in 1995 and 124,467 in 1994. Average Sunday
total circulation grew to 160,614 in 1996, up from 159,521 in 1995, and 158,936
in 1994.
Daily circulation in the Newspaper Designated Market (primary market
area) was 109,583, 108,112, and 107,395 in 1996, 1995, and 1994, respectively,
increasing 1.4% from 1995 to 1996 and 0.7% from 1994 to 1995. Sunday circulation
in the Newspaper Designated Market was 135,165, 133,826, and 133,487 in 1996,
1995, and 1994, respectively, increasing by 1.0% from 1995 to 1996, and by 0.1%
from 1994 to 1995.
The Salt Lake Tribune's circulation as a percent of total combined NAC
circulation was 67.7%, 66.9%, and 66.6% in 1996, 1995, and 1994, respectively,
for daily circulation. For Sunday circulation, The Salt Lake Tribune's
circulation as a percent of total combined NAC circulation was 70.8%, 70.2%, and
69.8% in 1996, 1995, and 1994, respectively.
Circulation rates have not increased since October of 1995 when home
delivery prices for an annual, seven day subscription was increased 12.2% from
$107 to $120. Single copy prices have not increased since 1993. The introduction
in 1994 of a "porching" policy, where a home-delivered newspaper is placed on a
subscriber's porch rather than left at the curb, has helped reduce the rate of
subscription churn.
NAC also has a contract to print USA Today. Revenue from this contract
was $1.5 million, $1.4 million, and $1.3 million in 1996, 1995, and 1994,
respectively.
Compensation costs, which include payroll and fringe benefits, increased
2.3% to $26.9 million in 1996 and increased 4.4% to $26.3 million in 1995,
respectively. The full-time equivalent employee count ("FTEE") was 885, 877, and
847 in 1996, 1995, and 1994, respectively. Increases in FTEE's during 1995 were
in composing and home delivery. Labor costs were slightly reduced by an early
retirement incentive offered to selected employees during 1996. Compensation was
also impacted by increased advertising sales commissions due to increased sales.
Employee benefits were helped in 1996 by the adoption of a 401(h) feature in the
pension plan to use the over funded pension to pay for retiree health insurance
costs, which resulted in a savings of $500,000.
Newsprint and ink expense increased 6.2% from the prior year to $23.9
million in 1996 and 55.2% to $22.5 million in 1995. The increase in
year-over-year comparisons is due to the effects of rapidly escalating newsprint
prices throughout 1995 which reached a peak in early 1996 of $812 per ton
followed by decreasing prices throughout the last three quarters of 1996 to a
low of $542 per ton in December. Newsprint consumption increased 4.2% to 32,666
tons in 1996, and increased 3.9% to 31,223 tons in 1995. During 1995, NAC
converted from 30-pound to 28-pound newsprint to reduce costs. However, price
adjustments from suppliers soon negated the potential savings.
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<PAGE>
Investment Affiliates. KT's investment in Ponderay is accounted for
using the equity method, which reflects KT's share of Ponderay's net income or
loss, tax credits and related income tax expense or benefit. Ponderay's
operating results include interest expense on its long-term debt. Since
Ponderay's operating results are significantly affected by movements in
newsprint prices, KT's net income will be impacted positively or negatively
depending on the volatility of newsprint pricing. Based upon a current pricing,
Ponderay is expected to report a loss in 1997. KT does not anticipate making
additional cash investments in Ponderay during 1997. See further discussion in
the notes to the 1996 Consolidated Financial Statements.
Equity in the undistributed net gains or losses of investments increased
to $1.4 million in 1996 from a loss of $200,000 in 1995, which improved from a
loss of $2.4 million in 1994. These numbers reflect the losses and gains
reported at Ponderay, primarily due to fluctuations in the sales revenue from
newsprint realized by Ponderay.
Non-Operating Items. Other non-operating income, primarily investment
income, was $1.0 million and $0.9 million in the first quarter of 1997 and the
first quarter of 1996, respectively. Other non-operating income was $5.5
million, $3.1 million, and $4.9 million in 1996, 1995, and 1994, respectively.
The increase of $2.4 million from 1995 to 1996 is attributable to increased
interest income, increased distributions from a development project, and the
liquidation of certain marketable securities. The $1.8 million decrease in a
non-operating income from 1994 to 1995 reflects the sale of Republic Pictures,
Inc. stock during 1994.
Income tax expense for 1996, 1995, and 1994 was $8.8 million, $5.7
million, and $4.3 million, respectively, reflecting effective tax rates of
38.1%, 36.7%, and 27.9%. The effective income tax rate differs from the maximum
federal tax rate due to tax benefits received from investment in Ponderay, state
income taxes and amortization of goodwill which is disallowed for income tax
purposes.
Liquidity and Capital Resources. Cash provided by operations is KT's
primary source of liquidity. Net cash provided by operating activities for the
first quarter of 1997 was $1.8 million. The principal use of cash during the
first quarter of 1997 was for investing activities. Net cash provided by
operating activities was $15.6 million, $13.4 million, and $17.4 million in
1996, 1995, and 1994, respectively. Principal uses of cash during 1996 were
capital expenditures, note payments, payments of dividends, and redemption of
preferred stock.
At the end of the first quarter of 1997, KT's cash, CDS and investments
in marketable securities at fair value totaled $403 million, down $23 million
from $426 million at the end of 1996. At the end of 1996, KT's cash, CDS and
investments in marketable securities at fair value, which totaled $426 million,
was down $96 million from $522 million at the end of 1995.
Total capital expenditures in 1996 were $1.7 million, up from $2.2
million in 1995, and up from $2.7 million in 1994. The majority of these
expenditures in 1996 and 1995 relate to KT's share of fixed assets purchased at
NAC. Specifically, these expenditures were for delivery vehicles, production
equipment, and computer equipment. It is expected that capital expenditures for
1997 will be approximately $4.2 million, with the increase due to the
anticipated purchase of a new pagination and editorial front-end system. There
are no significant commitments related to future capital projects.
KT guarantees debt related to Ponderay which is discussed in the notes
to the Consolidated Financial Statements.
KT also has long term notes payable aggregating $4.2 million at year end
1996. These notes are to certain former shareholders of a purchased subsidiary
and for the purchase of new presses in 1989.
Dividends of $8.00 per share of KT Common Stock were declared during
1996. This was the same level declared during 1995, and an increase from the
1994 dividend of $5.00 per share. KT also paid dividends on its 9% Preferred
Stock for the first three quarters of 1996 prior to all such 9% Preferred Stock
being redeemed. Cash dividends of $1.6 million, $1.6 million, and $1.1 million
were made in 1996, 1995, and 1994.
39
<PAGE>
Cash paid for the redemption of stock during 1996, 1995, and 1994 was
$3.9 million, $0.4 million, and $3.9 million, respectively.
KT has significant cash balances and a consistent ability to generate
cash flow from operations. At this time, KT foresees no difficulty in
maintaining its present financial condition and liquidity. Funding for planned
current and future capital programs and projected working capital needs is
considered adequate for the foreseeable future.
Inflation and Changing Prices. Over the past several years, the impact
of inflation on KT's operations has become less significant because of lower
overall inflation rates and a strong local economy. However, KT and the
newspaper industry as a whole have experienced wide fluctuations in newsprint
pricing. Variations in newsprint pricing can have a significant impact on
earnings for any given year. KT has attempted to offset newsprint price
increases in a variety of ways, including reducing the page count of each
edition, with corresponding increases in the percentage of advertising to allow
fewer pages in each edition, reducing waste, and printing on lighter weight
newsprint.
New Accounting Standards. In 1996, KT adopted Statement of Accounting
Financial Standards ("SFAS") No. 87 "Employer's Accounting for Pensions," and
adopted SFAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." In accordance with these two standards, KT restated its 1995 and
1994 financial statements to conform with generally accepted accounting
principals. In February 1997, SFAS No. 128 "Earnings Per Share" was issued. SFAS
No. 128 changes the computation, presentation, and disclosure requirements of
earnings per share (EPS) for entities with publicly held common stock. Although
such statement is not effective until December 31, 1997, had such statement been
adopted for each of the three years in the period ended December 31, 1996, SFAS
No. 128 would have had no effect on KT's EPS.
Other Matters. There have been no changes in, or disagreements with,
KT's accountants, Deloitte & Touche LLP, on accounting and financial disclosure.
BUSINESS OF TCI
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 also has investments in cable
and telecommunications operations and television programming in certain
international markets, as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies. TCI is organized based upon four lines of
business: Domestic Cable and Communications; Programming; International Cable
and Programming; and Technology/Venture Capital. Within the Domestic Cable and
Communications line of business, TCI operates three strategic business units:
Cable, Telephony and Internet.
TCI is a Delaware corporation and was incorporated in 1994. TCIC and its
predecessors have been engaged in the cable television business since the early
1950's. TCI's principal executive offices are located at Terrace Tower II, 5619
DTC Parkway, Englewood, Colorado 80111-3000; telephone (303) 267-5500.
DESCRIPTION OF TCI CAPITAL STOCK
The following description of certain terms of the TCI Common Stock and
the outstanding classes and series of TCI's preferred stock does not purport to
be complete and is qualified in its entirety by reference to the TCI Charter,
which is an exhibit to the Registration Statement.
40
<PAGE>
GENERAL
The TCI Charter currently provides that TCI is authorized to issue
3,602,375,096 shares of capital stock, including (i) 3,550,000,000 shares of TCI
Common Stock, of which 1,750,000,000 shares are designated TCI Group Series A
Common Stock, 150,000,000 shares are designated TCI Group Series B Common Stock,
750,000,000 shares are designated LMG Series A Common Stock, 75,000,000 shares
are designated LMG Series B Common Stock, 750,000,000 shares are designated
Telephony Group Series A Common Stock and 75,000,000 shares are designated
Telephony Group Series B Common Stock, and (ii) 52,375,096 shares of preferred
stock ("TCI Preferred Stock"), of which 700,000 shares are designated Class A
Preferred Stock, par value $0.01 per share (the "Class A Preferred Stock"),
1,675,096 shares are designated Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock, par value $.01 per share (the "Class B Preferred Stock")
and 50,000,000 shares are designated as Series Preferred Stock, par value $.01
per share (the "Series Preferred Stock"), issuable in series. Of the Series
Preferred Stock, 80,000 shares are designated as Convertible Preferred Stock,
Series C (the "Series C Preferred Stock"), 1,000,000 shares are designated as
Convertible Preferred Stock, Series D (the "Series D Preferred Stock"), 400,000
shares are designated as Redeemable Convertible Preferred Stock, Series E (the
"Series E Preferred Stock"), 500,000 shares are designated Convertible
Redeemable Participating Preferred Stock, Series F (the "Series F Preferred
Stock"), 7,259,380 shares are designated as Redeemable Convertible TCI Group
Preferred Stock, Series G (the "Series G Preferred Stock"), and 7,259,380 shares
are designated as Redeemable Convertible Liberty Media Group Preferred Stock,
Series H (the "Series H Preferred Stock").
No shares of the Telephony Group Common Stock have been issued. As of
March 31, 1997, 598,204,963 shares of TCI Group Series A Common Stock,
84,647,065 shares of TCI Group Series B Common Stock, 228,749,797 shares of LMG
Series A Common Stock and 21,187,969 shares of LMG Series B Common Stock (in
each case net of shares held by subsidiaries of TCI) had been issued and were
outstanding and 116,853,196 shares of TCI Group Series A Common Stock were held
by subsidiaries of TCI. As of that date, 126,384,805 shares of TCI Group Series
A Common Stock and 30,616,358 shares of LMG Series A Common Stock were reserved
for issuance upon conversion, exchange or exercise of outstanding convertible or
exchangeable securities and options. In addition, TCI has reserved a number of
shares of TCI Group Series A Common Stock equal to the number of shares of TCI
Group Series B Common Stock outstanding and a number of shares of LMG Series A
Common Stock equal to the number of shares of LMG Series B Common Stock
outstanding, for issuance upon conversion, at the option of the holder, of TCI
Group Series B Common Stock and LMG Series B Common Stock, respectively.
Additionally, subsidiaries of TCI own shares of Series F Preferred Stock, which
are convertible into an aggregate of 416,528,172 shares of TCI Group Series A
Common Stock in the aggregate.
COMMON STOCK
CERTAIN DEFINITIONS
As used herein, the following terms have the meanings specified below:
"Appraisal Date" means, with respect to any determination of the Liberty
Media Group Private Market Value or the Telephony Group Private Market Value,
the last day of the calendar month preceding the month in which the
Selection Date occurs.
"Appraiser" means each of the First Appraiser, the Second Appraiser and
the Mutually Designated Appraiser.
"Committed Acquisition Shares" means (i) the shares of LMG Series A
Common Stock that TCI had, prior to the record date for the LMG Distribution,
agreed to issue, but as of such record date had not issued, and (ii) the shares
of LMG Series A Common Stock that are issuable upon conversion, exercise or
exchange of Convertible Securities that TCI had, prior to the record date for
the LMG Distribution, agreed to issue, but as of such record date had not
issued, in each case including obligations of TCI to issue shares of TCI's Class
A Common Stock, par value $1.00 per share (which has been redesignated TCI Group
Series A Common Stock), which as a result of the LMG Distribution,
41
<PAGE>
constitute obligations to issue, among other securities, LMG Series A Common
Stock or Convertible Securities which are convertible into or exercisable or
exchangeable for LMG Series A Common Stock; provided, however, that Committed
Acquisition Shares will not include any shares of LMG Common Stock issuable upon
conversion, exercise or exchange of Pre-Distribution Convertible Securities. The
type and amount of Committed Acquisition Shares issuable will be appropriately
adjusted to reflect subdivisions and combinations of the LMG Series A Common
Stock and dividends or distributions of shares of LMG Series A Common Stock or
LMG Series B Common Stock to holders of LMG Series A Common Stock and other
reclassifications of the LMG Series A Common Stock, in each case occurring (or
the record date for which occurs) after the LMG Distribution. The shares of LMG
Series A Common Stock issuable upon conversion of the Series H Preferred Stock
will constitute Committed Acquisition Shares.
"Convertible Securities" means any securities of TCI (other than any
series of TCI Common Stock) that are convertible into, exchangeable for or
evidence the right to purchase any shares of any series of TCI Common Stock,
whether upon conversion, exercise, exchange, pursuant to antidilution provisions
of such securities or otherwise.
"Corporation Earnings (Loss) Attributable to the Liberty Media Group"
means, for any period, the net earnings or loss of the Liberty Media Group for
such period determined on a basis consistent with the determination of the net
earnings or loss of the Liberty Media Group for such period as presented in the
combined financial statements of the Liberty Media Group for such period,
including income and expenses of TCI attributed to the operations of the Liberty
Media Group on a substantially consistent basis, including without limitation,
corporate administrative costs, net interest and income taxes.
"Corporation Earnings (Loss) Attributable to the TCI Group" means, for
any period, the net earnings or loss of the TCI Group for such period determined
on a basis consistent with the determination of the net earnings or loss of the
TCI Group for such period as presented in the combined financial statements of
the TCI Group for such period, including income and expenses of TCI attributed
to the operations of the TCI Group on a substantially consistent basis,
including without limitation, corporate administrative costs, net interest and
income taxes.
"Corporation Earnings (Loss) Attributable to the Telephony Group," for
any period, shall mean the net earnings or loss of the Telephony Group for such
period determined on a basis consistent with the determination of the net
earnings or loss of the Telephony Group for such period as presented in the
combined financial statements of the Telephony Group for such period, including
income and expenses of TCI attributed to the operations of the Telephony Group
on a substantially consistent basis, including without limitation, corporate
administrative costs, net interest and income taxes.
"DGCL" means the General Corporation Law of the State of Delaware.
"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets or
stock or otherwise) of properties or assets.
"First Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private Market
Value, an investment banking firm of recognized national standing selected by
TCI to make such determination.
"Higher Appraised Amount" means, with respect to any determination of
the Liberty Media Group Private Market Value or the Telephony Group Private
Market Value, the higher of the respective final views of the First Appraiser
and the Second Appraiser as to such private market value.
"Independent Committee" shall mean a committee of the TCI Board all of
whose members are independent directors, as determined under the rules of the
NASDAQ/NM.
The "Inter-Group Interest" of the TCI Group in the Liberty Media Group
or the Telephony Group means any common stockholders' equity value of TCI
attributable to the Liberty Media Group or the Telephony Group, as the case
42
<PAGE>
may be, that is not represented by outstanding shares of LMG Common Stock or
Telephony Group Common Stock, as the case may be. The TCI Group's Inter-Group
Interest in the Liberty Media Group is represented by the Number of Shares
Issuable with Respect to the Liberty Media Group Inter-Group Interest and the
TCI Group's Inter-Group Interest in the Telephony Group is represented by the
Number of Shares Issuable with Respect to the Telephony Group InterGroup
Interest.
The "Liberty Media Group" means as of any date of determination thereof:
(i) the interest of TCI or any of its subsidiaries in Liberty
Media Corporation or any of its subsidiaries (including any successor
thereto by merger, consolidation or sale of all or substantially all of
its assets, whether or not in connection with a Related Business
Transaction) and their respective properties and assets;
(ii) all assets and liabilities of TCI or any of its subsidiaries
to the extent attributed to any of the properties or assets referred to
in clause (i) of this sentence, whether or not such assets or
liabilities are assets and liabilities of Liberty Media Corporation or
any of its subsidiaries (or a successor as described in clause (i) of
this sentence);
(iii) all assets and properties contributed or otherwise
transferred to the Liberty Media Group from the TCI Group; and
(iv) the interest of TCI or any of its subsidiaries in the
businesses, assets and liabilities acquired by TCI or any of its
subsidiaries for the Liberty Media Group, as determined by the TCI
Board;
provided that (a) from and after any dividend or other distribution with respect
to any shares of LMG Common Stock (other than a dividend or other distribution
payable in shares of LMG Common Stock, with respect to which adjustment will be
made as described in clause (i) of the definition of "Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest," or in other
securities of TCI attributed to the Liberty Media Group for which provision will
be made as described in the penultimate sentence of this definition), the
Liberty Media Group will no longer include an amount of assets or properties
equal to the aggregate amount of such kind of assets or properties so paid in
respect of shares of LMG Common Stock multiplied by a fraction the numerator of
which is equal to the Liberty Media Group Inter-Group Interest Fraction in
effect immediately prior to the record date for such dividend or other
distribution and the denominator of which is equal to the Liberty Media Group
Outstanding Interest Fraction in effect immediately prior to the record date for
such dividend or other distribution and (b) from and after any transfer of
assets or properties from the Liberty Media Group to the TCI Group, the Liberty
Media Group will no longer include the assets or properties so transferred. If
TCI pays a dividend or makes any other distribution with respect to shares of
LMG Common Stock payable in securities of TCI attributed to the Liberty Media
Group other than LMG Common Stock, the TCI Group will be deemed to hold an
amount of such other securities equal to the amount so distributed multiplied by
the fraction specified in clause (a) of this definition (determined as of a time
immediately prior to the record date for such dividend or other distribution),
and to the extent interest or dividends are paid or other distributions are made
on such other securities so distributed to the holders of LMG Common Stock, the
Liberty Media Group will no longer include a corresponding ratable amount of the
kind of assets paid as such interest or dividends or other distributions in
respect of such securities so deemed to be held by the TCI Group. TCI may also,
to the extent any such other securities constitute Convertible Securities which
are at the time convertible, exercisable or exchangeable, cause such Convertible
Securities deemed to be held by the TCI Group to be deemed to be converted,
exercised or exchanged (and to the extent the terms of such Convertible
Securities require payment or delivery of consideration in order to effect such
conversion, exercise or exchange, the Liberty Media Group will in such case
include an amount of the kind of properties or assets required to be paid or
delivered as such consideration for the amount of the Convertible Securities
deemed converted, exercised or exchanged as if such Convertible Securities were
outstanding), in which case such Convertible Securities will no longer be deemed
to be held by the TCI Group or attributed to the Liberty Media Group.
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The "Liberty Media Group Inter-Group Interest Fraction" means a fraction
the numerator of which is the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest and the denominator of which is the sum
of such Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest and the aggregate number of shares of LMG Common Stock
outstanding.
"Liberty Media Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the Liberty
Media Group, an amount, if any, equal to the gross proceeds of such Disposition
after any payment of, or reasonable provision for, (a) any taxes payable by TCI
in respect of such Disposition or in respect of any resulting dividend or
redemption pursuant to clause (i) or (ii), respectively, of the second paragraph
under "--Conversion and Redemption--Mandatory Dividend, Redemption or Conversion
of LMG Common Stock" (or which would have been payable but for the utilization
of tax benefits attributable to the TCI Group or the Telephony Group), (b) any
transaction costs, including, without limitation, any legal, investment banking
and accounting fees and expenses and (c) any liabilities and other obligations
(contingent or otherwise) of, or attributed to, the Liberty Media Group,
including, without limitation, any indemnity or guarantee obligations incurred
in connection with the Disposition or any liabilities for future purchase price
adjustments and any preferential amounts plus any accumulated and unpaid
dividends and other obligations (without duplication of amounts allocated for
the satisfaction of TCI's obligations with respect to Pre-Distribution
Convertible Securities and Committed Acquisition Shares issuable which are
included in the determination of the Adjusted Liberty Media Group Outstanding
Interest Fraction) in respect of TCI Preferred Stock attributed to the Liberty
Media Group. For purposes of this definition, any properties and assets of the
Liberty Media Group remaining after such Disposition shall constitute
"reasonable provision" for such amount of taxes, costs and liabilities
(contingent or otherwise) as can be supported by such properties and assets. To
the extent the proceeds of any Disposition include any securities or other
property other than cash, the TCI Board shall determine the value of such
securities or property, including for the purpose of determining the equivalent
value thereof if the TCI Board determines to pay a dividend or redemption price
in cash or securities or other property as provided in the penultimate paragraph
under "--Conversion and Redemption --Mandatory Dividend, Redemption or
Conversion of LMG Common Stock."
The "Liberty Media Group Outstanding Interest Fraction" means a fraction
the numerator of which is the aggregate number of shares of LMG Common Stock
outstanding and the denominator of which is the sum of such aggregate number of
shares of LMG Common Stock outstanding and the Number of Shares Issuable with
Respect to the Liberty Media Group Inter-Group Interest.
"Lower Appraised Amount" means with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private Market
Value, the lower of the respective final views of the First Appraiser and the
Second Appraiser as to such private market value.
"Market Capitalization" of any class or series of capital stock of TCI
on any trading day shall mean the product of (i) the Market Value of one share
of such class or series on such trading day and (ii) the number of shares of
such class or series outstanding on such trading day.
"Market Value" of any class or series of capital stock of TCI on any day
shall mean the average of the high and low reported sales prices regular way of
a share of such class or series on such day (if such day is a trading day, and
if such day is not a trading day, on the trading day immediately preceding such
day) or in case no such reported sale takes place on such trading day the
average of the reported closing bid and asked prices regular way of a share of
such class or series on such trading day, in either case on the NASDAQ/NM, or if
the shares of such class or series are not quoted on the NASDAQ/NM on such
trading day, the average of the closing bid and asked prices of a share of such
class or series in the over-the-counter market on such trading day as furnished
by any New York Stock Exchange member firm selected from time to time by TCI, or
if such closing bid and asked prices are not made available by any such New York
Stock Exchange member firm on such trading day, the market value of a share of
such class or series as determined by the TCI Board; provided that for purposes
of determining the ratios described under "--Conversion and Redemption--
Conversion of LMG Common Stock at the Option of TCI," "--Conversion of Telephony
Group Common Stock at the Option of TCI," "--Mandatory Dividend, Redemption or
Conversion of LMG Common Stock," and "--Mandatory Dividend, Redemption or
Conversion of Telephony Group Common Stock" and as described under
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"--Liquidation Rights," (a) the "Market Value" of any share of any series of TCI
Common Stock on any day prior to the "ex" date or any similar date for any
dividend or distribution paid or to be paid with respect to such series of TCI
Common Stock shall be reduced by the fair market value of the per share amount
of such dividend or distribution as determined by the TCI Board and (b) the
"Market Value" of any share of any series of TCI Common Stock on any day prior
to (i) the effective date of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of outstanding shares of such
series of TCI Common Stock or (ii) the "ex" date or any similar date for any
dividend or distribution with respect to any such series of TCI Common Stock in
shares of such series of TCI Common Stock shall be appropriately adjusted to
reflect such subdivision, combination, dividend or distribution; and provided,
further, that to the extent that any assets or properties of the TCI Group are
transferred to the Telephony Group prior to there being any shares of Telephony
Group Series A Common Stock or Telephony Group Series B Common Stock issued and
outstanding, the Market Value of a share of Telephony Group Series A Common
Stock shall be as determined in good faith by the TCI Board for purposes of
determining the increase in the Number of Shares Issuable in Respect of the
Telephony Group Inter-Group Interest.
"Mutually Appraised Amount" means, with respect to any determination of
the Liberty Media Group Private Market Value or the Telephony Group Private
Market Value, the determination by the Mutually Designated Appraiser
of such private market value.
"Mutually Designated Appraiser" shall mean, if required with respect to
any determination of the Liberty Media Group Private Market Value or the
Telephony Group Private Market Value, the investment banking firm of recognized
national standing jointly designated by the First Appraiser and the Second
Appraiser to make such determination.
The "Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest" is currently
zero and will from time to time be
(i) adjusted as appropriate to reflect subdivisions (by stock
split or otherwise) and combinations (by reverse stock split or
otherwise) of the LMG Series A Common Stock and dividends or
distributions of shares of LMG Series A Common Stock or LMG Series B
Common Stock to holders of LMG Series A Common Stock and other
reclassifications of LMG Series A Common Stock,
(ii) decreased (but not to less than zero) by (a) the aggregate
number of shares of LMG Series A Common Stock issued or sold by TCI
after the Distribution other than Committed Acquisition Shares, the
proceeds of which are attributed to the TCI Group, (b) the aggregate
number of shares of LMG Series A Common Stock issued or delivered upon
conversion, exercise or exchange of Convertible Securities (other than
Pre-Distribution Convertible Securities and Convertible Securities which
are convertible into or exercisable or exchangeable for Committed
Acquisition Shares), the proceeds of which are attributed to the TCI
Group, (c) the aggregate number of shares of LMG Common Stock issued or
delivered by TCI as a dividend or distribution to holders of TCI Group
Series A Common Stock and TCI Group Series B Common Stock, (d) the
aggregate number of shares of LMG Common Stock issued or delivered upon
the conversion, exercise or exchange of any Convertible Securities
(other than Pre-Distribution Convertible Securities and Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares) issued or delivered by TCI after the
Distribution as a dividend or distribution or by reclassification or
exchange to holders of TCI Group Series A Common Stock and TCI Group
Series B Common Stock and (e) the aggregate number of shares of LMG
Series A Common Stock (rounded, if necessary, to the nearest whole
number), equal to the aggregate fair value (as determined by the TCI
Board) of assets or properties attributed to the Liberty Media Group
that are transferred from the Liberty Media Group to the TCI Group in
consideration of a reduction in the Number of Shares Issuable with
Respect to the Liberty Media Group Inter-Group Interest, divided by the
Market Value of one share of LMG Series A Common Stock as of the date of
such transfer, and
(iii) increased by (a) the aggregate number of any shares of LMG
Series A Common Stock and LMG Series B Common Stock which are retired or
otherwise cease to be outstanding following their purchase
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with funds attributed to the TCI Group, (b) a number (rounded, if
necessary, to the nearest whole number), equal to the fair value (as
determined by the TCI Board) of assets or properties theretofore
attributed to the TCI Group that are contributed to the Liberty Media
Group in consideration of an increase in the Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest, divided by
the Market Value of one share of LMG Series A Common Stock as of the
date of such contribution and (c) the aggregate number of shares of LMG
Series A Common Stock and LMG Series B Common Stock into or for which
Convertible Securities are deemed to be converted, exercised or
exchanged pursuant to the last sentence of the definition of "TCI
Group."
TCI will not issue or sell shares of LMG Series B Common Stock in respect of a
reduction in the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest. Whenever a change in the Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest occurs, TCI will
prepare and file a statement of such change with the Secretary of TCI.
"Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest" shall initially be that number of shares of Telephony
Group Common Stock which represents 100% of the common stockholders' equity
value of TCI attributable to the Telephony Group (which may be issued as shares
of Telephony Group Series A Common Stock or Telephony Group Series B Common
Stock), as determined by the TCI Board prior to the first issuance of shares of
Telephony Group Common Stock, and shall from time to time thereafter, as
applicable, be
(i) adjusted as appropriate to reflect subdivisions (by stock
split or otherwise) and combinations (by reverse stock split or
otherwise) of the Telephony Group Series A Common Stock and Telephony
Group Series B Common Stock and dividends or distributions of shares of
Telephony Group Series A Common Stock or Telephony Group Series B Common
Stock to holders of Telephony Group Series A Common Stock and Telephony
Group Series B Common Stock and other reclassifications of the Telephony
Group Series A Common Stock and Telephony Group Series B Common Stock,
(ii) decreased (but not to less than zero) by (a) the aggregate
number of shares of Telephony Group Series A Common Stock or Telephony
Group Series B Common Stock issued or sold by TCI the proceeds of which
are attributed to the TCI Group, (b) the aggregate number of shares of
Telephony Group Series A Common Stock or Telephony Group Series B Common
Stock issued or delivered upon conversion, exercise or exchange of
Convertible Securities, the proceeds of which are attributed to the TCI
Group, (c) the aggregate number of shares of Telephony Group Series A
Common Stock or Telephony Group Series B Common Stock issued or
delivered by TCI as a dividend or distribution to holders of TCI Group
Series A Common Stock and TCI Group Series B Common Stock, (d) the
aggregate number of shares of Telephony Group Series A Common Stock or
Telephony Group Series B Common Stock issued or delivered upon the
conversion, exercise or exchange of any Convertible Securities issued or
delivered by TCI as a dividend or distribution or by reclassification or
exchange to holders of TCI Group Series A Common Stock and TCI Group
Series B Common Stock and (e) the aggregate number of shares of
Telephony Group Series A Common Stock and Telephony Group Series B
Common Stock (rounded, if necessary, to the nearest whole number), equal
to the aggregate fair value (as determined by the TCI Board) of assets
or properties attributed to the Telephony Group that are transferred
from the Telephony Group to the TCI Group in consideration of a
reduction in the Number of Shares Issuable with Respect to the Telephony
Group Inter-Group Interest, divided by the Market Value of one share of
Telephony Group Series A Common Stock as of the date of such transfer,
and
(iii) increased by (a) the aggregate number of any shares of
Telephony Group Series A Common Stock and Telephony Group Series B
Common Stock which are retired or otherwise cease to be outstanding
following their purchase with funds attributed to the TCI Group, (b) a
number (rounded, if necessary, to the nearest whole number), equal to
the fair value (as determined by the TCI Board) of assets or properties,
theretofore attributed to the TCI Group that are contributed to the
Telephony Group in consideration of an increase in the Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest,
divided
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<PAGE>
by the Market Value of one share of Telephony Group Series A Common
Stock as of the date of such contribution and (c) the aggregate number
of shares of Telephony Group Series A Common Stock and Telephony Group
Series B Common Stock into or for which Convertible Securities are
deemed to be converted, exercised or exchanged pursuant to the last
sentence of the definition of "TCI Group."
Whenever a change in the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest occurs, TCI shall prepare and file a
statement of such change with the Secretary of
TCI.
"Pre-Distribution Convertible Securities" means Convertible Securities
that were outstanding on the record date for the LMG Distribution and were,
prior to such date, convertible into or exercisable or exchangeable for shares
of TCI's Class A Common Stock, par value $1.00 per share (which has been
redesignated TCI Group Series A Common Stock).
"Qualifying Subsidiary" shall mean a subsidiary of TCI in which (x)
TCI's ownership and voting interest is sufficient to satisfy the requirements of
the Service for a tax free distribution of TCI's interest in such subsidiary to
the holders of Telephony Group Series A Common Stock and Telephony Group Series
B Common Stock or (y) TCI owns, directly or indirectly, all of the issued and
outstanding capital stock.
"Related Business Transaction" shall mean any Disposition of all or
substantially all of the properties and assets of the Liberty Media Group or the
Telephony Group, as the case may be, in which TCI receives as proceeds of such
Disposition primarily equity securities (including, without limitation, capital
stock, convertible securities, partnership or limited partnership interests and
other types of equity securities, without regard to the voting power or
contractual or other management or governance rights related to such equity
securities) of the purchaser or acquiror of such assets and properties of the
Liberty Media Group or the Telephony Group, as the case may be, any entity which
succeeds (by merger, formation of a joint venture enterprise or otherwise) to
such assets and properties of the Liberty Media Group or the Telephony Group, as
the case may be, or a third party issuer, which purchaser, acquiror or other
issuer is engaged or proposes to engage primarily in one or more businesses
similar or complementary to the businesses conducted by the Liberty Media Group
or the Telephony Group, as the case may be, prior to such Disposition, as
determined in good faith by the TCI Board.
"Second Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private Market
Value, an investment banking firm of recognized national standing selected by
the Independent Committee to make such determination.
"Selection Date" shall mean, with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private Market
Value, the date upon which the Second Appraiser for such determination
is selected by the Independent Committee.
The "TCI Group" means as of any date of determination thereof:
(i) the interest of TCI or any of its subsidiaries in all of the
businesses in which TCI or any of its subsidiaries (or any of their
predecessors or successors) is or has been engaged, directly or
indirectly, and the respective assets and liabilities of TCI or any of
its subsidiaries, other than any businesses, assets or liabilities of
the Liberty Media Group or the Telephony Group;
(ii) a proportionate interest in the businesses, assets and
liabilities of the Liberty Media Group equal to the Liberty Media Group
Inter-Group Interest Fraction as of such date and a proportionate
interest in the businesses, assets and liabilities of the Telephony
Group equal to the Telephony Group Inter-Group Interest Fraction as of
such date;
(iii) from and after any dividend or other distribution with
respect to shares of LMG Common Stock (other than a dividend or other
distribution payable in shares of LMG Common Stock, with respect to
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which adjustment will be made as described in clause (i) of the
definition of "Number of Shares Issuable with Respect to the Liberty
Media Group Inter-Group Interest," or in other securities of TCI
attributed to the Liberty Media Group, for which provision will be made
as described in the second sentence of this definition), an amount of
assets or properties theretofore included in the Liberty Media Group
equal to the aggregate amount of such kind of assets or properties so
paid in respect of such dividend or other distribution with respect to
shares of LMG Common Stock multiplied by a fraction the numerator of
which is equal to the Liberty Media Group Inter-Group Interest Fraction
in effect immediately prior to the record date for such dividend or
other distribution and the denominator of which is equal to the Liberty
Media Group Outstanding Interest Fraction in effect immediately prior to
the record date for such dividend or other distribution;
(iv) from and after any dividend or other distribution with
respect to shares of Telephony Group Common Stock (other than a dividend
or other distribution payable in shares of Telephony Group Common Stock,
with respect to which adjustment will be made as described in clause (i)
of the definition of "Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest, or in other securities of TCI
attributed to the Telephony Group, for which provision will be made as
described in the penultimate sentence of this definition), an amount of
assets or properties theretofore included in the Telephony Group equal
to the aggregate amount of such kind of assets or properties so paid in
respect of such dividend or distribution with respect to shares of
Telephony Group Common Stock multiplied by a fraction the numerator of
which is equal to the Telephony Group Inter-Group Interest Fraction in
effect immediately prior to the record date for such dividend or other
distribution and the denominator of which is equal to the Telephony
Group Outstanding Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution; and
(v) any assets or properties transferred from the Liberty Media
Group or the Telephony Group to the TCI Group;
provided that, from and after any contribution or transfer of any assets or
properties from the TCI Group to the Liberty Media Group or the Telephony Group,
the TCI Group will no longer include such assets or properties so contributed or
transferred (other than pursuant to its interest in the businesses, assets and
liabilities of the Liberty Media Group or the Telephony Group, as applicable,
described in clause (ii) above). If TCI pays a dividend or makes any other
distribution with respect to shares of LMG Common Stock payable in other
securities of TCI attributed to the Liberty Media Group, the TCI Group will be
deemed to hold an amount of such other securities equal to the amount so
distributed multiplied by the fraction specified in clause (iii) of this
definition (determined as of a time immediately prior to the record date for
such dividend or other distribution), and to the extent interest or dividends
are paid or other distributions are made on such other securities so distributed
to holders of LMG Common Stock, the TCI Group will include a corresponding
ratable amount of the kind of assets paid as such interest or dividends or other
distributions in respect of such securities so deemed to be held by the TCI
Group. If Telephony Group Common Stock is issued and TCI pays a dividend or
makes any other distribution with respect to shares of Telephony Group Common
Stock payable in other securities of TCI attributed to the Telephony Group, the
TCI Group will be deemed to hold an amount of such other securities equal to the
amount so distributed multiplied by the fraction specified in clause (iv) of
this definition (determined as of a time immediately prior to the record date
for such dividend or other distribution), and to the extent interest or
dividends are paid or other distributions are made on such other securities so
distributed to holders of Telephony Group Common Stock, the TCI Group will
include a corresponding ratable amount of the kind of assets paid as such
interest or dividends or other distribution in respect of such securities so
deemed to be held by the TCI Group. TCI may also, to the extent any such other
securities constitute Convertible Securities which are at the time convertible,
exercisable or exchangeable, cause such Convertible Securities deemed to be held
by the TCI Group to be deemed to be converted, exercised or exchanged (and to
the extent the terms of such Convertible Securities require payment or delivery
of consideration in order to effect such conversion, exercise or exchange, the
TCI Group will in such case no longer include an amount of the kind of
properties or assets required to be paid or delivered as such consideration for
the amount of the Convertible Securities deemed converted, exercised or
exchanged as if such Convertible Securities were outstanding), in which case
such Convertible Securities will no longer be deemed to be held by the TCI Group
or attributed to the Liberty Media Group or Telephony Group, as applicable.
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"Telephony Group" shall mean, as of any date that any shares of
Telephony Group Common Stock have been issued and continue to be outstanding:
(i) the interest of TCI or of any of its subsidiaries in TCI
Telephony Services, Inc., a Delaware corporation and an indirect wholly
owned subsidiary of TCI, or any of its subsidiaries (including any
successor thereto by merger, consolidation or sale of all or
substantially all of its assets, whether or not in connection with a
Related Business Transaction) and their respective properties and
assets;
(ii) all assets and liabilities of TCI or any of its subsidiaries
to the extent attributed to any of the properties or assets referred to
in clause (i) of this sentence, whether or not such assets or
liabilities are assets and liabilities of TCI Telephony Services, Inc.
(together with its consolidated subsidiaries) or any of its subsidiaries
(or a successor as described in clause (i) of this sentence);
(iii) all assets and properties contributed or otherwise
transferred to the Telephony Group from the TCI Group; and
(iv) the interest of TCI or any of its subsidiaries in the
businesses, assets and liabilities acquired by TCI or any of its
subsidiaries for the Telephony Group, as determined by the TCI Board;
provided that (a) from and after any dividend or other distribution with respect
to any shares of Telephony Group Common Stock (other than a dividend or other
distribution payable in shares of Telephony Group Common Stock, with respect to
which adjustment shall be made as provided in clause (i) of the definition of
"Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest," or in other securities of TCI attributed to the Telephony Group for
which provision shall be made as set forth in the penultimate sentence of this
definition), the Telephony Group shall no longer include an amount of assets or
properties equal to the aggregate amount of such kind of assets or properties so
paid in respect of shares of Telephony Group Common Stock multiplied by a
fraction the numerator of which is equal to the Telephony Group Inter-Group
Interest Fraction in effect immediately prior to the record date for such
dividend or other distribution and the denominator of which is equal to the
Telephony Group Outstanding Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution and (b) from and after any
transfer of assets or properties from the Telephony Group to the TCI Group, the
Telephony Group shall no longer include the assets or properties so transferred.
If TCI shall pay a dividend or make any other distribution with respect to
shares of Telephony Group Common Stock payable in securities of TCI attributed
to the Telephony Group other than Telephony Group Common Stock, the TCI Group
shall be deemed to hold an amount of such other securities equal to the amount
so distributed multiplied by the fraction specified in clause (i) of this
definition (determined as of a time immediately prior to the record date for
such dividend or other distribution), and to the extent interest or dividends
are paid or other distributions are made on such other securities so distributed
to the holders of Telephony Group Common Stock, the Telephony Group shall no
longer include a corresponding ratable amount of the kind of assets paid as such
interest or dividends or other distributions in respect of such securities so
deemed to be held by the TCI Group. TCI may also, to the extent any such other
securities constitute Convertible Securities which are at the time convertible,
exercisable or exchangeable, cause such Convertible Securities deemed to be held
by the TCI Group to be deemed to be converted, exercised or exchanged (and to
the extent the terms of such Convertible Securities require payment or delivery
of consideration in order to effect such conversion, exercise or exchange, the
Telephony Group shall in such case include an amount of the kind of properties
or assets required to be paid or delivered as such consideration for the amount
of the Convertible Securities deemed converted, exercised or exchanged as if
such Convertible Securities were outstanding), in which case such Convertible
Securities shall no longer be deemed to be held by the TCI Group or attributed
to the Telephony Group.
"Telephony Group Inter-Group Interest Fraction" means, as of any date, a
fraction the numerator of which is the Number of Shares Issuable with Respect to
the Telephony Group Inter-Group Interest as of such date and the denominator of
which is the sum of (a) such Number of Shares Issuable with Respect to the
Telephony Group InterGroup Interest as of such date and (b) the aggregate number
of shares of Telephony Group Common Stock outstanding as of such date.
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"Telephony Group Net Proceeds" means, as of any date, with respect to
any Disposition of any of the properties and assets of the Telephony Group, an
amount, if any, equal to the gross proceeds of such Disposition after any
payment of, or reasonable provision for, (a) any taxes payable by TCI in respect
of such Disposition or in respect of any resulting dividend or redemption
pursuant to clause (i) or (ii), respectively, of the second paragraph under
"--Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of
Telephony Group Common Stock" (or which would have been payable but for the
utilization of tax benefits attributable to the TCI Group or the Liberty Media
Group), (b) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (c) any liabilities and
other obligations (contingent or otherwise) of, or attributed to, the Telephony
Group, including, without limitation, any indemnity or guarantee obligations
incurred in connection with the Disposition or any liabilities for future
purchase price adjustments and any preferential amounts plus any accumulated and
unpaid dividends and other obligations in respect of TCI Preferred Stock
attributed to the Telephony Group. For purposes of this definition, any
properties and assets of the Telephony Group remaining after such Disposition
shall constitute "reasonable provision" for such amount of taxes, costs and
liabilities (contingent or otherwise) as can be supported by such properties and
assets. To the extent the proceeds of any Disposition include any securities or
other property other than cash, the TCI Board shall determine the value of such
securities or property, including for the purpose of determining the equivalent
value thereof if the TCI Board determines to pay a dividend or redemption price
in cash or securities or other property as provided in the third paragraph under
"--Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of
Telephony Group Common Stock."
"Telephony Group Outstanding Interest Fraction" means, as of any date, a
fraction the numerator of which is the aggregate number of shares of Telephony
Group Common Stock outstanding on such date and the denominator of which is the
sum of (a) such aggregate number of shares of Telephony Group Series A Common
Stock outstanding on such date and (b) the Number of Shares Issuable with
Respect to the Telephony Group Inter-Group Interest as of such date.
VOTING RIGHTS
Holders of TCI Group Series A Common Stock are entitled to one vote for
each share of such stock held, holders of TCI Group Series B Common Stock are
entitled to ten votes for each share of such stock held, holders of LMG Series A
Common Stock are entitled to one vote for each share of such stock held and
holders of LMG Series B Common Stock are entitled to ten votes for each share of
such stock held, on all matters presented to such stockholders. If the Telephony
Group Common Stock is issued, holders of Telephony Group Series A Common Stock
will be entitled to one vote for each share of such stock held and holders of
Telephony Group Series B Common Stock will be entitled to ten votes for each
share of such stock held, on all matters presented to such stockholders. Except
as may otherwise be required by the laws of the State of Delaware or, with
respect to any class of TCI Preferred Stock or any series of such a class, in
the TCI Charter (including any resolution or resolutions providing for the
establishment of such class or series pursuant to authority vested in the TCI
Board by the TCI Charter), the holders of TCI Group Common Stock, the holders of
LMG Common Stock, the holders of Telephony Group Common Stock, if any, and the
holders of each class or series of TCI Preferred Stock, if any, entitled to vote
thereon will vote as one class for all purposes. See "--Anti-Takeover
Considerations."
None of the holders of TCI Group Series A Common Stock, TCI Group Series
B Common Stock, LMG Series A Common Stock or LMG Series B Common Stock have,
and, if Telephony Group Common Stock is issued, none of the holders of Telephony
Group Series A Common Stock or Telephony Group Series B Common Stock would have,
any rights to vote as a separate class or series on any matter coming before the
stockholders of TCI, except with respect to certain limited class and series
voting rights provided under the DGCL. Under the DGCL, the approval of the
holders of a majority of the outstanding shares of any class of capital stock of
a corporation, voting separately as a class, is required to approve any
amendment to the charter that would alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely,
provided that, if any amendment would alter or change the powers, preferences or
special rights of one or more series of the class so as to affect them
adversely, but would not so
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affect the entire class, then only the shares of the series so affected by the
amendment would be entitled to vote thereon separately as a class.
DIVIDENDS
Subject to the prior payment of dividends on, and other rights of, any
of the outstanding shares of TCI Preferred Stock, dividends may be paid as
determined by the TCI Board (i) on the TCI Group Common Stock out of the lesser
of (x) the TCI Group Available Dividend Amount and (y) funds of TCI legally
available therefor under the DGCL, (ii) on the LMG Common Stock out of the
lesser of (x) the Liberty Media Group Available Dividend Amount and (y) funds of
TCI legally available therefor under the DGCL, and (iii) on the Telephony Group
Common Stock, if issued, out of the lesser of (x) the Telephony Group Available
Dividend Amount and (y) funds of TCI legally available therefor under the DGCL.
Under the DGCL, the amount of the funds of TCI legally available for the payment
of dividends on any series of TCI Common Stock is determined on the basis of the
entire corporation and not just the TCI Group, the Liberty Media Group or the
Telephony Group. Consequently, the amount of legally available funds will be
reduced by the amount of any net losses of the TCI Group, the Liberty Media
Group or the Telephony Group and any dividends or distributions on, or
repurchases of, the TCI Group Common Stock, the LMG Common Stock or, if issued,
the Telephony Group Common Stock, if any, and any dividends or distributions on,
or repurchases of, the TCI Group Common Stock, the LMG Common Stock or, if
issued, the Telephony Group Common Stock, if any, and dividends on, or certain
repurchases of, TCI Preferred Stock. Certain loan agreements to which certain
subsidiaries of TCI 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 also contain similar
restrictions and limits.
The "TCI Group Available Dividend Amount" means, as of any date, either
(i) the excess of (a) an amount equal to the total assets of the TCI Group less
the total liabilities (not including preferred stock) of the TCI Group as of
such date over (b) the aggregate par value of, or any greater amount determined
to be capital in respect of, all outstanding shares of TCI Group Common Stock
and each class or series of TCI Preferred Stock attributed to the TCI Group or
(ii) in case there is no such excess, an amount equal to the Corporation
Earnings (Loss) Attributable to the TCI Group (if positive) for the fiscal year
in which such date occurs and/or the preceding fiscal year. The "Corporation
Earnings (Loss) Attributable to the TCI Group," for any period, means the net
earnings or loss of the TCI Group for such period, including income and expenses
of TCI attributed to the operations of the TCI Group on a substantially
consistent basis, including, without limitation, corporate administrative costs,
net interest and income taxes. The TCI Group Available Dividend Amount is
intended to be similar to the amount that would be legally available for the
payment of dividends on the TCI Group Common Stock under the DGCL if the TCI
Group were a separate Delaware corporation. There can be no assurance that there
will be a TCI Group Available Dividend Amount.
The "Liberty Media Group Available Dividend Amount" means, as of any
date, the product of the Liberty Media Group Outstanding Interest Fraction and
either (i) the excess of (a) an amount equal to the total assets of the Liberty
Media Group less the total liabilities (not including preferred stock) of the
Liberty Media Group as of such date over (b) the aggregate par value of, or any
greater amount determined to be capital in respect of, all outstanding shares of
LMG Common Stock and each class or series of TCI Preferred Stock attributed to
the Liberty Media Group or (ii) in case there is no such excess, an amount equal
to the Corporation Earnings (Loss) Attributable to the Liberty Media Group (if
positive) for the fiscal year in which such date occurs and/or the preceding
fiscal year. The "Corporation Earnings (Loss) Attributable to the Liberty Media
Group," for any period, means the net earnings or loss of the Liberty Media
Group for such period determined on a basis consistent with the determination of
the net earnings or loss of the Liberty Media Group for such period as presented
in the combined financial statements of the Liberty Media Group, including
income and expenses of TCI attributed to the operations of the Liberty Media
Group on a substantially consistent basis, including, without limitation,
corporate administrative costs, net interest and income taxes. The Liberty Media
Group Available Dividend Amount is intended to be similar to the amount that
would be legally available for the payment of dividends on the LMG Common Stock
under the DGCL if the Liberty Media Group were a separate Delaware corporation.
There is no assurance that there will be a Liberty Media Group Available
Dividend Amount.
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The "Telephony Group Available Dividend Amount" means, as of any date,
the product of the Telephony Group Outstanding Interest Fraction and either (i)
the excess of (a) an amount equal to the total assets of the Telephony Group
less the total liabilities (not including preferred stock) of the Telephony
Group as of such date over (b) the aggregate par value of, or any greater amount
determined to be capital in respect of, all outstanding shares of Telephony
Group Common Stock and each class or series of TCI Preferred Stock attributed to
the Telephony Group or (ii) in case there is no such excess, an amount equal to
the Corporation Earnings (Loss) Attributable to the Telephony Group (if
positive) for the fiscal year in which such date occurs and/or the preceding
fiscal year. The "Corporation Earnings (Loss) Attributable to the Telephony
Group," for any period, means the net earnings or loss of the Telephony Group
for such period determined on a basis consistent with the determination of the
net earnings or loss of the Telephony Group for such period as presented in the
combined financial statements of the Telephony Group, including income and
expenses of TCI attributed to the operations of the Telephony Group on a
substantially consistent basis, including, without limitation, corporate
administrative costs, net interest and income taxes. The Telephony Group
Available Dividend Amount is intended to be similar to the amount that would be
legally available for the payment of dividends on the Telephony Group Common
Stock under the DGCL if the Telephony Group were a separate Delaware
corporation. There can be no assurance that there will be a Telephony Group
Available Dividend Amount.
Except for dividends declared or paid as described below under "--Share
Distributions" and "--Conversion and Redemption--Mandatory Dividend, Redemption
or Conversion of LMG Common Stock," any dividends paid on the TCI Group Series A
Common Stock or the TCI Group Series B Common Stock will be paid only on both
series, in equal amounts per share; any dividends paid on the LMG Series A
Common Stock or the LMG Series B Common Stock will be paid only on both series,
in equal amounts per share; and, if Telephony Group Common Stock is issued, any
dividends paid on the Telephony Group Series A Common Stock or the Telephony
Group Series B Common Stock will be paid only on both series, in equal amounts
per share.
The TCI Board, subject to the provisions described above and under
"--Share Distributions" below, has the authority and discretion to declare and
pay dividends on the TCI Group Common Stock, the LMG Common Stock or, if issued,
the Telephony Group Common Stock, in equal or unequal amounts, notwithstanding
the relationship between the TCI Group Available Dividend Amount, the Liberty
Media Group Available Dividend Amount and the Telephony Group Available Dividend
Amount , the respective amounts of prior dividends declared on, or liquidation
rights of, the TCI Group Common Stock, the LMG Common Stock or, if issued, the
Telephony Group Common Stock or any other factor.
At the time of any dividend or other distribution on the outstanding
shares of LMG Common Stock (including any dividend of Liberty Media Group Net
Proceeds from the Disposition of all or substantially all of the properties and
assets of the Liberty Media Group as described below under "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of LMG Common Stock"),
the TCI Group will (if at such time there is an Inter-Group Interest in the
Liberty Media Group) be credited, and the Liberty Media Group will be charged
(in addition to the charge for the dividend or other distribution paid or
distributed in respect of outstanding shares of LMG Common Stock), with an
amount equal to the product of (i) the aggregate amount of such dividend or
distribution paid or distributed in respect of outstanding shares of LMG Common
Stock times (ii) a fraction the numerator of which is the Liberty Media Group
Inter-Group Interest Fraction and the denominator of which is the Liberty Media
Group Outstanding Interest Fraction.
If Telephony Group Common Stock is issued, at the time of any dividend
or other distribution on the outstanding shares of Telephony Group Common Stock
(including any dividend of Telephony Group Net Proceeds from the Disposition of
all or substantially all of the properties and assets of the Telephony Group as
described under "--Conversion and Redemption--Mandatory Dividend, Redemption or
Conversion of Telephony Group Common Stock"), the TCI Group will (if at such
time there is an Inter-Group Interest in the Telephony Group) be credited, and
the Telephony Group will be charged (in addition to the charge for the dividend
or other distribution paid or distributed in respect of outstanding shares of
Telephony Group Common Stock), with an amount equal to the product of (i) the
aggregate amount of such dividend or distribution paid or distributed in respect
of outstanding shares of Telephony Group Common Stock times (ii) a fraction the
numerator of which is the Telephony Group Inter-Group Interest Fraction and the
denominator of which is the Telephony Group Outstanding Interest Fraction.
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SHARE DISTRIBUTIONS
Distributions on TCI Group Common Stock. If at any time after the LMG
Distribution and the initial issuance of shares of Telephony Group Common Stock
a distribution is to be made with respect to the TCI Group Common Stock in TCI
Group Common Stock, LMG Common Stock, Telephony Group Common Stock, or any other
securities of TCI or any other person (a "share distribution"), such share
distribution will be declared and paid only as follows:
(i) a share distribution consisting of shares of TCI Group Series
A Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of TCI Group Series A Common
Stock) to holders of TCI Group Series A Common Stock and TCI Group
Series B Common Stock, on an equal per share basis; or consisting of
shares of TCI Group Series B Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of TCI Group
Series B Common Stock) to holders of TCI Group Series A Common Stock and
TCI Group Series B Common Stock, on an equal per share basis; or
consisting of shares of TCI Group Series A Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for shares of
TCI Group Series A Common Stock) to holders of TCI Group Series A Common
Stock and, on an equal per share basis, shares of TCI Group Series B
Common Stock (or like Convertible Securities convertible into or
exercisable or exchangeable for shares of TCI Group Series B Common
Stock) to holders of TCI Group Series B Common Stock;
(ii) a share distribution consisting of shares of LMG Series A
Common Stock (or Convertible Securities convertible into or exercisable
or exchangeable for shares of LMG Series A Common Stock) to holders of
TCI Group Series A Common Stock and TCI Group Series B Common Stock, on
an equal per share basis; provided that the sum of (A) the aggregate
number of shares of LMG Series A Common Stock to be so issued (or the
number of such shares which would be issuable upon conversion, exercise
or exchange of any Convertible Securities to be so issued) and (B) the
number of shares of such series that are subject to issuance upon
conversion, exercise or exchange of any Convertible Securities then
outstanding that are attributed to the TCI Group (other than
Pre-Distribution Convertible Securities and other than Convertible
Securities convertible into or exercisable or exchangeable for Committed
Acquisition Shares) is less than or equal to the Number of Shares
Issuable with Respect to the Liberty Media Group Inter-Group Interest;
(iii) a share distribution consisting of shares of Telephony
Group Series A Common Stock (or Convertible Securities convertible into
or exercisable or exchangeable for shares of Telephony Group Series A
Common Stock) to holders of TCI Group Series A Common Stock and TCI
Group Series B Common Stock, on an equal per share basis; or consisting
of shares of Telephony Group Series B Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for shares of
Telephony Group Series B Common Stock) to holders of TCI Group Series A
Common Stock and TCI Group Series B Common Stock, on an equal per share
basis; or consisting of shares of Telephony Group Series A Common Stock
(or Convertible Securities convertible into or exercisable or
exchangeable for shares of Telephony Group Series A Common Stock) to
holders of TCI Group Series A Common Stock and, on an equal per share
basis, shares of Telephony Group Series B Common Stock (or like
Convertible Securities convertible into or exercisable or exchangeable
for shares of Telephony Group Series B Common Stock) to holders of TCI
Group Series B Common Stock; provided that the sum of (A) the aggregate
number of shares of Telephony Group Series A Common Stock and Telephony
Group Series B Common Stock to be so issued (or the number of such
shares which would be issuable upon conversion, exercise or exchange of
any Convertible Securities to be so issued) and (B) the number of shares
of Telephony Group Series A Common Stock that are subject to issuance
upon conversion, exercise or exchange of any Convertible Securities then
outstanding that are attributed to the TCI Group is less than or equal
to the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest; and
(iv) a share distribution consisting of any class or series of
securities of TCI or any other person other than TCI Group Common Stock,
LMG Common Stock or Telephony Group Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for shares of
TCI Group Common Stock,
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LMG Common Stock or Telephony Group Common Stock), either on the basis
of a distribution of identical securities, on an equal per share basis,
to holders of TCI Group Series A Common Stock and TCI Group Series B
Common Stock or on the basis of a distribution of one class or series of
securities to holders of TCI Group Series A Common Stock and another
class or series of securities to holders of TCI Group Series B Common
Stock, provided that the securities so distributed (and, if the
distribution consists of Convertible Securities, the securities into
which such Convertible Securities are convertible or for which they are
exercisable or exchangeable) do not differ in any respect other than
their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders
of shares of TCI Group Series B Common Stock receiving the class or
series having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the TCI Group
Series A Common Stock and the TCI Group Series B Common Stock), provided
that if the securities so distributed constitute capital stock of a
subsidiary of TCI, such rights will not differ to a greater extent than
the corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the TCI Group
Series A Common Stock and the TCI Group Series B Common Stock, and
provided in each case that such distribution is otherwise made on an
equal per share basis.
TCI will not reclassify, subdivide or combine the TCI Group Series A
Common Stock without reclassifying, subdividing or combining the TCI Group
Series B Common Stock, on an equal per share basis, and TCI will not reclassify,
subdivide or combine the TCI Group Series B Common Stock without reclassifying,
subdividing or combining the TCI Group Series A Common Stock, on an equal per
share basis.
Distributions on LMG Common Stock. If at any time a share distribution
is to be made with respect to the LMG Common Stock, such share distribution will
be declared and paid only as follows (or as described under the caption
"--Conversion and Redemption" with respect to the redemptions and other
distributions referred to therein):
(i) a share distribution consisting of shares of LMG Series A
Common Stock (or Convertible Securities convertible into or exercisable
or exchangeable for shares of LMG Series A Common Stock) to holders of
LMG Series A Common Stock and LMG Series B Common Stock, on an equal per
share basis; or consisting of shares of LMG Series B Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of LMG Series B Common Stock) to holders of LMG Series A
Common Stock and LMG Series B Common Stock, on an equal per share basis;
or consisting of shares of LMG Series A Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for shares of
LMG Series A Common Stock) to holders of LMG Series A Common Stock and,
on an equal per share basis, shares of LMG Series B Common Stock (or
like Convertible Securities convertible into or exercisable or
exchangeable for shares of LMG Series B Common Stock) to holders of LMG
Series B Common Stock; and
(i) a share distribution consisting of any class or series of
securities of TCI or any other person other than as described in the
immediately preceding clause (i) and other than TCI Group Common Stock
or Telephony Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of TCI Group Series A
Common Stock, TCI Group Series B Common Stock, Telephony Group Series A
Common Stock or Telephony Group Series B Common Stock), either on the
basis of a distribution of identical securities, on an equal per share
basis, to holders of LMG Series A Common Stock and LMG Series B Common
Stock or on the basis of a distribution of one class or series of
securities to holders of LMG Series A Common Stock and another class or
series of securities to holders of LMG Series B Common Stock, provided
that the securities so distributed (and, if the distribution consists of
Convertible Securities, the securities into which such Convertible
Securities are convertible or for which they are exercisable or
exchangeable) do not differ in any respect other than their relative
voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares of
LMG Series B Common Stock receiving the class or series having the
higher relative voting rights (without regard to whether such rights
differ to a greater or lesser extent than the corresponding differences
in voting rights, designation, conversion, redemption and share
distribution provisions between the LMG Series A Common
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Stock and the LMG Series B Common Stock), provided that if the
securities so distributed constitute capital stock of a subsidiary of
TCI, such rights will not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the LMG Series A
Common Stock and the LMG Series B Common Stock, and provided in each
case that such distribution is otherwise made on an equal per share
basis.
TCI will not reclassify, subdivide or combine the LMG Series A Common
Stock without reclassifying, subdividing or combining the LMG Series B Common
Stock, on an equal per share basis, and TCI will not reclassify, subdivide or
combine the LMG Series B Common Stock without reclassifying, subdividing or
combining the LMG Series A Common Stock, on an equal per share basis.
Distributions on Telephony Group Common Stock. If Telephony Group Common
Stock is issued, and if at any time a share distribution is to be made with
respect to the Telephony Group Common Stock, such share distribution will be
declared and paid only as follows (or as described under the caption
"--Conversion and Redemption" with respect to the redemptions and other
distributions referred to therein):
(i) a share distribution consisting of shares of Telephony Group
Series A Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Telephony Group Series A
Common Stock) to holders of Telephony Group Series A Common Stock and
Telephony Group Series B Common Stock, on an equal per share basis; or
consisting of shares of Telephony Group Series B Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Telephony Group Series B Common Stock) to holders of
Telephony Group Series A Common Stock and Telephony Group Series B
Common Stock, on an equal per share basis; or consisting of shares of
Telephony Group Series A Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Telephony
Group Series A Common Stock) to holders of Telephony Group Series A
Common Stock and, on an equal per share basis, shares of Telephony Group
Series B Common Stock (or like Convertible Securities convertible into
or exercisable or exchangeable for shares of Telephony Group Series B
Common Stock) to holders of Telephony Group Series B Common Stock; and
(ii) a share distribution consisting of any class or series of
securities of TCI or any other person other than as described in the
immediately preceding clause (i) and other than TCI Group Common Stock
or LMG Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of TCI Group Common Stock or LMG
Common Stock), either on the basis of a distribution of identical
securities, on an equal per share basis, to holders of Telephony Group
Series A Common Stock and Telephony Group Series B Common Stock or on
the basis of a distribution of one class or series of securities to
holders of Telephony Group Series A Common Stock and another class or
series of securities to holders of Telephony Group Series B Common
Stock, provided that the securities so distributed (and, if the
distribution consists of Convertible Securities, the securities into
which such Convertible Securities are convertible or for which they are
exercisable or exchangeable) do not differ in any respect other than
their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders
of shares of Telephony Group Series B Common Stock receiving the class
or series having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Telephony Group
Series A Common Stock and the Telephony Group Series B Common Stock),
provided that if the securities so distributed constitute capital stock
of a subsidiary of TCI, such rights will not differ to a greater extent
than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the
Telephony Group Series A Common Stock and the Telephony Group Series B
Common Stock, and provided in each case that such distribution is
otherwise made on an equal per share basis.
Because under the TCI Charter the Telephony Group is not permitted to
have an Inter-Group Interest in either the TCI Group or the Liberty Media Group,
no distributions on the Telephony Group Common Stock of shares of TCI
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Group Common Stock (or related Convertible Securities) or LMG Common Stock (or
related Convertible Securities) are permitted.
TCI will not reclassify, subdivide or combine the Telephony Group Series
A Common Stock without reclassifying, subdividing or combining the Telephony
Group Series B Common Stock, on an equal per share basis, and TCI will not
reclassify, subdivide or combine the Telephony Group Series B Common Stock
without reclassifying, subdividing or combining the Telephony Group Series A
Common Stock, on an equal per share basis.
CONVERSION AND REDEMPTION
Conversion at the Option of the Holder. Each share of TCI Group Series B
Common Stock is convertible, at the option of the holder thereof, into one share
of TCI Group Series A Common Stock. Each share of LMG Series B Common Stock is
convertible, at the option of the holder thereof, into one share of LMG Series A
Common Stock. If Telephony Group Common Stock is issued, each share of Telephony
Group Series B Common Stock would be convertible, at the option of the holder
thereof, into one share of Telephony Group Series A Common Stock. Shares of TCI
Group Series A Common Stock are not convertible into shares of TCI Group Series
B Common Stock; shares of LMG Series A Common Stock are not convertible into
shares of LMG Series B Common Stock; and, if Telephony Group Common Stock is
issued, shares of Telephony Group Series A Common Stock would not be convertible
into shares of Telephony Group Series B Common Stock.
Conversion of LMG Common Stock at the Option of TCI. The TCI Board may
at any time declare that (i) all of the outstanding shares of LMG Series A
Common Stock will be converted into a number (or fraction) of fully paid and
nonassessable shares of TCI Group Series A Common Stock equal to the Liberty
Media Group Optional Conversion Ratio, and (ii) all of the outstanding shares of
LMG Series B Common Stock will be converted into a number (or fraction) of fully
paid and nonassessable shares of TCI Group Series B Common Stock equal to the
Liberty Media Group Optional Conversion Ratio. As more fully described below,
the Liberty Media Group Optional Conversion Ratio is the ratio of the private
market value of a share of LMG Common Stock determined by appraisal to the
public trading price of a share of TCI Group Common Stock.
Under the TCI Charter, the "Liberty Media Group Optional Conversion
Ratio" means the quotient (calculated to the nearest five decimal places)
obtained by dividing (x) the LMG Common Stock Per Share Value by (y) the average
Market Value of one share of TCI Group Series A Common Stock over the 20-trading
day period ending on the trading day preceding the Appraisal Date. The LMG
Common Stock Per Share Value will equal the quotient obtained by dividing the
Liberty Media Group Private Market Value by the Adjusted Outstanding Shares of
LMG Common Stock, which will be determined in the manner described below.
The "Liberty Media Group Private Market Value" means an amount equal to
the private market value of the Liberty Media Group as of the Appraisal Date. In
the event that TCI determines to establish the Liberty Media Group Private
Market Value, TCI shall designate the First Appraiser and the Independent
Committee shall designate the Second Appraiser. Not later than 20 days after the
Selection Date, the First Appraiser and the Second Appraiser will each determine
its initial view as to the private market value of the Liberty Media Group as of
the Appraisal Date and will consult with one another with respect thereto. Not
later than the 30th day after the Selection Date, the First Appraiser and the
Second Appraiser will each have determined its final view as to such private
market value. If the Higher Appraised Amount is not more than 120% of the Lower
Appraised Amount, the Liberty Media Group Private Market Value (subject to any
adjustment described in the second succeeding paragraph) will be the average of
those two amounts. If the Higher Appraised Amount is more than 120% of the Lower
Appraised Amount, the First Appraiser and the Second Appraiser will agree upon
and jointly designate the Mutually Designated Appraiser to determine such
private market value. The Mutually Designated Appraiser will not be provided
with any of the work of the First Appraiser and the Second Appraiser. The
Mutually Designated Appraiser will, no later than the 20th day after the date
the Mutually Designated Appraiser is designated, determine the Mutually
Appraised Amount, and the Liberty Media Group Private Market Value (subject to
any adjustment described in the second succeeding paragraph) will be (i) if the
Mutually Appraised Amount is between the Lower Appraised Amount and the Higher
Appraised Amount, (a) the average of (1)
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the Mutually Appraised Amount and (2) the Lower Appraised Amount or the Higher
Appraised Amount, whichever is closer to the Mutually Appraised Amount, or (b)
the Mutually Appraised Amount, if neither the Lower Appraised Amount nor the
Higher Appraised Amount is closer to the Mutually Appraised Amount, or (ii) if
the Mutually Appraised Amount is greater than the Higher Appraised Amount or
less than the Lower Appraised Amount, the average of the Higher Appraised Amount
and the Lower Appraised Amount. For these purposes, if any such investment
banking firm expresses its final view of the private market value of the Liberty
Media Group as a range of values, such investment banking firm's final view of
such private market value will be deemed to be the midpoint of such range of
values.
Each of the investment banking firms referred to in the immediately
preceding paragraph will be instructed to determine the private market value of
the Liberty Media Group as of the Appraisal Date based upon the amount a willing
purchaser would pay to a willing seller, in an arm's-length transaction, if it
were acquiring the Liberty Media Group, as if the Liberty Media Group were a
publicly traded non-controlled corporation and the purchaser was acquiring all
of the capital stock of such corporation and without consideration of any
potential regulatory constraints limiting the potential purchasers of the
Liberty Media Group other than that which would have existed if the Liberty
Media Group were a publicly traded non-controlled entity.
Following the determination of the Liberty Media Group Private Market
Value, the investment banking firms whose final views of the private market
value of the Liberty Media Group were used in the calculation of the Liberty
Media Group Private Market Value will determine the Adjusted Outstanding Shares
of LMG Common Stock together with any further appropriate adjustments to the
Liberty Media Group Private Market Value resulting from such determination. The
"Adjusted Outstanding Shares of LMG Common Stock" means a number, as determined
by such investment banking firms as of the Appraisal Date, equal to the sum of
the number of shares of LMG Common Stock outstanding, the Number of Shares
Issuable with Respect to the Liberty Media Group Inter-Group Interest, the
number of Committed Acquisition Shares issuable, the number of shares of LMG
Common Stock issuable upon the conversion, exercise or exchange of all
Pre-Distribution Convertible Securities and the number of shares of LMG Common
Stock issuable upon the conversion, exercise or exchange of those Convertible
Securities (other than Pre-Distribution Convertible Securities and other than
Convertible Securities which are convertible into or exercisable or exchangeable
for Committed Acquisition Shares) the holders of which would derive an economic
benefit from conversion, exercise or exchange of such Convertible Securities
which exceeds the economic benefit of not converting, exercising or exchanging
such Convertible Securities. The "LMG Common Stock Per Share Value" means the
quotient obtained by dividing the Liberty Media Group Private Market Value by
the Adjusted Outstanding Shares of LMG Common Stock, provided that if such
investment banking firms do not agree on the determinations provided for in this
paragraph, the LMG Common Stock Per Share Value will be the average of the
quotients so obtained on the basis of the respective determinations of such
firms.
If TCI determines to convert shares of LMG Series A Common Stock into
TCI Group Series A Common Stock and shares of LMG Series B Common Stock into TCI
Group Series B Common Stock at the Liberty Media Group Optional Conversion
Ratio, such conversion will occur on a conversion date on or prior to the 120th
day following the Appraisal Date. If TCI determines not to undertake such
conversion, TCI may at any time thereafter undertake to reestablish the LMG
Common Stock Per Share Value as of a subsequent date.
Conversion of Telephony Group Common Stock at the Option of TCI. If
Telephony Group Common Stock is issued, the TCI Board may at any time declare
that (i) all of the outstanding shares of Telephony Group Series A Common Stock
will be converted into a number (or fraction) of fully paid and nonassessable
shares of TCI Group Series A Common Stock equal to the Telephony Group Optional
Conversion Ratio, and (ii) all of the outstanding shares of Telephony Group
Series B Common Stock will be converted into a number (or fraction) of fully
paid and nonassessable shares of TCI Group Series B Common Stock equal to the
Telephony Group Optional Conversion Ratio. As more fully described below, the
Telephony Group Optional Conversion Ratio is the ratio of the private market
value of a share of Telephony Group Common Stock determined by appraisal to the
public trading price of a share of TCI Group Common Stock.
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Under the TCI Charter, the "Telephony Group Optional Conversion Ratio"
means the quotient (calculated to the nearest five decimal places) obtained by
dividing (x) the Telephony Group Common Stock Per Share Value by (y) the average
Market Value of one share of TCI Group Series A Common Stock over the 20-trading
day period ending on the trading day preceding the Appraisal Date. The Telephony
Group Common Stock Per Share Value will equal the quotient obtained by dividing
the Telephony Group Private Market Value by the Adjusted Outstanding Shares of
Telephony Group Common Stock, which will be determined in the manner provided
below.
The "Telephony Group Private Market Value" means an amount equal to the
private market value of the Telephony Group as of the Appraisal Date. In the
event that TCI determines to establish the Telephony Group Private Market Value,
TCI shall designate the First Appraiser and the Independent Committee shall
designate the Second Appraiser. Not later than 20 days after the Selection Date,
the First Appraiser and the Second Appraiser will each determine its initial
view as to the private market value of the Telephony Group as of the Appraisal
Date and will consult with one another with respect thereto. Not later than the
30th day after the Selection Date, the First Appraiser and the Second Appraiser
will each have determined its final view as to such private market value. If the
Higher Appraised Amount is not more than 120% of the Lower Appraised Amount, the
Telephony Group Private Market Value (subject to any adjustment described in the
second succeeding paragraph) will be the average of those two amounts. If the
Higher Appraised Amount is more than 120% of the Lower Appraised Amount, the
First Appraiser and the Second Appraiser will agree upon and jointly designate
the Mutually Designated Appraiser to determine such private market value. The
Mutually Designated Appraiser will not be provided with any of the work of the
First Appraiser and the Second Appraiser. The Mutually Designated Appraiser
will, no later than the 20th day after the date the Mutually Designated
Appraiser is designated, determine the Mutually Appraised Amount, and the
Telephony Group Private Market Value (subject to any adjustment described in the
second succeeding paragraph) will be (i) if the Mutually Appraised Amount is
between the Lower Appraised Amount and the Higher Appraised Amount, (a) the
average of (1) the Mutually Appraised Amount and (2) the Lower Appraised Amount
or the Higher Appraised Amount, whichever is closer to the Mutually Appraised
Amount, or (b) the Mutually Appraised Amount, if neither the Lower Appraised
Amount nor the Higher Appraised Amount is closer to the Mutually Appraised
Amount, or (ii) if the Mutually Appraised Amount is greater than the Higher
Appraised Amount or less than the Lower Appraised Amount, the average of the
Higher Appraised Amount and the Lower Appraised Amount. For these purposes, if
any such investment banking firm expresses its final view of the private market
value of the Telephony Group as a range of values, such investment banking
firm's final view of such private market value will be deemed to be the midpoint
of such range of values.
Each of the investment banking firms referred to in the immediately
preceding paragraph will be instructed to determine the private market value of
the Telephony Group as of the Appraisal Date based upon the amount a willing
purchaser would pay to a willing seller, in an arm's-length transaction, if it
were acquiring the Telephony Group, as if the Telephony Group were a publicly
traded non-controlled corporation and the purchaser was acquiring all of the
capital stock of such corporation and without consideration of any potential
regulatory constraints limiting the potential purchasers of the Telephony Group
other than that which would have existed if the Telephony Group were a publicly
traded non-controlled entity.
Following the determination of the Telephony Group Private Market Value,
the investment banking firms whose final views of the private market value of
the Telephony Group were used in the calculation of the Telephony Group Private
Market Value will determine the Adjusted Outstanding Shares of Telephony Group
Common Stock together with any further appropriate adjustments to the Telephony
Group Private Market Value resulting from such determination. The "Adjusted
Outstanding Shares of Telephony Group Common Stock" means a number, as
determined by such investment banking firms as of the Appraisal Date, equal to
the sum of the number of shares of Telephony Group Common Stock outstanding, the
Number of Shares Issuable with Respect to the Telephony Group Inter-Group
Interest, and the number of shares of Telephony Group Common Stock issuable upon
the conversion, exercise or exchange of those Convertible Securities the holders
of which would derive an economic benefit from conversion, exercise or exchange
of such Convertible Securities which exceeds the economic benefit of not
converting, exercising or exchanging such Convertible Securities. The "Telephony
Group Common Stock Per Share Value" means the quotient obtained by dividing the
Telephony Group Private Market Value by the Adjusted Outstanding Shares of
Telephony Group Common Stock, provided that if such investment banking firms do
not agree on the determinations
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provided for in this paragraph, the Telephony Group Common Stock Per Share Value
will be the average of the quotients so obtained on the basis of the respective
determinations of such firms.
If TCI determines to convert shares of Telephony Group Series A Common
Stock into TCI Group Series A Common Stock and shares of Telephony Group Series
B Common Stock into TCI Group Series B Common Stock at the Telephony Group
Optional Conversion Ratio, such conversion will occur on a conversion date on or
prior to the 120th day following the Appraisal Date. If TCI determines not to
undertake such conversion, TCI may at any time thereafter undertake to
reestablish the Telephony Group Common Stock Per Share Value as of a subsequent
date.
Any such conversion would dilute the interests of holders of TCI Group
Common Stock and would preclude holders of Telephony Group Common Stock from
retaining their interest in a security reflecting separately the business of the
Telephony Group.
Mandatory Dividend, Redemption or Conversion of LMG Common Stock. Upon
the Disposition, in one transaction or a series of related transactions by TCI
and its subsidiaries of all or substantially all of the properties and assets of
the Liberty Media Group to one or more persons, entities or groups TCI is
required, on or prior to the 85th trading day following the consummation of such
Disposition, to take one of the actions listed in the following paragraph. This
requirement does not apply to a Disposition (a) in connection with the
Disposition by TCI of all of TCI's properties and assets in one transaction or a
series of related transactions in connection with the liquidation, dissolution
or winding up of TCI, (b) by dividend, other distribution or redemption in
accordance with any provision described under "--Redemption of LMG Common Stock
in Exchange for Stock of Subsidiary," "--Dividends," "--Share Distributions," or
"--Liquidation Rights," (c) to any person, entity or group which TCI, directly
or indirectly, after giving effect to the Disposition, controls or (d) in
connection with a Related Business Transaction). For these purposes,
"substantially all of the properties and assets of the Liberty Media Group"
means a portion of such properties and assets that represents at least 80% of
the then-current market value (as determined by the TCI Board) of the properties
and assets of the Liberty Media Group as of such date.
The action TCI is required to take is to either:
(i) subject to the limitations described under "--Dividends,"
declare and pay a dividend in cash and/or securities or other property
(other than a dividend or distribution of TCI Common Stock) to the
holders of the outstanding shares of LMG Common Stock equally on a share
for share basis (subject to the provisions described in the last
sentence of the penultimate paragraph under this caption "--Mandatory
Dividend, Redemption or Conversion of LMG Common Stock"), in an
aggregate amount equal to the product of the Liberty Media Group
Outstanding Interest Fraction as of the record date for determining the
holders entitled to receive such dividend and the Liberty Media Group
Net Proceeds;
(i) provided that there are assets of TCI legally available
therefor and the Liberty Media Group Available Dividend Amount would
have been sufficient to pay a dividend in lieu thereof as described in
clause (i) of this paragraph, then:
(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the Liberty
Media Group, redeem all outstanding shares of LMG Series A Common
Stock and LMG Series B Common Stock in exchange for cash and/or
securities or other property (other than TCI Common Stock) in an
aggregate amount equal to the product of the Adjusted Liberty
Media Group Outstanding Interest Fraction as of the date of such
redemption and the Liberty Media Group Net Proceeds, such
aggregate amount to be allocated (subject to the provisions
described in the last sentence of the penultimate paragraph under
this caption) to shares of LMG Series A Common Stock and LMG
Series B Common Stock in the ratio of the number of shares of
each such series outstanding (so that the amount of consideration
paid for the redemption of each share of LMG Series A Common
Stock and each share of LMG Series B Common Stock is the same);
or
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(B) if such Disposition involves substantially all (but
not all) of the properties and assets of the Liberty Media Group,
apply an aggregate amount of cash and/or securities or other
property (other than TCI Common Stock) equal to the product of
the Liberty Media Group Outstanding Interest Fraction as of the
date shares are selected for redemption and the Liberty Media
Group Net Proceeds of such Disposition to the redemption of
outstanding shares of LMG Series A Common Stock and LMG Series B
Common Stock, such aggregate amount to be allocated (subject to
the provisions described in the last sentence of the penultimate
paragraph under this caption) to shares of LMG Series A Common
Stock and LMG Series B Common Stock in the ratio of the number of
shares of each such series outstanding, and the number of shares
of each such series to be redeemed to equal the lesser of (x) the
whole number nearest the number determined by dividing the
aggregate amount so allocated to the redemption of such series by
the average Market Value of one share of LMG Series A Common
Stock during the ten-trading day period beginning on the 16th
trading day following the consummation of such Disposition and
(y) the number of shares of such series outstanding (so that the
amount of consideration paid for the redemption of each share of
LMG Series A Common Stock and each share of LMG Series B Common
Stock is the same); or
(i) convert (A) each outstanding share of LMG Series A Common
Stock into a number (or fraction) of fully paid and nonassessable shares
of TCI Group Series A Common Stock and (B) each outstanding share of LMG
Series B Common Stock into a number (or fraction) of fully paid and
nonassessable shares of TCI Group Series B Common Stock, in each case
equal to 110% of the average daily ratio (calculated to the nearest five
decimal places) of the Market Value of one share of LMG Series A Common
Stock to the Market Value of one share of TCI Group Series A Common
Stock during the ten-trading day period referred to in clause (ii)(B) of
this paragraph.
The "Adjusted Liberty Media Group Outstanding Interest Fraction" means a
fraction the numerator of which is the number of outstanding shares of LMG
Common Stock and the denominator of which is the sum of (a) such number of
outstanding shares, (b) the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest, (c) the number of shares of LMG Common
Stock issuable upon conversion, exercise or exchange of Pre-Distribution
Convertible Securities and (d) the number of Committed Acquisition Shares
issuable.
TCI may elect to pay the dividend or redemption price referred to in
clause (i) or (ii) of the second paragraph under this caption "--Mandatory
Dividend, Redemption or Conversion or LMG Common Stock" either in the same form
as the proceeds of the Disposition were received or in any other combination of
cash or securities or other property (other than Common Stock) that the TCI
Board determines will have an aggregate market value on a fully distributed
basis, of not less than the amount of the Liberty Media Group Net Proceeds. If
the dividend or redemption price is paid in the form of securities of an issuer
other than TCI, the TCI Board may determine either to (i) pay the dividend or
redemption price in the form of separate classes or series of securities, with
one class or series of such securities to holders of LMG Series A Common Stock
and another class or series of securities to holders of LMG Series B Common
Stock, provided that such securities (and, if such securities are convertible
into or exercisable or exchangeable for shares of another class or series of
securities, the securities so issuable upon such conversion, exercise or
exchange) do not differ in any respect other than their relative voting rights
and related differences in designation, conversion, redemption and share
distribution provisions with holders of shares of LMG Series B Common Stock
receiving the class or series having the higher relative voting rights (without
regard to whether such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion, redemption
and share distribution provisions between the LMG Series A Common Stock and the
LMG Series B Common Stock), provided that if such securities constitute capital
stock of a subsidiary of TCI, such rights will not differ to a greater extent
than the corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the LMG Series A Common
Stock and the LMG Series B Common Stock, and otherwise such securities will be
distributed on an equal per share basis, or (ii) pay the dividend or redemption
price in the form of a single class of securities without distinction between
the shares received by the holders of LMG Series A Common Stock and LMG Series B
Common Stock.
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At the time of any dividend made as a result of a Disposition referred
to above, the TCI Group will be credited, and the Liberty Media Group will be
charged (in addition to the charge for the dividend paid in respect of
outstanding shares of LMG Common Stock), with an amount equal to the product of
(i) the aggregate amount paid in respect of such dividend times (ii) a fraction
the numerator of which is the Liberty Media Group Inter-Group Interest Fraction
and the denominator of which is the Liberty Media Group Outstanding Interest
Fraction.
Mandatory Dividend, Redemption or Conversion of Telephony Group Common
Stock. If Telephony Group Common Stock is issued, upon the Disposition in one
transaction or a series of related transactions by TCI and its subsidiaries of
all or substantially all of the properties and assets of the Telephony Group to
any one or more persons, entities or groups, TCI is required, on or prior to the
85th trading day following the consummation of such Disposition, to take one of
the actions listed in the following paragraph. This requirement does not apply
to a Disposition (a) in connection with the Disposition by TCI of all of TCI's
properties and assets in one transaction or a series of related transactions in
connection with the liquidation, dissolution or winding up of TCI, (b) by
dividend, other distribution or redemption in accordance with any provision
described under "--Redemption of Telephony Group Common Stock in Exchange for
Stock of Subsidiary" "--Dividends," "--Share Distributions," or "--Liquidation
Rights," (c) to any person, entity or group which TCI, directly or indirectly,
after giving effect to the Disposition, controls or (d) in connection with a
Related Business Transaction). For these purposes, "substantially all of the
properties and assets of the Telephony Group" means a portion of such properties
and assets that represents at least 80% of the then-current market value (as
determined by the TCI Board) of the properties and assets of the Telephony Group
as of such date.
The action TCI is required to take is to either:
(i) subject to the limitations described above under
"--Dividends," declare and pay a dividend in cash and/or securities or
other property (other than a dividend or distribution of TCI Common
Stock) to the holders of the outstanding shares of Telephony Group
Common Stock equally on a share for share basis (subject to the
provisions described in the last sentence of the third paragraph under
this caption "--Mandatory Dividends, Redemption or Conversion of
Telephony Group Common Stock," in an aggregate amount equal to the
product of the Telephony Group Outstanding Interest Fraction as of the
record date for determining the holders entitled to receive such
dividend and the Telephony Group Net Proceeds;
(ii) provided that there are assets of TCI legally available
therefor and the Telephony Group Available Dividend Amount would have
been sufficient to pay a dividend in lieu thereof as described in clause
(i) of this paragraph, then:
(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the Telephony
Group, redeem all outstanding shares of Telephony Group Series A
Common Stock and Telephony Group Series B Common Stock in
exchange for cash and/or securities or other property (other than
TCI Common Stock) in an aggregate amount equal to the product of
the Telephony Group Outstanding Interest Fraction as of the date
of such redemption and the Telephony Group Net Proceeds, such
aggregate amount to be allocated (subject to the provisions
described in the last sentence of the following paragraph) to
shares of Telephony Group Series A Common Stock and Telephony
Group Series B Common Stock in the ratio of the number of shares
of each such series outstanding (so that the amount of
consideration paid for the redemption of each share of Telephony
Group Series A Common Stock and each share of Telephony Group
Series B Common Stock is the same); or
(B) if such Disposition involves substantially all (but
not all) of the properties and assets of the Telephony Group,
apply an aggregate amount of cash and/or securities or other
property (other than TCI Common Stock) equal to the product of
the Telephony Group Outstanding Interest Fraction as of the date
shares are selected for redemption and the Telephony Group Net
Proceeds of such Disposition to the redemption of outstanding
shares of Telephony Group Series A Common Stock and Telephony
Group Series B Common Stock, such aggregate amount to be
allocated (subject to the
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provisions described in the last sentence of the following
paragraph) to shares of Telephony Group Series A Common Stock and
Telephony Group Series B Common Stock in the ratio of the number
of shares of each such series outstanding, and the number of
shares of each such series to be redeemed to equal the lesser of
(x) the whole number nearest the number determined by dividing
the aggregate amount so allocated to the redemption of such
series by the average Market Value of one share of Telephony
Group Series A Common Stock during the ten-trading day period
beginning on the 16th trading day following the consummation of
such Disposition and (y) the number of shares of such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Telephony Group Series A Common Stock
and each share of Telephony Group Series B Common Stock is the
same); or
(iii) convert (A) each outstanding share of Telephony Group
Series A Common Stock into a number (or fraction) of fully paid and
nonassessable shares of TCI Group Series A Common Stock and (B) each
outstanding share of Telephony Group Series B Common Stock into a number
(or fraction) of fully paid and nonassessable shares of TCI Group Series
B Common Stock, in each case equal to 110% of the average daily ratio
(calculated to the nearest five decimal places) of the Market Value of
one share of Telephony Group Series A Common Stock to the Market Value
of one share of TCI Group Series A Common Stock during the ten-trading
day period referred to in clause (ii)(B) of this paragraph.
TCI may elect to pay the dividend or redemption price referred to in
clause (i) or (ii) of the second paragraph under this caption "--Mandatory
Dividend, Redemption or Conversion of Telephony Group Common Stock" either in
the same form as the proceeds of the Disposition were received or in any other
combination of cash or securities or other property (other than Common Stock)
that the TCI Board determines will have an aggregate market value on a fully
distributed basis, of not less than the amount of the Telephony Group Net
Proceeds. If the dividend or redemption price is paid in the form of securities
of an issuer other than TCI, the TCI Board may determine either to (i) pay the
dividend or redemption price in the form of separate classes or series of
securities, with one class or series of such securities to holders of Telephony
Group Series A Common Stock and another class or series of securities to holders
of Telephony Group Series B Common Stock, provided that such securities (and, if
such securities are convertible into or exercisable or exchangeable for shares
of another class or series of securities, the securities so issuable upon such
conversion, exercise or exchange) do not differ in any respect other than their
relative voting rights and related differences in designation, conversion,
redemption and share distribution provisions with holders of shares of Telephony
Group Series B Common Stock receiving the class or series having the higher
relative voting rights (without regard to whether such rights differ to a
greater or lesser extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions between
the Telephony Group Series A Common Stock and the Telephony Group Series B
Common Stock), provided that if such securities constitute capital stock of a
subsidiary of TCI, such rights will not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion, redemption
and share distribution provisions between the Telephony Group Series A Common
Stock and the Telephony Group Series B Common Stock, and otherwise such
securities will be distributed on an equal per share basis, or (ii) pay the
dividend or redemption price in the form of a single class of securities without
distinction between the shares received by the holders of Telephony Group Series
A Common Stock and Telephony Group Series B Common Stock. The Related Business
Transaction exception would enable TCI to enter into transactions in which the
properties or assets of the Telephony Group may be considered to be "disposed
of" in exchange for equity securities of an entity engaged or proposing to
engage in similar or complementary business areas to those of the Telephony
Group while maintaining the capital structure and delineation of business groups
of the Telephony Group.
At the time of any dividend made as a result of a Disposition referred
to above, the TCI Group will be credited, and the Telephony Group will be
charged (in addition to the charge for the dividend paid in respect of
outstanding shares of Telephony Group Common Stock), with an amount equal to the
product of (i) the aggregate amount paid in respect of such dividend times (ii)
a fraction the numerator of which is the Telephony Group Inter-Group Interest
Fraction and the denominator of which is the Telephony Group Outstanding
Interest Fraction.
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The option to convert the Telephony Group Common Stock into TCI Group
Common Stock in the event of a Disposition provides TCI with additional
flexibility by allowing TCI to deliver consideration in the form of shares of
TCI Group Common Stock rather than cash or securities or other properties. This
alternative could be used, for example, in circumstances when TCI did not have
sufficient legally available assets under the DGCL to pay the full amount of an
otherwise required dividend or redemption or when TCI desired to retain such
proceeds.
If less than substantially all of the properties and assets of the
Telephony Group were disposed of by TCI in one transaction, TCI would not be
required to pay a dividend on, redeem or convert the outstanding shares of
Telephony Group Common Stock, even if an additional transaction were consummated
at a later time in which additional properties and assets of the Telephony Group
were disposed of by TCI, which, together with the properties and assets disposed
of in the first transaction, would have constituted substantially all of the
properties and assets of the Telephony Group at the time of the first
transaction, unless such transactions constituted a series of related
transactions. The second transaction, however, could trigger such a requirement
if, at the time of the second transaction, the properties and assets disposed of
in such transaction constituted at least substantially all of the properties and
assets of the Telephony Group at such time. If less than substantially all of
the properties and assets of the Telephony Group were disposed of by TCI, the
holders of the Telephony Group Common Stock would not be entitled to receive any
dividend or have their shares redeemed or converted for TCI Group Common Stock,
although the TCI Board could determine, in its sole discretion, to pay a
dividend on the Telephony Group Common Stock in an amount related to the
proceeds of such Disposition.
Redemption of LMG Common Stock in Exchange for Stock of Subsidiary. At
any time at which all of the assets and liabilities attributed to the Liberty
Media Group are and continue to be held directly or indirectly by any one or
more corporations all of the capital stock of which is owned by TCI (the
"Liberty Media Group Subsidiaries"), the TCI Board may, subject to the
availability of assets of TCI legally available therefor, redeem on a pro rata
basis, all of the outstanding shares of LMG Common Stock in exchange for an
aggregate number of outstanding fully paid and nonassessable shares of common
stock of each Liberty Media Group Subsidiary equal to the product of the
Adjusted Liberty Media Group Outstanding Interest Fraction and the number of all
of the outstanding shares of common stock of such Liberty Media Group
Subsidiary.
In effecting such a redemption, the TCI Board may determine either to
(i) redeem shares of LMG Series A Common Stock and LMG Series B Common Stock in
exchange for shares of separate classes or series of common stock of each
Liberty Media Group Subsidiary with relative voting rights and related
differences in designation, conversion, redemption and share distribution
provisions not greater than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions between
the LMG Series A Common Stock and LMG Series B Common Stock, with holders of
shares of LMG Series B Common Stock receiving the class or series having the
higher relative voting rights, or (ii) redeem shares of LMG Series A Common
Stock and LMG Series B Common Stock in exchange for shares of a single class of
common stock of each Liberty Media Group Subsidiary without distinction between
the shares distributed to the holders of the two series of LMG Common Stock. If
TCI determines to undertake a redemption as described in clause (i) of the
preceding sentence, the outstanding shares of common stock of each Liberty Media
Group Subsidiary not distributed to holders of LMG Common Stock would consist
solely of the class or series having the lower relative voting rights.
Redemption of Telephony Group Common Stock in Exchange for Stock of
Subsidiary. If Telephony Group Common Stock is issued, at any time at which all
of the assets and liabilities attributed to the Telephony Group have become and
continue to be held directly or indirectly by any one or more corporations that
are Qualifying Subsidiaries (the "Telephony Group Subsidiaries"), the TCI Board
may, subject to the availability of assets of TCI legally available therefor,
redeem on a pro rata basis, all of the outstanding shares of Telephony Group
Common Stock in exchange for an aggregate number of outstanding, fully paid and
nonassessable shares of common stock of each Telephony Group Subsidiary equal to
the product of the Telephony Group Outstanding Interest Fraction and the number
of outstanding shares of common stock of each Telephony Group Subsidiary that is
owned by TCI.
In effecting such a redemption, the TCI Board may determine either to
(i) redeem shares of Telephony Group Series A Common Stock and Telephony Group
Series B Common Stock in exchange for shares of separate classes or
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series of common stock of each Telephony Group Subsidiary with relative voting
rights and related differences in designation, conversion, redemption and share
distribution provisions not greater than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution provisions
between the Telephony Group Series A Common Stock and Telephony Group Series B
Common Stock, with holders of shares of Telephony Group Series B Common Stock
receiving the class or series having the higher relative voting rights, or (ii)
redeem shares of Telephony Group Series A Common Stock and Telephony Group
Series B Common Stock in exchange for shares of a single class of common stock
of each Telephony Group Subsidiary without distinction between the shares
distributed to the holders of the two series of Telephony Group Common Stock.
Certain Provisions Respecting Convertible Securities. Unless the
provisions of any class or series of Convertible Securities which are
convertible into or exercisable or exchangeable for shares of Telephony Group
Common Stock provide specifically to the contrary, after any conversion date or
redemption date on which all outstanding shares of Telephony Group Common Stock
were converted or redeemed, any share of Telephony Group Common Stock that is
issued on conversion, exercise or exchange of any such Convertible Securities
will, immediately upon issuance pursuant to such conversion, exercise or
exchange and without any notice or any other action on the part of TCI or the
TCI Board or the holder of such share of Telephony Group Common Stock, be
redeemed in exchange for, to the extent assets of TCI are legally available
therefor, the amount of $.01 per share in cash.
Unless the provisions of any class or series of Pre-Distribution
Convertible Securities or Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares provide
specifically to the contrary, after any conversion date or redemption date on
which all outstanding shares of LMG Common Stock were converted or redeemed, any
share of LMG Common Stock that is issued on conversion, exercise or exchange of
any Pre-Distribution Convertible Securities or any Convertible Securities which
are convertible into or exercisable or exchangeable for Committed Acquisition
Shares will, immediately upon issuance pursuant to such conversion, exercise or
exchange and without any notice or any other action on the part of TCI or the
TCI Board or the holder of such share of LMG Common Stock, be converted into or
redeemed in exchange for, as applicable, the kind and amount of shares of
capital stock, cash and/or other securities or property that a holder of such
Pre-Distribution Convertible Securities or any Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition Shares
would have been entitled to receive pursuant to the terms of such securities had
such terms provided that the conversion, exercise or exchange privilege in
effect immediately prior to any such conversion or redemption of all outstanding
shares of LMG Common Stock would be adjusted so that the holder of any such
Pre-Distribution Convertible Securities or any Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition Shares
thereafter surrendered for conversion, exercise or exchange would be entitled to
receive the kind and amount of shares of capital stock, cash and/or other
securities or property such holder would have received as a result of such
action had such securities been converted, exercised or exchanged immediately
prior thereto. With respect to any Convertible Securities that are convertible
into or exercisable or exchangeable for shares of LMG Common Stock and which are
created, established or otherwise first authorized for issuance subsequent to
the record date for the LMG Distribution (other than Pre-Distribution
Convertible Securities and Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares), the terms and
provisions of which do not provide for adjustments specifying the kind and
amount of capital stock, cash and/or securities or other property that such
holder would be entitled to receive upon the conversion, exercise or exchange of
such Convertible Securities following any conversion date or redemption date on
which all outstanding shares of LMG Common Stock were converted or redeemed,
then upon such conversion, exercise or exchange of such Convertible Securities,
any share of LMG Common Stock that is issued on conversion, exercise or exchange
of any such Convertible Securities will, immediately upon issuance and without
any notice or any other action on the part of TCI or the TCI Board or the holder
of such share of LMG Common Stock, be redeemed in exchange for, to the extent
assets of TCI are legally available therefor, the amount of $.01 per share in
cash.
General Conversion and Redemption Provisions. Not later than the 10th
trading day following the consummation of a Disposition referred to above under
"--Mandatory Dividend, Redemption or Conversion of LMG Common Stock," TCI will
announce publicly by press release (i) the Liberty Media Group Net Proceeds,
(ii) the number of outstanding shares of LMG Series A Common Stock and LMG
Series B Common Stock, (iii) the number of shares
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of LMG Series A Common Stock and LMG Series B Common Stock into or for which
Convertible Securities are then convertible, exercisable or exchangeable and the
conversion, exercise or exchange prices thereof (and stating which, if any, of
such Convertible Securities constitute Pre-Distribution Convertible Securities
or Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares) and the number of Committed
Acquisition Shares issuable, (iv) the Liberty Media Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice and (v) the
Adjusted Liberty Media Group Outstanding Interest Fraction as of a recent date
preceding the date of such notice. Not earlier than the 26th trading day and not
later than the 30th trading day following the consummation of such Disposition,
TCI will announce publicly by press release which of the actions described in
clause (i), (ii) or (iii) of the second paragraph under "--Mandatory Dividend,
Redemption or Conversion of LMG Common Stock" it has irrevocably determined to
take.
If TCI determines to pay a dividend described in clause (i) of the
second paragraph under the caption "--Mandatory Dividend, Redemption or
Conversion of LMG Common Stock," TCI will, not later than the 30th trading day
following the consummation of such Disposition, cause to be given to each holder
of outstanding shares of LMG Series A Common Stock and LMG Series B Common
Stock, a notice setting forth (i) the record date for determining holders
entitled to receive such dividend, which will be not earlier than the 40th
trading day and not later than the 50th trading day following the consummation
of such Disposition, (ii) the anticipated payment date of such dividend (which
will not be more than 85 trading days following the consummation of such
Disposition), (iii) the kind of shares of capital stock, cash and/or other
securities or property to be distributed in respect of shares of LMG Common
Stock, (iv) the Liberty Media Group Net Proceeds, (v) the Liberty Media Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, and (vi) the number of outstanding shares of LMG Series A Common Stock
and LMG Series B Common Stock and the number of shares of LMG Series A Common
Stock and LMG Series B Common Stock into or for which outstanding Convertible
Securities are then convertible, exercisable or exchangeable and the conversion,
exercise or exchange prices thereof.
If TCI determines to undertake a redemption of shares of LMG Common
Stock following a Disposition of all (not merely substantially all) of the
properties and assets of the Liberty Media Group as described in clause (ii)(A)
of the second paragraph under the caption "--Mandatory Dividend, Redemption or
Conversion of LMG Common Stock," TCI will cause to be given to each holder of
outstanding shares of LMG Series A Common Stock and LMG Series B Common Stock, a
notice setting forth (i) a statement that all shares of LMG Common Stock
outstanding on the redemption date will be redeemed, (ii) the redemption date
(which will not be more than 85 trading days following the consummation of such
Disposition), (iii) the kind of shares of capital stock, cash and/or other
securities or property to be paid as a redemption price in respect of shares of
LMG Common Stock outstanding on the redemption date, (iv) the Liberty Media
Group Net Proceeds, (v) the Adjusted Liberty Media Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice, (vi) the place
or places where certificates for shares of LMG Common Stock, properly endorsed
or assigned for transfer (unless TCI waives such requirement), are to be
surrendered for delivery of certificates for shares of such capital stock, cash
and/or other securities or property, and (vii) the number of outstanding shares
of LMG Series A Common Stock and LMG Series B Common Stock and the number of
shares of LMG Series A Common Stock and LMG Series B Common Stock into or for
which outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof (and,
stating which, if any, of such Convertible Securities constitute Pre-
Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition Shares
and the number of Committed Acquisition Shares issuable). Such notice will be
sent not less than 35 trading days nor more than 45 trading days prior to the
redemption date.
If TCI determines to undertake a redemption of shares of LMG Common
Stock following a Disposition of substantially all (but not all) of the
properties and assets of the Liberty Media Group as described in clause (ii)(B)
of the second paragraph under the caption "--Mandatory Dividend, Redemption or
Conversion of LMG Common Stock," TCI will, not later than the 30th trading day
following the consummation of such Disposition, cause to be given to each holder
of record of outstanding shares of LMG Series A Common Stock and LMG Series B
Common Stock a notice setting forth (i) a date not earlier than the 40th trading
day and not later than the 50th trading day following the consummation of such
Disposition which will be the date on which shares of the LMG Common Stock then
outstanding
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will be selected for redemption, (ii) the anticipated redemption date (which
will not be more than 85 trading days following the consummation of such
Disposition), (iii) the kind of shares of capital stock, cash and/or other
securities or property to be paid as a redemption price in respect of shares of
LMG Common Stock selected for redemption, (iv) the Liberty Media Group Net
Proceeds, (v) the Liberty Media Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (vi) the number of outstanding
shares of LMG Series A Common Stock and LMG Series B Common Stock and the number
of shares of LMG Series A Common Stock and LMG Series B Common Stock into or for
which outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof and (vii) a
statement that TCI will not be required to register a transfer of any shares of
LMG Common Stock for a period of 15 trading days next preceding the date
referred to in clause (i) of this sentence. Promptly following the date referred
to in clause (i) of the preceding sentence, but not earlier than the 40th
trading day and not later than the 50th trading day following the consummation
of such Disposition, TCI will cause to be given to each holder of shares of LMG
Series A Common Stock and LMG Series B Common Stock to be redeemed, a notice
setting forth (i) the number of shares of LMG Series A Common Stock and LMG
Series B Common Stock held by such holder to be redeemed, (ii) a statement that
such shares of LMG Series A Common Stock and LMG Series B Common Stock will be
redeemed, (iii) the redemption date (which will not be more than 85 trading days
following the consummation of such Disposition), (iv) the kind and per share
amount of shares of capital stock, cash and/or other securities or property to
be received by such holder with respect to each share of such LMG Common Stock
to be redeemed, including details as to the calculation thereof, and (v) the
place or places where certificates for shares of such LMG Common Stock, properly
endorsed or assigned for transfer (unless TCI waives such requirement), are to
be surrendered for delivery of certificates for shares of such capital stock,
cash and/or other securities or property. The outstanding shares of LMG Common
Stock to be redeemed will be redeemed by TCI pro rata among the holders of LMG
Common Stock or by such other method as may be determined by the TCI Board to be
equitable.
In the event of any conversion as described above under the caption
"--Conversion of LMG Common Stock at the Option of TCI" or as described in
clause (iii) of the second paragraph under "--Mandatory Dividend, Redemption or
Conversion of LMG Common Stock," TCI will cause to be given to each holder of
outstanding shares of LMG Series A Common Stock and LMG Series B Common Stock a
notice setting forth (i) a statement that all outstanding shares of LMG Common
Stock will be converted, (ii) the conversion date (which will not be more than
85 trading days following the consummation of such Disposition in the event of a
conversion pursuant to the provisions described under "--Mandatory Dividend,
Redemption or Conversion of LMG Common Stock" and which will not be more than
120 days after the Appraisal Date in the event of a conversion pursuant to the
provisions described under "--Conversion of LMG Common Stock at the Option of
TCI"), (iii) the per share number (or fraction) of shares of TCI Group Series A
Common Stock or TCI Group Series B Common Stock, as applicable, to be received
with respect to each share of LMG Series A Common Stock or LMG Series B Common
Stock, including details as to the calculation thereof, (iv) the place or places
where certificates for shares of LMG Common Stock, properly endorsed or assigned
for transfer (unless TCI waives such requirement), are to be surrendered, and
(v) the number of outstanding shares of LMG Series A Common Stock and LMG Series
B Common Stock, the number of Committed Acquisition Shares issuable and the
number of shares of LMG Series A Common Stock and LMG Series B Common Stock into
or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof. Such notice will be sent not less than 35 trading days nor more than 45
trading days prior to the conversion date.
If TCI determines to redeem shares of LMG Series A Common Stock and LMG
Series B Common Stock as described above under the caption "--Redemption of LMG
Common Stock in Exchange for Stock of Subsidiary," TCI will promptly cause to be
given to each holder of LMG Series A Common Stock and LMG Series B Common Stock
a notice setting forth (i) a statement that all outstanding shares of LMG Common
Stock will be redeemed in exchange for shares of common stock of the Liberty
Media Group Subsidiaries, (ii) the redemption date, (iii) the Adjusted Liberty
Media Group Outstanding Interest Fraction as of a recent date preceding the date
of such notice, (iv) the place or places where certificates for shares of LMG
Common Stock, properly endorsed or assigned for transfer (unless TCI waives such
requirement), are to be surrendered for delivery of certificates for shares of
common stock of the Liberty Media Group Subsidiaries, and (v) the number of
outstanding shares of LMG Series A Common Stock and LMG Series B Common Stock
and the number of shares of LMG Series A Common Stock and LMG Series B Common
Stock into or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion,
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exercise or exchange prices thereof. Such notice will be sent not less than
35 trading days nor more than 45 trading days prior to the redemption date.
In each case in which a notice is required to be given to holders of
outstanding shares of LMG Series A Common Stock and LMG Series B Common Stock in
accordance with the preceding five paragraphs (other than a notice to holders of
shares selected for redemption), notice shall also be given, within the required
time period, to each holder of Convertible Securities that are convertible into
or exercisable or exchangeable for shares of either such series (unless
provision for such notice is otherwise made pursuant to the terms of such
Convertible Securities), which notice shall include, in addition to all of the
information set forth in the corresponding notice to holders of LMG Common
Stock, a statement to the effect that the holders of such Convertible Securities
will be entitled to receive the dividend, participate in the redemption of
shares following a Disposition or in the selection of shares for redemption,
participate in the conversion of shares or participate in the redemption of
shares in exchange for stock of the Liberty Media Group Subsidiaries only if
such holder appropriately converts, exercises or exchanges such Convertible
Securities on or prior to the record date for the dividend, redemption date,
date fixed for selection of shares to be redeemed or conversion date, as
applicable, set forth in such notice. In the case of a redemption or conversion
of shares of LMG Common Stock, the notice to holders of Convertible Securities
shall also state what, if anything, such holders will be entitled to receive
pursuant to the terms of such Convertible Securities or, if applicable, the
provision described under "--Conversion and Redemption--Certain Provisions
Respecting Convertible Securities" if such holders convert, exercise or exchange
such Convertible Securities following the redemption date or conversion date, as
applicable.
All notices required to be given in accordance with the preceding
paragraphs will be sent to a holder by first-class mail, postage prepaid, at the
holder's address as the same appears on the transfer books of TCI. Neither the
failure to mail any notice to any particular holder of LMG Common Stock or of
Convertible Securities nor any defect therein will affect the sufficiency
thereof with respect to any other holder of outstanding shares of LMG Common
Stock or of Convertible Securities, or the validity of any conversion or
redemption.
TCI will not be required to issue or deliver fractional shares of any
class of capital stock or any fractional securities to any holder of LMG Common
Stock upon any conversion, redemption, dividend or other distribution described
above. In connection with the determination of the number of shares of any class
of capital stock that is issuable or the amount of securities that is
deliverable to any holder of record upon any such conversion, redemption,
dividend or other distribution (including any fractions of shares or
securities), TCI may aggregate the number of shares of LMG Common Stock held at
the relevant time by such holder of record. If the number of shares of any class
of capital stock or the amount of securities remaining to be issued or delivered
to any holder of LMG Common Stock is a fraction, TCI will, if such fraction is
not issued or delivered to such holder, pay a cash adjustment in respect of such
fraction in an amount equal to the fair market value of such fraction on the
fifth trading day prior to the date such payment is to be made (without
interest). For purposes of the preceding sentence, "fair market value" of any
fraction will be (i) in the case of any fraction of a share of capital stock of
TCI, the product of such fraction and the Market Value of one share of such
capital stock and (ii) in the case of any other fractional security, such value
as is determined by the TCI Board.
No adjustments in respect of dividends will be made upon the conversion
or redemption of any shares of LMG Common Stock; provided, however, that if the
conversion date or the redemption date with respect to the LMG Common Stock is
subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of LMG
Common Stock at the close of business on such record date will be entitled to
receive the dividend or other distribution payable on or with respect to such
shares on the date set for payment of such dividend or other distribution,
notwithstanding the conversion or redemption of such shares or TCI's default in
payment of the dividend or distribution due on such date.
Before any holder of shares of LMG Common Stock will be entitled to
receive certificates representing shares of any kind of capital stock or cash
and/or securities or other property to be received by such holder with respect
to any conversion or redemption of shares of LMG Common Stock, such holder is
required to surrender at such place as TCI will specify certificates for such
shares, properly endorsed or assigned for transfer (unless TCI waives such
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requirement). TCI will as soon as practicable after surrender of certificates
representing shares of LMG Common Stock deliver to the person for whose account
such shares were so surrendered, or to the nominee or nominees of such person,
certificates representing the number of whole shares of the kind of capital
stock or cash and/or securities or other property to which such person is
entitled, together with any payment for fractional securities referred to above.
If less than all of the shares of LMG Common Stock represented by any one
certificate are to be redeemed, TCI will issue and deliver a new certificate for
the shares of LMG Common Stock not redeemed. TCI will not be required to
register a transfer of (i) any shares of LMG Common Stock for a period of 15
trading days next preceding any selection of shares of LMG Common Stock to be
redeemed or (ii) any shares of LMG Common Stock selected or called for
redemption. Shares selected for redemption may not thereafter be converted
pursuant to the provisions described under the caption "--Conversion at the
Option of the Holder."
From and after any applicable conversion date or redemption date, all
rights of a holder of shares of LMG Common Stock that were converted or redeemed
will cease except for the right, upon surrender of the certificates representing
shares of LMG Common Stock, to receive certificates representing shares of the
kind and amount of capital stock or cash and/or securities or other property for
which such shares were converted or redeemed, together with any payment for
fractional securities, and such holder will have no other or further rights in
respect of the shares of LMG Common Stock so converted or redeemed, including,
but not limited to, any rights with respect to any cash, securities or other
property which are reserved or otherwise designated by TCI as being held for the
satisfaction of TCI's obligations to pay or deliver any cash, securities or
other property upon the conversion, exercise or exchange of any Convertible
Securities outstanding as of the date of such conversion or redemption or any
Committed Acquisition Shares which may then be issuable. No holder of a
certificate that, immediately prior to the applicable conversion date or
redemption date for the LMG Common Stock, represented shares of LMG Common Stock
will be entitled to receive any dividend or other distribution with respect to
shares of any kind of capital stock into or in exchange for which the LMG Common
Stock was converted or redeemed until surrender of such holder's certificate for
a certificate or certificates representing shares of such kind of capital stock.
Upon such surrender, there will be paid to the holder the amount of any
dividends or other distributions (without interest) which theretofore became
payable with respect to a record date after the conversion date or redemption
date, as the case may be, but that were not paid by reason of the foregoing,
with respect to the number of whole shares of the kind of capital stock
represented by the certificate or certificates issued upon such surrender. From
and after a conversion date or redemption date, as the case may be, of LMG
Common Stock, TCI will, however, be entitled to treat the certificates for
shares of LMG Common Stock that have not yet been surrendered for conversion or
redemption as evidencing the ownership of the number of whole shares of the kind
or kinds of capital stock for which the shares of LMG Common Stock represented
by such certificates have been converted or redeemed, notwithstanding the
failure to surrender such certificates.
TCI will pay any and all documentary, stamp or similar issue or transfer
taxes that may be payable in respect of the issue or delivery of any shares of
capital stock and/or other securities on conversion or redemption of shares of
LMG Common Stock. TCI will not, however, be required to pay any tax that may be
payable in respect of any transfer involved in the issue and delivery of any
shares of capital stock in a name other than that in which the shares of LMG
Common Stock so converted or redeemed were registered and no such issue or
delivery will be made unless and until the person requesting such issue has paid
to TCI the amount of any such tax, or has established to the satisfaction of TCI
that such tax has been paid.
Provisions substantially the same as those described under this caption
"--General Conversion and Redemption Provisions," apply in the event of a
Disposition of all or substantially all of the properties and assets of the
Telephony Group and a determination of TCI to pay a dividend on or undertake a
partial or complete redemption of the Telephony Group Common Stock following
such Disposition, in the event of any conversion of the Telephony Group Common
Stock as described under the caption "--Conversion of Telephony Group Common
Stock at the Option of TCI" or "--Mandatory Dividend, Redemption or Conversion
of Telephony Group Common Stock," and in the event of a redemption of the
Telephony Group Common Stock in exchange for stock of one or more subsidiaries
as described under the caption "--Redemption of Telephony Group Common Stock in
Exchange for Stock of Subsidiary."
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LIQUIDATION RIGHTS
In the event of a liquidation, dissolution or winding up of TCI, whether
voluntary or involuntary, after payment or provision for payment of the debts
and other liabilities of TCI and subject to the prior payment in full of the
preferential amounts to which any class or series of TCI Preferred Stock is
entitled, (i) the holders of the shares of TCI Group Common Stock will share
equally, on a share for share basis, in a percentage of the funds of TCI
remaining for distribution to its common stockholders equal to 100% multiplied
by the average daily ratio (expressed as a decimal) of W/Z for the 20-trading
day period ending on the trading day prior to the date of the public
announcement of such liquidation, dissolution or winding up, (ii) the holders of
the shares of LMG Common Stock will share equally, on a share for share basis,
in a percentage of the funds of TCI remaining for distribution to its common
stockholders equal to 100% multiplied by the average daily ratio (expressed as a
decimal) of X/Z for such 20-trading day period and (iii) if Telephony Group
Common Stock is issued, the holders of the shares of Telephony Group Common
Stock will share equally, on a share for share basis, in a percentage of the
funds of TCI remaining for distribution to its common stockholders equal to 100%
multiplied by the average daily ratio (expressed as a decimal) of Y/Z for such
20-trading day period, where W is the aggregate Market Capitalization of the TCI
Group Series A Common Stock and the TCI Group Series B Common Stock, X is the
aggregate Market Capitalization of the LMG Series A Common Stock and the LMG
Series B Common Stock, Y is the aggregate Market Capitalization of the Telephony
Group Series A Common Stock and the Telephony Group Series B Common Stock, and Z
is the aggregate Market Capitalization of the TCI Group Series A Common Stock,
the TCI Group Series B Common Stock, the LMG Series A Common Stock, the LMG
Series B Common Stock, the Telephony Group Series A Common Stock and the
Telephony Group Series B Common Stock. Neither a consolidation, merger nor sale
of assets will be construed to be a "liquidation," "dissolution" or "winding up"
of TCI.
No holder of LMG Common Stock or, if issued, Telephony Group Common
Stock will have any special right to receive specific assets of the Liberty
Media Group or the Telephony Group, as the case may be, in the case of any
dissolution, liquidation or winding up of TCI.
DETERMINATIONS BY THE TCI BOARD
The TCI Charter provides that any determinations made by the TCI Board
under any provision described under "Description of TCI Capital Stock" will be
final and binding on all stockholders of TCI, except as may otherwise be
required by law. Such a determination would not be binding if it were
established that the determination was made in breach of a fiduciary duty of the
TCI Board. TCI will prepare a statement of any such determination by the TCI
Board respecting the fair market value of any properties, assets or securities
and will file such statement with the Secretary of TCI.
PREEMPTIVE RIGHTS
Holders of the TCI Group Common Stock and the LMG Common Stock do not
have, and if the Telephony Group Common Stock is issued, holders of the
Telephony Group Common Stock would not have, any preemptive rights to subscribe
for any additional shares of capital stock or other obligations convertible into
or exercisable for shares of capital stock that may hereafter be issued by TCI.
PREFERRED STOCK
As of March 31, 1997, 1,620,026 shares of Class B Preferred Stock,
70,575 shares of Series C Preferred Stock, 997,222 shares of Series D Preferred
Stock, 278,307 shares of Series F Preferred Stock, 6,693,177 shares of Series G
Preferred Stock and 6,693,177 shares of Series H Preferred Stock had been issued
and were outstanding. All of the shares of Class A Preferred Stock have
previously been redeemed and retired and may not be reissued, thereby reducing
the number of authorized shares of TCI Preferred Stock. All of the shares of
Series E Preferred Stock have previously been redeemed and retired, with the
effect that such shares have been restored to the status of authorized and
unissued shares of Series Preferred Stock, may be reissued as shares of another
series of Series Preferred Stock, but may not be reissued as Series E Preferred
Stock. All of the outstanding shares of Series F Preferred Stock are held by
subsidiaries of TCI. Approximately 33,901,240 shares of Series Preferred Stock
remain available for designation pursuant to the
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TCI Charter as of March 31, 1997. The rights evidenced by the TCI Common Stock
are subject to the prior preferences and rights of the TCI Preferred Stock.
The liquidation preference as of such date of the Class B Preferred
Stock was $100 per share, of the Series C Preferred Stock was $2,375 per share,
of the Series D Preferred Stock was $300 per share, of the Series F Preferred
Stock was $.01 per share, of the Series G Preferred Stock was $21.60 per share,
and of the Series H Preferred Stock was $5.40 per share. After receipt of their
liquidation preference, holders of Series F Preferred Stock are entitled to
receive from the assets of TCI available for distribution to common stockholders
an amount equal to the amount per share to be distributed to holders of TCI
Group Series A Common Stock in such liquidation, multiplied by the number of
shares of TCI Group Series A Common Stock into which their shares of Series F
Preferred Stock are then convertible. As of the date of this Proxy
Statement/Prospectus, (i) each share of Series C Preferred Stock is convertible
at the option of the holder into 116.24 shares of TCI Group Series A Common
Stock and 25 shares of LMG Series A Common Stock, and, as a result of the
Liberty Stock Dividend, an additional share of LMG Series A Common Stock for
every two such shares received upon conversion, (ii) each share of Series D
Preferred Stock is convertible at the option of the holder into 10 shares of TCI
Group Series A Common Stock, two and one-half shares of LMG Series A Common
Stock and one share of the Series A common stock of TCI Satellite Entertainment,
Inc., and, as a result of the Liberty Stock Dividend, an additional share of LMG
Series A Common Stock for every two such shares received upon conversion, (iii)
each share of Series F Preferred Stock is convertible into 1,496.65 shares of
TCI Group Series A Common Stock, (iv) each share of Series G Preferred Stock is
convertible at the option of the holder into 1.190 shares of TCI Group Series A
Common Stock, and (v) each share of Series H Preferred Stock is convertible at
the option of the holder into .2625 shares of LMG Series A Common Stock, and, as
a result of the Liberty Stock Dividend, an additional share of LMG Series A
Common Stock for every two such shares received upon conversion, in each case
subject to antidilution adjustments. The Series C Preferred Stock, the Series G
Preferred Stock and Series H Preferred Stock are required to be redeemed by the
Company out of legally available funds on August 8, 2001, February 1, 2016 and
February 1, 2016, respectively. The Series D Preferred Stock is redeemable at
the option of the holder at any time after the tenth anniversary of its
issuance.
The Class B Preferred Stock, the Series F Preferred Stock, the Series G
Preferred Stock and the Series H Preferred Stock are each entitled to vote, on
the basis of one vote per share, together with the TCI Common Stock and any
class or series of TCI Preferred Stock entitled to vote thereon, in the general
election of directors of TCI. The holders of shares of Series C Preferred Stock
are entitled to vote such shares on an as converted basis on all matters
submitted to a vote of holders of Common Stock and any other class of capital
stock of TCI entitled to vote generally on the election of directors. The
consent of the holders of 662/3% of the aggregate liquidation value of the
Series D Preferred Stock is required in order for TCI to create any series of
TCI Preferred Stock that is senior to the Series D Preferred Stock. Except as
described above and as otherwise required by the DGCL, the TCI Preferred Stock
has no voting rights. The terms of the various classes and series of the TCI
Preferred Stock include provisions that restrict the redemption or repurchase of
and the payment of dividends or the making of distributions on the TCI Common
Stock if any dividends are in arrears on the TCI Preferred Stock or if TCI has
failed to redeem any shares of TCI Preferred Stock that it was required to
redeem.
The foregoing description of certain terms of the outstanding classes
and series of TCI Preferred Stock does not purport to be complete and is
qualified in its entirety by reference to the TCI Charter, which is an exhibit
to the Registration Statement.
ANTI-TAKEOVER CONSIDERATIONS
The DGCL, the TCI Charter and TCI's Bylaws contain provisions which may
serve to discourage or make more difficult a change in control of TCI without
the support of the TCI Board or without meeting various other conditions. The
principal provisions of the DGCL and the aforementioned corporate governance
documents are outlined below.
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
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stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, exclusive of shares owned by directors who are also
officers and by certain employee stock plans or (iii) on or 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 662/3% 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, with certain exceptions,
which do not have a class of voting stock that is listed on a national
securities exchange or authorized for quotation on 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 its
"interested stockholders."
The TCI Charter also contains certain provisions which could make a
change in control of TCI more difficult. For example, the TCI Charter requires,
subject to the rights, if any, of any class or series of TCI Preferred Stock,
the affirmative vote of 662/3% of the total voting power of the outstanding
shares of Voting Securities, voting together as a single class, to approve (i) a
merger or consolidation of TCI with, or into, another corporation, other than a
merger or consolidation which does not require the consent of stockholders under
the DGCL or a merger or consolidation which has been approved by 75% of the
members of the TCI Board (in which case, in accordance with the DGCL, the
affirmative vote of a majority of the total voting power of the outstanding
Voting Securities would, with certain exceptions, be required for approval),
(ii) the sale, lease or exchange of all or substantially all of the property and
assets of TCI or (iii) the dissolution of TCI. "Voting Securities" is currently
defined as the TCI Group Common Stock, the LMG Common Stock, the Telephony Group
Common Stock, if issued, and any class or series of TCI Preferred Stock entitled
to vote generally with the holders of TCI Common Stock on matters submitted to
stockholders for a vote. The TCI Charter also provides for a TCI Board 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, currently nine, is fixed by the TCI
Board. The holders of TCI Group Common Stock, LMG Common Stock, Telephony Group
Common Stock, if issued, Class B Preferred Stock, Series C Preferred Stock,
Series G Preferred Stock and Series H Preferred Stock, voting together as a
single class, vote in elections for directors. (The holders of TCI's Series F
Preferred Stock are entitled to vote in the election of directors; however, the
DGCL prohibits the voting of such shares because such shares are held by
subsidiaries of TCI.) Stockholders of TCI do not have cumulative voting rights.
The TCI Charter authorizes the issuance of 50,000,000 shares of Series
Preferred Stock, of which 33,901,240 remain available for issuance as of March
31, 1997. Under the TCI Charter, the TCI Board is authorized, without further
action by the stockholders of TCI, to establish the preferences, limitations and
relative rights of the Series Preferred Stock. In addition, 1,900,000,000 shares
of TCI Group Common Stock, 825,000,000 shares of LMG Common Stock
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and 825,000,000 shares of Telephony Group Common Stock are currently authorized
by the TCI Charter, of which 1,100,294,776 shares of the TCI Group Common Stock
(as of March 31, 1997), 575,062,234 shares of the LMG Common Stock (as of March
31, 1997) and all 825,000,000 shares of Telephony Group Common Stock remain
available for issuance (without taking into consideration shares to be reserved
for issuance upon conversion, exchange or exercise of outstanding convertible or
exchangeable securities and options). The issue and sale of shares of TCI Group
Common Stock, LMG Common Stock, Telephony Group Common Stock and/or Series
Preferred Stock could occur in connection with an attempt to acquire control of
TCI, and the terms of such shares of Series Preferred Stock could be designed in
part to impede the acquisition of such control.
The TCI Charter requires the affirmative vote of 662/3% of the total
voting power of the outstanding shares of Voting Securities, 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.
The TCI Charter and TCI's Bylaws provide that a special meeting of
stockholders will 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 upon (i) the written request of the holders of not less than 662/3% of the
total voting power of the outstanding shares of Voting Securities or (ii) at the
request of not less than 75% of the members of the TCI Board. Subject to the
rights of any class or series of TCI Preferred Stock, TCI's Bylaws require that
written notice of the intent to make a nomination at a meeting of stockholders
must be received by the Secretary of TCI, at TCI's principal executive offices,
not later than (a) with respect to an election of directors to be held at an
annual meeting of stockholders, 90 days in advance of such meeting, and (b) with
respect to an election of directors to be held at a special meeting of
stockholders, the close of business on the seventh day following the day on
which notice of such meeting is first given to stockholders. The notice must
contain: (1) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (2) a representation
that the stockholder is a holder of record of TCI's Voting Securities entitled
to vote at the meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (3) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (4) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the SEC had each proposed nominee been
nominated, or intended to be nominated, by the TCI Board; and (5) the consent of
each nominee to serve as a director of TCI if so elected. Any actions to remove
directors is required to be for "cause" (as defined in the TCI Charter) and be
approved by the holders of 662/3% of the total voting power of the outstanding
shares entitled to vote in the election of directors.
COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, shareholders of KT, a Utah corporation,
will become stockholders of TCI, a Delaware corporation, and the rights of such
stockholders will be governed by the applicable laws of the State of Delaware,
including the DGCL, and by the TCI Charter and TCI's Bylaws. The following is a
summary of certain provisions affecting, and differences between, the rights of
holders of KT Common Stock and the rights of holders of TCI Group Series A
Common Stock. The following summary does not purport to be complete and is
qualified in its entirety by reference to the URBCA and the DGCL and the
complete text of the TCI Charter, TCI's Bylaws, the KT Charter and KT's Bylaws.
The TCI Charter and TCI's Bylaws have been filed as exhibits to, or are
incorporated by reference in, the Registration Statement of which this Proxy
Statement/Prospectus is a part. See "AVAILABLE INFORMATION."
AUTHORIZED CAPITAL STOCK
KT. KT's authorized capitalization consists of a total of 500,000 shares
of KT Common Stock and 5,000,000 shares of preferred stock. No shares of the
authorized preferred stock of KT are currently issued and outstanding or are
issued and held by KT in its treasury or by subsidiaries of KT.
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TCI. TCI's authorized capitalization consists of 3,602,375,096 shares of
capital stock, including (i) 3,550,000,000 shares of TCI Common Stock of which
1,750,000,000 shares are designated TCI Group Series A Common Stock, 150,000,000
shares are designated TCI Group Series B Common Stock, 750,000,000 shares are
designated LMG Series A Common Stock, 75,000,000 shares are designated LMG
Series B Common Stock, 750,000,000 shares are designated Telephony Group Series
A Common Stock and 75,000,000 shares are designated Telephony Group Series B
Common Stock, and (ii) 52,375,096 shares of TCI Preferred Stock. See
"DESCRIPTION OF TCI CAPITAL STOCK--General."
PREEMPTIVE RIGHTS
KT. The KT Charter provides that holders of KT Common Stock have the
right to subscribe pro rata to their holdings for any shares of KT issued or any
treasury shares offered for sale; provided, however, that the KT Board, pursuant
to prior authorization by affirmative vote of at least two-thirds of the total
number of shares of KT Common Stock then outstanding at any annual or special
meeting, may, without triggering such subscription rights, (i) cause the
issuance of shares in performance of an incentive option granted to officers or
employees of KT or of any subsidiary thereof or (ii) cause the issuance of
shares in exchange for personal property (other than money) or real property.
TCI. The TCI Charter provides that holders of the TCI Group Common Stock
do not have any preemptive rights to subscribe for any additional shares of
capital stock or other obligations convertible into or exercisable for shares of
capital stock that may be issued by TCI.
DIVIDENDS AND OTHER DISTRIBUTIONS
KT. Under the URBCA, a corporation may make distributions to
shareholders so long as such action would not (a) make the corporation unable to
pay its debts as they become due in the usual course of business or (b) cause
the corporation's total assets to be less than the sum of its total liabilities
plus (unless the articles of incorporation permit otherwise) the amount that
would be needed to satisfy preferential rights of shareholders senior to those
receiving the distribution. A Utah corporation may acquire its own shares, and
such shares are either returned to the status of "authorized but unissued" or
removed from the authorized number of shares, whichever is specified in the
articles of incorporation. Limitations on payment of dividends also apply to
redemptions of stock. The KT Charter and KT's Bylaws contain no additional
restrictions on the payment of dividends and share distributions or the
repurchase of shares.
TCI. The DGCL permits a corporation, subject to any restrictions in its
certificate of incorporation, to declare and pay dividends out of surplus
(defined as net assets minus capital) or, if there is no surplus, out of net
profits for the fiscal year in which the dividend is declared and/or for the
preceding fiscal year as long as the amount of capital of the corporation is not
less than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. In addition, subject to certain limitations, the DGCL generally provides
that a corporation may redeem or repurchase its shares if the capital of the
corporation is not impaired or such redemption or repurchase would not impair
the capital of the corporation. The TCI Charter contains certain restrictions on
the payment of dividends and share distributions and the repurchase of shares.
See "DESCRIPTION OF TCI CAPITAL STOCK--Common Stock--Dividends," "DESCRIPTION OF
TCI CAPITAL STOCK--Common Stock--Share Distributions" and "DESCRIPTION OF TCI
CAPITAL STOCK--Common Stock--Conversion and Redemption."
VOTING RIGHTS
KT. Each share of KT Common Stock entitles the holder to one vote, on
each matter presented to shareholders. The presence, in person or by proxy, of a
majority of the outstanding shares of KT capital stock entitled to vote at a
meeting of shareholders is necessary to constitute a quorum at such meeting. If
a quorum is present at a shareholders' meeting, the affirmative vote of a
majority of the shares represented at such meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless the vote of a
greater number is otherwise required by law, by the KT Charter or by KT's
Bylaws.
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TCI. Holders of TCI Group Series A Common Stock are entitled to one vote
for each share of such stock held, holders of TCI Group Series B Common Stock
are entitled to ten votes for each share of such stock held, holders of LMG
Series A Common Stock are entitled to one vote for each share of such stock held
and holders of LMG Series B Common Stock are entitled to ten votes for each
share of such stock held, on all matters presented to stockholders. Except as
may otherwise be required by the laws of the State of Delaware or, with respect
to any class of TCI Preferred Stock or any series of such a class, in the TCI
Charter (including any resolution or resolutions providing for the establishment
of such class or series pursuant to authority vested in the TCI Board by the TCI
Charter), the holders of TCI Group Common Stock and the holders of LMG Common
Stock and the holders of each class or series of TCI Preferred Stock, if any,
entitled to vote thereon vote as one class for all purposes. See "DESCRIPTION OF
TCI CAPITAL STOCK--Common Stock--Voting Rights."
CONVERSION RIGHTS
KT. The KT Charter does not provide for any conversion rights with
respect to the KT Common Stock.
TCI. Shares of TCI Group Series A Common Stock are not convertible into
shares of TCI Group Series B Common Stock, and shares of LMG Series A Common
Stock are not convertible into shares of LMG Series B Common Stock. Each share
of TCI Group Series B Common Stock is convertible, at the option of the holder
thereof, into one share of TCI Group Series A Common Stock, and each share of
LMG Series B Common Stock is convertible at the option of the holder thereof,
into one share of LMG Series A Common Stock. The TCI Board may at any time
declare that all of the outstanding shares of LMG Series A Common Stock be
converted into TCI Group Series A Common Stock. See "DESCRIPTION OF TCI CAPITAL
STOCK--Common Stock--Conversion and Redemption."
BOARD OF DIRECTORS
KT. KT's Bylaws provide for a Board of Directors consisting of an odd
number of not less than three members, with the exact number of directors for
any year to be fixed by vote of the shareholders. KT's Bylaws also provide for a
staggered Board of Directors, the members of which are elected for three-year
terms.
TCI. The TCI Charter provides for a TCI Board 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, currently nine, is fixed by the TCI Board. See
"DESCRIPTION OF TCI CAPITAL STOCK--Anti-Takeover Considerations."
ELECTION OF DIRECTORS
KT. Directors may be elected under KT's Bylaws by a majority vote of the
shares present in person or represented by proxy at a meeting of shareholders at
which a quorum is present and entitled to vote on the election of directors.
Stockholders of KT do not have cumulative voting rights.
TCI. The holders of TCI Group Common Stock, LMG Common Stock, Class B
Preferred Stock, Series C Preferred Stock, Series G Preferred Stock and Series H
Preferred Stock, voting together as a single class, vote in elections for
directors. (TCI Series F Preferred Stock has voting rights, but outstanding
shares are not entitled to vote because they are held by subsidiaries of TCI.)
Stockholders of TCI do not have cumulative voting rights. Directors may be
elected under TCI's Bylaws by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
REMOVAL OF DIRECTORS
KT. KT's Bylaws provide that, at a meeting expressly called for the
purpose of removing a director or directors, any director may be so removed,
with or without cause, upon the affirmative vote of the holders of a majority of
the outstanding shares of KT's capital stock then entitled to vote at an
election of directors.
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TCI. The TCI Charter provides that directors may be removed only for
"cause" (as defined in the TCI Charter) upon the affirmative vote of 662/3% of
the total voting power of the outstanding shares entitled to vote in an election
of directors. See "DESCRIPTION OF TCI CAPITAL STOCK--Anti-Takeover
Considerations."
VACANCIES ON THE BOARD OF DIRECTORS
KT. KT's Bylaws provide that vacancies and newly created directorships
resulting from any increase in the number of directors may be filled by a
majority of the directors then in office, though less than a quorum, and the
directors so chosen shall hold office until the next annual meeting of
shareholders and until their successors are duly elected and qualified. A
director elected to fill a vacancy caused by resignation, death or removal shall
be elected to hold office for the unexpired term of such director's predecessor.
TCI. The TCI Charter provides that, subject to the rights, if any, of
any shares of TCI Preferred Stock, 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
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's 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.
ACTION BY WRITTEN CONSENT
KT. KT's Bylaws provide that, unless otherwise provided by law, any
action required to be taken at a meeting of the shareholders, or any other
action which may be taken at a meeting of the shareholders, may be taken without
a meeting if a consent in writing, setting forth the action so taken, is signed
by all of the shareholders entitled to vote with respect to the subject matter
thereof.
TCI. The TCI Charter provides that, except as otherwise provided in the
terms of any class or series of TCI Preferred Stock, no action required to be
taken or which may be taken at any annual meeting or special meeting of
stockholders may be taken without a meeting, and the power of stockholders to
consent in writing, without a meeting, is specifically denied.
SPECIAL MEETINGS OF STOCKHOLDERS
KT. Under KT's Bylaws, special meetings of shareholders may be called by
the President or by the Board of Directors, and must be called by the President
at the request of not less than 10% of all the outstanding shares of stock of KT
entitled to vote at the meeting.
TCI. The TCI Charter and TCI's Bylaws provide that a special meeting of
stockholders will 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 upon (i) the written request of the holders of not less than 662/3% of the
total voting power of the outstanding shares of Voting Securities or (ii) at the
request of not less than 75% of the members of the TCI Board. See "DESCRIPTION
OF TCI CAPITAL STOCK--Anti-Takeover Considerations."
MERGER, CONSOLIDATION AND SALE OF ASSETS
KT. The URBCA generally requires that a majority of the shareholders of
both the acquiring and the acquired corporation approve statutory mergers, that
a majority of the shareholders of both corporations approve consolidations, and
that a majority of the shareholders of the selling corporation approve the sale
by a corporation of all or substantially all of its assets. However, the URBCA
provides that the board of directors may sell, lease, exchange or otherwise
dispose of all, or substantially all, of the corporation's assets without
consent or approval of the shareholders when done in the regular course of its
business and may mortgage or pledge such property whether or not
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in the regular course of its business. Neither the KT Charter nor KT's Bylaws
contain any additional provisions relating to mergers, consolidations or sales
of substantially all corporate assets.
TCI. The TCI Charter requires, subject to the rights, if any, of any
class or series of TCI Preferred Stock, the affirmative vote of 662/3% of the
total voting power of the outstanding shares of Voting Securities, voting
together as a single class, to approve (i) 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 Voting Securities would,
with certain exceptions, be required for approval), or (ii) the sale, lease or
exchange of all or substantially all of the property and assets of TCI.
AMENDMENTS TO CERTIFICATE OR ARTICLES OF INCORPORATION
KT. Under the URBCA, amendments to a corporation's articles of
incorporation generally require the approval of a majority of the votes entitled
to be cast within each voting group entitled to vote on the amendment. In
addition, if any amendment to the articles of incorporation would impose
personal liability on the shareholders for the corporation's debts, it must be
approved by all of the outstanding shares affected, regardless of limitations or
restrictions on the voting rights of the shares. The KT Charter does not alter
the statutory means by which an amendment to the KT Charter must be approved.
TCI. The TCI Charter requires the affirmative vote of 662/3% of the total voting
power of the outstanding shares of Voting Securities, 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. See
"DESCRIPTION OF TCI CAPITAL STOCK--Anti-Takeover Considerations."
AMENDMENTS TO BYLAWS
KT. KT's Bylaws provide that they may be altered, amended or repealed
and new bylaws may be adopted by a vote of a majority of the KT Board or a vote
of the shareholders representing a majority of all the shares issued and
outstanding, at any annual shareholders' meeting or at any special shareholders'
meeting when the proposed amendment has been sent out in the notice of such
meeting. However, the URBCA provides that the board of directors (without
shareholder approval) may not change a bylaw regarding quorum or voting
requirements applicable to approvals by shareholders once such a bylaw is
adopted by shareholders, and may not change a bylaw regarding quorum or voting
requirements applicable to approvals by directors if such a bylaw was adopted by
shareholders or the articles of incorporation or bylaws require shareholder
approval.
TCI. Subject to the rights of the holders of any class or series of TCI
Preferred Stock, the affirmative vote of the holders of at least 662/3% of the
total voting power of the outstanding shares of Voting Securities, voting
together as a single class, is required to approve the adoption, amendment or
repeal of any provision of TCI's Bylaws; provided, however, that this voting
requirement shall not apply to, and no vote of the stockholders of TCI is
required to authorize the adoption, amendment or repeal of TCI's Bylaws by the
TCI Board by action taken by the affirmative vote of not less than 75% of the
members of the TCI Board then in office.
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS OR INTERESTED SHAREHOLDERS
KT. Under the URBCA, a transaction between a corporation and a party
related to a director in some way may not be enjoined, set aside or create a
cause of action solely because such party has an interest in the transaction
unless the director's relationship to such party would constitute a statutory
"conflicting interest transaction." "Conflicting interest transactions" relate
to beneficial financial interests of a director or persons or entities
associated with the director so as to influence the director's decisions. A
director's conflicting interest transaction may be protected against future
challenge if approved by (i) a majority of the disinterested directors, even if
not otherwise a quorum, (ii) a duly empowered committee of the board of
directors, or (iii) disinterested shareholders holding a majority of the shares
entitled to vote upon the matter, in each case after full disclosure.
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TCI. Under the DGCL, no contract or transaction between a corporation
and one or more of its directors or officers, or between a corporation and any
other entity in which one or more of its directors or officers are directors or
officers or have a financial interest, is void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the board or committee which authorizes the contract or
transaction, or solely because the vote of the director or officer was counted
for such purpose, if (i) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
known to the board of directors or committee which in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; (ii) the material facts as to the director's or officer's relationship
or interest and as to the contract or transaction are disclosed or known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the corporation as of the time it is
authorized, approved or ratified by the board of directors, a committee thereof,
or the stockholders. A corporation may make loans to, guarantee the obligations
of or otherwise assist its officers or other employees and those of its
subsidiaries, including directors who are also officers and employees, when such
action, in the judgment of the directors, may reasonably be expected to benefit
the corporation. Any such loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as approved by
the board of directors, including with a pledge of stock of the corporation.
INDEMNIFICATION AND LIMITATION OF LIABILITY
KT. The URBCA generally permits indemnification of a director against
liability provided there is a determination by a disinterested quorum of the
directors, by a disinterested committee of the board of directors consisting of
at least two directors, by special legal counsel or by a majority vote of a
quorum of the shareholders that the person seeking indemnification acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation and, in the case of any criminal proceeding, such
person had no reasonable cause to believe his conduct was unlawful. However,
indemnification in connection with a shareholder derivative suit is limited to
reasonable expenses, and a director may not be indemnified in a derivative suit
in which the director was found liable to the corporation or in connection with
any other proceeding which the director is found liable on a charge that he
derived an improper personal benefit. Unless otherwise provided in the articles
of incorporation, indemnification is mandatory to a director who is successful
in defending an action on the merits or otherwise. The URBCA further provides
that a corporation may indemnify an officer, employee, fiduciary or agent who is
not a director to a greater extent than directors, provided such indemnification
is not contrary to public policy. In addition, the URBCA permits a corporation
to eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for acts or failures to act in the
director's capacity as a director, except liability for financial benefits to
which the director was not entitled, intentional infliction of harm to the
corporation or shareholders, unlawful distributions or intentional violation of
criminal laws.
KT's Bylaws provide that officers and directors shall be indemnified to
the full extent permitted by Utah law, but neither the KT Charter nor KT's
Bylaws contain a provision eliminating or limiting a director's personal
liability.
TCI. Under the DGCL, a corporation has the power to indemnify any person
who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation
against expenses, judgments, fines and settlements incurred in any such action,
suit or proceeding, other than an action by or in the right of the corporation,
if the person acted in good faith and in a manner that the person reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe that
such person's conduct was unlawful. In the case of an action by or in the right
of the corporation, the corporation has the power to indemnify any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation
against expenses incurred in defending or settling the action if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation; provided, however, that no
indemnification may be made when a person is adjudged liable to the corporation,
unless a court of competent jurisdiction determines such person is entitled to
indemnity for expenses, and then such indemnification may be made only to the
extent that such court shall determine. The DGCL requires that, to the extent
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an officer, director, employee or agent of a corporation is successful on the
merits or otherwise in defense of any proceeding referred to within this
paragraph, or in defense of any claim, issue or matter therein, the corporation
must indemnify such person against expenses incurred in connection therewith. In
addition, the DGCL provides that a corporation may adopt a provision in its
certificate of incorporation 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, except for (i) breaches of the director's duty
of loyalty to the corporation or its stockholders; (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) any transaction in which the director received an improper
personal benefit.
The TCI Charter contains a provision which limits a director's liability
to the full extent permitted by the DGCL. In addition, the TCI Charter provides
that officers and directors shall be indemnified to the fullest extent permitted
by applicable law, and TCI shall pay the expenses 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.
DISSENTING SHAREHOLDER'S RIGHTS
KT. The URBCA provides that, in the event of certain corporate actions,
a shareholder is entitled to dissent from, and obtain payment of the fair value
of shares held by him, generally as determined by the corporation. See "THE
MERGER--Utah Statutory Dissenters' Rights" and Appendix III to this Proxy
Statement/Prospectus.
TCI. Under the DGCL, holders of shares have the right, in certain
circumstances, to dissent from certain merger or consolidation transactions and
seek an appraisal of the fair value of such shares (exclusive of any value
arising from the accomplishment or expectation of the merger or consolidation),
as determined by the Delaware Court of Chancery in an action timely brought by
the corporation or such holders.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
KT. Under the Utah Control Shares Acquisition Act (the "CSAA"),
acquisition (on a cumulative basis) of 20% or more of the voting power of
certain Utah corporations in a "control shares acquisition" prohibits such
shares, known as "control shares," from being voted on any matter unless and
until a resolution allowing such shares to be voted is approved by a majority of
the outstanding shares of each class excluding "interested shares." "Interested
shares" are those held by the control share acquiror and all officers and
employee-directors of the Utah corporation. The KT Charter does not contain any
provisions "opting out" of the CSAA.
The CSAA defines "control shares" as shares representing 20% or more of
the voting power of the corporation in an election of directors. The definition
of "control shares acquisition" contains exceptions to the list of transactions
that would trigger application of the CSAA, including pursuant to a merger or
share exchange approved by shareholders under the URBCA. Upon an acquiror
obtaining a majority interest in a corporation subject to the CSAA, other
shareholders obtain dissenter's rights to appraisal and cash payment in return
for their shares, if desired, and such amount must not be less than the amount
paid for the shares acquired in the control shares acquisition.
The CSAA applies only to shares of a corporation formed under the laws
of the State of Utah that has (a) 100 or more shareholders, (b) its principal
office or place of business, or substantial assets, located in Utah and (c)(i)
more than 10% of its shareholders resident in Utah, (ii) more than 10% of its
shares owned by Utah residents or (iii) 10,000 shareholders resident in Utah.
The CSAA does not state that the corporation's shares must be traded on a stock
exchange or national trading system in order to be subject to the CSAA.
TCI. DGCL Section 203 generally prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for three
years following the time that such person becomes an interested stockholder,
subject to certain exceptions contained in DGCL Section 203. See "DESCRIPTION
OF TCI CAPITAL
STOCK--Anti-Takeover Considerations." 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
78
<PAGE>
provision. As a result, the provisions of Section 203 will remain applicable
to transactions between TCI and any of its "interested stockholders."
DURATION OF PROXIES
KT. Under the URBCA, a proxy appointment is ordinarily valid only for
11 months. Proxies may be given by facsimile or other electronic transmission.
TCI. Under the DGCL, proxies may not have a duration of more than three
years, unless the proxy provides for a longer period. Proxies may be given by
facsimile or other electronic transmission.
DISSOLUTION
KT. Under the URBCA, the board of directors of a corporation must
recommend dissolution (unless there are conflicts or other special circumstances
and the board or directors communicates such to the shareholders) and a majority
of all votes entitled to be cast in each voting group must authorize such
dissolution unless a greater vote is required by the charter documents or the
board of directors. Neither the KT Charter nor KT's Bylaws contain any
additional provision relating to the dissolution of KT.
TCI. Under the DGCL, unless the board of directors approves a proposal
to dissolve a corporation, the dissolution must be approved by stockholders
holding 100% of the shares entitled to vote upon the dissolution. If the
dissolution is initiated by the board of directors, the DGCL provides that it
need only be approved by the stockholders holding a majority of the shares
entitled to vote upon the dissolution. The TCI Charter, nevertheless, requires,
subject to the rights, if any, of any class or series of TCI Preferred Stock,
the affirmative vote of 662/3% of the total voting power of the outstanding
shares of Voting Securities, voting together as a single class, to approve the
dissolution of TCI.
SECURITY OWNERSHIP OF KT
The following table sets forth certain information as of May 30, 1997,
regarding ownership of KT Common Stock by (1) each person believed by KT to be
the beneficial owner of more than five percent of its outstanding Common Stock;
(2) each director and by the Chief Executive Officer and each of the four other
most highly compensated executive officers for the fiscal year 1996, (3) all
current executive officers and directors of KT as a group, and (4) the pro forma
number and ownership percentage of shares of TCI Group Series A Common Stock
that will be owned by such persons immediately after the Effective Time,
assuming such persons do not acquire or dispose of, any shares of KT Common
Stock during the period commencing May 30, 1997 and ending at the Effective
Time. Such pro forma information is based upon the number of shares of KT Common
Stock, TCI Group Common Stock, and LMG Common Stock outstanding on May 30, 1997,
and assuming a TCI Trading Value of $14.25 and an LMG Trading Value of $20.56.
So far as is known to KT, 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. Information in the table as to
beneficial ownership of more than five percent of KT's outstanding stock is
based upon data furnished by the persons named.
79
<PAGE>
<TABLE>
<CAPTION>
POST MERGER TCI GROUP
KT COMMON STOCK SERIES A COMMON STOCK
--------------------------------- -------------------------------
NUMBER OF
NUMBER OF SHARES AND
SHARES AND NATURE NATURE OF
OF BENEFICIAL PERCENT BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS (1) OWNERSHIP OF CLASS(2)
- ---------------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Wells Fargo Bank, Trustee U/W 13,243 7.40% 3,522,638 *
Francis B. Kearns
180 South Main, 2nd Floor
Salt Lake City, UT 84101
James P. Kearns 19,367 10.82% 5,151,622 *
Director
1753 Glen Oaks Drive
Santa Barbara, CA 93108
McCarthey QTIP Trust 59,616 33.32% 15,857,856 2.49%
Jane F. McCarthey and J.W.
Gallivan
400 Tribune Building
Salt Lake City, UT 84111
PACO Security Pacific National 19,787 11.06% 5,263,342 *
Bank
Pat L. Kearns Trust, Unit
GT-125
P.O. Box 2414 Term Annex Inc.
Coll
Los Angeles, CA 90051
DAGCO - Kearns-Tribune ESOP 12,698 7.10% 3,377,668 *
c/o US Bank - Oregon
P.O. Box 3168
Portland, OR 97208
A.L. Alford 3,000 1.68% 798,000 *
Director
4050 Fairway Drive
Lewiston, ID 83501
Michael D. Gallivan 1,557 * 414,162 *
Director
1425 Arlington Drive
Salt Lake City, UT 84103
Philip G. McCarthey 2,512 1.40% 668,192 *
Director
2181 Laird Way
Salt Lake City, UT 84108
Sarah J. McCarthey 1,811 1.01% 481,726 *
Director
2908 Perry Lane
Austin, TX 73731
Thomas J. McCarthey Jr. 1,886 1.05% 501,676 *
Vice President, Director
1367 Wilton Way
Salt Lake City, UT 84108
David Salisbury --- --- --- ---
Director
50 South Main, Ste. 1600
Salt Lake City, UT 84144
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
POST MERGER TCI GROUP
KT COMMON STOCK SERIES A COMMON STOCK
--------------------------------- -------------------------------
NUMBER OF
NUMBER OF SHARES AND
SHARES AND NATURE NATURE OF
OF BENEFICIAL PERCENT BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS (1) OWNERSHIP OF CLASS(2)
- ---------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Robert Steiner 1,667 * 443,422 *
Director
505 East South Temple
Salt Lake City, UT 84103
Deidre E. Stephens 352 * 93,632 *
Director
6975 S. Canyon Creek Circle
Salt Lake City, UT 84121
James D. Stephens 2,833 1.58% 753,578 *
Director
17120 Bambrough Place
Salt Lake City, UT 84108
Dominic A. Welch 1,930 1.08% 513,380 *
President, Director
5088 Baobab Drive
Salt Lake City, UT 84117
John W. Gallivan 247 * 65,702 *
Chairman of the Board
17 South 12th East
Salt Lake City, UT 84102
Sharon E. Sonnenreich --- --- --- ---
Secretary
2235 South Belaire Drive
Salt Lake City, UT 84109
Tony T. Magann 154 * 40,964 *
Treasurer
3652 East Aurora Circle
Salt Lake City, UT 84124
All Directors and Executive 96,932 54.2% 25,783,912 4.05%
Officers as a Group (14 persons)
- ---------------
</TABLE>
* Less than 1%
(1) Based on 178,933 shares of KT Common Stock outstanding on May 30, 1997.
(2) Based on 657,095,202 shares of TCI Group Series A Common Stock
outstanding on May 31, 1997.
LEGAL MATTERS
The validity of the TCI Group Series A Common Stock to be issued in
connection with the Merger will be passed upon by Baker & Botts, L.L.P., 599
Lexington Avenue, New York, New York 10022. Jerome H. Kern, special counsel to
Baker & Botts, L.L.P. is a director of TCI and holds options to purchase shares
of TCI Group Series A Common Stock and LMG Series A Common Stock. Another
partner of Baker & Botts, L.L.P. holds restricted shares of LMG Series A Common
Stock.
81
<PAGE>
EXPERTS
The consolidated balance sheets of Tele-Communications, Inc. and
subsidiaries as of December 31, 1996 and 1995, 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, 1996, and the related
financial statement schedules, which appear in the December 31, 1996 Annual
Report on Form 10-K of Tele-Communications, Inc., as amended by Form 10-K/A
(Amendment No. 1), have been incorporated by reference herein in reliance upon
the reports, dated March 24, 1997, 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 combined balance sheets of TCI Group as of December 31, 1996 and
1995, and the related combined statements of operations, equity, and cash flows
for each of the years in the three-year period ended December 31, 1996, which
appear in the December 31, 1996 Annual Report on Form 10-K of
Tele-Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), have
been incorporated by reference herein in reliance upon the report, dated March
24, 1997, 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 covering the
combined financial statements above refers to the effects of not consolidating
TCI Group's interest in Liberty Media Group for all periods that TCI Group has
an interest in Liberty Media Group.
The combined balance sheets of Liberty Media Group as of December 31,
1996 and 1995, and the related combined statements of operations, equity, and
cash flows for each of the years in the three-year period ended December 31,
1996, which appear in the December 31, 1996 Annual Report on Form 10-K of
Tele-Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), have
been incorporated by reference herein in reliance upon the report, dated March
24, 1997, 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 consolidated balance sheet of Telewest Communications plc and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations and cash flows for each of the years in the three-year
period ended December 31, 1996, which appear in the December 31, 1996 Annual
Report on Form 10-K of Tele-Communications, Inc., as amended by Form 10-K/A
(Amendment No. 1), have been incorporated by reference herein in reliance upon
the report, dated March 11, 1997, of KPMG Audit Plc, chartered accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated balance sheets of Sprint Spectrum Holding Company, L.P.
and subsidiaries, development stage enterprises, as of December 31, 1996 and
1995 and the related consolidated statements of operations, changes in partners'
capital and cash flows for each of the two years in the period ended December
31, 1996, for the period from October 24, 1994 (date of inception) to December
31, 1994 and for the cumulative period from October 24, 1994 (date of inception)
to December 31, 1996, incorporated in this Proxy Statement/Prospectus by
reference from the December 31, 1996 Annual Report on Form 10-K of
Tele-Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which expresses an unqualified opinion and includes an explanatory
paragraph referring to the developmental stage of Sprint Spectrum Holding
Company, L.P. and subsidiaries) which is incorporated herein by reference, and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of American PCS, L.P., not separately presented
in this Proxy Statement/Prospectus, have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon has been incorporated by reference
herein. Such financial statements, to the extent they have been included in the
financial statements of Sprint Spectrum Holding Company, L.P., have been so
included in the December 31, 1996 Annual Report on Form 10-K of Tele-
Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), in reliance
on their report given on the authority of said firm as experts in auditing and
accounting.
The combined financial statements of VII Cable which appear in the
Current Report on Form 8-K of TeleCommunications, Inc. dated June 19, 1996, have
been incorporated by reference herein in reliance on the report dated February
14, 1996 of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
82
<PAGE>
The consolidated financial statements of Kearns-Tribune Corporation and
Subsidiaries at December 31, 1996 and 1995 and for the years ended December 31,
1996, 1995, and 1994 included in the Registration Statement of which this Proxy
Statement/Prospectus is a part, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein (which report
expresses an unqualified opinion and includes an explanatory paragraph regarding
the restatement for the change in certain accounting methods) and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The financial statements of Newspaper Agency Corporation as of December
31, 1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996, have been included in this Proxy Statement/Prospectus and the
Registration Statement of which this Proxy Statement/Prospectus is a part, have
been included in reliance upon the report, dated January 24, 1997, of KPMG Peat
Marwick LLP, independent certified public accountants, included herein, and upon
the authority of said firm as experts in accounting and auditing.
83
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
<S> <C>
Three Months ended March 31, 1997:
Consolidated Statements of Income, three months ended March 31, 1997 and
1996 (Unaudited)........................................................................ F-2
Consolidated Balance Sheet, March 31, 1997 and December 31, 1996 (Unaudited)............ F-3
Consolidated Statement of Cash Flows, March 31, 1997 and December 31, 1996 (Unaudited).. F-5
Years ended December 31, 1996, 1995 and 1994:
Independent Auditors' Report............................................................ F-6
Consolidated Statements of Income, years ended December 31, 1996, 1995 and 1994......... F-7
Consolidated Balance Sheets, December 31, 1996 and 1995................................. F-8
Consolidated Statements of Stockholders' Equity, years ended December 31, 1996, 1995
and 1994............................................................................... F-10
Consolidated Statements of Cash Flows, years ended December 31, 1996, 1995 and 1994 F-11
Notes to Consolidated Financial Statements............................................. F-13
NEWSPAPER AGENCY CORPORATION
Three Months ended March 31, 1997:
Consolidated Statements of Earnings, three months ended March 31, 1997
and 1996 (Unaudited)................................................................... F-27
Consolidated Balance Sheet, March 31, 1997 and December 31, 1996 (Unaudited)........... F-28
Consolidated Statement of Cash Flows, March 31, 1997 and December 31, 1996 (Unaudited). F-29
Years ended December 31, 1996, 1995 and 1994:
Independent Auditors' Report........................................................... F-30
Consolidated Statement of Earnings, years ended December 31, 1996, 1995 and 1994....... F-31
Consolidated Balance Sheets, December 31, 1996 and 1995................................ F-32
Consolidated Statements of Cash Flows, years ended December 31, 1996, 1995 and 1994.... F-33
Notes to Consolidated Financial Statements............................................. F-34
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FIRST QUARTER ENDED MARCH 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
03/97 03/96
INCOME:
Newspaper revenue 11,240,379 9,465,780
Commercial printing 417,765 696,202
Rent 117,403 74,589
Interest, dividends, and royalties 759,526 603,890
Equity in net gains (losses) of investments 0 0
Gains on sale of property, plant and equipment 29,119 0
Other 38,861 154,050
----------- ----------
Total income 12,603,053 10,994,511
----------- ----------
EXPENSES:
Salaries and wages 2,750,512 2,729,556
Employee benefits and payroll taxes 562,187 622,639
Newsprint, ink, and other production supplies 475,480 874,746
Depreciation 799,543 864,330
Features and wire services 305,846 302,900
Rent 56,405 14,155
Interest 90,000 120,000
Other operating costs 1,703,468 1,568,004
Amortization of excess costs over fair value of net assets of purchased
subsidiaries 123,450 123,450
----------- ----------
Total expenses 6,866,891 7,219,780
----------- ----------
INCOME BEFORE EXTRAORDINARY GAINS AND INCOME TAXES 5,736,162 3,774,731
GAIN ON SALE OF INVESTMENTS 102,916 196,097
----------- ----------
INCOME BEFORE INCOME TAXES 5,839,078 3,970,828
PROVISION FOR INCOME TAXES 2,223,440 1,437,510
----------- ----------
NET INCOME 3,615,638 2,533,318
PREFERRED STOCK DIVIDEND REQUIREMENTS 0
----------- ----------
EARNINGS APPLICABLE TO COMMON STOCK 3,615,638 2,533,318
=========== ==========
EARNINGS PER SHARE OF COMMON STOCK 20.21 14.17
=========== ==========
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FOR THE FIRST QUARTER ENDED MARCH 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS 03/97 1996
CURRENT ASSETS:
Cash and interest-bearing deposits 24,590,231 25,911,334
Certificates of deposit 0 54,965
Trading securities at fair value 2,371,705 1,298,783
Securities available for sale, at fair value
(cost: 0/3/97 $0: 1996, $7,916) 48,184 50,050
Accounts and notes receivable - net 4,895,718 3,470,487
Receivable from Newspaper Agency Corporation 895,197 1,041,709
Inventories 481,872 454,505
Prepaid expenses and other assets 291,871 358,679
Deferred income taxes 1,323,001 1,323,001
------------ ------------
Total current assets 34,897,779 33,963,513
------------ ------------
LONG-TERM INVESTMENTS:
Investments 16,286,150 16,282,644
Securities available for sale, at fair value
(cost: 0/3/97 $1,239,889; 1996, $1,239,889) 376,252,755 398,266,608
------------ ------------
Total long-term investments 392,538,905 414,549,252
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 4,239,563 3,826,651
Buildings and improvements 10,962,342 11,152,041
Machinery and equipment 26,960,157 26,328,895
Furniture and fixtures 102,566 424,320
Vehicles 3,789,684 3,052,741
------------ ------------
Total 46,054,312 44,784,648
Less accumulated depreciation (25,272,333) (24,364,593)
------------ ------------
Property, plant and equipment - net 20,781,979 20,420,055
------------ ------------
EXCESS COST OVER FAIR VALUE OF NET ASSETS
PURCHASED SUBS (net of accumulated amortization) 16,3276,883 16,327,883
OTHER ASSETS 7,046,898 8,045,793
------------ ------------
TOTAL ASSETS 471,593,445 493,306,496
============ ============
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FOR THE FIRST QUARTER ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 03/97 03/96
CURRENT LIABILITIES:
Current portion of long-term notes payable 1,096,129 1,406,667
Accounts payable 694,672 1,057,464
Payable to Newspaper Agency Corporation 25,297 96,637
Accrued expenses and other liabilities 4,312,068 3,685,547
Income taxes payable 2,373,492 3,029,293
------------ ------------
Total current liabilities 8,501,658 9,275,608
DEFERRED INCOME TAXES 158,221,800 158,221,800
OTHER LIABILITIES 2,839,638 2,839,638
LONG-TERM NOTES PAYABLE (net of current portion) 2,837,196 2,837,196
------------ ------------
Total liabilities 172,400,292 173,174,242
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
9% cumulative preferred stock, $1 par value
Common stock, $1 stated value 178,933 178,508
Paid-in-capital 1,455,669 1,455,669
Retained earnings 74,137,597 74,261,025
Net unrealized gain on securities available for sale (net of deferred income
taxes of $152,831,801) 223,420,954 244,237,052
------------ ------------
Total stockholders' equity 299,193,153 320,132,254
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 471,593,445 493,306,496
============ ============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIRST QUARTER ENDED MARCH 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
03/97 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) 3,615,638 14,248,082
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 799,543 3,738,769
Amortization of excess cost over fair value of net assets purchased 123,450 490,266
Deferred income tax provision 0 (466,688)
Net gain on sales of investments and property, plant and equipment (102,916) (2,222,321)
Undistributed Earnings of NAC 0 (1,248,320)
Equity in net gains of investments 0 (1,423,632)
Changes in operating assets and liabilities:
Accounts and Notes receivable (1,425,231) (1,705,695)
Receivable from Newspaper Agency Corporation 146,512 59,346
Inventories (27,367) 128,702
Prepaid expenses and other assets 66,808 628,724
Accounts payable (362,792) (105,596)
Payable to Newspaper Agency Corporation (71,340) 23,767
Accrued expenses and other liabilities 626,521 1,515,530
Income taxes payable (655,801) 1,883,670
Other (907,113) 62,921
----------- -----------
Net cash provided by operating activities 1,625,912 15,607,525
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of certificates of deposit and sale of S-T investment 54,965 39,008,402
Purchases of certificates of deposit and S-T investments (1,072,922) (25,509,239)
Cash paid for purchase of property, plant and equipment (1,269,664) (1,661,467)
Proceeds from sale of property, plant and equipment 102,916 334,785
Proceeds from sale of long-term investments 0
Cash invested in long-term investments (3,506) (16,029)
Cash paid for purchase of insurance cash surrender values (648,266) (811,643)
----------- -----------
Net cash provided by (used in) investing activities (2,836,477) 11,344,809
=========== ===========
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes payable (310,538) (2,237,946)
Cash paid for redemption of common stock 0 (429,814)
Cash paid for redemption of preferred stock 0 (3,514,441)
Cash paid for common dividends 0 (1,428,972)
Cash paid for preferred dividends 0 (154,217)
----------- -----------
Net cash used in financing activities (310,538) (7,765,390)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,321,103) 19,186,944
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 25,911,334 6,724,390
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR 24,590,231 25,911,334
----------- -----------
</TABLE>
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
President and Board of Directors of
Kearns-Tribune Corporation:
We have audited the accompanying consolidated balance sheets of Kearns-Tribune
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of the Newspaper Agency
Corporation (NAC), the Corporation's investment which is accounted for by use of
the equity method. The Corporation's equity of $10,736,000 and $9,490,000 in
NAC's net assets at December 31, 1996 and 1995, respectively, and of
$33,291,000, $27,632,000, and $26,239,000 in NAC's net income for the years
ended December 31, 1996, 1995, and 1994, respectively, are included in the
accompanying consolidated financial statements. The financial statements of NAC
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for NAC, is based solely
upon the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our report dated March 19, 1996, we expressed an opinion that the 1995 and
1994 consolidated financial statements presented fairly the financial position,
results of operations, and cash flows in conformity with generally accepted
accounting principles except for the effects on the consolidated financial
statements of the Corporation and NAC not providing for pension costs in
accordance with SFAS 87 and not recording certain debt and equity securities in
accordance with SFAS 115. As described in Note 12 to the financial statements,
the Corporation and NAC have changed their methods of accounting for these items
and have restated their 1995 and 1994 financial statements to conform with
generally accepted accounting principles. Accordingly, our present opinion on
the restated 1995 and 1994 consolidated financial statements of the Corporation,
as expressed herein, is different from that expressed in our prior report on the
previously issued 1995 and 1994 consolidated financial statements.
In our opinion, based on our audits and the report of the other auditors such
consolidated financial statements present fairly, in all material respects, the
financial position of Kearns-Tribune Corporation and subsidiaries as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
March 25, 1997
(April 22, 1997 as to Note 14)
F-6
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------------------------------------
1996 1995 1994
(RESTATED, (RESTATED,
NOTE 12) NOTE 12)
<S> <C> <C> <C>
INCOME:
Newspaper revenue (Notes 2 and 8) $46,237,542 $41,818,866 $ 39,786,292
Commercial printing 2,471,445 2,775,337 2,710,796
Rent (Note 8) 472,905 488,411 504,717
Interest, dividends, and royalties (Note 8) 1,772,992 1,466,498 861,348
Equity in net gains (losses) of investments
(Notes 1 and 2) 1,423,632 (193,002) (2,402,800)
Other 728,439 610,012 749,934
------------- ------------- ------------
Total income 53,106,955 46,966,122 42,210,287
------------- ------------- ------------
EXPENSES:
Salaries and wages 13,014,245 11,760,487 11,151,061
Employee benefits and payroll taxes (Notes 5, 9, and 12) 4,200,215 3,463,617 3,478,822
Newsprint, ink, and other production supplies 3,000,080 3,198,794 2,473,067
Depreciation (Note 1) 3,738,768 4,221,935 3,858,032
Feature and wire services 1,221,840 1,123,129 1,028,808
Rent 226,158 221,088 215,839
Interest (Notes 3, 8, and 12) 415,070 632,875 575,084
Other operating costs 6,299,370 6,480,921 6,161,667
Amortization of excess cost over fair value of net
assets of purchased subsidiaries (Note 1) 490,266 667,243 489,010
------------- ------------- ------------
Total expenses 32,606,012 31,770,089 29,431,390
------------- ------------- ------------
INCOME FROM OPERATIONS 20,500,943 15,196,033 12,778,897
GAINS ON SALES OF INVESTMENTS (Notes 1 and 2) 2,524,511 487,240 2,767,790
------------- ------------- ------------
INCOME BEFORE INCOME TAXES 23,025,454 15,683,273 15,546,687
PROVISION FOR INCOME TAXES (Notes 1, 4, and 12) 8,777,372 5,748,041 4,331,753
------------- ------------- ------------
NET INCOME 14,248,082 9,935,232 11,214,934
PREFERRED STOCK DIVIDEND REQUIREMENTS (154,217) (206,073) (206,343)
------------- ------------- ------------
EARNINGS APPLICABLE TO COMMON STOCK $14,093,865 $ 9,729,159 $ 11,008,591
============= ============= ============
EARNINGS PER SHARE OF COMMON STOCK (Note 1) $78.91 $54.41 $61.15
============= ============= ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
(RESTATED,
NOTE 12)
<S> <C> <C>
CURRENT ASSETS:
Cash and interest-bearing deposits (Note 8) $ 25,911,334 $ 6,724,390
Certificates of deposit (Note 8) 54,965 10,565,566
Trading securities at fair value 1,298,783 1,595,526
Securities available for sale, at fair value
(cost: 1996, $7,916; 1995, $247,428) (Notes 2 and 12) 50,050 2,038,149
Accounts and notes receivable (less allowance for
uncollectible accounts in 1996 and 1995 of $34,500) (Note 8) 3,470,487 1,764,792
Receivable from Newspaper Agency Corporation (Note 2) 1,041,709 1,101,055
Inventories (Note 1) 454,505 583,207
Prepaid expenses and other assets (Note 5) 358,679 987,403
Deferred income taxes (Notes 1, 4, and 12) 1,323,001 143,971
----------------- ------------
Total current assets 33,963,513 25,504,059
----------------- ------------
LONG-TERM INVESTMENTS (Notes 1, 2, 3, and 12):
Investments 16,282,644 14,009,215
Securities available for sale, at fair value
(cost: 1996, $1,239,889; 1995, $1,242,115) 398,266,608 501,440,311
----------------- ------------
Total long-term investments 414,549,252 515,449,526
----------------- ------------
PROPERTY, PLANT, AND EQUIPMENT (Notes 1 and 7):
Land 3,826,651 4,239,563
Buildings and improvements 11,152,041 10,974,765
Machinery and equipment 26,328,895 27,141,645
Furniture and fixtures 424,320 464,424
Vehicles 3,052,741 2,437,365
----------------- ------------
Total 44,784,648 45,257,762
Less accumulated depreciation (24,364,593) (22,543,929)
----------------- ------------
Property, plant, and equipment - net 20,420,055 22,713,833
----------------- ------------
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
PURCHASED (Net of accumulated amortization) (Note 1) 16,327,883 16,816,903
OTHER ASSETS (Notes 5 and 12) 8,045,793 6,951,213
----------------- ------------
TOTAL $ 493,306,496 $587,435,534
================= ============
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
(RESTATED,
NOTE 12)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term notes payable (Notes 3 and 8) $ 1,406,667 $ 2,118,367
Accounts payable 1,057,464 1,163,060
Payable to Newspaper Agency Corporation (Note 2) 96,637 72,870
Accrued expenses and other liabilities (Notes 5, 7, 10, and 12) 3,685,547 2,444,183
Income taxes payable (Note 4) 3,029,293 1,145,623
------------ ------------
Total current liabilities 9,275,608 6,944,103
DEFERRED INCOME TAXES (Notes 1, 2, 4, and 12) 158,221,800 191,919,523
OTHER LIABILITIES (Notes 6 and 12) 2,839,638 2,565,472
LONG-TERM NOTES PAYABLE, Net of current portion
(Notes 3, 8 and 11) 2,837,196 4,363,442
------------- ------------
Total liabilities 173,174,242 205,792,540
------------- ------------
COMMITMENTS AND CONTINGENT LIABILITIES
(Notes 6 and 7)
STOCKHOLDERS' EQUITY (Notes 2, 3, 10, and 12):
9% cumulative preferred stock - authorized 5,000,000 shares
of $1 par value; issued and outstanding - none and 2,286,696 shares in
1996 and 1995, respectively 2,286,696
Common stock - authorized, 500,000 shares of no par value,
$1 stated value; issued and outstanding - 178,508 and 178,684 shares in
1996 and 1995, respectively (Note 10) 178,508 178,684
Paid-in capital 1,455,669 2,683,414
Unearned compensation - guarantee on Employee Stock
Ownership Plan (ESOP) loan (Notes 3 and 9) (278,621)
Retained earnings (Note 12) 74,261,025 62,025,770
Net unrealized gain on securities available for sale (net of deferred
income taxes of $152,831,801 and $187,241,866, respectively) (Notes 1
and 2) 244,237,052 314,747,051
--------------- ------------
Total stockholders' equity 320,132,254 381,642,994
--------------- ------------
TOTAL $ 493,306,496 $587,435,534
=============== ============
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- -----------------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED
UNEARNED GAIN (LOSSES)
COMPENSATION ON SECURITIES
GUARANTEED AVAILABLE
PREFERRED COMMON PAID-IN ON ESOP RETAINED FOR SALE
STOCK STOCK CAPITAL LOAN EARNINGS (NET OF TAXES) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994
(AS PREVIOUSLY REPORTED) $ 2,292,696 $181,334 $ 2,683,414 $(850,051) $46,017,896 $ 50,325,289
RESTATEMENT (Note 12) 1,872,986 1,872,986
-------------- -------- ----------- ---------- ----------- ------------- -------------
BALANCE, JANUARY 1, 1994,
AS RESTATED 2,292,696 181,334 2,683,414 (850,051) 47,890,882 52,198,275
ADD:
Net income 11,214,934 11,214,934
Unearned compensation -
guaranteed 285,715 285,715
on ESOP (Note 9)
Net unrealized gain (losses)
on securities available for
sale (net of deferred taxes
of $152,861,724) Notes 1
and 2) $256,955,231 256,955,231
DEDUCT:
Cash dividends declared:
Preferred stock ($.09 a
share) (206,343) (206,343)
Common stock ($5.00 a share) (900,507) (900,507)
Redemption of 2,470 shares
of common stock (2,470) (3,924,827) (3,927,297)
-------------- -------- ----------- ---------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1994 2,292,696 178,864 2,683,414 (564,336) 54,074,139 256,955,231 315,620,008
ADD:
Net income 9,935,232 9,935,232
Unearned compensation -
guaranteed on ESOP (Note 9) 285,715 285,715
Net unrealized gain (losses)
on securities available for
sale (net of deferred taxes
of $34,380,141) (Notes 1
and 2) 57,791,820 57,791,820
DEDUCT:
Cash dividends declared:
Preferred stock ($.09 a
share) (206,073) (206,073)
Common stock ($8.00 a share) (1,430,308) (1,430,308)
Redemption of 180 shares of
common stock (180) (347,220) (347,400)
Redemption of 6,000 shares
of preferred stock (6,000) (6,000)
-------------- -------- ----------- ---------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1995 2,286,696 178,684 2,683,414 (278,621) 62,025,770 314,747,051 381,642,994
ADD:
Net income 14,248,082 14,248,082
Unearned compensation -
guaranteed on ESOP (Note 9) 278,621 278,621
Net unrealized gain (losses)
on securities available for
sale [net of deferred taxes
of ($34,410,065)] (Notes 1
and 2) (70,509,999) (70,509,999)
NET UNREALIZED
UNEARNED GAIN (LOSSES)
COMPENSATION ON SECURITIES
GUARANTEED AVAILABLE
PREFERRED COMMON PAID-IN ON ESOP RETAINED FOR SALE
STOCK STOCK CAPITAL LOAN EARNINGS (NET OF TAXES) TOTAL
DEDUCT:
Cash dividends declared:
Preferred stock ($.09 a
share) (154,217) (154,217)
Common stock ($8.00 a share) (1,428,972) (1,428,972)
Redemption of 176 shares of
common stock (176) (429,638) (429,814)
Redemption of 2,286,696
shares of preferred stock (2,286,696) (1,227,745) (3,514,441)
-------------- -------- ------------ ---------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1996 NONE $178,508 $ 1,455,669 NONE $74,261,025 $244,237,052 $320,132,254
============== ======== =========== ---------- =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
(RESTATED, (RESTATED,
NOTE 12) NOTE 12)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,248,082 $ 9,935,232 $ 11,214,934
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,738,769 4,221,935 3,858,032
Amortization of excess of cost over fair value of net assets purchased 490,266 667,243 489,010
Deferred income tax provision (466,688) (726,863) 40,896
Net gain on sales of property, plant, and equipment (118,309) (614,564) (48,600)
Gain on investments (2,524,512) (182,673)
Write-off of long-term investments 420,500
Undistributed earnings of NAC (1,248,320) (1,050,858) (1,023,578)
Equity in net (gains) losses of investments (1,423,632) 193,002 2,402,800
Changes in operating assets and liabilities:
Accounts and notes receivable (1,705,695) (330,161) (48,589)
Receivable from Newspaper Agency Corporation 59,346 (645,654) (257,449)
Inventories 128,702 (100,489) (136,975)
Income taxes receivable 571,152 459,661
Prepaid expenses and other assets 628,724 (65,996) (676,684)
Accounts payable (105,596) (154,410) 488,985
Payable to Newspaper Agency Corporation 23,767 (62,193) (477,937)
Accrued expenses and other liabilities 1,515,530 509,445 561,791
Income taxes payable 1,883,670 1,145,623
Other 62,921 61,512 599,361
-------------- ----------- -----------
Net cash provided by operating activities 15,607,525 13,371,283 17,445,658
-------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of certificates of deposit and sale
of short-term investments 39,008,402 500,000 918,259
Purchases of certificates of deposit and short-term investments (25,509,239) (4,400,250) (4,451,620)
Cash paid for purchase of property, plant, and equipment (1,661,467) (2,235,521) (2,658,791)
Proceeds from sale of property, plant, and equipment 334,785 989,035 53,772
Proceeds from sale of long-term investments 17,960 2,772,472
Cash invested in long-term investments (16,029) (1,126,384) (5,292,550)
Cash paid for purchase of insurance cash surrender values (811,643) (784,170) (935,513)
-------------- ------------ -----------
Net cash provided by (used in) investing activities 11,344,809 (7,039,330) (9,593,971)
-------------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes payable (2,237,946) (1,528,208) (1,714,303)
Cash paid for redemption of common stock (429,814) (347,400) (3,927,297)
Cash paid for redemption of preferred stock (3,514,441) (6,000)
Cash paid for common dividends (1,428,972) (1,430,308) (900,507)
Cash paid for preferred dividends (154,217) (206,073) (206,343)
-------------- ----------- -----------
Net cash used in financing activities (7,765,390) (3,517,989) (6,748,450)
-------------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,186,944 2,813,964 1,103,237
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,724,390 3,910,426 2,807,189
-------------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,911,334 $ 6,724,390 $ 3,910,426
============== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 395,353 $ 566,055 $ 454,847
Income taxes 6,642,395 4,758,129 3,831,196
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES:
Net change in unrealized gain (loss) on securities available for sale
net of deferred taxes (included in stockholders' equity) (Notes 1 and 2) $(70,509,999) $57,791,820 $256,955,231
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
KEARNS-TRIBUNE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Kearns-Tribune Corporation (KTC) and its subsidiaries
Tribune Publishing Company - Idaho (TPC), Tribune Publishing Company - Sparks
(Sparks), Nimitz, Kearns-Tribune Investments and Alpine King (collectively
"the Corporation") were organized for the purpose of publishing, printing,
issuing, circulating, and operating newspaper plants and equipment in Salt
Lake City, Utah; Lewiston and Moscow, Idaho; Colfax, Washington; and Sparks,
Nevada.
CONSOLIDATION - The consolidated financial statements include the financial
statements of Kearns-Tribune Corporation and all subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES - Inventories are stated at the lower of cost (on the first-in,
first-out method) or market.
INVESTMENTS - The Corporation's long-term investments are principally
accounted for using the equity method of accounting, except in those instances
where the Corporation owns less than 20% of the investee and is not a partner.
Gains or losses on the sale of the stock of such investments are computed
using the weighted average method.
SECURITIES AVAILABLE FOR SALE AND TRADING SECURITIES - Effective January 1,
1994 (see Note 12), the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." SFAS No. 115 requires the classification of investment
securities as either trading securities, securities available for sale, or
securities held to maturity. Trading securities are carried at fair value
with net unrealized gains or losses included in earnings during the period.
Securities available for sale are carried at fair value with net unrealized
gains or losses (net of taxes) excluded from income and reported as a separate
component of stockholders' equity. Gains or losses are determined on the
specific identification method. Under SFAS No. 115, the Company classified
$398,316,658 and $503,478,460 at December 31, 1996 and 1995, respectively, of
securities as available for sale and $1,298,783 and $1,595,526 at December 31,
1996 and 1995, respectively, of trading securities to reflect the Company's
holding strategy under such statement.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are stated at
cost. Depreciation is computed using straight-line and accelerated methods
over the estimated useful lives of the related assets. Of the property,
plant, and equipment cost shown on the accompanying consolidated balance
sheets, approximately $31,161,000 and $30,852,000 at December 31, 1996 and
1995, respectively, represent the cost of the Corporation's ownership interest
of property and equipment used by Newspaper Agency Corporation (see Note 2).
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS PURCHASED - Excess of cost over
fair value of net assets purchased is being amortized over 40 years using the
straight-line method.
INCOME TAXES - Deferred income taxes are provided for temporary differences in
the bases of assets and liabilities as reported for financial statement
purposes and income tax purposes (see Note 4).
STATEMENTS OF CASH FLOWS - For purposes of the statements of cash flows, the
Corporation considers short-term highly liquid interest-bearing deposits and
investments with an original maturity of three months or less to be cash
equivalents.
F-13
<PAGE>
EARNINGS PER SHARE OF COMMON STOCK - Earnings per share of common stock is
computed using net income (less preferred stock dividend requirements) and the
weighted average number of common shares outstanding of 178,614 in 1996,
178,803 in 1995, and 180,033 in 1994.
LONG-LIVED ASSETS - Impairment of long-lived assets is determined in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and of Long-Lived Assets to be Disposed Of," which was adopted on
January 1, 1996. Adopting SFAS No. 121 had no effect on the Corporation's
financial statements. There were no impairments as of December 31, 1996.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1995 and
1994 amounts to conform with the 1996 reported amounts.
2. INVESTMENTS
SECURITIES AVAILABLE FOR SALE - SHORT-TERM - The amortized cost and estimated
market value of the Company's short-term securities available for sale consist
of the following:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Marketable equity securities $ 7,916 $ 42,134 - $ 50,050
----------- ---------- --------- ----------
DECEMBER 31, 1995
Marketable equity securities $247,428 $1,790,721 - $2,038,149
----------- ---------- --------- ----------
</TABLE>
F-14
<PAGE>
LONG-TERM INVESTMENTS - The amortized cost and estimated market value of the
Company's long-term investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 EQUITY
<S> <C> <C> <C> <C>
Investments - equity method:
Newspaper Agency Corporation -
share of stockholders' equity $10,735,557
Ponderay Newsprint Company
partnership (at equity, see Note 7) 3,944,969
Other (principally other
partnership joint ventures
at equity) 1,602,118
--------------
Total investments - equity method $16,282,644
==============
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
Available for sale securities:
Telecommunications, Inc. (TCI) $ 803,144 $268,177,234 $268,980,378
Liberty Media Group 128,849,485 128,849,485
Mining Companies (at cost) 436,745 436,745
-------------- ------------ --------- ------------
Total available for sale securities $ 1,239,889 $397,026,719 - $398,266,608
============== ============ ========= ============
DECEMBER 31, 1995 EQUITY
Investments - equity method:
Newspaper Agency Corporation -
share of stockholders' equity $ 9,489,620
Ponderay Newsprint Company
partnership (at equity, see Note 7) 2,601,012
Other (principally other
partnership joint ventures at equity) 1,918,583
--------------
Total investments - equity method $14,009,215
==============
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
Available for sale securities:
Telecommunications, Inc. $ 803,144 $375,058,042 $375,861,186
Liberty Media Group 125,140,154 125,140,154
Mining Companies (at cost) 438,971 438,971
-------------- ------------ --------- ------------
Total available for sale securities $ 1,242,115 $500,198,196 - $501,440,311
============== ============ ========= ============
</TABLE>
F-15
<PAGE>
The capital stock of Newspaper Agency Corporation (NAC) and of the mining
companies are not traded, and therefore, do not have a readily determinable
market value. In 1991, the Corporation exchanged certain TCI stock for
Liberty Media stock. During 1994, TCI purchased all outstanding common shares
of Liberty Media in a 1:.975 stock exchange and all Liberty Media preferred
stock in a 1:1 stock exchange. In 1995, TCI approved a 1:4 dividend of
Telecommunications, Inc. Series A Liberty Media Group common stock to holders
of TCI's class A common stock, and a 1:4 dividend of Telecommunications, Inc.
Series B Liberty Media Group common stock to holders of TCI's class B common
stock. Liberty Media Group stock owned by the Corporation had a quoted market
value of approximately $128,849,000 and $125,140,000 at December 31, 1996 and
1995, respectively. The Corporation has no cost basis in Liberty Media Group
stock. At December 31, 1996 and 1995, the Corporation had pledged 700,000
shares of TCI stock as collateral to a note at a bank (see Note 3).
NAC, which is owned 50% by the Corporation and 50% by Deseret News Publishing
Company (Deseret News), acts as agent for the owners in managing and
conducting certain operations of the Salt Lake Tribune and Deseret News
newspapers. NAC retains a commission of 3-1/2% of its net earnings before
Federal income taxes. Pursuant to an agreement expiring in 2012, earnings,
after NAC's commissions, are distributed 58% to the Corporation and 42% to
Deseret News. Deferred income taxes have not been provided on the
undistributed earnings of NAC (included in newspaper revenues) because, in the
opinion of the Corporation, such earnings will be either retained indefinitely
or distributions thereof will not result in significant tax liabilities.
Summarized approximate financial information relating to NAC as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Total assets $ 32,485,000 $ 30,438,000
Stockholders' equity 18,993,713 16,851,000
Revenue 126,331,000 114,974,000 $103,034,000
Earnings from operations 56,379,000 47,743,000 45,482,000
The Corporation's interest:
Stockholders' equity (principally
undistributed net income) $ 10,735,557 $ 9,489,620
============== ============
Net income-included in newspaper
revenue: $ 31,305,000 $ 25,215,000
Distributed 737,000 $ 26,582,000 584,000
Undistributed 616,000
-------------- ------------ ------------
Total $ 32,042,000 $ 27,198,000 $ 25,799,000
============== ============ ============
</TABLE>
F-16
<PAGE>
3. LONG-TERM NOTES PAYABLE
Long-term notes payable at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable to a bank, interest at the LIBOR rate (8.3% at December
31, 1995), payable in installments through 1996 (Note 8) $ 783,079
Note payable to a bank, interest at the LIBOR rate (8.1% and 8.3% at
December 31, 1996 and 1995, respectively), payable in quarterly
installments through 1998 (see Notes 7 and 8) $ 2,430,529 3,500,109
Contract payable to former stockholders for purchase of treasury stock
of a subsidiary, variable interest rate based on the one-year U.S.
Treasury Bill coupon equivalent rate (5.35% and 7.2% at
December 31, 1996 and 1995, respectively), payable in
installments through 2014 1,813,334 1,920,000
Note payable under ESOP plan (see Notes 5 and 9), interest at 75%
of bank's prime rate (6.4% at December 31, 1995), payable in
annual installments through 1996 278,621
------------- -----------
Total 4,243,863 6,481,809
Less current portion (1,406,667) (2,118,367)
------------- -----------
Long-term portion $ 2,837,196 $ 4,363,442
============= ===========
</TABLE>
Scheduled maturities of long-term notes payable are as follows at December
31, 1996:
<TABLE>
<CAPTION>
Year Ending December 31:
<S> <C>
1997 $1,406,667
1998 1,237,196
1999 106,667
2000 106,667
2001 106,666
Thereafter 1,280,000
-------------
Total $4,243,863
=============
</TABLE>
Investment securities with an estimated market value of approximately
$9,144,000 and $13,913,000 at December 31, 1996 and 1995, respectively (see
Note 2), and capital stock of the Corporation (see Note 9) and of a subsidiary
are pledged as collateral to long-term notes payable.
F-17
<PAGE>
4. INCOME TAXES
Deferred tax assets and liabilities as of December 31, 1996 and 1995 consist
of the following temporary differences and carryforward items:
<TABLE>
<CAPTION>
1996 1995
------------------------------- ----------------------------
ASSETS CURRENT LONG-TERM CURRENT LONG-TERM
<S> <C> <C> <C> <C>
Deferred compensation $ 48,882 $ 857,206 $ 42,967 $ 742,042
Postretirement benefits 1,038,596 860,734
Financial statement allowances not
currently recognized for
tax purposes 1,166,054 818,700
Other 125,362 379,285 86,674 293,545
------------- ------------- --------- ------------
Total assets 1,340,298 2,275,087 948,341 1,896,321
------------- ------------- --------- ------------
LIABILITIES
Unrealized gains in
investments available
net for sale (16,217) (152,815,584) (667,939) (186,573,927)
Prepaid pension costs (1,029,854) (840,781)
Depreciation and amortization
Other (6,651,449) (6,401,136)
(1,080) (136,431)
------------- ------------- --------- -------------
Total liabilities (17,297) (160,496,887) (804,370) (193,815,844)
------------- ------------- --------- -------------
Total $1,323,001 $(158,221,800) $ 143,971 $(191,919,523)
============= ============= ========= =============
</TABLE>
Deferred income taxes have not been provided on the undistributed earnings of
NAC (included in newspaper revenues) because, in the opinion of the
Corporation, such earnings will be either retained indefinitely or
distributions thereof will not result in significant tax liabilities, as
explained in Note 2.
The provision for income taxes consists of the following for each of the three
years in the period ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $7,959,052 $5,460,473 $3,667,351
State 1,285,008 1,014,431 623,506
------------ ---------- ---------
Total 9,244,060 6,474,904 4,290,857
Deferred (466,688) (726,863) 40,896
------------ ---------- ----------
Total $8,777,372 $5,748,041 $4,331,753
============ ========== ==========
</TABLE>
The effective income tax rate differs from the maximum Federal tax rate
principally due to state income taxes and amortization of goodwill which is
disallowed for income tax purposes.
F-18
<PAGE>
5. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS - The Corporation has two defined benefit
pension plans, the Utah plan and the Idaho plan, which cover substantially all
employees of Kearns-Tribune Corporation and one of its subsidiaries who have
attained age 21 and have completed at least one year of service. The benefits
are based on years of service and the employee's compensation during the
latest years of employment.
The Corporation's funding policy is to contribute annually the maximum amount
that can be deducted for Federal income tax purposes. Net pension cost
determined by actuarial studies in accordance with SFAS 87 for each of the
three years in the period ended December 31, 1996, respectively, includes the
following components for the Utah and Idaho plans combined:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 294,314 $ 186,513 $ 226,309
Interest cost on projected benefit obligation 539,223 498,872 493,744
Actual return on plan assets (1,564,627) (2,003,893) (278,655)
Net amortization and deferral 602,696 1,188,258 (609,500)
------------ ---------- ---------
Net periodic pension credit $ (128,394) $ (130,250) $(168,102)
============ ========== =========
</TABLE>
The following table sets forth the SFAS 87 funded status at December 31, 1996
and 1995, respectively, for the plan as of the actuarial valuation dates
shown:
<TABLE>
<CAPTION>
UTAH PLAN
DECEMBER 31,
-----------------------------
1996 1995
<S> <C> <C>
Actuarially computed present value of accumulated
benefit obligations:
Vested $ 4,256,826 $ 4,484,226
Nonvested 87,585 92,265
-------------- -----------
Total $ 4,344,411 $ 4,576,491
============== ===========
Actuarially computed present value of benefit obligations -
projected benefit obligation for service rendered to date $(5,048,556) $ (5,157,441)
Plan assets at fair value, consisting principally of
equity securities and corporate bonds 9,572,106 8,106,606
-------------- ------------
Excess of plan assets over projected benefit obligation 4,523,550 2,949,165
Unrecognized net loss (1,170,438) 218,147
Prior service cost not yet recognized in net periodic
pension cost 40,877 44,964
Unrecognized net asset being recognized over 19 years (1,015,233) (1,128,036)
-------------- ------------
Prepaid pension cost included in other assets $ 2,378,756 $ 2,084,240
============== ===========
</TABLE>
F-19
<PAGE>
The actuarial assumptions used in determining the Utah plan's SFAS 87 pension
expense and the projected benefit obligations were:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate 7.50% 7.00% 8.50%
Rate of increase in compensation levels 6.55 6.55 8.20
Expected long-term rate of return on assets 9.00 9.00 9.00
</TABLE>
As of November 1, 1996, the board of directors passed a resolution to
freeze future benefit accruals relating to the Idaho plan. The following
table sets forth the SFAS No. 87 funded status as of the most recent
actuarial valuation dates shown and includes the effect of the 1996
curtailment:
<TABLE>
<CAPTION>
IDAHO PLAN
OCTOBER 1,
---------------------------------
1996 1995
<S> <C> <C>
Actuarially computed present value of benefit obligations:
Vested $ 2,746,486 $ 2,194,500
Nonvested 26,628
------------- -------------
Total $ 2,746,486 $ 2,221,128
============= =============
Actuarially computed present value of benefit obligations -
projected benefit obligation for service rendered to date $(2,746,486) $(2,861,822)
Plan assets at fair value, consisting principally of pooled
investment funds 2,918,777 2,566,369
Adjustment for contribution made from measurement
date to fiscal year end 63,260
------------- -------------
Excess (deficiency) of plan assets over projected
benefit obligation 172,291 (232,193)
Unrecognized net loss 316,864
Prior service cost not yet recognized in net periodic
pension cost 85,192
------------- -------------
Prepaid pension cost included in other assets $ 172,291 $ 169,863
============= =============
</TABLE>
F-20
<PAGE>
The actuarial assumptions used in determining the Idaho plan's SFAS 87
pension expense and the projected benefit obligations were:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Weighted average discount rate 5.50% 6.25% 7.25%
Rate of increase in compensation levels 5.70 5.66 5.70
Expected long-term rate of return on assets 7.75 7.75 7.75
</TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) - The Corporation has an ESOP covering
certain full-time employees who have attained age 21 and have completed at
least one year of service. Under terms of the ESOP, the Corporation will
contribute amounts to be determined by its board of directors but not to
exceed the lesser of $25,000 for each employee or 15% of total employees'
compensation. The Corporation may contribute the specified amounts in cash or
its common stock. All cash contributed to the ESOP is to be used in
purchasing the Corporation's common stock after paying outstanding trust
obligations. Charges to income for contributions to the ESOP for the years
ended December 31, 1996, 1995, and 1994 were approximately $2,000,000,
$1,350,000, and $1,225,000, respectively (see Note 9).
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - The Corporation follows the
requirements of SFAS No. 106, "Accounting for Postretirement Benefits Other
Than Pensions." SFAS 106 requires the Corporation to accrue the estimated
cost of retiree benefit payments during the years the employee provides
services. SFAS 106 allows recognition of the cumulative effect of the
liability in the year of adoption or the amortization of the obligation over a
period of up to twenty years. The Corporation is amortizing the cumulative
effect of the obligation over 20 years.
The following table sets forth the plan's funded status reconciled with the
amount shown in the Corporation's consolidated balance sheets at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 889,317 $ 953,860
Eligible active plan participants 206,461 259,681
-------------- --------------
Total accumulated postretirement benefit obligation 1,095,778 1,213,541
Plan assets at fair value NONE NONE
-------------- --------------
Accumulated postretirement benefit obligation
in excess of plan assets 1,095,778 1,213,541
Unrecognized net (gain) loss from past experience different
from that assumed and from changes in assumptions (151,621) (13,343)
Total accrued postretirement benefit cost 644,899 576,084
-------------- --------------
Unrecognized transition obligation $ 602,500 $ 650,800
============== ==============
</TABLE>
F-21
<PAGE>
Net periodic postretirement benefit cost for 1996, 1995, and 1994 includes the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost $ 14,637 $ 11,500 $ 13,000
Interest cost 77,236 86,000 101,000
Amortization of transition credit 48,300 45,367 48,300
-------- -------- ----------
Total $140,173 $142,867 $ 162,300
======== ======== ==========
</TABLE>
For measurement purposes, a 12.0 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1996; the rate was
assumed to decrease gradually to 5.0 percent through 2010 and remain at that
level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1996 by approximately $85,400 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year then
ended by approximately $6,100.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent.
6. EMPLOYMENT AGREEMENTS AND DEFERRED COMPENSATION CONTRACTS
The Corporation has employment agreements with certain employees to provide
continued employment until retirement. Certain of the agreements also provide
for consulting services and noncompetition agreements after retirement. All
of the agreements, except for one, are currently being paid and have 6-10
years remaining in the contracts. The other agreement, also covering a
fifteen-year period from the date of retirement, will be based upon 55% of the
employee's final annual salary. The Corporation has recorded the estimated
liability related to such agreements of approximately $2,244,000 and
$2,105,000 at December 31, 1996 and 1995, respectively.
7. COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation and the Deseret News are jointly obligated under a purchase
contract to construct and purchase offset printing presses and related
equipment at a total contract price of approximately $21,700,000. At December
31, 1996 and 1995, the Corporation has recorded contracts payable of
approximately $2,431,000 and $3,500,000, respectively, representing 58% (the
Corporation's share) of the cost of equipment (see Note 3).
During 1987, Ponderay Newsprint Company (Ponderay), a partnership in which a
subsidiary of the Corporation has a 6.0% interest, proceeded with plans to
construct and operate a newsprint mill in Washington state. The subsidiary's
net investment in the project through December 31, 1996 and 1995 is
approximately $3,945,000 and $2,601,000, respectively (see Note 2). The
Corporation has guaranteed the performance of the subsidiary's participation
in the project. Through its subsidiary, the Corporation invested $8.8 million
for its 6% interest in the equity of the partnership over the period during
which the mill was constructed. In addition, the Corporation has guaranteed
6% (or $11.9 million) of the project's loan facility arranged with a syndicate
of banks. Upon meeting certain performance criteria, this guarantee reduces
to a maximum of $7.5 million. As of December 31, 1996 and 1995, approximately
$198,500,000 and $241,000,000, respectively, has been borrowed under the terms
of the project loan facility and, of the amount outstanding, the Corporation
has guaranteed $7,500,000 of the project debt as of December 31, 1996 and
1995. In addition, Ponderay has been issued a letter of credit in the amount
of $10,000,000 with the Corporation's 6% interest being $600,000.
The Corporation is self-insured for its employees' health care costs and has
entered into contracts with certain health care providers to administer the
employees' health care needs. The Corporation also has a stop loss policy in
effect as of December 31, 1996 and 1995. Under the terms of the contract, the
maximum liability of the Corporation for claims incurred during 1996 and 1995
was approximately $789,000 and $773,000, respectively.
F-22
<PAGE>
At December 31, 1996 and 1995, the Corporation has accrued approximately
$194,000 and $197,000, respectively, for claims incurred but not reported.
Based upon prior experience with the claims, management believes the recorded
amount is adequate to cover all future claims incurred but not reported.
At December 31, 1996, the Corporation is involved in various claims and
litigation in the ordinary course of business. In the opinion of management
or of management and its legal counsel, potential liabilities arising from
these claims, if any, will not have a material effect on the consolidated
financial statements of the Corporation.
8. RELATED PARTY TRANSACTIONS
The President of a subsidiary company was a member of the Board of Directors
of West One during the years ended December 31, 1996, 1995, and 1994. During
1996, West One merged with U.S. Bancorp and the Board of Directors of West One
was dissolved. The Corporation had the following balances and transactions
with U.S. Bancorp and West One Bank.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
At December 31:
Cash and interest-bearing deposits $2,076,693 $2,915,595
For the year ended December 31:
Interest income $ 95,052 $ 74,861 $26,085
Service charges 22,997 23,799 19,512
</TABLE>
The President of the Corporation was a member of the Board of Directors of
First Interstate Bank of Utah (Interstate) during the years ended December 31,
1995 and 1994. The President resigned from the Board of Directors during
1995. The Corporation had the following balances and transactions with
Interstate:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
At December 31:
Cash and interest-bearing deposits $ 4,839,855
Certificates of deposit 10,462,904
Long-term notes payable 4,283,188
For the year ended December 31:
Interest income 666,240 $306,342
Interest expense 442,111 424,096
</TABLE>
A member of the Corporation's Board of Directors acts as the Company's
insurance agent for life insurance policies on key employees which are held
with Fidelity Union Life Insurance Company (Fidelity). Total premiums paid to
Fidelity on these policies in 1996, 1995, and 1994 approximated $277,000,
$924,000, and $923,000, respectively.
Certain officers have been extended a loan to purchase company stock. The
loans are being repaid with dividends from the stock. At December 31, 1996
and 1995, the Corporation's receivable from the officers was approximately
$52,000 and $56,700, respectively.
The Corporation received approximately $249,600 each year during 1996, 1995,
and 1994 in rental payments from NAC (see Note 2).
An officer/director of the Corporation is a member of the Board of Directors
of TCI (see Note 2).
F-23
<PAGE>
The Corporation sold 17,629, 14,976, and 11,510 tons of newsprint to NAC for
approximately $12,439,507, $10,248,000, and $5,506,000 during 1996, 1995, and
1994, respectively. The net gain (loss) from such transactions of
approximately $(555,386), $595,000, and $158,000, respectively, is recorded as
income or loss in the accompanying consolidated statements of income.
Certain shareholders have been extended loans. Total accounts receivable from
shareholders as of December 31, 1996 was $1,868,000. These loans are recorded
in accounts and notes receivable on the consolidated balance sheet.
9. EMPLOYEE STOCK OWNERSHIP PLAN
On June 29, 1989, the ESOP (see Notes 3 and 5) borrowed $1,685,070 from a bank
pursuant to a loan payable in seven installments and bearing interest, payable
quarterly, at 75% of the bank's prime commercial rate. On such date,
the ESOP purchased 2,133 shares of common stock from certain of the
Corporation's stockholders. During 1990, an additional 356 shares were
purchased. Net borrowings on the ESOP increased $314,930. The shares
purchased by the ESOP have been pledged to the bank as collateral for the
loan. In addition, the Corporation has agreed to guarantee the debt incurred
by the ESOP and to make annual contributions to the ESOP in at least such
amounts as are necessary to repay the principal and interest of such debt.
Because the Corporation guarantees the ESOP's debt, the loan balance is
included in the Corporation's consolidated balance sheets and a corresponding
amount of unearned compensation is recorded as a reduction of stockholders'
equity. The Corporation's contributions to the ESOP are used to make loan
interest and principal payments. The unearned compensation and the loan
obligation were reduced by the amount of any principal payments made by the
Corporation to the ESOP and by the ESOP to the bank, respectively. With each
loan payment, a portion of the common stock is released from the pledge to the
bank and allocated to participating employees. Any dividends on unallocated
shares are used to pay principal or interest on the loan or other plan
expenses. During 1996, this loan was paid in full.
10. COMMON STOCK
On April 25, 1996, the Board of Directors authorized, as a bonus, the issuance
of 425 shares of common stock to certain key management employees.
Compensation expense of approximately $1,037,000, based upon the fair market
value of the stock as of April 25, 1996 (date of authorization), has been
accrued as salaries and wages in the consolidated statement of income. This
stock was issued in January 1997 and is therefore not reflected as being
issued in the consolidated statement of stockholders' equity at December 31,
1996.
11. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires companies to report the estimated
fair value of certain financial instruments. The following estimated fair
value amounts have been determined by the Corporation using available market
information and appropriate valuation methodologies:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------- -----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Assets:
Trading securities $ 1,298,783 $ 1,298,783 $ 1,595,526 $ 1,595,526
Securities available for sale - 50,050 50,050 2,038,149 2,038,149
short-term investments
Long-term investments - 398,266,608 398,266,608 501,440,311 501,440,311
Securities available for sale
Liabilities - Long-term notes
payable 4,243,863 4,243,863 6,481,809 6,481,809
Off-balance sheet financial
instruments - NONE
</TABLE>
F-24
<PAGE>
Cash and interest bearing deposits and certificates of deposit are carried at
amounts which approximate fair value. For the Corporation's notes payable,
carrying value approximates estimated fair value since all material notes have
floating rates approximating current interest rates. Estimated fair values
for the Corporation's short-term and long-term investments are based on quoted
market prices, where available. If quoted market prices are not available for
investments, estimated fair values are based on the carrying values inasmuch
as substantially all investments for which no market price is available are
closely held, non-publicly traded companies.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996 and 1995. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these consolidated financial statements since that date, and
current estimates of fair value may differ significantly from the amounts
presented herein.
12. RESTATEMENT
The Corporation's management has restated the consolidated financial
statements for 1995 and the consolidated statements of income, stockholders'
equity, and cash flows for 1994 to comply with Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments
in Debt and Equity Securities," Statement of Financial Accounting Standards
No. 87 (SFAS 87), "Employer's Accounting for Pensions" (in regards to the
Corporation as well as to NAC), and certain deferred compensation contracts.
In addition, the Company's management also adjusted its investment in NAC to
reflect the Company's equity in the financial position and results of
operations of NAC as a result of NAC's compliance with SFAS 87. The
restatement is as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY EFFECT OF
DECEMBER 31, 1995 REPORTED RESTATEMENT AS RESTATED
<S> <C> <C> <C>
ASSETS:
Short-term investments $ 1,842,954 $ (1,842,954)
Trading securities 1,595,526 $ 1,595,526
Securities available for sale - current 2,038,149 2,038,149
Deferred income tax asset - current 768,943 (624,972) 143,971
Long-term investments 12,537,284 1,471,931 14,009,215
Securities available for sale - long-term 501,440,311 501,440,311
Other assets 4,697,110 2,254,103 6,951,213
LIABILITIES:
Accrued liabilities - current (2,905,075) 460,892 (2,444,183)
Deferred income tax liabilities -
long-term (5,246,857) (186,672,666) (191,919,523)
Other liabilities (2,565,472) (2,565,472)
EQUITY:
Retained earnings (59,217,973) (2,807,797) (62,025,770)
Unrealized gain on securities
available for sale - net (314,747,051) (314,747,051)
STATEMENT OF INCOME:
Revenue - newspaper revenue (41,384,541) (434,325) (41,818,866)
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
AS PREVIOUSLY EFFECT OF
DECEMBER 31, 1995 REPORTED RESTATEMENT AS RESTATED
<S> <C> <C> <C>
Expenses:
Salaries and wages 11,684,209 76,278 11,760,487
Employee benefits and payroll taxes 3,697,284 (233,667) 3,463,617
Interest 563,660 69,215 632,875
Provision for income taxes 5,715,152 32,889 5,748,041
Net income (9,445,622) (489,610) (9,935,232)
DECEMBER 31, 1994
STATEMENT OF INCOME:
Revenue - newspaper revenue (39,346,342) (439,950) (39,786,292)
Expenses:
Salaries and wages 11,069,031 82,030 11,151,061
Employee benefits and payroll taxes 3,643,778 (164,956) 3,478,822
Interest 500,534 74,550 575,084
Provision for income taxes 4,328,628 3,125 4,331,753
Net income (10,769,733) (445,201) (11,214,934)
</TABLE>
13. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, SFAS No. 128, "Earnings Per Share," was issued. SFAS No.
128 changes the computation, presentation, and disclosure requirements of
earnings per share (EPS) for entities with publicly held common stock.
Although such statement is not effective until December 31, 1997, had such
statement been adopted for each of the three years in the period ended
December 31, 1996, SFAS No. 128 would have had no effect on the
Corporation's EPS.
14. SUBSEQUENT EVENT
The Corporation entered into an Agreement and Plan of Merger dated as of
April 18, 1997, to sell the Corporation's stock to TCI. The sale is
subject to certain approvals and is anticipated to close in mid-1997. As a
result of the agreement, the Company will terminate its ESOP at the date of
sale.
*******
F-26
<PAGE>
UNAUDITED
NEWSPAPER AGENCY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
FIRST QUARTER ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
03/97 03/96
----------- -----------
<S> <C> <C>
Revenue, net of commissions and
discounts:
Advertising 23,200,150 21,337,778
Circulation 6,556,780 6,649,792
Other 558,323 638,208
----------- -----------
Total 30,315,253 28,625,778
----------- -----------
Operating expenses:
Salaries and wages 5,646,607 5,369,002
Employee benefits 1,216,029 1,350,567
Newsprint and ink 4,824,172 6,327,570
Supplies 284,417 282,690
Administration 836,862 813,195
Transportation and delivery 2,296,907 2,252,722
Provision for losses on receivables 290,765 277,500
Other production, distribution, and
operating costs 990,499 1,115,230
----------- -----------
Total 16,386,258 17,788,476
----------- -----------
Earnings from operations 13,928,995 10,837,302
Earnings distributions to Principals 13,445,460 10,462,239
----------- -----------
Earnings before federal
income taxes 483,535 375,063
========================
</TABLE>
F-27
<PAGE>
UNAUDITED
NEWSPAPER AGENCY CORPORATION
CONSOLIDATED BALANCE SHEET
FIRST QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets 03/97 1996
- ---------------------------------------- ---------- ----------
Current assets:
Cash and equivalents 6,014,520 4,714,073
Receivables:
Trade accounts:
Advertising 13,286,225 15,249,548
Circulation (383,839) 1,303,044
Principals 43,002 131,439
Other 228,717 220,458
----------- -----------
Sub total 19,188,625 21,618,562
Less allowance for doubtful accounts (1,681,251) (1,587,992)
----------- -----------
Net receivables 17,507,374 20,030,570
Inventories 2,058,171 2,179,522
Prepaid expenses 103,432 273,410
----------- -----------
Total current assets 19,668,977 22,483,502
----------- -----------
Other assets:
Investments 5,045,748 4,014,526
Cash value of life insurance - net 370,573 370,573
Prepaid pension costs 5,560,078 5,560,078
Deposits 31,482 56,481
----------- -----------
Total other assets 11,007,881 10,001,658
----------- -----------
Total assets 30,676,858 32,485,160
=========== ===========
Liabilities and Stockholders' Equity
- ----------------------------------------
Current liabilities:
Accounts payable 3,110,946 1,756,858
Accrued salaries, vacation, and benefits 1,642,209 2,699,741
Accrued payroll and sales taxes 69,284 318,340
Accrued health care benefits 2,298,212 2,290,217
Deferred revenue 0 2,133,778
Distributions payable to Principals 23,465 1,210,083
Other liabilities 762,266 285,373
----------- -----------
Total current liabilities 7,906,382 10,694,390
Post-retirement benefits 3,293,228 2,797,057
Deferred income taxes 1,890,000 1,890,000
----------- -----------
Total liabilities 13,089,610 15,381,447
----------- -----------
Stockholders' equity:
Common stock 10,000 10,000
Retained earnings 17,577,248 17,093,713
----------- -----------
Total stockholders' equity 17,587,248 17,103,713
Commitments and contingencies 0
----------- -----------
Total liabilities and
stockholders' equity 30,676,858 32,485,160
=========== ===========
</TABLE>
F-28
<PAGE>
UNAUDITED
NEWSPAPER AGENCY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIRST QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
03/97 1996
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings 483,535 1,843,585
Adjustments to reconcile net earnings
to net cash Provided by (used in)
operating activity 290,765 1,385,503
Changes in operating assets and
liabilities:
Advertising Receivables 1,963,323 (1,303,214)
Circulation Receivables 1,686,883 (302,108)
Principal Receivables 88,437 (30,931)
Other Receivables 85,000 111,523
Inventories 121,351 241,613
Prepaid expenses 169,978 126,393
Cash value of life insurance 0 (14,720)
Prepaid pension costs 0 (880,689)
Deposits 24,999 (24,999)
Accounts payable 1,354,088 (682,571)
Accrued salaries, vacation and
benefits (1,057,532) (228,188)
(249,056) 39,540
Accrued health care benefits 7,995 327,921
Other liabilities 476,893 149,307
Deferred revenue (1,393,320) 77,593
Distributions to principals (1,186,618) (27,543)
Postretirement benefits liability 496,171 248,408
Deferred income taxes 0 299,000
----------- -----------
Net cash provided by
operating activities 3,362,892 1,355,423
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale
securities (1,031,222) (5,533,261)
Proceeds from sale of available for
sale securities 0 4,897,055
Purchase of held to maturity
securities (1,031,223) (3,378,320)
Net cash provided by (used
in) investing activities (2,062,445) (4,014,526)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,300,447 (2,659,103)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 4,714,073 7,373,176
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR 6,014,520 4,714,073
=========== ===========
</TABLE>
F-29
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Newspaper Agency Corporation:
We have audited the accompanying balance sheets of Newspaper Agency Corporation
as of December 31, 1996 and 1995, and the related statements of earnings and
retained earnings, and cash flows for each of the years in the three-year period
ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Newspaper Agency Corporation as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
January 24, 1997
F-30
<PAGE>
NEWSPAPER AGENCY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues, net of commissions and discounts:
Advertising revenue $ 97,437,865 86,268,802 76,601,434
Circulation revenue 26,365,655 26,040,171 24,156,172
Other revenue 2,527,058 2,664,535 2,275,991
------------ ----------- -----------
126,330,578 114,973,508 103,033,597
------------ ----------- -----------
Operating expenses:
Salaries and wages 24,554,361 23,198,429 21,929,088
Employee benefits 2,394,952 3,150,674 3,228,111
Newsprint and ink 23,862,099 22,495,081 14,549,578
Supplies 1,173,051 990,225 1,028,959
Administration 3,237,162 3,064,786 2,909,761
Transportation and delivery 7,899,463 7,095,672 6,723,175
Provision for losses on receivables 1,385,503 979,788 1,031,275
Other production, distribution, and operating costs 5,444,921 6,255,752 6,151,644
------------ ----------- -----------
69,951,512 67,230,407 57,551,591
------------ ----------- -----------
Earnings from operations 56,379,066 47,743,101 45,482,006
Earnings distributions to Principals (note 3) 53,575,211 45,371,629 43,172,766
------------ ----------- -----------
Earnings before federal income taxes 2,803,855 2,371,472 2,309,240
Federal income taxes (note 7) 960,270 814,648 802,451
------------ ----------- -----------
Net earnings 1,843,585 1,556,824 1,506,789
Retained earnings at beginning of year 15,250,128 13,693,304 12,186,515
------------ ----------- -----------
Retained earnings at end of year $ 17,093,713 15,250,128 13,693,304
============ =========== ===========
See accompanying notes to financial statements.
</TABLE>
F-31
<PAGE>
NEWSPAPER AGENCY CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,714,073 7,373,176
Receivables:
Trade accounts:
Advertising 15,249,548 14,547,187
Circulation 1,303,044 1,327,745
Principals (note 3) 131,439 100,508
Other 220,458 331,981
----------- ----------
16,904,489 16,307,421
Less allowance for doubtful receivables (1,587,992) (1,130,151)
----------- ----------
Net receivables 15,316,497 15,177,270
Inventories (note 4) 2,179,522 2,421,135
Prepaid expenses 273,410 399,803
----------- ----------
Total current assets 22,483,502 25,371,384
----------- ----------
Other assets:
Investments (note 5) 4,014,526 -
Cash value of life insurance, net 370,573 355,853
Prepaid pension cost (note 6) 5,560,078 4,679,389
Deposits 56,481 31,482
----------- ----------
Total other assets 10,001,658 5,066,724
----------- ----------
$32,485,160 30,438,108
=========== ==========
See accompanying notes to financial statements.
Liabilities and Stockholders' Equity 1996 1995
------------------------------------ ----------- ----------
Current liabilities:
Accounts payable $ 1,756,858 2,439,429
Accrued salaries, vacation, and benefits (note 6) 2,699,741 2,927,929
Accrued payroll and sales taxes 318,340 278,800
Accrued health care benefits 2,290,217 1,962,296
Deferred revenue 2,133,778 2,056,185
Distributions payable to Principals (note 3) 1,210,083 1,237,626
Other liabilities 285,373 136,066
----------- ----------
Total current liabilities 10,694,390 11,038,331
Postretirement benefit liability (note 6) 2,797,057 2,548,649
Deferred income taxes (note 7) 1,890,000 1,591,000
----------- ----------
Total liabilities 15,381,447 15,177,980
----------- ----------
Stockholders' equity:
Common stock, $100 par value; 100 shares authorized, issued, and outstanding 10,000 10,000
Retained earnings 17,093,713 15,250,128
----------- ----------
Total stockholders' equity 17,103,713 15,260,128
Commitments and contingencies (notes 9 and 10)
----------- ----------
$32,485,160 30,438,108
=========== ==========
</TABLE>
F-32
<PAGE>
NEWSPAPER AGENCY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,292,720 1,089,197 1,032,804
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Provision for losses on receivables 1,385,503 979,788 1,031,275
Changes in operating assets and liabilities:
Advertising receivables (1,303,214) (3,333,221) (2,232,344)
Circulation receivables (302,108) (458,749) (397,398)
Principals receivables (30,931) 173,298 867,191
Other receivables 111,523 77,805 (138,477)
Inventories 241,613 (622,925) (611,811)
Prepaid expenses 126,393 16,000 451,023
Cash value of life insurance, net (14,720) (14,014) (11,295)
Prepaid pension costs (880,689) (748,836) (758,534)
Deposits (24,999) - -
Accounts payable (682,571) 87,532 (1,384,467)
Accrued salaries, vacation, and benefits (228,188) 8,454 (497,674)
Accrued payroll and sales taxes 39,540 95,219 107,266
Accrued health care benefits 327,921 358,801 814,505
Other liabilities 149,307 73,783 12,889
Deferred revenue 77,593 (780,394) 2,270,617
Distributions to principals (27,543) 1,342,719 55,168
Postretirement benefit liability 248,408 534,584 395,850
Deferred income taxes 299,000 255,000 258,000
----------- ---------- ----------
Net cash provided by (used in) operating 1,355,423 (398,332) 1,738,573
activities
----------- ---------- ----------
Cash flows from investing activities:
Purchase of available-for-sale securities (5,533,261) - -
Proceeds from sale of available-for-sale securities 4,897,055 - -
Purchase of held-to-maturity securities (3,378,320) - -
----------- ---------- ----------
Net cash used in investing activities (4,014,526) - -
----------- ---------- ----------
Net decrease in cash and cash equivalents (2,659,103) (398,332) 1,738,573
Cash and cash equivalents at beginning of year 7,373,176 7,771,508 6,032,935
----------- ---------- ----------
Cash and cash equivalents at end of year $ 4,714,073 7,373,176 7,771,508
=========== ========== ==========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid for income taxes $ 649,058 562,406 561,751
Supplemental Schedule of Noncash Operating Activities
- -----------------------------------------------------
The Company wrote off trade accounts receivable for:
Advertising $ 600,853 613,806 580,470
Circulation 326,809 256,150 265,438
See accompanying notes to financial statements.
</TABLE>
F-33
<PAGE>
NEWSPAPER AGENCY CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) Organization and Business
-------------------------
Newspaper Agency Corporation (the Company) was incorporated on August 30,
1952, as a result of a contract made on August 12, 1952, between Kearns-
Tribune Corporation and Deseret News Publishing Company (Principals). The
Principals each own directly 50 percent of the common stock of the Company.
The contract agreement expires December 31, 2012, with renewal options
beyond that date.
The Company was organized for the exclusive purpose of acting as an agent
for the Principals to manage, print, circulate, distribute, and handle the
advertising for their respective Utah daily newspapers. The Principals
maintain separate control and direction of their editorial and news
departments, the advertising and circulation rates, and the policies of
their respective newspapers. Their operating costs are not included in the
financial statements of the Company. All of the buildings, machinery, and
equipment used in the operations are owned by the Principals. In addition,
under the amended agreement, the Company acting upon approval from the
Principals, may procure equipment that is deemed necessary or advisable for
the efficient publication of the newspapers. The Company bills the
Principals, at cost, for such equipment purchases and other direct charges
(note 3).
In accordance with the above agreement, as amended, earnings from operations
of the Company are adjusted to account for pension costs on a cash basis
(Adjusted Earnings), to determine annual distributions to principals. The
Company retains 3.5 percent of Adjusted Earnings and the balance of Adjusted
Earnings is distributed 58 percent to Kearns-Tribune Corporation and 42
percent to Deseret News Publishing Company.
(2) Summary of Significant Accounting Policies
------------------------------------------
(a) Inventories
-----------
Newsprint is stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method.
Supplies and parts are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(b) Income Taxes
------------
The Company reports its 3.5 percent of earnings from operations as
income for federal income tax purposes. The earnings distributed to
Principals are included in their respective federal income tax returns.
However, total earnings from operations are reported by the Principals
at their respective percentage share for state franchise tax purposes.
No state franchise tax is recorded or paid by the Company. The state tax
arrangement is based on an oral agreement between the Principals and the
Utah State Tax Commission.
The Company accounts for income taxes using the asset and liability
method, under which deferred tax assets and liabilities are recorded
based on the differences between the tax bases of assets and liabilities
and their respective carrying amounts for financial reporting purposes,
referred to as "temporary differences." Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(c) Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months
or less to be cash equivalents.
F-34
<PAGE>
NEWSPAPER AGENCY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(d) Investments
-----------
Investments as of December 31, 1996 consisted of U.S. Agency and equity
securities. The Company classifies its debt and equity securities in one
of three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses, net of the related tax effect, on available-
for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Realized
gains and losses from the sale of available-for-sale securities are
determined on a specific-identification basis.
A decline in the market value of any available-for-sale or held-to-
maturity security below cost that is deemed to be other than temporary
results in a reduction in carrying amount to fair value. The impairment
is charged to earnings and a new cost basis for the security is
established. Premiums and discounts are amortized or accreted over the
life of the related held-to-maturity security as an adjustment to yield
using the effective interest method. Dividend and interest income are
recognized when earned.
(e) Use of Estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(f) Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform with the
1996 presentation.
(3) Related Party Transactions
--------------------------
Transactions with the Principals are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Current receivables from Principals:
Kearns-Tribune Corporation $ 89,153 72,008
Deseret News Publishing Company 42,286 28,500
----------- ----------
$ 131,439 100,508
=========== ==========
Distributions payable (excess distributions) to Principals:
Kearns-Tribune Corporation $ 729,720 435,528
Deseret News Publishing Company 480,363 802,098
----------- ----------
$ 1,210,083 1,237,626
=========== ==========
Earnings distributions to Principals:
Kearns-Tribune Corporation $31,304,947 26,581,506 25,215,596
Deseret News Publishing Company 22,270,264 18,790,123 17,957,170
----------- ---------- ----------
$53,575,211 45,371,629 43,172,766
=========== ========== ==========
</TABLE>
F-35
<PAGE>
NEWSPAPER AGENCY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(4) Inventories
-----------
<TABLE>
<S> <C> <C>
Inventories are summarized as follows:
1996 1995
----------- ----------
Newsprint at LIFO cost $ 1,960,149 2,091,928
Supplies and parts at FIFO cost 219,373 329,207
----------- ----------
$ 2,179,522 2,421,135
=========== ==========
</TABLE>
Estimated replacement cost of inventories exceeded the LIFO inventory value
by $709,238 and $2,025,765 at December 31, 1996 and 1995, respectively.
During 1996 newsprint quantities were reduced. This reduction resulted in a
liquidation of LIFO inventory quantities carried at different costs
prevailing in prior years as compared with the cost of 1996 purchases, the
effect of which increased newsprint costs by approximately $44,500 and
decreased net income by approximately $44,500.
(5) Investments
-----------
Inventories as of December 31, 1996 are summarized as follows:
<TABLE>
<S> <C>
Available-for-sale securities - Equity securities $ 636,206
Held-to-maturity securities - U.S. government agency securities
maturing at various dates from 1998 through 2000 3,378,320
------------
$4,014,526
============
</TABLE>
The carrying value of investments (cost) approximates their fair value. No
unrealized holding gains or losses were recognized for the year ended
December 31, 1996.
(6) Employee Benefit Plans
----------------------
Pension Plans
-------------
The Company has a noncontributory defined benefit pension plan covering
substantially all employees with service in excess of one year. Benefits are
provided upon retirement, disability, death, or termination of employment.
Benefits are payable in monthly installments, in an amount determined as a
percentage of compensation. The Company makes contributions in amounts
determined by the Board of Directors based on minimum and maximum funding
levels recommended by the plan's actuaries.
F-36
<PAGE>
NEWSPAPER AGENCY CORPORATION
NOTES TO FINANCIAL STATEMENTS
The following table sets forth the plan's funded status at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (9,733,901) (10,159,113)
============ ===========
Accumulated benefit obligation $(13,290,249) (13,577,784)
============ ===========
Projected benefit obligation for service rendered to date $(15,611,710) (16,913,963)
Plan assets at fair value 31,092,210 27,394,216
------------ -----------
Plan assets in excess of projected benefit obligation 15,480,500 10,480,253
Unrecognized net gain (5,440,993) (761,507)
Unrecognized transition credit (4,479,429) (5,039,357)
------------ -----------
Prepaid pension cost $ 5,560,078 4,679,389
============ ===========
</TABLE>
Plan assets include bonds, common stock, real estate, and other readily
marketable investments.
Net pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Service cost earned during the period $ 612,985 444,395 524,991
Interest cost on projected benefit obligation 1,219,620 1,157,274 1,102,908
Actual return on plan assets (5,599,050) (5,565,805) (455,481)
Amortization of transition credit (559,928) (559,928) (559,928)
Deferred investment gain 3,445,684 3,775,228 (1,371,024)
----------- ---------- ----------
Net pension benefit $ (880,689) (748,836) (758,534)
=========== ========== ==========
</TABLE>
Assumptions used in accounting for the pension plan as of December 31, 1996,
1995, and 1994 were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Discount rates 7.75% 7.25% 8.5%
Rates of increase in compensation levels 5.0 5.0 5.0
Expected long-term rate of return on assets 8.0 8.0 8.0
</TABLE>
The Company also made contributions to various union pension plans totaling
$122,284, $117,846, and $120,632 for 1996, 1995, and 1994, respectively. The
Company has no liability with respect to contributions to these plans other than
its annual contribution, which is contractually determined.
Effective October 1, 1996, the pension plan was amended. The amendment created
an IRS Code Section 401(h) Medical Benefits Account. Through this account
qualified retiree medical benefits provided by the Company are paid by excess
plan assets. In 1996, $504,974 of retiree medical benefits were paid through
this 401(h) account.
Postretirement Health Plan
- --------------------------
The Company sponsors a health care plan that provides postretirement medical
benefits to full-time employees who meet minimum age and service requirements.
The postretirement plan is contributory, with retiree contributions adjusted
annually, and contains other cost-sharing features such as deductibles and
coinsurance. The Company's current funding policy is not to fund the
postretirement plan.
F-37
<PAGE>
NEWSPAPER AGENCY CORPORATION
NOTES TO FINANCIAL STATEMENTS
The following table presents the postretirement plan's funded status reconciled
with amounts recognized in the Company's balance sheet as of December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents $ 5,864,568 5,910,842
Active plan participants 1,357,806 1,468,795
------------ -----------
7,222,374 7,379,637
Postretirement plan assets at fair value - -
------------ -----------
7,222,374 7,379,637
Accumulated postretirement benefit obligation in excess of postretirement plan
assets:
Unrecognized transition obligation (12,784,000) (13,584,000)
Unrecognized prior service cost 6,586,441 7,210,157
Unrecognized net gain 2,014,530 1,768,276
------------ -----------
3,039,345 2,774,070
Less current portion included in accrued salaries, vacation, and benefits (242,288) (225,421)
------------ -----------
Postretirement plan benefit liability $ 2,797,057 2,548,649
============ ===========
Net periodic postretirement plan benefit costs for 1996, 1995, and 1994 include the
following components:
1996 1995 1994
------------ ----------- ---------
Service cost $ 86,650 75,481 104,858
Interest cost 523,413 545,095 718,507
Net amortization and deferral 124,994 60,025 176,635
------------ ----------- ---------
Net periodic postretirement plan benefit cost $ 735,057 680,601 1,000,000
============ =========== =========
</TABLE>
For measurement purposes, a 12.0 percent annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was assumed
for 1996; the rate was assumed to decrease gradually to 5.75 percent by the year
2009 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. If the health care
cost trend rate was increased by one percentage point for each year,
postretirement plan benefit expense would have increased approximately $42,828
in 1996, and the actuarial present value of accumulated postretirement plan
benefit obligations at December 31, 1996, would have increased $573,456.
The weighted-average discount rate used in determining the accumulated
postretirement plan benefit obligation was 7.75 and 7.25 percent at December 31,
1996 and 1995, respectively.
Other Plans
- -----------
The Company also has two 401(k) savings plans: the Retirement Savings Plan for
union employees and the Security Savings Plan for nonunion employees. The
401(k) plans include substantially all employees with service in excess of one
year. Participants in the 401(k) plans may elect to defer from 1 to 15 percent
of their compensation. For the Security Savings Plan, the Company will, from
corporate profits, make a matching contribution of 50 percent of the
participant's contribution. Only participant contributions of up to 6 percent
of the participant's compensation are eligible for the 50 percent matching
contribution. The Company made contributions to the Security Savings Plan
totaling $237,033, $228,216 and $216,167 for 1996, 1995, and 1994, respectively.
F-38
<PAGE>
NEWSPAPER AGENCY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(7) Income Taxes
------------
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
-------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1996:
U.S. federal $661,270 299,000 960,270
Year ended December 31, 1995:
U.S. federal $559,648 255,000 814,648
Year ended December 31, 1994:
U.S. federal $544,451 258,000 802,451
</TABLE>
The actual current tax expense differs from the "expected" tax expense for
those years computed by applying the U.S. corporate tax rate of 34 percent
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense $953,311 806,300 785,142
Other 6,959 8,348 17,309
-------- ------- -------
Actual tax expense $960,270 814,648 802,451
======== ======= =======
</TABLE>
The Company's deferred income tax liability primarily relates to prepaid pension
costs at December 31, 1996 and 1995.
(8) Disclosure About the Fair Value of Financial Instruments
--------------------------------------------------------
The carrying value for certain short-term financial instruments that mature
or reprice frequently at market rates, approximates their fair value. Such
financial instruments include: cash and cash equivalents, current
receivables, other assets, accounts payable, and accrued liabilities.
(9) Commitments
-----------
The Company occupies facilities and uses certain equipment under
noncancelable leases that are accounted for as operating leases. Total
rental expense for operating leases for 1996, 1995, and 1994, including
contingent rentals and net of rental income received, was $457,759,
$447,049, and $435,069, respectively.
Future minimum lease payments under such leases as of December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
Year ended December 31:
<S> <C>
1997 $ 149,419
1998 145,500
1999 145,500
2000 144,875
2001 144,000
Thereafter 360,000
------------
$1,089,294
============
</TABLE>
Rental expense for 1996, 1995, and 1994 includes $380,375, $383,671, and
$378,936, respectively, for real properties leased from the Newspaper
Agency Corporation Pension Plan (the Plan) (note 6) and the Kearns-Tribune
Corporation, related parties of the Company. The lease agreement with the
Kearns-Tribune Corporation is on a month-to-month basis.
In relation to the lease agreement between the Plan and the Company, an
exemption from the prohibited transaction restrictions of ERISA was
received and became effective July 1, 1984. The lease agreement between the
Plan and the Company expires July 31, 2003. The annual rent is $144,000,
payable in monthly installments, with an annual accelerator clause linked
to an identified consumer price index. The Company is required to pay all
property taxes, insurance, repairs, and maintenance on this real property.
(10) Contingencies
-------------
As of December 31, 1996 and 1995 the Company had issued and outstanding a
$475,000 letter of credit related to its workers' compensation insurance
policy. The insurer has the right to call upon this letter of credit if the
Company defaults on its workers' compensation obligations. In the opinion
of management, the insurer will not draw upon this letter of credit.
F-39
<PAGE>
NEWSPAPER AGENCY CORPORATION
NOTES TO FINANCIAL STATEMENT
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the option of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.
F-40
<PAGE>
APPENDIX I
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
TELE-COMMUNICATIONS, INC.,
TCI KT MERGER SUB, INC.,
AND
KEARNS-TRIBUNE CORPORATION
DATED AS OF APRIL 18, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND CONSTRUCTION...........................................1
1.1 Certain Definitions........................................1
1.2 Additional Definitions.....................................3
1.3 Terms Generally............................................4
ARTICLE II
THE MERGER AND RELATED MATTERS.........................................5
2.1 The Merger.................................................5
2.2 Closing....................................................6
2.3 Conversion of Securities...................................6
2.4 Dissenting Shares..........................................7
2.5 Exchange of Shares.........................................7
2.6 Changes in TCI Series A Stock..............................9
ARTICLE III
CERTAIN ACTIONS........................................................9
3.1 Stockholder Meeting........................................9
3.2 Registration Statement and Other Commission Filings........9
3.3 Identification of Affiliates..............................10
3.4 State Takeover Statutes...................................10
3.5 Reasonable Efforts........................................10
3.6 Company ESOP..............................................11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................11
4.1 Organization and Qualification............................11
4.2 Authorization and Validity of Agreement...................12
4.3 Capitalization............................................12
4.4 Financial Statements......................................13
4.5 No Approvals or Notices Required; No Conflict with
Instruments..............................................13
4.6 Absence of Certain Changes or Events......................14
4.7 Registration Statement; Proxy Statement...................15
4.8 Legal Proceedings.........................................15
4.9 Licenses; Compliance with Regulatory Requirements.........15
4.10 Brokers or Finders........................................16
4.11 Tax Matters...............................................16
4.12 Employee Matters..........................................17
4.13 Fairness Opinion..........................................19
4.14 Recommendation of the Company Board.......................20
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4.15 Vote Required.............................................20
4.16 Tangible and Real Property................................20
4.17 Intangible Property; Copyrights...........................20
4.18 Circulation; Joint Operating Agreement....................20
4.19 Investment Securities.....................................21
4.20 Transactions with Affiliates..............................21
4.21 No Investment Company.....................................21
4.22 Full Disclosure...........................................21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TCI.................................21
5.1 Organization..............................................21
5.2 Authorization and Validity of Agreement...................22
5.3 Capitalization of TCI.....................................22
5.4 TCI Reports and Financial Statements......................23
5.5 No Approvals or Notices Required; No Conflict with
Instruments..............................................23
5.6 Absence of Certain Changes or Events......................24
5.7 Registration Statement....................................24
5.8 Legal Proceedings.........................................24
5.9 Licenses; Compliance with Regulatory Requirements;
Intangible Property......................................25
5.10 Brokers or Finders........................................25
5.11 Tax Matters...............................................25
5.12 Full Disclosure...........................................26
ARTICLE VI
TRANSACTIONS PRIOR TO CLOSING.........................................26
6.1 Voting of TCI Securities..................................26
6.2 Access to Information Concerning Properties and Records...26
6.3 Confidentiality...........................................26
6.4 Public Announcements......................................27
6.5 Conduct of the Company's Business Pending the Effective
Time.....................................................27
6.6 No Solicitation...........................................29
6.7 Expenses..................................................30
6.8 Notification of Certain Matters...........................30
6.9 Defense of Litigation.....................................30
6.10 Additional Financial Statements and Reports...............30
6.11 Actions by Merger Sub.....................................30
6.12 Listing...................................................31
ARTICLE VII
CONDITIONS PRECEDENT..................................................31
7.1 Conditions Precedent to the Obligations of TCI, Merger
Sub and the Company......................................31
7.2 Conditions Precedent to the Obligations of Merger Sub
and TCI..................................................32
7.3 Conditions Precedent to the Obligations of the Company....33
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ARTICLE VIII
TERMINATION...........................................................35
8.1 Termination and Abandonment...............................35
8.2 Effect of Termination.....................................36
ARTICLE IX
MISCELLANEOUS.........................................................36
9.1 Survival of Certain Representations and Warranties........36
9.2 Notices...................................................36
9.3 Entire Agreement..........................................37
9.4 Assignment; Binding Effect; Benefit.......................37
9.5 Amendment.................................................38
9.6 Extension; Waiver.........................................38
9.7 Headings..................................................38
9.8 Counterparts..............................................38
9.9 Applicable Law............................................38
9.10 No Remedy in Certain Circumstances........................38
9.11 Enforcement...............................................38
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<PAGE>
SCHEDULES AND EXHIBITS
Schedule 4.1 -- Subsidiaries
Schedule 4.5 -- Consents or Notices; Conflicts
Schedule 4.6 -- Certain Events or Changes
Schedule 4.8 -- Legal Actions or Judgments
Schedule 4.11 -- Certain Tax Matters
Schedule 4.12 -- Employee Matters
Schedule 4.16 -- Owned and Leased Property
Schedule 4.18 -- Newspaper Circulation
Schedule 4.19 -- Investment Securities
Schedule 4.20 -- Certain Transactions
Exhibit 2.1(a) -- Articles of Merger
Exhibit 3.3 -- Affiliate Agreement
Exhibit 7.2(e) -- Form of Opinion of Jones, Waldo, Holbrook & McDonough
Exhibit 7.3(d) -- Form of Opinion of TCI's General Counsel
Exhibit 7.3(j)-1 -- Form of Management Agreement
Exhibit 7.3(j)-2 -- Form of Option Agreement
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of
this 18th day of April, 1997, by and among Tele-Communications, Inc., a Delaware
corporation ("TCI"), TCI KT Merger Sub, Inc., a Utah corporation ("Merger Sub"),
and Kearns-Tribune Corporation, a Utah corporation (the "Company").
WHEREAS, the parties wish to provide for the terms and conditions upon
which the Company will be acquired by TCI by means of a merger of Merger Sub, a
direct wholly owned subsidiary of TCI, with and into the Company (the "Merger");
and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(E) of the Internal Revenue Code of 1986 (the
"Code").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings unless the context otherwise requires:
An "Affiliate" of any Person shall mean any other Person which,
---------
directly or indirectly, controls or is controlled by or is under common control
with such Person. A Person shall be deemed to "control," be "controlled by" or
be "under common control with" any other Person if such other Person possesses,
directly or indirectly, power to direct or cause the direction of the management
or policies of such Person whether through the ownership of voting securities or
partnership interests, by contract or otherwise.
"Agreement" shall mean this Agreement and Plan of Merger, including
---------
all Exhibits and Schedules hereto.
"Closing" shall mean the consummation of the transactions contemplated
-------
by this Agreement.
"Closing Date" shall mean the date on which the Closing occurs
------------
pursuant to Section 2.2.
"Commission" shall mean the Securities and Exchange Commission.
----------
"Company Common Stock" shall mean the Common Shares, no par value per
--------------------
share, of the Company.
"Company Preferred Stock" shall mean the 9 Per Cent Cumulative
-----------------------
Preferred Shares, par value $1.00 per share, of the Company.
"Company Stock" shall mean the Company Common Stock and the Company
-------------
Preferred Stock.
"DGCL" The General Corporation Law of the State of Delaware.
----
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"Effective Time" shall mean the time when the Merger of Merger Sub
--------------
with and into the Company becomes effective under applicable law as provided in
Section 2.1(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, and the
------------
rules and regulations thereunder.
"GAAP" shall mean generally accepted accounting principles as accepted
----
by the accounting profession in the United States as in effect from time to
time.
"Hart-Scott Act" shall mean the Hart-Scott-Rodino Antitrust
--------------
Improvements Act of 1976, and the rules and regulations thereunder.
"Liberty Group Stock Dividend" shall mean the stock dividend, effected
----------------------------
on January 14, 1997, of one share of LMG Series A Stock for every two shares of
LMG Series A Stock or LMG Series B Stock held by each holder of record of LMG
Series A Stock or LMG Series B Stock as of the close of business on December 27,
1996.
"Lien" shall mean any security interest, mortgage, pledge,
----
hypothecation, charge, claim, option, right to acquire, adverse interest,
assignment, deposit arrangement, encumbrance, restriction, lien (statutory or
other), or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement, any financing lease involving substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
"Merger" shall have the meaning specified in the preamble hereto.
------
"Merger Consideration" shall mean the TCI Series A Stock into which
--------------------
shares of Company Common Stock are converted pursuant to Section 2.3(a)(i).
"Permitted Encumbrances" shall mean the following Liens with respect
----------------------
to the properties and assets of the Company: (a) Liens for taxes, assessments
or other governmental charges or levies not at the time delinquent or thereafter
payable without penalty or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on the Company's books; (b) Liens of carriers, warehousemen,
mechanics, materialmen and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith by appropriate proceedings
and for which adequate reserves in accordance with GAAP shall have been set
aside on the Company's books; (c) Liens incurred in the ordinary course of
business in connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to secure obligations
on surety or appeal bonds; (d) purchase money security interests or Liens on
property acquired or held by the Company in the ordinary course of business to
secure the purchase price of such property or to secure indebtedness incurred
solely for the purpose of financing the acquisition of such property, provided
that the security interests permitted under this clause (d) shall not exceed
$1,000,000 at any time outstanding; and (e) easements, restrictions and other
minor defects of title which are not, in the aggregate, material and which do
not, individually or in the aggregate, materially and adversely affect the value
of the property affected thereby.
"Person" shall mean an individual, partnership, corporation, limited
------
liability company, trust, unincorporated organization, association, or joint
venture or a government, agency, political subdivision, or instrumentality
thereof.
"Restriction", with respect to any capital stock or other security,
-----------
shall mean any voting or other trust or agreement, option, warrant, escrow
arrangement, proxy, buy-sell agreement, power of attorney or other Contract, any
law, rule, regulation, order, judgment or decree which, conditionally or
unconditionally, (i) grants to any Person
I-2
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the right to purchase or otherwise acquire, or obligates any Person to sell or
otherwise dispose of or issue, or otherwise results or, whether upon the
occurrence of any event or with notice or lapse of time or both or otherwise,
may result in any person acquiring, (A) any of such capital stock or other
security; (B) any of the proceeds of, or any distributions paid or which are or
may become payable with respect to, any of such capital stock or other security;
or (C) any interest in such capital stock or other security or any such proceeds
or distributions; (ii) restricts or, whether upon the occurrence of any event or
with notice or lapse of time or both or otherwise, may restrict the transfer or
voting of, or the exercise of any rights or the enjoyment of any benefits
arising by reason of ownership of, any such capital stock or other security or
any such proceeds or distributions; or (iii) creates or, whether upon the
occurrence of any event or with notice or lapse of time or both or otherwise,
may create a Lien or purported Lien affecting such capital stock or other
security, proceeds or distributions.
"Securities Act" shall mean the Securities Act of 1933, and the rules
--------------
and regulations thereunder.
"subsidiary" when used with respect to any party, means any
----------
corporation or other organization, whether incorporated or unincorporated, of
which such party or any other subsidiary of such party is a general partner or
at least 50% of the securities or other interests having by their terms ordinary
voting power to elect at least 50% of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party, by any
one or more of its subsidiaries, or by such party and one or more of its
subsidiaries. For purposes of this Agreement, the Company's subsidiaries shall
be deemed to include (but shall not be limited to) Newspaper Agency Corporation,
a Utah corporation, and its subsidiaries, whether or not they otherwise would be
subsidiaries of the Company under the foregoing definition.
"Surviving Corporation" shall mean the Company as the Surviving
---------------------
Corporation after the Merger as provided in Section 2.1(a).
"TCI Series A Stock" shall mean the Tele-Communications, Inc. Series A
------------------
TCI Group Common Stock, $1.00 par value per share, of TCI.
"TCI Voting Stock" shall mean the TCI Series A Stock, the TCI Series B
----------------
Stock, the LMG Series A Stock, the LMG Series B Stock and any other class and
series of capital stock of TCI entitled to vote generally upon all matters which
may be submitted to a vote of stockholders at any annual or special meeting of
stockholders of TCI.
1.2 ADDITIONAL DEFINITIONS. The following additional terms have the
meaning ascribed thereto in the Section indicated below next to such term:
<TABLE>
<CAPTION>
Defined Term Section Defined In
- ------------ ------------------
<S> <C>
Articles of Merger 2.1(a)
Alternative Proposal 6.6
Certificate 2.5(a)
Code Preamble
Company Preamble
Company Board 3.1
Company Charter 3.1
Company ESOP 3.6
Consolidated Returns 4.11
Contract Consent 4.5(iii)
Contract Notice 4.5(iii)
Contracts 4.5(iv)
Division 2.1(a)
Environmental and Health Laws 4.9
</TABLE>
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<TABLE>
<S> <C>
ERISA 4.12(a)
ERISA Affiliate 4.12(a)
Exchange Agent 2.5(a)
Exchange Agent Agreement 2.5(a)
Fairness Opinion 4.13
Governmental Entity 4.5(v)
Governmental Filing 4.5(ii)
Government Consent 4.5(ii)
Houlihan Lokey 4.10
Injunction 3.5
IRS 4.11
Licenses 4.9
LMG Series A Stock 5.3
LMG Series B Stock 5.3
Local Approvals 4.5(ii)
Merger Preamble
Merger Proposal 3.1
Merger Sub Preamble
Multiemployer Plan 4.12(g)
NNM 2.5(f)
PBGC 4.12(g)
Permits 4.9
Proprietary Information 6.2
Proxy Statement 4.7
Record Date 2.4(b)
Registration Statement 4.7
Representatives 6.2
Series C Preferred Stock 5.3
Series D Preferred Stock 5.3
Series E Preferred Stock 5.3
Series F Preferred Stock 5.3
Series G Preferred Stock 5.3
Series H Preferred Stock 5.3
Series Preferred Stock 5.3
Special Meeting 3.1
TCI Preamble
TCI Charter 5.3
TCI Series B Stock 5.3
TCI Commission Filings 5.4
TCI Common Stock 5.3
TCI Consolidated Returns 5.11
TCI Equity Affiliates 5.1
TCI Preferred Stock 5.3
Telephony Group Common Stock 5.3
Telephony Group Series A Common Stock 5.3
Telephony Group Series B Common Stock 5.3
URBCA 2.1(a)
Violation 4.5(iv)
Voting Debt 4.3
</TABLE>
1.3 TERMS GENERALLY. The definitions in Sections 1.1 and 1.2 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The words "herein",
"hereof" and "hereunder" and words
I-4
<PAGE>
of similar import refer to this Agreement (including the Exhibits and Schedules)
in its entirety and not to any part hereof unless the context shall otherwise
require. As used herein, the term "to the Company's knowledge" or any similar
term relating to the knowledge of the Company means the actual knowledge, after
reasonable inquiry, of any of the officers or directors of the Company.
"Reasonable inquiry" shall mean communication by any of the officers or
directors of the Company to the officers and field personnel of the Company with
responsibility for the matter in question and to counsel with respect to matters
involving questions of law, requesting such individual to review specified
provisions of this Agreement and to advise such person of any matter relevant to
the specified representation, warranty or provision. All references herein to
Articles, Sections, Exhibits and Schedules shall be deemed references to
Articles and Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise require. Unless the context shall otherwise require,
any references to any agreement or other instrument or statute or regulation are
to it as amended and supplemented from time to time (and, in the case of a
statute or regulation, to any successor provisions). Any reference in this
Agreement to a "day" or number of "days" (without the explicit qualification of
"business") shall be interpreted as a reference to a calendar day or number of
calendar days. If any action or notice is to be taken or given on or by a
particular calendar day, and such calendar day is not a business day, then such
action or notice shall be deferred until, or may be taken or given on, the next
business day.
ARTICLE II
THE MERGER AND RELATED MATTERS
2.1 THE MERGER.
(a) Merger; Effective Time. At the Effective Time and subject to
----------------------
and upon the terms and conditions of this Agreement, Merger Sub shall merge with
and into the Company in accordance with the provisions of the Revised Business
Corporation Act of the State of Utah (the "URBCA"), the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
Surviving Corporation. The Effective Time shall occur upon the filing with the
Division of Corporations and Commercial Code of the State of Utah (the
"Division") articles of merger (the "Articles of Merger") substantially in the
form of Exhibit 2.1(a) and executed in accordance with the applicable provisions
of the URBCA, or at such later time as may be agreed to by TCI and the Company
and specified in the Articles of Merger. Provided that this Agreement has not
been terminated pursuant to Article VIII, the parties will cause the Articles of
Merger to be filed with the Division as soon as practicable after the Closing.
(b) Effects of the Merger. The Merger shall have the effects set
---------------------
forth in Section 16-10a-1106 of the URBCA. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation. If, at any time after the Effective Time, the Surviving
Corporation considers or is advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties, or
assets of either the Company or Merger Sub, or otherwise to carry out the intent
and purposes of this Agreement, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the name and on behalf
of each of the Company and Merger Sub, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of the Company and Merger Sub, all such other actions and things as the Board of
Directors of the Surviving Corporation may determine to be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out the intent and purposes of this Agreement.
(c) Certificate of Incorporation of Surviving Corporation. The
-----------------------------------------------------
Certificate of Incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law.
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(d) By-laws of the Surviving Corporation. The By-laws of Merger
-------------------------------------
Sub, as in effect at the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided by law.
(e) Directors and Officers of Surviving Corporation. The directors
-----------------------------------------------
of Merger Sub immediately prior to the Effective Time shall be the directors of
the Surviving Corporation and all such directors will hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualify in the manner provided in the Certificate of Incorporation and By-
laws of the Surviving Corporation, or as otherwise provided by applicable law.
The officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation and all such officers will hold office
until their respective successors are duly appointed and qualify in the manner
provided in the By-laws of the Surviving Corporation, or as otherwise provided
by applicable law.
2.2 CLOSING. The Closing shall take place (i) at 10:00 a.m. (Denver time)
at the executive offices of TCI in Denver, Colorado, on the first business day
following the date on which the last of the conditions set forth in Article VII
(other than the filing of the Articles of Merger and other than any such
conditions which by their terms are not capable of being satisfied until the
Closing Date or thereafter) is satisfied or, when permissible, waived, or (ii)
on such other date and at such other time or place as is mutually agreed by the
parties hereto.
2.3 CONVERSION OF SECURITIES.
(a) Conversion of Company Securities. At the Effective Time, by
--------------------------------
virtue of the Merger and without any action on the part of TCI, Merger Sub, the
Company or the holders of any of their securities:
(i) Subject to Section 2.4, each share of Company Common Stock
outstanding immediately prior to the Effective Time shall be converted into and
represent the right to receive, and shall be exchangeable for, a number of
validly issued, fully paid and non-assessable shares of TCI Series A Stock equal
to the Merger Consideration. Subject to Section 2.4, all such shares of Company
Common Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of TCI Series A Stock to be
issued pursuant to this Section 2.3(a) (and any dividends or other distributions
and any cash in lieu of a fractional share payable pursuant to Sections 2.5(f)
and 2.5(g)) with respect thereto upon the surrender of such certificate in
accordance with Section 2.5, without interest.
(ii) Each share of Company Common Stock and Company Preferred
Stock that immediately prior to the Effective Time is held by the Company as a
treasury share or is then held by any direct or indirect subsidiary of the
Company shall be canceled and retired without payment of any consideration
thereof and without any conversion thereof into the Merger Consideration.
(b) The term "Merger Consideration" shall mean a number of shares of
TCI Series A Stock equal to a fraction, the denominator of which is 178,933 and
numerator of which is equal to:
Fixed Amount + (TMV x TCOM Shares) + (LMV x LBTY Shares)
--------------------------------------------------------
TMV
where
Fixed Amount = $286,000,000.
TMV = an amount equal to the average of the closing sales prices of
the TCI Series A Stock on the NNM on each of the twenty consecutive trading days
immediately preceding the second trading day prior to the date of the Effective
Time.
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<PAGE>
TCOM Shares = the aggregate number of shares of TCI Series A Stock and
TCI Series B Stock owned by the Company at the Effective Time.
LMV = an amount equal to the average of the closing sales prices of
the LMG Series A Stock on the NNM on each of the twenty consecutive trading days
immediately preceding the second trading day prior to the date of the Effective
Time.
LBTY Shares = the aggregate number of shares of LMG Series A Stock and
LMG Series B Stock owned by the Company at the Effective Time.
(c) Conversion of Merger Sub Stock. At the Effective Time, by
------------------------------
virtue of the Merger and without any action on the part of TCI, Merger Sub, the
Company or the holders of any of their securities, each share of capital stock
of Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one share of the common stock of the Surviving Corporation.
2.4 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock outstanding immediately prior to the
Effective Time that are held by holders of such shares who have not voted in
favor of the Merger or consented thereto in writing and who have demanded
appraisal rights with respect thereto in accordance with Section 16-10a-1301 of
the URBCA (the "Dissenting Shares") shall not be converted as described in
Section 2.3, but shall, from and after the Effective Time, represent only the
right to receive payment of the fair value of their Dissenting Shares in
accordance with the provisions of the URBCA and this Section. Any shares of
Company Common Stock held by a shareholder who, prior to the Effective Time,
withdraws a demand for appraisal of such shares or loses the right to appraisal
as provided in the URBCA shall not be considered Dissenting Shares. The Company
shall give TCI prompt notice of any written demands for appraisal of any shares
of Company Common Stock, attempted withdrawals of such demands, and any other
instruments received by the Company pursuant to the URBCA relating to
shareholders' rights of appraisal.
2.5 EXCHANGE OF SHARES.
(a) Appointment of Exchange Agent. On or before the Closing Date,
-----------------------------
TCI shall enter into an agreement (the "Exchange Agent Agreement") with an
exchange agent selected by TCI and reasonably acceptable to the Company (the
"Exchange Agent"), authorizing such Exchange Agent to act as Exchange Agent
hereunder.
(b) Letter of Transmittal. As soon as reasonably practicable after
---------------------
the Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of Company Common Stock (the
"Certificates") whose shares were converted into the right to receive the Merger
Consideration: (i) a notice of the effectiveness of the Merger and (ii) a
letter of transmittal (which shall state that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) with instructions for use in effecting the
surrender and exchange of the Certificates. Such notice, letter of transmittal
and instructions shall contain such provisions and be in such form as TCI
reasonably specifies.
(c) Exchange Procedure. Promptly following the surrender, in
------------------
accordance with such instructions, of a Certificate to the Exchange Agent (or
such other agent or agents as may be appointed by the Exchange Agent or TCI
pursuant to the Exchange Agent Agreement), together with such letter of
transmittal (duly executed) and any other documents required by such
instructions or letter of transmittal, TCI shall, subject to Section 2.5(d),
cause to be distributed to the person in whose name such Certificate shall have
been issued (i) a certificate registered in the name of such person representing
the number of whole shares of TCI Series A Stock into which the shares
previously represented by the surrendered Certificate shall have been converted
at the Effective Time pursuant to this Article II and (ii) payment (which shall
be made by check) of any cash payable in lieu of a fractional share of TCI
Series A Stock pursuant to Section 2.5(f). Each Certificate so surrendered shall
forthwith be cancelled.
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<PAGE>
(d) Unregistered Transfers of Company Common Stock. In the event of
----------------------------------------------
a transfer of ownership of Company Common Stock which is not registered in the
transfer records of the Company, a certificate representing the proper number of
whole shares of TCI Series A Stock may be issued (and cash in lieu of a
fractional share of TCI Series A Stock may be paid) to the transferee if the
Certificate representing such Company Common Stock surrendered to the Exchange
Agent in accordance with Section 2.5(c) is properly endorsed for transfer or is
accompanied by appropriate and properly endorsed stock powers and is otherwise
in proper form to effect such transfer, if the person requesting such transfer
pays to the Exchange Agent any transfer or other taxes payable by reason of such
transfer or establishes to the satisfaction of the Exchange Agent that such
taxes have been paid or are not required to be paid and if such person
establishes to the satisfaction of TCI that such transfer would not violate
applicable Federal or state securities laws.
(e) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed satisfactory to TCI and complying with any other reasonable
requirements imposed by TCI, TCI will cause to be delivered to such person in
respect of such lost, stolen or destroyed Certificate the Merger Consideration
in respect thereof as determined in accordance with this Article II. TCI may, in
its discretion, require the owner of such lost, stolen or destroyed Certificate
to give TCI a bond in such sum as it may direct as indemnity against any claim
that may be made against TCI or the Surviving Corporation with respect to the
Certificate alleged to have been lost, stolen or destroyed.
(f) No Fractional Shares of TCI Series A Stock. No certificates or
------------------------------------------
scrip representing fractional shares of TCI Series A Stock shall be issued upon
the surrender for exchange of Certificates for Company Common Stock; no stock
split or dividend with respect to shares of TCI Series A Stock shall relate to
any fractional share interest, and no such fractional share interest will
entitle the owner thereof to vote as, or to any other rights of, a stockholder
of TCI. In lieu of such fractional shares, any holder of Company Common Stock
who would otherwise be entitled to a fractional share of TCI Series A Stock
will, upon surrender of his Certificate to the Exchange Agent in accordance with
Section 2.5(c), be entitled to receive cash in an amount determined by
multiplying such fraction by the current market value of a whole share of TCI
Series A Stock and rounding the product to the nearest whole cent. The "current
market value" of a share of TCI Series A Stock means, for this purpose, the
average of the last reported sale prices (or, if on any day no sale price is
reported, the average of the quoted high and low bid prices on such day) of a
share of TCI Series A Stock on The Nasdaq Stock Market, Inc.'s Nasdaq National
Market ("NNM") for the period of five consecutive trading days ending on and
including the last full trading day preceding the Closing Date. No interest
shall accrue or be paid with respect to fractional share interests or with
respect to cash payable in lieu of fractional share interests.
(g) No Dividends Before Surrender of Certificates. No dividends or
---------------------------------------------
other distributions declared or made after the Effective Time with respect to
TCI Series A Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of TCI
Series A Stock represented thereby, until the holder of record of such
Certificate shall surrender such Certificate as provided herein. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of TCI Series A Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions, if any,
with a record date after the Effective Time theretofore paid by TCI with respect
to such whole shares of TCI Series A Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions, if any, with a record date
after the Effective Time but prior to surrender and with a payment date
subsequent to surrender payable with respect to such whole shares of TCI Series
A Stock.
(h) No Further Ownership Rights in Company Common Stock. All shares
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of TCI Series A Stock issued and all cash in lieu of fractional shares paid upon
the surrender for exchange of shares of Company Common Stock in accordance with
the terms hereof shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Company Common Stock which
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were outstanding immediately prior to the Effective Time. Subject to Section
2.5(i), if, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article II.
(i) Abandoned Property Laws. Payment or delivery of the Merger
-----------------------
Consideration, any cash in lieu of fractional shares thereof and any dividends
or distributions with respect thereto shall be subject to applicable abandoned
property, escheat and similar laws and neither TCI nor the Surviving Corporation
shall be liable to any holder of shares of Company Common Stock or TCI Series A
Stock for any such shares, for any dividends or distributions with respect
thereto or for any cash in lieu of fractional shares which may be delivered to
any public official pursuant to any abandoned property, escheat or similar law.
2.6 CHANGES IN TCI SERIES A STOCK. If prior to the Effective Time, the
TCI Series A Stock shall be recapitalized or reclassified or TCI shall effect
any stock dividend, stock split, or reverse stock split of TCI Series A Stock,
then the shares of TCI Series A Stock to be delivered under this Agreement to
the holders of Company Common Stock shall be appropriately and equitably
adjusted to the kind and amount of shares of stock and other securities and
property which the holders of such shares of TCI Series A Stock would have been
entitled to receive had such shares been issued and outstanding as of the record
date for determining stockholders entitled to participate in such corporate
event.
ARTICLE III
CERTAIN ACTIONS
3.1 STOCKHOLDER MEETING. The Company and its Board of Directors (the
"Company Board") shall take all action necessary in accordance with applicable
law and the Company's Revised Articles of Incorporation (the "Company Charter")
and By-laws to duly call and hold, as soon as reasonably practicable after the
date hereof, a meeting of the Company's stockholders (the "Special Meeting") for
the purpose of considering and voting upon the approval and adoption of this
Agreement and the Merger contemplated hereby (the "Merger Proposal"). Subject
to the fiduciary duties of the Company Board under applicable law, the only
matter the Company shall propose to be acted on by the Company's stockholders at
the Special Meeting shall be the Merger Proposal and related matters. Subject
to the fiduciary duties of the Company Board under applicable law, the Company
Board will recommend that the Company's stockholders vote in favor of approval
of the Merger Proposal and the Company will use its commercially reasonable
efforts to solicit from its stockholders proxies in favor of such approval and
will take all other actions reasonably necessary or, in the opinion of TCI,
advisable to secure the vote of stockholders of the Company required by the
URBCA and the Company Charter to effect the Merger. The Company shall not
require any vote greater than a majority of the issued and outstanding shares of
Company Common Stock for approval of the Merger Proposal. The Company shall, as
soon as reasonably practicable after the execution of this Agreement, furnish to
TCI in writing all information concerning the Company as is necessary for TCI to
prepare the Registration Statement in compliance with the applicable provisions
of the Securities Act. The prospectus included in the Registration Statement
shall also constitute the proxy statement furnished to the Company's
stockholders in connection with the Special Meeting (the "Proxy Statement").
3.2 REGISTRATION STATEMENT AND OTHER COMMISSION FILINGS.
(a) Registration Statement. As soon as reasonably practicable after
----------------------
the execution of this Agreement, TCI shall prepare and file with the Commission
a Registration Statement on Form S-4 (the "Registration Statement") with respect
to the TCI Series A Stock to be issued in the Merger, provided that nothing has
come to TCI's attention that would give it reason to believe that the Company's
representations and warranties in Section 4.7 are untrue. TCI shall use its
reasonable efforts to cause the Registration Statement to be declared effective
under the Securities Act as soon as reasonably practicable after such filing and
to continue to be effective as of the Effective Time. TCI also shall use its
reasonable efforts to take any reasonable action (other than qualifying to do
business in
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any jurisdiction in which it is not now so qualified, subjecting itself to
taxation in any jurisdiction in which it is not now so subject, giving any
consent to general service of process in any jurisdiction in which it is not now
subject to such service or changing in any respect its authorized or outstanding
capital stock or the composition of its assets) required to be taken under any
applicable state securities or blue sky laws in connection with the issuance of
the Merger Consideration.
(b) Commission Comments; Amendments and Supplements. TCI shall
-----------------------------------------------
notify the Company promptly after its receipt of any comments of the Commission
on, or of any request by the Commission for amendments or supplements to, the
Registration Statement. If at any time prior to the Effective Time, any event
shall occur relating to the Company or any of the Company's subsidiaries or any
of their respective officers, directors, partners or affiliates which should be
described in an amendment or supplement to the Registration Statement, the
Company shall inform TCI promptly after becoming aware of such event.
(c) Comfort Letters. The Company will use its reasonable efforts to
---------------
cause to be delivered to TCI a letter of Deloitte & Touche LLP, the Company's
independent auditors, dated a date within two business days before the date on
which the Registration Statement becomes effective and addressed to TCI, in form
reasonably satisfactory to TCI and customary in scope and substance for letters
delivered by nationally recognized independent auditors in connection with
registration statements similar to the Registration Statement. TCI will use its
reasonable efforts to cause to be delivered to the Company a letter of KPMG Peat
Marwick, TCI's independent auditors, dated a date within two business days
before the date on which the Registration Statement becomes effective and
addressed to the Company, in form reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by nationally recognized
independent auditors in connection with registration statements similar to the
Registration Statement.
3.3 IDENTIFICATION OF AFFILIATES. Promptly after the Special Meeting and
before the Closing Date, the Company shall deliver to TCI a letter identifying
all Persons who the Company knows are or who the Company has reason to believe
may be, as of the date of the Special Meeting, "affiliates" of the Company for
purposes of Rule 145 under the Securities Act. The Company shall use reasonable
efforts to cause each Person who is identified as an "affiliate" in the letter
referred to above to deliver to TCI, on or prior to the Closing Date, a written
agreement, in substantially the form annexed hereto as Exhibit 3.3, that such
Person will not offer to sell or otherwise dispose of any of the shares of TCI
Series A Stock issued to such person pursuant to the Merger in violation of the
Securities Act and the rules and regulations thereunder.
3.4 STATE TAKEOVER STATUTES. The Company will, upon the request of TCI,
take all reasonable steps to (i) exempt the Merger from the requirements of any
applicable state takeover law and (ii) assist in any challenge by TCI to the
validity or applicability to the Merger of any state takeover law.
3.5 REASONABLE EFFORTS. Subject to the terms and conditions of this
Agreement and applicable law, each of the parties hereto shall use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement as
soon as reasonably practicable, including such actions or things as any other
party hereto may reasonably request in order to cause any of the conditions to
such other party's obligation to consummate such transactions specified in
Article VII to be fully satisfied. Without limiting the generality of the
foregoing, the parties shall (and shall cause their respective directors,
officers and subsidiaries, and use their reasonable efforts to cause their
respective affiliates, employees, agents, attorneys, accountants and
representatives, to) consult and fully cooperate with and provide reasonable
assistance to each other in (i) the preparation and filing with the Commission
of the Registration Statement and any necessary amendments or supplements to any
thereof; (ii) seeking to have such Registration Statement declared effective, by
the Commission as soon as reasonably practicable after filing; (iii) subject to
the last sentence of Section 3.2(a), taking such actions as may reasonably be
required under applicable state securities or blue sky laws in connection with
the issuance of the Merger Consideration; (iv) obtaining all necessary consents,
approvals, waivers, licenses, permits, authorizations, registrations,
qualifications, or other permission or
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action by, and giving all necessary notices to and making all necessary filings
with and applications and submissions to, any Governmental Entity or other
Person; (v) filing all pre-merger notification and report forms required under
the Hart-Scott Act; (vi) lifting any permanent or preliminary injunction or
restraining order or other similar order issued or entered by any court or
Governmental Entity (an "Injunction") of any type referred to in Section 7.1(c);
(vii) obtaining the tax opinion referred to in Section 7.1(f); (viii) providing
all such information about such party, its subsidiaries and its officers,
directors, partners and affiliates and making all applications and filings as
may be necessary or reasonably requested in connection with any of the
foregoing; and (ix) in general, consummating and making effective the
transactions contemplated thereby; provided, however, that in order to obtain
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any consent, approval, waiver, license, permit, authorization, registration,
qualification, or other permission or action or the lifting of any Injunction
referred to in clause (iv), (v) or (vi) of this sentence, (x) no party shall be
required to pay any consideration, to divest itself of any of, or otherwise
rearrange the composition of, its assets or to agree to any conditions or
requirements which are materially adverse or burdensome and (y) without TCI's
prior consent, the Company shall not, and shall not permit any of its
subsidiaries to, amend any License or Contract, pay any consideration or make
any agreement or reach any understanding or arrangement other than in the
ordinary course of business. Prior to making any application to or filing with
any Governmental Entity or other Person in connection with this Agreement, each
party shall provide the other party with drafts thereof and afford the other
party a reasonable opportunity to comment on such drafts.
3.6 COMPANY ESOP. The Company shall take all actions necessary and
reasonably satisfactory to TCI to amend the Kearns-Tribune Corporation Employee
Stock Ownership Plan (the "Company ESOP") prior to the Effective Time to provide
that the Company ESOP shall terminate at the Effective Time insofar as it
relates to purchases of capital stock of the Company, the Surviving Corporation
or other employer securities and, unless the Surviving Corporation otherwise
elects, any future employer contributions. The Company shall also take all
actions necessary to amend the Company ESOP prior to the Effective Time to
provide that all participants of the Company ESOP who are employed by the
Company or any of its subsidiaries at the Effective Time shall be fully vested
in their accounts under the Company ESOP to the extent that the value of such
accounts are attributable to contributions made or accrued under the Company
ESOP as of the Effective Time.
3.7 EMPLOYEE MATTERS. Subject to the requirements of ERISA, neither TCI
nor the Surviving Corporation shall be required to maintain any Company Plan
after the Effective Time. Each employee of the Surviving Corporation who was an
employee of the Company immediately prior to the Effective Time (i) shall be
entitled to participate in the "employee benefit plans", as defined in Section
3(3) of ERISA, maintained by TCI (the "TCI Plans") to the same extent as
similarly situated employees of TCI, (ii) shall receive credit for such
employee's past service with the Company as of the Effective Time for purposes
of eligibility and vesting under the TCI Plans, including for purposes of
eligibility and participation under TCI's severance policies and plans,
including the calculation of such employee's "Years of Continuous Service" under
the Tele-Communications, Inc. Severance Pay Plan, as amended, to the extent such
service was credited under the Company Plans on the Closing Date; and (iii)
shall not be subject to any waiting periods or limitations on benefits for pre-
existing conditions under the TCI Plans, including any group health and
disability plans, except to the extent such employees were subject to such
limitations under the Company Plans.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to TCI and Merger Sub as
follows:
4.1 ORGANIZATION AND QUALIFICATION. Each of the Company and each of its
subsidiaries (i) is a corporation or partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and (ii) has all requisite corporate or
partnership power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted. Each of the Company and
each
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of its subsidiaries is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of its activities makes such qualification necessary, except
in such jurisdictions where the failure to be so duly qualified or in good
standing has not had and is not reasonably likely to have, individually or in
the aggregate, a material adverse effect on the business, assets, results of
operations or financial condition of the Company and its subsidiaries taken as a
whole. Schedule 4.1 sets forth a complete and accurate list of each of the
Company's subsidiaries and reflects the percentage and nature of the Company's
ownership of each such subsidiary.
The Company has delivered to TCI true and complete copies of the
Company Charter and By-laws, as amended through and in effect on the date
hereof. The Company's minute books, true and complete copies of which have been
made available to TCI, contain the minutes of all meetings of incorporators,
directors and stockholders of the Company since its inception and such minutes
completely and correctly reflect all of their respective actions in all material
respects.
4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. The Company has all
requisite corporate power and authority to enter into this Agreement and,
subject to obtaining the approval of its stockholders specified in Section 4.15,
to perform its obligations hereunder and consummate the transactions
contemplated hereby. The execution, delivery and performance by the Company of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Company Board and by all other necessary
corporate action on the part of the Company, subject, in the case of the
consummation by it of the Merger, to such approval of the Company's
stockholders. This Agreement has been duly executed and delivered by the
Company and is a legal, valid and binding obligation of the Company, enforceable
in accordance with its terms (except insofar as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies).
4.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 500,000 shares of Company Common Stock and 5,000,000 shares of Company
Preferred Stock. As of the close of business on March 31, 1997, (i) 178,933
shares of Company Common Stock were issued and outstanding and no shares were
issued and held by the Company in its treasury or by subsidiaries of the Company
and (ii) no shares of Company Preferred Stock were issued and outstanding or
were issued and held by the Company in its treasury or by subsidiaries of the
Company. All issued and outstanding shares of Company Common Stock have been
validly issued and are fully paid and non-assessable, are not subject to and
have not been issued in violation of any preemptive rights and have not been
issued in violation of any federal or state securities laws. There are no issued
or outstanding bonds, debentures, notes or other indebtedness of the Company or
any of its subsidiaries which have the right to vote (or which are convertible
into other securities having the right to vote) on any matters on which
stockholders may vote ("Voting Debt"). There are not as of the date hereof, and
will not at any time to and including the Effective Time, be, any outstanding or
authorized subscriptions, options, warrants, calls, rights, commitments or any
other agreements of any character to or by which the Company or any of its
subsidiaries is a party or is bound which, directly or indirectly, obligate the
Company or any of its subsidiaries to issue, deliver or sell or cause to be
issued, delivered or sold any additional shares of Company Stock or any other
capital stock, equity interest or Voting Debt of the Company or any subsidiary
of the Company, any securities convertible into, or exercisable or exchangeable
for, or evidencing the right to subscribe for any such shares, interests or
Voting Debt, or any phantom shares, phantom equity interests or stock or equity
appreciation rights, or obligating the Company or any of its subsidiaries to
grant, extend or enter into any such subscription, option, warrant, call or
right. Except with respect to the Company ESOP, neither the Company nor any
subsidiary thereof is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock.
Immediately after the Effective Time, there will be no subscription, option,
warrant, call, right, commitment or agreement which will entitle (conditionally
or unconditionally) any Person to purchase or otherwise acquire, or will
obligate (conditionally or unconditionally) the Surviving Corporation (as the
Company's successor) or any subsidiary of the Surviving Corporation that was a
subsidiary of the Company to sell, issue or deliver any shares of capital stock,
any other equity interest or any Voting Debt of the Surviving Corporation or any
such subsidiary or obligating the Surviving Corporation or any such subsidiary
to grant, extend or enter into any such
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subscription, warrant, call, right, commitment or agreement. Except for the
Company ESOP, neither the Company nor any of its subsidiaries has adopted,
authorized or assumed any plans, arrangements or practices for the benefit of
its officers, employees or directors which require or permit the issuance, sale,
purchase or grant of any capital stock, other equity interests or Voting Debt of
the Company or any subsidiary of the Company, any other securities convertible
into, or exercisable or exchangeable for, any such stock, interests or Voting
Debt, or any phantom shares, phantom equity interests or stock or equity
appreciation rights. All shares of capital stock of and all partnership or other
equity interests in each subsidiary of the Company owned directly or indirectly
by the Company are owned free and clear of any Lien or Restriction and the
shares of capital stock of each corporate subsidiary of the Company are validly
issued, fully paid and non-assessable. There are not, and immediately after the
Effective Time, there will not be, any outstanding or authorized subscriptions,
options, warrants, calls, rights, commitments or other agreements of any
character that, directly or indirectly, (x) call for or relate to the sale,
pledge, transfer or other disposition by the Company or any subsidiary of the
Company of any shares of capital stock, any partnership or other equity
interests or any Voting Debt of any subsidiary of the Company owned directly or
indirectly by the Company or any subsidiary of the Company, or (y) relate to the
voting or control of such capital stock, partnership or other equity interests
or Voting Debt.
4.4 FINANCIAL STATEMENTS. The Company has heretofore delivered or made
available to TCI true and complete copies of the audited balance sheets of the
Company as of December 31, 1996 and 1995, the related audited statements of
income, stockholders' equity and cash flows for the years ended December 31,
1996 and 1995, and the notes thereto, certified by Deloitte & Touche LLP, whose
opinion thereon is included therewith (the "Audited Financial Statements"). The
Audited Financial statements were prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes thereto),
and present fairly the financial position of the Company as of the dates thereof
and the Company's results of operations, cash flows and changes in stockholders'
equity for the periods then ended. Except as and to the extent reflected or
reserved against in the Audited Financial Statements, neither the Company nor
any subsidiary of the Company had as of such date any liability or obligation of
any kind, whether accrued, absolute, contingent, unliquidated or other and
whether due or to become due (including any liability for breach of contract,
breach of warranty, torts, infringements, claims or lawsuits), which was
material to the business, assets, results of operations or financial condition
of the Company and its subsidiaries taken as a whole. Since December 31, 1996,
neither the Company nor any subsidiary of the Company has incurred any liability
or obligation of any kind which, in any case or in the aggregate, is or may be
material to the business, assets, results of operations or financial condition
of the Company and its subsidiaries taken as a whole, except in the ordinary
course of business.
4.5 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS. The
execution and delivery by the Company of this Agreement do not and the
performance by the Company of its obligations hereunder and the consummation of
the transactions contemplated hereby will not:
(i) assuming approval of the Merger Proposal by the Company's
stockholders as contemplated by Section 4.15, conflict with or violate the
Company Charter or By-laws or the charter or by-laws of any corporate subsidiary
of the Company or the partnership agreement of any partnership subsidiary of the
Company;
(ii) require any consent, approval, order or authorization of or
other action by any Governmental Entity (a "Government Consent") or any
registration, qualification, declaration or filing with or notice to any
Governmental Entity (a "Governmental Filing") in each case on the part of or
with respect to the Company or any subsidiary of the Company, except for (A) the
filing of the Articles of Merger with the Division and appropriate documents
with the relevant authorities of other states in which the Company is qualified
to do business, (B) such Government Consents and Governmental Filings with
foreign, state and local governmental authorities (the "Local Approvals") as may
be required with respect to the Licenses held by the Company or any of its
subsidiaries or as may otherwise be required under laws applicable to the
conduct of the businesses of the Company and its subsidiaries in the ordinary
course, (C) the Governmental Filings to be made on the part of or with respect
to TCI and Merger Sub referred to in clause (ii) of Section 5.5 and such
Government Consents and Governmental Filings
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as may be required in connection with the issuance of the Merger Consideration
as contemplated hereby pursuant to state securities and blue sky laws; (D) the
Governmental Filings required to be made pursuant to the pre-merger notification
requirements of the Hart-Scott Act; and (E) such Government Consents and
Government Filings the absence or omission of which will not, either
individually or in the aggregate, have a material adverse effect on the
transactions contemplated hereby or on the business, assets, results of
operations, financial condition or prospects of the Company and its
subsidiaries, taken as a whole, or the Surviving Corporation and its
subsidiaries, taken as a whole;
(iii) assuming approval of the Merger Proposal by the Company's
stockholders as contemplated by Section 4.15, require, on the part of the
Company or any subsidiary of the Company, any consent by or approval or
authorization of (a "Contract Consent") or notice to (a "Contract Notice") any
other Person (other than a Governmental Entity), whether under any License or
other Contract or otherwise, except (A) as set forth on Schedule 4.5 and (B) for
such Contract Consents and Contract Notices the absence or omission of which
will not, either individually or in the aggregate, have a material adverse
effect on the transactions contemplated hereby or on the business, assets,
results of operations, financial condition or prospects of the Company and its
subsidiaries, taken as a whole, or the Surviving Corporation and its
subsidiaries, taken as a whole;
(iv) assuming that the Contract Consents and Contract Notices
described on Schedule 4.5 are obtained and given, conflict with or result in any
violation or breach of or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation, suspension,
modification or acceleration of any obligation or any increase in any payment
required by or the impairment, loss or forfeiture of any material benefit,
rights or privileges under or the creation of a Lien or other encumbrance on any
assets pursuant to (any such conflict, violation, breach, default, right of
termination, cancellation or acceleration, loss or creation, a "Violation") any
Contract (which term shall mean and include any note, bond, indenture, mortgage,
deed of trust, lease, franchise, permit, authorization, license, contract,
instrument, employee benefit plan or practice, or other agreement, obligation,
commitment or concession of any nature) to which the Company or any subsidiary
of the Company is a party, by which the Company, any subsidiary of the Company
or any of their respective assets or properties is bound or affected or pursuant
to which the Company or any subsidiary of the Company is entitled to any rights
or benefits (including the Licenses), except for such Violations which would
not, individually or in the aggregate, have a material adverse effect on the
transactions contemplated hereby or on the business, assets, results of
operations, financial condition or prospects of the Company and its
subsidiaries, taken as a whole, or the Surviving Corporation and its
subsidiaries, taken as a whole; or
(v) assuming that the Merger is so approved by the Company's
stockholders and assuming that the Government Consents and Governmental Filings
specified in clause (ii) of this Section 4.5 are obtained, made and given,
result in a Violation of, under or pursuant to any law, rule, regulation, order,
judgment or decree applicable to the Company or any subsidiary of the Company or
by which any of their respective properties or assets are bound or affected,
except for such Violations which would not, individually or in the aggregate,
have a material adverse effect on the transactions contemplated hereby or on the
business, assets, results of operations, financial condition or prospects of the
Company and its subsidiaries, taken as a whole, or the Surviving Corporation and
its subsidiaries, taken as a whole, or of any subsidiary of the Company or the
Surviving Corporation. As used herein, the term "Governmental Entity" means and
includes any court, arbitrators, administrative or other governmental
department, agency, commission, authority or instrumentality, domestic or
foreign.
4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
4.6, since December 31, 1996, (i) there has not been any material adverse change
in, and no event has occurred and no condition exists which, individually or
together with other events or conditions, has had or, insofar as the Company can
reasonably foresee, is likely to have, a material adverse effect on, the
business, assets, results of operations, financial condition or prospects of the
Company and its subsidiaries, taken as a whole (excluding events or conditions
generally affecting the newspaper publishing industry in the United States or
affecting general business or economic conditions in the United States) and
(ii), other than actions that in the ordinary course of the Company's business
consistent with prior
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practice would not have required, and would have been taken without, the
approval of the Company Board, no action has been taken by the Company or any
subsidiary of the Company which, if Section 6.4 had then been in effect, would
have been prohibited by such Section without the consent or approval of TCI, and
no agreements, understandings, obligations or commitments, whether in writing or
otherwise, to take any such action have been entered into.
4.7 REGISTRATION STATEMENT; PROXY STATEMENT. None of the information
supplied or to be supplied by the Company or any of its affiliates, directors,
officers, employees, agents or representatives in writing specifically for
inclusion or incorporation by reference in, and which is included or
incorporated by reference in, (i) the Registration Statement or any amendment or
supplement thereto filed or to be filed by TCI with the Commission under the
Securities Act in connection with the issuance of the Merger Consideration or
(ii) any documents filed or to be filed with the Commission or any other
Governmental Entity in connection with the transactions contemplated hereby,
will, at the respective times such documents are filed, and, in the case of the
Registration Statement or any amendment or supplement thereto, when the same
becomes effective and at the Effective Time, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading or necessary to correct any statement in any earlier
communication. For this purpose, any such information included or incorporated
by reference in any such document will be deemed to have been so supplied in
writing specifically for inclusion or incorporation therein if such document was
available for review by the Company a reasonable time before such document was
filed (but the foregoing shall not be the exclusive manner in which it may be
established that such information was so supplied). The Proxy Statement and the
furnishing thereof by the Company will comply in all respects with the
applicable provisions of the URBCA.
4.8 LEGAL PROCEEDINGS. Except as set forth on Schedule 4.8, (i) there is
no suit, action or proceeding pending or, to the knowledge of the Company, any
investigation pending or any suit, action, proceeding or investigation
threatened, against, involving or affecting the Company, any subsidiary of the
Company or any of its or their properties or rights, which, if adversely
determined, is, insofar as the Company can reasonably foresee, reasonably likely
to have, either individually or in the aggregate, a material adverse effect on
the business, assets, results of operations, financial condition or prospects of
the Company and its subsidiaries, taken as a whole; (ii) there is no judgment,
decree, Injunction, rule or order of any Governmental Entity applicable to the
Company or any subsidiary of the Company, or which, insofar as the Company can
reasonably foresee, is reasonably likely to have, either individually or in the
aggregate, any such effect; and (iii) there is no action, suit, proceeding or
investigation pending or, to the knowledge of the Company, threatened, against
the Company which seeks to restrain, enjoin or delay the consummation of the
Merger or any of the other transactions contemplated hereby or which seeks
damages in connection therewith, and no Injunction of any type referred to in
Section 7.1(c) has been entered or issued.
4.9 LICENSES; COMPLIANCE WITH REGULATORY REQUIREMENTS. The Company and
its subsidiaries hold all licenses, franchises, ordinances, authorizations,
permits, certificates, variances, exemptions, concessions, leases, rights of
way, easements, instruments, orders and approvals, domestic or foreign
(collectively, the "Licenses") which are material to the ownership of the assets
and operation of the businesses of the Company or any of its subsidiaries. Each
of the Company and its subsidiaries is in compliance with, and has conducted its
business so as to comply with, the terms of their respective Licenses and with
all applicable laws, rules, regulations, ordinances and codes, except where the
failure so to comply has not had and, insofar as reasonably can be foreseen, in
the future will not have, either individually or in the aggregate, a material
adverse effect on the business, assets, results of operations, financial
condition or prospects of the Company and its subsidiaries, taken as a whole.
Without limiting the generality of the foregoing, the Company and its
subsidiaries, (i) have all Licenses of foreign, state and local governmental
authorities (the "Permits") required for the operation of the facilities being
operated on the date hereof by the Company or any of its subsidiaries, (ii) have
duly and currently filed all reports and other information required to be filed
by any other Governmental Entity in connection with such Permits and (iii) are
not in violation of any of such Permits, other than the lack of Permits, delays
in filing reports or possible violations which have not had and, insofar as can
reasonably be foreseen, in the future will not have a material adverse effect on
the business, assets, results of operations, financial condition or prospects of
the Company or any of its subsidiaries. Without limiting the generality of the
foregoing,
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to the knowledge of the Company, the Company and its subsidiaries have duly
complied with, and the operation of their respective businesses, equipment and
other assets and the facilities owned or leased by them are in compliance with
the provisions of all applicable federal, state and local environmental, health
and safety laws, statutes, ordinances, rules and regulations of any governmental
or a quasi governmental authority relating to (i) errors or omissions, (ii)
discharges to surface water or ground water, (iii) solid or liquid waste
disposal, (iv) the use, storage, generation, handling, transport, discharge,
release or disposal of toxic or hazardous substances or waste, (v) the emission
of non-ionizing electromagnetic radiation or (vi) other environmental, health or
safety matters, including without limitation, all matters set forth in the
Comprehensive Environmental Response Compensation and Liability Act of 1980 as
amended by the Superfund Amendments and Authorization Act of 1986; the
Occupational Safety and Health Act; the Resource Conservation Recovery Act of
1976; the Federal Water Pollution Control Act of 1970; the Safe Drinking Water
Act of 1974; the Toxic Substances Control Act of 1976; the Emergency Planning
Community Right to Know Act of 1986, as amended; and the Clean Air Act, as
amended (collectively "Environmental and Health Laws"). To the knowledge of the
Company, there are no investigations, administrative proceedings, judicial
actions, orders, claims or notices that are pending, anticipated or threatened
against the Company or any of its subsidiaries relating to violations of the
Environmental and Health Laws. The Company has not received a notice of, and
does not know or have any reason to suspect, any facts which relate to the use,
ownership or occupancy of any property or facilities used by the Company or any
of its subsidiaries in connection with the operation of their respective
businesses or any activity of the business of the Company or any subsidiary
which constitutes a violation of, or which would result in a violation or
threatened violation of any Environmental or Health Laws.
4.10 BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other Person is or will be entitled, by reason of any agreement, act
or statement by the Company or any of its subsidiaries, directors, officers,
employees or affiliates, to any financial advisory, broker's, finder's or
similar fee or commission, to reimbursement of expenses or to indemnification or
contribution in connection with any of the transactions contemplated by this
Agreement, except Houlihan, Lokey, Howard & Zukin ("Houlihan Lokey") whose fees
and expenses and claims for indemnification or contribution will be paid by the
Company in accordance with the Company's agreement with such firm (copies of
which have been delivered by the Company to TCI prior to the date of this
Agreement), and the Company agrees to indemnify and hold TCI and Merger Sub
harmless from and against any and all claims, liabilities or obligations with
respect to any other fees, commissions, expenses or claims for indemnification
or contribution asserted by any Person on the basis of any act or statement made
or alleged to have been made by the Company or any of its subsidiaries,
directors, officers, employees or affiliates.
4.11 TAX MATTERS. Except as set forth on Schedule 4.11, (i) there has
been duly filed by or on behalf of the Company and each of its subsidiaries (and
each of their respective predecessors, if any), or filing extensions from the
appropriate federal, state, foreign and local Governmental Entities have been
obtained with respect to, all material federal, state, foreign and local tax
returns and reports required to be filed on or prior to the date hereof, (ii)
payment in full or adequate provision for the payment of all material taxes
required to be paid in respect of the periods covered by such tax returns and
reports has been made and (iii) a reserve which the Company reasonably believes
to be adequate has been set up for the payment of all such taxes anticipated to
be payable in respect of periods through the date hereof. Except as set forth in
Schedule 4.11, none of the federal income tax returns required to be filed by or
on behalf of the Company and each of its subsidiaries consolidated in such
returns (and their respective predecessors, if any) under the Code or any
predecessor statute (the "Consolidated Returns") have been examined by or
settled with the Internal Revenue Service ("IRS"). Except as set forth in
Schedule 4.11, there have been no deficiencies or assessments asserted in
writing by the IRS with respect to the Consolidated Returns. For the purpose of
this Agreement, the term "tax" (including, with correlative meaning, the terms
"taxes" and "taxable") shall include all federal, state, local and (to the
extent material to the Company and its consolidated subsidiaries, taken as a
whole) foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise and other taxes, duties or
assessments of any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts.
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4.12 EMPLOYEE MATTERS.
(a) Schedule 4.12(a) contains a true and complete list of each bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance or termination pay, hospitalization, medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to or
required to be contributed to at any time since January 1, 1996 by the Company
or by any trade or business, whether or not incorporated ("ERISA Affiliate"),
that together with the Company would be deemed a "controlled group" within the
meaning of Section 4001 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), for the benefit of any employee or former employee of the
Company or any ERISA Affiliate including any such type of plan established,
maintained or contributed to under the laws of any foreign country (the "Company
Plans"). Schedule 4.12(a) identifies each Company Plan that is an "employee
benefit plan," as defined in Section 3(3) of ERISA. The Company has heretofore
delivered to TCI true and complete copies of each Company Plan and, if the
Company Plan is funded through a trust or any third party funding vehicle, a
copy of the trust or other funding document.
(b) Except as set forth in Schedule 4.12(b), (i) no Company Plan is
subject to Title IV of ERISA or Section 412 of the Code and (ii) neither the
Company nor any ERISA Affiliate made, or was required to make, contributions to
any employee benefit plan subject to Title IV of ERISA during the five year
period ending on the Effective Time.
(c) With respect to each Company Plan that is subject to the funding
requirements of ERISA: (i) the Company has funded each such Company Plan in all
material respects in compliance with the funding requirements of ERISA; (ii) no
"accumulated funding deficiency" as defined under ERISA exists with respect to
any such Company Plan; (iii) no material changes have been made to any such
Company Plan which are not reflected in the plan documents provided to TCI; (iv)
current plan asset information has been provided to TCI; (v) there have been no
material changes in the funded status of any such Company Plan except those due
to the ongoing accrual of benefits and changes to plan assets due to benefit
payments and investment gains and losses; (vi) no such Company Plan has been
terminated nor has notice of intent to terminate any such Company Plan been
given; and (vii) no employees or former employees are entitled to any benefits
under such Company Plan other than those specifically provided for in the plan
document.
(d) Neither the Company nor any ERISA Affiliate has engaged in any
transaction described under Section 4069 of ERISA nor can any claim, encumbrance
or other Lien be imposed on the Company, any ERISA Affiliate or assets of any of
the foregoing under Section 4068 of ERISA.
(e) Each Company Plan that utilizes a funding vehicle described in
Section 501(c)(9) of the Code or is subject to the provisions of Section 505 of
the Code has been the subject of a notification by the IRS that such funding
vehicle qualifies for tax-exempt status under Section 501(c)(9) of the Code
and/or such Company Plan complies with Section 505 of the Code, unless the IRS
does not as a matter of policy issue such notification with respect to that
particular type of plan. To the Company's knowledge, each such Company Plan
satisfies, where appropriate, the requirements of Sections 501(c)(9) and 505 of
the Code.
(f) Schedule 4.12(f) contains a list of, and the Company has
delivered to TCI true and complete copies of, all other material personnel
policy, stock option plan, collective bargaining agreement, bonus, incentive
award, vacation pay, severance pay, consulting agreement or any other employee
benefit plan, agreement, arrangement or understanding which the Company or any
ERISA Affiliate maintains, or to which the Company or any ERISA Affiliate
contributes, is required to contribute or has contributed since January 1, 1990,
and which is not required under paragraph (a) or (b) above to be listed in
Schedule 4.12(a) or (b), respectively (including, without limitation, with
respect to any plans which are unwritten, a detailed written description of
eligibility, participation,
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benefits, funding arrangements, assets and any other matters which relate to the
obligations of the Company or any ERISA Affiliate).
(g) The Company and each ERISA Affiliate have complied in all
material respects with all requirements for premium payments, including any
interest and penalty charges for late payment, due the Pension Benefit Guaranty
Corporation ("PBGC") with respect to each Company Plan and each separate plan
year for which any premiums are required. Except for transactions required by
this Agreement, from the period commencing January 1, 1996 through the Effective
Time, there has been no "reportable event" (as defined in Section 4043 of ERISA
and the regulations promulgated by the PBGC thereunder) with respect to any
Company Plan subject to Title IV of ERISA for which notice to the PBGC has not,
by rule or regulation, been waived. There is not any unsatisfied material
liability to the PBGC which has been incurred by the Company or any ERISA
Affiliate on account of any Company Plan subject to Title IV of ERISA. From the
period commencing January 1, 1996 through the Effective Time, no filing has been
or will be made by the Company or any ERISA Affiliate with the PBGC to
terminate, nor has any proceeding been commenced by the PBGC to terminate, any
Company Plan subject to Title IV of ERISA which was maintained, or wholly or
partially funded, by the Company or any ERISA Affiliate. Neither the Company nor
any ERISA Affiliate (i) has ceased operations at a facility so as to become
subject to the provisions of Section 4062(e) of ERISA, (ii) has withdrawn from
any Company Plan with respect to which it is a substantial employer so as to
become subject to the provisions of Section 4063 of ERISA, (iii) has ceased
contributions on or before the Effective Time to any Company Plan subject to
Section 4064(a) of ERISA to which the Company or any ERISA Affiliate has made
contributions during the five calendar years prior to the Effective Time, or
(iv) has incurred a complete or partial withdrawal from any Company Plan that is
a multiemployer plan (as defined in either Section 3(37) or Section 4001(a)(3)
of ERISA (a "Multiemployer Plan")) so as to incur withdrawal liability as
defined in Section 4201 of ERISA (without regard to any subsequent reduction or
waiver of such liability under Section 4207 or 4208 of ERISA). No employee
pension benefit plan which is a Multiemployer Plan to which the Company or any
ERISA Affiliate contributes is in "reorganization" (as defined in Section 4241
of ERISA) or "insolvent" (as defined in Section 4245 of ERISA). There is not
now, nor can there ever be, any liability under Section 4064 of ERISA to the
Company or any ERISA Affiliate by reason of participation in any Company Plan by
the Company or any ERISA Affiliate on or prior to the Effective Time. There has
been no amendment to any Company Plan that would require the furnishing of
security under Section 401(a)(29) of the Code. To the Company's knowledge, there
has been no event or circumstance and there can be no event or circumstance
which has or may result in any liability being asserted by any Company Plan, the
PBGC or any other person or entity under Title IV of ERISA against the Company
or any ERISA Affiliate. Neither the Company nor any ERISA Affiliate has any
liability to any Company Plan for contributions under Section 412(m) of the Code
or Section 302(e) of ERISA, nor has any claim, encumbrance or other Lien been
imposed under Section 412(n) of the Code or Section 302(f) of ERISA nor is there
any liability for excise taxes imposed under Section 4971 of the Code, and all
liabilities arising under Section 412(c)(11) of the Code with respect to
contributions to any Company Plan have been set forth in Schedule 4.12(g).
Copies of any notices to the PBGC under Section 412(n) of the Code or Section
302(f) of ERISA with respect to any Company Plan have been delivered to TCI; and
copies of notices required to be given to participants under Section 101(d) of
ERISA with respect to any Company Plan have previously been delivered to TCI.
(h) True and complete copies of each plan, agreement, arrangement or
understanding referred to in Schedule 4.12(f), the most recent determination
letter issued by the IRS with respect to each Company Plan, annual reports on
Form 5500 required to be filed with any Governmental Entity for each Company
Plan which is an employee pension benefit plan for the three most recent plan
years and all actuarial reports for the last two plan years of each Company
Plan, other than an "individual account plan," have heretofore been delivered by
the Company to TCI.
(i) Except as set forth in Schedule 4.12(i), neither the Company nor
any ERISA Affiliate is a party to or bound by the terms of any collective
bargaining agreement. The Company and each ERISA Affiliate is in compliance in
all material respects with all applicable laws respecting the employment and
employment practices, terms and conditions of employment and wage and hours of
its employees and is not engaged in any unfair labor practice. To the knowledge
of the Company, all of the employees of the Company and the ERISA Affiliates who
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work in the United States are lawfully authorized to work in the United States
according to federal immigration laws. There is no labor strike or labor
disturbance pending or, to the knowledge of the Company, threatened against the
Company or any ERISA Affiliate, and during the past five years neither the
Company nor any ERISA Affiliate has experienced a work stoppage.
(j) Each Company Plan has been operated and administered in all
material respects in accordance with its terms and applicable law, including,
but not limited to, Section 406 of ERISA and Section 4975 of the Code.
(k) To the Company's knowledge, each Company Plan which is intended
to be "qualified" within the meaning of Section 401(a) of the Code is so
qualified and the trusts maintained thereunder are exempt from taxation under
Section 501(a) of the Code.
(l) Except as set forth in Schedule 4.12(l), no Company Plan provides
welfare benefits, including without limitation death or medical benefits, with
respect to current or former employees of the Company or any ERISA Affiliate
beyond their retirement or other termination of service (other than coverage
mandated by applicable law).
(m) Except as set forth in Schedule 4.12(m), there are no material
pending, threatened or anticipated claims by or on behalf of any Company Plan,
by any employee or beneficiary covered under any such Company Plan, or otherwise
involving any such Company Plan (other than routine claims for benefits).
(n) Schedule 4.12 sets forth a true and complete list of each of the
following agreements, arrangements and commitments to which the Company or any
of its subsidiaries is a party or by which any of them may be bound (true and
complete copies of which have been made available to TCI): (i) each employment,
consulting, agency or commission agreement not terminable without liability to
the Company or any of its subsidiaries upon 60 days' or less prior notice to the
employee, consultant or agent and involving compensation or remuneration of more
than $50,000 per annum; (ii) each labor union or collective bargaining
agreement; (iii) each agreement with any executive officer or other key employee
of the Company or any subsidiary of the Company the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company of the nature contemplated by this
Agreement; (iv) each agreement with respect to any officer or other key employee
of the Company or any subsidiary of the Company providing any term of employment
or compensation guarantee extending for a period longer than one year; and (v)
the Company ESOP and each other agreement or plan any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. Neither the Company nor any
of its subsidiaries is a party to any agreement, arrangement, commitment or
understanding that has resulted or would result, upon the consummation of the
transactions contemplated under this Agreement or otherwise, separately or in
the aggregate, in the payment of any "excess parachute payment" within the
meaning of Section 280G of the Code.
4.13 FAIRNESS OPINION. Houlihan Lokey has advised the Company Board in
writing of its opinion that, as of the date hereof, the Merger Consideration
payable with respect to the Company Common Stock pursuant to the Merger is fair,
from a financial point of view, to the holders of the Company Common Stock (the
"Fairness Opinion"). The Company has provided TCI with a true and complete copy
of the Fairness Opinion. In addition, the Company will, if it or TCI is so
required by applicable law or requested by the Staff of any Division of the
Commission, include an executed copy of the Fairness Opinion in the Proxy
Statement and will file or provide supplementally to the Staff, or provide to
TCI so that it may file or provide supplementally to the Staff, as the case may
be, any written presentation or fairness opinion analysis made to the Company
Board (or any committee thereof) or delivered to the Company Board (or any
committee thereof) by Houlihan Lokey, and the Company hereby represents and
warrants to TCI that any such material provided to TCI shall be the only written
materials in the
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possession of the Company that were furnished to the Company Board by Houlihan
Lokey and that the Company is free to so file or provide such materials under
such circumstances.
4.14 RECOMMENDATION OF THE COMPANY BOARD. The Company Board, by majority
vote at meetings duly called and held, has approved the Merger, determined that
the Merger is fair to and in the best interests of the Company's stockholders,
has adopted resolutions recommending approval and adoption of this Agreement and
the Merger by the stockholders of the Company.
4.15 VOTE REQUIRED. The only vote of stockholders of the Company required
under the URBCA and the Company Charter and By-laws in order to approve and
adopt the Merger Proposal is the affirmative vote of a majority of the issued
and outstanding shares of Company Common Stock, and no other vote or approval of
or other action by the holders of any capital stock of the Company is required.
4.16 TANGIBLE AND REAL PROPERTY. The properties and assets owned or
leased by the Company and its subsidiaries are suitable and adequate for the
conduct of their respective businesses and operations and the Company and its
subsidiaries have good and marketable title to or valid leasehold or other
contractual interests in such properties and assets, free and clear of all Liens
other than Permitted Encumbrances. Schedule 4.16 describes all real property
(other than easements, rights-of-way and similar interests in real property)
owned or leased by the Company.
4.17 INTANGIBLE PROPERTY; COPYRIGHTS. The Company and its subsidiaries
own or have adequate rights to use all patents, trademarks, trade names, service
marks, brands, logos, copyrights, trade secrets, customer lists and other
proprietary intellectual property rights required for, used in or incident to
the businesses of the Company and its subsidiaries as now conducted or proposed
to be conducted. The Company has not received notice, and has no reason to know,
of any claim or threatened infringement of the rights of others with respect to
any patents, trademarks, service marks, trade names, brands, logos, copyrights
or licenses used or owned by the Company, the loss of which could have a
material adverse effect upon the business, assets, results of operations,
financial condition or prospects of the Company or any of its subsidiaries. The
Company has no knowledge it is infringing upon or otherwise violating, or has in
the past infringed upon or otherwise violated, the rights of any third party
with respect to any patent, trademark, trade name, service mark or copyright. To
the knowledge of the Company, no current or former employee of the Company is or
was a party to any confidentiality agreement and/or agreement not to compete
which restricts or forbids or restricted or forbade at any time during such
employee's employment by the Company, such employee's performance of the
Company's business, as the case may be, or any activity that such employee was
hired to perform. To the knowledge of the Company, the Company is not now using,
and has not in the past used without appropriate authorization, any confidential
information or trade secrets of any third party. The Company has never received
any notice alleging such conduct. The Company has timely and accurately made all
requisite filings and payments with the Register of Copyrights and is otherwise
in compliance with all applicable rules and regulations of the Copyright Office
except where such noncompliance would not have a material adverse effect on the
business, assets, results of operations, financial condition or prospects of the
Company. The Company has made available to TCI true and complete copies of all
current reports and filings, and all reports and filings for the past five
years, made or filed pursuant to copyright rules and regulations with respect to
the business of the Company.
4.18 CIRCULATION; JOINT OPERATING AGREEMENT. Schedule 4.18 contains a
true and correct list of each of the newspapers published by the Company or any
of its subsidiaries and the average paid circulation for each such newspaper
during the three-month period ending December 31, 1996. Paid circulation is not
overstated in such Schedule, and there has been no material decline in total
average paid circulation since December 31, 1996. The Amendment Agreement, dated
June 1, 1992, between the Company and Deseret News Publishing Company is valid,
binding and enforceable against the Company and, to the knowledge of the
Company, the other party thereto in accordance with its terms (except as the
same may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the rights and remedies of creditors generally and the
application of general principles of equity), and is in full force and effect
and will remain in full force immediately following consummation of the Merger.
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4.19 INVESTMENT SECURITIES. Schedule 4.19 sets forth a complete and
accurate list of each capital, participating, equity or other interest owned of
record or beneficially by the Company (each, an "Investment Security" and
collectively, the "Investment Securities") in any corporation, partnership,
joint venture, or other Person, other than the subsidiaries of the Company
listed on Schedule 4.1. Schedule 4.19 includes, with respect to each Investment
Security, the name of the corporation, partnership, joint venture or other
Person in respect of which such Investment Security relates and the amount and
nature of such interest. All of the Investment Securities are held by the
Company free and clear of all Liens and Restrictions.
4.20 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule 4.20,
there is no lease, sublease, indebtedness, contract, agreement, commitment,
understanding, or other arrangement of any kind entered into by the Company with
respect to the Company with any officer, director, or shareholder of the Company
or any "affiliate" or "associate" of any of them (as those terms are defined in
the Exchange Act), except, in each case, for management fees and other
compensation paid to officers consistent with previously established policies
(including normal merit increases in such compensation in the ordinary course of
business), reimbursements of ordinary and necessary expenses incurred in
connection with their employment, and amounts paid pursuant to existing employee
benefit plans listed on Schedule 4.12(f).
4.21 NO INVESTMENT COMPANY. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940 and is not subject to
regulation under such Act.
4.22 FULL DISCLOSURE. No statement in this Agreement or in any
certificate delivered pursuant to the requirements of this Agreement by or on
behalf of the Company to TCI contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements herein or therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TCI
TCI hereby represents and warrants to the Company as follows:
5.1 ORGANIZATION. Each of Merger Sub, TCI and TCI's "significant
subsidiaries" (as defined in Rule 1-02 of Regulation S-X of the Rules and
Regulations of the Commission) (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and (iii) is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing is not reasonably likely to have,
individually or in the aggregate, a material adverse effect on the business,
assets, results of operations or financial condition of TCI and its subsidiaries
taken as a whole. Each entity in which TCI, directly or through one or more of
its subsidiaries, has an investment accounted for by the equity method which is
material to the business, assets, results of operations or financial condition
of TCI and its subsidiaries taken as a whole (the "TCI Equity Affiliates") is a
corporation or partnership (A) duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, (B) has all requisite corporate or partnership power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted and (C) is duly qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it, or the nature of its activities, makes such qualification necessary,
except in each case where such failure to be so existing and in good standing or
to have such power and authority or to be so qualified to do business and be in
good standing has not had and is not reasonably likely to have, individually or
in the aggregate, a material adverse effect on the business, assets, results of
operations or financial condition of TCI and its subsidiaries taken as a whole.
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5.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement has been duly
executed and delivered by TCI. Subject to the satisfaction of the conditions
set forth in Section 7.1 (b), (i) TCI has all requisite corporate power and
authority to enter into this Agreement and each of TCI and Merger Sub has all
requisite corporate power and authority to perform its obligations hereunder
and, subject to the approval of the Merger Proposal by the stockholders of the
Company in accordance with the URBCA and the Company Charter and By-laws, to
consummate the transactions contemplated hereby; (ii) the execution, delivery
and performance by TCI of this Agreement and the consummation by each of TCI and
Merger Sub of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on its part; (iii) this Agreement is a valid and
binding obligation of TCI, enforceable in accordance with its terms (except
insofar as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies);
and (iv) assuming (without investigation) that all shares of Company Stock
outstanding at the Effective Time will be duly authorized, validly issued, fully
paid and non-assessable, the shares of TCI Series A Stock to be issued and
delivered by TCI pursuant to Section 2.5 will be, when the Merger has become
effective and such shares are issued and delivered as provided in Section 2.5
and as described in the Registration Statement, duly authorized, validly issued,
fully paid and non-assessable.
5.3 CAPITALIZATION OF TCI. TCI's authorized capital stock consists of (i)
3,550,000,000 shares of common stock, par value $1.00 per share ("TCI Common
Stock"), of which 1,750,000,000 shares are designated TCI Series A Stock,
150,000,000 shares are designated Tele-Communications, Inc. Series B TCI Group
Common Stock ("TCI Series B Stock"), 750,000,000 shares are designated as Tele-
Communications, Inc. Series A Liberty Media Group Common Stock ("LMG Series A
Stock"), 75,000,000 shares are designated as Tele-Communications, Inc. Series B
Liberty Media Group Common Stock ("LMG Series B Stock"), 750,000,000 shares are
designated Tele-Communications, Inc. Series A Telephony Group Common Stock (the
"Telephony Group Series A Common Stock") and 75,000,000 shares are designated
Tele-Communications, Inc. Series B Telephony Group Common Stock (the "Telephony
Group Series B Common Stock," and together with the Telephony Group Series A
Common Stock, the "Telephony Group Common Stock"), and (ii) 52,375,096 shares of
preferred stock (the "TCI Preferred Stock"), of which 700,000 shares are
designated Class A Preferred Stock, par value $0.01 per share (the "Class A
Preferred Stock"), 1,675,096 shares are designated Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share (the
"Class B Preferred Stock"), and 50,000,000 shares are designated Series
Preferred Stock, par value $.01 per share (the "Series Preferred Stock"),
issuable in series. Of the Series Preferred Stock, as of December 31, 1996, TCI
had designated pursuant to its Restated Certificate of Incorporation (the "TCI
Charter") and Section 151(g) of the DGCL, 80,000 shares as Convertible Preferred
Stock, Series C (the "Series C Preferred Stock"), 1,000,000 shares as
Convertible Preferred Stock, Series D (the "Series D Preferred Stock"), 400,000
shares as Redeemable Convertible Preferred Stock, Series E (the "Series E
Preferred Stock"), 500,000 shares as Convertible Redeemable Participating
Preferred Stock, Series F (the "Series F Preferred Stock"), 7,259,380 shares as
Redeemable Convertible Series G Preferred Stock, Series G (the "Series G
Preferred Stock") and 7,259,380 shares as Redeemable Convertible Series H
Preferred Stock, Series H (the "Series H Preferred Stock"). As of December 31,
1996, (A) 579,472,282 shares of TCI Series A Stock, 84,647,075 shares of TCI
Series B Stock, 227,844,437 shares of LMG Series A Stock (as adjusted to give
effect to the Liberty Group Stock Dividend), 21,189,369 shares of LMG Series B
Stock (in each case net of shares held by subsidiaries of TCI) had been issued
and were outstanding and 116,853,196 shares of TCI Series A Stock were held by
subsidiaries of TCI, (B) no shares of Telephony Group Common Stock had been
issued, (C) 127,607,438 shares of TCI Series A Stock and 30,090,303 shares of
LMG Series A Stock (as adjusted to give effect to the Liberty Group Stock
Dividend) were reserved for issuance upon conversion, exchange or exercise of
outstanding convertible or exchangeable securities and options, (D) 1,620,026
shares of Class B Preferred Stock, 70,575 shares of Series C Preferred Stock,
997,222 shares of Series D Preferred Stock, 278,307 shares of Series F Preferred
Stock, 6,695,427 shares of Series G Preferred Stock and 6,695,427 shares of
Series H Preferred Stock had been issued and were outstanding, and (E) all of
the shares of Class A Preferred Stock and Series E Preferred Stock had
previously been redeemed and retired and all of the outstanding shares of Series
F Preferred Stock were held by subsidiaries of TCI.
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5.4 TCI REPORTS AND FINANCIAL STATEMENTS. TCI has heretofore made
available to the Company true and complete copies of all reports, registration
statements, definitive proxy statements and other documents (in each case
together with all amendments thereto) filed by TCI or its predecessor with the
Commission since January 1, 1995 (such reports, registration statements,
definitive proxy statements and other documents, together with any amendments
thereto, are sometimes collectively referred to as the "TCI Commission
Filings"). The TCI Commission Filings constitute all of the documents (other
than preliminary material) that TCI or its predecessor was required to file with
the Commission since such date. As of their respective dates, each of the TCI
Commission Filings complied in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations under each such Act, and none of the TCI Commission Filings
contained as of such date any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. When filed with the Commission, the financial statements
included in the TCI Commission Filings complied as to form in all material
respects with the applicable rules and regulations of the Commission and were
prepared in accordance with generally accepted accounting principles (as in
effect from time to time) applied on a consistent basis (except as may be
indicated therein or in the notes or schedules thereto), and such financial
statements fairly present the consolidated financial position of TCI and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and their consolidated cash flows for the periods then
ended, subject, in the case of the unaudited interim financial statements, to
normal, recurring year-end audit adjustments. Except as and to the extent
reflected or reserved against in the financial statements included in TCI's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 or as
disclosed therein and except as set forth on Schedule 5.4, none of TCI, any of
TCI's subsidiaries or, to the knowledge of TCI, any TCI Equity Affiliate had as
of such date any liability or obligation of any kind required to be reflected on
a balance sheet of TCI and its consolidated subsidiaries prepared in accordance
with the applicable rules and regulations of the Commission which was material
to the business, assets, results of operations or financial condition of TCI and
its subsidiaries taken as a whole. Since September 30, 1996, except as disclosed
in the TCI Commission Filings filed with the Commission prior to the date
hereof, none of TCI, any of TCI's subsidiaries or, to the knowledge of TCI, any
TCI Equity Affiliate has incurred any liability or obligation of any kind which,
in any case or in the aggregate, is or may be material to the business, assets,
results of operations or financial condition of TCI and its subsidiaries taken
as a whole, except in the ordinary course of business.
5.5 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS.
Except as set forth on Schedule 5.5, the execution and delivery by TCI of this
Agreement do not, and the performance by TCI and Merger Sub of their obligations
hereunder and the consummation of the transactions contemplated hereby will not:
(i) conflict with or violate the TCI Charter or By-laws or the
Certificate of Incorporation or By-laws of Merger Sub;
(ii) assuming that the Company's representations and warranties in
clause (ii) of Section 4.5 are, and continue to be, accurate, require any
Government Consent or Governmental Filing on the part of or with respect to TCI,
any subsidiary of TCI or, to the knowledge of TCI, any TCI Equity Affiliate,
except for (A) the filing with the Commission of the Registration Statement, (B)
the filing of the Articles of Merger with the Division and appropriate documents
with the relevant authorities of other states in which the Company or Merger Sub
is qualified to do business, (C) the Local Approvals, (D) such Government
Consents and Governmental Filings as may be required in connection with the
issuance of the Merger Consideration as contemplated hereby pursuant to state
securities and blue sky laws, (E) the Governmental Filings to be made on the
part of or with respect to the Company referred to in clause (ii) of Section
4.5, (F) the Governmental Filings required pursuant to the pre-merger
notification requirements of the Hart-Scott Act, and (G) such Government
Consents and Governmental Filings the absence or omission of which will not,
either individually or in the aggregate, have a material adverse effect on the
transactions contemplated hereby or on the business, assets, results of
operations or financial condition of TCI and its subsidiaries taken as a whole;
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<PAGE>
(iii) require on the part of TCI, any subsidiary of TCI or, to the
knowledge of TCI, any TCI Equity Affiliate, any Contract Consent or Contract
Notice, except for such Contract Consents and Contract Notices the absence or
omission of which will not, either individually or in the aggregate, have a
material adverse effect on the transactions contemplated hereby or on the
business, assets, results of operations or financial condition of TCI and its
subsidiaries taken as a whole;
(iv) result in a Violation by TCI, Merger Sub or any other subsidiary
of TCI of any Contract to which TCI, Merger Sub, any other subsidiary of TCI or,
to the knowledge of TCI, any TCI Equity Affiliate is a party, by which TCI,
Merger Sub, any other subsidiary of TCI or, to the knowledge of TCI, any TCI
Equity Affiliate or any of their respective assets or properties is bound or
affected or pursuant to which TCI, Merger Sub, any other subsidiary of TCI or,
to the knowledge of TCI, any TCI Equity Affiliate is entitled to any rights or
benefits, except for such Violations which would not, individually or in the
aggregate, have a material adverse effect on the transactions contemplated
hereby or on the business, assets, results of operations or financial condition
of TCI and its subsidiaries taken as a whole; or
(v) assuming that the Merger Proposal is approved by the Company's
stockholders as required by the URBCA and the Company Charter and By-laws, and
that the Government Consents and Governmental Filings specified in clause (ii)
of this Section 5.5 are obtained, made and given, result in a Violation of,
under or pursuant to any law, rule, regulation, order, judgment or decree
applicable to TCI, Merger Sub, any other subsidiary of TCI or, to the knowledge
of TCI, any TCI Equity Affiliate or by which any of their respective properties
or assets are bound or affected, except for such Violations which would not,
individually or in the aggregate, have a material adverse effect on the
transactions contemplated hereby or on the business, assets, results of
operations or financial condition of TCI and its subsidiaries taken as a whole.
5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as otherwise disclosed
in the TCI Commission Filings filed with the Commission prior to the date hereof
or as disclosed in a Schedule to this Agreement, since December 31, 1995, there
has not been any material adverse change in, and no event has occurred and no
condition exists which, individually or together with other events or
conditions, has had or, insofar as TCI can reasonably foresee, is reasonably
likely to have, a material adverse effect on, the business, assets, results of
operations or financial condition of TCI and its subsidiaries taken as a whole
(excluding events or conditions generally affecting the cable television
industry or satellite television industry in the United States or affecting
general business or economic conditions in the United States).
5.7 REGISTRATION STATEMENT. None of the information supplied or to be
supplied by TCI or any of its affiliates, directors, officers, employees, agents
or representatives in writing specifically for inclusion or incorporation by
reference in, and which is included or incorporated by reference in, (i) the
Registration Statement or any amendment or supplement thereto, or (ii) any other
documents filed or to be filed with the Commission or any other Governmental
Entity in connection with the transactions contemplated hereby, will, at the
respective times such documents are filed, and, in the case of the Registration
Statement or any amendment or supplement thereto, when the same becomes
effective, at the time of the Special Meeting and at the Effective Time, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary to correct
any statement in any earlier communication. The Registration Statement will
comply as to form in all material respects with the applicable provisions of the
Securities Act and the rules and regulations under such Act (except that no
representation is made as to the form of the Company Proxy Statement to be
included as the prospectus therein).
5.8 LEGAL PROCEEDINGS. Except as set forth in the TCI Commission Filings
filed with the Commission prior to the date hereof, (i) there is no suit, action
or proceeding pending or, to the knowledge of TCI, any investigation pending or
any suit, action, proceeding or investigation threatened, against, involving or
affecting TCI, any subsidiary of TCI or, to the knowledge of TCI, any TCI Equity
Affiliate or any of its or their properties or rights (excluding suits, actions,
proceedings or investigations generally affecting the cable television industry
or satellite
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<PAGE>
television industry in a particular state or in the United States and to which
neither TCI nor any subsidiary of TCI is a party), which, if adversely
determined, is, insofar as TCI can reasonably foresee, reasonably likely to
have, either individually or in the aggregate, a material adverse effect on the
business, assets, results of operations or financial condition of TCI and its
subsidiaries taken as a whole; (ii) there is no judgment, decree, Injunction,
rule or order of any Governmental Entity applicable to TCI, any subsidiary of
TCI or, to the knowledge of TCI, any TCI Equity Affiliate having, or which,
insofar as TCI can reasonably foresee, is reasonably likely to have, either
individually or in the aggregate, any such effect; and (iii) there is no action,
suit, proceeding or investigation pending or, to the knowledge of TCI,
threatened against TCI or Merger Sub which seeks to restrain, enjoin or delay
the consummation of the Merger or any of the other transactions contemplated
hereby and no Injunction of any type referred to in Section 7.1(c) has been
entered or issued against TCI or Merger Sub.
5.9 LICENSES; COMPLIANCE WITH REGULATORY REQUIREMENTS; INTANGIBLE
PROPERTY. TCI, its subsidiaries and, to the knowledge of TCI, the TCI Equity
Affiliates hold all Licenses which are material to the operation of the
businesses of TCI and its subsidiaries taken as a whole. Each of TCI, its
subsidiaries and, to the knowledge of TCI, the TCI Equity Affiliates is in
compliance with, and has conducted its business so as to comply with, the terms
of their respective Licenses and with all applicable laws, rules, regulations,
ordinances and codes, domestic or foreign, including laws, rules, regulations,
ordinances and codes relating to the protection of the environment, except where
the failure so to comply has not had and, insofar as reasonably can be foreseen,
in the future will not have, either individually or in the aggregate, a material
adverse effect on the business, assets, results of operations, financial
condition or prospects of TCI and its subsidiaries taken as a whole. Without
limiting the generality of the foregoing, TCI, its subsidiaries and, to the
knowledge of TCI, the TCI Equity Affiliates (i) have all Licenses and Permits
required for the operation of the cable television systems and related
facilities being operated on the date hereof by TCI, any of its subsidiaries,
or, to the knowledge of TCI, any TCI Equity Affiliate, (ii) have duly and
currently filed all reports and other information required to be filed by any
other Governmental Entity in connection with such Licenses and Permits and (iii)
are not in violation of any of such Licenses or Permits, other than the lack of
Licenses or Permits, delays in filing reports or possible violations which have
not had and, insofar as can reasonably be foreseen, in the future will not have
a material adverse effect on the business, assets, results of operations,
financial condition or prospects of TCI and its subsidiaries taken as a whole.
TCI and its subsidiaries own or have adequate rights to use all patents,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary intellectual property rights as are material in connection with the
businesses of TCI and its subsidiaries taken as a whole.
5.10 BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other person or entity is or will be entitled, by reason of any
agreement, act or statement by TCI, by Merger Sub, by any of TCI's other
subsidiaries or affiliates, or by any directors, officers or employees of TCI,
to any financial advisory, broker's, finder's or similar fee or commission, to
reimbursement of expenses or to indemnification or contribution in connection
with any of the transactions contemplated by this Agreement.
5.11 TAX MATTERS. To TCI's knowledge, (i) there has been duly filed by or
on behalf of TCI and each of its subsidiaries, or filing extensions from the
appropriate federal, state, foreign and local Governmental Entities have been
obtained with respect to, all material federal, state, foreign and local tax
returns and reports required to be filed on or prior to the date hereof; (ii)
payment in full or adequate provision for the payment of all taxes required to
be paid in respect of the periods covered by such tax returns and reports has
been made (except in respect of state, local and foreign taxes which are in the
aggregate immaterial in amount) and (iii) a reserve which TCI reasonably
believes to be adequate has been set up for the payment of all such taxes
anticipated to be payable in respect of periods through the date hereof. Except
as set forth on Schedule 5.11, none of the federal income tax returns required
to be filed by or on behalf of TCI and each of its subsidiaries consolidated in
such returns under the Code or any predecessor statute (the "TCI Consolidated
Returns") are currently under examination by the IRS. Except as set forth on
Schedule 5.11, there have not been any deficiencies or assessments asserted in
writing by the IRS with respect to the TCI Consolidated Returns.
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<PAGE>
5.12 FULL DISCLOSURE. No statement in this Agreement or in any
certificate delivered pursuant to the requirements of this Agreement by or on
behalf of TCI to the Company contains or will contain an untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements herein or therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE VI
TRANSACTIONS PRIOR TO CLOSING
6.1 VOTING OF TCI SECURITIES. During the period commencing on the date
hereof and ending at the Effective Time, the Company agrees (i) to be present,
in person or represented by proxy, at all meetings of the stockholders of TCI,
however called (whether annual, special or adjoined), so that all shares of TCI
Voting Stock beneficially owned by the Company may be counted for the purpose of
determining the presence of a quorum at such meeting, and, (ii) to vote or cause
to be voted all shares of TCI Voting Stock beneficially owned by it in the
manner recommended to stockholders by the Board of Directors of TCI.
6.2 ACCESS TO INFORMATION CONCERNING PROPERTIES AND RECORDS. Upon
reasonable notice, the Company shall (and shall cause each of its subsidiaries,
and use its reasonable efforts to cause its other affiliates, to) afford to the
officers, employees, counsel, accountants and other authorized representatives
of TCI full access during normal business hours to all its properties,
personnel, books and records and furnish promptly to such Persons such financial
and operating data and other information concerning its business, properties,
personnel and affairs as such Persons shall from time to time reasonably request
and instruct the officers, directors, employees, counsel and financial advisors
of the Company to discuss the business operations, affairs and assets of the
Company and otherwise fully cooperate with the other party in its investigation
of the business of the Company. No investigation pursuant to this Section 6.1
will affect any representation or warranty given by the Company to TCI
hereunder.
6.3 CONFIDENTIALITY. Unless otherwise agreed to in writing by the party
disclosing (or whose Representatives disclosed) the same (a "disclosing party"),
each party (a "receiving party") shall, and shall cause its affiliates,
directors, officers, employees, agents and controlling Persons (such affiliates
and other Persons with respect to any party being collectively referred to as
such party's "Representatives") to, (i) keep all Proprietary Information of the
disclosing party confidential and not disclose or reveal any such Proprietary
Information to any Person other than those Representatives of the receiving
party who are participating in effecting the transactions contemplated hereby or
who otherwise need to know such Proprietary Information, (ii) use such
Proprietary Information only in connection with consummating the transactions
contemplated hereby and enforcing the receiving party's rights hereunder, and
(iii) not use Proprietary Information in any manner detrimental to the
disclosing party. In the event that a receiving party is requested pursuant to,
or required by, applicable law or regulation or by legal process to disclose any
Proprietary Information of the disclosing party, the receiving party shall
provide the disclosing party with prompt notice of such request(s) to enable the
disclosing party to seek an appropriate protective order. A party's obligations
hereunder with respect to Proprietary Information that (i) is disclosed to a
third party with the disclosing party's written approval, (ii) is required to be
produced under order of a court of competent jurisdiction or other similar
requirements of a governmental agency, or (iii) is required to be disclosed by
applicable law or regulation, will, subject in the case of clauses (ii) and
(iii) above to the receiving party's compliance with the preceding sentence,
cease to the extent of the disclosure so consented to or required, except to the
extent otherwise provided by the terms of such consent or covered by a
protective order. If a receiving party uses a degree of care to prevent
disclosure of the Proprietary Information that is at least as great as the care
it normally takes to preserve its own information of a similar nature, it shall
not be liable for any disclosure that occurs despite the exercise of that degree
of care, and in no event shall a receiving party be liable for any indirect,
punitive, special or consequential damages unless such disclosure resulted from
its willful misconduct or gross negligence in which event it shall be liable in
damages for the disclosing party's lost profits resulting directly and solely
from such disclosure. In the event this Agreement is terminated, each party
shall, if so requested by the other party, promptly return or destroy all of the
Proprietary
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<PAGE>
Information of such other party, including all copies, reproductions, summaries,
analyses or extracts thereof or based thereon in the possession of the receiving
party or its Representatives; provided, however, that the receiving party shall
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not be required to return or cause to be returned summaries, analyses or
extracts prepared by it or its Representatives, but shall destroy (or cause to
be destroyed) the same upon request of the disclosing party.
For purposes of this Section 6.3, "Proprietary Information" of a party
means all proprietary or confidential information about such party that is
furnished by it or its Representatives to the other party or the other party's
Representatives, regardless of the manner in which it is furnished.
"Proprietary Information" does not include, however, information which (a) has
been or in the future is published or is now or in the future is otherwise in
the public domain through no fault of the receiving party or its
Representatives, (b) was available to the receiving party or its Representatives
on a non-confidential basis prior to its disclosure by the disclosing party, (c)
becomes available to the receiving party or its Representatives on a non-
confidential basis from a Person other than the disclosing party or its
Representatives who is not otherwise bound by a confidentiality agreement with
the disclosing party or its Representatives, or is not otherwise prohibited from
transmitting the information to the receiving party or its Representatives, or
(d) is independently developed by the receiving party or its Representatives
through Persons who have not had, either directly or indirectly, access to or
knowledge of such information.
6.4 PUBLIC ANNOUNCEMENTS. No party shall or shall permit any of its
subsidiaries to (and each party shall use its reasonable efforts to cause its
affiliates, directors, officers, employees, agents and representatives not to)
issue any press release, make any public announcement or furnish any written
statement to its employees or stockholders generally concerning the transactions
contemplated by this Agreement without the consent of the other party (which
consent shall not be unreasonably withheld), except to the extent required by
applicable law or the applicable requirements of the National Association of
Securities Dealers, Inc. with respect to issuers whose securities are quoted on
The Nasdaq Stock Market (and in either such case such party shall, to the extent
consistent with timely compliance with such requirement, consult with the other
party prior to making the required release, announcement or statement).
6.5 CONDUCT OF THE COMPANY'S BUSINESS PENDING THE EFFECTIVE TIME. The
Company shall, and shall cause each of its subsidiaries to, except as permitted,
required or specifically contemplated by this Agreement or consented to or
approved in writing by TCI during the period commencing on the date hereof and
ending at the Effective Time:
(a) conduct its business only in, and not take any action except in,
the ordinary and usual course of its business and consistent with past
practices;
(b) use reasonable efforts, in the ordinary and usual course of
business and consistent with past practices, to preserve intact its business
organization, to preserve its Licenses in full force and effect, to keep
available the services of its present officers and key employees, and to
preserve the good will of those having business relationships with it;
(c) not (i) make any change or amendments in its charter, by-laws or
partnership agreement (as the case may be); (ii) issue, grant, sell or deliver
any shares of its capital stock or any of its other equity interests or
securities, or any securities convertible into, or options, warrants or rights
of any kind to subscribe to or acquire, any shares of its capital stock or any
of its other equity interests or securities, or any phantom shares, phantom
equity interests or stock or equity appreciation rights; (iii) split, combine or
reclassify the outstanding shares of its capital stock or any of its other
outstanding equity interests or securities or issue any capital stock or other
equity interests or securities in exchange for any such shares or interests;
(iv) redeem, purchase or otherwise acquire, directly or indirectly, any shares
of capital stock or any other securities of the Company or any subsidiary of the
Company; (v) amend or modify any outstanding options, warrants, or rights to
acquire, or securities convertible into shares of its capital stock or other
equity interests or securities, or any phantom shares, phantom equity interests
or stock or equity appreciation rights, or adopt or authorize any other stock or
equity appreciation rights, restricted stock or
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<PAGE>
equity, stock or equity purchase, stock or equity bonus or similar plan,
arrangement or agreement; (vi) make any other changes in its capital or
partnership structure; (vii) declare, set aside, pay or make any dividend or
other distribution or payment (whether in cash, property or securities) with
respect to its capital stock or other securities, except for dividends by a
subsidiary of the Company paid ratably to its stockholders or the partners
thereof, as the case may be (provided in the case of any non-wholly owned
subsidiary of the Company that the other stockholders of or partners in such
subsidiary are not officers, directors, employees or affiliates of the Company
or any of its subsidiaries); (viii) sell or pledge any stock, equity or
partnership interest owned by it in any subsidiary of the Company, except for
dispositions permitted by Section 6.4(f) hereof; (ix) sell or pledge any
interest in any Investment Securities; or (x) enter into or assume any contract,
agreement, obligation, commitment or arrangement with respect to any of the
foregoing;
(d) not (i) modify or change in any material respect any License or
other Contract, other than in the ordinary course of business; (ii) enter into
any new employment, consulting, agency or commission agreement, make any
amendment or modification to any existing such agreement or grant any increases
in compensation, (A) in each case other than in the ordinary course of business
and consistent with past practice and with or granted to persons who are not
officers or directors of the Company or any subsidiary of the Company and which
do not, in the aggregate, materially increase the compensation or benefit
expense of the Company or any subsidiary of the Company, and (B) other than the
regular annual salary increase granted in the ordinary course of business and
consistent with past practice to officers of the Company or its subsidiaries who
are not directors or executive officers of the Company and; (iii) establish,
amend or modify the Company ESOP or any other employee benefit plan of any kind
referred to in Section 4.12(a), except to the extent required by any applicable
law or by the provisions of this Agreement; (iv) secure any of its outstanding
unsecured indebtedness, provide additional security for any of its outstanding
secured indebtedness or grant, create or suffer to exist any Lien on or with
respect to any property, assets or rights of the Company or any subsidiary of
the Company, except for Permitted Encumbrances; (v) pay, discharge or satisfy
claims, liabilities or obligations (absolute, accrued, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or reserved
against in its balance sheet included in the Audited Financial Statements or
incurred since the date of such balance sheet in the ordinary course of business
and consistent with past practice and scheduled repayments of indebtedness
reflected on the latest balance sheet included in the Audited Financial
Statements; (vi) cancel any debts or waive any claims or rights, except in the
ordinary course of business and consistent with past practice; (vii) make any
capital expenditures which individually or in the aggregate are in excess of the
amount provided for most capital expenditures in the most recent capital budget
for the Company and its subsidiaries approved by the Company Board prior to
December 1, 1996; (viii) accelerate the payment of, or otherwise prepay, any
existing outstanding indebtedness for borrowed money; (ix) other than as
contemplated or otherwise permitted by this Agreement and other than the normal
cash management practices of the Company and its subsidiaries conducted in the
ordinary and usual course of their business and consistent with past practice,
make any advance or loan to or engage in any transaction with any director,
officer, partner or affiliate not required by the terms of an existing Contract
described on Schedule 4.20; or (x) enter into or assume any contract, agreement,
obligation, commitment or arrangement with respect to any of the foregoing;
(e) not acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to otherwise acquire any assets which are material,
individually or in the aggregate, to the Company or any of its subsidiaries;
(f) other than dispositions in the ordinary course of business
consistent with prior practice, not sell, lease or encumber or otherwise dispose
of, or agree to sell, lease, encumber or otherwise dispose of, any of its assets
which are material, individually or in the aggregate, to the Company or any of
its subsidiaries;
(g) not incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its subsidiaries
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or guarantee any debt securities of others other than in the ordinary course of
business consistent with past practice; and
(h) not take any action that would or is reasonably likely to result
in (i) any of the representations or warranties made in Article IV hereof being
untrue on and as of the Closing Date as though made on and as of the Closing
Date (except for changes permitted or contemplated by this Agreement) or (ii)
any of the conditions set forth in Section 7.1, 7.2 or 7.3 not being satisfied.
6.6 NO SOLICITATION.
(a) Prior to the Effective Time, the Company will not, directly or
indirectly, through any officer, director, employee, agent or representative or
otherwise (i) solicit or initiate the submission of proposals or offers from any
Person other than TCI relating to any Alternative Proposal (as defined below in
this Section); (ii) cooperate with, or furnish or cause to be furnished any non-
public information concerning the business, properties, or assets of the Company
or any of the Company's subsidiaries to, any Person other than TCI in connection
with any Alternative Proposal; (iii) negotiate with any Person other than TCI
with respect to any Alternative Proposal; or (iv) subject to subsection (b) of
this Section 6.6, enter into any agreement or understanding with any Person
other than TCI with the intent to effect any Alternative Proposal; provided that
--------
nothing contained in this Section 6.6 shall prohibit the Company or the Company
Board, to the extent required by their fiduciary duties under applicable law,
from providing information to, or participating in discussions with, any party
that makes an unsolicited inquiry with respect to the Company if the Company
Board reasonably believes such party may propose an Alternative Proposal on
terms that are superior, from a financial point of view, to the terms of the
Merger for the stockholders of the Company. The Company will immediately give
written notice to TCI of its receipt of any Alternative Proposal or inquiry with
respect to making an Alternative Proposal and provide TCI with such information
regarding the Person making the Alternative Proposal or inquiry as TCI shall
reasonably request. As used in this Section, "Alternative Proposal" shall mean
any proposal, other than as contemplated by this Agreement, for a merger,
consolidation, reorganization, other business combination, or recapitalization
involving the Company or any of its subsidiaries, for the acquisition of a 10%
or greater interest in the equity or in any class or series of capital stock of
the Company or any of its subsidiaries, for the acquisition of the right to cast
10% or more of the votes on any matter with respect to the Company or any of its
subsidiaries, or for the acquisition of a substantial portion of any of their
respective assets or the effect of which may be to prohibit, restrict or delay
the consummation of the Merger or any of the other transactions contemplated by
this Agreement or impair the contemplated benefits to TCI of the Merger or any
of the other transactions contemplated by this Agreement. Nothing contained
herein shall be construed to prohibit the Company or the Company Board from
making any disclosure to its stockholders which, in the judgment of the Company
Board as advised by counsel, may be required by applicable law in connection
with any such proposal or offer.
(b) Except as set forth in this Section 6.6, the Company Board shall
not approve or recommend, or cause the Company to enter into any agreement with
respect to, any Alternative Proposal. Notwithstanding the foregoing, if the
Company Board, after consultation with and based upon the advice of independent
legal counsel, determines in good faith that it is necessary to do so in order
to comply with its fiduciary duties to stockholders under applicable law, the
Company Board may approve or recommend a Superior Proposal (as defined below) or
cause the Company to enter into an agreement with respect to, a Superior
Proposal, but in each case only after providing prompt written notice to TCI (a
"Notice of Superior Proposal") advising that the Company Board has determined to
approve or recommend, or authorize the Company to enter into an agreement with
respect to, a Superior Proposal and to terminate this Agreement pursuant to
Section 8.1(iii). For purposes of this Agreement, a "Superior Proposal" means
any bona fide proposal to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, all or substantially all the Company Stock
then outstanding or all or substantially all the assets of the Company and
otherwise on terms which the Company Board determines in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation)
to be more favorable to the Company's stockholders than the Merger.
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6.7 EXPENSES. Except as otherwise provided in this Section 6.7, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such cost or expense, except that the costs and expenses
incurred in connection with printing and mailing the Proxy Statement, the
Registration Statement (and any amendment or supplement thereto) and any
prospectus included in the Registration Statement (and any amendment or
supplement thereto) and the costs of filing under the Hart-Scott Act shall be
borne one-half by TCI and one-half by the Company. Notwithstanding the
foregoing, but subject to Section 9.10, if this Agreement is terminated by a
party (the "non-breaching party") as a result of a material willful breach by
the other party (the "breaching party") of its covenants or agreements contained
herein or the representations and warranties made by it herein, the breaching
party shall reimburse the non-breaching party for all out-of-pocket costs and
expenses incurred in connection with the transactions contemplated by this
Agreement.
6.8 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Effective Time, each party will give prompt notice in writing to the other party
of: (i) any information that indicates that any of its representations or
warranties contained herein was not true and correct as of the date hereof or
will not be true and correct at and as of the Effective Time with the same force
and effect as if made at and as of the Effective Time (except for changes
permitted or contemplated by this Agreement), (ii) the occurrence of any event
which will result, or has a reasonable prospect of resulting, in the failure of
any condition specified in Article VII hereof to be satisfied, (iii) any notice
or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement or that such transactions otherwise may violate
the rights of or confer remedies upon such third party and (iv) any notice of,
or other communication relating to, any litigation referred to in Section 6.9 or
any order or judgment entered or rendered therein.
6.9 DEFENSE OF LITIGATION. Each of the parties agrees to vigorously
defend against all actions, suits or proceedings in which such party is named as
a defendant which seek to enjoin, restrain or prohibit the transactions
contemplated hereby or seek damages with respect to such transactions. The
Company shall not settle any such action, suit or proceeding or fail to perfect
on a timely basis any right to appeal any judgment rendered or order entered
against the Company therein without the consent of TCI (which consent shall not
be withheld unreasonably). Each of the parties further agrees to use its
reasonable efforts to cause each of its affiliates, directors and officers to
vigorously defend any action, suit or proceeding in which such affiliate,
director or officer is named as a defendant and which seeks any such relief to
comply with this Section to the same extent as if such person were a party
hereto.
6.10 ADDITIONAL FINANCIAL STATEMENTS AND REPORTS. Promptly after the same
become available, each of the Company and TCI shall furnish to the other such
additional financial data concerning the furnishing party and its subsidiaries
as such other party may reasonably request, including (i) any audited
consolidated financial statements of the furnishing party for any year ending
after the date hereof, prepared, in the case of TCI, in conformity with the
requirements of the Commission applicable to annual financial statements to be
included in Form 10-K under the Exchange Act and, in the case of the Company, in
accordance with GAAP, and (ii) all interim quarterly consolidated financial
statements of the furnishing party prepared after the date of this Agreement,
accompanied by a statement of the principal financial officer of the furnishing
party that, in the opinion of such officer, such quarterly financial statements
were, in the case of TCI, prepared in conformity with the requirements of the
Commission applicable to financial statements to be included in Form 10-Q under
the Exchange Act applied on a consistent basis (except as otherwise stated in
such quarterly financial statements), and in the case of the Company, on a basis
consistent with the Company's past practice, and in each case, that such
quarterly financial statements present fairly the consolidated financial
position, results of operations and cash flows of the furnishing party and its
consolidated subsidiaries as of the date and for the period indicated subject to
normal, recurring year-end audit adjustments. TCI further agrees to furnish to
the Company copies of all reports and other documents filed with the Commission
between the date hereof and the Effective Time.
6.11 ACTIONS BY MERGER SUB. In its capacity as the sole stockholder of
Merger Sub, TCI shall cause Merger Sub to approve and adopt the Merger Proposal
and to take all corporate action necessary on its part to
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consummate the Merger Proposal and the transactions contemplated hereby. Merger
Sub shall not conduct any other business, and will have no other assets or
liabilities.
6.12 LISTING. TCI agrees to use its best efforts to cause the shares of
TCI Series A Stock to be issued in the Merger to be authorized for listing on
the NNM, subject to official notice of issuance.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TCI, MERGER SUB AND THE
COMPANY. The respective obligations of TCI, Merger Sub and the Company to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which, to the extent permitted by applicable law, may be
waived by TCI, for itself and Merger Sub (but not for the Company), or by the
Company for itself (but not for TCI or Merger Sub):
(a) Approval of Stockholders. This Agreement shall have been
------------------------
adopted by such vote of the stockholders of the Company as set forth in Section
4.15.
(b) Registration. The Registration Statement (as amended or
------------
supplemented) shall have become effective under the Securities Act and shall not
be subject to any stop order, and no action, suit, proceeding or investigation
seeking a stop order or to suspend the effectiveness of the Registration
Statement shall have been initiated and be continuing or shall have been
threatened and be unresolved. TCI shall have received all state securities law
or blue sky permits and authorizations necessary to carry out the transactions
contemplated hereby, such permits and authorizations shall be in full force and
effect and no action, suit, proceeding or investigation seeking to revoke or
suspend the effectiveness of any such permit or authorization shall have been
initiated and be continuing or shall have been threatened and be unresolved.
(c) Absence of Injunctions. No permanent or preliminary Injunction
----------------------
or restraining order or other order by any court or other Governmental Entity of
competent jurisdiction, or other legal restraint or prohibition, preventing
consummation of the transactions contemplated hereby as provided herein shall be
in effect.
(d) Hart-Scott. Any applicable waiting period under the Hart-Scott
----------
Act shall have expired or been terminated without receipt of any objections or
commencement of litigation or threat thereof by the appropriate Governmental
Entity to restrain the transactions contemplated hereby.
(e) Fairness Opinion. The inclusion of the Fairness Opinion in the
----------------
Proxy Statement and the Registration Statement shall have been approved by
Houlihan Lokey.
(f) Tax Opinion. The Company shall have received, prior to the
-----------
effective date of the Registration Statement, the opinion of Winston & Strawn,
in form and substance reasonably satisfactory to the Company, to the effect that
(i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, (ii) no
stockholder of the Company will recognize gain or loss to the extent that such
stockholder receives stock of TCI in exchange for his stock of the Company in
the Merger, and (iii) the Federal Income Tax Consequences section of the Proxy
Statement (which constitutes the prospectus included in the Registration
Statement) describes the material federal income tax consequences to the
Company's stockholders from the Merger (subject to customary conditions and
limitations described therein) and fairly represents such counsel's opinion as
to the federal income tax matters discussed therein. Such firm shall have
consented to the filing of such opinion as an exhibit to the Registration
Statement and to the reference to such firm in the Registration Statement, and
such firm shall not have withdrawn such opinion prior to the Closing Date. TCI
shall also have received prior to the
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<PAGE>
effective date of the Registration Statement an opinion from such counsel to the
effect set forth in clause (iii) of the first section of this Section 7.1(f);
such firm shall not have withdrawn such opinion prior to the Closing Date and
TCI shall have received such evidence as it may reasonably require that all
assumptions or conditions to such opinion are valid or have been satisfied.
Counsel may rely on representations from the parties in rendering the opinions
referenced in this Section 7.1(f) and upon such other documents and data as such
counsel deems appropriate as a basis for such opinions.
7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MERGER SUB AND TCI. The
obligations of Merger Sub and TCI to consummate the transactions contemplated by
this Agreement are also subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, unless waived by TCI:
(a) Accuracy of Representations and Warranties. All representations
------------------------------------------
and warranties of the Company contained in this Agreement shall, if specifically
qualified by materiality, be true and correct and, if not so qualified, be true
and correct in all material respects in each case as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of a specified earlier date) on and as of the Closing Date as though made on and
as of the Closing Date, except for changes permitted or contemplated by this
Agreement.
(b) Performance of Agreements. The Company shall have performed in
-------------------------
all material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in this Agreement
to be performed or complied with by it prior to or on the Closing Date.
(c) Officers' Certificates. TCI and Merger Sub shall have received
----------------------
such certificates of the Company, dated the Closing Date, signed by executive
officers of the Company to evidence satisfaction of the conditions set forth in
Sections 7.1(a), 7.1(c), 7.2(a), 7.2(b), 7.2(f), 7.2(h), and 7.2(k) (insofar as
each relates to the Company) as may be reasonably requested by TCI. Such
certificates shall include a certificate of the Secretary of the Company
certifying, among other things, (x) the incumbency of all officers of the
Company having authority to execute and deliver this Agreement and the
agreements and documents contemplated hereby and (y) the resolutions of the
Company Board referred to in Section 4.14 and any subsequent resolutions of the
Company Board with respect to, and the resolution of the Company's stockholders,
approving the Merger Proposal.
(d) Documents Under Section 3.3. TCI shall have received from each
---------------------------
person named in the letter referred to in Section 3.3 an executed copy of the
agreement specified in such Section.
(e) Opinion of Counsel for the Company. TCI and Merger Sub shall
----------------------------------
have received (i) a favorable opinion from Jones, Waldo, Holbrook & McDonough,
dated the Closing Date, substantially to the effect set forth in Exhibit 7.2(e).
In rendering such opinion, such counsel may rely as to factual matters upon
certificates or other documents furnished by officers of the Company and by
government officials, and upon such other documents and data as such counsel
deems appropriate as a basis for the opinion. Such counsel may specify the
jurisdiction or jurisdictions in which the members or partners, as applicable,
thereof are admitted to practice, that they are not admitted to practice in any
other jurisdiction or experts in the law of any other jurisdiction and that, to
the extent the foregoing opinion concerns the laws of any other jurisdiction or
pertains to matters beyond the scope of such counsel's engagement, such counsel
may rely upon the opinion of counsel admitted to practice in such other
jurisdiction. Any opinion relied upon by such counsel shall be delivered
together with the opinion of such counsel, which shall state that such counsel
believes that reliance thereon is justified.
(f) Proceedings Satisfactory. All actions, proceedings, instruments
------------------------
and documents required to carry out the transactions contemplated hereby or
incidental hereto and all other related legal matters shall have been reasonably
satisfactory to and approved by counsel for TCI and such counsel shall have been
furnished with such certified copies of such corporate actions and proceedings
and such other instruments and documents as such counsel shall have reasonably
requested.
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(g) No Adverse Enactments. There shall not have been any action
---------------------
taken, or any statute, rule, regulation, order, judgment or decree proposed,
enacted, promulgated, entered, issued, enforced or deemed applicable by any
foreign or United States federal, state or local Governmental Entity, and there
shall be no action, suit or proceeding pending or threatened, which, in TCI's
reasonable judgment, (i) makes or may make this Agreement, the Merger, or any of
the other transactions contemplated by this Agreement illegal or imposes or may
impose material damages or penalties in connection therewith, (ii) requires or
may require the divestiture of a material portion of the business of TCI and its
subsidiaries taken as a whole, or of the Company and its subsidiaries taken as a
whole, if the Merger is consummated, (iii) imposes or may result in imposition
of material limitations on the ability of TCI effectively to exercise full
rights of ownership of shares of capital stock of the Surviving Corporation
(including the right to vote such shares on all matters properly presented to
the stockholders of the Surviving Corporation) or makes the holding by TCI of
any such shares illegal or subject to any materially burdensome requirement or
condition, (iv) requires or may require TCI or the Company or any of their
respective material subsidiaries or affiliates to cease or refrain from engaging
in any material business, including any material business conducted by the
Company or any of its subsidiaries, if the Merger is consummated, or (v)
otherwise prohibits, restricts, or unreasonably delays consummation of the
Merger or any of the other transactions contemplated by this Agreement or
increases or may increase in any material respect the liabilities or obligations
of TCI arising out of this Agreement, the Merger, or any of the other
transactions contemplated by this Agreement.
(h) Contract Consents and Notices. All Contract Consents and
-----------------------------
Contract Notices which are referred to in Section 4.5 or 5.5 or otherwise
required in connection with the consummation of the transactions contemplated
hereby and which, if not obtained or given, would have, individually or in the
aggregate, in the reasonable judgment of TCI, a material adverse effect on (i)
the transactions contemplated hereby or TCI's liabilities or obligations with
respect to such transactions or (ii) the business, assets, results of
operations, financial condition or prospects of the Company or any of its
subsidiaries, taken as a whole, or TCI and its subsidiaries, taken as a whole,
shall have been obtained and given.
(i) No Material Adverse Change. Since the date hereof nothing shall
--------------------------
have occurred, and TCI shall not have become aware of any change or event having
occurred prior to such date, which individually or in the aggregate, has had or,
in the reasonable judgment of TCI, is reasonably likely to have, a material
adverse effect on (i) the transactions contemplated hereby or TCI's liabilities
or obligations with respect to such transactions or (ii) the business, assets,
results of operations, financial condition or prospects of the Company and its
subsidiaries, taken as a whole, or TCI and its subsidiaries, taken as a whole
(including any potential change or event disclosed on any Schedule which,
subsequent to the date hereof, actually occurs).
(j) Receipt of Licenses, Permits and Consents. Other than the filing
-----------------------------------------
of the Articles of Merger with the Division and filings due after the Effective
Time, all Local Approvals, and all other Government Consents as are required in
connection with the consummation of the transactions contemplated hereby shall
have been obtained and shall be in full force and effect, all Governmental
Filings as are required in connection with the consummation of such transactions
shall have been made, and all waiting periods, if any, applicable to the
consummation of such transactions imposed by any Governmental Entity shall have
expired, other than those which, if not obtained, in force or effect, made or
expired (as the case may be) would not, either individually or in the aggregate,
have a material adverse effect on (i) the transactions contemplated hereby or
(ii) the business, assets, results of operations, financial condition or
prospects of the Company and its subsidiaries taken as a whole, or TCI and its
subsidiaries taken as a whole.
(k) Dissenting Shares At the Effective Time, the Dissenting Shares
-----------------
shall not consist of more than 15% of the aggregate number of issued and
outstanding shares of Company Common Stock.
7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to consummate the transactions contemplated by this
Agreement is also subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, unless waived by the Company:
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<PAGE>
(a) Accuracy of Representations and Warranties. All representations
------------------------------------------
and warranties of TCI contained herein shall, if specifically qualified by
materiality, be true and correct and, if not so qualified, be true and correct
in all material respects in each case as of the date of this Agreement and
(except to the extent such representations and warranties speak of a specified
earlier date) and on and as of the Closing Date, with the same force and effect
as though made on and as of the Closing Date, except for changes permitted or
contemplated by this Agreement.
(b) Performance of Agreements. Each of Merger Sub and TCI shall have
-------------------------
performed in all material respects all obligations and agreements, and complied
in all material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by it prior to or on the Closing
Date.
(c) Officers' Certificates. The Company shall have received such
----------------------
certificate of TCI, dated the Closing Date, signed by executive officers of TCI
to evidence satisfaction of the conditions set forth in Sections 7.1(b), 7.1(c),
7.3(a), 7.3(b), 7.3(f), 7.3(g) and 7.3(i) (insofar as each relates to TCI or
Merger Sub) as may be reasonably requested by the Company.
(d) Opinions of Counsel for TCI. The Company shall have received a
---------------------------
favorable opinion from TCI's General Counsel, dated the Closing Date,
substantially to the effect set forth in Exhibit 7.3(d). In rendering such
opinion, such counsel may rely as to factual matters upon certificates or other
documents furnished by officers of TCI and Merger Sub and by government
officials, and upon such other documents and data as such counsel deems
appropriate as a basis for the opinion. Such counsel may specify the
jurisdiction or jurisdictions in which the partners thereof are admitted to
practice, that they are not admitted to practice in any other jurisdiction or
experts in the law of any other jurisdiction and that, to the extent the
foregoing opinion concerns the laws of any other jurisdiction or pertains to
matters beyond the scope of such counsel's engagement, such counsel may rely
upon the opinion of counsel admitted to practice in such other jurisdiction.
Any opinion relied upon by such counsel shall be delivered together with the
opinion of such counsel, which shall state that such counsel believes that
reliance thereon is justified. The Company shall also have received an opinion
from Baker & Botts, L.L.P., dated the Closing Date, that is substantially to the
same effect as the opinion of such firm that is to be filed as Exhibit 5 to the
Registration Statement.
(e) Proceedings Satisfactory. All actions, proceedings, instruments
------------------------
and documents required to carry out the transactions contemplated hereby or
incidental hereto and all other related legal matters shall have been reasonably
satisfactory to and approved by counsel for the Company and such counsel shall
have been furnished with such certified copies of such corporate actions, and
proceedings and such other instruments and documents as it shall have reasonably
requested.
(f) No Adverse Enactments. There shall not have been any action
---------------------
taken, or any statute, rule, regulation, order, judgment or decree proposed,
enacted, promulgated, entered, issued, enforced or deemed applicable by any
foreign or United States federal, state or local Governmental Entity, and there
shall be no action, suit or proceeding pending or threatened, which (i) makes or
may make this Agreement, the Merger, or any of the other transactions
contemplated by this Agreement illegal or imposes or may impose material damages
or penalties in connection therewith or (ii) has any material adverse effect
referred to in Section 7.3(h).
(g) Contract Consents and Notices. All Contract Consents and
-----------------------------
Contract Notices which are referred to in Section 4.5 or 5.5 or otherwise
required in connection with the consummation of the transactions contemplated
hereby and which, if not obtained or given, would have, individually or in the
aggregate, in the reasonable judgment of the Company, a material adverse effect,
after the Effective Time and assuming consummation of the Merger, on the
business, assets, results of operations, financial condition or prospects of TCI
and its subsidiaries, taken as a whole, or the Company and its subsidiaries,
taken as a whole, shall have been obtained and given.
(h) No Material Adverse Change. Since the date hereof nothing shall
--------------------------
have occurred, and the Company shall not have become aware of any change or
event having occurred prior to such date, which, individually
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<PAGE>
or in the aggregate, (i) has had or, in the reasonable judgment of the Company,
is reasonably likely to have, a material adverse effect on the transactions
contemplated hereby or (ii) assuming consummation of the Merger, is reasonably
likely to have, in the reasonable judgment of the Company, a material adverse
effect, as of or after the Effective Time, on the business, assets, results of
operations, financial condition or prospects of TCI and its subsidiaries, taken
as a whole (including any potential change or event disclosed on any Schedule
which, subsequent to the date hereof, actually occurs).
(i) Receipt of Licenses, Permits and Consents. Other than the
-----------------------------------------
filing of the Articles of Merger with the Division and filings due after the
Effective Time, all Local Approvals, and all other Government Consents as are
required in connection with the consummation of the transactions contemplated
hereby shall have been obtained and shall be in full force and effect, all
Governmental Filings as are required in connection with the consummation of such
transactions shall have been made, and all waiting periods, if any, applicable
to the consummation of such transactions imposed by any Governmental Entity
shall have expired, other than those which, if not obtained, in force or effect,
made or expired (as the case may be), would not, either individually or in the
aggregate, (i) have a material adverse effect on the transactions contemplated
hereby or (ii) assuming consummation of the Merger, have a material adverse
effect, as of or after the Effective Time, on the business, assets, results of
operations, financial condition or prospects of TCI and its subsidiaries, taken
as a whole, or the Company and its subsidiaries, taken as a whole.
(j) Delivery of Agreements. The Management Agreement, substantially
----------------------
in the form of Exhibit 7.3(j)-1, and the Option Agreement, substantially in the
form of Exhibit 7.3(j)-2, shall have been executed and delivered by the parties
thereto and shall be in full force and effect (the "Option Agreement").
(k) NNM Listing. The shares of TCI Series A Stock to be issued in
-----------
the Merger shall have been authorized for listing on the NNM upon official
notice of issuance.
ARTICLE VIII
TERMINATION
8.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company:
(i) by mutual consent of TCI and the Company;
(ii) by either the Company, on the one hand, or TCI and Merger Sub,
on the other hand: (A) if the Merger shall not have been consummated before
October 31, 1997, provided that the right to terminate this Agreement pursuant
to this clause (ii)(A) shall not be available to any party whose failure to
perform any of its obligations under this Agreement required to be performed by
it at or prior to the Effective Time has resulted in the failure of the Merger
to be consummated before such date, (B) if there has been a material breach of
any representation, warranty, covenant or agreement on the part of the other
party contained in this Agreement and such breach shall not have been cured
within fifteen business days after written notice thereof shall have been
received by the party alleged to be in breach, or (C) if any court of competent
jurisdiction or other competent governmental authority shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and nonappealable; or
(iii) by the Company, if the Company Board approves or recommends, or
authorizes the Company to enter into an agreement with respect to, a Superior
Proposal pursuant to Section 6.6(b), provided, however, that the
-------- -------
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<PAGE>
Company's ability to terminate the Agreement pursuant to this clause (iii) is
conditioned upon its delivery of a Conversion Notice pursuant to Section 8.2(a).
8.2 EFFECT OF TERMINATION.
(a) In the event this Agreement is terminated (x) by the Company
pursuant to Section 8.1(iii), or (y) by TCI, as a result of a material breach by
the Company of any of its agreements contained in Sections 3.1, 3.2, 3.4 and
3.5, then in each such case, the Company shall deliver to TCI an irrevocable
notice of conversion (a "Conversion Notice") requesting that TCI convert all of
the shares of TCI Series B Stock and LMG Series B Stock beneficially owned by
the Company as of the date of such a notice into an equal number of shares of
TCI Series A Stock and LMG Series A Stock, respectively, in accordance with the
terms of the TCI Charter. The Conversion Notice shall be delivered to TCI
simultaneously with the delivery of the Notice of Superior Proposal (in the case
of a termination described in clause (x) above), or within three business days
following the date the Company receives notice of termination from TCI (in the
case of a termination described in clause (y) above), and in each case, shall be
accompanied by the certificates evidencing all such shares of TCI Series B Stock
and LMG Series B Stock, duly endorsed for conversion.
(b) In the event of any termination of this Agreement by the Company
or TCI pursuant to Section 8.1, this Agreement forthwith shall become void and
there shall be no liability or obligation on the part of TCI, Merger Sub, the
Company or their respective affiliates, stockholders, directors, officers,
agents or representatives except (i) as provided is Section 8.2(a); (ii) as
provided in Sections 6.3, 6.7 and 8.1, which shall survive such termination; and
(iii) subject to Section 9.10, to the extent such termination results from the
willful breach by TCI, Merger Sub or the Company of any of its representations,
warranties, covenants or agreements contained in this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL OF CERTAIN REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of TCI, Merger Sub and the Company contained
herein or in any certificate or other instrument delivered pursuant hereto prior
to or at the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party hereto. The representations and warranties of
the Company in the second sentence of Section 4.4, in Section 4.7, in Section
4.12(b) and in Section 4.19 hereof shall survive the Closing and the delivery of
the Merger Consideration without limitation and shall remain in full force and
effect for a period of three years, except that the representation in Section
4.12(b) shall survive until expiration of the applicable statute of limitations.
All other representations and warranties made by the parties herein shall expire
at the Effective Time.
9.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by
telegram or confirmed telex or telecopier, as follows:
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<PAGE>
(a) if to TCI or Merger Sub, to:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
Attn: Stephen M. Brett, Executive
Vice President
Telecopier: (303) 488-3245
and with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue, 28th Floor
New York, New York 10022
Attn: Jerome H. Kern, Esq.
Telecopier: (212) 705-5125
(b) if to the Company, to:
Kearns-Tribune Corporation
400 Tribune Building
Salt Lake City, Utah 84111
Attn: Dominic Welch
Telecopier: (801) 327-2022
with a copy to:
Jones, Waldo, Holbrook & McDonough
1500 First Interstate Plaza
170 South Main Street
Salt Lake City, Utah 84101
Attn: Bruce E. Babcock, Esq.
Telecopier: (801) 328-0537
or to such other Person or address as any party shall specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address shall be effective only upon actual receipt thereof.
9.3 ENTIRE AGREEMENT. This Agreement (including the Schedules, Annexes,
Exhibits and other documents referred to herein) constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, oral and written, between the parties with respect to the
subject matter hereof.
9.4 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor any
of the rights, benefits or obligations hereunder may be assigned by any party
(whether by operation of law or otherwise) without the prior written consent of
the other party. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns. Nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the parties or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
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<PAGE>
9.5 AMENDMENT. This Agreement may be amended by the parties, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval of any matters presented in connection with the Merger by the
stockholders of the Company, but, after any such approval by the stockholders of
the Company, no amendment shall be made which by law requires further approval
by such stockholders of the Company without such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
9.6 EXTENSION; WAIVER. At any time prior to the Effective Time, either of
the parties, by action taken or authorized by such party's Board of Directors,
may, to the extent legally allowed, (i) extend the time specified herein for the
performance of any of the obligations of the other party, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto, (iii) waive compliance by
the other party with any of the agreements or covenants of such other party
contained herein or (iv) waive any condition to such waiving party's obligation
to consummate the transactions contemplated hereby or to any of such waiving
party's other obligations hereunder. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. Any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party. Any such extension or waiver by any party shall be binding on such
party but not on the other party entitled to the benefits of the provision of
this Agreement affected unless such other party also has agreed to such
extension or waiver. No such waiver shall constitute a waiver of, or estoppel
with respect to, any subsequent or other breach or failure to strictly comply
with the provisions of this Agreement. The failure of any party to insist on
strict compliance with this Agreement or to assert any of its rights or remedies
hereunder or with respect hereto shall not constitute a waiver of such rights or
remedies. Whenever this Agreement requires or permits consent or approval by any
party, such consent or approval shall be effective if given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 9.6.
9.7 HEADINGS. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. The phrase "made available" in
this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made
available.
9.8 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and all of which together shall be
deemed to be one and the same instrument.
9.9 APPLICABLE LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Delaware, without regard to the conflict of laws rules thereof.
9.10 NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees that, should
any court or other competent governmental authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith or not to take any action required
herein, the other party shall not be entitled to specific performance of such
provision or part hereof or to any other remedy, including but not limited to
money damages, for breach thereof or of any other provision of this Agreement or
part hereof as a result of such holding or order.
9.11 ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
in Delaware state court, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties hereto
(a) consents to submit itself to the non-exclusive jurisdiction of any Federal
court located in the State of Delaware or any Delaware state court in the event
any dispute arises out of this
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<PAGE>
Agreement or any of the transactions contemplated by this Agreement, and (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court. The Company hereby
appoints the Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite
L-100, Dover, Delaware 19901, as its agent for service of process in Delaware.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and Plan of Merger as of the date first above written.
TELE-COMMUNICATIONS, INC.
By: /s/ John C. Malone
-----------------------------
Name: John C. Malone
Title: Chairman of the Board
and Chief Executive Officer
ATTEST:
/s/ Stephen M. Brett
- -----------------------------
Secretary
KEARNS-TRIBUNE CORPORATION
By: /s/ Dominic A. Welch
-----------------------------
Name: Dominic A. Welch
Title: President
ATTEST:
/s/ Sharon E. Sonnenreich
- -----------------------------
Secretary
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<PAGE>
TCI KT MERGER SUB, INC.
By: /s/ Stephen M. Brett
-----------------------------
Name: Stephen M. Brett
Title: Vice President
ATTEST:
/s/ Mary M. McChesney
- -----------------------------
Assistant Secretary
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<PAGE>
APPENDIX II
[HOULIHAN LOKEY HOWARD & ZUKIN LETTERHEAD]
April 18, 1997
To The Board of Directors
Kearns-Tribune Corporation
400 Tribune Building
143 South Main Street
Salt Lake City, Utah 84111
Ladies and Gentlemen:
We understand that Kearns-Tribune Corporation ("Kearns" or the
"Company") plans to enter into an Agreement and Plan of Merger with Tele-
Communications, Inc. ("TCI") and a wholly owned subsidiary of TCI whereby:
(i) all shares of the Company's common stock shall be converted into
and represent the right to receive a number of validly issued,
fully paid and non-assessable shares of TCI Group Series A
Common Stock with an aggregate value of approximately $627
million (the "Merger Consideration");
(ii) shares of the Company's common stock shall be automatically
canceled and retired;
(iii) concurrent with the transaction, the Company entity shall enter
into a Management Agreement (defined herein) pursuant to which
The Salt Lake Tribune Publishing Company, LLC ("SLT") will
manage and operate the Company's newspapers for a management fee
of three percent of net income, which we understand is
substantially identical to the management fee specified in the
Company's existing management agreements; and
(iv) in connection with the transaction SLT has the option to
purchase the assets used in connection with the operation and
publication of The Salt Lake Tribune for the fair market value
of such assets (the "Repurchase Right") at any time after the
fifth anniversary of the transaction and through the term of the
Management Agreement and ten days thereafter. We understand that
SLT will pay the amount of ONE MILLION DOLLARS ($1,000,000.00)
for such Repurchase Right.
Such transaction and all related transaction are referred to
collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set
forth below. The Opinion does not address the Company's underlying business
decision to effect the Transaction. We have not been requested to, and did not,
solicit third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction
or advised you with respect to alternatives to it.
In connection with the Opinion, we have made such reviews, analyses
and inquiries as we have deemed necessary and appropriate under the
circumstances. Among other things, we have:
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<PAGE>
1. reviewed Kearns-Tribune Corporation's and Newspapers Agency
Corporation's audited financial statements for the five fiscal
years ending December 31, 1996;
2. reviewed Tribune Publishing Company - Idaho's and Tribune
Publishing Company - Nevada's unaudited financial statement for
the five fiscal years ending December 31, 1996; which the
Company's management has identified as being the most current
financial statements available;
3. visited Company headquarters in Salt Lake City, UT;
4. met with certain members of the senior management of the Company
to discuss the operations, financial condition, future prospects
and projected operations and performance of the Company;
5. reviewed forecasts and projections prepared by the Company's
management with respect to the Company for the years ended
December 31, 1997 through 2001;
6. reviewed drafts of the following documents/agreements: the
Agreement and Plan of Merger among Tele-Communications, Inc., TCI
KT Merger Sub, Inc., and Kearns-Tribune Corporation; the
Management Agreement between Kearns-Tribune Corporation and The
Salt Lake Tribune Publishing Company, LLC (the "Management
Agreement"), and the Option Agreement between the Company and Salt
Lake Tribune Publishing Company, LLC;
7. reviewed the historical market prices and trading volume for TCI's
publicly traded securities;
8. reviewed certain publicly available financial data for certain
companies that we deem comparable to the Company, and publicly
available prices and premium paid in other transactions that we
considered similar to the Transaction; and
9. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification,
that the financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial conditions, business or prospects of
the Company since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness of
the information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion
that the Transaction, including the general terms provided for in the Management
Agreement and the Repurchase Right, are fair to the Company from a financial
point of view. Furthermore, based upon the foregoing, and in reliance thereon,
it is our opinion that the Merger Consideration to be received by the
stockholders of the Company in connection with the Transaction is fair to them
from a financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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<PAGE>
APPENDIX III
UTAH REVISED BUSINESS
CORPORATION ACT
PART 13
DISSENTERS' RIGHTS
16-10a-1301. DEFINITIONS.
For purposes of Part 13:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the
record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 16-10a-1302 and who exercises that
right when and in the manner required by Sections 16-10a-1320
through 16-10a-1328.
(4) "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.
(5) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the statutory rate
set forth in Section 15-1-1, compounded annually.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial
owner of shares that are registered in the name of a nominee to
the extent the beneficial owner is recognized by the corporation
as the shareholder as provided in Section 16-10a-723.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
16-10a-1302. RIGHT TO DISSENT.
(1) A shareholder, whether or not entitled to vote, is entitled to
dissent from, and obtain payment of the fair value of shares held
by him in the event of, any of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is
a party if:
(i) shareholder approval is required for the merger by
Section 16-10a-1103 or the articles of incorporation;
or
(ii) the corporation is a subsidiary that is merged with its
parent under Section 16-10a-1104;
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(b) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will
be acquired;
(c) consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of
the corporation for which a shareholder vote is required
under Subsection 16-10a-1202(1), but not including 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; and
(d) consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of
an entity controlled by the corporation if the shareholders
of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to Subsection
16-10a-1202(2).
(2) A shareholder is entitled to dissent and obtain payment of the
fair value of his shares in the event of any other corporate
action to the extent the articles of incorporation, bylaws, or a
resolution of the board of directors so provides.
(3) Notwithstanding the other provisions of this part, except to the
extent otherwise provided in the articles of incorporation,
bylaws, or a resolution of the board of directors, and subject to
the limitations set forth in Subsection (4), a shareholder is not
entitled to dissent and obtain payment under Subsection (1) of
the fair value of the shares of any class or series of shares
which either were listed on a national securities exchange
registered under the federal Securities Exchange Act of 1934, as
amended, or on the National Market System of the National
Association of Securities Dealers Automated Quotation System, or
were held of record by more than 2,000 shareholders, at the time
of:
(a) the record date fixed under Section 16-10a-707 to determine
the shareholders entitled to receive notice of the
shareholders' meeting at which the corporate action is
submitted to a vote;
(b) the record date fixed under Section 16-10a-704 to determine
shareholders entitled to sign writings consenting to the
proposed corporate action; or
(c) the effective date of the corporate action if the corporate
action is authorized other than by a vote of shareholders.
(4) The limitation set forth in Subsection (3) does not apply if the
shareholder will receive for his shares, pursuant to the
corporate action, anything except:
(a) shares of the corporation surviving the consummation of the
plan of merger or share exchange;
(b) shares of a corporation which at the effective date of the
plan of merger or share exchange either will be listed on a
national securities exchange registered under the federal
Securities Exchange Act of 1934, as amended, or on the
National Market System of the National Association of
Securities Dealers Automated Quotation System, or will be
held of record by more than 2,000 shareholders;
(c) cash in lieu of fractional shares; or
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<PAGE>
(d) any combination of the shares described in Subsection (4),
or cash in lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain payment for his
shares under this part may not challenge the corporate action
creating the entitlement unless the action is unlawful of
fraudulent with respect to him or to the corporation.
16-10a-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his name only if the
shareholder dissents with respect to all shares beneficially
owned by any one person and causes the corporation to receive
written notice which states the dissent and the name and address
of each person on whose behalf dissenters' rights are being
asserted. The rights of a partial dissenter under this subsection
are determined as if the shares as to which the shareholder
dissents and the other shares held of record by him were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(a) the beneficial shareholder causes the corporation to receive
the record shareholder's written consent to the dissent not
later than the time the beneficial shareholder asserts
dissenters' rights; and
(b) the beneficial shareholder dissents with respect to all
shares of which he is the beneficial shareholder.
(3) The corporation may require that, when a record shareholder
dissents with respect to the shares held by any one or more
beneficial shareholders, each beneficial shareholder must certify
to the corporation that both he and the record shareholders of
all shares owned beneficially by him have asserted, or will
timely assert, dissenters' rights as to all the shares unlimited
on the ability to exercise dissenters' rights. The certification
requirement must be stated in the dissenters' notice given
pursuant to Section 16-10a-1322.
16-10a-1320. NOTICE OF DISSENTERS' RIGHTS.
(1) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is submitted to a vote at a shareholders'
meeting, the meeting notice must be sent to all shareholders of
the corporation as of the applicable record date, whether or not
they are entitled to vote at the meeting. The notice shall state
that shareholders are or may be entitled to assert dissenters'
rights under this part. The notice must be accompanied by a copy
of this part and the materials, if any, that under this chapter
are required to be given to the shareholders entitled to vote on
the proposed action at the meeting. Failure to give notice as
required by this subsection does not affect any action taken at
the shareholders' meeting for which the notice was to have been
given.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of
shareholders pursuant to Section 16-10a-704, any written or oral
solicitation of a shareholder to execute a written consent to the
action contemplated by Section 16-10a-704 must be accompanied or
preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this part, by a
copy of this part, and by the materials, if any, that under this
chapter would have been required to be given to shareholders
entitled to vote on the proposed action if the proposed action
were submitted to a vote at a shareholders' meeting.
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<PAGE>
Failure to give written notice as provided by this subsection
does not affect any action taken pursuant to Section 16-10a-704
for which the notice was to have been given.
16-10a-1321. DEMAND FOR PAYMENT--ELIGIBILITY AND NOTICE OF INTENT.
(1) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is submitted to a vote at a shareholders'
meeting, a shareholder who wishes to assert dissenters' rights:
(a) must cause the corporation to receive, before the vote is
taken, written notice of his intent to demand payment for
shares if the proposed action is effectuated; and
(b) may not vote any of his shares in favor of the proposed
action.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of
shareholders pursuant to Section 16-10a-704, a shareholder who
wishes to assert dissenters' rights may not execute a writing
consenting to the proposed corporate action.
(3) In order to be entitled to payment for shares under this part,
unless otherwise provided in the articles of incorporation,
bylaws, or a resolution adopted by the board of directors, a
shareholder must have been a shareholder with respect to the
shares for which payment is demanded as of the date the proposed
corporate action creating dissenters' rights under Section
16-10a-1302 is approved by the shareholders, if shareholder
approval is required, or as of the effective date of the
corporate action if the corporate action is authorized other than
by a vote of shareholders.
(4) A shareholder who does not satisfy the requirements of
Subsections (1) through (3) is not entitled to payment for shares
under this part.
16-10a-1322. DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized, the corporation shall give a
written dissenters' notice to all shareholders who are entitled
to demand payment for their shares under this part.
(2) The dissenters' notice required by Subsection (1) must be sent no
later than ten days after the effective date of the corporate
action creating dissenters' rights under Section 16-10a-1302, and
shall:
(a) state that the corporate action was authorized and the
effective date or proposed effective date of the corporate
action;
(b) state an address at which the corporation will receive
payment demands and an address at which certificates for
certificated shares must be deposited;
(c) inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(d) supply a form for demanding payment, which form requests a
dissenter to state an address to which payment is to be
made;
(e) set a date by which the corporation must receive the payment
demand and by which certificates for certificated shares
must be deposited at the address indicated in the
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dissenters' notice, which dates may not be fewer than 30 nor
more than 70 days after the date the dissenters' notice
required by Subsection (1) is given;
(f) state the requirement contemplated by Subsection
16-10a-1303(3), if the requirement is imposed; and
(g) be accompanied by a copy of this part.
16-10a-1323. PROCEDURE TO DEMAND PAYMENT.
(1) A shareholder who is given a dissenters' notice described in
Section 16-10a-1322, who meets the requirements of Section
16-10a-1321, and wishes to assert dissenters' rights must, in
accordance with the terms of the dissenters' notice:
(a) cause the corporation to receive a payment demand, which may
be the payment demand form contemplated in Subsection
16-10a-1322(2)(d), duly completed, or may be stated in
another writing;
(b) deposit certificates for his certificated shares in
accordance with the terms of the dissenters' notice; and
(c) if required by the corporation in the dissenters' notice
described in Section 16-10a-1322, as contemplated by Section
16-10a-1327, certify in writing, in or with the payment
demand, whether or not he or the person on whose behalf he
asserts dissenters' rights acquired beneficial ownership of
the shares before the date of the first announcement to news
media or to shareholders of the terms of the proposed
corporate action creating dissenters' rights under Section
16-10a-1302.
(2) A shareholder who demands payment in accordance with Subsection
(1) retains all rights of a shareholder except the right to
transfer the shares until the effective date of the proposed
corporate action giving rise to the exercise of dissenters'
rights and has only the right to receive payment for the shares
after the effective date of the corporation action.
(3) A shareholder who does not demand payment and deposit share
certificates as required, by the date or dates set in the
dissenters' notice, is not entitled to payment for shares under
this part.
16-10a-1324. UNCERTIFICATED SHARES.
(1) Upon receipt of a demand for payment under Section 16-10a-1323
from a shareholder holding uncertificated shares, and in lieu of
the deposit of certificates representing the shares, the
corporation may restrict the transfer of the shares until the
proposed corporate action is taken or the restrictions are
released under Section 16-10a-1326.
(2) In all other respects, the provisions of Section 16-10a-1323
apply to shareholders who own uncertificated shares.
16-10a-1325. PAYMENT.
(1) Except as provided in Section 16-10a-1327, upon the later of the
effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302, and receipt by the corporation
of each payment demand pursuant to Section 16-10a-1323, the
corporation shall pay the amount the corporation estimates to be
the fair value of the dissenter's shares, plus interest to each
dissenter
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who has complied with Section 16-10a-1323, and who meets the
requirements of Section 16-10a-1321, and who has not yet received
payment.
(2) Each payment made pursuant to Subsection (1) must be accompanied
by:
(a)(i) A. the corporation's balance sheet as of the end of its
most recent fiscal year, or if not available, a
fiscal year ending not more than 16 months before the
date of payment;
B. an income statement for that year;
C. a statement of changes in shareholders' equity for
that year and a statement of cash flow for that year,
if the corporation customarily provides such
statements to shareholders; and
D. the latest available interim financial statements, if
any;
(ii) the balance s heet and statements referred to in
Subsection (i) must be audited if the corporation
customarily provides audited financial statements to
shareholders;
(b) a statement of the corporation's estimate of the fair
value of the shares and the amount of interest payable
with respect to the shares;
(c) a statement of the dissenter's right to demand payment
under Section 16-10a-1328; and
(d) a copy of this part.
16-10a-1326. FAILURE TO TAKE ACTION.
(1) If the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302 does not occur
within 60 days after the date set by the corporation as the date
by which the corporation must receive payment demands as provided
in Section 16-10a-1322, the corporation shall return all
deposited certificates and release the transfer restrictions
imposed on uncertificated shares, and all shareholders who
submitted a demand for payment pursuant to Section 16-10a-1323
shall thereafter have all rights of a shareholder as if no demand
for payment had been made.
(2) If the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302 occurs more than 60
days after the date set by the corporation as the date by which
the corporation must receive payment demands as provided in
Section 16-10a-1322, then the corporation shall send a new
dissenters' notice, as provided in Section 16-10a-1322, and the
provisions of Sections 16-10a-1323 through 16-10a-1328 shall
again be applicable.
16-10a-1327. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT
OF PROPOSED CORPORATE ACTION.
(1) A corporation may, with the dissenters' notice given pursuant to
Section 16-10a-1322, state the date of the first announcement to
news media or to shareholders of the terms of the proposed
corporate action creating dissenters' rights under Section
16-10a-1302 and state that a shareholder who asserts dissenters'
rights must certify in writing, in or with the payment demand,
whether or not he or the person on whose behalf he asserts
dissenters' rights acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not
certify in writing, in or with the payment demand that he or the
person on whose behalf the dissenters' rights are being asserted,
acquired
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beneficial ownership of the shares before that date, the
corporation may, in lieu of making the payment provided in
Section 16-10a-1325, offer to make payment if the dissenter
agrees to accept in full satisfaction of his demand.
(2) An offer to make payment under Subsection (1) shall include or be
accompanied by the information required by Subsection 16-10a-
1325(2).
16-10a-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter who has not accepted an offer made by a corporation
under Section 16-10a-1327 may notify the corporation in writing
of his own estimate of the fair value of his shares and demand
payment of the estimated amount, plus interest, less any payment
made under Section 16-10a-1325, if:
(a) the dissenter believes that the amount paid under Section
16-10a-1325 or offered under Section 16-10a-1327 is less
than the fair value of the shares;
(b) the corporation fails to make payment under Section 16-10a-
1325 within 60 days after the date set by the corporation as
the date by which it must receive the payment demand; or
(c) the corporation, having failed to take the proposed
corporate action creating dissenters' rights, does not
return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares as required by
Section 16-10a-1326.
(2) A dissenter waives the right to demand payment under this section
unless he causes the corporation to receive the notice required
by Subsection (1) within 30 days after the corporation made or
offered payment for his shares.
16-10a-1330. JUDICIAL APPRAISAL OF SHARES--COURT ACTION.
(1) If a demand for payment under Section 16-10a-1328 remains
unresolved, the corporation shall commence a proceeding within 60
days after receiving the payment demand contemplated by Section
16-10a-1328, and petition the court to determine the fair value
of the shares and the amount of interest. If the corporation does
not commence the proceeding within the 60-day period, it shall
pay each dissenter whose demand remains unresolved the amount
demanded.
(2) The corporation shall commence the proceeding described in
Subsection (1) in the district court of the county in this state
where the corporation's principal office, or if it has no
principal office in this state, the county where its registered
office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered
office of the domestic corporation merged with, or whose shares
were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters who have satisfied the
requirements of Sections 16-10a-1321, 16-10a-1323, and 16-10a-
1328, whether or not they are residents of this state whose
demands remain unresolved, parties to the proceeding commenced
under Subsection (2) as an action against their shares. All such
dissenters who are named as parties must be served with a copy of
the petition. Service on each dissenter may be by registered or
certified mail to the address stated in his payment demand made
pursuant to Section 16-10a-1328. If no address is stated in the
payment demand, service may be made at the address stated in the
payment demand given pursuant to Section 16-10a-1323. If no
address is stated in the payment demand, service may be made at
the address shown on
III-7
<PAGE>
the corporation's current record of shareholders for the record
shareholder holding the dissenter's shares. Service may also be
made otherwise as provided by law.
(4) The jurisdiction of the court in which the proceeding is
commenced under Subsection (2) is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive
evidence and recommend 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.
(5) Each dissenter made a party to the proceeding commenced under
Subsection (2) is entitled to judgment:
(a) for the amount, if any, by which the court finds that the
fair value of his shares, plus interest, exceeds the amount
paid by the corporation pursuant to Section 16-10a-1325; or
(b) for the fair value, plus interest, of the dissenter's after-
acquired shares for which the corporation elected to
withhold payment under Section 16-10a-1327.
16-10a-1331. COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under Section 16-
10a-1330 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 that the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding
payment under Section 16-10a-1328.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds
equitable:
(a) 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 Sections 16-
10a-1320 through 16-10a-1328; or
(b) against either the corporation or one or more dissenters, in
favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect
to the rights provided by this part.
(3) If the court finds that the services of counsel for any
dissenters were of substantial benefit to other dissenters
similarly situated, and that the fees for those services should
not be assessed against the corporation, the court may award to
those counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
III-8
<PAGE>
APPENDIX IV
VOTING AGREEMENT
----------------
THIS VOTING AGREEMENT is made and entered into this 18th day of April,
1997 (this "Agreement"), among Tele-Communications, Inc., a Delaware corporation
("TCI"), and each other person and entity listed on the signature pages hereof
(each, a "Shareholder").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, as of the date hereof each Shareholder owns (either
beneficially or of record) the number of shares of common stock, no par value
per share ("KT Common Stock"), of Kearns-Tribune Corporation, a Utah corporation
("KT"), set forth opposite such Shareholder's name on Exhibit A hereto (all such
shares and any shares hereafter acquired by the Shareholders prior to the
termination of this Agreement being referred to herein as the "Shares");
WHEREAS, TCI and KT propose to enter into an Agreement and Plan of
Merger, dated as of the date hereof (as the same may be amended from time to
time, the "Merger Agreement"), which provides, among other things, for the
merger of a wholly-owned subsidiary of TCI with and into KT upon the terms and
subject to the conditions of the Merger Agreement;
WHEREAS, as a condition to the willingness of TCI to enter into the
Merger Agreement, TCI has required that each Shareholder agree, and, in order to
induce TCI to enter into the Merger Agreement, each Shareholder has agreed,
severally and not jointly, to enter into this Agreement with respect to all the
Shares of such Shareholder.
NOW, THEREFORE, in consideration of the premises, covenants and
representations contained herein and in the Merger Agreement, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE
VOTING OF SHARES
----------------
1.1 Voting of Shares. Each Shareholder hereby agrees, with respect
----------------
to those Shares that it owns of record, that during the time this Agreement is
in effect, at any meeting of the shareholders of KT, however called (whether,
annual, special or adjourned), and in any action by consent of the shareholders
of KT, such Shareholder shall vote its Shares (or sign its name, as shareholder,
to any consent, certificate or other document relating to KT that the law of the
State of Utah may permit or require): (a) in favor of the adoption of the Merger
Agreement and approval of the Merger and the other transactions contemplated by
the Merger Agreement, (b) against any proposal for any recapitalization, merger,
sale of assets or other business combination between KT and any person or entity
(other than the Merger) or any other action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of KT under the Merger Agreement or which could result in any of the
conditions to KT's obligations under the Merger Agreement not being fulfilled,
and (iii) in favor of any other matter relating to consummation of the
transactions contemplated by the Merger Agreement. Each Shareholder further
agrees to cause the Shares owned by it beneficially to be voted in accordance
with the foregoing. Each Shareholder acknowledges receipt and review of a copy
of the Merger Agreement.
1.2 Further Assurances. Each Shareholder shall perform such further
------------------
acts and execute such further documents and instruments as may reasonably be
required to carry out the provisions of this Agreement.
IV-1
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
Each Shareholder, severally and not jointly, hereby represents and
warrants to TCI as follows:
2.1 Due Organization; Authority Relative to this Agreement. Such
------------------------------------------------------
Shareholder, if it is a trust, corporation or other legal entity, is duly
organized and validly existing under the laws of the jurisdiction of its
organization. Such Shareholder has full power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part of such
Shareholder, and no other proceedings on the part of such Shareholder are
necessary to authorize this Agreement or to consummate such transactions. This
Agreement has been duly and validly executed and delivered by or on behalf of
such Shareholder and, assuming its due authorization, execution and delivery by
TCI, constitutes a legal, valid and binding obligation of such Shareholder,
enforceable against such Shareholder in accordance with its terms.
2.2 Title to Shares. Such Shareholder is the record or beneficial
---------------
owner of its Shares free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, proxy or voting
restrictions, charges and other encumbrances of any nature whatsoever, other
than pursuant to this Agreement.
2.3 No Conflict. The execution and delivery of this Agreement by such
-----------
Shareholder do not, and the performance of this Agreement by such Shareholder
shall not, (i) conflict with or violate the organizational documents of such
Shareholder, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to such Shareholder or by which the Shares of such
Shareholder are bound or affected or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the Shares of such Shareholder pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which such Shareholder is a party
or by which such Shareholder or its Shares are bound or affected, except, in the
case of clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay the performance
by such Shareholder of its obligations under this Agreement.
ARTICLE III
COVENANTS OF THE SHAREHOLDERS
-----------------------------
3.1 No Inconsistent Agreements. Each Shareholder hereby covenants
--------------------------
and agrees that, except as contemplated by this Agreement and the Merger
Agreement, such Shareholder shall not enter into any voting agreement or grant a
proxy or power of attorney with respect to its Shares which is inconsistent with
this Agreement.
3.2 Transfer of Title. Each Shareholder hereby covenants and
-----------------
agrees that such Shareholder shall not transfer record or beneficial ownership
of any of its Shares unless the transferee agrees in writing to be bound by the
terms and conditions of this Agreement.
ARTICLE IV
GENERAL
-------
4.1 Termination. This Agreement shall terminate upon the
-----------
termination of the Merger Agreement.
4.2 Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
IV-2
<PAGE>
4.3 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof.
4.4 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by the parties hereto.
4.5 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated and to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.
4.6 Parties in Interest. This Agreement shall be binding upon and
-------------------
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
4.7 Captions. Captions contained in this Agreement are inserted
--------
only as a matter of convenience and in no way define, limit, extend, or describe
the scope of this Agreement or the intent of any of its provisions.
4.8 Governing Law. Except to the extent that Utah law is mandatorily
-------------
applicable to the rights of the shareholders of KT, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed and to be performed entirely within that state,
without reference to rules governing conflicts of law.
4.9 Counterparts. This Agreement may be executed in multiple, each
------------
of which when executed shall be considered an original and all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
-------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President,
General Counsel and Secretary
/s/ James P. Kearns
-------------------------------------
JAMES P. KEARNS
IV-3
<PAGE>
/s/ Jane McCarthey
------------------------------------
JANE McCARTHEY, as Trustee under the
Qualified Terminable Interest
Property Trust, dated January 3,
1990, for the benefit of Jane Frances
McCarthey, Thomas K. McCarthey,
Phillip George McCarthey, Sarah J.
McCarthey, Shaun McCarthey and
Maureen Patricia McCarthey
/s/ Loretta M. Kearns
-------------------------------------
LORETTA M. KEARNS, as Trustee under
the Patricia Louise Kearns Trust
created by an Amended Trust Agreement
dated March 5, 1986
IV-4
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Name of Shareholder Number of Shares of KT Common Stock
- ------------------- -----------------------------------
<S> <C>
James P. Kearns 18,867
Qualified Terminable Interest Property 59,660
Trust, dated January 3, 1990, for the
benefit of Jane Frances McCarthey,
Thomas K. McCarthey, Phillip George
McCarthey, Sarah J. McCarthey,
Shaun McCarthey and Maureen
Patricia McCarthey
The Patricia Louise Kearns Trust 19,787
created by an Amended Trust
Agreement dated March 5, 1986
</TABLE>
IV-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law 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 threatened, pending or
completed 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 such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. A corporation may similarly indemnify such person for
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of any action or suit by or in the right of the
corporation, provided such person acted in good faith and in a manner he or she
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 which such court
shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law 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 of the Delaware General Corporation Law, 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 the Restated Certificate of Incorporation, as
amended, of TCI ("TCI Charter") provides as follows:
"1. 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.
2. 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
II-1
<PAGE>
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
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 have 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.
3. Amendment or Repeal.
-------------------
Any repeal or modification of the foregoing provisions of this Section
E shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time
of such repeal or modification."
Article II, Section 2.9 of TCI's Bylaws 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, as then or thereafter in effect.
TCI has also entered into indemnification agreements with each of its
directors (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
II-2
<PAGE>
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 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" 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 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 Delaware law, TCI's Bylaws or
otherwise. Although not requiring the maintenance of directors' and officers'
liability insurance, the indemnification agreements require that an indemnitee
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.
Exhibits Description
- -------- -----------
2.1 Agreement and Plan of Merger dated as of April 18, 1997, among TCI,
TCI KT Merger Sub, Inc. and Kearns-Tribune Corporation (included as
Appendix I to the Proxy Statement/Prospectus which is a part of this
Registration Statement).
2.2 Voting Agreement dated as of April 18, 1997, among TCI and each other
person and entity listed on the signature pages thereto (included as
Appendix III to the Proxy Statement/Prospectus which is a part of this
Registration Statement).
3.1 Restated Certificate of Incorporation of TCI, dated August 4, 1994, as
amended on August 4, 1994, August 16, 1994, October 11, 1994, October
21, 1994, January 26, 1995, August 3, 1995, August 3, 1995, January
25, 1996 and January 25, 1996 (Incorporated herein by reference to
Exhibit 3.1 of TCI's Annual Report on Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-20421)).
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of TCI, dated April 7, 1997 (Incorporated herein by reference to
Exhibit 4.2 to TCI's Registration Statement on Form S-3, Registration
No. 333-27039, filed May 13, 1997).
II-3
<PAGE>
3.3 Bylaws of TCI as adopted June 16, 1994 (Incorporated herein by
reference to Exhibit 3.2 of TCI's Annual Report on Form 10-K for the
year ended December 31, 1994, as amended by Form 10-K/A (Commission
File No. 0-20421)).
4 Specimen Stock Certificate for the Tele-Communications, Inc. Series A
TCI Group Common Stock, par value $1.00 per share (Incorporated herein
by reference to Exhibit 4.3 of TCI's registration statement on Form 8-
A, as amended by Form 8-A/A (Amendments No. 1 and 2) Commission File
No. 0-20421).
5 Opinion of Baker & Botts, L.L.P. regarding legality of securities
being registered./+/
8 Opinion of Winston & Strawn regarding certain Federal income tax
matters./+/
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of KPMG Audit Plc.
23.5 Consent of Deloitte & Touche LLP.
23.6 Consent of Price Waterhouse LLP.
23.7 Consent of Price Waterhouse LLP.
23.8 Consent of Deloitte & Touche LLP.
23.9 Consent of KPMG Peat Marwick LLP.
23.10 Consent of Baker & Botts, L.L.P. (included in Exhibit 5).
23.11 Consent of Winston & Strawn (included in Exhibit 8).
24 Powers of Attorney (included on Page II-8).
99.1 Opinion of Houlihan, Lokey, Howard & Zukin (included as Appendix II to
the Proxy Statement/Prospectus which is part of this Registration
Statement).
99.2 Form of Management Agreement between Kearns-Tribune Corporation and
The Salt Lake Tribune Publishing Company, LLC, to be entered into at
the closing of the Merger.
99.3 Form of Option Agreement between Kearns-Tribune Corporation and The
Salt Lake Tribune Publishing Company, LLC, to be entered into at the
closing of the Merger.
99.4 Letter Agreement dated April 18, 1997, between Kearns-Tribune
Corporation and John C. Malone.
99.5 Form of Proxy for Special Meeting of Kearns-Tribune Corporation./+/
II-4
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES.
Schedule I - Condensed Information as to the Financial Position of the
Registrant, December 31, 1996 and 1995; Condensed Information as to the
Operations and Cash Flows of the Registrant, Years ended December 31,
1996, 1995 and 1994/++/
Schedule II - Valuation and Qualifying Accounts, Years ended December
31, 1996, 1995 and 1994/++/
(c) REPORTS, OPINIONS OR APPRAISALS. Opinion of Houlihan, Lokey, Howard &
Zukin (included as Appendix II to the Proxy Statement/Prospectus which is part
of this Registration Statement).
_______________
/+/ To be filed by Amendment.
/++/ Incorporated herein by reference to the same schedule included as
part of TCI's Annual Report on Form 10-K for the year ended December 31, 1996,
as amended by Form 10-K/A (Amendment No. 1) (Commission File No. 20421).
ITEM 22. UNDERTAKINGS
(a) TCI hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of the prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
- -------- -------
information required to be included in a post-effective amendment by those
paragraphs is 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-5
<PAGE>
(4) 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 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
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.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), TCI undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(7) 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.
(8) 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 transaction by itself or when aggregated with
other such transactions made since the filing of the most recent audited
financial statements of TCI would have a material financial effect upon TCI and
(ii) the information required to be supplied in a post-effective amendment by
this paragraph 8 is not contained in periodic reports filed by TCI 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 TCI
pursuant to the foregoing provisions or otherwise, TCI 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 of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by TCI of expenses incurred or paid by
a director, officer or controlling person of TCI 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, TCI 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 of 1933 and will be governed by the final adjudication of such
issue.
II-6
<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 Greenwood Village, State
of Colorado, on June 16, 1997.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
and General Counsel
II-7
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen M. Brett, Esq. and Elizabeth M.
Markowski, Esq., and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and re-substitution for him and in his
name, place and stead, in any and all capacities, to sign and file (i) any or
all amendments (including post-effective amendments) to this Registration
Statement, with all exhibits thereto, and other documents in connection
therewith, and (ii) a registration statement, and any and all exhibits thereto,
relating to the offering covered hereby filed pursuant to Rule 462(b) under the
Securities Act of 1933, 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, to all intents and purposes and as fully
as they might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or their substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons (which
persons constitute a majority of the Board of Directors) in the capacities and
on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ John C. Malone Chairman of the Board, June 16, 1997
- -------------------------- Chief Executive Officer and
(John C. Malone) Director (Principal Executive
Officer)
/s/ Leo J. Hindery, Jr. President, Chief Operating June 16, 1997
- -------------------------- Officer and Director
(Leo J. Hindery, Jr.)
/s/ Donne F. Fisher Director June 16, 1997
- --------------------------
(Donne F. Fisher)
/s/ John W. Gallivan Director June 16, 1997
- --------------------------
(John W. Gallivan)
Director
- --------------------------
(Kim Magness)
/s/ Robert A. Naify Director June 16, 1997
- --------------------------
(Robert A. Naify)
/s/ Jerome H. Kern Director June 16, 1997
- --------------------------
(Jerome H. Kern)
/s/ Tony Coelho Director June 16, 1997
- --------------------------
(Tony Coelho)
/s/ J.C. Sparkman Director June 16, 1997
- --------------------------
(J.C. Sparkman)
/s/ Paul Gould Director June 16, 1997
- --------------------------
(Paul Gould)
/s/ Bernard W. Schotters Senior Vice President of TCI June 16, 1997
- -------------------------- Communications, Inc.
(Bernard W. Schotters) (Principal Financial Officer)
/s/ Gary K. Bracken Senior Vice President of TCI June 16, 1997
- -------------------------- Communications, Inc.
(Gary K. Bracken) (Principal Accounting
Officer)
II-8
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger dated as of April 18, 1997, among TCI, TCI
KT Merger Sub, Inc. and Kearns-Tribune Corporation (included as Appendix
I to the Proxy Statement/Prospectus which is a part of this Registration
Statement).
2.2 Voting Agreement dated as of April 18, 1997, among TCI and each other
person and entity listed on the signature pages thereto (included as
Appendix III to the Proxy Statement/Prospectus which is a part of this
Registration Statement).
3.1 Restated Certificate of Incorporation of TCI, dated August 4, 1994, as
amended on August 4, 1994, August 16, 1994, October 11, 1994, October 21,
1994, January 26, 1995, August 3, 1995, August 3, 1995, January 25, 1996
and January 25, 1996 (Incorporated herein by reference to Exhibit 3.1 of
TCI's Annual Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421)).
3.2 Certificate of Amendment to the Restated Certificate of Incorporation of
TCI, dated April 7, 1997 (Incorporated herein by reference to Exhibit 4.2
to TCI's Registration Statement on Form S-3, Registration No. 333-27039,
filed May 13, 1997).
3.3 Bylaws of TCI as adopted June 16, 1994 (Incorporated herein by reference
to Exhibit 3.2 of TCI's Annual Report on Form 10-K for the year ended
December 31, 1994, as amended by Form 10-K/A (Commission File No. 0-
20421)).
4 Specimen Stock Certificate for the Tele-Communications, Inc. Series A TCI
Group Common Stock, par value $1.00 per share (Incorporated herein by
reference to Exhibit 4.3 of TCI's registration statement on Form 8-A, as
amended by Form 8-A/A (Amendments No. 1 and 2) Commission File No. 0-
20421).
5 Opinion of Baker & Botts, L.L.P. regarding legality of securities being
registered./+/
8 Opinion of Winston & Strawn regarding certain Federal income tax
matters./+/
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of KPMG Audit Plc.
23.5 Consent of Deloitte & Touche LLP.
23.6 Consent of Price Waterhouse LLP.
23.7 Consent of Price Waterhouse LLP.
23.8 Consent of Deloitte & Touche LLP.
23.9 Consent of KPMG Peat Marwick LLP.
23.10 Consent of Baker & Botts, L.L.P. (included in Exhibit 5).
<PAGE>
23.11 Consent of Winston & Strawn (included in Exhibit 8).
24 Powers of Attorney (included on Page II-8).
99.1 Opinion of Houlihan, Lokey, Howard & Zukin (included as Appendix II to
the Proxy Statement/Prospectus which is part of this Registration
Statement).
99.2 Form of Management Agreement between Kearns-Tribune Corporation and The
Salt Lake Tribune Publishing Company, LLC, to be entered into at the
closing of the Merger.
99.3 Form of Option Agreement between Kearns-Tribune Corporation and The Salt
Lake Tribune Publishing Company, LLC, to be entered into at the closing
of the Merger.
99.4 Letter Agreement dated April 18, 1997, between Kearns-Tribune Corporation
and John C. Malone.
99.5 Form of Proxy for Special Meeting of Kearns-Tribune Corporation./+/
_______________
/+/ To be filed by Amendment.
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors and Stockholders
Tele-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 24, 1997,
relating to the consolidated balance sheets of Tele-Communications, Inc. and
subsidiaries as of December 31, 1996 and 1995, 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, 1996, and all related
financial statement schedules, which reports appear in the December 31, 1996
Annual Report on Form 10-K of Tele-Communications, Inc., as amended by Form 10-
K/A (Amendment No. 1), and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
June 16, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-4 of Tele-Communications, Inc. of our report, dated March 24, 1997,
relating to the combined balance sheets of TCI Group as of December 31, 1996 and
1995, and the related combined statements of operations, equity, and cash flows
for each of the years in the three-year period ended December 31, 1996, which
report appears in the December 31, 1996 Annual Report on Form 10-K of Tele-
Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), and to the
reference to our firm under the heading "Experts" in the prospectus. Our report
covering the combined financial statements refers to the effects of not
consolidating TCI Group's interest in Liberty Media Group for all periods that
TCI Group has an interest in Liberty Media Group.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
June 16, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-4 of Tele-Communications, Inc. of our report, dated March 24, 1997,
relating to the combined balance sheets of Liberty Media Group as of December
31, 1996 and 1995, and the related combined statements of operations, equity,
and cash flows for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996 Annual Report on Form 10-K
of Tele-Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), and
to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
June 16, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors and Shareholders of
Telewest Communications plc:
We consent to the incorporation by reference in the registration statement on
Form S-4 of Tele-Communications, Inc. of our report, dated March 11, 1997,
relating to the consolidated balance sheet of Telewest Communications plc and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations and cash flows for each of the years in the three year
period ended December 31, 1996, which report appears in the December 31, 1996
Annual Report on Form 10-K of Tele-Communications, Inc., as amended by Form 10-
K/A (Amendment No. 1), and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG Audit Plc
KPMG Audit Plc
Chartered Accountants
Registered Auditors
London, England
June 16, 1997
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this registration statement on
Form S-4 of Tele-Communications, Inc. of our report dated March 14, 1997 on the
consolidated financial statements of Sprint Spectrum Holding Company, L.P. and
subsidiaries (which expresses an unqualified opinion and includes an explanatory
paragraph referring to the developmental stage of Sprint Spectrum Holding
Company, L.P. and subsidiaries) for each of the two years in the period ended
December 31, 1996, for the period from October 24, 1994 (date of inception) to
December 31, 1994 and for the cumulative period from October 24, 1994 (date of
inception) to December 31, 1996, included and incorporated by reference in the
Annual Report on Form 10-K of Tele-Communications, Inc. for the year ended
December 31, 1996, and to the reference to us under the heading "Experts" in the
Proxy Statement/Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
June 16, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-4 of Tele-
Communications, Inc. of our report dated March 7, 1997 on the financial
statements of American PCS, L.P. (A Delaware Limited Partnership) as of and for
the year ended December 31, 1996 referred to in the consolidated financial
statements of Sprint Spectrum Holding Company, L.P. and subsidiaries, which
appears in the Annual Report on Form 10-K of Tele-Communications, Inc. for the
year ended December 31, 1996. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Washington, D.C.
June 16, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Tele-Communications, Inc. of our report dated February
14, 1996, relating to the combined financial statements of VII Cable which
appears in the Current Report on Form 8-K of Tele-Communications, Inc. dated
June 19, 1996. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
San Jose, California
June 16, 1997
<PAGE>
EXHIBIT 23.8
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Tele-Communications,
Inc. on Form S-4 of our report dated March 25, 1997 relating to the consolidated
financial statement of Kearns-Tribune Corporation and subsidiaries as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, appearing in the Proxy Statement/Prospectus, which is part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
June 13, 1997
<PAGE>
EXHIBIT 23.9
Consent of Independent Auditors
-------------------------------
The Board of Directors
Newspaper Agency Corporation:
We consent to the inclusion of our report in the registration statement on Form
S-4 of Tele-Communications, Inc. of our report, dated January 24, 1997, relating
to the balance sheets of Newspaper Agency Corporation as of December 31, 1996
and 1995, and the related statements of earnings and retained earnings, and cash
flows for each of the years in the three-year period ended December 31, 1996,
included herein and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Salt Lake City, Utah
June 16, 1997
<PAGE>
EXHIBIT 99.2
[Form of]
MANAGEMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into this day of ,
1997, between Kearns-Tribune Corporation, a Utah corporation ("KT") and The
Salt Lake Tribune Publishing Company, LLC, a Utah limited liability company (the
"Manager").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, KT has entered into that certain Agreement and Plan of
Reorganization and Merger, dated as of April 18, 1997, with Tele-Communications,
Inc., a Delaware corporation ("TCI"), and TCI KT Merger Sub, Inc., a Utah
corporation ("TCI Sub"), pursuant to which TCI Sub will merge with and into KT
in connection with the acquisition of KT by TCI;
WHEREAS, KT, through its subsidiaries and affiliates, owns and operates the
newspaper and related businesses set forth on Exhibit A (the "Newspapers"); and
WHEREAS, KT desires to engage the Manager to manage and operate the
Newspapers and the Manager desires to accept engagement, upon the terms and
subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the premises, covenants and
representations contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties thereto
agree as follows.
ARTICLE I
DEFINITIONS
-----------
1.01 Definitions. As used herein, the following terms shall have the
-----------
following meanings (terms defined in the singular to have the same meanings when
used in the plural and vice versa):
---- -----
Affiliate: With respect to any person, (a) any director, officer, employee,
---------
member or general partner of such person; and (b) any other person which,
directly or indirectly, controls, is controlled by or is under common control
with, such person. As used herein "control" shall
<PAGE>
mean the power to direct or cause the direction of the management and policies
of a person, whether through the ownership of voting securities, by contract, or
otherwise.
Agency Accounts: As defined in Section 5.01.
---------------
Annual Plan or Plan: As defined in Section 3.04.
-------------------
Audit Delivery Date: As defined in Section 3.05.
-------------------
Board: The Board of Directors of KT.
-----
Consumer Price Index: The Consumer Price Index (All Items) published in the
--------------------
Monthly Labor Review by the U.S. Bureau of Labor Statistics or, if such index
- --------------------
shall no longer be published, any comparable measure of changes in consumer
prices on a national basis that is prepared and published periodically by an
agency of the United States Government.
Joint Operating Agreement: The Amendment Agreement, dated June 1, 1982,
-------------------------
between KT and Deseret News Publishing Company.
KT Assets: All realty and personalty, tangible and intangible, whether
---------
owned or leased by KT or its subsidiaries, used or usable in connection with the
ownership and operation of the Newspapers.
Net Income: For any period, the net income of KT and its subsidiaries for
----------
such period after provision for taxes applicable to such period, as determined
on a consolidated basis in accordance with generally accepted accounting
principles, consistently applied.
ARTICLE II
TERM
----
2.01 Term. The term of this Agreement shall commence on the date hereof
----
and shall continue for an initial period of five (5) years thereafter unless
terminated sooner in accordance with Article VI. Thereafter, unless terminated
sooner in accordance with Article VI, this Agreement shall be automatically
renewed for successive one-year periods unless either party provides the other
with 180 days written notice prior to the end of the initial period, or 120 days
written notice prior to the end of any such renewal period, that it will not
renew this Agreement.
-2-
<PAGE>
ARTICLE III
MANAGEMENT SERVICES
-------------------
3.01 Appointment; Executive Officers.
-------------------------------
(a) KT hereby appoints the Manager as the exclusive management agent
to supervise and manage the publication and operation of the Newspapers and to
render services related thereto, subject to the direction and authority of KT,
pursuant to the terms of this Agreement, and the Manager hereby accepts such
engagement.
(b) The responsibility for the day-to-day management and operations of
the Newspapers shall be vested in a Chief Executive Officer ("CEO") who shall
report on a day-to-day basis to the Manager. The Newspapers shall also have a
Chief Operating Officer ("COO") who shall report on a day-to-day basis to the
CEO. The individuals designated to serve as the CEO and the COO shall be
selected by the Manager and approved by KT, which approval shall not be
unreasonably withheld. KT shall have the authority to terminate the CEO upon 30
days' notice if, in its reasonable business judgment, the CEO is not adequately
or fairly serving the Newspapers. The CEO shall have the authority to terminate
the COO and to designate a replacement to serve until such time as the Manager
shall have appointed (and KT shall have approved) a new COO. During any period
when there is no CEO, the COO shall have the duties and responsibilities
assigned to the CEO. The individuals selected to be the initial CEO and COO,
respectively, effective as of the date of this Agreement, are named on Exhibit
B, and KT, by its execution hereunder, hereby consents to the selection of such
individuals.
3.02 Services to be Performed by the Manager. In accordance with the
---------------------------------------
objectives of any Annual Plan adopted pursuant to Section 3.04, and subject to
the limitations of any such Annual Plan and to the provisions of this Agreement,
the Manager shall have the duty and is hereby granted authority to perform, or
cause to be performed, such services as are reasonably required for the proper
and efficient operation and management of the Newspapers, on behalf of and for
the benefit of KT and its stockholders including, without limitation, the
following:
(i) The Manager shall determine, establish, and maintain
operating policies, standards of operation, quality of publication,
and any other matters affecting customer relations and all phases of
promotion and publicity.
(ii) The Manager shall have the authority to act on behalf of KT
with respect to all action required or permitted to be taken by KT
under the Joint Operating Agreement.
(iii) The Manager shall, consistent with the Annual Plan, make
any and all purchases of equipment, supplies, and services required
for the Newspapers.
-3-
<PAGE>
(iv) The Manager shall, consistent with the Annual Plan, enter
into such contracts for the furnishing of utilities, maintenance, and
other services to the Newspapers as the Manager reasonably deems
necessary or desirable for the proper operation of the Newspapers,
provided that any one contract shall not exceed $60,000, or that such
contracts shall not, in the aggregate, exceed $300,000.
(v) The Manager shall perform, or cause to be performed, all such
administrative functions as are necessary for the efficient and
continued operation of the businesses operated by the Newspapers,
including the making of all payments, taxes, fees, charges, royalties,
and other levies as shall be necessary to comply with regulatory or
other requirements.
(vi) The Manager shall, subject to the approval of the Board and
Section 3.01(b), establish and maintain a personnel program, which
will include:
(A) selection, recruitment, employment, promotion,
supervision, and termination of employees for the
Newspapers;
(B) training of employees for the Newspapers; and
(C) establishment and maintenance of employee policies
and procedures.
(vii) The Manager shall cooperate in assisting KT in the
preparation of and filing of all payroll tax reports and shall timely
make payment of all withholding and other payroll taxes and FICA
deposits from the Agency Accounts on behalf and in the name of KT and
its subsidiaries.
(viii) The Manager shall take out, or cause to be taken out, on
behalf of KT and its subsidiaries the insurance described in Article
IV.
(ix) The Manager shall maintain full and complete books of
account and accurate business records reflecting the results of
operations of the Newspapers, including all sums received (including
the person or entity making payment), and all bills paid and other
disbursements made, with respect to the Newspapers; such records shall
be maintained on a current basis, and a monthly summary of such
records, reasonably acceptable in form to KT, shall be furnished to
KT; and such records may be examined by authorized representatives of
KT at all reasonable times.
(x) The Manager shall retain such records as are required by
statute or by any governmental agency with jurisdiction over KT and
its subsidiaries or as
-4-
<PAGE>
reasonably required by the business and shall deliver all records to
KT upon termination of this Agreement.
(xi) The Manager shall conduct periodic internal audits of the
Newspapers for the purpose of verifying compliance with financial and
operational policies and procedures.
(xii) Promptly after the end of each fiscal year, the Manager
shall cause the books and records reflecting the operations of the
Newspapers to be audited by an independent certified public accounting
firm selected by the Board. Within 90 days after the end of each
fiscal year, such accounting firm shall render to KT audited financial
statements, accompanied by an opinion thereon.
(xiii) The Manager shall have the authority to institute any and
all legal actions or proceedings arising out of the ordinary course
of the business carried on by the Newspapers, including any and all
actions or proceedings which the Manager deems necessary to (A)
collect charges or other income from the Newspapers, (B) cancel or
terminate any lease, license, or subscription agreement, and (C)
support the Newspapers' news gathering functions, including actions
seeking to access documents and proceedings and to protect the First
Amendment rights of the Newspapers, provided, in each case, that the
amount at issue does not exceed $100,000.
(xiv) The manager shall have the authority to compromise or to
abandon, or to refuse to compromise or to abandon, any claim for libel
or related causes of action, provided that the total financial risk to
KT from any such decision does not exceed $250,000.
(xv) Subject to the provisions of Section 3.03, the Manager shall
supervise and administer all other activities incidental to the
operation of the Newspapers.
(xvi) The Manager shall, from time to time upon the reasonable
request of TCI, (A) make its officers and employees available to TCI
for consultation on matters relating to strategic opportunities among
the Newspapers, KT, TCI and any of their respective Affiliates, and
(B) assist TCI and its Affiliates in developing such opportunities,
provided that the provision of such services do not require the
Manager to incur any expense which TCI (or such Affiliate) has not
agreed to reimburse.
(xvii) The Manager shall carry out its responsibilities under
this Agreement in a businesslike, efficient, competent, economic, and
professional
-5-
<PAGE>
manner, in full compliance with all applicable legal, contractual, and
insurance requirements.
Notwithstanding anything to the contrary contained in this Agreement, it is
expressly acknowledged and agreed that the Manager shall have sole authority and
discretion with respect to the news and editorial policies established and
implemented by the Newspapers.
3.03 Limitations on the Manager's Authority.
--------------------------------------
Notwithstanding any other provision to the contrary contained herein, the
Manager shall not take any action which exceeds the limited grant of authority
provided herein. Without limiting the generality of the foregoing, the Manager
shall not, without the consent of the Board:
(i) Make any expenditures (which have not been approved in
connection with the Board's approval of the Annual Plan) which exceed
$100,000 for any one item or $250,000 in the aggregate (or such
greater or lesser amounts as may from time to time be fixed by the
Board).
(ii) Make any disposition, pledge, or encumbrance of any KT
Assets or any assets of any subsidiary of KT having a value in excess
of $50,000 or such greater or lesser amount as may from time to time
be fixed by the Board.
(iii) Make any arrangement relating to the creation or
incurrence of any indebtedness or other liability (including
contingent liabilities pursuant to guarantees or otherwise) of KT or
any subsidiary thereof for borrowed money (other than borrowings under
existing credit facilities made in accordance with the Annual Plan);
grant any security for any of the unsecured indebtedness for borrowed
money of KT or any subsidiary thereof or provide any additional
security for any of their respective secured indebtedness for borrowed
money or grant any security for the payment of the purchase price of
any property (other than purchase money security interests attaching
only to the property so acquired).
(iv) Make any commitments on behalf of KT or any subsidiary
thereof to specific projects other than as provided in the Annual
Plan.
(v) Enter into any rental agreements, leases, contracts, or other
commitments on behalf of KT or any subsidiary thereof not otherwise
provided for in the Annual Plan except for agreements which do not
exceed $10,000 or, in the aggregate, $50,000.
(vi) Subject to Section 3.02 (xiv), institute, settle, or abandon
on behalf of KT or any subsidiary thereof, any legal action involving
(x) a claim or claims for monetary damages aggregating in excess of
$250,000 or such greater or lesser
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<PAGE>
amount as may from time to time be fixed by the Board, or (y) a claim
or claims against any governmental entity.
(vii) Amend, alter or modify the Joint Operating Agreement.
(viii) Expand the scope of the business conducted by the
Newspapers on the date of this Agreement to include the development or
furnishing of interactive, on-line, video or similar services.
3.04 Annual Plans.
------------
(a) The Manager shall submit to the Board the following proposed plans and
budgets (the "Annual Plan") for the Newspapers within 60 days prior to the end
of each calendar year: (i) an estimated profit and loss statement for such
ensuing year; (ii) estimates for such ensuing year, covering expenditures for:
(w) the purchase of KT Assets, (y) amounts necessary for KT to meet its
obligations under the Joint Operating Agreement, and (z) capital improvements;
and (iii) the Manager's proposed operating, marketing, and management plan for
the Newspapers. In preparing the Annual Plan, the Manager shall base its
estimates upon the most recent and reliable information then available.
(b) The Board will either approve or deny the Annual Plan within 20 days
following its receipt. Should the Board deny the Annual Plan, the Manager shall
cooperate with the Board to formulate an acceptable Annual Plan as quickly as
possible. If, notwithstanding the foregoing procedures, on January 1 of any
year, no Annual Plan has been approved by the Board for such year, then the
Annual Plan adopted for the prior year adjusted (without duplication) to reflect
increases or decreases resulting from the following events, shall govern until
such time as the Board approves a new Annual Plan:
(i) elections made under contracts by the Newspapers in the prior
year;
(ii) elections in such year or any prior year by other parties
under contracts in existence in such prior year;
(iii) the operation of escalation or de-escalation provisions in
contracts solely as a result of the passage of time or the occurrence
of events beyond the control of the Newspapers;
(iv) increases in expenses attributable to the annualized effect
of employee additions during the prior year contemplated by the Annual
Plan for the prior year;
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<PAGE>
(v) increased operating and selling, general and administrative
expenses in an amount equal to the percentage increase for the prior
year in the Consumer Price Index multiplied by the total of overhead
expenses reflected in the Annual Plan for the prior year;
(vi) decreases in revenues due, in whole or in part, to
reductions in circulation fees or other income;
(vii) the anticipated incurrence of costs during such year for
any legal, accounting and other professional fees or disbursements in
connection with events or changes not contemplated at the time of
preparation of the Annual Plan for the prior year.
(c) Upon approval of the Annual Plan (or, if the Annual Plan is not so
approved by the Board, upon the implementation of the Annual Plan established
pursuant to Section 3.04(b)), such Annual Plan shall become the Newspapers'
Annual Plan for the next succeeding fiscal year and the Manager shall take such
steps as are necessary or appropriate to implement the Annual Plan. The Manager
shall have the right and obligation to update and revise the Annual Plan from
time to time during the period covered thereby to reflect variables and events
not foreseeable at the time of preparation of the Annual Plan and not reasonably
within the control of the Manager. All such revisions shall be submitted prior
to implementation to the Board for approval.
(d) The Manager shall at all times comply with the applicable Annual Plan,
and shall not deviate therefrom in any substantial respect. Notwithstanding the
foregoing, (i) the Manager may, if it deems necessary, reallocate the amounts
budgeted therein, provided that the amount reallocated to any budgeted item
shall not exceed 10% of the amount budgeted for such item in the Annual Plan;
and (ii) the Manager shall be entitled to make additional expenditures not
authorized under the then applicable Annual Plan in case of emergencies or any
unexpected casualties, or in order to comply with any applicable legal or
insurance requirements; provided that in no such event shall such expenditures
exceed $250,000 in the aggregate per year.
3.05 Compensation. As compensation for services rendered, the Manager
------------
shall receive a management fee equal to 3% of the Net Income during the term of
this Agreement. Such compensation shall be payable on a monthly basis as
follows: following the end of each calendar month, the Manager shall submit a
statement to KT setting forth its estimate of the Net Income for such month and
the compensation due to the Manager based thereon; such compensation shall be
payable within ten days after receipt by KT of such statement. Such monthly
payments shall be adjusted as soon as practicable after the end of each fiscal
year (and after the effective date of termination if this Agreement is
terminated during a fiscal year) so that the aggregate compensation received by
the Manager for such year equals 3% of the annual Net Income reflected in the
audited financial statements of KT for such year. If such year-end adjustment
results in additional fees owing to the Manager, such additional fee shall be
paid
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<PAGE>
within ten days after the date the audited financial statements are delivered to
KT by KT's independent auditors (the "Audit Delivery Date"). If such year-end
adjustment results in a rebate owing to KT, such rebate will be paid by the
Manager within ten days after the Audit Delivery Date. If this Agreement is
terminated, such compensation shall be prorated to the date of termination.
ARTICLE IV
INSURANCE
---------
4.01 Coverage. The Manager agrees to use its best efforts to obtain
--------
and maintain at all times during the term of this Agreement, such insurance
policies, bonds, or other sureties with respect to the Newspapers, at the
expense of KT, as are required by federal, state, or local law or as are
customary in the normal course of business in the newspaper industry, including
the following:
(i) insurance on the offices or buildings of KT or any
subsidiaries thereof used in the operation of the Newspapers against
loss or damage by fire or theft and any other perils insurable under
the form of extended coverage then available; (ii) comprehensive
general liability insurance; (iii) automobile liability insurance
policies covering all owned or leased vehicles; (iv) libel insurance
in such amounts and covering such risks as are customarily carried by
entities of similar size engaged in similar businesses to that of the
Newspapers; and (v) statutory workmen's compensation benefits for
Newspapers employees.
4.02 Policies and Endorsements.
-------------------------
(a) All insurance provided for under Section 4.01 shall be effected by
policies issued by insurance companies of good reputation and of sound and
adequate financial responsibility. The Manager shall deliver certificates of
insurance with respect to all of the policies of insurance so procured,
including existing, additional, and renewal policies, to KT and its subsidiaries
and, in the case of insurance about to expire, shall deliver certificates of
insurance with respect to renewal policies to KT and its subsidiaries not less
than ten days prior to their respective dates of expiration.
(b) All policies of insurance provided for under this Article IV shall, to
the extent obtainable, have attached thereto an endorsement that such policy
shall not be canceled or materially changed without at least 30 days' prior
written notice to KT and the Manager.
4.03 Waiver of Liability. Subject to the written approval of the
-------------------
insurance companies involved, the Manager and KT and its subsidiaries hereby
waive with respect to each other, any claims for any losses, damages,
liabilities, or expenses (including attorney's fees) incurred or sustained by
them on account of damage or injury to persons or property arising out
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<PAGE>
of the ownership, operation, and maintenance of the Newspapers, to the extent
that the same are covered by the insurance required under this Article IV.
ARTICLE V
ACCOUNTS; WORKING FUNDS; RECORDS AND REPORTS
--------------------------------------------
5.01 Agency Accounts. All payments to be made in connection with the
---------------
Newspapers shall be made solely with the funds of KT and its subsidiaries, and
the Manager shall not have any responsibility to provide any funds or such
payments. Accordingly, KT and its subsidiaries shall bear all of the costs and
expenses of owning and operating the Newspapers. The Manager will maintain on
behalf of KT and its subsidiaries one or more accounts in the name of KT or a
subsidiary thereof, as the case may be (the "Agency Accounts"), at a bank or
banks selected by the Manager and approved by the Board. All payments or funds
of the Newspapers collected or received by the Manager shall promptly be
deposited in an Agency Account or Accounts. All disbursements made by the
Manager on behalf of KT or a subsidiary thereof as permitted by Section 3.02
shall (except as otherwise provided in Section 5.02) be made by checks drawn by
the Manager on the Agency Accounts. The Agency Accounts and all funds on
deposit therein shall at all times be deemed to be the property of KT or a
subsidiary thereof, as the case may be. Under no circumstances shall the
Manager deposit or be required to deposit any of its own funds in any of the
Agency Accounts. To the extent funds contained in the Agency Accounts are not,
in the sole judgment of KT, required for the discharge of existing obligations
of the Newspapers, KT shall have the right to withdraw such funds in a manner
consistent with TCI's cash management practices.
5.02 Petty Cash Fund. KT authorizes the Manager to maintain a petty
---------------
cash fund for routine expenditures for costs and expenses herein authorized.
Any expenditures from such fund or account may be reimbursed from an Agency
Account from time to time, but nothing contained herein shall be deemed to
modify the Manager's obligation to maintain adequate records of all such
expenditures, and total expenditures from such fund during any month shall be
subject to reasonable limits which shall be established by the Board from time
to time.
5.03 KT's Right of Inspection and Review. KT, its accountants,
-----------------------------------
attorneys, and agents shall have the right to enter the Newspapers' offices and
production facilities at all reasonable times during the term of this Agreement
for the purpose of examining or inspecting the same or examining and making
extracts of books and records of the Newspapers or for any other purpose which
KT, in its sole discretion, shall deem necessary or advisable.
ARTICLE VI
TERMINATION
-----------
6.01 Termination Rights. This Agreement may be terminated, as
------------------
provided below, upon the happening of any of the following events:
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<PAGE>
(a) At KT's option, upon the failure of the Manager to keep,
observe, or perform any material covenant, agreement, term, or
provision of this Agreement, and if any such default is not cured or
satisfied by the Manager at its sole cost and expense within a period
of 90-days after written notice thereof by KT to the Manager;
provided, however, that with respect to defaults which cannot be cured
or satisfied within such 90-day period, the Manager shall not be in
default if the Manager within such 90-day period shall have commenced
reasonable efforts to effect such cure and thereafter diligently
continues the same. Notwithstanding the foregoing, any default which
adversely affects insurance coverage of KT or any subsidiary thereof
or constitutes a breach of any of KT's or its subsidiaries, contracts
or agreements with third parties, or which violates any applicable
law, rule, or regulation of any governmental authority shall be cured
with due diligence as promptly as possible in light of the nature of
the violation and within such time period as may be specified by
notice from KT or from any such governmental authority. No cure or
satisfaction by the Manager pursuant to the foregoing shall affect the
rights of KT with respect to any damages it has suffered as a result
of any breach of this Agreement including, without limitation, the
right to indemnification provided for in Section 7.02.
(b) At KT's option, immediately and without any requirement of
notice, if the Manager is not generally paying its debts as such debts
become due, becomes insolvent, files or has filed against it a
petition for relief under the U.S. Bankruptcy Code, 11 U.S.C., Section
101 et seq. (or any similar petition under any state or federal
-- ---
insolvency law), proposes any dissolution, liquidation, financial
reorganization or recapitalization with creditors, or if a receiver,
trustee, custodian, or similar agent is appointed or takes possession
with respect to any property or business of the Manager.
(c) At the Manager's option, immediately and without any
requirement of notice, if the same events (as described in the
immediately preceding clause (b) with respect to the Manager) shall
have occurred with respect to KT.
(d) At the option of KT, if Net Income for two consecutive fiscal
years, beginning in 1999, is less than 75% of the Net Income contained
in the Annual Plan (established in accordance with Section 3.04) for
each such fiscal year.
6.02 Effect of Termination. Termination of this Agreement in
---------------------
accordance with this Article VI shall not affect the rights of the Manager or KT
with respect to any damages it has suffered as a result of any breach of this
Agreement, nor shall it affect the rights of the Manager
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<PAGE>
or KT with respect to any liabilities or claims accruing, or based upon events
occurring, prior to the date of termination.
ARTICLE VII
INDEMNIFICATION
---------------
7.01 Indemnification by KT. KT agrees to indemnify and hold the
---------------------
Manager harmless from and against any claim, demand, loss, damage, liability, or
expense (including reasonable attorneys' fees and expenses, but excluding
amounts owed by the Manager to its own employees as compensation for their
services) asserted against or incurred by the Manager arising out of or
resulting from (i) the good faith performance by the Manager of its duties and
obligations hereunder, provided that such performance is within the limitations
on the Manager's authority set forth in this Agreement and would not give rise
to a claim for indemnification by KT pursuant to Section 7.02, or (ii) any
default, breach, violation, or nonperformance by KT of this Agreement or of any
provisions contained herein.
7.02 Indemnification by the Manager. The Manager agrees to indemnify
------------------------------
and hold KT harmless from and against any claim, demand, loss, damage,
liability, or expense (including reasonable attorney's fees and expenses)
asserted against or incurred by KT and arising out of or resulting from any
default, breach, violation, or nonperformance by the Manager of this Agreement
or of any provision contained herein. Notwithstanding anything to the contrary
in this Agreement, KT agrees that the Manager shall not be liable, responsible,
or accountable in damages or otherwise to KT for any loss, damage, liability, or
expense incurred by KT for any expenditure made by the Manager in good faith in
the course of fulfilling its duties under this Agreement or in the settlement of
any claim arising out of the operation or management of the Newspapers, unless
any such expenditure is in contravention of this Agreement or any other
limitation on the Manager's authority set forth in this Agreement.
ARTICLE VIII
GENERAL
-------
8.01 Manager an Independent Contractor and Agent. The Manager shall
-------------------------------------------
serve as an independent contractor in rendering the services set forth herein
and shall not be an employee of KT. In the performance of its duties hereunder,
the Manager shall act solely as agent of KT and all debts and liabilities to
third persons incurred by the Manager on behalf of KT in accordance with this
Agreement and in the course of the operation and management of the Newspapers
shall be the debts and obligations of KT only.
8.02 Other Activities. Nothing in this Agreement shall limit or
----------------
restrict the right of the Manager or any Affiliate of the Manager, to engage in
any other business or to devote its time and attention to the management or
other aspects of any other business or to render services of any kind to any
corporation, firm, individual or association.
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<PAGE>
8.03 Notices. Except as expressly provided herein, notices and other
-------
communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed (certified or registered mail, postage
prepaid, return receipt requested) or sent by facsimile, as follows:
(i) If to KT, to:
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Telephone: (303) 267-4800
Telecopy: (303) 488-3245
Attention: Stephen M. Brett
With a copy (which copy shall not constitute
notice) addressed to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
Telephone: (212) 705-5000
Telecopy: (212) 705-5125
Attention: Lee D. Charles, Esq.
(ii) If to the Manager to:
The Salt Lake Tribune Publishing Company, LLC
143 South Main Street
Salt Lake City, Utah 84111
Telephone: (801) 237-2031
Telecopy: (801) 237-2022
Attention: Sharon E. Sonnenreich, Esq.
With a copy (which copy shall not constitute
notice) addressed to:
Jones, Waldo, Holbrook & McDonough
Suite 1500
170 South Main Street
Salt Lake City, Utah 84101
Telephone: (801) 521-3200
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<PAGE>
Telecopy: (801) 328-0537
Attention: Bruce E. Babcock, Esq.
or to such other address or attention of such other person as either party shall
advise the other in writing. All notices and other communications given to a
party in accordance with the provisions of this Agreement shall be deemed to
have been given (i) three business days after the same are sent by certified or
registered mail, postage prepaid, return receipt requested, (ii) when delivered
by hand or transmitted by facsimile (confirmation of transmission received) or
(iii) one business day after the same are sent by a reliable overnight courier
service, with acknowledgment of receipt.
8.04 Amendments and Waivers. This Agreement may be amended, modified,
----------------------
or canceled, and any terms, covenants, or conditions hereof may be waived, only
by a written instrument executed by the parties hereto or, in the case of a
waiver, by the party waiving noncompliance.
8.05 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties relating to the subject matter hereof, superseding
all prior agreements or undertakings oral or written.
8.06 Binding Effect; Assignment. Except as otherwise provided herein,
--------------------------
the terms of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Notwithstanding the foregoing, the obligations of the Manager under this
Agreement are personal to the Manager, and KT is entering into this Agreement in
reliance upon the Manager's expertise and knowledge in performing the Manager's
obligations hereunder. For the foregoing reasons, the Manager shall not
voluntarily or involuntarily, directly or indirectly, assign, otherwise transfer
or delegate its obligations under this Agreement and/or assign its interest in
this Agreement to any third party without the prior written consent of the KT,
which consent may be granted or withheld in KT's sole, subjective discretion.
The foregoing restriction shall not prohibit the Manager from contracting with
approved contractors and professionals to assist the Manager in the performance
of its obligations under this Agreement. Nothing in this Agreement, whether
express or implied, shall be construed to give any person (other than (i) the
parties hereto and their permitted successors and assigns and (ii) TCI and its
Affiliates as expressly provided in Section 3.02(xv)), any legal or equitable
right, remedy or claim under or in respect of this Agreement or any covenants or
provisions contained herein.
8.07 Costs and Attorneys' Fees. In the event either party hereto
-------------------------
commences a legal proceeding to enforce any of the terms of this Agreement, the
prevailing party in such action shall have the right to recover reasonable
attorneys' fees and costs from the other party at the discretion of the court in
which such action was decided. The term "legal proceeding" shall include
appeals from a lower court judgment. The "prevailing party" shall mean the
party that
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<PAGE>
prevails in obtaining a remedy or relief which most nearly reflects the remedy
or relief which the party sought.
8.08 Severability. If any provision of this Agreement or the
------------
application thereof to any person or circumstance shall to any extent be held in
any proceeding to be invalid or unenforceable, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those to which it was held to be invalid or unenforceable, shall not be affected
thereby, and each remaining provision shall be valid and enforced to the fullest
extent permitted by law.
8.09 No Waiver. No delay on the part of any party hereto in
---------
exercising any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party hereto of any right,
power, or privilege hereunder, nor shall any single or partial exercise of any
right, power, or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege hereunder.
8.10 Captions. Captions contained in this Agreement are inserted only
--------
as a matter of convenience and in no way define, limit, extend, or describe the
scope of this Agreement or the intent of any of its provisions.
8.11 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware without
reference to rules governing conflicts of law.
8.12 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be considered an original and all of which
shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
KEARNS-TRIBUNE CORPORATION
By:
-----------------------------------
Name:
Title:
THE SALT LAKE TRIBUNE
PUBLISHING COMPANY, LLC
By: , a member
-------------------------------
By:
-------------------------------------
Name:
Title:
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<PAGE>
Exhibit A
1. The Salt Lake Tribune
2. Lewiston Tribune
3. Sparks Tribune
4. Moscow Tribune
5. Whitman County Gazette
<PAGE>
Exhibit B
Name Office
- ---- ------
[ ] Chief Executive Officer
[ ] Chief Operating Officer
<PAGE>
EXHIBIT 99.3
[Form of]
OPTION AGREEMENT
----------------
THIS OPTION AGREEMENT (this "Agreement") is made and entered into this
day of , 1997, between Kearns-Tribune Corporation, a Utah corporation
("KT") and The Salt Lake Tribune Publishing Company, LLC, a Utah limited
liability company ("SLT").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, KT has entered into that certain Agreement and Plan of
Reorganization and Merger, dated as of April 18, 1997 (the "Merger Agreement"),
with Tele-Communications, Inc., a Delaware corporation ("TCI"), and TCI KT
Merger Sub, Inc., a Utah corporation ("TCI Sub"), pursuant to which TCI Sub will
merge with and into KT in connection with the acquisition of KT by TCI (the
"Merger");
WHEREAS, KT and SLT have entered into a Management Agreement, dated
__________, 1997 (the "Management Agreement"), pursuant to which KT has engaged
SLT to manage and operate the Newspapers (as defined in the Management
Agreement) owned by KT following the Merger;
WHEREAS, in connection with the transactions contemplated by the Merger
Agreement and as an inducement to SLT to enter into the Management Agreement, KT
has agreed to grant SLT an option to purchase certain assets of KT as set forth
herein;
NOW, THEREFORE, in consideration of the payment by SLT to KT of
$______________ and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows.
1. Grant of Option. KT hereby grants to SLT an option (the "Option") to
---------------
purchase all, and not less than all, of the assets listed on Exhibit A hereto
(the "Tribune Assets"), which assets constitute all of the assets used, held for
use or usable in connection with the operation and publication of The Salt Lake
Tribune.
2. Exercise Price.
--------------
a) The exercise price for the Option (the "Exercise Price") shall be
equal to the Fair Market Value of the Tribune Assets, determined on a going
concern or liquidation basis,
<PAGE>
whichever would yield the higher result, as of the last day of the month
preceding the month of the Notice Date (as defined in paragraph 4 below). The
term "Fair Market Value", when used with reference to the Tribune Assets, shall
mean the price at which a willing seller would sell, and a willing buyer (having
full knowledge of the facts) would buy, the Tribune Assets in an arms' length
auction transaction without time constraints and without being under any
compulsion to buy or sell.
(b) Whenever any determination of the Exercise Price is required to be made
pursuant to this Agreement, KT and SLT shall endeavor in good faith to agree on
such determination. If they are unable to agree within 10 days after the Notice
Date, each of KT and SLT shall appoint an individual or firm who is engaged as a
regular part of its business in valuing businesses similar in size and type to
that of KT (each, an "Appraiser"). If either KT or SLT shall fail to appoint an
Appraiser within such period, then the Appraiser appointed by the other party
shall designate the Appraiser which such first party was entitled to appoint.
Promptly after the delivery of the reports of each Appraiser pursuant to
paragraph 2(c) below, the various Fair Market Values of the Tribune Assets set
forth in such reports (the "Appraised Values") shall be compared. If the higher
of the two Appraised Values is not greater than 110% of the lower Appraised
Value, then the Fair Market Value of the Tribune Assets shall be equal to the
average of the two Appraised Values; however if the higher Appraised Value is
greater than 110% of the lower Appraised Value, then such two Appraisers shall
jointly select a third Appraiser (who shall be a person or entity who is not
then providing advisory services to KT, TCI or SLT), and in such case the Fair
Market Value of the Tribune Assets shall be equal to the average of the two
closest Appraised Values reported by the three Appraisers, provided, however,
-------- -------
that if the highest and the lowest of such three Appraised Values differ from
middle by an equal amount, then the Fair Market Value of the Tribune Assets
shall be equal to such middle determination.
(c) Each of KT and SLT shall use reasonable efforts to cause its designated
Appraiser to deliver its report setting forth its determination of the Fair
Market Value of the Tribune Assets within forty-five days of its selection. If,
pursuant to paragraph 2(b), a third appraisal is required to determine the Fair
Market Value of the Tribune Assets, each of KT and SLT shall use reasonable
efforts to cause its designated Appraiser to promptly take all action necessary
for the joint selection of the third Appraiser and to make available to such
third Appraiser its work product relating to its determination of the Appraised
Value, and shall take all reasonable actions which are necessary in order to
cause such third Appraiser to deliver its report as early as possible and in any
event within 20 days of its selection.
(d) Each determination of the Fair Market Value of the Tribune Assets by
the agreement of KT and SLT or in accordance with the appraisal provisions of
this paragraph 2 shall be final, binding and conclusive.
(e) The fees and expenses of each Appraiser shall be paid by the party
selecting such Appraiser, and if a third Appraiser is required, the fees and
expenses of such third Appraiser shall be borne equally by KT and SLT.
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<PAGE>
3. Exercise Period of Option. Unless sooner terminated pursuant to
-------------------------
paragraph 7 hereof, the Option shall be exercisable at any time after the fifth
anniversary of the date of this Agreement and shall remain exercisable
thereafter for so long as the Management Agreement remains in effect and for a
period of ten days thereafter. Notwithstanding the foregoing, if for any reason
the Management Agreement is terminated prior to the fifth anniversary of the
date of this Agreement, then the Option shall become exercisable on the fifth
anniversary of the date of the Management Agreement and SLT shall have the right
for a period of sixty (60) days from such date to exercise the Option at the
Exercise Price.
4. Exercise of Options. SLT may exercise the Option by giving written
-------------------
notice (the date of such notice being herein called the "Notice Date") to KT
within the period set forth in paragraph 3 or 7 hereof, as applicable. Such
notice shall specify a place and date (not later than 120 days following the
Notice Date) for closing such purchase (the "Closing"). Notwithstanding the
foregoing, the time period specified for the Closing shall be extended to a date
within 5 days following the receipt by KT and SLT of all material governmental
approvals which may be required, and the expiration of all applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 or other
applicable laws or regulations, in connection with the exercise of the Option.
5. Closing. At the Closing, (a) SLT shall pay the Exercise Price for the
-------
Option (determined in accordance with paragraph 2 hereof) by wire transfer in
immediately available funds to an account designated by KT by written notice to
SLT, and (b) KT shall sell, assign, convey and transfer to SLT all of KT's
right, title and interest in and to the Tribune Assets, free and clear of all
liens, claims and encumbrances. KT shall execute and deliver to SLT at the
Closing such bills of sale, deeds and other documents and instruments of
conveyance as counsel for SLT shall reasonably request in order to sell, assign,
convey and transfer title to the Tribune Assets to SLT.
6. Agreement Not to Sell. Prior to the fifth anniversary of the date of
---------------------
this Agreement, KT agrees not to sell or otherwise transfer the Tribune Assets
to any other person or entity except (i) to an entity controlled by or under
common control with KT, provided such entity agrees to be bound by this
Agreement, and (ii) for sales or transfers in the ordinary course of the
business of operating and publishing The Salt Lake Tribune. Notwithstanding the
foregoing, nothing contained herein shall prohibit or restrict the ability of KT
to pledge, grant a security interest in or otherwise encumber the Tribune
Assets.
7. Right of First Refusal. If at any time during the period from the
----------------------
fifth anniversary of the date of this Agreement to the tenth anniversary of the
date of this Agreement (unless sooner terminated pursuant to the last sentence
in this paragraph 7), KT receives a bona fide offer in writing to purchase the
Tribune Assets (an "Offer"), KT shall not consummate the sale of the Tribune
Assets pursuant to such Offer without first complying with the provisions of
this paragraph 7. Promptly after its receipt of an Offer, KT shall give SLT
written notice thereof (an "Offer Notice") which shall state the name of the
proposed purchaser, the price to be paid for
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<PAGE>
the Tribune Assets by the proposed purchaser and any other material terms and
conditions of the Offer. SLT shall have the right for a period of sixty (60)
days after its receipt of the Offer Notice to exercise the Option to purchase
the Tribune Assets at the Exercise Price. If, in response to an Offer Notice,
SLT elects to exercise the Option, it shall provide KT with written notice
thereof in accordance with paragraph 4 and shall purchase the Tribune Assets at
the Closing. In the event (i) SLT does not exercise the Option within the sixty
(60) day period following the delivery of an Offer Notice, or (ii) if the Option
is so exercised but SLT does not tender to KT the Exercise Price at the Closing
(other than by a reason of a breach by KT of its obligations under this
Agreement), then in any such event the Option shall terminate and KT shall have
the right to sell the Tribune Assets to the proposed purchaser on the terms set
forth in the Offer; provided, however, that if such sale to the proposed
-------- -------
purchaser is not consummated within ninety (90) days following the delivery of
the Offer Notice, KT shall not sell the Tribune Assets without again complying
with the provisions of this paragraph 7.
8. Notices. Except as expressly provided herein, notices and other
-------
communications provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed (certified or registered mail, postage
prepaid, return receipt requested) or sent by facsimile, as follows:
(i) If to KT, to:
c/o Tele-Communications, Inc.
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111-3000
Telephone: (303) 267-4800
Telecopy: (303) 488-3245
Attention: Stephen M. Brett
With a copy (which copy shall not constitute
notice) addressed to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
Telephone: (212) 705-5000
Telecopy: (212) 705-5125
Attention: Lee D. Charles, Esq.
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<PAGE>
(i) If to SLT to:
The Salt Lake Tribune Publishing Company, LLC
143 South Main Street
Salt Lake City, Utah 84111
Telephone: (801) 237-2031
Telecopy: (801) 237-2022
Attention: Sharon E. Sonnenreich, Esq.
With a copy (which copy shall not constitute notice)
addressed to:
Jones, Waldo, Holbrook & McDonough
1500 First Interstate Plaza
170 South Main Street
Salt Lake City, Utah 84101
Attention: Bruce E. Babcock, Esq.
or to such other address or attention of such other person as either party shall
advise the other in writing. All notices and other communications given to a
party in accordance with the provisions of this Agreement shall be deemed to
have been given (i) three business days after the same are sent by certified or
registered mail, postage prepaid, return receipt requested, (ii) when delivered
by hand or transmitted by facsimile (confirmation of transmission received) or
(iii) one business day after the same are sent by a reliable overnight courier
service, with acknowledgment of receipt.
9. Amendments and Waivers. This Agreement may be amended, modified, or
----------------------
canceled, and any terms, covenants, or conditions hereof may be waived, only by
a written instrument executed by the parties hereto or, in the case of a waiver,
by the party waiving noncompliance.
10. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties relating to the subject matter hereof, superseding all prior
agreements or undertakings oral or written.
11. Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of the parties hereto and nothing in this Agreement,
express or implied, is intended to or shall confer upon any person any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
12. Severability. If any provision of this Agreement or the application
------------
thereof to any person or circumstance shall to any extent be held in any
proceeding to be invalid or
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<PAGE>
unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those to which it was held to
be invalid or unenforceable, shall not be affected thereby, and each remaining
provision shall be valid and enforced to the fullest extent permitted by law.
13. Equitable Remedies. The parties agree that irreparable damage would
------------------
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States, in addition to any other remedy to which they are entitled at law
or in equity.
14. Captions. Captions contained in this Agreement are inserted only as a
--------
matter of convenience and in no way define, limit, extend, or describe the scope
of this Agreement or the intent of any of its provisions.
15. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware without reference to rules
governing conflicts of law.
16. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be considered an original and all of which
shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
KEARNS-TRIBUNE CORPORATION
By:
-----------------------------------------
Name:
Title:
THE SALT LAKE TRIBUNE
PUBLISHING COMPANY, LLC
By: , a member
-------------------------------
By:
-------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT 99.4
KEARNS-TRIBUNE CORPORATION
400 TRIBUNE BUILDING
SALT LAKE CITY, UTAH 84111
April 18, 1997
Dr. John C. Malone
12750 Pine Drive
Parker, Colorado 80134
Dear Dr. Malone:
In connection with transactions contemplated by the Agreement and Plan
of Merger, dated as of April 18, 1997, among Kearns-Tribune Corporation ("KT"),
Tele-Communications, Inc. ("TCI") and TCI KT Merger Sub, Inc. (the "Merger
Agreement"), you have asserted certain rights under the letter agreement, dated
June 17, 1988, among you, KT and Bob Magness (the Letter Agreement"). Without
taking any position with respect to your interpretation, by our execution
hereunder, we agree that immediately prior to the Effective Time (as defined in
the Merger Agreement) and provided that all conditions precedent to KT's
obligation to consummate the merger have been satisfied or waived, you may
acquire from KT (i) all of the shares of Tele-Communications, Inc. Series B TCI
Group Common Stock ("TCI Series B Stock") owned by KT in exchange for your
delivery to KT of an equal number of shares of Tele-Communications, Inc. Series
A TCI Group Common Stock, and (ii) all of the shares of Tele-Communications,
Inc. Series B Liberty Media Group Common Stock ("LMG Series B Stock") owned by
KT in exchange for your delivery to KT of an equal number of shares of Tele-
Communications, Inc. Series A Liberty Media Group Common Stock. It is further
agreed that you may elect to acquire all, any portion, or any combination of
such shares of TCI Series B Stock and LMG Series B Stock as provided above and
that you are under no obligation to acquire any such shares. In the event the
Merger Agreement is terminated, this Agreement shall also terminate and have no
effect on the validity or enforceability of the Letter Agreement.
If the foregoing accurately reflects our agreement, please so indicate
by executing and returning a counterpart of this letter.
Very truly yours,
KEARNS-TRIBUNE CORPORATION
By: /s/ Dominic A. Welch
----------------------
Name: Dominic A. Welch
Title: President
ACCEPTED AND AGREED
this 18th day of April, 1997
/s/ John C. Malone
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John C. Malone
